A bear-raid target is generally a company that is going through a challenging period, since its vulnerable position makes it easy fodder for short sellers. While short selling is legal, coordinated short selling is viewed as market manipulation by the Securities and Exchange Commssion (SEC), and spreading false rumors is tantamount to fraudulent activity.
Is Short Selling Ethical?
Short Selling per se is not unethical and not illegal, although there is no other example of a business where someone borrows something, sells it, buys a similar something at lower value/quality, and gives it back. Basically a model that thrives on value destruction and damage maximization. OK, reminds me of the highly profitable arms industry that loves wars and destruction.
But it is clearly unethical if the short seller can directly influence the value and thus make a profit. Now, the whole short seller model works in a way that every short seller who sells even just one borrowed share reduces the cost of the stock a tiny bit. And clearly, the more borrowed shares are sold, the more the stock price declines; exactly what the short sellers want. And of course, short sellers see what other short sellers do and can recognize the dynamics of the declining stock price and can add to that.
So, why are not all stocks shorted by gangs of short sellers who reinforce the downward spiral? In a bull market, the decreasing stock would immediately incentivize some other investors to buy at this attractive opportunity. A company that gets rated highly by analysts and admired by media easily finds new buyers if the stock price declines.
For the potential victim, like in the raid of a pack of wolves, the risk is highest if the herd of antilopes is tired, a few animals are exhausted or young or injured, and if the wolves focus on one victim.
The business equivalent is a bear market with decreasing stock prices, a macro economy with increasing interest rates, a company (bear) with one or two quarters below expectations, and a pack of short sellers who accelerate the stock price decrease. Throw in an Anonymous Short Seller Liar who publishes “Independant Research” full with lies and we have all the ingredients of an illegal Bear Raid. Of course, all short sellers will claim that they take their independent investment decisions. And the ASS Liar is, well, anonymous. How convenient!