Changes

===Enforcement actions under Reg SHO===

===Enforcement actions under Reg SHO===

In 2005, the SEC notified [[Refco]] of intent to file an enforcement action against the securities unit of Refco for securities trading violations concerning the shorting of Sedona stock. The SEC sought information related to two former Refco brokers who handled the account of a client, Amro International, which shorted Sedona's stock. <ref> {{cite web|url=http://money.cnn.com/2005/10/20/news/midcaps/refco/index.htm |title=More woes for Refco, execs: Reports Newspapers say creditors eye over $1B insiders made from stock, while SEC probes "naked shorting"|date=October 20, 2005|author=CNN}}</ref> No charges had been filed by 2007.

In 2005, the SEC notified [[Refco]] of intent to file an enforcement action against the securities unit of Refco for securities trading violations concerning the shorting of Sedona stock. The SEC sought information related to two former Refco brokers who handled the account of a client, Amro International, which shorted Sedona's stock. <ref> {{cite web|url=https://money.cnn.com/2005/10/20/news/midcaps/refco/index.htm |title=More woes for Refco, execs: Reports Newspapers say creditors eye over $1B insiders made from stock, while SEC probes "naked shorting"|date=October 20, 2005|author=CNN}}</ref> No charges had been filed by 2007.

<br />

<br />

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 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> [https://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>

In March 2007, the Securities and Exchange Board of India (SEBI), which disallowed short sales altogether in 2001 as a result of the [[Ketan Parekh]] affair, reintroduced short selling under regulations similar to those developed in the United States. In conjunction with this rule change, SEBI outlawed all naked short selling.<ref>{{cite web|url=http://www.thehindubusinessline.com/2007/12/24/stories/2007122451310200.htm |title=What is short selling? |author=The Hindu Business Line |date=December 23,2007}}</ref><ref>{{cite web|url=http://www.financialexpress.com/fe_full_story.php?content_id=158750 |title=Sebi allows all to sell short |author=The Financial Express |date=March 22,2007}}</ref>

In March 2007, the Securities and Exchange Board of India (SEBI), which disallowed short sales altogether in 2001 as a result of the [[Ketan Parekh]] affair, reintroduced short selling under regulations similar to those developed in the United States. In conjunction with this rule change, SEBI outlawed all naked short selling.<ref>{{cite web|url=http://www.thehindubusinessline.com/2007/12/24/stories/2007122451310200.htm |title=What is short selling? |author=The Hindu Business Line |date=December 23,2007}}</ref><ref>{{cite web|url=http://www.financialexpress.com/fe_full_story.php?content_id=158750 |title=Sebi allows all to sell short |author=The Financial Express |date=March 22,2007}}</ref>

In June 2007,  the SEC voted to remove the grandfather provision that allowed fails to deliver that existed before Reg SHO to be exempt from Reg SHO. SEC Chairman Christopher Cox called naked short selling “a fraud that the commission is bound to prevent and to punish.” The SEC also said it was considering removing an exemption from the rule for options market makers.<ref>{{cite web|url=http://www.nytimes.com/2007/06/14/business/14sec.html?ref=business |title=S.E.C. Ends Decades-Old Price Limits on Short Selling |author=Floyd Norris, The New York Times |date=June 14,2007}}</ref> Removal of the grandfather provision and naked shorting restrictions generally have been endorsed by the [[U.S. Chamber of Commerce]].<ref>[http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20070914%5cACQDJON200709141137DOWJONESDJONLINE000695.htm  "US Chamber Urges Further SEC Curbs On Naked Short Sales," Dow Jones News Service, Sept. 14, 2007]</ref>

In June 2007,  the SEC voted to remove the grandfather provision that allowed fails to deliver that existed before Reg SHO to be exempt from Reg SHO. SEC Chairman Christopher Cox called naked short selling “a fraud that the commission is bound to prevent and to punish.” The SEC also said it was considering removing an exemption from the rule for options market makers.<ref>{{cite web|url=https://www.nytimes.com/2007/06/14/business/14sec.html?ref=business |title=S.E.C. Ends Decades-Old Price Limits on Short Selling |author=Floyd Norris, The New York Times |date=June 14,2007}}</ref> Removal of the grandfather provision and naked shorting restrictions generally have been endorsed by the [[U.S. Chamber of Commerce]].<ref>[http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20070914%5cACQDJON200709141137DOWJONESDJONLINE000695.htm  "US Chamber Urges Further SEC Curbs On Naked Short Sales," Dow Jones News Service, Sept. 14, 2007]</ref>

In March 2008, SEC Chairman [[Christopher Cox]] in March 2008 gave a speech entitled the "'Naked' Short Selling Anti-Fraud Rule," in which he announced new SEC efforts to combat naked short selling.<ref>[http://www.sec.gov/news/speech/2008/video0030408cc_short.wmv Video of  [[Christopher Cox]]] March 2008 </ref> Under the proposal, the SEC would create an antifraud rule targeting those who knowingly deceive brokers about having located securities before engaging in short sales, and who fail to deliver the securities by the delivery date.  Cox said the proposal would address concerns about short-selling abuses, particularly in the market for small-cap stocks.  Even with the regulation in place, the SEC received hundreds of complaints in 2007 about alleged abuses involving short sales.    SEC Commissioners Paul Atkins and Kathleen Casey expressed support for the crackdown.<ref>[http://online.wsj.com/article/SB120468499197912561.html?mod=googlenews_wsj SEC Proposes Teeth for Short-Selling Rules], By Judith A. Burns</ref><ref>[http://www.reuters.com/article/etfNews/idUSN0446331920080304 SEC proposes tougher "naked" short selling rules], Mar 4, 2008 Reuter</ref>

In March 2008, SEC Chairman [[Christopher Cox]] in March 2008 gave a speech entitled the "'Naked' Short Selling Anti-Fraud Rule," in which he announced new SEC efforts to combat naked short selling.<ref>[http://www.sec.gov/news/speech/2008/video0030408cc_short.wmv Video of  [[Christopher Cox]]] March 2008 </ref> Under the proposal, the SEC would create an antifraud rule targeting those who knowingly deceive brokers about having located securities before engaging in short sales, and who fail to deliver the securities by the delivery date.  Cox said the proposal would address concerns about short-selling abuses, particularly in the market for small-cap stocks.  Even with the regulation in place, the SEC received hundreds of complaints in 2007 about alleged abuses involving short sales.    SEC Commissioners Paul Atkins and Kathleen Casey expressed support for the crackdown.<ref>[http://online.wsj.com/article/SB120468499197912561.html?mod=googlenews_wsj SEC Proposes Teeth for Short-Selling Rules], By Judith A. Burns</ref><ref>[https://www.reuters.com/article/etfNews/idUSN0446331920080304 SEC proposes tougher "naked" short selling rules], Mar 4, 2008 Reuter</ref>

===Litigation===

===Litigation===

Ten suits concerning naked short-selling filed against the DTCC were withdrawn or dismissed by May 2005.<ref> "Nevada Court Dismisses Nanopierce Lawsuit Against DTCC On Naked Short Selling," Depository Trust Clearing Corporation, http://www.dtcc.com/Publications/dtcc/may05/nanopierce.html, May 2005. Accessed February 5, 2007</ref>  

Ten suits concerning naked short-selling filed against the DTCC were withdrawn or dismissed by May 2005.<ref> "Nevada Court Dismisses Nanopierce Lawsuit Against DTCC On Naked Short Selling," Depository Trust Clearing Corporation, http://www.dtcc.com/Publications/dtcc/may05/nanopierce.html, May 2005. Accessed February 5, 2007</ref>  

A suit by Electronic Trading Group, naming major Wall Street brokerages, was filed in April 2006 and dismissed in December 2007.<ref>{{cite news | url = http://www.forbes.com/business/2006/04/13/naked-shorts-lawsuit-cx_lm_0413naked.html | title = Naked Shorts | publisher = [[Forbes]] | first = Liz | last = Moyer | date = [[2006-04-13]] | accessdate = 2007-10-10}}</ref>.<ref>[http://money.cnn.com/news/newsfeeds/articles/djf500/200712201132DOWJONESDJONLINE000859_FORTUNE5.htm US Judge Dismisses Naked Short Selling Suit Vs. Brokers, Dow Jones News Service, Dec. 20, 2007]</ref>

A suit by Electronic Trading Group, naming major Wall Street brokerages, was filed in April 2006 and dismissed in December 2007.<ref>{{cite news | url = http://www.forbes.com/business/2006/04/13/naked-shorts-lawsuit-cx_lm_0413naked.html | title = Naked Shorts | publisher = [[Forbes]] | first = Liz | last = Moyer | date = [[2006-04-13]] | accessdate = 2007-10-10}}</ref>.<ref>[https://money.cnn.com/news/newsfeeds/articles/djf500/200712201132DOWJONESDJONLINE000859_FORTUNE5.htm US Judge Dismisses Naked Short Selling Suit Vs. Brokers, Dow Jones News Service, Dec. 20, 2007]</ref>

Two separate lawsuits, filed in 2006 and 2007<ref>{{cite news | title = Naked Short Victim Strikes Back | url = http://www.forbes.com/2007/02/02/naked-short-suit-overstock-biz-cx_lm_0202naked.html | date = [[2007-02-02]] | accessdate = 2007-10-10 }}</ref> by [[NovaStar Financial, Inc.]] shareholders and [[Overstock.com]], named as defendants ten Wall Street prime brokers. They claimed a scheme to manipulate the companies' stock by allowing naked short selling.<ref>[http://www.forbes.com/2007/02/02/naked-short-suit-overstock-biz-cx_lm_0202naked.html A Naked Short Victim Strikes Back, Forbes.com, Feb. 2, 2007]</ref> A motion to dismiss the Overstock suit was denied in July 2007.<ref> {{cite web |url=http://www.forbes.com/wallstreet/2007/07/18/naked-shorting-overstock-biz-wallst-cx_lm_0718overstock.html

Two separate lawsuits, filed in 2006 and 2007<ref>{{cite news | title = Naked Short Victim Strikes Back | url = http://www.forbes.com/2007/02/02/naked-short-suit-overstock-biz-cx_lm_0202naked.html | date = [[2007-02-02]] | accessdate = 2007-10-10 }}</ref> by [[NovaStar Financial, Inc.]] shareholders and [[Overstock.com]], named as defendants ten Wall Street prime brokers. They claimed a scheme to manipulate the companies' stock by allowing naked short selling.<ref>[http://www.forbes.com/2007/02/02/naked-short-suit-overstock-biz-cx_lm_0202naked.html A Naked Short Victim Strikes Back, Forbes.com, Feb. 2, 2007]</ref> A motion to dismiss the Overstock suit was denied in July 2007.<ref> {{cite web |url=http://www.forbes.com/wallstreet/2007/07/18/naked-shorting-overstock-biz-wallst-cx_lm_0718overstock.html

|title=Naked Shorting Case Gains Traction|date=July 18, 2007|Author=Liz Moyer, Forbes}}</ref><ref>[http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=OSTK:US&sid=aPgnC8667Qbo Overstock Shares Rise on Court Ruling in Broker Suit], Bloomberg News, July 18, 2007</ref>

|title=Naked Shorting Case Gains Traction|date=July 18, 2007|Author=Liz Moyer, Forbes}}</ref><ref>[https://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=OSTK:US&sid=aPgnC8667Qbo Overstock Shares Rise on Court Ruling in Broker Suit], Bloomberg News, July 18, 2007</ref>

===State legislation===

===State legislation===

In February, 2007 Forbes Magazine published two stories supporting the view that naked shorting is a serious problem in US capital markets. One article, [http://www.forbes.com/free_forbes/2007/0212/068.html "Naked and Confused"], described the naked shorting attack on Sedona, a Pennsylvania software firm. Another article, [http://www.forbes.com/free_forbes/2007/0212/064.html "Sewer Pipes"], explored the apparent involvement of the Russian Mafia in this issue: "Hedge funds are posting nice returns from deals that may involve ex-cons, stock scammers--even the Mob."  

In February, 2007 Forbes Magazine published two stories supporting the view that naked shorting is a serious problem in US capital markets. One article, [http://www.forbes.com/free_forbes/2007/0212/068.html "Naked and Confused"], described the naked shorting attack on Sedona, a Pennsylvania software firm. Another article, [http://www.forbes.com/free_forbes/2007/0212/064.html "Sewer Pipes"], explored the apparent involvement of the Russian Mafia in this issue: "Hedge funds are posting nice returns from deals that may involve ex-cons, stock scammers--even the Mob."  

In March 2007, [[Bloomberg Television]] featured a special on naked short selling, "Phantom Shares" that presented a sharp criticism of naked short selling in the US capital markets. Phantom Shares' was nominated for an Emmmy for Long Form Investigative Journalism. <ref>{{cite web|url=http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vIrfhgQPAJ1s.asf |title=Phantom Shares |author=Bloomberg Television |date=March 12,2007}}</ref> <ref>{{cite web|url=http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=OSTK:US&sid=aEOpTqmLZB7A|title=`Phantom Shares,' Failed Trades and Naked Shorts: (Transcript) |author=Bloomberg Television |date=March 14,2007}}</ref>  

In March 2007, [[Bloomberg Television]] featured a special on naked short selling, "Phantom Shares" that presented a sharp criticism of naked short selling in the US capital markets. Phantom Shares' was nominated for an Emmmy for Long Form Investigative Journalism. <ref>{{cite web|url=https://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vIrfhgQPAJ1s.asf |title=Phantom Shares |author=Bloomberg Television |date=March 12,2007}}</ref> <ref>{{cite web|url=https://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=OSTK:US&sid=aEOpTqmLZB7A|title=`Phantom Shares,' Failed Trades and Naked Shorts: (Transcript) |author=Bloomberg Television |date=March 14,2007}}</ref>  

In May 2007, Max Keiser reported on naked short selling as part of a report on [[Al Jazeera]]'s ''People and Power'' show. <ref>{{cite web

In May 2007, Max Keiser reported on naked short selling as part of a report on [[Al Jazeera]]'s ''People and Power'' show. <ref>{{cite web