At Truth on the Market, Michael Sykuta posts thoughts on naked short sales and the SEC's recent victory against them.

Naked short sales are similar to short sales in commodities markets.  Essentially the seller sells stock that he doesn't own, hoping to purchase them at a lower price prior to the delivery date. According to Sykuta:

Some critics argue that such short-selling leads to market distortions and potential market manipulation, and some even pointed to short-selling as a boogey-man in the 2008 financial crisis, hence the restrictions on short-selling giving rise to the SEC’s enforcement proceedings. 

Just one problem, there’s a lot of evidence that shows restrictions on short-selling make markets less efficient, not more.

Sykuta cites, inter alia, to a recent Journal of Finance article by Alessandro Beber and Marco Pagano, the abstract of which states:

Most regulators around the world reacted to the 2007–09 crisis by imposing bans on short selling. These were imposed and lifted at different dates in different countries, often targeted different sets of stocks, and featured varying degrees of stringency. We exploit this variation in short-sales regimes to identify their effects on liquidity, price discovery, and stock prices. Using panel and matching techniques, we find that bans (i) were detrimental for liquidity, especially for stocks with small capitalization and no listed options; (ii) slowed price discovery, especially in bear markets, and (iii) failed to support prices, except possibly for U.S. financial stocks.

More general information (that does not substantively address the legal restrictions against short selling stock) can be found here.