Naked Short Selling is Real – And It’s Fucking Up Our Economy

Unfortunately, like many people out there, I don’t know my ass from my elbow when it comes to the economy. Sure I know a few terms like “recession” and “stock,” but ask me to explain stuff like the “Eurozone crisis” and I’ll get as far as “Apocalyptic omen.” That’s probably why businessmen can get away with pretty much anything; half of their concepts are so convoluted you need to have at least gave a shit about high school calculus to understand them, which most of us didn’t.

In late May some financial news caught my interest, especially because it involved some old white rich dudes getting caught with their pants down, for exactly what most left-leaning angry white kids think they do: plotting against the little guy while boldly not giving a fuck. Basically a lawyer for Goldman Sachs and Merrill Lynch mistakenly leaked incriminating personal emails to the press from top executives who were participating in a highly illegal stock-counterfeiting scheme called naked short selling. It’s a controversial selling tactic that Wall Street types have been calling a conspiracy theory for years, until these emails completely blew their cover. Not only were these two economic juggernauts plotting the failure of a company using naked shorting, they were aware it was illegal. When an underling mentioned their naked shorting could be a nefarious move, one Merril president went so far to say, “Fuck the compliance area, procedures schemcedures”.

Even the top banks are doing it and it’s a practise akin to the counterfeit of stock in 1929 that helped sink the world economy. The only way to really stop it is to understand exactly what it is and recognise it if you’re in business, which by the way, is almost impossible because it’s incredibly technical. That’s why we talked with Cameron W. Reed, the pseudonym of an investigative journalist who just published a book on naked short selling called Midas Touch. She helped give us a really, really simplified version of what this dubious and sneaky-deaky practise is and how hedge funds, terrorists, and even the mafia are using it to rake in the dough.

In layman’s terms, what exactly is naked short-selling?

First of all trading has completely gone electronic with very few paper certificates actually being used making it harder to track stock. When brokers used to sell stock they’d have runners who’d go around Wall Street to settle trades by exchanging paper stock. Some people discovered that there’s still a three day legal window to settle a trade, which was a regulation around to account for the [time it took runners] to go back and forth. But with electronic trades, the three day gap can be abused as a timeframe where brokers can illegally sell too much stock without ever declaring all the traded stock to the IRS.

OK, but how do people use this tactic to screw other people and profit?

There’s basically all this phantom stock that isn’t real in the system and so when you want to crush a company all you have to do is sell off a lot of it, fast enough, to create panic with novice investors who sell everything and drive the share price to $0. After that you never have to settle the trade with the IRS because the company goes under and whatever the broker sold the non-existent stock for is pure profit.

That’s super fucked up and seems too easy. Does naked short selling affect the economic situation right now?

Christopher Cox, the former head of the SEC, said on record that naked short selling majorly contributed to the most recent crash and for driving things like the Lehman Brothers into the ground. And now that hedge funds use high frequency trading with supercomputers that calculate and trade in milliseconds, it’s ridiculous and even harder to track.

So how long has this been going on for?

Well it was around during the Great Depression when people were literally counterfeiting stock certificates and it contributed, among other things, to that crash. That was the thing that alarmed me when I first found out about modern naked shorting, it’s effectively electronic counterfeiting.

So I’ve read that big shots like Goldman Sachs and Merrill Lynch have used naked short selling. Who else?

I can’t say with 100% certainty who is and who isn’t, I obviously think there’s a tremendous liability in saying that. Because the guys who are, are incredibly powerful and it’s exactly why I use a penname. I don’t want any trouble from this like a lot of other people who’ve had death threats and the like.

Woah, hold on. Who has gotten death threats before?

One of the first protesters of this, David Patch, kind of the original Occupy Wall Street activist, a guy who back in the early 2000’s protested naked short selling in front of the NASDAQ. He created a website calling for an investigation of the SEC where anonymous people on the message boards were posting pictures of his family, his address, his phone number, that kind of stuff.

If I’m reading between the lines correctly you’re saying there are some pretty big hedge funds that participate in this sort of intimidation?

Oh absolutely. Take for example the Overstock.com case. Patrick Byrne the Overstock CEO is a pretty good guy, an honest businessman and he was bashed in the media until all of this came out. He’s so far removed from being a nutcase. He’s very, very smart and anything but crazy. Yet they were able to smear him and make him look bad.

Were there any publications directly participating in this?

There was a prominent business reporter named Gary Weiss who made a career out of defaming Patrick Byrne. If you go and look at his blog he can’t say enough about what a nutcase Patrick Byrne is and how crazy naked short selling adversaries are and there’s reason to believe he works for certain hedge funds directly.

I’ve read that it’s used by terrorists who need to make quick dirty money, which honestly sounds a little outlandish.

As crazy as a possibility as it is, it could be that terrorist organizations might be funding their activities with market manipulation using naked short selling by shorting industries they target. Like the London terrorist attacks. There was naked short selling activity on English rail companies just before the bombings.

Right, but what terrorist groups can you say for sure used it though?

There’s a guy named Athony Elgindy, and this is going to sound outrageous but it’s verifiable. He started this internet club for short sellers and was working with two corrupt FBI agents who were feeding him info on companies they were investigating, which he’d then naked short. Then it was revealed that [people in his family] were contributing profit of these naked sells to a front organization, which was a money laundering operation for Hamas.

So basically every shitty character you can think of is getting in on this?

Oh yes, there’s even examples of Russian and Italian mafia naked short selling stocks.

Will it ever be stopped?

The thing is it’s fixable, it’ll take a lot of money but it is fixable. But compared to what’s been lost it wouldn’t be that much money and it would restore faith in the markets. It’s going to take pressure from the public because as long as people are making money off of [naked shorting] the sociopathic types have no incentive to do anything differently. Maybe with better accounting regulations and enforcement by the SEC, but as I’ve said, as far as I can tell they’re too small to investigate all of these things, and too underfunded, and that might be by design. But primarily, the public has to get educated and you can contribute to that. My thinking at this point is that young people are going to be the answer to at least start the movement against practises like this.