Fighting Ghosts: Defending Against Anonymous Online Short Attacks

Todd Williams | August 8, 2018 

In the past decade, instances of online short attacks on publicly traded companies have become increasingly common. In contrast to the traditional short seller activism led by hedge funds and well known investors, these short attacks have been instigated by anonymous individuals or entities who leverage the platforms of social media and online investing forums to post negative research reports and other articles about target companies. In certain market conditions, such as when there is uncertainty about a company’s valuation, the resulting publicity can have immediate and lasting negative effects on a company’s share price.

In one recent attack, Akoustis Technologies, a U.S.-based electronics company, was the subject of two reports by an anonymous poster claiming that the company was a pump-and-dump scheme, that that company’s core intellectual property was worthless, and purporting to report securities violations to the Securities and Exchange Commission. Following the report, despite attempts by the company to respond, Akoustis shares traded down sharply and have continued to trade at a significantly reduced price since the reports first came out in 2017.

Anonymous online short attacks present unique challenges to companies that are targeted. Not only can it be difficult to determine the identity of the anonymous author or authors but there are risks involved in responding aggressively to counter a misinformation campaign. It pays dividends to have a response plan in place to deal with short attacks strategically and effectively. The following steps should be part of any plan to deal with short activists.

First, companies are advised to keep an eye on financial blogs and other positing sites, such as Seeking Alpha, where reports are often published. Being able to respond quickly to short attacks can help mitigate the potential negative effects.

Second, establish trusted relationships and open lines of communication with key investors. Engaging with and keeping investors regularly informed will allow the company to more effectively combat misinformation if it arises.

Third, consider available methods to identify the individual(s) associated with the short attacks. One avenue is through subpoenas for information regarding user identities to internet service providers and content hosts associated with the anonymous posts. This requires the initiation of litigation, which itself carries risks. The filing of a public complaint may raise the profile of the issue and attract more attention than if the issue were not addressed in the courts. Ultimately, each company must assess whether the benefits of initiating litigation to potentially identify the responsible individuals outweighs the downside risks of increased exposure to the negative comments. Another avenue to consider is reviewing FOIA requests to government agencies regarding the company. This can provide a shortlist of individuals who may be looking into the company and seeking to support claims of wrongdoing.  

Fourth, companies should carefully strategize whether to publicly respond to the attacks, and if so, the most effective channels for doing so. Responding to anonymous posts or reports risks elevating the issue by giving credence to the attacks that may not be warranted. If your company decides to respond with a statement, consider carefully the substance of the response and how the response will be communicated given applicable disclosure and securities laws. The presence or absence of information can become fodder for additional anonymous attacks, as well as the subject of later government investigations, should one arise. Some companies have responded by appointing an independent law firm to investigate the attacker’s allegations. The results of an internal investigation by an independent auditor can provide investors with additional confidence regarding the falsity of allegations posted online.

The rise of online short activism means that companies are increasingly confronting the challenges associated with defending against anonymous short attacks. In addition to the strategies outlined above, some companies have explored information sharing and the forming of alliances to promote crisis management collaboration and in some cases even offering equity investments in the face of short attacks. Regardless of the response strategy, companies are well advised to have a plan in place to address online short attacks quickly and effectively.