Naked-shorting datapoint of the day, Carl Icahn edition
Nathan Vardi, to his credit, doesn’t use the term “naked shorting” in his story today about a dispute between Carl Icahn’s High River Limited Partnership and Goldman Sachs. But that’s what he’s talking about — and, interestingly, the securities in question aren’t stocks. They’re bank loans:
“High River apparently ‘sold short’ the bank debt, anticipating that the market price of the bank debt would decrease,” Goldman says in its lawsuit…
“Neither the fact that High River did not own the bank debt at the time it entered into the contracts, nor the fact that the market has moved against High River, nor any other reason, excuses High River from meeting its contractual obligations,” Goldman says.
High River of course says it will contest the lawsuit. But would naked-shorting Delphi loans even be illegal? They’re not exchange-traded securities, after all, and all we’re really talking about here is a bilateral contract between High River and Goldman under which High River agrees to sell certain loans at a certain price. It’s foolhardy to enter into such a contract if you don’t actually own the loans in question. But is it illegal? That’s less obvious.