As I understand it, naked short-selling is when investors sell fictitious (nonexistent) shares to other investors like you and me at a price determined by the market. This tends to drive the stock price down. At the same time the "float" of shares is increasing. These fictitious shares have value because the brokerage houses require that the short sellers to eventually cover these short positions by buying shares. However, this practice distorts the market and allows for manipulation of the stock's price.