Changes

In June 2007, executives of Universal Express, which had claimed naked shorting of its stock, were sanctioned by a federal court judge as “repeated and remorseless violators” of the securities laws. The SEC asserted that the company “appears to exist primarily as a vehicle for fraud.” <ref> "S.E.C. Requests Receiver for Universal Express," The New York Times, June 23, 2007</ref> Referring to a court ruling barring CEO Richard Altomare from serving as an officer of a public company, [[New York Times]] columnist [[Floyd Norris]] said: "In Altomare's view, the issues that bothered the judge are irrelevant. 'Long and short of it,' he said in a statement, 'this is a naked short hallmark case in the making.' Or it is proof that it can take a long time for the SEC to stop a fraud."<ref>[http://select.nytimes.com/2007/06/22/business/22norris.html A Sad Tale of Fictional SEC Filings, The New York Times, June 22, 2007]</ref> Universal Express has claimed that 6,000 small companies have been put out of business by naked shorting, which the company says "the SEC has ignored and condoned."<ref>[http://www.usxp.com/newyorktime.pdf  Universal Express statement, June 28, 2007]</ref> A receiver was subsequently appointed to administer the company.

In June 2007, executives of Universal Express, which had claimed naked shorting of its stock, were sanctioned by a federal court judge as “repeated and remorseless violators” of the securities laws. The SEC asserted that the company “appears to exist primarily as a vehicle for fraud.” <ref> "S.E.C. Requests Receiver for Universal Express," The New York Times, June 23, 2007</ref> Referring to a court ruling barring CEO Richard Altomare from serving as an officer of a public company, [[New York Times]] columnist [[Floyd Norris]] said: "In Altomare's view, the issues that bothered the judge are irrelevant. 'Long and short of it,' he said in a statement, 'this is a naked short hallmark case in the making.' Or it is proof that it can take a long time for the SEC to stop a fraud."<ref>[http://select.nytimes.com/2007/06/22/business/22norris.html A Sad Tale of Fictional SEC Filings, The New York Times, June 22, 2007]</ref> Universal Express has claimed that 6,000 small companies have been put out of business by naked shorting, which the company says "the SEC has ignored and condoned."<ref>[http://www.usxp.com/newyorktime.pdf  Universal Express statement, June 28, 2007]</ref> A receiver was subsequently appointed to administer the company.

In July 2007, Piper Jaffray Cos. was fined $150,000 by the [[New York Stock Exchange]] (NYSE). Piper violated securities trading rules from January through May of 2005, selling shares without borrowing them, and also failing to "cover short sales in a timely manner", according to the NYSE. <ref>[http://www.nyse.com/DiscAxn/discAxn_07_2007.html "Member Firm Disciplined for Violations of SEC Rule on Short Sales and Operational and Supervisory Violations," NYSE Regulation, July 11, 2007]</ref>  At the time of this fine, the NYSE had levied over $1.9 million in fines for naked short sales over seven regulatory actions.<ref> [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afpYSjiXF7iE "Piper Fined by the NYSE Over Short-Sale Violations", Edgar Ortega, Bloomberg News] </ref>

In July 2007, Piper Jaffray Cos. was fined $150,000 by the [[New York Stock Exchange]] (NYSE). Piper violated securities trading rules from January through May 2005, selling shares without borrowing them, and also failing to "cover short sales in a timely manner", according to the NYSE. <ref>[http://www.nyse.com/DiscAxn/discAxn_07_2007.html "Member Firm Disciplined for Violations of SEC Rule on Short Sales and Operational and Supervisory Violations," NYSE Regulation, July 11, 2007]</ref>  At the time of this fine, the NYSE had levied over $1.9 million in fines for naked short sales over seven regulatory actions.<ref> [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afpYSjiXF7iE "Piper Fined by the NYSE Over Short-Sale Violations", Edgar Ortega, Bloomberg News] </ref>

Also in July 2007, the [[American Stock Exchange]] fined two options market makers for violations of Regulation SHO. SBA Trading was sanctioned for $5 million, and ALA Trading was fined $3 million, which included disgorgement of profits.  Both firms and their principals were suspended from association with the exchange for five years.  The exchange said the firms used an exemption to Reg. SHO for options [[market makers]] to "impermissibly engage in naked short selling." <ref> [http://www.amex.com/atamex/regulation/discipline/2007/BArensteinALA_Decision_072007.pdf Amex Discplinary Decisions, ALA Trading]</ref> <ref>[http://www.amex.com/atamex/regulation/discipline/2007/SArensteinSBA_Decision_072007.pdf Amex Discplinary Decisions, SBA Trading]</ref><ref>[http://www.amex.com/atamex/news/press/sn_regAA_073107.htm American Stock Exchange announcement of disciplinary action, July 31, 2007]</ref>

Also in July 2007, the [[American Stock Exchange]] fined two options market makers for violations of Regulation SHO. SBA Trading was sanctioned for $5 million, and ALA Trading was fined $3 million, which included disgorgement of profits.  Both firms and their principals were suspended from association with the exchange for five years.  The exchange said the firms used an exemption to Reg. SHO for options [[market makers]] to "impermissibly engage in naked short selling." <ref> [http://www.amex.com/atamex/regulation/discipline/2007/BArensteinALA_Decision_072007.pdf Amex Discplinary Decisions, ALA Trading]</ref> <ref>[http://www.amex.com/atamex/regulation/discipline/2007/SArensteinSBA_Decision_072007.pdf Amex Discplinary Decisions, SBA Trading]</ref><ref>[http://www.amex.com/atamex/news/press/sn_regAA_073107.htm American Stock Exchange announcement of disciplinary action, July 31, 2007]</ref>

|date=[[July 5]], [[2007]]}}</ref>

|date=[[July 5]], [[2007]]}}</ref>

The SEC hired an economist, Leslie Boni, to investigate this issue. In 2006 she wrote a seminal paper, [http://econpapers.repec.org/article/eeefinmar/v_3A9_3Ay_3A2006_3Ai_3A1_3Ap_3A1-26.htm "Strategic Delivery Failures in US Equity Markets"], showing that delivery failures were much more prevalent than had previsoly been thought, that the mechanisms that were supposed to stop them were triggered in .12% of the relevant cases, and that the distribution of delivery failures showed purpose and could not be explained as random human error. As her paper's summary put it: "Sellers of U.S. equities who have not provided shares by the third day after the transaction are said to have 'failed-to-deliver' shares. Using a unique data set of the entire cross-section of U.S. equities, we document the pervasiveness of delivery failures and evidence consistent with the hypothesis that market makers strategically fail to deliver shares when borrowing costs are high. We then show that many firms that allow others to fail to deliver to them are themselves responsible for fails-to-deliver in other stocks."

The SEC hired an economist, Leslie Boni, to investigate this issue. In 2006 she wrote a seminal paper, [http://econpapers.repec.org/article/eeefinmar/v_3A9_3Ay_3A2006_3Ai_3A1_3Ap_3A1-26.htm "Strategic Delivery Failures in US Equity Markets"], showing that delivery failures were much more prevalent than had previously been thought, that the mechanisms that were supposed to stop them were triggered in .12% of the relevant cases, and that the distribution of delivery failures showed purpose and could not be explained as random human error. As her paper's summary put it: "Sellers of U.S. equities who have not provided shares by the third day after the transaction are said to have 'failed-to-deliver' shares. Using a unique data set of the entire cross-section of U.S. equities, we document the pervasiveness of delivery failures and evidence consistent with the hypothesis that market makers strategically fail to deliver shares when borrowing costs are high. We then show that many firms that allow others to fail to deliver to them are themselves responsible for fails-to-deliver in other stocks."

[[Robert J. Shapiro]],  former undersecretary of commerce for economic affairs, has claimed that naked short selling has cost investors $100 billion and driven 1,000 companies into the ground.<ref>[http://www.time.com/time/magazine/article/0,9171,1126706-3,00.html Watch Out, They Bite!] by Daniel Kadlec, Nov. 09, 2005, [[Time magazine]] </ref>  

[[Robert J. Shapiro]],  former undersecretary of commerce for economic affairs, has claimed that naked short selling has cost investors $100 billion and driven 1,000 companies into the ground.<ref>[http://www.time.com/time/magazine/article/0,9171,1126706-3,00.html Watch Out, They Bite!] by Daniel Kadlec, Nov. 09, 2005, [[Time magazine]] </ref>  

[[category:Business]]

[[Category:Business]]