US hacking firm teams up with short seller

Washington

WHEN a team of hackers discovered that St Jude Medical Inc's pacemakers and defibrillators had security vulnerabilities that could put lives at risk, they didn't warn St Jude. Instead, the hackers, who work for cybersecurity startup MedSec, e-mailed Carson Block, who runs the Muddy Waters Capital LLC investment firm, in May. They had a money-making proposal.

MedSec suggested an unprecedented partnership: The hackers would provide data proving the medical devices were life-threatening, with Mr Block taking a short position against St Jude. The hackers' fee for the information increases as the price of St Jude's shares fall, meaning both Muddy Waters and MedSec stand to profit. If the bet doesn't work, and the shares don't fall, MedSec could lose money, taking into account their upfront costs, including research. St Jude's shares declined 4.4 per cent to US$77.50 at 1.40pm in New York with more than 25 million shares traded.