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Kandi Technologies, Corp. (NASDAQ:KNDI) was the victim of a recent short attack which pushed the stock as low as low as $3.08 from its $4.68 open on Sept. 27. But the stock rallied back to close at $4.05 as investors were able to collect themselves and analyze the misleading communication that was released. Unfortunately these types of attacks are not uncommon for companies that have some demonstrated weakness or exposure. For Kandi, that exposure exists in that Kandi is a Chinese company that's listed in the US securities market. But fortunately for Kandi, the strength of the legacy business and the recent progress in its Electric Vehicle [EV] projects enabled it to weather the storm.

Shorting a stock in itself is not necessarily a bad thing. The process involves borrowing securities and then selling them with the hopes that the securities can be repurchased at a lower price than what was paid to facilitate the repayment. It provides a mechanism for those that think that a stock's price will decline to participate in the market in support of that position and thus profit if correct. Shorting a stock can also help keep the securities from becoming inflated when the value of the stock starts to exceed a logical valuation. But short selling also provides a mechanism for manipulation. Sellers can relentlessly sell a stock artificially driving down the price.

This effect use to be muted by the 'Uptick Rule'. The uptick rule was implemented in 1938 by the Security and Exchange Commission [SEC]. The rule simply meant that short sellers had sell at a price that was higher than the previous trade. So essentially short selling could only take place on an uptick in the price. In doing so, it prevents or eases the short trade from adding selling pressure to the downward momentum. The rule was eliminated in 2007 but began to receive consideration for reinstatement in 2009. We're still waiting, though.

One of the biggest problems associated with shorting a stock is the manipulation of information. The manipulation often comes in the form of what is called "Hit Pieces". Hit pieces are articles or other forms of communication to the public that are meant to mislead, confuse and scare investors into selling. Many investors rely on the analysis of others to make decisions. And when they are presented with gloom and doom scenarios they will instinctively want to protect their investments. This could lead to selling of a security in a company that is fundamentally sound. Even knowledgeable investors will sell because while they may know that a company is sound, they may not feel that the company can withstand the short selling attack.

This is what happened to Kandi on Sep 27th. GEO Investing released the hit piece Connecting The Dots: Kandi's Clever But Apparent Related Party Transactions. The article was an obvious attempt to mislead shareholders into selling to support their short position. I'm long Kandi but only offer facts and opinion clearly stated as such. The piece was full of innuendo about business relationships and strategic transactions without actually revealing any real negative information. It was long winded and hard to read; and in my opinion, by design. It even had pictures of ominous looking buildings and the residences of business persons. I have to give them an A for effort, but in reality it was really just a shameful act that was portrayed on the retail investors as some sold at losses only to watch the stock rebound.

Kandi was able to survive the attack because it has a fundamentally sound business making go-carts and ATVs, and now that it has ventured into the EV business it also has a tremendous upside potential for growth; this growth is supported by the Chinese government's desire to use EVs to reduce pollution and congestion.

The company has two significant projects that will soon be beginning the production and delivery phases. The projects have productions quantities of 20k and 100k vehicles which are expected to be duplicated across numerous cities in China. I wrote about the projects in my first article Kandi Technologies: A Practical Approach To The EV Market which was ironically mentioned in the hit piece.

I further showed how with the 100K project adoption in just three cities, Kandi could achieve a 2,933% increase over it Sept 17th closing price in just three years producing $13.26 per share in profit in my article Kandi Technologies: It Ain't Easy Being Green. That would produce a share price of $132.57 with a P/E ratio of 10. The one good thing that came out of the hit piece is that it showed that Kandi is a real business with real facilities and real workers. And these numbers are also real and actually somewhat conservative.

The acceptance of the projects is supported by the Chinese government as shown in a recent policy letter that was released that references Kandi (Condi in China) by name. A recent article by Tom Konrad over at Forbes outlines some of the policy papers content that is relevant to Kandi. The article is very informative. Kandi also held an Investor/Analyst meeting in Atlanta in September that was abundant in facts as illustrated by Todd Krajniak's SA article.

There is nothing wrong with having a different opinion or shorting a stock. I do think we need the uptick rule restored though to help balance the fear that occurs when stocks are pressured downward. But spreading fear through innuendoes and insinuation is cheating and hopefully illegal. Real people lost money on 27 Sep in their retirement savings and other investments because they were presented with something that was impossible to read and really just a bombardment of irrelevant information.

But in the end, people saw an unexpected buying opportunity and Kandi rallied back. It closed down about 11% but respectable considering the lows. My guess is that the stock will bounce around until sales are announced. Hopefully investors will become immune to the manipulation and make decisions based on facts.

Source: Kandi Technologies Rebounds After Short Attack