Short Selling Abuse Defense
Defense for Short Selling Allegations
- The defense attorneys at Oberheiden, P.C. regularly advise corporate clients on complex cases of short selling abuse.
- We have the experience and training needed to successfully represent small and large corporations in preparing a strategic and tactical defense to combat unfair charges of short selling abuse.
- Place a defense attorney from Oberheiden, P.C. on your side today to prepare a personalized defense approach and fight for your liberty and reputation at every stage of the investigation and litigation process.
Experienced Defense Team
If you have been charged or are being investigated for short selling abuse, now is the time to take prompt action in your defense.
Even though short selling companies are largely unregulated, there have been recent efforts by the SEC to increase the oversight of short selling abuse. For instance, in 2008, the SEC adopted certain amendments to Regulation SHO to govern short sale trading and prevent short selling before shares can be located.
Based on this Regulation and other enforcement mechanisms, the SEC has ramped up investigations and prosecutions of companies suspected of short selling abuses. But we are here to help you.
You need an individualized defense strategy. Do not wait to get in touch with an experienced defense attorney today.
An allegation of short selling abuse connected to your company could negatively affect your profit line, business operation, and reputation with customers. It can also result in substantial criminal penalties and jail time.
We are here to protect your company from falling into the trap of a costly, protracted federal investigation. We can take steps to eliminate or mitigate the stages of an investigation.
At Oberheiden, P.C. we are a nationally acclaimed team of defense lawyers who have an impeccable record of defending our clients’ rights, assets, and reputation against unfair investigations. Our attorneys include former FBI agents, former U.S. attorneys, and former prosecutors. With our versatile and multi-perspective group of attorneys, we can provide your defense with the utmost care and diligence.
The stakes are high. Contact Oberheiden, P.C. today to protect your liberty and reputation.
What is Short Selling and Short Selling Abuse?
Short selling involves price speculation regarding the decline of a stock’s price or other security’s price. Such speculation is risky but can return substantial profits. It can also result in huge losses.
A short sale occurs when an individual borrows shares of a stock from an entity (usually a bank or broker), then sells these shares, and then buys them back hopefully at a lower price. If this occurs, the individual can make a profit.
Short selling is legal. The SEC has noted that short selling gives markets and investors more information and adds to market liquidity.
Bans on short selling usually occur during financial crises in order to stop investors from aggressively selling stock and causing a sudden price decline.
However, SEC Chairman has recently decided not to impose a ban on short selling in light of the COVID-19 pandemic because investors need to be able to sell their stock quickly in order to facilitate ordinary market trading.
But there are also instances of short selling abuse. In the following sections, we will briefly explain some of the important details regarding short selling abuse.
Examples of Short Selling Abuse
Short selling abuse can occur by a variety of methods:
- Short and Distort: This abuse strategy uses misinformation. The short seller spreads false rumors about the stock or company in an attempt to drive down the price. Investors panic sell at this stage, which causes the stock to drop in price. The goal of the short seller with this abuse strategy is to cover at a lower price and then realize a profit.
- Naked Short Selling: Naked short selling is often used in conjunction with short and distort strategies. Naked short selling occurs when the trader short sells a security without first having borrowed it. In other words, the trader is selling shares that they do not possess.
Short and distorts are illegal. Naked short selling was made illegal after the 2008 financial crises. Therefore, efforts to increase investigations have been underway and can be more acute during a financial crisis.
Do not wait for an investigation to begin before getting your questions answered by a qualified attorney.
How Short Selling Abuse Investigations Work
A short selling abuse investigation arises when the SEC initiates an investigation into a company and its individuals suspected of engaging in these abuses.
The SEC looks for both risk factors and signs that a company is engaging in short selling abuse. Some signs include the sudden loss in value of a company’s stock and accompanying claims of information in reports, newspapers, or other social media that negatively discusses the company’s stock.
The SEC then files a complaint against the company alleging that the company took a short selling position as a part of a fraudulent scheme to manipulate stock prices to make a profit. It could also allege that a certain individual or group of individuals took affirmative action to publish or spread false information about stock in an effort to drive down price and scare investors into selling.
Short selling abuses may violate the Exchange Act’s antifraud provision, Section 10(b), as well as Rule 10b-5. For instance, short selling involves (1) misrepresentation on the market usually via the Internet; (2) material information about the company; (3) intent to deceive by driving prices downward and panic selling; and (4) the connection to the securities transaction.
These abuses could also violate Section 206(4) of the Investment Advisers Act and corresponding Rule 206(4)-8. Rule 206(4)-8 prohibits investment advisers from making false or misleading statements to investors or prospective investors in a pooled investment vehicle that they manage.
In addition to other federal regulatory provisions, short selling abuses could violate state securities laws, state consumer protection statutes, and common law.
How to Respond If You’ve Been Charged/Arrested in Connection with Short Selling Abuse
While short selling is a legitimate practice, the SEC is especially wary of companies engaging in suspected abuses. Federal agencies have increased their efforts to uncover these abuses and this risk is especially heightened during financial crisis. An investigation into your company could pose multiple challenges down the line including jail time, criminal penalties, and loss of shareholder value. Protect your license, liberty, and right to work.
Do not wait for an investigation to proceed without taking action to protect your rights and reputation. Do not divulge any information to a federal agent without first discussing with your attorney. Make sure that you always have your attorney present in all communications with federal law enforcement authorities.
At Oberheiden, P.C., our defense attorneys are proficient at handling complex high-profile cases involving charges or investigations relating to short selling abuses.
Call us today or contact our office for a free consultation and protect your company.