I was recently watching an episode of Nikita (the spy show based on the Luc Besson film and TV show based on the film, La Femme Nikita, that ran on the CW network from 2010 to 2013). The season 2 episode, “Clawback,” starts off with a Division (a secret government-funded assassin program) agent killing a scientist of Brightling Pharmaceuticals and making it look like a heart attack. The mission complete, the head of Division places a phone call to a mystery man (later exposited to be a former Chairman of the SEC who now works in the private sector), who immediately makes another call, saying, “Sell Brightling. All of it.” Later in the episode, Nikita’s resident computer genius sends an e-mail to Nikita, the rogue agent investigating the death:
Just totally hacked the SEC database, took me no time at all.
Those chumps really gotta update their firewall, it was some outdated stone age tech they got running over there.
Found some interesting stuff about a company called TransWorld Consortium check it out; sending the decrypted schematics with this message.
Nikita then explains the attachments:
They bought a million shares of Brightling six months back.
Just covered their short when their stock hit a 52-week low.
The chemist who had a heart attack was probably the tipping point.
Let’s leave aside the fact that James Bond apparently doesn’t exist in this universe. Let’s start with hacking the SEC database. If TransWorld Consortium bought 1 million shares, the only reason the SEC would need to know about it is if:
b) The SEC included Brightling on its official list of 13(f) securities, which Form 13F is a quarterly filing.
In either case, no hacking would be necessary as, this being the SEC, these are all public filings for the purpose of disclosure.
Meanwhile, Nikita claims TWC bought 1 million shares, but they just “covered their short when the stock hit a 52-week low,” which TWC engineered through a riot in China, a factory fire in Ireland, and most recently the heart attack of Brightling’s chief chemist.
So…did TransWorld buy 1 million shares or short 1 million shares. Shorting would make the most sense:
Phase 1. TWC shorts 1 million shares of Brightling Pharmaceuticals.
Phase 2. TWC causes the stock to drop via riot and factory fire, so it can cover, or buy back the shares it shorted, at a steep discount to where it shorted them.
Phase 3. Profit.
But ex-SEC Chairman turned Wolf of Wall Street clearly said in the beginning of the episode to “Sell Brightling. All of it.” At this point, the audience only knows about the heart attack set-up, so we may think he wants to dump the stock before it drops further. But as more details emerge, the audience realizes the stock has ostensibly already dropped due to the riot and fire orchestrated by Division prior to this latest mission. So why was he long Brightling in the first place?
It’s possible TWC went long 1 million shares of Brightling six months ago when it was trading at, for example, $10. The stock drops 10% through natural market movements a couple months later, and TWC decides to use that downward momentum: it shorts 2 million shares at $9 to hedge its position, then plans the international incidents that further depress the stock. The stock hits maybe $5, and TWC decides to sell all the Brightling stock it’s long, the 1 million shares. Dumping 1 million shares into the market, even if Brightling is very liquid, will smack it. So maybe the stock trades down to $4, “a 52-week low.” At this point, Brightling can cover its 2 million short position so:
– Long position incurs a $5/share loss, so $5 million
– Short position incurs a $5/share gain, so $10 million
– Net gain $5 million [although there are some borrowing costs involved in shorting, otherwise no one would lend out their stock]
Even if this were the case, the SEC would know nothing about it as it doesn’t require disclosure of short positions from funds or money managers — the industry fought such disclosures, arguing they would be forced to disclose trading strategies.
This episode aired in 2011, just a few years after the housing bubble burst. Much of the blame was focused on Wall Street’s use of complicated debt securities and lax lending standards. As the recession continued, public sentiment stewed. That’s still no excuse for lazy research and writing. My guess is the writers were thinking of your classic “pump and dump” scheme, but needed to make it more confusing to fit with their crazy universe, so decided to have them artificially depress rather than inflate the stock…but then the rest of it makes no sense. I now understand why so many lawyers I know are resistant to watch shows about the law, even one as good as The Good Wife. How hard is it to hire a consultant for one episode?