Bear raids – is there any concrete evidence?

F

fbell50

It is frequently claimed that short sellers target a specific stock in the hopes of driving its price down so it can be covered at some point in the future.

I know there are cases of manipulating prices up intending to sell into rising prices. People have been convicted in these pump and dump schemes. But I have never heard of even one case where someone or group was tried and convicted of manipulating prices down by concerted selling. I haven’t even read an article describing a real-life example, whether or not there was legal action.

It may sound like commonsense that short sellers are purposefully selling in order to drive prices down, but my experience is that covering the short position is much more likely to drive price up faster and result in losses. This strategy can only work if a significant selling panic is induced with sufficient momentum to allow a profitable cover. This isn’t a trivial exercise.

It’s easier to push prices up than down, although even that is probably going to be losing exercise unless you follow a classic pump and dump strategy (find a penny stock, build interest by tips, rumors and repeated buying and selling among confederates until sufficient momentum exists to exit.) After all, anyone is a potential buyer, while only owners can sell.

I believe short sales occur because price is expected to go down, not with the expectation that the selling itself will drive price down and make a profitable trade. The market is going to go where it is going to go. No one or group is powerful enough to stand in its way. A lot of people shorted the tech bubble, me included, without slowing its rise.

Does anyone know of a concrete example of short selling with the express purpose of driving price down?
 
There's a couple. It's not like you're going to find a book with a compilation of real life examples. You would think based on the amount of words written re short sellers it would be easy to call up your reference librarian and pick up a copy of "short and distort" for dummies.
 
Quote from nutmeg:

There's a couple. It's not like you're going to find a book with a compilation of real life examples.
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I'm not looking for a book. Just a reference that can be researched and leads to a magazine or newspaper article or any other authoritative account. I can easily find references for "pump and dump" schemes, for example Widipedia references "Born To Steal" by Gary Weiss.

You say there's a couple but give no information that identifies them.
 
Quote from flytiger:

http://www.deepcapture.com/the-naked-short-selling-that-toppled-wall-street/
Bear stearns. Pay attention to the newsflow and the fails.
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This story says says that there was lots of short selling and some of it was naked. It implies but offers no evidence that the short selling was done with the purpose of forcing the price down. It is sponsored by the president of OverStock.com, who has long crusaded against short sellers. Hardly an unbiased source.

Certainly there is enough evidence to justify investigating and I believe that is what the SEC is doing. Recently the SEC brought charges against a firm for manipulating the closing price of oil specifically by forcing price. There is real evidence (emails I believe) in this case that support the charge.

For BSC, I see nothing more than a good idea that BSC was going down and the desire to profit by it. BTW, I lost 17% of my account in BSC. I doubt there are many people outside of BSC who have greater cause to rue its demise.
 
So I guess 1.4mm shares naked shorted into CNBC 'news' reports mean nothing.

But somehow I knew that.

And what axe does overstock have to support BSC, a firm it sued?

You guys are too too much.
 
Quote from fbell50:

I'm not looking for a book. Just a reference that can be researched and leads to a magazine or newspaper article or any other authoritative account. I can easily find references for "pump and dump" schemes, for example Widipedia references "Born To Steal" by Gary Weiss.

You say there's a couple but give no information that identifies them.
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I read several thousand books and prolly a million web pages and like I said there is about three links out there as fact. I'm surprised Fly didn't provide a link, he posted one a few weeks ago, I'll see if I can find it, I'm sure though it could be found on the SEC web site. It was an actual naked short prosecution, I fell off my chair.

Don't fall for all the hype on PIPE's, different ballgame, they usually slip that one in there and count it as a point towards the "bad dog" naked shorts.
 
Wed Sep 10, 2008 12:07pm EDT
By Karey Wutkowski

WASHINGTON (Reuters) - Deutsche Bank Securities Inc has agreed to pay a $575,000 fine for short-selling violations in the largest penalty to date from NYSE Regulation.

NYSE Regulation, the watchdog arm of the New York Stock Exchange (NYX.N: Quote, Profile, Research, Stock Buzz)(NYX.PA: Quote, Profile, Research, Stock Buzz), said on Wednesday that Deutsche Bank Securities made a significant number of short sales in securities that were not on the firm's easy-to-borrow list between January 2005 and October 2006.

It said the firm completed the sales without borrowing the securities or having reasonable grounds that they could be borrowed.

Short sellers arrange to borrow shares they consider overvalued and sell them in hopes of making a profit when the price drops.

Deutsche Bank Securities is the U.S. investment banking and securities arm of German banking giant Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research, Stock Buzz). A spokesman from Deutsche Bank said the firm was pleased to resolve the matter.

Robert Marchman, head of NYSE Regulation's division of enforcement and risk, said the case against Deutsche involved failures to locate the securities to cover the short sales, not necessarily a failure to deliver the securities.

A failure to deliver is associated with so-called naked short selling -- the subject of a recent U.S. Securities and Exchange Commission emergency rule designed to crack down on abusive short selling.

"The crux of this case is really the fact they didn't have adequate procedures in place to be able to locate the securities," Marchman said.

NYSE Regulation also found that two of Deutsche Bank Securities' trading desks incorrectly marked an unquantified but significant number of short sale orders as long, and some of the incorrectly marked short sale orders were improperly executed.

Deutsche Bank consented to a censure and the fine without admitting or denying the violations.

The regulator also said Wednesday it fined Citigroup (C.N: Quote, Profile, Research, Stock Buzz) Global Markets Inc $235,000 for various trading violations.

The regulator found the company, the brokerage and securities arm of Citigroup Inc, entered proprietary trades ahead of or along with customer orders from January 2004 through November 2006.

It said the firm either did not obtain permission from institutional customers or did not properly follow the provisions of customer permission as documented.

NYSE Regulation also found that from February 2007 through October 2007, Citigroup Global Markets failed to properly record, maintain and transmit certain data related to orders in various NYSE securities.

The firm agreed to the censure and penalty without admitting or denying the violations. It did not immediately return a call seeking comment.

(Reporting by Karey Wutkowski; Editing by Brian Moss/Jeffrey Benkoe)
 
My apologies. I referred to this and after re-reading the article, technically not a naked short, close but no cigar. This does encompass though a few of the major points that are seldom prosecuted.
Mismarked and improper short sale.



Robert Marchman, head of NYSE Regulation's division of enforcement and risk, said the case against Deutsche involved failures to locate the securities to cover the short sales, not necessarily a failure to deliver the securities.

A failure to deliver is associated with so-called naked short selling -- the subject of a recent U.S. Securities and Exchange Commission emergency rule designed to crack down on abusive short selling.
 
Quote from flytiger:

So I guess 1.4mm shares naked shorted into CNBC 'news' reports mean nothing.
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Circumstantial, but not strong enough to establish manipulation on its own weight. Who shorted? Who started the rumors? There's a strong human tendency to believe in conspiracies when all you have is coincidence, or common independent action based on a similar interpretation of market data.

I find it just as easy to believe that a large cohort of traders became convinced BSC was not going to survive, based on the same market information available to all, and independently started shorting. Perhaps one or two decided to help the process by spreading false rumors. Presumably this is illegal, but it hardly taints all the shorters even if they benefit.

This is more believable to me than assuming a conspiracy by a small group of traders to conduct a coordinated campaign to drive BSC into bankruptcy.
 
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