It’s not doomsday, but it sure feels like it during a short attack. I know. I’ve been there. (Read my case study here.)
Recently, Jeff Katz and Annie Hancock of Ropes & Gray posted a primer on short attacks on Harvard’s Corporate Governance and Financial Regulatory Forum. I believe short attack preparedness should be a part of every investor relations professional’s crisis toolkit.
Short attacks – when a short seller(s) actively seeks to profit by driving a stock price down – can be launched by well-known activists or anonymous online bloggers. These attacks can come swiftly in public or membership-only online investor forums such as Seeking Alpha or Value Investor Club, respectively.
Any company can be a target, but the most vulnerable are those with complicated stories, where the answers and facts are not obvious and require research or expertise to decipher. The fact is the market often reacts before ascertaining the facts. The company is forced into a defensive position with its reputation on the line.
So, what to do? Again, I commend the primer to your reading and add a few additional thoughts:
- Keep your ears to the ground. Aggressively monitor changes in short interest via your stock surveillance firm or retain a market structure analytics provider for timely updates. Know what’s normal for your company. Engage with investors, especially hedge funds, as they may catch wind of something before you do. Another signal could be when seemingly tangential questions begin to crop-up.
- Assess your company’s risks and vulnerabilities and be familiar with common short seller tactics. This will help you be better prepared because once an attack begins, you may not have time to analyze the attacker’s playbook.
- Don’t assume a short seller’s blog reaches a limited audience. If your stock is reacting and investors are calling, the game is afoot. Focus on the best way to respond based on the merits of the short seller’s thesis and company vulnerabilities. Regain control of the narrative and don’t engage in a public tit-for-tat.
As frustrating as it is, the primer’s authors note companies have been largely unsuccessful litigating claims against short sellers. So, don’t get distracted – devote your energies to defending and protecting the company.
Lead-IR Advisors, Inc.