Hunterbrook is an experimental news publisher that’s also a short-selling hedge fund. Last week it published its first investigation, alleging America’s largest mortgage lender was pressuring independent brokers to push deals in its direction.
So what? Hunterbrook gives new meaning to the term “activist journalism”. Before hitting publish, the affiliated trading arm of the company placed a short position on UWM, the lender, and a long one on its rival, Rocket Mortgage. A disclosure on its website says the firm is also partnering with a law firm to explore a class action lawsuit against the lender and has filed a whistleblower complaint to the SEC.
Hunterbrook’s road-test raises questions about whether it can
- avoid accusations of insider trading;
- keep to its lengthy list of principles; and
- pull off the high-wire trick of combining genuine reporting with moving markets.
Isn’t this obviously illegal? No. But steering clear of the law relies on the promise that Hunterbrook’s journalists will not provide “insider info” – that is, material from sources within a company – to its trading arm. Instead it places a premium on open-source intelligence (OSINT) and information made publicly available through FOI requests.
Hindenburg or Bloomberg? There are clear differences between Hunterbrook and activist short sellers like Hindenburg and Muddy Waters. For starters it’s hiring journalists, not analysts. It doesn’t have a paywall, won’t pay sources and says it’s planning to release investigations on
- a fossil fuel conglomerate supporting a junta;
- an agricultural giant expanding operations in a region known for forced labour; and
- an energy company destroying an ecosystem.
Hunterbrook says it wants to target places and companies that are “inadequately covered”, and has correspondents in India, Brazil, Peru, Namibia, Mongolia, South-East Asia and southern Africa. It has secured £100 million in funding and boasts heavyweight financial journalists including Bethany McLean, who uncovered the Enron scandal, and Matt Murray, former editor of the WSJ.
Hunter or hunted? Hunterbrook’s friendly face won’t spare it regulatory scrutiny. Recent high-profile short-seller attacks on companies including Adani and Nikola have attracted attention to this controversial corner of the financial world.
The SEC, the US regulator, has launched an investigation into short sellers “probing possible coordination surrounding the publication of short reports, looking for signs of market manipulation or other trading abuses”.
Asked whether an outfit like Hunterbrook could hypothetically operate in the UK, neither Ofcom nor the FCA could give specific guidance.
The Reuters’ handbook “strongly advises” its journalists to “not engage in short term trading activities of any kind”. Others are less bothered: employees at the SEC are allowed to trade, and one study found the stocks they sold outperformed the market by 8 per cent.
The bottom line. After an initial 8 per cent dip on the day, UWM’s stock price has nearly returned to its level before the investigation was published last week. Rocket Mortgages is slightly down. It’s unlikely Hunterbrook made a killing.
That said, the subsequent class-action and whistleblower complaint could prove lucrative. Reporting to the SEC is an increasingly common tactic for short sellers, who stand to gain 30 per cent of any penalty awarded.
Cautionary tales. You could argue that the Hunterbrook model puts its money where its mouth is and hits bad actors where it hurts. So why haven’t conventional news sites tried this out? Mostly because it’s not conventional news. Also, it’s playing with fire.
- In 2005, two journalists at the Daily Mirror were convicted for buying, tipping and then selling shares. Piers Morgan, the paper’s editor at the time, also bought shares in advance of the flattering article, but was cleared by an inquiry of any wrongdoing after he said his uncle advised him to buy the stock.
- In 2012 it was suggested the New York Times could sell market-moving scoops to hedge funds before they were published. The idea never caught on.
Short or long? Hunterbrook’s success will depend on whether it can be two things at once: a media organisation that improves market transparency, and a hedge fund that earns returns for investors. The idea of “aligning profits with accuracy” is appealing but legally fraught. After all, steering clear of all information deemed “insider” is not the natural instinct of a journalist.
Hunterbrook did not respond to requests for comment.
