Claims have been made that up to 6000 small companies were destroyed by naked short selling and unfortunately those claims will likely never be verified or disproven. There have been a number of documented cases where stocks outstanding and tabulated by transfer agents for shareholder voting purposes exceeded the number of actual stock issued by the company ... hence the complaint by many investors that naked short selling is nothing more than the counterfeiting of stock certificates.
After a lot of bluster through the early 2000's all that Congress and the SEC was able to muster was the SHO rule, Regulation SHO (17 CFR 242), which was nothing more than a public list showing which stocks had numbers of shares that did not really add up. So instead of actually trying to stop the manipulation and naked short selling they essentially just created a list of stocks that were by all practical purposes "marked for death".
Two separate lawsuits, filed in 2006 and 2007 by NovaStar Financial, Inc. shareholders and Overstock.com, named as the defendants ten Wall Street prime brokers. They claimed a scheme to manipulate the companies' stock by allowing naked short selling. A motion to dismiss the Overstock suit was denied in July 2007 and the suit appears to still be pending.
Up until recently anyone who complained about naked shorting in a company was immediately labeled a kook or conspiracy theorist. But after what we are finding out about Goldman Sachs in this most recent revelation brought out in the open by the SEC one really has to wonder about all the other schemes that were once called crazy conspiracies that occurred during the late 90's and early 2000's.
Interestingly, during the technology-stock bubble of the late 1990s, Mr. Paulson and his hedge fund took a negative stance on high-flying shares and profited handsomely for himself and his clients. Many of the hedge funds at the time had overseas operations and subsidiaries that appeared to operate independently and with no oversight by the SEC. They probably still do.
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