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Removed statement that Novastar has sued alleging naked short selling. A group of shareholders sued in California court, but the company is not a party to the suit. It is therefore not notable. Lawsuits and enforcement actions related to naked short selling of Sedona Corp and the Refco Group might be included, however. Also, the settlement of Friedman Billings and Ramsey founder Emmanuel Friedman with the SEC with respect to his firm's abuse of the short selling delivery requirements prior to issuance of PIPEs deals would be on point. It also eliminates the conclusion that no suit has been successful, since banning from the profession and multi-million dollar settlements generally counts as success. |
Removed statement that Novastar has sued alleging naked short selling. A group of shareholders sued in California court, but the company is not a party to the suit. It is therefore not notable. Lawsuits and enforcement actions related to naked short selling of Sedona Corp and the Refco Group might be included, however. Also, the settlement of Friedman Billings and Ramsey founder Emmanuel Friedman with the SEC with respect to his firm's abuse of the short selling delivery requirements prior to issuance of PIPEs deals would be on point. It also eliminates the conclusion that no suit has been successful, since banning from the profession and multi-million dollar settlements generally counts as success. |
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:Sorry for the error on Novastar. I will check out the Friedman settlement you mention. The sentence references the private lawsuits not being successful and therefore the sentence is correct as it now stands.--[[User:Samiharris|Samiharris]] 00:31, 5 February 2007 (UTC) |
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Revision as of 00:31, 5 February 2007
Reasons for Version 14:10, 6 October 2006:
I thought I should state my reasons for reinstating the above-mentioned version.
1. Definitional section, Line 1: Overall, there is no change in substance here, but I think there is definite improvement in clarity.
2. “The Practice”, Line 6: Again, no major substantive changes, merely an improvement in clarity. I would disagree that the addition of “and then failing to deliver it to the buyer” is accurate in order to have a naked short sale of a security, however the addition is probably necessary because the current discussion among regulators and participants focuses upon the insidious results of naked short selling. It might help to clarify this aspect of the Wikipedia page by elaborating upon the history of the bear raids precipitating the stock market crash of 1929, which directly led to congressional curtailment of shorting, specifically naked shorting, in the Securities Act of 1933.
3. “Does Naked Shorting Drive Stock Prices Down?”, Line 18: I think that the additional paragraph after the large blocked paragraphs could be simplified. I am not sure it adds anything. it is factually accurate although it is unsourced. Naked short selling is often accompanied by dissemination in the media of distortive misinformation or disinformation. (See also Wikipedia’s page on media bias.)
4. Under “Controversy”, several suggested edits to the Mantanmoreland version appear to have improved the clarity of this section, but perhaps there is still room for improvement.
4.a. The prior version began “Some investors....” The latest version change this to “Some traders....” I would suggest “Some market participants....” but have not made this change. Others may be inspired to do so, however.
4.b. The prior version then proceeded to state: “Naked short-sellers claim that they are enacting market pressure against overpriced and undertraded small-cap stocks.” The proper word is “exerting,” not “enacting.” Enactment has to do with laws or with acting out, as on a stage. The subsequent description under “Controversy” of the prior Mantanmoreland version has engendered the most significant edits from other readers. In full, it read as follows:
- - In the bubble of the 1990s, they argue, regulations against short-selling would have caused an even greater boom and bust.[business week cite]
- - Penny stock brokerages urge all investors to keep their stocks in cash accounts so that no shares can be shorted. The penny stock fraudsters can then illegally hype the stock to very high prices allowing the penny stock fraudsters to pump and dump their shares.
- - Naked shorting keeps the penny stock brokerages from driving prices above the true value of the stock. The free market in this case could prevent the crime of pumping and dumping without any additional police or raising taxes.
- - Pump and dump organizations sometimes are run by the Mafia (see Gary Weiss's true story of Hanover Sterling in the book Born to Steal, published in 2003).
- Critics contend that the naked shorting is fraud, and that it constitutes "taking a buyer's money and not delivering the product." However, the SEC denies that occurs, saying that a fail to deliver "does not mean that the customer's purchase is not completed." [cite to SEC's brief filed in the Nanopierce litigation]
- This campaign has drawn criticism. Financial columnist Floyd Norris of the New York Times observed that "Investors who own [allegedly shorted] shares might do better to try to understand why some think the shares are overvalued, rather than simply rail about unfair short selling." [cite to NY Times article]
- Critics of the naked shorting campaign contend the practice is not harmful and its prevalence exaggerated. Opponents include Wall Street Journal, which criticized the naked shorting allegations in an editorial, and columnist Joseph Nocera of the New York Times. Author and journalist Gary Weiss criticized the anti-shorting campaign in his book “Wall Street Versus America," as a diversion of regulatory resources from more pressing issues.
4.c. What is the purpose of the foregoing? The above definitely expresses its preference for a particular “side” of the controversy and therefore falls (far) short of the standards Wikipedia requires for an unbiased presentation of both sides of an issue. For example, the following statement – “Penny stock brokerages urge all investors to keep their stocks in cash accounts so that no shares can be shorted. The penny stock fraudsters can then illegally hype the ...” – is fallacious for a number of reasons. Following the preceding sentence (“In the bubble of the 1990s, they argue, regulations against short-selling would have caused an even greater boom and bust”), the first declaration that follows is a non sequitor and fails to explain why this should be so. If this declaration is to be retained, it should explain the theory behind why keeping stocks in a cash account (as opposed to a margin account) is supposed to curtail misappropriation (by one’s broker, I might add) of one’s shares. Second, it appears to be a statement of fact, and as such it incorrectly assumes that naked shorting is only a problem of so-called penny stocks and incorrectly presumes that a broker (and by extension the DTCC) will abide by regulation and not abuse an investor’s securities that are held in street name. The extent to which certain brokers are abusing their custody of investor assets is precisely a large part of the controversy surrounding naked short selling. Next, the second statement of the prior version, “...penny stock fraudsters...”, is, in addition to also being a non sequitor, is unnecessarily laden with bias and innuendo. It serves only to confuse or divert the focus away from what should be a Wikipedia (encyclopedic) explanation of naked short selling. Its proper interpretation is not possible, because the statement is inherently inconsistent or incoherent. Does it mean that all penny stocks are “frauds”? If penny stock “fraudsters” are to be distinguished from legitimate penny stock “promoters,” then the addition of “illegally” is redundant. US courts of law mandate that an allegation of fraud must be plead with “particularity” or the allegation will be tossed out, so to toss around “fraud”, “fraudulent” etc. willy-nilly, without any specific context, is to commit the combined fallacies of argumentum ad ignorantiam, circulus in demonstrando, dicto simpliciter, petitio principii, post (and/or cum) hoc ergo propter hoc, red herring, and straw man all at the same time.
4.d. As for the rest of the prior version’s summation of the “Controversy,” I think more need not be said about it here, except that others have repeatedly pointed out spamming some obscure author’s biased opinion as the “definitive” authority on the subject has no place under a heading entitled “controversy.” Furthermore, there is no Wikipedia entry for “Joseph Nocera,” and the continual kneejerk reversions to older version(s) which perpetuate that error are becoming irritating. The latest version merely reads as follows:
- * * *
- Critics contend that naked shorting is fraud, and that it constitutes "taking a buyer's money and not delivering the product." However, the SEC denies that interpretation, saying that a fail to deliver "does not mean that the customers purchase is not completed." [cite to SEC’s brief filed in the Nanopierce litigation.] The SEC doesn't articulate how a purchase is concluded absent delivery of the product purchased, however.
- Harvey Pitt, the former Chairman of the SEC from 2001 to 2003, formalized his understanding of the practice's damaging impact in a recent Forbes Magazine editorial [cite to Forbes article].
- Regulation SHO requires the timely close-out of securities that linger on Regulation SHO, but it is not enforced, as there are stocks that have been listed for over 1 year. Every day there are new stocks that exceed the 13 day closed-settlement date. The fact that there are securities on Regulation SHO for more than 13 days has led many observers to comment on the inadequacy of the regulation.
In general, I think the above is a vast improvement over the prior version, and I am certainly not alone in that regard, but there is probably still room for further improvement. Avoiding the contraction “doesn’t” springs to mind. If others see fallacy or error in the current “Controversy” summation, then they should state their reasons HERE, and not engage in ad hominim attacks and immediate reversions (to prior versions) without considering the evolution that this page has had to date.
5. “Regulators Respond”: As with the prior section, I think the way the current version reads is an improvement over the prior version, both in clarity and for succinctness. Ocham’s Razor, and all that....
6. “Recent Developments”: The changes between the versions are minor. But again, to “wipe out” the latest edits with a knee-jerk reversion to a much older, discredited version of this page is irresponsible and disrespectful to the person(s) who took the time and effort to make a contribution to this project.
Sincerely and respectfully,
UB
It's about time someone gave Joseph Nocera at least a stub. Here's a good place to start. http://www.nytimes.com/ref/business/bio-nocera.html --Christofurio 21:05, 12 January 2007 (UTC) I may do it later this weekend if I haven't persuaded anybody else to get there ahead of me!
Cellar Boxing: A Term of Art?
I deleted a sentence that seemed to be repetitive of material already there except for the introduction of some new lingo. It claimed that there's a term of art for naked shorting, "cellar boxing." I found a few uses of this term via "google," but the ones that related to naked shorting seemed to mirror each other suspiciously. A lot of the appearances of the term are in irrelevant contexts, i.e. "I would only work out in my cellar, boxing isn't a sport of mine...." The few that are relevant only indicate very rare usage, not a notable term of art. More important, perhaps, the reference was inserted into a quotation from an SEC document! If you follow the link to that document, you'll see that the sentence about cellar boxing wasn't in the original. --Christofurio 19:35, 20 January 2007 (UTC)
http://www.sec.gov/spotlight/keyregshoissues.htm
Also, note that the references to Joseph Nocera have gone from red to blue, so that particular objection to the material is moot.
Problems with "Controversy"
Two points:
First, one might expect the "Controversy" section to present the points of views of naked short-selling critics in a balanced fashion vs. those of defenders of the practice. However,
(1) The first half of this section attempts to justify naked short-selling with no rebuttal, (2) Each criticism of the practice in the second half of this section is promptly rebutted, and (3) Critics' point of view is never clearly explained (see below).
Why is that? Given the amount of brainpower expended on this page, why is it so lopsided?
Second, the language below makes no sense. Why are we allowing it to stand?
Critics contend that the naked shorting is fraud, and that it constitutes "taking a buyer's money and not delivering the product." However, the SEC denies that occurs, saying that a fail to deliver "does not mean that the customer's purchase is not completed."[7]
By definition, when a naked short sale occurs, shares are neither borrowed nor delivered. The seller has the money, but the buyer has no shares. How could the customer's purchase possibly be completed? The SEC quote makes no sense in this context; it is non-responsive to the criticism. Heck, the SEC quote does not even address naked shorting per se; it addresses "fail to deliver". Is there a good reason to use a non-responsive, not-quite-on-topic SEC quote?
In general, this article seems to reflect a view that naked short-selling is interesting despite criticisms of the practice. In fact, naked short-selling is interesting precisely because evidence suggests it is being used to manipulate stock prices. Absent its critics, naked short-selling would be of no importance whatsoever. The article should reflect this reality by making the controversy the central topic and exploring both points of view thoroughly.
By the way, I am adding a link to SEC comments on proposed SHO amendments.
--Errudite (sic) 23:31, 28 January 2007 (UTC)
1. Some defend NSS as just another tool of the market 2. Some caution against federal regulation 3. Naked short-sellers enact market pressure against overpriced small-caps 4. In the bubble of the 1990s, short-selling mitigated the damage 5. NSS deters penny stock fraudsters 6. Prevent pump and dump without police or taxes 7. Pump and dump organizations are run by the Mafia 8. Naked shorting is fraud 9. Taking buyer’s money and not delivering product 10. SEC says FTD does not mean purchase is not completed 11. SEC has acted against NSS under pressure from small companies 12. Campaign has drawn criticism 13. NYT says investors should focus on why shares are heavily shorted 14. Critics contend NSS is harmless and infrequent 15. WSJ criticized NSS allegations 16. GW criticized anti-NSS campaign as NSS deters pump-and-dump 17. GW says NSS regulations are a “diversion”
Number of points made in the "Controversy" section: 17
Number of points defending naked short selling: 15
Number of points criticizing naked short selling: 2
Hi-jacking a supposedly neutral forum and using it to mislead the public: Priceless. --Errudite (sic) 03:18, 4 February 2007 (UTC)
Who is Gary Weiss?
And why would anyone care about his ridiculous opinion regarding the utility or propriety of allowing naked short selling as a deterrent to illegal pump and dump schemes?
I don't see how this article is served by referencing the opinions of unknown parties with undetermined conflicts of interest. --Errudite (sic) 05:46, 31 January 2007 (UTC)
- If you were really interested in who he was/is, you might have simply checked out the wiki article addressing that question, Gary Weiss. Or is the question rhetorical, sort of like starting a novel with "Who is John Galt?" At any rate, who is Errudite (sic), who doesn't bother to register as a user? --Christofurio 20:39, 31 January 2007 (UTC)
- That question is rhetorical; the next question is not. In fact, I have no interest in who he is as I find ludicrous the notion of allowing one illegal behavior to counter another. Sort of like allowing murder to counter rape: dead people can't rape; never mind if the wrong people get murdered. By the way, I am registered, but I am not cited in the article, and properly so. Not sure where you are going with the ad hominem comments. Any comments on the article? --Errudite (sic) 05:06, 1 February 2007 (UTC)
- If a person of notability equal to Weiss' maintained that murder shouldn't be prosecuted because it may deter rape, would that opinion not be notable? worth mentioning in an article on the laws on murder? If not, explain why not. At any rate, my only point was that your comment makes no sense unless you're trying to imply that Weiss is less notable than, say, Patrick Byrne or anybody else cited in the article. You've given no reason for that, except by asking a question which you now say yourself you didn't care about. Should anybody else care about your questions/comments if you don't, or are you just practicing your typing? --Christofurio 14:49, 1 February 2007 (UTC)
- Exactly my point. Anyone who would take such a ridiculous stance is not worthy of attention. Notable? Weiss? Don't think so. When I get around to it, I will delete his silliness. If you don't care about my comments, why are you wasting time responding to them? Dictionary.com can help you out on the whole "rhetorical" thing. Good luck. --Errudite (sic) 15:08, 1 February 2007 (UTC)
- I do care about your willingness to make deletions from this article that I don't believe to be warranted. I don't care about your comments insofar as they are only rhetorical flourishes. You start off asking who somebody is then say you don't care who he is, and you say you're "registered" but your name remains red, and aside from those flourishes ... have you had anything to say at all? Words like "ridiculous" don't constitute reasoning. They constitute labelling. There's a difference. You have not yet given any reason for deleting any material relating to Weiss except that you don't like what he's quoted as saying. I don't like a lot of things that get quoted in encyclopedias. Big deal. So your point is ...? --Christofurio 16:40, 1 February 2007 (UTC)
- Weiss' position seems to be that illegal naked short selling is a useful deterrent against illegal pump and dump. I think this is illogical. Rather than unleash a band of thieves to stop another band of thieves, hoping they don't steal anything from the good guys (or ignoring the fact that they do), I am in favor of enforcing the law, as I believe most rational readers are. I think most readers will be confused by a suggestion that a practice known to be harmful to businesses, destructive to honest investors, and illegal on its face be allowed to continue, regardless of its effects on other crooks. --Errudite (sic) 03:44, 2 February 2007 (UTC)
- Thank you for finally attempting a more substantive point. But I still don't see a case for deletion. After all, "this quotation takes a position which I find irrational" is no case for deletion. People who argue for a flat earth, or even a hollow earth, are quoted in encyclopedias, including this one, all the time. We aren't including only authors with whose views we agree. If readers are confused by suggestions, then they really can't be trusted with an open encyclopedia.
- Furthermore, I for one am not of the view that all laws are equally deserving of enforcement. If my local police department decided to stop going after marijuana smokers, I'd be delighted, not because I smoke the stuff but because I think its efforts in that area are a waste of my tax dollars. Even if people who think as I do can't prevail in the legislature to get the laws off the books, the view that enforcement should be de-emphasized isn't inherently irrational.
- Indeed, although the brief passage stating his view in this article doesn't spell that out, Weiss' book contends that the laws and regulations against naked short selling are wrong. The enforcement issue is secondary for him. But, obviously, if you believe a law to be misguided (as I do in the marijuana case) you're also likely to believe the same about its enforcement. --Christofurio 14:14, 2 February 2007 (UTC)
- So Weiss believes the 1934 Securities Exchange Act, which requires prompt settlement of trades including delivery of actual shares to the buyer, is wrong? Certain people should be allowed to violate the SEC Act and sell short as many millions of shares of targeted companies as they want, pocket the cash, and never deliver the shares to the buyer? Buyers should be content that their brokers claim the buyer owns shares, when in fact all they have done is enrich the seller and dilute the value of the company by creating "phantom" shares? Oh, now I see. Thanks for clearing that up. Weiss is obviously looking out for investors' best interests. --Errudite (sic) 21:41, 3 February 2007 (UTC)
I agree with Christofurio on this. Weiss is a respected market commentator.Samiharris 14:37, 2 February 2007 (UTC)
- No offense, but if the statement attributed to Gary Weiss in this article is accurate, it is my considered personal opinion that Gary Weiss is an imbecile, a crook, or both. As such, citations to GW should be removed. --Errudite (sic) 03:31, 4 February 2007 (UTC)
- No offense taken, though I do not agree with removal. I see that there was an addition to the article, with the Overstock suit. I agree with Christofurio that lawsuits against brokerages are not per se notable, so will remove and replace with a summary sentence concerning the general issue of private (as opposed to SEC) lawsuits. Also I have added comments from Joe Nocera that I believe have a bearing on this article and also addresses Errudite's concerns. Do you have an opinion on the Reg. SHO article?--Samiharris 14:34, 4 February 2007 (UTC)
- I agree with Christofurio and Samiharris. Do not remove content from Wikipedia because one does not agree with it. Under certain circumstances it can be considered vandalism.--Mantanmoreland 17:55, 4 February 2007 (UTC)
Separate article on Regulation SHO?
Can someone please explain to me why there is a separate article with the title "Regulation SHO"? Shouldn't that article be folded into this one?--Samiharris 16:10, 2 February 2007 (UTC)
- It is a blatant POV fork and should be deleted.--Mantanmoreland 17:53, 4 February 2007 (UTC)
lawsuits
Removed statement that Novastar has sued alleging naked short selling. A group of shareholders sued in California court, but the company is not a party to the suit. It is therefore not notable. Lawsuits and enforcement actions related to naked short selling of Sedona Corp and the Refco Group might be included, however. Also, the settlement of Friedman Billings and Ramsey founder Emmanuel Friedman with the SEC with respect to his firm's abuse of the short selling delivery requirements prior to issuance of PIPEs deals would be on point. It also eliminates the conclusion that no suit has been successful, since banning from the profession and multi-million dollar settlements generally counts as success.
- Sorry for the error on Novastar. I will check out the Friedman settlement you mention. The sentence references the private lawsuits not being successful and therefore the sentence is correct as it now stands.--Samiharris 00:31, 5 February 2007 (UTC)