Could a Trump Presidency Mean an End to Short Selling? How Market Manipulation and Personal Interests Might Shape His Economic Policy

How a Trump presidency could tackle market manipulation and short selling, influenced by Trump Media & Technology Group (DJT) struggles and Elon Musk’s SEC battles.

Oct 13, 2024 - 12:15
Oct 20, 2024 - 16:37
Could a Trump Presidency Mean an End to Short Selling? How Market Manipulation and Personal Interests Might Shape His Economic Policy
Donald Trump (left), and Elon Musk, CEO of Tesla

As Donald Trump leads in the polls ahead of Kamala Harris in the 2024 presidential race, speculation is mounting about how his administration might handle some of the most contentious financial practices on Wall Street. Chief among these are short selling and the broader issue of market manipulation. With Trump’s personal business, Trump Media & Technology Group (DJT), allegedly a victim of illegal short selling, and key allies like Elon Musk also voicing concerns, a Trump victory could potentially lead to significant shifts in how financial regulation is enforced.

Market Manipulation in Focus: The Trump Media Battle Led by Devin Nunes.

Market manipulation, especially in the form of short selling, has long been a problem on Wall Street. Short selling—the practice of betting that a stock’s price will fall—can play a legitimate role in financial markets by promoting liquidity and price discovery. But it can also be exploited, especially through illegal “naked” short selling, where traders sell shares they do not own or borrow, artificially driving down prices. This practice undermines trust in the markets, damages targeted companies, and disproportionately affects retail investors.

According to a study published by the SEC in 2020, naked short selling was identified as a factor in the 2008 financial crisis, and it has continued to be a problem in the years since. Between 2014 and 2020, market manipulation cases related to illegal short selling surged, with fines totaling over $1 billion, but actual enforcement has often been weak, as major firms like Citadel Securities and Virtu Financial typically settle without admitting guilt, paying fines that barely affect their bottom lines.

One of the most striking recent examples involves Trump’s media company, DJT. In early 2024, Devin Nunes, CEO of Trump’s DJT, publicly claimed that the company was being targeted by illegal naked short selling. According to Nunes, 700,000 to 1 million shares per day were being sold without being covered during just the first two weeks of April 2024. In a letter to Florida State Attorney General Ashley Moody, Nunes requested an investigation into this alleged manipulation, naming high-profile market makers Citadel Securities, Virtu Financial, and Jane Street.

Nunes stated, “We knew it was bad, but we finally got the numbers this week… maybe we’re going to expose something that’s going to be bigger than what most of us imagined.” The sheer volume of naked short selling alleged by Nunes paints a picture of a financial system where market manipulation is commonplace, with major players taking advantage of the lack of enforcement.

Nunes’ calls for an investigation have resonated with Trump’s supporters and anti-Wall Street factions, reigniting conversations about whether the financial markets are rigged in favor of large institutions. If this case proceeds, it could shine a light on the deep-rooted issues that continue to plague U.S. markets.

Trump’s relationship with Wall Street has always been complex. While he benefited from deregulation during his first term, his personal business interests might shift his stance should he return to the Oval Office. Given DJT’s current struggles with alleged market manipulation, it is plausible that Trump could take more aggressive action against short selling and naked short selling in particular.

Trump has shown, historically, that his personal interests shape his policy decisions. If DJT continues to be targeted by short sellers, there’s a strong possibility that Trump would push for new legislation or executive action aimed at curbing these practices. Additionally, Trump has a history of focusing on enforcement measures that align with his populist base’s concerns, which often include perceived Wall Street corruption and unfair financial practices.

In 2020, Trump signed the Holding Foreign Companies Accountable Act, which increased oversight of Chinese companies listed on U.S. exchanges. If he wins in 2024, a similar push could be made to restrict or eliminate predatory short selling practices, especially if Trump frames the issue as one of economic nationalism and the protection of American businesses.

The Elon Musk Factor

Elon Musk, one of the most vocal critics of short sellers and the U.S. Securities and Exchange Commission (SEC), has been at odds with the regulatory body for years. Musk has frequently accused the SEC of being complicit in allowing hedge funds and institutional investors to manipulate markets through short selling, all while disproportionately targeting companies like Tesla with regulatory scrutiny.

Musk has repeatedly referred to “regulatory capture”—a phenomenon where regulatory agencies, such as the SEC, end up serving the interests of the very industries they are supposed to oversee. According to Musk, the SEC is more interested in protecting large financial institutions than enforcing rules against fraudulent practices like naked short selling. He has criticized the agency for turning a blind eye to market manipulation, even as short sellers publicly spread misinformation about Tesla’s stock to drive down its price.

In a well-known incident from 2018, Musk tweeted that he was considering taking Tesla private at $420 per share and had “funding secured.” This tweet led to an SEC lawsuit, which Musk eventually settled for $40 million—$20 million paid by Tesla and $20 million from Musk himself. However, Musk has since spoken openly about the circumstances surrounding the settlement. In a 2021 interview, Musk revealed that he felt coerced into settling because the alternative could have led to Tesla’s financial ruin.

He stated that the SEC forced him into a settlement by threatening to cut off Tesla’s access to capital: “I had no choice. I was told by the banks that if I didn’t settle with the SEC, they would cease providing working capital, and Tesla would go bankrupt immediately.”

This revelation highlighted how vulnerable companies can be when facing market manipulation, as short sellers and financial institutions exert immense pressure. In Musk’s case, he felt the SEC was not acting to protect investors or the market but was instead enabling a situation where predatory financial practices could drive his company to the brink of collapse.

Musk’s public battles with the SEC have also brought attention to how little enforcement is carried out against short sellers who spread false information to depress stock prices. Tesla has been a frequent target of these tactics, with Musk stating that short sellers have made billions off manipulated stock prices, all while regulators took no meaningful action.

His criticism extends beyond personal grievances. Musk has argued that the SEC’s pattern of allowing companies to settle without admitting wrongdoing, combined with the failure to enforce existing laws on market manipulation, creates an environment where bad actors thrive. He has stated that regulatory agencies like the SEC serve the interests of the “big players”—hedge funds, large banks, and market makers—while the companies they target are left with no real recourse.

Musk’s experiences with short sellers and the SEC make him a likely ally in any future Trump administration’s effort to reform financial regulation. If Musk were to hold any advisory or official role, his influence could lead to stronger enforcement against predatory practices like naked short selling. With Musk’s deep-seated frustration over how the SEC operates, a Trump administration might push for radical reforms, potentially tightening regulations on short sellers or even exploring measures to dismantle the systemic bias Musk alleges exists within regulatory bodies.

What Are the Chances Trump Will Act?

If Trump wins the 2024 election, the probability that he will take action on short selling and market manipulation is high. His personal ties to the DJT case, combined with his populist leanings, suggest that he could push for stricter enforcement or even ban short selling outright. Trump has historically favored actions that resonate with his voter base, which includes retail investors who see short selling as a predatory practice.

It is also possible that Trump’s administration could aim for broader financial reforms targeting market manipulation. Trump has criticized the SEC in the past, and a second-term Trump might move to overhaul the regulatory framework to prioritize enforcement of market manipulation cases. With Nunes’ ongoing complaints and the potential for more evidence to emerge around DJT’s stock manipulation claims, Trump could justify sweeping reforms as protecting the “little guy” from Wall Street abuses.

Additionally, Trump’s focus on economic populism could lead to legislative proposals to hold institutions like Citadel Securities and Virtu Financial more accountable. The fines issued to these firms for market manipulation have been relatively small compared to the billions they generate in profit each year. Under a Trump presidency, fines could increase dramatically, or regulators might focus on criminal prosecutions for repeat offenders—a shift from the “neither admit nor deny” settlements that have dominated Wall Street’s regulatory landscape.

Conclusion: A Future of Accountability?

The combination of Trump’s personal interests, Musk’s influence, and the growing public frustration with market manipulation could lead to a regulatory crackdown on short selling. For firms like Citadel Securities and Virtu Financial, which have been named in market manipulation claims, a Trump presidency might mean facing increased scrutiny and harsher penalties.

While it remains to be seen how exactly Trump would tackle the issue, the DJT case and the accusations made by Devin Nunes could serve as a flashpoint for broader financial reform, one that could finally hold Wall Street accountable for practices that have long gone unchecked. Whether through executive orders, SEC reform, or legislative changes, the next four years could see significant changes in how short selling and market manipulation are regulated—especially if they align with Trump’s personal agenda.