Every now and then something connected to my day job becomes interesting to other people. The GameStop short squeeze is one of those things. David Hill wrote a great piece for The Ringer about it. It’s the story of a beach bum who made millions off the stock.
I was thrilled to be quoted in it explaining the difference between illegal naked short selling and what happened here.
Naked short selling is when you sell shares that you can’t confirm actually exist—essentially selling a promise you’ll get the shares from … someone. According to Sammy Azzouz, president of Heritage Financial Services and author of Beyond the Basics: Maximizing, Allocating, and Protecting Your Capital, this used to be fairly common. “The SEC banned the practice in 2008 as a result of the financial crisis and run on financial-related stocks that some say sharpened the market turmoil,” Azzouz says. “The problem is that naked short selling can cause the short bet against a company to be larger than the shares available in the market. It facilitates manipulation in stock prices since the short bet is not connected to the amount of shares available.”
If this sounds a lot like what was happening to GameStop, well, that’s because it is. To the SEC, though, there’s a distinction between selling a share you don’t own and selling the same share over and over. “The rules have some loopholes,” Azzouz says.
The Ringer is one of my favorite websites and podcast sources.
Check it out – The Beach Bum Who Beat Wall Street and Made Millions on GameStop by David Hill.
Suggested Further Reading
News and Appearances – for other recent articles
My Book – for more about my book that was referenced in the article