Suppose I was in a position to financially damage a company. Assume that I have no involvement whatsoever with the target company. Would it be illegal/immoral to short their stock right before doing so?
Scenario 1) I’ve just invented cold fusion. Yay, postscarcity society! Terrible news for GE Wind Energy, though, since basically free power will compete them out of business. I short their stock the day before I make the announcement.
Scenario 2) I’ve discovered that McDonald’s hamburger meat is soylent green is people! Suppose I can prove it. I short their stock the day before I go public.
google google Previously
, Mark Cuban, owner of Sharesleuth
, has made Scenario 2 his business model.
This is different from making false statements to manipulate the short term behaviour of the market. Falsely declaring “Iphones cause smallpox!” to exploit credulous people is very illegal. I’m talking about causing real, long-term damage by suddenly exposing the target company to competition or scorn.
What do you think? Does it change your answer if I’m open about what I’m doing? “Cold fusion! By the way, I just shorted GE wind and so should y’all.” I’m not sure whether saying that would be pleasantly transparent or whether it would only make things more complicated.
I'm asking because this seems to be widely considered to be shady, though I don't quite understand why. What obligation does someone like Cuban have to protect people who own shares in a bad company?
I'm asking a hypothetical question. No, you are not my lawyer, nor do your comments here constitute legal advice.