This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
Trump Media and Technology Group (NASDAQ: DJT) appears to have settled on short-sellers - particularly of the "naked" variety - as the prime culprit behind the stock's relentless decline in the past few days, judging by a letter that Truth Social's parent company has now sent to the Nasdaq index.
Trump Media and Technology Group's Letter to the Nasdaq Exchange
To wit, Trump Media and Technology Group has now penned a letter to urge the Nasdaq exchange to probe its inclusion in the so-called threshold list:
"As you know, “naked” short selling — selling shares of a stock without first borrowing the shares of stock deemed difficult to locate — is generally illegal pursuant to Securities and Exchange Commission (“SEC”) Regulation SHO. As of April 17, 2024, DJT appears on Nasdaq’s “Reg SHO threshold list,” which is indicative of unlawful trading activity. This is particularly troubling given that “naked” short selling often entails sophisticated market participants profiting at the expense of retail investors."
For the benefit of those who might not be aware, the threshold list is published by various exchanges and includes stocks that have an aberrantly high number of "fail to deliver" (FTDs) shares. FTDs might be indicative of naked short-selling activity, an illegal activity where a short-seller sells the shares of a stock without first borrowing them.
Trump Media and Technology Group's letter goes on to note:
"Reports indicate that, as of April 3, 2024, DJT was “by far” “the most expensive U.S. stock to short,” meaning that brokers have a significant financial incentive to lend non-existent shares.2 Data made available to us indicate that just four market participants have been responsible for over 60% of the extraordinary volume of DJT shares traded: Citadel Securities, VIRTU Americas, G1 Execution Services, and Jane Street Capital."
Fundamentals vs. Short-Seller Attack
We noted recently that Trump Media and Technology Group has now given up almost all of its post-merger gains on the back of two distinct liquidation waves, with the first such wave precipitated by the company's disclosure that its Truth Social platform raked in a paltry $4.131 million in revenue in the entire of 2023, incurring a net loss of over $58 million, and the second major downward leg prompted by a filing with the SEC for the issuance of 21.491 million shares upon the exercise of the company's warrants.
We also noted in our previous post on this topic that, given the dearth of freely available shares for shorting, it is currently quite expensive to take a bearish position in Trump Media and Technology Group, as indicated by the stock's high short borrow fee.
Do note that just a few days back, Trump Media had published a comprehensive list of FAQs to address some of the most pressing concerns of its investors. Among other answers, the company advised investors to contact their respective brokers to restrict their shares from being loaned out for short positions.
While it remains premature to conclude that stock manipulation is definitively responsible for Trump Media's recent woes, it is patently clear that there is enough turbulence here to merit a thorough investigation. On the flip side, today's development might simply be an attempt to shift the focus away from the company's poor fundamentals.
