Trump Media & Technology Group Corp. recently outlined strategies for "long-term shareholders who are optimistic about the company's prospects" to prevent their shares from being used in short selling activities. This move comes after a significant fluctuation in the company's stock value, which saw an initial surge followed by a drastic decline, erasing most of the initial gains.
In an effort to combat short selling, the company behind Truth Social released an online FAQ section. This section includes a template letter for investors to send to their brokers, opting out of any securities lending programs that could facilitate short selling against the company.
A representative from Trump Media stated that the initiative aims to address shareholder concerns by providing clear and factual information, emphasizing the company's commitment to its investors.
Although short selling is not directly responsible for stock price declines, it can exert downward pressure on the price if a significant number of traders bet against the stock. Trump Media has faced skepticism regarding its financial health, reporting a loss of over $50 million on revenues of just $4 million last year, despite being valued at over $9 billion.
According to S3 Partners, approximately 16% of Trump Media's public float has been sold short, with borrowing fees for short sellers ranking among the highest on Wall Street, indicating a high level of speculation against the company's stock.
The narrative around short sellers has often been negative, portraying them as profiteers at the expense of American companies. This sentiment was notably evident during the 2021 meme-stock phenomenon, where retail investors rallied against short sellers, causing significant financial repercussions for hedge funds like Melvin Capital Management.
Trump Media's recent communications seem to tap into this sentiment, framing the situation as a battle between retail and institutional investors. The company also suggested alternative methods for shareholders to safeguard their investments from being shorted, such as transferring shares to specific accounts or entities that do not participate in securities lending.
Experts like Julian Klymochko and Steve Sosnick have commented on the situation, noting the unusual nature of Trump Media's trading patterns and emphasizing that long-term success for any company lies in solid financial performance rather than combating short sellers.
