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Marc Rubinstein, Columnist

Why Short Sellers Can't Even Get Along With Each Other

Traders betting against stocks are no more likely to trust each other than they are corporate executives.

Harry Markopolos, pictured here in 2009, spent nine years trying to convince regulators that Bernie Madoff was a fraud.

Photographer: Bloomberg/Bloomberg

In the final episode of the HBO series Industry, young portfolio manager Harper Stern announces she wants to launch a short-only fund. “We'll knuckle down on companies who might be misleading the market, committing fraud or engaging in unethical business practices,” she pitches. “We will find the liars, we will find vulnerabilities – and therefore what is mispriced – using a combination of forensic accounting and corporate espionage.”

Her prospective backer replies sarcastically: “You’ll be popular.”

It’s true, short sellers aren’t exactly well liked. In South Korea, they’ve been personae non gratae since November 2023 when financial authorities imposed a ban on the practice after uncovering illicit trading by foreign firms. This month, they indicted BNP Paribas SA for allegedly violating short-selling rules, according to a Bloomberg report, adding to a list of firms being investigated. (BNP Paribas declined to comment to a Bloomberg News reporter).

It comes several months after US authorities filed civil and criminal charges against Andrew Left of Citron Research for publishing false and misleading statements regarding his short-selling recommendations. (He has pleaded not guilty.) The Securities and Exchange Commission’s contempt for Left is evident in its complaint: His language is “larded with hyped rhetoric”; he bragged to colleagues that he could “destroy” or “kill” companies; he acted “recklessly.”

While the charges relate less to the act of short selling than the tactics he employed, the aggressive nature of many short sellers puts a target on their back. “Until we get to a point where a lot of people lose lots of money and see the risks as real, we are going to be decidedly unpopular,” fellow short seller Carson Block told the New York Times.

But it’s not just their betting against rising prices that makes them unpopular. In an industry that values trust (the root of “credit” is the Latin word for “believe,” after all), short sellers go against the grain. They view everything, and everyone, with suspicion. This can render them oddballs and outcasts. Fraser Perring, one of the short sellers involved in identifying Wirecard AG as a fraud, describes himself as “an individual that sees the world differently.” Carson Block says that he enjoys “f*cking with people.” Fahmi Quadir, who featured in the Netflix documentary Dirty Money discussing her short on Valeant Pharmaceuticals, reckons “all short sellers are outsiders.”

Although not a professional short seller, Harry Markopolos, the investigator who spotted Bernard Madoff as a fraud, shares many of the same traits. “To him, dishonesty and stupidity are everywhere,” Malcolm Gladwell says about him in his book, Talking to Strangers. “If everyone on Wall Street behaved like Harry Markopolos,” he continues, “there would be no fraud on Wall Street — but the air would be so thick with suspicion and paranoia that there would also be no Wall Street.”

Such simmering suspicion makes short sellers untrusting even of each other. John Hempton of Australian hedge fund Bronte Capital Management writes that having met Andrew Left a couple of times, he “decided to avoid him thereafter.” Roddy Boyd, an investigative journalist who received funding from short sellers, called Fraser Perring “a charlatan of the first order.” Fights have subsequently broken out between Boyd and other short sellers.

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Now, tempers are fraying between two rising stars in the short-selling community. In mid-October, Edwin Dorsey, author of the Bear Cave newsletter, accused Nate Anderson of Hindenburg Research of not properly acknowledging his work. “I know Nate Anderson, I’ve had dinner with him,” he begins. Yet, it seems that short sellers can never really get on. Anderson responded on Twitter/X refuting the allegations before Dorsey followed up with a post alleging a conspiracy — which Anderson called baseless — between Hindenburg and the Wall Street Journal.

Part of the argument rests on how short sellers get paid. Many, including Hindenburg, deploy their own capital often alongside silent partners. Edwin Dorsey doesn’t bet against the companies he highlights, making money instead from subscriptions to his newsletter.

The crux of the issue, though, is that short sellers are no more likely to trust each other than they are corporate executives. Nate Anderson recognizes this isn’t ideal. “This is a small industry which already faces plenty of controversy by virtue of the fact that we are basically picking fights with white collar criminals for a living,” he pleads with Dorsey.

Short sellers complain that nobody likes them, but when it comes to popularity, they hardly help themselves.

More From Bloomberg Opinion:

  • It's Not Easy Being a Stock Market Villain: Marc Rubinstein
  • Why India's Market Watchdog Needs Stricter Rules: Andy Mukherjee
  • You Can’t Repel Muddy Waters With Weak Credibility: Chris Hughes

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    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    (Adds a comment by Anderson in ninth paragraph.)

    Marc Rubinstein is a former hedge fund manager. He is author of the weekly finance newsletter Net Interest.
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