"These are NERF penalties for the hedge funds, as in NERF football," Byrne said, referring to a game played with an ultra-soft foam ball. "The SEC has removed all doubt they are a bootlick to hedge funds. These new rules are a complete fraud."
Byrne has waged a three-year campaign against naked short-selling, believing his company had been damaged as a result of the practice. The new SEC rules rely on the same definition of naked short-selling that has made it impossible to prosecute violators of previous rules, he said.
"What they've done is gone from low penalties with a too-vague-to-enforce law to high penalties in a too-vague- to-enforce law. So they've done absolutely nothing."
sltrib.com
New rules set to stop naked short-selling
Utah's Overstock.com owner says the action is too little, too late
Tribune Staff and Wire Services
Article Last Updated: 09/17/2008 10:14:28 PM MDT
Federal regulators on Wednesday took measures aimed at reining in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers in a turbulent market. But a Utah CEO who is one of the Securities and Exchange Commission's most vocal critics on the subject said the rules were another bow to hedge funds.
The Securities and Exchange Commission adopted rules it said would provide permanent protections against abusive ''naked'' short-selling. Unlike the SEC's temporary emergency ban this summer covering naked short-selling in the stocks of mortgage finance giants Fannie Mae and Freddie Mac and 17 large investment banks, the new rules apply to trading in the broader market.
The new rules remove an exception for market makers in options on stocks from rules restricting naked short-selling and tighten antifraud regulations. The changes make clear that anyone who lies about their intention or ability to deliver the stocks underlying a short-sale transaction violates the law if they fail to deliver them.
Short sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
Naked short-selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately
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after the sale.
Another new rule will require short sellers and their brokers to deliver underlying stocks in the transactions by three days after the date of the short sale, or face penalties for failing to do so.
''These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short-selling,'' SEC Chairman Christopher Cox said in a statement.
But Patrick Byrne, CEO of Utah-based online retailer Overstock.com, said the new rules are flawed.
"These are NERF penalties for the hedge funds, as in NERF football," Byrne said, referring to a game played with an ultra-soft foam ball. "The SEC has removed all doubt they are a bootlick to hedge funds. These new rules are a complete fraud."
Byrne has waged a three-year campaign against naked short-selling, believing his company had been damaged as a result of the practice. The new SEC rules rely on the same definition of naked short-selling that has made it impossible to prosecute violators of previous rules, he said.
"What they've done is gone from low penalties with a too-vague-to-enforce law to high penalties in a too-vague- to-enforce law. So they've done absolutely nothing."
Advocates of legal short-selling contend the practice helps root out weak companies that may have fudged their public financial figures in order to keep their stock artificially high.
Some investors contend that naked short-selling, if left unchecked, would have given hedge funds and other aggressive short sellers an unfair advantage to attack other victims after Lehman Brothers Holdings Inc., which made the biggest bankruptcy filing in U.S. history on Monday. |
