Well, penny stock traders, as a group, are a bunch of morons. Most of them don't understand stocks, to say nothing of options. The whole "naked short selling" scam is generally nothing more than a means for crooked and/or inept management and promoters to divert attention away from lousy fundamentals or executive misconduct. They will cite anything, even if the active naked short selling of a stock isn't taking place, to show that the system is "corrupt" or "broken".
It's not so much that what OX did was "illegal". And here I feel it's important to make a distinction between an act that's "illegal" and a procedural violation. Feldman certainly did nothing illegal. He's not compelled to follow Reg SHO. (OX, on the other hand, as a member broker/dealer, has a regulatory duty to comply with Reg SHO.)
I doubt that there are many other cases like this lingering out there. If you read the complaint carefully, you'll see that Feldman was shopping around for other broker/dealers who'd let him write his D-I-T-M calls on his terms and was coming up dry. That's why he ended up coming back to OX.
The real underlying problem is that Reg SHO, itself, is manipulative. That's not something that the regulators want to hear, and it's certainly not something that the mouth-breathers who buy penny stocks want to hear, but the fact is, if you're forcing people to cover short positions that get generated when a call option gets exercised, what difference should it make if the buy to cover is done at 9:30AM or 9:45AM?
The difference is that by demanding positions be closed and marked to the open, Reg SHO is creating artificial price spikes at the beginning of the trading day. I'm sure that feels good for those people who have an agenda to "stick it to the shorts", but it's really bad, and really stupid, public policy.
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