Short seller Kerrisdale Capital raised eyebrows this past week, not just for a well reasoned take on why they were short Lumen Technologies, but also because of the disclaimer at the bottom of their report.
In the wake of short seller Andrew Left’s indictment, Bloomberg reports that activist short sellers are tweaking the disclaimer language they are using on their reports to increase transparency of how they trade around positions.
Kerrisdale was the most widely noticed example last week, when they used the Lumen report as an opportunity to update their disclaimer, which in part references the SEC’s complaint against Left: “Prior to this complaint, Kerrisdale’s understanding of securities law was that by not releasing false or misleading information in one’s communications and by disclosing to the public that one is long or short a given security, and therefore biased, that there needed to be no restrictions on one’s trading of the covered security.”
“Furthermore, as can be seen in the disclaimers above, Kerrisdale discloses that it will transact in the securities covered herein following any communication (i.e. we will buy or sell the security post publication), and may be long, short or neutral at any time after any communication.”
“But, in light of this complaint, and following its logic, perhaps it would help investors to just assume the following: assume we have shorted lots and lots of the stock of the Covered Issuer immediately prior to publication, and assume we will buy lots and lots of the stock of the Covered Issuer to cover our short position immediately subsequent to publication,” it continues.
“To us, providing a hypothetical but potentially inaccurate trading intention, upon each communication of opinion about a security, doesn’t make much sense. Rather, we think the longstanding standard of disclosing our directional bias, and avoiding false or misleading information in our fundamental arguments, is the appropriate standard opposed to communicating to readers a future trading intention that may not turn out to be accurate.”
It concludes: “So in the absence of second-by-second trading updates and so that investors don’t feel wronged that we may close out of a lot of a position very quickly after publishing, just assume that that is exactly what we’ll do. Then, you won’t be, er, defrauded. Or something like that.”
They then said cheekily on X last week, summoning Citron Research’s well known “Cautious Investing to All” tagline:
Glad people liked the disclaimer. Cautious Investing to All ✊
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) August 28, 2024
Meanwhile, Andrew Left’s lawyer, James Spertus, told Bloomberg this week: “The theory of the case is that the people who publish truthful information must also disclose their private trading intentions — that is going to cut off the flow of truthful information to the markets.”
“Prices don’t always move toward the target in a linear way and it could take a year or two before the target is reached,” he added. “The idea that someone has to hold on until their target price is reached or disclose their own trading intentions — that’s just going to stop the flow of information to the market.”
As Zero Hedge has had on our site for more than a decade now, our “full disclosure policy” states as follows: “Like David Einhorn, we think that talking about investing and investments is, in every case, a good thing™ and should be encouraged at every turn. Even idiots should talk about investments. It makes it much easier to identify and deal with them (and it keeps us writing about financial idiots). As to writing about investments, we plan to do a lot of it.”
“So how do we plan to handle conflicts? We don’t. You should assume that at all times we are so totally just talking our book it would shock and awe you like the unexpected, early-morning arrival of a cluster of BGM-109C Tomahawks (were you a believer in the importance of “optics” that is).”
As we said then, we’ve always wondered this: why would you want to read about a position so uncompelling that the author doesn’t have the stones to put their money where their keyboard is? Even if you elected to read such material for entertainment value (what else is there anymore?) why on earth would you ever consider it “more credible.”
Tyler Durden
Mon, 09/02/2024 – 11:25
