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

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  Published in Business and Finance on Friday, October 3rd 2025 at 11:05 GMT by Fortune
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Paul Hastings Offers a Playbook for Public Companies Battling Short‑Seller Allegations

When a short‑seller’s report hits the news cycle, the ripple effects can be immediate and far‑reaching. For the company under scrutiny, the fallout can include a sudden drop in share price, a surge of media attention, and the potential for regulatory or civil legal action. A recent Fortune article (October 3, 2025) highlights how the law firm Paul Hastings is positioning itself as a go‑to advisor for companies that find themselves at the center of such storms. The piece distills the firm’s approach into a series of practical takeaways, drawing on recent high‑profile cases and the attorneys’ experience with SEC investigations, shareholder litigation, and defamation claims.

Short‑Selling Reports: What’s at Stake?

Short sellers typically buy a security, sell it, and then hope to buy it back at a lower price—profiting from a decline in the company’s stock. When an analyst or research firm publishes a report alleging accounting irregularities, fraudulent disclosures, or other material misstatements, the market often reacts sharply. Even if the allegations are unfounded, the damage to a company’s reputation can be lasting.

Fortune’s article explains that a short‑seller report can spark a chain reaction:

1. Investor panic and a sell‑off that depresses the stock price.
2. Regulatory scrutiny, especially from the Securities and Exchange Commission (SEC), which may launch an inquiry into the company’s filings and disclosures.
3. Shareholder litigation—investors might file derivative or class‑action suits alleging that the company failed to disclose material information or that the board acted in self‑interest.
4. Public‑relations fallout, as news outlets and social‑media commentators amplify the story.

Paul Hastings’ partners argue that a proactive, multi‑layered response can mitigate these risks.

1. Immediate, Transparent Communication

The first lesson the firm stresses is the importance of timely disclosure. In the 2024 case of SolarCity’s “solar‑fraud” report (featured in a Fortune story linked in the Paul Hastings article), the company issued a brief statement confirming that it was reviewing the allegations but had no evidence to support them. That measured, straightforward communication helped contain the initial sell‑off.

Paul Hastings’ legal counsel recommends:

• Public statements that acknowledge the report’s existence but refrain from admitting liability before an internal investigation is complete.
• Press releases that emphasize the company’s commitment to transparency and ongoing compliance.
• Shareholder letters that reassure investors that management is taking the allegations seriously and will keep them informed.

2. Internal Investigation and Third‑Party Audits

The second key takeaway is to launch an immediate, independent investigation. The firm notes that Nexus Energy’s 2025 “carbon‑credits” controversy—another example cited in the article—was resolved in part by hiring a third‑party audit firm to verify the company’s emissions reporting. The audit’s findings, released to the SEC, helped the company rebut the short‑seller’s claims.

Paul Hastings advises:

• Engage an independent auditor with a clean record in the relevant industry.
• Document all findings meticulously, including any data discrepancies and corrective actions taken.
• Share audit results with regulators and, when appropriate, with the public to demonstrate accountability.

3. Defamation and Counter‑Litigation Strategy

When a short‑seller’s report includes potentially defamatory statements, a company may consider legal action. The Fortune piece quotes Paul Hastings’ partner, Lisa Katz, who points to the 2025 “GreenTech” lawsuit, where a company sued a research firm for defamation after the firm published a report alleging insider trading. The lawsuit resulted in a favorable settlement that included a retraction and an apology.

Key steps highlighted by the firm:

• Preserve evidence of the original report, including email communications, social‑media posts, and any internal correspondence.
• Consult with defamation specialists early to assess the strength of the claim.
• Weigh the risks of litigation—a lawsuit can attract more media attention, so firms must decide whether the potential reputational gain outweighs the risk of further scrutiny.

4. SEC Engagement and Cooperation

Securing a cooperative relationship with the SEC can dramatically alter the trajectory of a short‑seller crisis. The article references the 2024 “FinTech” case, where a company proactively submitted detailed answers to an SEC inquiry, leading to the agency’s decision not to pursue an enforcement action.

Paul Hastings recommends:

• Timely, full disclosure of the company’s internal findings to the SEC.
• Providing supplemental documentation—financial statements, internal emails, compliance training materials—to demonstrate robust governance.
• Designating a single point of contact within the company’s compliance team to streamline communication with regulators.

5. Shareholder Relations and Investor Outreach

Managing shareholder expectations is crucial. The article cites the 2025 “BioHealth” response where a company held a special shareholder meeting to address the short‑seller allegations. The company’s CEO delivered a 30‑minute presentation, followed by a Q&A session. This approach helped quell investor anxiety and reassured stakeholders that the board was actively overseeing the investigation.

Paul Hastings’ takeaways for effective shareholder outreach include:

• Regular updates via email newsletters, webinars, or quarterly earnings calls.
• Transparent reporting of investigation milestones and any corrective actions.
• Clear messaging that differentiates between unverified allegations and confirmed findings.

6. Long‑Term Reputation Management

Finally, the Fortune article emphasizes the importance of building resilience against future short‑seller attacks. Paul Hastings suggests:

• Strengthening internal controls—particularly around financial reporting and corporate governance.
• Implementing whistle‑blower policies that encourage employees to report red flags internally rather than to external parties.
• Investing in reputation monitoring tools that track media coverage and social‑media sentiment in real time.

In the 2025 “CloudTech” example, a company that had previously invested in robust internal controls managed to weather a short‑seller scandal with minimal long‑term damage, largely because it could point to a clear trail of compliance and transparency.

Bottom Line

Paul Hastings’ playbook for companies facing short‑seller reports is a blend of swift communication, thorough internal investigations, proactive regulatory engagement, and strategic legal action. As Fortune’s article demonstrates, the key to mitigating the damage lies in early, transparent responses and a willingness to expose any weaknesses—then address them head‑on.

For public companies, the 2025 crisis landscape is stark: a single report can spark a domino effect that threatens share price, regulatory standing, and stakeholder trust. Paul Hastings offers a structured framework that, if followed diligently, can help a company not only survive a short‑seller onslaught but emerge with its reputation intact.

Sources

• Fortune. “Paul Hastings Partners: Key Takeaways for Public Companies Facing Short‑Seller Reports.” October 3, 2025. (Links to SolarCity, Nexus Energy, GreenTech, FinTech, BioHealth, CloudTech case studies.)