What is interesting is that many of us have often commented that naked shorting falls under general anti-fraud rules such as 10b-5, while industry defenders, self-styled "crusaders" that patrol these boards would deny this. The SEC would make a specific rule under this proposal.
Although abusive ‘‘naked’’ short
selling as part of a manipulative scheme
is always illegal under the general antifraud
provisions of the federal securities
laws, including Rule 10b–5 under the
Exchange Act,3 proposed Rule 10b–21
would highlight the specific liability of persons that deceive specified persons
about their intention or ability to deliver
securities in time for settlement,
including persons that deceive their
broker-dealer about their locate source
or ownership of shares.4 We believe that
a rule highlighting the illegality of these
activities would focus the attention of
market participants on such activities.
The proposed rule would also highlight
that the Commission believes such
deceptive activities are detrimental to
the markets and would provide a
measure of predictability for market
participants.
All sellers of securities should
promptly deliver, or arrange for delivery
of, securities to the respective buyer and
all buyers of securities have a right to
expect prompt delivery of securities
purchased. Thus, the proposal takes
direct aim at an activity that may create
fails to deliver. Those fails can have a
negative effect on shareholders,
potentially depriving them of the
benefits of ownership, such as voting
and lending. They also may create a
misleading impression of the market for
an issuer’s securities. Proposed Rule
10b–21 would also aid broker-dealers in
complying with the locate requirement
of Regulation SHO and, thereby,
potentially reduce fails to deliver. In
addition, the proposed rule could help
reduce manipulative schemes involving
‘‘naked’’ short selling.
. . .
B. Concerns About ‘‘Naked’’ Short
Selling
We are concerned about persons that
sell short securities and deceive
specified persons about their intention
or ability to deliver the securities in
time for settlement, or deceive their
broker-dealer about their locate source
or ownership of shares, or otherwise
engage in abusive ‘‘naked’’ short selling.
Commission enforcement actions have
contributed to our concerns about the
extent of misrepresentations by short
sellers about their locate sources and
ownership of shares. For example, the
Commission recently announced a
settled enforcement action against hedge
fund adviser Sandell Asset Management
Corp. (‘‘SAM’’), its chief executive
officer, and two employees in
connection with allegedly (i) improperly
marking some short sale orders ‘‘long’’
and (ii) misrepresenting to executing
brokers that SAM personnel had located
sufficient stock to borrow for short sale
orders.
Electronic Comments
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/proposed.shtml); or
• Send an e-mail to rulecomments@
sec.gov. Please include File
Number S7–08–08 on the subject line;
or
• Use the Federal eRulemaking Portal
(http://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7–08–08. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(http://www.sec.gov/rules/ |
