Sears Chairman Wants Short Sellers to Show Holdings |
Date: Friday, February 27, 2009
Author: Svea Herbst-Bayliss, ThomsonReuters.com
Hedge fund manager Edward Lampert, who is
chairman of retailer Sears Holding Corp., said investors who bet
against companies should not be allowed to operate in secret while
others have to reveal their holdings.
In a 15-page annual letter to Sears stockholders, Mr. Lampert said
investors are being held to different standards if those who buy and
hold stocks must reveal positions in public filings while short-sellers
are allowed to work in secret.
"It is a mystery as to why those who are owners of publicly traded
companies are required to disclose their holdings while those who sell
short those very same securities are permitted to keep their positions
private," Mr. Lampert wrote in the letter on Thursday [Feb. 26].
The letter came as Sears posted stronger-than-expected
quarterly results after cutting costs, and said it was closing 24
additional stores, sending its shares up as much as 10%.
Mr. Lampert is the first high-profile hedge fund manager to
weigh in on the debate over short-selling by pointing to the unfairness
of the current process. Short-selling may be especially close to his
heart now that Sears' tumbling stock price has attracted many of these
operators even though only a small number of shares are available to
short.
Short-sellers borrow shares in the hope of repaying the loan for less
after the share price has dropped. The strategy has helped many hedge
fund managers deliver better returns than their mutual fund manager
cousins but it has also become a controversial and politicized
technique.
Corporate chiefs—at Enron Corp., Tyco and Wall Street investment
banks—have blamed short sellers for tumbling share prices while hedge
fund managers have begged regulators to let them to keep their
positions secret. At the height of the financial crisis in during the
third and fourth quarter, U.S. regulators briefly restricted shorting.
Some prominent managers including Renaissance Technologies LLC founder
Jim Simons have argued that copycats could move in if hedge fund
managers' short positions are not kept private.
"While I respect this privacy right, investors who purchase and own
stocks, however, are afforded no such privacy to their holdings," Mr.
Lampert wrote to investors.
Mr. Lampert likes to buy and hold undervalued companies and for a time
his investing skills were held in such high regard that he was often
compared with Warren Buffett, perhaps the world's most admired
investor.
Indeed his own quarterly filings—in which Mr. Lampert said most
recently that he doubled his stake in commercial CIT Group Inc. in the
fourth quarter—are carefully reviewed by investors looking for clues to
his strategy.
Ultimately, Mr. Lampert said, shareholders have the right to influence
short sellers through their decisions to lend out shares or not: "When
they choose not to do so, the ability to sell short is reduced."
Sears shares rose as high as $39.50 on Thursday, before ending down 1% at $35.54 per share in trading on the Nasdaq.
By Svea Herbst-Bayliss
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