Select Page

The first I had heard of a plaintiff’s lawyer short-selling the stock of a company he was about to sue was in The King of Torts, a recent John Grisham novel.  The lead character, a plaintiffs’ attorney, short-sells the stock of a pharmaceutical company that he is about to sue for a negligently produced drug.  When the lawsuit is announced, the price of the stock drops and the attorney profits handsomely.  Later, the attorney is investigated for insider trading, since the information that he based his suit upon came from a stolen document.

Although The King of Torts may be fiction, life has been imitating fiction without any repercussions, so far, for any of the potential wrongdoing parties.  For example, in a recent lawsuit against Eckerd Drug Stores (Eckerd), which is owned by J.C. Penney Co. (Penney), there is some evidence of a link between the law firm that sued Eckerd and a New York hedge fund that often takes short positions.  The lawsuit alleged that Eckerd engaged in a widespread practice of overcharging for prescription drugs.  The lawsuit negatively impacted Penney’s stock by over thirty percent.  While the shareholders took a beating, a short-seller who shorted Penney’s stock before the suit was filed could have profited greatly. . . .