BIDZ.com rises after company investigates alleged naked short selling

BIDZ.com, Inc. (Nasdaq: BIDZ) shares are soaring after the online jewelry auctioneer announced it is investigating possible wrongdoing by editor Andrew Left of Citron Research and will report trading activity to regulators. Left wrote a scathing report on Monday that sent BIDZ.com shares plummeting. He accused the company of irregular bidding and said one of the firm’s major shareholders and suppliers has a criminal past.

After publishing the report, Left said his website was hit with a denial of service attack that left Citron Research inaccessible for a period of time.

BIDZ.com said recent trading activity may have constituted “naked” short selling, or when traders sell borrowed shares without having borrowed them first. Because the practice falsely creates more sellers than buyers and usually artificially lowers a company’s share price, the practice is considered illegal under Securities and Exchange Commission rules. BIDZ.com said in a release that it reported recent trading activity to the Nasdaq and the SEC.

The Culver City, Calif.-based firm also warned investors that trading will be “volatile” over the next several days as sellers continue to short sell shares or cover their short positions. BIDZ.com said it “believes and is confident that the market will ultimately recognize the value in Bidz.com shares and the regulators will evaluate the recent trading activity and address any wrongful conduct.”

Ben Homer, who worked in Bidz.com’s customer service department during 2004, said he isn’t surprised at Citron’s report.

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