Short and distort refers to an unethical and illegal practice that involves investors shorting a stock and then spreading rumors in an attempt to drive down its price. Such a practice, most often employed by stock manipulators who trade daily via the internet, involves the spread of unsubstantiated rumors and other kinds of unverified negative news designed to help them realized a profit on their short position.
Short and distort can be contrasted with a pump and dump scheme, whereby the perpetrator takes a long position and then spreads misinformation to drive the stock price up.
Short and distort efforts are often practiced as a part of naked short selling, which involves the short-selling of a security without having first borrowed it or making sure it can be borrowed. In such cases the investor uses the proceeds from the short sale to deliver the shorted shares.
The profit is realized in two ways: in the spread between the price at which the shares were borrowed and the lower price at which they were delivered, and also in the practice of buying more shares than were borrowed at the lower price, which are then put up for sale, further lowering the price of a company's stock.
KEY TAKEAWAYS
- Short and distort is an illegal trading scheme involving selling short the shares of a company and then spreading negative rumors in order to influence the stock price downward.
- Short and distort is made more common through the use of online forums and social media channels to spread disinformation quickly and anonymously.
- Short and distort is a serious crime, and perpetrators can be charged with securities fraud and subject to fines and jail time.