On May 20, 2008, WLF filed formal comments with the Securities and Exchange Commission (SEC), urging it strengthen its enforcement efforts against so-called “naked” short selling under its current legal authority rather than adopt a rule that would likely be ignored or misapplied. WLF argued that the SEC has been lax in enforcing abusive short selling practices, particularly those that are conducted in concert with plaintiffs’ class action attorneys who sue the targeted company. In the case of “naked” short selling, the short seller does not even have possession of the security that is being shorted, and further fails to deliver the stock within the normal three-day settlement period. In essence, WLF argued, the shorted shares are counterfeit or phantom shares that harm the purchaser, the targeted company, and the market as a whole.
