4 ms·

Not looking for legal advice, but do you know of anything wrong with investigating in order to create a situation that would move the stock? For example, testi

by TACIXAT 10y ago

Not looking for legal advice, but do you know of anything wrong with investigating in order to create a situation that would move the stock? For example, testing Lumber Liquidators wood for chemicals or reverse engineering (assume legally) Volkswagen ECM code.

CapitalistCartr 10y ago
You risk becoming an insider, or conspiracy/RICO charges. Your idea would, at the least, require an excellent attorney as advisor. Also, the most likely outcome is finding nothing. You know those two in hindsight. How many investigations came up dry holes?
- amock 10y ago
  How could either of those situations make someone an insider or have anything to do with RICO? Buying a product and testing it is something anyone can do and doesn't require any inside information.
  - CapitalistCartr 10y ago
    In US courts intent matters. If you can be shown to have intended the scandal to manipulate the stock, the courts consider that. To know whom and what to investigate, you had to talk to someone in the know. Almost always, someone inside. For a journalist, this is fine. But to accomplish this, you had to talk about it. Along with intent, especially if you've it done more than once, this suggests conspiracy and even RICO. Which an aggressive prosecutor will use to threaten one of you to convict the rest. I forget how much HN wants the law to work like code. It does not. Intent matters. Circumstances matter. Context matters. Of course, money does, too.
mikeyouse 10y ago
Many shortsellers do this successfully without issue.. The historic way was to just do really intense due diligence into the financials, but lately they're becoming more sophisticated to find companies lying about their books. A fun example was a short seller counting the number of trucks leaving a factory to prove that the order volume was being inflated. Another fun one is using daily satellite photos to estimate how many cars are in the parking lots of retail establishments. In the US, this is all legal -- as long as you're not breaking laws to collect the data, you're free to trade on any info you collect. Unfortunately, many of the unscrupulous publicly traded companies are Chinese and the laws are much more fluid around embarrassing companies there. A good article: http://www.reuters.com/article/china-shortsellers-idUSL4E8K419520120906 http://www.reuters.com/article/china-shortsellers-idUSL4E8K4... Or see any research by Muddy Waters (among many other short sellers): http://money.cnn.com/2012/05/02/markets/muddy-waters-carson-block/ http://money.cnn.com/2012/05/02/markets/muddy-waters-carson-...
downandout 10y ago
Definitely not illegal. This decidedly critical site [1] was created by a $12 billion hedge fund - Pershing Square Capital Management, run by Bill Ackman. At the time they made this site, they had a ~$1 billion short position in the company's stock. [1] https://www.factsaboutherbalife.com/ https://www.factsaboutherbalife.com/
- Bromskloss 10y ago
  How did that work out for them?
  - downandout 10y ago
    I believe they are currently losing several hundred million dollars in this particular trade. But this kind of tactic works on companies where the problems pointed out by the short seller are both real and appreciable by the general investing public.
beat 10y ago
This makes me think of the plot of Casino Royale, where an international money launderer (more or less a hedge fund manager) tries to blow up a plane in order to send its maker's stock plummeting. More on point, some anonymous investors made billions shorting airlines on 9/11. That's like a perfect storm of insider trading ("As long as we're wrecking the airline industry with a terrorist act, let's short some stock on it make a bundle!").
- JBReefer 10y ago
  Got a source for the 9/11 claim? If true, that seems like it would have been quite the storm.
  - beat 10y ago
    http://www.sfgate.com/business/article/Data-shows-heavy-airline-stock-short-selling-2876345.php http://www.sfgate.com/business/article/Data-shows-heavy-airl...
  - mikeyouse 10y ago
    It's been disproven -- The 'billions' made in shorts were just a hedge against a much larger long position that was initiated. The 9/11 Commission did a pretty detailed investigation that Snopes covered here: http://www.snopes.com/rumors/putcall.asp http://www.snopes.com/rumors/putcall.asp

by TACIXAT 10y ago

CapitalistCartr 10y ago

You risk becoming an insider, or conspiracy/RICO charges. Your idea would, at the least, require an excellent attorney as advisor. Also, the most likely outcome is finding nothing. You know those two in hindsight. How many investigations came up dry holes?

amock 10y ago
How could either of those situations make someone an insider or have anything to do with RICO? Buying a product and testing it is something anyone can do and doesn't require any inside information.
- CapitalistCartr 10y ago
  In US courts intent matters. If you can be shown to have intended the scandal to manipulate the stock, the courts consider that. To know whom and what to investigate, you had to talk to someone in the know. Almost always, someone inside. For a journalist, this is fine. But to accomplish this, you had to talk about it. Along with intent, especially if you've it done more than once, this suggests conspiracy and even RICO. Which an aggressive prosecutor will use to threaten one of you to convict the rest. I forget how much HN wants the law to work like code. It does not. Intent matters. Circumstances matter. Context matters. Of course, money does, too.

mikeyouse 10y ago

Many shortsellers do this successfully without issue.. The historic way was to just do really intense due diligence into the financials, but lately they're becoming more sophisticated to find companies lying about their books. A fun example was a short seller counting the number of trucks leaving a factory to prove that the order volume was being inflated. Another fun one is using daily satellite photos to estimate how many cars are in the parking lots of retail establishments. In the US, this is all legal -- as long as you're not breaking laws to collect the data, you're free to trade on any info you collect. Unfortunately, many of the unscrupulous publicly traded companies are Chinese and the laws are much more fluid around embarrassing companies there. A good article: http://www.reuters.com/article/china-shortsellers-idUSL4E8K419520120906 http://www.reuters.com/article/china-shortsellers-idUSL4E8K4... Or see any research by Muddy Waters (among many other short sellers): http://money.cnn.com/2012/05/02/markets/muddy-waters-carson-block/ http://money.cnn.com/2012/05/02/markets/muddy-waters-carson-...

downandout 10y ago

Definitely not illegal. This decidedly critical site [1] was created by a $12 billion hedge fund - Pershing Square Capital Management, run by Bill Ackman. At the time they made this site, they had a ~$1 billion short position in the company's stock. [1] https://www.factsaboutherbalife.com/ https://www.factsaboutherbalife.com/

Bromskloss 10y ago
How did that work out for them?
- downandout 10y ago
  I believe they are currently losing several hundred million dollars in this particular trade. But this kind of tactic works on companies where the problems pointed out by the short seller are both real and appreciable by the general investing public.

beat 10y ago

This makes me think of the plot of Casino Royale, where an international money launderer (more or less a hedge fund manager) tries to blow up a plane in order to send its maker's stock plummeting. More on point, some anonymous investors made billions shorting airlines on 9/11. That's like a perfect storm of insider trading ("As long as we're wrecking the airline industry with a terrorist act, let's short some stock on it make a bundle!").

JBReefer 10y ago
Got a source for the 9/11 claim? If true, that seems like it would have been quite the storm.
- beat 10y ago
  http://www.sfgate.com/business/article/Data-shows-heavy-airline-stock-short-selling-2876345.php http://www.sfgate.com/business/article/Data-shows-heavy-airl...
- mikeyouse 10y ago
  It's been disproven -- The 'billions' made in shorts were just a hedge against a much larger long position that was initiated. The 9/11 Commission did a pretty detailed investigation that Snopes covered here: http://www.snopes.com/rumors/putcall.asp http://www.snopes.com/rumors/putcall.asp