Activist short-sellers are a controversial, but legal part of the financial world. Their strategy involves betting that a company stock price will decrease – shorting it – and publishing research that they believe supports their cause.
The investigative team at FOIAengine has covered many such short sellers in recent years, and how they use the Freedom of Information Act to ply their trade. This article will examine how these short selling firms interact with the courts.
Analytics reveal that despite their risky strategy – and their controversial reputation – short sellers simply do not get sued much.
Muddy Waters Capital is an investment firm operated by Carson Block. The firm has spent plenty of time in court, as covered previously in Law Street Media, in litigation involving Steven Sugarman. Apart from those lawsuits and appeals, Muddy Waters (and Block himself) have been sued for defamation concerning their report.
Muddy Waters’ most frequent law firm partner is Davis Wright Tremaine.
Hindenburg Research, named after the infamous aviation disaster, has targeted companies such as Nikola and Carvana. The firm’s founder, Nathan Anderson, recently announced that the firm would shut down.
Over the years, the firm has not made many appearances in the courts – just five cases since 2019. In the most recent case, Hindenburg appears only as a non-party. The defendant, a target of Hindenburg, alleged that the plaintiff’s complaint was simply a repackaged version of Hindenburg’s report. Hindenburg’s involvement thus far concerns confidentiality issues related to discovery. In another case, Hindenburg was similarly asked to produce documents as a non-party.
Hindenburg itself has been sued in New York state court, facing allegations that its report was fraudulent. Finally, Hindenburg itself sued Enochian Biosciences Inc. (another target) for libel. That case was quickly dismissed.
Other short sellers, like Culper Research, have only been to court once, according to Docket Alarm – like the other companies, for defamation, this time by LifeMD. The case was voluntarily dismissed.
