A group of law professors is asking the U.S. Securities and Exchange Commission to require that traders who publicize their intent to drive down a company’s share price be more transparent when backing off those bets to avoid market losses, Los Angeles Times reports.
The group’s request that the SEC seek more disclosure by short-sellers, sent to the agency last week, cites an increase in so-called negative activism, in which traders sometimes use fake names to disseminate adverse views of a company.
“The commission should vigilantly ensure that short position disclosure, when voluntarily initiated by a short seller, remains truthful and accurate,” the professors say in a petition lead written by Columbia University professors John C. Coffee and Joshua Mitts. “When a short seller has chosen to disclose a short position, failure to disclose that the position has been closed is doubly misleading,” they write, noting that they’re not advocating mandatory reporting of all shorts.
To illustrate the need for more disclosure, the professors highlight whistleblower Harry Markopolos’ report accusing General Electric Co. of accounting fraud, which drove down the company’s shares in August of last year. The report doesn’t accuse Markopolos of violating the law or intending to manipulate the market, but the professors argue that more information should have been shared.
The SEC rarely passes rules based on outside petitions, but such letters can serve as the basis for policy discussions that lead to changes. Read the full story,
