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| A '''Short and Distort''' scam involves ] a stock while smearing a company with rumors to drive the stock's price down. | A '''Short and Distort''' scam involves ] a stock while smearing a company with false rumors to drive the stock's price down. | ||
| The term was coined in the period immediately after the collapse of ], as a parallel to ]. In a 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. The term gained currency in the post-Enron environment.<ref> </ref> | The term was coined in the period immediately after the collapse of ], as a parallel to ]. In a 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. The term gained currency in the post-Enron environment.<ref> </ref> | ||
Revision as of 18:09, 5 July 2007
 | It has been suggested that this article be merged with short (finance). (Discuss) |
A Short and Distort scam involves short selling a stock while smearing a company with false rumors to drive the stock's price down.
The term was coined in the period immediately after the collapse of Enron, as a parallel to pump and dump. In a 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. The term gained currency in the post-Enron environment.
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 2006, the Attorney General of Connecticut Richard Blumenthal told the SEC that there was "mounting evidence that some traders--including hedge funds--engage in the practice 'short and distort,' " in comments to the SEC. In Senate testimony, he said such problems "may be the aberrant exception, a small proportion, not the rule."
References
- New Market Trend: Short, Distort," Wired magazine, June 3, 2002
- Wired magazine, supra.
- Liz Moyer, Forbes (September 25,2006). "Wall Street Disses Regs".
{{cite web}}: Check date values in:|date=(help) - Connecticut AG testimony on hedge fund short selling
Other Books & Magazine Articles
- Paulos, John Allen (2003). "Chapter 2, Subheading 'Pump and Dump', 'Short and Distort'". A Mathematician Plays the Stock Market. Basic Books. ISBN 978-0465054800.
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- Surowiecki, James (August 12, 2002). Short and Distort. The New Yorker.
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