Short sellers make for easy villains. They root for stocks to fall, profit when companies struggle, and are generally unwelcome at shareholder meetings. CEOs love to call them out—sometimes for sport, sometimes to shift the blame.
Short-selling is legal—investors borrow shares, sell them, and try to buy them back cheaper. Naked short-selling is not. That’s selling shares without borrowing them first, creating phantom shares that distort the market. The SEC cracked down on that in 2008, and there’s little evidence it happens in any real way. But that hasn’t stopped the finger-pointing, the blame games, the innuendo.
Devin Nunes, CEO of Trump Media and Technology Group, which runs the Truth Social social media platform, took his shot last year, sending a letter to Nasdaq in April urging an investigation into possible naked short-selling by market makers like VIRTU Americas, G1 Execution Services, Jane Street Capital, and billionaire Ken Griffin’s Citadel Securities.
While those who don’t see short sellers as scapegoats tend to brush off these complaints—Griffin called Nunes a “loser” in response to the letter—the accusations still reveal something. A new study, Trade as I Say, Not as I Do: Management Rhetoric and Insider Stock Sales, cuts through the noise—of which there is plenty (the combined market capitalization of the companies throwing around anti-short-selling buzzwords in the study was $163 billion, measured as of March 2021, at the tail end of the original meme stock mania). And while the complaints don’t hold up under scrutiny, what happens next is harder to ignore.
The research shows that when executives start talking about the shorts, they don’t dig in to defend their supposedly undervalued stock. The paper, written by researchers from the University of Kansas and Appalachian State University in North Carolina, shows they do something entirely different. The CliffNotes: the same executives claiming their stock is being crushed by short sellers are, at the same time, more likely to be selling their own shares. The likelihood of insider sales jump 70% after companies make these claims—which, if they actually believed short sellers were unfairly driving down prices, would be the last thing they’d do.
So why do it? Maybe it’s because post GameStop, there’s a receptive audience, looking to pounce on the next short squeeze. “The people the message [anti-short selling rhetoric] resonates with are the most unsophisticated in the market by any measure,” says Justin Balthrop, one of the researchers and a professor of finance at the University of Kansas.
Balthrop and his colleagues hope their findings will help put a stop to companies “riling” people up only to use them for “exit liquidity.”
The researchers analyzed public company statements, insider trading records, and financial filings to track how executives talk about short sellers and what they do afterward. They looked at cases where companies used anti-short-selling narratives—press releases, earnings calls, interviews—and then checked whether insiders sold shares, the company issued new stock, or financial restatements followed. By comparing these patterns against firms that didn’t use this rhetoric, they could see if there was a real connection between the claims and what happened next. The full sample set included 4,292 companies, of which 103 used anti-short selling rhetoric between 2018 and 2019. Furthermore, penny stocks were excluded from the study (the average market capitalization as of March 2021 for the 103 firms was about $1.6 billion).
“This is a phenomenon that didn’t exist, these anti-short selling buzzwords were virtually non-existent [in filings and transcripts] prior to 2021,” says Balthrop.
That’s not because short-selling has suddenly ramped up, the paper notes.
“We didn’t find any kind of abnormal uptick” in measures of short-selling that would explain the emergence of anti-short selling rhetoric, says Jonathan Bitting, a finance professor at Appalachian State University, and one of the paper’s authors. Ryan Clark, a coauthor and finance Ph.D. candidate at the University of Kansas, calls out that even within individual companies, short interest often barely changes when executives start railing against short sellers.
If shorting was really the problem, why didn’t they speak up earlier? Many of these companies only started complaining after GameStop made short squeezes a rallying cry—when blaming short sellers suddenly garnered an audience.
The pattern doesn’t stop at insider sales. The research found that companies that push anti-short-selling theories are also 154% more likely to sell additional stock. That means they’re selling new shares to raise cash, which dilutes existing shareholders and often drives the stock price down even further.
Again, if the company truly believed their stock was unfairly undervalued, selling more of it wouldn’t make sense. But when retail traders buy into the narrative, it creates the perfect setup—higher demand, better pricing, and an easy way for the company to raise cash.
The paper makes one thing clear: short-selling activity doesn’t drive the rhetoric—rhetoric comes first, and then the insiders sell. That’s not a defense against market manipulation. That’s executives using a convenient story, one that’s often hard to disprove, to potentially offload shares.
Even more worrisome, the researchers found that these companies are 400% more likely to issue major accounting restatements down the line, suggesting the real problem isn’t short sellers—it’s what’s in the books. These restatements can be catastrophic; studies have shown that a restatement leads to an average stock-price drop of 10%, and more than 20% in cases involving accounting irregularities.
Trump Media & Technology Group’s stock, which has a market capitalization of $4.9 billion, has plunged 30% since it lodged its complaint last year, compared to a 14% gain for the S&P 500 Index over the same time period. Though insiders haven’t sold a meaningful amount of shares since then—most sales were for tax withholding purposes—the company did submit reaudited financials last June after its previous auditor, BF Borgers, was charged with “massive fraud” by the SEC. The firm and its owner, Benjamin Borgers, were fined $14 million and permanently banned from examining public companies. Furthermore, the stock dropped by 6% on July 5th of last year, the first day of trading after the company disclosed it would sell up to 38 million additional shares.
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