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Comment by emehex | Hacker News Reader

Not to defend Scorpion Capital (because I don't know anything about them), but this is specifically why our public markets allow short selling... to provide an incentive to do this type of research (uncover alleged fraud, crimes, etc), stake a position, and then (optionally) advertise that position.

Also, seems like they've had some decent wins in the past: https://scorpioncapital.com/track-record

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That’s not why we allow short selling. We allow short selling because it’s a reasonable way to allocate securities that makes people money sometimes while generally not hurting others. Our securities regulations are generally about allowing most transactions that aren’t done in an unfair way. It has nothing to do with creating incentive to investigate publicly traded companies. Investigations with huge payouts depending on their results aren’t unbiased and should never be taken as factual or helpful.

In what way could short selling not generally hurt others? Any gain a short seller makes is a lost opportunity by the holder.

There needs to be a way to create downward pressure on the price of an equity.

?? If there is no buyer for a given price then the seller will have to reduce his price, no need to have this dubious mechanism.

The party loaning the security to the short seller makes a profit too as part of the loan. The only person potentially going to lose money is the short seller. The person loaning the security might end up getting the security back once it’s fallen a lot, or it might have risen, but they don’t really take any outrageous risk. Just the person who borrowed and sold takes the potential losses.

What is dubious about this mechanism? It seems fairly straight forward and short selling doesn’t even depress the price any more than someone simply selling it to the market. In fact since they have to buy it back later they first create sell pressure down then buy pressure up later.

All securities trading is a zero sum game. For every “winner” there are “losers.” By hurt I mean, essentially, some form of fraud or similar activity that puts others at risk without their understanding the risks, or where the outcome is always a loss for the counterparties.

That last “optionally” may get you sent to federal prison for insider trading.

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