The Case
Illegal naked short selling is the biggest risk to the health of today's public markets.
When you short a stock, you borrow shares that someone else owns, sell them, and wait for the stock price to drop.
You then buy shares back at a lower price, return them to their owner, and profit from the difference.
But what if you didn’t bother to borrow the shares first, and you sold them with the promise that you would deliver them soon?
Those shares you sold are naked shorts.
Wall Street traders have the ability to sell naked shorts repeatedly, effectively counterfeiting shares to flood the market with excess supply. This allows them to manipulate the stock price.
Eventually, short sellers are supposed to purchase shares to fulfill the sales they made. But if the price is “too high,” Wall Street traders can choose to fail to deliver the shares and set a new delivery date using regulatory loopholes.
Sometimes, Wall Street traders will intentionally fail to deliver shares and continue to naked short sell a stock in an attempt to drive the price down lower and lower.
This can go on for years at a time, with the end goal being to drive the business into bankruptcy so that the trader never has to purchase the shares they’ve already sold and can keep all of that money, tax free.
This is predatory naked short selling, and it is currently running rampant in our market.