FRAUD THAT THE SEC OUGHT TO INVESTIGATE!
"Another type of market manipulation is the naked
short sale. Firms with a declining PPS are targeted for
naked short selling. This practice is very damaging to the
publicly traded firm and may be popular among the offshore brokerage firms where U.S. securities laws are less
easily enforced or do not apply. It is similar to the counterfeiting of currencies. In a naked short sale of stock,
short positions are not declared or disclosed, shares are
not borrowed to cover the short sale, and the stock is
never delivered to the purchaser. The result is dilutive in
that it results in an artificial, unauthorized, and illegal
increase in the number of shares issued and outstanding
and in a manipulated decline in the PPS of the firm’s
stock. The broker-dealer merely floods the market with
cheap, nonexistent shares of your firm’s stock. The seller
of these nonexistent shares keeps the proceeds.3
For example, on August 13, 2002, GeneMax Corp.
announced concerns over naked shorting and took measures to ensure that trading in their shares occurred in a
“fair and appropriate manner.”4 Records indicated that
as of August 2, 2002, shareholders of record held
400,820 shares, where only 265,654 were available, freetrading shares, leaving the Depository Trust Corporation and Canadian Depository for Securities Limited
with a net deficiency of more than 168,000 shares.
On August 16, 2002, a two-year federal sting led to
the indictment of 58 stock brokers and corporate executives. The unsealed indictment alleged stock manipulation of JagNotes.com, Softsquad Software Ltd., and C
Me Run Corp. On January 23, 2003, Jag Media Holdings, Inc., the parent company of JagNotes.com,
announced that it would allow “custody only” trading
of its stock to protect stockholders against naked short
selling. Under custody-only trading, a company’s stock
is issued only in the name of beneficial owners in physical certificate form.
Even the once large-capitalization, business-to-business firm PurchasePro.com, in an open letter from the
CEO, suggested that shareholders move their holdings
to cash accounts or request delivery of their share certificates to prevent the shares from being legitimately
shorted."
