Overstock.com founder Patrick Byrne, who lobbied hard for the legislation, also said he is ready to fight if the state faces litigation from disgruntled securities brokers and dealers.

"Tell them I said that while they're at it, please sue me personally. [Overstock attorney John] O'Quinn and I are salivating at the thought of crawling through their stock loan operations with flashlights and bolt-cutters," Byrne said.

Believed to be the first state law of its kind, the statute aims at stockbrokers, dealers and investment consultants who fail to produce stocks purportedly borrowed for transactions that include short sales - essentially a bet sold shares will lose value.

Such naked short selling results in "failures to deliver," which can create artificially inflated trading volume that in turn suppresses prices for a company's legitimate shares. Market regulators acknowledge the illegal practice continues, though they debate just how serious the problem has become.

The New York-based Securities Industry Association, or SIA, was unsuccessful in an 11th-hour attempt Friday to convince Gov. Jon Huntsman Jr. not to sign the legislation, which legislators overwhelmingly passed in last week's special session.

"The industry is reviewing all of its options, including legal recourse," SIA spokesman Travis Larson said Tuesday.

The SIA, representing more than 600 investment banks, mutual fund companies and broker-dealers nationwide, had written Huntsman earlier warning that the law could result "in a time-consuming and expensive court challenge."

Gubernatorial spokesman Mike Mower said Huntsman considered the letter but decided the current system of regulating short sales - a frequently castigated combo of federal law and self-regulated, voluntary securities industry enforcement - was leaving small- and mid-cap companies vulnerable to stock manipulation.

Reviewing opposition to the measure fell largely to Francine Giani, director of Utah's Department of Commerce. She dunned the securities industry for arriving late to the debate over legislation first proposed three months ago during the Legislature's general session.

Even during last Wednesday's one-day special session, little opposition was raised until both houses passed the bill one vote shy of unanimity.

"This [late opposition] may still turn out to be a tempest in a teapot," Giani said. "But if not, the courts are out there to decide just what a state can do [about naked shorting]. The whole idea of this was to provide transparency."

Earlier published reports had Zions Bank ready to join the fray, but Clark Hinckley, senior vice president and manager of investor relations, said Tuesday that was not the case.

"We don't have a specific opinion on the bill right now, and there isn't any particular action we plan to take on this," he said. "We do feel it is unusual for a state legislature to pass such a law, in that this usually is a federal securities matter."

Giani said she stands ready to answer any questions about the law but is convinced the statute's goal of better tracking a practice already deemed to be illegal could pass courtroom muster.

Two major brokerages with Utah operations - Morgan Stanley and Fidelity Investments - were non-committal on the issue Tuesday, saying only they continue to review the new law's impacts on their operations in the state.

Overstock.com, a Salt Lake City online closeout retailer, contends that its stock has been driven down by short sales related manipulation. The company is embroiled in California litigation alleging that the Wall Street research firm Gradient Analytics and the hedge fund Rocker Partners colluded to drive down company stock prices through a combination of negative reports and short sales timed to them.

Gradient and Rocker deny the allegations, which also have triggered investigations by the Securities and Exchange Commission.

bmims@sltrib.com

Addressing the issue:

l Utah's new law, in the form of amendments to the state's securities statute, seeks to hold broker-dealers accountable for alleged "naked shorting," an illegal transaction that can create bogus trading volumes that drive down legitimate share prices.

l In cases of legal short selling, stock is borrowed from a broker and sold on a bet that share prices will fall. The stocks are then bought back and returned to the broker with the seller pocketing the difference between high and low prices.

l About 1.5 percent of the dollar volume of stocks traded daily end up as "failures to deliver," exchanges regulators estimate are worth up to $6 billion a day.