Why Naked Short Selling Is One Of The Greatest Risks To All Stock Investors
- Jul 22, 2022
- 5 min read
Updated: Jun 24, 2024
Written by: Dennis O'Neill, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Naked shorts are by far, one of the biggest risks facing our stock market today (as well as its associated markets). Now, in most other financial markets around the world, naked shorts have been completely regulated out or have become highly restricted. Unfortunately, with the current lax state of SEC regulation in the US regarding naked shorts, naked short sellers are basically free to attack any company, large or small, without fear of any consequences. These nefarious, “naked short sellers” can sell an unlimited amount of stock, of any given company, without having to have the proper borrowing of shares, as required by law.
What is a naked short? Investopedia defines a naked short or “naked shorting” as, the following:
“Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock or determine that it can be borrowed before they sell it short. So naked shorting refers to short pressure on a stock that may be larger than the tradable shares in the market .”
Now, how can it be that naked short sellers are operating in the US when naked shorting is, in itself, illegal? In all its infinite wisdom, the SEC wrote the trading regulations in such a loose manner that they allow for unlimited shorting with zero borrowing against shares, so long as you are a market maker. This means every unscrupulous, low-life, naked short seller, sets up their deals to trade as a market maker. The only possible caveat for them is that these sales are supposed to be covered within 30 days. You might check the SEC records as to their ever having enforced this. Out of tens of thousands of instances, the coverage deadline has never been enforced by the SEC “over-watchers.” So, what can you conclude from this? It's about as obvious as a smoking gun at a crime scene. The smoke trail spells “corruption.” On top of that, the same companies that are being victimized by these illegal naked short sellers are often subjected to a very inconvenient smear campaign, a non-stop barrage of some of the most offensive, insulting, lie-driven slander known to man, in an effort to convince as many investors as possible to sell with urgency. This additional sell pressure further speeds the process of crushing the company under attack before it can recover. Companies are being destroyed with illegal financial instruments, and still no SEC investigations?
Naked short selling is far from a victimless crime. These ruthless villains are literally profiting from destroying the value of the stocks held by good investors and employees who believe in the company that they invested in. Naked short sales often devalue the stocks of the companies they are attacking until the company becomes insolvent (it’s destroyed). It is akin to being in a large pool of water with many others around you. Someone punches you in the stomach, causing you to go under the water. Others around you, seeing you struggle, then hold you under the water as they take the money from your pockets until you lie motionless, drowned. In the case of companies, it is even worse because many people are victimized in an immoral, illegal attack without recourse, and under the blind eye of the very entity which was put in place to protect them. The recent attack on UST and Terra left some investors with millions of dollars of loss. Lives were ruined. Families are destroyed financially.
Now ironically, on the other end of the spectrum, try promoting stock in any way, shape, or form, and you will have an army of SEC people conducting the most invasive investigation ever. They will completely drain the company of its vital resources. And don’t ever call the SEC to complain of an illegal short. They will send an army after you, screaming that there is something wrong with your company. You will spend weeks to months defending yourself. Talk about an attack, after being attacked, for reporting the attackers. Yikes.
The SEC’s “Illegal Short Team” is comprised of a couple of early 20-year-old's that will tell you it is impossible to illegally short a stock. Which, by default, means illegal shorts are, in fact, legal and therefore, there will never be any enforcement against them. If you try however, to break the illegal short, you can expect the SEC to show up on your doorstep, launching a massive investigation into your company.
I have been in finance for over 30 yrs. I have spoken to people who worked at the SEC and left, people who are currently responsible for enforcing the law in this area, as well as those who were responsible for enforcement in the past. What they have told me is beyond scary. They are not allowed to stop illegal shorts or mention that they are real. The SEC is corrupt at its highest level and should pay for all the losses they have caused due to their corruption and the bribery which has been occurring. There is a mountain of evidence to prove this. Over 1000 companies in the past decade were attacked nonstop with insults, lies, and propaganda mostly by the editors/non-disclosed authors of such articles as from Seeking Alpha. I figured this out without a billion-dollar-plus budget. Since we know that the members of the SEC are not stupid, the only logical conclusion that one can make is that they are corrupt. Super scary to think that the SEC is supposed to be the entity that protects corporations from these vicious attacks, and yet they might very well be colluding against them. The very definition of corruption.
At the end of the day, the SEC members are nominated by large institutional banks that know their appointees will do and say exactly what they want. If not, they will be removed and replaced by some other shameless individual. Fun fact, 75% of the SEC enforcement budget is used on low market companies while all the billion to 100's of billion-dollar crimes are committed by the large banks with virtually zero consequences. The Justice Department must step in and clean up this mess. Until then, be leery of purchasing small-cap or microcap stocks unless they are proving profitable or are fully funded to profitability. Not financial advice. Never invest more than you are willing to lose. Do your own research.
If you would like to report financial fraud, please contact the FBI at 202.324.3000 or online.
Dennis O'Neill, Executive Contributor Brainz Magazine
Dennis O'Neill is currently the President and board member of Biomedican, Bio-Kai and ActinexRX . He has over 30 years experience as an Investment Banker. He helped start two of the largest regional Investments banks in Chicago then went on to Managing Director for Softbank Investments/ E2Capital office in Chicago and raised over 2 billion dollars in capital for early stage companies to date. Mr. O'Neill has a significant amount of experience and success in Sales, Marketing, Financial Media, Business Development and Institutional Capital Raises. He is an expert and thought leader on Venture Capital, Private Equity, Biotech, Cannabis Therapeutics, Blockchain and Smallcap stocks and has spoken at over 75 conferences around the world.
