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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[...] production by Deep Capture takes 18 minutes to view but it will open your eyes to the market manipulation going [...]
[...] in off-balance sheet entities. As Deep Capture reporter Judd Bagley detailed in a recent video (click here to watch), those liabilities were likely related to Refco’s rampant naked short [...]
[...] [...]
[...] in off-balance sheet entities. As Deep Capture reporter Judd Bagley detailed in a recent video (click here to watch), those liabilities were likely related to Refco’s rampant naked short [...]
[...] in off-balance sheet entities. As Deep Capture reporter Judd Bagley detailed in a recent video (click here to watch), those liabilities were likely related to Refco’s rampant naked short [...]
[...] Here is a good summary of how abusive naked short selling works. [...]
[...] Naked Short Selling Redefining Systematic Risk, Deep Capture, 6 May Another fantastic video (under 20 mins) from deepcapture.com. In places like India they pay off politicians with paper bags full of cash (literally). In the west they do it this way (the article is from 1994 and will only make sense after watching the video and understanding the role of REFCO.) [...]
[...] [...]
[...] dass wir alle dumm und folgsam sind. Ein sehr lehrreiches kurzes Filmchen findet sich hier: Naked short selling – redefining systemic risk | Deep Capture: exposing the crime of naked sho… Leider nur in englisch. Gruss Rabenfeder [...]
[...] The fraud that brought down the giant brokerage, Refco, in 2005, saw Refco CEO Santo Maggio hide precisely the same sorts of naked short selling liabilities with help from an Austrian Bank called BAWAG (another operation tied to Roman Abramovich, the [...]
[...] Jim DeCosta, the naked short expert from Oregon with 25 years experience, for his expert evaluation of the [...]
[...] Jim DeCosta, the naked short expert from Oregon with 25 years experience, for his expert evaluation of the [...]
[...] testimoy of Donald Stoecklein in his 01-24-06 SEC Deposition, Donald Stoecklein testified that Jim DeCosta, a naked short expert from Oregon with 25 years experience, told both Bill Frizzell and him that a [...]
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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.
Judd, if this does not bring it home, nothing will!!Great job and thanks for your tremendous effort. “It is time”
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.
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.
Tell us something you don’t know:
http://ftalphaville.ft.com/blog/2009/05/06/55528/gao-less-than-pleased-with-former-sec-chairman-cox/
http://news.google.com/news/url?sa=t&ct2=us%2F1_0_s_2_0_t&usg=AFQjCNGgxCrAfuM1qxoyO3lE7SmoI2Wjtg&sig2=vDSdF0Ys8KnHWv2EHaWJvg&cid=1344517876&ei=WrgCSqCZAqC4MbDTnLcB&rt=HOMEPAGE&vm=STANDARD&url=http%3A%2F%2Fwww.bloomberg.com%2Fapps%2Fnews%3Fpid%3D20601087%26sid%3DaPus5C5B.JhQ%26refer%3Dhome
Christopher Cox needs to sit in front of the judiciary.
What a piece of idealogical crap.
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.
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
Excellent job Judd!!
Thank You
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.
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!!!
Here is the link to the video that proves CNBC is owned by the Hedge Funds!!
http://www.cnbc.com/id/15840232?video=1116706165&play=1
A change is a coming
“MFA Endorses Mandatory Hedge Fund Registration”
http://www.cnbc.com/id/15840232?video=1116822187&play=1
Hillary Clinton and REFCO….Yes, our Sec of State……
http://www.washingtonpost.com/wp-srv/politics/special/whitewater/stories/wwtr940527.htm
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/
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…
Absolutely beautiful. Except for the part where we all get defrauded. Keep up the great work!
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 http://www.deepcapture.com are becoming the new standard for journalistic integrity.
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.
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.
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!
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
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
ryan@huffingtonpost.com | 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.”
New York Times on pump and dump and naked shorting.
http://www.nytimes.com/2009/05/08/business/08place.html?_r=1&ref=business
The naked short cabal (Israeli/Russian) mob at work and play:
http://dealbook.blogs.nytimes.com/2009/05/08/the-internets-role-in-gaming-the-markets/
Awesome catch by Ticker Guy (http://www.market-ticker.org):
http://blogs.ft.com/maverecon/2009/05/derivatives-and-attempted-state-capture-in-kazakhstan/#more-1481
Use CDS to short your own debt position in a bank!!
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?
Nothing backing your share IOU’s, nothing backing your dollar IOU’s.
http://3.bp.blogspot.com/_FM71j6-VkNE/SgRR6Evs8cI/AAAAAAAACck/vX71NmV4yx0/s1600-h/purchasing+power.gif
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.
The London Times, acting like the media no one else will..Imagine That !!!
http://www.ft.com/cms/s/0/158f174a-3bed-11de-acbc-00144feabdc0.html?nclick_check=1
Go for it!
http://www.wnd.com/index.php?fa=PAGE.view&pageId=97359
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
Here are some charts showing how the securities fails were cleaned up about the time that the fails in Treasuries spiked.. and then about that time, the Fed lent money to the banks… It looks like they are just tranferring the debt they owe.
http://www.marketskeptics.com/2009/05/naked-short-selling-treasury-settlement.html
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?
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.
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.
Naked shorts will be covered by orchestrated stock market crash which will drive people into treasuries and drive up the value of the dollar.
http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=10554
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
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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
Its been over 20 years
Congress Needs to Needs to Cut Naked Short Abuses. The Prescott Courier – Feb 14, 1988.
http://news.google.com/newspapers?id=GoMOAAAAIBAJ&sjid=2oEDAAAAIBAJ&dq=naked-short-selling&pg=2694%2C2821195
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.
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…
Soros/Obama:
http://www.theleafchronicle.com/article/20090510/COLUMNISTS91/905100317
Watch out…
Love or hate the hedgies??!!??!!??!!??!!
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
Terry, that’s hilarious!
His shorts are stinking now!
Couldn’t wish him worse luck!
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
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.
It just gets better and better, the harder you dig:
http://news.bbc.co.uk/2/hi/uk_news/8029494.stm
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…
http://www.google.com/hostednews/ap/article/ALeqM5gOqO3_ktzzHxJZB9DL5T7tHltrNAD9843LGG1
John Hempton who is prominently featured here may be the same person who uncovered the V.P.’s family association with some very shady funds…. like Stanford… http://www.deepcapture.com/introducing-john-hempton-the-plunderer-from-down-under/#comments
Hempton’s blog on the subject if you are interested… http://brontecapital.blogspot.com/2009/04/economics-of-paradigm-global-alleged.html
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).
If anyone care to read the comments pro/con the uptick rule go here:
http://www.sec.gov/comments/s7-08-09/s70809.shtml
Of course their postings are almost a week behind. A story here?
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!
Madoff story gets better:
http://www.nytimes.com/2009/05/13/business/13madoff.html?_r=1&hp
http://www.thefederalregister.com/d.p/2009-02-04-E9-2488
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.
Sean, Dr De,
What about the companies that are naked shorted in foreign exchanges? What is the preventative/recourse/remedy?
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.
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.
Dr DeCosta, are you going to write a book?
What do you intend to do with these fine explanations?
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!
I think you need to get this book wrapped up. Too important to ignore, Dr D.
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?
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.
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?
Mozilo story:
http://finance.yahoo.com/news/SEC-proposes-suit-versus-rb-15239699.html?.v=1
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.
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….
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
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.
A nice letter from the SEC….
http://investigatethesec.com/drupal-5.5/files/Becker%20Response.pdf
Don’t tell me we are not getting heard or making a difference. This response took all of 4 days to write. Notice they have agreed to put up documents they previously fought against.
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!
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
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!?!?
Patchie, the link doesn’t work, can you fix it?
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.
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.
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.
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.
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.
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?
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.
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.
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.
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?
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.
Refco IPO
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.
How much is six figures?
Is it $100,000+ or $1,000,000+?
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.
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.
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.
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.
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.
I feel so sorry for those wishing to ‘express a bearish sentiment’. Heard Doug Kass use the expression and wanted to vomit. Winnie the Shortselling Pooh!
Anyway bad news for shorts somewhere anyway:
http://seekingalpha.com/article/137875-u-k-spread-bettor-restricts-shorting-specific-u-s-stocks?source=yahoo
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”.
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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
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.
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?
(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.
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.
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.