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Comment by jdietrich | Hacker News Reader

>So there exists a class of professional services designed to temporarily crash stock prices to make short sellers money?

Yes. The technical term is "activist short selling". The broad consensus is that it's good for the market, as it provides an incentive for investors and researchers to uncover fraud and mismanagement. Obviously someone could just make up a bunch of nonsense about a company to try and tank their share price, but that's all sorts of illegal.

I think it's valid to think of activist short selling as a kind of distributed bug bounty program for the financial markets.

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I recently read that, to be a successful large-scale short seller, you have to be an activist.

You can't just sell a stock and wait passively for it to eventually go down. You HAVE to be out on CNBC and elsewhere trying to actively prove that the company is overvalued.

Look at the way Bill Ackman and Pershing Square Ventures went after Herbalife for years. Not (just) because they thought a fraud was going on. But they were trying to make billions of dollars for themselves too.

https://www.nytimes.com/2018/02/28/business/dealbook/ackman-...

Ackman spent 5 years on the road doing roadshows, on TV, trying to make the case for fraud.

And he lost

But he wasn’t wrong, so figured he had a reasonable chance of success.

Interesting documentary on Netflix about that. Recommend a watch if anyone has been following Ackman and Herbalife.

https://www.netflix.com/title/80108609

Ok, but imagine a bug bounty program where you're paid based on how damaging your website is to the product's short term reputation, regardless of whether you've actually disclosed (or even found) anything or substance.

I'll note that executives are paid based on how much they can hype a company's short-term reputation, so I think the problem isn't really with the short sellers here.

Not really. Its illegal to lie like that and you can get sued for defamation. Plus your reputation is at stake. If I said GE is a fraud then no one believes me. But if Bill ackman calls it a fraud, that turns ears.

Read the report. There are no non-published assertions in it.

They're all either publicly available numbers, or an analysts opinions. It would be very hard to sue them.

And imagine you lost your computer privileges if you made a bad call on what you found. Many successful activists are careful to make sure they’re right so their funds maintain their prowess, which may as well be the same thing.

> but that's all sorts of illegal

There's a subset of people who find this aspect appealing.

the financial equivalent of a a bug bounty.. never thought about it but every system needs external checkers so it's obvious in retrospect

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