Please allow me to join the chorus here. YES…counterfeiting *IS* illegal…unless it’s too rampant and lucrative to stop, that is.

Please know investors everywhere are counting on your honesty. Thank You for doing what’s right.

Certain parties have used fails to deliver as a way to manipulate the stock price of certain securities, in combination with the release of ‘negative news’ rumors about those securities. By flooding the market with phantom shares, the stock price can be steadily driven down as more and more phantom shares are created and sold at lower and lower prices.

The SEC has recently admitted that this practice not only exists, but is a severe threat to the health of the United States’ financial markets. This is a revelation, as for many years, the SEC denied that naked short selling was taking place at all. In July of 2008, as Bear Sterns collapsed and Freddie Mac and Fannie Mae began to follow suit, the SEC released an ‘emergency’ rule to prevent ‘naked shorting’ of those and some other financial stocks, ironically restating the fact that naked short selling was already illegal and under their jurisdiction to prosecute. After intense lobbying by both hedge funds and market makers, exemptions were added to the rule that will allow certain parties to continue this practice in order to ‘maintain market liquidity’.

Wall Street has favored short sellers for years. Even as Reg SHO was passed, after years of hand wringing, the SEC, in its “wisdom’, passed a grandfather clause, because they were concerned about the volatility that would be created by settling the existing fails. That’s insane. They sure as heck weren’t concerned about the downward “volatility” that was created by not forcing the buy ins of failed trades. Simply put, they protected those who were responsible for the fails at the expense of legitimate shareholders. This is not the America that many of us want for ourselves and for our children.

Legitimate short selling is fine. Locate, borrow, sell and deliver…no problem. Anything other than that is fraud with the intent to manipulate the price of stocks lower by outstripping demand with supply. The elimination of the uptick rule, while minor, in comparison to the naked short (counterfeit) problem, is yet another example of favoritism to short sellers over the average American who rarely bets against a company.

The very idea that the SEC chose to only protect 19 companies speaks to this blatant and selective protectionism, or as Patrick Byrne puts it, apartheid capitalism. How can the SEC not afford ALL companies the same protection under the law? Apparently, they wanted to re-flate the shares of the financial stocks so they could issue stock to raise money. How come they are not equally concerned with all of the other publicly traded companies who also rely upon their share values to finance growth and operations. How ironic it is that UBS is afforded protection at the same time we are hearing that charges of securities violations may be filed at any time against them, and yet they receive special treatment from the SEC while companies (Force Protection) that make special armored vehicles to protect our soldiers, are themselves, under attack.

It is time to clean this up. The American public has had enough of this charade – protect all companies and SETTLE THE TRADES.

And, once again, sincere thanks for your coverage of this incredibly important issue.

You write:
<>

Excellent article otherwise.
Regards,
Trond

With Hedge Funds getting bigger and bigger and more numerous all the time around the world, it seems what was once a controllable systemic imbalance, is now uncontrollable as the Hedge funds ram that crack almost everyone is now aware of, wide open, to make as much money for themselves as possible. Unfortunately for the U.S. economy, for the hedge funds to make money and take advantage of this systemic crack, it requires the harm and even demise of companies. Who would want that? This goes far beyond Wall Street.

Alexis, you might want to follow very closely the lawsuit by NovaStar Share holders, against the prime brokers, that was initiated years ago in California, that is now in the discovery phase after surviving motions and challenges heard by federal courts and the CA Supreme court. We’re th only ones on to them and Overstock has followed in our footsteps with an identical lawsuit. Should we succeed, I assume there will be a flood of copy cat lawsuits that will make naked short selling in every security most expensive and maybe bring down some of these prime brokers through legal liabilities – so far we have proven correct in what we’ve been saying and we’ve done what we said we would do.

The entire problem starts with the basic – and incorrect – assumption, that is repeated over and over again, including by you Alexis, that short selling is beneficial to the market. I have to give you a lot of credit though, because you do qualify that by saying, “as far as volume is concerned..”. Yes, short selling increases volume, so? How is that beneficial? Where are the studies that show that to increase the formation of capital, help investors, issuers, etc…. there is no such study concluding that as far as I know and I’ve been looking for one for years.

Alexis, maybe you should highlight the fact that you mentioned in passing and get some guests on to discuss, just in what way is short selling beneficial to the markets? Not to speak of naked short selling? This is such a fundamental mind set finding it’s way into all regulators, SEC rules and politicians……….let’s examine this fundamental belief, for which no studies exist……

thanks again

It is purposeful, and the purpose is to make money. The result is to drive the stock price of many small companies into penny range and eventually oblivion so that the shares will never have to be produced.

Coupled with an aggressive media arm, rumors become facts, and risks that didn’t exist are now known to everyone. Continue the shorting while mongering the rumor mill. Enter the respected analysts to say “independent research” shows that these risks may be real, and it is our opinion that the business model cannot withstand the strain–downgrade. Continue the shorting. Trumpet the negative opinions of the expert analysts. Continue the shorting.

The fact is that the regulatory agencies do nothing to stop it until, well, it happens to a big player, Bear Stearns, uh-oh. Now Lehman Bros is “in trouble” according to the erstwhile press. Time to stop the merry-go-round.

Fannie Mae? You gotta be kidding right? NO.

So, time to introduce a new concept. Big players and Market Makers are no longer allowed to cheat. How are they supposed to make money then? The howl that has gone up should indicate that the free money offered up to the large institutions ( many of them on Mr. Cox’s list of protected companies) has been a skimming operation extraordinaire vis- a-vis “naked shorting” or what should more properly be referred to as “Counterfeiting Shares”.

Great piece on naked shorts. You are one of the very few in “mainstream media” who are doing it justice. Good to have Robert Shapiro on. High credibility.

This is a huge problem that threatens the infrastructure of our financial markets. It is like termites in your house. Sooner or later, the structure begins to crumble and may collapse.

Fred