Medis Technologies Inc. might not be able to beat the short-sellers, so maybe it can generate some revenue from them.

The fuel-cell developer's stock gets bet against, or "shorted," a lot, with about 25% of its shares outstanding tied up in such sales -- in which stock is borrowed and sold in the hopes replacement shares can be bought cheaper later.

Now the New York company has announced a financing deal under which it will issue as many as 1.5 million common shares and loan them to Citigroup Inc.'s Citigroup Global Markets to assist "hedging transactions" -- a euphemism for shorting -- by buyers of $50 million of new preferred shares.

The arrangement is raising eyebrows. "I've never seen it before in the 10 years I've been on Wall Street," Brion Tanous, a stock analyst at Merriman Curhan Ford & Co., told Hedge Fund Trades, published by Dow Jones & Co., which also publishes The Wall Street Journal. Jack Hogoboom, a partner at Lowenstein Sandler, a Santa Clara, Calif., securities law firm, said it could be a way for Medis to profit from fees on lending its shares, which are in high demand.

Shorts have been paying about 24 cents a share to borrow the stock from shareholders, compared with five to seven cents for other popular short-selling targets, according to one hedge-fund manager. This manager said he isn't deterred from shorting the stock because he thinks the company has failed to deliver on promises to develop its technologies. In the first nine months of the year, Medis registered a net loss of $26.3 million and revenue of $150,000.

Asked for an explanation, Medis Chief Executive Robert Lifton declined to comment, citing regulations limiting what companies can say in advance of securities offerings. Citigroup also declined to comment.

Corrected/Revised Release by Wall Street Journal:
http://online.wsj.com/public/corrections?mod=2_0102

MEDIS TECHNOLOGIES Inc. received $15,000, or one cent a share, for the 1.5 million common shares it issued and loaned to a Citigroup Global Markets Inc. affiliate to facilitate the concurrent private sale of $50 million of Medis Series A Cumulative Perpetual Preferred Stock to institutional purchasers. The proceeds from the sale of these shares enabled the purchasers to hedge their investment in Medis's preferred stock through privately negotiated derivative transactions. A Nov. 11 Bids & Offers item in the Money & Investing section incorrectly implied that the shares were loaned for the purpose of deriving much higher revenue. In addition, the article should have noted that Merriman Curhan Ford & Co. stock analyst Brion Tanous has a sell rating on Medis.