“Dear FTC: please adopt tougher regulations…”

Who writes to a federal agency encouraging it to adopt regulations imposing new burdens on the private sector? In at least one recent case, the public-spirited correspondent turned out to be a lawyer representing a short-seller who would profit if the enactment of new regulations caused a target company’s stock price to fall: In one […]

Who writes to a federal agency encouraging it to adopt regulations imposing new burdens on the private sector? In at least one recent case, the public-spirited correspondent turned out to be a lawyer representing a short-seller who would profit if the enactment of new regulations caused a target company’s stock price to fall:

In one instance, a lawyer representing an investor who had shorted Pre-Paid Legal’s stock filed documents with the agency urging the rules’ adoption. Without explaining his client’s motivation, the lawyer, Hal Neier, wrote that “Pre-Paid and companies like it provide concrete examples of the very sort of practices that the proposed rule was designed to eradicate.”

The New York Times has more (Charles Duhigg, “Why Short Sellers Want to Crash the Tupperware Party”, Nov. 13).

3 Comments

  • I belive the general term for that is “rent seeking” – not the tradition method of doing so, but the same underlying concept (modify the rules of the game for my benefit).

    Short-selling is a particularly abusabl form of market activity, just generally speaking, as it’s much easier to get a stock price to drop than to rise.

  • Is that a violation of the securities laws?

  • “Is that a violation of the securities laws?”

    I seriously doubt it. Here’s a much worse example of something perfctly legal:

    Short-sell a companies stock. Announce a nasty lawsuit. Profit. Find some way to get out of actually following through on said lawsuit.

    Perfectly legal. Completely immoral.