Are short-sellers evil? Or do they keep companies honest?

Outlook

Globo's chief executive Costis Papadimitrakopoulos quit after admitting to “the falsification of data and the misrepresentation of the company’s financial situation”

As we approach the final months of the year, I can’t help but feel that the likely collapse of Globo will be seen as one of the key points of 2015. The software company may be small but its dramatic demise tells a story that highlights how short-sellers are not the destructive devils they are often made out to be.

The hedge fund QCM spent serious time and money investigating Globo and the customers it purported to have. This involved painstaking trawls through its accounts and some good, old-fashioned detective work, knocking on doors of supposed big clients.

Its discoveries? That many of Globo’s customers don’t appear to exist.

QCM have revealed that its fund would jump 12 per cent if Globo’s shares fell to zero. But does that make it evil – profiting on the back of losses sustained by innocent shareholders? Far from it. Given the sheer volume of companies on the AIM market, you can’t expect regulators to spot every rotten apple. Short-sellers like QCM, which are out there spotting wrongdoing, will go a long way to keeping other companies honest. If only all our pension fund managers did such diligent research before investing.