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Although Short Selling Is Legal, Why Naked Short Selling is Illegal with Consequences

Palm Beach, FL – May 18, 2023 – News Commentary –  While Short Selling a stock is legal in most markets Naked Short Selling is not. Short-Selling a stock is profitable if the stock in question drops in value. Traditional investing involves buying a stock and hoping to sell it later at a higher price. Short-Selling involves borrowing and selling a stock now and hoping to buy it back later at a lower price. Technically, Short-Selling involves first borrowing shares held by other investors. That party can then sell those shares. At a later date, the shares need to be repurchased by the Short-Seller, and then returned back to the original owner who lent them.  A recent article in Seeking Alpha explained: “Naked short selling involves the short selling of shares that do not exist. It is illegal—the legal way to short sell is to first borrow the shares before selling and opening up a short position. Naked short selling, or naked shorting, is the process of selling shares of an investment security that have not been confirmed to exist. In contrast, conventional short selling begins with an investor borrowing shares. Naked shorting is done without having first borrowed the shares, hence the “naked” moniker.  Naked short selling is not legal in the United States. A seller of a security is required to deliver shares of the security to a buyer promptly at settlement. Since naked shorting involves the selling of shares that do not exist, or have not been borrowed, a scenario is made possible where the seller fails to deliver the equity security to the buyer at settlement. Put simply, if shares are not available to “cover” a short sale, the short position is said to be naked.”  Active companies in the markets this week include ShiftPixy, Inc. (NASDAQ: PIXY), AMTD Digital Inc. (NYSE: HKD), AMC Entertainment Holdings, Inc. (NYSE: AMC), GameStop Corp. (NYSE: GME), Beyond Meat, Inc. (NASDAQ: BYND).


The article continued: “Naked short selling differs from normal short selling because naked shorting involves the selling of shares without having first borrowed the shares. Thus, the naked short seller is selling shares they do not own, and shares that aren’t confirmed to even exist. If the seller is required to close their position, there are no borrowed shares to return to the original owner. This may result in the failure to deliver the shares.  The SEC’s primary objective is to protect the interests of investors. It’s this objective that led the SEC to ban the practice of naked short selling in the U.S. after the financial crisis of 2008. As explained in Regulation SHO, naked shorting creates a risk of “fails to deliver” (FTD). This is because naked short selling is done without first borrowing shares. Thus, if a naked short seller is required to cover or close out their position, and shares are not available, the seller will fail to deliver the shares to the buyer.  The Commission’s concern is that persistent and large-scale failures to deliver can deprive shareholders of their rights of ownership, such as voting. Furthermore, an FTD on the settlement date may create an additional risk of stock price manipulation.”


ShiftPixy, Inc. (NASDAQ: PIXY) BREAKING NEWS:  ShiftPixy Initiates Investigation of Suspicious Trading Activity in Its Stock Leveraging New Data and Legal Framework ShiftPixy (“ShiftPixy” or “the Company”), a Miami-based national staffing enterprise which designs, manages, and sells access to a disruptive, revolutionary platform that facilitates employment in the rapidly growing Gig Economy, today announced it has engaged a registered broker dealer to review PIXY trading data and collaborate in filing FinCEN 314(b) suspicious activity reports (“SAR”) on its behalf.  Section 314(b) of the USA Patriot Act provides financial institutions with the ability to share information with one another, under a safe harbor that offers protections from liability, in order to better identify and report activities that may involve money laundering or terrorist activities. Information sharing pursuant to Section 314(b) is voluntary, and FinCEN strongly encourages financial institutions to participate.  The process can yield a number of useful outcomes:


  • Shedding more light upon overall financial trails, especially if they are complex and appear to be layered amongst numerous financial institutions, entities, and jurisdictions.
  • Alerting other participating financial institutions to trading entities of whose suspicious activities they may not have been previously aware.
  • Facilitating the filing of more comprehensive SARs than would otherwise be filed in the absence of 314(b) information sharing.


Section 314(b) and its implementing regulations impose no limitations on the sharing of personally identifiable information under the Section 314(b) safe harbor when otherwise consistent with Section 314(b) and its implementing regulations.  Nor do Section 314(b) or its implementing regulations impose restrictions on the type or medium of information that can be shared in reliance on the Section 314(b) safe harbor, such as video surveillance footage or cyber-related data such as IP addresses.  Section 314(b) information sharing can likewise be verbal as well as written.  Financial institutions and associations of financial institutions must maintain adequate procedures to protect the security and confidentiality of all information shared pursuant to Section 314(b) and only use such information for the purposes laid out in Section 314(b) and its implementing regulations.


ShiftPixy’s CEO Scott Absher said, “I have been tracking naked short selling patterns since we first listed.  We are now seeing algorithmic trading running wild as these trades appear to be run through a black box that is out-of-compliance with Regulation SHO and the Fair Market Making Requirement.  We are able to track trading activity in real time with Level ll data and DTC weekly reporting, and can now track the registered market makers conducting these trades, either as a proprietary transaction, on behalf of a client or via a sponsored or market access agreement.”  Mr. Absher went on to say, “We will be among the first to correlate monthly market maker share volume, daily short volume and share imbalance data within this legal framework strategy to identify and uncover suspicious trading activity on which we can follow up with appropriate legal action.”  CONTINUEDRead this and more news for ShiftPixy at:


In other developments in the markets:


AMTD IDEA Group, together with its subsidiary, AMTD Digital Inc. (NYSE: HKD), recently announced that the Singapore Building and Construction Authority (BCA) has granted us the License Permit to display and showcase “DAO AMTD” signage on top of the DAO by Dorsett AMTD Singapore.


The latest development serves to demonstrate our unwavering commitment to Singapore as the headquarters of AMTD Digital and to further showcase our brand values in the hospitality industry.  The DAO by Dorsett AMTD Singapore is strategically located in the vibrant central district of Singapore, offering luxurious accommodation to business and leisure travellers alike. The hotel also features high-end amenities and facilities that cater to the discerning taste of guests. With the display of the “DAO AMTD” signage, our guests can now easily identify and locate the hotel from a distance, making their travel experience seamless.


AMC Entertainment Holdings, Inc. (NYSE: AMC) (NYSE: APE) recently announced plans to bring Laser Projection by Cinionic to its premium large format (PLF) brand, PRIME at AMC®. The initiative, which is set to begin later this year, brings next-generation laser technology from the leader in laser cinema, Cinionic, to all PRIME at AMC locations throughout the United States.


PRIME at AMC is AMC’s native PLF brand and combines immersive sound, luxury seating, and large format presentation. Laser Projection by Cinionic elevates the premium cinema experience for audiences. Upon completion of installation of Laser Projection by Cinionic, the PRIME at AMC auditoriums will feature high contrast Barco 4K laser projection, delivering brighter and more vivid onscreen images that stay consistent over time.


GameStop Corp. (NYSE: GME) recently released financial results for the fourth quarter and fiscal year ended January 28, 2023. The Company’s condensed and consolidated financial statements, including GAAP and non-GAAP results, are below. The Company’s Form 10-K and supplemental information can be found at


FOURTH QUARTER OVERVIEW WAS: Net sales were $2.226 billion, compared to $2.254 billion in the prior year’s fourth quarter; Selling, general and administrative (“SG&A”) expenses were $453.4 million, or 20.4% of sales, compared to $538.9 million, or 23.9% of sales, in the prior year’s fourth quarter; Net income was $48.2 million, compared to a net loss of $147.5 million for the prior year’s fourth quarter; Inventory was $682.9 million at the close of the period, compared to $915.0 million at the close of the prior year’s fourth quarter, reflecting the Company’s ongoing focus on maintaining a healthy inventory position; Cash, cash equivalents and marketable securities were $1.391 billion at the close of the quarter; and Long-term debt remains limited to a low-interest, unsecured term loan associated with the French government’s response to COVID-19.


Beyond Meat, Inc. (NASDAQ: BYND) recently reported financial results for its first quarter ended April 1, 2023.  First Quarter 2023 Financial Highlights Were: Net revenues were $92.2 million, a decrease of 15.7% year-over-year; Gross profit was $6.2 million, or gross margin of 6.7% of net revenues, compared to gross profit of $0.2 million, or gross margin of 0.2% of net revenues, in the year-ago period; Gross profit and gross margin were positively impacted by reduced manufacturing costs excluding depreciation, decreased logistics costs and, to a lesser extent, lower materials costs per pound, partially offset by lower net revenues per pound and higher inventory reserves, which increased costs per pound; Gross profit and gross margin included the impact from a change in the Company’s accounting estimate associated with the estimated useful lives of its large manufacturing equipment, which reduced COGS depreciation expense in the quarter by approximately $5.1 million, or 5.5 percentage points of gross margin, relative to depreciation expense utilizing the Company’s previous estimated useful lives; Net loss was $59.0 million, or $0.92 per common share, compared to net loss of $100.5 million, or $1.58 per common share, in the year-ago period; and Adjusted EBITDA was a loss of $45.8 million, or -49.6% of net revenues, compared to an Adjusted EBITDA loss of $78.9 million, or -72.1% of net revenues, in the year-ago period.


Beyond Meat President and CEO Ethan Brown commented, “Late last year, we articulated a strategy to drive Beyond Meat to cash-flow positive operations and sustainable long-term growth. We are pleased to report strong progress for the second full quarter of this strategy; cash use and net loss are substantially improved on a sequential and year-over-year basis: gross margin is up on a sequential and year-over-year basis; and we delivered net revenues consistent with guidance. We remain focused on our strategy and committed to pursuing our vision of transforming the $1.4 trillion global meat industry.”


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