The recent decision by Hindenburg Research, named for the ill-fated German airship, to close up shop has fueled speculation in some corners of Wall Street. But the obstacles to short selling are no mystery. - AFP via Getty Images
Nate Anderson shocked Wall Street in mid-January by announcing the closure of Hindenburg Research, the tiny short-selling firm he founded that knocked billions of dollars off the valuations of big publicly traded companies like Icahn Enterprises L.P.
“The plan has been to wind up after we finished the pipeline of ideas we were working on,” Anderson wrote in a note on his website. “And as of the last Ponzi cases we just completed and are sharing with regulators, that day is today.”
The next day, images from an unpublished short report authored by Hindenburg Research appeared online, according to time stamps included with the images, which can be accessed via the Internet Archive’s Wayback Machine. The report targeted Brazilian investment-management company XP Inc. XP and the images found their way onto the Internet through a security breach of Hindenburg’s website, a person close to Hindenburg confirmed. Hindenburg was first made aware of the hack a few days later.
A person close to Hindenburg confirmed that the excerpts were genuine and that the Hindenburg website had been hacked, but declined to elaborate on the firm’s reasoning for holding back on publishing.
On the day Anderson announced his retirement, open interest in bearish put options on XP’s stock spiked by more than 60% compared with the prior session. Open interest in these options spiked again last week, as images from the report started making the rounds on social media. However, since the images first emerged, XP shares have climbed.
“XP is aware of recent unsubstantiated market rumors and reiterates its unwavering commitment to transparency, regulatory compliance and delivering consistent value to stakeholders,” a spokesperson for XP told MarketWatch.
For more than a week, financial-market players have wondered about why Anderson — who rose from relative obscurity to become one of Wall Street’s most feared short sellers — decided to simply walk away from the game at age 40. The fact that Hindenburg may have been planning one last salvo before pulling back has only fueled questions on social-media platforms like X.
In a letter announcing his retirement, Anderson said the pressures associated with running Hindenburg had left him burned out, and that he was calling it quits to spend more time with his family.
Short-selling practitioners who spoke with MarketWatch noted that while speculation over Anderson’s ties to other short-selling operations has mounted among market participants and in the media, the business of being a short seller on Wall Street has become increasingly fraught, even for firms that manage to do it successfully.
Anderson is only the latest short seller to decide that the juice may no longer be worth the squeeze. Longtime prominent short seller Jim Chanos announced plans in late 2023 to convert his firm to a family office and return outside capital to clients. A couple of years earlier, Sophos Capital Management’s Jim Carruthers decided to dramatically scale back operations, as Institutional Investor reported. And last year, the activist short seller Andrew Left was criminally charged by federal prosecutors in Los Angeles for securities fraud; Left has since denied the charges and pleaded not guilty.
Even apart from these high-profile examples, short selling — the art of betting against companies with the hope that their share prices will fall — has become a slog. Shares of companies that investors love to bet against have performed well. In 2024, an index tracking the most shorted stocks on Wall Street rose by more than 25% for the second year in a row, according to Refinitiv data.
Some short sellers who spoke with MarketWatch cited more aggressive pushback from companies, increasingly virulent harassment, and the meme-stock craze that led to the demise of at least one prominent hedge fund and elevated GameStop Corp. GME to cult-like status. And with Donald Trump back in the White House, there are signs of an increasingly harsher regulatory environment for short selling as well, they added.
“Going out publicly against a stock is an invitation for trouble these days. Harassing phone calls, harassment online — it’s really not pleasant,” said Nate Koppikar, founder of short-focused fund Orso Partners, during an interview with MarketWatch.
Balance-sheet partners
Anderson himself has faced plenty of blowback as a result of his work. He has been followed by private investigators, faced unauthorized hacking and electronic surveillance, and even had paid operatives try to worm their way into his personal life, according to a person familiar with his situation.
He founded his firm in 2017 and came to prominence with his short campaign against electric-vehicle maker Nikola Corp. NKLA that sparked the federal prosecution and conviction of Trevor Milton, the company’s founder, for securities fraud. Anderson’s reputation on Wall Street grew larger in the following years as he took on India’s Adani Group IN:512599 and Carl Icahn’s publicly traded investment vehicle IEP, causing their stocks to plunge.
Adani Group responded to Hindenburg’s report by saying its claims were untrue. Icahn Enterprises described the Hindenburg report as misleading and self-serving.
Hindenburg waged these battles not with war chests of funds raised from clients, but with exhaustively researched reports it made public. Anderson would then trade Hindenburg’s proprietary capital and partner with institutional funds that also sold short the shares of target companies, with Hindenburg often receiving a share of the profits.
Hindenburg’s association with the anonymous funds with which it partnered recently raised questions about whether some of its ideas and research came from institutional funds. Sharing research in this manner isn’t illegal, as long as the investor publishing the report discloses that they may have worked with outside partners, legal experts told MarketWatch. Hindenburg has always disclosed that it worked with outside partners, but some short sellers have criticized what they described as a lack of transparency on Hindenburg’s part.
Bloomberg News reported in December about Hindenburg’s relationship with Anson Funds, an investment firm with offices in Toronto and Dallas. Bloomberg reported on court filings made in a defamation case filed by Anson Funds against several defendants in the Ontario Superior Court of Justice that showed how Anson allied with Hindenburg on its short report about Facedrive, a Canadian company. Anson provided Hindenburg with information about Facedrive and suggested how the report should be put together without Anson’s name in it, Bloomberg reported. Hindenburg told Bloomberg it conducted proprietary research for the report and received no third-party compensation.
Emails filed in the Ontario court reviewed by MarketWatch show Anderson exchanging research about Facedrive with Anson employees. Trading records included in a court filing showed Anson had a short position in Facedrive’s shares ahead of the report’s publication, which it started covering on the day the report was published. A representative for Anson declined to comment on the lawsuit or the firm’s relationship with Hindenburg.
Anderson told MarketWatch that Hindenburg has repeatedly disclosed its work with balance-sheet partners in disclaimers published with its reports. As for what inspired his decision to retire, he had nothing further to add when approached by MarketWatch.
“As we and many other U.S.-based short sellers have discussed in public interviews for years, our model involves investing our own capital and sometimes also bringing on a balance-sheet partner. This is one of the most common business models in our industry, it is fully compliant with all applicable laws, and we disclose this in our reports,” Anderson said in a statement shared with MarketWatch.
“As to why I retired — it is all in the letter — it is not based on any threat, health issue, personal issue or otherwise,” he said.
Adani, Icahn and Facedrive all faced regulatory action after Hindenburg published its reports.
‘We don’t like each other’
Anderson’s decision to close his firm comes at a time when the short-selling strategy has struggled for a variety of reasons, sellers who spoke with MarketWatch said.
Backers of short-biased funds have steadily pulled money and reallocated it to other more appealing strategies, like the market-neutral approach favored by multimanager hedge funds, short sellers told MarketWatch.
Data from HFR show funds tracked by their short-biased index have seen their assets decline to about $4.5 billion recently, down from $7.1 billion in early 2009.
That index doesn’t include so-called activist short sellers and research shops like Hindenburg, because they typically don’t run funds with outside client capital. Portfolio managers said the short-selling activist model isn’t particularly appealing to institutional investors like pension funds and university endowments. So short-selling activist funds usually end up investing their own capital or working with balance-sheet partners, as Hindenburg did.
Activist short sellers have become more prominent over the past decade, earning attention in the financial press that far outweighs the capital they have on hand, portfolio managers said.
Many of these firms inspired strong reactions from the public, and even scrutiny from regulators. Activist or not, one portfolio manager at a prominent firm based outside the U.S. described being a short seller as like being a member of a dysfunctional family. Some firms share ideas, but there is also plenty of acrimony and backbiting.
“It’s not even a secret. It’s not a happy family. We don’t like each other,” he said.
Some said they expect the challenges of being a short seller will only grow now that Trump has returned to the White House. Trump appears to see rising stock prices as a critical indicator of his performance, one portfolio manager said, and a regulatory enforcement action against a company will often cause its stock to drop.
“I would imagine that Trump is quite hostile to shorts,” said Edward Van Wesep, a finance professor at the University of Colorado Boulder.
After the election, Trump took to his Truth Social online platform to announce he had no plans to sell his shares in Trump Media & Technology Group Corp. DJT, and called for an investigation into “market manipulators or short sellers.” Shares of the company, which went public last year in a reverse merger, have at times attracted heavy short interest.
As if all this wasn’t enough, the Securities and Exchange Commission now requires investment firms to report short positions worth more than $10 million, or that account for more than 2.5% of an equity security’s total float. The agency will soon start releasing aggregate, anonymized data on investors’ short positions, which they are required to report on a monthly basis.
Republican SEC Commissioner Mark Uyeda — who was tapped to serve as acting SEC chair while Trump’s nominee for the position, Paul Atkins, faces Senate confirmation hearings — said that the new rule could discourage short sellers, the Wall Street Journal reported.
