Comment by tart-lemonade
3 days ago
People have this idea that short sellers are market manipulators who conspire to wipe out innocent day traders' life savings and trigger mass layoffs with the stroke of a pen (hence the term "financial terrorism," which is absolutely comical in its hyperbole but used with complete sincerity by the anti-short crowd), but like tines said, it's a risky business that requires lots of research that frequently goes nowhere with limited upside and uncapped potential losses. The amount of times they and other short sellers publish damning evidence on a company only for the stock to shoot back as soon as the company releases a "nothing to see here" non-response really shows the difficulty in making money in the space (and how much people want to bury their heads in the sand).
Given the regulatory environment we are heading into, I expect short selling will become an even riskier business since the SEC isn't going to be prosecuting fraud anymore (or rather, they'll be doing even less than they are now), making it much easier to sic the lawyers on firms like Hindenburg. Even though this isn't their stated reason for bowing out, I wouldn't be surprised or hold it against them if it was a factor.
I think the prospect of an impending SEC or other investigation is only one factor in stocks losing value.
They highlight inflated sales and financial irregularities like a chain of companies that engage in self-dealing, but are portrayed as independent to hide their real ownership, and so on.
If you believe what they say, your faith in the company is shaken because they're pulling a con job on you to invest in them and believe their story. If the SEC investigates that just supports the claim that it's a con.
If they don't investigate - for whatever reason - it doesn't mean that it's not a con and you won't lose all of your money believing it.
So a change in the regulatory environment is only one element.
For example, the Modhi/Adani thing is outside the reach of the SEC. And after watching a piece on it, apparently shorting it was amazingly tricky, and they had to go through some Singaporean markets to arrange a short position.
SEC Commissioners turn over slowly. It is not quite as independent as Fed, but more independent than most agencies.