“Basically hit-piece research is constitutionally protected free speech,” Mr Hempton said.
Australia has no such protection, opening short sellers to the risk of defamation claims.
In addition, Australia’s insider trading laws work differently to the US, said Mr Hempton who has shorted stocks including fraudulent German payments company Wirecard (albeit too early).
American v Australian law
The American laws focus on whether the information was obtained from an insider directly, especially with inducements, whereas in Australia they focus on the kind of information itself.
For example, someone might find confidential documents left in a taxi and trade on them, Mr Hempton said, which would be unlawful in Australia but likely to be allowed in the US.
“The problem straight up here is going to be that the information given by the so-called independent research media company is material, non-public information in the Australian context,” he said.
Hunterbrook states on its website that it does not trade on insider information reported by its newsroom, and that its hedge fund does not interfere with its journalism. The company has no plans to open up a local newsroom or hire journalists in Australia.
ASIC ‘deeply deficient’
Finally, Mr Hempton claimed, the Australian Securities and Investments Commission was “deeply deficient” in the way it policed the markets and protected companies against legitimate short criticism.
Asked about the firm, a spokeswoman for ASIC reiterated the risks of short-selling.
“Activist short sellers can unfairly distort the price of a target entity’s securities, which is harmful to the integrity of our markets,” the spokeswoman said, pointing to its rules on the practice.
Hunterbrook’s first investigation triggered a brief slip in the share price of its target, which has now largely recovered.
It disclosed it had sold its shares short, invested in a rival and fomented a class action lawsuit ahead of time.
The venture comes as news businesses face pressure globally, with advertising falling and major US outlets Vice, Buzzfeed News and FiveThirtyEight all closing last year.
Paying journalists
Economist Richard Holden said the Hunterbrook model could help media outlets capture more of the value of efficient markets that they created, but that independence would be a challenge.
In the Hunterbrook model, some of the short selling profits go to paying journalists.
“I don’t think you want the compensation of the journalism side to be points in the fund or performance bonuses… I think what you’d like it to be is really high but fixed base salaries,” said Professor Holden of the UNSW Business School.
To date, Hunterbrook Media’s website only has its original batch of stories dated April 2, 2024, without any of the daily coverage that typifies business news sites.
Gilbert and Tobin partner Adam D’Andreti said the insider-trading risks for a business structured like Hunterbrook appeared the same as any other short seller or hedge fund.
“A cynic might suggest that it’s really just the same type of business but just calling it something slightly different,” Mr D’Andreti said.