Shorting Google May Equal Long Jail Term

    December 27, 2006
    WebProNews Staff

A Tennessee investment manager is in hot water with federal authorities who have indicted him for defrauding investors, a fraud that the manager hoped to reverse by shorting shares of Google.

It didn’t quite work out for Jon Hankins the way he hoped it would. Instead of seeing dreams of an overvalued Google drop, they increased instead. Before he knew it, the investment turned into a $20 million dollar loss.

The Securities and Exchange Commission was not remotely amused by that series of unfortunate events. In June 2005, Hankins’ Tenet Capital Partners Convertible Opportunities Fund was placed into receivership, fourteen months after it had launched.

The Knoxville News Sentinel said Hankins began setting the groundwork for his white-collar fraud in April 2004. Their report said an information filing by the US Attorney’s office in the case likely means some sort of sentencing deal has been reached.

If Hankins short play had worked out, he stood to make millions, along with his clients. But the SEC said that his “large, naked short positions in Google” resulted in substantial losses.

Instead of reporting the loss to his clients, he began falsifying statements about the fund’s financial records. The federal charge of wire fraud noted in the report said Hankins claimed net assets of $31.2 million in the fund when only $4.2 million were in it.

Hankins problems began sometime between February and June 2005, which would mean he shorted Google not long after it had launched. In January 2005, shares of Google had not yet cracked the $200 mark. At press time they were set to open at $459.24.

Had Hankins simply followed the example of Warren Buffett, legendary for his buy and hold approach, he would be a wealthy man instead of a soon-to-be sentenced felon.

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David Utter is a staff writer for WebProNews covering technology and business.