Naked Short Selling - Media Coverage

Media Coverage

Some journalists have expressed concern about naked short selling, while others contend that naked short selling is not harmful and that its prevalence has been exaggerated by corporate officials seeking to blame external forces for internal problems with their companies. Others have discussed naked short selling as a confusing or bizarre form of trading.

In June 2007, executives of Universal Express, which had claimed naked shorting of its stock, were sanctioned by a federal court judge for violation of securities laws. Referring to a court ruling against CEO Richard Altomare, New York Times columnist Floyd Norris said: "In Altomare's view, the issues that bothered the judge are irrelevant. Long and short of it, this is a naked short hallmark case in the making. Or it is proof that it can take a long time for the SEC to stop a fraud." Universal Express claimed that 6,000 small companies had been put out of business by naked shorting, which the company said "the SEC has ignored and condoned."

Reviewing the SEC's July 2008 emergency order, Barron's said in an editorial: "Rather than fixing any of the real problems with the agency and its mission, Cox and his fellow commissioners waved a newspaper and swatted the imaginary fly of naked short-selling. It made a big noise, but there's no dead bug." Holman Jenkins of the Wall Street Journal said the order was "an exercise in symbolic confidence-building" and that naked shorting involved technical concerns except for subscribers to a "devil theory". The Economist said the SEC had "picked the wrong target", mentioning a study by Arturo Bris of the Swiss International Institute for Management Development who found that trading in the 19 financial stocks became less efficient. The Washington Post expressed approval of the SEC's decision to address a "frenetic shadow world of postponed promises, borrowed time, obscured paperwork and nail-biting price-watching, usually compressed into a few high-tension days swirling around the decline of a company." The Los Angeles Times called the practice of naked short selling "hard to defend," and stated that it was past time the SEC became active in addressing market manipulation.

The Wall Street Journal said in an editorial in July 2008 that "the Beltway is shooting the messenger by questioning the price-setting mechanisms for barrels of oil and shares of stock." But it said the emergency order to bar naked short selling "won't do much harm," and said "Critics might say it's a solution to a nonproblem, but the SEC doesn't claim to be solving a problem. The Commission's move is intended to prevent even the possibility that an unscrupulous short seller could drive down the shares of a financial firm with a flood of sell orders that aren't backed by an actual ability to deliver the shares to buyers."

In an article in March 2009 Bloomberg News Service said that the Lehman Brothers bankruptcy may have been prevented by curbs on naked shorting. "..as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission.."

In May 2009, the New York Times's chief financial correspondent Floyd Norris reported that naked shorting is "almost gone." He said that delivery failures, where they occur, are quickly corrected.

In an article published in October 2009, Rolling Stone writer Matt Taibbi contended that Bear Stearns and Lehman Brothers were flooded with "counterfeit stock" that helped kill both companies. Taibbi said that the two firms got a "push" into extinction from "a flat-out counterfeiting scheme called naked short-selling". During a May 2010 discussion on the inclusion of 'counterfeiting' in the charges filed against Icelandic bankers, the host Max Keiser speculated that the charge might refer to naked short selling because "naked short-selling is the same as counterfeiting, in that it is selling something that doesn't exist."