Trump Media CEO renews assault on 'DJT' short sellers - but the math doesn't add up

By Ciara Linnane and Tomi Kilgore

Data show the volume of short sales was stable as the stock was tumbling

Trump Media & Technology Group Corp.'s stock rose Wednesday - and was up again Thursday, even as the broader market SPX was selling off - as the parent of former President Trump's Truth Social platform delivered its latest attack on what it's calling the "potential manipulation" of its stock by short sellers.

In a regulatory filing, the company said its chief executive, the former pro-Trump congressman Devin Nunes, had written to congressional leaders asking them to open an investigation into "anomalous" trading of the stock to determine whether laws - including RICO statues and tax-evasion laws - have been broken.

The Racketeer Influenced and Corrupt Organizations Act, popularly known as RICO, is a 1970 law that was famously used to tackle organized-crime groups in the U.S.

The letter comes after Trump Media & Technology Group sent a similar missive last Friday to Nasdaq Chief Executive Adena Friedman, in which it said data made available to the company found that just four market participants had been responsible for more than 60% of the volume of "DJT" shares (DJT) traded.

"As of April 17, 2024, 'DJT' appears on Nasdaq's 'Reg SHO threshold list,' which is indicative of unlawful trading activity," Nunes wrote. "This is particularly troubling given that 'naked' short selling often entails sophisticated market participants profiting at the expense of retail investors."

Most of the company's shares are owned by retail investors.

In regular short trading, an investor borrows shares from someone else, and then sells them and waits for the stock price to fall. When that happens, the shares are bought more cheaply and returned to the previous owner, with the short seller pocketing the difference as profit.

In naked short selling, investors don't bother borrowing the stock first, and simply sell shares with a promise to deliver them at a later date. When that promise is not fulfilled, it's known as failure to deliver. Naked short selling is illegal in the U.S.

Nunes repeated the allegation on Wednesday, and again named Citadel Securities, VIRTU Americas, G1 Execution Services and Jane Street Capital as the four market participants in question.

Citadel told MarketWatch last week that Nunes was trying to blame the stock's weakness on illegal market activity. "Nunes is exactly the type of person Donald Trump would have fired on 'The Apprentice.' If he worked for Citadel Securities, we would fire him, as ability and integrity are at the center of everything we do," the company said.

VIRTU and Jane Street did not immediately respond to a request for comment. GI Executive Services could not be reached for comment.

Trump Media & Technology Group's stock has been volatile since it hit the public market in late March following a merger with a special-purpose acquisition corporation, or SPAC, also called a blank-check company.

The stock rallied in afternoon trading on Wednesday, reversing an earlier intraday decline of as much as 6.1%. It has soared more than 50% since closing at a three-month low of $22.84 on April 16, but it is down by nearly 50% since it closed at a postmerger high of $66.22 on March 27.

Yet, according to market data, the allegations that short sellers are to blame for the volatility does not hold up, given the tiny volumes of short sales that were happening during the peak selloff of the stock. Borrow supply is extremely limited with little to no availability, with rates trading at more than a 300% fee, according to financial analytics firm S3 Partners.

As the following charts show, while the stock was falling, the volume of short sales remained relatively stable.

Naked short sellers typically sell shares they don't own and after a few days simply book them as FTDs or hide them as long sales. Investors who buy the shares from them are unaware that they are buying what are essentially fake shares.

The maneuver can add far more shares of a stock to the market than there should be and create volatility in its price.

From the archive (January 2023): Genius Group stock rallies more than 200% after it appoints former F.B.I. director to investigate alleged naked short selling

Trump Media & Technology Group on Tuesday had sent advice to retail investors offering a primer on how to stop brokers from lending out their shares.

Brokers lend the shares from margin accounts, so one way a small investor can stop the practice is by placing their shares in a cash account instead of a margin one, Trump Media & Technology Group said in the statement.

They can also opt out of any securities-lending programs and can move their shares to a direct-registration account at the company's transfer agent, Odyssey Transfer & Trust Co., Trump Media & Technology Group added.

The statement included a sample letter for retail investors to use to direct their brokers not to allow their shares to be made available for lending.

-Ciara Linnane -Tomi Kilgore

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04-25-24 1203ET

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