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Comment by Railsify | Hacker News Reader

Were the shorts illegal? I keep seeing the accusation but I don't think it's possible to short sell a stock that you have not borrowed.

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It's possible; it's called naked short selling. The only reason people actually think it might have happened is because of widespread accusations on reddit. These accusations are financially illiterate and deluded conjecture, but they're stated with utter conviction so a lot of people find them convincing.

There isn't actually any evidence the named hedge funds were engaged in naked short selling. For the most part, people seem to misinterpret short interest and failure to deliver data as an indication naked short selling occurred.

It's definitely possible.

https://en.wikipedia.org/wiki/Naked_short_selling

Possible but would require a licensed broker to break the law. It's like check kiting but with the aid of a broker the broker would have to credit your account shares that do not exist.

> In May 2012, lawyers acting for Goldman accidentally released an unredacted document revealing compromising internal discussions regarding naked short selling. "Fuck the compliance area – procedures, schmecedures", Rolling Stone Magazine quoted Peter Melz, the former president of Merrill Lynch Professional Clearing Corp. as saying in the document.

> In May 2012

That's not long ago, and it's after the practice was banned. You think the banking industry has had an ethical epiphany and sudden love for regulations in the last decade?

What I think is that if you are going to make a very specific claim that fraud has occurred, you should back that up with some evidence that is similarly specific, not with a "well it could happen, it happened once before nine years ago!"

The "Regulatory enforcement actions" section lists a number of cases that "require[d] a licensed broker to break the law".

It's quite clear naked short selling is possible and thus happens sometimes. I'm very dubious it's the case in Gamestop's specific situation. My specific claim is "naked short selling is a thing that exists", which is readily provable.

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