Robert C. Apfel

Bondholder Communications Group, New York, NY 10004

John E. Parsons

MIT Sloan School, Cambridge, MA 02139

G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

Geoffrey S. Stewart Jones Day Reavis & Pogue, retired

---

First Draft: July 2001

---

In a short sale, an investor sells a share of stock he does not own and profits when the price of the stock declines. A peculiar feature of short sales is the apparent increase in the number of shares of stock beneficially held by investors over and above the actual number of shares issued by the corporation. It has previously been noted that this may create problems in the execution of proxy votes. In this paper we illustrate a related problem in the prosecution of claims of securities fraud. We examine this problem using the recent case of Computer Learning Centers, Inc., (CLC) in which the number of short sales was extremely large.

Plaintiffs in the Computer Learning Centers case proposed a class including all those who purchased CLC common stock from April 30, 1997 to April 6, 1998. Defendants opposed certification of the class, focusing on the large number of short sales and the resulting difficulty in establishing which members of the class actually had standing to sue. The court denied the motion for class certification. Although the court gave plaintiffs leave to amend the class, the case was settled before a new class was identified.

Short-selling, Litigation, Securities fraud

JEL Classifications: G14, G18, K22

---

The following file contains the reprint of this paper in Acrobat's portable data format (.pdf). The file is about 110 KB and can only be viewed (and printed) using a copy of Acrobat Reader or Acrobat Exchange.

Click here to download this paper in PDF format.

---

Return to Publications Page

---

© Copyright 1998-2021, G. William Schwert

Last Updated on 9/17/2021