Trump Media & Technology Group has raised concerns that its stock, trading under the ticker DJT, may be a target of “potential market manipulation” due to naked short-selling activity.
“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,” Trump Media CEO Devin Nunes wrote in an April 18 letter to Nasdaq CEO Adena T. Friedman.
Short selling occurs when a trader borrows shares of stock expected to lose value and then sells the shares on the market. The trader will later purchase the stock at a lower price and then return the shares to their trading firm with the intention of purchasing the stock at a lower price than the borrowed shares. Short selling is legal, whereas naked short selling is not since the trader doesn’t borrow shares of the stock and the investor sells shares not in their possession. Naked short sales lead to a massive decline in a target company’s stock price.
Since going public last month on the Nasdaq exchange, the shares have lost two-thirds of their value from an initial peak. On Friday, shares of Trump Media rose by 9.6% to $36.38. This week, Trump Media rose by 28%; however, some investors have taken to Truth Social to complain that short sellers may be contributing to the decline.
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In the letter, Nunes called on Nasdaq “to advise what steps you can take to foster transparency and compliance by ensuring market makers are adhering” to regulations that prevent naked short selling.
Currently a shortage exists of stock available to borrow to make a short sale against Trump Media shares, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
