Shorting is legal. Many donot understand how this happens. here goes from a long time long.
Ted thinks zzz stock is over valued. Ted wants to bet Ted is right.(every long is betting they are right that their stock pick is undervalued and will increase in value as time or events unfold.)
Ted contacts his broker and tells him he wants to short zzz 10,000 shares at ~25.00 per share.
The broker looks in his inventory or checks his fellow brokers to see if they have enough to make up what i need to sell 10,000 shares at 25.00. When they have all the shares needed by borrowing them for somebody's account they place a sell order. This may take miliseconds in today market. By selling so many shares the prices should go down. When Ted decides the price has changed and he wants to clear his short he place a buy order. He makes or loses money by the difference in PPS. A large buy order should drive the price up, in theory. This acceptable as we do this in many ways every day.
The problem is when
They don't borrow the shares first.
Also, when no one will lend them shares to sell but they sell thm anyway.
This is counterfeiting shares with a not so nefarious name as naked shorting.
Naked shorting creates more shares than the company has authorized. this dilutes the legimate share holders value and usually drive the share price down as it creates an over supply of shares.
Any doing this should be put in jail, not winked at.
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