- Short seller Fahmi Quadir has criticised a regulator for banning shorts of payment processing firm Wirecard, and says she is short the stock.
- Quadir splashed on the scene with bearish bets on Valeant in 2015, taking on Bill Ackman who lost billions.
- Germany’s ban came after news reports of financial misconduct at Wirecard, which the company denies.
A star short seller who is one of the youngest female hedge fund managers on Wall Street just penned an explosive critique of German regulators’ “bizarre, backwards” ban on short selling and what she says is a blow to free and fair markets.
In an open letter to the financial regulator, Fahmi Quadir, founder of Safkhet Capital Management in New York, made her case in a 15-page, footnoted document. In it, she extolled short selling as a necessary tool for price discovery and rooting out fraud.
Quadir, 28, splashed on the scene with bearish bets on Valeant in 2015, taking on hedge fund manager Bill Ackman who lost billions (yes, billions) on his long position in the pharma stock. Quadir, who was featured in Netflix’s acclaimed documentary series “Dirty Money,” has also shorted Tesla.
Now she has set her sights on Germany. Her letter this week is a response to the story of Wirecard, a Munich-based payments company worth €12.4 billion ($US14 billion) that has caught the attention of short sellers and Financial Times journalists for what they say are suspect transactions.
Instead of investigating the claims, Germany’s Federal Financial Supervisory Authority, better known as BaFin, took the unprecedented step of banning short selling the stock. The short ban was necessary, BaFin said, because Wirecard’s circumstances “constitute a serious threat to market confidence in Germany.”
In what is perhaps a markets version of The Streisand Effect, Germany’s ban seemed to backfire with Quadir. In her letter, she announced a “significantly” short position on Wirecard.
A snippet of Quadir’s criticism:
“Market participants are quickly realising that German regulators cannot be relied upon to effectively or objectively engage with the markets and are deliberately besmirching their fundamental duties. When such a degree of doubt is introduced as far as regulatory intent, market integrity quickly disintegrates.”
“The actions regulators have taken to combat market manipulation without offering proportionate attention to corporate fraud, is incredibly dangerous and perhaps indicative of a cultural complacency towards equal enforcement of domestic entities. Whether this is nationalism or regulatory capture, only you and your colleagues can reflect on; however, if gone unabated, the risk of corporate despotism increases.”
And one more:
“BaFin’s decision unfortunately plays directly to the flourishment of a libertine corporate lifecycle where truth is treated as an illicit currency, journalists and whistleblowers are demonized, while executives are given free rein to act without fear of criminal enforcement.”
Wirecard, which has denied any wrongdoing, did not immediately respond to a Business Insider request for comment. A BaFin spokesman confirmed receiving the letter but declined to comment further.
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