Investors in Canada are increasingly raising their voices against market manipulation, echoing a movement that has gained significant traction among retail investors in the United States.
A pivotal issue at the heart of this outcry is illegal naked short selling, a practice that creates counterfeit shares, distorts market dynamics, and erodes investor trust.
A recent article by Lyndsay Malchuk, published on May 12, 2025, on Stockhouse shines a spotlight on this issue, particularly within Canada’s junior mining sector.
The article exposes how a 2012 rule change, which eliminated the requirement for physical share certificates, has enabled the creation of millions of fake shares, with a specific case involving 9 million counterfeit shares used to manipulate markets.
This development has sparked a broader conversation about systemic flaws in Canada’s capital markets, drawing parallels to the ongoing activism of U.S. retail investors who have been vocal about similar injustices in stocks like AMC, GameStop, Northwest Biotherapeutics (NWBO), and the Meta Materials Preferred Shares (MMTLP) case.
Today we’re going over Canada’s emerging stance against naked short selling, the regulatory landscape, and how U.S. retail investors continue to amplify awareness of these market abuses.
Let’s get started!
The Canadian Context: A Broken System Exposed
Malchuk highlights a critical turning point in Canada’s capital markets, where the removal of physical share certificates in 2012 inadvertently opened the door to predatory practices like naked short selling.
Unlike traditional short selling, where shares are borrowed before being sold, naked short selling involves selling shares that do not exist, creating “phantom” or counterfeit shares that flood the market.
This artificial increase in supply can drive down stock prices, harming companies and investors, particularly in vulnerable sectors like junior mining.
The article cites a case where 9 million fake shares were allegedly used to manipulate markets, targeting small-cap mining companies.
This practice not only undermines the financial stability of these firms but also erodes investor confidence in the integrity of Canada’s markets.
The 2012 rule change, intended to modernize trading, has instead facilitated what Malchuk describes as a “broken system” with “zero accountability.”
The lack of physical certificates makes it easier for bad actors to create and trade counterfeit shares without immediate detection, as there is no tangible record to verify share authenticity.
Regulatory oversight has struggled to keep pace, with Canada’s fragmented provincial securities system—lacking a national regulator—exacerbating enforcement challenges.
The Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Securities Administrators (CSA) oversee securities regulation, but critics argue that their response to naked short selling has been inadequate.
For instance, while IIROC monitors short selling and releases aggregate data, it does not track individual holders, making it difficult to pinpoint culprits.
The claims of “zero accountability” resonates with investors who see regulators as slow to act against systemic abuses.
However, there are signs of some progress.
In August 2022, IIROC announced a ban on naked short selling, a move celebrated by investors and advocates like Dave Lauer, who noted on X that it was a “big step in the right direction.”
This ban prohibits shorting without ensuring shares are available to borrow, aiming to curb the creation of counterfeit shares.
Additionally, IIROC committed to studying trades that fail to settle—known as “fails-to-deliver” (FTDs)—which are a key indicator of naked shorting.
Despite these measures, investors state that enforcement remains weak, and the 2012 rule change continues to enable manipulation, particularly in the junior mining sector, where small-cap companies are easy targets due to their low liquidity and market capitalization.
U.S. Retail Investors: A Parallel Movement
Across the border, U.S. retail investors have been at the forefront of raising awareness about naked short selling and market manipulation, particularly since the 2021 meme stock frenzy involving AMC Entertainment and GameStop.
These stocks became emblematic of retail investor activism, as communities on platforms like Reddit’s r/GME and X identified and challenged hedge funds’ use of naked short selling to suppress share prices.
The GameStop saga, where short interest reached 140% of available shares, revealed how naked shorting created phantom shares, artificially inflating supply and driving down prices.
Retail investors orchestrated a short squeeze by buying and holding shares, forcing short sellers to cover at higher prices, resulting in billions in losses for hedge funds.
The AMC and GameStop movements galvanized retail investors, who began scrutinizing other stocks for similar manipulation.
Northwest Biotherapeutics (NWBO) has emerged as a focal point, with investors accusing market makers like Citadel Securities of using naked short selling to depress the biotech company’s stock price.
A significant victory came in 2025 when a court denied Citadel’s motion to dismiss a lawsuit alleging illegal short-selling practices, fueling investor optimism.
Similarly, the MMTLP case has become a rallying cry for retail investors.
MMTLP, tied to Meta Materials’ spinoff into Next Bridge Hydrocarbons, was halted by FINRA in December 2022, citing “significant uncertainty” in settlement processes.
Investors anticipated a short squeeze due to heavy short interest, but the halt and subsequent delisting left approximately 65,000 investors with illiquid Next Bridge shares, sparking accusations of regulatory failure and naked shorting.
Retail investors have leveraged social media to amplify these issues, with X serving as a key platform for sharing information and organizing activism.
Posts on X speculate that investigations into other stocks could “expose AMC GME naked shorts,” reflecting a belief that systemic manipulation extends across multiple securities.
The MMTLP scandal, in particular, has eroded trust in FINRA, with investors pushing for legislative reforms like the RAMS Act (H.R.2689), which aims to place FINRA under SEC oversight.
These efforts highlight a broader demand for transparency, accountability, and stricter penalties for market manipulators.
Related: SEC Now Responds to Retail Investors on Illegal Manipulation
Broader Implications and Calls for Reform
The parallels between Canada and the U.S. underscore a global problem: naked short selling thrives in regulatory gaps, harming retail investors and small-cap companies.
In Canada, the fragmented regulatory system and the 2012 rule change have left markets vulnerable, while in the U.S., retail investors face challenges from powerful market makers and self-regulatory organizations like FINRA.
Both countries have seen growing calls for reform.
In Canada, the proposed Canadian Securities Act and the Cooperative Capital Markets Regulatory System aim to create a national regulator, potentially improving enforcement against practices like naked shorting.
In the U.S., retail investors are pinning hopes on the Trump administration, with figures like JD Vance, who has supported MMTLP investors, signaling potential allies.
The activism of U.S. retail investors has also inspired Canadian investors, as seen in online communities like Reddit’s r/Baystreetbets, where users discuss naked shorting’s disproportionate impact on Canadian markets.
These platforms emphasize the need for consolidated market data to detect manipulative practices like spoofing and downticking, which are often invisible to retail investors without access to Level II data.
The shared experiences of investors in both countries highlight the urgency of addressing naked short selling, not just as a national issue but as a global threat to market integrity.
Also Read: Expert Predicts Massive Panic Will Trigger Short Squeeze Across the Market
Why This Matters
Canada’s awakening to the dangers of illegal naked short selling, as highlighted in Malchuk’s Stockhouse article, marks a significant moment in the fight for fair markets.
The case of 9 million fake shares underscores the systemic flaws enabled by the 2012 rule change, while the broader conversation reflects growing investor frustration with a lack of accountability.
In the U.S., retail investors continue to lead the charge, raising awareness through social media and legal action in cases like AMC, GameStop, NWBO, and MMTLP.
Their activism has not only exposed market injustices but also inspired counterparts in Canada to demand change.
As both nations grapple with these challenges, the push for regulatory reform, transparency, and accountability remains critical to restoring trust in capital markets and protecting investors from the predatory practices that threaten their financial futures.
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Also Read: Hedge Fund Now Freezes Ability For Customers To Withdraw Money
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