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> Right, we are not concerned with protecting short-sellers who spend all day on twitter making up negative stories about their targets. This doesn't make sens

> Right, we are not concerned with protecting short-sellers who spend all day on twitter making up negative stories about their targets. This doesn't make sense. We don't go after them because they don't have any authoritative powers/inside knowledge about the company, so a reader cannot be misled by them. If an exec of a company short sells a huge chunk of the company and plants a misleading negative story about the company, SEC will go after them too.

zekevermillion 8y ago
What I mean is, we are concerned with price manipulation. But the theoretical harm of price manipulation is that some investor has overpaid based on the intentionally misleading $420 tweet. The SEC is not primarily trying to protect Jim Chanos from getting screwed on his short position. It is trying to protect the "investing public" more generally. When they talk about damages it's not going to be damages suffered by the shorts. It will be damages suffered by investors who overpaid based on $420 expectation. Note that you are actually wrong about 10b5 here, Jim Chanos can very well commit a 10b5 violation without being an insider. Securities fraud does not depend on fiduciary status of the perpetrator, and while insider trading is fraud, there are many other types of fraud as well. edit: Jim Chanos is too smart to commit a 10b5 violation. I am just using him as a hypothetical example!
- rohit2412 8y ago
  Price manipulation hurts short sellers by causing "short burn of the century"
  - zekevermillion 8y ago
    Yeah, and I believe some of the shorts may have cause to sue (or have already?) directly. But I tend to think the SEC's focus as to damages is not going to be that Elon screwed the shorts. It's going to be that some people bought shares of Tesla at too high a price. I could be wrong, maybe this is more of a general "integrity of markets" kind of thing, and the SEC doesn't care about direct harm at all, they just want to deter other aspiring short slayers out there.
    - _drimzy 8y ago
      Yeah I would be surprised if SEC treats short-sellers as different from investors. The general tone you are maintaining is short sellers are some sort of abominable gamblers who thrive on failures of other investors. Uh, no. A short seller is just another investor investing using the tools the market provides.
      - rohit2412 8y ago
        Exactly. I find it hilarious that some people think that SEC should make sure that a certain category of investors be in profit. Nopes, SEC makes sure that laws and regulations are followed. Investigations in Enron also led to people losing money.
        zekevermillion 8y ago
        Unfortunately your notion of the SEC as neutral referee for a fair market is not reality. The SEC lacks the resources to enforce the law consistently even within a narrow mandate. Its approach is to target specific violators as a deterrant and/or to make known what it considers to be the proper interpretation of securities laws. Some people consider this to be a major defect in US securities enforcement regime and suggest that the SEC should be resourced appropriately to the immense task. Personally I have no idea what they would need to more systematically pursue violators, but wild guess would be a couple orders of magnitude more funding and personnel. In the realm of securities fraud, I would say that the private securities bar does about 90% of the impact (in terms of judgments and settlements). And successful criminal referrals a la Enron are quite rare, proportional to the actual amount of fraud going on. By the way, Enron was a fraud against its own investors. Enron was not about fraud against short-sellers, it was fraud against purchasers of Enron stock. Not that short-sellers don't deserve honesty, just saying that they do not typically receive much love from regulators. From what I can tell, it seems this is not solely due to the disposition of said regulators, but also because of legal uncertainty around short-sellers' rights under securities laws.
      - zekevermillion 8y ago
        There was no "tone" intended. I was making a falsifiable prediction that the SEC would not penalize Musk or Tesla based on the harm suffered by short-sellers, but rather based on the harm suffered by purchasers of Tesla stock who "overpaid". Looking at the modest size of the civil settlement, we now have enough information to say that my prediction was NOT falsified by events. As I also pointed out, this does not mean that one cannot commit fraud vs a short-seller. However, from what I gather, the rights of short-sellers under 10b-5, based on a "fraud on the market" theory, are rather murky in established caselaw and differ between federal circuits.

zekevermillion 8y ago

What I mean is, we are concerned with price manipulation. But the theoretical harm of price manipulation is that some investor has overpaid based on the intentionally misleading $420 tweet. The SEC is not primarily trying to protect Jim Chanos from getting screwed on his short position. It is trying to protect the "investing public" more generally. When they talk about damages it's not going to be damages suffered by the shorts. It will be damages suffered by investors who overpaid based on $420 expectation. Note that you are actually wrong about 10b5 here, Jim Chanos can very well commit a 10b5 violation without being an insider. Securities fraud does not depend on fiduciary status of the perpetrator, and while insider trading is fraud, there are many other types of fraud as well. edit: Jim Chanos is too smart to commit a 10b5 violation. I am just using him as a hypothetical example!

rohit2412 8y ago
Price manipulation hurts short sellers by causing "short burn of the century"
- zekevermillion 8y ago
  Yeah, and I believe some of the shorts may have cause to sue (or have already?) directly. But I tend to think the SEC's focus as to damages is not going to be that Elon screwed the shorts. It's going to be that some people bought shares of Tesla at too high a price. I could be wrong, maybe this is more of a general "integrity of markets" kind of thing, and the SEC doesn't care about direct harm at all, they just want to deter other aspiring short slayers out there.
  - _drimzy 8y ago
    Yeah I would be surprised if SEC treats short-sellers as different from investors. The general tone you are maintaining is short sellers are some sort of abominable gamblers who thrive on failures of other investors. Uh, no. A short seller is just another investor investing using the tools the market provides.
    - rohit2412 8y ago
      Exactly. I find it hilarious that some people think that SEC should make sure that a certain category of investors be in profit. Nopes, SEC makes sure that laws and regulations are followed. Investigations in Enron also led to people losing money.
      - zekevermillion 8y ago
        Unfortunately your notion of the SEC as neutral referee for a fair market is not reality. The SEC lacks the resources to enforce the law consistently even within a narrow mandate. Its approach is to target specific violators as a deterrant and/or to make known what it considers to be the proper interpretation of securities laws. Some people consider this to be a major defect in US securities enforcement regime and suggest that the SEC should be resourced appropriately to the immense task. Personally I have no idea what they would need to more systematically pursue violators, but wild guess would be a couple orders of magnitude more funding and personnel. In the realm of securities fraud, I would say that the private securities bar does about 90% of the impact (in terms of judgments and settlements). And successful criminal referrals a la Enron are quite rare, proportional to the actual amount of fraud going on. By the way, Enron was a fraud against its own investors. Enron was not about fraud against short-sellers, it was fraud against purchasers of Enron stock. Not that short-sellers don't deserve honesty, just saying that they do not typically receive much love from regulators. From what I can tell, it seems this is not solely due to the disposition of said regulators, but also because of legal uncertainty around short-sellers' rights under securities laws.
    - zekevermillion 8y ago
      There was no "tone" intended. I was making a falsifiable prediction that the SEC would not penalize Musk or Tesla based on the harm suffered by short-sellers, but rather based on the harm suffered by purchasers of Tesla stock who "overpaid". Looking at the modest size of the civil settlement, we now have enough information to say that my prediction was NOT falsified by events. As I also pointed out, this does not mean that one cannot commit fraud vs a short-seller. However, from what I gather, the rights of short-sellers under 10b-5, based on a "fraud on the market" theory, are rather murky in established caselaw and differ between federal circuits.