The following is from the SEC faq about naked shorting in answer to the question "Is naked short selling the reason my stock has lost 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.[12] For example, investors should take extra care to thoroughly research any company not listed for trading on a national securities exchange, including companies which are closely held, extremely small or thinly traded.[13] Such companies may 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.[14] The SEC has toughened its rules including through the adoption of Rule 10b-21 in 2008, referred to as the “naked” short selling antifraud rule, and is vigilant about taking actions against alleged wrongdoers.[15]"
Notice that only the first and second paragraphs in this SEC FAQ response is parroted and paraphrased daily here. Never the last paragraph. Obviously naked short selling has occurred, is occurring, and will continue to occur. Sadly the SECs answer to this problem is not enforcement but rather to promulgate regulations loaded with loopholes and declare the problem solved. Nothing to see here folks move along.
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