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Paul Hastings partners: Key takeaways for public companies facing shortseller reports

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Few events can disrupt a public company’s trajectory as suddenly as the publication of a short-seller report.  Often sensational in tone and light on substance, these reports typically allege that a company has misstated its financial condition, overstated business prospects, or engaged in improper practices.  The motive is rarely hidden: drive the stock price down for the short-seller’s own financial gain.

The impact, however, extends far beyond short-term market volatility. In today’s litigation landscape, stockholder plaintiffs’ firms routinely seize upon short-seller reports as the “emergence of the truth” necessary to allege loss causation under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The interplay between activist short-sellers, securities plaintiffs’ lawyers, and courts presents challenges, legal issues, and business decisions that corporate leaders must anticipate.

A brief history of short-seller reports in securities litigation

Short-sellers have long been part of the U.S. capital markets, but the practice of publishing aggressive investigative-style reports designed to move markets with questionable accusations is a relatively recent phenomenon.  Courts generally view these reports with skepticism but will allow allegations relying on the reports to move past the pleading stage under certain circumstances.  As a result, reliance on these reports for securities claims does not appear to be dissipating.  Recent decisions highlight the evolving legal treatment:

  • In re BofI Holding, Inc. Sec. Litig., 977 F.3d 781 (9th Cir. 2020): The Ninth Circuit held that short-seller blog posts did not constitute a corrective disclosure because the short-seller had a financial interest to convince others to sell and disclaimed representations to accuracy or completeness, but qualified its analysis by stating that the short reports can qualify as corrective disclosures if they reveal new, credible information, regardless of the publisher’s bias.
  • In re Ideanomics, Inc., Sec. Litig., 2022 WL 784812 (S.D.N.Y. Mar. 15, 2022): The Southern District of New York found that two short reports were not corrective disclosures because neither revealed a fact previously undisclosed in the alleged misleading statements.
  • Saskatchewan Healthcare Emp.’s Pension Plan v. KE Holdings Inc., 718 F. Supp. 3d 344 (S.D.N.Y. 2024): The court explained that while short-seller reports must be viewed with caution, the short-seller report at issue had “sufficient indicia of reliability” to survive the pleading stage and the “truth” of the report was a factual question not appropriate on a motion to dismiss.  This decision highlights the precise reasons securities plaintiffs will continue to rely on these reports to allege corrective disclosures and loss causation.
  • In re Genius Brands Int’l, Inc. Sec. Litig., 763 F. Supp. 3d 1027 (C.D. Cal. 2025): The Central District of California found that a short-seller report did not support allegations of corrective disclosure and loss causation because the information simply repackaged readily available and digestible market information.
  • Defeo v. IonQ, Inc., 134 F.4th 153 (4th Cir. 2025): Following the Ninth Circuit’s reasoning in BofI, the Fourth Circuit recently affirmed a motion to dismiss stating that the stockholder failed to “clear the high bar of showing that the [short-seller report] revealed the truth” because the report relied on anonymous sources for its non-public information and included extensive disclaimers about the accuracy of the opinions.

Taken together, these cases confirm that courts focus on substance: Was genuinely new, credible information revealed?  Or was the report merely compiling existing information and disclaiming accuracy of its opinions?

Seven things every company should consider

For companies, short-seller reports pose a multi-dimensional threat:

  • Market: Stock prices may plummet following the report, eroding shareholder value and destabilizing investor relations.
  • Litigation: Plaintiffs’ firms rely on these reports to allege loss causation and “evidence” of the emergence of the truth of the fraud.
  • Reputation: The narrative of misconduct can linger, regardless of merit.

Failure to strategically assess the appropriate response (if any) can compound these risks.  Implementing the following steps are critical to successfully navigating short reports.

1.     Annotate the Short Report Under Privilege

The first step is to dissect the report line by line. Each allegation should be annotated to:

  • Identify what is factually incorrect or misleading.
  • Cross-reference the company’s prior public disclosures.
  • Flag statements that may require clarification in future filings.

This process should be conducted under attorney direction to preserve attorney-client privilege and work product protection. A disciplined, annotated version of the report becomes an indispensable tool to guide internal response, consider offensive litigation strategies, and to prepare for potential securities litigation.

2.    Evaluate Public Response and Offensive Options

Reflexive denials can backfire.  Responses must be vetted through legal and investor relations teams. Offensive actions may include:

  • Press release refuting allegations in the short report.
  • Preparing cease and desist letters to the publisher or to platforms hosting the report.
  • Evaluating defamation claims where the report contains demonstrably false factual assertions.
  • Engaging with regulators (e.g., SEC, FINRA, stock exchanges) when the report appears to manipulate the market through misleading statements.

Some companies have strategically deployed offensive tactics and obtained immediate results including short-sellers deleting a report and/or issuing a retraction.  However, offensive action is not always advisable. Press releases regarding the short report and litigation against short-sellers often amplifies their platform. Each situation requires judgment.

3.    Monitor the Stock Price and Trading Activity

The impact on stock price is not just an investor relations issue—it directly shapes litigation exposure. Courts often look to market reactions as evidence of loss causation. Companies should: (i) track intraday stock movements in the hours and days following publication; (ii) monitor trading volumes and identify abnormal patterns; (iii) evaluate recent news or events to assess whether alternative market factors may have impacted the stock movement rather than the short report itself; and (iv) assess whether there is any recent stockholder acquiring significant shares that may have interests to further disrupt corporate governance.

A careful record of market reaction can help defeat inflated causation theories.

4.    Monitor Short Interest and Derivatives Activity

Shortsellers often operate through opaque structures, including swaps and options. Companies should track short interest levels and derivative trading around the time of the short report. Elevated short activity can signal coordinated campaigns.

Some companies engage specialized analytics firms to monitor unusual patterns. This intelligence can support defensive strategies, investor communications, and, where appropriate, referrals to regulators.

5.    Engage Specialized Counsel with Short-seller Defense Expertise Early

Defending against short-seller campaigns is not standard securities litigation. It requires counsel with:

  • Activism defense experience to anticipate market-based tactics.
  • Securities litigation expertise to frame loss causation and materiality arguments.
  • Crisis management judgment to balance disclosure obligations with reputational risks.

Engaging counsel early allows the company to coordinate market response, disclosure strategy, and litigation posture in real time.

6.    Promptly Engage the Board of Directors

Short-seller reports are significant governance events. Boards should be briefed promptly, and directors should exercise oversight, which should be reflected in the minutes.  These practical processes are critical to protect the company’s and its stockholder’s interests.  It is not unusual, in fact it is expected, that any securities litigation will include derivative litigation brought by different stockholders.  The company’s directors must be informed and exercise their oversight function.

7.    Consider Whether to Engage with Long Term Strategic Investors and Sell-Side Analysts

It is typically prudent to proactively inform long-term strategic or major investors.  Direct communication from the company—rather than through media spin—can help preserve confidence and reduce reputational harm. A company should also leverage relationships with sell-side analysts in an effort to rebut the short-seller’s thesis.

Conclusion

The proliferation of short-seller reports will continue.  Those business leaders that implement these practical action items in response will have the upper hand in the fight to restore order and maintain the company’s trajectory.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

Fortune Global Forum returns Oct. 26–27, 2025 in Riyadh. CEOs and global leaders will gather for a dynamic, invitation-only event shaping the future of business. Apply for an invitation.



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Senate Dems’ plan to fix Obamacare premiums adds nearly $300 billion to deficit, CRFB says

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December 5, 2025

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The Committee for a Responsible Federal Budget (CRFB) is a nonpartisan watchdog that regularly estimates how much the U.S. Congress is adding to the $38 trillion national debt.

With enhanced Affordable Care Act (ACA) subsidies due to expire within days, some Senate Democrats are scrambling to protect millions of Americans from getting the unpleasant holiday gift of spiking health insurance premiums. The CRFB says there’s just one problem with the plan: It’s not funded.

“With the national debt as large as the economy and interest payments costing $1 trillion annually, it is absurd to suggest adding hundreds of billions more to the debt,” CRFB President Maya MacGuineas wrote in a statement on Friday afternoon.

The proposal, backed by members of the Senate Democratic caucus, would fully extend the enhanced ACA subsidies for three years, from 2026 through 2028, with no additional income limits on who can qualify. Those subsidies, originally boosted during the pandemic and later renewed, were designed to lower premiums and prevent coverage losses for middle‑ and lower‑income households purchasing insurance on the ACA exchanges.

CRFB estimated that even this three‑year extension alone would add roughly $300 billion to federal deficits over the next decade, largely because the federal government would continue to shoulder a larger share of premium costs while enrollment and subsidy amounts remain elevated. If Congress ultimately moves to make the enhanced subsidies permanent—as many advocates have urged—the total cost could swell to nearly $550 billion in additional borrowing over the next decade.

Reversing recent guardrails

MacGuineas called the Senate bill “far worse than even a debt-financed extension” as it would roll back several “program integrity” measures that were enacted as part of a 2025 reconciliation law and were intended to tighten oversight of ACA subsidies. On top of that, it would be funded by borrowing even more. “This is a bad idea made worse,” MacGuineas added.

The watchdog group’s central critique is that the new Senate plan does not attempt to offset its costs through spending cuts or new revenue and, in their view, goes beyond a simple extension by expanding the underlying subsidy structure.

The legislation would permanently repeal restrictions that eliminated subsidies for certain groups enrolling during special enrollment periods and would scrap rules requiring full repayment of excess advance subsidies and stricter verification of eligibility and tax reconciliation. The bill would also nullify portions of a 2025 federal regulation that loosened limits on the actuarial value of exchange plans and altered how subsidies are calculated, effectively reshaping how generous plans can be and how federal support is determined. CRFB warned these reversals would increase costs further while weakening safeguards designed to reduce misuse and error in the subsidy system.

MacGuineas said that any subsidy extension should be paired with broader reforms to curb health spending and reduce overall borrowing. In her view, lawmakers are missing a chance to redesign ACA support in a way that lowers premiums while also improving the long‑term budget outlook.

The debate over ACA subsidies recently contributed to a government funding standoff, and CRFB argued that the new Senate bill reflects a political compromise that prioritizes short‑term relief over long‑term fiscal responsibility.

“After a pointless government shutdown over this issue, it is beyond disappointing that this is the preferred solution to such an important issue,” MacGuineas wrote.

The off-year elections cast the government shutdown and cost-of-living arguments in a different light. Democrats made stunning gains and almost flipped a deep-red district in Tennessee as politicians from the far left and center coalesced around “affordability.”

Senate Minority Leader Chuck Schumer is reportedly smelling blood in the water and doubling down on the theme heading into the pivotal midterm elections of 2026. President Donald Trump is scheduled to visit Pennsylvania soon to discuss pocketbook anxieties. But he is repeating predecessor Joe Biden’s habit of dismissing inflation, despite widespread evidence to the contrary.

“We fixed inflation, and we fixed almost everything,” Trump said in a Tuesday cabinet meeting, in which he also dismissed affordability as a “hoax” pushed by Democrats.​

Lawmakers on both sides of the aisle now face a politically fraught choice: allow premiums to jump sharply—including in swing states like Pennsylvania where ACA enrollees face double‑digit increases—or pass an expensive subsidy extension that would, as CRFB calculates, explode the deficit without addressing underlying health care costs.



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Netflix–Warner Bros. deal sets up $72 billion antitrust test

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December 5, 2025

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Netflix Inc. has won the heated takeover battle for Warner Bros. Discovery Inc. Now it must convince global antitrust regulators that the deal won’t give it an illegal advantage in the streaming market. 

The $72 billion tie-up joins the world’s dominant paid streaming service with one of Hollywood’s most iconic movie studios. It would reshape the market for online video content by combining the No. 1 streaming player with the No. 4 service HBO Max and its blockbuster hits such as Game Of Thrones, Friends, and the DC Universe comics characters franchise.  

That could raise red flags for global antitrust regulators over concerns that Netflix would have too much control over the streaming market. The company faces a lengthy Justice Department review and a possible US lawsuit seeking to block the deal if it doesn’t adopt some remedies to get it cleared, analysts said.

“Netflix will have an uphill climb unless it agrees to divest HBO Max as well as additional behavioral commitments — particularly on licensing content,” said Bloomberg Intelligence analyst Jennifer Rie. “The streaming overlap is significant,” she added, saying the argument that “the market should be viewed more broadly is a tough one to win.”

By choosing Netflix, Warner Bros. has jilted another bidder, Paramount Skydance Corp., a move that risks touching off a political battle in Washington. Paramount is backed by the world’s second-richest man, Larry Ellison, and his son, David Ellison, and the company has touted their longstanding close ties to President Donald Trump. Their acquisition of Paramount, which closed in August, has won public praise from Trump. 

Comcast Corp. also made a bid for Warner Bros., looking to merge it with its NBCUniversal division.

The Justice Department’s antitrust division, which would review the transaction in the US, could argue that the deal is illegal on its face because the combined market share would put Netflix well over a 30% threshold.

The White House, the Justice Department and Comcast didn’t immediately respond to requests for comment. 

US lawmakers from both parties, including Republican Representative Darrell Issa and Democratic Senator Elizabeth Warren have already faulted the transaction — which would create a global streaming giant with 450 million users — as harmful to consumers.

“This deal looks like an anti-monopoly nightmare,” Warren said after the Netflix announcement. Utah Senator Mike Lee, a Republican, said in a social media post earlier this week that a Warner Bros.-Netflix tie-up would raise more serious competition questions “than any transaction I’ve seen in about a decade.”

European Union regulators are also likely to subject the Netflix proposal to an intensive review amid pressure from legislators. In the UK, the deal has already drawn scrutiny before the announcement, with House of Lords member Baroness Luciana Berger pressing the government on how the transaction would impact competition and consumer prices.

The combined company could raise prices and broadly impact “culture, film, cinemas and theater releases,”said Andreas Schwab, a leading member of the European Parliament on competition issues, after the announcement.

Paramount has sought to frame the Netflix deal as a non-starter. “The simple truth is that a deal with Netflix as the buyer likely will never close, due to antitrust and regulatory challenges in the United States and in most jurisdictions abroad,” Paramount’s antitrust lawyers wrote to their counterparts at Warner Bros. on Dec. 1.

Appealing directly to Trump could help Netflix avoid intense antitrust scrutiny, New Street Research’s Blair Levin wrote in a note on Friday. Levin said it’s possible that Trump could come to see the benefit of switching from a pro-Paramount position to a pro-Netflix position. “And if he does so, we believe the DOJ will follow suit,” Levin wrote.

Netflix co-Chief Executive Officer Ted Sarandos had dinner with Trump at the president’s Mar-a-Lago resort in Florida last December, a move other CEOs made after the election in order to win over the administration. In a call with investors Friday morning, Sarandos said that he’s “highly confident in the regulatory process,” contending the deal favors consumers, workers and innovation. 

“Our plans here are to work really closely with all the appropriate governments and regulators, but really confident that we’re going to get all the necessary approvals that we need,” he said.

Netflix will likely argue to regulators that other video services such as Google’s YouTube and ByteDance Ltd.’s TikTok should be included in any analysis of the market, which would dramatically shrink the company’s perceived dominance.

The US Federal Communications Commission, which regulates the transfer of broadcast-TV licenses, isn’t expected to play a role in the deal, as neither hold such licenses. Warner Bros. plans to spin off its cable TV division, which includes channels such as CNN, TBS and TNT, before the sale.

Even if antitrust reviews just focus on streaming, Netflix believes it will ultimately prevail, pointing to Amazon.com Inc.’s Prime and Walt Disney Co. as other major competitors, according to people familiar with the company’s thinking. 

Netflix is expected to argue that more than 75% of HBO Max subscribers already subscribe to Netflix, making them complementary offerings rather than competitors, said the people, who asked not to be named discussing confidential deliberations. The company is expected to make the case that reducing its content costs through owning Warner Bros., eliminating redundant back-end technology and bundling Netflix with Max will yield lower prices.



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The rise of AI reasoning models comes with a big energy tradeoff

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December 5, 2025

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Nearly all leading artificial intelligence developers are focused on building AI models that mimic the way humans reason, but new research shows these cutting-edge systems can be far more energy intensive, adding to concerns about AI’s strain on power grids.

AI reasoning models used 30 times more power on average to respond to 1,000 written prompts than alternatives without this reasoning capability or which had it disabled, according to a study released Thursday. The work was carried out by the AI Energy Score project, led by Hugging Face research scientist Sasha Luccioni and Salesforce Inc. head of AI sustainability Boris Gamazaychikov.

The researchers evaluated 40 open, freely available AI models, including software from OpenAI, Alphabet Inc.’s Google and Microsoft Corp. Some models were found to have a much wider disparity in energy consumption, including one from Chinese upstart DeepSeek. A slimmed-down version of DeepSeek’s R1 model used just 50 watt hours to respond to the prompts when reasoning was turned off, or about as much power as is needed to run a 50 watt lightbulb for an hour. With the reasoning feature enabled, the same model required 7,626 watt hours to complete the tasks.

The soaring energy needs of AI have increasingly come under scrutiny. As tech companies race to build more and bigger data centers to support AI, industry watchers have raised concerns about straining power grids and raising energy costs for consumers. A Bloomberg investigation in September found that wholesale electricity prices rose as much as 267% over the past five years in areas near data centers. There are also environmental drawbacks, as Microsoft, Google and Amazon.com Inc. have previously acknowledged the data center buildout could complicate their long-term climate objectives. 

More than a year ago, OpenAI released its first reasoning model, called o1. Where its prior software replied almost instantly to queries, o1 spent more time computing an answer before responding. Many other AI companies have since released similar systems, with the goal of solving more complex multistep problems for fields like science, math and coding.

Though reasoning systems have quickly become the industry norm for carrying out more complicated tasks, there has been little research into their energy demands. Much of the increase in power consumption is due to reasoning models generating much more text when responding, the researchers said. 

The new report aims to better understand how AI energy needs are evolving, Luccioni said. She also hopes it helps people better understand that there are different types of AI models suited to different actions. Not every query requires tapping the most computationally intensive AI reasoning systems.

“We should be smarter about the way that we use AI,” Luccioni said. “Choosing the right model for the right task is important.”

To test the difference in power use, the researchers ran all the models on the same computer hardware. They used the same prompts for each, ranging from simple questions — such as asking which team won the Super Bowl in a particular year — to more complex math problems. They also used a software tool called CodeCarbon to track how much energy was being consumed in real time.

The results varied considerably. The researchers found one of Microsoft’s Phi 4 reasoning models used 9,462 watt hours with reasoning turned on, compared with about 18 watt hours with it off. OpenAI’s largest gpt-oss model, meanwhile, had a less stark difference. It used 8,504 watt hours with reasoning on the most computationally intensive “high” setting and 5,313 watt hours with the setting turned down to “low.” 

OpenAI, Microsoft, Google and DeepSeek did not immediately respond to a request for comment.

Google released internal research in August that estimated the median text prompt for its Gemini AI service used 0.24 watt-hours of energy, roughly equal to watching TV for less than nine seconds. Google said that figure was “substantially lower than many public estimates.” 

Much of the discussion about AI power consumption has focused on large-scale facilities set up to train artificial intelligence systems. Increasingly, however, tech firms are shifting more resources to inference, or the process of running AI systems after they’ve been trained. The push toward reasoning models is a big piece of that as these systems are more reliant on inference.

Recently, some tech leaders have acknowledged that AI’s power draw needs to be reckoned with. Microsoft CEO Satya Nadella said the industry must earn the “social permission to consume energy” for AI data centers in a November interview. To do that, he argued tech must use AI to do good and foster broad economic growth.



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