The SEC has commenced enforcement proceedings against a hedge fund manager for taking short positions in a public company and then engaging in a negative and public relations campaign to drive down the company’s stock price. The hedge fund manager used interviews, social media and published research reports to make false claims about the company’s product and financial situation. According to the SEC, the false negative information had the intended effect of lowering the company’s stock price, which fell 34% during his negative campaign. The SEC charges violations of the anti-fraud rules.
OUR TAKE: We suspect that many public companies are cheering this action because the SEC seeks to chill a short seller from disseminating negative information for financial gain. In this case, the SEC maintains that the hedge fund made false factual statements. This type of case will not help prevent negative opinions based on accurate facts.