Felix Salmon on Short Sellers

Editor’s Note: The following post comes to us from Ekkehart Boehmer, Professor of Finance at EDHEC Business School; Charles Jones, Professor of Finance and Economics at Columbia University; and Xi

For more than a year, Silvercorp Metals Inc. has faced allegations of misconduct at its operations in China. Now they form the basis of a formal lawsuit. New-York based The Rosen Law Firm P.A has launched a class-action suit against the company and three of its senior executives, including chief executive Rui Feng. They are accused of overstating financial results from Silvercorp’s flagship Ying mine, causing investors to buy the stock at “artificially inflated and distorted” prices.

By Hawkinvest:Eaton Corporation (ETN) shares were surging in the first quarter of 2012, and even traded around $52 in February. However, for the past several weeks the stock has seen a brutal decline down to about $37. It's often hard to buy a stock that is dropping, especially when other investors have been losing money, but it can also be a great buying opportunity.

By Tom Payne:Short sellers profit by taking large short positions, while creating a market environment designed to panic shareholders into selling their holdings. They have mastered the ability to create panic, which leads to the selling flow of stock required to cover their large short bets.

Corporate activist investor Carl Icahn timed his 6% investment in natural gas driller Chesapeake Energy (CHK) almost perfectly earlier in 2011, buying in the low 20′s and selling in the mid 30′s a few months later after extracting a publicly announced debt reduction plan out of management. Now, with the stock back down to prices even lower than where Icahn originally bought, Lou Simpson (former GEICO executive and Warren Buffett number two investment manager at Berkshire Hathaway (BRK)) has bought 200,000 shares in the energy producer.

Miriam Metzinger submits: Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday June 6. Expedia (EXPE), Groupon (GRPN), Travelzoo (TZOO)