June 20, 2006 > Senate panel to scrutinize hedge fund short sales

by Judith Burns

WASHINGTON (Dow Jones/AP), Jun 16 - The Senate Judiciary Committee will be examining the short-selling activities of hedge funds and independent analysts, a subject that has generated headlines and lawsuits alleging collusion and market manipulation.

A hearing by the Senate panel has been scheduled for June 28.

The committee is still finalizing a list of witnesses, but Overstock.com Inc. Chief Executive Patrick Byrne wasn't invited and won't participate, according to congressional aides.

The head of the Salt Lake City-based online discount retailer has sued hedge fund Rocker Partners and small stock-research firm Gradient Analytics Inc., alleging they colluded to have Gradient issue negative reports on companies that Rocker had sold short.

"Naked short-selling is against the law, and we're concerned about it,'' a spokesman for Sen. Orrin Hatch, R-Utah, a Judiciary Committee member, told Dow Jones.

Rocker is now known as Copper River Management, whose general counsel, Steven Tsimbinos, declined to comment on whether someone from the Millburn, N.J., firm would testify to the Senate panel next week.

Gradient, of Scottsdale, Ariz., has been approached informally about participating but won't decide until it receives a written invitation, according to spokeswoman Karen Hinton.

Short sellers borrow shares for sale and profit if the stock price declines. While the practice is legal, Byrne has been vocal in attacking ``naked'' short sales in which sellers don't borrow shares before selling, which he says may have destroyed hundreds of small companies while enriching hedge funds and Wall Street bankers.

U.S. securities regulators updated short-selling rules in 2004, but critics, such as Byrne, say they haven't been effective in cracking down on abusive short sales.