Rick comments

Rick Ackerman, who I consider to be one of the premier trading gurus out there and runs his own trading site commented on my post:

No reason to assume the shorts are “naked,” David. Their positions could easily be offset by puts and calls. In any case, shorts are always vulnerable to a squeeze, especially when there are fewer or no certificates around to borrow. So many certificates are held in “street name,” however, that this is seldom a problem.

But you – acting alone – could probably stir up enough muck to reduce the supply of borrowable shares sufficiently to put the squeeze on these wise guys. I’ve seen option-expiration plays where call sellers were forced to buy stock in the cash market for instant delivery. GORO might trade for twice its “market” price under such circumstances.

I added emphasis to Rick's last line.

Time to hit back at the Naked Shorts

If you own a junior mining stock, you need to read this carefully. If we all act upon this in unison, it could really squeeze those naked shorts hard.

I discovered that one of my stocks, Gold Resources Corporation (GORO), had an interesting entry in my statement that was earning me a small amount of money every few months.

"SUBSTITUTE PAYMENT (GORO)"

Not knowing what this was, I researched it, and it turns out the Broker is borrowing my shares!

You have to understand GORO's recent history if you want to understand why all of this is so important. A few weeks ago, an article came out in Barons magazine that questioned GORO's management skills and whether their goals were even remotely possible. It was a basic all around hit piece on this stock. The interesting timing of this article is that a short position grew quite large on GORO before this article came out. Coincidence? I think not. This article was released on a Sunday evening and the very next day GORO sold off hard on heavy volume.

So back to the borrowing of my shares. What are they doing with my shares? Of course, they are loaning out my shares to be used to naked SHORT the very stock I own!

This is perfectly OK for them to do this if this equity is in a margin account.

So I wrote to TDAmeritrade demanding they stop loaning out my shares or else I will move my entire account to another broker. Initially I thought they would just reply with a canned statement that they are perfectly in their legal rights to do this.

And yes of course, they did reply with this exact response. However, they gave me two options. As quoted in the email I received from them:

Option #1:

1) Reduce your debit balance to zero by liquidating securities or depositing funds to pay the debit amount.

OR

2) Elect to have all securities in your account exempt from being loaned. Your request will apply to all positions in your account. Requests cannot be made for specific securities only. If you prefer this choice, send a written request stating that you do not want your securities loaned. We can only take this request in writing, so please mail it to.....

Yes that's right, you can choose to have your ENTIRE account exempt from being loaned out! 

I do not know if this works for brokerages other than TDAmeritrade, but the fact that at least one broker gives you this option is all that matters. If you broker does not give you this option, just move your account to TDAmeritrade!

The only reason why I even know about this is because GORO is one of the few mining junior companies to even throw off a dividend. If the miner did not throw off a dividend, I would have never even known about this because it would not have shown up on my statement. 

So I urge you all to contact your brokerage and demand they stop loaning out your shares. I suspect they will honor your request. Just make sure you follow their steps carefully. 

I have not heard this ANYWHERE and I think this could really put a hurt on them. GORO is a tightly held stock with a small float. Most of the shares are held by insiders so we could really make a fine example of these shorts.