Naked Short Selling Alleged In Lehman Collapse

Uh-oh, the ultimate stock market dark conspiracy — the shadowy cabal of naked short sellers — may have played a role in the collapse of Lehman Brothers last September. At least that’s what Bloomberg, not typically a venue for peddling crazy theories, has concluded.

As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.

“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.'” Read the whole thing >

According to their research, on two occasions, major failures to deliver shares coincided with with rumours of the company’s demise. In his testimony before the house. Dick Fuld blamed naked shorting and rumour mongering for the company’s bankruptcy — the result was that he got slammed for not being contrite enough.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.