[4][5] Once the stock price has declined, the investor uses the proceeds of the initial sale to buy a larger number of the company's shares than sold originally.
During the takeover of The Bear Stearns Companies by J.P. Morgan Chase in March 2008, reports swirled that short sellers were spreading rumors to drive down Bear Stearns' share price.
"[7] Chase was victimized by a similar "short and distort" scheme six years earlier when rumors arose about its purported relationship with Enron.
[8] In a December 2006 interview from TheStreet.com's "Wall Street Confidential" webcast, Jim Cramer stated that some hedge fund managers spread false rumors about companies to the media and trading desks to drive a stock down: " ...it's important to create a new truth, to develop a fiction.
He also discussed getting "the bozo reporter from The Wall Street Journal" to publish a negative article.