I am concerned about the use of Litigation to support short-plays.
LERNOUT & HAUSPIE was the victim of numerous class action suits and the negative media that followed. The stock was hit with a massive drop in share price on reports by the WSJ of Korean sales discrepancies. Which came first? Chicken or egg? Short positions or accusals and lawsuits?
Cases dismissed today in Federal Court: biz.yahoo.com
Earlier this year an incredibly well planned play was performed on MSTR. The stock tripled from January to March, then was hit with short-selling when the markets turned. And just when the stock appeared to be bottoming out, the company was hit with class action suits alleging accounting irregularities. From there, the stock went into a perfectly orchestrated tailspin, from which it has never recovered.
[I would provide links, but this stock is a cesspool of accusations, rebuttals, lawsuits, downgrades, upgrades and articles by biased journalists]
Now whether or not the company did or did not have accounting irregularities and whether the company was properly valued or not is not the issue. The point is simply that such legal action filed against a company BENEFITS those with short positions.
Imagine having a brokerage firm, whereby you would go short a stock in a big way, then just before you cover your positions, you spend a few bucks to file a frivolous lawsuit against the company, claiming the management exaggerated or that the books are cooked. You can even put the suit in the name of a few partners that are LONG the stock. . .keeping the names of the short-sellers out of the picture. When the news hits the streets, the knees are taken out of the stock and it crumbles. The short positions are covered. And everyone quickly moves on to another stock.
I am disturbed at what appears to be an increase in such plays. I have not heard of any prosecutions on such plays, by the SEC. I don't even know if they have recognized this as an "organized scam" yet. But it is getting so blatant at this point, it is hard to imagine they are not right on top of it.
So the question is this. Are there Securities laws being broken? Aside from the "Intent to Manipulate", which is extremely difficult to prove, I don't think there are other laws broken.
Frivolous lawsuits are the pollution of the justice system.
Rande Is |
