Facing Down A Short Selling Attack - Part Three

25 April 2016

No company is immune to the risk of a short selling attack, nor is it invulnerable to the subsequent damages to its reputation and commercial operations. 

Effectively responding to a short selling attack requires a combination of legal savvy, an intelligence led approach to risk management as well as in-depth knowledge of your self-defensive cyber capabilities. In this post we'll be detailing one example of a short selling attack, as well as the potential options available as responses to this kind of attack.

Case study of a short selling attack

Short selling attacks can take a number of forms, and the damage suffered by an organisation can be immense.

In a number of short selling attacks, firms are alerted to the fact that extremely serious and baseless allegations have been published online. Often, these allegations are contained within a lengthy report or statement collated and published by an unknown and seemingly anonymous entity.

Types of short selling attacks can take various forms

  • From highly damaging allegations regarding the competency of the Board of Directors, in running their own organisation;
  • Attacks on the financial performance and security of the organisation in question;
  • Attacks on the legitimacy of its operations;
  • Even up to including attacks on the ethics of a firm's products, as well as the sources of its materials.

Importantly, short selling attacks such as these often appear entirely out of the blue, with no apparent reason for their publication, other than to damage the value of the company, and/or the reputation of its Board members.

If those behind these kinds of short selling attacks succeed in the publication of such allegations, the company's share price is at serious risk of falling rapidly, as investors, analysts and the wider market lose confidence in the company in question. So what can be done about this?

Responding to a short selling attack

The speed with which an organisation responds to a short selling attack can prove decisive, both in halting and repairing the damage done.

As an example, in the first instance, ascertaining the identity of the entity and/or individuals responsible for the short selling attack is crucial. By utilising intelligence analysis, risk evaluation and cyber capabilities, information can be gathered on the background of the perpetrator in question, precisely which individuals are behind the attack, and the extent to which the allegations have been disseminated further,, via both traditional channels and social media platforms.

This intelligence will help to shape both the legal and communications responses to the short selling attack, ensuring that shareholders and investors are up-to-date state of affairs regarding the allegations, and potentially enable legal action to be taken against those behind the short selling attack. Once you have identified the source of the allegations, you are then able to confidently inform the media, refute the false claims, and prevent an wider dissemination of the erroneous allegations in the process.  

Acting preemptively against a short selling attack

While we have discussed how these capabilities may be utilised in a reactive sense, the skills employed by legal, intelligence, risk and cyber teams can also be deployed preemptively. A few examples: thorough media monitoring, being alert to any unusual short investor or media activity, the development of early warning systems, as well as the creation of Questions and Answers documents for potential risk areas. All of these measures are straightforward in terms of ensuring that an organisation is better positioned to withstand a short selling attack.

To read part one of this short selling series, click here.

To read part two of this short selling series, click here.

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About the Authors

Schillings

+1 646 934 6219

Ben Hobbs

Partner

Ben specialises in reputation protection. His work covers defamation, privacy, harassment and intellectual property rights.

+1 646 934 6219
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