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July 15, 2013

Naked Short Sales Becoming More Frequent

Jonathan Feldman, a former Maryland banker, has been accused by the SEC of misleading investors through an investment strategy known as “naked short selling.” The Wall Street Journal provides the following explanation of a naked short sale:

In a short sale, a trader borrows stock from a third party and sells it in the hope of buying it back later for a lower price. Traders are typically allowed to sell the stock before they borrow it, as long as they do so within several days after the sale. In naked short selling, a trader never follows through on the promise to borrow.

The SEC ordered Feldman to pay two million dollars in fines and to disgorge 2.7 million in profits. The SEC found that Feldman knew or should have known that the naked short sales “perpetrated a fraud on the participants in the securities markets.”

For more information, visit the Wall Street Journal