SEC Inspector General to Audit Naked Short Selling Investigations

Posted May 08, 2008 3:15PM PST

The Office of the Inspector General of the Securities and Exchange Commission is going forward with an audit of how the commission has investigated allegations of naked short selling, according to a person familiar with the situation.

The audit, which is starting this week, will look into the process the SEC's Division of Enforcement uses in responding to naked short selling complaints and referrals.

Investor advocates have argued that naked short selling, where short sellers don't borrow or deliver the stock that they've sold, has been damaging to small cap companies.

The inspector general's office, which conducts internal investigations of the SEC, will be coordinating with the Government Accountability Office. GAO officials said in April that they would conduct their own probe of the SEC's response to the issue of stock-delivery failures. The GAO investigates government agencies on behalf of Congress.