“The Matrix is the world that has been pulled over your eyes, to blind you from the truth.”
– Morpheus to Neo, The Matrix
It is the mission of DeepCapture to show you, dear reader, that the financial world you inhabit, a world vouched-for in dulcet Midwestern tones by actor-spokesmen you recognize and trust, a world inhabited by honest brokers looking after your money, brokers who interact through self-regulating exchanges overseen by diligent regulators, themselves overseen by elected politicians looking out for their constituents, themselves challenged by an adversarial free press maintaining a critical posture towards it all, is in fact a “world that has been pulled over your eyes, to blind you from the truth.” It doesn’t exist: it is a socially constructed reality designed to keep you complacent as you feed your savings to the machine.
And I can prove it. For that matter, so can you, right now, from your computer. To explain how, I must continue with reference to The Matrix.
There is a point in the movie where Neo and his comrades are walking up a staircase. Neo glimpses a black cat that disappears then reappears:
In this essay I will explain a glitch that is available for you to verify right now, from your computer. I do not know how long it will remain after I write this, but it has existed for many months, and cannot be fixed without causing other problems for those seeking to keep you deluded. I will take you through three steps, and then you will be able to test this theory from your computer, and see a glitch that should not exist.
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STEP #1 OF 3: UNDERSTAND WIKIPEDIA
Wikipedia is a social media encyclopedia. That is to say, it is the work of thousands of people collaborating across the Internet to write millions of articles on every subject one would expect to find in an encyclopedia, and many more. People are free to edit other peoples’ words, adding their own knowledge to the sum. The constitutional principles of Wikipedia demand that such edits and additions be written from a “Neutral Point of View”. Every article is backed up by a discussion page, where the people who are working on that article can meet and work out their differences in an atmosphere where good faith is assumed. Ultimately, differences which are not so resolved are put to community vote. In sum, Wikipedia is socially constructed reality.
Wikipedia has drawn its detractors (myself among them) across many fronts. One thing that both supporters and detractors agree on, however, is the remarkable speed with which Wikipedia is updated to reflect the world around us. When any significant event happens, the appropriate page is updated within minutes, or even within seconds, by someone. Be it a public statement of a treasury official, the passing of a celebrity, or a car bomb going off on a street in Beirut, the appropriate Wikipedia pages are updated before the story has finished scrolling across the wire.
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STEP #2 OF 3: SCROLL THOUGH THE HEADLINES OF (OR READ) THESE 21 ARTICLES (a-u) CONCERNING NAKED SHORT SELLING AND THE GLOBAL FINANCIAL IMPLOSION
a) July 12, 2006 Speech by SEC Chairman: Opening Statements at the Commission Open Meeting by Chairman Christopher Cox
Second Item – Proposed Amendments to Regulation SHO
The next item on our agenda is the serious problem of abusive naked short sales, which can be used as a tool to drive down a company’s stock price to the detriment of all of its investors. The Commission is particularly concerned about persistent failures to deliver in the market for some securities that may be due to loopholes in the Commission’s Regulation SHO, adopted just two years ago.
At the Commission’s request, the Division of Market Regulation has prepared proposed changes in Rule 203 under Regulation SHO to cut down on failures to deliver.
The need for Regulation SHO grew out of long-standing and growing problems with failures to deliver stock by the end of the standard three day settlement period for trades, some of which were symptoms of abusive “naked” short selling. Selling short without having stock available for delivery, and intentionally failing to deliver stock within the standard three-day settlement period, is market manipulation that is clearly violative of the federal securities laws…
A grandfather provision, however, gave an exception from Rule 203(b)’s mandatory close out provision for any fail to deliver positions established before a security became a threshold security. And another provision of Rule 203(b) – the options market maker provision – provides an exception for any fail to deliver positions in a threshold security if they result from short sales by an options market maker, for the purpose of establishing or maintaining a hedge on options positions created before the underlying security became a threshold security.
We are particularly concerned about the potential negative effect that substantial and persistent fails to deliver may be having on the market in some securities. Specifically, these fails to deliver can deprive shareholders of the benefits of ownership – voting, lending, and dividends from issuers. Moreover, they can be indicative of abusive naked short selling, which could be used as a tool to drive down a company’s stock price. They may also undermine the confidence of investors who may believe that the fails to deliver are evidence of manipulative naked short selling in the stock. In turn, issuers may be harmed, as investors may be reluctant to commit capital to a stock that they believe is subject to abusive naked short selling.
To address these concerns, the Division of Market Regulation is recommending proposals to amend Regulation SHO. The recommended proposals are based on examinations conducted by the Commission’s staff and the SROs since Regulation SHO became effective in January 2005. While preliminary data indicates that Regulation SHO appears to be significantly reducing fails to deliver without disruption to the markets, there continues to be a number of threshold securities with substantial and persistent fail-to-deliver positions that are not being closed-out under existing delivery and settlement guidelines. It appears these persistent fails are primarily attributable to the grandfather and options market maker exceptions to the delivery requirements of Regulation SHO.
The proposals being recommended today would eliminate the grandfather provision, and narrow the options market maker exception. The proposals would include a limited one-time phase-in period following the effective date of the amendment. The proposals also include a technical amendment that would update the market decline limitation referenced in the rule. In combination, these proposals are intended to eliminate the persistent fails to deliver that are attributable to loopholes in Regulation SHO as originally adopted…
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b) March 4, 2008 – Reuters: “SEC proposes tougher “naked” short selling rules“
WASHINGTON, March 4 (Reuters) – The U.S. Securities and Exchange Commission on Tuesday proposed tougher rules to curb so-called “naked” short-selling abuses and prevent market price manipulation.
SEC Chairman Christopher Cox said regulation SHO, an existing rule partly aimed at short selling abuses, “needs teeth.”
Short sellers borrow shares they consider overvalued and sell them. If the price drops, they repurchase the shares, return them and pocket the difference. In a naked short sale, the investor sells stock that has not yet been borrowed.
The three-member SEC voted unanimously to propose the rule, which targets sellers who intentionally deceive broker-dealers or purchasers about their ability to meet delivery deadlines.
Sellers sometimes deliberately fail to deliver securities as part of a scheme to manipulate the stock price.
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c) March 5, 2008 – Wall Street Journal: “SEC Proposes Teeth for Short-Selling Rules” by Judy Burns
WASHINGTON — Securities regulators voted 3-0 to propose a rule intended to crack down on lingering abuses involving so-called naked short sales and failures to deliver shares that have been used in such sales.
The proposal is part of a continuing attack by the Securities and Exchange Commission on short-sales abuses, an effort begun four years ago with the adoption of rules known as Regulation SHO.
Separately, the SEC voted to propose changes that could speed the introduction of exchange-traded funds, without review by federal regulators. (Please see related article.)
Short selling involves sales of borrowed shares, producing profits when prices decline, allowing the short seller to replace borrowed shares at a lower price.
In contrast, “naked” short sellers don’t borrow shares before engaging in short selling, and they may have no intention of borrowing them.
Regulation SHO sought to curb such practices by requiring short sellers to locate shares for borrowing before engaging in short sales, but it did not include any new mechanism to enforce the requirement.
Under the proposal, the SEC would create an antifraud rule targeting those who knowingly deceive brokers about having located securities before engaging in short sales, and who fail to deliver the securities by the delivery date.
SEC Chairman Christopher Cox said the proposal would bring needed teeth to Regulation SHO and address concerns about short-selling abuses, particularly in the market for small-cap stocks. “Reg SHO can’t be effective without enforcement,” Mr. Cox said.
Even with the regulation in place, the SEC received hundreds of complaints last year about alleged abuses involving short sales. While most trades settle within three days, as required, the SEC estimates about 1% of shares that change hands daily, or about $1 billion, are subject to delivery failures.
The SEC’s move last year to close off a “grandfather” exception to Regulation SHO, has done little to reduce longstanding delivery failures, according to preliminary data analyzed by SEC staff.
The SEC has yet to announce its plans for a separate pending proposal to scale back or eliminate an exemption for options market-makers.
Brokers who engage in short selling for customers would not face any new obligations under the proposed antifraud rule, and the SEC said it wouldn’t apply to market makers engaging in market-making activities.
Although the SEC already has authority to sue illegal short sellers, SEC officials said a new rule explicitly targeted to naked short sales might affect behavior. SEC Commissioners Paul Atkins and Kathleen Casey expressed support for the crackdown on abusive sales but said they want to be sure it doesn’t result in unintended consequences, such as driving legitimate short sales offshore.
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d) July 15, 2008 – Bloomberg: “SEC to Limit Short Sales of Fannie, Freddie, Brokers” By Jesse Westbrook and David Scheer
The U.S. Securities and Exchange Commission will limit the ability of traders to bet on a drop in shares of brokerage firms, Freddie Mac and Fannie Mae as part of a crackdown on stock manipulation, the agency’s chairman said.
Christopher Cox told the Senate Banking Committee that the agency will require traders to hold shares of the two mortgage buyers and the brokerages before they execute a short sale. The emergency order, to be in effect for 30 days, will bar the practice called naked short selling, in which traders avoid the financial cost of borrowing shares when betting they’ll fall.
Cox said the SEC will draft rules “to address the same issues across the entire market.”
Hedge-fund manager William Ackman, who oversees $6 billion at Pershing Square Capital Management, is among those betting that shares of Fannie Mae and Freddie Mac will fall. There’s no indication he is engaging in naked short selling, in which traders never borrow shares from their broker or deliver the stock to buyers.
The SEC has been reluctant to curb short selling “because it would require a major retooling of the plumbing of Wall Street,” said James Angel, a finance professor at Georgetown University studying short sales. “It’s only when the big Wall Street firms are threatened that the SEC does something about it.”
Trading Abuses
The SEC is investigating whether trading abuses contributed to the collapse of Bear Stearns Cos. in March and the 78 percent drop in the market value of larger rival Lehman Brothers Holdings Inc. this year. Fannie Mae and Freddie Mac have each lost about 80 percent of their value amid speculation the mortgage-market crisis may push the firms into insolvency.
Short-sellers, who borrow shares betting that they’ll decline, are spreading rumors about Lehman in an organized attempt to depress the stock, according to Richard Bove, bank analyst at Ladenburg Thalmann & Co. in Lutz, Florida.
“As with Bear Stearns, Lehman has been targeted by the fear-trade,” said Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone in a report yesterday. Lehman should go private so it can avoid the attacks by short-sellers, he said.
Freddie Mac, down as much as 34 percent today before Cox’s comments, erased some of the decline and fell $1.49, or 21 percent, to $5.62 at 2:34 p.m. in New York Stock Exchange composite trading. Fannie Mae shares rebounded from a 30 percent drop and were down 18 percent.
Opposition
“I don’t think the government should ban short-selling in anything as long as it’s fully disclosed, as long as there’s no manipulation,” MFS Investment Management Chairman Robert Pozen said in an interview with Bloomberg News yesterday. “Don’t we want the market to work here?”
John Nester, an SEC spokesman, said the emergency order will “require any person effecting a short sale in the listed securities to borrow the securities before the short sale is effected and deliver the securities on settlement date.”
In traditional short selling, traders borrow stock through a broker and hope to profit by selling shares high and later buying them back at lower prices to repay the loan.
Naked short selling isn’t necessarily illegal, unless authorities can prove fraud, such as a scheme to manipulate stock prices.
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e) July 18, 2008 – Op-ed for the Investor’s Business Daily: “Public Statement by SEC Chairman Christopher Cox ‘Naked Short Selling Is One Problem a Slumping Market Shouldn’t Have‘”
The demise of IndyMac, coming on the heels of Bear Stearns’ desperate sale to JPMorgan Chase, is a sure sign of the fragility of today’s markets. What’s needed now, more than ever, is reliable information for investors and confidence that trading can be conducted without the illegal influence of manipulation.
Because financial institutions depend on confidence, they are uniquely vulnerable in the current climate. A “run on the bank” can take hold quickly, and can be fatal. But stampedes are not always rational.
When an irrational panic is fueled by a sense of urgency, false rumors that must be acted on immediately and the fear that everyone else may get out first, market integrity is threatened. It is the job of market cops to provide a measure of confidence that financial information about public companies is accurate and reliable — and when it is not, to punish those responsible.
Who profits from intentionally false information in the marketplace? Those who are in on the scam and positioned to benefit from the predictable response of others who believe the fraudulent information to be true.
The classic “pump and dump” scheme, in which a stock is inflated through false information and then dumped on unsuspecting investors when the perpetrators flee, is one example of how this works. “Distort and short” is the same thing in reverse.
Naked short selling can turbocharge these “distort and short” schemes. In a naked short, the usual process of short selling is circumvented, because the seller doesn’t actually borrow the stock and simply fails to deliver it. For this reason, naked shorting can occur even when actual shares aren’t available in the market. It allows manipulators to force prices down without regard to supply and demand.
Next week, the SEC will implement an emergency order designed to prevent naked short selling in the financial firms that the Federal Reserve Board has designated as eligible for access to its liquidity facilities.
Because these are large firms with substantial public float, honest short sellers can readily locate shares to make good on their short positions. Continued legitimate short selling in these issues will act, as it is supposed to, as a way for market participants to invest in the downside and to hedge other positions.
At the same time, eliminating the prospect of naked short selling will help assure investors that it is safe for them to participate, and that the current declining market is not the product of unseen manipulators and “distort and short” artists.
Our emergency order is not a response to unbridled naked short selling in financial issues — so far, that has not occurred — but rather it is intended as a preventative step to help restore market confidence at a time when it is sorely needed.
Many people think naked short selling is already illegal, but that isn’t true. Shares are normally delivered to the buyers within three days of the trade. But in most stocks, including those covered by our emergency order, that three-day period can be extended indefinitely.
Even without these extensions, and even when a short seller locates shares that can be borrowed, there can be problems because the short seller is not currently required to actually borrow those shares until settlement.
As a result, securities lenders can tell multiple short sellers they can borrow the same shares of stock — a sure recipe for a failure to deliver. Once the commission’s order takes effect, this possibility will no longer exist.
The SEC is committed to maintaining orderly securities markets. The abusive practice of naked short selling is far different from ordinary short selling, which is a healthy and necessary part of a free market.
Our agency’s rules are highly supportive of short selling, which can help quickly transmit price signals in response to negative information or prospects for a company. Short selling helps prevent “irrational exuberance” and bubbles.
But when someone fails to borrow and deliver the securities needed to make good on a short position, after failing even to determine that they can be borrowed, that is not contributing to an orderly market — it is undermining it. And in the context of a potential “distort and short” campaign aimed at an otherwise sound financial institution, this kind of manipulative activity can have drastic consequences.
It was famously — perhaps too famously — said that “markets will fluctuate.” That is certainly true if they are well-functioning. As market referee, the SEC neither can nor should direct the market’s fluctuations. Instead, our most basic role is to ensure a continued flow of liquidity to the markets from participants who are confident the game isn’t rigged against them.
Naked short selling can undermine the market’s integrity. For the financial sector in this crisis, certainly, but as soon as possible for the entire market, this is one worry investors shouldn’t have.
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f) July 29 – Bloomberg: “SEC Extends Naked Short-Sale Order on Fannie, Freddie” David Scheer and Edgar Ortega
The U.S. Securities and Exchange Commission extended an emergency limit on short sales in shares of Freddie Mac, Fannie Mae and 17 brokerages as it prepares broader rules to thwart stock manipulation.
The SEC pushed back expiration of its ban on so-called naked short sales of the firms’ stocks from today through Aug. 12, the Washington-based agency said in a statement. The order aims to keep traders from driving down financial stocks to boost profits after Bear Stearns Cos. and IndyMac Bancorp Inc. collapsed amid rumors they were faltering.
The emergency order, focused on companies whose collapse might expose the U.S. government to losses, gives regulators time to weigh wider restrictions. SEC Chairman Christopher Cox last week told lawmakers the agency is examining other proposals, such applying the ban on naked short sales to the broader market.
“It definitely appears that the SEC is interested in making adjustments to short-sale regulations,” said John Standerfer, vice president for financial services at S3 Matching Technologies, the Austin, Texas-based trade processor.
In traditional short selling, traders borrow shares and sell them. If the price drops, they profit by re-buying the stock, repaying the loan and pocketing the difference.
Naked short sellers don’t borrow shares before settling sales. The SEC is concerned manipulative investors may use the sales, legal under some conditions, to drive down prices by flooding the market with orders to sell shares they don’t have.
Arrange to Borrow
The temporary order, which took effect July 21, requires traders to at least arrange to borrow shares before selling short Freddie Mac and Fannie Mae, the government-sponsored mortgage buyers. The order covers brokerages with access to the Federal Reserve’s discount window, which was opened to investment banks after the March collapse of Bear Stearns.
Market makers have an exception under the SEC order that permits them to sell short to maintain liquidity. Investors, such as hedge funds, previously could start trades without an agreement to acquire shares.
Short sales, particularly among retail investors, plummeted after the SEC announced the ban, according to data from S3 Matching Technologies, which processes trades for three of the top five retail brokerages. The sales fell 78 percent on average among the companies named in the order, compared with trades on July 14, the day before the SEC announced the measure, S3 data shows. The company handles about 15 billion transactions daily.
`Pretty Restrictive’
“I see no reason that will turn around,” said Standerfer in an interview yesterday. “It seems like a pretty restrictive rule to put in place for the entire market.’
Cox last week told Congress the agency may also force investors to disclose “substantial” bets on falling stocks and or reinstate a version of the so-called uptick rule, which barred short sales of stocks when prices are falling.
The uptick rule, implemented after the Great Depression and scrapped last year, allowed short sales only if a preceding trade boosted the stock price. The SEC is studying whether increasing the uptick increment, such as to a nickel or dime, might be more effective, he said.
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g) August 2, 2008 – The Salt Lake Tribune: “Naked shorting’s early critic starts to see some vindication: Byrne’s Battle Helps Bring Curbs on Naked Short-Selling Practices“. By Steven Oberbeck
Over the past several years, Patrick Byrne’s campaign to clean up Wall Street and end a practice that has destroyed companies and cost unwary investors billions of dollars generated plenty of publicity for him, mostly the wrong kind. Critics labeled him nuts, a conspiracy theorist, a complete wack job. Byrne, the chief executive of the Utah-based discount online retailer Overstock.com, even found himself tagged a member of the “tin-foil hat” brigade, a reference to the flying saucer fanatics of the 1950s who adorned their heads with aluminium to ward off, or enhance, thoughts from aliens in outer space. These days, when people talk of Byrne, the word ‘vindication’ comes up a lot. ‘You can always tell who the pioneers are — they’re the ones with all the arrows sticking out of their backs,’ said James Angel, a finance professor at Georgetown University. ‘You really can’t understate what Byrne has accomplished.’
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h) August 13, 2008 USA Today: “Financial stocks suffer after protection ends” By Matt Krant
The SEC’s emergency curb on short selling of 19 major financial services firms stocks expired before Wednesday trading, leaving investors to wonder if the measure helped protect the strained system.
Since July 21, the SEC rule banned “naked” short sales on those 19 stocks. Short sellers hope to profit by selling borrowed shares and replacing them at lower prices. In naked short sales, traders don’t actually borrow the shares; that can intensify the downward pressure on a stock.
The rule’s expiration appeared to have some effect Wednesday as financial stocks suffered sizable losses. That could mean short sellers have been at least partly behind big drops in shares of some financial companies.
“There has to be some sort of correlation between the moratorium ending and these stocks being down,” says Eric Fitzwater, analyst at research firm SNL Financial.
Perhaps more telling: The day the Securities and Exchange Commission announced the rule, July 15, was the day financial stocks bottomed for 2008. “If (the SEC) wanted to protect these companies artificially, it served its purpose,” Fitzwater says.
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i) August 17, 2008 The Economist: “Searching for the naked truth“
The real problem with abusive short-selling
“It is impossible to know how big this problem is, but regulators accept it exists. The American Stock Exchange fined two market-makers for precisely this violation in July 2007. A month later the SEC proposed limiting or eliminating the exemption, but momentum stalled in the face of opposition from banks and exchanges. The anti-short lobby, emboldened by the July ban, is again pushing for an end to the market-makers’ exemption. …. How much does all this matter? Deliberate naked shorting has no place in a well-run market…”
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j) September 16, 2008 Associated Press: “Naked short-selling blamed in Wall St crisis“
WASHINGTON – With Wall Street engulfed in crisis, the Securities and Exchange Commission is planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies. During emergency meetings between federal officials and investment bank executives over the weekend, SEC Chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive ‘naked’ short-selling, a person familiar with the matter said Monday….
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k) September 21, 2008 Associated Press: “Dutch ban ‘naked’ short selling for 3 months“
The Dutch Finance Minister is banning “naked” short selling of financial stocks for the next three months to increase the stability of financial markets….
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l) October 28, 2008 Wall Street Journal: “Japan Cracks Down on Naked Short Selling” By Takashi Nakamichi and Ayai Tomisawa
TOKYO — Japan moved Tuesday imposed new restrictions on so-called “naked” short selling of stocks, stepping up its efforts to arrest the tumble in domestic share prices.
The Tokyo Stock Exchange has asked member brokers to stop accepting naked short-sell orders, TSE President Atsushi Saito told a news conference.
The TSE’s move followed comments from Finance Minister Shoichi Nakagawa, who said that regulations on naked short selling would be tightened. Mr. Nakagawa didn’t say that the practice would be banned, but the TSE’s move and local media’s interpretation of his comments suggested that the new strictures, to be enforced from today, will be a ban in all but name.
Short-sellers typically borrow stocks and then sell them on, profiting from the fall in price when they buy back the securities. Naked shorting removes the need to first borrow the stock, which means that larger volumes of shares can be dumped on the market. Short-selling generally has drawn fire from regulators across the world, who say it has contributed to the sharp market declines of recent months.
The Japanese government had planned to ban naked short selling from Nov. 4, but the recent plunge in local share prices has caused the new rule to be introduced a week ahead of schedule. The Nikkei 225 Stock Average closed at a 26-year low on Monday, as investor sentiment was battered by the global financial crisis, the rising yen and concerns about an international economic slowdown.
Traders said the naked short-selling ban was one reason for a big recovery in Japanese shares Tuesday.
The ban “was one of the positive factors behind the Nikkei’s gains (in the afternoon), but I don’t think it’s the main catalyst,” said Yukio Takahashi, market analyst at Shinko Securities. The Nikkei ended 6.4% higher Tuesday, erasing most of Monday’s sharp slide, due mainly to the yen’s weakening and firmness in major Asian stock markets, traders said. (See related article.)
The naked shorting ban comes as the government mulls a series of measures to improve confidence in Japan’s financial sector. Among other steps, the government wants to raise the cap on possible injections of taxpayers’ money into domestic banks from ¥2 trillion ($21.37 billion), ease fair-value accounting rules, loosen capital adequacy requirements for banks and enlarge tax breaks for stock investors.
At Tuesday’s news conference, Mr. Nakagawa highlighted the urgency of the task at hand. “I’ve discussed with Prime Minister [Taro Aso] the fact that the coming few days will be very important and that we must take steps immediately,” he said. “Our assessment is that the coming several days will be very important — and therefore dangerous — for the Japanese stock markets.”
Mr. Nakagawa also said the government will immediately open investigations into possible illegal practices linked with naked short selling. The Financial Services Agency, the Securities and Exchange Surveillance Commission and the TSE will work together in looking into past records on such sales practices, he said. “If we find out any violation of the law,” Mr. Nakagawa said, “we will retroactively deal with it strictly.”
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m) November 14, 2008 “Australia bans naked short-selling“
CANBERRA: Australia moved to slap a permanent ban on the most controversial form of short-selling yesterday amid an historic fall in share prices, part of a crackdown that is also targeting hedge funds and credit rating agencies.
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n) November 20, 2008 – CNBC: Interview with Former SEC Chairman Harvey Pitt:
Interviewer: Let’s talk shorts. Harvey Pitt is former SEC chairman and founder and CEO of Kalorama Partners. Harvey, great to have you with us….Chairman Pitt, do we need to bring back the Uptick Rule? Would that make a difference here at all?
Harvey Pitt: I don’t believe so. The Uptick Rule was almost non-existence in terms of its detrimental affects. There’s a very simple solution and the SEC has it and they know what is. It’s very simply this. If you want to sell a stock short you have to have a legally and forcible right to produce that stock on settlement day. That’s all it takes. If the SEC does that people will not be able to sell short unless they have actually first located and gotten their stock.
Interviewer2: In other words that would do away with naked shorting right?
Harvey Pitt: Absolutely, and naked shorting is what’s causing a lot of the problems in the market.
Interviewer2: Because nobody is forced to deliver. Nobody must deliver. Too much of that going on.
Harvey Pitt: That’s been the real problem. People in affect are just gambling. They’re assuming the stock price will go down. They then spread false rumors to help the stock go down, but they have no skin in the game because they haven’t committed to produce the shares that they purportedly are selling.
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o) November 21, 2008 – The Financial Times: “Regulators to discuss short selling rules” By Joanna Chung in New York
Global securities regulators will gather on Monday to discuss rules on short selling and disclosure of credit derivatives, the head of the US Securities and Exchange Commission said on Thursday.
Christopher Cox, SEC chairman, said the meeting, to be held via teleconference, would address “urgent regulatory issues in the ongoing credit crisis.”
The announcement came during yet another tumultuous day of trading in global stock markets.
“In addressing turbulent market conditions, it is essential not only that regulators act against securities law violations, including abusive short selling, but also that there be close coordination among international markets to avoid regulatory gaps and unintended consequences,” Mr Cox said in a statement on Thursday.
The International Organization of Securities Commissions, which includes securities regulators from around the globe, will consider the effectiveness of their recent actions to reduce abusive short selling, without hurting legitimate shorting…
Mr Cox said regulators will explore “possible coordination” on rules relating to naked short sales – when shares are sold without being borrowed first– in particular with regard to position reporting and delivery and pre-borrowing requirements.
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p) November 24, 2008 Reuters “Global regulators focus on abusive short selling”
WASHINGTON, Nov 24 (Reuters) – Global securities regulators launched three task forces to study abusive short selling, unregulated financial products and unregulated financial entities such as hedge funds, the U.S. Securities and Exchange Commission said on Monday.
“The working groups were established amid volatile market conditions and designed to support work of the world’s 20 largest economies, which have already agreed to step up oversight of the troubled financial system. “One group will focus on aligning global regulators’ approach to naked short selling, the SEC said.””
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q) December 1, 2008 – EuroMoney: “US equity market – Fails to deliver: The naked truth“
Fails to deliver in the US equity market have exacerbated the sharp declines in share prices of financials.
IT IS NO surprise that the stock of Bear Stearns was heavily shorted in the run-up to its government-supported rescue in March, given its high leverage, poor risk management and the fact that its sub-prime bets had gone awry. Short-selling of any financial company would have been understandable by March this year. But just why on March 12, two days before the rescue announcement, almost 1.25 million Bear Stearns shares were shorted is a question that is a little harder to answer.
Up to that point in 2008, cumulative fails to deliver of Bear Stearns’ stock were only between 10,000 and 200,000 on any given day. On March 14, more than 2 million Bear Stearns shares went undelivered, and from then until the end of March, failures increased, peaking one day at more than 13.78 million shares. At the same time, from March 12 to the announcement on Friday March 14, Bear Stearns’ share price crashed from $61.68 to $30, dropping to $4.81 the following Monday.
That the precipitous drop in Bear Stearns’ share price coincided with fails to deliver has forced the market to properly address a long-standing question: are fails to deliver responsible for rapid share price deterioration? Had those failures been averted through better regulation would Bear Stearns have had a slower downfall, or even avoided outright collapse? And what of Lehman Brothers, Fannie Mae and Freddie Mac? Indeed, would all financial companies have enjoyed more resilient share prices, instead of seeing sudden, sharp price declines that were the final nudge to creditors and counterparties abandoning firms and driving them into bankruptcy?
The SEC has since attempted to bring a halt to naked short-selling, which gives rise to fails to deliver, but are its efforts sufficient?
Formal investigations are taking place to look into abusive short-selling of the stocks of both Bear Stearns and Lehman Brothers.
Robert Shapiro, former economic adviser to Bill Clinton, chairman of Sonecon and an adviser to the presidential transition team of Barack Obama, believes there is sufficient evidence that naked shorting accelerated the collapse of Bear Stearns. He says: “Bear Stearns failed because it went bankrupt. However, the pace of the collapse of the stock price was clearly accelerated by the enormous naked short-sale activity. There perhaps could have been a more orderly bankruptcy which would have preserved more of the assets.”
John Welborn, an economist with investment firm the Haverford Group, agrees. “Fails to deliver added to the downfall of Lehman Brothers and Bear Stearns but were not, obviously, the whole story. Fails in Lehman Brothers were never significant enough to drastically alter the tradable float. In Bear Stearns, however, a torrent of fails began on March 12, before the public knew most of the bad news. The important thing to note here is that T+3 settlement essentially allows people to sell an infinite amount of any stock either to precipitate a bear raid or to capitalize on one already in progress.”
Welborn continues: “A bear raid encourages panic selling by long holders. Once enough long holders are induced to sell, then there are plenty of shares available to cover any naked positions ex post. When the long holders have sold their positions and the naked short sellers have covered at a lower price, then the issuer faces a dramatically depressed market. That may make it difficult (or impossible) to recapitalize, especially if that issuer is in the financial sector.”
Naked short-selling can be a confusing topic. A short-seller can only sell short if it can locate a source from which to borrow that security and therefore ensure delivery to the buyer – within the T+3 requirement. In most circumstances it is up to the prime broker to confirm whether it is possible to locate the stock and agree the transaction. If it is not possible to locate a stock, which can happen when certain stocks become illiquid, the trade is not allowed to take place. Market makers are an exception to this rule, and are able to lend stock without having located a source from which to borrow, in order to keep the markets liquid. This type of “naked shorting” is legal. If the source of stock is not a market maker, selling of a stock without having located a stock to deliver is illegal. Illegal, however, means very little when no enforcement penalties are in place.
Up until the end of this summer – not till September did the SEC enforce a crackdown – shorting without locating a source from which to borrow has suffered no penalty in the US, and brokers’ statements about efforts to locate them might be rather vague. “A broker can say he has located a stock, but that’s it,” says a hedge fund manager. “What if five other brokers are looking at that same stock and telling their clients they have located it. Who will get it?”
And if there is no penalty for failing to locate and failing to deliver, then why not just fail to deliver? In equity markets if a short-seller does not deliver, he can simply wait until the stock price deteriorates sufficiently so that he will never have to deliver, and therefore is able to keep the money from his sale. Do short sellers, be they hedge funds or proprietary trading desks, do this often? No. But can they do it? Yes. And were some doing this during the peak of the financial crisis? Absolutely.
One former employee of regulator NASD says he knows of a hedge fund that was shorting Freddie Mac and Fannie Mae on a “massive scale”, with no intention of ever locating stock. “His prime broker let the trade go through regardless as he was a large client of theirs,” he says.
Illegal naked shorting, at its worst, can be implemented to bring a company down. In the present crisis of confidence among financial institutions, it can also simply be a means of jumping on a losing target. If a financial institution’s stock looked as if it was falling, why not short-sell without promising a buy-in within three days and hope that the fall is sufficiently large beyond three days to make an even bigger profit?
A glance at the fails to deliver in the financials market indicates that some investors applied this strategy. A comparison of the average daily reported shares failing to deliver between the first quarter of 2007 and the first quarter of 2008 for the US’s top financial firms showed a clear increase over the period. The data, compiled by Washington publication IA Watch, showed a 335% increase for Freddie Mac, a 226% increase for Citigroup, a 133% increase for Goldman Sachs, a 632% increase for Morgan Stanley and a 1,123% increase for Bear Stearns. One source even suggests that some market participants never intended to buy-in and simply marked their tickets “long” selling shares that they did not even own as they knew they would never have to make delivery.
Fails to deliver: Unheard voices
Fails to deliver in the US stock markets are not a new phenomenon. In response to an increasing number of fails, the SEC introduced Regulation SHO in January 2004. This required that a daily list be compiled of all securities that had more than 10,000 fails to deliver, or more than 0.5% of issued shares failing to deliver for five consecutive days or more. No penalty was introduced to deter fails but it was believed that publication of the list would act as a deterrent. The majority of the stocks on the list were those of small firms on the Pink Sheets or Bulletin Boards and many were regarded as companies with weak business models that were likely to see fails to deliver, as levels of shorting in the stock would be high.
For years, small companies affected, and larger companies such as Overstock.com (which has market capitalization of $500 million) have appealed to the SEC to prevent fails to deliver, claiming that their stock prices have suffered as a result of the practice. In April 2004, in a series of articles, Euromoney warned about the implications for larger household names if fails to deliver were not properly addressed. Shapiro agrees that larger companies are now being targeted. He says: “Ordinarily this doesn’t happen to large institutions with large stock floats but in a panic situation they become vulnerable along with those companies that are always vulnerable – smaller companies that are without large public floats. In a time of panic, mechanisms that allow the markets to overshoot (naked shorts) mean you can drive a stock into the ground.”
Patrick Byrne, chief executive of Overstock.com, continues to lobby against fails but insists it is not a matter of self-interest. “The argument gets reduced to me being upset that stock in my firm might be being shorted. That was never the argument. Shorting has its place, I know. This has always been about why the government is ignoring the loopholes within the settlement system that are allowing for fails to deliver to occur.”
He is certain, as are several other long-standing lobbyists, that the recorded number of fails to deliver is only a fraction of the true amount. “If two broker/dealers clear through the DTCC, and one fails, then the two brokers can turn that failure into a private contract to be dealt with outside the DTCC and it becomes ‘ex-clearing’. After that there is no register of that fail,” says Byrne. If failures are as frequent as suggested, the idea of broker/dealers preferring to cancel out each other’s fails on a private basis is not beyond the realms of possibility.
Wes Christian is partner in a law firm representing 15 companies that allege that their stock price has been driven down by illegal naked shorting and fails to deliver. “We are aware of these deals being ex-cleared and of the failings of Reg SHO. Allowing failures to deliver creates artificial supply and that drives down prices,” he says. The defendants in Christian’s clients’ cases are the majority of broker/dealers on Wall Street.
Fails to deliver in the equity markets are seen to create artificial supply. If a stock can be sold without having to be borrowed, there is a strong possibility that stocks in excess of those issued are being sold. Indeed, several companies, Overstock.com included, have reported instances of more owners of stock than is possible. On March 14 128% of Bear Stearns stock outstanding was traded. These “phantom shares” can be on-lent without delivery again and again, further diluting the stock.
It’s a situation specific to the US markets, say participants. Patrick Georg at Clearstream Luxembourg says there has been no decline in settlement efficiency in Europe. Alan Cameron, head of clearing, settlement and custody client solutions at BNP Paribas Securities Services in London, says he has seen little to indicate similar instances of fails to deliver in Europe. “Some European countries like Spain impose strict fines on failures to deliver, as does Crest. It’s not an issue here in Europe.” Byrne adds that in Europe, the impact on reputation of failing to deliver is a deterrent. A head of a prime brokerage in the UK agrees: “It just does not happen in Europe. Securities get delivered in a timely fashion or business is lost.”
However, settlement is faster in Europe than in the US. It is surprising that the US still operates a T+3 system. Robert Greifeld, chef executive of Nasdaq, questioned the system in March this year at a conference when, in reference to fails to deliver, he said it was hard to believe that in 2008 the market still required three days to settle, and that a T+1 system should be part of a discussion about fails.
The SEC has pussyfooted around enforcing delivery in the US equity market over the past 10 years or so, but the collapse of financials stocks has pushed it to be stricter. On September 17, SEC chairman Christopher Cox announced several actions to “make it crystal clear that the SEC has zero tolerance for abusive naked short-selling.” From that date, fails to deliver beyond T+3 have been subject to a hard close-out. If stocks fail to deliver beyond T+3, the broker/dealers acting on the short-seller’s behalf are prohibited from further short sales in that security unless stocks are pre-borrowed.
This change of tack upsets those such as Byrne who have been fighting to have their voices heard for years. “When companies that had access to the Fed window became victims of fails to deliver, the SEC then had to sit up and take notice,” says Byrne.
Actions taken against naked shorting: Small steps
Since August, the number of companies with stock on the Reg SHO list has fallen from an all-time high of 650 to an all-time low of 90, although this does not take into account ex-clearing data. Shapiro says it is a step in the right direction. “The actions taken are an acknowledgement of the issues regarding naked shorting and fails to deliver at least. Progress is under way. Given there are many issues facing the SEC at the moment, this is encouraging.”
Others, however, are disappointed that more has not been done. Byrne says: “A hard close-out is not nearly enough. To truly stop failures to deliver, the SEC must enforce a pre-borrow where parties have to guarantee that a locate has been found through a contract.” At present, broker/dealers and short-sellers can say they have located a source of stock when several other parties might have also identified the same source. Peter Chepucavage of the International Association of Small Broker/Dealers and Advisers agrees that an initial pre-borrow rule is crucial in preventing fails to deliver. “The industry is resisting an initial pre-borrow rule but it is essential,” he says. “Without it the stock market is like the airline industry. You’re overselling the airplane seats knowing that someone will not be able to board even though they reserved/located, to avoid decrementing their inventory.”
The argument against pre-borrows is that liquidity will dry up, and that shorting will be deterred. However, Greg DePetris at Quadriserv believes the opposite would occur as lending would increase. “A more efficient settlement process should result from recent regulatory changes, and these tighter inventory controls might create new trading opportunities,” he says. “It’s important for anyone in possession of lendable supply to monetize its value, and traditionally that’s been done through the lending spread and reinvestment of cash. The notion of pre-borrows implies that there may be derivative value in the latent supply of securities, which lenders may be able to realize for their clients.”
Welborn says the SEC knows it has to introduce the pre-borrow rule if it wants to eliminate fails to deliver for good. “As long as there are companies on the Reg SHO list, then the problem has not been solved,” he says. “The only sustainable solution to naked short-selling is a rule requiring both a pre-borrow and a hard delivery. With only one of these pieces in place, the system is still open to abuse. For example, a hard-delivery requirement by itself would not have made an iota of difference for Bear Stearns; only a pre-borrow could have put a brake on the naked short-selling.”
Welborn points out that the SEC did precisely this in July when it ordered emergency pre-borrows for Fannie Mae, Freddie Mac and the 17 primary dealers. “The SEC knows what must be done to fix this problem once and for all,” he says.
*****
r) December 9 – Reuters: “SEC urged to do more to curb naked short selling” By Rachelle Younglai
WASHINGTON, Dec 9 (Reuters) – U.S. securities regulators need to do more to crack down on abusive naked short selling — a type of trading blamed for contributing to the free-fall in financial stocks — former and current regulators said on Tuesday. Amid volatile market conditions, the Securities and Exchange Commission adopted a number of rules to rein in those who profit illegally from stock declines. Making bearish bets on stocks is a legitimate investment strategy but the SEC’s rules are designed to weed out abusive practices, such as investors’ failure to deliver stock by settlement date. Short sellers arrange to borrow shares they consider overvalued in hopes of repaying the loan for less and profiting from the difference. A naked short sale occurs when an investor sells stock that has not yet been borrowed, which can distort markets.
Former SEC Chairman Harvey Pitt praised the SEC for taking constructive steps but said the agency has not done enough.
“Naked shorting is a situation in which someone is gambling but they have no skin in the game. They are not required to make any effort to deliver the shares,” said Pitt, one of the panelists speaking at a “Coalition Against Market Manipulation” event in Washington.
The SEC tightened up its rules this year and required short sellers to deliver securities three trading days after shorting the stock.
Rex Staples, general counsel for an association of state securities administrators, said the states are trying to eliminate the problem, but said “this seems to be a solution that the commission is best-equipped to solve.”
“States are ready to act, but we are throwing our support behind the federal regulator at this point,” said Staples, general counsel for the North American Securities Administrators Association.
Pitt and other panelists said the SEC needed to do more to eliminate ambiguity in its rules.
For example, investors are required to locate shares before shorting them. However, SEC rules require broker dealers to have “reasonable grounds” to believe that the security can be borrowed so that it can be delivered by settlement date. Critics say the language is vague.
“If you want to sell short any security, you should have a legally enforceable right to deliver stock on day of settlement. It’s unambiguous, it doesn’t leave any wiggle room,” said Pitt.
*****
s) December 9, 2008 – Wall Street Journal: “SEC Urged To Step Up Attack On Short-Sale Abuses” By Judith Burns
WASHINGTON — U.S. securities regulators need to do more to curb short-selling abuses, a group of academics, business executives and former top regulators said Tuesday.
The Securities and Exchange Commission should close loopholes and enforce current rules against “naked” short selling, said Harvey Pitt, former SEC chairman and now chief executive of Kalorama Partners, a Washington, D.C., consulting firm.
“The agency has to make it clear that naked short selling in any form is prohibited,” Mr. Pitt said at a midday press conference.
Short sellers aim to profit by borrowing shares for sale and replacing them later at a lower price. “Naked” short sellers don’t borrow shares they sell short, which can pummel stocks and facilitate market manipulation.
The SEC has sought to crack down on short-selling abuses in recent years, most recently with an interim rule requiring short sellers to deliver borrowed shares within three days of trade settlement. Mr. Pitt and others urged the SEC to make the requirement permanent and take other steps to stiffen pre-borrowing requirements, provide better tracking of stock-delivery failures, including those outside stock-clearing systems, and force buy-ins when delivery failures occur.
*****
t) December 9, 2008 – MarketWatch: “Obama adviser: Short selling must be disclosed” By Ronald D. Oral
Ambiguous rules limiting naked short selling must be clarified, attorneys say
WASHINGTON (MarketWatch) — A top adviser to President-elect Barack Obama on securities regulation on Tuesday said he wants the Securities and Exchange Commission to require public disclosure of short selling.
“We’re looking for disclosure of positions, with a small delay, after a short sale is made,” said Roel Campos, a former Democratic SEC commissioner and member of Obama’s transition team.
After the precipitous drop in stocks of major investment and some commercial banks including Citigroup Inc. in September, the agency implemented a series of short sell rules, many of which were temporary in nature. Among these, the SEC temporarily banned short sales in roughly 800 financial institutions. That ban expired on October 8.
Regulators and others argued that many short sellers — who make bets that a stock price will decline — contributed heavily to the financial crisis and the collapse of many financial institutions.
The next agency chairman is expected to grapple with whether the agency is doing enough to chill manipulative short selling of shares, particularly when it comes to financial institutions.
Campos is seeking to have the next SEC chairman introduce new rules requiring short sellers to publicly disclose their positions in a manner that is similar to how equity investors are required to reveal their equity stakes.
For example, to comply with the SEC’s 13F rule, investors with $100 million in capital or more are required to publicly disclose their positions 45 days after every calendar quarter. Equity investors with 5% or greater stakes are also required to disclose that information to the agency in either an activist Schedule 13D or passive Schedule 13G filing.
But Campos argues that four-times-a-year public disclosure of short sell positions isn’t enough. He wants to see a requirement that hedge funds and other short sellers disclose their positions publicly more quickly after stakes are made, perhaps as fast as two weeks after each position is taken.
Among the temporary regulations put into place in the fall is a requirement for confidential weekly disclosure of short positions to the agency.
According to the rule, investors with $100 million or more in capital must disclose on a weekly basis to the agency their short positions. However, these investors only must provide that position information to the agency on a confidential basis. The expiration date for the provision was extended in October to Aug. 1 of 2009.
Short seller critics argue that public disclosure will mean their proprietary strategies will be disclosed, enabling rivals to copy their approach. Campos said the delay in public disclosure is intended to protect some proprietary strategies, but that there should be some parity with equity disclosure requirements.
Other ways to rein in short selling
In addition to disclosure, securities attorneys and academics discussed other mechanisms that the SEC could impose that could reign in short selling at an event hosted by the Coalition Against Market Manipulation in Washington.
Participants argued that the agency needs stronger rules limiting illegal naked short selling, the practice of selling shares without arranging to borrow the securities up-front.
The SEC in September adopted rules requiring short sellers and their broker dealers to deliver securities within three days of a trade. Participating investors who fail to arrange to borrow shares in advance are prohibited from making future short sales in the same securities.
But securities attorneys at the event argued that there are too many qualifiers on the naked short selling rule.
Rex Staples, general counsel for the North American Securities Administrator’s Association Inc., said there is a “reasonable” qualification on the delivery requirement. “To the extent you can qualify a word like reasonable, you are going to get that time after time,” said Rex Staples, general counsel for the North American Securities Administrator’s Association Inc.
Former SEC chairman Harvey Pitt, who participated in the discussion agreed that the SEC should eliminate ambiguity when it comes to the agency’s naked short selling provision. The agency should also take steps to enforce the rules.
“The agency must make it extremely clear that any naked short selling is illegal and it has to remove the ambiguities so the rules are very clear,” Pitt said.
Participants also debated bringing back the so-called up-tick rule, a regulation removed last year that allowed short sales only if a preceding trade boosted a company’s stock price.
Georgetown Finance professor James Angel said he wants to see an up-tick rule that would take effect when a stock has fallen 5%. He also sought additional prohibitions when a stock price falls 10% and 15%. Staples argued that the SEC should bring back the same up-tick rule it eliminated in 2007. “It is very helpful in times of financial turmoil,” Staples said.
*****
u) March 19, 2009 (Bloomberg): Naked Short Sales Hint Fraud in Bringing Down Lehman” By Gary Matsumoto
The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.
As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.
The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.
“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.’”
*****
In addition to these articles, please note that naked short selling has been implicated in the hobbling of the US financial system by The American Bankers’ Association (1 2), the US Chamber of Commerce (1 2 3 ), the CEOs of Goldman Sachs, Morgan Stanley, JP Morgan, and Lehman, politicians John McCain, Hillary Clinton, Barack Obama, Ron Paul and numerous other congressional representatives, the Chairman of the SEC, the Secretary of the Treasury, and so on and so forth.
*****
STEP #3 OF 3: THE CURRENT WIKIPEDIA PAGE ON NAKED SHORT SELLING OMITS EVERYTHING YOU JUST READ, AND YOU ARE FORBIDDEN FROM FIXING IT
At “the encyclopedia that anyone can edit” it is as forbidden to add information such as that contained in the preceding articles as it would be to sell Adam Smith’s works on the streets of Pyongyang. Instead, right at this second, the Wikipedia page on Naked Short Selling sticks to a thoroughly-discredited two-year out-of-date Party Line that holds that experts think naked short selling is not a problem (or even exists) and the mass media agrees with the experts. Much of the page is written in gibberish apparently intended to make it more difficult for a lay person to confront (which is unusual for Wikipedia). And unique among the millions of Wikipedia articles, it cannot be fixed or updated to reflect any of the information cited exhaustively above.
That’s right. Notwithstanding thousands of articles such as the ones cited above, the current Wikipedia article on naked short selling insists that experts believe that it is not a problem. No mention is made of hearings, statements by economists and SEC Chairmen, emergency federal actions and emergency meetings of regulators from the G-20 to stop the world financial system from implding, etc.
Instead, the tone is set by this quote:
“While concern expressed by the regulator has been echoed by journalists, some commentators contend that naked short selling is not harmful and that its prevalence has been exaggerated by corporate officials seeking to blame external forces for their own shortcomings. Others have discussed naked short selling as a confusing or bizarre form of trading.”
That is, in a 54-word statement about a “concern”, precisely 11 words vaguely describe the existence of the “concern” and 43 say that there is no concern. This, though space is allocated to describe results from two off-topic studies from 2007 (one on failures in the IPO market, the other on the Canadian market):
A study of trading in initial public offerings by two SEC staff economists, published in April 2007, found that excessive numbers of fails to deliver were not correlated with naked short selling. The authors of the study said that while the findings in the paper specifically concern IPO trading, “The results presented in this paper also inform a public debate surrounding the role of short selling and fails to deliver in price formation.”
An April 2007 study conducted for Canadian market regulators by Market Regulation Services Inc. found that fails to deliver securities were not a significant problem on the Canadian market, that “less than 6% of fails resulting from the sale of a security involved short sales” and that “fails involving short sales are projected to account for only 0.07% of total short sales.”
Again, notwithstanding the thousands of articles such as the ones I cited above, the current Wikipedia page maintains that the mass media agrees that naked short selling is not a problem:
Reviewing the SEC’s July 2008 emergency order, Barron’s said in an editorial: “Rather than fixing any of the real problems with the agency and its mission, Cox and his fellow commissioners waved a newspaper and swatted the imaginary fly of naked short-selling. It made a big noise, but there’s no dead bug.” Holman Jenkins of the Wall Street Journal said the order was “an exercise in symbolic confidence-building” and that naked shorting involved echnical concerns except for subscribers to a “devil theory”. The Economist said the SEC had “picked the wrong target”, mentioning a study by Arturo Bris of the Swiss International Institute for Management Development who found that trading in the 19 financial stocks became less efficient. The Washington Post expressed approval of the SEC’s decision to address a “frenetic shadow world of postponed promises, borrowed time, obscured paperwork and nail-biting price-watching, usually compressed into a few high-tension days swirling around the decline of a company.” The Los Angeles Times called the practice of naked short selling “hard to defend,” and stated that it was past time the SEC became active in addressing market manipulation.
The Wall Street Journal said in an editorial in July 2008 that “the Beltway is shooting the messenger by questioning the price-setting mechanisms for barrels of oil and shares of stock.” But it said the emergency order to bar naked short selling “won’t do much harm,” and said “Critics might say it’s a solution to a nonproblem, but the SEC doesn’t claim to be solving a problem. The Commission’s move is intended to prevent even the possibility that an unscrupulous short seller could drive down the shares of a financial firm with a flood of sell orders that aren’t backed by an actual ability to deliver the shares to buyers.”
The Wikipedia page engages in such pettifoggery as: “However, the SEC has disclaimed the existence of counterfeit shares and stated that naked short selling would not increase a company’s outstanding shares” (true only in the narrow technical sense that the SEC does not consider that which is increased by naked short selling to be “outstanding shares”: by the same token, the National Transportation Safety Board could claim that there are no plane crashes because the NTSB considers anything which crashes to no longer be a plane).
And so on and so forth. You will find such gibberish on the naked short selling article on Wikipedia, but what you will not find is any of the information presented in the articles cited in Step #2. It is forbidden to enter that information into Wikipedia.
*****
THE TEST: ARE YOU FORBIDDEN FROM UPDATING WIKIPEDIA WITH THIS INFORMATION?
I know that to many this can be a maddeningly complicated issue, and it may not be easy to know who or what to believe. So I propose that you, the reader, conduct an easy, simple test, using the articles cited above. You can do it in about 2 minutes:
- Log on to Wikipedia (if you do not have an account you can create one in seconds);
- Go to the article on Naked Short Selling;
- Attempt to edit it with any information regarding events, data, or quotes from any of the articles cited above.
You will find that it is forbidden for you to add any information, data, or quotes from those numerous articles, or to correct any of the glaring omissions and laughable spin of the current article. If you try, your additions will be removed nearly instantaneously. In fact, you may find yourself banned from Wikipedia while all proof that you even made an edit disappears.
On “The encyclopedia that anyone can edit”, a resource that updates in seconds at the passing of a celebrity or the gaffe of a politician, you will find that you cannot insert quotes on this one topic, even when those quotes come from SEC Chairmen, economists, presidential candidates, Congressmen and Senators, G-20 regulators, and Wall Street leaders, even when those quotes appeared months or years ago in The Economist, Reuters, DowJones, Associated Press, or Bloomberg.
Two million English-language articles work by one set of rules, but this article on a grave financial crime turns out to run on a secret set of rules.
And that, dear reader, is the stutter-stepping black cat that should wake you to the synthetic reality you inhabit.
Postscript: If you want to know how this is being done, watch Judd’s magisterial “Lecture on abuse of social media by stock manipulators“. And if you want the back-story on that, read TheRegister’s article, “Emails show journalist rigged Wikipedia’s naked shorts – Overstock’s Byrne vindicated amidst economic meltdown” by Cade Metz.
Are you misreading the protection policy? There’s a lock on the upper right hand corner of the article; if you click it you learn the page is “semi-protected”, that is, protected against edits from anonymous users and those who are not ‘autoconfirmed’ (for example, not a high enough edit count).
Looking at the discussion page for the article, apparently someone requested protection for the page two months ago due to a spam attack. Of course there’s nothing to prevent someone from deliberately shutting down edits on a page by spamming it… not that anyone in the financial industry would dream of doing something like that.
You could simply try creating your own Wikipedia entry under your own title, say, “abusive short selling”, and link to that from any short selling related articles you can edit.
Max,
What’s your point? You just described the mechanism by which they are doing…. Just what I said they are doing.
Patrick
Intriguing challenge. I did not have a Wikipedia account and so I set up an account. I went to the Naked Shorting article but could not quite figure out how to edit it. I noticed that the external links do not have a link to Deepcapture, or, InvestigateTheSEC. So, I went to the help section and asked the following under the heading: “Adding External Links to Article on Naked Short Selling”
It is clear that Naked Short Selling is controversial.
My question is this: Why is there no external link to 2 very provocative web sites:
http://www.deepcapture.com
http://www.investigatethesec.com
When I seach the Wikipedia web site, I find no reference to these sites. I do not understand why they cannot be referenced from Wikipedia – in particular from the article on Naked Short Selling.
BTW, it would appear from evidence being brought forth (see the Kotz’s report – the OIG of the SEC – regarding Naked Short Selling).
While I’m thinking about it, is the report by Kotz even referenced in the Naked Short Selling Page ? This would clearly be a major oversight if in fact it was “banned” from any reference.
Thanks for any comments . . .
***********
Stay tuned for the Wiki “answer” !
Well, maybe if you had more edits to your credit, you’d be “autoconfirmed” and could edit that page.
Just now I checked out the auto-generated list of semi protected pages, and there’s an awful lot of them, thousands at least, ranging from “Germany” to “SpongeBob SquarePants”.
It seems like subjects which are very popular get this kind of attention from Wikipedia administrators; in other words, your topic isn’t being singled out.
John, there’s a “regulatory capture” page on Wikipedia and it’s not protected at all. Why not add a link to this site?
FWIW, I’m beginning to get confused and if I’m getting confused then many others may be. Now I’m NOT CONFUSED re what is legal and what is NOT LEGAL. The ILLEGAL USE OF NAKED SHORT SALES and use of phantom shares is ILLEGAL. I”m NOT confused that many are attempting to distract and confuse. That is very clear. I’m confused as to why we dialogue with the Devil or his disciples. So here is where I stand. Lets put NAMES to those who break laws, It’s NOT the SEC that is breaking a law it is X or Y who works for the SEC.Name them and then show the documentaion that confirms such. It isn’t congress but specific congressman. We know the names. NAME THEM. The Senate. We know the names NAME THEM. Media. We know the names NAME THEM. YAHOO FINANCE and the use of professional bashers NAME the execs who allow such. Dishonest Hedge funds or other. NAME THE EXECS. CNBC/CNN/NBC/FOX etc NAME THE EXECS and then NAME THE EMPLOYEES. Judd’s Video allows one to SEE and HEAR. Stewart and the use of a video allows one to SEE and HEAR. So lets start from the TOP. Ok pres elect what do YOU say about Naked short selling? Do YOU support the breaking of FED LAWS? How about YOU Mr Geithner or Mr Bernanke. DO YOU SUPPORT the breaking of FED LAWS? Ms Shapiro? I appreciate the time and energy re Wikepeida but let’s be objective. THE MARJORITY do NOT use such for aid in determing right or wrong. They look to leaders who are in place to enforce LAWS. COX was NEGLIGENT in doing so. as well as those before him.Was it WILLFUL. In my opinion it was! However lets’start somewhere. Wahsington Mutual or Wachovia or Bear Stearns, Lehman ect invesors should bring forth a class action law suit against COX for NOT enforcing the LAW. Who says govt agents can not be sued? And at the same time shoot a shot across the bow against Shaprio and others. . Then at the same time go after the Specific execs in the Media and the journalists who were complicit. TOO much talking and NOT enough ACTION.
RICO act against Christopher Cox, Goldman, Einhorn, Soros, et al. – now!
Patrick,
Wouldn’t it be great if the Deep Capture site was the number one Google search result for “naked short selling” instead of the wikipedia page?
I’ll tell you exactly what little change you need to make that happen.
Just change the title tag for the home page. The current title is “Deep Capture Blog”. Why don’t you change it to something like “Naked Short Selling. Deep Capture Exposes the Crime of the Century”
Then get a some websites linking to you with “naked short selling” as the anchor text.
You should have Judd Bagley and Mark Mitchell create their separate websites and optimize them the same way. You might be able to dominate the entire first page of a Google search for “naked short selling”.
I’d be glad to help in any way I can to help you expose this racket.
Interestingly, even the wiki article on the Pecora Commission(1930’s, conducted to determine the cause of the Crash) makes no mention of shortselling by executives of their own companies.
Most interesting:
http://en.wikipedia.org/wiki/Pecora_Commission
Is there some kind of ping-back to trace the origin/ identity of the trash posts 6-15 and the latest, #20 (as well as the “max leverage” pseudonym sabotage.)?
Much more likely than not the scumbag{s} posting are of the chanos, weiss gang variety and ought to be called out for their intentional degradation of this site and its posting privileges. In the alternative, their crap should simply be deleted and their identities “captur5ed” for future action..
Well of course you cant alter the DTCC Wiki!!
Patrick ___Are you completely insane?? Has all sense of reason finally left your black irish heart? The very epi-center resides in the DTC, the HEART OF THE MATTER so to speak. By opening PANDORAS BOX will we ever be able to resolve the sins of our past masters who in the name of FREE MARKETS leaned and leaned again in the face of the power of US investment.
Weiss and his sort were transparently hired to put a freindly face on the Black Box. The enormity of the crime is only now uttered in hushed tones. The corridors have got used to hearing trillions now _ obscene Feh!
Max Leverage _ interesting comments __ Patrick is hurting something thats screaming?
Well,well, well..now what have we here irrefutable proof by others..This just keeps getting better and better
Genesis of Financial Meltdown
Source: http://blackstarnews.com/?c=135&a=5494
[Genesis
Of Financial Meltdown]
In 1999 Robert Morgenthau, the anointed
Manhattan District Attorney, used his position to protect the Russian Mob at the
behest of his friend, Arthur Levitt, then Chairman of the Securities and
Exchange Commission.
Harbor Securities was a day trading firm, which was
based in Manhattan. It was founded by members of the American Stock Exchange
(AMEX). These members sought to establish a day trading firm so that they could
trade from off-floor premises- while they leased out their seats on the American
Stock Exchange (AMEX).
But the profits, which they had sought were
elusive. Then came Al Chalem and Maier Lehmann two stock fraud promoters. Maier
Lehmann was a good friend of Feivel Gottlieb, a seat owner at the American Stock
Exchange, who had earned millions investing in the stock frauds of Maier
Lehmann.
Chalem promised the investors a high rate of return. Being
members of the AMEX these investors did not care about how the money was
earned. If they did not like the stock fraud- they could withdraw their
money. Only one did so.
Unfortunately the stock frauds did not take off
as planned and money was lost. Then the money men behind the stock frauds grew
impatient; and these individuals were members of the Russian Mob, the most
feared criminal syndicate in the United States.
On October 25, 1999
Chalem and Lehmann were murdered in Colts Neck, New Jersey, as discussed in a
previous article. Harbor Securities was defunct. Morgenthau could not cover up
the murders of Chalem and Lehmann. Although the two were murdered in New
Jersey. But there was a crime in New York City that fell under Morgenthau’s
purview. The $4 million that had been purloined from PAX Clearing, the firm
which processed the trades that were made by traders at Harbor
Securities.
Harbor Securities was registered with the SEC, so the Securities
and Exchange Commission conducted an examination and investigation of Harbor
Securities. It must be noted that the founding principals of Harbor Securities
were members of the American Stock Exchange.
Most prominent of these
investors was Joel Lovett, former senior floor governor of the American Stock
Exchange during Levitt’s tenure as Chairman of the American Stock Exchange and
several years later Acting Chairman of the American Stock Exchange. In 1995
after Richard Syron was hired as Chairman of the American Stock Exchange, Lovett
became Vice Chairman of the AMEX.
After NASD bought the AMEX in 1998,
Lovett was ignominiously forced to leave. Under no circumstance could Arthur
Levitt have Joel Lovett and other former members of the AMEX linked to the
bankruptcy of Harbor Securities, the stock frauds of Al Chalem and Maier
Lehmann, and the murders of both men. So according to my sources Levitt ordered
the SEC to clear Harbor Securities and its officers of any
wrongdoing.
The SEC refused to investigate and gave Harbor Securities a
clean bill of health. But there was a problem. Four million dollars had been
stolen from PAX Clearing. PAX wanted its money.
The theft of $4 million
became Morgenthau’s problem. But Morgenthau took no action. Morgenthau refused
to investigate the Russian Mob takeover of Harbor Securities as a favor to
Arthur Levitt.
Once again Robert Morgenthau assisted his good friend,
Arthur Levitt.
http://www.investigatethesec.com/drupal-5.5/?q=node/628
Also read this
http://www.investigatethesec.com/drupal-5.5/?q=node/628
Source: http://blackstarnews.com/print.php?a=5481
http://blackstarnews.com/
How Levitt Covered Up Wall Street Scandal
The second letter about Arthur Levitt
In 1998 I was a former trader cooperating with Gary Weiss, a reporter for Business Week on what was to become the 1999 award-winning article, “Scandal on Wall Street.” The article exposed massive violations of federal Securities laws at the American Stock Exchange.
Edward Manfredonia
March 18th, 2009
The media have given Arthur Levitt, former Chairman of the Securities and Exchange Commission (SEC), a pass by refusing to investigate his denial of halting investigations into his friends in finance.
THIS IS SO SAD AND TRAGIC!!
FROM: J-MC Patriot Alert Task Force ([email protected])
TO: Karl Denninger ‘Market Ticker’
DATE: Sun, Mar 22, 2009 at 12:49 PM
SUBJECT: Naked Short Selling: Fraud or Honourable and Ethical conduct?
Mr. Denninger,
The Ticker Guy
The Market Ticker
Commentary on the Capital Markets
http://market-ticker.denninger.net/
CC: Comment to Deep Capture
I did a search of the Tickers’ to see what your opinions are on Naked Short Selling. Nothing came up. I wondered what your opinions were, on the issue, and if you were aware of Dr. Patrick Byrne (deepcapture.com) work on the issue. His most recent article on the issue being: Do I Live in a Synthetic Reality”? Do It Yourself Home Test
https://www.deepcapture.com/do-i-live-in-a-synthetic-reality-do-it-yourself-home-test-draft/
The issue I have with Mr. Byrne’ s expose’s, in this case Wykepedia’ censorship of these issues is: I have only once made an addition to Wikipedia’s pages: to the page of Timothy James McVeigh. My information was immediately deleted, for no reason. So, I don’t live in an illusion that Wikipedia practices serious censorship, and is anything but an open or free market of ideas and uncensorshiped media vehicle.
On Wikipedia and Naked Short Selling: Let’s imagine that there are people who think Naked Short Selling is a ‘good idea’. Fair enough it may be. But if so, why not provide the argument therefore, in an open environement. If you think your idea has merit, and is valid and contributes to ethical and honourable and transparent markets; then share your idea, and listen to the criticism thereof, as feedback.
John F. Kennedy said when he wanted to put a man on the moon, that the most important people to listen to, were the scientists who said it could NOT be done. If their arguments were seriously addressed and they being scientists were happy to practice science; ie the spirit of enquiry and investigation, then as each and every argument that said it CANNOT BE DONE, was overcome, the path to putting a man on the moon would be walked.
If there is nothing wrong with Naked Short Selling; if it is legal ethical and honourable? Why the need to hide criticism of it? Why do you need to go to such efforts to manipulate others to criticism of it?
If your ideas on any issue cannot stand scrutiny and enquiry to determine where or if they are Swiss Cheese ideas, or solid steele ideas: Is the reason they do not want them to be scrutinized possibly because in any serious further enquiry of those ideas, the major flaws may not only show major flaws in the actual idea, but how the particular idea and it’s public relations manipulation reflects on the lack of their own personal character, integrity and honour?
Anyway, I respect your opinion and your courage and your commitment to ‘honest transparent markets’ that reflect honest prices of goods, based upon accurate information; ie REALITY (not perception management reality, but true total transparent reality). So I’d appreciate it if you could provide your opinions on the issue, in an upcoming Ticker, or as relevant.
Respectfully,
Lara Johnstone
FROM: Karl Denninger (karl@*********.net)
TO: J-MC Patriot Alert Task Force ([email protected])
DATE: Sun, Mar 22, 2009 at 4:44 PM
SUBJECT: Naked Short Selling: Fraud or Honourable and Ethical conduct?
Naked short selling is fraud – period.
There goes Rome.
i dont understand your posts # 17
Fintas took the words out of my mouth. Less talk and more action. Great job Patrick. I have a feeling Wiki’s days are numbered and re-organization soon to come.
Fintas post is #6.
Harvey…. Click on the posts’ titles. I believe the poster was simply referencing a couple sites that picked up on the blog. (?)
For those who are bored, how about sending Hannity the link of Senator Shelby’s nefarious actions re his actions and words about Naked Short Selling so he can pass them along to one of his GREAT AMERICAN PANEL guest Dick Shoen and others who suggest we should be listeing to Shelby. . Mabye the subject line to Sean should be. SEAN. GET A CLUE! Then plug in the link with a Sean you mean well but stop looking at the fire and start looking at who set it and who put roadblocks in the road to stop the fire engines and crew from being able to put out the fire.. If this wasn’t serious I’d be ROFL.
thank you paladin
calltoaccount (#10)
I post regularly on a few trading blogs as well as Twitter… knock yourself out in exposing the fraud that is Max Leverage… that identity isn’t linked with this one because Patrick has chosen not to allow portable identities (as provided by OpenID for example), instead he’s using a custom comment system.
FYI I’ve been reading this blog for a while, and I chose to jump into this thread because it involves stuff I know about. Patrick’s reaction to being locked out of editing a page on Wikipedia is very typical of successful middle aged men who are used to having their authority act as an access badge, only to fall afoul of the rules of the Social Web where their meatspace authority doesn’t matter.
If there’s some more sinister explanation I’d love to hear it, but what it looks like to me is Wikipedia has restricted editing of that page as well as thousands of others because there’s some sort of controversy or concerted trolling attack. What’s behind that controversy or trolling attack is the real story, I reckon. And if Patrick wants to take this further, I used my real email. Adios.
Jim Sinclair’s Commentary
The felonious game is over.
The handwriting is no longer on the wall, it is now in neon lights 100 feet high.
The pressure against naked shorting is picking up speed. You never would have seen this in the last 8 years. Look for criminal charges of fraud soon against the practitioner. Only the most dense hedge fund manager can fail to see the jig is up on this convenient and previously profitable crime.
Now old fails to delivers are an invitation akin to a sign on the hedge fund door saying “Arrest me please!”
Check your own investments to see the “Fails to Deliver.”
http://failurestodeliver.com
In a year or so you will be able to check the location of the dense hedge fund manager:
http://www.felonspy.com/search.html
Take away naked short sales and Wall Street loses a huge chunk of profit and manipulative ability. If the small investors get wind of the way things work, they will not play the game. Ws is not seeing the volume of trades that it needs to be satiated and has become desperate.
Read how other countries are treating naked and short sales and watch what happens on march 31, 2009
http://www.mfglobal.com/fsa/shortselling.htm – 48k
Those who take a cheap shot at Patrick or use these comment sections to divert and distract are similar to those who were dissing Patrick when he was out front doing the Paul Revere while the nefarious were dissing him. Bottom line, this isn’t 2000/2005/2007. It’s a time where we have seen longstanding firms and a great nation taken to it’s knees. And we the collective aren’t going to take it any more. So either join in with PRODUCTIVE comments or be GONE. There are ENOUGH jerks who were complicit in negatively affecting hundreds of millions of lives. But those jerks are but a few as compared to the many who will make sure that there names are known. How’s that blacklist coming. PUT NAMES to the agencies/firms/political. MAKE IT PERSONAL.. IT IS!!!
Patrick,
I really thought you were going to go in another direction at the end of your list of news items. To me, the point was, in spite of the numerous statements by the SEC that they ‘were doing everything possible to look into the abuses,’ nothing concrete has been accomplished. ‘I told you so’ won’t really cut it, but, if Utah had posessed the cajones to leave their NSS law…
<<<<>>>>
….in place, the current economic crisis may have never occurred. The pressure from Wall Street seems to have caused the Legislature of Utah to let the legislation die. The threat of losing a few thousand jobs, (which probably would not have occurred anyway, it was just that, a threat,) has instead resulted in an exponentially larger number of Americans losing their jobs. Abusive short selling is a major prop in the support system of Wall Street, along with ‘captured’ media and members of Congress, and derivative instruments making up the balance of the tripod. Knock one leg out, and the others will, at the very least, falter, and maybe fall.
My point is, they’ve been threatening to rein in abusive short selling for years, to no avail.
It also pains me that the spokesman for the States’ Securities Boards has chosen to back the incompetent (at best) Federal government, instead of insisting that the individual states invoke the powers that they posess to regulate Securities Transfer, as mandated by the UCC code, adopted by all 50 states, in order to facilitate interstate trade. The SEC has usurped the power vested in the States, which it does not have the right, or the power, to do.
The States need to take back the power it has incorrectly given the SEC, and Wall Street, and deliver it back into the hands of the individual investor. Please see the Solution pages at http://investorprotectioncoalition.org/ .
It’s a non partisan thing. It’s an American thing. We may not be able to recover the money that’s already been stolen, but we should be able to staunch the bleeding that’s happening right now. We must force them to settle the trades. The States are the key.
And, it looks like we have to hurry. The comment about the REG SHO list having many less inhabitants may be not so much because failing to deliver is lessening, but that the perpetrators are getting better at it.
If we could only restore some semblance of confidence in the Market again, investors would come pouring back in. Right now, they don’t know who to trust. The States can restore that confidence. It rests on the States.
RVAC
Utah’s law got left out, permisso, por favor.
May, 2006
SB3004, which overwhelmingly passed the Legislature during Wednesday’s special session, targets stockbrokers, dealers and investment consultants who engage in alleged naked shorting
RVAC
RVAC,
I agree, if Utah had stood behind its law, if Senator Curt Bramble had not sold us out like last week’s luncheon meat, had Governor Huntsman not turned yellowbelly….. Yes, it is possible that much of this disaster may not have happened.
Patrick
Would a add campaign naming all the ones who have done the crime…Wall Streeters, along with the Congressmen and women who have drank from the Wall Streeters poison fundings as well as the names of all we can find out at Regulators who have looked the other way for gain be put out =in adds naming names?
Would making this type of info available, with all the trouble we are in now work? It seems since as everyone now has lost enough to get mad they might just be ready to focus.
If so, where can I send my share of the money for just this type of add?
YUP Name those names. Then have someone put it together with timeline and milestones. There’s a reason they have document control and ensure control of such. Because somewhere there’s a document with a name/a signature, a vote screaming to say.. ME ME ME or shhh shhh shhh. Get those names out, let the collective know and then watch them feed upon themselves as they are NOW suggesting it’s ok to be enraged but ah ah let’s not do anything foolish. WHY? Perhaps some realize there are no boundaries but just those imagined. I’m waiting for someone to put up a graph showing stock prices before the the irresponsible voted NO and AFTER the irresponsible voted NO. Or what was the price of WM/WB on SEPT 19 and what were they two weeks later? CAUSE and EFFECT
Regulators seek global approach to short selling
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSLN30233720090323
There a lot of documents, incriminating letters from five years, ago, comment letters, etc. where the links get buried in these comments.
Is it possible for Deepcapture to install wiki software so that members here can edit our own Wikipage for naked shorting, which becomes a better source than Wikipedia?
Wiki software is free.
http://en.wikipedia.org/wiki/Wiki_software
It’s too much for any one person to deal with, but if the entire community here could be uploading documents, news articles, wall of shame letters, etc., then the sheer volume of the evidence, all in one place, easy to understand and organize would likely attract all kinds of state level class action suits and hopefully DOJ arrests.
Here is a link to Senator Kaufman’s remarks on the Senate floor last Thursday, March 19, 2009:
http://kaufman.senate.gov/press/press_releases/release/?id=1175F96B-603C-494E-BD26-016CC8EA637D
“Mr. President, I would like to spend a few minutes talking about action that needs to be taken to restore the credibility of the fairness of the American financial markets.
On Monday, Senators Isakson, Tester and I introduced S. 605, which directs the Securities and Exchange Commission to write regulations that will deal effectively with abusive short selling. One of the abusive techniques addressed in the bill is so-called “naked short selling.” Naked short selling is when traders sell shares they don’t own and have no ability to deliver at the time of sale – which dilutes the value of a company’s shares and can drive prices down artificially.
Before the ink on our bill was even dry, we received a profoundly disappointing report from the SEC’s Inspector General entitled “Practices Related to Naked Short Selling Complaints and Referrals,” a report detailing the results of an audit on the SEC Division of Enforcement’s policies, procedures and practices for processing complaints about naked short selling. An astounding 5000 complaints about abusive short selling were sent to the SEC’s Enforcement Division between January 1, 2007 and June 1, 2008. There could be no mistaking the scale of the potential problem that that number of complaints reflected. Incredibly, a mere 123 complaints were referred for further investigation. Worse, and I quote, Mr. President, “None of the forwarded complaints resulted in enforcement actions…” Five thousand complaints, zero enforcement actions.
Not surprisingly, the SEC Inspector General has concluded that the processes for dealing with such complaints need a fundamental overhaul. Accordingly, the IG made 11 suggestions for improvements. And how did the Enforcement Division respond? It agreed to one of the IG’s recommendations, and declined to move on the rest.
Now I’ve been around Washington and the Senate for 36 years, but rarely have I seen an Inspector General’s call for action so summarily dismissed. In its comments to the IG report, the SEC Enforcement Division stated – and I quote – “there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of ‘naked’ short selling.”
Mr. President, I ask my colleagues: Why would the SEC Enforcement Division want to wait until there is unanimity in the investment community and the financial media to enforce the law? Why would the SEC Enforcement Division in its comments to the IG report want to give a virtual “green light” to continued abusive naked short selling? That is an enforcement division that is not worthy of its name….
….”
This SUMS UP the position of the SEC, which has been obvious for many, many years:
…the SEC Enforcement Division stated – and I quote – “there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of ‘naked’ short selling.”
The ONLY GOOD NEWS here is that the SEC Enforcement Division has now stated publicly in writing that
… THEY ARE NOT AN ENFORCE MENT DIVISION!
E-trade is a big naked short. Don’t assume they own any shares that they list on your account statement.
http://www.rys2sense.com/anti-neocons/viewtopic.php?f=11&t=17839&p=120323
I’m pulling my certs. electronically in my own name (DRS) for any shares I plan to own for more than a year. Why expose myself to the chance my brokerage is a thief? I can easily wire them into a brokerage when I want to sell them.
https://portal.dtcc.com/dtcorg/prod-serv/page19398.html
Anonymous,
I am trying to put together a “platform” for links, documents, bibliography, etc. Not a wiki though:
http://deepcapturenotes.wordpress.com/
This site could use some type platform – forum or wiki.
I am not as knowledgeable about finance or NSS as allot of people here. I could use any ideas or help people want to offer.
I keep getting asked the same question by those that have studied the SEC’s recent rebuttal to their Office of Inspector General’s (OIG’s) 11 recommendations regarding abusive naked short selling and the SEC Enforcement’s Division lack of going after the perpetrators of these frauds. The questions all revolve around how dare the SEC Enforcement Division in the midst of this worldwide furor over abusive naked short selling claim that:
“there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of “naked” short selling”
and also
“The best sources for information on violations relating to “naked” short selling is the SRO, which has primary responsibility for surveillance of its trading. And we receive a large number of referrals from the SROs, addressing all forms of alleged investment misconduct. It is telling that, of the 900 SRO referrals Enforcement received during the Report’s 18-month survey period, none involved the practice of “naked” short selling. That is to say, the people closest to the trading, with the deepest understanding of and access to the data, did not see and refer any of the large-scale, damaging “naked” short sale abuse about which the Report hypothesizes”.
The irrefutable proof as to the pandemic nature of abusive naked short selling is contained in the trading data and in the failure to deliver data. Who has access to this data? The SRO(s) cited above (FINRA and the NSCC) who are, “the people closest to the trading, with the deepest understanding of and access to the data” certainly have access and so does the SEC who has the mandate to provide “comprehensive oversight” over the “registered clearing agency” known as the NSCC and the SRO (“Self-Regulatory Organization”) known as FINRA. All 3 of these parties either know the truth or are negligent in not knowing it.
Here’s the problem: The SEC entrusted with the visibility associated with having “comprehensive oversight” over “the truth” has received a record 5,000-plus abusive naked short selling complaints that resulted in NOT ONE enforcement action. The other parties entrusted with this visibility of the truth (the “SROs”) have recently filed 900 referrals for enforcement NONE of which had anything to do with abusive naked short selling. How can one explain this apparent paradox?
How can there be record demands for administrative actions by investors with none resulting and zero recommendations for administrative actions by those SROs that just happen to be owned by the brokerage firms being accused of these abuses? Is this worldwide uproar over abusive naked short selling really totally unfounded by the investors in all of these countries? Are the share price performance graphs showing the share prices of selected banks falling off of a cliff as the failures to deliver their shares went through the roof a sham?
In 2003 the SEC hired Dr. Leslie Boni from the University of New Mexico to take a peak into the secrecy-obsessed “black box” known as the DTCC. Her research revealed massive levels of FTDs of an “intentional/strategic” nature meant to intentionally depress share prices. Yet the SEC now claims that the OIG’s “Report can cite to no bona fide studies or empirical data regarding the practice’s market impact”. The “market impact” of having a plethora of readily sellable fake shares increasing the “supply” of readily sellable “shares” would obviously be to decrease share prices whether or not the SEC has commissioned such a study or not.
Why might the SEC proffer this perhaps technically accurate but intentionally misrepresentative statement? Do they not know of how supply and demand interact to provide share prices through the process of “price discovery”? In 2005 this very same SEC claimed that it had to “grandfather in” FTDs in Reg SHO because they were numerous enough to induce “market volatility issues” if they were all to be addressed by buy-ins. So which is it? Is it no problem whatsoever or is it a problem too large to address?
Here’s the issue with abusive naked short selling. The refusal to deliver that which you sell is so blatantly obvious and so heinous in nature that the IRREFUTABLE PROOF confirming these crimes needs to be constantly either covered up or its very existence needs to be denied by those SRO “participants” either guilty of these thefts and those regulators and SROs acting as “securities cops” who have been perhaps inadvertently facilitating these thefts.
In the crime known as abusive naked short selling these parties with the greatest need/desire to cover up or deny the existence of this crime wave just so happen to be the parties with the visibility of the IRREFUTABLE PROOF. As cited above sometimes it gets so silly that the party that commissioned the one definitive study revealing the pandemic nature of these frauds must deny the existence of any studies revealing the pandemic nature of these frauds.
It even gets to the point that the one party, the SEC, cites the lack of recommendations for administrative actions by the other guilty party as proof positive that there is no problem. The SEC returns the favor every time the DTCC and NSCC get sued for these thefts by coming to their rescue via filing amicus briefs stating that the NSCC’s “Stock Borrow Program” is fine and dandy and not the counterfeiting machine it is universally characterized as. Before you know it one of the parties might even have the audacity to suggest that the lack of coverage of this topic in the financial media confirms its nonexistence. OOPS! That just happened last week also.
The summary dismissal of 10 of the 11 recommendations of the SEC’s “Internal Affairs” Department (its OIG) by the SEC’s Enforcement Division represented a very sad day for our country in one respect but it was also 100% diagnostic and confirmatory of what has been going on for all of these years as the SEC vacillates somewhere in between abusive naked short selling is no big deal and that it is so far out of hand that it can’t be addressed without inducing “market volatility” issues.
I highly recommend the study of the recent findings of the OIG, the rebuttal of the SEC Enforcement Division and Sen. Kauffman’s treatise on the subject. A learning opportunity like this rarely presents itself.
http://techstock2000.wordpress.com/2009/03/21/hooray-for-senator-edward-kaufman-d-de/
Note that there are deeper issues present here also. The 1933 Securities Act (“The Disclosure Act”) strictly mandates that all information of a “material” nature in regards to the prognosis of an investment must be disclosed to the investing public. What could possibly be more “material” to the prognosis for an investment than the presence of a massive amount of readily sellable “securities entitlements” resulting from FTDs that may have already preordained the corporation being invested in to die an early death? The investing public has all of the right in the world to know not the identity of those refusing to deliver the securities they sell but the total amount of FTDs currently poisoning the share structure of any corporation being considered for an investment.
In essence the abusive NSCC participants, the NSCC management, FINRA and the SEC cannot obey the law and reveal the level of preexisting failed delivery obligations without revealing the existence of this massive “industry within an industry” associated with abusive naked short selling.
This issue is an all or none issue. You either once and for all buy in the preexisting FTDs and never allow this to happen again or you continue to relegate U.S. investors to be blindly buying a “pig in a poke” every time they make an investment just because a handful of crooks and crooked cops couldn’t allow their previous crime wave to be detected. This is not rocket science!
I just spent 10 mins speaking to the author Caley Cronin and pointed her in the direction of Mary Shapiro ( Former head of FINRA now SEC) and the Harry Markopolos’ testimony in from of Congress calling FINRA a “CORRUPT” agency and that former head of this corrupt agency is now the head of he SEC.
FOX Business Network Sues the United States Securities and Exchange Commission over Failure to Respond with Freedom of Information Act Requests
FOX Business Network Sues the United States Securities and Exchange Commission over Failure to Respond with Freedom of Information Act Requests
http://www.earthtimes.org/articles/show/fox-business-network-sues-the,758771.shtml#
FOX Business Network Sues the United States Securities and Exchange Commission over Failure to Respond with Freedom of Information Act Requests
Posted : Mon, 23 Mar 2009 17:42:29 GMT
Author : FOX Business Network
NEW YORK – (Business Wire) FOX Business Network (FBN) filed a lawsuit against the United States Securities and Exchange Commission (SEC) over failure to respond to FBN’s expedited request for information under the Freedom of Information Act (FOIA).
The initial request to the SEC, filed on February 26, 2009, sought all records relating to information that the SEC received regarding the potential violations of the securities laws or any other potential wrongdoing by R. Allen Stanford, or Stanford Financials Group and/or its affiliates. This request included, but was not limited to the SEC’s response to complaints, tips or information and any resulting audits, inquiries and/or investigations.
Kevin Magee, Executive Vice President of FOX News commented, “It is unacceptable that titans like R. Allen Stanford or Bernard Madoff were able to operate such massive financial frauds under the nose of institutions like the SEC. As a news organization, we believe it is the public’s right to know how these economic atrocities were committed as part of our continued quest to demand government accountability on behalf of the American taxpayers.”
The FOIA complaint was filed by FOX News Network, LLC, as owner of FBN. FBN has also filed lawsuits against the United States Treasury and United States Federal Reserve over their failure to respond to FOIA requests regarding use of the bailout funds and the Federal Reserve’s extended loan facilities. In February, the Federal Court in New York sided with FBN and ordered the Treasury to comply with the network’s requests.
Additionally, FBN recently moved to have a protective order vacated in the matter, NYU v. Ariel Fund Ltd., et al., because the order kept the deposition testimony of Ezra Merkin and Victor Teicher sealed from public viewing. The court granted FBN’s motion.
FOX Business Network (FBN) is a financial news channel delivering real-time information across all platforms that impact both Main Street and Wall Street. Headquartered in New York—the business capital of the world—FBN launched in October 2007 and is available in nearly 50 million homes in major markets across the United States. Owned by News Corp, the network has bureaus in Chicago, Los Angeles, Washington, DC and London. On the web at http://www.foxbusiness.com.
FOX Business
Caley Cronin, 212-301-3972
[email protected]
This verbal over whether or not massive levels of FTDs exist or not can easily be circumvented by just buying in the FTDs older than perhaps T+6 or so. If the DTCC isn’t lying then the buy-ins will be inconsequential. If they were lying then the crooks will be forced to go into their wallets and grab the money they stole from investors and buy back the missing shares and send them to their rightful owner. It’s a win-win.
What is so complex about that? The big winners should be the DTCC participants that will get a lot more business from the investors on the sidelines that think these markets are “rigged”. They’ll be back if the DTCC is willing to PROVE that the markets aren’t rigged.
In what business besides Wall Street would we be even engaging in a discussion involving the appropriateness of delivering that which you sold?
From what I’ve seen all short selling, options, CDOs, CDSs, and all other derivatives should be illegal.
These are gambling tactics which have no place in the investment arena. Stop allowing betting on betting. End it with the initial bet, be that bet on a loan, stock, or bond.
These are not complex issues until we allow people to get away with complex statements for simple concepts.
A rose by any other name is still a rose.
A rose, known (or not) by various other references, names, classes or kinds, might not exist, by implication, as not being that class which it is neither cognized nor accessed. Obviously, this depends on the perceptual acumen of those trained in such matters.
If you don’t get it, leave it to the experts. Right!!!
Obfuscation here is deception hiding inappropriate activities.
http://www.bloggingstocks.com/2009/03/23/whats-wrong-with-the-sec-investigation-of-lehman-brothers/
There is a separate wikipedia for articles like yours that get routinely censored:
wikitruth.info
This seems like the right place to park the full story
Thanks, Louis!
This may be the solution, then link to it from the front page here.
When you see words like TOO BIG TO FAIL…remember the true meaning….
Too many countries involved..
Too many naked shorted shares.
Too many politicians involved..
Too many crooked regulators..
Too many mob families..
Too many $$$$ being pocketed
Too many captured journalist
Too many dirty secrets
Too many WS elite in it…
Too many with juice…
__________________________
NO JUSTICE IN TOO BIG TO FAIL, it’s ummm TOO BIG !!
Oh Patrick, I’m rooting for you. This is one of the creepiest websites on my list and I can hardly stand to visit it, but it must be so much worse for you. Please hang in there. You’re doing the work of the angels by informing us.
Thanks Cecilia. I think.
I am a shareholder of a pinksheet company that has a rich history with a groundbreaking technology that is on the verge of going under due to exactly to the criminal methods that Dr. Byrnes and Dr. DeCosta have so painstakingly described. The day will come where there will be names and faces to the perps that make brazen uneconomic down tick trades without fail on a daily basis that I have witnessed with astonishment now going on for over 3 years.
The SEC must start charging these criminals and bring back some respectability to our markets.
http://www.bloomberg.com/apps/news?pid=20601101&sid=aHlFiP3M_Tx8&refer=japan
Anon, that link is not working.
Very serious question here.. Where is Herb Greenburg? Does it bother any of you that he has just vanished into thin air? Is he in witness protection or what? I always knew he would be the first to fold and Cramer soon to follow. Anyone???
devastated would that company be exbx?
https://www.deepcapture.com/herb-greenberg-the-worst-business-journalist-in-america-on-the-conspiracy/
https://www.deepcapture.com/herb-greenberg-the-worst-business-journalist-in-america-on-sec-subpoenas-and-fluffy/
http://www.thesanitycheck.com/Portals/0/PrisonHerb.jpg
We need to name names and put photos of the mainstream liars that made this crime possible public. They will be the first to turn states’ evidence.
Besides obvious thieves like Roddy, Greenberg, Carol Redmond AKA Carol Redmond, Bethany, lil GW, etc. are less obvious thieves like:
Larry Thomson (DTCC), who admitted in chats that he lied for a living
or
Stuart Z. Goldstein, the professional liar the DTCC brought in to spin things when Larry couldn’t take it any more.
http://antisocialmedia.net/?p=103
http://www.stuartzgoldstein.com/articles/modern_annual_report.html
Stu’s email is on the second link if you want to ask him how he lives with himself.
I often wonder how little they had to pay Herb and Stu to lie for a living.
Stu publishes papers on how to lie to spin a bad corporate situation (google stuart z goldstein) and manage public perceptions. He doesn’t work for the DTCC full time.
He’s a liar for hire.
“We’re not saying there is no problem, but to suggest the sky is falling might be a bit overdone,” DTCC’s chief spokesman Stuart Goldstein said.[1][2] DTCC General Counsel Larry Thompson dismissively calls the claims that DTCC is responsible for naked short selling “pure invention.
By putting the spotlight on the Herbs and Stu’s of the world, maybe they will put the spotlights on the cockroaches they know about.
I meant Carol Redmond AKA Carol Remond. No one ever explained to me why she had to change her name.
She was one of the most prolific liars five years ago and went quiet about the time Bobo became active.
I don’t believe that Remond ever changed her name. The explanation lies in a typo.. certainly not one that she generated. I found a Carol S. Redmond listed in a journalism award (Loeb)…
I hope that this helps.
Where do we stand on the question of Wikipedia treating their naked short article differently? Is it true that many Wikipedia articles (not just the naked short article) are “locked” from edits by “unapproved” users? And what exactly are the requirements for becoming an “approved” user? Has anyone attempted to create a new entry with a different title and to post some of Patrick’s links?
News coverage of the “Tea Party” on Fox News. It is gaining momentum. Many protests happening.
I am just a little slow so here me out. Is it that these brokerage houses, Ameritrade, Etrade, Scottrade, and Prime Stealers, I mean brokers Goldman, JPM, BAC,C cannot let stocks move up because they don’t have the cash to pay shareholders? And this is the reason why they are supressing the price of our securities and allowing Naked Sorting to permeate out system with reckless abandon. Is it, cause it would explain everything to me!! THEY’RE BROKE!!!
That here s/b hear sorry!!
Mary, Carol mostly wrote as Remond even though she won the award as Redmond.
Here she is as a Remond.
http://en.wikipedia.org/wiki/Carol_Remond
Here she is writing an unbiased article on Patrick.
http://consumerist.com/157223/overstockcoms-ceo-patrick-byrne-perhaps-is-an-ogre
She is a scumbag that not only lies for money, but she had to change her name to continue doing it.
Dr. Jim De Costa,
I found a paper written by you (7/26/06) that refers to Dr. Leslie Boni access to the DTCC records in 2004:
http://www.thesanitycheck.com/Portals/0/JDSEC.pdf
“Perhaps you at the SEC can co-design with the DTCC a “Mechanism for determining whether particular fails to deliver have occurred because of illegal naked short selling or for some legitimate reason.” You might start by noticing the pattern of the same abusive DTCC participants working through the same abusive clearing firms that result in the
11
preponderance of delivery failures well above statistically normal levels that just so happen to remain unaddressed for inordinate amounts of time.
This was the status quo before Dr. Leslie Boni was given access to the DTCC records during her research done prior to Reg SHO as a visiting financial economist in the employ of the SEC (more on her findings later). It is still the status quo today despite her shocking findings and the implementation of Reg SHO. I’ll leave it up to you at the SEC to evaluate the corrective efforts made by DTCC management in lieu of these startling research findings by both Dr. Boni and the Evans group. I’ll give you a hint, absolutely nothing constructive has occurred and the DTCC has been in an active “Cover up” mode ever since.”
……
“THE BONI REPORT
Dr. Leslie Boni’s now often-quoted 2004 research study done for the SEC revealed that the mean age of one of these theoretically “Legitimate” and short-termed delivery failures at the DTCC had grown to a staggering 56-business day average within this “Regulatory vacuum” provided by DTCC management’s professed “Powerlessness” as well as the lack of either interest, courage or understanding of the fraud by the SEC. Note that any
14
delivery failures of perhaps even 10 day’s age is very damaging for an issuer suffering the resultant dilution when “Prompt settlement” is theoretically the law of the land. It’s embarrassing to need to “Buy-in” delivery failures when your financial system is the model for all other countries to ascribe to.”
Does anyone know if Boni’s full report available online?
Not to be missed:
http://www.rollingstone.com/politics/story/26793903/the_big_takeover
http://www.ft.com/cms/s/0/9d2eb19c-17c6-11de-8c9d-0000779fd2ac.html?nclick_check=1
Securities regulators have taken a step towards harmonising global short selling rules in the wake of the sudden changes and restrictions that many countries introduced last year following the collapse of Lehman Brothers.
From the last article.
We need to reach out to these guys.
http://www.iosco.org/about/
If you get a moment you might read this paper. I think that it might be the most important paper I’ve written in the last 29 years of researching abusive naked short selling.
A LITTLE BIT ABOUT CLEARANCE AND SETTLEMENT SYSTEMS AND THE ROLE OF “CENTRAL COUNTERPARTIES” OR “CCPs”
Dr. Jim DeCosta
When many hundreds of brokerage firms are trading securities amongst themselves there is a dire need for the use of a “central counterparty” (CCP) to intermediate these trades. The lack of a CCP in the “credit default swap” market nearly wiped out our financial system recently. What most investors, SROs and regulators don’t appreciate is that equally risky is a CCP that has been hijacked by the financial interests of its owners.
In the absence of a “CCP” the individual brokerage firms would have to constantly assess the “counterparty risk” of a trading partner’s defaulting on its payment or delivery obligations. The use of a CCP allows the issuance of a “trade guarantee” that implies to the investing world that it is safe to trade securities in this particular clearance and settlement system and that which you purchase will indeed be delivered in a timely manner.
There is, however, a catch to these greatly enhanced efficiencies. The risks within the entire system are intentionally “concentrated” onto the shoulders of this CCP (the U.S.’s NSCC subdivision of the DTCC) such that any conflicts of interests between the corporations whose shares are being traded, the investors taking equity positions in these “issuers” and the “securities intermediaries” within the clearance and settlement system must be removed from the system in order for it to function effectively.
The CCP has to fulfill its newly acquired fiduciary duties of care to manage these “concentrated risks” which it voluntarily took off of the shoulders of its individual NSCC participants and accepted onto its own shoulders. The primary risk to be managed is making sure that the seller of securities delivers that which it sells in a timely manner due to the incredibly damaging nature of readily sellable but mere “securities entitlements/IOUs/”placeholder securities” and that the buyer of the securities pays for that which it purchased also in a timely manner.
This is referred to as “Delivery versus payment” and all of the worldwide authorities on clearance and settlement systems from the Bank for International Settlements or “BIS” to the “Committee on Payment and Settlement Systems Technical Committee of the International Organization of Securities Commissions” (IOSCO) agree that “Delivery versus payment” forms the foundation for any clearance and settlement system and that the seller of securities should not gain access to the funds of the buyer UNTIL “delivery in good form” is achieved.
The following quote is from this “Committee on Payment and Settlement Systems Technical Committee of the International Organization of Securities Commissions”:
“CCPs occupy an important place in securities settlement systems (SSSs). A CCP interposes itself between counterparties to financial transactions, becoming the buyer to the seller and the seller to the
buyer. A well designed CCP with appropriate risk management arrangements reduces the risks faced by SSS participants and contributes to the goal of financial stability. (Comment: Note that financial stability is the result of implementing “appropriate risk management arrangements” and the inference that the lack of appropriate risk management arrangements regarding delivery and payment obligations might predictably lead to financial instability.) CCPs have long been used by derivatives exchanges and a few securities exchanges. In recent years, they have been introduced into many more securities markets, including cash markets and over-the-counter markets. Although a CCP has the potential to reduce risks to market participants significantly, it also concentrates risks and responsibilities for risk management. (Comment: Onto the shoulders of the CCP). Therefore, the effectiveness of a CCP’s risk control and the adequacy of its financial resources are critical aspects of the infrastructure of the markets it serves.”
1.2 A CCP has the potential to reduce significantly risks to market participants by imposing more
robust risk controls on all participants (Comment: regarding delivery and payment obligations) and, in many cases, by achieving multilateral netting of trades. It also tends to enhance the liquidity of the markets it serves, because it tends to reduce risks to participants and, in many cases, because it facilitates anonymous trading. However, a CCP also
concentrates risks and responsibility for risk management in the CCP. Consequently the effectiveness
of a CCP’s risk controls and the adequacy of its financial resources are critical aspects of the
infrastructure of the markets it serves.
1.3 A risk management failure by a CCP has the potential to disrupt the markets it serves and
also other components of the settlement systems for instruments traded in those markets. The
disruptions may spill over to payment systems and to other settlement systems. Because of the
potential for disruptions to securities and derivatives markets and to payment and settlement systems,
securities regulators and central banks have a strong interest in CCP risk management.
(Comment: In layman’s terms the above basically says that the NSCC subdivision of the DTCC as the “CCP” in the U.S. plays an unfathomably important role in our overall financial system due to the associated “concentration of risks” and that proper “risk management arrangements” center on making sure that any securities sold must be promptly delivered. Unfortunately in the U.S. this critical role of the NSCC has been undermined by the insatiable greed of certain abusive NSCC participants and their co-conspiring usually unregulated hedge fund “guests”. The systemic risks incurred by all Americans whether investors or not is not the least bit appreciated by the SEC, the NSCC management, FINRA and the exchanges otherwise they would treat any failure to deliver older than perhaps T+6 as the emergency it truly embodies.
As it turns out CCPs are necessary but they can easily become hijacked by the financial interests of the owners and administrators of the CCP with a vastly superior knowledge of, access to and visibility of the clearance and settlement system they have been entrusted to administer.
The theft of investor funds associated with abusive naked short selling is obviously a heinous concept but this crime spree goes a whole lot deeper than that.)
Dr. DeCosta, in the age of computers, do you think there is still a need for a central counterparty?
If all you’re moving is bits, why can’t the ownership records at the company transfer agent be updated electronically each day to settle trades for that day? Wouldn’t that be simpler than having the extra step of the DTC?
You could still have the continuous net settlement system, but at the end of the day, electronically transfer the share ownership at the transfer agent?
When you think about it, what benefit is served by keeping track of beneficial owners at the DTC instead of at the transfer agent?
Watch Sears As a Referendum on Naked Shorting
By Jim Cramer
RealMoney Columnist
3/24/2009 10:26 AM EDT
Click here for more stories by Jim Cramer Try Jim Cramer’s Action Alerts PLUS
CLICK HERE NOW
Sears (SHLD – commentary – Cramer’s Take) gets downgraded and it goes higher. The company’s credit rating is cut to Ba2 by Moody’s because of continued deterioration of business, and yet it’s flying? It’s got a huge revolving credit deal that matures next year — a $4 billion line only minimally tapped — and the stock’s going up?
What gives?
Yesterday it was postulated in the Columnist Conversation that Eddie Lampert, the guy who runs Sears — and a friend — will use Sears’ cash to go buy bank assets.
I found that farfetched. I think there are a couple of other forces at work. First, if you get a turn in housing, then you are going to get a turn in Sears’ fortunes no matter what. Any turn in housing will produce buyers of Sears’ hardware. You may hate the stores, but you have to like the hardware. You also have to like the delivery and at times the prices.
Second, though, this is a company that has been totally victimized by naked shorting. The fact that we are now finding out that there are many companies that have their stocks crushed by naked shorting, including Bear and Lehman, tells me that the SEC is waking up to the enforcement of this rule and is going to crack down on naked shorting, something that the previous SEC thought was a total waste of time.
If it isn’t a waste of time and if the government decides to pursue it, I think you would see a short squeeze of phenomenal proportions given that the company’s float has been so shrunk.
We all know that the previous SEC’s laissez-faire attitude basically surrendered the playing field to the shorts.
I think that if the government opens an investigation of naked shorting, it will be of Sears.
And if you get a housing turn and an SEC investigation, it will be hard to believe that this one will remain just a $5 billion company.
At the time of publication, Cramer h
Anonymous,
You need CCPs otherwise there would be no issuance of a “trade guarantee” to protect investors. Can you imagine assessing the counterparty risk of doing trades with thousands of different counterparties you’d have to a bunch of due diligence on. It’s basically an insurance policy.
In actuality we don’t really have a “trade guarantee” in the U.S. If you file an “entitlement order” with the DTCC demanding the delivery of paper-certificated shares they can stall your demand ad infinitum if their cupboards are bare. They’ll tell you that there is a “chill” on the shares of that particular stock. This means that the NSCC management will refuse to buy-in the failed delivery obligations of one of their bosses.
Long articles like this definitely point out this site’s structural shortcomings.
The amount of time I need to spend simply scrolling to the ‘comments’ section at the end of an article is causing no joy.
This beast needs to be broken into discrete pages before it becomes totally unusable.
The NSCC’s guarantee is effectively meaningless as they refuse to deliver to the buyers. Whether they are owed stock or not should be irrelevant as they guaranteed the trade.
My thought is there is no reason why settlement couldn’t happen electronically at the end of each day, with ownership shuttling from one participant to the next at the transfer agent, exactly the way beneficial ownership is shuttled from one participant to the next at the DTC today.
If settlement happens daily, then there would be much less risk.
Here’s Dr. Leslie Boni’s paper:
http://www.fma.org/Chicago/Papers/StrategicFailsPaperFMA.pdf
Here’s the abstract from Dr. Boni’s research paper. Keep in mind that this was the first public view of what goes on behind the doors of the secrecy-obsessed “black box” known as the DTCC.
“Sellers of U.S equities who have not provided shares by the third day after the transaction are said to have “failed-to-deliver” shares. Using a unique dataset of the entire cross-section of U.S. equities, we document the pervasiveness of delivery failures and provide evidence consistent with the hypothesis that market makers strategically fail to deliver shares when borrowing costs are high. We also document that many of the firms that allow others to fail to deliver to them are themselves responsible for fails-to-deliver in other stocks. Our findings suggest that many firms allow others to fail strategically simply because they are unwilling to earn a reputation for forcing delivery and hope to receive quid pro quo for their own strategic fails. Finally, we discuss the implications of these findings for short-sale constraints, short interest, liquidity, price volatility, and options listings in the context of the recently adopted Securities and Exchange Commission Regulation SHO”.
What Dr. Boni is describing is also referred to as “pairing off”. Two abusive NSCC participants will “pair off” with each other and essentially pledge not to buy-in the delivery failures of each other no matter how old they get. This amounts to one brokerage firm telling its “partner” that it can sell all of the fake shares it wants to its clients and steal their investment proceeds as long as it can do the same to its partner’s clients. The other thing she describes in this abstract is the policy that an NSCC participant will not buy-in the delivery failures of a fellow NSCC participant without incurring the risk of retaliation.
Since it is only the abusive NSCC participants that are able to establish and maintain massive naked short positions then the result is the invisible routing of an unknowing U.S. investor’s funds into the wallets of those NSCC participants/”banksters” that simply refuse to deliver that which they sell.
Dr. Jim DeCosta,
Thank you for your continued support in educating us public!
And thank you for the link the Dr. Leslie Boni’s paper
Is it true that Hedge Funds can easily become Market Makers?
Which of course would then allow them to easily become a “Market Maker Guest” to avoid pre-borrow requirements.
istandup,
Securities fraudsters love to take advantage of asymmetries. There is absolutely no barrier to entry to become a “market maker”. The problem is that the single largest loophole utilized in abusive naked short selling (ANSS) frauds is that of illegally accessing the “bona fide market maker exemption” from making pre-borrows or “locates” before making admittedly naked short sales.
NSCC management absolutely refuses to monitor for the illegal accessing of that exemption by their abusive participants. Why? It’s because they’re employees of the abusive participants. You have to be a registered broker/dealer to become a market maker. The default assumption of the NSCC is that all failures to deliver are associated with “bona fide market making activity” until proven otherwise.
By the time you can “prove otherwise” that FTD is on the books at the DTCC and safe from being bought in because the ONLY party empowered to provide the ONLY cure available when the sellers of securities refuse to deliver that which they sold i.e. execute a buy-in, which is the NSCC management, will pretend to be “powerless” to do so. Why? Because that is in alignment with the financial interests of their bosses that constantly refuse to deliver that which they sell. We should all have employees empowered to forgive our debts!
None of this will matter much if Obama gets this one through.
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/23/AR2009032302830_pf.html
You may have to be older to recognize what this could evolve into.
Think about it.
Scott Moritz, long-lost thestreet.com zombie, bashing Apple computer:
http://www.thestreet.com/story/10476593/1/apples-netbook-foray-will-flop.html?cm_ven=GOOGLEFI
On this Wikipedia issue:
The son of well known Christian conservative activist Phyllis Schafly founded his own version of Wikipedia called Conservapedia.
On Conservapedia there are little to no financial topics that are covered here at DeepCapture. In fact, naked short selling doesn’t even come up. It would be interesting to put all of Deep Capture’s info on their site and see if it remains.
The reason Schafly started Conservapedia was because of what he claimed were editing problems. Schafley claimed anti-Christian bias. In fact, on Widipedia’s own entry on Mr. Schlafly, they write:
“In a March 2007 interview with The Guardian newspaper, Schlafly stated, “I’ve tried editing Wikipedia, and found it and the biased editors who dominate it censor or change facts to suit their views. In one case my factual edits were removed within 60 seconds—so editing Wikipedia is no longer a viable approach.”[17]”
So it would seem here, that Dr. Byrne isn’t the only individual claiming censorship.
Now I can understand the battle between Christianity and other religions or humanism, etc. What I don’t understand is why edit or prevent the disclosure of information on naked short selling?
Is it because the founder of Wikipedia got his start in Chicago in the “bidness” of futures and options? Who does he know?
From Wikipedia itself:
From 1994 to 2000, Wales was the research director at Chicago Options Associates,[17] a futures and options trading firm in Chicago.[15]
Also from Wikipedia itself you can read about the creation of wikitruth–an online website devoted to exposing the censorship practices of Wales and his team at Wikipedia.
I’m a techno-rube so I don’t know how to post links on this site or I would have provided them for you. You can to the searches on wikitruth and conservapedia however, and they’ll pop right up.
Dr. Jim DeCosta,
You said:
“Securities fraudsters love to take advantage of asymmetries. There is absolutely no barrier to entry to become a “market maker”. The problem is that the single largest loophole utilized in abusive naked short selling (ANSS) frauds is that of illegally accessing the “bona fide market maker exemption” from making pre-borrows or “locates” before making admittedly naked short sales.”
From what you say here, it appears that every hedge fund can setup its own “Market Maker” business so it can simple by-pass every new rule (band-aid) the SEC places upon Wall Street in its never ending attempts to “stop?” naked shorting (counterfeiting).
Since there is NO BARRIER to become a “Market Maker” …
Since every “Market Maker” has been given the “LEGAL” power to engage in Naked Shorting (counterfeiting)…
…it is easy to conclude that every “Securities Fraudster” will setup a “Market Maker” business to give legal cover to its daily Counterfeiting Activities (naked- shorting).
This would also lead to the conclusion that every Band-Aid the SEC places upon Naked-Shorting will NOT solve the problem. The graphs presented in DeepCapture.com have demonstrated this to be true.
So the double-speak we heard from Mr. Cox in Judd’s video on the fall of Bear Stearns that “Naked Shorting is NOT illegal” and then that “Naked Shorting is Illegal,” stems from the the fact that “Market-Makers” have been given an exemption from making “pre-borrows” or “locates.”
So when Counterfeiting Hedge Funds use their Market-Maker business to destroy a company with huge volumes of counterfeit shares of a company stock, Mr. Cox would conclude that it was “LEGAL” for the Market-Maker to destroy the company. But if the public gets upset, Mr. Cox has to say publicly that Naked-Shorting (counterfeiting) is ILLEGAL.
So one year after Bear Stearns was purposefully destroyed with massive volumes of counterfeit shares, the SEC has not found any “illegal activity”? Because Bear Stearns was destroyed by “Market-Makers” using their “LEGAL EXEMPTION” to make “pre-borrows” or “locates”?
The Money Trail……………
Why do we see Senators investing their money in Hedge Funds?
Why do we see family members of Senators (VP now), owning and operating investment companies?
Why do we see family members of former Washington DC based elected officials working for Hedge Funds?
One simple answer it – MONEY…
I have seen the press:
– One Senator invests is wealth in Hedge Funds
– One Senator’s family (now VP) operates an investment company (Hedge Fund?)
– One former president’s daughter works for a Hedge Fund.
What I would really like to know is HOW MANY Elected officials in Washington DC have DIRECT TIES TO THE HEDGE FUND INDUSTRY?
The news about naked shorting is getting out (on SeekingAlpha, no less):
http://seekingalpha.com/article/127772-how-to-profit-from-market-manipulation?source=yahoo
iStandUp: Citizens need an immediate disclosure of ALL POSITIONS by ALL LEGISLATORS – now.
SeekingAlpha really teeing off on the shorting problem:
http://seekingalpha.com/article/127781-exchanges-propose-weakened-uptick-rule?source=yahoo
Good for them!
Jim,
Here is a quote from seekingalpha.com article:
“Another major source of manipulation is hedge funds, which are largely unregulated, and off shore hedge funds which are completely unregulated. Some of the tactics that these funds use to manipulate stocks are to gang up on a particular stock and short it en masse, naked shorting (shorting shares that don’t exist, counterfeiting shares of stock), and they also sell US stocks on foreign stock exchanges where they are not even listed. I have personal knowledge of one US stock listed only on the NYSE being sold on the Munich stock exchange to drive down the price, and also on the Pacific stock exchange. If these were legitimate sales and they wanted to get the best price, the clear choice would be to sell on the NYSE, but they didn’t want the best price, they were short in their offshore accounts and wanted to drive down the price.
Knowledge is power. Use this knowledge to protect your assets by getting them out of the stock markets, and to time your buying and selling when the big money is doing the opposite.
Disclosure: I am long SRS and SKF”
http://seekingalpha.com/article/127772-how-to-profit-from-market-manipulation?source=yahoo
Seems like the DOJ is listening and working …albeit very slowly
Morgan Stanley Executive Convicted of Conspiracy to Commit Securities Fraud
http://newyork.fbi.gov/dojpressrel/pressrel09/nyfo032409.htm
iStandUp ,
Biden and Company:
http://www.dailyfinance.com/2009/02/24/bidens-son-and-brother-runs-hedge-fund-with-links-to-stanford/
Nice work if you can get it…
Jim,
Thank you…
Here is the title of the article:
Biden’s son and brother run hedge fund with links to Stanford
QUESTIONS?????????????
Does the Biden Family Hedge Fund have their own “Market-Maker” business on the side? ….if YES, do they use a “Market-Maker” EXEMPTION to Counterfeit Shares of stock to make more money?
OR Does the Biden Family Hedge Fund Guest with someone else’s “Market-Maker” business? … And does this “Market-Maker” use a “Market-Maker” EXEMPTION to Counterfeit Shares of stock to make more money?
The abusers in high office are many and if there is resolve here to do something to combat the corruption, a strategy must be developed. I am willing to create a rear car window sticker aimed at education poeple about deep capture. What do you think?
Diane,
I think you have a good idea. At this time, I would suggest that you want until we get some more information before publishing one.
Biden Family Hedge Fund……
I need to rephrase my second question:
QUESTIONS?????????????
1. Does the Biden Family Hedge Fund have their own “Market-Maker” business on the side? ….if YES, do they use a “Market-Maker” EXEMPTION to Counterfeit Shares of stock to make more money?
2. OR Does the Biden Family Hedge Fund “Guest” with someone else’s “Market-Maker” business? …… And does the Biden Family Hedge Fund use the “Market-Maker” EXEMPTION to Counterfeit Shares of stock to make more money?
………………….
Does anyone know if there is a public listing of all “Market-Maker” businesses and who are the owners?
When the Bancroft family owned Dow Jones, they were a propaganda outlet for pro naked shorting stories (Carol Remond / AKA Redmond).
Now they are putting out stories.
http://online.wsj.com/article/BT-CO-20090324-712548.html
CHICAGO (Dow Jones)–Four U.S. stock exchanges on Tuesday launched a joint call for regulators to take action against “abusive” short selling of stocks through a “modified uptick rule.”
The call, in a letter to U.S. Securities and Exchange Chairwoman Mary Schapiro, comes six months after regulators imposed a temporary ban on shorting financial stocks to curb what was seen as excessive volatility.
Bumper Sticker can be simple, if it creates curiosity in the reader:
“SEC says Wallstreet counterfeited shares worth $60,200,000,000 in a single year. Protect your $$$. https://www.deepcapture.com”
Source:
http://www.sec.gov/about/secstats2008.pdf
Mary Schapiro will only do what the powers that be make her do, just as Cox did…which equates to NOTHING !!!! I find it so ironic the pro short sellers started screaming only after they became the victims themselves. It was fine as long as they were not the recipient of being naked short sold, and only were the NSS’ers themselves. Funny how the sharks turn on each other and then scream foul. Those screaming foul should have their trading records looked at as well as those they blame.
Or this would be a good bumber sticker….
WALL STREET TOOK YOUR 401K
HELP http://www.deepcapture.com GET IT BACK
Even David Einhorn, who collapsed LEH, even got Greenlight RE added to the SEC’s no-short list.
He must be brought to justice.
Anonymous, Now these ‘exchanges’ are trying for a higher-bid with a 10% circuit breaker, so they can kill stocks over 10 days.
Sen. Ackerman’s plan .05 cents has them very nervous.
http://www.foxbusiness.com/story/markets/market-overview/momentum-builds-bring-uptick-rule/
We need to dictate the terms for this uptick, not the industry.
A LITTLE BIT ON REGULATORY STRUCTURE IN THE U.S.
A little background on regulatory structure might help you grasp why abusive naked short selling (ANSS) crimes are so pandemic. At the top of the heap are the congressional oversight committees that oversee the SEC. The problem here is that the Wall Street “banksters” and unregulated hedge funds committing these crimes are the biggest donors to their political coffers. You never know when a Wall Street firm caught misbehaving in the naked short selling arena might need some muscle from a politician.
The SEC then has “comprehensive oversight” responsibilities over the self-regulatory organizations or “SROs” and the exchanges. The problem here is that there is a “revolving door” from the SEC to much higher paying jobs on Wall Street that is mainly accessible to SEC personnel that don’t “rock the boat” or disturb the corrupt status quo on Wall Street.
The 2 main “SROs” in this arena are FINRA which is the largest non-governmental regulator for all securities firms doing business in the United States.
It was created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange. The other main SRO is the NSCC subdivision of the DTCC. Since the “over the counter” trading venues wherein a lot of these crimes are being committed are not “exchanges” then they are missing one layer of regulators from the onset. The problem here is that the “member firms” of FINRA and the “participants/co-owners” of the NSCC ARE the “banksters”, corrupt market making firms, corrupt clearing firms and corrupt prime brokers that are committing these crimes associated with refusing to deliver that which they sell.
Thus there are both governmental and nongovernmental entities and shock of all shocks they don’t communicate very well and their “regulatory turf” is ill-defined. In regards to the provision of investor protection in the abusive naked short selling arena we see an interesting phenomenon. First of all the NSCC chimes in and says “We just clear trades all day long and we are “powerless” to provide the only cure available when our abusive “participants/co-owners” sell shares and refuse to deliver that which they sold (execute a “buy-in”). This responsibility belongs to the “exchanges and the regulators”.
The “regulator” known as the SEC chimed in just last week and said: “The best sources for information on violations relating to “naked” short selling is the SRO (FINRA and the NSCC), which has primary responsibility for surveillance of its trading. And we receive a large number of referrals from the SROs, addressing all forms of alleged investment misconduct. It is telling that, of the 900 SRO referrals Enforcement received during the Report’s 18-month survey period, none involved the practice of “naked” short selling. That is to say, the people closest to the trading, with the deepest understanding of and access to the data, did not see and refer any of the large-scale, damaging “naked” short sale abuse about which the Report hypothesizes”.
When you interview the folks at FINRA they claim that the NSCC is the party with access to the failed delivery data on a real time basis that is in the best position to monitor the behavior of its “participants”.
Nobody in this network of Congress people, regulators, exchanges and self-regulators claims to have the direct responsibility to detect and address naked short selling abuses. The various conflicts of interest cited above result in no regulator wanting this particular “regulatory turf”. The biggest of the big daddy “banksters” and market makers operate on this turf and nobody seems to be willing to challenge their turf. The network of “securities cops” mandated to provide “investor protection” is complex and the conflicts of interest and the favors owed and owing are even more complex.
iStandUp, where on earth is journalism’s once-healthy curiosity regarding the Biden/Hedgefund nexus?
I took this from the above article. Ever notice how most articles related to naked short selling is always presented as “so called NSS, or so called short sellers.
There is no SO CALLED TO IT. IT IS NSS or Short sellers period. Presenting as so called is like calling it a myth. Dayum journalist. Call it like it is….
“The uptick rule was designed to prevent so-called short sellers from being the only investors to cause a stock price to decline. “
I just tried to POST the following in a YAHOO Financial Message Board a second time — Both times the YAHOO software immediately deleted my comments without indicating an Error message..
Have I found another flaw in the The Matrix?
——————————————
goldenmabs,
It turns out the it is easy for any Hedge Fund to become a “Market-Maker”.
WHY would a Hedge Fund like to become a “Market-Maker”?
So a Hedge Fund can access a “Market-Maker” EXEMPTION which allows them to Counterfeit Shares of stock LEGALLY.
Does this explain why the SEC has NOT found any ILLEGAL activity in the use of MASSIVE NUMBERS OF COUNTERFEIT SHARES OF BEAR STEARNS stock just over a year ago?
BECAUSE these Counterfeit Shares were all created LEGALLY by a “Market-Maker(s)” who have LEGAL RIGHT TO COUNTERFEIT STOCK SHARES?
——————-
……… The Money Trail……………
Why do we see Senators investing their money in Hedge Funds?
Why do we see family members of Senators (VP now), owning and operating an investment company?
Why do we see family members of former Washington DC based elected officials working for Hedge Funds?
….One simple answer it — MONEY….
I have seen in the press stories about:
– One Senator investing his wealth in Hedge Funds
– One Senator’s family (now VP) operating an investment company (Hedge Fund?)
– One former president’s daughter working for a Hedge Fund.
What I would really like to know is…
HOW MANY Elected officials in Washington DC have DIRECT TIES TO THE HEDGE FUND INDUSTRY?
(Family / Friends / Personal monies invested in Hedge Funds / Financial Supporters?)
——————–
TITLE OF AN ARTICLE:
Biden’S Son And Brother Run Hedge Fund With Links To Stanford…..
( http://www.dailyfinance.com/2009/02/24/bidens-son-and-brother-runs-hedge-fund-with-links-to-stanford/ )
QUESTIONS?????????????:
1. Does the Biden Family Hedge Fund have their own “Market-Maker” business on the side? — if YES, do they use a “Market-Maker” EXEMPTION to Counterfeit Shares of stock TO MAKE MORE MONEY?
2. OR Does the Biden Family Hedge Fund “Guest” with someone else’s “Market-Maker” business? …… And does the Biden Family Hedge Fund use the “Market-Maker” EXEMPTION to Counterfeit Shares of stock TO MAKE MORE MONEY?
——————
Does anyone know if there is a public listing of all “Market-Maker” businesses and who are the owners?
OK – I was able to post the first half of my text above, BUT NOT THE Second part here:
———————–
TITLE OF AN ARTICLE:
Biden’S Son And Brother Run Hedge Fund With Links To Stanford…..
( http://www.dailyfinance.com/2009/02/24/bidens-son-and-brother-runs-hedge-fund-with-links-to-stanford/ )
QUESTIONS?????????????:
1. Does the Biden Family Hedge Fund have their own “Market-Maker” business on the side? — if YES, do they use a “Market-Maker” EXEMPTION to Counterfeit Shares of stock TO MAKE MORE MONEY?
2. OR Does the Biden Family Hedge Fund “Guest” with someone else’s “Market-Maker” business? …… And does the Biden Family Hedge Fund use the “Market-Maker” EXEMPTION to Counterfeit Shares of stock TO MAKE MORE MONEY?
——————
Does anyone know if there is a public listing of all “Market-Maker” businesses and who are the owners?
Here is a list of Market Makers…Now lets connect the DOTS !!
http://www.info.gov.hk/hkma/eng/infra/cen_money/exel/cmup8027.pdf
I wonder who is telling the truth..You do the math!!!
http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=3&pagewanted=1
OK, the YAHOO Matrix does NOT LIKE the link above:
( http://www.dailyfinance.com/2009/02/24/bidens-son-and-brother-runs-hedge-fund-with-links-to-stanford/ )
I cannot post this link – it is immediately deleted.
More Market Makers:
http://www.otcbb.com/dynamic/tradingdata/download/mmids.txt
http://www.allstocks.com/markets/Market_Makers/market_makers.html
T-shirt
“My broker went to the Cayman’s and all I got was this lousy IOU” (picture of IOU for one share on t-shirt).
Nice article from Forbes
http://www.forbes.com/2009/03/25/naked-short-selling-opinions-contributors-sec-congress.html?partner=yahootix
Re: Post 98
Jim Hall,
I think we should buy some ad space and run this picture of Einhorn.
http://www.flickr.com/photos/36380899@N08/3369741362/
This collapse was orchestrated to break the back of the dollar as the world currency. The globalist banksters want a world currency controlled by the IMF, which they in turn control.
As it stands the SDR (Special Drawing Right) is not a currency as such, but rather a basket of currencies (USD, EUR, JPY and GBP) used essentially as a unit of denomination by the IMF. Note that, as the PBOC themselves point out, for the SDR to resemble a “real” currency several institutional factors would need to change, including the development of settlement and clearing infrastructure and perhaps most critically the development of a market in SDR-denominated securities. Indeed, it is arguably the depth and breadth of underlying capital markets that have maintained USD’s status as the world’s reserve currency for so long and currently leaves EUR as the only remotely viable alternative.
Tee Shirt or Bumper sticker idea…
Wall Street and corrupt Politicians Stole your Pension…
Join DeepCapture or STOP YOUR BITCHIN’…..
DCN, Everyone in the media kisses his ‘genius’ ass, but he’s gonna pay at some point.
Nice shot!
Anonymous,
Thanks for the link to “More Market Makers”:
http://www.otcbb.com/dynamic/tradingdata/download/mmids.txt
Here on this list are two Stanford Group phone numbers:
STFG |Stanford Group Compamy ||TRADING DESK New York|212-372-6310
STFG |Stanford Group Compamy ||Toll-Free|888-372-6359
I wonder if the Biden Hedge Fund used Stanford Group Market Makers for their Hedge Funds, since there was reportedly an exclusive marketing agreement between them?
Scary stuff!
http://www.sec-oig.gov/Reports/AuditsInspections/2009/450.pdf
Peter Madoff’s assets frozen!
Great news.
By a Boston judge.
Why didn’t the SEC do this first??!!??!!??
http://www.foxbusiness.com/story/markets/judge-freezes-madoffs-brothers-assets/
Lets see based on the MM list what do these MM’s have in common-
GSCO ,M ,GOLDMAN, SACHS & CO
SGHK, M, SOCIETE GENERALE
DBAB ,M ,DEUTSCHE BANC
BARC ,M ,BARCLAY
ist of the top four beneficiaries of the AIG bailout:
1. Goldman Sachs: $12.9 billion
2. Société Générale (France) $11.9 billion
3. Deutsche Bank (Germany) $11.8 billion
4. Barclays (United Kingdom) $7.9 billion
This is the real scandal of the AIG bailout.
Add the other TARP funds Goldman Sachs received to the AIG pass-through money and you get an astounding total of $23 billion from the taxpayers.
All for a company that now says it never needed help to begin with.
Here is a link with information about Hunter Biden:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aKJhGIn.Z1O4
This article mentions other people with DC connections who have moved into the Hedge Fund Industry:
“Greater Scrutiny
“The lobbyist overlap is unusual, and that kind of stuff needs to be reported,” Feiner said in an interview. “It’s that people question whether there’s a pure separation as Congress talks about greater scrutiny of hedge funds.”
Hedge funds are largely unregistered pools of capital that cater to wealthy individuals and institutions such as pension funds and endowments. Fund managers aim to make money regardless of the direction of financial markets, and usually charge a fee of 2 percent of assets and take 20 percent of trading profits.
Former government leaders including ex-U.S. Treasury secretaries John Snow and Lawrence Summers have joined hedge funds in recent years. Chelsea Clinton, daughter of Senator Hillary Rodham Clinton and the former president, last year joined New York-based hedge- fund manager Avenue Capital Group as an analyst.
Hedge-Fund Oversight
Senator Biden’s office did not return a call seeking comment.
Joe Biden, 64, is chairman of the Senate Foreign Relations Committee and a member of the Senate Judiciary Committee. The judiciary committee in the past year has held hearings on SEC oversight of hedge funds and so-called naked short-selling, or the practice by some hedge-fund managers of selling shares in companies they don’t own.
The senator’s oldest son, Democrat Joseph “Beau” Biden, 37, is the attorney general of Delaware and a former federal prosecutor in Philadelphia.
Hunter Biden said he and his father have not discussed details of his Paradigm management role or ownership. “
Interesting…….
http://www.nypost.com/seven/08062008/business/twice_biden__never_shy_123265.htm
DEUTSCHE BANK EXEC FILES $10M HEDGE-FUND SUIT
By DAREH GREGORIAN
Posted: 3:56 am
August 6, 2008
A Deutsche Bank executive has filed a $10 million suit against the son and brother of Delaware senator – and possible Democratic vice presidential candidate – Joe Biden.
In papers filed in Manhattan Supreme Court, Stephane Farouze claims that Biden’s son Hunter and brother James “engaged in an elaborate scheme to defraud” him in a multimillion dollar business deal back in 2006.
The suit is the second accusing Biden’s relatives of financial funny business in their deal to buy hedge fund firm Paradigm Cos.
Farouze’s suit names Washington lobbyist Hunter Biden, James Biden, and James’ former business partner Anthony Lotito as defendants.
Farouze, who’s now global head of fund derivatives for Deutsche Bank, claims the trio and LBB, the company the three had formed together, entered into a deal to buy his membership interests in Paradigm Cos. in May 2006.
While the Bidens took control of the company, they never paid Farouze the cash they’d agreed to pay, the suit says.
The scheme also claims they had enough cash to live up to the terms of the contract when they didn’t, the suit says.
The Bidens’ lawyer, Nicholas Gravante Jr., said he hasn’t seen the suit and couldn’t comment.
In the earlier suit, filed in January 2007, Lotito accuses Hunter and Jim Biden of allegedly using one of Sen. Joe Biden’s former colleagues to try and force their then-lawyer to drop his legal fees.
“Ultimately, the Bidens threatened to use their alleged connections with a former United States Senator to retaliate against counsel for insisting that his bill be paid, claiming that the former senator was prepared to use his influence with a federal judge to disadvantage counsel in a proceeding then pending before that court,” the Lotito suit says.
The Bidens’ lawyer said Lotito has yet to back up the claim – and that it is Lotito who is scamming the Bidens.
Is everyone familiar with Clearstream? They are the equivalent of the DTCC in Europe. They are accused of being involved in money laundering.
http://en.wikipedia.org/wiki/Clearstream
I think a lot of fails are hidden there because the depositories allow IOU’s to build up with each other. The idea is you’re allowed to fail to facilitate arbitrage between two exchanges, so IOU’s could be legit.
(For example, I could naked short in dollars here, as long as I claim to have an offsetting long purchase where I buy on the Frankfurt in Euros. The point is to equalize prices where the same stock trades on the various exchanges via the profit motive.)
Back in 2004, thousands of penny stock companies were listed on the Berlin exchange against their permission because the NASD was cracking down on naked shorting.
Luckily for the naked shorts, the SEC killed the NASD’s rule, which was working, replacing it with SHO in 2005.
Connect the dots:
– the NASD comes up with a rule that works to stop naked shorting
– “Over the past few months, a large German brokerage has managed to get the shares of at least 800 tiny North American companies listed on the obscure Berlin Stock Exchange — without asking for anyone’s permission. ”
http://www.thestreet.com/story/10164442/1/berlin-markets-conjuring-act.html
– the SEC kills the NASD rule which was working and replaces it with the loophole filled SHO
Who’s side is the SEC on?
From pg. 3. Luckily for the shorts, the SEC killed this NASD rule within weeks of it going live and working.
“Hayes, Bottazzi and other executives say the timing of the listing of their stocks on the Berlin exchange is more than curious. They point out that Berliner Freiverkehr applied to list most of the Bulletin Board stocks in March, just weeks before a new NASD regulation on “naked short-selling” took effect on April 1.”
And from the last page, the advice from the SEC is that investors should help the naked shorts by dumping these stocks and refusing to buy them. Who cares if these development companies might have the cure to cancer or an electric car that works? Who cares about all the workers that will be laid off and the taxes that will be lost when the company goes bankrupt?
“For now, there’s more smoke than fire in this controversy over the Berlin exchange. But the episode is another illustration why prudent investors would do best to avoid betting on speculative Bulletin Board stocks altogether”
Alpha Magazine’s 2008 Top Hedge Fund Moneymakers
1 – James Simons, Renaissance Technologies Corp, $2.5 billion
2 – John Paulson, Paulson & Co, $2 billion
3 – John Arnold, Centaurus Energy, $1.5 billion
4 – George Soros, Soros Fund Management, $1.1 billion
5 – Raymond Dalio, Bridgewater Associates, $780 million
6 – Bruce Kovner, Caxton Associates, $640 million
7 – David Shaw, D.E. Shaw & Co, $275 million
8 – Stanley Druckenmiller, Duquesne Capital Management, $260 million
9 – (tie) David Harding, Winton Capital Management, $250 million
9 – (tie) Alan Howard, Brevan Howard Asset Management, $250 million
9 – (tie) John Taylor Jr, FX Concepts, $250 million
Profiles for hedge fund managers ranked 12 through 25 will be available tomorrow:
12 – James Chanos, Kynikos Associates
13 – Michael Platt, BlueCrest Capital Management
14 – Roy Niederhoffer, R.G. Niederhoffer Capital Management
15 – John Horseman, Horseman Capital Management
16 – Paul Touradji, Touradji Capital Management
17 – Henry Laufer, Renaissance Technologies Corp.
18 – Kenneth Tropin, Graham Capital Management
19 – (tie) Pierre Andurand, Dennis Crema, BlueGold Capital Management
19 – (tie) Christopher Rokos, Brevan Howard Asset Management
22 – (tie) Christian Baha, Superfund
22 – (tie) Christian Levett, Clive Capital
24 – William Dunn, Dunn Capital Management
25 – Andrew Hoine, Paulson & Co.
25 fund managers who make a total of $11.6bn
Re: Clearstream
Madoff was on a list of Clearstream’s counter parties.
http://thekomisarscoop.com/2009/03/17/the-mysterious-bank-madoff/
I know some about Clearstream from another field. Thats some shady stuff there.
Re: Einhorn
Jim Hall,
I have the address of this genius’s ass should that time never come.
These dots are connecting nicely. What a web these crooks have weaved…GUESS WHAT CROOKS, justice comes in many forms. The American people are watching ur asses..and learning your bad deeds….judgement day in some form or another will sneak up on you when you least expect it, whether you are a Kroll member or not.
If you had purchased $1000 of shares in Delta Airlines
One year ago, you will have $49.00 today.
If you had purchased $1000 of shares in AIG
One year ago, you will have $33.00 today.
If you had purchased $1000 of shares in Lehman Brothers
One year ago, you will have $0.00 today.
But—- if you had purchased $1000 worth of beer
One year ago, drank all the beer,
Then turned in the aluminum cans for recycling refund,
You will have received $214.00.
Based on the above, the best current investment plan
Is to drink heavily & recycle.
It’s called the 401-Keg..
I find that posting a short message with a link to the following videos in various financial companies on Yahoo Finance draws lots of debate and interest on the topic of naked short selling (and brings about more awareness, perhaps more should use this method)
Sample post i recently posted on the GS board:
—-
Video #1
http://antisocialmedia.net/
Video #2
http://video.google.com/videoplay?docid=4490541725797746038
First Bear Sterns, then Lehman. Is Goldman Sachs next?
Help stop naked shorting. Write your congressman and level the playing field to a fair investing environment. This illegal activity by powerful hedge funds needs to stop.
—-
If you enjoyed the previous two video you may enjoy this tutorial explaining how naked short selling is done:
http://businessjive.com/
Nice catch, DCN. The account is probably not literally Madoff, but probably a group of counterparties assigned the label Madoff.
I’ve always maintained that naked shorting had a lot to do with money laundering.
The depositories around the world often avoid dealing in real shares altogether, only trading in IOU’s as the regulators of that American stock have no jurisdiction outside of America. Smart thieves set up hedge funds in the Caribbean, then wash trade and naked short amongst their various accounts.
Mark Valentine, the billionaire 30 year old kid arrested in Operation Bermuda short THEN LET GO had hundreds of accounts around the world, even though he owned his own brokerage in Canada.
I was told he ran one of three naked shorting operations controlled by someone much bigger and the purpose was to launder money for everyone from CIA arms dealers to drug smugglers to foreign dictators.
I believe the roots of this go deep into the establishment.
Something doesn’t smell right about Madoff. If he was running a Ponzi scheme and didn’t actually do any trading, then why are there accounts in his name at Euroclear and the DTC?
Is it possible that he didn’t buy or sell stock, but he did sell IOU’s, through the Madoff exemption and others to his heart’s content
There’s still something funny about Refco, too, and their tie into all the naked shorting with Sedona, etc.
I bet all of these groups are tied together at some higher level in an organized way (a conspiracy).
It’s BCCI all over again.
DCN, thanks for the link. This site is great.
http://thekomisarscoop.com/
DCN,
I’m afraid we may need to start to aggregate the names/addresses for easy reference, should the court, and redress, of last resort be torches, pitchforks, and, possibly, the guillotine.
Anonymous 130,
Madoff never traded any of his own clients money that was in his investment side of business. He never took the investment side money and made trades through his brokerage side.
Do not confuse the fact there were trades through his brokerage. There were, just not his elite clients money. His brokerage handled trades from other entities. The NO trades were executed on behalf of his own investment funds. This came from a reporter from the Boston Globe. She stated there was trades, just not trades of his own investment clients.
This is why I feel the SIPC should not compensate these people as their money was separate from the brokerage. Had there money been traded through the brokerage side, then yes, they deserve compensation. It didn’t. It stayed on the investment side and there was no trades executed on their behalf. Therefore, SIPC protects money in brokerages, not investments. Why should they pay?
What SIPC Covers… What it Does Not
The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC.
Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.
It is important to recognize that SIPC does not work the same way as the Federal Deposit Insurance Corporation in terms of blanket protection of losses. For more information click here.
” The cash and securities such as stocks and bonds”—-is covered
What is not covered:
“Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts ”
Currency and investment contracts…
These people had investment contracts, and currency which clearly state are not covered….
Had Madoff actually brokered their money and bought securities in the market with their money, they would be covered….Well, he never did. How then are they receiving SIPC protection when Mr. Madoff never made a trade on their behalf and it clearly states currency and investment contracts are not covered?
See how the rules bend according to who got scammed?
“Why We Are NOT the FDIC
“Insurance” for investment fraud does not exist in the U.S. The Federal Trade Commission, Federal Bureau of Investigation, state securities regulators and other experts have estimated that investment fraud in the U.S. ranges from $10-$40 billion a year. In the case of microcap stock fraud, the toll on investors has been estimated as $1-3 billion annually.
With a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud.
It is important to understand that SIPC is not the securities world equivalent of FDIC–the Federal Deposit Insurance Corporation. Congress specifically considered creating a Federal Broker-Dealer Insurance Corporation, but lawmakers wisely concluded that such a designation would be both misleading and out of step in the risk-based investment marketplace that is so different from the world of banking. ”
Notice the very first statement:
“”Insurance” for investment fraud does not exist in the U.S. ”
Then why is the SIPC cutting the Madoff victims checks? I have been screwed royally and the SIPC didn’t come to my rescue? Who here has lost money to scamsters and did the SIPC step in and give you back money?
So, who’s watching the watchers?
Too far gone…everyone in Government is stealing from us, the Citizens.
We are justprey to those we trust to lead us.
Where is this all going? It is obvious that things are going to blow up.
To back the last post look at this.
http://www.chicagotribune.com/news/politics/obama/chi-rahm-emanuel-profit-26-mar26,0,5682373.story
And from his own home town paper.
Patrick,
It just dawned on me at this moment that your previous article also falls into the……. MATRIX………:
t Only Hurts When I Laugh
March 4th, 2009 by Patrick Byrne
The Congressional Research Service is a Library of Congress think-tank with just one client: Congress. A member of Congress requests a study on a subject of interest, and CRS researchers generate it. The CRS is one of the most respected institutions in Washington, DC, and its output is universally considered non-partisan, objective, and thorough…..
…
Consider this: The regulatory structure of the US capital market was set in the Secuties Exchange Act of 1934. It devoted a section (immediately after the section on Directors, Officers, and Principle Shareholders, and the section establishing the need to keep records), to describing the need for a “National System for Clearance and Settlement of Securities Transactions” (Section 17a). Its opening is instructive:
“a. Congressional findings; facilitating establishment of system
“1. The Congress finds that–
“A. The prompt and accurate clearance and settlement of securities transactions, including the transfer of record ownership and the safeguarding of securities and funds related thereto, are necessary for the protection of investors and persons facilitating transactions by and acting on behalf of investors.
“B. Inefficient procedures for clearance and settlement impose unnecessary costs on investors and persons facilitating transactions by and acting on behalf of investors.
“C. New data processing and communications techniques create the opportunity for more efficient, effective, and safe procedures for clearance and settlement.
“D. The linking of all clearance and settlement facilities and the development of uniform standards and procedures for clearance and settlement will reduce unnecessary costs and increase the protection of investors and persons facilitating transactions by and acting on behalf of investors.”
It seems that in 1934 Congress thought having securities transactions clear and settle promptly was pretty important.
Which makes it especially odd that in 2009, in the Congressional Research Service’s admirably thorough report on the parts of the US financial system and the regulators who oversee them, no mention is made of that “”National System for Clearance and Settlement of Securities Transactions” whose establishment Congress in 1934 found “necessary for the protection of investors.”
( http://www.deepcapture.com/it-only-hurts-when-i-laugh/ )
Lets get this guy, Joe Farah on the case. This internet news site is the largest in USA. He has shown lots of effort to exspose the whole FED fraud. I think this article shows he would be of help to our cause if we could just convince him.
http://www.wnd.com/index.php?fa=PAGE.view&pageId=92832
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——————————————————————————–
Our immoral money system
——————————————————————————–
Posted: March 26, 2009
1:00 am Eastern
© 2009
America’s money system is on the verge of collapse, and, as much as I hate to say it, it deserves to fail.
Even though I, too, will be hurt by a collapse of the dollar, which seems all but inevitable sometime in the next few years, the fiat money system we use in our country is neither sustainable nor moral.
I say this not based on my ideas of what is just, but on God’s ideas.
Most people tend to overlook what the Bible says about money. It has much to say. In fact, Jesus had more to say about money and possessions than any other topic – including faith, hope, heaven and hell combined. There are more than 2,350 verses in the Bible referencing money and possessions.
Jerry Robinson, author of a great new book, “Bankruptcy of Our Nation,” makes the point that the Bible condemns the kind of money system we use in the U.S. – one in which the value of money is constantly changing and subject to manipulation.
(Column continues below)
Where is that condemnation?
It is found in the following verses:
“A false balance is abomination to the LORD: but a just weight is his delight.” (Proverbs 11:1)
“Divers weights, and divers measures, both of them are alike abomination to the LORD.” (Proverbs 20:10)
“Ye shall do no unrighteousness in judgment, in meteyard, in weight, or in measure. Just balances, just weights, a just ephah, and a just hin, shall ye have: I am the LORD your God, which brought you out of the land of Egypt.” (Leviticus 19:35-36)
“Are there yet the treasures of wickedness in the house of the wicked, and the scant measure that is abominable? Shall I count them pure with the wicked balances, and with the bag of deceitful weights? For the rich men thereof are full of violence, and the inhabitants thereof have spoken lies, and their tongue is deceitful in their mouth.” (Micah 6:10-12)
We don’t use weights and measures when we buy and sell today, yet the principle behind these biblical pronouncements remains the same.
When the Federal Reserve can produce $1.2 trillion dollars out of thin air, as it did last week, and add it to the money system, that action changes “the weights and measures” we use to buy and sell. More money in the system by definition devalues the currency that was already in the system.
It’s just like the Fed put its big thumb on the scale whenever Americans go to use their wealth.
That is an example of an “unjust weight and balance” in Robinson’s book. And I agree with him.
“Fiat currency systems, where the currency is backed by nothing and its value can be manipulated at will, is by definition an unjust weight,” he writes. “And so therefore, by biblical definition, fiat currency systems are clearly unjust systems.”
Robinson goes so far as to say that Americans coins and currency does not warrant being labeled with the statement, “In God We Trust,” because if we truly trusted in God, we wouldn’t be using a fiat currency that is unjust and immoral and contrary to God’s Word.
It’s kind of like what the Bible tells us in the Book of Haggai 1:6: “Ye have sown much, and bring in little; ye eat, but ye have not enough; ye drink, but ye are not filled with drink; ye clothe you, but there is none warm; and he that earneth wages earneth wages to put it into a bag with holes.”
That’s what all of us trading in U.S. dollars are doing today – earning wages that go into a bag with holes.
Order you copy of Jerry Robinson’s “Bankruptcy of our Nation” today!
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Joseph Farah is founder, editor and CEO of WND and a nationally syndicated columnist with Creators Syndicate. His book “Taking America Back: A Radical Plan to Revive Freedom, Morality and Justice” has gained newfound popularity in the wake of November’s election. Farah also edits the online intelligence newsletter Joseph Farah’s G2 Bulletin, in which he utilizes his sources developed over 30 years in the news business.
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How to prosecute the SEC?
Bloomberg article Geithner to seek power over Hedge Funds, Derivatives…
http://www.bloomberg.com/apps/news?pid=email_en&refer=worldwide&sid=a0V_8UoPk2A0
Contact your reps and sens and let them know that you understand the gaming that is going on.
anyone else having posting issues?
JOURNAL: More on Banksters, By John Robb. Global Guerrillas, 25 March 2009.
http://globalguerrillas.typepad.com/globalguerrillas/2009/03/journal-more-on-banksters.html
Rondoc, you are prey from the SEC’s point of view.
Listen to this quote from the transcript discussing the new rule SHO.
http://www.sec.gov/about/economic/shopilottrans091506.pdf
“I feel like a person of faith facing the lions and debating and debating whether the ethics of eating someone that’s there to be eaten”
Transcript of Beneficial Voting
http://www.sec.gov/news/openmeetings/2007/openmtg_trans052407.pdf
Re: Money Laundering
Anonymous,
I know more about the world of terrorism and organized crime then I do about the world of finance. Your comment on nss and money laundering is an interesting one. I believe Dr. Decosta has made a great comment about nss and money laundering before (can’t find it).
IIRC, a hedge fund with organized crime connections named Westfield Financial was involved with laundering and Reg S stock. This firm employed two London based lawyers named Stuart Creggy and Andrew Warren, who were involved in this scheme. Creggy and Warren were also tied to the 1999 Bank of New York scandal; in fact I believe that the BoNY case came about because of intelligence gleaned from the Westfield case. That case I believe stemmed from an Operation GANDOLF in the UK, which I believe was linked to an Operation POLAR CAP (?) in the US from the early 90’s that broke up a ring that laundered Colombian cartel money.
Westfield Financial was a target of Operation UPTICK in the US in 1998. This operation arrested 120 people including organized crime members in a market manipulation scheme involving nss. This Op stemmed from evidence recovered in Felix Satter’s storage locker.
The Uptick-Westfield-Creggy/Warren connection is the clearest I have connecting nss to high level Russian organized crime (Mogilevich).
http://www.rgm.com/articles/nytimes2.html
Mr. Pace is suspected of being involved in clearing house fraud.
He was involved in Sterling Foster.