U.S. Sup. Ct.;
14–1132
Respondent Greg Manning held over two million shares of stock in Escala Group, Inc. He claims that he lost most of his investment when the share price plummeted after petitioners, Merrill Lynch and other financial institutions (collectively, Merrill Lynch), devalued Escala through “naked short sales” of its stock. Unlike a typical short sale, where a person borrows stock from a broker, sells it to a buyer on the open market, and later purchases the same number of shares to return to the broker, the seller in a “naked” short sale does not borrow the stock he puts on the market, and so never delivers the promised shares to the buyer. This practice, which can injure shareholders by driving down a stock’s price, is regulated by the Securities and Exchange Commission’s Regulation SHO, which prohibits short-sellers from intentionally failing to deliver securities, thereby curbing market manipulation.
