Misplaced Pages

Short and distort: Difference between revisions

Article snapshot taken from Wikipedia with creative commons attribution-sharealike license. Give it a read and then ask your questions in the chat. We can research this topic together.
Browse history interactively← Previous editContent deleted Content addedVisualWikitext
Revision as of 22:46, 30 April 2007 editPiperdown (talk | contribs)1,821 edits Added Paulos book← Previous edit Latest revision as of 19:23, 7 February 2024 edit undoDaask (talk | contribs)Autopatrolled, Extended confirmed users, New page reviewers, Pending changes reviewers31,532 edits Changing short description from "Securities fraud involving negative rumors" to "Securities fraud using negative rumors"Tag: Shortdesc helper 
(94 intermediate revisions by 41 users not shown)
Line 1: Line 1:
{{Short description|Securities fraud using negative rumors}}
A '''Short and Distort''' scam involves ] a stock while smearing a company with rumors to drive the stock's price down..
"'''Short and distort'''" is a type of ] in which investors ] a ] and then spread negative rumors about the company in an attempt to drive down stock prices.<ref>, ]</ref><ref>{{cite news| url = https://www.wired.com/techbiz/media/news/2002/06/52785| last = Glasner| first = Joanna| title = New Market Trend: Short, Distort| work = Wired| publisher = Condé Nast Digital| archiveurl = https://web.archive.org/web/20090510054046/http://www.wired.com/techbiz/media/news/2002/06/52785| archivedate = May 10, 2009| accessdate = February 11, 2010| date = 3 June 2002| url-status = dead}}</ref><ref>{{cite book|last1=Levine|first1=Timothy R.|title=Encyclopedia of Deception|date=2014|publisher=SAGE Publications|page=541|url=https://books.google.com/books?id=iRJzAwAAQBAJ&dq=short+and+distort+scheme+phone&pg=PA541|accessdate=August 6, 2015|isbn=9781483306896}}</ref>


It is often performed as a form of ] in which stock is sold without being borrowed and without any intent to borrow.<ref>] State ] ], cited in - Liz Moyer, ] 25 September 2006</ref><ref> - Directorship Boardroom Intelligence, 18 July 2008</ref> Once the stock price has declined, the investor uses the proceeds of the initial sale to buy a larger number of the company's shares than sold originally. Some of the newly purchased stock is used to fulfill the short-selling contract; the remaining shares are then offered for sale, which causes an additional decline in the company's share price.
"Short and distort" is the opposite of another stock scam known as "]." In "Pump and Dump," untrue or exaggerated promotion (creating artificial demand) is done in order to sell stock, previously purchased cheaply, at the inflated price. In "Short and Distort," a stock is sold short, then untrue or exaggerated negative information (creating artificial selling motivation) is disseminated in order to cover a stock, previously sold short at a higher price, at a lower price.


During the takeover of ] by ] in March 2008, reports swirled that short sellers were spreading rumors to drive down Bear Stearns' share price.<ref> - Directorship Boardroom Intelligence, 2 April 2008</ref> ] ] ] felt this was more than ]s and said, "This is about ]."<ref> ''New York Times'' 30 April 2008</ref> Chase was victimized by a similar "short and distort" scheme six years earlier when rumors arose about its purported relationship with ].<ref>In a 22 July 2001 hearing of a Senate subcommittee, questions were raised about a "maze of financial transactions that . . . makes Rube Goldberg look like a slacker" to which Chase was one of several banks was a party. Rumors flowed about Chase starting the day after the hearing; on 23 July 2001, Chase's stock prices dropped to a six year low ( '']'' 12 August 2002)</ref>
In the wake of the late 1990s bubble, rampant "pump and dump" scams, and several huge corporate scandals (], ], etc), con artists found that the "short-and-distort" scam was effective in a post-bubble market. Investment advisers say the scam is particularly effective on "tech stocks". "The psychological biases that are strong would help these scams," said John Nofsinger, a finance professor at Washington State University. Nofsinger said investors in a post-bubble and scandal plagued market expect whatever happened in the recent past to repeat itself. Because they've lost money recently on bubble stocks and accounting scandals, investors are more receptive to believing there's more bad news ahead. Short-and-distort tactics work best with smaller companies whose stock prices are more volatile. Companies hit by this scam say it's difficult to fight back, given the speed at which rumors can be disseminated online.


⚫ In a December 2006 interview from ]'s "Wall Street Confidential" webcast, ] stated that some hedge fund managers spread false rumors about companies to the media and trading desks to drive a stock down: " ...it's important to create a new truth, to develop a fiction."<ref>{{cite web
One infamous short and distort scam was the ] of 2000. In that scam, a college student sent out a phony negative press release that caused shares of the high-flying technology stock Emulex (EMLX) to tumble, costing investors nearly $110 million.<ref> {{cite web
|url=http://www.wired.com/techbiz/media/news/2002/06/52785?currentPage=2
|title=New Market Trend: Short, Distort
|author=Joanna Glasner, ''Wired''
|date=June 3, 2002}}</ref> <ref name="sec17094">: Securities and Exchange Commission, Litigation Release No. 17094, ], ].</ref>

Another case occurred in which Key West Securities and ] disseminated a negative report about Saf T Lok while failed to disclose that Key West Securities was a registered market maker and held a proprietary short position in the stock.<ref>{{cite web
|url=http://www.nasd.com/PressRoom/NewsReleases/2003NewsReleases/NASDW_002908
|title=NASD's NAC Bars Tony Elgindy and Expels Key West Securities, Inc. For Manipulative Short Selling Scheme
|author=NASD
⚫ |date=May 19,2003}}</ref>

In 2006, the Attorney General of Connecticut Richard Blumenthal stated: "There is mounting evidence that some traders--including hedge funds--engage in the practice 'short and distort,' " in comments to the SEC.<ref>{{cite web
|url=http://www.forbes.com/2006/09/25/naked-shorts-sia-regs-biz-cx_0925naked.html
|title=Wall Street Disses Regs
|author=Liz Moyer, Forbes
⚫ |date=September 25,2006}}</ref>

⚫ In a December 2006 interview from ]'s "Wall Street Confidential" webcast, ] stated that some hedge fund managers spread false rumors about companies to the media and trading desks to drive a stock down: " ...it's important to create a new truth, to develop a fiction."<ref> {{cite web
|url=http://www.marketwatch.com/news/story/jim-cramers-big-mouth-reveals/story.aspx?guid=%7BEFABFEB9%2D4FC7%2D45A8%2DA14A%2D6318372C33E2%7D |url=http://www.marketwatch.com/news/story/jim-cramers-big-mouth-reveals/story.aspx?guid=%7BEFABFEB9%2D4FC7%2D45A8%2DA14A%2D6318372C33E2%7D
|title=Jim Cramer's big mouth: His revelations only confirm what dupes average investors are |title=Jim Cramer's big mouth: His revelations only confirm what dupes average investors are
|author=Thomas Kostigen, MarketWatch.com |author=Thomas Kostigen, MarketWatch.com
⚫ |date=March 23, 2007}}</ref> Cramer said this practice, although illegal, is easy to do "because the SEC doesn't understand it."<ref>{{cite web |url=http://www.usatoday.com/money/markets/2007-03-23-cramer-usat_N.htm
⚫ |date=March 23, 2007}}</ref> Cramer said one strategy to keep a stock price down is to spread negative rumors to reporters he described as "the Pisanis of the world" in reference to CNBC's ]. "You have to use these guys," said Cramer. He also discussed getting "the bozo reporter from The Wall Street Journal" to publish a negative article.<ref> {{cite web
⚫ |title=CNBC's Cramer boasts of manipulating markets
⚫ |author=Matt Krantz, USA Today
|website=]
⚫ |date=March 24, 2007}}</ref>

⚫ Cramer said one strategy to keep a stock price down is to spread negative rumors to reporters he described as "the Pisanis of the world" in reference to CNBC's ]. "You have to use these guys," said Cramer. He also discussed getting "the bozo reporter from The Wall Street Journal" to publish a negative article.<ref>{{cite web
|url=http://www.nypost.com/seven/03212007/business/cramers_big_mouth_business_roddy_boyd.htm |url=http://www.nypost.com/seven/03212007/business/cramers_big_mouth_business_roddy_boyd.htm
|title=Cramer's Big Mouth: Clip Could Run Afoul of CNBC |title=Cramer's Big Mouth: Clip Could Run Afoul of CNBC
|author=Roddy Boyd, ''The New York Post'' |author=Roddy Boyd, ''The New York Post''
⚫ |date=March 21, 2007}}</ref>
⚫ |date=March 21, 2007}}</ref> Cramer said this practice, although illegal, is easy to do "because the SEC doesn't understand it."<ref>{{cite web |url=http://www.usatoday.com/money/markets/2007-03-23-cramer-usat_N.htm

⚫ |title=CNBC's Cramer boasts of manipulating markets
==See also==
⚫ |author=Matt Krantz,USA Today
* ]
|date=March 24,2007}}</ref>
* ]
* ]
== References ==
<references/>


==Books== ==References==
{{reflist}}
*{{cite book
| last = Paulos
| first = John Allen
| authorlink =
| coauthors =
| year = 2003
| chapter =
| title = A Mathematician Plays the Stock Market (Chapt 2: 'Pump and Dump', 'Short and Distort'
| publisher = Basic Books
| location =
| id = ISBN 978-0465054800
}}


== External links == == External links ==
* on Investopedia *, Joanna Glasner, ''Wired'', June 3, 2002
* on Fraudguides
*,''The American Spectator'', Alex Pollock, May 24, 2006
*


] ]
] ]
] ]

Latest revision as of 19:23, 7 February 2024

Securities fraud using negative rumors

"Short and distort" is a type of securities fraud in which investors short sell a stock and then spread negative rumors about the company in an attempt to drive down stock prices.

It is often performed as a form of naked short selling in which stock is sold without being borrowed and without any intent to borrow. Once the stock price has declined, the investor uses the proceeds of the initial sale to buy a larger number of the company's shares than sold originally. Some of the newly purchased stock is used to fulfill the short-selling contract; the remaining shares are then offered for sale, which causes an additional decline in the company's share price.

During the takeover of The Bear Stearns Companies by J.P. Morgan Chase in March 2008, reports swirled that short sellers were spreading rumors to drive down Bear Stearns' share price. Democratic Senator Christopher Dodd felt this was more than rumors and said, "This is about collusion." Chase was victimized by a similar "short and distort" scheme six years earlier when rumors arose about its purported relationship with Enron.

In a December 2006 interview from TheStreet.com's "Wall Street Confidential" webcast, Jim Cramer stated that some hedge fund managers spread false rumors about companies to the media and trading desks to drive a stock down: " ...it's important to create a new truth, to develop a fiction." Cramer said this practice, although illegal, is easy to do "because the SEC doesn't understand it."

Cramer said one strategy to keep a stock price down is to spread negative rumors to reporters he described as "the Pisanis of the world" in reference to CNBC's Bob Pisani. "You have to use these guys," said Cramer. He also discussed getting "the bozo reporter from The Wall Street Journal" to publish a negative article.

See also

References

  1. Investopedia entry of "short and distort", Investopedia
  2. Glasner, Joanna (3 June 2002). "New Market Trend: Short, Distort". Wired. Condé Nast Digital. Archived from the original on May 10, 2009. Retrieved February 11, 2010.
  3. Levine, Timothy R. (2014). Encyclopedia of Deception. SAGE Publications. p. 541. ISBN 9781483306896. Retrieved August 6, 2015.
  4. Connecticut State Attorney General Richard Blumenthal, cited in Wall Street Disses Regs - Liz Moyer, Forbes.com 25 September 2006
  5. ‘Market Cop’ Cox Urges Restraint - Directorship Boardroom Intelligence, 18 July 2008
  6. ‘Short and Distort’ Conduct Scrutinized - Directorship Boardroom Intelligence, 2 April 2008
  7. "A New Wave of Vilifying Short Sellers" New York Times 30 April 2008
  8. In a 22 July 2001 hearing of a Senate subcommittee, questions were raised about a "maze of financial transactions that . . . makes Rube Goldberg look like a slacker" to which Chase was one of several banks was a party. Rumors flowed about Chase starting the day after the hearing; on 23 July 2001, Chase's stock prices dropped to a six year low (James Surowiecki, "Short and Distort" The New Yorker 12 August 2002)
  9. Thomas Kostigen, MarketWatch.com (March 23, 2007). "Jim Cramer's big mouth: His revelations only confirm what dupes average investors are".
  10. Matt Krantz, USA Today (March 24, 2007). "CNBC's Cramer boasts of manipulating markets". USA Today.
  11. Roddy Boyd, The New York Post (March 21, 2007). "Cramer's Big Mouth: Clip Could Run Afoul of CNBC".

External links

Categories: