[tyler_larson]

Trading on research, no. But attempting to artificially manipulate the market while doing so is effectively "pump-and-dump" but short instead of long. A lot comes down to timing and exactly what the communication says.

Not a sure-thing conviction, but certainly a dangerous business plan.

[theptip]

Matt Levine wrote about this recently, and comes to a somewhat different conclusion (though he's not a lawyer):

https://www.bloomberg.com/view/articles/2018-02-09/can-noisy...

> If you think a company is bad, or fraudulent, you can sell its stock short and try to profit when everyone discovers its problems and the stock drops. If you want to hurry that process along, you can always noisily publish research reports explaining why the company is bad or fraudulent. If your research reports convince other investors of your thesis, then the stock will drop, and you will make money. There are more longs than shorts, and more dicey public companies than noisy short hedge funds, and so people who use this strategy tend not to be especially popular. In particular people often go around accusing them of fraud, or market manipulation. "Wait," people ask, "how is it not manipulation to short a stock and then publicly announce that the stock is bad?" I am always confused by this complaint. Just flip it around: It's not manipulation, surely, to own a stock and then publicly announce that the stock is good.

(Followed by further justification of this position).

[bonzini]

But he more or less assumes that you are stating an opinion on the company, rather than misrepresenting or downright inventing bad news.

[theptip]

True, that's the actual crux of the question here; if you are inventing bad news and trading on it, then by my reading you're probably engaging in stock manipulation.

On the other hand, it seems that uncovering new true information, and then taking a short position on it, not illegal.

A lot of the comments in this thread were assuming that there was some crime just from reporting the bad news and trading on it, unconditionally on whether or not the news was true.

[comex]

Apparently known as "short and distort". See also "When Does Short Selling Become Manipulation?":

http://www.klgates.com/files/tempFiles/901e34d6-b3ee-4ac4-bd...

[theptip]

From that paper, 'The term “manipulative... connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities."

If the claims you're making are true, then it's not deceiving or defrauding, even if the way the information was published was immoral under standard professional ethics.

If these vulnerabilities were misrepresented by the short sellers that funded it, then I suspect that would bring them into stock manipulation territory.