On Friday, July 12, a short Bloomberg article on Arbor Realty Corp (ABR) caused the share price to drop 20% in minutes. Let’s look at how the piece, titled “Arbor Realty Probed by DOJ Over Lending Practices, Loan Book,” was more a hit piece than some factual reporting.

What first got my attention was that there was no reported communication from the FBI or DOJ. The article actually said prosecutors are investigating “…lender’s practices and disclosures, according to people familiar with the matter. The investigators are inquiring about lending practices and the company’s claims about the performance of their loan book, said the people, who asked not to be named.”

People “familiar with the matter” and “who asked not to be named” are hardly the DOJ.

The first release of the article did not include any comments from Arbor Realty. It was several hours (and a large drop in the ABR stock price) before Bloomberg updated the article with Arbor’s reply: “We routinely cooperate with regulatory inquiries and are very confident that we conduct ourselves properly…We look forward to our second-quarter earnings call.”

The first release came out early on market day, spreading fear among ABR investors and racking up profits for short sellers. By the time the Arbor comments were added, the damage to the share price had been done. ABR has been under short-seller attacks for more than a year.

At least investors saw through the attack, and the ABR share value increased by 12% on Monday and Tuesday following the weekend.

Arbor Realty Trust has been a long-time recommendation to my Dividend Hunter services subscribers. The company has paid a steadily growing dividend. The shares currently yield almost 13%. Without the short seller “reports” over the last year, the stock would yield less than 10%. I expect ABR to eventually increase to nearly $20 per share.

— Tim Plaehn

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Source: Investors Alley