Naked shorts and what they mean to you: finally, somebody has gone after this horrible practice, designed to ruin a company stock and the company as well. A short position is a sale of a stock with the intention of buying it back later at a presumed lower price, thus pocketing the difference between the money collected on the sale and the cost of buying the stock "back" (sell for $110 and buy back at $100). The "short" doesn't have the stock to start with so he "borrows" it from a brokerage firm, hence the term "short" as in your are short twenty cents on this burger. BUT a naked short is a short position with no stock available: 110 shares are shorted but there are only 100 shares outstanding in the entire market. This practice is so widespread, and has been for years, that now the entire capitalist system is threatened. In addition, from my years in the business I can attest to the fact that "shorts" get on the phone with each other and work like hell to take a stock down; they do this by "selling" increasing numbers of stock til the market is actually moved.

Hedge Funds used to represent a tiny portion of the market but now they are a huge percentage of the market and a hedge fund only shorts a stock or buys puts and writes calls. This will mean a lot for the markets so stay tuned. From the East Carolinian

The issue is that hedge funds, which are like mutual funds except that they make their profits typically on securities like stocks falling in price. These hedge funds can often generate astronomical returns for a short time and usually the investors of that fund get hooked on the high returns and therefore seek to flood the financial media with bad news to make certain stocks decline, though some of the time this negatively generated news is either inconsequential or lacking objectivity. The media will then report this news and investors will sell thus causing the share price to decline.

A hell of a lot of people have been trying to write legislation covering the funds but so far, nada. Forbes has a more detailed (and harder to understand) article HERE.