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Wall Street’s Most Reviled Investors Worry About Their Fate

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“They have this encouraged crowd that won, and I didn’t think they would have the firepower to do it,” said Jason Sippel, who runs stocks at JPMorgan Chase, which includes lending stocks and cash to short sellers. “That was kind of a shot that was heard all over the world.”

Hobby stock traders’ portrayal of short sellers as evil has worried professionals such as Mr. Koppikar, portfolio manager at Orso Partners, a San Francisco fund. “I could probably be more economically successful if I did something else, but I think what we’re doing is for a social cause,” he said.

Short sellers have eliminated corporate misconduct.

Two decades ago, Mr. Chanos began dealing with regulatory filings and interviewing energy market participants about Houston-based energy trader Enron, whom he suspected was using accounting gimmicks to increase revenue and hide losses. His assumption and the associated short position turned out to be forward-looking. Within a year of its investigation, Enron filed for bankruptcy.

Short sellers also alerted of the impending housing crisis sparked by subprime mortgages, ditching mortgage insurer MBIA and investment bank Lehman Bros., the collapse of which in September 2008 led to a financial crisis and devastating recession.

And in the mid-2010s, when the opioid crisis was raging, a short seller exposed Insys Therapeutics, which he believed was inappropriately influencing doctors to prescribe a strong nasal spray containing fentanyl, which played a role in the deaths of at least two patients. (Several former Insys executives have since been sentenced to prison terms on federal charges that the company bribed doctors to prescribe the spray.)

Short sellers often get into lengthy public battles. Tesla, the electric car maker, has been lacking the money for years, and the demand for the vehicles does not justify the share price. But Tesla stocks have skyrocketed lately, and Elon Musk, Tesla’s chief executive officer, has happily slowed down shorts by selling red satin bottoms with the Tesla logo, which he called “short shorts.” .

However, until last month, attacks on short sellers were largely limited to the business and financial worlds. GameStop changed all of that when retail investors found a way to use a “short squeeze,” a classic Wall Street strategy to counter short selling by driving the stock price higher and forcing the short seller to raise more capital to cover losses .

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Robert Dunfee