I thought companies on the SHO list had to settle trades within 3 days. Don't ask me why, that's just the law, I think. And from what I've heard that law was not being enforced. I have no problem with shorting at all if done by the rules
The naked shorting is another matter. It actually happened where a man bought every outstanding share in a company but yet they traded in the 100's of thousands afterward. That's where, in my very humble opinion, the DTCC has been negligent. C
That's why I'd like to see the rules changed so the buyer can demand compliance. If the stock goes up after the short-seller has sold it, and the seller can't prove when he got it, the buyer gets the stock at the cheapest price the seller could have obtained it. If the stock goes down and the buyer no longer wants it, the seller has to see what he can do with the shares he finally acquired but didn't sell.
I would think letting market participants enforce the rules when they have an incentive to do so would be better than leaving enforcement in the hands of an agency with little such incentive.
If the guy held all the shares but there were still unfilled orders outstanding, is there any reason he couldn't have put in an asking price of $50,000/share? He might not be able to sell a whole lot of shares at that sort of price (once somebody bought a share to make good his order, the buyer to whom the share was owed could sell it for $49,999) but if the people who sold the naked shorts wanted to avoid default they'd have to pay for their mistake.
I believe that you are referring to Robert Simpson's purchase of Global Links (there's an article at Euromoney here about that case).
I took a look at the Edgar filings for Global Links, and I noticed an interesting follow-up to this; a gentleman who bought shares subsequent to Mr. Simpson's purchase actually bought enough so that he needed to file (he bought over 15% of the ostensible shares, but of course, Mr. Simpson already owned 100% of the company...)
The Edgar filing is here.
The gist of the filing is this section:
The Reporting Person acquired his interest in the Issuer primarily to point out the complete failure of government and exchange regulatory bodies to maintain honest, orderly markets, and the corrupt actions of market makers and securities clearing bodies, which facilitate the sale of unissued, unregistered, counterfeit, or simply nonexistent securities.
On February 3, 2005 a single investor reportedly purchased all the common shares issued by the company, plus 145 additional unissued shares.
Subsequent to that date, over 95 million shares, or over 82 times the total shares issued, were reportedly traded, none of which were reportedly sold by the 100% owner of the common stock.
On March 4 and 7, I purchased a total of 180,000 shares, resulting in my obtaining 15.54% ownership of a stock reportedly already 100% owned by another investor. I assume that there may be additional investors who may also claim ownership of common shares of this company.
I have requested that certificates be issued to me representing my full 15.54% ownership interest, to protect my right to vote and enforce any other claims that may accrue to an actual documented owner.
I understand that Reg. SHO was supposed to detect and prevent the fabrication of millions of nonexistent shares. It would appear that my securities purchases prove that Reg. SHO has been systematically violated by market-making brokers and securities-clearing firms.
From time to time I may continue to purchase additional securities on the open market to increase my ownership interest to up to 100% of the company's common stock to give me an ownership interest equal to that of the current 100% owner.