Matt Levine’s Money Stuff: Short Squeezes Are Legal Now

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Every so often around here, I feel compelled to mention my all-time favorite US Securities and Exchange Commission enforcement action, the MAAX zips case against hedge fund manager Phil Falcone and his firm Harbinger Capital Partners. In 2006, Harbinger owned some bonds, called “zips,” issued by MAAX Holdings Inc., a “leading manufacturer and distributor of bathtubs and showers in Canada.” The bonds were distressed — MAAX eventually went bankrupt in 2008 — and Harbinger started buying them at around 50 cents on the dollar.

But in the summer of 2006, the Harbinger analyst on the trade “began hearing rumors that there was aggressive ...