Mark Cuban is good at making money, and
Share Sleuth appears to be another example of this. Share Sleuth is an investment fund/blog backed by Cuban with a simple business model:
(1) research corporate fraud (
false product claims,
shady financial transactions, etc.)
(2) short the company in question (bet on the stock going down)
(3) report fraud in blog and wait for stock to tank
(4) unwind position for a huge profit
It's a simple formula that would seem to mint money if Share Sleuth can continually uncover fraud. In practice things may be a bit murkier. Share Sleuth must be very careful in its substantiation of claims of fraud (companies or existing shareholders could sue them if they are wrong) and in the timing of their purchase and sale of equity positions (SEC could investigate them for market manipulation). For example, a company called China Fire and Security was
accused of fraud by Share Sleuth. After the report came out the
shares dropped from around $10 to around $6, which angered
existing shareholders. Cuban had most likely shorted the stock, waited for it to drop, and then covered his position, making a bunch of money. Interestingly, 6 months after the fraud report the company trades at $8.57.
So what does that mean for the rest of us? It's an interesting blog to read, but as evidenced by the China Fire and Security article, it would be hard for anyone to make money off the information other than Share Sleuth itself. Is it good for the world? Possibly. More bloggers attempting to uncover corporate malfeasance could help deter companies from misbehaving. God knows investing banking analysts could use some help.