8000 Incorporated (EIGH)

[Toxic Avenger]

Then there's the other perspective.

To believe in naked shorting, here's what you have to accept:
- it's fairly easy for MMs to counterfeit shares in EIGH and other public microcap stocks without getting caught by the SEC, FINRA or the DOJ.
- it's hard or impossible to do it for large companies or those with a high stock price (after all, why NS EIGH if you could NS GOOG?)
- MMs ignore the risk of getting caught and having their entire business destroyed in order to make whatever money they can by NS microcap companies
- Despite many public discussions of how a group would buy up the entire float of the company, MMs decided to short EIGH anyway.
- MMs ignore the risk that a regulatory agency or the company might force a cover at any moment and there would be no shares available, incurring huge losses for them.
- Despite this allegedly taking place on many microcap OTC companies, no MM has ever been shown to be naked shorting (a few individuals, in collusion with Transfer Agents have, I believe).

Companies need to know who their shareholders are. Transfer Agents maintain that information on behalf of each company. They know which brokerages have shares in "street name" and how many shares and which individuals hold shares in a brokerage or with a certificate. There may be some discrepancies due to trade settlements and such, but if there were millions of shares more held than issued, it should be fairly easy for the company and its transfer agent to establish.

Meanwhile, the SEC specifically addresses the question, "Is naked short selling the reason my stock has lost value?", here http://www.sec.gov/spotlight/keyregshoissues.htm

"Investors should always use caution before investing in high-risk, speculative stocks, especially with regard to their retirement portfolios, because all stocks may decline in value. There are many reasons why a stock may decline in value. The value of a stock is determined by the basic relationship between supply and demand. If many people want a stock (demand is high), then the price will rise. If a few people want a stock (demand is low), then the price will fall. The main factor determining the demand for a stock is the quality of the company itself. If the company is fundamentally strong, that is, if it is generating positive income, its stock is less likely to lose value.

Speculative stocks, such as microcap stocks, often have a high probability of declining in value and a low probability of experiencing above average gains.27 For example, investors should take extra care to thoroughly research any company quoted exclusively in the Pink Sheets.28 With the exception of a few foreign issuers, the companies quoted in the Pink Sheets tend to be closely held, extremely small or thinly traded. Most do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies.

There also may be instances where a company insider or paid promoter provides false and misleading excuses for why a company's stock price has recently decreased. For instance, these individuals may claim that the price decrease is a temporary condition resulting from the activities of naked short sellers. The insiders or promoters may hope to use this misinformation to move the price back up so they can dump their own stock at higher prices. Often, the price decrease is a result of the company's poor financial situation rather than the reasons provided by the insiders or promoters.

Naked short selling, however, can have negative effects on the market. Fraudsters may use naked short selling as a tool to manipulate the market. Market manipulation is illegal.29 The SEC has toughened its rules and is vigilant about taking actions against wrongdoers.30 Fails to deliver that persist for an extended period of time may result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. Regulation SHO is intended to address these effects by reducing the number of potential failures to deliver, and by limiting the time in which a broker can permit a fail to deliver to persist. For instance, as explained above, Regulation SHO requires brokers and dealers to close-out the open fail-to-deliver positions in "threshold securities" (i.e., securities that have experienced a substantial number of extended delivery failures) that have persisted for 13 consecutive settlement days."

Market makers earn fees from trading. On OTC stocks they attempt to profit with quick trades of both a buy and a sell, profiting from the spread. They love high volume stocks and they may take a long or short position during a highly volatile period in which the stock is moving up or down quickly because that's when they make the most money. But why would they want to build up a large long or short position in a volatile, thinly traded microcap stock like CDIV? Years worth of trading profits of spreads of a few pennies or less would be wiped out by one drop (long) or increase (short).

As they say, "nothing is impossible". So could EIGH be hugely naked shorted? I guess so. Is it likely? Not IMHO, in fact I'd put it so close to zero as to be essentially impossible. Of course, like every other aspect of an investment, you get to weigh the evidence for and against and make your own decision.

All MHO.