"In Canada alone, hundreds of billions of dollars have been vaporized from pension funds and regular, everyday Canadians because of this, according to Texas-based lawyer James W. Christian. Christian and his firm Christian Smith & Jewell LLP are heavy hitters in litigation related to stock manipulation and have prosecuted over 20 cases involving naked short selling and spoofing in the last 20 years.

“Hundreds of billions have been stolen from everyday Canadians and Americans and pension funds alike, and this has jeopardized the integrity of Canada’s capital markets and the integral process of capital creation for entrepreneurs and job creation for the economy,” Christian told Oilprice.com.

The Dangerous Naked Short-Selling MO

In order to [legally] sell a stock short, traders must first locate and secure a borrow against the shares they intend to sell. A broker who enters such a trade must have assurance that his client will make settlement.

While “long” sales mean the seller owns the stock, short sales can be either “covered” or “naked”. A covered short means that the short seller has already “borrowed” or has located or arranged to borrow the shares when the short sale is made. Whereas, a naked short means the short seller is selling shares it doesn’t own and has made no arrangements to buy. The seller cannot cover or “settle” in this instance, which means they are selling “ghost” or “phantom” shares that simply do not exist without their action.

When you have the ability to sell an unlimited number of non-existent phantom shares in a publicly-traded company, you then have the power to destroy and manipulate the share price at your own will.

And big banks and financial institutions are turning a blind eye to some of the accounts that routinely participate in these illegal transactions because of the large fees they collect from them. These institutions are actively facilitating the destruction of shareholder value in return for short term windfalls in the form of trading fees. They are a major part of the problem and are complicit in aiding these accounts to create counterfeit shares.

The funds behind this are hyper sophisticated and know all the rules and tricks needed to exploit the regulators to buy themselves time to cover their short positions. According to multiple accounts from traders, lawyers, and businesses who have become victims of the worst of the worst in this game, short-sellers sometimes manage to stay naked for months on end, in clear violation of even the most relaxed securities laws.

The short-sellers and funds who participate in this manipulation almost always finance undisclosed “short reports” which they research & prepare in advance, before paying well-known short-selling groups to publish and market their reports (often without any form of disclosure) to broad audiences in order to further push the stock down artificially. There’s no doubt that these reports are intended to create maximum fear amongst retail investors and to push them to sell their shares as quickly as possible.

That is market manipulation. Plain and simple.

Their MO is to short weak, vulnerable companies by putting out negative reports that drive down their share price as much as possible. This ensures that the shorted company in question no longer has the ability to obtain financing, putting them at the mercy of the same funds that were just shorting them. After cratering the shorted company's share price, the funds then start offering these companies financing usually through convertibles with a warrant attachment as a hedge (or potential future cover) against their short; and the companies take the offers because they have no choice left. Rinse and Repeat.

In addition to the foregoing madness, brokers are often complicit in these sorts of crimes through their booking of client shares as “long” when they are in fact “short”. This is where the practice moves from a regulatory gray area to conduct worthy of prison time.

Naked short selling was officially labeled illegal in the U.S. and Europe after the 2008/2009 financial crisis.

Making it illegal didn’t stop it from happening, however, because some of the more creative traders have discovered convenient gaps between paper and electronic trading systems, and they have taken advantage of those gaps to short stocks.

Still, it gets even more sinister.

According to Christian, “global working groups” coordinate their attacks on specifically targeted companies in a “Mafia-like” strategy.

Journalists are paid off, along with social media influencers and third-party research houses that are funded by what amounts to a conspiracy. Together, they collaborate to spread lies and negative narratives to destroy a stock.

At its most illegal, there is an insider-trading element that should enrage regulators. The MO is to infiltrate a company through disgruntled insiders or lawyers close to the company. These sources are used to obtain insider information that is then leaked to damage the company.

Often, these illegal transactions involve paying off “informants”, journalists, influencers, and “researchers” are difficult to trace because they are made from offshore accounts that are shut down once the deed is done.

Likewise, the “shorts” disguised as longs can be difficult to trace when the perpetrators have direct market access to trading systems. These trades are usually undetected until the trades fail or miss settlement. At that point, the account will move the position to another broker-dealer and start the process all over again.

The collusion widens when brokers and financial institutions become complicit in purposefully mislabeling “shorts” as “longs”, sweeping the illegal transactions under the rug and off of regulatory radar. "