Now this is a truly odd case.

Mark Cuban, who I admire greatly, has started a website where he discusses corporate fraud and stocks that he sold short (selling short basically means the person holding the stock sees a plummet in their future, so they sell the stock). As Lost Remote mentions, Cuban sold short 75,000 shares of a company that his site provided evidence of fraud about.

What happened next?

Well the stock plummeted, of course, and the shares that were worth $20 were thereafter worth $12.75.

Lost Remote notes, correctly that their disclaimer does kind of ring hollow when you think about it:

As the site explains, “In certain instances, the majority partner of Sharesleuth.com is going to make personal investments based on information we uncover. Those investments will be fully disclosed, so that readers can evaluate any potential conflicts of interest.” Potential?

It would seem to me to be a major conflict of interest, not a potential one.

You’re a shareholder and you start investigating a stock. You keep it going and keep it going until you uncover some dirt. You short-sell the stock and then report your findings. Your findings drive others to sell the stock and therefore your short-sell looks ingenious. As Cory notes, “potential” conflict of interest?

That seems more like an absolute conflict of interest. Sure they disclose it up front, but what does that mean in the end? That they’re telling you that it’s going to happen?

If anyone remembers the movie Sneakers (and God knows very few people I know have ever actually seen it although I thought it was a great movie), Cosmo (the “bad” guy) seemed to have a similar plan in mind. If they could make banks appear to be bankrupt, the banks would eventually go bankrupt, and he could shut down the whole financial system in the US.

Isn’t this the same thing?

I dig up dirt no matter how big or small, then short-sell the stock. Then I report the story on a popular website and the next thing you know, my short-selling looks downright prophetic.

Potential conflict of interest?

Define potential!

Further Reading: Saint Petersburg Times

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