March 27, 2006
Attack on the Shorts
The press has been preoccupied with the SEC subpoenas to journalists on the agency's investigation of Gradient Analytics but the real story is the attack on shorts. Gradient is alleged to have participated in a "bear raid" on Overstock.com, an online discount retailer. The CEO of Overstock has alleged that hedge funds shorted the stock and then pay analysts in the news media to published negative news about the company to drive the company's stock price down. If true it is blatantly illegal. The problem, however, is that these allegations against short traders are all to familiar by CEO's smarting under stock price declines (that they could not control with accounting massaging). This prosecution is another bit of evidence that the SEC is suspicious of hedge-fund short-side activity. SEC hostility to shorts seems over-cooked.
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Yesterday's 60 Minutes had a story on this very scenario involving the hedge fund SAC and its alleged attempts to drive down the stock price of Canadian pharmaceutical company Biovail. Link to the story is here: http://www.cbsnews.com/stories/2006/03/24/60minutes/main1438812.shtml
Posted by: Darian Ibrahim | Mar 27, 2006 7:19:39 PM