Activist short sellers are investors who take a short position in a company and then publish research arguing that the stock is overvalued or that the company is committing fraud. The profit comes from the share price falling after the report. Academic studies of these campaigns find that they are associated with sizable negative abnormal returns and that most are run by activist hedge funds. They also show why the practice is contested: the same publicity that can speed up price discovery can, if it is deliberately misleading, amount to securities fraud. This article reviews the research, the best-known cases as the public record states them, and the legal line.
Activist Short Selling by the Numbers
| Figure | Value | Source |
|---|---|---|
| Share of short campaigns run by activist hedge funds | Nearly 80% | Appel & Fos (2024) |
| Abnormal returns associated with short campaigns | Negative, about 7% | Appel & Fos (2024) |
| Share of reports the targeted firm responds to | 31% | Brendel & Ryans (2021) |
| Toronto share-price fall on the day of the Sino-Forest report (June 2, 2011) | 21% | Globe and Mail, June 2, 2011 |
| Counts on which Andrew Left was found guilty (June 1, 2026) | One scheme count and 12 securities fraud counts | Fenwick |
What activist short sellers do
An ordinary short seller bets quietly that a price will fall. An activist short seller adds a public step: after building the position, the fund publishes a report, often detailed and forceful, that sets out why it believes the company is worth less than its market price or is misrepresenting its business. The goal is to persuade other investors to sell. Everything in such a report is the short seller’s own claim. It can turn out to be right, wrong or partly right, and it comes from a party that profits if the price falls.
This is the mirror image of long-side activism, where an investor takes a stake and pushes a company to change. If you follow that side of the market, see our articles on Schedule 13D activist investors and spotting 13D campaigns. Short campaigns have no filing that announces them in advance, which is part of why they surprise markets. For background on measuring short positioning, see short interest data.
What the academic evidence says
Appel and Fos (2024), “Short Campaigns by Hedge Funds,” published in the Review of Financial Studies, report that the number of short campaigns by hedge funds “has dramatically increased over the last two decades,” and that nearly 80% of campaigns are undertaken by activist hedge funds. Short campaigns are associated with negative abnormal returns of about 7%. The authors add: “We do not find evidence that such communication is manipulative.” That is a finding about campaigns on average. It does not clear any individual campaign.
Brendel and Ryans (2021), in the Journal of Accounting Research, studied how targeted companies react. They report that the frequency of these reports has grown substantially in recent years, and that firms respond only 31% of the time. Responding is more likely when returns are negative and when the report contains new evidence. They also find that firms that launch internal investigations after a report is released have significantly higher subsequent rates of stock exchange delisting and SEC enforcement actions, and lower rates of being acquired. That is an association; the study does not show that the report caused those outcomes in each case.
Why publicity can matter: limits to arbitrage
Short selling can be hard or expensive for some stocks, which in theory lets overpriced shares stay overpriced. Ljungqvist and Qian (2016) argue that small arbitrageurs targeting hard-to-short companies get around this by revealing their information to the market “in an effort to induce long investors to sell so that prices fall.” In their words, “as long as the information is credible, revealing it accelerates price discovery.” On this view, publicity is a tool that substitutes for the capital a small fund lacks, and credibility is what makes it work. For related dynamics when shorts are crowded, see short squeeze explained.
Well-known cases, as the public record states them
The cases below illustrate how campaigns unfold. Statements about report contents are the short sellers’ allegations, not established facts.
Sino-Forest (2011). Muddy Waters published its report on Sino-Forest on June 2, 2011. The report claimed that the company “massively exaggerates” its assets and “has always been a fraud.” Sino-Forest shares fell 21% in Toronto that day, according to the Globe and Mail. Later share-price moves differ by source, and we have not verified later regulatory outcomes, so we do not describe them here.
Nikola (2020). Hindenburg Research published its Nikola report on September 10, 2020. Hindenburg alleged that Nikola was “an intricate fraud built on dozens of lies.” Separately, a Manhattan jury found Nikola’s founder, Trevor Milton, guilty in October 2022 on three of four criminal counts of fraud, and he was sentenced on December 18, 2023 to four years in federal prison. In March 2025 President Trump pardoned him; Milton announced the pardon on March 27 and the White House confirmed it the next day. The conviction, the sentence and the later pardon are all part of the record, and the prosecution was a government case, not Hindenburg’s.
Adani Group (2023). Hindenburg published its report on the Adani Group on January 24, 2023, alleging stock manipulation and accounting fraud. These were Hindenburg’s allegations.
Hindenburg’s closure (2025). On January 15, 2025, Hindenburg’s founder announced the decision to disband the firm, writing that there was “not one specific thing — no particular threat, no health issue, and no big personal issue.”
We found no verified figure for any short seller’s overall hit rate, so we make no claim about how often reports prove right.
The legal line: criticism versus short and distort
Publishing negative research is lawful. Publishing it as part of a scheme to manipulate the price is not. “Short and distort” is the label for the second pattern: taking a short position and then spreading false or misleading claims to drive the price down. Companies often accuse critics of it, and the Appel and Fos finding that the average campaign does not look manipulative is a reason not to assume the accusation is true in any given case.
The most prominent recent prosecution is that of Andrew Left. A federal indictment was announced in July 2024 (July 25, according to the Department of Justice case page). It charged one count of engaging in a securities fraud scheme, 16 counts of securities fraud and one count of making false statements to federal investigators, and described a long-running market manipulation scheme with profits of at least $16 million. At that stage these were allegations. On June 1, 2026 a jury found Left guilty. According to the law firm Fenwick, he was convicted of one count of participating in a securities fraud scheme and 12 substantive securities fraud counts, and acquitted on four substantive counts. A sentencing hearing is set for December 1, 2026, so no sentence has been imposed as of this writing. Left has disputed the charges. We have not verified the status of any related civil case or of post-trial motions or appeals, and we do not describe them. For the penalties that apply to market misconduct more broadly, see insider trading penalties.
How to read a short report
A short report is a document with a conflict of interest, and it deserves the same skepticism as a company press release. Useful habits that follow from the evidence above: separate the claims that can be checked against primary filings from those that cannot; note whether the report presents new evidence, which Brendel and Ryans link to firm responses; and watch how the company responds, since the same study ties internal investigations to later delisting and enforcement. Company disclosures of material events appear in 8-K filings. None of this predicts which side is right, and a heavily shorted stock can also be squeezed upward.
Limitations
The research supports average statements, not forecasts for a single campaign. The roughly 7% negative abnormal return is a figure about campaigns in one study, not a measure of what an investor could have earned after trading costs, borrow fees and the speed at which prices move on publication. We have no verified data on how those costs affect outcomes, and we found no verified hit rate for any short seller.
The case record is also uneven. Several facts here rest on news reports and on a law-firm summary rather than primary court documents, the Sino-Forest share-price fall is the only quote-verified figure for that case, and the Left case is unresolved until sentencing and any appeal. Allegations in short reports are not findings, and a company’s silence or response is not proof either way. Nothing here is investment or legal advice.
FAQ
What is an activist short seller?
An activist short seller takes a short position in a company and publishes research arguing the stock is overvalued or that the company is misrepresenting its business, hoping the price falls. Appel and Fos (2024) report that nearly 80% of hedge-fund short campaigns are run by activist hedge funds.
Do short seller reports move stock prices?
Appel and Fos (2024) find short campaigns are associated with negative abnormal returns of about 7% and no evidence that the communication is manipulative. That is an average across campaigns, not a guarantee for any one report.
How do companies respond to short reports?
Brendel and Ryans (2021) report that firms respond only 31% of the time, more often after negative returns or when the report has new evidence. Firms that launch internal investigations have higher later rates of delisting and SEC enforcement, an association rather than proof of cause.
When does short selling research become illegal?
Negative research is lawful, but publishing it as part of a scheme to manipulate the price is not. Andrew Left was found guilty by a jury on June 1, 2026 of securities fraud counts, with sentencing set for December 1, 2026; he has disputed the charges.
References
- Appel, I. & Fos, V. (2024). “Short Campaigns by Hedge Funds.” Review of Financial Studies, 37, 1460–1493. doi:10.1093/rfs/hhad092
- Brendel, J. & Ryans, J. (2021). “Responding to Activist Short Sellers: Allegations, Firm Responses, and Outcomes.” Journal of Accounting Research, 59(2), 487–528. doi:10.1111/1475-679x.12356
- Ljungqvist, A. & Qian, W. (2016). “How Constraining Are Limits to Arbitrage?” Review of Financial Studies, 29(8), 1975–2028. doi:10.1093/rfs/hhw028
- U.S. Department of Justice. “United States v. Andrew Left.” Criminal case page. justice.gov
- Fenwick. “Criminal Conviction of Activist Short Seller Andrew Left Signals New Era.” fenwick.com
- Globe and Mail (June 2, 2011). “Sino-Forest shares plunge on allegations.” theglobeandmail.com
- Hindenburg Research. Nikola report: hindenburgresearch.com/nikola; Adani report: hindenburgresearch.com/adani; closing note, January 15, 2025: hindenburgresearch.com/gratitude.
- Associated Press (March 28, 2025). “Convicted founder of electric vehicle startup Nikola pardoned by Trump.” ksat.com
- Associated Press. “Nikola founder Trevor Milton gets 4 years in prison for fraud.” news.yahoo.com
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