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Naked Short Selling: The Truth Is Much Worse Than You Have Been Told


Click on link for entire story:
https://www.investmentwatchblog.com/naked-short-selling-the-truth-is-much-worse-than-you-have-been-told/

There is a massive threat to our capital markets, the free market in general, and fair dealings overall. And no, it’s not China. It’s a homegrown threat that everyone has been afraid to talk about.

“Hundreds of billions have been stolen from everyday Canadians and Americans and pension funds alike, and this has jeopardized the integrity of Canada’s capital markets and the integral process of capital creation for entrepreneurs and job creation for the economy,” Christian told Oilprice.com.

The Dangerous Naked Short-Selling MO


In order to [legally] sell a stock short, traders must first locate and secure a borrow against the shares they intend to sell. A broker who enters such a trade must have assurance that his client will make settlement.

While “long” sales mean the seller owns the stock, short sales can be either “covered” or “naked”. A covered short means that the short seller has already “borrowed” or has located or arranged to borrow the shares when the short sale is made. Whereas, a naked short means the short seller is selling shares it doesn’t own and has made no arrangements to buy. The seller cannot cover or “settle” in this instance, which means they are selling “ghost” or “phantom” shares that simply do not exist without their action.

When you have the ability to sell an unlimited number of non-existent phantom shares in a publicly-traded company, you then have the power to destroy and manipulate the share price at your own will.


And big banks and financial institutions are turning a blind eye to some of the accounts that routinely participate in these illegal transactions because of the large fees they collect from them. These institutions are actively facilitating the destruction of shareholder value in return for short term windfalls in the form of trading fees. They are a major part of the problem and are complicit in aiding these accounts to create counterfeit shares.


The funds behind this are hyper sophisticated and know all the rules and tricks needed to exploit the regulators to buy themselves time to cover their short positions. According to multiple accounts from traders, lawyers, and businesses who have become victims of the worst of the worst in this game, short-sellers sometimes manage to stay naked for months on end, in clear violation of even the most relaxed securities laws.

The short-sellers and funds who participate in this manipulation almost always finance undisclosed “short reports” which they research & prepare in advance, before paying well-known short-selling groups to publish and market their reports (often without any form of disclosure) to broad audiences in order to further push the stock down artificially. There’s no doubt that these reports are intended to create maximum fear amongst retail investors and to push them to sell their shares as quickly as possible.

That is market manipulation. Plain and simple.

Their MO is to short weak, vulnerable companies by putting out negative reports that drive down their share price as much as possible. This ensures that the shorted company in question no longer has the ability to obtain financing, putting them at the mercy of the same funds that were just shorting them. After cratering the shorted company’s share price, the funds then start offering these companies financing usually through convertibles with a warrant attachment as a hedge (or potential future cover) against their short; and the companies take the offers because they have no choice left. Rinse and Repeat.

In addition to the foregoing madness, brokers are often complicit in these sorts of crimes through their booking of client shares as “long” when they are in fact “short”. This is where the practice moves from a regulatory gray area to conduct worthy of prison time.


Naked short selling was officially labeled illegal in the U.S. and Europe after the 2008/2009 financial crisis.

Making it illegal didn’t stop it from happening, however, because some of the more creative traders have discovered convenient gaps between paper and electronic trading systems, and they have taken advantage of those gaps to short stocks.

According to Christian, “global working groups” coordinate their attacks on specifically targeted companies in a “Mafia-like” strategy.

Journalists are paid off, along with social media influencers and third-party research houses that are funded by what amounts to a conspiracy. Together, they collaborate to spread lies and negative narratives to destroy a stock.

At its most illegal, there is an insider-trading element that should enrage regulators. The MO is to infiltrate a company through disgruntled insiders or lawyers close to the company. These sources are used to obtain insider information that is then leaked to damage the company.

Likewise, the “shorts” disguised as longs can be difficult to trace when the perpetrators have direct market access to trading systems. These trades are usually undetected until the trades fail or miss settlement. At that point, the account will move the position to another broker-dealer and start the process all over again.

Prime Brokers and Banks are Complicit

This is one of Wall Street’s biggest profit center and fines levied against them are merely a minor cost of doing business.

Some banks are getting rich off of these naked short sellers. The profits off this kind of lending are tantalizing, indeed. Brokers are lending stocks they don’t own for massive profit and sizable bonuses.

This layer of what many have now called a “criminal organization” is the toughest for regulators to deal with, regardless of the illegal nature of these activities.


Prime brokers lend cash account shares that are absolutely not allowed to be lent. They lend them to short-sellers in order to facilitate them in settling their naked shorts.

It’s not that the regulators are in the dark on this. They are, in fact, handing out fines, left and right—both for illegal lending and for mismarking “shorts” and “longs” to evade regulatory scrutiny. The problem is that these fines pale in comparison to the profits earned through these activities.


Nor do law firms have clean hands. They help short sellers bankrupt targeted companies through court proceedings, a process that eventually leads to the disappearance of evidence of naked shorts on the bank books.

“How much has been stolen through this fraudulent system globally is anyone’s guess,” says Christian, “but the number begins with a ‘T’ (trillions).”


The naked truth is this: Investors stand no chance in the face of naked short sellers. It’s a game rigged in the favor of a sophisticated short cartel and Wall Street giants.


For the entire story click on link:
https://www.investmentwatchblog.com/naked-short-selling-the-truth-is-much-worse-than-you-have-been-told/