I’m confused how/why activist short-selling is legal but pump-and-dump scams are illegal. Isn’t it basically the same? Short sellers often get it wrong or blatantly distribute FUD.
Hindenburg has proven to be well-researched and legit though.
> Short sellers often (...) blatantly distribute FUD.
I'm going to call a [citation needed] on that. It's already very illegal to spread false information in order to profit from short-selling. In fact, I'd say that shorts are overly scrutinized in comparison to longs. Both are important for price discovery and both have the potential to cause a misallocation of capital if they spread false information in favor of their position, yet people seem to have a positivity bias that makes them more willing to forgive someone who spoke positively of an overhyped stock than someone who spoke negatively of a good stock.
Given short-sellers' importance in exposing "creative accounting" and excessive hype, I worry that the current popular sentiment against them will discourage further shorting even more than the financial incentives already do (a long has an unbounded upside with the downside capped at 100%, while a short has an unbounded downside with the upside capped at 100%).
Shorting and pump-and-dumps are not one and the same, that's why one's illegal and the other isn't.
Doing a bunch of research, publishing it and saying "I'm shorting this stock because of the research I've done, here are the market conditions that would perpetuate the drop I anticipate it will" is completely legal and helps keep markets from believing their own hype too much.
Pump and dumps are sort of the opposite of that. there's usually very little legitimate research and it's stuff that serious investors don't touch.
You are not confused you just do not like it. Hindenburg is well within their first amendment rights. And they are putting their money where their mouth is!
If pin down an exact definition of what you mean by pump and dump, the answer will probably reveal itself to you.
Regular shorting is what people mean by buying puts/selling calls or selling borrowed stock.
The pump and dump is you getting other people to buy/sell stock by lying about it.
The difference is the fraud, for Americans, false statements of fact are not (always) protected by the first amendment. Depending on the target and the harms caused the supreme court thinks there are some statements that can be made criminal. The court is moving in the direction of expanding the amount of speech that can be prosecuted in this area. If United States v. Alvarez were decided today, it might have a different outcome.
Where the statements are true, they are not just legal, they are encouraged. The more legitimate information there is, the more efficient the market is.
Hindenburg has proven to be well-researched and legit though.