In the dynamic landscape of financial markets, the practice of short selling, particularly its aggressive form known as naked short selling, has been a subject of intense debate. While short selling is a legitimate strategy where shares are borrowed and sold in anticipation of a price drop, naked short selling often veers into market manipulation, adversely affecting stock prices and investor confidence.

Understanding Short Selling and Its Impact

Short Selling Mechanics: The process involves borrowing stock shares, selling them at the current market price, and later repurchasing them at a lower price. This strategy, though legal, comes with unlimited risk and significant interest costs on borrowed stocks.

Predatory Short Selling: More aggressive and potentially manipulative, this practice disproportionately affects smaller entities, particularly in sectors like junior mining. It includes tactics like last-minute stock sales to manipulate closing prices, often leading to broader market repercussions.

Regulatory Responses and Market Evolution

In response to deceptive market practices, various regulatory bodies have stepped in:

• The Ontario Capital Markets Modernization Taskforce in Canada has recommended banning misleading statements about public companies.
• The removal of the “tick test” rule by IIROC and CSA has led to increased short selling activities, impacting junior markets and sparking calls for regulatory reforms.

Case Studies and Legal Developments

Power Nickel Inc. (TSXV: PNPN | OTCQB: PNPNF): Planning to file a complaint about potential illegal short selling of its shares, highlighting market imbalances and suspected naked short selling.

Federal District Court Ruling: A recent U.S. ruling emphasized the responsibility of broker-dealers in preventing manipulative trading, signaling a shift towards stricter regulation.

The Risks of Naked Short Selling

Naked short selling, where shares are sold without being borrowed or confirmed to exist, is illegal but persists due to regulatory loopholes. This practice claims to provide liquidity in options markets but can lead to exploitative practices and market manipulation.

The Role of Financial Institutions and Regulatory Gaps

Financial institutions and broker-dealers often play a crucial role in facilitating illegal naked short selling. Recent legal developments have highlighted their accountability in preventing such practices, marking a significant step towards protecting retail investors from fraud.

Call for Action

Save Canadian Mining, a movement advocating for fair market rules, urges the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) to re-evaluate the re-institution of the tick test to safeguard Canada’s junior markets. They argue that the lack of this rule has been detrimental to the market’s integrity and fairness.

Conclusion

The complexities of predatory and naked short selling present significant ethical dilemmas in finance. These practices, while potentially profitable, often lead to market manipulation and unfair trading scenarios. Traders and investors need to approach these strategies with caution, understanding the inherent risks and ethical considerations. This comprehensive exploration, enriched with expert insights, underscores the importance of informed, ethical trading in today’s financial markets.

This article aims to shed light on the intricate and often controversial world of short selling, particularly its more manipulative forms. It highlights the need for vigilant regulation and ethical practices in the financial markets to ensure fair and transparent trading.

In this InvestorIntel interview, host Tracy Weslosky brings together Power Nickel Inc.‘s (TSXV: PNPN | OTCQB: CMETF) CEO Terry Lynch and Founder of Save Canadian Mining, a movement to stop predatory short selling, along with compliance expert and CBLT Inc.’s (TSXV: CBLT) President, CEO, and Director Peter Clausi to debate about whether the recently released IIROC (the Investment Industry Regulatory Organization of Canada) guidance on short selling has any teeth and will have any effect on short sellers or brokerage houses.

IIROC’s August 17, 2022 Guidance Note sets out the rule that a short seller must have a “reasonable expectation” that sufficient shares will be available to settle any resulting trade on settlement date. As Terry Lynch and Peter Clausi point out, this is not a new rule, but a restatement of a current prohibition under UMIR 2.2 – Manipulative and Deceptive Activities.

In the debate, which can also be viewed in full on the InvestorIntel YouTube channel (click here), Terry tells Tracy that the IIROC statement “has the potential to be big news,” because “the problem was it wasn’t well understood by the major investment banks, and so they didn’t adhere to the practices. So now I think IIROC has clarified this once and for all and has clearly moved the liability away from from them and onto the people that don’t follow the rules.”

Peter and Terry both agree that the recent IIROC guidance has shifted the responsibility for covering short selling from the individual investors to the brokerage houses who have to have a “reasonable expectation” that sufficient shares will be available to settle any resulting trade, but Peter Clausi points out that the IIROC guidance doesn’t itself prohibit naked short selling, which is a major problem in the market. He also points out that there is tremendous wiggle room in the words “reasonable expectation” used by IIROC to make enforcement difficult, and in reality protects brokerage houses from prosecution.

To access the full InvestorIntel interview, click here.

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About Power Nickel Inc.

Power Nickel is a Canadian junior exploration company focusing on high-potential copper, gold, and battery metal prospects in Canada and Chile.

Power Nickel is the 100-per-cent owner of five properties comprising over 50,000 acres strategically located in the prolific iron-oxide-copper-gold belt of northern Chile. It also owns a 3-per-cent NSR royalty interest on any future production from the Copaquire copper-molybdenum deposit, recently sold to a subsidiary of Teck resources Inc. Under the terms of the sale agreement, Teck has the right to acquire one-third of the 3-per-cent NSR for $3-million at any time. The Copaquire property borders Teck’s producing Quebrada Blanca copper mine in Chile’s first region.

To learn more about Power Nickel Inc., click here

About CBLT Inc.

CBLT Inc. is a Canadian mineral exploration company with a proven leadership team, targeting lithium, cobalt and gold in reliable mining jurisdictions. CBLT is well-poised to deliver real value to its shareholders.

To learn more about CBLT Inc., click here

Disclaimer: Power Nickel Inc. and CBLT Inc. are advertorial members of InvestorIntel Corp.

This interview, which was produced by InvestorIntel Corp., (IIC), does not contain, nor does it purport to contain, a summary of all the material information concerning the “Company” being interviewed. IIC offers no representations or warranties that any of the information contained in this interview is accurate or complete.

This presentation may contain “forward-looking statements” within the meaning of applicable Canadian securities legislation. Forward-looking statements are based on the opinions and assumptions of the management of the Company as of the date made. They are inherently susceptible to uncertainty and other factors that could cause actual events/results to differ materially from these forward-looking statements. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect the Company’s business or any investment therein.

Any projections given are principally intended for use as objectives and are not intended, and should not be taken, as assurances that the projected results will be obtained by the Company. The assumptions used may not prove to be accurate and a potential decline in the Company’s financial condition or results of operations may negatively impact the value of its securities. Prospective investors are urged to review the Company’s profile on Sedar.com and to carry out independent investigations in order to determine their interest in investing in the Company.

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This weekend was spent enjoying reviewing an interview with Elon Musk, hosted by Head of Ted, Chris Anderson, from April 2022. Click here to access: Elon Musk talks Twitter, Tesla and how his brain works. Seeking enlightenment on his perceived value of Twitter and the capital markets as a news media outlet, it is clear that Musk is a self-professed truthseeker. Arguing that the fortitude behind Twitter, combined with the speed to coverage, makes it an undeniable tool for freedom of speech, the backbone for democracy.

Reviewing a Forbes column on Musk’s recent sell-a-thon of Tesla shares, it is clear that whether he buys or litigates, he has the funds to do so. Forbes.com highlights include: (a) “Musk sold $6.88 billion in Tesla shares earlier this month, accounting for around 7.92 million shares total, reports Forbes.” (b) Adding that Musk “has sold almost $7 billion worth of Tesla stock in recent days …brings the total liquidation to over $15 billion so far this year, and almost $32 billion over the past 12 months.” And (c) “Speculation is that the funds are being gathered in order to fund Musk’s lawsuit with Twitter, and to provide capital should he be forced to pay a fine or go ahead with the purchase.”

Conclusion & Recommendation: Twitter continues to be the top social media outlet for news updates and if you’re not on it, get on it today. My vote? Musk, get in there – clean it up, and BUY it.

Sent this from a NYC financier on August 13th titled “Bill Gates, Jeff Bezos, and Other Billionaires are Funding a Quest for Rare Minerals Buried Beneath Greenland’s Ice Capable to Build Electric Cars and Renewable Batteries” (click here to access).

Suspicious of the PR machine behind it, not to mention the experience of working with Greenland residents who make Californians look slack on environmental issues, deemed it to be both irrelevant and/or wishful thinking. Then this breaking news came out today: Hudson Resources and Neo Performance Sign Agreement on the Sarfartoq Rare Earth Element Project In Greenland (click here to access), one is driven to rethink this position.

To Do: Interview Jack Lifton on the Neo Performance/Greenland deal. Discuss the rare earths in Greenland and correct perhaps my own misconceptions on previous media coverage that the residents will not allow anyone to secure production. This to include reaching out to Dr. Ruben Shiffman from Greenland Resources Inc. (NEO: MOLY) and invite him to the Critical Minerals Summit on Wednesday, November 9, 2022.

Finally, in reference to Twitter Tips, in addition to constantly reminding companies to include both their trading symbols and web URL on their “About” information on Twitter, was watching an expert explain how to be an effective Twitter user. He says that we should find a passion topic and keep our readers interested in something we are engaged in.

“Engage your reader…” is a theme repeated over and over.

Thinking about this, my favorite Twitter user is Terry Lynch of Power Nickel Inc. (TSXV: PNPN | OTCQB: CMETF) — “Canada’s Next LOW-CARBON HIGH-GRADE Nickel Mine”. Terry is behind Save Canadian Mining and is a front-runner in the market on discussions about the negative impact on the market from predatory short selling. Elon Musk specifically addresses the unprecedented levels of attacks on him and Tesla on this front, so perhaps Elon will enjoy Terry’s most recent tweet….

Terry Lynch posts this via @SCMining on Twitter and writes: @IIROCinfo has made a very important statement. This puts Investment Banks on notice – the liability for predatory naked #shortselling is on them. This is a great start to correcting a major problem in our markets (click here to access).

Now for the week in review for the week of August 15-19, 2022.

The Top 10 Trending Columns on InvestorIntel.com for the last 30-days include:

1. Nano One’s cathode materials are inventing the zero-emission battery future
2. What does the replacement of the Australian Strategic Materials CEO mean?
3. MP Materials is riding the rare earths tonnes per year train
4. The Dean’s List – Part 1: What rare earths company will benefit from Canada’s commitment to critical minerals?
5. The Dean’s List – Part 2: What nickel company will benefit from Canada’s commitment to critical minerals?
6. Disregarding ESG standards is key to China’s rare earths dominance
7. Eye on the price of uranium, Cameco brings crown jewel back into production and Ur-Energy is set to go.
8. Lynas Bets $500 Million on Rare Earths Market Expansion
9. China owns the Green revolution with falling prices of critical technology minerals
10. Appia Rare Earths & Uranium by the numbers

We published 2 interviews. A slowdown in video output here due to our Director and Editor for 21-years running off to Croatia to get married!

InvestorIntel Interviews WATCH (please of course):

• August 17, 2022 – Peter Clausi talks about CBLT receiving the option payment on its Chilton Cobalt property
• August 16, 2022 – Mark Billings of Auxico Resources Canada on Completing Its Second Trade of Rare Earths Ore

And now —- if you missed the features, you could NOT go wrong by reviewing any of the below written by brilliant analysts and professionals such as Dean Bristow, Bob Hanes, Byron W King and Mel Sanderson.

InvestorIntel Columns to REVIEW:

• A titan of titanium – with a big HAMR
• Zentek sets its sights on treating skin conditions as it expands potential uses for its ZenGUARD graphene coating
• Has gold lost its shine for investors?
• The Dean’s List – Part 5: Which manganese companies could benefit from Canada’s commitment to critical minerals?
• The Inflation Reduction Act delivers a mixed bag of successes and failures for EVs and the green economy

Special Thanks to ii8 System Users. This membership program is what helps us invest in independent market coverage by world class writers. Publishing the news output from all the ii8 System users, here is the list of news coverage for the week of August 15-19, 2022.

ii8 System News Releases for the Week in Review for August 15-21, 2022:

• August 19, 2022 – Hemostemix Announces Unit Private Placement
• August 19, 2022 – Rackla Metals Provides Exploration Update
• August 18, 2022 – Bald Eagle Announces Name Change to Hercules Silver Corp.
• August 18, 2022 – Sixth Wave Announces Addition of Patricia Steadman, BSEE, to the Board of Directors
• August 18, 2022 – TRU Closes Option Agreement for Staghorn Project and Achieves Strategic Consolidation of Cape Ray – Valentine Lake Shear Zone
• August 18, 2022 – Awakn Life Sciences Signs Second Licensing Partnership Agreement and Expands Commercial Operations Into Canada
• August 17, 2022 – CBLT Completes Sampling at Shatford Lake (Lithium)
• August 17, 2022 – Avalon Provides Update on Separation Rapids Lithium Project
• August 17, 2022 – Troilus Drills 101m @ 1.27 g/t AuEq, Incl. 3.31 g/t AuEq Over 20m, and 65m @ 1.58 g/t AuEq, Incl. 22m @ 3.26 g/t AuEq, Extends High-Grade Mineralization +200m to the North and South of the Formerly Active Z87 Pit; Provides Pre-Feasibility Study Update
• August 17, 2022 – Neo Secures $75 Million Loan to Finance Expansion and Relocation of its Environmental Emissions Catalyst Business
• August 17, 2022 – Placement to Support North American Rare Earths Growth Strategy
• August 16, 2022 – DLV Resources Ltd. and West Red Lake Gold Mines Inc. Announce Binding Agreement for Business Combination
• August 16, 2022 – Fjordland Exploration Begins Drilling at South Voisey’s Bay
• August 16, 2022 – TRU Options Out Its Twilite Gold Project to Eastern Precious Metals
• August 16, 2022 – Nickel 28 Announces Results of Annual Meeting
• August 15, 2022 – Silver Bullet Mines Corp. Closes Financing
• August 15, 2022 – Nickel 28 Releases Update on Giga Royalty: Secures Mitsubishi as Development Partner
• August 15, 2022 – Voyageur Pharmaceuticals Ltd. Announces Resignation of CFO and Appointment of Interim CFO and Shares for Debt Transaction
• August 15, 2022 – Awakn Life Sciences Expands Commercial Operations into the U.S. – First Licensing Partnership Agreement with Revitalist

Want to get in touch with me? Send an email to [email protected], and here’s to a great week!

In this InvestorIntel interview, host Tracy Weslosky is joined by Terry Lynch, Founder of Save Canadian Mining and CEO of Power Nickel Inc. (TSXV: PNPN | OTCQB: CMETF), and Peter Clausi, President, CEO and Director of CBLT Inc. (TSXV: CBLT) to discuss predatory short selling and how it is hurting investors and the mining industry.

In the interview, which can also be viewed in full on the InvestorIntel YouTube channel (click here), Terry and Peter talk about how the lack of fair and transparent capital markets allows predatory short sellers to go unpunished and play havoc in the markets with the interests of investors and companies alike. Terry goes on to discuss the need for reinstatement of the “tick test” to curb predatory short selling. Touching upon the lack of response from the Canadian regulators, Peter advocates the need for stronger investigative powers by the Canadian Securities Administrators to correct a flawed system that keeps stock values artificially down.

Don’t miss other InvestorIntel interviews. Subscribe to the InvestorIntel YouTube channel by clicking here.

About Save Canadian Mining

Save Canadian Mining is a not-for-profit, issue-based advocacy group representing the interests of Canada’s junior mining industry and the investment community. Founded in September 2019 by Terry Lynch, Save Canadian Mining is committed to working with governments and agencies to amend regulations in capital markets to help generate investment in Canada’s junior mining industry.