SEC issues warning to analysts profiting from “short and distort” schemes, opens the door for civil claims
Journal of Investment Compliance
ISSN: 1528-5812
Article publication date: 24 April 2019
Issue publication date: 23 July 2019
Abstract
Purpose
To analyze the evolution of market manipulation and fraud by short-sellers and online bloggers and mechanisms available for addressing and remediating the damage caused by such fraud, including recent activity by the US Securities and Exchange Commission (the “SEC” or “Commission”).
Design/methodology/approach
This article discusses the development of a modern market manipulation and fraud scheme – the “short and distort” – including a review of potential claims by the targeted companies and anticipated impediments to asserting such claims.It further examines the need for regulation and the possibility that the SEC has opened the door for civil claims for this type of fraud.
Findings
Companies wrongfully targeted by illegitimate short-sellers may pursue claims for securities violations, defamation, business interference, securities fraud and extortion, among other claims.However, each of these claims has had, and still has, both business and legal challenges, as the short-seller’s initial defense tends to be to attempt to prove the truth of their statements to the market or establish those statements as legitimate opinion.The SEC has made the pursuit easier but there is still a long way to go.
Originality/value
This article contains valuable information about recent SEC enforcement activity and practical guidance from experienced securities lawyers.
Keywords
Citation
Weiner, P.M., Totino, E.D. and Goodman, A. (2019), "SEC issues warning to analysts profiting from “short and distort” schemes, opens the door for civil claims", Journal of Investment Compliance, Vol. 20 No. 2, pp. 34-38. https://doi.org/10.1108/JOIC-02-2019-0017
Publisher
:Emerald Publishing Limited
Copyright © 2019, DLA Piper LLP.