Shares of Sorrento Therapeutics (SRNE -4.95%) rallied on Thursday after the biopharmaceutical company said it would take action against an organization it claims fraudulently attempted to manipulate its stock price. As of 3 p.m. EDT, Sorrento's stock was up 5% after rising as much as 16.6% earlier in the day.
Sorrento claims Hindenburg Research -- a noted short-seller -- published false and/or misleading statements about its COVID-19 diagnostic test. Sorrento said it would work with regulators and law enforcement "to ensure that any criminal activity is investigated and rectified." It also demanded that Hindenburg retract its claims and threatened legal action.
The statements in question are apparently a series of tweets that Hindenburg posted on Aug. 11. They essentially claimed that Sorrento and others were overstating the market potential of the rapid diagnostic test it licensed from Columbia University, which can reportedly detect the novel coronavirus in as little as 30 minutes using saliva samples.
It's important to note that there's nothing inherently wrong with short-selling, which is a perfectly legal way for investors to make money if stocks fall. Short-sellers can also provide a valuable service to the market, if their research helps to uncover illegal or improper activity by a company.
However, there is certainly something wrong -- and potentially criminal -- with making false claims to manipulate a stock's price. If Hindenburg's statements are proven to be an attempt at fraudulently manipulating Sorrento's share price, then Sorrento would have justification to take legal action against it.
Yet Hindenburg denied any wrongdoing and said that it filed a whistleblower complaint against Sorrento with the Securities and Exchange Commission.
"SRNE put out a [press release] basically calling us criminals and saying it will go to regulators...the day after we said we already sent a report to regulators," Hindenburg said in a tweet. "We obviously welcome regulatory involvement here, and stand by our sourcing, which is in writing, 100%."