Thursday, March 19, 2009

Naked Short Sales Hint Fraud in Bringing Down Lehman

As many as 32 million shares of Lehman were sold and not delivered as of the day of Lehman's demise, indicating the potential for a massive naked short of the stock.

Naked shorting is illegal. While shorting a stock (selling it without owning it) is legal, the seller must borrow the stock from someone else, and deliver the stock that he sold to the borrower.

Unfortunately, those who complain about naked short selling have become the boy who cried wolf, since so many CEOs claim it is occurring, but are never able to prove that it is occurring.

However, with Lehman, the proof may be available. According to Bloomberg News, the 32 million fails to deliver were more than a 57 fold increase over the prior year's peak in fails.

Naked Short Sales Hint Fraud in Bringing Down Lehman - Bloomberg.com



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