Short seller reports on the rise, flexible crisis plan critical: William J Stellmach

New Delhi: Indian companies with global operations need to have crisis management plans in place given the rise in the number of short sellers, said William J. Stellmach, former head of the US Department of Justice's Fraud Section who now works at New York-headquartered law firm Willkie Farr & Gallagher LLP.

He is a partner at the firm's Washington office and leads its global investigations practice, often advising and defending companies featured in short seller reports.

"The number of short seller reports is growing. If you are an SEC (Securities and Exchange Commission) registrant and issuing securities to investors in the US, then you are an attractive target. So having a flexible crisis management plan is critical," Stellmach told ET in an exclusive interview.


Stellmach was the prosecutor on the trial of fraudster Allen Stanford in the US which led to an unprecedented 110-year prison sentence for him for perpetrating an $8 billion investment fraud in 2012.

He said it was extremely challenging to sue short sellers in the US and often counterproductive. "Short sellers have repeatedly defeated defamation suits in the USA, which set an extremely high bar. Another liability theory is to prove fraud by the short seller. But short sellers are generally very transparent in their disclaimers that they may have taken a trading position consistent with their short report, which means they fully disclose their conflict of interest," he said.

The Adani group has been the target of a short seller attack by US-based Hindenburg Research. In another instance, US-based short seller Muddy Waters targeted Fairfax Financial, a Toronto-headquartered investment firm, founded by Indian-born Prem Watsa, with around $80 billion in assets. Muddy Waters targeted Fairfax Financial, alleging that some of its investments in Indian companies were overvalued in its books. Fairfax Financial too denied the claims.

Stellmach's advice to Indian companies is to focus on managing the market fallout. "The best plan of action is to prevent US regulators from getting involved. You need to have the right people to deploy if you are targeted. Your communication should be targeted to immediate stakeholders like lenders, auditors and business partners. Keep your responses tight and crisp, to no more than three pages. And act within seven to 10 days," Stellmach advised.