Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street

by Sheelah Kolhatkar

Short sellers have an unsavory reputation in the market, as something akin to trolls who rejoice at the misfortune of others. Their livelihood depends on stocks going down, making them the natural enemies of most investors. Shorting is so risky, with potentially unlimited losses if a stock keeps going up, that only the most sophisticated investors, such as hedge funds, generally engage in it. Naturally, most corporate executives see the shorts as enemies of the happy stories they’re trying to tell about their companies, which tend to be full of puffery. For that reason, short sellers play a crucial role in the market, as the only actors who are motivated to look for problems at publicly traded companies—such as accounting fraud—which can be covered up for years. Short sellers were the first ones to point out problems with Enron. But the field is also filled with opportunities for abuse.