Naked Truth Dressed to Baffle

"Thirty-three million shares traded in a single day when there are only 1 million shares outstanding and one investor has filed a statement with you saying that he has all of them," Bennett chided. "That's clearly something that needs work."

"Yes, well, Sen. Bennett," replied Donaldson. "Thank you for that observation."

Donaldson was right. Global Links may be tiny -- in 2004, it had in $113,000 in revenue and $104 in interest income -- but it deserves observation. It represents clearly both sides of the growing and complex debate over why shares fail to deliver and how prevalent naked short-selling is.

On the one hand, Las Vegas-based Global Links (or, in its former incarnations, United Trading.com, United Casino Corp. and Blue Jacket Mining Co.) has raised the kinds of red flags that draw the attention of short-sellers.

According to the company's SEC filings, before a series of 350-to-1 reverse splits, it had increased its number of common shares to 1.9 billion; it let go of its Encino-based accountant following a violation of the Sarbanes-Oxley Act; and it invested $125,000 last year into R&D of a Web site, R-E-Info.net, whose home page still says it's "currently under construction."

On the other hand, it's hard to explain the stock's February trading, if you reject the notion that naked short-selling wasn't a factor. Since early February, Global Links has spent 89 days on the NASD's threshold list of companies that have delivery failures of 13 days or more.

Because regulators are prevented from disclosing or talking about any abusive trading they may observe, it's hard to find clear-cut examples in the public record. So instances of extreme trading like Global Links has seen are, for now, as clear cut as it gets.

But what if the aggressive trading seen in Global Links has spread beyond the pink sheets and into brand-name stocks like Netflix, Shanda Interactive and Overstock.com, which are more commonly held by average investors?