[Video Revelation 2006] Phantom Shares: Stock Manipulation through Naked Short Stock Sales
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Naked Short Sellers Hurt Companies With Stock They Don't Have
Bloomberg.com
By Bob Drummond
August 4, 2006
Movie Gallery Inc. shares fell 20 percent on Feb. 3, their biggest nosedive in almost a decade. At the time, there didn't seem to be a reason for the jaw-dropping rout.
Analysts who follow Dothan, Alabama-based Movie Gallery, the second-largest video rental chain in the U.S., speculated that investors were spooked after a large money manager cut its stake or that they were worried sales wouldn't meet expectations.
Another possible factor surfaced two weeks later, and it had nothing to do with financial performance. On Feb. 17, the Nasdaq Stock Market added Movie Gallery to a list of stocks considered, under a new U.S. Securities and Exchange Commission regulation, to be at risk for manipulation by naked short sellers.
In naked shorting, traders who hope to profit from falling prices sell shares without borrowing stock. Using that strategy, naked short sellers can drive down prices by flooding the market with orders to sell shares they don't have.
``These people are lying, they're cheating and they're stealing,'' says Wes Christian, a Houston lawyer who represents Internet discount retailer Overstock.com Inc. and more than a dozen other companies that say their stocks were pummeled by naked shorting. ``This is, in our opinion, the biggest commercial fraud in U.S. history.''
Movie Gallery Chief Financial Officer Thomas Johnson says he has asked the SEC to investigate whether naked short sellers helped undercut the stock.
RGM Communications Inc. (RGM) was formed to assist junior public companies in bringing their corporate story to investors. RGM helps to streamline the company's corporate communication network to minimize the time and effort to keep individual investors updated and informed.
RGM is also an active proponent of individual investor protection against stock fraud. For those interested in learning more about the illegal practices of stock manipulation, "naked short selling", "death-spiral financing" and the conduct of the "street" characters and regulators involved, please follow this hyperlink.
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Comments
>the SEC could easier make that happen
They were supposed to do by passing a regulation which should forbid Short Selling. The pb is: they DIDN'T ENFORCE the law with following sanctions. The pb of the SEC is the pb of many of our institution: it has been completely corrupted at the head. Same for FDA.
So as long as People don't focus on the People within these institutions, and trust these latter blindly, there's no way it can improve and then law are just smoke screen to calm the investor. I bet next time (at the next big crash) they will pretend that Sarbanes Oxley didn't prevent Accounting Fraud as it was supposed to.
working
William F. Torpey says:
8 months ago
Thanks, counterpunch, for bringing up this isue. There should not be a single share that fails to deliver on any stock exchange, and the SEC could easier make that happen. Saying the hedge fund is blameless, and putting the blame only on the brokerages is a little like saying, "If you don't want your wallet stolen, don't leave it on the table." There's plenty of blame to go around. The main thing is that everybody, not only Congress, has to stop the unethical and illegal activity post haste.