Absolutely right. However, once an entity cannot deliver said shares it becomes fraud. Hence regulation SHO. The case currently being litigated is basically arguing that when a person isn't trading in actual shares, if it can be proven that they never had intention (or could never have delivered what had been promised) it becomes fraud. The Supreme Court basically said: We will decide the SEC violations, you decide the State violations, and if a case has a mixture of the two it doesn't have to be decided in a federal court.
The SEC rules are ostensibly for when there aren't enough shares, they don't want trading to be impacted. Proving you are under attack is near impossible, but there are ways. Manning has the proof, and that's why I think Merrill will settle. And once that happens, is it ever a good idea to tell the little guy to prove it? Yeah, it can be if you're getting robbed by a bunch of accusers, but once case law precedents have been set its all over. So you try to avoid it at all costs by settling, but eventually that will get too costly. The question will become is naked shorting worth it... and is it wise to say "prove it" to guy (SFOR) you have been shorting forever...
With over 2 billion shares outstanding that would be almost impossible for SFOR to establish naked shorting. He'd have to reduce shares and control the PPS much tighter. But it would not be outside the realm of possibility to establish victimization. It just so happens that in NJ, NY, etc that racketeering, conspiracy, and fraud laws are a bit easier to prove.
