They’ve got a good, but not perfect, track record of actually uncovering illegal conduct by their targets.

• They exposed Nikola’s fraud (including exposing the video they published pretending that their prototype rolling downhill was moving under its own electric power) and their findings led to the Nikola founder’s indictment about a year later.
• They alleged fraudulent disclosures and financial statements by Nigerian conglomerate Tingo Group, and the government ended up indicting the founder for securities fraud.
• They showed that Lordstown Motors was drumming up fake demand by literally paying potential customers to sign letters of intent to join the waitlist for their not-yet-created electric truck. The SEC ended up charging them with misleading investors, and brought action against their auditor who had conflicts of interest.
• They exposed the obvious fraud of EbixCash, a gift card network, and tanked its IPO, by showing that they were lying to investors about the existence of their partners (using photoshopped buildings and fake addresses and phone numbers), lying about app downloads, and almost all of the revenue was from their own sister companies. This exposure brought down its parent company, which ended up in Chapter 11.

They’ve had less success accusing two huge well-connected investors of fraud:

• They published a report that billionaire Carl Icahn was manipulating the share prices of his fund by using a sophisticated ponzi scheme structure that paid old investors using new investors’ cash. The SEC ended up investigating and settling for a disclosure violation about failing to disclose their pledge of more than half the stock as collateral, but didn’t actually find facts confirming the meat of the Hindenburg accusation.
• They’ve gone after India’s Adani Group for accounting fraud and stock manipulation, but that hasn’t led to anything actually uncovered. India’s security regulator has concluded their investigation without findings of wrongdoing, but Hindenburg has doubled down and says the regulator is compromised by corruption. Adani’s founder is close to India’s Prime Minister.
• They alleged that Block/Square was aware of, but doing nothing to stop, widespread fraud in its Cash App and debit card transactions. That wasn’t enough to actually move the stock price, because it was kinda a weak accusation, they didn’t really show that Cash App was any different from any other similar fintech product, and Block is a much bigger company that has lots of other business units.

The problem is that most of us on the outside looking in just see accusations, some of which are proven years later, and some of which never get proven, so we don’t have a good sense of which ones are real or not, whether anything is overstated, or whether it actually makes a difference to the underlying company.

Should it also be illegal for a company to issue press releases when good things happen? Or, maybe, required that they issue press releases any time there’s bad news?

I don’t see a problem with it as long as it’s clear that the group pushing the bad news is honest about their short position. Especially in a world where an advertising duopoly has appropriated nearly all the advertising money that used to support news, and as a result news organizations are crumbling, we need short sellers. Shorting a company is extremely risky, and generally an organization will only take a short position if they’re sure the stock is overvalued. That means they’re going to do deep research on the company – the kind of research that used to be done by financial reporters.

Naturally, if they do take a short position they really need the stock to drop, so they’re going to frame everything they find in the most negative light possible. They’re also going to be extremely aggressive about getting the news out, because they need shareholders who don’t pay much attention to the news to hear about what’s happening and want to sell. While they might not be fully honest about the companies they’re shorting, the kinds of companies they’re shorting are also often not being at all honest about their performance.

I’m sure that sometimes a company gets targeted by short sellers without doing anything wrong. But, I’m even more sure that there are companies out there lying to their investors to keep their stock price high.