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Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

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Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#281

Post by dhruvdh »

Lazare wrote: post #257
brutusborn wrote: post #114

Earlier quoted context omitted.

How so? Could you please explain for someone who only knows enough to see this as potentially credible? I tried to research timecube but can't see the connection.

Complicated subject. Briefly, if you're familiar with a field, you can (generally) tell if an argument is at least trying to engage with the field, or if it exists in some disconnected parallel universe. This happens a lot more than you might think. It's a real issue in physics (see, eg, https://theness.com/neurologicablog/index.php/cranks-and-phy... or https://blogs.scientificamerican.com/cross-check/in-physics-...…

> So again, you're clearly not writing for an audience of people who could critique your argument. But if you're not looking for a critique, why are you writing at all? How can you know you're right unless the top experts in the field have tried to tear you apart and failed? Which they won't do if you don't engage with them

You are assuming that the only point of writing anything is to either create new knowledge (for experts) or to distill existing knowledge (among experts). This is simply not true.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#282

Post by Raidion »

8bitsrule wrote: post #129
woopwoop wrote: post #18

The author seems to be really upset about this, but I don't understand why. Nothing they are describing, if you ignore histrionic language like "counterfeiting", seems especially nefarious. Maybe I am misunderstanding. Basically, a short is when A borrows from B a share of corporation C with the promise to return a share of corporation C at a later time, plus some cash interest. A naked short is where instead B gives…

Farther down it's stated that, as an outcome of this tactic ... "At any given point in time more than 100 emerging companies are under attack as described above.... The success rate for short attacks is over ninety percent—a success being defined as putting the company into bankruptcy or driving the stock price to pennies. It is estimated that 1000 small companies have been put out of business by the shorts. Admitted…

See that's what I don't follow. For most companies, when they IPO, they have the cash on hand from going public. The stock price doesn't really matter anymore for day to day running of the company. Sure a lower stock price long term means that they need to up RSU compensation or won't be able to raise money again, but do those really kill a company?

I IPO for 20 million, giving me 18 months of runway. My stock instantly gets shorted a ton, then what? How does that impact me? How does that put someone out of business? If someone thinks that a company is profitable, they can always invest AND that investment is cheaper because of the 'excess' selling of the shorts.

I don't follow how shorts kill companies.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#283

Post by varispeed »

growse wrote: post #246
varispeed wrote: post #245

Earlier quoted context omitted.

Selling something you don't own.

Is a future contract fraudulent then? If I sell you an August-settled coffee future, that's a promise to deliver you coffee in August. Is it fraudulent if I don't have the coffee right now? After all, I've sold you something I don't own. Of course it isn't. What matters is that the contract is fulfilled, and for equity sales in the US, the contract states that a share will be delivered to the buyer 2 days after the t…

You are comparing apples to oranges. Paying for a product in advance is quite different from selling something you don't own.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#284

Post by dhruvdh »

dcolkitt wrote: post #266
dhruvdh wrote: post #263

Earlier quoted context omitted.

I can't say I agree at all. Naked short system is potentially very disruptive (like we are currently experiencing with GME), is essentially a tool for entities with large capital to synthetically induce bankruptcy earlier than necessary, and poses systemic risks. There is a reason there are regulations that attempt to guard against it. See: Dark Side of the Looking Glass, a 9-part lecture on the same. Part 1: https:/…

Incorrect. Shorting cannot make a company go bankrupt, because it has no effect on the operations. Having a low stock price will not make a profitable company become unprofitable. All short sellers can do is reveal pre-existing flaws In the company. Which is why the presence of short sellers reduces corporate fraud https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12369

Shorting can affect a companies ability to raise capital. All your comments sound like you live in a textbook, uncaring of what happens in the real world.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#285

Post by kgwgk »

dcolkitt wrote: post #278
kgwgk wrote: post #261

Earlier quoted context omitted.

> As long as a creditworthy institution guarantees the same stream of dividends, they are identical in value from the investors perspective. No, the stream of dividends doesn't have identical value. There are other relevant corporate actions. Shares can vote, your stream of dividends cannot vote. If the company spins-off a segment it may distribute shares of the new company to shareholders while the owners of that th…

Those are all great points, but IMO not really that difficult to handle. > If the company spins-off a segment A spinoff is just a divided in the form of stock in the new segment. This is easy to handle. The short is now simply short both one share of the original and one share of the spinoff. The long now owns synthetic shares in both. > If someone wants to acquire the company An acquisition is just a one-time termin…

> Shares can vote, your stream of dividends cannot vote. This is the biggest wrinkle. But it basically still exists even in the current system. If a stock has short interest of 50%, then there's 150 shares held long for every 100 shares of float.

In the "current system" there is no problem at all. Those who lent out their shares cannot vote.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#286

Post by varispeed »

nemo44x wrote: post #260
varispeed wrote: post #249

Earlier quoted context omitted.

I don't think this is the same. If you sell a house that is mortgaged you essentially pay off the mortage and therefore gain ownership and then transfer that ownership onto the buyer. The example with subletting is also wrong - the fitting analogy would be if you rented a flat and then sold it to someone.

Just tell your broker to not loan your shares. If they weren’t bought on margin then they won’t loan them out. Standard broker agreements for margin accounts state that your shares can and will be lent. Sometimes you’ll even share in the profit from loaning them as in-demand assets for shorting often have a borrowing fee. The analogies hold though - people sell things they don’t own all the time. The important thing…

So as long as there is an agreement and plausible explanation then any crime is legal? This is fishy as hell. It seems like we are going round in circles and only argument is that "hey people die all the time, so murder ain't a bad thing if the victim consented".

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#287

Post by [deleted] »

Lazare wrote: post #269
Miner49er wrote: post #256

Earlier quoted context omitted.

> All the people who are short the share have to buy it back in the future. Not if the company goes bankrupt though, right? Seems like a potential strategy hedge funds can use (and maybe are using) is to short a company a ton and collect a lot of money from that. They can short more than the float, so even collecting more cash then the market cap of the company. This drives the price down, because there is more suppl…

Hilariously, the company going bankrupt can be even worse for shorts, since a bankrupt company will stop trading, and if it stops trading, the short position can't be closed. See, eg, https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to... > Seems like a potential strategy hedge funds can use (and maybe are using) Anyhow, no, doesn't work. Even apart from getting burnt when the fraud is finally exposed and th…

[deleted]

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#288

Post by varispeed »

cousin_it wrote: post #274
varispeed wrote: post #251

Earlier quoted context omitted.

What this example has anything to do with selling something you don't own? It's like a thief would explain why he "borrowed" a car and then sold it and will promise it will get it back to the owner. Apparently stockmarket has an exemption for this behaviour, maybe they pay big sums to law enforcement to turn the blind eye.

The rules of the stock market say reselling borrowed securities is ok though, and both borrowers and lenders agree to these rules when entering into deals. I'm not sure why anyone needs to turn a blind eye.

But the rules of stock market is not law. If this was legal then you could do any sort of money laundering, so why authorities turn the blind eye to this?

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#289

Post by lifeisgood99 »

solotronics wrote: post #276
dcolkitt wrote: post #214

Earlier quoted context omitted.

> Isn't selling something you don't own a fraud or the stock market has an exemption? I call up Dominos and order a pepperoni pizza. They take my order and process my credit card. They’ve just sold me a pizza that doesn’t exist. Is this fraud?

How about if I sell a million pizzas to be delivered next month then put out articles about how Dominos has poison in their pizzas! People will forget or won't want the order and I will pocket the money. These short sellers are a scam.

If your intel if wrong people will see it and you're done. Short reports can be true or false, so can bullish reports. Its hoped that the truth wins out in any case. I don't see the scam here.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#290

Post by felipeko »

rocqua wrote: post #280
felipeko wrote: post #267

Earlier quoted context omitted.

And what happens in the shareholder meeting? Would the previous majority shareholder group lose their majority even if they had sold no shares? Or would the new majority shareholders have no decision making power even though they have more "shares"?

AFAIK a stock that is available to lend does not have voting power. Hence, if you put a stock up for lending (even if no-one actually lends it) you can no longer vote with it. This can be used to get more votes by borrowing stocks just to hold and vote.

Yes, that is my understanding.

But I'm asking in the case of naked short, which is what is being defended as "superior system" in this thread.

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