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TheStreet.com's Matthew Goldstein had an article on the latest in the naked short selling debacle at Sandell Asset Management.
There are some positives and some negatives to the piece.
First, the positives.
Mr. Goldstein correctly states that naked short selling is, "...an improper trading strategy in which a hedge fund shorts a stock without first borrowing shares from a broker, as is required under federal securities laws."
That's a long way of saying naked short selling is illegal, for all but market makers engaging in bona fide market making.
Still, it is far closer to balanced journalism than we've come to expect from the NY press corps, who engage in spectacular gymnastics to avoid saying selling shares to buyers (who pay real money) and then failing/refusing to deliver them, is against the law.
It's like a memo went out to the editors: "NEVER say that naked short selling is against the law. ALWAYS use terms like improper, or controversial, or aggressive, if you have to use any adjectives to describe the practice."
But Mr. Goldstein fandangos on the razor's edge with his latest, actually coming out and saying that the practice violates the requirements of securities law. That is sort of a first.
And it is remarkable progress. Remember that a year or so ago, anyone even hinting that naked short selling was an insidious ubiquitous industry practice was ridiculed as a bedlamite or a crackpot. Now we've made the leap to where it is acknowledged as very real.
Now on to the not-so-positive.
Apparently, when you place a ton of sell orders, advertising stock that is non-existent as being genuine and readily available, and then take the buyers' money, but refuse to deliver the shares you contracted to deliver in good faith, that is "improperly executing" trades. No, even better, it's an "Execution Problem."
Yeah. Uh huh. An execution problem for anyone that paid for shares that were undelivered by the group that never had them in the first place.
I thought it was fraud. You know, where you know there are no shares available, but you falsely represent them as being available, in order to trick buyers out of their money, and drive the price down? Fraud. The F word.
Tut tut. Apparently not.
It's all just an oops. Whoops, I did it again. An "Execution Problem." Those happen. No big deal.
When was the last time I made an error, an oopsy daisy, where I benefited to the tune of millions of dollars?
Hmmmmmm. Let me think. Uh, that would be the first of never...
But apparently, in the best traditions of Milken and Boesky, if one is forthright, AFTER BEING CAUGHT RED-HANDED, about telling your investors what is obvious, and you know will come out, that counts for a lot.
It's a sort of red badge of courage. You made a mistake. You admit it. Defrauding investors out of their cash converts, in the marvelous rhetorical slicer/dicer of Wall Street, to improperly executing trades.
Wow. Hit and run drunk driving can thus convert to improperly executing motoring responsibilities. Rape can convert to improperly observing social mating mores.
There's no end to what can be made palatable through a bit of skillful word-smithing.
It's a little oversight. A trifle. A speed bump. Barely moves a needle.
All the same language that has been used to describe Pequot's astoundingly serendipitous trades ahead of corporate events. Or Rocker's purchase of massive put options immediately before the WSJ issued a largely inaccurate hatchet job against NFI, and Milberg Weiss had a CA suit ready to go within 24 hours.
You know. Sort of accidental good fortune that ALWAYS results in the party making the error many millions of dollars.
Sort of like that.
So the positives are that folks are discussing naked short selling, and that they are acknowledging it happens, and isn't the gibbering ranting of lunatics, and (gasp) that it is illegal!
The negatives are that those engaging in the practice, are trying to spin their being caught doing it as the equivalent of being called onto the carpet for a paperwork error - filling out the wrong box on a form, or something.
"Hey, Bill, do we have the several million shares of XYZ we have been selling relentlessly for the last few days?"
"Uh, of course not."
"Which box are we supposed to check here for illegally advertising product for sale, taking the cash, and then refusing to deliver the product until we are GD good and ready, if ever?"
"............"
On another note, I had an evil thought the other day with respect to noted Internet non-celeb and forgettable author 'lilGW, and his "feud" with Mark Cuban.
Would it be too Byzantine and Machiavellian to pretend to have a feud with a billionaire, in order to de-sensitize folks to the idea of front-running negative articles and reports, and to further establish precedent that the regulators allow it with one guy, thus when others are dragged into court and it's proved that they also did it, their defense will be a variation of, "Hey, lots of people do it, it's no big deal"? And then trot Mark's gig out as supporting evidence?
I mean, nobody would be that manipulative, would they?
Enjoy your weekend everyone.