CMKM Diamonds Inc (fka CMKX)

[smpathy4dadevil]

August 24, 2005 -- Securities regulators are in the middle of a sweep designed to ferret out brokerages breaking rules designed to eliminate "naked short selling," a practice critics claim is used to drive down stock prices.

Examiners from the National Association of Securities Dealers, the New York Stock Exchange and the Securities and Exchange Commission have been conducting audits of brokerages, said an official familiar with the plans.

He declined comment on what the findings reveal, nor would he comment on prospective penalties.

An SEC spokesman said there have been no penalties assessed for naked short selling over the eight months the rule has been in effect.

Naked short selling occurs when a short seller hoping to profit from a decline in a stock's price fails to borrow shares prior to establishing the position.

The practice is at the core of a battle for many investors, who allege short sellers break rules by shorting many times the available stock float.



More troubling is the example of Overstock.com, which has a short position of 6.53 million shares out of 18.69 million available.

But of the available stock, about 6 million is held by CEO Patrick Byrne or a fund he controls, High Plains Investments, and another 7 million shares is held by mutual funds.

Thus the real float, or base of shares available for trading, is not more than 5.69 million shares.

But speculators who want to profit from a decline in a share price have other means of investing.

Rocker Partners, the hedge fund being sued by Byrne for manipulating Overstock's stock price, has bet on the decline of Overstock's price with "put" options, which appreciate as the stock price declines.


http://www.nypost.com/business/52434.htm