INVESTOR’S GUIDE • LITTLE BIG SHORTS FORTUNE DECEMBER 2020 /JANUARY 2021^62barred from such work in England eight years ago following allega-
tions he forged documents. (He sued his former employer and won a
settlement in that case.) A 2018 report commissioned by a South Af-
rican business group accused Viceroy of “substantially” plagiarizing
a hedge fund report in its efforts to take down Steinhoff, a South
African holding company. Perring shrugs off his critics. “If you’re
worried about your ego, don’t get into short-selling,” he says.
When pressed on Viceroy’s finances, Perring would only say he
has one outside backer, whom he would not name. “We’ve never
commented on our profit,” he adds, “because we’re only as good as
our last report anyway.” That’s even truer in 2020, Block adds; for
every Nikola, there “are probably five really frustrating results.”TIP NO. 3LIKE HOLLYWOOD, SHORT-SELLING
IS A HITS-DRIVEN RACKET.F
OMO RALLIES. The retail-investor army. The
$60 billion boom in blank-check IPOs. These bullish
forces have pushed the Cassandras to the fringes of
the market in 2020. Cumulative short positions held
on NYSE-listed firms generally hover between 4% and
6% of shares outstanding; by early November, they
had fallen to less than 1%.
The exuberance persists despite the reality that we’re enduring
the worst recession and labor-market collapses in living memory;
that companies are piling on debt; that earnings have collapsed.
Analysts at banks and brokers—the go-to research source for many
retail investors—aren’t exactly playing the skeptic. FactSet calcu-
lates that of the 10,322 analyst ratings affixed to the stocks in the
S&P 500, only 6.2% are a “sell.” It seems as if we’ve all bought a dog
to get us through the pandemic, and yet Wall Street can’t find any.
Even Nikola, for all its flaws, is riding the rising tide: Shortly
before the Hindenburg report was published, General Motors said
it would buy a stake in the company and would agree to code-
velop the Nikola Badger pickup truck. Publicly, GM says the deal
remains a go.
In this permissive era, the shorts see themselves as a necessary
force for good. In the Wild West, they’re sheriffs—sheriffs who
drive Audis, mind you. “I think fraud is more pervasive than at any
time I’ve been in the market, certainly,” says Hindenburg’s Ander-
son. Until regulators and auditors step up their game, he adds,
“we’re going to continue to see a proliferation of short actors.”TIP NO. 4DON’T SHOOT THE MESSENGER, AT LEAST
UNTIL AFTER YOU’VE READ THE REPORT.Nikola isn’t Anderson’s first big scoop, but it stands out. Usually,
his reports enrage long investors, and he hears from them. “We get
more angry emails, or death threats to murder me and my entire
family,” he says. But not this time. In fact, kudos have been coming
in from a tough crowd: fellow shorts. “The Nikola report,” Perring
says admiringly, is “bulletproof.”say, 1,000 shares of Nikola. He sells them
for cash. He’ll eventually have to buy 1,000
NKLA shares to return to the lender. That’s
called “closing out the short.” The more the
share price falls between opening and closing,
the more money the bet makes.
It can all easily backfire. “You can only evermake 100% of your equity on a short,” Perring
explains. If the share price falls from $20 to
zero, the difference—$20 per share—is your
take. But if the price doubles, your losses
double. If the price triples, your losses triple.
And so on. (This is one reason so many shorts
have lost their shirts on Tesla, a stock that was
up almost sixfold year to date as of Nov. 19.)
Viceroy, a three-person shop, has themanpower to research only a few firms per
year. Wirecard was far and away its biggest
score, Perring says. The share price of the
now- insolvent German payments provider
collapsed from €104 in mid-June to 60¢
this month following an accounting scandal
that landed former CEO Markus Braun in
jail. When whistleblowers, journalists, and
short-sellers like Perring leveled allegations of
malfeasance at Wirecard in 2019, Germany’s
securities regulator, BaFin, investigated
the tattlers instead. BaFin also temporarily
outlawed short-selling of Wirecard shares:
“Short attacks,” it said, “posed a risk to market
integrity.” But further investigation vindicated
the critics, igniting a national reckoning in
Germany’s conservative investor culture.
“Wirecard was a war, a four-and-a-half-year fucking war,” Perring groans. At one
point, he says, “I was negative millions. And
that’s not bragging.”
The 47-year-old says his ship came in in2020, thanks to Wirecard and his muckraking
behind Grenke, a German leasing company
that Viceroy came after in a report in Septem-
ber. Viceroy’s central charge is that Grenke
used acquisitions to obscure how little cash
it had on its books. Viceroy’s accusations are
“completely unfounded,” Grenke said in a
statement; still, the damage has been severe.
Grenke shares are down one-third since the
report came out, and its founder stepped aside
from the board. BaFin, meanwhile, opened an
investigation into Grenke days after Viceroy’s
report hit; it was ongoing at press time.
Perring has taken plenty of arrows for hisshort attacks, as well as for his conduct outside
the market. A former social worker, he was