Anyone who has been in the market for any length of time knows it is called "piling on."
The true market (supply and demand) takes a stock price up or down to adjust for, in the Lehman Bros example, the CDS and MBS problems. "Piling on" occurs when short sellers simply take it down as low as possible, incrementally to the point buying pressure increases. It's analogous to someone getting beaten up in a fight, then as they are trying to recover afterwards, a bunch of others come in and kick them while they are down. Not exactly a fair fight.
If the SEC had any cajones, they would have kept in the uptick rule (although shorts found loopholes here as well) to avoid the demolition of companies by short sellers, to stop this kicking while a company is trying to recover.
I realize it's being a bit coy on your part, but again anyone who has traded for any length of time knows that in these types of instances it is the short sellers/hedge funds hopes to both continue the short selling and bring their paid henchmen onto message boards to scare away any small retailers. Eventually, they go public with real or fictitious stories against the company they shorted, getting articles into print in an attempt to further drive down the SP.
In some cases, the market fights back due to a company's increased growth and brand awareness. Buyers rule the day and put these hedge funds in precarious positions. They must either cover for losses, damaging both the pocketbook and bruising plenty of egos along the way, or short sell even more to compensate for the buying pressure.
As a last resort, the henchmen begin calling the SEC in an attempt to expose (again) real or imagined misdeeds by the company. On a rare occasion, this works against short sellers, as they are exposed much more so than the company they are attempting to drive out of business.
Deals are sometimes made under the table to allow a company to get out at least with their own investment, and the only ones to suffer are shareholders. On a VERY rare occasion, a company tells the hedge funds to go to hell and fights back. They bring in top-notch accounting firms to expose the not-so-NSS-myth. These firms oversee an SEC investigation and truth is brought to light.
The SEC would certainly not allow for PRs to be put out and lawsuits to be filed while a company is under investigation and would have called a halt to trading if these real or imagined misdeeds were blatantly true.
My opinion is that we are in the "go to hell and fight back" stage. What will occur? Only those behind the closed doors know for sure, but SPNG(E) is not going down to the hedge funds without a fight.
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