Replies to post #620217 on Zeev's Turnips Patch-No Politics (ZEEV)

[Bruce A Thompson]

Didn't know?

I am sure that the buyer of the 20,000 out of the money Put contracts knew full well that 4 minutes later, the options MM was going to dump 2 million shares of Novastar on the market naked.

(2) Market is not a "fair price" setter, but a price discovery mechanism. So long as the issuer of "bogus shares" is subject to the same margin requirement as everyone else, a concentrated attack against a stock is just a price discovery move that invites bargain hunters' buying if the company's performance and its prospect to maintain future dividend yield is not tied to stock price like a ponzi scheme. IMHO, what the carnage last fall uncovered wasn't so much the evils of shor selling but the evils of ponzi-scheme banking built upon credit ratings that has stock price itself as a major factor.

lets discuss that for a moment. Shall we?

What you are advocating is a drastic change in the law of the land which has been in effect since the SEC was created right after the crash of '29 and during the ensuing Great Depression.

The law of the land is setup on a delivery vs payment basis, you pay for the stock you buy and the money changes hands at delivery. That is the law of the land. In naked shorting, the DVP is changed to Collateralization vs payment or CVP.

Dr Jim DeCosta discusses DVP and CVP here in his letter to the SEC: http://www.sec.gov/comments/s7-30-08/s73008-111.pdf

In CVP, you naked short a million shares to an unsuspecting market. The massive increase in sell volume overwhelms the demand and drives the stock price down. That reduction in price frees up more of your collateral which you are able to transfer out of your margin account and into your bank account. The next day, you naked short more, further reducing demand and further depressing the price of the stock and further reducing your collateralization requirements freeing up more $$ to your bank account.

In other words, the more bogus shares you issue in the unsuspecting company and the further you drive down the price by refusing to deliver that which you sold, the more of the unsuspecting buyer's money you get to remove from the table.

Simply said, the nice way to describe naked shorting is the unauthorized issuing of fake, unregistered company shares into the market by a disinterested third party for the sole purpose of driving down the market price through dilution.

The not so nice way to describe naked shorting is to call it what it is. Namely fraud, counterfeitting, and grand theft.