Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a “failure to deliver” (“FTD”). The transaction generally remains open until the shares are acquired by the seller, or the seller’s broker settles the trade.
Editor: bottom line up front: SEC does not “do” complaints and considers naked short selling to be legal and generally contributing to “liquidity,”
Practices Related to Naked Short Selling Complaints and Referrals
Naked short selling has been a controversial practice for several years and, while not illegal per se, abusive or manipulative naked short selling (e.g., intentionally failing to borrow and deliver shares sold short in order to drive down the stock price) violates the federal securities laws.
The prior GAO audit found that Enforcement’s system for receiving and tracking referrals from the Self-Regulatory Organizations (SRO) needed improvements and recommended enhancements that would facilitate the monitoring and analysis of trend information and case activities.
Forbes, 12 February 2007
How a tiny software outfit fell victim to an illegal but unrestrained practice known as naked short-selling.
Most investors have never heard of Sedona (otcbb: SDNA.OB – news – people ) Corp., a piddling Pennsylvania outfit that sells customer relationship management software for small U.S. banks and credit unions. But to a rogue band of short-selling hedge fund managers, Sedona was prime meat.
The Story of Deep Capture
By Mark Mitchell, with reporting by the Deep Capture Team
The Columbia School of Journalism is our nation’s finest. They grant the Pulitzer Prize, and their journal, The Columbia Journalism Review, is the profession’s gold standard. CJR reporters are high priests of a decaying temple, tending a flame in a land going dark. In 2006 a CJR editor (a seasoned journalist formerly with Time magazine in Asia, The Wall Street Journal Europe, and The Far Eastern Economic Review) called me to discuss suspicions he was forming about the US financial media. I gave him leads but warned, “Chasing this will take you down a rabbit hole with no bottom.” For months he pursued his story against pressure and threats he once described as, “something out of a Hollywood B movie, but unlike the movies, the evil corporations fighting the journalist are not thugs burying toxic waste, they are Wall Street and the financial media itself.” His exposé reveals a circle of corruption enclosing venerable Wall Street banks, shady offshore financiers, and suspiciously compliant reporters at The Wall Street Journal, Fortune, CNBC, and The New York Times. If you ever wonder how reporters react when a journalist investigates them (answer: like white-collar crooks they dodge interviews, lie, and hide behind lawyers), or if financial corruption interests you, then this is for you. It makes Grisham read like a book of bedtime stories, and exposes a scandal that may make Enron look like an afternoon tea.
Introduction By Patrick M. Byrne, Deep Capture Reporter
PDF (69 Pages): Deep Capture Story
NASAA Letter to SEC on Proposed Amendments to Regulation SHO
Joseph P. Borg
NASAA, 4 October 2006
NASAA offers its support of the proposed amendments to Regulation SHO. While we are encouraged that the Commission is adopting a more proactive stance in this area, we believe that much more is necessary in order to regain public confidence in the integrity of U.S. capital markets and protect both the investing public and our nation’s small business interests. NASAA strongly urges the Commission to take all necessary steps to eliminate abusive short selling, and the corrosive practices that surround it, consistent with the Commission’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
PDF (22 pages): NASAA Letter to SEC on Proposed Amendments to Regulation SHO
Bud Burrell, Matthew Goldstein
TheStreet cited by Sanity Check via Wayback, 14 March 2006
A New York hedge fund manager will pay $16 million to settle allegations arising out of a two-year-old investigation into manipulative trading in the market for private placements by small-cap companies.
The penalty agreed to by Jeffrey Thorp is the largest settlement assessed to date by the Securities and Exchange Commission in the investigation into trading abuses in the $18 billion-a-year market for PIPEs, or private investment in public equity.