Shorting can also help investors in the market at large if it helps bring down companies that are obvious scams. Some short seller reports have pretty famously destroyed companies that were up to no good, preventing further harm to future investors and boosting confidence in the valuations of the rest of the market. If there's no money in doing all of those short seller reports, then people won't do them, and the market will have less information available to it in total, and more frauds will continue to go under the radar.
Luckin Coffee, for example (massive valuation until it turned out a huge number of their sales were fraudulent. Exposed by short sellers). Enron also was in part brought to light by short sellers.
> Orchestrating bad PR to boost your short option earnings is bad.
So legit question, lets flip this around. Lets pretend that I am super confident, and have strong evidence to believe, that company $ABC, currently trading at $100/share, has been committing fraud and is drastically over-valued because of it. Lets say, I don't know, it was intentionally skipping numbers during the day to give the appearance of higher volume[0]. I've determined this by investing a bunch of resources in research to determine that reported numbers don't line up with the actual number of customers, or don't line up with other available data from other sources.
So I take a short position. But I'm not allowed to say anything about it. I keep silent.
Now 3 years later, the fraud is uncovered elsewhere, I make a killing, and my only response is "Ya, I knew they were fraudulent years ago, and here is all of my proof. But I didn't say anything for 3 years."
Would you argue that I'm not complicit in that fraud for all the years I knew about it?
No? You're not complicit with fraud if you suspect someone of fraud but don't go public with your suspicions. I don't think that's up for debate at all tbh.
Huh? You think there's a duty to publicly call out mere suspicions of fraud? I would argue there's the opposite -- people are hesitant to go public with any accusations because of the very real threat of being sued for defamation/libel.
There are very few true obligations to report in the US. All I'm aware of are tied to specific occupations/licenses.
I am somewhat torn on where to stand on this. On one hand I do see why we would want regulation against insider trading & pump and dumps, on the other hand I worry that regulation isn't preventing either, and society quickly would become inoculated if we legalized it.
When I read Robin Hanson's paper on insider trading and prediction markets, I became much more uncertain about whether we should regulate this area than I used to be.
I'd rather we just enact capital gains taxes to lower the overall incentive of financial wizardry to begin with. Force prices of assets back to the value of their dividends. Make it painful to be a growth stock unless your case for valuable future dividends is really compelling.
