Written by Glenn Gramigna
ATTORNEY GENERAL ANDREW CUOMO WARNS SHORT SELLERS WHO TALK DOWN STOCKS…”WE ARE WATCHING YOU”
NYS Attorney General Andrew Cuomo accused federal financial regulators of falling down on their job in the wake of recent widespread failures of established financial institutions such as Lehman Brothers and AIG.
“There is no doubt in my mind that these federal regulators have failed this country,” Attorney General Cuomo told NewWNYPolitics.com and other media outlets on Thursday. “The Bush Administration has been ineffective in enforcing existing regulations on the financial community and I know that this failure is an important factor in the crisis we are now facing.”
During the session, Cuomo also warned so-called “short sellers” of stocks who are talking down the value of companies in order to profit from their demise that such conduct is against the law and will be prosecuted.
“I want to warn short sellers that we are watching you,” said Cuomo. “I understand that short selling
is legal. But, if you spread false information about companies as a way of talking down the price of stocks and causing their value to go down, we will prosecute such conduct. The Martin Act gives us broad powers to seek both civil and criminal penalties for such offenses.”
What is short selling?
Here’s an example. Let’s say you borrow a stock that is selling for $20 a share. You then sell it to someone else at that price in the hopes that the price of the stock will go down. When it goes down to $15 a share, you buy it back. You now have the stock plus the extra $5 minus the cost of borrowing the stock originally. Short selling is completely legal and has been for years, though Attorney General Cuomo would like to see the federal Securities and Exchange Commission outlaw it. Some speculators make a lot of money from short selling, though it takes a lot of skill and knowledge.
“I wish the SEC would ban short selling of securities, especially in the current crisis,” Cuomo adds. “I feel that we need new rules to deal with what’s going on now. We need, above all, to stabilize the market right now. As I’ve said, I have both civil and criminal jurisdiction in this area thanks to the Martin Act. We have already received a number of complaints about the activities of some short sellers. If short sellers are talking down the value of stocks in order to facilitate their short selling and we hear about it, we will prosecute.”