NorthWest Biotherapeutics Inc (NWBO)

[notbrad]

Excellent Xenalives ! This says it all.

There is a greater force at work that is driving the behavior of the brokerage firms.  Simply put that force is GREED.  There is a tremendous amount of order flow that comes from naked shorting a low priced security under $5.00.  Hedgefunds target these low priced companies during their fundraising periods  when they use structured instruments like a convertible stock offering.  Once the Hedge Fund gets wind of an offering it naked short sells the shares driving the price lower and in the process creates panic selling allowing the hedge funds to manufacture extraordinary profits.  The thing is that once a company gets into this downward spiral it cannot get out of it because the naked short seller has no margin requirements and never buys the security back allowing the price to recover.

This abusive selling by the hedge funds is illegal because they never locate the shares before selling the stock which means that the buyer of their stock will have a fail to deliver.  The brokerage houses rarely look at their fail to delivers and take corrective action because the order flow from the hedge funds is so great and there is no incentive to enforce the rules because of the minuscule amount of oversight from FINRA.

As the primary regulatory body, FINRA does have the power to force the brokerage to execute a buyin to square up their positions and become flat in their account.  It is so hard to prove naked shorting that the SEC has spent little time and effort on enforcement the lack of enforcement has let to rampant abuse by the hedge funds.  The brokerages are complicit because they are required to file a Suspicious Activity Report (SAR) on their client but fail to do so because they realize that if their client get investigated the gravy train of orders would grind to a halt.  The sheer number of failed trades from a market maker such as Vertex is a telltale sign that something is suspicious.  The real problem for the brokerage houses is that they are keenly aware of the issue but still take the hedge fund order flow.