In the intricate landscape of the financial markets, a new concern has emerged for boards, management teams and companies – short selling attacks. Offering a unique set of challenges, these attacks are motivated not by traditional market growth, but by the desire to destroy value. The goal? To cause a drop in a target company’s stock prices by releasing research that purportedly highlights unfavourable information about the company in question.
As legal professionals working in large corporations and law firms, it’s imperative to understand the nature of such attacks. The ultimate aim of long activists is to enhance shareholder value, thereby participating in the upward growth and success of the business. Short activists, on the contrary, aim to profit from a decrease in stock value by staking their claims on the company’s potential shortcomings.
The question then becomes, how can companies protect themselves from such adversarial operations, and what steps should they take if faced with a short attack?
These tactics utilized by short activists, accompanied by their negative effects, have prompted skilful law firms like Skadden, Arps, Slate, Meagher & Flom LLP to take a deeper dive into this issue. Owing to the underpinning hostility and ulterior motivations of short selling attacks, their expertise emphasizes the necessity of well planned and executed defense strategies.
To prepare for such a scenario, it is suggested to enhance monitoring of short selling activity and investor sentiment. Early detection through comprehensive market surveillance can provide valuable lead time for developing a strategic response.
Engaging with long-term shareholders for improved transparency, maintaining ongoing shareholder communication, and calibrating corporate messaging are some other recommended practices. These measures reinforce shareholder confidence and preemptively counter any ensuing negative impact from short attacks.
In the event of an attack, a strategically coordinated response should be set into motion. This includes immediate consultation with legal and financial advisors and considering whether a public response is warranted and what form it should take.
In the event of a suspected market manipulation, legal avenues may also be pursued. These could involve exploring possible causes of action against short sellers for securities fraud, defamation, or market manipulation.
For those seeking more guidance, a comprehensive analysis on this subject is outlined in the article titled “How To Guard Against a Short Attack, and How To Respond if Faced With One”.