Replies to post #1002 on Nephros Inc (NEPH)

[mikeyk]

The problem with naked shorting is getting the SEC to publicly admit the problem actually happens and clearly explain how they handle the issue publicly, for the most part they try and cover the tracks of the perpetrators while making investors whole. They basically have to go through the records of all the trades and find out who, when, how much as made in the trade, then recover the money and correct the new account that is holding the non-existent shares. They are not going to punish the unsuspecting buyer by just making those shares vanish from their accounts, the individual broker that handled the trade has to reverse the trade to make the naked short shares disappear, because there will never be enough share certificates to cover the shares out in the open market.

I can't remember what stock it was, but I did have a discussion with 2 other traders that got caught up in a similar situation a few years back, and they basically just found the stock missing and their accounts refunded for the shares they thought they bought. They kind of shrugged it off and thought it was weird, and found out almost 2 years later what really happened. From what I remember of the conversation, the stock started rising back to the levels at where they first bought it at before the shares/cash exchange happened, and then the company exchanged the stock certificates with a new ticker symbol and cusip. Of course some companies with this problem also eventually get bought out, and the valid share holders are offered either cash or a share exchange for the new owners (another way to make the naked shares disappear, since they never have to be purchased). Some companies end up getting slaughtered before they even know whats happening and get forced into bankruptcy, but I don't see that happening here with Wexford/Lambda backing the company.

I'd have to dig back through my old stomping grounds and see if I can find the original conversation from a few years back, my memory isn't the greatest the last few years due to pain meds for 4 herniated disks, so you'll have to bear with me to see if I can locate the threads.