Economist Robert Shapiro tells how he fought SEC on naked short selling

By Lucy Komisar, Aug 18, 2021.

Democratic Party insider Robert Shapiro, an economist who was a top advisor to the campaign of Bill Clinton, served as his undersecretary of commerce, and then advised the Democratic nominees after him, breaks with establishment economics to target the corruption of naked short selling.

See his interview with me.

The video on Superstonk.

The Podcast

Robert Shapiro, now 72, grew up in Baltimore, where his father ran an international metals brokerage, buying and selling non-precious specialty metals, and his mother was a housewife and charity volunteer. In the political sixties, Shapiro attended the University of Chicago to study metaphysics. He recalled, “Student activism had a big effect on me. That was the era of Watergate and Vietnam.”

He recalled, “I decided to study economics, since I wanted to be involved in public policy, and the way to be valuable in public policy is to understand better than anyone else the things that are of interest to everyone else. What everyone cared about was money.” He went to the London School of Economics and to Harvard, where he got a PhD in political economy.

Then he moved to Washington D.C. He would be the economic advisor to New York Senator Daniel Patrick Moynihan and end up running his legislative operation. For two years he was senior writer on macroeconomic policy for U.S. News & World Report. He left to run the economic policy side of the Michael Dukakis presidential campaign. Then he co-founded the Progressive Policy Institute, a think tank to develop progressive policies that didn’t depend on central bureaucracies.

Robert Shapiro on the Superstonk video.

Through that organization he became close to Bill Clinton and was chief economic advisor in his presidential campaign. In Clinton’s second term, the President asked him to join the administration, and he became Undersecretary of Commerce. Shapiro would later be senior economic advisor to Vice President Al Gore and Senator John Kerry in their presidential campaigns.

In 2001, he started Sonecon, an economic policy consultancy that advises corporate executives and government officials as well as non-profit organizations. In addition to finance, his focus there is climate change and intellectual property.

Not long after lawyer Wes Christian started looking into naked short-selling scams in 2002, he contacted Robert Shapiro. He thought, “He was deeply embedded in the Democratic Party and would be able to influence a lot of senators and congressmen.”

Christian and a colleague went to see Shapiro in his Pennsylvania Avenue office. Shapiro recalled, “They asked me what I knew about naked short selling, and I said ‘nothing’.”

Christian told him, “This could be the largest commercial fraud in U.S. history. We think it’s doing terrible damage to a lot of companies.”

Shapiro was quite skeptical. He said, “It seemed to me if it had the kind of impact they were describing that this would have not have gone unnoticed, and I would know about it, and there would be a lot written about it, and that wasn’t the case.”

Christian had brought boxes of documents from lawsuits he had filed. He recalled, “Rob would look at the papers like typical accountants look at things; he would look at them forever. He has such a methodical way of drilling you on questions and making you give him more detail. It was an exhaustive process. He’d ask me ten times as many questions as I had posed to him. At the end of the session, which lasted several hours, he said, ‘Something’s not right here. Something bad is going on, that’s for sure.’” Christian asked him to research the issue. He told him, “We think you’ll come to see it as we see it. This is something that has slipped through the cracks.”

After more than six months of looking into the matter, Shapiro came to agree. He found huge numbers of shares sold short that far exceeded the available shares to borrow or would have made the shares to borrow so expensive as to economically preclude it, and yet there was outstanding short interest, (shares sold short and not yet delivered), equal to 60 to 100 percent of some outstanding shares, the “public float,” which are the shares available for buying, selling, and borrowing.

He told Christian that “500 million to 1 billion dollars in shares are sold but not delivered every day between all exchanges. This is systemic,” he said, “and involves thousands of companies.”

Shapiro said that “massive fraud” was represented by the large fails in ex-clearing, moving buys and sells without going through the DTCC, the way the Badians did it.

He concluded, “It was clear this was a widespread phenomenon, and it had some significant effect.” So, he became very involved. Christian filed court cases and Shapiro focused on policy.

Since the time Shapiro began investigating the matter, the SEC has put new regulations into effect to deal with naked short selling. If you take the agency’s word for it, those regulations solved the problem. They don’t deal with the fails Shapiro discovered that don’t show up at the DTCC, because they are ex-cleared.

He challenged the SEC at a hearing where the person in charge cut off his microphone.

In this interview he explains that, and much more.

The Video.

From Superstonk: AMA Navigation Links | Dr. Robert J. Shapiro & Lucy Komisar

As these AMAs can be pretty lengthy, and not everyone has time to sit down for an hour, please find some navigation links below that you can use to watch the relevant section of the recording.


YouTube link here

5:52 – Intro – Who is Dr Robert J. Shapiro

6:26 – How Robert got involved with naked short selling

13:00 – Background on previous legal case work with Wes

16:45 – Stock Loans and Naked Short Selling

23:12 – SECs role in the 2008 financial crisis

29:48 – Why the DTCC “attacked” Robert & SEC/DTCC regulatory capture

34:18 – Robert’s take on GameStop

40:38 – Robert’s take on what the SEC Chair, Gary Gensler & Congress should be doing

49:20 – Ex-clearing, dark pools and OTC – an escape route

1:00:18 – SROs & Systemic Risk


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5 Responses to "Economist Robert Shapiro tells how he fought SEC on naked short selling"

  1. Daryl   Nov 29, 2021 at 10:32 am

    The short selling scam identified above continues.

    G.S. was fined 3 times within 1 year in Korea for illegal short selling. G.S. placed a short sell order via Seoul branch for 350 stocks (per Apr 9, 2019 article by Jhoo Dong-chan, Korea).
    It does demonstrate a likely reason for the 900 point Dow drop on 26 Nov 2021 – when big brokerages/market makers are allowed to manipulate the Dow thru massive “legalized fraud”/short selling. The manipulation thru short selling on Boeing stock is blatant. It seems sad that Korea does a better job of policing the stock market than the SEC in U.S. .

  2. DANIEL BROOKS   Jan 20, 2022 at 2:27 pm

    I want to know what we can do about it ?

    We know its happening, How do we stop it.

    If you are not part of the solution you are part of the problem IMHO

    Daniel Brooks

    LK: Raise the issue publicly as I and Robert Shapiro are doing. Bring pressure on the SEC and Congress to change the rules, including requiring a hard locate for stock loans and a buy-in by sellers. Serious penalties for lawbreakers, including criminal penalties for recidivists.

  3. Juan Gonzalez   Sep 8, 2022 at 5:48 pm

    Interesting information here. But tell me, what else could be done to force the SEC to be more proactive here? I currently have a position on AMC / APE as well as thousand others and it appears there is indication of naked short selling going on here. Are there any legal actions we can utilize to force the SEC to look into this issue and attempt to force any positive change?

    LK: Any person may request that the Commission issue, amend or repeal a rule of general application. Petitions must be filed with the Secretary of the Commission. Petitions must contain the text or substance of any proposed rule or amendment or specify the rule or portion of a rule requested to be repealed. With a lawyer and lots of support/$$ you can also file suit. Search online: “Sue the SEC.”

  4. Daryl Olson   Nov 7, 2023 at 2:01 am

    Hello Ms. Komisar,

    You do good work on addressing stock market corruption/fraud, etc.
    I sent below comments to AARP magazine and bulletin regarding exposing/stopping shorting (selling fake/unowned shares) to steal trillions from retirees/investors. GS and FINRA are listed on AARP site (and 6 corporations control the media), so doubt they will publish it. I later sent copies to NY Senator Schumer, SEC Ombudsman (response received), and GA DA Willis (since GA has state RICO Act that could be useful to prosecute the manipulation/fraud). If enough exposure maybe someday the shorting fraud can be stopped?! I didn’t see a newer article to attach as comment, so listed here. Thanks.

    Tue, Oct 17 (2023) at 12:02 PM
    Subject: Suggest Article on Stock Market Shorting Manipulation/Fraud2

    Hello, I submitted article below to AARP magazine and to AARP bulletin yesterday.
    I received a response suggesting to send to if freelance
    writer. I think stock market shorting/fraud is one of the biggest scams impacting retirees/
    investors by taking trillions thru stock market manipulation. Six corporations
    (some directly tied to market makers shorting stocks) control most of media, so
    the issue is mostly ignored. I’m hoping AARP editors will realize the impact on retirees
    and have enough media independence to authorize this story (or at least address the fraud/
    issues below in a similar story). Thanks.

    Can Public Exposure (Thru AARP) Force Congress/DOJ/SEC to Stop Huge Ongoing
    Fraud/Theft Stealing Trillions from Retiree Savings in Stock Markets?

    1. Why is the SEC still allowing Market Makers basically to sell unlimited amount of fake shares (naked shorting) aka Bernie Madoff exception? It is one of the biggest swindles in modern times – stealing trillions from lifetime savings of millions of retirees and investors?

    2. Investors are often being sold/receive fake shares (example, Gamestop/GME had over 140% of shares sold/shorted.
    a. It dilutes share value by increasing quantity of shares in existence.
    b. The market makers/brokerages are allowing fake shares to be manipulated into the market.
    Some investors receive fake shares and have a loss due to trading fraud (shouldn’t they be allowed to cancel their trade and receive back initial investments – plus damages?).
    c. Selling unlimited fake shares forces stock prices down.

    3. It is not investing, but a rigged market (guaranteed profit/scam) when market makers can buy put options (bet on stock price decline), then use a negative algorithm (algos – automatic trading program) to continually sells stocks short at a lower price. It increases the profit on their put option as well as increasing profit from their short sale. It is manipulating stock prices and a violation of SEC rules. However, when SEC fails to enforce security fraud laws, then it results in huge profits with no jail time and only token fines compared to billions pocketed daily.

    4. SEC said in May 2010 a need for audit tool to review historical trading data for fraud, naked shorting such as in 2008 crash. However, on Jul 13, 2022 the SEC announced another 2 year delay before implementing audit feature (now 15 yr delay). The stock market was clobbered shortly after that delay extended free fraud (naked shorting without audits) for 2 more years.

    5. Another big problem is brokerages are unbelievably allowed to sell short shares they don’t own. They borrow or pretend to borrow shares to sell that they don’t own to manipulate prices down. It is illegal to sell fake real estate (to manipulate prices lower), so why is it allowed to sell unowned stock market shares to manipulate prices down?

    6. There is a fairly simple solution that SEC has avoided, but needs to implement to stop the manipulation thru selling fake/unowned shares. Simply require listing stock serial numbers on all initial stock shares. Each trade has to list the serial # of all shares in that trade to validate real shares. The trader and trade time would be included. The stock with those serial numbers would have to be bought before they could be sold again. The NYSE/SEC/FINRA could run a scan at end of each day to identify fake shares traded, and prosecute the fraud. Fail to Delivers (FTDs) generally are a “tell” of selling fake shares and prosecution would reduce the fraud.

    7. I’ll list Boeing (symbol=BA) as a stock I follow as an example of the extensive shorting manipulation/fraud by market makers. BA is likely just one of hundreds of stocks manipulated. (Lucent and Diamond Offshore are 2 stocks I’ve owned that appeared to be naked shorted out of existence in the past.)

    a. The BA daily stock chart trading patterns document the manipulation. Almost every day for past 2 months a negative algorithm seems to be put on shortly after open to force prices lower – even on days when large plane sales should move BA a lot higher. BA hit recent 52 week high of $243 on 31 Jul 2023. It was manipulated down to below $185 on 13 Oct 2023 or a $58 decline from $243. There are almost 600 million shares of BA time $58 drop per share = over $34 billion decline since 31 Jul. That amount doesn’t include the billions of dollars made thru buying put market makers/hedge funds/etc.

    b. BA hit $278 in March 2021. It was manipulated down to $113 on about 13 Jun 2022 (almost 600 million shares of BA times $165 drop= about $100 billion decline). This doesn’t include billions of $ made thru put option trades tied to the drop.

    c. The shorting needs to be banned as estimates of 70-90% of shares traded are
    fake/unowned shares (naked short/short). A perfect example is Jan 20, 2022 where large
    amount of BA puts were bought expiring the next day (21 Jan) and then the stock
    dropped 14 points in 1 day for no reason – collusion for guaranteed profits.
    The latter part of May 2022 had large amount of BA 17 Jun puts bought. The DOW
    dropped 1,000 points on 13 Jun (BA dropped over 11 points that day). Most of these
    so called “corrections” are nothing more than widespread shorting manipulation/fraud.

    d. BA rose almost 6 points on 28 Sep. That day tens of millions of dollars bought BA puts
    (19 of 20 largest BA option trades were puts). BA had good news on 29 Sep with a
    $5.6 billion plane sale and $2.8 billion more in options – at list. However, BA dropped
    $8.11 on 29 Sep. I’ve forwarded this clear manipulation type data to oversight agencies
    (SEC, AG, DOJ, FBI, Congress), but still no action stopping the fraud.

    8. Look at the recent $1.8 billion fines paid by 16 brokerages to SEC. Why weren’t the
    times of the hidden communications (using “whats app”) tracked back to the brokerages/
    traders to try to identify the stocks being manipulated thru offline collusion. Why weren’t the
    stolen billions/trillions returned to retail investors. The SEC lesson is steal at will and no
    jail time if caught and maybe pay pennies on the dollar for fraud.

    9. According to FBI, banks lost estimated $482 million to bank robbers in 2019. Market
    makers/hedge funds shorting seem to average stealing more than that in 1 day – and with
    no jail time if caught. Crooks must be not too bright if still robbing banks when open
    season on stock market theft?! Why is shorting still allowed?

    10. Frank Nez blog has several interesting articles: “How Do Hedge Funds Manipulate the Stock Market” Feb 8, 2023. His blog lists link to FINRA data with 114 incidents (violations?) of security laws by Barclays (which is said to be clearinghouse for Citadel) – where they pay a fine and say they won’t do it again, but have 113 other violations. Why hasn’t DOJ shut them down? One violation involved Barclay traders using “whats app” to hide their trade discussions (short collusion?!).

    11. Lucy Komisar (The Komisar Scoop) is another excellent blog site that has shed light on the shorting fraud – with articles such as Marc Cohodes: shady deals in Overstock trades, Goldman and Citadel – Sep 27, 2021 (I left 2 comments after her article discussing my submission to Fed and to SEC on stock shorting fraud, and their reaction/failure to act.)

    12. Six corporations are identified as controlling 90% of U.S. media. They generally fail to address massive stock shorting manipulation/fraud, which allows it to continue, since extremely profitable and several financial ties to the market makers/hedge funds.

    a. Murdoch media was sued for knowingly providing false information about 2020 elections and paid out about $800 million in 1 claim. Murdoch media (WSJ, Barron’s, Investors Business Daily, etc.) seem at a minimum to provide cover stories for the short attacks on stocks, and at worst appear at times to be putting out stories to coordinate the short attacks (after exposure of Barclay’s use of “whats app” to avoid records of stock discussions – ie collusion on shorting/manipulation?).

    b. For example, the headline below seems to imply: ignore good BA news and continue the attack on BA. “Boeing Stock Rises Amid Big 787 Order But Remains In Sharp Decline” by Aparna Narayanan – Investors Business Daily (Oct 3, 2023)

    13. There is a saying in Vegas that the tourists bet the favorites and the “house” cleans up
    by betting the dogs (refs often seem to help the dogs cover).

    The public buys stocks, but the big brokerages/hedge funds seem to clean up by selling
    short fake/unowned shares (naked shorting/ shorting), which manipulates the market
    against the public interest. The SEC failure to act ensures market makers, hedge funds,
    and Congress(?), etc., become rich.

    14. There are many issues that need cleaned up
    a. Ban short selling stock by everyone – including by market makers (often huge shorts at
    open and close).
    b. Enforce laws against market manipulation used in “wash sales” thru algo trading.
    c. Ban dark pools (hiding trades from retail investors, which allows market makers/big
    brokers to front run trades).
    d. Crack down on brokerages/media manipulating “news” by repeating, making up, or
    hiding stories, as well as using a “front man” to direct stock prices up or down. (One media
    site “reporter” seems to do weekly hit pieces on Boeing while ignoring positive news.)
    e. Ban payments for order flows (used to steal money by not offering best price to retail investors).
    f. Enforce actions against blatant stock option expiration price manipulation thru algos, shorting, etc.
    g. Ban synthetic shares as shorts. (SEC allowing owning same qty of puts and calls
    at same date & strike price to create a synthetic share. SEC then allows exercise/sell the puts
    as a naked short sale without exercising the calls (not actually buying the shares).
    h. Ban derivatives used to manipulate stock prices.
    i. Hold repeat offenders (Goldman Sachs, Citadel, Barclays, etc.,) accountable with jail time
    and return stolen money to retail investors.

    Are retirees/investors powerless to stop the ongoing swindle of trillions from investors?

    • Lucy Komisar   Nov 7, 2023 at 11:52 am

      Pretty good summary of what has to be done!


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