“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.
*****
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.
*****
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…
*****
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.
*****
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.
*****
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.
*****
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.
*****
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.
*****
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.’
*****
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.
*****
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…”
*****
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….
*****
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….
*****
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.”
*****
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.
*****
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.
*****
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.
*****
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.””
*****
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.
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
——————————————————————————–
——————————————————————————–
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!
——————————————————————————–
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.
——————————————————————————–
——————————————————————————–
E-mail to a Friend Printer-friendly version
EMAIL JOSEPH FARAH | GO TO JOSEPH FARAH ARCHIVE
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.
http://www.forbes.com/forbes/1997/0224/5904114a.html
This is the guy who runs stockpatrol
“Its owner, a 31-year-old egomaniacal fellow named Andrew Bressman, has filed for bankruptcy. The N.Y. County district attorney’s office has convened a grand jury on the A.R.Baron affair.”
“Officials at Bear, Stearns declined to be interviewed for this story. Company spokesperson Hannah Burns says: “Clearing is a very, very proprietary business for us, and we don’t want the public knowing about it.” A strange comment. Doesn’t the public have a right to know how its trades are handled?”
“What Harriton is selling especially to the small and dubious firms is respectability. If Bear’s famous name appears on the trade confirmation or monthly statement as the clearing firm, who can doubt that his money is in safe hands?”
“One of Bear, Stearns’ first clearing customers was Rooney, Pace Inc., a notorious stock manipulator firm shuttered by regulators in 1987. Former co-owner, Randolph Pace, is a close friend of Harriton and regularly brings new clearing customers to Bear”
When Bear went down, so did a lot of records on fraud with Brennan and Pace.
TRULY MEANINGFUL DETERRENCE TO THE COMMISSION OF ABUSIVE NAKED SHORT SELLING (ANSS) CRIMES
Throughout the years it has become painfully obvious that there has never been any meaningful deterrence to the commission of these crimes. Historically, in the ultra-rare circumstance when the regulators caught the bad guys misbehaving we’ve seen the regulators fine the perpetrators of these frauds with a fine equivalent to paying back perhaps 1% of their ill-gotten gains. They’d then be forced to sign that fear inducing “AWC” form (Acceptance Waiver Consent) stating essentially that “they didn’t do it and that they won’t do it again”. So much for meaningful deterrence!
After studying the recent report of the Office of the Inspector General (OIG) of the SEC and the rebuttal provided by the SEC’s Enforcement Division it is perfectly obvious that the SEC has no intention whatsoever in changing their way of doing business and any truly meaningful deterrence is going to have to come from a different source.
In order to provide meaningful deterrence to the commission of these thefts one has to go back to the crime scene and study just what this fraud entails. When a party intentionally refuses to deliver the securities that it sold then the resultant “failures to deliver” procreate what UCC Article 8 refers to as “securities entitlements”. These were designed by the authors of UCC-8 to serve as ultra short termed “accounting measures” to denote a failed delivery obligation. The question then became should these mere “accounting measures” be treated as readily sellable or should they be restricted for resale UNTIL that which was sold was delivered.
If they were treated as being readily sellable then obvious dilutional damage would be incurred by the corporation involved and the shareholders therein as the sum of the “supply” of their readily sellable outstanding shares plus the “supply” of these new readily sellable “accounting measures/IOUs” would be artificially increased.
Since the “supply” and “demand” of that which is readily sellable whether they be readily sellable legitimate shares or these new readily sellable “accounting measures”/”securities entitlements”/IOUs determine share prices and since the “supply” variable has been artificially adjusted upwards then by definition the share price will be adjusted downwards during the “price discovery” process. This damage is reversible when any failures to deliver of a longer termed nature are “bought-in” by the appropriate authorities when it becomes obvious that the seller of securities had no intent to deliver that which it sold. Imagine the damages possible and the invitation for abuse if those with the authority to execute these “buy-ins” (the NSCC) pretended to be “powerless” to do so.
Now we have to address the matter of “Intent”. Did the seller of the securities knowingly refuse to deliver that which it sold or was it unintentional. The arbiter here is the amount of time that has lapsed since the previously agreed upon “settlement date” or T+3. Keeping in mind that there are indeed “legitimate” reasons for ultra short termed delays in delivery then I might posit that the age of the delivery failure might arbitrarily be set at T+6 or so to determine the intent factor. After all, the sellers of securities don’t “forget” to deliver that which they sold and there was an agreement to exchange funds for shares on T+3.
The authors of UCC 8 decided to rule in favor of the sellers of securities and to “assume” that all FTDs were of a legitimate/unintentional nature and therefore to allow them to be readily sellable. They knew that the NSCC had the mandate “to act in the public interest, provide investor protection and to “promptly settle” all securities transactions and therefore plenty of power to provide the only cure available when the seller of securities absolutely refuses to deliver that which it sold i.e. “buy-in” that delivery failure. They also knew that the SEC had the congressional mandate to provide “investor protection and market integrity”.
There is a legal concept known as the “manipulation” of share prices. “Manipulation” has to do with intentionally altering the supply and demand variables that interact in the “price discovery” process to determine share prices. Once again, this “intent” to alter these variables would be determined by the time increment in between the previously agreed upon “settlement date” and the age of the FTD. Keep in mind that the buyer’s funds were already tendered.
The illegality of intentional share price “manipulation” brings in the role of the Department of Justice as the SEC has no criminal prosecutorial powers. The problem is that “referrals” need to be made to the DOJ and the recent OIG study informs us that these mandated “referrals” have not been being made. Therefore the truly meaningful deterrence to these thefts provided by potential criminal liabilities has been missing and supplanted with microscopic fines and the signing of “AWC” forms. These meaningless fines were written off by billionaire “banksters” as mere “costs of doing business”.
Since even criminals must make risk/reward calculations then historically these calculations have always resulted in a “green light” tacitly recommending the commission of the crime. The question begging to be asked is why wouldn’t the SEC be making these mandated referrals all along and why wouldn’t they be willing to provide some truly meaningful deterrence to these thefts.
Continuing to put two and two together, why would Bear Stearns get stock pumpers like Brennan and Pace to find penny stock firms where all the clients were long in worthless penny stocks? There is no big source of revenue unless Bear wasn’t bothering to own the worthless shares they were supposed to be holding in custody for their clients.
Each time a Refco or Bear goes down, many incriminating records are destroyed.
“Why did Bear now open its doors to Baron? The question is especially compelling when you realize that because of the nature of Baron’s business, Bear wasn’t really making all that much money on its clearing business.
Remember the variety of ways a clearing firm makes money. The most profitable is charging interest on the firm’s customer debits typically a result of stocks bought on margin. But Baron had no customer debits it was a firm, as many bucket shops are, that specialized in stocks that are not marginable. Baron’s customers had no margin positions.
Neither did Baron’s clients typically have credits in their accounts cash resulting from a liquidated stock position.”
Finally,we’ve got our own guys with “juice”
Kaufman gets tough on finance sector
By: Victoria McGrane
March 26, 2009 04:33 AM EST
Back in his Senate days, the vice president had such a cozy relationship with Delaware’s banking interests that his critics called him Sen. Joe Biden (D-MBNA).
It would be hard to slap that slur on Sen. Ted Kaufman.
Kaufman may have been Biden’s handpicked replacement, but he’s taking a very different tack than his predecessor did when it comes to dealing with big-time financial firms.
As in threatening their execs with incarceration.
In an op-ed piece in The Philadelphia Inquirer earlier this month — a piece accompanied by a drawing of a corporate CEO in the stockades — Kaufman said the government must prosecute “local mortgage brokers or the biggest banks” if they engaged in crimes that contributed to the nation’s economic meltdown.
“Let’s enforce the laws that were on the books and throw those who broke them in jail,” Kaufman wrote. “I am not prejudging anyone. We may well find that only a few cases involved outright criminal behavior. And we must take care that our anger does not cloud our judgment. But if people rob a bank, they go to jail. If bankers rob people, they should go to jail, too.”
Kaufman explained his tough talk in an interview with POLITICO: “When you’re sitting around a meeting and somebody says, ‘Hey, last time somebody did this, they went to jail,’ it has a very salutary effect on what you do.”
Kaufman says he’s free to say such things because he has no plans to run for his seat in 2010. And while he won’t connect the dots himself, that means he doesn’t need the support of the financial firms that showered money on Biden.
MBNA, the Delaware-based credit card company now owned by Bank of America, was Biden’s largest source of campaign cash for the span of his Senate career, donating more than $215,000 through the 2008 cycle, according to the Center for Responsive Politics. The company also employed Biden’s son Hunter as an executive and later paid him as a consultant.
Bank of America, which has kept MBNA’s card operations in Delaware, and Citigroup Inc. also made generous donations to Biden’s 2008 presidential bid.
In 2005, Biden and his fellow Delaware senator, Tom Carper, played pivotal roles in the passage of a measure that made it harder for individuals to file for bankruptcy protection — a measure that MBNA and other credit card companies had been pushing for years.
Of course, big banking interests are a major constituency in Delaware — a source of jobs and revenue in the state — and therefore one that Biden would have had a natural interest in protecting. And both Kaufman and outside observers say that, given the current economic and political realities, Biden might be just as tough on financial firms now as Kaufman is.
“I don’t have any doubt that if Biden were still in the Senate, his rhetoric would be similar to what Sen. Kaufman’s is now,” said Thomas Mann, a congressional expert at the Brookings Institution. The financial crisis has so changed the situation that “even those senators representing districts and states with substantial financial industry players are really speaking out very harshly.”
Still, says Meredith McGehee, policy director at the Campaign Legal Center, a “combustible cocktail” of constituent interests, money interests and a politician’s need to raise millions creates a situation where “no one knows, least of all the candidate, what their motivations are.”
Campaign reform experts like McGehee see plenty to dislike about the process of appointing placeholders — Roland Burris, anyone? — to fill out departing members’ terms. And Kaufman’s own appointment drew negative press as critics accused Delaware’s governor of just helping Biden keep the seat open for his son Beau.
But McGehee said it’s refreshing to see what can happen when someone like Kaufman is freed from the need to raise campaign cash. “Can you imagine what it would be like if every member of Congress had that freedom?” she said.
Kaufman, who served as Biden’s chief of staff before taking over his seat, won’t say that money from financial firms drove his old friend’s decision making. But he notes repeatedly that, since he’s not going to run for the seat, he’s free of political concerns.
Asked if he thinks it’s politically important to show voters that Congress is going after financial scofflaws, Kaufman said: “I don’t have to worry about that.”
“It’s one of the great things” about being a short-timer, Kaufman said. “Because I think this is an issue where someone could say, ‘Hey, Kaufman, you’re just doing this because its politically expedient for you.’ But I can say I’m not doing this because it’s politically expedient.
“I don’t recommend this, couldn’t run a country like this, couldn’t run a Congress like this. But for me, this is just great. So for two years, I don’t have to worry about people [questioning] my motivations. I’m just trying to figure out what [is] the right thing to do.”
Kaufman has pointed to potential wrongdoing by mortgage brokers who preyed upon homebuyers, bankers who neglected due diligence in designing and marketing mortgage-related products, and credit-rating agencies that gave these now-toxic products top-notch ratings.
And to make sure those prosecutions happen, Kaufman is pushing bipartisan legislation that would beef up federal law enforcement resources committed to investigating these crimes.
He is also calling for the Securities and Exchange Commission to reinstate rules to prevent “abusive” short-selling that he says is “tantamount to fraud and market manipulation.”
http://www.politico.com/news/stories/0309/20497_Page2.html
The Real AIG Scandal: How the Game Is Rigged at Wall Street’s Casino
There’s nothing like a grandstanding member of Congress to deflect attention from the real issues at hand by throwing a few juicy bones to the masses.
Most legislators at a House Finance subcommittee hearing last week deftly avoided the real story of AIG’s collapse. Instead, they homed in on the public relations disaster of hundreds of top AIG officials and staff getting $165 million (later revealed as over $218 million) in bonuses.
The key issue ignored by the congressmen and women was the potential catastrophe represented by as much as $2.7 trillion in AIG derivative contracts and how AIG and the U.S. government are dealing with them. To put that number in context, we’ve so far provided the company only about $170 billion.
An exception at the hearing was Rep. Joe Donnelly, D-Ind., who declared that “naked credit default swaps” were little more than “gambling … dreamed up” by Wall Street to create additional profits, and he suggested that instead of being bailed out, “when the casino goes bust, the guys who are gambling close shop.”
He noted that if ordinary Indiana citizens acted the same way as the titans of Wall Street had, they’d be in jail. But Donnelly never got to explain what he meant by “naked credit default swaps.”
We did learn early at the hearing that the Federal Reserve is in charge of overseeing AIG. The Fed is strongly influenced by some of the same big banks and brokerages that are getting AIG payouts and taxpayer funding.
These same firms have opposed regulating credit default swaps, other derivatives and naked short selling (which are explained below). That should have set the stage for the rest of the questions, not to mention an investigation into where, exactly, all that money that AIG received went.
More Money for AIG
We discovered in passing at the hearing that AIG has $1.6 trillion of derivatives left to “unwind” — the mess remaining of the AIG derivatives debacle. Nobody asked the basic details of how the other $1.1 trillion was “unwound” or how the rest will be dealt with. And nobody got an answer to the question of how much more in taxpayer money it will take to finish the job, and who will benefit from this unwinding process. Or, since the U.S. government is now in the derivatives business through its financial support of not only AIG but also Citigroup ($300 billion in guarantees), and other financial companies, how much taxpayer money may be required to pay off those other firms’ derivatives bets.
Derivatives
Derivatives are financial instruments derived from something else, hence the name. In the lingo of Wall Street, nouns are turned into verbs and verbs beget nouns. If a bank or brokerage firm “securitizes” debt — for example, turning a bundle of mortgages into financial products — the resulting securities are derived from those mortgages, thus they are mortgage “derivatives.” They can be sliced and diced and sold and at the insistence of Wall Street powers and their representatives, and the derivative transactions are unregulated.
Central to AIG’s demise were derivative credit default swaps (CDS), basically insurance on financial deals. Some people bought insurance against their houses burning down. Others made bets on somebody else’s house burning down. That’s an insurance policy for someone without a house at risk.
The first type of contract should be seen as legitimate. But should U.S. taxpayers, who own nearly 80 percent of AIG, pay off a wager that somebody else’s house would burn down in this financial casino Wall Street built out of the ashes of cut-and-burn deregulation?
More importantly: Should they pay off the wager if there are indications that the game may have been rigged in the first place?
Hedging the Bets
Derivatives contracts on stocks can be “hedged” with a short sale.
Short selling is selling a stock that you borrow. The short-seller hopes the price will go down in order to buy the security cheaper and transfer it back to the lender, gaining a profit from the difference in prices from the time the shares were borrowed and the time the shares were returned to the lender.
Naked short selling is selling shares that were never borrowed — it’s selling thin air, or in essence, selling counterfeit securities. Done on a large scale, this pushes down share prices across the board as the artificial supply of shares — ballooned by those phantom shares — outweighs demand.
The Securities and Exchange Commission’s real effort in stopping naked short selling has been on a par with its interest in investigating Bernie Madoff.
A newly released report from the Office of Inspector General revealed that the SEC received 5,000 complaints regarding naked short selling of stocks in 2007 and 2008, which led to zero enforcement actions by the SEC.
A Market Ripe for Fraud and Manipulation
Here’s how naked short selling relates to manipulation of CDSes. The face value of CDS contracts at one time was $60 trillion. Even Christopher Cox, who took no meaningful action on the matter as SEC chairman, got worried and acknowledged in testimony, “Holding a credit default swap is effectively, or nearly effectively, taking a short position in the underlying … and because CDS buyers don’t have to own the bond or the debt instrument upon which the contract is based, they can effectively naked short the debt of companies without any restriction, potentially causing market disruption and destabilizing the companies themselves. This market is ripe for fraud and manipulation.
“This is a problem we have been dealing with, with our international regulatory counterparts around the world with straight equities (stock), and it’s a big problem in a market that has no transparency and people don’t know where the risk lies.”
The most profit from these types of contracts is obtained if the security that is the asset for the contract declines to a price of zero. Derivative trades are often sham transactions between cooperating dealers designed solely for the purpose of creating shares to sell into the public market. Securities prices can be manipulated downward through naked short selling. Even though derivatives are unregulated transactions, the stock manipulation occurring from the sham transactions that create the naked short shares is regulated and is illegal under U.S. securities laws.
If the derivatives contracts were hedged with a short sale by the casino operators, they have already received profit from the sale of the securities they did not own.
Where Does the Money go?
Derivatives trades are generally accounted for by the big broker dealers (now getting taxpayer money) as “off balance sheet” transactions. They are hidden from regulators and investors, via special purpose entities (SPEs), which can be offshore and presumably are for the profit of elite special partners or clients of these same firms.
More Transparency Needed
So, we need to know about the claims AIG and others on Wall Street are paying out from taxpayer funds. Who made these derivative trades? Did they own the underlying assets or not? Did the parties that received money from the taxpayers write sham contracts to create shares to sell and then naked short sell securities they didn’t own into the U.S. markets? Is AIG paying on “losses” for which no claims have yet been made?
Shouldn’t Congress, the Fed — which is overseeing AIG — and law enforcement agencies be investigating these SPEs and the money they received? Shouldn’t they investigate whether it was obtained illegally?
What if there are trillions of dollars in the special purpose entities that have been hidden for the benefit of a powerful few? Should the U.S. taxpayer come to the aid of the largest U.S. banks and brokerages that created these fancy off-balance-sheet financial instruments without full disclosure to at least one government agency of the monies in SPE accounts?
How can Congress make intelligent regulation without understanding the scope of the problem and the trading techniques they are trying to regulate, which took down AIG and are destroying the economy — especially the sham transactions designed for the purpose of creating shares of publicly traded companies?
Since Congress is so focused on Wall Street salaries and bonuses that compensate obscenely paid Wall Street executives, shouldn’t it be asking if these titans of business have reaped financial rewards through the use of SPEs? Beyond that, were offshore SPEs used to avoid taxes or hide improper gains?
Why should we pay anything for the casino gambling debt? If there were illegal profits made on derivatives transactions that created sham shares sold into the marketplace, we should claw back that money, which could amount to a lot more than the bonuses paid to AIG officials.
http://www.alternet.org/workplace/133228/the_real_aig_scandal:_how_the_game_is_rigged_at_wall_street's_casino/
It’s hard to wrap your mind around $2.7 trillion.
The average median income (that means half made less than this and half made more) in America was $48,200 in the 2006 census.
There are 111,162,259 households.
$2.7 trillion would give each of those households an additional $24,288.82 which means that if the money went to the people instead of the banks, the median household would increase their income by 50%.
If the people received it, they would likely spend the money setting the economy on fire. The banks instead, will use it to pay off bets they took with foreign counter parties, possibly their own personal offshore accounts and that money will never set foot in our economy.
Where did this money come from? It’s being printed out of thin air in a year, will make each dollar less valuable because there are more of them. It will express itself in a rise in interest rates or a falling exchange rate.
And guess who that benefits? The banksters who can cover their fails with dollars that are less valuable a year from now.
Steve A Cohen’s firm made an anonymous post on swaps on Wikipedia (the IP gave them away).
The way they explained it, a short agrees to pay the interest on $1 million in exchange for his brokerage agreeing to pay any upside on $1 million worth of the stock he’s shorting.
Because both sides of the swap have equal value, it nets to zero and neither side has to disclose it as it is off balance sheet.
Now the short pays interest on the $1 million + has to put marked to market collateral up without getting interest in return, but the short has NO risk if the stock runs.
The brokerage, on the other hand, gets interest on the short’s collateral, interest on $1 million that doesn’t exist and they can guarantee the stock doesn’t run by piling on by selling long stock in other shareholder’s accounts.
Important read!
http://www.sec.gov/comments/s7-30-08/s73008-108.pdf
Follow the money!
These billions of dollars are only commission payments. The funds themselves likely made 50 times that much.
http://www.iimagazine.com/article.aspx?articleID=1914753
Dr. Jim DeCosta,
Thank you!
YES, this is an important read, and it contains an appendix with pictures of Counterfeiting perpetrated by The Wall Street Counterfeit Machine.
These pictures can clearly illustrate to every investing man and woman in the world… HOW The Wall Street Counterfeit Machine steals the investing public’s money!
http://www.sec.gov/comments/s7-30-08/s73008-108.pdf
In regards to all of that money floating around in the hedge fund industry that you just cited try to imagine how incredibly easy it is to “collateralize” the monetary value of a failed delivery obligation on a daily marked to market basis. Pretty easy right? Now factor in that all of the FTDs piling up in the share structure of the corporation under attack procreate readily sellable “securities entitlements” that will easily place the share price of the corporation into a “death spiral” so that the collateralization requirements drop proportionately to how the share price is dropping.
This then allows the funds of the unknowing investor to flow into the wallets of the crooks DESPITE THE FACT THAT THEY CONTINUE TO REFUSE TO DELIVER THAT WHICH THEY SOLD. Pretty slick right? Hold on it gets better. Now you need to realize that 99% of the original “collateralization” requirements “posted” by the party refusing to deliver that which it sold IS MADE UP OF THE FUNDS OF THE INVESTOR. THE CROOKS HAVE NONE OF THEIR OWN FUNDS i.e. THEY HAVE NO “SKIN IN THE GAME”! Now that is one well-designed fraud on the market. It even gets better if there are “credit default swaps” available to manipulate.
The letter to the SEC by Roel Campos looks like the real deal. It will be hard for them to ignore it.
I hope the senators proposing new legislation on naked short selling see this.
Jim deCosta:
What are the chances that TARP money will flow to entities that profited hugely from illegal naked short selling and hid the profits aside in off-balance sheet accounts?
If the Madoff ‘victims’ were, say, autoworkers in Detroit, I doubt congress would be doing anything more than sneering at them for their ‘stupidity’.
DCN, here’s why Soros is worthy of inclusion in your deck.
Wonder who crashed the US financials??!!??
http://news.id.msn.com/business/article.aspx?cp-documentid=2954977
Fred…
I don’t need to be as smart as the good doctor to figgure this out the amount of tarp money received by the same people who made money naked shorting the united states economy into the dirt is more than the amount of money they made destroying our economy.
They naked shorted [NEVER DELIVERING AND KEEPING THAT MONEY]stocks,bonds, derivitives, eveything they could driving the value of the underlying securitys into the ground so the government could call for funds to bail out the financial markets ,get taxpayer funding approved ,now all that tarp money will dissapear into the black hole of the ‘insurance policys’ written on ASSETS NOT OWNED BY THE INSURANCE HOLDERS.
now they have the value of the worlds economys naked shorted and hid away and the bailout money as well,which my 8 year olds grandchildren will still be paying off !
All clear on that now?
Dr. Jim DeCosta,
In the generic letter I am working on, I need an easily understood term to describe the Long positions recorded in monthly brokerage statements that have NOT BEEN DELIVERED….
This morning the thought came to me that I call the fraudulently recorded LONG Position an…….
—- FTD IOU ………….
(Fail -To-Deliver IOU)
Does this sound like a accurate term?
FTR: Long position held as an IOU
(FAILURE TO RECEIVE)
istandup,
It’s really rather clever. On your monthly brokerage statement that which you purchased is typically referred to as “securities held long”. Note that it won’t say “shares owned”. Why? It’s because firstly in the case of abusive naked short selling these aren’t “shares” of a corporation. Secondly, the purchaser doesn’t “own” them. “Cede and Co.” the nominee of the DTC “owns” them. “Ownership” is defined in Rule 200 of Reg SHO.
In the case of “securities” purchased but never delivered or those FTDs cured by a “borrow” from the NSCC’s “Automated Stock Borrow Program” (SBP) the purchaser is the “co-beneficial owner” of any given parcel of shares purchased. Any given “parcel” of shares whose FTD was cured by a borrow from the SBP may have many, many co-beneficial owners because these lending pools are self-replenishing and they are held in an “anonymously pooled” format or “dark pool”. You need a lot of “darkness” in a crime wave as obvious as refusing to deliver that which you sell and the secrecy-obsessed “black box” known as the DTCC provides it in spades.
Technically the “accounting measure” that denotes a failed delivery obligation is referred to as a “securities entitlement”. Since one definition of a “security” is “an evidence of indebtedness” then TECHNICALLY an FTD gives rise to a “security”. As far as your monthly statement saying that your brokerage firm’s clearing firm is “holding it long” for you TECHNICALLY any “book entry” made by any “securities intermediary” gives rise to a “long” position even if it is referring to a failed delivery obligation.
When you link together these two TECHNICALITIES then “securities held long” can very well be a smoking gun denoting a fraud or it might be the real McCoy. Since the purchaser of either real shares or “securities entitlements” is allowed to sell that which she or he purchased then nobody gives a hoot and these nonexistent “shares” keep getting handed on from buyer to seller to buyer to seller ad infinitum. It’s like a game of “musical chairs” with 100 participants and maybe 30 chairs. If the music never stops at the DTCC (via periodic audits or buy-ins) then the fact that there is a gigantic disparity between participants and chairs is never revealed.
Dr. DeCosta, question for you, a very basic one. I was under the impression that in order to naked short a stock you had to use a “Prime Broker”if that was/is the case how did the PB’s get shorted? Did they did this to themselves???Please explain it to me like I’m a five year old. Thanks in advance.
Hi Sean,
You don’t need a prime broker to NSS a stock at all although they’re often involved. The prime brokers are the guys that work closely with the hedge funds. They process their trades, effect their short selling loans and loan them money to increase their leverage. They’re typically a division of one of the big “banksters”. Since the hedge funds aim a ton of money at these guys annually they’re going to expect some “favors” back. These might be in the form of bogus “locates”, access to crooked market makers willing to illegally access their exemption from making pre-borrows or “locates” before naked short sales, etc.
Sean,
It might be easier to grasp that a naked short sale is synonymous with refusing to deliver that which you sold. It doesn’t matter if the brokerage firm taking the order labeled the sell order as “Long sale”, “Short sale” or “Short sale exempt” i.e. done by a theoretically bona fide MM. It also doesn’t matter if the selling party executed a bogus “pre-borrow” or bogus “locate” in order to give Reg SHO a head fake. Naked short selling is a piece of cake.
The thing to focus on is what happens AFTER the party refused to deliver that which it sold. The only cure in the whole world available when the seller of securities absolutely refuses to VOLUNTARILY deliver that which it sold is for the authorities to FORCE delivery by promptly “buying-in” that FTD.
The party that has “accidentally” collected 15 of the 16 sources of empowerment and authority to provide this ONLY cure available is the DTCC. But it is owned by the parties refusing to deliver that which they sold and their management being loyal employees refuses to provide this ONLY cure available despite its congressional mandate “to act in the public interest, to provide investor protection and to “promptly settle” all securities transactions. When you break it down into its component parts this is one very slick form of fraud.
SOMETHING SCARY TO PONDER
1) The SEC recently stated in an amicus curiae brief in a case wherein the victims of naked short selling were suing the DTCC: “A security entitlement is a property interest entitling the holder to exercise all of the rights attached to the security. See UCC § 8-501(b)”.
The DTCC does not have the statutory authority to essentially “issue” new shares of a corporation especially when it results in the investment funds of U.S. investors being rerouted into the wallets of the DTCC “participants/co-owners” that absolutely refuse to deliver that which they sold. Is this fraud really that complex?
2) A legitimate “share” of a corporation represents “a property interest entitling the holder to exercise all of the rights attached to the security”.
3) The SEC thus holds a “securities entitlement” as being essentially synonymous with a legitimate “share” of a corporation.
4) What’s the quickest way to get a “securities entitlement” credited to the account of an investor? You naked short sell him shares and refuse to deliver that which you sold.
5) Since only the Board of Directors of a corporation is allowed to “issue” shares of a corporation and only via a corporate resolution then by definition the DTCC should not allow failures to deliver to occur.
6) This would be tantamount to NOT allowing any sell order to be processed UNTIL that being sold is in place and ready to be delivered on the previously agreed to “settlement date” of T+3.
7) The SEC and DTCC can’t have it both ways. You can’t treat a “securities entitlement” as a legitimate “share” and then have the ONLY party (the NSCC) empowered to provide the ONLY cure available when its abusive participants refuse to deliver that which they sell i.e. promptly buy-in that FTD pretend to be “powerless” to provide the ONLY known cure.
The easiest way to naked short for a retail investor is to open an account with a Canadian boutique.
You place your order to short and they say “this one may be hard to borrow” and you say “short it anyway”. About a week and a half later, they will complain that they are going to have to buy you in, as they can’t find stock.
Simply place the order to buy, then naked short to yourself or a friend from a different boutique (or cover at a profit, rinse and repeat).
Alternatively, you can get a “wholesale” account which basically means to trade directly through a friendly market maker who naked shorts for you.
I should provide some context to the above post #173 because it is truly brilliant what the crooks have done. The nominee of the DTC “Cede and Co.” has been named the “legal owner” of all shares held in “street name”. This was done to streamline the clearance and settlement process. It made sense.
Because of this, UCC Article 8-501 got drafted stating that although the DTC’s nominee is TECHNICALLY the “legal owner” the purchaser of these shares that holds the “securities entitlement” and not the title of “legal owner” to these shares must be treated as able to exercise all of the rights that comprise the security. After all, they’re his shares. This made sense and provided some investor protection.
The opportunities sensed by the crooks and the lawyers of the crooks was that since the “entitlement holder” HAD TO BE TREATED BY LAW as entitled to exercise all of the rights that comprise a security (as per 8-501) then if we merely refuse to deliver that which we sell then we can establish massive naked short positions AT THE SAME TIME that we’re diluting the company to death with all of these extra readily sellable “securities entitlements”. These naked short positions will immediately be worth a fortune as the share price of the corporation targeted for an attack tanks associated with the extra “supply” of shares and fake shares now breaking its back.
Thus a law meant to provide investor protection from crooked DTCC participants leveraging their “legal owner” title did just the opposite. You have to realize that there are $1,000 per hour lawyers being paid by the “banksters” and the hedge funds to search for loopholes and asymmetries to use as leverage over less financially sophisticated U.S. investors. That’s why we theoretically have SROs and regulators like the SEC looking out for us!
The riskiest part for the crooks was being “bought-in” by the authorities empowered to provide the ONLY cure available when parties refuse to deliver that which they sell i.e. execute a buy-in. As it turns out the employees of the crooks, the NSCC management, had quietly acquired a monopoly on 15 of the 16 sources of empowerment to execute buy-ins. The 16th source of empowerment still had to be dealt with. This is the brokerage firm of the purchaser of the shares that never got delivered. This party was essentially “bribed” not to opt for a buy-in by being given the interest earnings of the investor’s funds UNTIL that which was sold got delivered. All of a sudden the last thing in the world the brokerage firm of the buyer wants is for delivery to occur.
Dr. DeCosta, as always, now I get it and thank you for your assistance!!!
Goldman Sachs is both a major NSS and a TARP recipient.
Their incestuous relationship with the US ‘government’ needs to be exposed for what it is and terminated.
http://www.nytimes.com/2008/10/19/business/19gold.html
Dr. Jim DeCosta,
You said:
“The 16th source of empowerment still had to be dealt with. This is the brokerage firm of the purchaser of the shares that never got delivered. This party was essentially “bribed” not to opt for a buy-in by being given the interest earnings of the investor’s funds UNTIL that which was sold got delivered. All of a sudden the last thing in the world the brokerage firm of the buyer wants is for delivery to occur.”
I think you have stated that our individual brokerage companies cannot tell us whether the individual account received DELIVERY of long stock share bought or whether they were NOT DELIVERED.
OK, is it not then true that our brokerage companies, at least, CAN and DO KNOW if they are receiving interest payments from the Clearance and Settlement System?
Also,evidence firms receiving TARP funds (MS) have been paying out to cannibalize other firms (F):
http://www.huffingtonpost.com/2009/03/05/morgan-stanleys-13-payout_n_172259.html
Now, is that a good use of our funds?
istandup,
Brokerage firms that utilize a clearing firm are called “introducing” or “correspondent” broker/dealers. They don’t know whether their client got delivery of that which he purchased. The clearing firm does know, however. It’s the one that has an option to file an “Intent to buy-in” with the NSCC or not to. It will nearly always choose not to. It would rather have the interest income than a book entry gathering dust.
The “introducing b/d” has a fiduciary duty of care after earning a commission after operating as an “agent” to make sure that his client got what he paid for. He gets blinded as to the delivery status of that order by the NSCC’s Continuous Net Settlement’s (CNS) use of multilateral “pre-netting” which disconnects clearance from settlement. That fiduciary duty of care goes poof! The “introducing” b/d doesn’t care anyways; he got his commission and moved on.
istandup,
The net-net is that the NSCC says to the clearing firm holding the delivery failure that it can either file the “Intent to buy-in” and risk retaliation from your NSCC fraternity brothers for disturbing the corrupt status quo or you can take in a bunch of money in the form of interest earnings UNTIL delivery occurs. Gee, that’s a tough choice! But what a minute how can the NSCC with the congressional mandate to “promptly settle” all securities transaction give its “participant” the option to sit around and wait for the EVENTUAL delivery of that which may never show up?
critical read!
http://www.gao.gov/new.items/d09318r.pdf
To put Dr. Decosta’s brilliant post 175 in layman’s terms.
You give your brokerage money to make a purchase and instead of receiving the shares you bought, you get an IOU. As long as your brokerage doesn’t demand delivery of the shares, they get interest on your money. You’re none the wiser as the industry controlled regulators allow your brokerage to refer to the IOU’s as “securities held long”.
You’re none the wiser and don’t realize you paid good money and received nothing in return. Your purchase helped increase the supply of outstanding securities entitlements, without adding to the demand. Perversely, the more demand to buy, the lower the shares will go, as long as the system is willing to print entitlements.
(They will always do this with companies not likely to show a profit in the short term.)
Kind of makes you look like a stupid sap for putting your money into the market, sucker!
Dr.DeCosta,
If a company makes a profit and buys back shares does this have any effect on the NSS’ers?
If a company gets bought out and there is a massive amount of share short what happens?
TIA
Henry Kissinger sez:
“We are building for the first time, not just a global economy but a truly global society.” The credit crisis, he repeated, would be seen as a mere hiccup in the progress of globalization, as the world financial system adjusts to massive flows of money between countries.
http://www.independent.co.uk/news/uk/politics/
three-in-a-bed-will-gordon-roll-over-1654277.html
The crash of the American banking system and economy, with the emergence of a new global reserve currency (IMF Special Drawing Rights) as a solution to the crisis makes sense when you realize THEY don’t like that democratic America with Internet educated citizens is a superpower which dominates the world economy.
What if the global elite who run the world banking system (the banksters) had a goal in mind and that goal was to subjugate your democracy to a global dictatorship they secretly control through their own privately controlled global currency?
Would treason be too strong a description of the intentional crash of our economy by gutting the clearance system so THEY can manipulate it?
Ron, in the first case, yes it hurts them as the company will demand real shares to cancel and will be in a position to sue the brokerage if they aren’t delivered.
In the second case, it is meaningless. The company is either sold for dollars at the low price (and IOU’s are covered at that low price) or for IOU’s in the acquiring company.
Thought you guys may be interested in seeing and reading this…
GAO Report Blasts SEC Short-Selling Investigation
Law360, New York (March 27, 2009) — The U.S. Government Accountability Office issued a report Friday laying out the process for clearance in the equities market, finding that a U.S. Securities and Exchange Commission office may have missed significant activities related to manipulative naked short-selling in the nation’s largest equities clearinghouses.
The GAO report stressed the importance of oversight into the clearance and settlement process for equities markets, while saying that it did not support the SEC Office of Compliance Inspections…
Re: GAO Report Blasts SEC Short-Selling Investigation
http://securities.law360.com/registrations/user_registration?article_id=94008&concurrency_check=false
Interesting….
http://research.scottrade.com/public/markets/news/news.asp?docKey=100-077×2983-1§ion=headlines
Here’s one to pass along to the friends of Bill O’Reilly. Mabye it will help to end his and Nws corp/Foxnews front running crap.
http://thinkprogress.org/2009/03/27/ups-oreilly/
Dr. Jim DeCosta,
The GAO Report states the following on page 4:
“If a participant fails to deliver the total number of securities that they owe NSCC on a particular settlement date, NSCC may be unable to meet its delivery obligations, resulting in a fails to receive (FTR) for participants who have net long positions. NSCC uses the automated Stock Borrow Program to borrow shares to meet as many of its delivery obligations as possible. This program allows participants to instruct NSCC on the specific securities from their DTC account that are available for borrowing to cover NSCC’s Continuous Net Settlement System delivery shortfalls. Any shares that NSCC borrows are debited from the lending participant’s DTC account, delivered to NSCC, and, subsequently, delivered to a NSCC participant with a net short position. NSCC creates a right to receive (net long) position for the lender in the Continuous Net Settlement System to show that it is owed securities. Until the securities are returned, the lending participant no longer has ownership rights in them and, therefore, cannot re-lend them. Additionally, any delivery made using the Stock Borrow Program does not relieve the participant who fails to deliver from its delivery obligation to NSCC.”
Does this paragraph reflect your understanding of HOW the SBP program is used?
Does Goldman rig the oil markets as well?
http://www.forbes.com/forbes/2009/0413/096-sachs-semgroup-goldman-goose-...
re: post #190
istandup,
That citation is 100% accurate as to how the SBP operates. Now for the fine print. Rule #1: don’t get faked out by the legal “ownership” of that particular parcel of shares. It’s a Ponzi scheme of sorts. “Ownership” is divorced from “delivery obligations” at the NSCC. The buying b/d that received the borrowed shares from the SBP to cure its failure to receive (FTR) becomes the new “legal owner” of those shares. No problem because 17 A mandates the transference of beneficial ownership in a securities transaction. It is semantically correct that the donor of the shares that were borrowed loses “ownership” but what did he gain? He gained a “long position” in a “C” sub account at the NSCC. This “book entry” is a “securities entitlement”. The b/d whose shares were chosen by the NSCC to cure a delivery failure does not get on the phone to his client and say OOPS you just lost “ownership”; you can no longer sell your shares.
Remember the “Pet Quarters” case and the amicus curiae brief filed by the SEC. The SEC’s interpretation of UCC 8-501 is that “the holder of a “securities entitlement” is entitled to exercise ALL of the rights that comprise the security”. There is no difference between “owning” a security and “having the right to exercise all of the rights that comprise a security” except for a mere “accounting measure”. Whether an investor is technically wearing a hat inscribed with “LO” as “legal owner” or with “SEH” for “securities entitlement holder” makes no difference since both are allowed to exercise all of the rights that comprise the security.
In reality 8-501 says nothing of the sort. It says that since “Cede and Co.”, the nominee of the DTC, has been appointed to act as the surrogate “legal owner” of all shares held in “street name” for reasons associated with streamlining the transference of ownership and the purchaser of shares and the investor TECHNICALLY only retains a “securities entitlement” then the DTC better not try to leverage its acting as the surrogate “legal owner” and try to exercise any of the rights that comprise that security. After all, the investor paid for them. That is a far cry from the SEC’s interpretation.
For all intents and purposes the SBP of the NSCC “issues” UNREGISTERED SHARES of a corporation’s stock. A clearance and settlement system with integrity would not allow the new brokerage firm receiving the borrowed shares to donate them back to the SBP UNTIL the earlier failed delivery obligation was paid off otherwise you’re running a counterfeiting machine. That’s why crooks can sell nonexistent shares all day long, refuse to deliver that which they sell and simply let the SBP work its magic. Since each FTD results in the generation of readily sellable “securities entitlements” then the share price has to tank and those previously established naked short positions gain value. All of this transfer of wealth involving only the need to refuse to deliver that which you sell.
The net-net is that “ownership” becomes a moot point if the SEC and NSCC misinterpret UCC 8-501 and allows “book entries” known as “securities entitlements” to become synonymous with “shares” which relegates the act of refusing to deliver that which you sell to result in the “issuance” of shares behind the backs of the Board of Directors which is the only party allowed by State Law to “issue” shares.
Dr. Jim DeCosta,
Thank you… I am still trying to “degist” the details.
Let me concentrate on the last two sentences quoted above:
“Until the securities are returned, the lending participant no longer has ownership rights in them and, therefore, cannot re-lend them. Additionally, any delivery made using the Stock Borrow Program does not relieve the participant who fails to deliver from its delivery obligation to NSCC.”
In a previous post above, you stated:
“In the case of “securities” purchased but never delivered or those FTDs cured by a “borrow” from the NSCC’s “Automated Stock Borrow Program” (SBP) the purchaser is the “co-beneficial owner” of any given parcel of shares purchased. Any given “parcel” of shares whose FTD was cured by a borrow from the SBP may have many, many co-beneficial owners because these lending pools are self-replenishing and they are held in an “anonymously pooled” format or “dark pool”. You need a lot of “darkness” in a crime wave as obvious as refusing to deliver that which you sell and the secrecy-obsessed “black box” known as the DTCC provides it in spades.”
So as I understand your statement here, the same SBP shares are owned by many, many different people, because they go back into the pool after they are used.
Yet the GAO paragraph states:
“Until the securities are returned, the lending participant no longer has ownership rights in them and, therefore, cannot re-lend them.
So I seem to be missing a fine detail here…
How is the GAO sentence true if the SBP is self-replenishing with the same shares?
Re post #184
Ron doc,
Share repurchase programs are an excellent idea for companies that have had the you know what kicked out of the share price. It is step 2 of a 14-step sequence to address these frauds.
In the case of a tender offer, those that are naked short your shares on the “record date” of a tender offer are on the hook for the amount of the tender offer. Here’s where things get really crooked at the DTCC. If “acquiringco” takes out “acquiredco” on a 1-for-1 share swap acquisition the NSCC doesn’t make those naked short “acquiredco” go out into the open market and buy shares of “acquiredco” to cover its naked short position.
Instead what they do is take out a bottle of “white out” and let their abusive participants off the hook and merely change their naked short position to being short shares of “acquiringco” on a share for share basis. Of course this is 100% illegal because the law says that those short must match the tender offer in like kind and like quality.
In this example all of those share price depressing readily sellable “securities entitlements” poisoning the share structure and share price of “acquiredco” now get redeposited into the share structure of “acquiringco”. Shouldn’t the DTCC or SEC or FINRA brought all of this toxic waste to the attention of the board of directors of “acquiringco” before they voted on the tender offer. How about to the attention of the shareholders of “acquiringco” before they voted on the tender offer? Doesn’t the ’33 Act (“The Disclosure Act”) mandate the disclosure of this very “material” information?
The reality is that these thefts have been going on for so long that the following of the law in the ’33 Act would reveal the existence of this gigantic “industry within an industry” and the crooks as well as the regulators can’t allow this to happen. Have you ever wondered why the share price of the “acquiringco” always tanks in one of these tender offers even when the acquisition is accretive to earnings? Perhaps it has to do with the massive number of securities entitlements in the share structure of the “acquiredco” is what depressed its share price levels to a point where it became attractive to the “acquiringco”.
When is all of this going to end? There is one and only one solution available. You buy-in the outstanding delivery failures older than perhaps T+6 in the shares structures of all corporations and then you make sure that this never happens again. Is there something extremely punitive to FORCING people to deliver that which they previously sold when they refuse to do so voluntarily? In any business other than Wall Street would we even be having this discussion? Can you imagine the head count on how many U.S. citizens have been screwed out of their life savings by this crime wave?
Re: post 193
istandup,
I know it’s confusing. Don’t concentrate on the “ownership rights”. In a sense there are “Official ownership rights” as recorded in the books and there are “unofficial ownership rights” that are floating around in cyber space. They’re one and the same but the DTCC and the SEC and FINRA can’t publicly admit this or else they would admit to the corruption in our clearance and settlement system because everybody knows that they don’t have the legal right to “issue” shares of a corporation.
istandup,
The crooks and the SROs and the regulators facilitating the crimes of the crooks have to make it CONFUSING because of the obviousness and heinous character of refusing to deliver that which you already sold after being given access to the funds of the purchaser.
Dr. Jim DeCosta,
Yes, I agree and do understand the Wall Street Criminals have made all their rules confusing on purpose to HIDE their crimes.
This is why I am trying to understand HOW they are confusing the issues on purpose.
Can you point me to one of your written letters to the SEC where you explain these confusing points?
istandup,
One thing I’ve failed to get across over the years is how incredibly easy it is for a market maker and its co-conspiring hedge funds to “accidentally” amass an enormous naked short position which forces him to step up his fraudulent activity. The foundation of our entire clearance and settlement system has been illegally converted to one based upon “collateralization versus payment” (CVP) versus the congressionally mandated “delivery versus payment” (DVP). This means that you don’t have to deliver that which you sell in order to get your hands on the investor’s funds. This is insane but it is what it is.
Opportunists noticed this and decided to exploit it but they still needed an opportunity. The 2 best “opportunities” today are to utilize the wishy-washy nature of Reg SHO’s “locate” requirement or to ILLEGALLY access the exemption accorded to bona fide market makers from effecting pre-borrows or “locates” before making admittedly naked short sales. There’s your OPPORTUNITY.
A corrupt MM sees a bunch of buy orders coming in and he naked short sells into those orders while pretending to be a bona fide MM worthy of accessing that exemption. He’s now established a naked short position and he’ll do everything in his power to prevent the share price from going up and to induce it to go down. Along comes a stream of buy orders which puts an upward pressure on share prices. The corrupt MM will go into “whack a mole” mode and every time a buy order pops up he’ll whack it with a matching sell order to keep him from losing money on his bet. He knows that all waves of buying must eventually come to an end so he’s not too concerned.
He also knows that with every wave of buying he survives the prognosis for the negative bet he has established and that he is “doubling down” on gets better and better as the share price starts feeling the weight of all of those readily sellable “securities entitlements” that have been procreated by his FTDs. But what if the company the MM misdiagnosed as a “scam” ends up being a real company with a major breakthrough and the buy orders just keep coming?
The corrupt MM then has several potential “outs”. He could approach a friendly hedge fund and invite them underneath his “umbrella of immunity” from making pre-borrows or “locates” before making short sales and ask them for a hand. He might also approach a corrupt financial journalist and induce him to draft a “hatchet job” making the corporation under attack appear to be destined for failure. Remember now that the company is “top heavy” with a gazillion investors that bought readily sellable fake shares all you have to do is to convince a small percentage to dump their shares in order to create a strong effect. The corrupt MM could also approach some fellow MMs/fraternity brothers and ask for a hand and promise to return the favor the next time it gets into trouble.
As you can see things can get out of hand fairly easily in a clearance and settlement system offering the bait to commit fraud associated with a foundation of mere CVP and a powerful exemption like that enjoyed by MMs. Eventually the weight of all of the readily sellable “securities entitlements” resulting from all of these FTDs will typically win out. Investors just don’t have the financial firepower to take on these billionaire behemoths on Wall Street and time is always on the side of the crooks. Recall that yet to be cash flow positive corporations can be FORCED to pay their monthly burn rate by selling shares to the public at ever decreasing price levels.
The ultimate key to the success of these thefts, however, is the ability of those refusing to deliver that which they sell to 100% count on the NSCC management NOT to provide the ONLY cure available when the seller of securities absolutely refuses to deliver that which it sold i.e. execute a buy-in. It is crucial that the party empowered to provide the cure not deploy it even if it has the congressional mandate “to act in the public interest, provide investor protection and “promptly settle” all securities transactions.
Note that in these battles the naked short sellers get to a point wherein the preexisting naked short position becomes so large that they CAN’T cover it without risking a huge financial loss. Why? Because in order to cover your short position you first need to stop your day to day “whack a mole” naked short selling. If you’ve been pretty much the only seller around because the share price is now so low that investors won’t sell then the mere halting of the daily “maintenance” naked short selling will result in a gap in the share price upwards. How in the world can you cover an astronomically large naked short position in a market that is already gapping upwards? You can’t! Now you know why the SEC stated prior to the effective date of Reg SHO that they needed to “grandfather in” previously naked short positions lest “market volatility issues” arise.
Re: 192
One problem with the SEC’s interpretation is it is often not possible for an entitlement to have all of the rights of a share.
Let’s say, for example, that Microsoft created a wholly owned private subsidiary called MS Office, Inc. and put their office product into it. They could declare a general dividend, where you get one share in the pre-IPO, non trading company MS Office, Inc., for each share of Microsoft that you own.
Now, how can the entitlements be cured? Obviously, the naked shorts don’t have access to the private shares, so they can deliver a matching dividend. Imagine the IOU’s were 2-3 times the outstanding. Then they’d never want to buy in their IOU as it would be prohibitively expensive.
This exact scenario has played out with small penny companies, trying to fight the fails and the industries solution is to just tell investors “Unfortunately, you don’t get a share in the private company, because there aren’t enough shares to go around” or “We’ll happily refund your original purchase price because unfortunately you didn’t actually buy a share”.
The whole damn thing is a ponzi scheme fraud. It’s disgusting.
Davidn, when they say ‘sorry’ it would seem that lawsuits would overwhelm them?
Sign the petition:
http://www.gopetition.com/petitions/take-action-against-the-sec.html