By Mark Faulk
Ten years ago, a groundbreaking documentary aptly titled The Wall Street Conspiracy (https://www.wallstreetconspiracymovie.com/) was released. Produced by Kristina Leigh Copeland, it told the compelling story of a handful of people who, beginning around 2000, uncovered and sounded the alarm about a nefarious but little known method of stock manipulation called naked short selling, which essentially created counterfeit stock shares, flooding the market and decimating the price of one company’s stock after another.
It goes like this: someone (usually a large hedge fund with billions in assets) places a “short sell,” a trading strategy where shares are borrowed from a stockholder’s brokerage account (without the stockholder’s knowledge or consent) and then sold into the market at current prices. They are essentially betting that the stock price will drop, and they’ll buy back the shares they sold at a discount and return them to their rightful owners, pocketing the profit. As strange as that might sound, it is perfectly legal.
But what if the broker for the short seller doesn’t find the shares to borrow? What if instead, the Depository Trust Company (DTC), who is in charge of matching up all stock sellers to buyers, doesn’t actually deliver the shares, or worse still, loans (https://www.forbes.com/2006/06/20/naked-short-selling-overstock-cx_lm_0621short.html?sh=5b18f5b16ac8) those shares to multiple short sellers, effectively flooding the market and decreasing the value of the stockholder’s portfolio?
As summed up by attorney Wes Christian in The Wall Street Conspiracy, “Your stock is being lent to this firm to that firm to this firm to that firm, and each firm gives the other an IOU, but at the end of the day, if everybody went and claimed their stock, and said, ‘give me my physical certificate,’ they would not be able to do it.”
Economist Robert Shapiro, also prominently featured in the groundbreaking 2012 documentary, said it even more succinctly: “So there are now two sets of shares representing the same share. Those shares appear electronically in both accounts. It’s the same share. One of them is a phantom share.”
Spoiler alert: As revealed in the first film, little or nothing was done to stop naked short selling before 2008, and most major banks, brokers, and hedge funds were just fine with the corruption, all getting a cut of the profit or collecting massive fees for facilitating the fraud. Plus, most of the companies being attacked (at least at first) by unscrupulous naked short sellers were smaller, start up entities, with hundreds of companies killed off in the first decade of the 21st century.
Then, during the economic collapse of 2008, the same major banks and brokers who turned a blind eye to naked short selling themselves became the victims of predatory naked short sellers. Already reeling from the global stock market collapse, they were further harmed when phantom shares flooded the market, driving their values down until they were in complete free fall.
The SEC, who had refused to help other companies and investors victimized by naked short sellers, suddenly moved at lightening speed to protect the same banks and brokers who were often involved in the fraud themselves. After enacting temporary bans (https://www.sec.gov/news/press/2008/2008-143.htm) on short selling the stocks of mortgage lenders Fannie Mae, Freddie Mac, and 17 major banks in July of 2008, it was then expanded to include nearly 800 financial firms. In 2009, Congress enacted new laws (https://abcnews.go.com/Business/story?id=8186474&page=1) to curtail some naked short selling, but even those measures have been loosely enforced at best.
The sequel to the film, titled The Wall Street Conspiracy ll: Down the Rabbit Hole (https://www.wallstreetconspiracyrabbithole.com/) will pick up where the original film left off. It will examine how the fraud that contributed heavily to the 2008 global economic meltdown has, like a cancer left untreated, continued to grow and even shape shift, threatening not just America but our entire global economies.
Why should we care? As Robert Shapiro put it in The Wall Street Conspiracy: “We need to remember that 40% of the shares on the American stock exchanges are held by public and private pension funds. So stock manipulators are reducing the pension of tens of millions of teachers, policemen, autoworkers, steelworkers, nurses, professors, America’s large pension funds. The market should determine whether a stock rises or falls, not stock manipulators.”
Over the next few months, we will break down the entire naked short selling fraud, and explain why, after 25 years of destructive Wall Street corruption, stock market reform activists are still fighting to protect small investors.
The sequel to The Wall Street Conspiracy, entitled The Wall Street Conspiracy ll: Down the Rabbit Hole, produced by Kristina Leigh Copeland, Joanie Klar, and Mark Faulk, is currently in pre-production. (contribute at www.wallstreetconspiracyrabbithole.com)
Mark Faulk is a longtime social justice activist, author, and filmmaker. He was the writer and field director for The Wall Street Conspiracy and is the author of The Naked Truth: Investing in the Stock Play of a Lifetime. He is currently at work on the docuseries Voices in a Jailhouse, due to be completed by spring 2023.
