Eagle Broadband goes after ‘naked shorting’

Eagle Broadband believes illegal securities trading known as “naked shorting” is partly to blame for the decline in its stock price in recent months. The company has already begun to take action against the problem, it announced today.

Since late March, Eagle’s stock price has slid from about $0.40 per share to about $0.20 throughout May and early June. Today the stock has bounced between $0.28 and $0.29 per share, dropping to between $0.26 and $0.27 in the afternoon.

The Houston-based company, which provides IP-based broadband largely to government clients, was recently listed on the American Stock Exchange’s “Regulation SHO” list for 13 consecutive days, signifying “settlement failures” of thousands of shares, meaning instances in which the seller failed to deliver stock within three days of its sale. A spike in settlement failures are often a sign of “naked shorting,” the illegal practice in which investors sell stock short without having borrowed the stock in time to deliver it. Thus, criminals are able to make money selling stock they don’t own.

In response, Eagle has reported suspected violators to the Securities & Exchange Commission and the American Stock Exchange, formed an internal committee to investigate possible improper trading activity and is considering legal action against those whom the company believes to have engaged in naked shorting. Eagle is also requesting that brokers and investors convert margin accounts to cash accounts to limit the amount of shares available to borrow for short sales.