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 beco

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-...