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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

#371

Post by myownpetard »

woopwoop wrote: post #93
myownpetard wrote: post #88

Earlier quoted context omitted.

With normal shorting the number of shares being traded is no greater than the float. Only with naked shorting can there be more shares traded than float, as in the parent's example. Interestingly, in both cases the short interest can be greater than 100%. My understanding is that naked shorting can be used to artificially lower the stock price by increasing the supply with the ultimate goal of driving the company int…

Both naked shorting and regular shorting reduce the price of the stock. In the case of regular shorting, there is a sale offer that wouldn't have been and was, and in the case of naked shorting, there is a buy offer that would have been and wasn't.

True, but in the case of naked shorting there is now (for some period of time) another share being traded in addition to the shares issued by the company. In the case of regular shorting the float remains the same.

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

#372

Post by polka_haunts_us »

JumpCrisscross wrote: post #120
Lazare wrote: post #94

Very, very much a crank site. One pinch fact, two cups of confusion, and generous splash of seething rage. It's interesting in much the way the Timecube site is interesting...and is informative about financial markets in much the same way the Timecube site is as well.

This entire topic has been poorly addressed. I don’t think I’ve had stronger Gell Mann vibes on HN than I’m having with this story.

It's not even Gell Mann, it's total lack of skepticism on any part of the narrative that to me at least, falls apart the moment any it is has any amount of thought put into it. Why does 140% short interest mean that all of it is done by this Melvin strawman. Why did people think all 140% of it was going to be due last Friday. Why would buying shares and holding result in Melvin going bankrupt from being unable to cover if 140% was an uncoverable amount in the first place.

I don't understand how the stock market actually works. I also don't need my Economics degree to understand that the way people over the past week have suggested it works doesn't make a lick of sense.

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

#373

Post by Taniwha »

ClumsyPilot wrote: post #179
Taniwha wrote: post #108

Earlier quoted context omitted.

Of course that's a fiction, almost all stock in the US is owned by Cede & Co https://en.wikipedia.org/wiki/Cede_and_Company All you own are assignments of that stock

I don't thinks this interpretation of 'owns'is accurate, but if it were, it would be even worse than the original allegation!

I believe that apart from legacy certificates in a lockbox under grandma's bed (and non-traded private classes of stock) it is actually true.

What DTC trades are assignments of stock held by Cede corp, what you own are assignments of assignments held by brokers - it's how you take physical stock certificates and start trading them electronically (back in the 60s)

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

#374

Post by nearbuy »

foobar99y wrote: post #358
andylei wrote: post #328

Earlier quoted context omitted.

> You can drive the price down simply by inflating the supply short selling does not increase the number of shares. if i borrow a share from you and sell it, you cannot also sell that share . the number of shares is constant regardless of how many shares are sold short (except for naked short selling). short selling increases the number of people that can sell, but that only increases symmetry in an otherwise asymmet…

> what is "manipulative" about selling a stock? The case outlined in the whitepaper is not just regular short-selling (e.g. you borrow a share and sell it, with a promise to buy it back). Short selling has actual uses in a market and they are not claiming that shorting in itself is "manipulative" or "fraud". Their claims of counterfeiting stock involve the use of naked shorts(a.k.a where a share is sold, but never bo…

Why would driving the stock price to zero bankrupt a healthy company? Companies go bankrupt when they can't pay their debt. A low stock price may impact their ability to raise more capital by issuing more stock, but if the company is profitable, they'll still be profitable at a low share price.

An undervalued share price is also a great opportunity for the company (or anyone really) to buy back some of their stock. In that sense, by manipulating the price too low, the short sellers are basically giving the company an opportunity for easy money.

Also, why wouldn't you have to pay tax on gains from a short if the company goes bankrupt?

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

#375

Post by Lazare »

pluto9 wrote: post #325
Lazare wrote: post #269

Earlier quoted context omitted.

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…

> they take out a large short position, then they publicise their research. If the market agrees with them, the uncovered fraud tanks the stock price, and they make a healthy profit. This is giving the market a lot of credit for being a rational and well-informed actor. The market is not full of people who calmly evaluate a short seller's argument and make a logical decision. It's full of people who lack the time, ex…

Oh, I agree completely. Individual market participants make tons of mistakes, and absolutely won't be able to evaluate short (or long!) arguments correctly in many cases. That's actually one of the key elements supporting the efficient market hypothesis, and why so much ink is spent encouraging small investors to use index funds.

But it's a question of scale. The fact that any one investor may make mistakes doesn't mean that the market as a whole, in the medium or long term, also makes these sorts of mistakes.

"Some hedge fund guy released a report saying stock X is bad and the stock tanked 30% from small investors panicking before recovering when people realised it actually wasn't bad" is pretty silly, yes. And it's a bit rough on the small investors selling at a loss into the large investors who are able to correctly analyse the report, absolutely. But does any company actually go bankrupt in cases like this? The answer seems to be no; there's no evidence for it happening, and it's hard to see how it even could. Confused retail investors can lead to price volatility, but they don't make or break a new share offering.

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

#376

Post by mrmino »

darawk wrote: post #139

This is mostly nonsense. There is nothing wrong with there being more shares short than shares outstanding. It just seems problematic, until you think it through. Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just sold their borrowed share. Now that share is owned by person C. Person C can now lend i…

You're mistaking naked short selling with shorting same share twice. One is illegal, but there is a lot of loopholes in the legislation that regulates it. The other is rare but technically doable, and perfectly legal.

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

#377

Post by mrmino »

wpietri wrote: post #197
rsp1984 wrote: post #185

Wow, it seems like none of the top commenters here have put in at least minimal effort to read and understand this. The author does not complain about short sellers per se or about the fact that more than 100% of a stock's float can be shorted. That is all nice and fine. Instead what the author does complain about is that fact that the (supposedly regulated) mechanisms for shorting a stock are fraught with loopholes…

That isn't correct. He complains in incredibly hyperbolic terms about short-selling in general. For example, "It is important to understand that selling a stock short is not an investment in American enterprise. [...] A successful short manipulation takes money from investment in American enterprise and diverts it to feed Wall Street's insatiable greed—the company that was attacked is worse off and the investing publ…

The technicality of there being lackluster oversight of naked short selling which may lead to creating a share out of thin air is still true.

Who cares about the tone? It's f**ing dumb.

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

#378

Post by mrmino »

JumpCrisscross wrote: post #148
not_a_moth wrote: post #87

Earlier quoted context omitted.

I'm not sure you read the article. Author is alleging the prime broker/clearing house system regularly "gives out" shares to sell on the market (diluting company's shares) with no transparency in the reconciliation because the main clearing system is privately owned. You're better off reading the full article since my summary is extremely surface level.

> with no transparency in the reconciliation because the main clearing system is privately owned The DTCC provides extensive reporting to market participants, including issuers [1]. [1] https://www.dtcc.com/settlement-and-asset-services/issuer-se...

9.5k a year a stock with no way to verify what they say.

Also, it's DTC, not DTCC. The inter-company loopholes still apply, not to mention all the international shenanigans.

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

#379

Post by Chris2048 »

bal4591 wrote: post #330
krok wrote: post #184

Earlier quoted context omitted.

Ok, I've done it. I told my children that I'm going to take them to McDonald's tomorrow evening. They see this promise as 100% good, as real as if they were actually holding the burger. The only difference from their point of view, is that if they were holding a physical burger now, by tomorrow evening it would be cold and bad to eat. The ones I have promised them are real burgers which are deliverable tomorrow eveni…

Well you're still flawed if you scale your argument. What if you take your argument, and scaled it up. What if you promised each kid 1 trillion burgers. Will you have access to 1 trillion burgers tomorrow? What if they take their future 1 trillion burgers and sell half. What if you walk into McDonalds to claim the 1 trillion burgers. Does McDonalds have 1 trillion burgers? No. So you're saying it's okay to promise bu…

Most financial institutions need some kind of basis for a promise - something that "secures" the contract e.g. like a loan secured by an asset.

A regulated entity might have capital requirements which would limit the no of burgers promised to money held. Another might be a contract with mcdonalds for N burgers, or a warehouse full of burgers - shorted stocks require the lender to actually sell a stock, and the shorter to actually sell it (and buy it back later) but there will need to be security/"deposit" on the returning of the stock - there exist a risk that the lender will not get their stock back, which is part of the reason for the premium.

Since you/I are not regulated financial institutions, not may would trust us to deliver 1 trillion burgers on paper; so the flaw exists in "What if they take their future 1 trillion burgers and sell half" - sell to whom? They'd have to find someone willing to buy. "What if you walk into McDonalds to claim the 1 trillion burgers" - the "paper burger" is an agreement between you and some third-party, not mcdonalds. You couldn't pre-order items from one shop, and go to another store with you invoice and demand they fulfil it - your contract is not some general/official currency, there is no obligation to accept it.

> So you're saying it's okay to promise burgers as long as it's an amount that actually exists and McDonald's can fulfil it.

It's a promise that you will supply N burgers, so the criteria for ok-ness is that you can supply N burgers, that McDs can provide that many is necessary-but-not-sufficient alongside:

- you can pay for N burgers - you can transport N burgers (on time)

but when I say "ok", I mean from a "morality of making personal promises" perspective, not "financial promises/obligations made by a regulated financial institution" perspective. Individuals are not financial institutions, and financial institutions are regulated as such.

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

#380

Post by wpietri »

mrmino wrote: post #377
wpietri wrote: post #197

Earlier quoted context omitted.

That isn't correct. He complains in incredibly hyperbolic terms about short-selling in general. For example, "It is important to understand that selling a stock short is not an investment in American enterprise. [...] A successful short manipulation takes money from investment in American enterprise and diverts it to feed Wall Street's insatiable greed—the company that was attacked is worse off and the investing publ…

The technicality of there being lackluster oversight of naked short selling which may lead to creating a share out of thin air is still true. Who cares about the tone? It's f**ing dumb.

Ah yes, the brand new account coming to swear at people with POVs he doesn't like. You seem like a great person to take advice about tone from.

But the reason to care is the same in both cases: people with good points generally don't need to cover them up in a lot of bonkers language.

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