“World growth will be all the stronger for being sustained by a stable, efficient financial system and by the kind of renewed confidence in the markets that would enable resources to be better allocated, encourage lending to pick up again and foster the return of private investment capital to developing countries.

We agreed in November that not one financial player, institution or product could be beyond the control of a regulatory authority. This rule must be applied to credit rating agencies, speculative investment funds… ”

and this too:

“We must reform the required disclosure standards and levels of prudential oversight for financial firms. Sadly, in many countries, this issue has not been getting the attention it deserves.”

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/31/AR2009033103200.html

Add this to Russia and China sending us messages about out dollar, I think we can see quite a few global leaders recognize our tolerance of lawlessness on Wall Street. It’s not the free market if you’re being robbed at gunpoint.

Regarding the foreign broker loophole, I still don’t get it. Let me make my question clear. The rules we are discussing require a buy-in if the selling broker does not deliver in T+3. The buy-in is done by the buy-side broker (or the DTC), to protect his exposure, and he then bills the account of the foreign selling broker through the DTC. (Alternatively, the DTC can do the buy-in.) This is all done under US jurisdiction. If the foreign broker wants to maintain his account at the DTC, he must meet the buy-in cost. He can only prevent this by delivering the shares.

“Are you misreading the protection policy? There’s a lock on the upper right hand corner of the article; if you click it you learn the page is “semi-protected”, that is, protected against edits from anonymous users and those who are not ‘autoconfirmed’ (for example, not a high enough edit count).”

…so I guess I attribute my inability to edit the article to the fact that my account is brand new.

Per the information given throughout all the other posts in this thread, it has been top notch and I have learned a lot from everything I have read, so I don’t want to sound like I am complaining about content. The issue I raise is relevance though, as all of these posts by Dr Jim DeCosta, iStandUp, Jim Hall, Fred, sean, ginger, and others all have done a wonderful service towards helping me understand the bigger problem of NSS, but none have really addressed the whole wiki issue. Just figured I’d float that idea, as it seems that there are more than enough individual users here who seem motivated to leave comments, I would imagine that this would lead to some very healthy conversations/threads with input from multiple people sharing their different points of view.

That’s why I’m calling for a new rule, where the buyers in America are not allowed to deal with foreign sellers that refuse to deliver.

You know, kind of like the rule the NASD came out with five years ago that was working before the SEC killed it and replaced it with SHO.

Commentary Last Updated: Mar 30th, 2009 – 10:40:19

Bankrupting the world
By Jerry Mazza
Online Journal Associate Editor

Mar 30, 2009, 00:25

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The so-called Public Private Partnership Investment Program (PPPIP) introduced last Monday, by Treasury Secretary Timothy Geithner not only stands to bankrupt America but the global financial system as well. This is the worst yet of the bailouts, a swindle if ever there was one, which will cause President Obama’s approval rating to plummet. In fact, count me among those coming to the president’s aid. I really don’t think he understands what this means.

Consider Geithner as the face, the voice though not the brain, for this program which advocates turning over the keys to the banking system to a bunch of hedge fund sharks, and all at taxpayer’s expense. The cost could more likely end up being $6 trillion than the $1 trillion in starter money. In fact, it’s more likely that the dastardly plan was launched like a missile from jolly old London, which is in line to lose big if their offshore hedge fund empire is shut down.

So, we are not dealing with just your typical political blunder. This is a policy fiasco built to bring down the United States altogether. I believe it’s coming from a London-based financial oligarchy out to do in the US altogether. Speaker of the House Nancy Pelosi and House Financial Services Committee Chairman Barney Frank and the one and only Larry Summers, head of the Whitehouse Economic Council, are completely complicit in what amounts to an act of treason in recommending this.

Parenthetically, remember that it was Summers who, as Treasury secretary under Bill Clinton worked indefatigably to repeal the Glass Steagall Act of 1933 in 1999. And Summers worked to replace it with the 11/12/99 Gramm-Leach-Bliley Act, which was enacted on Nov. 12, 1999. The first Glass-Steagall Act was passed in February 1932 to stem deflation and expand the Federal Reserve’s power to offer rediscounts on more types of assets and issue government bonds as well as commercial paper.

The second Glass-Steagall Act was passed in 1933 when FDR took office to shore up the collapse of a large portion of the American commercial banking system. It established the Federal Deposit Insurance Corporation (FDIC), still indispensable to this day, and included banking reforms which were created to control speculation. Its most notable feature was that it prohibited a bank holding company from owning other financial companies. It made sure that a commercial or investment bank and a savings and loan bank were separate entities and never the twain should meet.

This meant you couldn’t have the likes of Citigroup, the now defunct Lehman-Brothers, Bear-Stearns, Merrill Lynch, Morgan Stanley, Deutsche Bank, et al playing spin the derivatives with your checking account or savings account money. Yet this separation of investment and savings, almost as good as separation of church and state, removed a major source of capital available to the casino side of the stock market, particularly the hedge funds like AIG’s Financial Product arm, a hedge fund stuck onto the world’s once largest insurance company, now practically worthless.

In fact, to gain a sense of the worthiness of the Glass-Steagall act, China still maintains its principle: a separation between commercial banking and the securities industries. In the wake of world financial distress, Chinese support for this grand concept remains strong. But to free market Wall Street and financiers, the Glass Steagall Act remained a moving target from day one to 1980 and on.

Returning to Geithner’s Public Private Partnership Investment Program (PPPIP), it would permit worthless or semi-worthless debt paper on the books of these “everything banks” to be bought up by taxpayer dollars at some 80 or 90 cents on the dollar, then turned over as assets for the very offshore hedge funds that have played such a major role in the unfolding of the financial debacle. Because the stakes are so great, and the president himself seems like he’s listening to the wrong people, notice must be taken, now. Promises were made to the American people to protect their assets.

This PPPIP is really an extension of Paulson’s TARP, throwing a trillion dollars in the air for hedge fund grabs. Meanwhile, the “investors” themselves would only put up a tiny fraction of the capital. The lion’s share would come from taxpayer money, pumped through the Treasury Department and the Federal Reserve. This is part of a continuing financial conspiracy. Also, to the extent that any private funds are railroaded into this black hole in financial space, it further dries up private funds for any kind of productive investment.

Its object is to force the government to come up with one giveaway program after another, which could easily end up creating massive hyperinflation.

Derivatives themselves were introduced in October of 1987, on the heels of a bust as big as the Depression of 1929, by none other than former Fed “Guru” Alan Greenspan. They amounted to nothing more really than a form of casino gambling. We can thank Greenspan and his derivatives for much of the financial devastation we see around us, particularly the AIG Financial Products disgrace.

The question now is why would we want to light a financial flame under derivative speculation with another trillion dollars from the PPPIP hedge fund bonanza, and in so doing set the global financial markets on fire? Will President Obama take hold of this situation and realize his presidency and his administration are dancing on the edge. To tie this nearly worthless mortgage paper to the economy, this paper tied to a derivatives market valued in the hundreds of trillions, dwarfing the market itself, would be to sink our economy and the world economy with it. Cut the cord.

What needs to be done is to look at the banks through the Glass-Steagall lens. Those parts of the banks that meet with Glass-Steagall standards should be protected, and be protected with available credit, not with “buy-offs.” The garbage securities should simply be frozen and saved for later inspection. We can’t bail out the garbage. It will bankrupt the United States. In fact, as Lyndon LaRouche suggests, this would be an excellent time to have a bankruptcy reorganization.

The alternative is a financial meltdown, followed by major citizen blowback, followed by the beginning of the end. And it ain’t gonna be pretty. Not for Obama, Pelosi, Frank, Geithner, Summers and the whole gang! So stop the PPPIP now!

Jerry Mazza is a freelance writer living in New York City. Reach him at gvmaz@verizon.net. His new book, “State Of Shock: Poems from 9/11 on” is available at http://www.jerrymazza.com, Amazon or Barnesandnoble.com.
available at http://www.jerrymazza.com, Amazon or Barnesandnoble.com.

Previous posts here seem to indicate that stopping NSS domestically won’t protect us from the foreign exchange loophole. I don’t get it.

http://www.otcjournal.com/archive/listserv/20030518-1.html

http://www.langmichener.ca/index.cfm?fuseaction=content.contentDetail&ID=10505&tID=244

http://www.cds.ca/cdsclearinghome.nsf/Pages/-EN-Participantrules?Open

The most recent rule on SHO seems to be from 2006 and it seems to only apply a buy in to brokerages using the cross border service and not brokerages located wholly inside Canada.

Dr. DeCosta, do you have a link to the new rule?

The DTCC allows foreign depositories to have negative share positions with them for arbitrage purposes. The seller just claims that he is selling in one country and buying in another to take advantage of arbitrage, but no one checks to make sure he actually has a long position.

I got this e-mail this morning from a Canadian colleague:

“This morning a general notification went out to clients of most CDN. brokerage houses that effective march 30, 2009 no short sales of US stocks can occur until the house has first confirmed the availability of shares to cover the short sale by settlement date. ” this is to comply with the requirements of US regulation SHO”. All short sells will be held until such time as the house can confirm the availability of shares to borrow, the length of any delay will be specific to each stock and will be indeterminate in advance”.

After 4 years of listening to my “telephonic tirades” over Canada’s facilitation of abusive naked short selling I actually befriended (or wore them down) some of the Canadian securities regulators. They will tell you up front that the abusive naked short selling of U.S. corporations has become such a large % of their securities business that they had trouble in getting rid of it. As far as Germany I remember well the “Berlin Bremen debacle” wherein a thousand or so U.S. corporations woke up one morning to find out that their shares were unknowingly trading over in Germany. I’ve always told my clients to be careful listing over in Frankfurt just in case.

It has been unconscionable over the years that the DTCC has allowed the Canadian b/ds to “pigtail” into our NSCC despite their history.

Do you remember in one of Patrick Byrne’s
videos where he told the story of being at a cocktail party in Manhattan with a bunch of Wall Streeters and he overheard a conversation involving 2 guys talking about how the SEC was coming down on naked short selling and one of the guys commented “No big deal: we’ll always have Canada”?

They would have to create a rule to forbid American brokerages from trading with foreign brokerages that don’t deliver.

Legal: Public Company → Finance business venture → SHARES

Illegal: Broker-Dealer → FTDS → Security Entitlements → SHARES*

Maybe “Lawful” and “Unlawful” would be better terms than “Legal” and “Illegal”

DEAR REGULATORS; MENTALLY REMOVE THE ASTERISK

It should come as no surprise that there are brilliant lawyers employed by the “banksters” and hedge funds that comb the text of the securities laws searching for loopholes that can make money for their bosses which in turn justifies their salaries. One line in one obscure securities law could be worth trillions.

The best way that I know of to learn which particular loophole is being utilized is to study the abusive naked short selling suits filed against the DTCC, DTC, NSCC, market makers, “banksters”, prime brokers, clearing firms, hedge funds etc. and see what shakes out. Two things keep “shaking out”. One is that the SEC to this very day still holds that the NSCC’s “Automated Stock Borrow Program” (SBP) is just fine and dandy no matter how corrupted it has become. The second is that UCC Article-8-501 FORCES us (as if at gun point) to allow the holders of “securities entitlements” resulting from yet to be bought-in failures to deliver (FTDs) to exercise ALL of the rights and property interest that comprise the “security”.

So what’s so clever about leveraging the wording of 8-501? It has to do with the incredibly damaging nature of the “securities entitlements” that result from FTDs and the fact that the ability “to exercise all of the rights and property interest that comprise a security” for all intents and purposes is a “share” of a corporation. The following flow diagram might help understand this concept.

FTDS → SECURITIES ENTITLEMENTS → SHARES*

In this flow diagram a “share*” is a “share” of a corporation EXCEPT FOR THE FACT THAT THE “LEGAL OWNERSHIP” TITLE IS NOT INCLUDED BUT FOR ALL INTENTS AND PURPOSES THE “LEGAL OWNERSHIP” TITLE IS 100% MEANINGLESS WHEN “THE ABILITY TO EXERCISE ALL OF THE RIGHTS AND PROPERTY INTEREST THAT COMPRISE A SECURITY” IS ALREADY INCLUDED IN THE “SCURITIES ENTITLEMENT”. This phraseology renders the “legal owner” title to be a moot point to an investor but an excellent cover up for fraudulent behavior to “opportunists”. Have you heard of the term “red herring”?

In order to fully understand the brilliant design of abusive naked short selling frauds you need to MENTALLY REMOVE THE ASTERISK! Unaddressed failures to deliver for all intents and purposes result in the “issuance” or perhaps “release” of new “shares”. The critical “right” to focus on in the “package of rights” that comprise a “share” is the right to resell the “share” at a time of one’s own choosing. This is also the most damaging “right” as share prices are predicated on the “supply” of that which is readily sellable, whether technically a “share” or a “securities entitlement” independent of who the “legal owner” is, as it interacts with the “demand” variable to determine share price through the “price discovery” process.

After mentally removing the 100% meaningless asterisk we are left with FTDs in essence resulting in the “issuance” or perhaps “release” of “shares” out of thin air. Now that’s a loophole worthy of abusing. Just think about it; there is a “2-for-1” bargain also accessible. The mere act of refusing to deliver that which you sold firstly creates a naked short position and secondly the conversion of the resulting “securities entitlement” into a “share” (without the meaningless “legal owner” title) which in turn depresses the share price of the security by adding to the “supply” of that which is readily accessible which in turn creates value for your naked short position.

Does it make sense that the “legal ownership” title is indeed 100% meaningless when a “securities entitlement” ALREADY grants you the right to exercise the rights that comprise the security? There is nothing to a “share” above and beyond the ability to exercise the rights attached to the “share”. Does it make sense that to fully appreciate this fraud you need to MENTALLY REMOVE THE ASTERISK? The crooks that perpetrate these frauds want you to concentrate on the asterisk.

The crooks and their facilitators will proffer the argument that TECHNICALLY the number of “shares outstanding” does not increase with naked short selling so it can’t be very damaging i.e. concentrate on the asterisk. What they don’t tell you is that “shares outstanding” refers TECHNICALLY to shares “issued” by a company’s board of directors that their transfer agent is aware of. These shares with the meaningless asterisk are not visible to a company’s transfer agent, management team or existing or prospective investors yet they are 100% as damaging from a dilution point of view as a “share” without an asterisk.

With the phraseology used in UCC 8-501 literally FORCING the securities intermediaries on Wall Street to “issue” new shares every time an FTD occurs you can see why these frauds have grown totally out of control. The problem is that UCC Article 8 also has plenty of phraseology that provides a backstop for abuses. The law also states that sure you can basically do the equivalent of “issuing” new shares when FTDs occur but you’d better OBTAIN and MAINTAIN the “shares” in your vault system to match any incredibly damaging “securities entitlements” or “shares*” you issue. This particular law is 100% ignored on Wall Street.

Another part of UCC-8 forbids the “issuance” of “securities entitlements” and therefore “shares*” if the sum of the number of legitimate “shares” already outstanding plus the number of mere “securities entitlements” or “shares*” issued exceeds the number of shares “authorized” by a corporation’s Articles of Incorporation. This law is also 100% ignored as there is no SRO or regulator keeping tally of the number of mere “securities entitlements” that have been “issued”. Thus the crooks and the SROs and regulators that facilitate these frauds have chosen to “cherry pick” UCC-8 and follow the parts that allow them to steal from investors but ignore the parts that provide investor protection. UCC Article 8 as well as all securities laws are a “package deal”.

Shares in OTP bank continued to fall through October as the economic crisis in Hungary deepened. They are now trading at roughly half the price they did before the Soros Fund Management deal. PSZÁF said its investigation had revealed that Soros Fund Management had borrowed 390,000 OTP shares on the same day in order to carry out the “short sell”.

Stop and incarcerate these sociopaths now, or we’re doomed.

http://www.budapesttimes.hu/content/view/11517/221/

Since by definition, Naked Shorting does NOT borrow real shares, there is no obligation to purchase real shares…

Since Naked Shorting has an NO delivery date, or an infinite delivery date, there is not obligation to delivery by a certain time…

So it appears there is NO SUCH THING as a Short Squeeze with Naked Short Shares.

The only thing I rememeber is the Collaterialization fee expense. If a Counterfeiting Hedge Fund as a guest of a Market Maker creates a zillion counterfeit shares, its Collaterialization fee becomes more and more expensive as the price goes up.

So is this a Collaterialization Squeeze?

The following introduction from Simon Johnson’s excellent essay, “The Quiet Coup”, an article which appears in the May 2009 Atlantic, nicely reflects the growing recognition of the reality that Patrick Byrne has tirelessly chronicled:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

The full essay is available here:

http://www.theatlantic.com/doc/200905/imf-advice

You stated:

“If you are “just learning” istandup, you should allow those who know it well to inform others. I’m learning a lot from what Jim DeCosta has provided.”

I understand your point of view. On the other hand, my personality does not let me just let the experts speak.

My disclaimer lets everyone see I am not an expert.

We, the common man and woman in the United States, need to take this fight to the streets. When I am standing the street talking to my neighbor, I will not be able to have Dr. Jim DeCosta standing next to me so the can explain things.

From my point of view, I have to come into a better and better understanding of the WALL STREET COUNTERFEIT MACHINE so I can talk to people without the experts standing next to me.

So please forgive me for not following your suggestion.

One final point… as I struggle to better understand the complexities created by all the Counterfeit Machine Lawyers and reflect this back into this forum, some experts here might see where further clarification on their part will strengthen the legal arguments they have been developing.

Take care and keep learning.

Everthing we see shows we need this as a country more than anything.

History, both secular and Biblical has this ruin of empires, one right after the other. Rome being the one most are familiar with but there have been one after another for more years before Rome then from Rome to now. Common to all have been the loss of any moral restraint. The whole NSS/FTD is just a example of a lost morality. Wrong has become ’smart dog eat dog business of legendary investors’ CMBC talking heads proclaim….The Bible as well as our founding laws ans mores say it is theft…plain and simple.

Think about it!

Bank Of America’s Ponzi Problem
Asher Hawkins, 03.27.09, 5:20 PM ET

Bank of America aided and abetted common law fraud by acting as banker to a $400 million Ponzi scheme, according to a civil complaint filed Thursday. The complaint was filed in the U.S. District Court for the Eastern District of New York on behalf of a would-be class of mainly blue-collar Long Islanders by attorneys seeking class-action status.

Bank of America declined to comment.

The case involves Nicholas Cosmo, former owner of Agape World Inc. Cosmo was charged by federal authorities in January with investment fraud. He allegedly lured investors with the prospect of investing in high-interest loans but instead used the proceeds to trade commodities futures.

The investments that Cosmo misrepresented ultimately cost investors $400 million in losses and were used to feed a Ponzi scheme, according to the civil complaint. Bank of America was so deeply involved with Cosmo’s firm that a bank employee had an office next Agape World’s board room, it added.

Cosmo had a checkered history prior to his alleged involvement with Bank of America. In 1997, while a licensed stockbroker, he admitted to misleading investors and forging documents. He was later sentenced to nearly two years in prison, ordered to undergo therapy for a gambling problem, had his brokers’ license revoked and was barred from associating with any members of the National Association of Securities Dealers. Yet by 2004, Cosmo was back in business at Agape, which promoted itself as a provider of bridge loans to commercial borrowers.

“Bank of America ignored banking compliance standards and did not file any suspicious activity reports as $400 million was run through numerous BofA accounts by a convicted felon,” says Jacob Zamansky of Zamansky & Associates, one the plaintiff’s lawyers in the lawsuit. “This case highlights the role of financial institutions in assisting Ponzi schemes.”

Yesterday’s complaint accuses Bank of America of housing 13 accounts used by Cosmo and his brokers, some of whom had criminal records of their own. The bank did nothing to intervene as investor money was commingled, wired to commodities futures brokerages and used to pay off Cosmo’s personal expenses, according to the complaint.

The five plaintiffs named in the complaint filed yesterday are all from Long Island. They include a schoolteacher, a police officer, a retired police captain, a clothing store employee and a massage therapist. They lost a total of $405,000 they’d invested with Agape, the complaint says.

The scheme may have suckered in as many as 6,000 investors from across the country, but mainly from Long Island, according to Zamansky.

On The Cover/Top Stories
Did Goldman Goose Oil?
Christopher Helman and Liz Moyer, 03.25.09, 06:00 PM EDT
Forbes Magazine dated April 13, 2009

Lloyd Blankfein’s Goldman Sachs turned up everywhere.

How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.
When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation’s crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.

But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup’s collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup’s accounts.

Yahoo! Buzz”What transpired at Semgroup was no less than a $500 billion fraud on the people of the world,” says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.

What’s the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup’s trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring. “Nothing’s been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze,” says John Tucker, who is representing Kivisto.

What’s known for sure is that Goldman Sachs, through J. Aron & Co., its commodities trading arm, was in prime position to use such data–and profited handsomely from Semgroup’s fall. J. Aron was Semgroup’s biggest counterparty, trading both physical oil flowing through pipelines and paper oil, in the form of options and futures.

When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.

Some answers may emerge in late March when former FBI director Louis Freeh releases a report on the trading surrounding Semgroup’s demise. He was hired by Semgroup and given subpoena power by the bankruptcy court judge in Delaware. Meanwhile the Securities & Exchange Commission is investigating, and lawyers involved in the bankruptcy say that Manhattan District Attorney Robert Morgenthau’s office is looking into the actions of New York firms in the collapse. His office declines to comment.

Comment On This Story

Goldman says only that any allegations of oil price manipulation are “without foundation.” Merrill and Citi (nyse: C – news – people ) declined comment.

Goldman and Aron (where Goldman Chief Executive Lloyd Blankfein got his start) have had a deep connection with Semgroup. In 2004 two former Goldman bankers bought a 30% stake in Semgroup for $75 million through their New York private equity firm, Riverstone. Both men, Pierre Lapeyre and David Leuschen, had helped form Goldman’s commodity trading business, and Leuschen had been a director at Aron.

In late 2007 Semgroup entered into an oil-trading agreement with Aron. The companies began trading both oil futures and physical crude. Aron sent much of the oil it bought from Semgroup to a Coffeyville, Kans. refinery in which Goldman owns a 30% stake.

Semgroup’s troubles mounted in the first quarter of 2008, when it had to post $2 billion in margin to cover losses. Goldman offered to underwrite a $1.5 billion private placement. Kivisto’s attorney Tucker and others believe that it was in the Wall Street research for this offering that Semgroup’s trading bets became fatally exposed. In April the banks (Merrill Lynch and Citibank were co-underwriters) required that Semgroup submit its trading positions to a stress test, a process one source describes as a “proctology exam.” Goldman ended up abandoning the placement as investors balked at braving the liquidity crunch.

Meanwhile the futures markets had gotten wacky. On June 5, with no news catalysts, oil futures spiked $5 a barrel, the biggest one-day jump since the outbreak of the first Gulf war. The next day, on no news, the price jumped another $10 to $138. Traders say that in the days leading up to the $147 peak on July 12 there was the smell of blood in the water. “We just kept bidding the market higher,” one trader says.

According to a trading summary submitted with court documents, Semgroup had entered into some terribly costly trades with Aron. In February 2008 Semgroup sold Aron call options on 500,000 barrels of oil for July delivery with a strike price of $96 per barrel. That meant that at the peak Semgroup’s loss on each of those barrels was $51, or $25.5 million on that trade. Goldman says it “can’t comment on the trading positions of counterparties.”

Shortly before it filed for bankruptcy, Semgroup sold its trading book to Barclays (nyse: BCS – news – people ) Capital. Barclays’ bold bet was that the price of crude would fall, erasing the losses. It is believed that 30 days later Barclays was sitting on a $1 billion gain as oil indeed fell, to $114 a barrel. Barclays wouldn’t comment other than to confirm it still owns the book. That prices plunged after Semgroup failed is more evidence of manipulation, says Catsimatidis: “With the portfolio in Barclays’ hands they could not squeeze the shorts anymore. The jig was up, and oil collapsed.”

Since the bankruptcy, Aron has agreed to pay Semgroup only $90 million to settle up accounts. That’s not enough for the dozens of oil producers who still haven’t been paid for $430 million in oil that Semgroup delivered to Aron. “We sued J. Aron because Semgroup didn’t do it,” says Phillip Tholen, chief financial officer of oil company Samson Resources. “I can’t fathom why they wouldn’t file against J. Aron for those monies.”

One possible answer: the Goldman connection. Going after Aron’s cash would complicate matters with Riverstone, which still wields sway over the board. The creditors have reason to keep Riverstone and Goldman happy; the duo has teamed up to buy myriad energy assets in recent years, most notably a $22 billion leveraged buyout of pipeline king Kinder Morgan. They are likely to team up again to buy choice Semgroup assets out of bankruptcy.

http://www.forbes.com/forbes/2009/0413/096-sachs-semgroup-goldman-goose-oil.html