When Short Sellers Attack

A playbook for preparing for, responding to and mitigating short seller campaigns

A “short attack” is a campaign in which a short seller publishes a critical report about a target company in order to profit from the ensuing decline in the company’s share price. Following the release of the negative information, which may include amplified and dramatized allegations of wrong-doing, the short attacker may acquire shares at depressed prices to cover its short position at a profit. Following a steady decline of short attacks between 2019 and 2023, short attacks have come roaring back. In 2025, 151 short attacks were initiated at U.S. companies, compared to 122 in 2024. While not all short attacks succeed, they may present significant challenges to target companies. In 2023, for example, the average one-day market reaction to a short attack was -7.1%, with the steepest decline being an 83.6% plunge.

Short attackers typically build a position and then create the conditions for a stock-price decline by publishing negative theses often amplifying perceived risks or asserting certain allegations in a manner designed to negatively impact the market. If their initial campaign fails to move the stock, some short sellers will often escalate with increasingly aggressive claims, dramatic reinterpretations of routine disclosures or sensationalized “red flags” in an effort to force the downward reaction their short thesis requires. Short attackers may even contact a company’s outside audit firm in an attempt to interfere with an audit or quarterly review in hopes of forcing a delay in an upcoming earnings announcement and a late annual or quarterly report, either of which may result in a precipitous decline in the stock price.

With target companies spanning a broad range of industries, all companies should understand the vulnerabilities that short attackers look to expose and the manner in which short attackers operate. Vulnerabilities that have been a recurring theme in short attacks include issues of executive turnover, pending regulatory challenges, financial reporting irregularities, the failure to achieve financial goals and the abrupt departure of key executives.

Playbook for Responding to a Short Attack

Because short attacks are fast-moving and often unpredictable, having a predefined response framework enables the company to act swiftly, consistently and with minimal disruption. The playbook should remain flexible enough to adapt to the particular facts and the nature and severity of the attack.

Carefully analyze the situation. Management should review all allegations and be prepared to launch an investigation if necessary. This initial investigation can be conducted internally, unless allegations are of a nature that warrant bringing an outside advisor to do its own audit or investigation (such as might be the case with allegations that relate to accounting or financial reporting issues, internal controls, compliance with laws or other similar matters). Management should also inform the company’s board of directors about the attack and keep the board regularly updated regarding the situation and all developments.

Be prepared to decide whether to deliver a media response. Not every short attack justifies a public rebuttal; if the market is largely ignoring the report, a media statement can inadvertently amplify it. The better course might be a light touch such as a brief reminder to shareholders to rely on the company’s disclosed financials and long-term fundamentals, or leveraging analyst relationships to reinforce confidence in the company’s performance. If a substantive response is necessary, it should directly and systematically address each allegation with verifiable data, clear explanations and a tone that conveys control and credibility.

Understand the short attacker. Management and its advisors should research the short seller’s prior investments and campaigns to identify patterns, conflicts of interest or self-serving motives that diverge from shareholders’ long-term interests. These details can inform both strategy and messaging. Working with national and local media to publish fact-based reporting on the short attacker’s track record and tactics may help to undermine its credibility with investors and other key constituencies.

Balance sheet strategies and insider purchases. Share repurchase programs, tender offers, insider purchases and even special dividends can signal strong management confidence in the company’s strategy and long-term performance. These tools may also increase the economic pressure on short sellers by raising the cost of maintaining their positions. When deployed thoughtfully in the wake of a short attack, they can help stabilize sentiment and reinforce market confidence.

Seek regulatory intervention. In appropriate circumstances, engaging regulators can disrupt or deter a short attack, particularly where the short attacker’s conduct suggests market manipulation or other unlawful activity. One potential avenue is submitting a confidential “bedbug letter” to the SEC outlining specific concerns about manipulative tactics. Even the prospect of regulatory scrutiny can materially raise the short attacker’s risk profile and undermine the economic viability of their position.

Actively engage with the company’s core constituencies. The company should maintain open, ongoing dialogue with major shareholders and research analysts to understand their concerns and perspectives. By addressing issues transparently, the Company can build a foundation of trust that may help counteract negative narratives during a short attack.

Analyze the merits of potential suits against the activist. If the company has become the target of a short attack, it should analyze the merits of a potential cause of action against the activist before deciding to pursue legal recourse. Causes of action, such as tortious interference with contract and business relations, stock manipulation and defamation, might be available to remediate harm to the company and the shareholders, but litigation carries with it significant costs and reputational risk. Litigation could open a company up to discovery, shining a spotlight on the subject matter of the short attack.

What Companies Can Do Now

By taking certain steps now, companies can strengthen their credibility, reinforce shareholder confidence and reduce the likelihood that a short campaign gains traction. The measures below outline how companies can position themselves to respond swiftly and effectively while also minimizing the risk that a short attacker’s claims take hold in the first place.

Develop a robust communication strategy. A communication strategy, focused on articulating the company’s strategic vision and operational progress can maintain shareholder confidence throughout a short attack. Maintaining open dialogue with major shareholders and research analysts to understand their concerns and perspectives builds trust and can diminish a short attacker’s claim. By staying attuned to market chatter and investor sentiment, companies can use the feedback to refine messaging and address misconceptions before they gain market traction. During a short attack, companies should be ready to maintain a steady cadence of positive, factual updates, even if that requires temporarily lowering the threshold for what qualifies as newsworthy. Consistent disclosure of operational progress, milestones and achievements helps anchor investor confidence and drowns out the negative narrative.

The best defense is often the best offense. Identifying, assessing and mitigating vulnerabilities in advance of a short attack can lead to valuable returns on the back end. By regularly evaluating their operations, financial reporting, internal controls and governance procedures, companies can eliminate weaknesses that short attackers might otherwise have exploited. Among other strategies, engaging a stock monitoring service to track changes in short positions around the market and shifts in the shareholder base can help companies stay vigilant.

Establish a crisis response team. In many cases, not responding to a short attack may make the allegations fizzle out on their own. However, if a quick internal analysis exposes a more serious issue, responding to a short attack within a short time frame can be critical. A successful crisis response team consists of key internal personnel, external advisors and a public relations firm that can be mobilized quickly. Within the team, each member should have a clearly defined role. Ready-to-go fact-based response protocols, templates and processes for rapid, evidence-based rebuttals ensure that the company can respond swiftly with detailed, point-by-point refutations supported by data and clear explanations.

Prepare for a proxy fight. Short attackers typically seek a quick profit and exit their position within a short period of time. If a short campaign is successful and the stock price drops substantially, a campaign for board seats to unlock shareholder value and for board change could be on the horizon. In light of this, companies should assess their defensive structure, board composition and corporate governance practices through the lens of an activist targeting board seats.

If your company is targeted by a short attack, or if you have questions on these topics, we encourage you to contact your Vinson & Elkins team.