[kevinpet]

Eve finds NeuroMama, a worthless stack of nothing but shady documents, and importantly, without a significant number of shares available to borrow. She knows how to manipulate markets and doesn't care much for legality. Eve buys a significant position in NeuroMama over a period of time. She can do this cheaply, but slightly drives up the price.

Alice sees that the stock price has increased and this puts it on her radar of companies to investigate. She sees that NeuroMama is a worthless stack of nothing but shady incorporation papers. Alice thinks the stock value will decline. She goes to her broker, Bob, to borrow shares so that she can short sell. Bob calls around Long Island and locates some shares belonging to Eve for Alice to borrow.

Alice offers these shares for sale. Eve buys up a significant portion of them and puts them back on the market for sale at a massive markup.

Eve calls back her shares. Alice is required to return the shares to Eve. But Alice has sold those shares, so she must buy them back. She tries to find anyone to buy them from. Unfortunately, Eve is the only one selling, so Alice must pay Eve's price.

The only money that has changed hands is between Alice and Eve. There was no $34B, only a small fraction of the shares changing hands at highly inflated prices. If Eve is caught she'll need to disgorge her earnings to Alice.

[infinite8s]

Why would Eve worry about being caught? Everything you've outlined is perfectly legal, and in fact was executed brilliantly by Porsche (http://www.reuters.com/article/us-volkswagen-idUSTRE49R3I920...) in 2008.

[conistonwater]

> Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.

https://www.sec.gov/investor/pubs/regsho.htm

[kirubakaran]

executed brilliantly by Porsche

Didn't really work out for them in the end. They executed the short squeeze to acquire VW but they're owned by VW now.

http://www.automobilemag.com/news/porsche-and-volkswagen-wha...

[jschulenklopper]

There are two Porsche companies. Porsche AG (the car company) is controlled/owned by Volkswagen AG, but there's also Porsche SE (holding company). The latter controls a 50.7% majority of voting rights of Volkswagen AG, for 31% of share ownership. The families of Porsche-Piech own 50% of Porsche SE, but 100% of the voting rights.

[colechristensen]

TL;DR Banks stopped lending to Porsche before it could seal the deal because 2008 happened.

[kirubakaran]

And Angela Merkel herself dissuaded the sheikh from lending Porsche money!

[rtpg]

My understanding of securities law is that intent is 95%. If you're doing market manipulation "just to make money" (instead of, say, to buy a company? Not really sure) then it's illegal.

[digler999]

> to borrow shares so that she can short sell.

why would she do this instead of just buying a bunch of put options on the stock ?

[akg_67]

There need to be someone who is selling/writing put option before you can buy put option.