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Cut Short

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by Felix Salmon
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Sep 04 2008 7:17am EDT

Cut Short

Many corporate executives, and a fair few politicians, like to rail against evil short-sellers. Large investors, by contrast, tend not to, even if they're long-only. Part of the reason is that they actually like short-sellers. For one thing, they can lend their stock to them, and make a bit of money on the side. And if they're still accumulating shares, the more short sellers there are, the cheaper those shares are likely to be.

Even so, Harbinger Capital Partners, a US hedge fund, has been embarrassed into stopping lending its shares in Australian miner Fortescue Metals Group. After Fortescue found out that Harbinger's shares were being lent out, Harbinger pleaded ignorance, blamed its custodian, and said it would attempt a recall of the shares that were loaned.

What's really embarrassing for Harbinger, however, is not that its shares were being lent out -- that's pretty standard stuff for any major investor -- but rather that it didn't know about the lending. It certainly deserves Sam Jones's very funny ribbing:

Razorshort Capital LP: Oh hi, is this Harbinger?
Harbinger: This is they
RSC: Hi - I was just wondering if we could borrow a couple of shares.
H: Which ones?
RSC: The ones you have in Fortescue Metals Group
H: Ah yes. Fortescue Metals Group; in which we are the second largest shareholder and
RSC: Err.. yeh... whatever - so do we get them?
H: What do you want them for?
RSC: Um. To look at?
H: Ok, well as long as you give them back.

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