
Naked short selling -- selling shares without first borrowing them -- effectively creates counterfeit stock that dilutes existing shareholders. Rolling Stone reported that Goldman Sachs and other banks engaged in naked short selling that helped destroy Bear Stearns and Lehman Brothers. The SEC admitted to the problem by banning certain naked short sales during the 2008 crisis. Options market makers like Citadel are exempt from locate requirements, meaning they can legally short shares without finding them first.
“Wall Street banks are engaging in naked short selling, creating phantom shares that don't exist to artificially depress stock prices and destroy targeted companies.”
From “crazy” to confirmed
The Claim Is Made
This is the moment they called it crazy.
The financial system has mechanisms built into it that most people will never fully understand. That opacity, it turns out, may be by design—and it may have allowed banks to profit from creating shares of stock that don't actually exist.
The claim sounds almost too outlandish to be real: major Wall Street institutions like Goldman Sachs were selling shares they never bothered to borrow, effectively manufacturing counterfeit stock in companies like Bear Stearns and Lehman Brothers during the financial crisis. For years, this was dismissed by mainstream financial commentators as the paranoid fantasy of conspiracy theorists and activist investors with an axe to grind.
But Rolling Stone's investigation into accidentally released documents told a different story. The reporting revealed that Goldman Sachs and other major banks had engaged in naked short selling—the practice of selling shares without first locating and borrowing them from someone who actually owns them. When you sell shares that don't exist, you're flooding the market with counterfeit securities that dilute the holdings of actual shareholders and artificially depress stock prices. It's roughly equivalent to counterfeiting currency, except it happens in markets with the implicit cooperation of financial institutions.
The financial industry's official response was predictable: this wasn't a real problem, or if it was, it was isolated and insignificant. Regulators seemed content to look the other way, even as these practices contributed to the destruction of major financial institutions during 2008.
Then the SEC effectively admitted the problem existed. Rather than prosecute the banks engaging in the practice, the agency simply banned certain types of naked short sales during the crisis. The timing is noteworthy—the SEC didn't ban the practice because it wasn't happening. It banned it because it was happening and it was destabilizing financial markets. You don't ban something that doesn't exist.
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Confirmed: They Were Right
The truth comes out. Officially documented.
Confirmed: They Were Right
The truth comes out. Officially documented.
What makes this claim only partially verified rather than fully confirmed is the complexity of the modern financial system. Naked short selling does happen, and the SEC's own actions acknowledge its reality. But there's a critical wrinkle: options market makers like Citadel are legally exempt from locate requirements. This means the most sophisticated players in the market can legally short shares without finding them first. Is this naked short selling, or is it something else that's been rebranded as legitimate market making? The answer depends on how you define the terms—which is precisely why the practice persists in a gray zone.
The documentation shows this wasn't a figment of anyone's imagination. It was a real mechanism used by real institutions during a period when financial markets were collapsing. Whether Goldman Sachs and its peers intentionally weaponized this practice to destroy competitors, or simply exploited a systemic vulnerability, remains a matter of interpretation.
What matters now is what this tells us about trust. If major financial institutions can create phantom shares with relative impunity, and if regulators respond not with prosecution but with tactical bans during crisis moments, what does that say about the integrity of markets? The claim wasn't dismissed because evidence didn't exist—it was dismissed because acknowledging it would require confronting uncomfortable questions about how Wall Street actually operates. That they eventually had to admit the problem was real speaks volumes about what they knew all along.