Eight long hours inside the SEC

    washington Eight long hours inside the SEC

    Deep Capture goes to Washington.

    (Washington, DC) The SEC’s roundtable on securities lending and short selling got started today, and Deep Capture was there.

    What follows is my assessment, based on my observations thus far.

    In the simplest terms, I’d say the situation at the SEC is one of extreme disconnection. This is an agency that has completely lost track of its founding mission.

    The day consisted of four panels, all dedicated to examining different aspects of securities lending. The panelists included one academic, one public employees’ pension fund manager, the CEO of FINRA, and 20 representatives of hedge funds and brokerages or companies that provide services to hedge funds and brokerages.

    Not a single representative or advocate of retail investors had a voice on any panel, and the substance of the panelists’ comments was consistent with the thinking that obviously called them all together: the discussion never got beyond reforms to benefit the institutions that get rich from lending out the shares entrusted to them by the rest of us.

    Nor did retail investors get any more than a passing reference in any other context. The industry was there to talk about the needs of industry. Period.

    The result was eight hours of possibly the least interesting discussion I’ve voluntarily endured. In fact, it more resembled two dozen high school book reports on a handful of facets of a single industry, as the same thing was said over and over in the lest interesting way possible.

    For eight hours.

    Meanwhile, the subject that really matters: illegal naked short selling, is scheduled for just three hours tomorrow (including a break!), with panelists hailing from four hedge funds, Goldman Sachs (NYSE:GS), DTCC, the Security Traders Association, NASDAQ, NYSE, one academic, and one fish-out-of-water from IBM.

    Is there any question how those panels are going to come down on the issue?

    This entire exercise, I’m nearly prepared to declare, is little more than a farce.

    Lest I leave you with the impression that everything was devoid of meaning, allow me to recount one of those moments of cosmic synchronicity that make days like today all worthwhile.

    It happened during the fourth panel. Specifically, during the opening remarks given by Leslie Nelson (yes, a male, but sadly no, not the guy from The Naked Gun movies), Managing Director of Global Securities Lending at Goldman Sachs.

    Just as Mr. Leslie Nelson was beginning to talk, about 15 of you emailed me a link to Matt Taibbi’s recent post where he announced that naked shorting will be a major component of his upcoming piece in Rolling Stone.

    Included in that post was a link to a pamphlet apparently being circulated broadly on Capitol Hill by Goldman Sachs lobbyists, intent on preserving the status quo with regard to loopholes permitting illegal naked short selling. Trusting my audio recorder not to miss anything, I decided to tune Mr. Nelson out slightly to read the words of his notorious employer.

    In the Goldman pamphlet, the first sub-point of bullet point one reads:
    “Rule 204 of Regulation SHO has been effective at reducing fails in the marketplace.”

    At precisely the same time read that line, I heard Nelson read the following from his prepared statement (prefatory to what — consistent with the rest of the day’s panel — had nothing to do with delivery failures):
    “Rule 204 has been undeniably effective at bringing US equities fails to levels that are truly de minimis.”

    See…I read and heard those lines at precisely the same moment.

    It was as though the Goldman Sachs government relations team had briefly hijacked my eyes and ears.

    It’s also indicative of how very seriously Goldman is taking this challenge to what is likely one of that company’s most plumb sources of revenue.

    Finally, I’d say it’s predictive of the message what we can expect to hear repeated over and over again as the issue makes its was earnestly through Congress and flaccidly through the SEC.

    You know, I do not drink, but if I did, I’d suggest everybody take a shot whenever they hear that phrase repeated during the three short hours (including a break) of the roundtable’s second and final day. That might just make the thing tolerable.

    This post was written by:

    - who has written 103 posts on Deep Capture.


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    39 Responses to “Eight long hours inside the SEC”

    1. ron doc says:

      Cpnserning this subject today Jim Sinclair included this by Ayn Rand

      “Dear CIGAs,

      Ayn Rand wrote the following about those who are best described as Profiteers of Destruction:

      “Your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed.”

      Laws are as much the written word as they are the application of that written word via your regulators. Let us hope that regulators, having suffered significant embarrassment, might on this issue protect the public rather that the Profiteers of Destruction.”

      She saw it, he can see it, we can see it, but the ones with the power won’t see it because of the direct and indirect bribes they leech off of to hold onto their positions of power and greed.

      God help them, but he won’t if they fail to change before they fall into his hands.

    2. sean says:

      Here is some more pertinent data

      Taibbi strikes again….

      An Intimate Look Inside the Regulatory Kitchen

      The SEC’s Order and the NYSE Decision against Goldman find that for more than two years, beginning in March 2000, the customers’ pattern of trading and Goldman’s own records reflected that they were selling the securities short in violation of Rule 105 and Rule 10a-1(a). The customers did not deliver to Goldman in time for settlement the securities they purported to sell long, but rather, had to borrow the securities from Goldman to settle all of their sales. Goldman’s records also reflected that its customers covered their short positions with securities purchased in follow-on and secondary offerings after executing their sales. Had Goldman instituted and maintained procedures reasonably designed to detect these significant trading disparities, it could have discovered the pattern of unlawful trades by its customers.

      via Press Release: SEC and NYSE Settle Enforcement Actions Against Goldman Sachs Unit for Role in Customers’ Illegal Trading Scheme; 2007-41; Mar. 14, 2007.

      This is a before and after story, designed to show how the financial regulatory environment works.

      The background: back in March, 2007, Goldman Sachs was fined $2 million by the SEC and the New York Stock Exchange together for a series of violations having to do with the improper oversight of their customers’ behavior. (See the above press release by the SEC). Exactly what this violation was is a complicated matter to describe, but it boils down to this: Goldman had customers who represented that they had properly borrowed stock for short sales, when in fact they had not.

      Under the rules at the time, Goldman as a prime broker had a responsibility to make sure that their customers really had located shares in a stock before they sold them. This sounds like a simple concept, but in practice the brokers usually weren’t too curious about where their customers (hedge funds, in many cases) were finding their stock for short sales. Whether the short sales were proper shorts or naked shorts, the brokers were making a lot of money, and asking a bunch of questions or instituting stringent review procedures would only slow trading down.

      So Goldman got caught, and it wasn’t an insignificant fine. “Of course $2 million is a parking ticket to Goldman, but relatively speaking, it’s a lot of money for an SEC fine,” is how one economist characterized the action.

      Naturally, the industry was pissed. How can they do business, if they have to actually ask where the money is coming from?

      We can see this frustration at a conference of the Securities Industry and Financial Markets Association (SIFMA), the trade group representing the financial services industry, held at the Marriott Marquis in New York on May 23, 2007. In researching the upcoming story I was given transcripts of several of these conferences, most of which involve compliance officers from the major banks talking about their (sometimes diffident) efforts to abide by the rules.

      At this particular meeting in New York, Goldman Sachs Associate General Counsel Jon Breckenridge, Morgan Stanley Managing Director and Counsel Robert O’Connor, and Bank of America Associate General Counsel Michael Rogers are consulting with James Brigagliano, who at the time is the Associate Director for Trading Practices of the SEC, and has shown up at the conference to confer with the banks.

      Hilariously, the men all call Brigagliano “Jamie.” Maybe it’s appropriate for the compliance officers for major financial companies to call their regulator by his first name, but in these conversations, the way they call him “Jamie” sounds like they’re talking to a towel boy for an SEC football team.

      At one point, for instance, O’Connor asks if there’s been any progress in amending a 1994 no-action letter that defined what Prime Brokerage is. The industry had suggestions for refining that SEC action and here, the banks via these men are asking for a status report on these changes. “Jamie, where do we stand on revisions to the letter?” asks O’Connor.

      Anyway, at this meeting, which takes place just a couple of months after the Goldman fine, the men are bitching to Brigagliano about what a terrible pain in the ass life is now, after that regulatory blow. Life, it seems, is no longer worth living, now that this pall has been cast over their collective existence.

      “Now, when you read this settlement…” says Rogers. “Not that long ago, you could ask outside counsel, ‘Do I as a prime broker need to worry about Reg M violations by my clients?,’ the answer would be ‘No. It’s the client, the hedge fund that has to worry about breaking them, not you.’ It’s evolved to where prime brokers are thinking, OK, I’ve now got to worry about trades that are executed through my execution side.”

      Translation: once upon a time, you didn’t have to worry about where the money was coming from. That was the customer’s problem. Now we actually have to look into the deals we’re doing.

      “And it goes back,” Rogers continues, “to this creeping effect of the monitoring burden on the prime broker.

      Brigagliano’s answer here is hilarious. In essence, what he says is, “You guys were so fucking shameless and did this so often that we had no choice but to fine one of you, even though we might not have wanted to.” Here is his actual response:

      “I think,” he says, “that in G Sac [i.e. Goldman] the Commission believed that the firm had so much information and so many red flags and it continued for so long that it simply was not permitted to turn a blind eye to the trader’s activities.”

      Now here’s where it gets funny. After he says this, Brigagliano’s tone quickly changes and he immediately shifts gears, promising to listen to the banks in the future on this issue.

      Certainly, going forward,” he says, “if market participants have questions as to the application of those principles in other circumstances, we’d certainly be willing to have a dialogue on that.”

      And guess what? They did end up having a “dialogue.” And a very productive one at that!

      A year and a half or so after this meeting, after the collapse of Bear Stearns and Lehman Brothers, the SEC instituted a new rule called “10b21.” The new rule made it clear that “those who lie about their intention or ability to deliver securities are violating the law.”

      To put that in English, it was now officially a crime to lie to your poor broker about where you located your stock, and whether or not you intended to deliver that stock.

      This was, of course, already against the law. It was covered under the broad fraud statute in the SEC code, rule 10b5. All this new rule did was formally put the blame for bad locates on the customer, not the broker who took his business. “The new rule didn’t do anything,” says an attendee of those SIFMA meetings. “It just exempted the prime brokers from responsibility. It’s a joke.”

      This is how the regulatory world works. When the big players get stung even a little bit, the rules eventually get clawed back.

      Incidentally, “Jamie” Brigagliano is still around. In fact he got a nice promotion after Obama got elected. In April of this year he was named co-Acting Director of the SEC’s Division of Trading and Markets, overseeing the options and securities exchanges, as well as brokers, dealers, transfer agents, and credit rating agencies. Just last week he was out there pimping the round table on naked short-selling that began today.

      More on all of this later…

      http://trueslant.com/matttaibbi/2009/09/29/an-intimate-look-inside-the-regulatory-kitchen/

    3. sean says:

      This should apply to this blog..

      Taibbi strikes again….

      An Intimate Look Inside the Regulatory Kitchen

      The SEC’s Order and the NYSE Decision against Goldman find that for more than two years, beginning in March 2000, the customers’ pattern of trading and Goldman’s own records reflected that they were selling the securities short in violation of Rule 105 and Rule 10a-1(a). The customers did not deliver to Goldman in time for settlement the securities they purported to sell long, but rather, had to borrow the securities from Goldman to settle all of their sales. Goldman’s records also reflected that its customers covered their short positions with securities purchased in follow-on and secondary offerings after executing their sales. Had Goldman instituted and maintained procedures reasonably designed to detect these significant trading disparities, it could have discovered the pattern of unlawful trades by its customers.

      via Press Release: SEC and NYSE Settle Enforcement Actions Against Goldman Sachs Unit for Role in Customers’ Illegal Trading Scheme; 2007-41; Mar. 14, 2007.

      This is a before and after story, designed to show how the financial regulatory environment works.

      The background: back in March, 2007, Goldman Sachs was fined $2 million by the SEC and the New York Stock Exchange together for a series of violations having to do with the improper oversight of their customers’ behavior. (See the above press release by the SEC). Exactly what this violation was is a complicated matter to describe, but it boils down to this: Goldman had customers who represented that they had properly borrowed stock for short sales, when in fact they had not.

      Under the rules at the time, Goldman as a prime broker had a responsibility to make sure that their customers really had located shares in a stock before they sold them. This sounds like a simple concept, but in practice the brokers usually weren’t too curious about where their customers (hedge funds, in many cases) were finding their stock for short sales. Whether the short sales were proper shorts or naked shorts, the brokers were making a lot of money, and asking a bunch of questions or instituting stringent review procedures would only slow trading down.

      So Goldman got caught, and it wasn’t an insignificant fine. “Of course $2 million is a parking ticket to Goldman, but relatively speaking, it’s a lot of money for an SEC fine,” is how one economist characterized the action.

      Naturally, the industry was pissed. How can they do business, if they have to actually ask where the money is coming from?

      We can see this frustration at a conference of the Securities Industry and Financial Markets Association (SIFMA), the trade group representing the financial services industry, held at the Marriott Marquis in New York on May 23, 2007. In researching the upcoming story I was given transcripts of several of these conferences, most of which involve compliance officers from the major banks talking about their (sometimes diffident) efforts to abide by the rules.

      At this particular meeting in New York, Goldman Sachs Associate General Counsel Jon Breckenridge, Morgan Stanley Managing Director and Counsel Robert O’Connor, and Bank of America Associate General Counsel Michael Rogers are consulting with James Brigagliano, who at the time is the Associate Director for Trading Practices of the SEC, and has shown up at the conference to confer with the banks.

      Hilariously, the men all call Brigagliano “Jamie.” Maybe it’s appropriate for the compliance officers for major financial companies to call their regulator by his first name, but in these conversations, the way they call him “Jamie” sounds like they’re talking to a towel boy for an SEC football team.

      At one point, for instance, O’Connor asks if there’s been any progress in amending a 1994 no-action letter that defined what Prime Brokerage is. The industry had suggestions for refining that SEC action and here, the banks via these men are asking for a status report on these changes. “Jamie, where do we stand on revisions to the letter?” asks O’Connor.

      Anyway, at this meeting, which takes place just a couple of months after the Goldman fine, the men are bitching to Brigagliano about what a terrible pain in the ass life is now, after that regulatory blow. Life, it seems, is no longer worth living, now that this pall has been cast over their collective existence.

      “Now, when you read this settlement…” says Rogers. “Not that long ago, you could ask outside counsel, ‘Do I as a prime broker need to worry about Reg M violations by my clients?,’ the answer would be ‘No. It’s the client, the hedge fund that has to worry about breaking them, not you.’ It’s evolved to where prime brokers are thinking, OK, I’ve now got to worry about trades that are executed through my execution side.”

      Translation: once upon a time, you didn’t have to worry about where the money was coming from. That was the customer’s problem. Now we actually have to look into the deals we’re doing.

      “And it goes back,” Rogers continues, “to this creeping effect of the monitoring burden on the prime broker.

      Brigagliano’s answer here is hilarious. In essence, what he says is, “You guys were so fucking shameless and did this so often that we had no choice but to fine one of you, even though we might not have wanted to.” Here is his actual response:

      “I think,” he says, “that in G Sac [i.e. Goldman] the Commission believed that the firm had so much information and so many red flags and it continued for so long that it simply was not permitted to turn a blind eye to the trader’s activities.”

      Now here’s where it gets funny. After he says this, Brigagliano’s tone quickly changes and he immediately shifts gears, promising to listen to the banks in the future on this issue.

      Certainly, going forward,” he says, “if market participants have questions as to the application of those principles in other circumstances, we’d certainly be willing to have a dialogue on that.”

      And guess what? They did end up having a “dialogue.” And a very productive one at that!

      A year and a half or so after this meeting, after the collapse of Bear Stearns and Lehman Brothers, the SEC instituted a new rule called “10b21.” The new rule made it clear that “those who lie about their intention or ability to deliver securities are violating the law.”

      To put that in English, it was now officially a crime to lie to your poor broker about where you located your stock, and whether or not you intended to deliver that stock.

      This was, of course, already against the law. It was covered under the broad fraud statute in the SEC code, rule 10b5. All this new rule did was formally put the blame for bad locates on the customer, not the broker who took his business. “The new rule didn’t do anything,” says an attendee of those SIFMA meetings. “It just exempted the prime brokers from responsibility. It’s a joke.”

      This is how the regulatory world works. When the big players get stung even a little bit, the rules eventually get clawed back.

      Incidentally, “Jamie” Brigagliano is still around. In fact he got a nice promotion after Obama got elected. In April of this year he was named co-Acting Director of the SEC’s Division of Trading and Markets, overseeing the options and securities exchanges, as well as brokers, dealers, transfer agents, and credit rating agencies. Just last week he was out there pimping the round table on naked short-selling that began today.

      More on all of this later…

      http://trueslant.com/matttaibbi/2009/09/29/an-intimate-look-inside-the-regulatory-kitchen/

    4. sean says:

      I think this would apply here..

      Taibbi strikes again….

      An Intimate Look Inside the Regulatory Kitchen

      The SEC’s Order and the NYSE Decision against Goldman find that for more than two years, beginning in March 2000, the customers’ pattern of trading and Goldman’s own records reflected that they were selling the securities short in violation of Rule 105 and Rule 10a-1(a). The customers did not deliver to Goldman in time for settlement the securities they purported to sell long, but rather, had to borrow the securities from Goldman to settle all of their sales. Goldman’s records also reflected that its customers covered their short positions with securities purchased in follow-on and secondary offerings after executing their sales. Had Goldman instituted and maintained procedures reasonably designed to detect these significant trading disparities, it could have discovered the pattern of unlawful trades by its customers.

      via Press Release: SEC and NYSE Settle Enforcement Actions Against Goldman Sachs Unit for Role in Customers’ Illegal Trading Scheme; 2007-41; Mar. 14, 2007.

      This is a before and after story, designed to show how the financial regulatory environment works.

      The background: back in March, 2007, Goldman Sachs was fined $2 million by the SEC and the New York Stock Exchange together for a series of violations having to do with the improper oversight of their customers’ behavior. (See the above press release by the SEC). Exactly what this violation was is a complicated matter to describe, but it boils down to this: Goldman had customers who represented that they had properly borrowed stock for short sales, when in fact they had not.

      Under the rules at the time, Goldman as a prime broker had a responsibility to make sure that their customers really had located shares in a stock before they sold them. This sounds like a simple concept, but in practice the brokers usually weren’t too curious about where their customers (hedge funds, in many cases) were finding their stock for short sales. Whether the short sales were proper shorts or naked shorts, the brokers were making a lot of money, and asking a bunch of questions or instituting stringent review procedures would only slow trading down.

      So Goldman got caught, and it wasn’t an insignificant fine. “Of course $2 million is a parking ticket to Goldman, but relatively speaking, it’s a lot of money for an SEC fine,” is how one economist characterized the action.

      Naturally, the industry was pissed. How can they do business, if they have to actually ask where the money is coming from?

      We can see this frustration at a conference of the Securities Industry and Financial Markets Association (SIFMA), the trade group representing the financial services industry, held at the Marriott Marquis in New York on May 23, 2007. In researching the upcoming story I was given transcripts of several of these conferences, most of which involve compliance officers from the major banks talking about their (sometimes diffident) efforts to abide by the rules.

      At this particular meeting in New York, Goldman Sachs Associate General Counsel Jon Breckenridge, Morgan Stanley Managing Director and Counsel Robert O’Connor, and Bank of America Associate General Counsel Michael Rogers are consulting with James Brigagliano, who at the time is the Associate Director for Trading Practices of the SEC, and has shown up at the conference to confer with the banks.

      Hilariously, the men all call Brigagliano “Jamie.” Maybe it’s appropriate for the compliance officers for major financial companies to call their regulator by his first name, but in these conversations, the way they call him “Jamie” sounds like they’re talking to a towel boy for an SEC football team.

      At one point, for instance, O’Connor asks if there’s been any progress in amending a 1994 no-action letter that defined what Prime Brokerage is. The industry had suggestions for refining that SEC action and here, the banks via these men are asking for a status report on these changes. “Jamie, where do we stand on revisions to the letter?” asks O’Connor.

      Anyway, at this meeting, which takes place just a couple of months after the Goldman fine, the men are bitching to Brigagliano about what a terrible pain in the ass life is now, after that regulatory blow. Life, it seems, is no longer worth living, now that this pall has been cast over their collective existence.

      “Now, when you read this settlement…” says Rogers. “Not that long ago, you could ask outside counsel, ‘Do I as a prime broker need to worry about Reg M violations by my clients?,’ the answer would be ‘No. It’s the client, the hedge fund that has to worry about breaking them, not you.’ It’s evolved to where prime brokers are thinking, OK, I’ve now got to worry about trades that are executed through my execution side.”

      Translation: once upon a time, you didn’t have to worry about where the money was coming from. That was the customer’s problem. Now we actually have to look into the deals we’re doing.

      “And it goes back,” Rogers continues, “to this creeping effect of the monitoring burden on the prime broker.

      Brigagliano’s answer here is hilarious. In essence, what he says is, “You guys were so fucking shameless and did this so often that we had no choice but to fine one of you, even though we might not have wanted to.” Here is his actual response:

      “I think,” he says, “that in G Sac [i.e. Goldman] the Commission believed that the firm had so much information and so many red flags and it continued for so long that it simply was not permitted to turn a blind eye to the trader’s activities.”

      Now here’s where it gets funny. After he says this, Brigagliano’s tone quickly changes and he immediately shifts gears, promising to listen to the banks in the future on this issue.

      Certainly, going forward,” he says, “if market participants have questions as to the application of those principles in other circumstances, we’d certainly be willing to have a dialogue on that.”

      And guess what? They did end up having a “dialogue.” And a very productive one at that!

      A year and a half or so after this meeting, after the collapse of Bear Stearns and Lehman Brothers, the SEC instituted a new rule called “10b21.” The new rule made it clear that “those who lie about their intention or ability to deliver securities are violating the law.”

      To put that in English, it was now officially a crime to lie to your poor broker about where you located your stock, and whether or not you intended to deliver that stock.

      This was, of course, already against the law. It was covered under the broad fraud statute in the SEC code, rule 10b5. All this new rule did was formally put the blame for bad locates on the customer, not the broker who took his business. “The new rule didn’t do anything,” says an attendee of those SIFMA meetings. “It just exempted the prime brokers from responsibility. It’s a joke.”

      This is how the regulatory world works. When the big players get stung even a little bit, the rules eventually get clawed back.

      Incidentally, “Jamie” Brigagliano is still around. In fact he got a nice promotion after Obama got elected. In April of this year he was named co-Acting Director of the SEC’s Division of Trading and Markets, overseeing the options and securities exchanges, as well as brokers, dealers, transfer agents, and credit rating agencies. Just last week he was out there pimping the round table on naked short-selling that began today.

      More on all of this later…

    5. sean says:

      This applies here no??

      How obvious can it be?

      The SEC holding a roundtable on NSS with the capos of NSS.

      From Matt’s column today is this excerpt about Wednesday’s SEC roundtable on NSS, followed by Kaufman’s press release.

      <<>>

      Kaufman and Isakson Statement on Tomorrow’s SEC Roundtable on Short Selling

      September 29, 2009

      WASHINGTON, D.C. – Sens. Ted Kaufman (D-DE) and Johnny Isakson (R-GA) released the following statement in advance of the Securities and Exchange Commission’s (SEC) roundtable on short selling tomorrow.

      “Tomorrow’s SEC roundtable is long awaited, but it is clear that the panel is stacked against the need for restrictions on naked short selling. In the recent financial decline, there was abusive short selling enabled by the repeal of the 70-year-old uptick rule and a lack of so-called pre-borrow or hard locate requirements.

      The recent bull market, however, has lulled us into a false sense of security. If we do not enact these proposals – the uptick rule and either a pre-borrow or hard locate requirement – the same people who drove down certain stocks in the past will just do it again.

      We need to focus on giving the SEC’s Enforcement Division the tools to end naked short selling once and for all.”

      http://kaufman.senate.gov/press/press_releases/release/?id=aa7bc6d1-f21c-4e8d-b500-7123247c5c9b

    6. Trey says:

      I read Taibbi’s blog post also and it was obvious this is a dog and pony show…nothing substantive will come of this as the system is so corrupted and/or ignorant about what is even being discussed they wouldn’t know what kind of legislation to offer up. Another Taibbi point was a graph put together by GS that somehow correlates how shorting does not harm the market by tying together two different unrelated times in market action and passing it off as evidence that naked shorting is much ado about nothing…if the SEC can’t (or won’t) recognize and call bullshit on GS, I don’t even understand the point/purpose of this charade except to convince Joe Teabag the guv’mint is doing ever’tin’ it can to proteck him fum these carpetbaggers….have fun watching this tragi-comedy!!!!

    7. iStandUp says:

      Judd,

      Thank you for your report.

      You reported:

      “Not a single representative or advocate of retail investors had a voice on any panel…”

      This demonstrates to me How the SEC, the Financial Industry, and most of our Washington DC elected officials seek to protect the common man and woman of American, the retail investor…
      … as a Farmer protects is cattle herd for the expected financially rewarding slaughter.

      When the Rich and Powerful feel the need to feed their greed, the SEC, the Financial Industry with the support of most of our Washington DC elected officials allow the Hedge Funds to slaughter the investment accounts of us American Workers through Naked Counterfeit Short Selling.

      The American Workers, as cattle to be protected as food for the financial gain of the rich and powerful, do NOT deserve to have a representative on any of these panels run by the SEC.

      This single action by the SEC of omitting any representative of the retail investor clearly demonstrates who the SEC seeks to protect – the rich and powerful and their Hedge Funds.

      And today the SEC panel is going to consider how to “CURB” Naked Counterfeit Selling, NOT “eliminating” Naked Counterfeit Selling.

      I have concluded that “Naked Counterfeit Selling” is simple a “Second Tier Ponzi Scheme” used to steal money from American Worker’s investments so the Rich and Powerful can make easy money. The Hedge Funds as guest of Market Makers steal money from American Workers, instead of stealing money from the direct investors in the Hedge Funds (First Tier Ponzi Scheme). This Second Tier Ponzi Scheme is protected by the SEC and by our elected officials who refuse to address these counterfeiting crimes, and instead continuously mislead the American People by describing the Wall Street Counterfeit Machine as “market efficiency and liquidity.”

      I am sure every counterfeiter of $100 dollar bills would agree with these Wall Streeters that counterfeit $100 bills creates “greater efficiency and liquidity” for THEIR bank accounts.

      ————

      Did anyone notice the story in the news that Madoff is dying of pancreatic cancer?

      If this is true, it gives me the impression that Madoff planned turning himself in to protect his associates (family?) and the financial industry in general as much as possible.

    8. kddublin says:

      What a farce!

      It’s clearly time to reign in the power of the SEC and of our ignorant government officials who listen to the lairs and cheats at Goldman Sachs. I say we hire the real Leslie Nelson to do a spoof for us on you tube or in T.V. commercials!!

      It’s time to scrap that dung heap called the SEC and replace them with a completely new agency. The SEC is way too deep captured to be saved.

    9. Anonymous says:

      Maybe some of those sitting in atendance who KNOW the truth should take a page from a recent event and either singularily or collectiely stand and shout LIARS. When did this great nation that began from those who had the courage to say ENOUGH and then do something get to the point that we allow LIARS/CHEATS/THEIVES sit on committees and say what they chose while those in attendance demonstrate apathy. The time to speak up is long before they close the session with the sound of the gavel and then fight the continued up hill battle. Apathy abounds in this great nation. Our founding fathers are rolling in their graves.

    10. Jim Hall says:

      The depths of hell aren’t hot enough for these disemblers.

      You would happen to have a tactical nuke with you would you Judd?

      Just asking…

    11. sean says:

      Joe, IStand, you guys have got to see these Mike Taibbi videos on Morning Joe re: Naked Shorting this a.m. Mainstream Media baby!! Click on the picture of Taibbi for the clip. Get this guy a job at Deepcapture.

      http://www.msnbc.msn.com/id/3036789/ns/msnbc_tv-morning_joe_on_msnbc/

    12. Bernard C. Nagelvoort says:

      Speaking of the fall of Rome from internal corruption, the SEC is right out there in the front lines of the corrupt along with the equally corrupt at GS. The Russians have Putin controlling who makes money in Russia. We have Shapiro. What is the answer, the guillotine?
      BCN

    13. sean says:

      By the way, Judd put this story out more than 1 year ago. Scary huh?

    14. Tar&FeatherThem says:

      The SEC is filled with corrupt scumbags from the top to the bottom.

      The SEC ignored Bernard Madoff.
      The SEC ignored Gary Aguirre.
      The SEC ignored Allen Stanford.
      The SEC ignored every Ponzi scheme ever brought to their attention.
      The SEC ignored ever naked shorter.]
      The SEC ignored ever investor complaint about naked shorting.

      The SEC is an ignoramus.

      It’s time the government ignores the SEC and put the corrupt agency out of business.

    15. Sarge says:

      Judd, you’re certainly earning your paycheck this week. Can’t wait to hear what comes out of today’s panel.

    16. bbhindyou says:

      Judd,
      I am a lowly student trying to start another way of life after the real estate collapse[I used to flip houses]
      Now I must get a degree at something else and part of it is a busness communications course.
      The course is teaching us about what is lawful as far as business communications.
      The material seems to indicate that if a business practice is not disclosed that can impact the value of a purchase of any type this constitutes fraud.
      The selling of more shares of a company than were created for sale by the company seems to fit this definition.
      The selling agent must then disclose the risk or be liable for fraud.By selling more of the stock than was issued by the company the selling agent is causing a business practice to be implemented that hurts the value of what he is selling.If this is not disclosed to the buyer how can this not be fraud?
      I came up with a survey that I would like to get a large response to and perhaps show with it that the average investor has been damaged by business practices that were not disclosed to them at the time of transaction.
      I think it could turn out to be a legally actionable cause.
      I do not have the ability to survey the masses.
      I need help.
      I would like to also get input from C.E.O.’s of publicly traded companys.
      All I have acess to are a bunch of college students with no investments ,no time and no money to invest any way so the answer I get from most of them about ‘does this concern you’ is ‘whats the point’.
      The point is if you or I committed the fraud these brokers have we would be in jail and disgorging fraudulently aquired assets.
      I suppose I should listen to the people who are telling me this is too big for me to tackle and that anything I could have come up with won’t change the world ,give up no one cares.I just thought if I put it all together in a simple survey it could show who knows what and why [or why not] and that maybe we could do something with the information.
      Apathy is not something I do well, I guess I should have learned it by now…

      Oh well here I go again it’s like the saying goes “I can take the despair its the hope thats killing me’.

      The purpose of this survey is to determine the level of communication between the sellers of stock, the investor buying the stock and the companies issuing the stock sold.
      The selling of more shares of a company than were issued by the company affects the share price which can fall at rapid levels harming the company and the investors’ interests
      Unless a stock is held in certificate form, the stock can be “lent” out to short sellers.
      When the stock is “lent out” in share numbers exceeding the share number issued by the company this is called naked short selling.
      The Depository and Trust Corporation [the DTCC] holding stock and “lending” it [under the name of CEDE] makes money on every share they “lend”.
      This practice has been implicated in the fall of many large financial firms last fall including Lehmans.
      This survey is designed to find out how well the process of stock lending has been communicated to you the stock owner and to determine how well the owners of companies are informed in the trading of more of their stock than the company has issued
      The goal of this survey is to find a way to improve investor and company ability to communicate with the sellers of stock.
      1. Do you own stock or have any money in a retirement or other fund tied to the stock market?
      Yes no

      2. Have you experienced a loss of value in this investment in the last 5 years?
      Yes no

      3. Do you know what it means to hold a stock in certificate form?
      Yes no

      4. Do you feel the DTCC should be responsible for informing the actual share owner when shares the DTCC is holding in trust for them are “lent out”?
      Yes no

      5. Should the DTCC have the right to “lend out” more shares of a company’s stock than were issued by the company?
      Yes no

      6. Do you feel that selling more of a stock than was issued by a company is wrong?
      Yes no
      7. Do you think that when a company is delisted and the shares can no longer be traded that the total number of shares sold should be only what the company issued and that any trades that cannot be covered with real shares should be canceled and the money returned to the investor?
      Yes no

      8. In a case of delisting should the short seller of shares be allowed to not buy in real shares to cover those they borrowed when shorting the stock, never completing the trade, and just be allowed to keep the investors money?
      Yes no

      9. Should a company have the right to know when more shares of their company are trading than were issued by the company?
      Yes no

      10. Would you as a shareholder want to know when more stock than was issued by the company is trading before you buy a stock?
      Yes no

      11. Should all stock trades that do not get “covered” by real shares by the third day after a trade is made be voided and the money returned to the investor?
      [What ordinary trading rules require]
      Yes no

      12. Should hedge fund or stock pool market makers have an exemption from the three day trading rule?
      Yes no

      13. Should the Security and exchange commission enforce existing laws requiring the delivery of real shares by all sellers of stock in the three day settlement period?
      Yes no

    17. sean says:

      Taibbi and Trimbath

      Rolling Stone Explains Role of Naked Short Selling in Financial Crisis

      New York City, NY

      Former DTCC operations manager Susanne Trimbath is interviewed by Matt Taibbi for his latest article in Rolling Stone. She blows the whistle on the world’s largest central depository by revealing that she warned them 15 years ago of an impending financial crisis.

      Rolling Stone’s own Matt Taibbi interviewed industry expert Susanne Trimbath, Chief Economist at STP Advisory Services, LLC in Omaha, for his latest article in the magazine explaining “how we got into this financial crisis.” Taibbi’s latest piece looks at the history of the Bear Stearns and Lehman Brothers failures. His controversial article earlier this year, “Inside the Great American Bubble” on the undue influence of Goldman Sachs in contributing to and benefitting from the recent economic collapse and the subsequent bailout gained significant attention from media, investors, shareholders and companies.

      In his new article, Trimbath tells Taibbi the story of how, in 1993, she tried to get senior management at the world’s largest central depository (Depository Trust Company) to stop allowing shares of stock in US companies to be multiplied through stock lending and excessive short selling. “You can’t balance the world,” was the response she got from regulators. She contends this is because “Wall Street is self-regulated and they don’t want to write regulations against themselves.” By 2003, the size of the problem had increased ten-fold; by 2008 it contributed to the collapse of major financial institutions and the global financial crisis. Trimbath goes into more detail about this, and the impact of naked short selling and failed trades on shareholders in the recently released Hollywood movie, “Stock Shock: The Short Selling of the American Dream.”

      Susanne Trimbath holds the Ph.D. degree in economics from New York University. She is an expert on post-trade securities operations and is featured in several films about Wall Street. She frequently acts as an expert witness in securities litigation. Trimbath is a former mid-level operations manager at Depository Trust Company (now a subsidiary of Depository Trust and Clearing Corporation in New York). Matt Taibbi, who is best known for his articles and books on politics, turned to writing and blogging on finance after the 2008 Presidential election. His new expose will be featured in the upcoming issue of Rolling Stone magazine due out in early October.

      http://www.prlog.org/10358657-rolling-stone-explains-role-of-naked-short-selling-in-financial-crisis.html

    18. davidn says:

      bbhind you, some background information on ownership.

      1. Companies have a list of registered shareholders which they keep at the company transfer agent. These are the only ACTUAL or REAL shareholders. The list consists of the names of shareholders that have their certificates or direct registration and custodian and an unusual shareholder named “Cede & Co.” which is usually the major shareholder of the company. No one seems to know the ownership structure or domicile of this private partnership company or what it’s relationship is to the Depository Trust Corporation, but it is said to be the DTC’s nominee. It isn’t disclosed as being part of the DTCC group in any way in the DTCC annual report and the nominee agreement isn’t disclosed. No one seems to know who owns Cede & Co. Some laugh that cede is defined to mean “relinquish ownership”. Others say it means CEntral DEpository.

      2. The clearing brokerages and foreign depositories have their ownership registered with the DTC who keeps track of how many shares Cede & Co. owes each depository and clearing brokerage. These companies are the BENEFICIAL SHAREHOLDERS from the DTC’s point of view (not you).

      3. The foreign depositories have trust agreements with their clearing brokerages and the various clearing brokerages have trust agreements with their introducing brokerages.

      4. The introducing brokerage has a trust agreement with you.

      What this means is that when you buy a share in the market, you are only buying a claim on shares owned by Cede & Co. Imagine you bought from a brokerage in Europe.

      Then:

      Cede & Co. owes the foreign depository who owes the foreign clearing brokerage who owes the foreign brokerage who owes you the shares.

      If any one of those entities cheats and doesn’t have anything to back up the obligation, the only consequence is the one they owe can sue them for breach of the trust agreement, but this will never happen as there is no way to prove it.

      Records are opaque and obfuscated and if you push (for example try to vote or pull out you cert.), there will be a share for you, even though there isn’t a share for everyone.

      No regulator can audit the system, because it is spread across the globe and regulators can only regulate their own states and countries.

      It’s the perfect crime.

    19. davidn says:

      I think a lot of questions would be answered if a light was shone on Cede & Co.

      http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=22429124

      It says it operates as a subsidiary of the privately owned NYSE, but what does that mean? “Operates as”? Elsewhere, it is disclosed as a private partnership company.

      The DTC “nominates” it to be the ACTUAL owner of your shares, but they don’t disclose the nominee agreement with Cede. Why not?

      In other places, it talks about how Cede lends money to key Wallstreet entities. Why would they do that?

      Why is it so hard to find details of the company that you are trusting to own your shares on your behalf?

    20. davidn says:

      Note the Business Week description of Cede & Co. was from their section on PRIVATELY owned companies, not non profit nominee corporations. It says it was formed in 1996, but there are references to it going back to 1971 in the congressional record by Senator Metcalf who was working with Richard Ney to get control of Wallstreet.

    21. Davidn says:

      http://www.bearfactsspecialistreport.com/Specialist%20System%20Articles/Who%20Owns%20America.doc

      We find ourselves in a situation where government not only has no intention of controlling the distinctive features of the covert Stock Exchange power, but instead exists to enhance it by implementing its monopoly powers over the financial markets and the entire community of investors. The Exchanges monopoly could not have been achieved without the direct assistance of the Federal Reserve System and the Eastern banking establishment.

      More important than anything else, however, has been the government’s cooperation through the Securities and Exchange Commission. Strange as it may seem, great strides have been made in the growth of the Exchange’s uncontrolled power since the passage of the Securities Exchange Act of 1934. By pretending to address itself to the investor’s needs and appealing to his greed, the SEC has almost succeeded in masking the objectives of the Stock Exchange.

    22. Davidn says:

      We find ourselves in a situation where government not only has no intention of controlling the distinctive features of the covert Stock Exchange power, but instead exists to enhance it by implementing its monopoly powers over the financial markets and the entire community of investors. The Exchanges monopoly could not have been achieved without the direct assistance of the Federal Reserve System and the Eastern banking establishment.

      More important than anything else, however, has been the government’s cooperation through the Securities and Exchange Commission. Strange as it may seem, great strides have been made in the growth of the Exchange’s uncontrolled power since the passage of the Securities Exchange Act of 1934. By pretending to address itself to the investor’s needs and appealing to his greed, the SEC has almost succeeded in masking the objectives of the Stock Exchange.

    23. bbhindyou says:

      Davidn,
      I understand the ownership issues are more complicated that what I have discribed in my survey .
      The average investor does not know the facts about where the ownership issue ends up when they put their money in.
      The lack of understanding of these very complicated issues is what I am trying to emphasise .
      When you put money in a retirement fund or go to a broker and buy stock these complicated issues are not fully explained to you at the time of purchase.
      Does the nondisclosure of these issues constitute fraud if the issues have a direct effect on the value of your purchase ?
      I am trying to find a way to explain these issues in a way that does not lose the reader/listener and make their eyes glaze over.The intention in the way things are now run seems to be to make it too complicated for the average investor to understand.
      If any change is to happen this lack of understanding has to be overcome.

      • davidn says:

        “Does the nondisclosure of these issues constitute fraud if the issues have a direct effect on the value of your purchase?”

        They disclose that they will use your shares if you have a margin account. If you put your shares in a cash account and the brokerage or the brokerage’s clearing house pledges them as collateral or worse doesn’t bother owning them, then yes, I believe that is fraud. The problem is that if you push, they will find real shares for you and it will be some other sucker that is without because they do have SOME shares.

        I find the way to avoid the eye glaze is to just tell them “Did you know your brokerage often bets against you, hoping you lose money when you buy shares. Often, they will take your money for the purchase, then not even buy the shares or worse, short the shares to push them down. They pretend the shares are there on your brokerage statement, but secretly hope the shares go down because the difference in what you buy them for and what you sell them for is their profit. They call it DESKING.”

        “If you are lucky enough that your own brokerage is on your side, you can still be bet against by the rest of Wallstreet (clearing brokerages, prime brokerages, hedge funds, etc.) The system is set up to take your money and the SEC is the industries PR firm, not the regulator investors believe it to be.”

    24. Reza Ganjavi says:

      Dear Madam Chairman Schapiro:

      While I enormously admire your spirit of change, enjoy your remarks and speeches, and support your initiatives to rein in on the abusers of the financial systems, I am disappointed at the composition of the recent panel on short selling and pre-borrow. The panels that discussed these topics were comprised largely of supporters of short selling, short sellers themselves, and academics who are obviously using their lop-sided research which ignore the realities of short selling that Main Street faces every day (e.g. Short & Distort) in favor of large hedge funds who are ruining the economy, specially small innovative companies, and Main Street investors.

      I found it insulting to the honor of the SEC for these guys to sit there and lecture the SEC about short selling being “a force of good” while completely ignoring the very practices that many short sellers are involved in which are highly immoral, unethical, disruptive to the economy, extremely harmful to small innovative companies that are the future of the world economy — actions which are in my opinion and legal philosophy, criminal.

      Nobody spoke about a well known and widely utilized practice of short-and-distort which small companies and Main Street investors have to face every single day. I will elaborate on this theme and give you more detailed feedback at a later date but since I feel this issue is urgent, I had to write to you before finding the time to review and research all the submitted material. As I said in previous letters, the house is on fire — Main Street needs protection now. Many small innovative companies are abused by short sellers every day and we need your protection against these abuses.

      The problem is not only with naked shorting. Reduction in number of fails-to-deliver does not mean the problem of abusive short selling is solved.

      Secondly, I found the discussion on whether pre-borrow and hard-locate should be mandated or not a philosophically false question. According to every legal philosophy it is a crime to sell something that is not yours and you have not borrowed. Except of course in this case where we discuss at length whether people should be allowed to sell something that is not theirs and have not concretely borrowed. What an unintelligent and pitiful discussion. This is a core aspect of the corrupted financial markets which the SEC needs to take control of and resolve by mandating immediately — not after years of discussion and getting lectures from the short sellers themselves how they should be left alone.

      Thirdly, regarding disclosure, again, a facet of our corrupted financial system is that short sellers get preferential treatment — the people who are inherently interested in destruction of hard-working innovative companies are getting preferential treatment to those who invest in those companies and help the economy by doing so. Another very crooked feature of our markets that the small companies that have to rely on equity markets to raise needed capital have to live with every day is that the SEC is protecting the names of large short sellers who are mostly there, and many are lobbying every day, to have those companies destroyed. This is a fact Madam Chairman. The SEC should disclose large short sellers just as it does large shareholders without any more delay than required for long positions. The current protection is very much against the Main Street which you have said you like to protect. Let’s see those words turn into action.

      Fourthly, what happened to the uptick rule? Lots of talk but no action.

      Lastly, exempting market makers from further regulation is a very bad idea because we have concrete proof that market makers are sometimes in bed with short sellers and large hedgefunds and themselves are engaged in “short and distort”. Do not every think that market makers are good boys. There are many instances of their highly immoral and unethical and criminal behavior in the practice of short-and-distort. I can think of one instance of a market maker, whose analyst was publishing faulty research reports to support their large hedgefund short clients. The corruption runs deep. Allowing market makers off the hook will not help the cleanup which is urgently needed.

      I will send in a more detailed feedback in writing or video at a later date.

      Many thanks for your kind consideration. We need help Madam Chairman. Small companies need help. Small company investors need help against abusive short sellers — not just naked short sellers but all short sellers. They can still play their supposed “force of good” in the market within much more stringent regulation and not just direction by the SEC. For too long they’ve gotten used to raping, raiding and abusing Main Street and now they’re heavily opposed to any regulation. Using a lot of arguments and their academics, they’re simply trying to distract the SEC from the job that you must do: to clean this mess up, now, and not later. We need urgent immediate action. Please help protect Main Street from short sellers — not just naked short sellers.

      Best Regards
      Reza Ganjavi

      PS — here’s my new song written for an environmental campaigne against littering — I should add a verse about cleaning the financial markets too !! Let me know if you like the song :)

      http://home.datacomm.ch/rezamusic/Lets_Keep_Our_Planet_Clean.html

      • Jim Hall says:

        Elegant letter with a stupid song tacked to the end, so as to TOTALLY make you look unstable and unworthy of the fight.

        Nice touch.

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