Short-selling is when an investor borrows shares, sells them, and then eventually “covers” or returns the same shares. Such an investor benefits only when the price of the security falls. This practice is highly risky due to the fact that profits (determined by the difference in prices between when the share is borrowed and when it is returned) are limited (because the price of stock cannot fall below zero), while you can lose more money than you originally invested.
Shorting has been criticized as unethical, but short-selling attorneys know that only "abusive" short sales are illegal.
For example, it is forbidden to short sell in order to manipulate the price of a stock. Further prohibitions include selling stock short without having located stock for delivery at settlement as well as failing to deliver shares at the time of settlement.
SEC regulations and other institutional constraints have done much to impede short-selling, and these strict rules are aggressively enforced. The SEC even likes to ban short-selling entirely when it wants to "restore equilibrium to the markets".
Penalties for illegal short-selling most frequently take the form of large fines paid to the U.S. Treasury. Additionally, allegedly improperly obtained profits must be paid back, as well as interest on those profits, and the interest alone can amount to many tens of thousands of dollars.
If you have been accused of illegal short-selling, you need an experienced team of short-selling attorneys behind you. Contact the Blanch Law Firm by calling 212-736-3900. Your initial consultation will be both free and confidential.