Short and distort
"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.[1][2] 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.[3]
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.[4][5] 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.[6]
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.[7] United States Senator Christopher Dodd said this was more than rumors and said, "This is about collusion."[8] Chase was victimized by a similar "short and distort" scheme six years earlier when rumors arose about its purported relationship with Enron.[9]
Origin
The phrase "short and distort" was coined on August 16, 1999 on the Silicon Investor web site[10] by the late Gary Swancey (January 8, 1953 - June 18, 2004)[11] aka "Ga Bard", a former stock promoter from Stockbridge, GA.[12] It was directed at user "Jeffrey S. Mitchell" who Swancey had assumed, incorrectly, was a market maker shorting one of his holdings, Orex Gold (ORXX), causing it to severely decline in price.[13] A subsequent federal investigation determined that the real cause of the decline was the actions of a disbarred former attorney and recidivist stock scammer named John W. Surgent of Franklin Lakes, Florida.[14]
See also
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) - ^ Cheating in a bear market: Short and distort - Kroll Global Fraud Report
- ^ Connecticut State Attorney General Richard Blumenthal, cited in Wall Street Disses Regs - Liz Moyer, Forbes.com 25 September 2006
- ^ ‘Market Cop’ Cox Urges Restraint - Directorship Boardroom Intelligence, 18 July 2008
- ^ Cheating in a bear market: Short and distort - Kroll Global Fraud Report
- ^ ‘Short and Distort’ Conduct Scrutinized - Directorship Boardroom Intelligence, 2 April 2008
- ^ "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" The New Yorker 12 August 2002)
- ^ http://www.siliconinvestor.com/readmsg.aspx?msgid=10970340
- ^ http://www.familysearch.org/Eng/Search/ssdi/individual_record.asp?recid=256902668&lds=3®ion=%2D1®ionfriendly=&juris1=&juris2=&juris3=&juris4=®ionfriendly=&juris1friendly=&juris2friendly=&juris3friendly=&juris4friendly=
- ^ http://www.bizapedia.com/ga/SWANCEY-SERVICES-INC.html
- ^ http://www.siliconinvestor.com/readmsg.aspx?msgid=24806539
- ^ http://www.siliconinvestor.com/readmsg.aspx?msgid=22447119