Justice Department Targets 'Spoofing' and 'Scalping' in Short Seller Investigation; Comments by Brian Chesky, CEO of Airbnb; 'The spirit is lighter in Miami'

1) The ongoing regulatory investigation of activist short sellers got more publicity yesterday with this article in the Wall Street Journal, Justice Department Targets 'Spoofing' and 'Scalping' in Short Seller Investigation, and this one in Barron's, Regulators Intensify Probe of Short Sellers: Reports. Here's an excerpt from the WSJ:

Federal prosecutors are investigating whether short sellers conspired to drive down stock prices by sharing damaging research reports ahead of time and engaging in illegal trading tactics, people familiar with the matter said.

The U.S. Justice Department has seized hardware, trading records and private communications in an effort to prove a wide-ranging conspiracy among investors who bet against corporate shares, the people said. One tactic under investigation is "spoofing," an illegal ploy that involves flooding the market with fake orders in an effort to push a stock price up or down, they said. Another is "scalping," where activist short sellers cash out their positions without disclosing it.

Carson Block, the fiery short seller behind Muddy Waters, was served with a search warrant by an FBI agent in October, said people familiar with the matter, one of whom added that the warrant extended to Mr. Block's phones. Federal agents took computers belonging to Andrew Left, another prominent short seller, according to Bloomberg News, which previously reported the existence of an investigation.

I am friendly with many of the people being investigated because I was an activist short seller myself for more than a decade, so I recently called and spoke with more than one of the victims of the latest witch hunt. To avoid compounding their legal and PR troubles, I'm not going to quote them directly, but want to share a few thoughts:

• I am convinced that regulators are on a misguided, rudderless fishing expedition. 

• There's no new news that I'm aware of – rather, reporters are finally catching up to an old story. The targets were all served with search warrants in October (or earlier) and little appears to have happened since, so regulators aren't "intensify" their probe.
• The idea that these guys (they're all men) are engaged in illegal "spoofing" is ludicrous. One of them said he didn't even know what it meant (neither did I). I learned that to spoof, you need "direct market access," which, to my knowledge, none of them have.
• "'Scalping,' where activist short sellers cash out their positions without disclosing it" sounds nefarious, but it's not. Every report I've ever seen on a stock written by an investor, long or short, discloses their ownership stake, but warns that positions may change at any time, without notice. Duh...
• How dumb do regulators think activist short sellers are? Any time we publish a report, we assume that the company will sue us, journalists will write nasty things, regulators will investigate us, etc., so we're always extra careful to be squeaky clean.
• Regulators – not just in the U.S., but in Hong Kong, the U.K., France, Germany, and elsewhere – have investigated short sellers for more than two decades (I was one of the early ones, back in the days when Farmer Mac and MBIA (MBI) went crying to the SEC and the New York Attorney General's office under Eliot Spitzer). In nearly every case, regulators tried their best to nail what they thought were bad guys – and with almost no exceptions have never come up with anything.

Here's why: activist short sellers are the good guys!

Again and again, we've exposed frauds, malfeasance, extreme overvaluation, hype, and promotions. They should be giving us medals (seriously, the SEC should give awards every year to those who bring them the best tips) rather than engaging in another round of pointless, expensive, counterproductive harassment.

2) Speaking of activist short sellers doing great work, kudos to Nate Anderson of Hindenburg Research for taking the No. 1 spot among short activists in 2021 for the second year in a row, as ranked by Activist Insight. His nine campaigns during the year resulted in an average one-month stock market decline of 14.2%. Nate tweeted:

3) The Pivot conference in Miami finished after lunch yesterday and I flew home to greet my parents, who just flew in from Kenya, where they've retired.

They usually only come to the U.S. once a year for a couple of months in the summer, but they had such a great time when they came last February and March to get vaccinated that they decided to do it again. They're going to spend a month here, mostly at our extended family's place on Lake Sunapee, New Hampshire, but also with visits to Seattle, where my mom grew up (her dad was a city firefighter), and with us in New York City.

The highlight of the morning at the conference was when Scott Galloway and Kara Swisher interviewed Brian Chesky, the co-founder and CEO of Airbnb (ABNB)...

Airbnb reported strong earnings after the close on Tuesday and rose 3.7% yesterday. It's now up 10% (versus 2% for the S&P 500 Index) since we recommended it in our flagship Empire Stock Investor newsletter on October 6. (If you aren't a subscriber already, you can get access to Empire Stock Investor for only $49 for the first year – click here to learn more.)

Chesky is only 40 years old, but unlike so many other young tech billionaires (cough, Mark Zuckerberg), he didn't come across as weird, amoral, tone deaf, or arrogant. Here are some of the highlights of what he had to say:

• We knew early on that the pandemic would be bad because we lost 80% of our business in China in eight weeks.
• The pandemic was the ultimate growing up experience, both for me personally as well as the business. We compressed 10 years of changes into one.
• We shut down nine of the 10 businesses we were in. It's easy to think that because you can do anything that you should do everything...
• Laying people off was the hardest thing I've ever had to do.
• It used to be that people lived in one place for 50 weeks a year and traveled two weeks. That's changing. The line between traveling and living is blurring.
• The transactional part of business travel is over, but businesspeople will still travel to build relationships. There's a reason this conference is in person.

• With remote work, people are spreading out, but they'll still want to come together in person. 

• As borders reopen, more people will live abroad.

• Loneliness is a big issue. 

• Some of the highest returns on investment I've ever seen are hosts who build unique properties like treehouses, igloos, tiny houses, and yurts. Customers love these special experiences.
• I've been living in Airbnbs for months now, traveling with my seven-month-old golden retriever, staying a week or two in Atlanta, Nashville, Charleston, Los Angeles, and now Miami. I'm not sure where next. It's totally a stunt, but it's real. I've found that the bigger the company gets, the CEO's job becomes more abstract. It's easy to forget that I have a real business with millions of customers and hosts. I've been picking up on lots of little things.
• I've been working nonstop for 15 years. It got even more intense during the pandemic, when I was working 16 hours a day, seven days a week. I'm not complaining about my life, but even though I'm surrounded by lots of people, it's hard to develop relationships. I figured by now I'd have a family, but I'm 40, single, and just have my dog.

4) I was only in Miami for 48 hours, but I have to say I was quite impressed with what I saw and heard from speaking with quite a few folks at the conference who live there, many of whom moved from California or New York City.

I think Brian Chesky put it best when he said, "The spirit is lighter in Miami than in San Francisco, to say the least. It's like the first day of college, when everyone is friendly, energetic, and optimistic. That's important for tech companies."

There's seemingly a party every night in Miami Beach – even on a Tuesday! Here are pictures from the dinner, where there were performance artists, and the after-party, where various acrobats performed. It reminded me of Las Vegas. They usually don't let old geezers like me into hip places like this, so it was a special treat...

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.