John Fichthorn had been in the hedge fund business for more than 20 years when a half-hour phone call with a stranger put him on high alert.
In December 2017, Fichthorn — a veteran short-seller and the founder of hedge fund Dialectic Capital Management — had joined the board of a troubled small-cap company called Health Insurance Innovations. But when he happened to mention its name to a prospective investor a year later, the man told him an alarming detail.
“There’s a multibillion-dollar fund out there going around with a short report trying to pay people to publish it on their behalf,” Fichthorn recalls the man saying.
“He was very nervous about telling me any of this,” says Fichthorn. Short-sellers soon began pounding the stock, so he called the man back and says he finally convinced the person to provide the name said to be behind the offer. According to Fichthorn, it was a Hong Kong-based hedge fund.
“Who the fuck is that?” thought Fichthorn.
Fichthorn may never have heard of the fund, but it has become well known in short-seller circles for being what’s called the “balance sheet” behind some of the activists who trumpet their short research on social media — a phenomenon that has turned the world of short-selling upside down over the past decade. These noisy activists, many of whom are anonymous and have little money of their own, have taken on outsize importance during a time when the bull market has ravaged short-sellers and a Twitter mention can move a stock.
The rest of my story continues at InstitutionalInvestor.com