To your question of "Who would pay the shortseller's profit?": in most cases, shorting a stock isn't causing more cumulative loss[1]. There's no additional "pay

To your question of "Who would pay the shortseller's profit?": in most cases, shorting a stock isn't causing more cumulative loss[1]. There's no additional "payment" or transferred gain. Shorting lets the market incorporate the collective doubt earlier than it could otherwise, but it's the same "payment" (share price change). One could make a strong argument that shorting prevents some shareholders from taking a much bigger loss. Some shareholders would have purchased in this hypothetical run-up that short sales would soften. When "it turns out this company is worth much less that they hoped and payed for," those shareholders would lose more because the difference between what they paid and what it's worth would be larger. That's particularly true for the quintessential long-term retail investor who fundamentally believes in the company. That person is likely going to own it until the company's product is proven or disproven, and the fluctuations in between aren't going to affect them (other than as above, if they bought at an inflated price). Shorting also creates an incentive for skepticism. One could argue that, if Theranos' technology doesn't work, making it harder and more expensive (dilutive) for them to raise money is a service to society. [1]: an arguable exception is shorting solely to make other investors lose confidence (rather than due to a negative view of the company). However (a) that's not the case here, (b) often it's actually the undiscovered seed of a real issue (someone has to be first..), and (c) shorting enough of a stock to meaningfully depress it is much, much tougher to do than it sounds, since the short investor will need to purchase/repay shares at some point, the possible exposure when they do is unbounded, and they'll need capital to cover their unrealized loss in the interim. This is not a trade anyone takes lightly.