Just as the financial crisis began to unfold last summer, revelation of another trouble was taking place in the US. A massive fraud at CMKX Diamonds, a diamond trading company, shifted the focus to the rampant practice of naked short selling. However, it largely remained unnoticed until the dramatic collapse of Lehman Brothers and later the near-bankruptcy situation at Bear Stearns (which was later merged with the Bank of America). Now, a section of experts say that the collapse of two Wall Street giants could have been delayed or prolonged had it not been for the abusive practice of naked short selling. A section of experts feel that Bear Stearns' collapse was precipitated by the dramatic fall in its share prices, which in turn was hastened by the immense naked short selling activity. Naked short selling has negative consequences for the market. Former Lehman Brothers CEO, Richard Fuld, said that a host of factors including a crisis of confidence and naked short selling attacks followed by false rumors contributed to the collapse of both Bear Stearns and Lehman Brothers. While fraudsters may use this instrument for manipulating the market, it is considered to be illegal.

Naked Short Sales, Capital Market, Financial Services Firms, Global Banking Sector, Securities and Exchange Commission , SEC, Morgan Stanley, Alliance Data Systems, Financial Services, Financial Industries, Financial Markets, Financial Crisis, Phantom Stock.