Reprinted by AFH with permission from DealFlow Media

The Securities and Exchange Commission released its 35-page proposal to combat abusive naked shorting. First mentioned in an open meeting March 4, the written proposal was released on March 17.

The SEC describes abusive naked short selling as when a broker-dealer sells short without having stock available for delivery and intentionally fails to deliver stock within the standard three-day settlement cycle.

The proposal mentions a recent settlement enforcement action with hedge fund adviser and frequent PIPE investor Sandell Asset Management as an example of what not to do.

Though general anti-fraud provisions cover naked short selling involved in a manipulative scheme, the SEC puts forth the new proposal to "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."


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