Naked short selling – redefining systemic risk

There is some evidence suggesting the federal government might be spending tens of billions of dollars to deal with the accumulation of failed trades caused by illegal naked short selling. If that’s true, we’re probably screwed.

This is the newest video from Deep Capture Productions, examining the attack on Sedona Corp, and applying the insights gained from it to the broader market — including the possibility that the federal government has recently been spending billions of dollars to take the liability of accumulated failed trades off the books of broker-dealers.

Pressing the “embed” button will provide you with the code you need to embed this video on other sites. Kindly spread the word.

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  1. Thanks for all your hard work. Amazing,after nine years, the SEC just stood aside, hoping Sedona wouldn’t make it. Well, they made it. Now, a new improved SEC gets to go in and do the right thing. Either they do, or we do.

    What a story. No matter which way you turn, money laundering, organized crime, stock fraud, REFCO, Sedona seemed to be right in the middle of it. Maybe if only a few of the other hundreds of companies crushed by the Cartel survived, Sedona wouldn’t be alone.

    Let’s go and finish this. I’m tired of fooling with these idiots. Write your legislators, people. It really works. It’s a new day thanks to the Deepcapture guys. Least we can do is get this everywhere.

  2. Judd, if this does not bring it home, nothing will!!Great job and thanks for your tremendous effort. “It is time”

  3. Excellent Video. I noticed one error, though. Check out 13:25 and you’ll see that the numbers on the graphic don’t match the narration.

  4. Sedona was taken down by Refco, who went under with $10 billion in naked shorts at the depressed prices and the whole scandal was buried.

    http://www.rgm.com/articles/refco4.html

    I have to give Dave Patch credit for his site that has been calling to http://www.investigatethesec.com for seven years. He was one of the first to realize the SEC is corrupt and can’t thank him enough for WAKING ME FROM MY SLUMBER!

    If Yassar Arafat, drug money, casinos, arms, etc. doesn’t clue you in that this crime is part of a much bigger criminal syndicate, than nothing will.

    It’s really not that complicated. The thieves made so much money ripping you off, that they were able to hire their own people to regulate and become politicians. If you can expose this to your friends and the police, then it is simple to arrest them and fix the system.

    The problem is the people being ripped off think you are a tin hat conspiracy theorist and the thieves have 100% control over the non internet media.

  5. Closing the papers on Refco, hid who was on the hook as prime brokers. It essentially locks the failed trades into the system. There is no money left to buy back the fails. If the truth came out, those who hold share entitlements would have to be made whole and that isn’t going to happen as long as the truth is hidden. By the time Refco blew up, the problem was already huge. The fails had been accumulating for years. One has to wonder if the SEC wasn’t knowingly complicit in allowing Refco to go public. It was only a couple of months from the IPO when the public bought worthless shares until the fraud was exposed. It is hard to believe that Refco’s counterparties didn’t know that it was underwater and knew how to take advantage of the situation by shorting the stock.

  6. Let us not forget
    The Sec was investigating Refco and let them go pubic

    Refco Faces SEC Charges in Short-Selling Probe

    By Matthew Goldstein
    The Street.com
    May 17, 2005

    A wide-ranging investigation into stock manipulation in the private-placement market has tripped up Refco, a brokerage that last month filed plans for an initial public offering.

    The New York firm disclosed late Monday that the Securities and Exchange Commission is considering filing civil charges against it over short sales in shares of Sedona, a tiny Arizona software company.

    The looming action against Refco stems from a 2003 SEC enforcement action against Rhino Advisors, a defunct investment firm that regulators charged with manipulating shares of Sedona following a $3 million private stock placement in 2001.

    Regulators charged that Rhino illegally shorted the stock on behalf of one of its clients, Swiss-based Amro International, which had purchased a $3 million convertible note from Sedona in a deal negotiated by Rhino. Federal prosecutors in New York subsequently charged the principals of Rhino, Thomas Badian and Andreas Badian, with conspiracy to commit securities fraud.

    The federal investigation of Rhino Advisors was one of the first enforcement actions involving PIPEs, short for private investment in public equity. The illegal shorting uncovered by the SEC in the Rhino case led regulators and prosecutors to launch a broad investigation into allegations of stock manipulation and insider trading by the placement agents and hedge funds in the $14-billion-a-year PIPEs market.

    To date, the broad-based inquiry has led to the criminal conviction of a former SG Cowen managing director on insider trading charges and potential civil charges against investment firm Friedman Billings Ramsey (FBR:NYSE – news – research) and a former First New York Securities hedge fund manager.

    Refco, which filed for a $575 million IPO last month, disclosed in the offering document that the SEC has been investigating its involvement with Sedona since June 2001. In October 2003, the brokerage received subpoenas from the U.S. attorney in New York. But the firm, which specializes in the futures and derivatives markets, said it “has been advised orally that it is not currently the subject of the U.S. attorney’s investigation.”

    The SEC investigation, according to the filing, is focusing on two former Refco brokers who handled an account and short sales for Amro International, an offshore hedge fund.

    A short sale is a market bet that the price of a security will fall. A trader borrows shares, and if the stock does fall, he makes a profit by purchasing replacement shares at a lower price and using them to repay his lender.

    In the Rhino Advisors action, the SEC charged that the investment advisory firm shorted shares of Sedona on behalf of Amro, even though the $3 million PIPE deal prevented such activity. Amro, which wasn’t charged by the SEC, benefited from Rhino’s action because it got a ready supply of stock to cover earlier short bets it had made.
    _______________________________________________

    The SEC should have known about the liability and not allowed Refco to go public….

    Refco Madoff Madoff Refco

    so much obfuscation
    so little time

  7. D Pickard, the numbers actually do add up, but not in an obvious way (if I’d had one ounce of patience left with this video, I’d have changed it). $36b + $99b = $135b, which was the number I referred to. Then $135b + $9b = $144b.

    The fact that it wasn’t obvious tells me I should have taken the time. Maybe later. For now, I just want to get back to living a normal life for a few days, before starting the next one.

  8. Judd, how are they dealing with the fails? Are they settling with the companies, making investors whole,covering in the open market, how? Or are they using our money to pay us for the money that they stole from us? On Wall Street would have that kind of Hubris. Also I hope you guys saw the lambasting that CNBC just put on Attorney General Blumenthal of Connecticut. It was ten times worst than what they did to Patrick, because he wants to regulate HedgeFunds and is working with the President to do so. Kudlow and Company was FURIOUS at him. They are defintely owned by the Hedge Funds!!!

  9. GAO Report Raises Four Key Questions for Khuzami

    May 7, 2009
    http://www.complianceweek.com/blog/carton/2009/05/07/gao-report-raises-four-key-questions-for-khuzami/

    Today at 2:30 pm ET, the U.S. Senate Banking Committee’s Subcommittee on Securities, Insurance, and Investment will hold an important hearing on “Strengthening the SEC’s Vital Enforcement Responsibilities.” The hearing comes just one day after the release of an extraordinary Report to Congressional Requesters by the Government Accountability Office (that bears the unextraordinary title of “Greater Attention Needed to Enhance Communication and Utilization of Resources in the Division of Enforcement,” and is available here).

    The GAO report shines a brutally bright light on the inner workings of the Enforcement Division and many of the problems it has faced, past and present. Indeed, you could call it a hatchet job if it weren’t for the fact that the facts appears to have come directly from the Enforcement staff and management themselves, and even certain SEC Commissioners. Maybe a “confession” is a better way to describe it.

    Among the four witnesses at today’s hearing will be Robert Khuzami, the new Director of the SEC’s Division of Enforcement. It has been rumored that Khuzami will use today’s hearing to formally introduce numerous reforms that the Enforcement Division will be implementing to improve its performance (many of which are discussed in detail here), so listen closely to his prepared testimony today.

    In any event, however, the GAO report flags numerous gaping holes in the SEC’s Enforcement program that must be addressed immediately. Specifically, here are four questions to which I believe Congress must seek an answer:

    1. How much money does the Enforcement Division need to raise its administrative support and information technology to effective levels?

    The GAO report reveals that Enforcement has little or no administrative or paralegal support, which causes its staff to waste considerable time — sometimes half of their workday — on duties such as copying, filing, document scanning, assembling document storage boxes, preparing exhibits, making travel arrangements, soliciting bids for court reporters, and logging and processing documents submitted by respondents. This problem is exacerbated because frequent equipment breakdowns mean attorneys must waste additional time searching for working copiers and scanners.

    With respect to the Enforcement Division’s IT resources, the GAO report paints a bleak picture of inefficient and outdated technology. Enforcement’s Concordance system for managing documents is said to be generally ineffective. It sometimes takes weeks, or even months, for case records to be sent to headquarters and loaded onto the system to become available for use, and the system lacks useful functions that are available to the private sector, such as certain search features or the ability to reconstruct chains of e-mail communication. A securities defense attorney told the GAO that “it is not uncommon for Enforcement attorneys to call, asking to be directed to information of interest in records the defense already has produced, because the staff cannot search for the information.”

    The GAO report also reveals that, surprisingly, Enforcement has no divisionwide knowledge management system in place for sharing information, such as litigation documents or legal analyses, meaning attorneys developing cases cannot easily take advantage of work already done by others. In addition, Enforcement cannot access information maintained by OCIE.

    2. What is the proper way to track the performance of the Enforcement Division?

    The GAO observed that because Enforcement pursues actions against alleged securities law violators, and the entire population of such violators is unknown, there is no metric, such as volume of trading or number of public company filings, for directly measuring the division’s workload or results achieved. As a result, Enforcement has traditionally focused on two process-oriented performance indicators to track the division’s activities: number of investigations opened annually, and number of enforcement actions filed annually.

    The focus on these “stats,” however, has for some time been the source of criticism. Enforcement attorneys told the GAO that such gross tallies present an incomplete view of Enforcement activity because they “do not indicate the relative significance or magnitude of cases, and are vulnerable to manipulation. For example, a major enforcement case involving significant violations or market practices would be reported in the statistics with the same weight as a matter more administrative in nature, such as failure to make required filings with the agency.”

    How, then, should the success and performance of the overhauled Enforcement Division be measured?

    3. What changes will be made to address the structure and performance of the Office of Collections and Distributions (OCD)?

    The GAO report discloses several important points about OCD, the relatively new office that is responsible for administering and distributing Fair Funds money.

    First, although OCD was created to have agency-wide responsibilities in centralizing and professionalizing the function of distributing Fair Funds, to date it has handled collections for the headquarters office in Washington and the Boston regional office only. For unexplained reasons, Enforcement staff remain responsible for collections and distributions in all other offices.

    In addition, the GAO report reveals that the SEC established OCD with an unusual “dual reporting structure” where the OCD director reports to SEC’s executive director, who reports to the SEC Chairman. OCD’s deputy director, however–to whom all but two OCD staff ultimately report–has a direct report relationship to both the OCD director and the Director of Enforcement. Thus, a small portion of OCD reports directly to one superior (the OCD director), while nearly all of the office reports to a deputy whose supervisory chain also leads to a different superior outside OCD (the Enforcement director).

    Both the OCD director and deputy director told GAO that this structure has resulted in confusion within the office and among Enforcement staff about who is responsible for what duties. It has also resulted in delay, as additional meetings and deliberations among a larger group of parties are required to consider issues and reconcile viewpoints.

    4. What is being done to remove delays and bureaucracy from the internal case review process?

    Finally, the GAO report describes an internal case review process that is so layered and redundant that it can lead to absurd results. The internal process for an “action memorandum” presenting an enforcement matter for consideration to the Commission generally includes the following levels of review:

    • Staff investigative attorney;
    • Branch chief;
    • Assistant director;
    • Associate director;
    • Regional director (for regional offices);
    • Senior Enforcement management, other relevant divisions of the agency, and Office of General Counsel;
    • “To-be-calendared” review (for additional review by senior Enforcement management in advance of Commission meeting); and
    • Pre-calendar review immediately before Commission meeting.

    Some Enforcement attorneys estimated that they spend as much as a third to 40 percent of their time on the internal review process, and stated that the effect of the intensive process is to create a culture of risk aversion, an atmosphere of fear or insecurity, or incentives to drop cases or narrow their scope. Indeed, Enforcement attorneys offered the following eye-opening examples:
    in two cases, charges were dropped or reduced because the matters had taken so long that people were unable to recall earlier considerations of evidence.
    in another situation, it took 2-½ months to prepare a paragraph requesting permission to send a Wells notice;
    in another case, staff prepared multiple drafts of a Wells memo over 3 years before finally closing the case because it was so old.
    in yet another case, a company under investigation offered to pay “whatever penalty amount Enforcement asked” but five months later the matter still remained open, with an action memorandum in its tenth draft.

    There is obviously a lot for the Senate to raise today as it meets with Khuzami and other witnesses, and going forward. Seeking answers to these four questions, however, would be a great start.

    Posted by: bcarton @ 11:18 am
    http://www.complianceweek.com/blog/carton/2009/05/07/gao-report-raises-four-key-questions-for-khuzami/

  10. Hate to take credit away from Mr Patch who has done a great job but I know 2 people who discovered naked shorting 2 years before anyone ever heard of it.Im one of them…The SEC has let this go on for so many years its scary..I wish I had the list of all 90 companies Mr Dirtbag Simms was signatory on of which only one of his 90 pipes is still alive That is CVM, TFSM was another that survived by takeover but he did the pipe at 12.00 and i believe they got taken over near a dollar..There was 90 companies all trading at 3.00 or better on that list some as high as $20 plus all of them are subpenny stocks now or bankrupt now.. Hate to say it but any monkey even Jim Cramer could have picked better stocks than mr dirtbag simms,,,, by accident or by design you dont need to be a rocket scientist to figure that out but then again the SEC couldnt figure it out or it was ok that 90 companies went under cause they didnt enforce the laws of our country…GV was the 1st person to discover Naked Shorting or as it should be called Counterfeiting stock..Its a crime and the SEC is responsible for more job losses than any organization in the history of mankind with their dirtbag buddies at the DTCC…They should be tried for Treason and Linda Thompsen who called us crybabies should be in jail…This fight wont end till they put SEC officials in Jail for treason..They are a disgrace and I pray for their souls cause if they dont atone on earth they will wish they had in eternity..Chris Cox and the rest of his merry crooked buddies deserve no less than life in jail..Theyve killed more companies and robbed more investors than any ponzi scheme ever did Bernie included..The SEC is a joke and a disgrace to Americans…

  11. Absolutely beautiful. Except for the part where we all get defrauded. Keep up the great work!

  12. Golden Goose, great post, except it doesn’t matter who is first.

    David Patch is a hero in my mind for having the balls to call it as he sees it and to weather personal consequences because he knew the cause was right. He’s right up there with Bobo and the very first one to discover this, Richard Ney in the 1960’s. Google Wallstreet gang and quotes where the mob expressed jealousy over the success of the Wallstreet criminal syndicate and how they were able to keep their crimes from Joe Sixpack.

    http://www.investigatethesec.com has been around for about six years and they’ve yet to be investigated.

    Too bad they eliminated the death penalty for treason.

    The truth is coming out, but slowly. I have people talk to me about how terrible shorting is and what it did to the economy and I have to explain I actually support shorting which reduces volatility and creates a buyer when everyone else is selling.

    Wallstreet is taking a simple RICO cartel crime, where bankster thieves take an asset in trust, sell it, then lie to the person, telling them it is still there and making it about shorting.

    The problem the criminals have is that the bought and paid for newspapers and news channels are going bankrupt and sites like https://www.deepcapture.com are becoming the new standard for journalistic integrity.

  13. Good point! The main stream media and newspapers are losing control of thought control. The internet is full of great information and is exposing the truth and there’s nothing they can do about it. The puppet show is being exposed for what it is aka John Stewart’s nice little piece regarding Jim Cramer. It wasn’t too long ago Naked Short Selling was a myth. We’ve come a long way and nice work on the video JUDD. If robbing from your own citizens and betraying your country’s sovereinty are not grounds for treason I don’t know what is.

  14. Excellent video Judd!
    It is easy to understand for the layperson which is something most have not been able to do. A perfect link to disperse to the masses.

  15. Judd,

    Thank you for the video production! Excellent!

    I learned something new – there is another pattern on the part of our government to hide the truth about Naked Short Counterfeit Selling – when financial industry companies fail, HIDE their financial records.

    Although this was a great video presentation for me and others who have some knowledge of about Naked Shorting, I suspect newbies will find themselves somewhat lost after viewing this video, since they will have no previous knowledge about Naked Shorting upon which to draw.

    To illustrate this point… yesterday I called a friend and in the course of talking I mentioned Naked Shorting Selling. And I told my friend that this term “Naked Shorting” does not mean anything to most people and there I call it “Naked Short Counterfeit Selling” so people understand that this is about COUNTERFEITING shares of publicly traded companies. My friend responded with a laugh and told me that he had no idea what “Naked Shorting” meant until I explained it to him.

    I have decided that I will no longer use the term “Naked Shorting” when I talk about this crime for the very reason that the common man and woman will NOT understand what I am talking about and this will most likely cause their mind to “turn off” and not even hear what I tell them.

    So I will now call this Wall Street Crime – “Naked Short Counterfeit Selling” or “Abusive Naked Short Counterfeit Selling” – because the addition of the word “Counterfeit” immediately communicates to the listener that I am talking about a crime – the crime of Counterfeiting.

    So as you produce new videos, which I know is a very difficult job and for which I very much thank you, I suggest you clearly in your mind decide who your target audience is. I would classify this new video (Naked short selling – redefining systemic risk) as a video for those with some previous knowledge of Naked Shorting, but not for a first time listener on this topic.

    Judd, again let me thank you and all members of the Deep Capture Team for the outstanding work you are doing on behalf of America and the World… Please, keep up your most excellent work!

  16. Just below is a funny editorial cartoon about Naked Shorting. Patrick, your name appears in this cartoon about the NAKED Shorts trying to figure out how to discredit you and others. This cartoon also illustrates, I think, the idea that pops into people’s mind when they first hear the phrase “Naked Shorts” (people that are naked).

    Here is a JPG of the naked short cartoon:

    http://media.npr.org/blogs/globalpoolofmoney/images/2008/09/naked_2.jpg

    Here is a Link to the NPR audio story about this cartoon topic (Filed under: Inside ‘Planet Money’):

    http://www.npr.org/blogs/money/2008/09/catch_it_this_weekend_naked_sh.html

  17. Senate-Passed Bill Would Bring Sunlight To Fed

    http://www.huffingtonpost.com/2009/05/08/senate-passed-bill-would_n_199402.html
    Senate-Passed Bill Would Bring Sunlight To Fed
    05/ 8/09 11:29 AM

    Ryan Grim
    [email protected] | HuffPost Reporting From DC

    A last-minute amendment to the bankruptcy reform bill passed in the Senate Wednesday opens the Federal Reserve to congressional scrutiny.
    The amendment was pushed by Sen. Charles Grassley of Iowa, the highest ranking Republican on the finance committee, and quietly breezed through 95 to 1. Grassley said that his measure wasn’t aimed at limiting the Fed’s independence, but that Congress just wanted to know a little bit about what it’s doing. [UPDATE: In response to the justifiably, curious, Sen. Lamar Alexander (R-Tenn.) was the lone no vote.]

    The proposal is, said Grassley, “an important reform for holding the entities involved in the massive taxpayer-funded economic bailout accountable to the public.”

  18. We all know that, SEC also knows it but pretend they don’t know.
    What can you do about it?
    Cut the loss and close all investment account?

  19. They rob the retired, the disabled veteran, the widows as well as regular investors. And Mr. Change is supposed to change all this.

    Well nothing so far. SEC has been playing a distraction game. They keep looking at the legit shorts instead of the naked shorts. They are still the same crooks.

  20. add my thanks a million Mr.Judd. wonderful thorough painstaking investigative research. wish we all had the time & talent to pursue these multiple damages to our financial system & get the rot cleaned out. but the majority of us are work weary at days end fettered with many family obligations.
    about that cnbc network triple pounce on AG blumenthal… amazing that they claim all that hedge funds want to pursue is their “fiduciary duty” for the clients…all those school teachers and widows and orphans says kudlow. and their claims should take precedence over all the rest of the people… all the taxpayers. this is not business as usual rule of law. this is part of the great unprecedented bailout that has been draining all the taxpayers…. the great financial crisis, remember.
    and teachers and police and firefighters won’t take financial losses. they will probably be made whole by local tax increases to make up any shortfall in their benefit returns. nyc teachers have in their contract a guaranteed 8% return on their pension investments. is that not amazing. how many workers in the private sector get a guaranteed 8% return on their 401ks. so why not have hedge funds engage in risky investments for pensioned government employees. financial losses will be made up by the taxpayer. point is, why are they trying to pitt the needs of teachers & cops & orphans(and foreign fat cats too) against the needs of all the people of the united states

  21. I hear the very captive Chris Dodd now pushing like hell for online gambling to be fully legalized.

    Aren’t those outfits run by the mobs (Israeli/Russian) offshore also – like hedge funds?

    What’s the difference. Sad right?

  22. There would be a way to instill confidence in the market and that would be to eliminate short-selling. Put aside the liquidity issue. The value of a stock is that is is supposed to be finite in number. Investors could then decide if they wanted to invest in a company that had more or less liquidity. All of the money invested would go to the companies for expansion and jobs, not to the players. Bubbles would not happen as readily as investors would see when something was overvalued and reallocate to other sectors.

    Enforcement would be simple. Only real shares would be available to trade and pump and dump scams where insiders dump phoney shares would be readily detectable. It is a travesty that there are companies who have been able to sell more stock than they report. That is possible because these are hidden by other short-selling. When finally detected, the investor has been defrauded, both by the company and those who may have been naked short-selling.

    With the current crisis of money unavailable for credit, companies are unable to access the market for secondaries. Although one can argue that these companies deserve their current situation, if they had more time to address the changes in the market, they would have more breathing room. Shareholders would bear the burden of bad decisions and not the taxpayer, the workers, and the world. Investors could determine which companies were fairly valued and the competition for capital would be enough to keep the companies efficient. It would take the volatility out of the market. It would be mundane.

    This is a really simple solution and one has to wonder why this is not being seriously considered if the well-being of the country is at stake. At this point, reported fails are down and those short could buy in if these are the only fails in the system. The hidden fails that are in ex-clearing are the toxic waste and this is why the government doesn’t want us to know what the real numbers are.

    Short-sellers are not the angels they try to portray. They are predatory and instead of criticizing the company from the inside as shareholders where they could remove boards and management, they destroy companies.

    Monitoring companies would be far easier if there were only productive and non-productive companies to monitor. When there is a financial incentive to destroy a company, and a way to do it, it happens.

    If there were choices in where a company did an IPO or where shares were traded, with or without short-selling, and competition for clearing and settling were available, we would have a chance at a fair market.

    The current system is a shambles and the vested interests don’t want change because they control the market, the money supply, and Congress.

    Why should the government hide the truth? “You can’t handle the truth!” No… it is that those who have been creating the toxic waste don’t want to be held accountable and they control government. The people would simply vote all of the bought and paid for politicians out of office if they knew the truth.

    What we can’t handle is the lies and the cover-up.

  23. When they say they want liquidity, what they are really saying is they want transactions and commissions.

    That’s opposite what most investors should do. Churn hurts a portfolio. The smart investor buys a Microsoft or Intel, pulls the cert., then waits thirty years until retirement to sell it. That’s how money is made.

    Think of the investments the naked shorts buy, like rare art. You couldn’t get more illiquid than that. They have to hire someone when they are ready to sell.

    The whole liquidity issue is a scam. Spreads are thinnest when price is set where real supply meets demand and real sellers are willing to sell. The only time there is a shortage of selling where naked shorts are required is when the price is set WAY below fair market value, so buyers pour in and no one except the thieves want to sell.

  24. I would say definte traction..no?

    How the SEC Can Level the Playing Field 12 comments
    by: Frank McMorrow May 10, 2009 | about stocks: DIA / EGLE / FAZ / LDK / QQQQ / SKF / SPY
    Frank McMorrow
    Follow

    I have reviewed the proposals that the SEC has under study to limit the destruction caused by shorting.
    I have witnessed over the past year the terrible destruction of American’s retirement plans by the outright greed among those in power who manipulate the world financial systems. Over the years, our government has made it attractive for Americans to invest their hard earned savings in the “market”, by approving various instruments like 401Ks, IRAs, and mutual funds.
    A speech by the former president in 2004 further encouraged all Americans to invest their retirement money in such a manner. Skyrocketing indices lured the unsuspecting investors. Inflation after the turn of the century, although not officially reported, again pushed people to find greater and greater returns. Sadly, all of the investments by the misled American public were fodder for the market manipulators, the very people that the SEC was set up protect the American public from.
    The SEC has failed to fulfill its duties to this country and should by shut down. It is as if the SEC is protecting the information about the abuses from the people of this once great nation. If the public understood what really goes on, a second great revolution would surely be on the table.
    This SEC has the chance to reverse the catastrophe caused by the inaction of the previous administration’s appointees and “stand” with the People of the United States and not against it. It must move aggressively to prevent the pillage of American wealth by a few powerful people, who have influence, lack of regard for rule of law, and privileged positions of great wealth and power.
    The following are ways that the SEC can level the playing field for all Americans:
    Those that short must account for theirs shares within three days period. Counterfeiting shares (naked shorting) is a crime. It is so obvious every day that the SEC is “blind” to this. Look at shares of LDK and EGLE to name just two obvious examples.
    If shorting is used to manipulate, it must be stopped. A strong uptick rule is necessary.
    ETFs like the SKF must be banned. Proshares TripleX ETFs which allow triple leverage must be banned. They skirt the margin rules and drive company values down just for profit.
    Pre and post market is where most of the damage is done – such trading should be eliminated. Trading by the privileged before pre-market opens allows even greater manipulation.
    The current SEC is the last great hope to right a terrible wrong brought on the American people. The clock is ticking. Soon the retirement of the “baby boomer” generation will weigh on this economy. If their retirement portfolios are not brought back to whole, the unemployment of the young will only increase and bring great unrest to this country.
    This kind of unrest leads to violence and revolution. We have seen this many times in history. Do not play the “Marie Antoinette” card. Do the right thing no matter how unpopular it is with those who have power. It is time to re-enact some protection rules and enforce rules that you already have.
    http://seekingalpha.com/article/136772-how-the-sec-can-level-the-playing-field

  25. Why are the comments solicited re the uptick not being updated on the sec.gov site??????

    Test it out:

    http://www.sec.gov/comments/s7-08-09/s70809.shtml

    Mary Schapiro implies in her preamble that it’s about even, pro/con the issue.

    “Clearly, the practice of short selling has both strong supporters and detractors,” said SEC Chairman Mary L. Schapiro. “Today, we begin what will be a very deliberative process to determine what is in the best interests of investors.”

    Read the comments and do your own count. She’s a captive dissembler of the highest order. Very slick, but joe sixpack ain’t buying it…

    Get YOUR comments in now, if you haven’t for what it’s worth.

  26. I think it’s as hard for the gov’t to post comments about a proposed uptick as it is for the hedgefunds to implement one.

    Damn computers…

  27. I thought Patrick, Mark, and Judd would get a kick out of this one from Forbes online:

    James Chanos, a well-known short seller and hedge fund manager, said banks knowingly booked inflated earnings when selling the financial products that led to their downfall and the government bailout. The earnings wound up in bonus pools and banker’s pockets.

”It’s the heart of one of the greatest heists of all time,” he said, without naming specific banks. Their executives probably won’t be prosecuted because explaining how investment banks created and sold collateralized debt obligations and other structured financial products would test a jury’s attention span. “The jury’s eyes would glaze over.”

    http://www.forbes.com/2009/05/07/bank-earnings-chanos-markets-equity-wall-street.html

  28. There’s no reason to choose between the hedge fund short sellers that rely on the media to help their cause, and the scum bag bankers who inflated their companies with false earnings and paid bonuses with taxpayers…

    They both benefit over who is blame for the debacle – deflect, digress, argue – “who is to blame”…

    Answer?

    They are all cut from the same cloth….unbridled greed, lack of a moral compass, no conscience…craving absolute power…

    All of them are responsible

  29. clearthinker, not so fast.

    Did Lewis of BAC break any law? Pandit at C?

    No.

    Let’s not be sophists here.

    Too many folks are far too smart here to buy that line of equivocation.

  30. My point was not that ALL short sellers are bad, nor are ALL Wall St. people bad..my point was that there are people on both sides of the trades that are bad….too often this crusade against naked short selling needs reminding that there are many people who also artificially inflate the value of their stocks to line their pockets….

    I don’t recall accusing Pandit or Lewis of any wrongdoing…

  31. Clearthinker, the whole point of this board is that it’s been far too easy and lucrative for a chosen few to artificially deflate the price of stocks sometimes within minutes based on illegal activity (i.e. naked shorting).

  32. ABUSIVE NAKED SHORT SELLING MYTH BUSTING

    MYTH: “Market makers inject liquidity especially into the markets of thinly-traded securities”

    REALITY: “Thinly-traded” securities are the most expensive to borrow for legal short sellers. The two main sources for legal borrows are long term institutional investors and margin accounts. The thinly-traded nonmarginable securities of development stage companies have very few shares in either location. Abusive naked short selling circumvents the need to pay usurious lending fees for these typically “hard to borrow” i.e. “expensive to borrow” securities.

    These corporations also are typically yet to be cash flow positive. Abusive naked short sellers can easily force these corporations to service their monthly “burn rate” by selling shares at steep discounts to current share price levels (due to the implied high risk) that can be put into a “death spiral” by simply refusing to deliver that which you sell. The resultant accumulation of readily sellable share price depressing “security entitlements” inflates the “supply” of that which must be treated as being readily sellable as per UCC Article-8-501 which by definition decreases share prices.

    Truly “bona fide” market makers that are allowed to legally access the bona fide MM exemption from performing pre-borrows or “locates” before making admittedly naked short sales will address order imbalances involving excess buy orders and excess sell orders by taking the other side of these trades. Ever since our DTCC-administered clearance and settlement system was illegally converted to a foundation involving mere “collateralization versus payment” (CVP) instead of the congressionally mandated “delivery versus payment” (DVP) foundation involving the “prompt settlement” of transactions abusive market makers realized that they could sell nonexistent shares into buy orders all day long, refuse to deliver that which they sold and still gain access to the funds of the unknowing investor. The key was the ability to rely on the NSCC management to pretend to be “powerless” to buy in these delivery failures.

    In a CVP environment all abusive naked short sellers are asked to do is to collateralize the monetary value of the failed delivery obligation on a daily marked to market basis. As the share price predictably plunges due to the inflation of the “supply” variable of that which must be treated as readily sellable so too did the collateralization requirements. Thus the investor’s money would unconscionably flow to the seller of nonexistent shares even though he continued to refuse to deliver that which he sold. This is the hallmark of a clearance and settlement system that has been illegally converted to a CVP foundation.

    Abusive MMs would sell truckloads of fake shares into buy orders in markets characterized by order imbalances involving buy orders dwarfing sell orders but they were nowhere to be found when share prices were dropping when sell orders outnumbered buy orders and the injection of buy side “liquidity” was needed. In order to legally access the “bona fide” MM exemption a MM has to inject buy side “liquidity” as share prices drop with the same vigor that he injects sell side “liquidity” when buy orders predominate.

    The problem is that selling even nonexistent shares makes you money in a clearance and settlement system using “collateralization versus payment” but covering those naked short positions costs you money. As share prices dropped abusive MMs were nowhere to be found injecting buy side liquidity and if anything were busy selling yet more nonexistent shares in order to reroute yet more investor money into their pockets and enhance the value of the short/negative bet they had earlier placed.

    By far and away the most effective way to deter these thefts is for the NSCC management to “buy-in” these delivery failures on approximately T+6 when it becomes obvious that their abusive “participant”/boss had no intent to ever deliver that which it sold. The NSCC management after attaining 15 of the 16 sources of empowerment to execute buy-ins and while having the congressional mandate “to act in the public interest, provide investor protection and to “promptly settle” all securities transactions” still has the audacity to plead to be “powerless” to buy-in the delivery failures of its abusive “bosses” when they absolutely refuse to voluntarily deliver that which they sold even after being given access to the unknowing investors money; so much for the “injection of liquidity” argument. The accessing of that exemption followed by the provision of only one-sided liquidity from the sell side is clearly an act of fraud due to its predictable “manipulation” of share prices downwards albeit it is a very clever form of fraud.

    The “injection of liquidity” argument posits that investors can buy shares at cheaper levels when these theoretical “shareholder advocates” known as market makers “generously” sell shares at levels below which investors otherwise might have had to pay. The problem is that many abusive MMs that have “accidentally” run up monstrous naked short positions due to greed are merely putting a “lid” on the market so that their collateralization requirements and short position doesn’t cost them a fortune in losses.

    When an abusive MM that has been pretty much the dominant seller in the securities of a corporation that refuses to go bankrupt on cue all along decides to cover his naked short position he has to do two distinct things. First of all he has to stop the daily naked short selling. This alone is going to cause the share price to gap upwards in thinly-traded securities. Secondly he has to buy back a truckload of shares out of the open market as the market is gapping upwards. This could be cost prohibitive. Since there is no risk of being bought in by the NSCC management (his employees) then an abusive market maker would be insane to EVER cover a pre-established huge naked short position.

    At first glance it’s wonderful to be able to buy shares cheaper due to all of this sell side “liquidity” being provided but if it comes at the expense of no chance in the world to have a profitable investment then I would rather buy in at a higher level in a market not “rigged” to go down. The problem is that it is incredibly easy in a clearance and settlement system based on CVP for a MM to run up massive naked short positions and get himself into trouble. The NSCC subdivision of the DTCC is in essence handing out free money to its abusive participants just for refusing to deliver that which they sold when despite their various congressional mandates they still have the audacity to plead to be “powerless” to buy-in delivery failures.

    The problem is that in a zero sum game like Wall Street in a CVP clearance and settlement system the free money they’re handing out is that of the investors that thought that the NSCC was an SRO (self-regulatory organization) mandated “to act in the public interest, provide investor protection and “promptly settle” all securities transactions”. When the seller of securities absolutely refuses to voluntarily deliver that which it sold there is only one way to “promptly settle” that transaction and that is via executing a “buy-in”.

    The actual crime being committed here is the illegal accessing of that exemption that can only be legally accessed if the market maker is willing to cover his preestablished naked short positions should share prices drop. One doesn’t know if a market maker illegally accessed that exemption UNTIL the next downtick in share prices. This is when a truly bona fide MM covers his naked short position. The illegal accessing of that universally abused exemption leads to the 100% predictable “manipulation” of the share price downwards which in turn leads to the theft/conversion of the unknowing investor’s money.

    The obvious solution here is to force any market maker labeling a sale as “short sale exempt” which signifies that he is formally accessing that exemption to place a bid for an equal amount of shares that he is naked short selling at perhaps 2% below the level at which the naked short sale was made. In essence a MM accessing that exemption must be forced to PROVE that he is acting in a “bona fide” market making capacity. Being put on a “Self-regulatory honor system” amidst trillions of dollars of temptation historically just didn’t cut it. Imagine that!

  33. Dr. Decosta, your opinion please..

    http://www.tradersmagazine.com/news/-103750-1.html

    SEC Expected to Make Fails Rule Permanent

    By Nina Mehta
    May 13, 2009

    The Securities and Exchange Commission is expected to make permanent an emergency order it instituted last September to reduce naked short selling. The temporary rule, known as Rule 204T, was put in place when markets were in free fall and investors blamed abusive short-selling practices for the decline. The rule expires on July 31.

    “I expect the Commission to consider adoption of that [rule],” said James Brigagliano, co-acting director of the SEC’s Division of Trading and Markets. He added that the SEC could “adopt it as it exists or in response to comments” from the industry. Brigagliano spoke at a Security Traders Association conference in Washington, D.C., last week.

    Rule 204T requires clearing firms, by 9:30 a.m. on the day after settlement date, which is the third day after the trade, or T+3, to close out short sales that did not settle. The SEC added Rule 204T to Regulation SHO to counter naked short selling, in which investors fail to borrow the shares needed for settlement. Abusive naked short selling occurs when investors deliberately don’t borrow the shares.

    The SEC’s rule imposes strict penalties on firms whose internal desks or customers flout the new rule. Until the failed trades settle, those firms must “pre-borrow” (arrange in advance to borrow) shares for new short sales in that name, instead of simply locating the shares. That raises trading costs for those firms.

    Richard Ketchum, the newly installed head of the Financial Industry Regulatory Authority, called Rule 204T a success. “It’s remarkable how well that has worked,” he said at the STA conference. He noted that it was implemented “in a fairly short time when firms didn’t even have technology systems in place.”

    Industry members also support the rule. Kevin Cronin, director of global equity trading at mutual fund giant Invesco, said the problem of naked short selling “has been effectively dealt with through Rule 204T.” At last week’s SEC roundtable discussion on short selling, Cronin said the rule should be made permanent. Jerry O’Connell, chief compliance officer at Susquehanna International Group, a large market maker in options and exchange-traded funds, agreed that Rule 204T had “fixed” the problem of abusive short selling.

    According to the SEC’s Office of Economic Analysis, the average daily number of stocks on the “threshold list” of securities (those with large and persistent levels of failures-to-deliver, which represent stock sold short whose shares were never borrowed) decreased to 63 per day in March, down from nearly 600 last July. Overall, the daily fails in all securities declined 81 percent to 0.43 billion shares on March 31, from a high of 2.2 billion shares last July 16. Fails can result from abusive naked short selling as well as operational glitches.

    But not everybody thinks the SEC is off the hook. Roel Campos, a former SEC commissioner who is now partner in charge of the Washington, D.C., office of law firm Cooley Godward Kronish, credits the SEC with reducing fails, but doesn’t think the agency went far enough. “Failures-to-deliver, a proxy for naked short selling, continue to occur in companies that do not appear on the Regulation SHO threshold list,” he wrote in a letter to the SEC in late March on behalf of a dozen issuers. This can happen when the company has a large number of shares outstanding, raising the bar to get on the threshold list.

    Campos thinks the SEC should require investors to pre-borrow shares for all short sales. The Commission, he said, should also require disclosure of whether trades are long or short in the Order Audit Trail System.

  34. Sean, Dr De,
    What about the companies that are naked shorted in foreign exchanges? What is the preventative/recourse/remedy?

  35. Sean, Roel is 100% bang on. Due to the phraseology used in UCC Article 8-501 a “mandated pre-borrow” is the only solution. Making 204T permanent is wonderful as is 10b-21. The problem is that none of these address the pre-existing FTDs sitting in “ex-clearing” arrangements and those held offshore especially in Canada with their famous section 2.2 of their “UMIR” stating that the short selling firm need only have a “reasonable expectation of settling the trade”. The crooks did a fair amount of their own “grandfathering” in of FTDs when Reg SHO was limited to FTDs held only in “registered clearing agencies” like the DTCC. I’ll dig up a snip-it from a white paper I’m working on that might better explain it.

  36. Sean, see if this helps explain it.

    THE INTEGRAL ROLE OF THE VARIOUS “SECURITIES COPS” IN FACILITATING AND COVERING UP ABUSIVE NAKED SHORT SELLING (ANSS) THEFTS

    Dr. Jim DeCosta

    In order to gain an appreciation for just how badly the securities markets in many especially development stage U.S. corporations have been hijacked by those FINRA “members” and DTCC and NSCC “participants” theoretically serving as unconflicted “securities intermediaries” like market makers, clearing firms, prime brokers, stock loan department personnel, etc. one has to understand the critical role of the phraseology utilized in UCC Article-8 regarding “Investment Securities”.

    One obscure line in one well-intended securities law can serve as the foundation for trillions of dollars worth of “wealth transfer” from U.S. citizens mistakenly trusting in the provision of investor protection by unconflicted SROs and unconflicted regulators into the hands of more financially sophisticated and politically well-connected Wall Street thieves/financial oligarchs/”masters of the universe”.

    This wealth transfer occurs because these Wall Street titans are keenly aware of how our DTCC-administered clearance and settlement can be grossly “rigged” in favor of those FINRA “members”, DTCC “participants” and their hedge fund “guests” able to place massive levels of negative “bets” against U.S. corporations by simply refusing to deliver that which they previously sold to U.S. investors. This crime involving the intentional manipulation of share prices downwards after or while assuming naked short positions is referred to as “abusive naked short selling” or “ANSS”. It is different than “legitimate naked short selling” or “LNSS” performed by a truly bona fide market maker addressing order imbalances involving the preponderance of either buy or sell orders.

    WALL STREET’S LITTLE SECRET: ALL FAILURES TO DELIVER SECURITIES (“FTDs”) AND ALL NSCC STOCK BORROW PROGRAM (SBP) “BORROWS” RESULT IN THE “ISSUANCE”/RELEASE OF READILY SELLABLE SHARE PRICE DEPRESSING “SECURITY ENTITLEMENTS”

    When a failure to deliver securities that is not addressed by an NSCC (subdivision of the DTCC) “Automated Stock Borrow Program” (SBP) “borrow” occurs on Wall Street a “security entitlement” is “issued” and credited to the account of the purchaser of the yet (if ever) to be delivered shares. A “Security entitlement” is defined in UCC-8 as “the rights and property interest of an entitlement holder with respect to a financial asset”.

    When a delivery failure is (theoretically) “cured” by an NSCC SBP “borrow” then a “security entitlement”/”long position” is also “issued” but this time it is credited to the NSCC “C” sub account of the brokerage firm whose “donated” shares were chosen to cure the delivery failure. The DTCC informs us that this “long position” denotes the right of the lending/donor firm to demand the repayment of that “loan” at a time of its choosing. For now please make a mental note as to this rather odd accounting methodology which I’ll address in more detail later. This “long position” is then credited to an “anonymous pooling” of shares that an investor using that particular clearing firm has a “proportionate interest” in. Don’t feel bad if that sounds a little bit complex but hang in there it will make sense soon. A certain amount of complexity is needed to pull off heists like these.

    Either way, failures to deliver (FTDs) on Wall Street result in the “issuance”/release of readily sellable share price depressing “security entitlements”/”long positions” above and beyond the number of shares already “outstanding”. These are credited to the accounts of NSCC participating clearing firms for the benefit of their clients/investors purchasing either yet to be delivered shares or successfully delivered shares that were later loaned out elsewhere to “cure” the delivery failure of a different investor. Whether or not the crime known as share price manipulation is occurring or not depends upon the intent of the parties either unintentionally failing delivery due to “mechanical” reasons of an ultra short termed nature or perhaps intentionally “refusing” to deliver that which they sold over a protracted amount of time.

    All failures to deliver securities, by definition, depress share prices by inflating the “supply” of that within a corporation’s share structure that is “readily sellable” whether they be legitimate “shares” issued by a corporation or mere “security entitlements”/IOUs/”long positions” denoting failed delivery obligations. This includes those FTDs theoretically “cured” by the NSCC’s SBP. Why? Because of that clever crediting of a “long position” (“security entitlement”) to the “C” sub account of the “donor” brokerage firm while the clearing firm receiving the “borrowed” shares walks off with the “legal owner” title. As will become clear soon the NSCC’s SBP does not “cure” delivery failures it only chronologically “rotates” them in a Ponzi scheme like fashion because of the issuance of these rather odd “long positions” denoting the ability to call in one’s loan.

    When viewing the SBP in slow motion notice how the mere “loaning” of “X” amount of shares somehow resulted in the party receiving the “borrowed” shares attaining the “legal ownership” title to “X” amount of shares while the lender of the borrowed shares AND the recipient of the borrowed shares combined receive the right to exercise the rights and property interest that comprise “2X” amount of shares. Part of the sleight of hand here involves the transfer of “legal ownership’ which in every business excepting Wall Street typically doesn’t occur as part of a “loan”. When you “loan” your lawnmower to a neighbor do you worry about him receiving the “legal owner” title to your lawnmower?

    When evaluating abusive naked short selling crimes do not focus in on the “legal ownership” issues or the number of shares technically “outstanding” as the DTCC, the Wall Street lobbyists and SEC management encourage investors to do. Since this is a crime associated with the intentional MANIPULATION of share prices downwards concentrate instead on that which makes up the “supply” variable that interacts with the “demand” variable to determine share prices through the process known as “price discovery”.

    Share price manipulation involves the intentional altering of the “supply” and “demand” variables that interact to determine share price to the financial betterment of the party doing the manipulating and to the financial detriment of the party knowingly or unknowingly being defrauded by the manipulation. One must keep in mind that the sellers of shares don’t “forget” to deliver that which they already sold especially after having intentionally established massive naked short positions by simply refusing to deliver shares that they previously sold.

    Unfortunately for the typical U.S. investor buying shares and assuming a “long” position and therefore wanting share prices to go up the “supply” variable to focus on must include the aggregate amount of “security entitlements” generated by each and every unaddressed delivery failure and SBP loan on Wall Street no matter where they are generated or hidden i.e. via “ex-clearing arrangements”, at trading desks via “broke/dealer internalization”, offshore, those held in foreign depositories allowed to interface with the NSCC, those associated with multilateral “pre-netting” or those “RECAPPED” out of existence, etc.

    The damage done by refusing to deliver the securities that one sold is instantaneous and the total amount of damage incurred by U.S. corporations and the investments made therein is proportional to the number of share price depressing “security entitlements” above and beyond the number of shares already “outstanding” that have been essentially “issued”/”released” by FTDs or SBP “borrows” multiplied by the average age of each “phantom share”/”security entitlement”/”long position” procreated.

    When estimating the average age of an FTD keep in mind that when a defrauded investor turns around and sells (usually at a steep loss) the shares that he purchased that never got delivered then the age of this particular delivery failure is the sum of the ages of the various individual delivery failures associated with this particular parcel of shares were it to be readily identifiable which thankfully for the crooks it isn’t. By definition, the new purchaser of these failed to be delivered shares cannot receive “good form delivery” of that which he purchased as it never existed in the first place.

    “Time” is the killer of these corporations and the investments made therein when the seller of securities absolutely refuses to deliver that which she or he already sold. Every moment that the NSCC management with all of the power in the world to execute “buy-ins” refuses to provide this only cure available when their abusive “participants” absolutely refuse to deliver that which they sold the more the illegal wealth transfer that will occur.

    UCC ARTICLE 8 INADVERTENTLY CONVERTS MERE “SECURITY ENTITLEMENTS”/IOUs DENOTING FAILED DELIVERY OBLIGATIONS INTO A RATHER ODD SPECIES OF “PHANTOM SHARES”

    The phraseology chosen in UCC Article 8 mandates that the clearing firms holding these mere “security entitlements”/IOUs resulting from unaddressed (refused to be bought-in) FTDs and SBP “borrows” on behalf of their investors/clients treat these “entitlement holders” as being able “to exercise all of the rights and property interest that comprise the failed to be delivered security”.

    Note that these are the exact same rights that the “legal owner” of a legitimate “share” that did get delivered has. The “legal owner” of a share by definition is the entity cited on a transfer agent’s official “record of ownership”. Please think about it for a moment; so what’s the difference between being the “owner of record” on the transfer agent’s “record of ownership” list i.e. the “legal owner” of a “share” that was purchased and was successfully delivered and being a mere “entitlement holder” that didn’t get delivery of that which he purchased but is able to exercise all of the rights and property interest that comprise that security”?

    For all intents and purpose there is no difference because from an investor point of view the “legal ownership” issues become immaterial when BOTH the “legal owners” and the mere “security entitlement holders” must be treated the same way BY LAW i.e. able “to exercise all of the rights and property interest that comprise that security”. Due to the phraseology utilized in UCC 8-501 the “IOU” itself (a “security entitlement”) which was designed only to serve as an “accounting measure” denoting a failed delivery obligation for all intents and purposes becomes the subject of the IOU. This is analogous to an IOU for $10 scratched onto the back of a napkin magically turning into a $10 bill.

    This being the case just imagine how unconflicted SROs like FINRA or the NSCC or an unconflicted securities regulator like the SEC would monitor for abuses associated with the “issuances” of these share price depressing “security entitlements”. Due to this rather odd paradox they would rigorously monitor the ages and amounts of unaddressed delivery failures weighing down on the share prices of U.S. corporations and promptly “buy-in” any that hit a certain age deemed to be the age at which it becomes obvious that the seller of securities had no intent to deliver that which he sold and was refusing to make delivery in order to intentionally “manipulate” the share price downwards.

  37. Dr DeCosta, are you going to write a book?

    What do you intend to do with these fine explanations?

  38. Jim Hall, that snip-it came from my 9th unpublished book on abusive naked short selling. You’ve got to remember I’ve got a 29 year headstart on you guys. The study of the brilliance of this fraud is beyond addictive!

  39. Rule 240T

    We need clarification here. If that rule is made permanent, AND it is enforced, it seems that it would protect US markets even if the selling broker is a foreign broker. Apparently it requires clearing firms (and these are US firms) to close out transactions that do not deliver by T+3. And the foreign sellers still need to go through a US clearing firm, right?

    So the Rule 240T would protect US markets against foreign NSS equally as domestic NSS.

    It seems to come down to a question of enforcement, right?

  40. Fred, you’re assuming that the trades are being reported. Recall in the Badian/Refco case that Refco was not reporting these trades to anybody. As far as “enforcement” recall the recent audit #450 done by the SEC’s office of the inspector general revealing that of over 5,000 naked short selling complaints received ZERO resulted in any enforcement action. Recall also that of the over 900 recommendations for enforcement action made by FINRA and the DTCC ZERO were related to abusive naked short selling. There’s usually an explanation underlying seemingly aberrant statistics like that. How about the findings of the Evans, Geczy, Musto and Reed 2003 research revealing that only one-eighth of 1% of even “MANDATED” buy-ins on Wall Street are ever executed.

  41. Is it just me or does the SEC appear to be infinitely more fixated on tracking down evildoers at our corporations vis-a-vis naked shortsellers?

    For example, I see this AM that the SEC going after Countrwide’s Mozilo. I’m not saying the corporations have been perfect in their collective judgement (and some have been egregious) – but few have been proven to have operated outside the law as far as I know.

    Couple Sen Shelby’s frequent tirades against Ken Lewis, Bank of America, and by implication, Paulson/Bernanke with Cuomo’s grandstanding against American companies, do our corporations stand a chance?

    If these ‘prosecutors’ aren’t working for (or ultimately want to work for) the hedgefunds, or selling short, they sure should be.

    I could be off my rocker here, but is anyone else feeling this?

  42. Jim, the following, which I wrote about Linda Thomsen, I think applies to the SEC management team…..:

    What is clear to me is….

    Former SEC Enforcement Director Linda Thomsen acted as a defense lawyer for the The Wall Street Counterfeit Machine when she worked for the SEC.

    The lawyers at the SEC know that if they pursue the criminal activities of the Hedge Funds, they will:

    1) Be blackballed by the Financial Industry, and NOT be able to obtain a multi- million dollar job when they leave the SEC

    2) Be fired by the SEC management team as Staff Attorney Gary Aguirre was.

    And now Former SEC Enforcement Director Linda Thomsen, who acted as a defense lawyer for the Wall Street Criminals when she worked for the SEC, has obtained a job to continue her defense lawyer work to defend those accused of Wall Street Crimes.

  43. iStandUp, I agree.

    Have you seen the plethora of pro-uptick posts on the sec.gov site?

    Will the be ignored?

    Hardly any con uptick….

  44. The CEO of investor’s edge (bobo, a misguided relative?) thinks it is ridiculous that he might be required to buy real shares out of the market when his customers place an order. It’s much more profitable for him to take their money, collect interest and give them reassuring electronic IOU’s on their online screen. If he had to buy real shares, he might have to raise commissions.

    “Messing with market structure is not the way to go,” said William O’Brien, the chief executive of Direct Edge, an electronic stock trading platform.

    “We are quite critical of others of really pandering to their issuer community (companies listed on their exchanges),” he said.

    http://www.reuters.com/article/GlobalExchangesandTrading09/idUSTRE54C65I20090514

  45. In regards to the “uptick rule” who else besides a crook would want to have permission to knock out bid after bid in a serial fashion? Don’t legitimate short sellers want to sell as high as possible and then buy as low as possible? Being able to knock out bid after bid only benefits those with a superior visibility of “stop loss” orders that can intentionally “trip” them in order to release an avalanche of selling via the stop loss order and induce further panic selling by weak-kneed investors which may in turn trip yet more stop loss orders. It amounts to the LEVERAGING of an advantage that “securities intermediaries” were entrusted by the public not to LEVERAGE.

    Legitimate short sellers have to sell as high as possible and buy as low as possible because they have to cover their borrowing expenses. Think of the “uptick rule” as the “avalanche prevention rule”.

    The question that begs to be asked is how could the SEC in the midst of a worldwide uproar over abusive naked short selling involving dozens of countries get rid of a 70-year old rule that was doing just fine.

  46. Howe DARE the SEC censor the uptick postings?

    What law governs such an act?

    Are we dealing with a gilded Autocracy?

    Now, we should know which ones they declined to post and why!

  47. Rule 240T

    Dr. Jim,

    Could you explain the matter of “reporting” that you mention above. This represents a gap of clarity on this board. I assume that when a foreign broker needs to utilize US markets, he needs to use a US clearing firm, presumably a “participant” in the DTC. The Rule 240T applies to US clearing firms. How can they spill counterfeit shares into the US markets, operated by the DTC, without going through a US clearing firm? Have I made an incorrect assumption somewhere?

    Please take this post as an attempt to clarify the matter for myself as well as for the board. I am not trying to be argumentative or obstructionist. Clarity and understanding can only give us power.

    Thanks in advance

  48. Dr De,

    I’ve read here that some companies have found many NSS trades happening on foreign exchanges – often without their permission/awareness.

    Was wondering how any domestic rules present and unenforced, or not yet codified, would serve to limit or prevent this…

    Just thinking ‘aloud’ when I posted, so I may not have even been clear to myself!?!?

  49. Fred,
    If a foreign broker picks up his phone and a client orders 1 million shares of “Acme” which trades on our OTCBB that broker can “desk” that order, not report it to anybody and then send his client a monthly summary stating that we are “holding long” 1 million shares of Acme. It’s also referred to as “broker/dealer internalization”. This is super common. What’s the SEC going to do run over to Germany and bust him. There’s a phenomenon called “regulatory arbitrage” wherein crooks will abuse loopholes in one country’s securities laws and then take advantage of the fact that that country’s clearance and settlement system is allowed to “interface” with our NSCC. In the old NASD Rule 3370 there was an exception from making deliver accorded to “hedging” activity and “arbitrage” activity.

    The crooks place an order on the Berlin/Bremen Exchange for 1 million shares of Acme. A co-conspiring crooked German brokerage firm naked short sells him 1 million fake shares of Acme. The trade is not reported to Euroclear. Crook #1 takes his monthly brokerage statement over to the U.S. and sells that which his broker is theoretically “holding long” i.e. the 1 million Acme shares.

    As it turns out the “securities held long” column on your monthly brokerage statement also applies to some crook holding an IOU for 1 million shares of Acme. Since an IOU is technically “an evidence of indebtedness” and since a “security” can be no more than an “EOI” then an IOU is a “security”. Holding a “long position” can technically mean no more than you have a mere “security entitlement”. The key to this fraud is to not let the victim know that what he purchased never got delivered. Fred-I’ll post another snip-it from book 9 explaining how “blindfolded” we investors need to be in order to fall prey to a crime as obvious as somebody refusing to deliver that which he already sold you.

  50. Fred, I hope this helps to answer your question.

    “THE GREAT BLINDFOLDER”: ISSUANCE OF “SECURITY ENTITLEMENTS”, TREATMENT OF AN “ENTITLEMENT HOLDER” THAT DID NOT GET DELIVERY OF HIS SHARES THE SAME AS THE “LEGAL OWNER” THAT DID GET DELIVERY,MONTHLY STATEMENT IMPLICATIONS AND “ANONYMOUS POOLING”

    Four separate elements contribute to what I like to refer to as “the great blindfolder” of investors in abusive naked short selling (ANSS) frauds. Firstly is the issuance of share price depressing “security entitlements” for all failed to be delivered shares as well as all SBP “borrows”. Secondly is the effect of UCC 8-501 which mandates the treatment of “security entitlement holders” not receiving delivery of that which they purchased as being empowered to exercise all of the rights and property interest that comprise the security as if it did get delivered. Thirdly is the phraseology used on monthly brokerage statements “implying” that the securities that an investor purchased did indeed get delivered and are being “held long” even if they never did get delivered. Fourthly is the insistence of the DTCC on keeping shares held in “street name” in an impossible to trace “anonymously pooled” format.

    The net effect of this quartet is that the purchaser of undelivered shares that happens to be the one most motivated to make sure that he did get delivery of that which he purchased is blindfolded as to the fact that he never did get delivery of that which he purchased. Actually it goes a little bit past that as the “implication” is made that they did indeed get delivered. That’s a handy way to make sure that those being defrauded never call the cops or file lawsuits.

    To encapsulate the concept of abusive naked short selling thefts picture a U.S. investor with his blindfold on walking down what he thinks is Wall Street. He has a blind man’s cane in his right hand and a wad of cash in his left hand. He can’t see the SEC or the SROs but he pictures them as policemen clearing his path of any obstacles.

    In reality the average U.S. investor is not walking down Wall Street. It’s more like he is on a pirate ship and he is “walking the plank”. The SEC and the SROs like FINRA and the DTCC are there but they’re resting in comfy chairs and sitting on their hands. The water at the end of the plank is shark infested. The dorsal fins of the sharks read “abusive market maker”, “abusive clearing firm”, “unregulated hedge fund”, “abusive DTCC participant”, “Wall Street lobbyist”, “injector of liquidity”, “bankster with insatiable greed”, “captured financial media”, “refused to be bought in delivery failures”, etc.

    The four elements that contribute to “the great blindfolder” are fairly specific to abusive naked short selling frauds. The lack of transparency on Wall Street in general goes well beyond that. It shouldn’t be too surprising that the areas on Wall Street that are kept in an ultra-dark state like the number of FTDs being held in ex-clearing formats just so happen to host the greatest amounts of criminal behavior.

    THE SIGNIFICANCE OF “THE GREAT BLINDFOLDER”

    Let’s try to gain an appreciation for the significance of “the great blindfolder” from the point of view of a criminal selling securities that don’t exist. If you’re going to commit a crime as obvious and as heinous as refusing to deliver the securities that you have already sold after being allowed access to the investor’s funds (due to “collateralization versus payment” policies adopted by the NSCC) then what is an absolute necessity for the commission of these crimes? What is integral to this crime wave is that those being damaged i.e. all of the shareholders in the corporation under attack need to be kept from realizing that they are being stolen from because the identity of the thieves is easily accessible by simply reviewing the trading records.

    The importance of this “great blindfolder” is that an investor becomes unaware as to whether or not he got delivery of that which he paid for. This is because the law (UCC-8) mandates the issuance of “security entitlements” and mandates that the investor be treated the same way whether he received delivery of that which he paid for or not. Either way he’s going to get a monthly brokerage statement “implying” that his clearing firm is “holding long” “X” amount of shares and he will be allowed to sell that which he purchased whether or not it ever did get delivered or ever existed in the first place for that matter.

    LEVERAGING THE COMBINATION OF “THE GREAT BLINDFOLDER” AND OTHER INHERENT ADVANTAGES THAT THESE THIEVES/SECURITIES INTERMEDIARIES HAVE BEEN ENTRUSTED WITH BY THE INVESTING PUBLIC

    Imagine the opportunities that present themselves for those with a superior working knowledge of our greatly compromised clearance and settlement system when “blindfolded” investors that will never have a clue as to whether the securities that they purchase ever get delivered or not appear with cash in hand wanting to place “long” bets on a development stage corporation’s success. Now combine this with the ability of FINRA “members”, DTCC “participants” and their secrecy obsessed unregulated hedge fund “guests” to easily establish massive naked short positions and easily place a corporation’s share price into a “death spiral” via simply refusing to deliver that which they sell into any “long” buy orders that they have visibility of.

    Then layer upon that the ease in which abusive market makers can illegally access the universally abused “bona fide” market maker exemption without fearing any regulatory reprisal and the ease in which abusive clearing firms can enter into “ex-clearing” arrangements to circumvent the “prompt settlement” of their trades. Now layer upon that FINRA, the NSCC and the SEC chiming in with perfect harmony that none of them have the authority to regulate these “contractual arrangements” these abusive clearing firms are entering into outside of the DTCC in an effort to interminably stall the congressionally mandated “prompt settlement” of all securities transactions. This is despite the fact that Rule 15c6-1 of the ’34 Act expressly forbids it.

    Upon all of that factor in that there is no way the NSCC management that has attained a monopoly in 15 of the 16 sources of empowerment to execute buy-ins will ever provide this only solution available when one of its abusive bosses absolutely refuses to deliver the securities that they had already sold i.e. execute the necessary “buy-in” so that the previously blindfolded purchaser can finally receive that which he paid for. If that’s not enough then layer in the fact that due to CVP the sellers of shares that absolutely refuse to deliver that which they sell still are unconscionably allowed access to the funds of the investors being blindfolded and then defrauded.

    Did I forget to mention the “self-generated leverage” and “positive feedback loop” accessible by simply taking the stolen investor money that flows to the naked short sellers due to the decrease in collateralization requirements associated with plunging share prices and redeploy it back into the market to establish and maintain yet larger naked short positions in an effort to accelerate the share price decline and you’ve got the recipe for the theft of investor funds beyond one’s comprehension.

    Imagine how excited these securities fraudsters must get when they have visibility of those previously blindfolded investors with cash in hand presenting a buy order for a development stage U.S. corporation. Imagine the scramble that ensues to be the first one to naked short sell into that buy order. Now can you appreciate why some brokerage firms treat cheap commissions as a “loss leader” and only charge $7 per trade in order to enhance their visibility of buy orders?

    You’ve got to admit that “it’s great work if you can get it” but these frauds are only accessible to Wall Street insiders and their hedge fund ”guests” that can provide enough “order flow” to abusive market makers and abusive clearing firms in order to justify their risk of being caught facilitating these thefts. You need to scratch the back of those on Wall Street with the easiest access to the bona fide MM exemption and the ability to enter into “ex-clearing arrangements”. The back scratch does not come through easy to trace cash. It is paid via “order flow” which is rapidly convertible into cash by market makers and clearing firms willing to prostitute their superior access to these illegalities.

  51. Jim Hall, I think you’re referring to what I refer to as the “Berlin/Bremen Debacle”. About 3 years ago a couple of thousand U.S. development stage corporations woke up one morning to learn that their shares had been trading on the Berlin/Bremen Exchange for some time. There is a loophole in Germany’s securities laws that state that a German b/d can trade shares in any corporation without the permission of the corporation. The scam was to abuse the “hedging” and “arbitrage” loophole in the old NASD Rule 3370 which has since been removed by Reg SHO. Some reps from the SEC and NASD flew over there and came back to report “no big deal”. A lot of corporations spent a lot of money with mixed results to get off of that exchange.

  52. Jim Hall, if you think about it things really make sense. Just because our securities laws say “XYZ” that doesn’t mean that Germany should re-do their securities laws to match us. There is a lot of international securities trading business going on and our DTCC wants a piece of that business so they allow anybody that can fog a mirror to interface with our NSCC. I don’t have too much of a problem with that. Here’s what I have a problem with, most countries base their clearance and settlement system on “delivery versus payment” or “DVP” wherein the seller of securities can’t touch the buyer’s money UNTIL he delivers that which he sold.

    Our DTCC-administered system has illegally changed their foundation to mere “collateralization versus payment” or “CVP” wherein the seller of securities is only asked to “collateralize” the monetary value of the failed delivery obligation. As the crooks manipulate share prices downwards by refusing to deliver that which they sold they gain access to the investor’s money without ever delivering that which they sold. Both the BIS and IOSCO say that this policy is a joke and they’re right. The result is that U.S. development stage corporations are singled out as targets for NSS attacks by the worldwide abusive naked short selling community. That’s just not right.

  53. Jim, it worked for me. It is a link to the FOIA Section of investigatethesec.com. The first item is my request for OEA data. the last .pdf in the listing is a letter I received from David Becker, SEC General Counsel.

  54. Dr Jim,

    The scenario you mentioned seems to refer to desked trades with a foreign broker, not a US broker. In this case, there are no counterfeit shares introduced into the US markets. They are overseas. My question deals with the US markets, and counterfeit shares in US markets. If a US broker shows “shares held long” in a customer account, those shares were either settled or not, through a US clearing broker. If not settled within T+3, the clearing broker is required to close the position. Of course, if the US broker desked the buy, that’s illegal and already subject to US laws.

    What am I missing?

  55. Fred, in the German example that 1 million shares of Acme did get sold into our market here in the U.S. by the crook with the monthly brokerage statement “implying” that the German b/d was “holding long” 1 million shares of Acme. The poor sap that bought those 1 million “security entitlements” can in no way get delivery because those shares don’t exist but he’s blindfolded to that fact. He will get a “security entitlement” for 1 million shares which his clearing firm is forced by UCC-8-501 to treat as readily sellable. That particular parcel of impossible to identify shares (due to anonymous pooling) will be handed down the line into perpetuity as readily sellable “security entitlements” until a buy-in is executed.

    The other thing is that not all brokers follow the OHRs (order handling rules) and report their trade within 60-90 seconds. “Self-clearing” crooked b/ds can get away with murder. Remember that you could sell your shares in “XYZ” to your brother-in-law and that trade will never get reported or seen by a clearing firm. The transfer agent will get involved and destroy your properly endorsed cert and crank out a new one for your bro-in-law.

  56. Dr Jim,

    In your scenario, those 1MM shares of Acme would have been sold and cleared through a US clearing broker. The proposed rule 240T, which is likely to be made permanent, would require that clearing broker to close out the transaction if it is not settled in T+3. That’s the way I interpret it.

    It comes down to enforcement it seems, not a loophole that is not covered.

  57. Dr. DeCosta, I am involved in a company that has a lot of German investors as it does business in Germany as well as here (the company was listed in Germany against its permission and the company’s lawyers couldn’t get the listing removed six years ago despite threatening to sue the German exchange).

    It’s an OTC penny stock and was one that was on the SHO list longer than most. It’s unusual in that it hasn’t diluted in those six years and insiders have been both funding the company as if it is private and buying shares out of the market.

    It trades decent volume in Germany as here and likely has 15% or more of its float owned by German investors.

    I looked at the security position report and was shocked that Euroclear and Clearstream didn’t own one share at the DTC and not one single German brokerage or bank was listed on the DTC report.

    So many shares have been pulled out into certificate form by angry shareholders, that only the largest brokerages have any real stock to speak of.

    I can understand that those trades could all be desked and all those trades internal to Germany, but in that case, what happens when the seller is German and the buyer is American?

    Let’s say a German investor has 1,000,000 shares and he crosses them to someone in America. What happens?

    Is there some rule that would prevent that broker dealer in Germany from having to deliver to the buyer here?

    This company is at a cross over point where it is going from development stage to really profitable to the point that it’s profits next year could be 25% of the current market capitalization. There’s always lots of shares for sale because the shorts are trying to protect their collateral. The overhang by the shorts on the offer seems infinite and the more good news the company puts out, the lower the stock trades.

    What would be the best way to use those profits? Would you issue dividends, do a share buy back or something else? Is there a way the company could make the shorts pay?

    What happens if the company does a share buy back, but when they go to cancel the shares, can’t get delivery?

    The company has legal advice on a buy back, but it is complicated because they would have to comply with securities regulations in multiple jurisdictions and the advice is a buy back could be considered manipulative and could cause the SEC to censor the company unless they kept share purchases below 5% of the outstanding and never bought in the first or last hour and were never the first or last sale. The advice is they would have to use a single brokerage and the company would be considered an insider subject to rule 144 rules (short swing, limits on trading volume, etc.)

    The law is so weird that the company could fall under takeover legislation as if it is doing a bid to buy itself. The regulations are literally that unclear.

    Is there anything a company can do in this case?

    What’s annoying is the best use of the profits would be to reinvest in the business, but shareholders want a fair deal and want to see the share price reflect the underlying value of their asset.

  58. Anyone else catch wind of this story yet?

    WASHINGTON (Reuters) – Two U.S. Securities and Exchange Commission employees are under investigation by federal criminal authorities for allegedly using insider information to trade stocks, a source familiar with the matter said on Thursday.

    A report by the SEC’s internal watchdog alleges that the two SEC lawyers traded in stock of a large financial services company despite being told by another SEC employee of ongoing investigations of that company, CBS News reported.

    The SEC inspector general report said one SEC attorney under investigation works in the Office of the SEC’s Chief Counsel and has access to a tremendous amount of nonpublic information, CBS News said.

    An SEC spokesman said: “We take seriously even the suggestion that any SEC employee would engage in insider trading. We note that the inspector general report neither accuses any SEC employee of insider trading nor concludes that any such conduct took place.”

    “Authorities probe insider trading at SEC: source

    Calls to the SEC’s inspector general and Federal Bureau of Investigation were not immediately returned.

    The SEC is in charge of policing markets and protecting investors. Ferreting out individuals who use nonpublic material information to profit on a company’s stock has been a priority for the SEC.

    The SEC spokesman said the agency has been taking additional steps to enhance its protections against the potential for improper conduct.”

    I found it on yahoo news, looks like CBS is carrying this story exclusively for now. Link is here: http://news.yahoo.com/s/nm/20090515/bs_nm/us_sec_insidertrading;_ylt=AicRtgDcnw9qJkRQTtxjj4ayBhIF

    Is this just a hint of things to come?

  59. We keep trying to get the public to support eliminating naked short selling, but we may find we have more support getting the public to support eliminating the SEC.

    Bernie Madoff, Enron, all the banks, eliminating the uptick rule, basically allowing this whole damn mortage meltdown to happen. That’s all easier to understand than naked shorting and it makes sense to get rid of it.

    Talking points:

    – SEC was set up by Wallstreet after the 1929 crash and the great depression as a PR firm to stop congressional oversight or regulation by the department of justice.

    – it’s a revolving door where you can prove senior SEC officials all get rich at Wallstreet after they leave

    – it’s crazy expensive. Commissions would be way lower if everyone that worked there was fired

    – free up the states to arrest and sue thieves within their own state. What’s the reason to centralize regulation so much that the states are completely neutered? I thought this was the “United States of America” not the “Neutered States Under DC”.

    I think it is possible to have the SEC eliminated as an organization within twelve months if we make that a goal and publicize their egregious scandals from the Refco IP a month before it went bankrupt to the lies they tell that can be proven to be lies, just by reading their own annual report.

    My idea:

    Each state gets a proportional share of the SEC’s budget. They have criminal in addition to civil powers and can recommend criminal charges to the state attorney general.

    They have centralized sharing of information and are able to all access the same database to share investigative information with other states.

    Fire them all, then the new state level organizations can hire the good ones back.

    Or maybe there aren’t any good ones or at least one whistleblower would have posted here anonymously by now.

  60. More about the two employees accused of insider trading at the SEC:

    “CBS News has learned that two attorneys at the Securities and Exchange Commission (SEC) are under “active” criminal investigation by the FBI for trading stocks based on inside information.

    Accusations against the two lawyers – a man and a woman whose names have not been released – are detailed in a report by the SEC inspector general obtained exclusively by CBS News.

    The report, based on a review and analysis of “more than two years of e-mail and brokerage records,” puts increased pressure on a commission that has come under fire lately for failing to detect the $60 billion Bernard L. Madoff Ponzi scheme, and turning a blind eye to the Wall Street financial crisis.

    “We ought to be outraged if there is one insider trading information that’s leading to personal profit,” Sen. Charles Grassley, R-Iowa, the ranking member of the Senate Finance Committee, told CBS News.

    In response to the IG report, Grassley sent a letter to SEC Chairman Mary Schapiro expressing that outrage and requesting detailed information about the stock holdings and trading practices of all SEC employees.

    “It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities,” Grassley said in his letter to Schapiro.

    According to the report, the male attorney under investigation by the FBI works in the Office of the SEC’s Chief Counsel and “has access to a tremendous amount of nonpublic information.”

    The report alleges both the male attorney and female attorney – who works in the enforcement division – “traded in the stock of a large financial services company” despite being told by another SEC employee of ongoing “investigations of that company.” The report calls this is a direct violation of SEC rules.

    In another possible violation, the male attorney was found to have sent e-mails from his SEC account to his brother and sister-in-law “recommending particular stocks.” The attorney’s stock portfolio was estimated at one point to be valued at $200,000.

    As for the female attorney, the report states that “two months before an investigation of a large health care company was opened” she “sold all of her shares of stock in the company.” And “two days before an inquiry was opened” by a colleague who “occupies the office next to her” the female attorney sold stock in an oil company. Investigators say the female attorney traded stocks 247 times between January 2006 and January 2008. At one point her stock portfolio was valued as high as $170,000.

    In addition, the report says that the female attorney “spent much of her work day e-mailing and searching the Internet about stocks.” It quotes her telling investigators: “It’s my main hobby. It’s my passion.” And: “It’s my way of keeping intellectually above what other people are doing.”

    While the woman told investigators she did not check the SEC database – known as EDGAR – for information related to her personal stock trades, the inspector general said computer records reveal that she did, in fact, check the database on at least four separate occasions. SEC employees are prohibited from accessing EDGAR for personal trading purposes.

    Said Grassley, “Isn’t it odd that you’ve got people in the prosecuting department that are trying to profit from information that they get from it. Their job is to be prosecuting and not profiteering.”

    It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities.
    Sen. Charles Grassley
    According to employee interviews with investigators and SEC e-mails, the two colleagues shared many of the same stocks, frequently discussed their trades via e-mail, and regularly talked about SEC investigations and their own stock trading during weekly lunches.

    In one instance, a third SEC employee told investigators the two attorneys under investigation encouraged her to buy stock in a company – despite knowledge of multiple ongoing investigations into that company, a violation of SEC rules.

    Inspector General David Kotz, who uncovered the possible insider trading, declined a formal request for an interview, citing the ongoing investigation. But when we caught up with him near his office Kotz told CBS News, “The report talks about our concerns that there is no true compliance system at the SEC.”

    Both attorneys – who deny any wrongdoing – still work at the SEC and make six-figure salaries. The investigation was triggered after the high volume of trades by the female attorney set off alarms inside the agency.

    As it now stands, there’s no telling how many other employees are not reporting their trades because the SEC has no compliance system in place to monitor the trades of their employees. In fact, the two attorneys under investigation say that no one at the SEC had ever before questioned their reported securities holdings or transactions in the decades they have worked at the commission.

    In an e-mailed statement to CBS News, the SEC said, “We take seriously even the suggestion that any SEC employee would engage in insider trading. We note that the IG’s report neither accuses any SEC employee of insider trading nor concludes that any such conduct took place.”

    The statement went on to say, “Even so, we have been taking additional steps to enhance our protections against the potential for improper conduct. Those include developing a new computer system to facilitate reporting and review of securities trading by all SEC personnel; hiring a chief compliance officer; and providing greater clarity of our rule governing the reporting of trades.”

    There is a .pdf available for download at CBS’s site as well, the link for this story can be found here: http://www.cbsnews.com/stories/2009/05/14/cbsnews_investigates/main5014672.shtml

    This story doesn’t shock me one bit. If anything, it actually adds motive to the madness.

  61. CBS video of the story:

    http://www.cbsnews.com/video/watch/?id=5014933n

    This one is going to be an internet sensation. I wonder when Mr. Norris, Mr.Nocera, or Mr. Weiss are going to release a blog telling us that we shouldn’t be worried about this either? Or how much Jim Cramer is going to try to run with this to show the world how he has “changed”? Regardless, should make for some interesting news for the next few days.

    Anonymous,
    “Six figures” means somewhere between $100,000 and $999,999.

  62. Yes Sarge I had caught wind of it earlier but I won’t be posting anymore here (just reading) because I posted a very pertinent story about Senator Grassley’s successful endeavors with the SEC last evening and it was removed. Why I have no idea. So I will just oberve and keep silent. But thanks for bringing it on. I hope it stays because if this is’nt the beginning of the end of the SEC (as is) then nothing will be. Peace Sean.

  63. Oops, maybe I should have just posted the links instead of copying and pasting the entire stories…I could understand why posting entire stories would be a problem considering how much space they take up here. In the future, I’ll just post links instead, many apologies to the Deep Capture team If my above posts were made in err (please feel free to delete the comments at your leisure).

    The interactive forums will certainly help to give us a place to bring these stories together to discuss, any news on when they will be up and running Patrick?

    And Sean, I have found your comments to be informative and relevant, I do hope you will continue to make your voice heard around here.

  64. Dr De, basically I think what we’ve been witnessing with respect to NSS, in addition to blatant thievery, is that the shares have been ‘virtualized’ and ‘derivatized’ to mere abstractions anyway so who cares how many they trade, when, or where.

    The mindset works ham n’ eggs style with what the derivatives debacle entailed.

  65. Gentlemen:
    STOP using the term NAKED SHORT SALE. Immediately! Purge it from yout public lexicon. Why?
    (1) people’s eyes glaze over: if you have to explain it, it doesn’t work
    (2) It serves the obduscator’s purposes

    START using the term: COUNTERFEIT STOCK. People understand that.

  66. Anonymous,

    You stated:

    “We keep trying to get the public to support eliminating naked short selling, but we may find we have more support getting the public to support eliminating the SEC.”

    I agree that there is a systemic problem within the SEC, which has caused it to evolve into a defacto Law Firm specializing in defending the Wall Street Counterfeit Machine. Or as Dr. Jim DeCosta has stated in so many words – the SEC management is composed of fraternity brothers that specializes in protecting all its other fraternity brothers in the financial industry.

    Eliminating the SEC?
    Although I see merit in your proposal, I don’t think it is very possible at this point in time. Maybe the revelation of additional scandals in the financial industry and the SEC itself might make this more possible…. see note from Sarge about new internal SEC scandal developing.

    Restructure Commissioner Selection Process?
    I am wondering if it would be easier to Restructure the SEC Commissioners selection process? Right now I think all SEC Commissioners come from the financial industry or political parties, which are bound to the financial industry. I wonder if a selection process that demands that some if not all SEC management members and Commissioners to be composed of individuals not from the financial industry, and thus NOT Fraternity Brothers.

    The other problem we have is the phrases “naked short selling” or “naked shorting” do NOT describe to the common man or woman what we are talking about. The link I posted above to a cartoon describes what comes to mind when “naked shorts” are mentioned to most people – a naked person(s).

    Although “naked short selling” is the technical term used in the industry, most people have NO idea what this means. And when their mind sees a Naked Person, they simple stop thinking about it because it is so ridiculous.

    In effect, these “Naked” phrases help protect the crime being committed, because the very mention of one of these “Naked” phrases causes the mind of most people to shut down, and simple not even think about.

    This is why I will NO longer use those “Naked” phrases as is. Instead I will add the word “COUNTERFEIT”.

    I do not think that we will be very successful in getting the attention of the American Public with the standard “Naked” phrases used by the industry. I think we will have more success when we add the word “COUNTERFEIT”.

    ===============================
    Here is a JPG of the naked short cartoon:

    http://media.npr.org/blogs/globalpoolofmoney/images/2008/09/naked_2.jpg

    Here is a Link to the NPR audio story about this cartoon topic (Filed under: Inside ‘Planet Money’):

    http://www.npr.org/blogs/money/2008/09/catch_it_this_weekend_naked_sh.html

  67. You need to get your message to the general public!
    Wouldn’t it be great if someone made a movie making it obvious to “Joe Public” that all the debt we are inheriting is a result of Wall Street’s evil greed and manipulation of our finances.
    Oh well, they probably wouldn’t believe it anyway. It just sounds to outrageous to be true.

  68. Anonymous, the “counterfeiting” issues are complex. Here’s a blurb from book 9 that probably garbles the issue even more.

    DOES ABUSIVE NAKED SHORT SELLING TECHNICALLY CONSTITUTE THE “COUNTERFEITING” OF SECURITIES?

    The question often arises as to whether or not the “issuance”/”release” of this accounting measure known as a “security entitlement” basically results in the “issuance” of a “counterfeit security” when there is clear intent to manipulate share prices downwards as per the anti-counterfeiting laws (18 USC 514). From one point of view perhaps the answer is TECHNICALLY NO because all “shares issued” typically have an identifiable “owner of record” on a transfer agent’s “record of ownership” list and these “phantom shares” resulting from FTDs are not referenced on any “record of ownership” sitting in the TA’s office. That’s why they are of a “phantom-like” nature.

    Because of the obvious nature of a crime involving the refusal to deliver the securities that you already sold these “phantom shares” need to be invisible to both the corporate management team as well as prospective investors. But then again perhaps these activities do qualify as “counterfeiting” in that the actions of these fraudsters serves as the proximate cause for intentionally inducing the “issuance” of what for all intents and purposes are shares of a ”counterfeit” nature.

    Recall also that a “share” is technically “a unit of equity ownership” and there can only be one “legal owner’s” name inscribed on the TA’s ownership records per share “issued”. As you can see the “counterfeiting” issues are complex mainly due to semantics but if you put semantics off to the side this crime wave is all about “counterfeiting” but not of the paper and ink type. The electronic book entries in use at the DTCC just so happen to be a lot easier to “counterfeit” than their paper-certificated predecessors. These crimes would be much more difficult to commit in the days before the “immobilization” of paper-certificated shares into DTC vaults and the “dematerialization” of paper-certificated “shares” into easier to process electronic book entry “shares”.

    One might recall that the pretext of “immobilization” and “dematerialization” back in 1970 was that each new electronic book entry “share” created/issued would have a corresponding paper-certificated “share” being held in a DTC vault on a 1-for-1 basis. Then along came UCC Article -8 and the ability to issue “security entitlements” with each FTD and SBP “borrow” that occurred which threw this underlying pretext out the window. Soon the only limit on the amount of electronic book entries being “issued” and left alone to damage a corporation’s share structure was determined by the NSCC management’s actions or lack thereof and whether or not they would obey their congressional mandate to make sure that all securities trades “promptly settled” i.e. that which was sold gets “promptly delivered” in what is referred to as “good form” meaning no counterfeiting allowed as occurs in the self-replenishing NSCC SBP.

    To prevent great disparities between the amount of “shares” held in a paper-certificated format in DTC vaults and those held in an electronic book entry form the NSCC management with full visibility of this disparity would obviously buy-in delivery failures when it became obvious that the FTD was of an intentional long-termed nature.

    When the NSCC management (not so) mysteriously pleaded to be “powerless” to follow its congressional mandate to “promptly settle” all securities transactions (an interesting concept in and of itself) then the “investor protection” wheels pretty much fell off of the cart in regards to abusive naked short selling thefts. It’s a very interesting argument to proffer for the NSCC management with the congressional mandates “to act in the public interest, to provide investor protection and to “promptly settle” all securities transactions as well as being in possession of 15 of the 16 sources of legal empowerment to execute buy-ins to turn around and claim to be “powerless” to execute buy-ins and “powerless” to do whatever is necessary to make sure that trades “promptly settle” when the NSCC management’s abusive “bosses”/participants absolutely refuse to deliver the securities that they have already sold.

    Meanwhile the SEC refers to FINRA and the NSCC management (both SROs) as “the first line of defense against market abuses” like abusive naked short selling. You can see the obvious conflict of interest when the owners/participants/members of these SROs known as “the first line of defense” just so happen to be the main financial beneficiaries of these thefts that occur when no “defense” is provided. Gee, and the idea of allowing Wall Streeters with a superior knowledge of, access to and visibility of our clearance and settlement system and proven to have insatiable levels of greed to “regulate” themselves in the midst of trillions of dollars of previously blindfolded investor’s funds seemed to be so well thought out! Whooda thunk?

  69. (now that you’re thoroughly confused)

    THE “HOLDERS” OF DELIVERY OBLIGATIONS (“SECURITY ENTITLEMENTS”) VERSUS THE “LEGAL OWNERS” OF SHARES

    As noted every single FTD and every single NSCC SBP (stock borrow program) “borrow” results in the issuance of a share price depressing “security entitlement” which we’re referring to as a “phantom share” due to its invisibility (“phantom”) and ability to be sold as if it were a legitimate “share” which it most certainly isn’t. An argument could be proffered that perhaps the term “phantom share” should have an asterisk on the “share” part since there is technically no “legal ownership” involved which “shares” typically have. The “holder” of a “security entitlement” whose purchased shares either never got delivered or did get delivered and were subsequently loaned out by the NSCC’s SBP technically has no “equity ownership” stake. Perhaps the more appropriate terminology would be a “phantom long position” or “phantom claim on ownership” or “phantom property interest”.

    The confusing nature involving the vast differences between the accounting for failed delivery obligations and the “legal ownership” of equity positions has historically helped cover up these frauds. Again, a certain amount of complexity is needed to cover up a fraud as obvious as refusing to deliver that which you already sold after you’ve been given access to the buyer’s money. In what other business on this planet could we even be having this discussion except for a business as pandemically corrupt as Wall Street?

    Don’t allow these thieves to confuse you with arguments revolving around semantics. It doesn’t matter who the “legal owner” of a specific parcel of impossible to identify securities is when BOTH the “legal owners” and the mere “entitlement holders” to the SAME parcel of impossible to identify shares must be treated the same way due to the wording chosen in UCC-8-501. UCC Article-8-501 is what it is. It does not condone the intentional “manipulation” of share prices downwards by refusing to deliver the securities that you sold done in an effort to reroute the funds of previously blindfolded investors into your own wallets.

    If you can understand the last four sentences then you’re well on your way to comprehending the sheer brilliance of this pandemic “fraud on the market” that has single-handedly wiped out probably many hundreds to thousands of corporations, the investments made therein, the jobs they used to provide and the chance for a comfortable retirement for perhaps many, many millions of U.S. citizens. The tricky nature of the semantics used by the fraudsters committing these thefts to create a cloud of dust does not change the blatantly fraudulent conduct of refusing to deliver to the purchaser that which you already sold him.

    U.S. CORPORATIONS SINGLED OUT AS TARGETS FOR WORLDWIDE ATTACKS

    One must also appreciate that due to the hijacking of the clearance and settlement system in the U.S. it is the typically development stage U.S. corporations and not those from other countries that are targeted for abusive naked short selling (ANSS) attacks by the worldwide abusive naked short selling community. There is a certain “treasonous” aspect to these crimes especially now that our financial system is in shambles due to the same insatiable greed that drives ANSS thefts. The very foundation of our financial system and the job growth engine for our economy that development stage corporations represent have been sacrificed in order to look after the financial interests of a handful of politically well-connected Wall Street elite with the financial critical mass to essentially “bribe” abusive market makers and abusive clearing firms.

    Most clearance and settlement systems in the world have not been illegally converted to a foundation involving mere “collateralization versus payment” (CVP) as has occurred in the U.S. instead of the congressionally mandated “delivery versus payment” (DVP) foundation associated with the “prompt settlement” of all securities transactions. The “prompt settlement” of all securities transactions necessitates the “prompt good form delivery” of that which was intended to be purchased not a speedy delivery of a share price depressing “security entitlement” denoting a failed delivery obligation.

    The “Bank for International Settlements” (BIS) as well as the Technical Committee of the International Organization of Securities Commissions (IOSCO) in their November 2004 “Recommendations for Central Counterparties” has made it crystal clear that the sellers of securities should not be allowed access to the money of investors UNTIL they have delivered that which they have sold. In their first draft of Reg SHO the SEC honorably pushed for this “withholding of the mark” (the investor’s money) concept but they later caved to the pressure from powerful Wall Street lobbyists aware of how critical it is to this fraud NOT to have to deliver that which you sold before accessing the investor’s money.

  70. Dr Jim

    Your research over the years is a valuable contribution. The details of much of the internal machinery is indeed quite complex. But the principle is quite SIMPLE. Sellers need to deliver what they sell. Plain and simple.

    To execute a purchase, an account holder needs to have either cash balance or sufficient equity (to borrow the cash) in the account before the broker will execute the sale. The same principle needs to apply to a seller. The account needs to have either the shares or else some record of borrowed shares in the account before the broker can execute the sale. This is simple.

    Let’s keep it simple to effectuate the message to the general public.

  71. Fred,

    I wish it were that easy. In regards to your comment that in order to make a sale “the account needs to have either the shares or else some record of borrowed shares in the account before the broker can execute the sale. This is simple” it’s not that simple on Wall Street due to the DTCC’s “plumbing”.

    Assume a clearing firm has 10 million shares of Acme in its NSCC participants “share account”. There are indeed 10 million paper-certificated shares to back up this electronic book entry. They are held in DTC vaults. Perhaps this clearing firm “implies” to its various shareholders of Acme on their monthly brokerage statements that it is “holding long” a total of 20 million shares of Acme. This means that 10 million of these 20 million are either in a failed delivery state or they did arrive and were subsequently loaned out via the NSCC SBP. This 10 million are technically “security entitlements” and not “shares”. They have no “legal owner” nor are they technically “outstanding”.

    A clearing firm client/investor whose Acme purchase never got delivered calls his brokerage firm and says sell my 1 million Acme shares. The broker says no problem. What happens at the DTCC is that any seller of shares is AUTOMATICALLY deemed to have been one of the investors whose shares were successfully delivered on time regardless of whether or not it is the truth.

    Unless the owners of over 10 million shares of Acme sell their shares all at once this “Ponzi scheme” will never be discovered and there will always be plenty of shares to accomodate anyone that wants to sell their shares. This is due to the NSCC’s demand to hold shares in “street name” in an “anonymously pooled” format. This is referred to as “fractional reserve holdings” and this is how our banking system operates. You can always get your money out of a bank unless there is a run on the bank in progress. Your dollars are held in an anonymously pooled format so you won’t necessarily get back the same bills with the same serial numbers that you put in.

    It’s legal for a bank to operate that way but it’s not legal for a clearance and settlement system to operate that way. There are no month end or year end audits at the DTCC to make sure that there are no glaring disparities between what an NSCC participating clearing firm has in its “share account” at the NSCC and what it implies that it is “holding long” on its monthly brokerage statements. This sale was an example of a “long sale”. Even “long sales” are corrupt not to mention how much more corrupt “short sales” can be.

    Let’s say a different clearing firm approaches this clearing firm and says that it wants to “rent” the 10 million real shares of Acme being held in the NSCC participants “share account” of the first clearing firm. The clearing firm holding the shares says heck yes I’d like to generate some cash flow from the lending fees and the interest it generates. The 10 million Acme shares get journaled over to the borrowing firm and now the original clearing firm has no shares in its NSCC “shares” account but it still sends out monthly brokerage statements totaling 20 million Acme shares. Now all of the original clearing firm’s clients are mere “security entitlement holders” with zero equity ownership but they still have the right to sell these as if they were shares as per UCC 8-501. The problem is that those that received the 10 million borrowed shares also have this right. OOPS! One simple “loan” just resulted in the creation of 10 million NEW readily sellable share price depressing “security entitlements”.

    Let’s suppose one of these “securities entitlement holders” calls and says sell my 1 million shares of Acme. The broker says no problem. He goes back to the clearing firm that just borrowed the 10 million shares and say I need 1 million of those back. The CF says no problem I’ll journal it back to you and I’ll go across the street to borrow that 1 million shares from a different buddy.

    Can you see all of the “slop” within the system when “security entitlements” are not promptly bought in by the NSCC management when it becomes obvious that the seller of securities had no intent whatsoever to deliver that which he sold? All of these transactions are technically legal. Both the legitimate shares and mere “security entitlements” are circulating around as if they were all legitimate shares. It’s a giant Ponzi scheme and the more “security entitlements” you can generate from refusing to deliver that which you sold the better it works.

    If there were regular buy-ins and audits performed then it would be like a game of “musical chairs” wherein when the music stopped all of the real shares and mere “security entitlements” would have to scramble for a chair of which there are only enough to match the number of real shares. At the DTCC, however, the music never stops and the number of “security entitlements” grows monthly because no securities fraudster in his right mind would EVER cover if he was not forced to.

    On this website everybody talks about new rules like 10b-21 and 204T forcing buy-ins on the morning of T+4. Nobody talks about the number of “security entitlements” CURRENTLY poisoning the share structures of corporations allowing the games cited above to occur. These corporations will soon be gone EVEN IF mandated buy-ins occur from this day forward. This “slop” already within the system of a corporation that has been histroically under attack needs to be purged by buy-ins to save these corporations and the investments made therein. Nobody seems to appreciate the EMERGENT nature of addressing the past fraudulent behavior BEFORE trying to prevent future fraudulent behavior. These corporations do not have a future even if the playing field was leveled with a snap of the fingers.

  72. In Judd Bagley’s excellent video you’ll notice that he very appropriately labeled the preexisting levels of FTDs/”security entitlements” as a form of radioactive toxic waste. When you get a radioactive leak like at Chernobyl the scientists don’t come in and start measuring people for haz-mat suits and place orders. They undergo a triage process to determine which patients need emergent care and which don’t because the toxin has already been introduced into the environment. The immediate goal is to minimize the loss of life whether human or corporate.

    The regulators and the SROs directly or indirectly benefiting from these thefts don’t want to save any patients in dire straits. They want them and the evidence of fraud their share structures contain to die. They’re busy fitting people thousands of miles away from the radioactive leak for haz-mat suits.

    The rescinding of the uptick rule for a couple of years followed by soliciting “comment letters” to discuss its reinstatement will probably allow the toxins (“security entitlements”) already ingested by corporations under attack to wreak havoc for about 4 years. That will provide plenty of time for those corporations currently on the critical list to finally succumb.

  73. Dr Jim,

    It does seem that rule 204T would only address new FTD’s (and FTR’s, which are the “failure to receives” at the buy side broker). There would need to be an additional rule to clean up the existing FTR’s. To that extent, it seems 204T does not go far enough. But it is at least a good start, provided it has enforcement teeth and the SEC do enforce it. That’s the part that makes me nervous.

  74. Rule 204T

    Does anyone care to offer an opinion about the adequacy of the Rule 204T? Has is been successful in reducing the FTD’s in the markets? Or do we even know? I don’t doubt we still have some, maybe desked trades and others being rolled every 3 days. But is the total amount of FTD’s reduced significantly since 204T went into effect? Do you think that’s because “they have won” and covered at low prices, or it was the force if the Rule?

  75. —– Original Message —–
    From: marv eatinger
    To: [email protected] ; [email protected] ; [email protected] ; [email protected] ; [email protected] ; [email protected] ; ENFORCEMENT ; [email protected] ; [email protected] ; [email protected] ; [email protected] ; [email protected] ; cfLETTERS
    Sent: Friday, May 15, 2009 6:24 PM
    Subject: UNREGULATED DEMOCRATIC CAPITALISM ?

    Dear Securities and Exchange Commission:

    FOLLOWING COPIED FROM http://WWW.DEEPCAPTURE.COM: Sarge Says:
    May 14th, 2009 at 7:48 pm

    Accusations against the two lawyers – a man and a woman whose names have not been released – are detailed in a report by the SEC inspector general obtained exclusively by CBS News.

    The report, based on a review and analysis of “more than two years of e-mail and brokerage records,” puts increased pressure on a commission that has come under fire lately for failing to detect the $60 billion Bernard L. Madoff Ponzi scheme, and turning a blind eye to the Wall Street financial crisis.

    “We ought to be outraged if there is one insider trading information that’s leading to personal profit,” Sen. Charles Grassley, R-Iowa, the ranking member of the Senate Finance Committee, told CBS News.

    In response to the IG report, Grassley sent a letter to SEC Chairman Mary Schapiro expressing that outrage and requesting detailed information about the stock holdings and trading practices of all SEC employees.

    “It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities,” Grassley said in his letter to Schapiro.

    According to the report, the male attorney under investigation by the FBI works in the Office of the SEC’s Chief Counsel and “has access to a tremendous amount of nonpublic information.”

    The report alleges both the male attorney and female attorney – who works in the enforcement division – “traded in the stock of a large financial services company” despite being told by another SEC employee of ongoing “investigations of that company.” The report calls this is a direct violation of SEC rules.

    In another possible violation, the male attorney was found to have sent e-mails from his SEC account to his brother and sister-in-law “recommending particular stocks.” The attorney’s stock portfolio was estimated at one point to be valued at $200,000.

    As for the female attorney, the report states that “two months before an investigation of a large health care company was opened” she “sold all of her shares of stock in the company.” And “two days before an inquiry was opened” by a colleague who “occupies the office next to her” the female attorney sold stock in an oil company. Investigators say the female attorney traded stocks 247 times between January 2006 and January 2008. At one point her stock portfolio was valued as high as $170,000.

    In addition, the report says that the female attorney “spent much of her work day e-mailing and searching the Internet about stocks.” It quotes her telling investigators: “It’s my main hobby. It’s my passion.” And: “It’s my way of keeping intellectually above what other people are doing.”

    While the woman told investigators she did not check the SEC database – known as EDGAR – for information related to her personal stock trades, the inspector general said computer records reveal that she did, in fact, check the database on at least four separate occasions. SEC employees are prohibited from accessing EDGAR for personal trading purposes.

    Said Grassley, “Isn’t it odd that you’ve got people in the prosecuting department that are trying to profit from information that they get from it. Their job is to be prosecuting and not profiteering.”

    It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities.
    Sen. Charles Grassley
    According to employee interviews with investigators and SEC e-mails, the two colleagues shared many of the same stocks, frequently discussed their trades via e-mail, and regularly talked about SEC investigations and their own stock trading during weekly lunches.

    In one instance, a third SEC employee told investigators the two attorneys under investigation encouraged her to buy stock in a company – despite knowledge of multiple ongoing investigations into that company, a violation of SEC rules.

    Inspector General David Kotz, who uncovered the possible insider trading, declined a formal request for an interview, citing the ongoing investigation. But when we caught up with him near his office Kotz told CBS News, “The report talks about our concerns that there is no true compliance system at the SEC.”

    Both attorneys – who deny any wrongdoing – still work at the SEC and make six-figure salaries. The investigation was triggered after the high volume of trades by the female attorney set off alarms inside the agency.

    As it now stands, there’s no telling how many other employees are not reporting their trades because the SEC has no compliance system in place to monitor the trades of their employees. In fact, the two attorneys under investigation say that no one at the SEC had ever before questioned their reported securities holdings or transactions in the decades they have worked at the commission.

    In an e-mailed statement to CBS News, the SEC said, “We take seriously even the suggestion that any SEC employee would engage in insider trading. We note that the IG’s report neither accuses any SEC employee of insider trading nor concludes that any such conduct took place.”

    The statement went on to say, “Even so, we have been taking additional steps to enhance our protections against the potential for improper conduct. Those include developing a new computer system to facilitate reporting and review of securities trading by all SEC personnel; hiring a chief compliance officer; and providing greater clarity of our rule governing the reporting of trades.”

    There is a .pdf available for download at CBS’s site as well, the link for this story can be found here: http://www.cbsnews.com/stories/2009/05/14/cbsnews_investigates/main5014672.shtml

    Dear Federal Government:

    The above information is just on going exposure of a Federal Government agency (Securities and Exchange Commission) whose mandate is to regulate and prosecute white collar public corporation crime as it affects the stockholders of public and private corporations.

    Below you will find information as to a former SEC administrative law lawyer (MARIO V. MIRABELLI) that made it possible for a public company to perpetrate major tax fraud and securities fraud.

    The Securities and Exchange Commission has been and maybe still is a government agency where employees and ex-employees have known going in that they are, as an assumed “proprietary insider”, “entitled” to certain insider perks associated with Federal Government employment!!!

    Marv Eatinger

    ==========================================================================================================

    —– Original Message —–
    From: marv eatinger
    To: [email protected] ; [email protected] ; Rosenblat, Carol I. ; [email protected]
    Cc: [email protected]
    Sent: Saturday, November 25, 2006 8:15 PM
    Subject: DALECO RESOURCES CORP – THE “RULE OF LAW” – PUBLIC CORPORATION FRAUD

    FEDERAL GOVERNMENT:

    THE STATUTE OF LIMITATIONS ON MOST OF DALECO RESOURCES CORP OR DALECO RESOURCES CORPORATION OR DALECO RESOURCES, INC. FRAUDULENT VIOLATIONS IN PUBLIC FILINGS WITH THE SEC HAS MOST LIKELY TOLLED! CONSIDER ALL OF MY COMMUNICATIONS CONCERNING DALECO RESOURCES CORP MISREPRESENTATIONS IN PUBLIC FILINGS WITH THE SEC OVER THE LAST TWENTY THREE (23+) YEARS! DO WE HAVE A PROBLEM HERE WITH THE PUBLIC STOCKHOLDERS OF DALECO RESOURCES CORP AND THEIR AVAILABILITY TO FINANCIAL INFORMATION AS FILED IN PUBLIC DOCUMENTS THAT IS ACCURATE, RELIABLE AND WITHIN ALL THE LEGAL REQUIREMENTS OF THE “RULE OF LAW” INCLUDING SARBANES-OXLEY?????

    Marv Eatinger

    ====================================================================================

    Mario Mirabelli has in-depth experience in assisting clients on the national, international and local levels on matters involving corporate, securities and administrative issues. Mr. Mirabelli focuses on transactional, administrative, litigation and enforcement matters before the Securities and Exchange Commission (SEC), as well as public and private corporate finance, mergers and acquisitions, trade regulation and banking matters.

    Prior to joining the firm, Mr. Mirabelli served as a partner at Baker & Hostetler, where he represented domestic and international clients in a full range of general and federal securities law and corporate and transactional matters, including related privatizations; corporation formations, organization and maintenance; and mergers and acquisitions. Mr. Mirabelli advised issuers and underwriters related to public and private securities offerings; prepared periodic and other reports to the SEC, National Association of Securities Dealers and New York Stock Exchange on behalf of issuers, underwriters and insiders; helped clients in federal and state trial and appellate courts, and in investigations and inquires from various governmental agencies.

    Mr. Mirabelli also served for fourteen years as managing partner of the Washington DC office of Shea & Gould.

    Previous to his work in the private sector, Mr. Mirabelli served as a trial attorney at the SEC in the Office of Administrative Proceedings and Investigations. At the SEC, he was responsible for examining the conduct of complex investigations involving possible civil or criminal violations of the Securities Act of 1933. Mr. Mirabelli was also responsible for the conduct of injunctive proceedings relating to the registration and reporting requirements of the Securities Exchange Act of 1934. Mr. Mirabelli also served as chief hearing counsel of the SEC’s public investigation into the “Propriety of Estimates, Forecasts and Projections of Economic Performance.” He was also chief trial counsel of the commission’s public investigation of the “Hot Issues Securities Markets.”

    As an attorney in the Bureau of Deceptive Practices of the Federal Trade Commission, Mr. Mirabelli worked on cases arising under Section 5 of the Federal Trade Commission Act involving unfair methods of competition and unfair or deceptive acts or practices in commerce. He also was the lead attorney in charge of the commission’s industry-wide project involving disclosure of non-tobacco ingredients in cigars.

    ===================================================================================

    —– Original Message —–
    From: “marv eatinger”
    To:
    Sent: Monday, December 24, 2001 4:23 PM
    Subject: Fw: Daleco Resources Corp

    >
    > —– Original Message —–
    > From: marv eatinger
    > To:
    > Cc:
    > Sent: Tuesday, October 16, 2001 6:09 PM
    > Subject: Fw: Daleco Resources Corp
    >
    >
    > >
    > > —– Original Message —–
    > > From:
    > > To:
    > > Sent: Monday, October 15, 2001 7:10 AM
    > > Subject: Re: Daleco Resources Corp
    > >
    > >
    > > >
    > > > Thank you for your email. Please send all future
    > > correspondence/information
    > > > via U.S. Postal Service to my attention at the following address:
    > > >
    > > > AICPA
    > > > Harborside Financial Center
    > > > 201 Plaza Three
    > > > Jersey City, NJ 07311-3881
    > > >
    > > > Thank you.
    > > >
    > > > Lillian Ceynowa
    > > > Senior Technical Manager
    > > > AICPA Professional Ethics Division
    > > > (201) 938-3759
    > > >
    > > > ___________________________________________________
    > > > This message (including any attachments) contains confidential
    > information
    > > > intended for a specific individual and purpose, and is protected by law.
    > > > If you are not the intended recipient, you should delete this message
    > and
    > > > are hereby notified that any disclosure, copying, or distribution of
    > this
    > > > message, or the taking of any action based on it is strictly prohibited.
    > > >
    > > >
    > > >
    > > >
    > > > [email protected]
    > > > To: [email protected]
    > > > cc:
    > > > 10/13/01 Subject: Daleco Resources
    > > Corp
    > > > 11:50 AM
    > > >
    > > >
    > > >
    > > >
    > > >
    > > > Hi,
    > > >
    > > > The following Raging Bull (http://ragingbull.lycos.com) page
    > > > has been sent to you from a friend. Register to join the financial
    > > > discussions leading the investor revolution.
    > > >
    > > > Click the following link to register:
    > > > http://ragingbull.lycos.com/cgi-bin/reg0.pl
    > > >
    > > > Your friend’s note:
    > > > How about the rule of law!
    > > >
    > > > To view this page on the web please click on the following
    > > > URL (web address):
    > > > http://ragingbull.lycos.com/mboard/boards.cgi?board=DLOV&read=71
    > > >
    > > > **********************************************************
    > > >
    > > > TAKEN FROM: Daleco Resources (DLOV)
    > > >
    > > > BY: virgule POST NUMBER: 71
    > > > REPLY TO: none
    > > >
    > > > In July of 1991 I requested filing data on Daleco Resources Corporation
    > > > from the SEC Freedom of Information section. In September of 1991 I
    > > > received a computer print out (Workload Inquiry) of Daleco’s SEC filings
    > > > from the branch chief of the SEC Public Reference Branch. After a couple
    > > of
    > > > months of studying this print out I was able to determine how Daleco
    > > > Resources Corporation fraudulent business plan was able to go forward. I
    > > > subsequently requested more information from the SEC and was told that
    > the
    > > > computer print out that I had received should have been a redacted
    > > version,
    > > > and therefore I was in possession of non-public information regarding
    > > > Daleco’s SEC filings. Any future print out information that I might
    > > request
    > > > would have to be the redacted version of this print out (Workload
    > > Inquiry).
    > > > Shea & Gould law firm (Washington, DC) was Daleco Resources Corporation
    > > > United States counsel from 1984 through 1991. On August 14, 1992,
    > > September
    > > > 20, 1993, and January 21, 1994, I sent certified letters to Shea & Gould
    > > > concerning Daleco Resources Corporation SEC filings. I never received a
    > > > reply to any of my certified letters and on January 28, 1994, at a
    > special
    > > > night meeting of partners Shea & Gould law firm voted to dissolve! Shea
    > &
    > > > Gould (Washington, DC) manipulated Daleco’s SEC filings so that certain
    > > > filings were seen and closed out for review by different branches of the
    > > > SEC Division of Corporate Finance. By using proprietory knowledge
    > (gained
    > > > by having worked in the Administrative law division of the SEC) Shea &
    > > > Gould was able to circumvent the normal filing sequence for a publicly
    > > held
    > > > oil & gas exploration and development company.
    > > > (Voluntary Disclosure: Position- Long; ST Rating- Strong Sell; LT
    > Rating-
    > > > Strong Sell)
    > > >
    > > >
    > > > **********************************************************
    > > >
    > > > To view this page on the web please click on the following
    > > > URL (web address):
    > > > http://ragingbull.lycos.com/mboard/boards.cgi?board=DLOV&read=71
    > > >
    > > > Be sure to check out Raging Bull
    > > > to get –
    > > >
    > > > ** Access to the Internet’s most valuable financial discussions
    > > > ** Breaking news and commentary
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    > > >
    > > > ——-
    > > > *We did not check the above sender’s email address and hope a friend
    > sent
    > > > this message. We apologize if a friend did not send this message.

  76. Mary Schapiro has apparently made up HER mind on the uptick issue as reported in BusinessWeek’s interview with BARTIROMO (hedgefund honey herself) posted today:

    “As you know, the SEC is seeking public comment on whether to permanently restrict short-selling. Don’t short-sellers perform a function by identifying companies with weak management or faulty strategies? Or are we talking about fraud in some cases?

    Well, I think we are talking about fraud in some cases. And I agree with you that there’s a valuable role that’s played by short-selling. It brings information into the marketplace that’s incredibly useful and valuable. I think all we’re talking about at the SEC when we talk about restricting short-selling is a sort of speed bump that slows the descent of stocks during these particularly volatile times. And so we’ve put out multiple proposals. A couple of them are broad, short-selling speed bumps, and then a couple are stock-specific, more like a circuit breaker approach. If a stock declines, say, 10% within a day, then a circuit breaker might kick in and either that stock couldn’t be sold short for a period of time or maybe then an uptick rule kicks in for that stock. And we’ll obviously get tons and tons of comment on this, but I have heard from hundreds, maybe thousands, of investors really feeling it’s appropriate to slow this process down. At the end of the day, the stock’s going to find its natural price. But that abuse of short-selling may well have contributed to some of the problems we’re facing right now.”

    Obviously, she’s going to let stocks die in 10% intervals.

    Send comments to:

    http://www.sec.gov/

    We’ve got to stop this appeasement of the guilty!

  77. This is what disturbs me most about Schapiro’s comment:

    “And I agree with you that there’s a valuable role that’s played by short-selling. It brings information into the marketplace that’s incredibly useful and valuable. ”

    Isn’t that Chanos-speak, or am I missing something?

  78. Dr. Jim DeCosta,

    I very much like your “new” term – Blindfolded!

    And “THE GREAT BLINDFOLDER”…

    Very descriptive words of this continuing crime wave of counterfeiting!

    This word “blindfolded” reminds me of what happens before someone is executed by a firing squad!

    I am behind on my reading here and look forward to your new posts!

  79. Jim,

    Speaking of the new SEC Chairman Mary Schapiro…

    What I noticed after the first SEC meeting Mary chaired on April 8th is that the official summary of the meeting did NOT contain one single mention of Abusive Naked Short Counterfeit Selling.

    The reason I NOTE this is…. because SIX United States Senators signed a letter dated April 2, 2009 – 6 days before Chairman Mary Schapiro’s first SEC meeting – asking the SEC to address the continuing Wall Street Counterfeiting Crimes.

    This letter from 6 United States Senators used the following phrases about the continuing Wall Street Counterfeiting Crimes:

    – “abusive short selling practices”

    – “manipulative naked short sellers”

    – “their transactions will not be distorted by manipulative naked short sellers creating “phantom shares.”
    – “Because of our concern about abusive short selling practices”

    – “5,000 complaints about abusive short selling”

    – “naked short selling complaints”

    – “naked short selling is harmful.”

    – “”SEC has repeatedly recognized that naked short selling can depress stock prices and have harmful effects on the market.”

    – “”In adopting a naked short selling antifraud rule, Rule 10b-21, in October 2008, the Commission stated, ‘We have been concerned about ‘naked’ short selling and, in particular, abusive ‘naked’ short selling, for some time.'” ”

    – “In response to the IG report, however, the Division stated “there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of ‘naked’ short selling.” ”
    – “As the new leader at the SEC, you have an opportunity to clarify the Commission’s commitment to end abusive short selling”

    – “We hope that your April meeting produces an unambiguous commitment to promulgate and enforce regulations that put an end to naked short selling.”

    – “as well as a pre-borrow requirement to prevent naked short sellers from artificially depressing or diluting stock values. ”

    – “To be clear, we are not opposed to short selling itself, which can enhance market efficiency and price discovery. But naked or abusive short selling has gone unaddressed for too long and simply must end if the SEC is to restore investor confidence in the markets. ”
    …….

    The official SEC summary of this meeting did NOT CONTAIN One Single Reference to this CRIME!

    Additionally, the SEC’s website, when I looked at it some weeks ago, did NOT CONTAIN a copy of this letter from 6 United States Senators in its official list of correspondence! The SEC was immediately engaged in re-writing history about this meeting by refusing to include this important letter as a part of the history of this meeting.

    ……. My CONCLUSION From These Facts…….
    The SEC STONEWALLED 6 United States Senators who asked the SEC very clearly in their letter to address the continuing Wall Street Counterfeiting Crimes via Abusive Naked Short Counterfeit Selling.

    So Jim, if the SEC under the new leadership of Chairman Mary Schapiro can this easily ignore, and stonewall 6 United States Senators by refusing to address the continuing Wall Street Crime of Counterfeiting, what does this tell us about Chairman Mary Schapiro?

    There are several possible answers to this question, but the bottom line for us American Citizens is… the SEC will continue its role as Defense Lawyers for the Wall Street Counterfeit Machine… The SEC knows that in order to protect its fraternity brothers and guarantee itself a future multi-million dollar job – it must keep us American Citizens “BLINDFOLDED.”

    By refusing to even mention the concerns of 6 of our United Senators, the SEC sent a clear message the the American People…

    – We, the SEC, will continue to Protect the Wall Street Counterfeit Machine!

    – We, the SEC, will continue to allow Wall Street to “BLINDFOLD” investors in the United States Stock Market by refusing to let individual investors know their Stock Shares were NEVER DELIVERED!

    – We, the SEC, will continue to allow the Wall Street Elite, the Wall Street Insiders make easy money through Stock Counterfeiting.

    – We, the SEC, will continue to guarantee our potential access to multi-million dollar jobs in the financial industry by allowing Wall Street Insiders to steal money from “BLINDFOLDED” Amercian Citizens saving for their retirement in 401K plans.

    ===========================================
    Below is the full text of the short letter to SEC Chair Mary Schapiro dated April 2, 2009 about the Wall Street Counterfeiting Machine:

    Dear Chairman Schapiro:

    We were pleased to hear in January of this year that you were committed to a review of the uptick rule. More than two months have passed, and while we understand that the SEC has begun its review, the financial markets are still waiting to know if the SEC will restore an uptick rule, and whether it will take additional steps to address abusive short selling practices.

    American investors are looking to the SEC’s meeting on April 8 to address these issues It is urgent that we restore the integrity, efficiency and fairness of our securities markets by preventing manipulative short selling. Investors need to know that the market fairly values the actual shares issued by a company and that their transactions will not be distorted by manipulative naked short sellers creating “phantom shares.”

    Because of our concern about abusive short selling practices, we were especially troubled by the response of the Division of Enforcement (the “Division”) to a recent report from the SEC’s Inspector General (the “IG”) entitled “Practices Related to Naked Short Selling Complaints and Referrals,” which detailed the results of an audit of the Division’s policies, procedures, and practices for processing complaints about naked short selling.

    In the report, the IG found that despite receiving more than 5,000 complaints about abusive short selling, the Division had brought no enforcement actions. Further, the IG made eleven suggestions for improvements in processing and analyzing naked short selling complaints, yet the Division agreed with only one of those eleven recommendations.

    Equally troubling is the Division’s reluctance to agree with the IG and the Commission itself that naked short selling is harmful. As the IG notes, the “SEC has repeatedly recognized that naked short selling can depress stock prices and have harmful effects on the market. In adopting a naked short selling antifraud rule, Rule 10b-21, in October 2008, the Commission stated, ‘We have been concerned about ‘naked’ short selling and, in particular, abusive ‘naked’ short selling, for some time.'”

    In response to the IG report, however, the Division stated “there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of ‘naked’ short selling.”

    As the new leader at the SEC, you have an opportunity to clarify the Commission’s commitment to end abusive short selling. We hope that your April meeting produces an unambiguous commitment to promulgate and enforce regulations that put an end to naked short selling. At a minimum, those regulations should address the need for an uptick rule, as well as a pre-borrow requirement to prevent naked short sellers from artificially depressing or diluting stock values.

    To be clear, we are not opposed to short selling itself, which can enhance market efficiency and price discovery. But naked or abusive short selling has gone unaddressed for too long and simply must end if the SEC is to restore investor confidence in the markets. In the absence of a strong message from the SEC, we believe Congress will need to consider legislation that directs the SEC to do so.

    Thank you for considering our views.

    Sincerely,

    EDWARD E. KAUFMAN JOHNNY ISAKSON

    JON TESTER SAXBY B. CHAMBLISS

    CARL M. LEVIN ARLEN SPECTER

    (http://kaufman.senate.gov/press/press_releases/release/?id=eaeacc6b-526e-4456-b128-97083b1b1c3c)

  80. SEC under fire again appropriately enough:

    “The SEC inspector general’s office has opened other cases as well. It is investigating allegations that a top SEC official committed perjury in a letter to a senator and in court when discussing efforts to curb short-selling. Kotz is also looking into allegations that a top agency lawyer took part in an investigation in which he had a conflict of interest, according to a recent report summarizing ongoing probes.”

    http://www.washingtonpost.com/wp-dyn/content/article/2009/05/16/AR2009051602359_2.html?hpid=topnews

  81. I think we should spend another 10 years discussing this topic instead of just enforcing the laws and firing/voting out/removing/removing the corrupt/complicit and their ilk. After all while we have all been jibber jabbing they managed to yank GE down to 5.87/l Lvs to 1.87 Bac to 3 MGM to 2.75 and so on and so on. And as they did they were able to step in and buy them lower while harming those who were forced out or wiped out as with others. Now cmon boys and girls this isn’t difficult. We’ve allowed the MINORITY to dictate and control the majority and we continue to dialogue with the devil re right/wrong and interpretation. How about we do something very novel. FIX IT. Oh well so much for pro active and hooray for crisis management and duplicity.

  82. Fintas, bloody revolutions have started for less…

    I don’t think the SEC has any awareness of the severity of the situation and are still licking the hands of wallstreet masters…

  83. “It is investigating allegations that a top SEC official committed perjury in a letter to a senator”

    These allegations are against the present co-Acting director of the SEC’s Division of Trading and Markets. the fact that James Brigagliano remains at this post, and even at the SEC, is amazing to me. there will be no substantive reforms until this very conflicted individual is gone.

    Here is a link to the evidence and rest assured, the SEC has been checking out this info as late as today….

    http://investigatethesec.com/drupal-5.5/?q=node/123

  84. The SEC IG is our only hope. He’s probably getting a bit frustrated, but if the list of issues he idendifies and are un-addressed by the SCE, he will have powerful evidence to take to congress.

  85. I just posted the following on the MEDX board…

    Goldenmabs,

    You ask,
    “Who or what has placed a rock on the Medx chest?”

    I think the answer is simple…
    …The Wall Street Counterfeit Machine has placed a ROCK upon the MEDX price share.

    And the sad part of this is the the SEC protects “The Wall Street Counterfeit Machine” as hired Defense Attorneys would. And both Wall Street and the SEC agree that this counterfeiting is not counterfeiting, instead it is additional “liquidity” being added to the market.

    The contradiction of the SEC position can be seen in this….

    When Microsoft finds a dealer selling counterfeit copies of the Vista Operating System, it files a lawsuit and calls the police to stop this counterfeiting.

    If the counterfeiters claim they were simple adding “liquidity” to the MS software market by increasing the total number of operating systems available for sale, we know that the police, a judge, and a jury would reject this claim as nonsense.

    When the United States Government finds individuals counterfeiting $10, $20, and $50 dollar bills, it has them arrested for counterfeiting and has them tried in a court of law.

    If the counterfeiters claim they were simple adding “liquidity” to the United States money supply by increasing the total number of bills available in circulation, we know that the police, a judge, and a jury would reject this claim as nonsense.

    But Wall Street operates under a different set of rules….

    …as a Wall Streeter would say – “Wall Street exists to make money.”

    So when Wall Street Insiders via Hedge Funds as Guest of a Corrupt Market Makers want to make Easy Money, they simple sell shares of stock short, which they do NOT own, do NOT borrow, do NOT deliver, and NEVER intend to deliver. This is counterfeiting plain and simple.

    The difference between this crime of counterfeiting stock shares and the other counterfeiting crimes mentioned above is that the SEC pays the part of a Defense Lawyers for “The Wall Street Counterfeit Machine” by telling the American Public that these Hedge Funds are adding “LIQUIDITY” to the Market and there actions are not counterfeiting.

    By the laws of Supply and Demand, we all know that one can drive the price of anything down by simple increasing the total number available for sale. Wall Street Insiders know this is true and know that their Naked Short Counterfeit Selling is self fulfilling, thus the EASY Way to Make Money.

    All claims by counterfeiters that they are adding “liquidity” is nonsense, and we all know this. But the SEC as Defense Lawyers for the “Wall Street Counterfeit Machine” deny this simple truth, by telling us this is “liquidity” being added to the market.

    A few weeks ago I checked the Fail-To-Delivers on MEDX, and the historical record kept by the SEC showed 64 millions shares had been counterfeited (FTDs are counterfeit shares in reality). The problem with this official record is that it only shows the FTDs in the DTCC system. All FTDs held outside of the system are NOT recorded, and this is so because the SEC does NOT want anyone to know the truth, since this helps protect the Wall Street Counterfeit Machine.

    By design, the SEC will not allow us to know if the shares sold to us individually were ever delivered. As far as we know, all MEDX shares we own are counterfeit shares. I see this as another example of the SEC acting as Defense Lawyers for the Wall Street Counterfeiters.

    To borrow a phrase from Dr. Jim DeCosta, the SEC by design has “BLINDFOLDED” us individual investors and also corporations so we canNOT know how Wall Street Insiders are stealing money from us and U.S. Corporations through counterfeiting stock shares.

    QUESTION:
    Who or what has placed a rock on the Medx chest?

    ANSWER:
    The Wall Street Counterfeit Machine….

  86. 52 KEY CONCEPTS IN REGARDS TO ABUSIVE NAKED SHORT SELLING (ANSS) FRAUDS

    Dr. Jim DeCosta

    1) The fraud known as abusive naked short selling (ANSS) went into high gear back when the DTC “volunteered” to act as the surrogate “legal owner” of all shares held in “street name” ostensibly to enhance the efficiency of the clearance and settlement process. Their nominee “Cede and Co.” became the “legal owner” or “owner of record” of all shares held in “street name” as referenced on the corporate transfer agent’s books.

    2) This effectively blindfolded a corporation’s transfer agent from performing his “anti-counterfeiting policeman” activities as “Cede and Co.” owned pretty much everything in sight and the TA was left with no visibility of the shenanigans going on behind the scenes at the secrecy-obsessed DTCC.

    3) Since the purchasers of shares were no longer the “legal owner” of that which they purchased they became relegated to being the mere “beneficial owners” of the securities purchased. “Cede and Co.” would “legally own” the shares for the benefit of (FBO) its “participating” clearing firm that in turn “legally owned” them FBO their client the investor. A “fiduciary” relationship was thus created between this surrogate “legal owner” and the “beneficial owner” that purchased the shares. Unfortunately for investors “beneficial owners” do not have the visibility of the behind the scenes actions at the NSCC like the “legal owners” enjoy. These “blindfolded” investors are forced to place their TRUST in the DTC to act in good faith and represent the interests of the purchasers of these shares while serving in this surrogate “legal owner” capacity. History has now clearly shown us that neither the DTCC nor the DTC nor the NSCC nor many of their abusive “participating” market makers and clearing firms were up to this “acting in good faith” concept. The ability to re-route literally trillions of dollars of previously blindfolded investors was just too tempting to pass up on.

    4) The “beneficial owner” of securities was deemed by law to be what is referred to as a “security entitlement holder” as opposed to the “legal owner” of that which he purchased.

    5) The authors of UCC Article-8 wanted to send a “reminder” to the DTC “participants” and their nominee “Cede and Co.” that just because they were acting as the surrogate “legal owner” of all shares held in “street name” they were never to LEVERAGE this form of public trust over the investors that they have the congressional mandate to protect. After all, it was the “security entitlement holders” that bought and paid for the shares. The test begins; will abusive DTC participants try to LEVER the “legal owner” role that the regulators and investors entrusted them to play?

    6) UCC Article 8 made it clear that it was the investor clients of the various clearing firms making up the NSCC subdivision of the DTCC that were entitled “to exercise all of the rights and property interest that comprise the securities that they purchased” and not the NSCC participating clearing firms. The DTC promised that they would never think of LEVERAGING the fact that they were technically the “legal owner” of that which others purchased. Well, history seems to indicate otherwise as the “legal owner” of these securities ended up doing pretty much anything they wanted to with their “possession”.

    7) UCC-8 clearly spelled out the various roles of the “legal owners” of securities versus the “security entitlement holders”. If the “entitlement holders” wanted to attain the “legal ownership” of that which they purchased all they had to do was to file an “entitlement order” demanding the delivery of the paper-certificated version of ownership (a share certificate) with their name inscribed on it. As the investors in corporations undergoing abusive naked short selling attacks will readily attest the DTCC often refuses to honor these “entitlement orders” in a timely fashion because to do so would often involve the NSCC management buying-in the delivery failures of their abusive bosses/participants. This process would naturally counter the share price depressant effect of “security entitlements” which those with massive preexisting naked short positions rely upon. The absolute refusal to execute buy-ins in order to service an “entitlement order” by the surrogate “legal owner” of shares obviously would be bordering on a criminal act. A surrogate “legal owner” acting in a fiduciary capacity would obviously not facilitate the counterfeiting (via the NSCC’s SBP) of that which it is acting as the “legal owner” of.

    8) UCC Article-8-501 mandated that the clearing firms of investors that didn’t get delivery of the securities they purchased by “settlement date” (T+3) must nevertheless credit the investor’s account with “security entitlements”/IOUs/”long positions”/”phantom shares” representing the yet (if ever) to be delivered shares. Make a mental note as to the insanity of this default assumption that ALL delivery failures on Wall Street involve securities that are about to arrive any second due to an unforeseeable but “legitimate” delay.

    9) UCC Article -8 also mandated that the clearing firms holding these “security entitlements” treat their clients/”entitlement holders” as being entitled to exercise ALL of the rights and property interest that comprise the security even though they never got delivered. Note the insanity here IF those shares sold that were presumably “delayed” weren’t “delayed” at all but never existed in the first place and are not about to “arrive any second”. If that were to happen it’s too late because the purchaser of these “nonexistent” shares i.e. their “entitlement holder” already got permission to sell them as if they did arrive due to the wording used in 8-501. Faulty presumptions about the imminence of delivery now allowed “counterfeit” shares to enter the system.

    10) With this being a reality the INTENTIONAL refusal to deliver that which was sold now becomes the INTENTIONAL introduction of “counterfeit” securities and since these “counterfeit” securities carry with them the right to exercise all of the rights and property interest that comprise the missing security i.e. they are readily sellable then there is also attached the INTENTIONAL manipulation of share prices downwards via the INTENTIONAL manipulation of the “supply” of that which is readily sellable whether they be legitimate shares or mere “security entitlements” upwards. This combination of readily sellable “shares” plus readily sellable “security entitlements” forms the “supply” variable that interacts with the “demand” variable to determine share price through the “price discovery” process.

  87. http://www.cbsnews.com/stories/2009/05/14/cbsnews_investigates/main5014672.shtml?tag=topStory;topStoryHeadline

    “SEC Attorneys Probed For Insider Trading”

    CBS News Exclusive: Two High-Level Attorneys Under Scrutiny By FBI

    CBS News has learned that two attorneys at the Securities and Exchange Commission (SEC) are under “active” criminal investigation by the FBI for trading stocks based on inside information.

    Accusations against the two lawyers – a man and a woman whose names have not been released – are detailed in a report by the SEC inspector general obtained exclusively by CBS News.

    The report, based on a review and analysis of “more than two years of e-mail and brokerage records,” puts increased pressure on a commission that has come under fire lately for failing to detect the $60 billion Bernard L. Madoff Ponzi scheme, and turning a blind eye to the Wall Street financial crisis.

    “We ought to be outraged if there is one insider trading information that’s leading to personal profit,” Sen. Charles Grassley, R-Iowa, the ranking member of the Senate Finance Committee, told CBS News.

    In response to the IG report, Grassley sent a letter to SEC Chairman Mary Schapiro expressing that outrage and requesting detailed information about the stock holdings and trading practices of all SEC employees.

    “It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities,” Grassley said in his letter to Schapiro.

    According to the report, the male attorney under investigation by the FBI works in the Office of the SEC’s Chief Counsel and “has access to a tremendous amount of nonpublic information.”

    The report alleges both the male attorney and female attorney – who works in the enforcement division – “traded in the stock of a large financial services company” despite being told by another SEC employee of ongoing “investigations of that company.” The report calls this is a direct violation of SEC rules.

    In another possible violation, the male attorney was found to have sent e-mails from his SEC account to his brother and sister-in-law “recommending particular stocks.” The attorney’s stock portfolio was estimated at one point to be valued at $200,000.

    As for the female attorney, the report states that “two months before an investigation of a large health care company was opened” she “sold all of her shares of stock in the company.” And “two days before an inquiry was opened” by a colleague who “occupies the office next to her” the female attorney sold stock in an oil company. Investigators say the female attorney traded stocks 247 times between January 2006 and January 2008. At one point her stock portfolio was valued as high as $170,000.

    In addition, the report says that the female attorney “spent much of her work day e-mailing and searching the Internet about stocks.” It quotes her telling investigators: “It’s my main hobby. It’s my passion.” And: “It’s my way of keeping intellectually above what other people are doing.”

    While the woman told investigators she did not check the SEC database – known as EDGAR – for information related to her personal stock trades, the inspector general said computer records reveal that she did, in fact, check the database on at least four separate occasions. SEC employees are prohibited from accessing EDGAR for personal trading purposes.

    Said Grassley, “Isn’t it odd that you’ve got people in the prosecuting department that are trying to profit from information that they get from it. Their job is to be prosecuting and not profiteering.”

    It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities.

    Sen. Charles Grassley
    According to employee interviews with investigators and SEC e-mails, the two colleagues shared many of the same stocks, frequently discussed their trades via e-mail, and regularly talked about SEC investigations and their own stock trading during weekly lunches.

    In one instance, a third SEC employee told investigators the two attorneys under investigation encouraged her to buy stock in a company – despite knowledge of multiple ongoing investigations into that company, a violation of SEC rules.

    Inspector General David Kotz, who uncovered the possible insider trading, declined a formal request for an interview, citing the ongoing investigation. But when we caught up with him near his office Kotz told CBS News, “The report talks about our concerns that there is no true compliance system at the SEC.”

    Both attorneys – who deny any wrongdoing – still work at the SEC and make six-figure salaries. The investigation was triggered after the high volume of trades by the female attorney set off alarms inside the agency.

    As it now stands, there’s no telling how many other employees are not reporting their trades because the SEC has no compliance system in place to monitor the trades of their employees. In fact, the two attorneys under investigation say that no one at the SEC had ever before questioned their reported securities holdings or transactions in the decades they have worked at the commission.

    In an e-mailed statement to CBS News, the SEC said, “We take seriously even the suggestion that any SEC employee would engage in insider trading. We note that the IG’s report neither accuses any SEC employee of insider trading nor concludes that any such conduct took place.”

    The statement went on to say, “Even so, we have been taking additional steps to enhance our protections against the potential for improper conduct. Those include developing a new computer system to facilitate reporting and review of securities trading by all SEC personnel; hiring a chief compliance officer; and providing greater clarity of our rule governing the reporting of trades.”

  88. 11-20 of 52 KEY CONCEPTS IN REGARDS TO ABUSIVE NAKED SHORT SELLING (ANSS) FRAUDS

    11) The authors of UCC-8 were well aware of the possibility of readily sellable “counterfeit” shares entering into the system and depressing share prices should delivery not occur but they took comfort in the fact that the NSCC management with the congressional mandate “to act in the public interest, provide investor protection and to “promptly settle” all securities transactions” would promptly buy-in any delivery failures when it became obvious that the sellers of securities had no intent to deliver that which they sold. As it turns out the authors of UCC-8 were wrong as the NSCC management with these various congressional mandates as well as after attaining 15 of the 16 sources of empowerment to execute buy-ins STILL had the audacity to plead to be “powerless” to buy-in even the intentional delivery failures of their abusive bosses. This is despite the fact that the NSCC acts as an SRO (self-regulatory organization) mandated by law to create and enforce rules and regulations monitoring the “business conduct” of its “participants”.

    12) Noteworthy is the critical role of that “default presumption” that ALL delivery failures at the DTCC involve legitimate “delays” and that the missing shares will show up any second. When this presumption is wrong the text of UCC-8 can be converted by criminals from a warning shot to surrogate “legal owners” not to LEVERAGE that position it was ENTRUSTED with into the foundation for massive levels of theft but this would only hold true IF AND ONLY IF the NSCC management were to shirk their congressional mandates in order to allow their abusive “bosses”/co-owners to steal literally trillions of dollars from unknowing investors.

    13) Failures to deliver being theoretically “cured” by an NSCC “Stock Borrow Program” (SBP) “borrow” result in the “C” sub account of the handsomely compensated “donor” brokerage firm whose shares were chosen to “cure” the delivery failure receiving “security entitlements”/”IOUs”/”long positions”/”phantom shares” credits out of thin air. Again we see failures to deliver resulting in the issuance of “security entitlements” but by a slightly different mechanism. Note that all “security entitlements” regardless of their methodology of issuance are above and beyond the number of shares already “outstanding” and are therefore very damaging to share prices from a dilutional point of view unless and until they are bought-in by the party empowered to do so.

    14) The purchasing firm receiving the borrowed shares in a trade involving a delivery failure “cured” by an SBP “borrow” now becomes the “legal owner” of those “borrowed shares” (make a mental note of this rather odd policy featuring a “loan” resulting in the transference of “legal ownership”).

    15) Since the NSCC SBP “borrow” results in the issuance of a “security entitlement” out of thin air to the donor brokerage firm the “curing” of the fresh delivery failure today by an SBP “borrow” in essence comes at the expense of the “uncuring” of a trade from perhaps 2 days ago in a “Ponzi scheme” like fashion. How in the world can the securities received in the successful delivery of securities from ONE trade be allowed to “sponsor” perhaps 50 failed deliveries in a serial fashion? It’s because after this mysterious transference of “ownership” the new “legal owner” can do whatever he wants with his new “possession” including being handsomely compensated to “rent” it out to “cure” somebody else’s delivery failure i.e. yet more “counterfeiting” involving the issuance of “security entitlements”. The question begging to be asked is why does a simple SBP “loan”/”borrow” involve the transference of “legal ownership”. Isn’t this essentially a “sale”? Note that if the investors/”beneficial owners” retained the “legal owner” title during the course of a “loan” like this counterfeiting couldn’t happen as they would have to approve each “loan” with the “legal owner”; so much for not LEVERAGING the surrogate “legal owner” title. No investor in their right mind would keep their shares in “street name” if they knew that what they purchased is being used to depress the share price of the corporation they invested in. If they did choose to keep them in “street name” then they certainly wouldn’t surrender the “legal owner” title to those financially incentivised to MANIPULATE share prices downwards.

    16) Between this fact and the fact that the recipient of the “borrowed” shares (as their new “legal owner”) is allowed to place them right back into the same SBP “lending pool” that they just came out of as if they never left in the first place then the SBP operates as basically a “counterfeiting” machine cranking out readily sellable share price depressing “security entitlements” with each and every “borrow” completed. Soon many dozens of U.S. investors might “beneficially co-own” the SAME parcel of impossible to identify shares. The inability to identify WHICH particular parcel of shares is being counterfeited is meaningless as ALL investors in that corporation incur damages. What kind of a surrogate “legal owner” with fiduciary duties of care would allow this to happen to the purchasers of shares whose “legal ownership” title was stripped in order to enhance efficiencies in the clearance and settlement process? It would be a surrogate “legal owner” (the NSCC management) willing to shirk its congressional mandates in order to reroute the funds of previously blindfolded investors to its abusive bosses that refuse to deliver the securities that they sold FOR A LIVING.

    17) Due to the NSCC’s insistence on utilizing “anonymous pooling” in all of their accounts including their SBP “lending pool” the prior “beneficial owner” of that parcel of “borrowed” shares cannot be identified and informed that he just lost the “beneficial ownership” of his shares. Instead this previous “beneficial ownership” is invisibly converted into a “security entitlement” in those “borrowed” shares. The DTCC tells us that this reflects the ability of the donor/lender to call in that “loan” at a time of the lender’s choosing but how can you be allowed to call in a loan when you are no longer the “legal owner”? Lo and behold due to the phraseology used in UCC-8-501 the donor of the loaned shares must also be treated as being entitled “to exercise all of the rights and property interest that comprise that security”. So now there are TWO separate parties that are entitled to exercise all of the rights and property interest that comprise THAT VERY SAME parcel of impossible to identify shares. The administrators of our clearance and settlement system whose owners benefit from abusive naked short selling thefts don’t seem to have any problem with this obvious “counterfeiting” of the entitlement “to exercise all of the rights and property interest that comprise the SAME parcel of securities” and the share price depression it causes. Instead they point out that since the neither the number of shares “legally owned” nor the number of shares “outstanding” went up in number then it’s no big deal. The problem is that the number of shares “outstanding” only makes up part of the “supply” variable of readily sellable shares and/or readily sellable “security entitlements”. To this very day the SEC has refused to rescind their approval of the SBP which through the years has morphed into a pillar supporting the theft of investor funds. These are the same investors that the SEC is congressionally mandated to provide “investor protection” to. Through the submission of amicus curiae briefs informing judges of how wonderful the SBP is the SEC has singlehandedly killed the attempts for perhaps thousands of defrauded investors to advance their litigation efforts into the discovery phase in order to reveal to the world just how “rigged” our markets have become in favor of sophisticated Wall Street financial behemoths over less financially sophisticated Main Street investors in need of “investor protection”.
    18) Since the “legal ownership” of the parcel of theoretically “borrowed” shares in an SBP “borrow” changes hands most accounting systems would indeed deem this to be a “sale”. If however, it were deemed to be a “sale” then there would be no reason for the clearing firm involved to issue share price depressing “security entitlements” and thus the DTCC whose owners benefit from these ANSS thefts argues vigorously that these transactions are indeed a unique version of a “loan”.

    19) The phraseology used in UCC-8 converts these “security entitlements”/IOUs from both routine delivery failures as well as SBP “loans” into an odd species of readily sellable share price depressing “phantom shares” paradoxically with no technical “legal owner” and that technically are not “outstanding”.

    20) The blindfolded transfer agent of a corporation whose job used to be to monitor for “counterfeiting-related” abuses does not know of the existence of these “phantom shares” as they do not appear on his official “record of ownership”. This renders these “materially” adverse positions invisible or “phantom-like” to the corporate management team and to prospective investors as well.

  89. Dr. Jim DeCosta.

    I have a question about the official Short report issued twice a month…

    I have the impression that these numbers do not contain any Naked Short Positions, or at least none for the previous months – previous 5.49 months.

    So this is my question:

    Do the official Short Interest reports reflect any of the Naked Short Positions?

    Such as with Mederax:

    http://www.nasdaq.com/aspxcontent/shortinterests.aspx?mode=&kind=shortint&page=short&selected=MEDX

  90. istandup,

    The published short position reflects the sales labeled “short sale” that haven’t been covered yet. They’re also called “open short positions” or “short interest”. These are legal and involved a “borrow”. But “borrows” are often bogus since the same parcel of shares is often simultaneously being lent out in multiple directions via abusive lending department activity or the NSCC’s SBP program. Then you’ve got “naked short positions” that either didn’t involve a successful “pre-borrow” or didn’t involve a successful “locate”. “Naked short positions” can either be “legitimate” and associated with “bona fide” market making activity or illegitimate and associated with the intentional manipulation of share prices downwards associated with no effort to make a pre-borrow or “locate” or the simple refusal to deliver that which one sold. Securities scholars have been fighting for years as to which multiple to use when trying to guesstimate the naked short position as a factor of the declared short position but it’s pretty well agreed to that it is a fairly large number especially after “decimalization” kicked in and many market makers have to cheat just to make a living since the spreads became razor thin.

  91. WOW! I was just on the SEC’s “comments” page reading some of the public comments left by individuals regarding the SEC’s hearing on proposed changes to the uptick rule. I selected about 6 totally random comments, different dates and times, men and women, etc… and without exception each respondent asked that the SEC PLEASE reinstate the uptick rule, and stop the naked shorts (specifically stating “naked short selling”).

    Now there are just hundreds upon hundreds of comments there, so my quick sampling may have been coincidentally skewed; but I found it to be quite fascinating that each and every writer specifically asked the SEC to do their job, and stop naked short selling.

    I think the education campaign is working, and the average investor is getting sick and tired of the revolving door SEC allowing blatant crimes to occur right IN FRONT OF OUR FACES, while they sit by biding their time, and waiting to be offered a high-paying job at some unscrupulous firm currently under investigation.

  92. At the start I was like what’s up with the fractal hippy, but the full circle is spectacular. This video is really a time bomb, I think we are totally screwed. Thanks for bringing it to light.

  93. I apologize for my above post (the hippie part), it was infantile. You are doing a spectacular job where the rest of the media is getting slapped from the top. What I don’t understand, is the “journalists” that say they are investigating the story and then someone at the top tells them to stop. Don’t these guys have the internet? Why can’t they just release the story under a different name or as an anonymous source to deepcapture. I just don’t get it. Maybe you can shed some light on this for me, since you’ve talked to a lot of these “journalists”. Isn’t there a point when you put the pen cam in your pocket and record the conversation? Then put it out on utube? What the hell is happening,???

    There are so many bull shit lies from the past 8 years that it seems if you pull just one string the whole thing will collapse. I guess O is hoping someone else will pull it, what’s your take?

  94. Al, I’m in contact with the SEC webmaster. I posed a question as to why not ALL comments are being posted. They aren’t posting everything. I’ve tested this. Censorship?

    Will make SEC complaint today if I don’t hear a good explanation…

    I’ll keep you posted here.

  95. Al, yes, the education campaign is working and the average investor has had to acquire a new lexicon to fight for his or her rights. All because the SEC continues to fall down on the job.

  96. The SEC “BLINDFOLDING Regulations”…

    I like this phrase “BLINDFOLDING Regulations”


    And then the Fails-To-Deliver numbers that are released every 5.5 months are only a FRACTION of the real numbers, since the SEC regulations DO NOT REQUIRE Wall Street to report other counterfeit shares created outside the official DTCC system – This is another example of the SEC “BLINDFOLDING Regulations” to protect “The Wall Street Counterfeit Machine”….

  97. Letter I sent to the Inspector General this AM regarding the Uptick comments on the sec.gov website:

    “Dear Inspector General,

    Some questions regarding posting of comments pertaining to the Uptick Rule on the sec.gov web site:

    Why is the content not being kept current? There have been some serious posting delays (e.g., a week delay?).
    Why are not ALL comments being posted – I have tested this. What is the criteria for posting?
    What records retention policy, if any, governs the postings?
    One last source of puzzlement:

    Why is Mary Schapiro telling Bartiromo of BusinessWeek that it looks like a ‘circuit-breaker’ approach will likely be used when the majority of those posting comments clearly request otherwise?

    I will be requesting ALL POSTINGS per the FOIA. I trust that they will be retained.


    Sincerely,

    Jim Hall

  98. Dr. Jim DeCosta,

    Thank you for your response.

    Here is an SEC explanation of its Fails-To-Deliver numbers:

    How did the SEC track this data?
    From the SEC: “The values of total fails-to-deliver shares represent the aggregate net balance of shares that failed to be delivered as of a particular settlement date if the balance is 10,000 shares or more. If the aggregate net balance of shares that failed to be delivered is less than 10,000 as of a particular settlement date, then no record will be present in the file for that date even if there are fails in that security. Fails to deliver on a given day are a cumulative number of all fails outstanding until that day, plus new fails that occur that day, less fails that settle that day. The figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as existing fails.”
    ( http://www.failstodeliver.com/default2.aspx )

    This SEC explains states:
    “The figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as existing fails.”

    This answers one of the questions I have had about the SEC Fails to Deliver numbers. The number the SEC reports is the summation of all existing FTDs as of the given date.

    But if I understand you correctly, all cured or settled Fails via the “Stock Borrow Program” (SBP) are merely illusionary settlements, since the same borrowed stocks can potentially be loaned out to many different buyers over and over and over again.

    So it would then appear that the “Stock Borrow Program” (SBP) is being used as a means to make FTDs disappear from the total number of FTDs reported by the SEC, to give the appearance that there are not that many counterfeit shares floating about? Or maybe it should be stated that “Stock Borrow Program” (SBP) is being used illegally legitimize counterfeit shares in the Clearance and Settlement system?

    Here is what you said in #16 of your 52 statements:

    16) Between this fact and the fact that the recipient of the “borrowed” shares (as their new “legal owner”) is allowed to place them right back into the same SBP “lending pool” that they just came out of as if they never left in the first place then the SBP operates as basically a “counterfeiting” machine cranking out readily sellable share price depressing “security entitlements” with each and every “borrow” completed. Soon many dozens of U.S. investors might “beneficially co-own” the SAME parcel of impossible to identify shares. The inability to identify WHICH particular parcel of shares is being counterfeited is meaningless as ALL investors in that corporation incur damages. What kind of a surrogate “legal owner” with fiduciary duties of care would allow this to happen to the purchasers of shares whose “legal ownership” title was stripped in order to enhance efficiencies in the clearance and settlement process? It would be a surrogate “legal owner” (the NSCC management) willing to shirk its congressional mandates in order to reroute the funds of previously blindfolded investors to its abusive bosses that refuse to deliver the securities that they sold FOR A LIVING.

  99. Jim Hall, Dick Bove is an analyst and part of the problem. Sarge, thanks for the encouraging words and this one is for you..

    Someone needs to convey to Dave Patch that Harry Markoplos has already called Mary Shapiro and FINRA “Corrupt” in his testimony to congress!!

    Here is the video that proves my above statement!! It occurs at around the 3:50 mark of the clip

    http://www.youtube.com/watch?v=soy96dRjwZs&feature=related

    Here is the Letter from Dave to Ms. Shapiro.

    From: David Patch
    Sent: Sunday, May 17, 2009 12:58 PM
    To: [email protected]; ‘[email protected]’; ‘[email protected]’; ‘[email protected]’; ‘Kathy Casey ([email protected])’
    Cc: ‘[email protected]’; ‘[email protected]’; ‘[email protected]
    Subject: OIG Investigations into Top SEC Officials

    Chairman Schapiro,

    The SEC is under attack for not only failing to address market fraud but now for internal ethical lapses including insider trading, abuse of position (Florence Harmon), and perjury in a memo to Congress and in a court appearance. Those involved were not new hires within the agency but seasoned veterans. What will come of these allegations? How many more conflicted SEC attorneys’ are there walking the halls of the SEC?

    In the termination of Gary Aguirre Director Linda Thomsen along with several of her top staff were accused of a cover-up to protect Morgan Stanley CEO John Mack. Thomsen has since resigned but her staff remains in key positions despite the recommendations of Congress and the OIG. The SEC is being sued for wrongful termination by Gary Aguirre as a result of the very public exposure to this.

    The top SEC Official under investigation for perjury in a letter to a senator is James Brigagliano, co-Acting Director of the Division of Trading and Markets. The letter in question involved allegations of short sale abuse and a half-dozen e-Mails from Broker-Dealers and clearing firms expressing concern over their inability to settle trades. Instead of investigating the root cause of these e-Mails, then associate Director James Brigagliano attempted to mislead the Senator (Paul Sarbanes of Sarbanes-Oxley) by implying that the April 2003 e-Mails were attributed to a June 2004 corporate action taken by the issuer.

    1. How are e-Mails written 14 months prior to a corporate action being attributed in any way with that action?
    2. To what extent did Mr. Brigagliano investigate the issues presented by Senate Banking Committee Member Senator Paul Sarbanes?
    3. Why did Mr. Brigagliano and his staff choose not to investigate the issue presented and why did they choose to simply pass it off so casually as something else?
    4. How many other type circumstances has Mr. Brigagliano been presented where he manufactured a response into actually investigating the issue being presented?
    5. Is this example of possible perjury the real underlying reason as to why 5000 complaints in a one year period involving naked short abuses ignored, the members of the Commission dismissed the possibilities?
    6. How do these automatic dismissals compare to the automatic dismissals of Bernie Madoff complaints and Stanford complaints of possible ponzi schemes?
    7. to what extent can the public trust the SEC’s policies towards short sale abuses when the decision making is being conducted by clearly conflicted individuals? The OEA and Market regulation have preconceived opinions on the matter and no evidence presented against those preconceived opinions has resulted in change.

    Chairman Schapiro, you are in a no-win situation. You inherited a turd when you took the office of Chairman of the Securities and Exchange Commission. Today you must somehow take charge and convert this turd into something of respect. I would request that to start with, Mr. Brigagliano be recused from any decision making and policy making relative to short sales. If the allegations are proven accurate he has a clear and undeniable conflict of interest in this matter and the public has no confidence in his ability to overcome those biases. I am appalled that such disturbing allegations and evidence is available and yet the Commission responds with promotion instead of demotion or termination. It is time the SEC finds out why Mr. Brigagliano denied the Senator and the investors involved the courtesy of finding the real cuase to these e-mails.

    For a copy of the evidence against James Brigagliano please look here:

    http://investigatethesec.com/drupal-5.5/?q=node/123

    I am aware of the SEC’s review of this data recently through analysis of site hits so there is no denial of the awareness to this evidence.

    Dave Patch

  100. sean, thanks for input on Bove. I’m aware of his occupation.
    I am for exposure from within the Analyst community or from the outside…
    The important issue is that light is being shed on the practices.

  101. iStandup,

    Don’t even get me started as to the corruption of the NSCC’s “Automated Stock Borrow Program” or “SBP”. I’ve spent many dozens of hours trying to get that program shut down but to no avail.

    It is a complete Ponzi scheme that is based upon 2 flaws. One involves the transference of “legal ownership” for a “loan” which is highly irregular. The other is the DTC’s nominee Cede and Co.’s LEVERAGING of the fact that it has been ENTRUSTED as a fiduciary to act as the surrogate “legal owner” of all shares held in “street name”. They took this form of the public trust and converted it into a modality to predictably transfer the funds of unknowing investors to their own “participants” that could easily establish massive naked short positions by directing order flow to abusive market makers and abusive clearing firms.

    It is a 100% counterfeiting machine that presents the FACADE that the trades involving delivery failures that are theoretically being “cured” by an SBP “borrow” are legally “settling”. Nothing could be further from the truth as “settlement” mandates the “good form delivery” of that which was thought to be purchased. You cannot accomplish “good form delivery” by allowing the SAME impossible to identify parcel of shares (due to “anonymous pooling”) to be simultaneously being “co-beneficially owned” by a dozen different investors SIMULTANEOUSLY.

    When called on the carpet to disband this facilitator of fraud the DTCC had four comments. The first was they couldn’t disband it because the system is “AUTOMATED”. I kid you not; the developer and administrator of this corrupt program claims that it can’t be stopped because it’s “AUTOMATED”. Their second excuse was that they have no “DISCRETION” in the matter. The developer and administrator of this program has no “DISCRETION” in the matter? The third comment was that if it was corrupt why did the SEC approve of it in the first place? When it was first explained in Addendum C to the rules and regulations of the NSCC the assumption made was that the NSCC would act in good faith with the fiduciary duties that were attached. OOPS! The fourth comment was that if it was so corrupt the SEC would obviously make us shut it down.

    Make no mistake the SEC is equally culpable with the DTCC for this abomination. If you go to the NSCC website they will state that the purpose of the SBP is “to increase the likelihood that the purchasers of shares will get delivery of that which they purchased” (paraphrased). It’s a self-replenishing lending pool for crying out loud! Every single “borrow” made results in the issuance of share price depressing “security entitlements” above and beyond the number of shares already “outstanding”. They’re hidden at the NSCC in these things called “C” sub accounts but they’re immediately released into the share structure of the corporations being attacked by abusive naked short sellers. The obviousness of the corruption underlines how poorly educated the various SROs and regulators that are trying to do the right thing really are as to how our clearance and settlement system has been hijacked by the abusive DTCC participating market makers, clearing firms, prime brokers and their unregulated hedge fund “guests”.

  102. iStandup,

    As far as the SBP goes the crooks want the FTD to be triggered because the FTD is what allows UCC 8-501 to cause the “issuance” of the “security entitlement” that does all of the damage. Otherwise the SBP could “prevent” the delivery failure before midnight of T+3. On paper the SBP removes the delivery failure off of the books but the toxic “security entitlement” is alive and kicking and doing its damage. It will continue to do its damage UNTIL it is bought-in but the NSCC management with 15 of the 16 sources of empowerment to buy it in as well as the congressional mandate to do so (via its “prompt settlement” mandate)pretends to be “powerless” to do so on behalf of its abusive bosses perpetrating the fraud.

  103. James Brigagliano is the one who wrote the memo approving the Madoff exemption.

    The memo has been scrubbed from the SEC’s site, but is referenced in footnotes in other SEC documents.

  104. Dr. Jim DeCosta,

    I am trying to write another “letter” about this Ponzi scheme and have coined the term “2nd Tier” Ponzi Scheme in contrast to the Classic Ponzi Scheme, which I call a “1st Tier” Ponzi Scheme. I have done this to make a clear distinction between the two.

    In the Classic Ponzi scheme (i.e. Bernie Madoff type Ponzi), which I call a “1st Tier” Ponzi Scheme, money is stolen by the investment company from the investors in its fund.

    In a “2nd Tier” Ponzi Scheme (i.e. The Wall Street Counterfeit Ponzi Scheme), money is stolen by the investment company NOT from the investors in its fund, but instead from unsuspecting blindfolded investors in the stock market who are sold shares of stock that are NEVER DELIVERED by the investment company and which they NEVER INTEND to Deliver.

    From your legal background, does this coined term make any sense “1st Tier” Ponzi Scheme?

    Or would you or anyone else suggest a different terms – “1st Tier /2nd Tier” Ponzi Scheme?

  105. To show up, the fail has to total more than .5% of the float at a registered clearing facility.

    I take this to mean a participant account at the DTC that clears for other brokerages. Most clearing brokerages have more than one participant account.

    I believe it is possible to have one hundred accounts, each at .49%. totaling 49% of the outstanding shares and still not show up as each account is below the .5% threshold.

    The scam is that it has already been netted 2500 to 1 by the time it shows up in a participant account. (98% netting is 50:1 and it occurs twice at the NSCC and also in the clearing brokerage itself. 50X50->2500:1)

  106. Complaints against the SEC can be filed at the office of the inspector general.

    http://www.sec-oig.gov/Contact.html

    Contact Us
    SEC Office of Inspector General Contact Information

    Mailing Address:
    U.S. Securities and Exchange Commission
    Office of Inspector General
    100 F Street, NE
    Washington, DC 20549-2736
    Telephone: (202) 551-6061

    FAX: (202) 772-9265

    Email: [email protected]

    Hotline
    Toll-free phone number (877) 442-0854
    Online Complaint Form: http://www.reportlineweb.com/sec_oig

  107. Anonymous,

    If you haven’t had time to study the “Madoff exception” yet it is truly a piece of work. While acting as market makers Bernie and Peter wanted permission from the SEC to naked short sell their clients shares of corporations below the NBB (national best bid) as a “service” to their clients and to “inject liquidity”.

    When buy orders appear on Wall Street all market makers scramble to be the first one to be able to naked short sell into the order. Why? Because it’s so easy to put the share price of the corporation into a “death spiral” by simply refusing to deliver that which you sold i.e. let the share price depressing “security entitlements” that result from each and every FTD and each and every SBP “borrow” to crush the share price.

    Selling fake shares into buy orders even slightly below the best bid is still going to allow you to steal tons of money from investors but more of those buy orders would be directed towards Bernie’s firm because of this “generosity”. It’s like buying the cheapest tickets onto the Titanic.

  108. Well, expecting any action from the s.i.c. is nothing but a fools errand. I hate to say it, but the s.i.c. will not be investigated. Simple reason is that a goodly (or badly perchance) number of our elected officials realise that one of the beneficiaries of the whole wall street rip off is THEIR OWN SEAT in power. Too many of those whores have a part of their re-election campaign funded by the ones profiting from the fraud. Good luck to us all.

  109. Here is the DTCC explanation of the Stock Borrow program and Counterfeiting of Stock Shares – they say counterfeiting does not exist………

    “@dtcc: One of the allegations made in some of the lawsuits is that the Stock Borrow program counterfeits shares, creating many more shares than actually exist. True?

    Thompson: Absolutely false. Under the Stock Borrow program, NSCC only borrows shares from a lending member if the member actually has the shares on deposit in its account at the DTC and voluntarily offers them to NSCC. If the member doesn’t have the shares, it can’t lend them.

    Once a loan is made, the lent shares are deducted from the lender’s DTC account and credited to the DTC account of the member to whom the shares are delivered. Only one NSCC member can have the shares credited to its DTC account at any one time.

    The assertion that the same shares are lent over and over again with each new recipient acquiring ownership of the same shares is either an intentional misrepresentation of the SEC-approved system, or a profoundly ignorant characterization of this component of the process of clearing and settling transactions.”

  110. I am looking for a link to the DTCC page where they explain how Fails to Deliver can be erased. If you know the link, please post it here.

  111. I am trying to remember the company that was attacked by naked short selling to such an extent that the total number of shares went from several million to something like 500 Million. The DTCC stopped the company stock from trading after it complained, the DTCC told them to issue new shares to cover all the new shares created by the system.

    I think the symbol was something like BTK??

    If you know the symbol and or name of the company, please post it here.

  112. istandup.

    One of the methodologies the DTCC uses to cancel FTDs is via their “RECAPS” program for dealing with “aged” delivery failures. If one of the two parties to the trade “DKs” the trade (“don’t know”=claims to know nothing about the trade)then the FTD can be placed into this “black hole” in which the share price depressing “security entitlements” resulting from the FTD live into perpetuity.

  113. Larry Thomson lies by omission. The reason the following is technically correct is there is only ever one owner.

    If A lends to B who lends to C who lends to D who lends to E who lends to F who lends to G who lends to H who lends to I who lends to J who lends to K who lends to L who lends to M,

    then only M has a real share. A-L have IOU’s.

    So, each owner doesn’t acquire the same shares. At the end of the cycle, only M has acquired anything. A-L have zip and M has an actual share. The actual share is only ever lent once in each step.

    “The assertion that the same shares are lent over and over again with each new recipient acquiring ownership of the same shares is either an intentional misrepresentation of the SEC-approved system, or a profoundly ignorant characterization of this component of the process of clearing and settling transactions.”

  114. It’s important to note that A-M are NSCC participants, typically clearing brokerages. This is above the level of you or your brokerage.

  115. OK, I found the symbol I was looking for by using Google Search – blackmail + deepcapture.com

    The Symbol is BCIT <<<> blackmail <<.

    I was able to find the link using GOOGLE, not by using YAHOO.
    ————

    BCIT was punished for complaining about Naked Short Selling to the DTCC.\

    Does anyone where to find a list of other companies punished by the DTCC for complaining about Naked Short Selling?

  116. Dr. Jim DeCosta,

    OK, RECAPS is the program – I will look it up on the DTCC website.

    Is there any other way FTDs can be removed from the official list of FTDs issued by the SEC?

    Such as via Ex-Clearing? Or by some other means?

  117. Here is another statement from the DTCC about Fails to Receive and Fails to Deliver:

    “@dtcc: Just how big is the fail to delivers, and how much of those fails does the Stock Borrow program address?

    Thompson: Currently, fails to deliver are running about 24,000 transactions daily, and that includes both new and aged fails, out of an average of 23 million new transactions processed daily by NSCC, or about one-tenth of one percent. In dollar terms, fails to deliver and receive amount to about $6 billion daily, again including both new fails and aged fails, out of just under $400 billion in trades processed daily by NSCC, or about 1.5% of the dollar volume. The Stock Borrow program is able to resolve about $1.1 billion of the “fails to receive,” or about 20% of the total fail obligation.

    The Stock Borrow program was created in 1981 with the approval of the SEC to help reduce potential problems caused by fails, by enabling NSCC to make deliveries of shares to brokers who bought them when there is a “fail to deliver” by the delivering broker. However, it doesn’t in any way relieve the broker who fails to deliver from that obligation. Even if a “fail to receive” is handled by Stock Borrow, the “fail to deliver” continues to exist, and is counted as part of the total “fails to deliver.” If the total fails to deliver for that issue exceeds 10,000 shares, it gets reported to the markets and the SEC.”

    http://www.dtcc.com/news/newsletters/dtcc/2005/mar/naked_short_selling.php
    ————–

    So the “fail to receive” is handled by Stock Borrow…
    … the “fail to deliver” continues to exist, and is counted as part of the total “fails to deliver.”

    My question is about –

    HOW the Fails To Deliver are removed from the Total Fail to Deliver numbers supplied by the SEC?

  118. Sorry IStandUp, I don’t have any updates, but you can check the IHUB message board. They may be more current as to info.

  119. The Reconfirmation and Pricing Service (RECAPS)

    is a mandated service for all participants that reconfirms and reprices participants’ aged equity, municipal bond, corporate bond, UITs and zero coupon security transactions that have previously failed to settle in NSCC’s clearance and settlement system or by other means….

    RECAPS provides a Reject and DK (don’t know) capability for advisories received and requires participants to effectively respond to all open fails submitted by the contra party. Advisories that are either “unresponded to” or DK’d are subject to close-out action, under the rules of the appropriate marketplace. RECAPS provides for a one-day settlement capability for all compared fails.

    Who Can Use the Service

    All qualified NSCC members are required to participate in the service quarterly. Members must be able to settle through NSCC to participate.

    Benefits

    In addition to reducing exposure on aged fails, RECAPS provides participants with the following advantages:

    * Reconfirms and re-prices all compared fails
    * Eliminates fails in CNS-eligible issues
    * RECAPS fails are converted to non-aged fails that are recognized by regulators for calculating net capital reserve requirements
    * Aged problem fails are easily identified by RECAPS through the Repeat Fail indicator submission
    * RECAPS provides participants and regulators with a report that summarizes the overall activity for a participant during the RECAPS cycle

    http://www.dtcc.com/products/cs/equities_clearance/recaps.php
    ——————-

    I find it interesting that… “All qualified NSCC members are required to participate in the service quarterly.”

    I am wondering if this service can be used by the Sellers of counterfeit shares to have their Fails to Deliver REMOVED from the SEC Reported FTD numbers?

    This RECAPS Service has to be used every 3 months, quarterly, by All qualified NSCC members.

    QUESTION:
    … I am wondering if this every 3 month requirement is linked to the 5.5 month delay in reporting FTDs by the SEC???????????

    I am thinking there may be a connection because the 5.5 month delay in reporting FTDs, because this allows just about all FTDs anywhere within a quarter, a 3 month period, to be “cured” by RECAPS so that the reported number in the total outstanding FTDs 5.5 months later is lower than it really is???

  120. Do you notice the DTCC uses the phrase “in dollar terms” without mentioning that most dollars settled are debt and debt rarely fails to deliver (at least until recently).

  121. Dr. De, Sarge, IStand, Anon..How do you like these apples.

    U.S. May Strip SEC of Powers in Regulatory Overhaul

    May 20 (Bloomberg) — The Obama administration may call for stripping the Securities and Exchange Commission of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=ai_W.obsRhmg&refer=h

    Comment away please!!LOL!!

  122. istandup,

    I now pronounce you as being infected with “the bug”. I’ve had it for 29 years and I can’t shake it either. You’re brain is peeling away layers of this abusive naked short selling onion and each layer leaves more questions than answers. You’re right in stating that ON PAPER the SBP “borrow” gets rid of the failure to receive (FTR) of the buying firm. It is, however, 100% bogus because the lending pool of the SBP is self-replenishing. With each “borrow” done the “legal ownership” of the borrowed shares goes to the party receiving the “borrowed” shares i.e. the buyer of the originally failed to be delivered shares. As the new “legal owner” he has all of the right in the world to re-donate them right back into the same SBP lending pool they just came out of as if they never left in the first place. It’s a trillion dollar Ponzi scheme.

    The FTD remains alive after an SBP “borrow”. The sleight of hand involves the fact that the seller of the nonexistent shares used to owe delivery to some buying brokerage firm perhaps across the nation. Then the NSCC acting as the “Central counterparty” (CCP) intervened as the intermediary between the buyer and the seller because our system is based upon “novation”. The original contract between buyer and seller is DISCHARGED and “novated” (to create anew) into 2 new contracts. The NSCC as the CCP promises to do whatever is necessary to obtain the shares from the seller and forward them onto the buyer. This is contract #1. The second one is to do whatever is necessary to obtain the money from the buyer and forward it on to the seller.

    The NSCC reaches its hand into the SBP lending pool and plucks out some shares which it sends to the buyer that never got delivery. This cancels his FTR (failure to receive). Now the seller of the nonexistent shares (assuming that it was an abusive naked short seller) owes the delivery of the missing shares to the NSCC acting as the CCP in a system based upon “novation”. Out of nowhere the NSCC says to its abusive “participant” that refuses to deliver that which it sold “We at the NSCC are “powerless” to buy-in your delivery failure”. But wait a minute you at the NSCC just contracted to do whatever is necessary to OBTAIN the shares sold and forward them on to the buyer’s firm. When the seller of the missing shares absolutely refuses to deliver that which it sold then a buy-in is what is necessary to OBTAIN those missing shares. How dare you make a contract only to break it 2 seconds later.

    Now please appreciate the beauty of this fraud. The party refusing to deliver that which it sold is a co-owner of the NSCC. The NSCC management that just DISCHARGED the original delivery obligation owed to the original buyer that is now pretending to be “powerless” to execute buy-ins is the employee of the crook refusing to deliver that which it sold. Of course it won’t keep its promise when its boss doesn’t want it to; not if he wants to remain employed. Sure the FTD remains on the books but why would you ever deliver that which you sold if you didn’t have to and when the new creditor of the failed delivery obligation basically says that it is “powerless” to do anything if you refuse to deliver that which you sold? All you have to do is to keep selling bogus shares and let the share price depressing “security entitlements” procreated by the FTDs drive the share price into the ground.

    The NSCC management plays the tough to sue “straw man” doing the bidding of its abusive bosses. One second it is “powerful” enough to discharge delivery obligations and the next second after assuming the “surrogate creditor” role it is all of a sudden “powerless” to make its bosses follow through on its delivery obligations and it is “powerless” to fulfill the new contract it just entered into. Who is this NSCC management pleading to be “powerless” to execute buy-ins. It is the party with the congressional mandate “to act in the public interest, to provide investor protection and to “promptly settle” all securities transactions. It also is in possession of 15 of the 16 sources of empowerment to legally execute buy-ins. It also acts as an SRO (self-regulatory organization) mandated to write and enforce rules and regulations that monitor the “business conduct” of its “participants”. It is also what the SEC refers to as the “first line of defense against market abuses”.

  123. Sean, apparently I’m not the only one who distrusts Schapiro and feels her time is running out.

  124. Sean, I hate to say it, but I think the Federal Reserve would be a worse regulator than the SEC. The Federal Reserve is privately owned by private banks and will look after their interests, not ours.

    What’s wrong with putting the Department of Justice in charge, arresting the crooks and breaking up their RICO cartels and taking away their mansions under proceeds of crime legislation.

  125. sean/anonymous:

    How about the FBI?

    They have fantastic forensic accountants and are untainted (possibly).

  126. This site displays tweets that have been deleted. I did a quick search of “naked short” and related phrases and asensio and other characters came up. I haven’t had time to dig, but I bet you could find evidence from the naked shorts.

    http://tweleted.com/

  127. A sickening article lionizing David Einhorn and his robbing compatriots:

    http://finance.yahoo.com/news/Speed-Ahead-With-Greenlights-tsmp-15308267.html?.v=1

    Here’s the lines that slayed me:

    “Einhorn has had extraordinary success … Using his moves as a starting point for research and investigation just makes good sense. Thanks to the SEC disclosure rules, you have access to the thoughts of one of the best investors of our time. I will take that over Wall Street research any day of the week.”

  128. Jim

    In that Bloomberg clip you linked to, I felt like I was watching a bad “Beetle Juice” parody. Does she believe if she utters the phrase “investor protection” enough times that it will magically appear? Or does it just automatically become valid after the 20th time it is said in a 3 minute time span?

  129. If memory serves me there’s some document out there that begins with WE THE PEOPLE. All too often we have become a PEOPLE who allow the minority to determine important decisions. Mary Shapiro is NOT doing her job. Get rid of her! Now who has that power? Who is that person or group of people? If they will NOT do their job then get RID OF THEM. It is done in the workplace day in and day out but for some reason when some inept senator/congressman/SEC commissioner makes a false statement or is proven to be corrupt WE THE PEOPLE accept such? We need a champion and if it’s Senator Kaufaman that’s fine by me. But here and now we continue with the same foolishness as Shaprio speaks about protecting invetors and simply mouthing the words without ACTION. I learned long ago. listen to the words and then see the action. THE CLOSER aligned the more consistant and trustworthy. Cox KNEW but lacked the guts to do what was required. Shapiro KNOWS and thinks she can duck the bullit. I find it hard to believe in this land of the litigious there isn’t ONE talented legal eagle or group of such to simply FILE a LAWSUIT against the SEC or other Govt agency and force the topic to be HEADLINE and while doing so educate the PEOPLE. Ya KNOW the very people who have been seriously affected due to the negligence of many familiar names. Let the system determine if it was WILLFUL NEGLIGENCE. I’ll put my money on the FACTS and they are overwhelming that many have been WILLFULLY NEGLIGENT.

  130. Dr. Jim DeCosta,

    You are correct… I am “infected with “the bug”. ”

    Couple things you said above are dancing in my mind and I am trying to figure how they connect together.

    First, you said:
    “As far as the SBP goes the crooks want the FTD to be triggered because the FTD is what allows UCC 8-501 to cause the “issuance” of the “security entitlement” that does all of the damage. Otherwise the SBP could “prevent” the delivery failure before midnight of T+3. On paper the SBP removes the delivery failure off of the books but the toxic “security entitlement” is alive and kicking and doing its damage. It will continue to do its damage UNTIL it is bought-in but the NSCC management with 15 of the 16 sources of empowerment to buy it in as well as the congressional mandate to do so (via its “prompt settlement” mandate)pretends to be “powerless” to do so on behalf of its abusive bosses perpetrating the fraud.”

    Specifically,
    “On paper the SBP removes the delivery failure off the books but the toxic “security entitlement” is alive and kicking and doing its damage.”

    According to what I read from a reported SEC explanation, I think it stated that SBP ONLY REMOVES the :Fail To RECEIVE:, but leaves the “Fail to Deliver” on the books.

    QUESTION………..:
    So which one is taken off the books?

    Then you spoke about “novation” by which the one contract is broken into two parts to deal with the Fail To Receive and the Fail to Deliver.

    QUESTION…………..
    So are these two contracts separated from each other so that the system software is “blindfolded” and thus NOT able to reconnect these two parts, two contracts back together somewhere?

  131. Dr. Jim DeCosta,

    You explained the “RECAPS” program at the DTCC in these words:

    One of the methodologies the DTCC uses to cancel FTDs is via their “RECAPS” program for dealing with “aged” delivery failures. If one of the two parties to the trade “DKs” the trade (”don’t know”=claims to know nothing about the trade)then the FTD can be placed into this “black hole” in which the share price depressing “security entitlements” resulting from the FTD live into perpetuity.

    QUESTION:
    Do you know how the word “aged” is defined by the DTCC?

    IF “aged” is interpreted to be “greater than 13 days” then RECAPS allows the Wall Street Criminals to remove their FTDs relatively quickly.

    Someone pointed out that RECAPS is only for “positions that are currently failing outside of NSCC (i.e. non-CNS items).”

  132. I’ve had 2 questions already this morning regarding accounting issues for naked short positions. Here’s a blurb I wrote from a while back.

    ABUSIVE NAKED SHORT SELLING (ANSS) ACCOUNTING CONSIDERATIONS

    One of the attractions to committing ANSS thefts has to do with the nature of “marked to market” accounting. Let’s assume that a cabal of abusive naked short sellers target a company and sell 50 million nonexistent shares over the course of a few months and knock the share price from $10 to 10-cents.

    From a marked to market accounting point of view these criminals are up about 99% on their “investment”. On Wall Street all “open positions” need to be marked to market on a daily basis in order to “keep score”. Although ON PAPER that particular hedge fund or abusive market making firm or abusive clearing firm looks pretty good they haven’t covered that “open position” yet and the mere process of covering is bound to drive the share price back up. But this doesn’t matter because many on Wall Street and many in the hedge fund community are paid their salaries based on marked to market accounting of the positions they still have “open”.

    It is extremely easy for abusive naked short sellers to wipe out 99% of a corporation’s market cap especially if the corporation’s securities are “thinly traded” like those of most development stage corporations. All these securities fraudsters have to do is to refuse to deliver the securities that they sold and let the share price depressing “security entitlements” procreated by the failures to deliver (FTDs) drive the share price downwards.

    There’s absolutely no palpable risk involved as the NSCC management with the congressional mandate “to act in the public interest, provide investor protection and to “promptly settle” all securities transactions as well as the party in possession of 15 of the 16 sources of empowerment to execute buy-ins when their abusive “participants” absolutely refuse to deliver the securities that they have sold can be 100% counted on to pretend to be “powerless” to execute buy-ins on behalf of their bosses that are the financial beneficiaries of these thefts of investor funds.

    The problem is that covering that 50 million share naked short position so that those unknowing U.S. investors that purchased those 50 million (nonexistent) shares can finally get delivery of that which they purchased might drive the share price back to $10 or even higher especially in a “thinly-traded” security. One must appreciate that after driving the share price down from $10 to 10-cents there has to be a certain amount of “maintenance” naked short selling done on a daily basis just to keep the share price pinned down to these levels because opportunists sensing a bargain will line up with cash in hand to take advantage of this “fire sale”.

    Soon the naked short position might be 100 million shares leaving the stock still trading at 10-cents. Covering this naked short position might drive the share price to $20 or perhaps some multiple thereof in a “thinly-traded” security. A corrupt hedge fund manager about to take a paycheck based on 2% of money under management and 20% of all marked to market trading profits (“2 and 20”) though wants the marked to market “print” to be as low as possible to make his paycheck as fat as possible. Note that the prospective investors in that hedge fund or those in a misbehaving publicly-traded market making firm don’t get visibility of these yet to be covered naked short positions either. Don’t they deserve “investor protection” also? They only see how “successful” this market maker or hedge fund manager is on a marked to market basis after easily clobbering the share price of the corporation targeted for an attack.

    Have you noticed in regards to the various Wall Street corporations how everybody wants to get the annual profits distributed to employees as soon as possible at the end of each year? Why doesn’t Microsoft operate that way? I don’t think the management team at Microsoft has to concern itself with the risk of an entire “house of cards” collapsing at any point in time.

    On an abusive Wall Street firm’s 10-K annual report the “open position” of a firm with a naked short position of 100 million shares of a company driven from $10 to 10-cents will be reflected as “securities sold but not yet purchased” of $10 million in marked to market value. Shouldn’t the prospective investors in this publicly-traded let’s say market making firm be given a head’s up as to the level of these “contingent liabilities” just in the case the purchasers of these (nonexistent) shares might want that which they purchased delivered to their brokerage firm as previously promised?

    The truth is that these prospective investors can’t be forewarned without revealing the existence and pandemic nature of this gigantic “industry within an industry” associated with abusive naked short selling. A more realistic “marking” of these “open positions” associated with naked short selling that factors in the driving of share prices upwards during covering might curb these abuses since the truly meaningful deterrence provided by the fear of buy-ins has been taken off the table by the NSCC management via its rather mysterious pleading to be “powerless” to follow its congressional mandates. Perhaps the auditors facilitating the covering up of the “contingent liabilities” aspect need to have their feet held to the fire. They should know that the ability to make the share price of thinly traded securities fall off of a cliff has a flip side to it when those naked short positions get covered.

    Note the role of “systemic risk” issues that might arise should the levels of these “open positions” become so far out of control that they can’t be addressed without the most corrupt of these firms incurring significant financial damage after being asked to finally deliver to investors that which they have sold them over many years. In case you haven’t figured it out yet this is exactly where we sit today. Until these “open positions” are once and for all bought-in and prevented from ever recurring again all U.S. investors whether looking to invest in hedge funds, Wall Street brokerage or market making firms or any other public corporation is pretty much relegated to be buying “a pig in a poke”. This is a very black or white situation. Every day that the “sweeping under the rug” of these misrepresentatively successful “open positions” continues makes the ultimate solution that much more difficult to deal with.

  133. Welcome to investors, shareholders, supporters, and anyone else who has been following the ongoing 10 year old case between the SEC and Universal Express, its Chairman and CEO Richard Altomare. The case is now before the Supreme Court.

    Mr. Altomare’s whistleblower status on the perils of Naked Short Selling is now confirmed by the very publicly covered press on this governmental agency cover up . However, what is not covered is the reasons why the SEC and its supporters destroyed this small, growing, innovative public company. Liquidating its assets for fractions of what they were worth, firing hundreds of employees, and placing their CEO in maximum security prison for 83 days for not having the money to pay their astronomical fines from one life-appointed judge.

    Our goal is simple. To showcase the facts that have not made it to the front pages of our newspapers and screens of our television sets.

    We hope this site further uncovers what the SEC and other supporters of their unchecked power DO NOT want average Americans to read about.

    -Universal Express Shareholders Worldwide

    http://www.richardaltomare.blogspot.com/

  134. Dr. Jim DeCosta,

    I found an answer to my question:

    Do you know how the word “aged” is defined by the DTCC? (aged FTD = 5 days)

    The User Manual for RECAPS states (www.dtcc.com/products/documentation/cs/RECAPS User Guide.pdf):

    “Participants submit equity, municipal bond, zero coupon, corporate bond, and UIT fails that are at least five business days old to the RECAPS system. RECAPS recompares previously compared transactions that are being carried as open fails.

    RECAPS moves matched CNS-eligible fails into CNS. Transactions that remain unmatched are identified for brokers to research and follow up.

    RECAPS also re-nets open fails and assigns a new settlement date for the newly netted positions; this settlement date replaces the original settlement date for the original fail. RECAPS reprices these open fails to the current market value.”

  135. iStandup,

    The NSCC goes through all kinds of gyrations with trades to present the facade that the involved trade legally “settled”. Whether it’s the RECAPS program or the NSCC “Automated Stock Borrow Program” or “SBP”. It’s as if they’re busy trying to get each trade thrown into a “trade settled” box whether or not the trade legally “settled” or not. Every single delivery failure theoretically “cured” by an SBP “borrow” results in the issuance of a share price depressing “security entitlement” over and above the # of shares already “outstanding”. Since “security entitlements” are redily sellable this is referred to as “share price manipulation” due to supply and demand interactions. In an “SBP” borrow only the “failure to receive” is “cured” but the failure to deliver “FTD” lives on in the form of the “security entitlement”. A trade does not legally “settle” without a fraud being committed until that which was thought to be being purchased is delivered “in good form”. The NSCC has the congressional mandate to “promptly settle” all securities transactions. The mere posting of a share price depressing IOU/”security entitlement” does not accomplish “good form delivery”. These trades don’t legally “settle” promptly or any other way. You can’t accomplish “good form delivery” by borrowing shares out of a self-replenishing lending pool and then allowing the receiver of the borrowed shares to redonate the very same parcel of shares right back into the very same lending pool as if it never left in the first place. There it sits ready to “cure” yet another delivery failure. The sleight of hand here is allowing the purchaser of shares whose purchase involved a failure to deliver and therefore needed an SBP “borrow” to cure the delivery failure to become the new “legal owner” of that parcel of shares. The NSCC then argues that as the new “legal owner” this NSCC “participant” has all of the right in the world to redonate that parcel of shares right back into the very same lending pool.This is a Ponzi scheme. How the hell stupid do you at the NSCC think we are? Congress told you in Section 17 A to “promptly settle” all securities transactions.

    When one of your abusive participants absolutely refuses to deliver the securities that it sold then there is one and only one way to “promptly settle” that trade and that is to “promptly” buy-in that delivery failure not to credit share price depressing “security entitlements” to the “C” sub account of the firm whose donated shares were chosen to “cure” the delivery failure which results in the rerouting of the investors funds to the party refusing to deliver that which it sold. Crediting the “C” sub account of the donor party does not equate with the “good form delivery” of that which the investor purchased. It is legally referred to as “kiting” which involves the intentional abuse of a “float period”. The “float period” here is the time period in between the previously agreed to T+3 “settlement date” and the date wherein “good form delivery” is effected which is never with the SBP.

  136. SEC Inspector General trying to be responsive

    This letter speaks for itself. If you have the type of specific, actionable information she requests, please send it to her.

    If you know of a specific document that has been removed, tell her the details. I believe someone on this board mentioned something Brodigliano (sp?) was involved in. Also if you posted a comment letter which did not get posted, please give date, etc. I hesitated to post the details of this person who responded to me out of concern that it would cause a flood of inappropriate letters to her. So please only send actionable information.

    Thanks

    Use email address [email protected]

    Dear Mr. (Fred)

    Thank you for your e-mail to the Office of Inspector General (OIG) of the U.S. Securities and Exchange Commission (SEC). We appreciate your expressing your concerns to us. Inspector General H. David Kotz requested that I reply to your e-mail on his behalf.

    Please be advised that the OIG’s primary functions are to perform audits of SEC operations, programs, activities, functions and organizations, and to conduct investigations of alleged staff (and contractor) misconduct. If you have specific information about or evidence of SEC employees improperly removing documents from the SEC website or not posting comment letters to the website, we would appreciate it if you would provide that information to us. Please include (1) the identity of the SEC employee(s) involved; (2) a description of the documents, including comment letters, that were improperly removed or not posted, including the dates of these documents and any identifying numbers; (3) why you believe the documents were improperly removed or not posted; and (4) the rules, regulations or statutes you believe were violated.

    Providing us with this information will assist us in being able to address this matter. Thank you for your cooperation.

    Sincerely,

    Natasha Dandridge

    Legal Assistant
    On behalf of the Office of Inspector General
    Of the U.S. Securities and Exchange Commission

  137. Anabelle,

    The overall concept is very simple, its all about delivering what you sell. If you exchange money for a product or service, you should receive that product or service, not be given an “IOU” that never gets settled. Or worse even, be given an “IOU” that nobody bothers to tell you is only an “IOU”. Even a young kid with a paper route will tell you, you can not expect to collect a payment from someone without actually delivering their newspaper. Unfortunately for us though, this doesn’t seem to be the way things currently work on Wall Street.

    Its a little tough jumping into one of Dr. DeCosta’s explanations without having read most of his previous posts, he has a knack for getting deep into the nitty-gritty, and each post he writes tends to build upon the last. His explanations make tons of sense if you have been following them for a while though, I highly recommend that if you have the time and your curiosity is piqued, dig through the rest of the articles on Deep Capture and check out his earlier posts (be sure to read the articles as well, the Deep Capture team has done a remarkable job of breaking this stuff down to a level everyone can understand), you’ll find that this stuff isn’t all that confusing at all.

  138. Dr. Jim DeCosta,

    It is truly amazing how the Wall Street Counterfeit machine continues to run year after year after year.

    I think the word I first saw you use “blindfolding”/”blindfolded” is the very word that describes how the Wall Street Criminals have been able to continue their crime spree for so long.

    The SBP software using anonymous pools of stock was designed to be “blindfolding” software to prevent anyone from seeing the truth.

    The RECAPS program is a “blindfolding”/ program to prevent outsiders from seeing the truth.

    The 5.5 month delay in reporting the FTDs is a “blindfolding” program in which the Wall Street Criminals can change the numbers to hide the truth. I suspect that during this delay RECAPPING is used to clean up the FTD numbers. Yes, it may be that the FTD numbers are being changed through some type of back dating process.

    Today I came upon one of your letters to the SEC while searching for information about the RECAPS program and it struck me how one thing you stated was a HUGH “blindfolding” point:

    “SIFMA strongly supports the SEC’s stated goals of addressing potentially abusive “naked short selling” practices. Though not defined, (Comment: This lack of a formal legal definition for “abusive naked short selling” (ANSS) is itself an absurd concept that needs to be addressed before any meaningful reform can be accomplished. After all how can a regulatory authority deal with a crime that has no formal legal definition?”
    ( http://www.sec.gov/comments/s7-08-08/s70808-491.pdf )

    Yes, the SEC refuses to define what “abusive naked short selling” (ANSS) is. Without a definition of WHAT “abusive naked short counterfeit selling” (ANSCS) is the legal system is seemingly “blindfolded.” And a “blindfolded” legal system seems to be one of the greatest deterrents to having the Wall Street Criminals prosecuted.

    The SEC and all its fraternity brothers have to date successfully “blindfolded” just about everything in the Clearance and Settlement System.

    But there is hope that educating the public, as you have said, will turn this whole thing around. I am here today and many others also after seeing the Wall Street Financial Terrorist bring the whole world to the brink of a global depression. Their criminal actions have mobilized a new army of citizens willing to learn the details of their crimes so others can be educated to take up arms against them.

  139. Hey guys!

    You don’t need a definition for ANSS. When you execute a sale and don’t intend to ever deliver anything, that’s already illegal, against existing laws.

    It’s not a problem of insufficient or ambiguous laws. The problem is lack of enforcement. And the perps have taken control of the dialogue to get us into these silly debates about what exactly is illegal.

  140. Fred,

    I agree with you in a general way. but….

    The problem is that if the Wall Street COPS do not have a definition for “abusive naked short counterfeit selling”, then the COPS say no crime as been committed.

    This explains to me what the SEC Enforcement Division stated about the report from the SEC Inspector General concerning 5000 naked short complaints receiving ZERO enforcement:

    “there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of ‘naked’ short selling.”

    As you stated, “The problem is lack of enforcement.”

    Yes, there is “no enforcement” because the Wall Street COPS say no crime was committed, because they have NO DEFINITION for any such crime.

    So I do not agree with your statement about “these silly debates”… because although this should be a silly debate, it is not. When the SEC, acting as Defense Lawyers for the Wall Street Criminals, is able to say there is no definition for any such crime, it can then claim this ambiguity prevents them from acting. This lack of definition also means that these SEC Defense Lawyers are protected from being fired for doing nothing.

    So we need a legal definition.

  141. Istandup and Fred,

    A good learning tool is to notice the “cyclicality” of this crime wave. The bad guys sell nonexistent shares, refuse to deliver that which they sold and the share price falls out of bed. The investor’s money flows to the bad guys that are only asked to collateralize the monetary value of their failed delivery obligation.

    The defrauded investors get mad, seek legal counsel, file suit against the DTCC, the hedge funds and the Wall Street misbehaving market makers, prime brokers, clearing firms, etc. The suit gets stalled into perpetuity which favors the deep-pocketed Wall Street behemoths. Fearing that the case might go on to the all-revealing discovery process the SEC comes to the rescue of the bad guys and tells the Judge that they did indeed approve of the (100% corrupt counterfeiting machine known as the) NSCC “Automated Stock Borrow Program” or “SBP”.

    The defense of the bad guys tells the judge that short selling is a good thing and that there isn’t even a formal legal definition of this myth known as “abusive naked short selling” and therefore it probably is just an urban myth. The merits of legal short selling are listed to the judge as the injection of liquidity, hedging opportunities, pricing efficiency, etc. This is meant to reframe the debate away from the crux of the matter which is the yet to be formally defined “abusive naked short selling”.

    The goal of the bad guys as well as the SEC is to do whatever is necessary to keep the truth from coming to light. This means to do whatever is necessary to kill the case in its tracks and prevent it from going on to discovery where the truth can be revealed. Since 1995 and the PSLRA legislation the plaintiffs need to make their case up front in order to advance on to discovery. The problem is that the trading records which show the truth can’t be accessed UNTIL discovery rights are granted.

    The best learning tool I’ve seen is to study the amicus curiae briefs filed by the SEC in an effort to kill the case. I’d suggest the Nanopierce and the Pet Quarters cases for starters. Note how the SEC defends the indefensible NSCC SBP program and how they tell the judge that since the number of shares technically “outstanding” and since the “legal ownership” of shares technically does not increase then everything’s hunky doorie. What they refuse to tell the judge is that the “supply” variable that interacts with the “demand” variable to determine share price includes not only the number of shares “outstanding” but also each and every “security entitlement” resulting from each and every FTD in the system PLUS each and every FTD theoretically “cured” by an SBP “borrow”. How can the SEC lawyers argue that the supply and demand of that which is readily sellable in a corporation’s share structure no longer determine share price?

    Yes, every single FTD theoretically “cured” by this wonderful SBP results in the issuance of incredibly damaging share price depressing “security entitlements” that are hidden in the NSCC “C” sub accounts away from the public view. So much for this wonderful SBP program. Any judge aware of that one fact would let these cases go on to discovery. The SBP simply allows the SAME parcel of shares to be “beneficially co-owned” by dozens of different U.S. investors. The key to this entire crime wave is EDUCATION! Thank the Lord for the Patrick Byrne’s of the world and the deepcapture.com type of classroom.

    Suggested legal definition of “abusive naked short selling”: A form of share price manipulation in which the share structure of a corporation targeted for destruction is intentionally flooded with readily sellable share price depressing “security entitlements” that result from each and every unaddressed failure to deliver in the system as well as each and every FTD addressed by an NSCC “Stock Borrow Program” cure.

  142. ABUSIVE NAKED SHORT SELLING MYTH BUSTING

    MYTH: “The typical U.S. market maker injects much needed “liquidity” especially into the markets of thinly-traded securities”

    BACKGROUND INFORMATION: broker-dealers known as “market makers” in a security by definition must stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Depending upon share price levels there are minimum amounts that must be posted on the bid and the offer. There are very few barriers to entry in becoming a “market maker”.

    A truly “bona fide” market maker has been exempted from making pre-borrows or “locates” before making admittedly naked short sales. This is theoretically because markets move very quickly and there often isn’t time to go out and arrange a pre-borrow or “locate”.

    A truly “bona fide” MM accessing the (universally abused) “bona fide” MM exemption must stand ready to sell shares into buy orders in markets characterized by order imbalances involving buy orders dwarfing sell orders WITH THE SAME INTENSITY that he buys back those previously sold shares in markets characterized by sell orders dwarfing buy orders amidst falling share prices. Both buy side liquidity as well as sell side liquidity need to be injected as needed in order to legally access that exemption. The legality of the accessing of the bona fide MM exemption cannot be determined until share prices downtick wherein a truly bona fide MM will cover his preexisting naked short position. The trading data clearly reveals to any interested and unconflicted SRO or regulator as to when that exemption has been illegally accessed.

    MARKET MAKING IN A CLEARANCE AND SETTLEMENT SYSTEM BASED ON “CVP”: In a clearance and settlement system whose foundation has been ILLEGALLY converted to a foundation based upon mere “collateralization versus payment” (CVP) instead of the congressionally mandated “delivery versus payment (DVP) abusive MMs can easily reroute the funds of unknowing investors into their own wallets.

    In a “CVP” system the sellers of securities like MMs theoretically addressing an order imbalance are unconscionably allowed access to the funds of investors EVEN IF THEY REFUSE TO DELIVER THAT WHICH THEY SOLD. This is because they are only asked to “collateralize” the monetary value of their failed delivery obligation on a daily “marked to market” basis.

    Unfortunately for investors MMs that do nothing but sell shares that they don’t own into buy orders but refuse to ever buy them back can easily put the share price of the involved corporation into a “death spiral”. This is due to the accumulation of the share price depressing “security entitlements” that result from each FTD and each SBP “borrow” used to theoretically cure the FTD.

    This unconscionable policy of the DTCC results in the temptation of would be “bona fide” MMs ILLEGALLY accessing that exemption and doing nothing but selling into buy orders but refusing to inject buy orders when sell orders dwarf buy orders as share prices drop. Why would you ever cover your preestablished naked short position if you can gain access to the investor’s funds without ever having to spend the money needed to do so?

    THE ROLE OF THE ISSUING OF SHARE PRICE DEPRESSING “SECURITY ENTITLEMENTS”: Due to the phraseology used in UCC Article -8-501 every failure to deliver securities and every NSCC “Stock Borrow Program” (SBP) “borrow” on Wall Street results in the issuance of IOUs known as “security entitlements”. UCC-8 also mandates that the clearing firms holding these “security entitlements” on behalf of their investor/clients that did not get delivery of the securities that they purchased or whose shares did arrive but were subsequently loaned out through the NSCC’s SBP to treat these “security entitlement holders” as being entitled “to exercise all of the rights and property interest of the securities that did not get delivered”. This policy has a tendency to “blindfold” investors as to whether or not that which they purchased ever got delivered or not or for that matter whether or not it ever existed. Either way the investors are allowed to resell that which was credited to their account whether it was a real share that got delivered or a mere “security entitlement” signifying the lack of deliver of that purchased. Their monthly brokerage statement in either case will indicate that these shares or “security entitlements” are being “held long” for them by their clearing firm. This “blindfolding” of the U.S. investors about to be robbed is critical when a crime as obvious as refusing to deliver that which you sold to a party after having been given access to his funds is being committed.

    THE REALITY: “Thinly-traded” securities are the most expensive to borrow for legal short sellers. The two main sources for legal borrows are long term institutional investors and margin accounts. The thinly-traded nonmarginable securities of development stage companies have very few shares in either location.

    Abusive naked short selling circumvents the need to pay usurious lending fees for these typically “hard to borrow” i.e. “expensive to borrow” securities. The excuse provided that these “thinly-traded” securities are in desperate need of the injection of liquidity happens to fit in rather nicely with their being expensive to borrow. The fact that these development stage U.S. corporations are relatively defenseless to these attacks while developing in the incubators provided by the lesser trading venues doesn’t hurt either.

    These corporations also are typically yet to be cash flow positive. Abusive naked short sellers can easily force these corporations to service their monthly “burn rate” by selling shares at steep discounts to current share price levels (due to the implied high risk) that can be put into a “death spiral” by simply refusing to deliver that which you sell. The resultant accumulation of readily sellable share price depressing “security entitlements” inflates the “supply” of that which must be treated as being readily sellable as per UCC Article-8-501 which by definition decreases share prices.

    Truly “bona fide” market makers that are allowed to legally access the bona fide MM exemption from performing pre-borrows or “locates” before making admittedly naked short sales will address order imbalances involving excess buy orders and excess sell orders by taking the other side of these trades. Ever since our DTCC-administered clearance and settlement system was illegally converted to a foundation involving mere “collateralization versus payment” (CVP) instead of the congressionally mandated “delivery versus payment” (DVP) foundation involving the “prompt settlement” of transactions abusive market makers realized that they could sell nonexistent shares into buy orders all day long, refuse to deliver that which they sold and still gain access to the funds of the unknowing investor. The key was the ability to rely on the NSCC management to pretend to be “powerless” to buy in these delivery failures.

    In a CVP environment all abusive naked short sellers are asked to do is to collateralize the monetary value of the failed delivery obligation on a daily marked to market basis. As the share price predictably plunges due to the inflation of the “supply” variable of that which must be treated as readily sellable so too did the collateralization requirements. Thus the investor’s money would unconscionably flow to the seller of nonexistent shares even though he continued to refuse to deliver that which he sold. This is the hallmark of a clearance and settlement system that has been illegally converted to a CVP foundation.

    Abusive MMs would sell truckloads of fake shares into buy orders in markets characterized by order imbalances involving buy orders dwarfing sell orders but they were nowhere to be found when share prices were dropping when sell orders outnumbered buy orders and the injection of buy side “liquidity” was needed. In order to legally access the “bona fide” MM exemption a MM has to inject buy side “liquidity” as share prices drop with the same vigor that he injects sell side “liquidity” when buy orders predominate.

    The problem is that selling even nonexistent shares makes you money in a clearance and settlement system using “collateralization versus payment” but covering those naked short positions costs you money. As share prices dropped abusive MMs were nowhere to be found injecting buy side liquidity and if anything were busy selling yet more nonexistent shares in order to reroute yet more investor money into their pockets and enhance the value of the short/negative bet they had earlier placed.

    By far and away the most effective way to deter these thefts is for the NSCC management to “buy-in” these delivery failures on approximately T+6 when it becomes obvious that their abusive “participant”/boss had no intent to ever deliver that which it sold. In other words, the default presumption of the NSCC that all FTDs are associated with temporary delays in delivery was not accurate and thus the “security entitlements” were “MISTAKENLY” issued.

    The NSCC management after attaining 15 of the 16 sources of empowerment to execute buy-ins and while having the congressional mandate “to act in the public interest, provide investor protection and to “promptly settle” all securities transactions” still has the audacity to plead to be “powerless” to buy-in the delivery failures of its abusive “bosses” when they absolutely refuse to VOLUNTARILY deliver that which they sold even after being given access to the previously blindfolded investor’s money.

    The “injection of liquidity” argument posits that investors can buy shares at cheaper levels when these theoretical “shareholder advocates” known as market makers “generously” sell shares at levels below which investors otherwise might have had to pay. The problem is that many abusive MMs that have “accidentally” run up gigantic naked short positions due to greed are merely putting a “lid” on the market so that their collateralization requirements and short position doesn’t cost them a fortune in losses.

    When an abusive MM that has been pretty much the dominant seller in the securities of a corporation that refuses to go bankrupt on cue decides to cover his naked short position he has to do two distinct things. First of all he has to stop the daily “maintenance” naked short selling done to pin the share price down. This alone is going to cause the share price to gap upwards in thinly-traded securities. Secondly he has to buy back a truckload of shares out of the open market as the market is gapping upwards. This could be cost prohibitive. Since there is no risk of being bought in by the NSCC management (the abusive NSCC participant’s employees) then an abusive market maker would be insane to EVER cover a pre-established huge naked short position.

    At first glance it’s wonderful to be able to buy shares cheaper due to all of this sell side “liquidity” being provided but if it comes at the expense of no chance in the world to have a profitable investment then I would rather buy in at a higher level in a market not “rigged” to go down. The problem is that it is incredibly easy in a clearance and settlement system based on CVP for a MM to run up massive naked short positions and get himself into trouble.

    The NSCC subdivision of the DTCC is in essence handing out “free money” to its abusive participants just for their refusing to deliver that which they sold. They even intentionally withhold the only source of meaningful deterrence to these thefts as well as the only cure available when the sellers of securities absolutely refuse to VOLUNTARILY deliver that which they have already sold i.e. execute the much needed “buy-in”.

    The problem is that in a zero sum game like Wall Street in a CVP clearance and settlement system the free money they’re handing out is that of the previously blindfolded investors that thought that the NSCC was an SRO (self-regulatory organization) mandated “to act in the public interest, provide investor protection and “promptly settle” all securities transactions”. When the seller of securities absolutely refuses to voluntarily deliver that which it sold there is only one way to “promptly settle” that transaction and that is via executing a “buy-in”.

    The actual crime being committed here is the illegal accessing of that exemption that can only be legally accessed if the market maker is willing to cover his preestablished naked short positions should share prices drop. As mentioned one doesn’t know if a market maker illegally accessed that exemption UNTIL the next downtick in share prices. This is when a truly bona fide MM covers his previously established naked short position. The illegal accessing of that universally abused exemption leads to the 100% predictable “manipulation” of the share price downwards which in turn leads to the theft/conversion of the unknowing investor’s money.

    The obvious solution here is to force any market maker labeling a sale as “short sale exempt” which signifies that he is formally accessing that exemption to place a bid for an equal amount of shares that he is naked short selling at perhaps 2% below the level at which the naked short sale was made. In essence a MM accessing that exemption must be forced to PROVE that he is acting in a “bona fide” market making capacity. Being put on the “honor system” amidst trillions of dollars of temptation historically just didn’t cut it. Imagine that!

    Abusive MMs constantly proffer the argument that it’s their job to sell nonexistent shares into markets when buy orders dominate sell orders and it is and they’re right. But as the share price drops from $10 to 10-cents how could there have been a preponderance of buy orders dwarfing sell orders while the share price was falling off of a cliff because the trading data shows that you were selling the whole way down?

    Back to the myth: “The typical U.S. market maker injects much needed “liquidity” especially into the markets of thinly-traded securities”. The injection of “one-sided liquidity” meant to reroute the investment funds of previously blindfolded investors into one’s own wallet is not “much needed” by any U.S. investor.

  143. iStandUp —

    My point is that we should not be accusing anyone of ANSS. We should not use the phrase “abusing naked short selling”, or its abbreviation. That term does not help our cause. We should emphasize that the perps are fraudulently selling shares with no intention to deliver. That’s what is already illegal under current law.

    I certainly do not think the dialog on this board is silly. But we do play into their hands by allowing them to obfuscate the simple fraud that is going on when we get tied in knots haggling of the fine points of how it gets carried out.

  144. Mary Schapiro praising the insider traders at the SEC. A real hoot:

    “In a statement, SEC Chairman Mary Schapiro acknowledged weaknesses and promised reforms, including tougher rules governing trades and a new system for tracking trades.

    “It only makes sense that we have a world-class compliance program — just as we expect from those we regulate,” Schapiro said. “The employees at the SEC have a well-deserved reputation for integrity and professionalism. These measures will further bolster our standing by helping to prevent not only an actual impropriety, but the appearance of one as well.”

    http://www.washingtonpost.com/wp-dyn/content/article/2009/05/22/AR2009052203331.html?hpid=topnews

  145. Fred: The tactic that abusers always use is to get into dialogue and then do the interpretation tactic or that there is no definitive word/phrase or other. It’a tactic used in many arenas. Yet STEALING is STEALING. No definitive word or phrase is needed for such. It’s about enforcement and those who would use the beforementioned tactic should SIMPLY BE REMOVED by those who have the stroke to do so. It takes commons sense LEADERSHIP. We have lacked both. And we need both. Until such we continue the debate that as I said in a previous post could continue for decades. NOT. One doesn’t have decades. The system nearly collapsed in DAYS. Pressure needs to be applied by those who do have the stroke to get a SHAPIRO to do her job or be gone. And that applies to many others. Instead we see a Shelby on TV given accolades from the very jerks who have been complicit. COMMON SENSE. FIX IT. Leadership. DO IT NOW or be gone. It really isn’t so hard. Here and now given the cleansing that has taken place I’d submit we are probably close to some action whether it be the right action or not. What the heck they allowed many an equity future and equity to be taken down to buy em back prices that many could be delivered. It’s now easier to implement some rule. I suspect they are simply WAITING for some additional data that says..It’s all clear and then they allow those who have not complied to be subject to the buyins. We shall see. But until..lots of dialogue when simple DO IT suffices.

  146. red,

    You said:

    “My point is that we should not be accusing anyone of ANSS. We should not use the phrase “abusing naked short selling”, or its abbreviation. That term does not help our cause. We should emphasize that the perps are fraudulently selling shares with no intention to deliver. That’s what is already illegal under current law.”

    I am not sure what you mean by “That term [ANSS] does not help our cause.” But as I have stated before the phrases “Naked Short”, “Naked Shorting” and other such “NAKED” phrases do not communicate to the common man and woman investor that a crime has been committed against them.

    The following naked short cartoon illustrates the essence of what is communicated to the common man and woman by these “NAKED” phrases – naked men:

    http://media.npr.org/blogs/globalpoolofmoney/images/2008/09/naked_2.jpg

    On the one hand I think I agree with your statement, yet on the other hand I disagree with your statement….

    It seems to me that there are at least two audiences that we need to communicate with:

    1 – Common Man and Woman Investor who do not understand the crimes being committed against them.

    2 – The Courts, the lawyers, the SEC, the Financial Self Regulators in the legal system.

    These two audiences require us to communicate with them in different ways. The Common Man and Woman Investor does not understand these “Naked” phrases, yet those groups in the legal system require the use of “Naked” phrase because these phrases are part of the financial industry’s standard vocabulary.

    Dr. Jim DeCosta excels in communication with the legal system. And for those willing to enter into the struggle to climb the required learning curve, Dr. Jim DeCosta written explanations are an excellent learning tool.

    On the other hand, if I were to hand most of Dr. Jim DeCosta’s detailed explanations of “The Wall Street Counterfeit Machine” to the Common Man and Woman, their eyes would probably roll back in their heads after reading the phrase “NAKED SHORT” the first time. The visual image of a “Naked Man” in their mind created by the phrase “Naked Short” would be so absurd their mind would shut down.

    I am here to study and learn from everyone including Dr. Jim DeCosta with the hope that I can learn enough to create some type of explanation for the Common Man and Woman investor that will clearly show them that financial crimes are being committed against them.

    So if what you mean by “That term [ANSS] does not help our cause.” is that the Common Man and Woman Investor will not understand this term ANSS, then I agree. But I do not agree that we should never use this term.

  147. Dr. Jim DeCosta,

    One anomaly that I notice recently in writing my 2nd draft is that Wall Street tells us that the SBP program “cures” the Failure to Receive.

    The question that comes to mind is:

    How is it possible for a buyer to RECEIVE the stock they purchased when their money was NEVER USED TO BUY STOCK?

  148. Dr. Jim DeCosta,

    Above you spoke about the “security entitlements”.

    What happens if a long investor unknowingly sells his/her long shares which are only “security entitlements” BEFORE the FTD is cured?

    Do these shares somehow “magically” become “cured” because these shares somehow get lost in the anonymous pool of stocks?

  149. istandup,

    In regards to your question: “What happens if a long investor unknowingly sells his/her long shares which are only “security entitlements” BEFORE the FTD is cured?”

    Assume that an NSCC participating clearing firm has 10 million Acme shares in its NSCC participant “shares account”. Let’s also assume that it sends out monthly statements “implying” that it is “holding long” 30 million shares of Acme for its clients. It is thus “naked short” 20 million shares.

    If the phone rings and a client wants to sell his Acme purchases by default he will be determined to be one of the lucky ones that did get delivery of that which he purchased. That’s the beauty of “anonymous pooling” to cover up frauds. If there were a “run on the bank” scenario in which the purchasers of all 30 million Acme shares at that broker wanted to sell their shares simultaneously it still wouldn’t matter.

    Since 90% of people hold their shares in “street name” because it’s so “handy” that broker could always borrow some from across the street and repay the borrowing later. The “fraternity brothers” at the DTCC take very good care of each other. I’ll post a blurb from book #9 in a second re: the tricky nature of “security entitlements”.

  150. istandup, see if this from book #9 helps with the concept of “security entitlements”. It’s the first 11 points of 54.

    KEY CONCEPTS IN REGARDS TO ABUSIVE NAKED SHORT SELLING (ANSS) FRAUDS

    Dr. Jim DeCosta

    1) The fraud known as abusive naked short selling (ANSS) went into high gear back when the DTC (Depository Trust Corporation) “volunteered” to act as the surrogate “legal owner” of all shares held in “street name” ostensibly to enhance the efficiency of the clearance and settlement process. Their nominee “Cede and Co.” became the “legal owner” or “owner of record” of all shares held in “street name” as referenced on the corporate transfer agent’s books.

    2) This effectively blindfolded a corporation’s transfer agent from performing his “anti-counterfeiting policeman” role as “Cede and Co.” owned pretty much everything in sight and the TA was left with no visibility of the shenanigans going on behind the scenes at the secrecy-obsessed DTCC and their DTC and NSCC subdivisions.

    3) Since the purchasers of shares were no longer the “legal owner” of that which they purchased they became relegated to being the mere “beneficial owners” of the securities purchased. “Cede and Co.” would “legally own” the shares for the benefit of (FBO) its “participating” clearing firm that in turn “owned” them FBO their client the investor. A “fiduciary” relationship was thus created between this surrogate “legal owner” and the “beneficial owner” that purchased the shares. Unfortunately for investors mere “beneficial owners” do not have the visibility of the behind the scenes actions at the NSCC like the “legal owners” enjoy. These “blindfolded” investors are forced to place their TRUST in the DTC to “act in good faith” and represent the interests of the purchasers of these shares while acting as a fiduciary in this surrogate “legal owner” capacity. History has now clearly shown us that neither the DTCC nor the DTC nor the NSCC nor many of their abusive “participating” market makers and clearing firms were up to this “acting in good faith” concept. The ability to re-route literally trillions of dollars of previously blindfolded investors’ money with very little risk of detection or meaningful penalties was just too tempting to pass up on.
    4) The “beneficial owner” of securities was deemed by law to be what is referred to as a “security entitlement holder” as opposed to the “legal owner” of that which he purchased. What the investing public that hold their shares in “street name” often fail to comprehend is the tricky nature of legal “entitlements”.

    5) The authors of UCC Article-8 wanted to send a “reminder” to the DTC “participants” and their nominee “Cede and Co.” that just because they were acting as the surrogate “legal owner” of all shares held in “street name” for efficiency purposes only they were never to LEVERAGE this form of public trust over the investors that they have the congressional mandate to protect. After all, it was the “security entitlement holders” that bought and paid for the shares (that may or may not have ever been delivered). As it turns out mere “security entitlement holders” have absolutely no clue as to whether or not that which they purchased ever did get delivered. The test begins; will abusive DTC participants try to LEVER the “legal owner” role and their superior view of the clearance and settlement system that the regulators and investing public entrusted them with?

    6) UCC Article 8 made it clear that it was the investor clients of the various clearing firms making up the NSCC subdivision of the DTCC that were entitled “to exercise all of the rights and property interest that comprise the securities that they purchased” and not the NSCC participating clearing firms. The DTC promised that they would never think of LEVERAGING the fact that they were technically the “legal owner” of that which others purchased. Well, history seems to indicate otherwise as the “legal owner” of these securities ended up doing pretty much anything they wanted to with their “possession”.

    7) UCC-8 clearly spelled out the various roles of the “legal owners” of securities versus those of the “security entitlement holders”. If the “entitlement holders” wanted to attain the “legal ownership” of that which they purchased all they had to do was to file an “entitlement order” demanding the delivery of the paper-certificated version of ownership (a share certificate) with their name inscribed on it. As the investors in corporations undergoing abusive naked short selling attacks will readily attest the DTCC often refuses to honor these “entitlement orders” in a timely fashion because to do so would often involve the NSCC management buying-in the delivery failures of their abusive bosses/participants. This process would drive share prices up and counter the share price depressant effect of “security entitlements” which those with massive preexisting naked short positions rely upon. The absolute refusal to execute buy-ins in order to service an “entitlement order” by the surrogate “legal owner” of shares obviously would be bordering on a criminal act. An unconflicted surrogate “legal owner” acting in a fiduciary capacity would obviously not facilitate the counterfeiting (via the NSCC’s SBP) of that which it has the mandate to “safeguard” and act as the “legal owner” of.
    8) UCC Article-8-501 mandated that the clearing firms of investors that didn’t get delivery of the securities they purchased by “settlement date” (T+3) must nevertheless credit the investor’s account with “security entitlements”/IOUs/”long positions”/”phantom shares” representing the yet (if ever) to be delivered shares. Make a mental note as to the naïveté of this default assumption that ALL delivery failures on Wall Street involve securities that are about to arrive any second due to an unforeseeable but “legitimate” delay.

    9) UCC Article -8 also mandated that the clearing firms holding these “security entitlements” treat their clients/”entitlement holders” as being entitled to exercise ALL of the rights and property interest that comprise the security even though they never got delivered and even though that which was sold may have never existed in the first place. OOPS!

    10) Note the insanity here IF those shares sold whose delivery was theoretically “delayed” weren’t “delayed” at all but never existed in the first place and are not about to “arrive any second”. If that were to happen it’s too late because the purchaser of these “nonexistent” shares i.e. their “entitlement holder” already got permission to sell them as if they did arrive due to the wording used in 8-501.

    11) Faulty presumptions about the imminence of delivery now allowed “counterfeit” shares to enter the system. The door was now wide open for securities fraudsters to take advantage of this “default assumption” regarding an imminent delivery and establish massive naked short positions by simply refusing to deliver the (nonexistent) securities they previously sold and thereby literally drown U.S. corporations with share price depressing “security entitlements” while claiming to be “injecting” much needed “liquidity”.

  151. iStandup

    It’s just a matter of keeping the unlawful act in focus. In a theft, the important fact is that someone snatched someone else’s property. We don’t need to get involved in the details of how the lock was picked or the tools that were used.

    When we use the term “abusive naked short selling”, we can’t avoid getting into those details. And that is just what the perps want. If we simply focus on the unlawful act of causing a sale to occur with no intention of delivering, the violation is clear. And the perps can’t deflect the dialogue into the underbrush.

    Keep up the good work.

  152. Hedge funds worried Obama moves could backfire
    Fri May 29, 2009 4:34pm EDT Email | Print | Share | Reprints | Single Page [-] Text [+]
    By Joseph A. Giannone – Analysis

    NEW YORK (Reuters) – U.S. government efforts to revive a sluggish economy have cheered markets since March, but some of the most successful investors around worry these moves may only make the bad times linger.

    Several hedge fund managers at an investment conference this week warned that a number of policy moves by the Obama administration, from its Chrysler intervention to Treasury’s myriad bank bailouts, will only extend the recession.

    It would be better, they said, if the government let markets move unimpeded, causing pain now but clearing a path for sustainable recovery.

    “The basic strategy appears to be to try to bring us back to 2006 by propping up asset prices and reflating the popped credit bubble, subsidizing bank creditors and shareholders, and delaying needed bank recapitalizations while hoping for an economic recovery,” Greenlight Capital’s David Einhorn said at the annual Ira Sohn Investment Research Conference.

    Wall Street has been pilloried during the past year for making big gains as markets crumbled, and blamed for driving companies into the ground and accused of standing in the way of the recovery. U.S. President Barack Obama last month chastised several hedge funds as “speculators” when they declined to support his Chrysler restructuring plan.

    The scolding prompted these fund managers to surrender, but the episode made investors less certain about the security of their interests.

    “It is a very bad idea for governments to create arbitrary and unfair outcomes, or outcomes resulting from the passions and whims of the government rather than from the law, just because they have the power to do so,” said Paul Singer of hedge fund Elliott Management.

    MidAmerican Energy Chairman David Sokol, who runs a utility that also owns the second-largest U.S. real estate brokerage, said short-term fixes could came back to haunt the U.S. economy.

    “Government intervention could draw this out much further than is necessary and is useful, although for some areas it may feel somewhat good in the interim,” said Sokol, a contender to succeed Warren Buffett as head of Berkshire Hathaway Inc.

    Several of the Ira Sohn speakers warned massive government spending today could lead to rampant inflation.

    Peter Schiff of Euro Pacific Capital, who in 2006 publicly warned the subprime crisis would drag down financial markets, said Obama’s policies will only re-inflate the credit bubble.

    “As any drug addict knows, if you stop using drugs you will go through withdrawal. Government is making the situation worse,” said Schiff. “We don’t need any more stimulus. We are suffering from the stimulus we have already been given.”

    He joked years of misguided U.S. fiscal policy has created a Ponzi economy, where new Treasury bonds must be sold to repay existing investors just to keep Uncle Sam solvent.

    “I don’t know why we have Bernie Madoff in jail,” Schiff said. “We should appoint him secretary of the Treasury.”

    Einhorn observed the U.S. budget deficit has grown to 13 percent of GDP, not including the trillions of dollars of potential losses guaranteed under the government’s bailout plans. Long-dated U.S. bonds, he said, are already anticipating higher rates inflation

    When it comes to bolstering banks, though, the Obama administration may be doing too little.

    Einhorn, who correctly predicted Lehman Brothers needed a lot more capital to cover real estate losses, this week said U.S. banks are undercapitalized even after raising $75 billion of equity following the so-called stress test.

    The government should induce investors to swap debt for equity and push banks to recognize their losses on mortgages and other debts, he said. Yet these measures would generate losses and the government has not forced the issue.

    “The Obama administration disappointingly seems to be following the same path as the Bush administration,” he said.

    (Additional reporting by Herbert Lash)

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