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Chris Bryant

Wirecard Shows Life at Hedge Funds can be Agony

Short sellers deserve our appreciation, not scorn, for helping root out corporate frauds.

Showtime’s over.

Showtime’s over.

Photo: Bloomberg

You know the German finance world has been shaken when even the president of BaFin, the country’s conservative stock market regulator, showers praise on hedge funds. Apologizing for Germany’s failure to prevent a massive accounting fraud at electronic-payments group Wirecard AG, Felix Hufeld paid belated tribute this week to those “journalists, analysts or yes, let it be short sellers, who have been digging out inconsistencies persistently and rigorously.”

Hedge fund short sellers who suspect a company is overvalued borrow its shares from other investors and sell them. If the stock price falls, they repurchase the shares and return them to their original owner — pocketing the difference between the inflated price at which they sold them and the cheap price at which they repurchased them.