Exposed by a Short Seller, Luckin Coffee, another Chinese Company that Defrauded US Investors, Filed for Bankruptcy in New York Today

Short sellers are often the only sheriff on Wall Street, a crucial role in a rigged stock market – easy to forget after the furor over the “most shorted stocks.”

By Wolf Richter for WOLF STREET.

Luckin Coffee, a Starbucks imitator and one of many Chinese companies with no operations in the US that have their IPOs in the US and raise funds in the US, filed for Chapter 15 bankruptcy in New York today. The downfall of Luckin was triggered by short seller Carson Block of Muddy Waters that published detailed allegations on January 31, 2020, of massive fraud at the company, perpetrated at the highest levels.

By the time the Muddy Waters report came out, the company’s stock – well, American Depositary Receipt (ADR) – had skyrocketed from the IPO price of $17 a share in May 2019, to $50 a share in January 2020, giving the company a market capitalization (share price times shares outstanding) of $12.6 billion.

The short-seller’s report caused the shares to zigzag lower. On April 2, 2020, the company finally admitted that it had fabricated $310 million (RMB 2.2 billion) in revenues for 2019, nearly doubling its actual revenues. It said that “beginning in the second quarter of 2019, Mr. Jian Liu, the chief operating officer and a director of the Company, and several employees reporting to him, had engaged in certain misconduct, including fabricating certain transactions.”

The fraud, perpetrated in China, was designed to drive up the share price in the US, and it had worked, being instrumental for a nearly 200% gain of the shares in eight months.

On the day the company admitted the fake revenues, shares plunged another 82%. Over the next few days, shares dropped further. Then trading was halted. Eventually, the Nasdaq delisted the ADR.

The short sellers allegations, which had forced the company to admit at least part of its wrongdoing, finally woke up the SEC, whose role is to protect investors from this sort of thing, but it is asleep most of the time. As long as shares are rising, there is nothing to protect. It’s only after they collapse, that the SEC wakes up.

So the SEC began poking around and on December 16, 2020, announced that it had charged Luckin “with defrauding investors by materially misstating the company’s revenue, expenses, and net operating loss in an effort to falsely appear to achieve rapid growth and increased profitability and to meet the company’s earnings estimates.”

The details of the charges confirmed the short seller’s allegations. But without the short seller, there would have been no charges by the SEC. And the fraud would have continued and expanded. And Wall Street would have been onboard, gleefully making money on this thing.

In a prepackaged deal, the SEC also announced in the same breath that Luckin had agreed to settle the charges by paying a fine of $180 million.

Carson Block didn’t do the research on Luckin himself. Someone else had done the legwork and had put together a detailed 89-page report, and had sent the report to a number of well-known short sellers in the US. Block took his short positions and then released the report. The other short sellers that had received the report didn’t jump on it.

Block, in an interview last June, told the Wall Street Journal that it was the first time he’d published someone else’s research to support his short position.

“It wasn’t anything glorious we did here. We just felt confident that the report was directionally correct, so we decided we’d be a good platform for it,” he said. He also said that he’d known the author of the report for several years but declined to disclose the author’s identity.

So now Luckin has filed for Chapter 15 bankruptcy in New York. In China, Luckin’s stores would remain open, it said in the press release, and operations would continue as normal.

But US investors that had believed the Wall Street hype and the company’s statements before and after the IPO, and that had funded the company in the IPO, or bought the shares after the IPO, got screwed.

Credit Suisse, Morgan Stanley, Chinese investment bank CICC, and Haitong International were the joint bookrunners on the IPO of this fraudulent company. And Wall Street Analysts, including an analyst at bookrunner Morgan Stanley, touted the shares.

On June 11, 2019, a couple of weeks after the IPO, Barron’s came out touting the shares and citing three analysts that had initiated coverage of the ADR that day, all with prices targets way higher than the price at the time. One of those analysts was Lillian Lou of Morgan Stanley.

Can investors expect to be served up real analyses by Wall Street when Wall Street makes so much money in fees coming and going off those investors?

Nope. All they will get is fee-generating hype and lies.

And the SEC won’t protect investors either. If it steps in at all, it’ll be late and after the collapse.

In these kinds of cases, a short seller is the only sheriff left on Wall Street. Everyone hates them. They take huge risks and can easily get run over by an organized short squeeze. And they’re not paid by taxpayers; they’re paid from the gains of their short positions, unless they get crushed.

In the furor over the superbly engineered and historic short-squeeze of the “most shorted stocks,” including GameStop and AMC, when the social media crowd vilified the short sellers and made them their target, it’s easy to forget the essential role short sellers play in a rigged market.

This historic short squeeze, engineered by a bunch of deeply cynical small traders, exposed just how rigged the market has been. Read… The Stock Market Is Broken, Now for All to See

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  163 comments for “Exposed by a Short Seller, Luckin Coffee, another Chinese Company that Defrauded US Investors, Filed for Bankruptcy in New York Today

  1. NARmageddon says:

    Hail to the short sellers

    • Cas127 says:

      Wolf,

      Thanks for being even handed on the short seller issue.

      I think there is a severe misperception among the lay public that short sellers can literally destroy a healthy company (a Co. making real cash profits…vs accounting manipulation) by vicious rumor mongering with zero basis in fact.

      And throw thousands out of work based on nothing but lies. (Associated note – there are plenty of myths about corporate bankruptcies as well…most being *restructurings*…which wipe out shareholders much more completely than employees, which BK courts frequently impair others to protect…).

      While some short sellers can use media to pump their shorting thesis (right or wrong) out there, it is almost impossible to bankrupt a healthy (profit making) company this way…because the company would have more than enough real cash coming in to survive, and would not be on capital markets life support…relying on an endless series of stock/debt infusions to stay alive (the kind of activity short sellers *can* influence).

      Short sellers can and do lobby the public endlessly (just as corporate insiders endlessly hype their frequently overvalued stock).

      • Cas127 says:

        And in today’s *hugely* overvalued stock mkt environment (SP 500 PE ratio at 250% of long term average), excessively vilifying short sellers is a profound mistake, since the much, much bigger problem is the *overvaluation* of the majority of companies, due to ZIRP’s destruction of investment alternatives.

        • YuShan says:

          In terms of valuation, it is even worse than it looks on the surface because the corporations balancesheets themselves are also more leveraged than ever. Earnings per share would be lower if they had not reduced their amount of shares funded by more debt. But this makes them more vulnerable.

          There are now so many layers of leverage (in the broadest sense) stacked on top of each other in the system:

          – Corporate debt at record highs (increases vulnerability to any shock)
          – Interest rates at record low (rises would crush valuations)
          – Fed balancesheet at record highs (limits what the Fed can do if the next crisis involves rising inflation – they may even have to tighten policy while stocks are crashing)
          – The big “whale” called passive investing reverses once boomers realise the game is up and try to salvage their nest egg.
          – Record amounts of derivatives amplify any move

          etc

        • Nacho Libre says:

          Thanks Wolf for highlighting the essential nature of short sellers. They’re the vultures and scavengers that keep up the hygiene and strengthen the whole system.

          It’s the naked short selling (selling imaginary stock that doesn’t even exist) and front running the order flow that’s unethical.

          Important difference.

        • Lisa_Hooker says:

          @Nacho Libre – naked shorting of equities is no more unethical than farmers selling grain futures for crops that haven’t yet been planted. It’s a bet on the future. When you get it wrong it really hurts. As Wolf points out it is an aid to stability.

        • Old school says:

          The numbers don’t even come close to working anymore. If you use a dividend discount model on the SP500 you only get the current price is OK if you are willing to accept a return of less than 2% til you kick the bucket. True fair value rounded off to nearest thousand on sp500 is 1000. I am not sure Fed is going to raise rates in my lifetime.

        • Cas127 says:

          Nacho,

          1) Is front running order flow an uniquely/particularly short seller thing?

          Both longs/shorts can front run (which I thought illegal, compared to paying for flow which can be bought so long as best mkt price is matched). I guess I thought that short sellers had most/all their position in place, rather than trying to perfectly time a falling knife.

          2) As for naked short selling (which is apparently also an object of loathing), isn’t it basically like a derivative, one that doesn’t really have to “pair up” with any existent underlying…essentially being a customized gamble only based on some characteristic of the underlying (its price, etc).

          Are people this outraged by puts? They don’t seem to be.

          And short selling’s most un derivative like aspect (it must cover with real shares) actually only threatens the short sellers themselves (requiring them to cover and therefore making them vulnerable to a squeeze).

          I’m not really a “fan” of short sellers…I’m just puzzled by the semi-unique animus, and think maybe the general public is assuming things that aren’t mostly or at all true.

        • Cas127 says:

          Old School,

          “accept a return of less than 2% til you kick the bucket.”

          The result of ZIRP world, which is the only world a gvt owing 100%+ debt to GDP can survive in.

          DC has dragged down the nation to save itself (and its core constituencies, equally hated because of it).

        • Maximus Minimus says:

          @LH:
          I wouldn’t put farmers selling futures, obligations to produce some vital commodity, to naked short sellers who produces nothing of value whatsoever, on the same scale.
          But then, I am old fashioned.

        • Cas127 says:

          Maxi Mini,

          I get your point but there is *some* value in a tool for more accurate price discovery (especially in this extremely overheated mkt).

          And the short sellers are putting their money where their publicized valuation is.

          Everybody is just trying to make money (even the yeoman farmers, who aren’t adverse to huge subsidies…) but so long as everyone is conveying some value, I think the anti short seller rhetoric is somewhat…over sold.

          I am the squeeze…and the squeeze stands alone…

        • Nacho Libre says:

          Selling futures on corn that’s not yet grown is risky. But the farmer can ‘create’ it by actually growing it.

          When someone naked shorts, they are selling something that they can’t create or own – only can borrow.

          At least in case of GME, short interest was greater than the float – that is borrowing more than what actually exists.

          Not against short selling, they provide liquidity, they help weed out failing companies.

          When market makers purchase order flow who ensures they don’t frontrun those orders? The clueless (or perhaps complicit) SEC?

        • NBay says:

          Corn isn’t very hard to unload, ever since the farmer’s Congress Critters invented “pork” with new liquid form and feeding it to cars.

      • raxadian says:

        Sometimes they do.

        Also people hate HEDGE FUNDS not short sellers. Hedge funs are a blight on any healthy company that gets bought by one as several examples on this same site show.

        1) Take debt to buy a company.

        2) Buy company.

        3) Load company with debt and run it to the ground.

        4) ???

        5) Profit!

        • Cas127 says:

          Rad,

          I think you are thinking of private equity investors.

          “Hedge” funds (only a small pct of which hedge) actually invest using every invt model under the sun. Their shared characteristic seems to be a higher dollar minimum invt. ($1 million? $100k? It varies)

          I think people just have a lot of free form/flow hate because the general mkt is acting absolutely bizarre (soaring in places despite general economic crippling due to a pandemic).

          But DC ZIRP on (medical) steroids is the actual cause behind the financial insanity.

          (ZIRP and horrible labor numbers doing an ongoing bipolar dance of death)

          But no one on State or Corporate media will talk about it (they haven’t for 20 yrs of economic pathology).

      • kam says:

        China has successfully stolen more U.S. dollars.
        Whatta country.

    • Joan of Arc says:

      I did my homework on Luckin Coffee first. I flew to Beijing for a weekend after booking a round trip on an airline. I stayed overnight in a 5 star hotel. Sunday morning I drank 3 cups of Luckin coffee. It tasted OK and was reasonably priced. I flew back and bought 1,000 shares of Luckin Coffee for $50 per share, convinced that it would go to $100 per share. I ended up selling it for $5.00 per share. After paying $5,000 for the round trip to Beijing, I lost a total of $50,000. Will the SEC help me recover any of my lost money?

      • Nacho Libre says:

        Ha, thanks for the humor.

        I want to know how you do homework before purchasing SPCE or RICK.

      • Lisa_Hooker says:

        You might have been compensated for the 3 cups of coffee, but now you’ve publicly stated they were OK. Sorry.

      • Old School says:

        It would be cheaper to read a book. Ben Graham’s Intelligent Investor. Buy only companies with a long history of stable earnings and don’t pay too much is the summary.

      • Great snark. Shortly before GFC my cousin was in China selling lubricants for semiconductor manufacturing. They wanted to pay him in solar panels. He insisted on cash. The GFC hit a few months later, his business folded up and he lost everything. Now lives off his SSN. He would probably still have those panels, however.

        • Cas127 says:

          “They wanted to pay him in solar panels”

          When both countries’ currencies are so heavily controlled/manipulated by their Gs, barbarous barter becomes more attractive.

          People need to realize that Gvts view their fiat as monopoly money subject only to the G’s self serving rules.

      • Cas127 says:

        No, but China thanks you for the stimulus.

        Did they give you a t shirt, the way they do the Fed?

        (“I built modern China, and all I got was this lousy T shirt”).

      • JK says:

        You’re going to have no “luckin” recovering your money. I’ve been there and done that! 😭

  2. TheBeek says:

    Why, in this new world where valuations have no relation to performance, does it even matter if revenue is real or fake?

    • Wolf Richter says:

      Good point. Why even have a real company? Not needed. We’d seen from cryptos that anything goes… nothing but a few electronic entries backed by nothing, doing nothing, and producing nothing. And they’re doing just fine :-]

      • Joe Saba says:

        surely merican investors can sue IPO banksters, barrons

        • NBay says:

          Think the glossy mags are mostly for coffee table personal image stuff, kinda like my sister with her Sierra Club glossy, and some high brow mags. Decoration-signaling.

          Certainly not full of current hot trading tips, those are all word of mouth insider stuff.

        • NBay says:

          Think this SPAC would make a good glossy coffee table addition.
          Whatta racket, write some stuff, photo some people, draw picture, get money.

          Too bad I don’t have a coffee table. Someone did give me a couch, though, but it’s all covered with paperwork, tool boxes, notes, books, etc. Do have empty corner to put shoes on at.

      • TheBeek says:

        Exactly… You do need that initial promise of value to get the momentum going (potential for a successful business or promise of being the new digital ledger for the world, or whatever; doesn’t really matter what it is as long as enough people believe it). Once momentum is underway, anything goes. In a way we’ve all become angel investors.

      • Mark says:

        Along those lines, why even pay taxes when we can just print them too?

        I mean, what took us so long to figure all this out ?

        • Maximus Minumus says:

          Great sarcasm.
          That’s why the fiscal and monetary apparatus were supposed to be separated. Now merged into one – to allow the bankrupt system to live another day.

        • Nacho Libre says:

          We are halfway there to MMT (modern monetary theory aka pretend-economist’s shower thought).

          MMT says ignore the national debt, print as much as you want, distribute as you want and use taxes to control inflation.

        • Robert says:

          Because that is why Banana Republics are called Banana Republics- printing trillions inevitably creates massive inflation. Which your friendly government has been lying through its teeth about. The next time the Capitol is stormed, it will be housewives fresh back from the grocery store.(For those with a historical bent, I was enraged housewives who stormed the Place at Versailles too, and for much the same reason.
          As for Lisa saying, “naked shorting is perfectly natural- don’t farmers do it? Yes, except the are no allowed to naked short 10 years worth of crop production. Another big fail from your government watchdogs.

      • Cas127 says:

        “Why even have a real company?”

        Or a real economy, if the G can print fiat that magically summons real goods into existence (making the MMT’ers case for them here).

        My broader point is that while Bitcoin, etc. may be backed by little more than shared faith and limited supply, so is the USD (except for the limited supply part)

        And the USD also comes with confiscatory power (through unlimited Gvt print “rights” to acquire real goods) and related implied violence (“legal” monopoly on fiat).

        But those aren’t exactly things to be leaned upon, proud of, or unworried about.

        They cultivate a “costless” fix mindset that leads a nation of 320 million to wake up one morning to find themselves incapable of manufacturing a single surgical mask.

        So much for MMT magic.

        All the shortcomings of crypto can be pointed out…but let’s examine the USD as closely and maybe we will find the reason why crypto arose.

        • robert says:

          Bitcoin’s smallest unit is a satoshi, which is 100 millionth of a bitcoin. So there are 2.1 quadrillion bitcoin trading units, not 21 million.
          There is also mBTC (1000th), and μBTC (1 millionth), satoshi (100 millionth), and msat, (100 billionth).
          So if Bitcoin went to a million dollars the price may just be quoted in μBTC and be 1.00 USD, or quoted as 1 mBTC = 1000 USD, instead of the full bitcoin value etc. Sort of like splitting stocks to make them more accessible.
          Anyway, there are potentially almost infinite Bitcoins.
          And today, if it were quoted in mBTC, it would be 40 dollars; a ‘bargain’, and there would be 21 Billion available. Like RobinHood and their fractional share trading model for the little guy to purchase ridiculously (over)priced shares, more little buyers may well be attracted to a low headline price.
          All faith, and no limited supply.

        • Cas127 says:

          Robert,

          You are talking about infinite subdivision (which I will look into). I don’t know that inflation gets created because 1 dollar can be broken into 100 pennies.

          The USD is subject to infinite *expansion* as the G prints/”quantitatively eases”

          That *does* create inflation because the ratio between total currency and total existent real assets inflates with the money supply. By definition that means prices rise.

      • CRV says:

        Like SPAC’s?

      • YuShan says:

        SPACS “blank check company” look like the typical bubble phenomena to me. I recall reading in a book about another bubble (1929? or was it the South Sea Bubble?) that there was also a company without any business or even an idea and everybody was buying it.

        So these SPACS will buy something, but more leveraged than ever. What could possibly go wrong?

        • Lisa_Hooker says:

          It was the South Sea Company, a British private-government partnership around 1720. (Not quite 100 years after peak tulip bulbs – we never learn.)

          ‘The price of the stock went up over the course of a single year from about £100 to almost £1000 per share. Its success caused a country-wide frenzy—herd behavior—as all types of people, from peasants to lords, developed a feverish interest in investing: in South Seas primarily, but in stocks generally. One famous apocryphal story is of a company that went public in 1720 as “a company for carrying out an undertaking of great advantage, but nobody to know what it is””

          We just never seem to learn.

        • YuShan says:

          @Lisa_Hooker,
          Yes that is the one!

        • Cas127 says:

          Are SPACs particular users of leverage?

          I find the “blind pool” aspect goofy and don’t really see too much difference from IPOs otherwise.

          (To date, the only advt I see to SPACs vs IPOs – from a shareholders perspective – is that you get warrants along with your shares…so you become a quasi invt banker, who can profit from subsequent hype once the actual acquisition is announced. So, a hype-ster’s tool for an overvalued age…I think.)

      • Fat Chewer. says:

        What’s also interesting about cryptos is how much energy they consume. I sometimes wonder if, like Japanese electricity suppliers supporting Japanese electronics manufacturers, they invented bitcoin just to have a bigger market for their products. The only inherent value is the paid for electricity consumed in the creation process.

    • Jack says:

      Cuz it’s Chinese, funny comment though, like it.

    • Rcohn says:

      I find it ironic that the chairman of Chewy was integral to the short squeeze of GME.
      Chewy has never made money and is in a highly competitive industry.
      Chewy is hardly alone in being super overvalued . Trillions will be lost when reality raises its ugly head.

    • YuShan says:

      For many years now, it has been all about flows and not business fundamentals. The frustrating thing is that this enforces itself. Dumb money has become the smart money.

      • Lisa_Hooker says:

        “Business” has become entirely cash flow management. And when the income stream falters enough the ripples spread outwards. The previous big version was 2007-8. We didn’t learn, we just made money the old fashioned way, we created bookkeeping entries. Now we’re doing it again, but bigger. More Money Today.

      • Cas127 says:

        “Dumb money has become the smart money.”

        That is why every boom is a bust in the offing.

        Ignorance in, panic out.

    • NBay says:

      Saw a good documentary on a Chinese bitcoin “mine” a few years back. Was right next to huge and somewhat remote hydro plant, in a large metal warehouse type building, close to the turbine plant. Owner(s) had a lot of money from somewhere.
      Anyway, one whole wall was almost covered with 3 ft fans for cooling, and it was filled with maybe 50 rows of racks loaded with the current best “mining machines” (cost around $600-1000 US then). Techs lived there FT, along with the “leadman” who owner(s) spoke to. If power consumed was even mentioned, I don’t recall it, but was obviously a lot.

      So the guy here who said “bitcoin was backed up by wasted energy” had a big part of it right, for sure.

  3. Hah! says:

    Reverse short the economy.

    Buy stuff now that will be more expensive later.

  4. Ed C says:

    Muddy Waters run deep.

  5. Timothy J McLean says:

    My guess is there are at least a 100 Lunkin Coffees that have already made it to the market via the IB’s on Wall Street. Many have come on board via a SPAC and the sponsors will take their fees and move on. The $1.9 trillion of stimulus will just push the fraudsters further. I have no idea when this market blows, but when it does, it will make 2000 seem tame.

    • Javert Chip says:

      I’d bet there are lot more on American exchanges as “American Depository Receipts” (ADR).

      NONE OF THESE REQUIRE ANYWHERE NEAR THE REGULATORY SCRUTINY OF A NORMAL (ie: non-ADR) LISTING.

      Trump was attempting to weed these out, but couldn’t/didn’t move fast enough.

      • TonaldDrump says:

        > Trump was attempting to weed these out

        Hahahahahahahahahahahahhahahhhahahahahhahhahhahahahahahahhhhaahahah thanks for the laugh

        • NBay says:

          Along with plans to rake (rape?) America’s forests…

          a stable genius works in mysterious ways…….

        • Nacho Libre says:

          Like weeding out ISIS and ending Korean war? Hahahahaha!! Oh wait, he actually did that.

        • NBay says:

          Oh wait, he didn’t do either.

        • Nacho Libre says:

          Some people have lost part of their brain to TDS. For their benefit, let me refresh their memories with the news cycles for ISIS and North Korea before Trump.

          https://www.nbcnews.com/storyline/isis-terror/isis-death-toll-18-800-killed-iraq-2-years-u-n499426

          https://www.cbsnews.com/news/could-north-korea-missile-hit-us-mainland/

        • NBay says:

          Is there a drug that can save me from TDS? Obviously there is a huge market for it.

          Actually, I don’t hate him, in fact I watched him live as much as I possibly could (prefer that to any talking head’s opinion).

          Found him to be hilariously stupid and ignorant, and totally unaware of it, which made it even funnier.

        • Nacho Libre says:

          I don’t know, may be start by looking at results objectively?

          People around me were dropping bricks from their backsides when it was revealed NK missiles can hit US mainland. Obviously, years of ‘cautious indifference’ strategy hadn’t worked.

          Then people lost their marbles when they saw ‘fire & fury’, ‘big red button’ tweets.

          Then when art of the deal was in full display, same people, now with the luxury of safety started saying “hey look! Trump is so comfortable with dictators”. Talk about ungrateful TDS patients.

          Ditto with ISIS. Tens of thousands of innocents were getting killed each year. He obliterated that dark force. Rather than appreciating that, TDS patients just moved on to complain about something else.

    • Wisdom Seeker says:

      That’s right.

      “There’s never just one cockroach.”

      Cockroach Theory applies all the time in financial markets.

      • NBay says:

        When I went to the downstairs latrine at night at Ft Polk, it never ceased to amaze me how fast literally hundreds of those critters could vanish when the lights went on.
        Let’s hope the financial roaches never get as adapted as the real ones. They aren’t one of the longest lived species today for nothing.

  6. Shiloh1 says:

    I first heard of Carson Block and this company on Quoth The Raven podcast about a year ago.

    It’s one thing if a company is cooking the books, it’s another when they say they have locations which aren’t there/never existed. Even Skilling didn’t do that.

    • Wisdom Seeker says:

      It’s amazingly easy to create new locations on a spreadsheet… no actual labor required for bricks or mortar!

      • Cas127 says:

        Ditto the USD.

        “Amazingly easy to create!”

        The Fed’s virtual easy bake oven.

    • Thomas Roberts says:

      In China, the actual Chinese public doesn’t even trust their stock market, instead because the CCP tries to prevent capital flight, most investment goes into real estate. It’s important to remember that the CCP effectively owns everything and everyone in China and if you buy a share of a Chinese company on the Nasdaq, you are actually buying a share of a shell company with a “entitlement” to some of its profit or some other hodge podge. Even if on paper, you are getting an actual share, it’s only as good as the whims of the CCP.

      In general, nobody in America should buy stocks in any stock market or for any company not in the western world or a few other places like Japan.

      In China, if you don’t fake those numbers you will be replaced very quickly or worse.

      • roddy6667 says:

        The stock market doesn’t have the same place in China as in the US. Only about 10% of the people own stocks. It is safe to assume that these people have one or more homes and substantial cash before throwing casino money at the market.

        • VintageVNvet says:

          Thank you once again for your boots on the dirt reporting on WS r2/3:
          As usual, your comment is right on the money,,, as well, with this one, on bright on the honey.
          Bid on a ton ($10-15BB) of high end ”private” RE projects in SoCal in ’17, and all were eventually canceled, and turned out all the existing RE was owned by folks from China pretty much meeting your qualifications.
          Then began to notice many, perhaps most/majority of folks driving on the 5, 101 downtown, 10 also downtown, appeared Chinese/Asian, and began to get the picture more clearly.
          I, for one, welcome all Asian folks, as I have worked with tons of them for many decades in CA and other where, and found them to be hard working and true to their word. ( I was paid per agreement without hassle.)

  7. Fat Chewer. says:

    So are short sellers and short squeezers like matter and antimatter, except instead of annihilating each other, they annihilate investors?

    • Rcohn says:

      Short sellers were very imprudent in being short more than %100 of a company’s float. That does not change the fact that fundamentally these companies were and are basket cases .

      • Lisa_Hooker says:

        Commodities future markets regularly have floats in excess of the physical. Equity shorting is simply a bet on the future. Why should equities be different. If you are trading these things and don’t understand the mechanics of futures/options you are the patsy.

  8. Jack says:

    Great article, well needed in current times, let me add short sellers have been actively targeted deliberately since March 2020, every aspect of the markets & regulators have been conspiring & attacking short seller, verbally but mostly blowing up their positions to push markets up, the Gamestop, Hertz, Airlines, Kodak were a few of the many attacks, this occurred in all the stocks listed to some degree. They waged & still wage a war on any shorters even though the market now is empty of short seller, this is why the markets have entered a parabolic hyper bubble, it was by design and will end up in the biggest crises of all time, the short sellers not only police the market of scams but work as circuit breakers when markets crash, buying stock to close positions & slowing or stop the crash. This is why 2020 was the fastest decline in history, very few short sellers, when they did enter around March they got deliberately crushed, they will not enter the market, they will have the last laugh though when this whole thing collapses, markets will be begging for short buying but wont get it.

    • Jack says:

      Notice that those shorting the 30yr bond, Dollar, Volatility are darlings of the market, so it’s not about short selling, it’s about those who police markets, they do not want fair markets, this is why the SEC is absent, why would the Fed be doing QE to lower yielding then bailing out Hedge funds who drive yield up artificially by shorting to the greatest ever volume in history the 30 yr bond, why would the Fed allow this?? To push markets up, shorting the Dollar to the highest volume in history raising price for society who are struggling to buy food??, manipulating to record amounts volatility by shorting it to push markets up, acting like their is no danger in markets cuz vol is falling. The things have been happening to such vicious degrees it’s like a war on truth & reality in markets, it’s gonna end in the hedge funds going bankrupt, I will say that by the end of 2021 70% of hedge funds around today will be bankrupt or shuttered. I am sure many pros see this, especially short sellers, this is why they will never enter this market, the game is rigged, not so clever really cuz now they are trapped, keep pushing higher or explode, the end is near.

      • Implicit says:

        i like your comment “…it’s like a war on truth & reality in markets”, but how do you figure that many hedge funds are holding the bag when the Ponzi collapses.
        It is usually the last investors in that get skinned the most.
        I’m just surprised thy have been able to keep the whole scam jacked up for so long.

      • NBay says:

        “a society struggling to buy food”

        Seems like that would make all the “savvy investors” here want to invest in Cargill, Nestle, etc.

    • Old School says:

      We are a pretty wealthy country and that has allowed Congress and the Fed to mop this Covid mess up pretty painlessly. I don’t like what I am hearing from the Fed, Congress and white house. We have to blow the checkbook now and worry about the future later. Seems pretty desperate to me similar to the Draghi whatever it takes comment when EU was imploding. They are still stuck in no man’s land and I think we might get stuck with no growth too.

      • fizee says:

        OS perhaps 27,150 457 cases and 461,930 deaths is not quite painless. Oh I forget that in the USA the $ is more important.

        • Old school says:

          I graduated high school in 1974. The overall death rate was higher in 1974 and every year before that in the USA than it was in 2020. We have made a lot of improvements in medical technology since then. Maybe we under reacted or over reacted to the virus. It was harder to print our way out of our mistakes in 1974.

        • NBay says:

          Yessir, I just love all our modern medical miracles, too! Since 1974, you say?

          Was just watching a drug ad with happy dancing people,(completely tested for efficacy and FDA approved) that will extend your life after being diagnosed with terminal cancer. After mentioning it may trash your immune system, and other “parts”, they said to tell your doc if you have had, or PLAN to get an organ transplant. Also wanted to thank ALL those who participated in clinical trials.
          Wonder what it costs? No matter, I’m sure it’s covered by Medicare.

          Hell, if it were me, I’d get one of those hair growing LED caps, some ageless male, and some prevegen, so I could really enjoy all those extra fun years at that nice big landscaped home.

        • NBay says:

          And a complete wardrobe (including Covid mask) with all those magical copper fibers so I could shoot baskets with grandkids, among countless other benefits. (No wonder copper is so high.) And a cool bed with more features than my truck, and, and…….

      • roddy6667 says:

        Mop up? As in it’s over? It is at the peak, with no end in sight. The situation in America is the worst in the world, COVID-wise.

        • Old school says:

          Mop up as in print money to keep things afloat while things were locked down.

        • Paulo says:

          Old School,

          i think you have forgotten the rampant inflation of the ’70s produced by insane money creation, the cost of the Viet Nam War, and rising wages battling rising costs. The ultimate fix was interest rates of 20% or more which crashed any and almost all debt purchases of goods.

          The nightmare of my first house purchase in 79…mortgage rose to 18% + a job loss that required me to work away, forced me to never ever incur debt for the rest of my life. I graduated HS in 73, which makes us about the same age. Right now I’m sitting back watching, having been retired for 8 years this month. When people say they’ll never raise rates ever again I just smile because they will if no one wants to hold dollars. Never say never. This could tank anytime, or not. I do know this, it will never stay the same. I also believe that when debt is cheap, it is right time to look at retiring all of ones debt because those that have not done so will lose everything they think they own when interest rates do increase.

      • Lisa_Hooker says:

        The Blue team now owns the Congress and the White House and major chunks of the Federal Reserve and much of Obama’s remaining Bureaucracy.

        “Lasciate ogne speranza, voi ch’intrate”

        With Colour, Dash and Daring – “may we all find a better day.” ;-)

  9. Michael Grace says:

    The “Bubble Act” of 1720 forbade the creation of joint-stock companies without royal charter

    • Bob Hoye says:

      It was intended to curb speculative money going into the sudden mania for new stock issues.
      So that funds would continue to flow to the South Sea Company that through various option schemes was helping to fund government debt.

    • Jack says:

      I’m not sure if ya comment Michael is for me, I have no idea how it relates to my comment.

    • VintageVNvet says:

      VERY good point mg,,, and just illustrates exactly why, for instance, the ”legal” pot med and otherwise takes SO long from approval, of voters per referendum, or corrupt crony politicians to actual implementation.
      Takes a while, sometimes a long while while the local corrupt crony politicians are able to get their paws into the corporations that could provide the relief, especially the pain relief, for old folks, in days..
      BUT, of course, WE the Peedons needing relief do not count at all in the minds of the politicians who MUST have their mordida, or baksheesh,,, or whatever it is called in our various and extensive locales.

    • NBay says:

      Yeah, long ago we tried to regulate the damned corporations, too…..maybe 1800 to 1820ish? Real waste of a fresh start.

  10. RickV says:

    There are legitimate short sellers who do the hard research and issue valid reports supporting their position. But Lukin Coffee is a Chinese company that has never issued audited financial statements of a standard required for US companies. Chinese companies should not be permitted to trade in the US unless they issue Financial Accounting Standard Board approved financial statements. On the other hand, short sellers who target US companies that have been audited and issued FASB reports are much more questionable. Yes, there are issues with the audited statements, but for the most part the issues are known and can be evaluated. The best example is Tesla which short sellers have attacked for years without success. “Short and Distort” schemes are no better than the long side “Pump and Dumps” that are both attempts to defraud investors. Full disclosure, I’m a retired CPA.

    • Jack says:

      I agree fully, absolutely, there are scavengers on both sides, with regards to Tesla and many others they also are frauds, legal frauds, Enron was never prosecuted for fraud but lying, Elon Musk is the biggest scammer around, his antics in pumping, bringing out fake inventions is done daily but does the SEC to anything?? You get one unknown talking about Gamestop & he gets investigated, I do agree with everything you say though, it’s just a ludicrous how the markets have turned to the wild wild west, full of scams. Tesla is supposed to be worth $1.6 million around for every car they sell, zero profits for selling cars, they will crash & burn, their cars are junk really. Unfortunately when regulators turn a blind eye or encourage this behaviour over decades it always get worse to the point of collapse, no different to FDR regulations or Dodd Frank, first one guy cheats then they all do, then go to greater length till the collapse.

      • MCH says:

        Dunno, his rocket looks pretty real to me…. especially the ones that explodes.

        But you’re right, in this age of media and deepfakes, you never can be sure of what is real. Did those rockets really land on barges?

        • JoAnn Leichliter says:

          SpaceX is the real deal. Take a look at what they do and how they do it.

        • Anthony A. says:

          It’s the SpaceX people doing the engineering and development, not Musk.

        • NBay says:

          It’s all just off the shelf military hardware they use, anyway. Precision hard duty servos and stepping motors, etc. Same stuff that lets an F-18 fly the length of the runway at 45 degree AOA and maybe 100 knots. Saw that at airshow 10 years ago.
          No new tech to allow landing on barge, just the “Gee” effect. Question is, is it more $$ efficient than newer throw away cheap solid rocket boosters?
          As yet unknown, unproven.

        • NBay says:

          It’s all about saving and refitting what ya shot up to whatever altitude and speed to save costs.(or if there are people in it). Like the Shuttle. The Russians seem to have been doing quite well with parachutes from the beginning.

          Have to carry a lot of dead weight fuel up and back to produce those cool barge landing shows, and you know Musk does enjoy producing a good show.

      • Old School says:

        How many people read the SEC filings? A CEO probably has a lot of room to run his mouth if the investors are warned in the mumbo jumbo legal fine print that the company has 30 different ways it can go bankrupt. When throwing money at any stock has made you money for 12 years you get a little complacent.

  11. Bob Hoye says:

    You don’ have to be a Reddit Scientist to understand the short squeeze.
    Straight up is always followed by straight down.
    If the establishment is on the wrong side of such a squeeze the exchange will not follow its own rules.
    The play was going to silver and the CMT raised margin requirements.
    In the 1980s, I was full-time involved in a junior mining promotion. And with our cost at 12.5 cents and the stock a $4 we had made a lot.
    There was a warrant expiring and we bought quite a bit thinking we could force the shorts to cover at a high price just before they expired.
    On the day the Vancouver Stock Exchange trader was to put in the “buy” order.
    He didn’t. Warrants expired worthless. We did not make a big score. The establishment made a little.
    Our stock? Went to over $7.

    • Old school says:

      Read a good book a long time ago that kept me out of a lot of trouble. The average person only needs stocks, bonds and cash. Complicated investment vehicles are not required.

    • Lisa_Hooker says:

      The same era the Hunts came close to cornering silver. So the establishment moved the goalpost (required margin, &c).

  12. davie says:

    So short sellers did a good thing for once, but is it possible we also find a non-market solution for this too?
    Are short sellers worth the extra instability they add to the market with leveraged trades, and the death spirals they create that concentrate market power?
    Maybe there can be a government Service, who inspects a companies Internal mechanisms, and their Revenue stream?
    Why was WeWork’s IPO pulled again?
    Why was ANT’s IPO pulled again?
    Do we really have to let short sellers get to these companies to realize they are a bad idea?

    • Cas127 says:

      “Why was WeWork’s IPO pulled again?”

      I don’t think WeWork got pulled by some gvt regulator, they got pulled because once the public got a detailed look at its financials, nobody wanted to buy that dog.

      If you want to make the case for gvt mandated disclosure/accuracy okay…but you seem to want go beyond that in order to supplant short sellers.

      And there is a long, long list of public frauds that gvt reg missed…Enron, Madoff, etc.

    • Old school says:

      Short selling and margin buying of stocks are both borrowing, but for different purposes. Either way when the mafia comes for the payment you better be able to pay in full. It’s not like the stock market isn’t volatile enough that you need to add a loan on top of it.

  13. Jeff T says:

    Has the SEC just come out of a 20 year coma?

  14. Wisdom Seeker says:

    When fraudsters in China harvest billions of dollars from clueless American investors, does that affect the trade balance?

    • Richie says:

      The trade deficit is much higher if we take into consideration of the trillions worth of fraud that China has to pay to the US, including the US fiat cash lol. Chinese investors got dinged so many times by the wolf street gang in case you didn’t know, the fall of bear stearns got them good.

      • NBay says:

        “Take away your missionaries and your opium and you will be welcome”

        -Chinese Spokesman, during the Boxer Rebellion.

        Their beef with the West is pretty old and pretty justified.

  15. roddy6667 says:

    I noticed the Luckins popping up everywhere here in Qingdao. The first thing I noticed was that they were in shitty or marginal locations that had a low foot traffic count. Secondly, they never had many customers. The whole story seemed dubious. A caffeine addict like myself notices these things.

  16. David Hall says:

    I researched some mainland Chinese stocks and found they did not pay dividends. The Chinese are suspected of not wanting foreign investors to take money out of China. The Chinese are not the only ones doing fraudulent accounting. Enron pulled off a made in the USA fraudulent accounting scam.

    Wikipedia published an account of Bernie Madoff’s accounting fraud:
    “On March 12, 2009, Madoff pleaded guilty to 11 federal crimes and admitted to operating the largest private Ponzi scheme in history. On June 29, 2009, he was sentenced to 150 years in prison with restitution of $170 billion.”

    • K says:

      I almost admire the fine, almost artistic, level of deceit, manipulation, and control that the ultra-rich and banksters have been using for many decades: e.g., with the covert-propaganda films “Its a Wonderful Life” in which rich, parasitic banksters are presented as good, sensitive people instead of parasitic persons living off the money printing of their “Federal” Reserve and their finance-gambling and the films about the Nabisco takeover, which show the Wall Streeters in a good, almost heroic light and overlooks the Wall Streeters’ transfer of millions of US jobs to China, and their close ties with the CCP.

      The 15 billionaires which Forbes Magazine reported own all US media, who may be a few more now, would never let such information out but you can read between the lines.

      (Do some searches and you will notice that the largest search provider now rarely shows certain results, which other providers show.)

      • NBay says:

        “Something” sure changed. In 1929 Wall Streeters jumped from buildings and small town bankers shot themselves all over the country.

        In GFC, nothing, absolutely nothing, even though people were painting “landing zones” and body shapes in the streets below for them…..except for one European Noble who was unknowingly feeding friends to Madoff, who blew his brains out.

        • NBay says:

          “It’s a wonderful life”…now ya got me thinking about how Calvinism is absolute best form of Christianity for the filthy rich…they were put there by God.
          Romans snapped Christianity up quick, being the benefits, and had Calvin’s “tweak” been adopted, they might still be in charge.

  17. MiTurn says:

    “But US investors that had believed the Wall Street hype…”

    How do you say ‘shyster’ in Chinese? 害羞的

    Think people will learn? This is a golden opportunity!

  18. Satya Mardelli says:

    I wonder which one of the American Big 5 accounting firms aided and abetted this fraud.

  19. SpencerG says:

    I am starting to get the idea that any “Chinese imitator” of an American company is a dodgy stock to invest in.

    • Wolf Richter says:

      Luckin and other Chinese companies trading on US exchanges as ADR are not audited according to US accounting standards, and are not audited by any of the big audit firms. That is part of the problem, and that is why I agree with the Trump administration’s hard line on them: get audited or get delisted. I forgot what the time frame is (3 years?). I hope the Biden Admin sticks to it or tightens it further. They’ve not backed off any of the Trump Admin’s China positions yet. So there’s hope on this issue.

      • SpencerG says:

        Yeah… I suspect that a LOT of Trump’s policies will be seen ten years from now as the norm. Better executed by “deft” politicians than a
        loud-mouthed reality show billionaire perhaps… but not as outlandish as seen today through the American news media prism. What is the alternative… continue to let Chinese grifters to rip off American shareholders?

        Joe Biden is simply the first politician who has to take up the baton. He’ll do fine. Much of what happens in Washington is just stage managed nonsense.

  20. Brady Boyd says:

    In China, each company has 2 sets of financial books. One to show their moron, naive western customers that are fake and the other book to show their government containing the real financials.

    To get the real financials all you have to do is contact the provincial commerce dept. where the company is located. I used to audit suppliers in China and would get a kick out of their shocked and amazed faces when I presented their real financials in person.

    • Cas127 says:

      “To get the real financials all you have to do is contact the provincial commerce dept. where the company is located. ”

      That is rather massively unknown info to the general US public.

      Is there a US data provider that can supply this information at scale, for hundreds/thousands of Chinese companies?

      Also amazing that SEC would allow (if it even knows of this data source) for companies with conflicting books to list on US mkts.

      Can you link to some articles discussing this provincial commerce dpt data?

      Mind blowing if true.

      I’m not surprised that China demands honest stats from its companies (upon pain of death) or that it has no problem with same companies defrauding the round eye (in the service of building China) but if that accurate data’s existence is largely unknown to US leadership…that is very, very bad.

      • Brady Boyd says:

        I’m not sure if there are websites that show how-to. I learned by stumbling around various CCP gov. websites with the belief that there is no way China companies can provide fake financials to their gov. without the threat of being sent to a goulag or death sentence.

        The challenge most people have researching companies in China is multi-fold. For starters you need to know the Chinese name of the company, not the English name. Then you need to find the Commerce websites for each province and guess what….they aren’t in English so you need to use some kind of translator website like Google Translate. Each province website varies so you need to stumble around searching. Also if you visit each Commerce office at each province you can obtain more info. at the office versus what’s online. Yep, did all that and took me a long time, but that’s my job….to audit suppliers in a forensic kinda way.

        What will help is if you can get the Business Registration #, which will help speed up the process immensely.

        Here’s a couple of websites to wet your appetite. The first one is National Enterprise Credit Information Publicity System which has been around since 2016. The CCP is trying to standardize company research so it’s easier to obtain info. This helps a lot nowadays instead of when I used to hunt and peck 10 years earlier but they are still a long way compared to how easy it is to locate info in the US. http://www.gsxt.gov.cn/index.html

        An alternative to using the nationwide website for checking China company registrations online is to view the websites provided by each of the local AICs (Administration for Industry and Commerce). Company registrations in China are handled in each region by an AIC. Here’s the one for the Guangdong province. http://gd.gsxt.gov.cn/index.html

        As you can see, it can be done, but not easy. If it were, everyone would be doing it. Another option, which I recommend is to hire a company to do the verification. It would be best to hire a HK company or non-China company to do the financial verifications.

        Researching HK companies is different and much easier. They have their own websites e.g. https://www.icris.cr.gov.hk/preDown.html

        My suggestion to anyone wanting to do business in China or investing in a company from China whether public trading or private is to not walk away, but run away!!! It’s just not worth dealing with the corruption and constant stress.

      • Robert says:

        In Marine General (and two-time Medal of Honor winner) Smedley Butlers’s autobiography he wrote, when he was stationed in China (and he had no reason to lie) that they had to inspect every lump of coal sold to them to make sure it was not dried black-painted mud.

        • Brady Boyd says:

          Yes, I believe it re: fake coal. Everything in China is unbelievably fake. I too have encountered weird things while traveling there. There are fake eggs…..yep, chemical made eggs to look like eggs but they aren’t and yes, locals eat them thinking they are real. I’ve also seen loafs of bread with spray paint on the outside to make them look like freshly baked. Also found beef that’s not beef, mostly gound up wood chips mixed with chemicals to make it look like meat.

          I asked why they did this and the answer was: “because we can”…..

  21. Yort says:

    Luckin Coffe is no more fraudulent than the Global Central Bank Mafia Cartel turning the entire world economy into a global price fixing scheme via knee-caping interest rates and laundering freshly printed currency to various connected bank and hedge fund cartels.

    Every generation has their own Al Capone, our generation has “J-Pow!!!”…

  22. Ron says:

    First off China is a communist country hellbent on destroying America but who will they sell there crappy junk too this was created by greedy American businessman corporation s cheap labor benefits and wider profits left Mexico because labor costs 8$ a day went to China 1$ a day only idiots buy Chinese stocks easy theft god saveus

    • Rick says:

      If you think China is a communist country, then you most likely haven’t been there, probably just repeating your mainstream media agenda. Seeing the how America has 3 island chains on China, not the opposite, I find your thoughts amusing.

    • roddy6667 says:

      You need to get out more. Turn off Fox News and get a passport and see the world. Right now you are just repeating the talking points you receive from the American media.

    • Robert says:

      Well, they certainly believe in centralized control, but you can hardly describe a country where there are hundreds of billionaires “Communist.”

  23. Beardawg says:

    Why is shorting even allowed ? Imagine a world where good productive companies issue stock and those stocks pay dividends. When they become non-productive or poorly managed, stockholders lose wealth due to the decrease in the stock prices. That’s all.

    I know, sounds like the Truman Show. What fun would that be – eh ??

    • Lisa_Hooker says:

      Go long unicorns and rainbows!

    • timbers says:

      Yah. Don’t allow short selling, and get rid of SEC. That way stocks go can up forever the way everyone on the Federal Reserve knows they’re supposed to.

    • Robert says:

      There is nothing sinister about shorting a stock. A short is simply a skeptic who puts his money where his mouth is. And he has to ask his broker to find someone who will loan the shares to him so that he can do so, and eventually return them(by covering his short position). Naked sorting, on the other hand, is criminal activity, and illegal- except for “market makers.” And that’s the rub. Market makers may include specialists at brokerages, such as Robinhood who know everyone’s positions, and also hedge funds who are subsidiaries of the very banks that own the Fed and are getting fund dirt cheap from them.

  24. MonkeyBusiness says:

    This is a dirty game, but if there are heroes in this game, they are usually short sellers.

  25. Sir Eduard R. Dingleberry III says:

    I’m tired of waitin’ for the stock market and housing market to crash. Yeesh! How long is this all gonna play out? Can’t wallstreetbets just crash it already??? Can’t Powell find his homie to place the shorts before he tapers and jacks rates? What is the holdup??? I ain’t shavin’ my beard or showerin’ until this show hits the road!

    • Cas127 says:

      My Dear Dingleberry,

      Taper may be the word of 2021.

      At this point in the overvaluation saga, even a 0% pure head fake rate hike would immediately stop the mkt insanity.

      And 0% quite possibly wouldn’t tank mkts or real economy, just take wind out of insanely surging sales.

  26. Rowen says:

    Most heavily deleveraged week for hedge fund shorts since March 2009.

    Stocks and crypto all positive for the week. No spectacular jumps, just a steady stream of green ticks.

    With hedge funds scared shitless of a short squeeze, and retail investors flush with cash and student loan freezes, the only way this to deflate this market is to increase margin requirements. Or a full reopening of the economy, complete with RMDs and an end to repayment moratoriums.

    • MonkeyBusiness says:

      Basically the WSB guys ended up making fatcats even fatter.

      ROFL. What a bunch of losers.

  27. Island Teal says:

    Good article and variety of comments. Perfect time to review my theory re Tesla and SpaceX since both were mentioned above.
    Tesla will eventually be rolled up into SpaceX and it will all be passed onto the U. S. Govt who needs it to get back to the Moon and later Mars.
    Elon saves the world 🌎.

  28. breamrod says:

    Elon must be part of the “club” for he seems to be untouchable! Who knows how high Tesla goes although rsi gave a negative divergence on this last high at 900 so maybe it goes to 750 before it goes to infinity! lol

  29. CreditGB says:

    Wow, we are so fortunate that the SEC has prevented even larger, on going frauds in the market place. You know, issues being hyped up -or down- for gain.

    Footnote: This meant to be sarcasm.

  30. Yort says:

    The SEC should investigate Switzerland, as they are dominating certain American company stocks. Bloomberg reported the Swiss National Bank’s portfolio of U.S. equities rose to a record $141 billion as of December. For reference, that is $16,700 per every man, woman, and child who lives in Switzerland….

    Soooo not only do we have individual inequality hitting levels not seen for almost 100 years, we have country (and even continent) inequality spiking as well…and we know how that has ended via the history books (hint- not well)…

    In another 50-100 years perhaps we can add planet inequality to the list, as Earth, Mars, and the outer belt (think “The Expanse”) fight for finacial dominance. Inequality seems to be an universal human trait by nature…perhaps even inevitable no matter how we structure our society???

    Maybe there will be a pill for greed someday…HA

    • YuShan says:

      This will be interesting when worldwide CPI inflation heats up and central banks need to reverse QE. The Swiss and Japanese central banks could then be big net sellers of stocks, because I guess they would want to sell them before they start selling their government bonds.

  31. Mark_2 says:

    “Short sellers are often the only sheriff on Wall Street”

    The remnants of the “invisible hand” of free markets?

    Thanks for pointing this out.

  32. Augusto says:

    I don’t think the comparison of Short Seller to a Sheriff is apt In my view, a Short Seller is closer to a Bounty Hunter, that is a Short Seller works for himself and for money. Plus, it is pretty obvious that Short Sellers have caused the premature or unnecessary bankruptcies of many companies, resulting in elimination of jobs, destruction of communities, and losses in capital investment for shareholders and other stakeholders. Whether Short Sellers do any “good”, is purely ancillary to their real intent of making money. I was always confused by the movie the Big Short when the Short Seller’s are portrayed as “hero’s”. They just made money, which for me doesn’t make them hero’s but unfortunately for many, lots money is evidence enough of heroism. There are a lot better ways to discover fraud than Short Selling, such as the state or securities establishment (i.e. exchanges) implementing proper whistleblower, audit and investigation procedures. Short Selling is to me pure American, wild west stuff. Kind of like shooting some else’s steer and then stripping the carcass , all the while bemoaning the lack of meat or poor quality of hide as the owners watch their animal disappear in disbelief.

    • Jeremy Wolff says:

      Short sellers cannot cause bankruptcy. A company does not need the equity market to function. It could always do a reverse ipo and just buy it’s stock back and go private, exiting the market. Alternatively, a public company can just ignore the price of its stock and continue doing business.

    • Wolf Richter says:

      Augusto,

      A short seller cannot push a company into bankruptcy. Its lenders can. A short seller in this instance is like an investigative reporter — except we really don’t have investigative reporters about finance anymore. They’re all just hyping financial products nowadays.

      But if the short seller reveals a fraud that the company committed to defraud investors, and if after the revelations, the company spirals down and runs out of funds and files for bankruptcy, then it’s the fault of the company’s executives and auditors that committed the fraud, or encouraged it, or aided and abetted it, and they should go to jail.

      • RightNYer says:

        Right. You’ll sometimes hear of people shorting a company, and then it comes out that there was some problem with the business, whether fraudulent or not, that caused its lenders to declare a default or MAE under their credit facilities. But the fact that the short seller had a financial stake in what happened is irrelevant. If the short seller was just a whistleblower without a personal stake in it, the effect would have been the same.

        But people conflate the two into thinking the short selling caused the company to go down.

  33. Without short sellers in a market crash money simply disappears. The short sale allows the sellers losses to be recycled back into the economy.

    • Jeremy Wolff says:

      This is circumstantial. It depends on the quantity of shares that exchange hands at the lower and higher prices. If a stock declines ten percent and the majority of shares are sold at a profit from initial purchase price, then the decline of stock 90% does little in terms of actual losses overall, although the remaining shareholders and hurting.

      The price of a stock going up or down does not show actual gains/losses, only unrealized gain or loss, which doesn’t actual exist (those numbers are imaginary and have no real value)

  34. WSKJ says:

    Have we reached the point of no return ? Kinda feels like it this morning ( Saturday, Feb.6, 2021). Saw some coverage of the Super Bowl, with folks trying to have fun. And maybe we shut down some more pipelines ? Review the sacrifices that were required in order to get the weather right for the Greek fleet to embark for Troy and the long siege……

    Thanks for the news, Wolf. Reviewing the truth as best we can always helps although it is daunting.

    • WSKJ says:

      February 6, 2021
      The current zeitgeist is such that I must add to my earlier comment:

      I do not advocate human sacrifice. I do not advocate armed conflict.

      I advocate the federal government adhering to the U.S. Constitution. People need laws to live by, especially in trying times.

      We still have role models, including a few in public life. Always a few in sports; I hope there are a few in this year’s Super Bowl. (That Wolf is a role model goes without saying.)

      Perhaps this feeling of apprehension is nothing more than the winter of our discontent- or perhaps just the Hunger Moon of February………

      The male Emperor penguins will soon have to prepare for separation from their spouses, and toughing it out for the winter in Antarctica. Our lot- the economy and political “leadership” looking to be on the brink; well, if the Emperors can tough it out through an Antarctic winter, we had better tighten our belts and do our best here in the temperate climes

  35. A says:

    I made a lot of money shorting this company last spring.

    A rumored fraudulent company selling coffee in china during the Covid-19 outbreak? It seemed too good a short opportunity to pass up.

    And boy did it pay off when their Chinese Communist lies were exposed!

    • doug says:

      I think I recall you commenting on it last year? Well done, and not really a gamble after doing your homework.

  36. Stonedwino says:

    Short sellers are indeed good, but there are several short selling practices, now allowed that must be banned outright: naked shorting & shorting more than 100% of a stock float. Otherwise I’m good…

    • Jeremy Wolff says:

      Don’t see how anyone gets hurt if a stock is shorted 140 percent over 100 percent.

      If your company is public, it is subject to the wills of the public.

      It is public information that a company can be shorted more than 100%. So as long as everyone knows that, it seems that there are natural forces in play that counter balance the shorters.

    • JK says:

      I agree with your 100% and the uptick rule should be reestablished. I’m extremely pleased to see these short sellers getting destroyed by the Reddit crowd. No different than one of these lizards going on CNBC and down talking a stock. I think I’ll drink some good red wine tonite and savor their despair. There is a God afterall.

  37. carolinus says:

    I may be wrong about this, but it seems I’ve read recently that one does not have to disclose short positions according to SEC regs like they do with long positions when talking about companies publicly. If this is true, seems like a simple, common sense regulation to apply.

  38. Ozz says:

    Just because it was identified by someone that is a shortseller, one cannot make the argument that short selling is a policeman. I think that is a bit of extrapolation without evidence.

  39. Anon1970 says:

    Many if not most Federal government agencies are understaffed and there are not enough government employees to follow up on complaints and to go after the crooks. One FTC employee recently interviewed on the radio about online ticket brokers noted that staffing levels at the FTC are as low as they were when St. Ronnie was president. IRS audits are reportedly way down from a decade or two ago.

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