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There was a case study of short selling on NPR's Planet Money a few weeks ago: http://www.npr.org/2015/01/30/382587945/winning-at-short-selling-may-not-be-a-rea

There was a case study of short selling on NPR's Planet Money a few weeks ago: http://www.npr.org/2015/01/30/382587945/winning-at-short-selling-may-not-be-a-reason-to-celebrate http://www.npr.org/2015/01/30/382587945/winning-at-short-sel... Basically, the guy discovered a Chinese test prep company (think College Board) that had recently started to be listed on American stock exchanges, and discovered that their payment system returned an error. He emailed their support address, and it bounced. He hired a guy on Craigslist to go look at their business address in China, and it was discovered to be empty. He shorted the ever living crap out of the stock, broke the news, and won big.

pavel_lishin 12y ago
Odd, it doesn't appear to be on their podcast :/
- DavidAdams 12y ago
  I heard the story on the podcast, so I'd think it's still available.
- twoodfin 12y ago
  Pretty sure it's this one: http://www.npr.org/blogs/money/2015/01/21/378851598/episode-597-were-short-america http://www.npr.org/blogs/money/2015/01/21/378851598/episode-...
  - pavel_lishin 12y ago
    Thanks!
jared314 12y ago
> He shorted the ever living crap out of the stock, broke the news, and won big. Wait, I thought shorting meant he effectively sold shares to some other, unfortunate, investor. It sounds like he participated in a pump and dump scheme/scam.
- syntheticcdo 12y ago
  The short seller did nothing wrong. Shorting simply means he borrowed the stock in order to sell it-- sell high, wait for the price to drop, then buy low in order to return the shares to the lender. The buyer on the other side of the short sale should have done more due diligence. No one forced them (be it a person or an institution) to take up that position. The Chinese company (or some affiliate) was the one who had pumped the stock up. The short seller was just a regular market participant who was rewarded for his hard work and diligence.
  - jared314 12y ago
    If you listen to the story, he shorted the stock, knowing it was a fraud, and then exposed it. He knowingly created more victims of the scam.
    - karmacondon 12y ago
      His short position added information to the market. At least in theory, other investors could have asked "Why does this person think that this company is less worth than it's current value?" and done their own research. The short position provided incentive for him to expose the fraud publicly. It would have been nice if he'd done this research and told everyone about his findings out of the goodness of his heart, but that's a lot of work for little personal reward. The ability to short provided an additional incentive to make the information as public as possible.
- saidajigumi 12y ago
  > Wait, I thought shorting meant he effectively sold shares to some other, unfortunate, investor. Why should we give a pass to investors willing to expose themselves to excessive risk from being uninformed about their investments? Let's look further at this short selling behavior as it scales. What happens if investigative short-sellers become muckrakers noveau: sufficiently pervasive and influential that they collectively become the market "conscience" that so often seems missing?
  - 12y ago
analog31 12y ago
Did he engage in insider trading? He traded on material, non-public information, although one could certainly argue that the non-existence of a business is public information.
- koenigdavidmj 12y ago
  Attempting and failing to buy your product is one of the most public bits of information there is. Observing the lack of any activity at your claimed corporate headquarters is pretty public too.
- eru 12y ago
  If you wanted to follow in the guy's footsteps, you might want to move a jurisdiction that's more accommodating of insider trading?
- evanpw 12y ago
  You have to get the information in breach of a duty of confidentiality (and in exchange for some personal benefit) in order for it to be illegal, at least in the US. If you discover something on your own, you're free to trade on it.

pavel_lishin 12y ago

Odd, it doesn't appear to be on their podcast :/

DavidAdams 12y ago
I heard the story on the podcast, so I'd think it's still available.
twoodfin 12y ago
Pretty sure it's this one: http://www.npr.org/blogs/money/2015/01/21/378851598/episode-597-were-short-america http://www.npr.org/blogs/money/2015/01/21/378851598/episode-...
- pavel_lishin 12y ago
  Thanks!

jared314 12y ago

> He shorted the ever living crap out of the stock, broke the news, and won big. Wait, I thought shorting meant he effectively sold shares to some other, unfortunate, investor. It sounds like he participated in a pump and dump scheme/scam.

syntheticcdo 12y ago
The short seller did nothing wrong. Shorting simply means he borrowed the stock in order to sell it-- sell high, wait for the price to drop, then buy low in order to return the shares to the lender. The buyer on the other side of the short sale should have done more due diligence. No one forced them (be it a person or an institution) to take up that position. The Chinese company (or some affiliate) was the one who had pumped the stock up. The short seller was just a regular market participant who was rewarded for his hard work and diligence.
- jared314 12y ago
  If you listen to the story, he shorted the stock, knowing it was a fraud, and then exposed it. He knowingly created more victims of the scam.
  - karmacondon 12y ago
    His short position added information to the market. At least in theory, other investors could have asked "Why does this person think that this company is less worth than it's current value?" and done their own research. The short position provided incentive for him to expose the fraud publicly. It would have been nice if he'd done this research and told everyone about his findings out of the goodness of his heart, but that's a lot of work for little personal reward. The ability to short provided an additional incentive to make the information as public as possible.
saidajigumi 12y ago
> Wait, I thought shorting meant he effectively sold shares to some other, unfortunate, investor. Why should we give a pass to investors willing to expose themselves to excessive risk from being uninformed about their investments? Let's look further at this short selling behavior as it scales. What happens if investigative short-sellers become muckrakers noveau: sufficiently pervasive and influential that they collectively become the market "conscience" that so often seems missing?
- 12y ago

analog31 12y ago

Did he engage in insider trading? He traded on material, non-public information, although one could certainly argue that the non-existence of a business is public information.

koenigdavidmj 12y ago
Attempting and failing to buy your product is one of the most public bits of information there is. Observing the lack of any activity at your claimed corporate headquarters is pretty public too.
eru 12y ago
If you wanted to follow in the guy's footsteps, you might want to move a jurisdiction that's more accommodating of insider trading?
evanpw 12y ago
You have to get the information in breach of a duty of confidentiality (and in exchange for some personal benefit) in order for it to be illegal, at least in the US. If you discover something on your own, you're free to trade on it.