Short Selling

Bearish bets on Nasdaq stocks reached a record high as of mid-September. The number of Nasdaq shares sold "short" -- stock borrowed and sold, usually in a bet that the price will decline -- rose to 7.35 billion as of Sept. 15, up 1.2% from the level in mid-August, the Nasdaq Stock Market said Tuesday. It was the sixth increase in seven months and signaled continued expectations on the part of many traders that the market would head lower.

A onetime con man and a veteran newspaper reporter launched a partnership eight months ago that they hoped would be a new model for business reporting. Barry Minkow and Bill Lobdell said they would pay for their work sniffing out financial fraud by betting against the stocks of the companies they reported on. If they proved improprieties, they would profit by holding short positions in the companies — allowing them to make money when stock prices declined. But the short-sell-to-success model collapsed just a few months after their website, iBusinessReporting.

"Short selling" can be intended as a bet that a stock or market index will go down in price in a specified period, or it can be used as a "hedge" by investors seeking insurance in case the market falls. Short selling is the reverse of the more typical buy now, sell later approach--also known as "long" investing--that most people use. In a short sale, a trader borrows a security (or currency) from a brokerage and immediately sells it on the open market.

Former executives at Bear Stearns sought Wednesday to blame the Wall Street firm's 2008 collapse on an unpreventable "run on the bank" by customers, but an ex-chief executive told lawmakers that the firm had taken on too much risk with excessive borrowing. Five former leaders of the defunct firm, testifying before a federal commission investigating the causes of the financial crisis, contended that Bear Stearns was not insolvent, or even close to it, when it was acquired in March 2008 by rival JPMorgan Chase & Co. "I was shocked beyond belief that we failed," said former Bear Stearns Chief Executive James Cayne.

"Short" sellers--traders who believe stock prices are going lower--continued to raise their bets in that direction in the 30 days ended Nov. 15, the New York Stock Exchange said Tuesday. The number of NYSE shares sold short rose to a record 4.59 billion as of Nov. 15, up 2.1%, or 96.6 million shares, from mid-October, the exchange said. On the tiny American Stock Exchange, the number of shares sold short jumped 5.3% to 212.9 million shares in the same period, Amex said.

Investors expecting a further drop in stock prices have stepped up their bearish bets in recent weeks, with the number of shares sold "short" on the Nasdaq Stock Market hitting another record. So-called short interest on Nasdaq rose to 3.61 billion shares as of March 15, up 5% from 3.44 billion as of Feb. 15, according to figures released Monday. Short interest represents the number of shares sold short by investors but not yet bought back. The total had declined in the 30-day periods ended Jan.

"Short" selling of New York Stock Exchange stocks fell slightly in the last month, a sign that investors may be hesitant to ramp up their bearish bets at a time when some sectors of the market are rebounding. As of Jan. 12, 4.728 billion NYSE shares had been sold short and not yet bought back, the exchange said Friday. That was down 3% from the total as of Dec. 15. The drop snapped a four-month string of record highs in NYSE short selling.

The San Francisco-based company announced that it has asked the National Assn. of Securities Dealer's market surveillance division conduct an investigation of possible stock manipulation practices by certain short sellers. Who the company said have caused a significant decline in the price of the company's common stock. The company conducts research and development in data and voice communications.

Federal regulators today may take their boldest steps yet to curb stock "short sellers" amid rising criticism over the practice of betting on lower stock prices. The Securities and Exchange Commission is expected to announce some kind of temporary ban on short selling, a person familiar with the matter said. The agency late Thursday was said to be considering a number of options, including a ban on shorting all stocks or limiting the ban to financial stocks.

"Short" selling of Nasdaq stocks dipped slightly in the last month, a sign that many traders may be reluctant to step up their bearish bets on technology stocks despite the sector's continuing slide. As of Nov. 15, 3.379 billion shares had been sold short on the Nasdaq Stock Market and not yet bought back, Nasdaq said Monday. That was down 0.2% from the total as of Oct. 15. In a short sale, a trader borrows stock from a brokerage and sells it.

Bill Lobdell made quite a name for himself in this newsroom writing about faith gone wrong. He called out crooked ministers, fraudulent faith healers and abusive priests. Now Lobdell has launched a new journalism website with a partner who once was convicted and sent to prison for a multimillion-dollar swindle. The veteran religion writer hopes to do to crooked businesses what he did to ministers who did not live up to their calling. What has many traditional journalists agog is not just that Lobdell threw in with onetime ZZZZ Best con man Barry Minkow, but what the duo, operating as iBusinessreporting.

Federal regulators made permanent an emergency rule aimed at reducing abusive short-selling, put in at the height of fall's market turmoil. The Securities and Exchange Commission's rule targeting "naked" short-selling had been due to expire Friday. Short-sellers bet against a stock. They generally borrow shares, sell them, buy them back when the stock falls and then return them to the lender, pocketing the price difference. In "naked" short-selling, sellers don't even borrow the shares before selling them.

Banks could get incentive payments for allowing borrowers to sell their homes at a loss rather than go through foreclosure under new guidelines issued Thursday for the Obama administration's $75-billion housing plan. The program, known as Making Home Affordable, focuses on paying lenders to modify distressed borrowers' loans so that payments are cheaper. But under this expansion of the program, lenders can also receive incentive payments if the homeowner's loan is not modified.

As doomsayers from Nostradamus to Cassandra have learned to their great distress, nobody likes a spoilsport. That seems to be the guiding principle behind the perennial complaining on Wall Street and Main Street about the practice of "short selling." The prevailing opinion can be summed up as this: Nasty creatures, those short sellers -- always looking at the dark side, raining on every parade.

New York Atty. Gen. Andrew M. Cuomo is broadening his investigation of short selling on Wall Street, according to a senior official in his office. Cuomo is turning to the massive credit default swap market, which he believes may have been manipulated to give the impression that certain companies were in trouble.

East West Bancorp Chief Executive Dominic Ng will tell you that his Pasadena bank is in about the same financial condition as two months ago: some loan problems, but a high net worth and a solid base of deposits. East West's stock price is another matter, though -- trading at less than $8 a share in mid-July, it closed at $17.65 on Friday. Ng believes the recovery is due almost entirely to the Securities and Exchange Commission's moves against short sellers.

After the collapse of Enron Corp. in 2001, Wall Street "short sellers" were hailed as heroes for helping to expose the company's massive accounting fraud. Seven years later, the "shorts" -- traders who borrow stock and sell it, expecting to profit from falling prices -- are the reviled black hats of global markets.

Federal regulators today may take their boldest steps yet to curb stock "short sellers" amid rising criticism over the practice of betting on lower stock prices. The Securities and Exchange Commission is expected to announce some kind of temporary ban on short selling, a person familiar with the matter said. The agency late Thursday was said to be considering a number of options, including a ban on shorting all stocks or limiting the ban to financial stocks.