Naked Short Selling: A Complete Waste of Resources


Patrick Byrne Naked Short SellingThe issue of Naked Short Selling stocks (NSS) is getting some airtime, thanks to the likes of loony (NASDAQ:OSTK) CEO Patrick Byrne. He’s a crusader for NSS, claiming over and over that the practice almost destroyed his company. The sad truth is that NSS didn’t really do anything to Byrne and his incompetent staff ruined the company all on their own, without any help from short sellers.

Still, it makes for interesting bedtime reading. I always love a good conspiracy theory.

For example, part of the conspiracy theory deals with the Naked Short Selling article on Wikipedia. You see, according to Byrne, there is some grand conspiracy to hide the “real truth” about NSS, and that conspiracy is played out on Wikipedia where the “truth” isn’t allowed to be added to the article. The truth is that the article was so regularly vandalized, that it’s now protected to prevent further vandalism. That’s not a conspiracy, it’s just how Wikipedia works to protect the integrity of the articles on some level.

Nonetheless, there are those who buy into the hype that naked short selling is a massive problem that is destroying our financial markets. suggests it’s a massive problem, with the proof in the 5,000 complaints the SEC received about naked short selling over a recent 18 month period.

5,000? Sounds serious, doesn’t it? Yes, unless you consider that over that period of time, the SEC recevied a total of 1.38 million complaints, making naked short selling responsible responsible for 0.36% (yes, that’s less than one-half of one percent) of the complaints. Maybe it’s not such a big problem after all?

Oh, that’s right. The grand conspiracy. It is a big deal but there is a massive conspiracy aimed at hiding naked short selling from you.

There is plenty of theory on how naked short selling can hurt companies and the stock market as a whole, and I don’t disagree that it’s illegal and could cause harm. Yet there’s no actual  proof that it is even happening on any sort of level that should have us up in arms. The evidence points to some instances of abusive naked short selling, but no company has been destroyed by it. For months, those grounded in reality have asked the NSS cult members to name one company “destroyed” (or even harmed in a measurable way) by NSS and to provide the proof to support that claim. It hasn’t been done because  no such company exists.

All this background is to give you a point of reference for what the SEC is suggesting. The agency is talking tough, but the sad truth is that it doesn’t have the resources or the will to really make a regulatory dent in the fraud at public companies.

Yet the bright idea now floated by the SEC Office of Inspector Genera is to better waste scarce resources on the issue of naked short selling. Gary Weiss brought my attention to the report they issued, which is devoid of any evidence to support the contention that this is a problem of any magnitude.

All the SEC has are less than 300 complaints a month about naked short selling, out of a total of about 80,000 complaints per month. Don’t you think those other 79,700 complaints might actually have some merit and some proof behind them… and therefore deserve the real scrutiny?

It’s also worth pointing out that the complaints the SEC receives are likely mostly from a small group of tinfoil hat wearing conspiracy theorists who have gone on a letter-writing campaign in an attempt to get more attention. Do any of those complaints offer real facts and evidence about naked short selling of a real company? Or are they mostly just broad accusations that NSS is a big problem in need of investigation?

Gary Weiss writes:

Sounds like a really important issue if 3.6 out of every thousand complaints to the SEC involve naked shorting!

Kind of makes you wonder about the 99.64% of email complainers, genuine victims of investor ripoffs, that don’t have the OIG’s ear. I guess they don’t have highly-paid lobbyists and astroturf organizations, with dishonest names like the “Coalition Against Market Manipulation,” pushing their cause.

Thankfully, the SEC enforcement division isn’t taking the NSS bait and wrote this in response to the OIG report:

Despite its assertions regarding the potential danger of “naked” short selling and the growing interest in the subject, the Report can cite to no bona fide studies or empirical data regarding the practice’s market impact. The Division of Trading and Markets debunks the theory that NSS creates “counterfeit” or “phantom” shares.

But I’m sure the SEC enforcement division is just part of the grand conspiracy to cover up naked short selling, right?

14 thoughts on “Naked Short Selling: A Complete Waste of Resources

  1. Judd Bagley

    Close, but once again, out of the money.

    This might bring the issue into clearer focus.

    And if you actually let this comment through, I’ll freak.

  2. Tracy Coenen

    Oh, you wanted to promote your wares here? We have advertising packages available at very reasonable rates. Let me know your budget and I’ll see if I can work something out.

    P.S. Coupon code “sithlord” is still active, so make sure you mention it in order to get your discount.

  3. Judd, Judd, Judd,

    Take a Chill Pill, dude. And what’s with you knocking off my name. Not cool, Dude.

    Until you and the Wacky Paddy Wack Pack demonstrate and provide evidence of Naked Shorting in the scam companies that you and their conman CEO’s claim to justify their fraud, mismanagement and greed, please cease your wild claims. Sure, CMKX was a great, viable growing Diamond Mining Company, USXP and Altomare were brilliant innovators taked down by a conflicted Judge, a diabolical lawyer receiver and NSS shorting SEC employees, and SLJB was just a happy little lumberyard that couldn’t usurped by a sleazy now-Indicted Croation Thug, but hey life ain’t perfect, Sparky! Shorty surely did them in, eh?

    Judd, have you always been involved in unethical and immoral jobs. I must say that you are good at that disgusting behavior! Can you list otherloser companies you have been involved with besides OSTK?

    PS Maybe Mitch get write a 47 page screed on “Conspiracy Theories in the 3d Grade”. (Pssst, limit him to 47 pages or it will be an endless drone! tia

  4. Mark

    Ms Cohen, Oh you protest too much! Such arrogance and disdain for truth seekers and conundrum dusters. Your credentials make it clear you are the go to gal when it comes to rooting out fraud on W/S.(I wouldn’t mention Arthur Anderson in my bio if I were you) Where were you on Madoff and the dozens of clowns in his circus. Where were you on AIG, S&P, Moodys or any of the monumental frauds that have plundered more than half of our wealth since 2000. Surely you must have caught wind of something in your investigative travails. Or perhaps your function is to protect the fraudsters from smaller frauds. Ah ha, that must be it!!Mr Bagley makes many great points and his conclusions seem at least plausible given the climate of corruption and arrogance emanating from W/S circles. Naked short selling has been with us since man started trading paper. Ever hear of monetary inflation? So your point that an investigation of this practice is any sort of waste for those who seek the truth screams of either denial or culpability.

  5. Tracy Coenen

    It seems you missed my point, Mark. I prefer to focus limited resources on more important issues, that’s all.

  6. Mark

    Your response quotes the title of the post. I feel your real point is to buttress the targets of NSS scrutiny. Namely the financial media. Byrne and his crew may be certifiable, however they make some observations that the financial info shills never mentioned and in fact it now appears were covered up. You continue to quote the SEC as if they have any credibility. They have not one shred. Byrne puts his money where his mouth is and I respect that. You crap all over his company but he is not receiving TARP funds as far as I can tell.

  7. Tracy Coenen

    You can “feel” whatever you want, but my real point is exactly as I stated it. Surely you’re not suggesting Patrick Byrne has any credibility?

    Hopefully that comment by you will get me a bonus from the Sith Lord this month. I just missed making last month’s bonus pool, but am hoping I can get back in the game this month. Thanks for your contribution on my behalf!

  8. Mark

    After reading Deep Capture I decided to check out his critics as well as those accused in his posts. What I see is Byrne and his crew posting compelling proof of relationships and behavior that is at least improper and at most criminal. On the other hand his critics and those he accuses spend most of their effort calling him crazy and mocking his efforts to expose what appears to be a very real problem. That is, outright counterfeiting of shares of companies with intent to profit from the share dilution with a short sale. Your comments as well as your posts sound awfully petulant. You seem to have an awful lot of emotion invested in Mr Byrne. Oh, by the way your comment about limited resources is ridiculous, I assume you are talking about the SEC which you know is a government agency. And if the government can come up with twelve trillion to shove down the gullet of wall street they could have come up with a few mil for some enforcement.

  9. Tracy Coenen

    No, Mark, I have no emotion for Byrne at all. He does amuse me, but that’s about it. Again, yes, naked short selling exists. Yes, it is illegal. But the problem is of a magnitude that is not important. And apparently, you’re not aware of something called a budget. The SEC has one. It’s limited. They need to spend their money on more important issues.

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