Farmersfan
09-22-2011, 09:17 AM
People have a lot of different reasons for why the stock market failed so miserably a few years ago and why it continues to struggle at times to this day. I have recently started devoting some time to trying to get to know how the OTCBB markets works because I felt that if Joe Blow could make millions here why couldn't someone like me do it also. Weighing the "What's right" vs the "What wins" attitude these days seems like a exercise in futility. A honest and moral person is far too often left in the dirt these days while the people willing to push the envelope and walk on the edge are the ones reaping the huge windfalls. My recent ventures into the penny stock or Over-The-Counter market revealed something to me that really sticks in my craw. Naked Short Selling! A lot of critics blame short sales as a major cause of market downturns, such as the crash in 1987 and 2008. Short selling has an even darker side because of a percentage of short sellers who are not above using unethical tactics to make a profit. It occurs when short sellers manipulate stock prices, usually on the OTCBB and Pink Sheets, by taking naked short positions (where they sell the stock without actually owning it) and then using a smear campaign on chat rooms to drive down the target stocks, where they then buy the stock at a big price differential from where they sold it short. Short selling is a tremendous problem on the OTCBB and the Pink Sheets, and one that doesn’t seem to have a good solution. My question is why would this be allowed in America? I know the Frankfurt exchanged made it illegal last year and several other exchanges are well on their way to preventing this. Seems to me the practice of selling something you don't already own should be considered fraud. These stocks are actually representative of ownership shares of a actual business/company that people devote their lives to and millions put their hard earned money into. Why would it be allowed for a company or individual to take a short position in this stock and then intentionally drive the price down in order to make a profit? How is this any different than someone intentionally doing something in your neighborhood to drive down your home value so they could buy it for a lesser price? When a person takes a long position in a stock they anticipate a positive gain in the value of the company which will benefit everyone involved, from the janitor of the company to the CEO. A downward movement of this stock harms all equally. But when the Short Sellers benefit from the movement of this stock price it is at the expense of everyone else involved. Their profit is dependant on everyone else losing money. They require that someone puts their hard earned dollars into the stock at a higher price so they can take that excess money for their profits. It seems to me to be a scam and I cannot think of a single logical reason why the SEC has not made it illegal. But we are talking about the SEC here! I recently (2 years ago) invested in a startup company that apparently sidestepped some SEC rules and got investigated. The SEC decided that the investors were not being served properly so they shut this thing down and hired a receivership company (lawyer) to gather all the assets to repay the investors. 2 years later the receivership company is still working on gathering the assets and is still billing for their time to the extent that now the total dollar value of every penny ever invested in this company would not cover the cost of the lawyers. In other words the SEC turned over the company to the Lawyers and said get what you can and keep what you get. All for the sake of the poor investors that were going to lose their money! OH yea! There was a 2 million dollar SEC fine that got paid first......................... Based on my research it appears that there is never an incident where the SEC shuts down a publicly traded company for rules violations where the investors ever got more than .5 on the dollar of their money back. The rest was eaten up by fines and lawyer's fees. Kind of hard to see where the SEC is serving the needs of the poor investors in this isn't it?