On April 17, Trump Media & Technology Group warned the Securities and Exchange Commission (SEC) that its Trump Media stock (NASDAQ: DJT) might be being manipulated.
The memo, sent to acting chairman of the SEC Mark Uyeda, suggests that naked short-selling — an illegal and controversial practice — is to blame.
In naked shorting, a stock is sold short without the trader first borrowing it or ascertaining that it can be borrowed.
The practice was severely curtailed in 2005 through SEC Regulation SHO, which was made more stringent following the 2008 financial crisis. This landmark regulation established a short locate requirement, stricter reporting requirements, as well as a close-out requirement — obligating broker-dealers to purchase shares on the open market and close out positions themselves in the event of a failure to deliver.
Why is naked shorting illegal? For one, it leads to the aforementioned failures to deliver, which clog up settlement and clearing processes. Moreover, naked shorting disrupts natural supply and demand dynamics by putting undue selling pressure on an equity.
How DJT stock is allegedly being manipulated
The April 17 memo sent to Uyeda alleges that U.K.-based hedge fund Qube Research & Technologies, which disclosed a nearly six-million-share short position in DJT stock on April 10, engaged in naked shorting.
As proof of these allegations, Trump Media claimed that third-party sources have confirmed that short interest currently stands at approximately 11 million DJT shares, practically unchanged from March 31’s 10.7 million shares.
In addition, it was noted that Trump Media was on the Nasdaq’s REG SHO Threshold List for two consecutive months in 2024, indicating that more than 10,000 shares saw a failure to deliver.
At press time, Trump Media stock was trading at $20.51, with a 2.11% gain on the monthly chart, and no discernible effect from Qube’s short position announcement.
So, is DJT stock being manipulated? While possible, this remains highly unlikely. Naked shorting on a mass scale would be quite difficult to pull off. In any event, the most prudent thing to do is to wait for a response from the SEC before making a judgment call.
In addition, this isn’t the first time that Trump Media has blamed the practice for the stock’s misfortune.
Chief Executive Officer (CEO) Devin Nunes did so almost exactly one year ago, in mid-April of 2024. Despite levying some serious allegations, neither the SEC nor the NASDAQ exchange took any formal action. Nunes apparently took that rather well, as he did pursue the point after a late April letter to Congress and a June letter to NASDAQ CEO Adena Friedman.
Lastly, readers should note that not all failures to deliver come about as a result of naked shorting.
Source: Finbold / Digpu NewsTex