Why Are Short Sellers So Dangerous

#investorrelations #capitalmarkets #corporatefinance #finance #accounting #shortattack #ceo #cfo #steverubis #reficioir #mrinvestorrelations $EQIX
Capital Markets / Investor Relations in Two Minutes or Less
What Makes Hindenburg and Certain Short Sellers so Dangerous?
Short sellers like Hindenburg are dangerous to public companies for two reasons: detailed accounting analysis, and independence.
Short sellers have the time and resources to go deep when they spot significant accounting red flags.
For me, the Hindenburg / $EQIX situation is less about accounting and more about contractual risks.
Investors take accounting on faith because the PCAOB acts as an Imprimatur for investors.
If the accounting is that bad, then the overwhelming majority of investors will just never get involved.
My experience of meeting Carson Block of Muddy Waters Research vividly illustrates my thoughts.
Accounting Analysis as a Differentiating Value Proposition
Most Investors are covering between 10 and 200 stocks at a given time, so time is at a premium.
Accounting issues must be so obvious to even consider an analysis.
Red flags that obvious make a stock toxic and investors will just avoid the stock completely.
The investor likely does not have access to information, the time, the resources, or the competency to do a deep accounting analysis.
Is Hindenburg / $EQIX Accounting or Contract Risk?
The $EQIX attack seems focused on accounting issues. However, digging deeper into the overselling of power, the situation seems to be a contractual one.
Investors have long known about data centers benefitting from overselling of power in various ways. The real risk on the issue is that $EQIX fails to deliver on contractual obligations. Such a breach has never really occurred, so investors will react with a shrug, and say tell me something I don’t already know?
Where Is the PCAOB in All of This Stuff?
The PCAOB represents an imprimatur on public company accounting.
The agency's existence allows most investors to take on faith that the underlying accounting is up to standard.
Meeting Carson Block of Muddy Waters on K Street
Circa 2012, I met Carson Block by chance on K Street outside of the PCAOB office building in Washington, DC. Mr. Block was carrying two large brief cases overflowing with yellow legal pads.
Think: Lots of Legal Pads + PCAOB Building + Short Seller = Accounting Advantage!
Key Learnings
Accounting Issues = Toughest to Defend!
These are complex issues that take a lot of time and delicate research to understand and resolve.
Thoughtful and Measure Response Is Key!
Once a company responds, it will lose control of the narrative, as the company will need to go silent for legal reasons.
Do You Have the Right Team and Right Partners?
Resolving short attacks requires the right IR talent, but also best-in-class crisis experts and other consultants to help you resolve the situation.