MAJOR PAPERS:

• UBS AG (NYSE: UBS) won't comment on write-down estimates, but according to the Wall Street Journal, investors are expecting it as prices for mortgage securities have significantly gotten worse over the past several weeks as evidenced by Lehman Brothers Holdings Inc (NYSE: LEH) profit warnings.
• Yesterday Lehman's stock fell 8.7% as the firm announced a projected $2.8B second quarter loss and a $6B capital raise. Options activity indicated a lessening volatility, the Wall Street Journal reported, a sign that perhaps the worst may be over.
• According to a person familiar with the matter, the Financial Times reported that China's Qingdao Haier has approached investment banks to advise it on a bid for General Electric Company's (NYSE: GE) appliance business.

• A brief filed by plaintiffs in a shareholder lawsuit against Yahoo! Inc (NASDAQ: YHOO) and its directors claimed that an employee severance plan put in place to protect workers after a merger with Microsoft Corporation (NASDAQ: MSFT) should be repealed immediately. The New York Times reported that the plaintiffs believe the plan could skew the outcome of a proxy battle between Yahoo! and Carl Icahn for control of the company.

Shares of Children's Place (NASDAQ: PLCE) were up more than 5% on Friday after the children's clothier and Disney Store owner announced that it was putting itself up for sale. The shares closed at $23.92, well off the 52-week high of $71.81. The company has been mired in scandal and recently CEO Ezra Dabah recently resigned after an investigation found that he had failed to comply with company rules regarding insider trading and reporting. Dabah remains on the board and own 18% of the company.

Here's where it gets interesting. According to The Wall Street Journal, "Mr. Dabah has told acquaintances that he wants to start his own private-equity firm and may be interested in buying Children's Place and the Disney Store chain it operates. Mr. Dabah had been CEO of Children's Place since 1991."

Children's Place hasn't filed a 10-Q in more than a year, has several shareholder class-action lawsuits pending against it, and its auditor, Deloitte & Touche, reported that it would not stand for re-election because it can't rely on information provided by Mr. Dabah and the company.

In other words, a big part of the blame for the company's troubles -- and resulting stock price -- could probably be placed on the shoulders of Mr. Dabah. With the stock so far off its highs, he may stand to benefit from his poor management if he ends up acquiring all or part of the company.

Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and I seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

If you had followed my suggestion back on April 4th to sell short shares of Coast Financial Holdings Inc. (NASDAQ: CFHI) -- when it traded at $6.90 -- and cover your position on Monday morning at $3.90, you could lock in a return of 77% -- pretty good for about six weeks' risk.

Based on my analysis of its first quarter 2007 10Q filed May 10th, here are the reasons why I think CFHI has tumbled:

• Net loss increased 7.7 times. CFHI's Q1 2007 net loss of $2.4 million was 7.7 times its net loss in Q1 2006.
• Provision for credit loss up 11-fold. CFHI's Q1 2007 provision for credit losses of $1.4 million was 10.7 times its Q1 2006 provision. Meanwhile its nonperforming loans increased 38-fold to $38 million in Q1 2007.
• Many loans to bankrupt developer. CFHI's construction-to-permanent loan portfolio was hit by the downturn in the Florida real estate market and the failure of a local builder -- Construction Compliance -- with whom many CFHI borrowers had contracts to build their homes.
• Regulatory investigation of CFHI's operations. The FDIC and Florida bank regulators have recently completed an examination of CFHI and "are conducting an ongoing investigation of its operations."
• Shareholder lawsuits. CFHI is being sued by shareholders who allege that it "materially mislead the investing public by issuing false and misleading statements and omitting to disclose material information concerning CFHI's operation and performance of its residential lending department, particularly as it related to these loans."

And while I would not fault an investor who chose to take a 77% profit by covering an April 4th short position on CFHI, I think it will decline further. Do you agree? Do you have any short candidates you'd like me to examine?

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Coast Financial.