Reuters published an interesting article about lawsuits against short sellers… like when Overstock sued Gradient Analytics and Rocker Partners.
“Short sellers” profit when a company’s stock price goes down. Negative information about companies tends to send the stock price down, so you can see the potential correlation here… short sellers benefit when negative information is made public.
David Rocker, retired general partner of Rocker Partners, discussed his lawsuit experience with Overstock.com. He was accused of purposely trying to push the stock price down.
You can see how analysts may feel pressure from companies to write positive reports about companies. According to the article:
For an analyst, “life is a lot easier if you’re positive than if you’re negative,” Rocker said, citing various reasons why shareholders, company managers, investment bankers and commercial bankers would like to see positive research reports. Even the government, Rocker said, benefits from higher capital gains tax revenue when stocks move higher.
In regards to Overstock and its lawsuit, the artilce said:
Overstock filed a lawsuit in 2005 claiming stock-research firm Gradient Analytics Inc., of Scottsdale, Arizona, conspired with short-sellers, including Rocker Partners, to drive down its share price by issuing negative research reports. The U.S. Securities and Exchange Commission ended its probe into Gradient in February, and said it would take no action.
“Gradient had already given Overstock its lowest possible rating before we established a short position,” Rocker said in defense of his firm.
I find it interesting that when a company like Usana or Overstock is challenged regarding its business practices and disclosures (or lack thereof), one of the first “defenses” the companies throw out is that the challengers must be short sellers.