Imagine you had a great company and you listed it on the stock market and were then targeted by a foreign-based finance business that decided to put out press releases overseas telling everyone your company was dodgy! Because of this press release, the Aussie business press informed shareholders of these potentially true accusations and the share price of the business tanked.

If the press release was true, the actions of the short-seller are meritorious. But if they’re false it has cost the company owners (the shareholders) a lot of money and the short-seller makes a squillion!

Now a normal person would think “well, some legal action might change all that”, but think again.

In a great exposing piece in today’s SMH, one of Australia’s best journalists, Adele Ferguson, has at long last shone the spotlight on this unsavoury stock market practice.

Adele looks at the case of Rural Funds, which took an overseas short-seller to court and won a $900,000 judgement. But the scoundrel refuses to pay, saying Aussie courts have no power to force them to pay.

Last year, Texas-based Bonitas Research, an activist short-selling operator, tweeted: “We are short Rural Funds Group … and believe it is a fraud. Expect [the company] to ultimately be worthless. New Fraud Report just released on our website ...”

“Within 30 minutes, Rural Funds' share price had plunged 42 per cent, wiping hundreds of millions of dollars off its market value as shareholders panicked and dumped the stock,” Adele explained.

That was a disgrace. But who’s going to do anything about this?

Short selling works this way. A short seller ‘borrows’ stocks from a big super fund and pays a fee to do so. He sells this stock driving the price down (big selling will do that) and he then buys the stock back at a lower price, gives the stock back to the super fund, and makes a profit.

Short selling can be OK, particularly if the market has gone crazy mad on a stock. Then it brings the price back to reality. But companies such as Harvey Norman, Corporate Travel Management and Wisetech have been victims of false statements made overseas that the business press here reports. But the short seller can’t be taken to court,.

Let me repeat: big selling kills share prices. Self-funded retirees hate this short-seller action as it shrinks their capital, which they want to preserve to live off. Ordinary investors are often taken for ride by virtual criminal short sellers, who make stuff up to kill share prices.

In interviews I’ve had with Harvey Norman chairman, Gerry Harvey, he calls them criminals and would love to take them to court, but as the Rural Funds case shows these overseas short sellers can’t be effectively punished by local courts.

In some cases, these overseas operators do have links to local short sellers and it might be time that ASIC or the Federal Government took legal action to try and argue that these local profiteers from these overseas press releases are actually accessories before the fact!

ASIC says it’s monitoring the problem but even if the regulator says it was investigating a potential false press release designed to bring the share price down, mud sticks and share prices slide. Many investors would sell first and ask questions later, which is what the short sellers want anyway! Here’s a list of the companies that are the most short sold right now.

Given the fact that the Federal Government has forced many Australians into the stock market via their super funds, this clearly bad situation needs to be sorted out ASAP. However, I suspect it will remain in the too-hard basket until accessories to these possibly criminal short-selling stunts are forced to have their day in court.