I noticed you are new to Free Republic. Could you please be more honest in the future? The purpose of naked short-selling, a techinique used by hedge funds, is to cheat the unsophisticated investors out of their money. It is fraud.
PF, it really is my honest and sincere opinion that this article is an overblown pile of b.s. I mean, just look at the title: "STOCKGATE, the biggest scandal to hit the markets yet!" The "biggest scandal"? In the entire history of "the markets"? Really now. When someone is laying it on this thick, I say keep your eyes open and one hand on your wallet at all times.
What you are describing, when you get rid of the fancy terminology that makes you feel better, is fraud. Plain and simple. Just because it has become more prevalent doesn't make it right. It's like looting --"hey, everyone else was doing -- even the COPS!!"
IGB, I simply don't believe that short selling is an inherently fraudulent activity, and it just may be that you and I have different opinions on this. As far as terminology goes, I think the terms "naked short" and "counterfeiting" bring more heat than light to the discussion. As SAJ suggests, "willful failure to deliver" is really what the problem is all about.
For willful failure to delivers among market makers, which is typically in thinly-traded stocks where it is difficult to adequately make a market without occasionally doing it, the SEC clearly has their eye on the ball and is paying close attention to it. I say give them a chance to do their job.
If, as some are alleging, the big wall street firms are in fact allowing their hedge fund customers to carry open "failed to deliver" positions on equity securities for weeks or months or longer, then these firms are not following the existing regulations. I view this as a systemic credit exposure, and not a fraud, concern -- I don't care a whit if a hedge fund goes bankrupt because they guessed wrong on short sales, but I do not want to see them taking down the big wall street firms with them and disrupting the markets. Existing laws prohibit the wall street firms from allowing these open fail-to-deliver positions, which in economic substance is an extension of credit by the firms to these hedge funds, unless this is done using a margin account, which requires 150% margin on short equity sales, and which therefore protects the wall street firm and the markets at large if these hedge fund customers fail. I say if these allegations are true, then let's enforce the existing laws and kick a few back office butts at the wall street firms, if need be.
When NEITHER of two sides of a transaction hold actual certificates, how can such a practice be condoned? Have we pushed the multi-million dollar mathemeticians to the brink of inanity with an ever-increasing desire to come up with new ways to play the game?
You can bet the the originators of the idea of naked short-selling did not have the best interest of the companies they were trading in nor the real stockholders of said companies at heart.
When the markets become PURELY about personal gain without any sense of fiscal discretion, people will leave in droves, and not come back.
It reminds me of the fatherly broker figure in the movie with Charlie Sheen...There has to be a sense of fiduciary responsibility....somewhere.