raison de arizona wrote: ↑Fri Apr 19, 2024 12:53 pm
Trump Media warns Nasdaq of suspected market manipulation
Trump Media, the parent company of the former president’s Truth Social, alerted Nasdaq Inc. on Thursday of what the company suspects is illegal activity driving down the price of its shares.
In a letter to the exchange, Devin Nunes, the CEO of Trump Media (DJT), laid out what he believes could be deemed “naked” short selling.
Naked short selling involves someone selling shares they don’t own or have not borrowed. They will often then try to buy shares at a reduced price to cover themselves. This practice is generally illegal. Whereas legitimate short sellers, people who seek to benefit from declines in the value of a company’s shares, borrow the shares before selling.
The letter was made public Friday in a filing with the Securities and Exchange Commission.
Nunes also noted in the letter that shares of the company were on a list the Nasdaq maintains that’s “indicative of unlawful trading activity.”
“This is particularly troubling given that “naked” short selling often entails sophisticated market participants profiting at the expense of retail investors,” he said.
https://www.cnn.com/2024/04/19/markets/ ... index.html
This is what slimeball management teams always say when their shitty operation gets to the top of the news. There was a big wave of hysteria over "naked shorting" circa 2008-2010, pushed by third-rate management teams huckstering their stock to unsophisticated "stock bros." Companies involved in this, IIRC, were people like Herbalife, Prepaid Legal Services (now LegalShield) and most notably, Patrick Byrne, chairman of Overstock.com, whose sleazy accounting practices and crappy business operation made him a favorite of hedge fund guys to short in their personal accounts.
If you've heard Byrne's name more recently, he's the election denier and conspiracy whack job that has been buddies with Trump and was involved in funding many of those election lawsuits. Unsurprising... And it wouldn't surprise me at all if Byrne was responsible for putting this idea in Trumps' and Nunes' ear.
In the wake of that ginned-up "scandal," the SEC passed Regulation SHO, which contained a number of provisions to curb the practice of naked shorting, to the small extent that it actually happened. Most of it was bringing to the forefront common practices that were already in place. It took only a few minutes for our compliance people to get us up to speed on what our traders needed to do, which was basically a slight tweak to our record-keeping systems. The SEC people who trained our compliance team were all but saying out loud that Reg SHO was just throwing a bone to the crazies to get them to shut up, and that it wasn't a big deal.
Market surveillance technology has advanced considerably in the intervening 15 years, as has the internal compliance mechanisms for the handful of order management systems that nearly everyone uses. So the odds that significant amounts of naked shorting are occurring today in $DJT are minimal.
The reason that a "naked shorting" idea has any chance at catching on among the rabble is that short selling seems vaguely seedy and disreputable practice to the average Joe/Josephine, where those "international bankers" (wink, wink) are ganging up on decent, hardworking American executives like Devin Nunes and Donald Trump to steal the profits generated from all their hard work, which they use to feed their children. It's nirvana for populist leaders to exploit.
However, the reality is different. Academics who study market structure will tell you that there has to be symmetry in buying and selling to ensure optimal market efficiency. While restrictions on short selling will damp out short-term market volatility to the downside over the short term, it will ultimately work to the detriment of investors because short sellers function as "buyers of last resort," buying stock during a wipeout because they have to cover their positions in order to get paid. Were there no buyers of last resort, this stock would have dropped further, faster than it has.
Inefficient markets ultimately lead to rotation out of that asset class into something else, ultimately making it harder for equity markets to do their main job: raising capital to fund economic growth. The average professional worker in China knows their markets are rigged on the long side, which is why they invested all their savings into the real estate market.
I don't have data to support this, but I would suspect that far more criminal market manipulation schemes are of the "pump and dump" variety than of the "short and distort" variety. Market manipulation on the short side for large-cap stocks (which, amusingly, includes $DJT these days despite its $4 million trickle of revenue) is extremely difficult to accomplish in general, because hedge funds now soak up so much stock on the short side that they can't profit from advance knowledge of bad news the way they used to when I got into the business ~30 years ago.
Most "short and distort" scams focused on small-cap, micro-cap and penny stocks in an era where there were few practicitioners of these scams and where news didn't move as fast. The leading practitioners of this type of nonsense were the three Feshbach brothers, among the biggest contributors to Scientology because they thought L. Ron Hubbard's investment advice made them successful. They were among the few short funds in their 1970s and 1980s heyday. They made out like bandits on small and micro-cap stocks but went bug-on-a-windshield when they tried playing with the big boys and were crushed almost immediately.
But I digress. A significant percentage of the buy orders in $DJT at this point are short sellers covering their positions. A lot of professional investors who are casually short this piece of s$&# in their personal accounts will be able to close out their position at current levels, more than doubling their money, and brag about how much of Trump's money they "stole." Good, clean fun.
The big pop in the stock the other day as noted above might have been someone trying to foment a "short covering rally," getting the shorts to panic and buy in so they could generate enough liquidity to sell a big long position. Or, it could indeed be a shady infusion of cash to try to prop up the stock as noted above, but one couldn't say for sure without doing a detailed study of oceans of Level III trading data, looking for blocks of unusual size moving.
Regardless of what caused the pop the other day (and the stock's making another test of resistance to the upside today), any more bad news and the retail MAGA yahoos that have been propping up this piece of garbage won't have the firepower to defend it if some more bad news comes along, where it will resume its stately whistling plummet towards $0.00.