#442 Edwin Dorsey on Short Selling

— Short selling mechanics and why activist short sellers serve as important market checks by exposing corporate wrongdoing, fraud, and financial misstatement.

— Edwin Dorsey's methodology for identifying potentially fraudulent or unethical companies: analyzing executive turnover, auditor quality, SEC comment letters, litigation, and consumer complaints obtained via FOIA requests.

— The Care.com case study: how Dorsey tested the platform's vetting claims (creating fake profiles as Harvey Weinstein, Daffy Duck, and Donald Trump), filed 50 state FOIA requests for consumer complaints, and helped expose safety failures that led to executive resignations and the company's acquisition.

— The Bear Cave newsletter: a free weekly recap of activist short reports plus a paid tier ($34/month) offering bi-weekly deep dives on red-flag companies targeting hedge fund analysts and fraud-focused investors.

— Vista Equity Partners and Robert Smith: beyond the settled tax evasion charges, Dorsey highlights pattern-level concerns including associations with individuals under FBI investigation, portfolio company litigation alleging asset mismarking, and executive departures—issues he believes deserve more media scrutiny.

— Penumbra catheter company as an active watch: products linked to deaths, pulled from Europe and Japan but still sold in the US, with detailed activist research published but limited stock reaction.

— File FOIA requests at state attorney general level for consumer complaints against public companies; these often reveal patterns of customer harm, billing fraud, and regulatory violations that traditional SEC filings do not capture.

— Screen for red flags including sudden executive turnover (especially multiple CFO or CEO changes within two years), use of obscure auditors by large-cap firms, and adverse SEC comment letters with weak management responses—these warrant deeper investigation before investing.

— Build conviction in any investment thesis by systematically articulating the opposing bear case; if you cannot coherently argue against your own position, you likely have not done sufficient diligence.