Investors Bet The Company Behind Will Fail

12/4/13 12:47PM EST

Investors Bet The Company Behind Healthcaregov Will Fail Investors Bet The Company Behind Will Fail

Image via Elnur/Shutterstock isn’t running as smoothly as people hoped. Business Insider calls the site a “debacle.” Newsweek calls it “glitch-plagued” and says that CGI Federal, the main contractor behind the, “fumbled” the website.

Most investors seem to have faith that CGI Federal and its parent company, CGI Group (NYSE:GIB), are on the rebound. CGI shares are up 54 percent since the year’s start and up 15 percent in just the last month. And the company still has an overall market value of more than $11 billion.

But not everyone is so sure. Well-known financier Jim Chanos is betting CGI will fail. He’s a short-seller, meaning he makes money on stocks as they fall.

Simply put, he borrow stocks from a brokerage house and sells them at market value to another buyer. He needs to repurchase the same amount of stocks at a later date in order to return them to the brokerage house. So, if the market value has decreased in that time, he buys the stocks for a lower price and makes a net profit.

Chanos is famous for “shorting” Enron before its historic collapse, accurately predicting the company’s downfall. Now and his company, Kynikos Associates (“kynikos” meaning “cynic” in Greek), are shorting CGI and effectively betting on its failure. While it’s unsure how many shares of CGI Chanos is shorting, Newsweek states he has “placed potentially lucrative bets.”

Chanos explained his stance in a memo to clients, outlining why he believes CGI is bound to fail. Among his reasons are a decreasing cash flow and “the PR mess” surrounding, which could “reduce the likelihood of future government contracts.”

Although share prices are currently on the rise, many investors are beginning to agree with Chanos. Nearly 30 million of its shares – about 11 percent of the company’s total shares – are being shorted in Toronto, according to Newsweek. Experts believe even more shares are being shorted, since CGI also trades on Nasdaq and the New York Stock Exchange.

No one can predict the outcome with 100 percent certainty, but time will tell if CGI is fated to go belly-up. If so, Chanos is likely looking at a big payday.