Over the past decade, short-selling investigative reports have turned up innumerable frauds. In the grand scheme of things, these reports help create a more efficient and equitable market, as short-sellers have the time and resources to investigate businesses that aren't up to snuff.
Unfortunately, the practice is also open to manipulation, as anyone with a bone to pick and a short position on a company can publish articles that fail to provide context and distort the truth. Management at Organovo (NASDAQ:ONVO) believes this is the case right now, as the company issued a warning to investors about "short and distort" articles last week.
According to Organovo's press release, the company -- which has developed a technology to use 3-D printers to create functional human tissues -- has encountered numerous instances of "short and distort" articles and hasn't been able to adequately remedy the problem through proper channels:
"The process [of fixing factual errors] can take two days to two weeks. ... A number of requested corrections have never been made, because the standard for some sites to adjudicate a dispute is only to ask the author if they are willing to make a change."
Though it's impossible to tell which articles in the past Organovo has been referring to, I believe the story that prompted the company to issue the release came from an article touting "undisclosed legal action" against the company and the fact that Organovo's use of a reverse merger puts it in the same nefarious company as Chinese dot-com frauds. The author of the piece, through his wording, paints a picture of a company trying to score a quick buck and hide a messy situation.
But Organovo disputes these points in its release. The company doesn't hide the fact that is was formed via a reverse merger, stating it at the top of its FAQ page. And with regard to the "undisclosed" legal action, the company states that "matters that rise to a significant magnitude are appropriately disclosed on form 8-K" and added: "For matters falling below [that] level ... the appropriate time for the company to comment is in its 10-Q filing."
Sure enough, on the 19th page of the company's most recent earnings report, it spells out the aforementioned legal matter in detail.
What this means for investors
All of this isn't to say that any bearish report is unreliable. It also doesn't mean that Organovo is assuredly investment-worthy for every investor. Instead, it underscores the importance for every individual investor to complete their own due diligence.
The 3-D printing field is one of the most ripe for manipulation, as some see the technology being to the next generation what the personal computer was to ours.
Fool contributor Brian Stoffel owns shares of Organovo. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.