The collapse of the U.S. financial system has thrown the economy into a tailspin, but if there was one positive aspect to come out of the crisis, it is the renewed focus on naked short selling. The Securities and Exchange Commission recently issued an emergency order to limit the short selling of 19 major financial institutions.
While the naked short ban may finally be the wake-up call to the SEC that many have been hoping for, other victims of illegal short selling are still waiting for stricter enforcement promised by Regulation SHO. Small companies with emerging technologies have been made extremely vulnerable to market manipulation, bearing the brunt of the damage.
No one understands more about the negative impacts of naked short sellers than Robert K. Lifton, CEO of Medis Technologies Ltd. (NASDAQ: MDTL). Medis, which develops an innovative fuel-cell power pack, has had the dubious distinction of being the top naked shorted stock, both in price decline and length of time.
“Predatory short selling can more easily destroy those smaller companies,” Lifton says. “It’s those companies that help create the new technologies that our country needs in order to compete successfully on today’s highly competitive playing field.”
Medis, for example, has created what Lifton calls “the most advanced consumer fuel-cell product ever known in history.” The power pack provides a longer battery life for most portable consumer electronics such as cell phones, laptops, and media players.
The company has been on the list of the top naked shorted stocks for more than 750 days and counting. What’s worse, shares of Medis were once trading as high as the mid-$30s as early as two years ago, but they have since plummeted to the mid-$3 levels.
“If short selling can destroy those companies, that hurts America’s opportunities to compete in the marketplace,” Lifton says. “Those small companies are the ones that create jobs as they get larger.”
Lifton has suggested that the SEC require proof that shares can be borrowed, the reporting of substantial short positions, and reinstatement of the Uptick Rule. “We hope that the SEC will take these actions and start enforcing them vigorously,” he says. “We hope that the realization that the general public, the regulatory authorities, and the financial communities realize that what happened to companies like Bear Stearns, Lehman, and other financial institutions has been happening for a long time to small companies like Medis.”
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