Short-sellers are being unfairly targeted for the collapse in the financial sector, said Jim Chanos, of Kynikos Associates.
"Short-sellers were not the cause of the recent financial stock declines," Chanos said on CNBC. "The data we have indicates that the aggregate short positions for publicly traded investment banks have been dropping over the course of 2008 and have been dropping since July."
(Jim Chanos speaks out about the SEC's banning of short selling. Click to watch the accompanying video.)
Regulators in the United States and Britain took aim at short sellers by restricting the trades in financials, with the United Kingdom rule even more aggressive than the American one.
That's misguided, said Chanos, who blamed the problems in banker-brokers on a bad business model to which shorts were merely reacting as they should. He said there has been no evidence presented of any collusion on the part of short sellers.
"I think the people were more concerned about the business model of the stand-alone brokers more than anything else," he said. "Buying illiquid, risky assets and funding yourself with overnight deposits seems to be a violation of Financing 101."
Targeting short-sellers could cause long-term damage in the investment world, Chanos added.
"The hedge funds aren't too happy with banks and brokers who feel that they've just thrown us under the bus if you will," he said. "There's going to be some good will that needs to be repaired."