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Article
Publication date: 24 April 2019

Perrie Michael Weiner, Edward D. Totino and Aaron Goodman

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…

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.

Details

Journal of Investment Compliance, vol. 20 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 1 July 2004

Perrie M. Weiner, Edward Totino and Robert D. Weber

Over the past few years, regulators, issuers, investors, and other market participants have expressed increasing concerns regarding the real or perceived effects of short…

Abstract

Over the past few years, regulators, issuers, investors, and other market participants have expressed increasing concerns regarding the real or perceived effects of short selling. For example, thinly‐capitalized issuers whose shares trade on the over‐the‐counter market often blame short sellers for declines in the prices of their stocks. Recently, these issuers’ ire has focused on so‐called “naked short sellers,” i.e. short sellers who do not locate or borrow shares before selling. Likewise, other market participants have expressed apprehension about conduct involving short sales that may be viewed as disruptive or manipulative. The Securities and Exchange Commission (SEC) and the self‐regulatory organizations (SROs) have addressed these concerns both by promulgating new regulations governing short sales and by pursing enforcement actions. This article summarizes the new short sales rules contained in Regulation SHO and the amendments to Regulation M, and discusses recent enforcement actions pertaining to short sales.

Details

Journal of Investment Compliance, vol. 5 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 1 October 2006

Nicolas Morgan, Edward Totino and Perrie Weiner

This paper aims to draw conclusions about the likelihood that Securities and Exchange Commission (“SEC”) Chairman Christopher Cox will take significant action to reduce…

187

Abstract

Purpose

This paper aims to draw conclusions about the likelihood that Securities and Exchange Commission (“SEC”) Chairman Christopher Cox will take significant action to reduce regulation affecting hedge funds based on how the SEC has dealt with hedge fund regulation in both the rule making and enforcement arenas since Mr. Cox became Chairman.

Design/methodology/approach

Assesses actions taken by the SEC under Mr Cox's leadership with regard to PIPE (private investment in public equity) transactions by hedge funds, hedge fund registration rules, portfolio disclosure requirements, and alleged collusion among short‐selling hedge funds, research firms, and journalists.

Findings

The SEC's enforcement activities with respect to hedge funds that make short sales before the announcement of a PIPE transaction indicate that the SEC has no plans to lighten the regulatory or enforcement burden on hedge funds. The SEC's response to the DC Circuit Court's decision striking down the hedge fund registration rule likewise indicates that additional hedge fund regulation remains an SEC priority. While it remains to be seen how the SEC investigations and civil actions regarding the alleged collusion between short‐selling hedge funds, research firms and journalists will turn out, it appears unlikely that Chairman Cox will take any bold action to protect freedom of expression and the marketplace of ideas from attacks by disgruntled companies.

Originality/value

Provides a timely and insightful view of the near‐term outlook for SEC regulatory and enforcement policy toward hedge funds.

Details

Journal of Investment Compliance, vol. 7 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

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