WSJ.com: Let My Short-Sellers Go
Posted by Heidi N. Moore
There are short-sellers, and then there are short-sellers.
So says activist hedge-fund manager William Ackman, the founder of Pershing Square Capital Management and scourge of companies ranging including bond insurer MBIA. Ackman’s attentions are currently focused on retailing giant Target.
In a conversation with Deal Journal’s Dennis Berman at Wednesday’s Deals & Deal Makers conference, Ackman addressed one of the hot questions of the day: are short-sellers (such as David Einhorn) being irresponsible when they advertise their negative views of companies? Or are these investors, who profit when stock prices decline, helping to keep the markets informed?
Ackman, who declared himself a passionate advocate of the First Amendment, said it depends.
Short-sellers who try to spread rumors in the market, he noted, should be prosecuted. But short-sellers who have done an analysis of a company’s financial standing should be free to make their points publicly. “Is there room for a 40-to-1 levered institution that is so fragile that a 38-year-old short-seller can go on TV and shake confidence?” Ackman asked. “If the whole country is only long, on margin, we’re going to have bubble after bubble. We want businesses that can stand critique by any investor.”
Ackman, of course, has experienced first-hand the backlash from companies against short-sellers. In his battle with MBIA in 2002, Ackman wrote a 66-page report about the company’s risky investments and had several lawyers look it over, and made it available to investors. The company sicced Eliot Spitzer on him, alleging that he was trying to manipulate the stock to his advantage. The SEC followed but dropped its investigation. Einhorn also ended up in an SEC investigation prompted by his remarks about small-business development concern Allied Capital. “If this is the regulatory response to someone criticizing a public company,” Ackman noted, then things are dire indeed.
Ackman unabashedly supports the rights of short-sellers like Einhorn to make their points in public forums. He argued that if Lehman had listened to Einhorn in November and raised capital to forestall concerns about its capital position, the securities firm could have avoided some of its current perception troubles and Einhorn would have posted losses on his short bets. “If the firm listened to Einhorn back then and raised capital, perhaps it wouldn’t be in these straits,” he said. “If you’re long, you can go into Barron’s and pump your stock and no one looks askance. If Einhorn says, ‘I have concerns about Lehman’s balance sheet,’ the New York Times writes a scathing article.”
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