Isn't Naked Shorting illegal?

another practice which is rather shady

is buying a convertible issue and then shorting the common when it reaches the convertible conversion price.

which gives the player a risk free look at the yield and the player can then buy way otm puts with the proceeds from the coupon which is a way to double and triple up (when and likely) the common tanks.

that's why I don't buy companies that issue convertibles since the common shareholder gets screwed without knowing what hit them.

an opinion of course and i could be wrong.
 
First I think we have to define - illegal.
When you say illegal I believe you mean in violation of a criminal law.

I therefore have to ask - could you please point out the criminal code. NOPE. HAVE NO INTEREST. I'M NOT A LAWYER. I SUGGEST YOU GO HERE:

1. http://www.rgm.com/articles/forbes4.html (UBS just lost an appeal to Louisiana Supreme Court, and will have to deliver records) AG is Criminal Division

2.http://www.forbes.com/home/free_forbes/2007/0212/068.html
"illegal" See it in the headlines?

I was a member of an exchange and for a while we were shorting IPO's from the open. No one worried about lists of stocks for borrow only that we shorted upticks. (that is until one of the guys in our office bragged about how much money he was making doing it. Then the nasdaq put pressure on our exchange)

I am also know guys who worked at small brokerages who shorted the hell out of stocks without borrowing the shares because they were allowed to make markets. So it was not illegal for them. THEY WEREN'T PROSECUTED. IT WAS ILLEGAL. SEE THE SEC IS FINISHED THREADS.

Reg Sho - is a regulation - I do not think it is a statute with criminal penalties. If it were I would say it is unconstitutionally vague. TRUE. BUT THE SEC THEN REFERS THE CASES TO THE DOJ. REFERENCE SEDONA CORP. SEARCH BADIANS, AND DOJ I BELIEVE 2/03. THEY DO WORK IN CONCERT WHEN THE SEC CAN GET ITS HEAD OUT OF THE COLLECTIVE ASS THAT RESIDES THERE.

I am pretty sure it is not necessarily illegal to short and then fail to deliver. If it were illegal - I know plenty of traders who were allowed to break the law for years. ME TOO. NOT ARGUABLE. NOW WE ARE GOING TO EXPOSE THE MONEY TRAIL.

HERE IS THE SEC MOVING ON SECURITIES FRAUD. THEY GOT HERE ON 'INSIDE INFORMATION'. A TOKEN PROSECUTION FOR SURE WITH THE HUNDREDS THAT DO THIS.

http://www.rgm.com/articles/nasd6.html
 
if a bunch of short sellers from the fat thumb brokerages couldn't cover...

the SEC would just force them to cash settle.

wouldn't want the dust up to appear in the press.
 
Thanks Don. Can't get any more credible than that. Of course, I agree, as do most people that illegal is illegal and more power to anyone who can right the wrongs with truth and justice for all, give me liberty, peace, mom and apple pie, (skip the chevrolet) but yikes, I moved on along time ago but it is an interesting issue.

"Well, I've been an exchange member since 1979 and we have to always locate stock to borrow. Even this era, we have to use the Goldman portal to locate stocks for our traders."

-------------------

Regarding the article. It was refreshing, a few new names with info.

Let's recap. "It's very serious [naked shorting]" This quote is from Robert Shapiro Phd. Dead giveaway. A Phd? That's credible in a Byrne sort of way.

He adds "We don't know precisely how many are naked shorts sales because the DTCC wont't say".

DTCC = bad dog.

Ahhh, but now we have a few quotes in the article from the DTCC.

"The DTCC is not involved with stock trades of any kind in terms of knowing if a sale is short or not, they do not lend for short selling"
says, Susanne Trimbathm a former manager of the DTCC.

Another quote from the DTCC's Steve Letzler ""The DTCC doesn't know the reason behind a fail".

The black hole is the DTCC if you believe the baloney brigade yet the DTCC responds and it just isn't good enough.
 
On a similar note (at least in my mind).... going the other way. Us old guys might remember back when the Hunt Brothers tried to corner the Silver market back in about 1970's-1980's or so. They kept buying futures and asking to take delivery of the physical silver, which was unheard of. So, traders had to go buy silver on the open market to deliver to the Hunt's.

Well, as always, the traders in Chicago won (they generally win their many battles, LOL)... by changing the rules making for the only way to liquidate their long positions was to sell them back on the open markets in Chicago...well, guess what happened, LOL. Silver went crashing back down about 80% wiping out most, if not all, of their paper profits in around 1987 or so.

Was this a "long squeeze"? The Hunt's still deny it, but it was pretty obvious...they even got others involved towards the end to try to get bailed out, didn't work obviously.

Oh well, just another "plan" that didn't work, LOL.

'Don
 
Quote from yoohoo:

yes it's illegal and a total fraud, supported, upheld and hidden by the SEC. It's destroyed good companies, stripped investors of their wealth and lined the pockets of Gordon Goko's in high places.
More...
Shorting keeps companies honest (or at least sleazy). If Refco or Enron-like frauds are discovered, the company -that otherwise might go unpunished- will be punished with massive shorting.

Shorting keeps company close to fair-value sooner.

Finally, shorting stabilizes the market.
After market panics, when general sentiment is still very bearish; shorts are almost the only ones buying (to cover).
 
Quote from crgarcia:

Shorting keeps companies honest (or at least sleazy). If Refco or Enron-like frauds are discovered, the company -that otherwise might go unpunished- will be punished with massive shorting.

Shorting keeps company close to fair-value sooner.

Finally, shorting stabilizes the market.
After market panics, when general sentiment is still very bearish; shorts are almost the only ones buying (to cover).
More...
What does this post have to do w/naked shorting?

TheDTCC is a function of the brokers. They are not clean by any stretch of the imagination: this could not happen without them..

I think they took Ralph Lambiase' comments out of context. I know him.
 
Quote from crgarcia:

Shorting keeps companies honest (or at least sleazy). If Refco or Enron-like frauds are discovered, the company -that otherwise might go unpunished- will be punished with massive shorting.

Shorting keeps company close to fair-value sooner.

Finally, shorting stabilizes the market.
After market panics, when general sentiment is still very bearish; shorts are almost the only ones buying (to cover).
More...

Nothing wrong with shorting. It's naked shorting that is the problem. And it's a serious one that the SEC should get a grip on. Maybe with the next administration?
 
There is a very simple solution that has been presented to the regulators but has not been acted upon.

Today there is no penalty for failing to deliver stock to the DTCC on time. Accordingly firms face no downside for failing. The solution then would be to impose a fine for each fail which will make the firms take notice and begin to tighten up the process.

Best.
 
http://www.sec.gov/spotlight/keyregshoissues.htm

"Naked short selling is not necessarily a violation of the federal securities laws or the Commission's rules."


Naked short selling when combined with illegal manipulation or lies to the governing body may be criminal. But as I said, I see nothing that says naked short selling is illegal. Consequently, because we are protected by a constitution which says that you can't decide that something is criminal after it has been done... I conclude naked shorting is not illegal. In order for it to be illegal you need the crime to be pretty clearly defined ahead of time.

Of course I will change my mind if you find such a statute.
 
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