When Short-Sellers Attack: How Companies Can Play Defense.
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So it's a regular Monday morning in Asia, you pull up at your listed firm's headquarters, only to find it's been singled out and attacked by research-driven short-sellers. You don't want to end up like Sino-Forest, a Chinese forestry firm that filed for bankruptcy soon after short-seller Muddy Waters accused it of exaggerating its assets. So how should you respond? I spoke with a cross-section of Asia executives, some off the record, some on, to bring you this action plan: Step one: Verify.

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So it's a regular Monday morning in Asia, you pull up at your listed firm's headquarters, only to find it's been singled out and attacked by research-driven short-sellers. You don't want to end up like Sino-Forest, a Chinese forestry firm that filed for bankruptcy soon after short-seller Muddy Waters accused it of exaggerating its assets. So how should you respond? I spoke with a cross-section of Asia executives, some off the record, some on, to bring you this action plan: Step one: Verify. (SOUNDBITE) (English) REUTERS REPORTER JON GORDON SAYING: "You need to analyze the position of these short-sellers immediately and determine if there's any truth behind their claims." Here's how Thomson Reuters risk management executive-VP Philippe Carrel puts it: (SOUNDBITE) (English) THOMSON REUTERS EXECUTIVE VP FOR RISK & TRADE MANAGEMENT, PHILIPPE CARREL, SAYING: "No one embarks on a short-selling campaign without a clear objective and some points that they want to expose. So I would like to see what exactly they want to expose, to see if there're any weaknesses in our balance sheet that we've left uncovered." If there is a weaknesss, disclose it, and move towards compliance. But if there's no truth to the claims, it's time to respond. That leads us to step number two: Counter Strike. This is not a bear attack, you cannot and will not play dead. Call the Media. Call Your Lawyers. File for defamation, if you have cause. Show the market you will fight on, and stem the bleeding of your share price, at least for today. Step three: Transparency. Chances are you now know what the shorters don't like about your books. And they're probably not going to change their minds. They're already put their cash down. But the rest of market is probably still on the fence. You need to win it over, according to Julius Baer's Mark Matthews. (SOUNDBITE) (English) JULIUS BAER, ASIA HEAD OF RESEARCH, MARK MATTHEWS, SAYING: "Invite the analytical community to see you to explain why in your opinion the rational for disliking your stock was erroneous." Step four: Show the world you're in it to win it It's time to work the phones. Call your biggest investors, invite them to double-down. Give them a nice option on a bigger stake. Or if they're not interested, court a white-knight to step in and back up your share price. You don't want to manipulate your stock, but see if there's a way to squeeze the short-sellers back. The best advice for any company though, is to thine own self be true. You absolutely must know your balance sheet from front all the way to the back. And as the Asia Corporate Governance Association points out, you also need to identify any weaknesses in your internal information systems. That means if allegations come up, you have the tools to respond quickly and accurately. As a CEO, it's not just your job to defend your company, but also to make sure it's not in the cross hairs in the first place.