What exactly are you able to do to knock down stocks? What's fair? I sure wish I knew. As I read through Bill Ackman's comment today about how Herbalife (HLF) is basically lying about how the supplement company sells its product, sticking with his accusations that it's a pyramid scheme, I wonder what you are really allowed to do these days to destroy a company's business.
Right now, the Securities and Exchange Commission has left what you can do pretty unclear. Can Bill Ackman, for example, go to corporate headquarters of Herbalife and stand it front of it and say the company should be indicted? Can he take out an ad that says that it is a completely phony company and that the Justice Department should examine its practices? What's the line that can't be crossed?
Similarly, if short-sellers know that Linn Energy (LINE) would be badly damaged if it can't buy Berry Petroleum (BRY), what's fair in trying to stop the deal? Theoretically, if the short-sellers keep pummeling the stock of Linn, there will be a level where the deal could be broken. Why not just bang it down endlessly, in a concerted effort to break the deal, while issuing research that says the whole company is a scheme to defraud?
If this is the case, if these kinds of tactics aren't illegal, why not go after every company whose stock you don't like?
Now I know that when Barry Minkow spread lies about Lennar (LEN), the company took him on and got him in big trouble. Linn can't do that right now, because, presumably, that would hold up the Berry deal. I have no idea why Herbalife doesn't take action against Ackman. It makes me question how wrong Ackman might be, especially because Herbalife paid Minkow to go away when he attacked the supplement company.
Still, though, is all fair in shorting and war? If that's the case, then Linn and Herbalife may very well be the new way to win for shorts. Pretty effective, I might ad. Real effective. And legal?