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| "'''Short and distort'''" is a type of ] in which Internet investors ] a ] and then spread negative rumors about the company in an attempt to drive down stock prices.<ref> - Forbes</ref><ref>{{cite web| url = http://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 = | "'''Short and distort'''" is a type of ] in which Internet investors ] a ] and then spread negative rumors about the company in an attempt to drive down stock prices.<ref> - Forbes</ref><ref>{{cite web| url = http://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 = | ||
| http://www.webcitation.org/5nSEkhdBd| archivedate = February 11, 2010| accessdate = February 11, 2010}}</ref> ]s and text-based ] are the primary tools for the people committing "short and distort" as they tend to hide the source of the information.<ref> - ] Global Fraud Report</ref> | http://www.webcitation.org/5nSEkhdBd| archivedate = February 11, 2010| accessdate = February 11, 2010}}</ref> It is often performed as a form of ] in which stock is sold without being borrowed and without any intent to borrow.<ref> - Thomas J. Donahue, President, ], July 2008</ref> ]s and text-based ] are the primary tools for the people committing "short and distort" as they tend to hide the source of the information.<ref> - ] Global Fraud Report</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.<ref> - ] Global Fraud Report</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.<ref> - ] Global Fraud Report</ref> | ||
| During the takeover of ] by ] in March 2008, reports swirled that short sellers were spreading rumors to drive down Bear Stearns' share price. ] ] ] said this was more than ]s and said, "This is about ]."<ref> ''New York Times'' 30 April 2008</ref> Chase was victimized by a similar "dump 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> | During the takeover of ] by ] in March 2008, reports swirled that short sellers were spreading rumors to drive down Bear Stearns' share price. ] ] ] said this was more than ]s and said, "This is about ]."<ref> ''New York Times'' 30 April 2008</ref> Ironically, Chase was victimized by a similar "dump 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> | ||
| "Short and distort" is similar to another (closely related) securities fraud technique, ]. In the latter case, ]s (or ] solicitations) are often used to disseminate positive information (often of dubious legitimacy) to increase the demand of a company's stock (and thus increase its share price).<ref> - ]</ref> Then the investors would sell the stock at an artificially inflated price. | |||
| ==References== | ==References== | ||
| {{reflist}} | {{reflist}} | ||
Revision as of 18:12, 26 February 2010
"Short and distort" is a type of securities fraud in which Internet 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. Cell phones and text-based messaging are the primary tools for the people committing "short and distort" as they tend to hide the source of the information.
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. United States Senator Christopher Dodd said this was more than rumors and said, "This is about collusion." Ironically, Chase was victimized by a similar "dump and distort" scheme six years earlier when rumors arose about its purported relationship with Enron.
"Short and distort" is similar to another (closely related) securities fraud technique, pump and dump. In the latter case, emails (or boiler room solicitations) are often used to disseminate positive information (often of dubious legitimacy) to increase the demand of a company's stock (and thus increase its share price). Then the investors would sell the stock at an artificially inflated price.
References
- Investopedia entry of "short and distort" - Forbes
- Glasner, Joanna. "New Market Trend: Short, Distort". Wired. Condé Nast Digital. Archived from the original on February 11, 2010. Retrieved February 11, 2010.
{{cite web}}: Check date values in:|accessdate=and|archivedate=(help) - Ending Stock Market Manipulation - Thomas J. Donahue, President, U.S. Chamber of Commerce, July 2008
- Cheating in a bear market: Short and distort - Kroll Global Fraud Report
- Cheating in a bear market: Short and distort - Kroll Global Fraud Report
- "A New Wave of Vilifying Short Sellers" New York Times 30 April 2008
- 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" New Yorker 12 August 2002)
- Pump and Dump - U.S. Securities and Exchange Commission
See also
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