4 ms·

Explain to me how this is not market manipulation and securities fraud?

ringaroundthetx 9y ago
It just depends on how you do it. Just because you have more money than the liquidity of the market doesn't mean your buy and sells are market manipulation. I have bought things on the open market 100% above the prior market price, when I wanted them. Moving the asset's price 100% and sure enough many out of the loop people started FOMOing and buying more. Its the same principle for bearish positions too. In the securities market you can talk about your bullish or bearish rationale, and avoid sanctioning from regulators or private persons by disclosing your position. Ackman doubled down on that logic and did it very publicly. Although this is more a problem for bearish positions, the statements can't be lies or "intentionally misleading". In the past there were many naked shorts, where fake shares were sold into the public market causing impossible selling pressure. That is illegal now, for the most part, and as long as you aren't doing that it helps make sure you aren't manipulating the market, by the legal standard. Again, just because you can have an outsize affect on the price of the market and the mere presence of creating an advantageous circumstance, doesn't make it market manipulation or securities fraud.
williamscales 9y ago
Explain to me the case that it could be considered as such?
- blunte 9y ago
  When you are such a big name in finance, your public statements can be judged as attempts to influence the market. And if you furthermore pay lobbyists, do advertising, and give many presentations, it is clearly going to have an impact.
  - valuearb 9y ago
    We live in a free society that values free speech. We should be cautious when limiting it. In the case of market influence, it should be fine as long as there is full disclosure. In fact insider trading is perfectly legal as long as it's done with disclosure statements.
    - blunte 9y ago
      Fortunately, the legal system does sometimes consider intent. While the letter of the law may be followed, if the intent is obviously against the spirit of the law, the courts have some leeway to judge accordingly.
  - prostoalex 9y ago
    Activist shorting is a cottage industry and has its fair share of participants on both sides of the bet. People like Ackman or Cohen or Left are far from being followed and blindly copied, like Warren Buffett or even Jim Cramer. The followers realize that the shorts act first and go public second, therefore any potential upside is likely to be already priced in, leaving very slim pickings for a tag-along investor. The opponents at the same time will try to orchestrate a short squeeze, and they are in somewhat more beneficial position. Not only the short squeezers act on public information (the size of the short interest), they need to find just one factual error in short's thesis and then play that up. The activist short, once public, has to be 100% right with each and every statement - any sign of weakness is just an open invitation to join a short squeeze.
harryh 9y ago
There is nothing fraudulent about shorting a stock, telling people you shorted the stock, and telling them why you shorted the stock. (the same goes for going long a stock)
- zaroth 9y ago
  Correct. It becomes decisively illegal if you create fake identities to similarly spout your nonsense.

It just depends on how you do it. Just because you have more money than the liquidity of the market doesn't mean your buy and sells are market manipulation. I have bought things on the open market 100% above the prior market price, when I wanted them. Moving the asset's price 100% and sure enough many out of the loop people started FOMOing and buying more. Its the same principle for bearish positions too. In the securities market you can talk about your bullish or bearish rationale, and avoid sanctioning from regulators or private persons by disclosing your position. Ackman doubled down on that logic and did it very publicly. Although this is more a problem for bearish positions, the statements can't be lies or "intentionally misleading". In the past there were many naked shorts, where fake shares were sold into the public market causing impossible selling pressure. That is illegal now, for the most part, and as long as you aren't doing that it helps make sure you aren't manipulating the market, by the legal standard. Again, just because you can have an outsize affect on the price of the market and the mere presence of creating an advantageous circumstance, doesn't make it market manipulation or securities fraud.

williamscales 9y ago

Explain to me the case that it could be considered as such?

blunte 9y ago
When you are such a big name in finance, your public statements can be judged as attempts to influence the market. And if you furthermore pay lobbyists, do advertising, and give many presentations, it is clearly going to have an impact.
- valuearb 9y ago
  We live in a free society that values free speech. We should be cautious when limiting it. In the case of market influence, it should be fine as long as there is full disclosure. In fact insider trading is perfectly legal as long as it's done with disclosure statements.
  - blunte 9y ago
    Fortunately, the legal system does sometimes consider intent. While the letter of the law may be followed, if the intent is obviously against the spirit of the law, the courts have some leeway to judge accordingly.
- prostoalex 9y ago
  Activist shorting is a cottage industry and has its fair share of participants on both sides of the bet. People like Ackman or Cohen or Left are far from being followed and blindly copied, like Warren Buffett or even Jim Cramer. The followers realize that the shorts act first and go public second, therefore any potential upside is likely to be already priced in, leaving very slim pickings for a tag-along investor. The opponents at the same time will try to orchestrate a short squeeze, and they are in somewhat more beneficial position. Not only the short squeezers act on public information (the size of the short interest), they need to find just one factual error in short's thesis and then play that up. The activist short, once public, has to be 100% right with each and every statement - any sign of weakness is just an open invitation to join a short squeeze.

harryh 9y ago

There is nothing fraudulent about shorting a stock, telling people you shorted the stock, and telling them why you shorted the stock. (the same goes for going long a stock)

zaroth 9y ago
Correct. It becomes decisively illegal if you create fake identities to similarly spout your nonsense.