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SEC seeks to curb naked ambition

The SEC has amended legislation in a belated effort to clamp down on naked short selling. But it remains under pressure from a lobby group that ranges from senators to lawyers, and management to shareholders, who believe the new rules are having little effect.

Toxic funding

Donaldson: the SEC chairman is under
mounting pressure to prove that new
rules on naked short selling are working

ON JANUARY 24 this year, Anthony Elgindy was convicted in Brooklyn Federal Court on charges relating to a naked shorting scam that affected more than 100 penny-stock companies. Between 1999 and 2002, Elgindy had been running a subscription website for hedge funds and brokers that invested in shares traded over the counter or on the pink sheets. On the website, Elgindy established a message board where he posted price-sensitive, non-public information provided by an FBI agent, Jeffrey Royer, on the penny-stock companies and their executives. Elgindy and his subscribers could then naked short the company's stock, before information was made public, making thousands if not millions of dollars in the process. "The whole purpose was to discredit the companies," alleges one source familiar with the trial. "Some attorneys were also involved in the scam, issuing class action lawsuits against the companies to hit them harder, make them unable to get financing, and eventually forcing them to be delisted." 

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