The Anonymous Short: Seeking Alpha and Message Boards

Posted by on March 20th, 2014

KCSA represents a lot of smaller public companies that often have a very vocal group of retail investors with large short positions.  The “shorts” will often write negative content about these companies in an attempt to drive down the price of the stock and generate significant and outside returns.  Our clients are very sensitive to this activity because their stocks are their currency and “shorts” can have significant negative impact on the business decisions made by management.  Often, after a particularly scathing post on Seeking Alpha or a Yahoo Message board, we will get a call from a CEO or CFO ranting and raving about blatant lies being posted and asking what we can do to either get the post removed or rebutted.

New York Times columnist, Andrew Ross Sorkin, reported in the March 18th issue of the paper that David Einhorn is taking Seeking Alpha to task via the courts to reveal the name of an anonymous blogger who wrote about a position that Einhorn’s Hedge Fund, Greenlight Capital, was taking in Micron ( which is not a KCSA client).

Was this blogger giving the market information it needed to make informed buying or selling positions?  Was he/she trying to influence the stock performance for personal gain? Do they have the right to remain anonymous? My take is nuanced.

The only way the capital markets are supposed to work is if any and all investors have access to the same information at the same time. When information isn’t readily available, or when insiders know something before others do and are able to trade on this information, an imbalance occurs and individual (and institutional) investors suffer. As Sorkin wrote, “In an industry whose lifeblood is information, this case underscores the struggle between secrecy and transparency.”

Furthermore, when lies, half-truths and falsehoods are given equal footing with the truth, and when there is a shield behind which to hide when spreading these lies, the market suffers.

The problem is that for outlets like Seeking Alpha that rely upon anonymous insiders who have vested interests taking a position (either long or short) in the companies they blog about, that anonymity can move markets and hurt companies and investors.  Einhorn’s suit raises major issues for both the financial markets and for the media that covers them.

“If Mr. Einhorn were to prevail, the case could have a chilling effect on the free flow of information to traditional news outlets.

But the result could force Seeking Alpha, which traffics in financial rumors and speculation for more than two million registered users, and other sites like it to change their practices, preventing anonymous contributions.

And Mr. Einhorn, a longtime champion of transparency when he singles out companies and other market participants, may find himself at the center of a tricky balancing act.”

What’s your take?  Where should anonymity stop and transparency reign?