Someday I may SAC up and be more explicit about the Sith Lord

    Followers of the twisted tale of DeepCapture will remember that on August 12, 2005, I gave a webcast of which I remain proud, titled, “The Miscreant’s Ball” (see slidedeck and accompanying transcript).  Contrary to mainstream journalism (if one may write “journalism” to refer to back-and-forth parroting by hedge fund choagies Bethany McLean, Roddy Boyd, Herb Greenberg, Ron Insana, Joe Nocera, Carol Remond, Jessie Eisenger etc. of research so shoddy it would make a sophomore poetry student blush), that talk was not primarily about Overstock.  In fact, only 9 of the 40 slides (2 at the opening, 7 at the end) concerned Overstock.

    The bulk of the Miscreant’s Ball presentation discussed the modern bear raid in the context of a web of relationships among a number of Wall Street players, including certain prominent hedge funds and financial journalists, relationships which I depicted as intersecting through Jim Cramer (who later was caught on tape bragging about precisely the activities I had described), a law firm named Milberg Weiss (which since imploded under a DOJ indictment), the SEC (which I claimed had stopped protecting the USA due to its having become hopelessly captured by Wall Street), Eliot Spitzer, and Kroll, a corporate intelligence service which was, I said, employed by hedge funds (which David Einhorn has since confirmed) to build networks of corporate insiders (which may ring a bell with readers following the news now emerging regarding the recently indicted Raj Rajaratnam).

    Miscreants Ball web Someday I may SAC up and be more explicit about the Sith Lord

    The original Miscreants Ball relationship web. Click to see full version.

    The Machine went apoplectic in an attempt to spin, deride, downplay and obfuscate those claims.  Their method was simply to cover the Miscreant’s Ball as though it was only about Overstock (though less than 1/4 of it concerned Overstock). The journalists who wrote of it refused to cover, describe, or even mention the claims concerning this web of relationships, claims which formed 3/4 of the Miscreant’s Ball presentation. CNBC’s Ron Insana went so far as to trade taping an interview with me regarding these claims in return for access to supporting affidavits: once Ron Insana had the affidavits, CNBC refused to air the interview, and days later, the affidavits turned up in the hands of Roddy Boyd. How odd.

    Their stylistic technique, mindlessly replayed with the creativity and originality of a Lawrence Welk repeat, was to ridicule my use of the term “Sith Lord” (note to Hedge Fund Choagies Local 107: people who pretend not to understand metaphors dumb down the discourse).  Admittedly, salting the presentation with this and other colorful shibboleths proved insufficiently granular (i.e., all the journos turned out to be Ephraimites).

    In subsequent interviews I refined the metaphor to be “Al Queda” (a network of people sharing operating methods and goals, but not necessarily communicating extensively). Yet when interviewers asked about the Sith Lord comment  (see, for example, see my correspondence with BusinessWeek’s Tim Mullaney, among others) I made a rule of including something along the lines of:

    “I really think in terms of a composite of two people. Some day I might sack up and let the world know who the master minds are, but not now.”

    I suppose I could have made it more obvious.

    (Note: this is a work in progress. More will be added this weekend.)

    This post was written by:

    - who has written 166 posts on Deep Capture.

    I am a concerned citizen who has been focused on systemic instability since 2004.

    Contact the author

    112 Responses to “Someday I may SAC up and be more explicit about the Sith Lord”

    1. Lenofus says:

      Sorta like telling your kid not to play in the road, and he gets hit by a car. Saying, “I told you so” is of little solace. You just hope he pulls through and learns his lesson.

      What an inordinate amount of pain for absolutely no good reason. Just look at the pain the shooter in Orlando felt. And every week, we get another half million pink slips.

      If they only would have listened, put the welfare of the people over political power and money. But it was not to be.

    2. Kevin says:

      Non profit barter money instead of fiat currency and fiat stock ownership.

      http://www.henrymakow.com/dutch_barter_system_angers_ban.html

    3. Kevin says:

      I wonder who the M. M. master manipulator might be? The master manipulator has been Milking the system for far too long.

      • Huck says:

        Dr. Brynes. I have always held the deepest respect for you. and “Bob” ( as he can attest) BUT, the bunny was not the only one who understood your jest. I did ask about when the cat was going to be let out of the sac several times during the Dendron expose after all. The only question I have though is…. Will little stevie cohen have enough “juice” to escape justice? I won’t bother to ask about chanos. We all know his “juice” leads to 1600………… Now, you have done much, but is there not something that could focus enough attention on steve cohen to bring that unindicted felon into the public spotlight? I’ll volunteer for grunt work. Huck

    4. sean says:

      Hear, here Huck and I second that offer. I will offer any help that I can to out this Major Miscreant SAC as well Patrick!!!

    5. mhelburn says:

      Marcy Kaptur for President! She just introduced a bill to go after the miscreants… and suggests going back 15 years to get their crooked collections. Go Marcy. She seems to be one of the few who has sacked up… I was told that Michael Moore wants her to run.. She knows what people are going through and she wants to do something about it.

      If people weren’t on food stamps, and had real jobs, they wouldn’t need the wonderful government to mess in their health care. The Right is now holding BO to his assumptions about the stimulus and the supposed jobs it was supposed to create…

      Nobody wants to invest in a banana republic…. One minute you invest and the next they nationalize the business and the shareholders are screwed.

    6. RABBI ROCKY O'REILLY says:

      …only rabbits can speak in shibboleths’ Doc

      what was it again..? if only there was a pattern

      sking alps….

    7. kyoto27 says:

      Bringing the system to its knees (and globally) was sacrilege. That theft of something deemed very sacred should end badly for the Sith Lord. Bravo Pat!

    8. Dick Keane says:

      Secret Software & Naked Short Selling
      We need NSS arrests – not Insider Trading arrests
      It is November 5th, 2009 at high noon and the SEC is all over the news about another arrest. They are all on stage giving this big press conference on 14 arrests for Insider Trading connected to the Galleon Group investigation. Is it Insider Trading? The Government wanted the world to believe this caused the financial meltdown on Wall Street. Three weeks earlier the SEC made the first arrest for Insider Trading involving Raj Rajaratnam and 5 other people on Wall Street.
      It is my opinion that the Government and the SEC is involved in a cover up to try and make people think that it was insider trading that caused the crisis of 2008. Let the truth be known. The news media, along with Goldman Sachs and many other Wall Street companies and people of power are all involved in the biggest cover up in the history of the United States. It involves greed to the fullest extend. The SEC is responsible, under the leadership of Christopher Cox in July 2007, the Securities Exchange Commission abolished the Up Tick rule. The elimination of the Up Tick rule created a wave of corruption that grew out of control, based on Naked Short Selling and the use of secret software and super fast computers.
      Insider trading has played a role in the financial crisis, yet the story not being told by the news media is the arrest of a Goldman Sachs employee who tried to steal Goldman Sachs secret software. This arrest came over the July 4th Holiday week-end and was aired briefly on a Saturday night on TV and then came Monday July 6th, 2009 and the story disapeared. A few weeks later Goldman Sachs reported its FY 2009 2nd QT earnings ( April – May -June ) and Goldman Sachs made over $100 million dollars a day in 46 of the 64 trading days for that quarter. How could this be possible after a 17 month recession. Wall Street changed two major Laws. The first being the use of decimal places (2001 )instead of fraction. Years later and after they lobbied for the removal of the Up Tick rule ( 2007 ) the secret software was designed and in place ready to go into full operation now that Wall Street was allowed to naked short sell millions upon millions of shares that Goldman Sachs and other hedge funds didn’t even own and failed to deliver. Their greed took over, who wouldn’t , when Goldman Sachs was making over $100 million a day in trading. They destroyed companies like Sirius XM radio and overstock.com and many others. Then they began naked shorting the banking industry and attacking each other.
      This is the truth that the news media, corporate Amercia, the SEC, the Government, Goldman Sachs, Hank Paulson and the many others that were in power have not told the American people and the world. Now, as I write this letter, they are now trying to con the world into thinking it was insider trading that caused 95% of the middle class workers to lose 20% – 60 % of their investments and 401K’s.
      In the end the Entire story will be told and I hope I get my chance to tell it. Check the facts. There was an arrest of that Goldman Sachs employee in July 2009. Why was it covered up? Where are the arrests for Naked Short Selling and Goldman Sachs use of their secret software that stole the wealth off investors all across the country. It will go down as the biggest scandal in history.

      Richard Keane 11-07-09

      • Fishy says:

        Before Patrick Byrne jumped into the water,
        It was like the blind man walking past the fish
        Market. Throwing up his hand and saying
        Good morning ladies! *smile*

    9. Peter J. of Minneapolis says:

      Patrick, will you be off or from?

    10. Anonymous says:

      Hedge-Fund Giant Surfaces in Trading Probe

      NOVEMBER 7, 2009
      By SUSAN PULLIAM
      http://online.wsj.com/article/SB125756405277235519.html?mod=WSJ_hpp_sections_tech

      “The widening investigation of insider trading on Wall Street is expected to examine transactions at Steven A. Cohen’s SAC Capital Advisors, one of America’s largest and most successful hedge funds, according to people familiar with the matter.

      A plea agreement between the government and a cooperating witness in the investigation, Richard Choo Beng Lee, indicates that Mr. Lee has agreed to provide information to prosecutors about a hedge fund where he worked between 1999 and 2004. That firm is SAC, according to people familiar with the matter.

      In March 2009, after striking the deal to assist the government, Mr. Lee sought to get rehired by Mr. Cohen, people familiar with the matter say. Mr. Cohen declined to hire Mr. Lee because he was suspicious about the recent and abrupt closure of Mr. Lee’s hedge fund, Spherix, these people say.

      Under the plea agreement, which was signed on Oct. 13, 2009, and made public Thursday, Mr. Lee will tell the government about transactions by other SAC traders, a person familiar with the matter says. Mr. Lee’s lawyer, Jeffrey Bornstein, declined to comment about what information his client “has or will be providing to the government.”

      A spokesman for Mr. Cohen and SAC, which has assets of $12 billion, declined to comment.”

    11. DCN says:

      And little Stevie is in league with the Solntsevskaya bratva?

    12. pontiyak says:

      HedgeHogs© & WalledStreet©… need I say more?.. How old is NSS?…

      The SEC knows.

      You decide…

      91 Unfortunately, the types of abuses that the Penny Stock Reform Act and the penny stock rules are intended to combat have a long history in the securities markets. In 1697, the Parliament of England passed “[a]n act to restrain the number and ill practice of brokers and stock jobbers.” The statute was aimed at unlawful conspiracies by jobbers to manipulate prices, and it followed a report of a special commission that had complained:

      The pernicious Art of Stock-jobbing hath, of late, so wholly perverted the End and Design of Companies and Corporations, erected for the introducing, or carrying on, of Manufacturers, to the private Profit of the first Projectors, that Privileges granted to them have, commonly, been made no other Use of, by the First Procurers and Subscribers, but to sell again, with Advantage, to ignorant Men, drawn in by the Reputation, falsely raised, and artfully spread concerning the thriving State of their Stock.

      1 Louis Loss and Joel Seligman, Securities Regulation, 3 (3d ed. 1989).

      http://www.sec.gov/rules/proposed/34-49037.htm

      yak

    13. clearthinker says:

      you know, when the Iron Curtain fell a while ago, the thought occurred that there might be some people who would want to “get even” with the USA…

      Draining money from the US capital markets via naked short selling would be a pretty good form of revenge, dontcha think? Capture the media, capture the regulators, hey maybe even have some message boards so people can bash companies anonymously.

      Sounds like a real business plan

    14. jack says:

      So do you think this is a bold new push towards cleaning up our capital markets? Or just more of the same pay your fine and be on your way business as usual crime syndicate? Is it possible the newly larger, consolidated, and more powerful IB’s who owe the treasury some big favors are coming around to the sense that cheating hedge fund clients are not worth the liability? Thoughts?

    15. Icarus says:

      “First they call you crazy.”Props to all the boys. You’ve done much to encourage those who have been pushing the rock up the mountain. At times, I would imagine that you have been their only support, encouragement, and touch-stone.

    16. harveywalbinger says:

      @Jack,

      “Owe” the treasury or “own” the treasury ? You do realize that investment banks are hedge funds too, right ?

      The bold new plan is same as it ever was: to restore “confidence” in the banking system and secondary markets because our fractional reserve banking system is a leveraged ponzi scam (inflation=leverage) & the secondary markets… are both “con”-fidence games.

      There does seem to be an effort to clean up some corruption in the secondary markets. But it’ll be quite a task to stuff that tempest back in the teapot. This is all about “restoring confidence”, not necessarily about reform and holding those responsible to account… If it were, we’d know who made the $270 million bet against Bear… Nah. It’s a “con” game. They’ll sacrifice a few small fish, but not the whales.

      As far as restoring sanity to these venues… Not gonna happen as long as there is a private bank with the power to inflate the US dollar. We need to audit the Federal Reserve. And then shortly thereafter I’d wager there will be overwhelming sentiment to end the Fed and get back to a gold/silver backed currency.

      Hope for the best & expect the worst, & then you won’t be too terribly disappointed.

    17. ron doc says:

      Ican thing of another who just might be a helper bee

    18. ron doc says:

      Oops! I better check my stuff before submitting it. Ican check from now on. So Soros, er sorry about that.

    19. sean says:

      Is the SEC being forced to do their jobs finally? And if so are they working from the bottom on up? I certainly hope so!!

      Former SEC lawyer pleads guilty……
      http://online.wsj.com/article/SB125779032730739101.html
      By CHAD BRAY
      NEW YORK — A former lawyer in the Securities & Exchange Commission’s Division of Enforcement admitted Monday to helping disgraced lawyer Marc Dreier carry out a scheme to attempt to sell $44.7 million in fake promissory notes by impersonating persons at two hedge funds.

      Robert L. Miller, 52 years old, pleaded guilty to conspiracy to commit securities fraud and wire fraud, as well as securities fraud, at a hearing before U.S. Magistrate Judge Ronald L. Ellis in Manhattan.

      Mr. Miller admitted that he was paid $100,000 by Mr. Dreier, the one-time managing partner of Dreier LLP, in November 2008 in order to impersonate persons at a Canadian pension plan, and a few days later an Icelandic hedge fund, in order to sell about $44.7 million in fictitious promissory notes.

      “In summary, I agreed with Marc Dreier that I would make misrepresentations to two hedge funds to induce them to buy notes,” Mr. Miller said. “I knew what I was doing was wrong and I deeply regret what I did.”

      Mr. Miller, who is cooperating with prosecutors, faces as much as 20 years in prison on the fraud. Sentencing is set for Feb. 5.

      Mr. Dreier was sentenced to 20 years in prison in July after pleading guilty to conspiracy, securities fraud and other charges in a scheme to sell $700 million in fake promissory notes and to misappropriate client funds from his law firm.

      Mr. Miller, of Englewood, N.J., is the third person to plead guilty in the scheme. Kosta Kovachev, a former broker, pleaded guilty to conspiracy and wire fraud earlier this month.

      Prosecutors from the U.S. Attorney’s office in Manhattan said Mr. Dreier used money obtained from the overall scheme to support a lavish lifestyle, including purchasing two beach-front homes in the Hamptons valued at about $12.5 million, a $10.4 million Manhattan apartment, a yacht worth $18.3 million, a 2007 Aston Martin DB9 Volante, more than $30 million in art work and funding the operations of his law firm.

      His law firm, Dreier LLP, filed for bankruptcy protection on Dec. 16, 2008.

    20. ron doc says:

      Sadly, NSS is but one leg of the massive octopus about to take down our country and world. Protect your self and family a well as you can, and the markets probably are not part of the protection needed. Maybe the gold markets are a exception for a while, till it really goes over the hill.

      I am going with God…Then for what I can do, getting gold/silver, food and guns in hand. All real.

      How did we stay so stupid for so long?

    21. Jim Hall says:

      Looks like a RICO case, if we had a real SEC and gov’t.

    22. John Olagues says:

      I think the top executives at Goldman and JP Morgan were regular way short Bear Stearns, Lehman, Merrill and AIG as a part of a hedging strategy versus their long positions in their own stock and options, that came from equity compensation.

      The collapses of Bear and Lehman, Merrill and AIG was approved by the NY FED whose directors were Goldman and JP Morgan executives.

      All of this hype about “naked short sellers” collapsing BSC, JPM, MER and AIG is a provable fraudulent misdirection away from the criminals in the highest positions of the Federal reserve and their related friends and puppet masters. Those claiming “naked short selling” collapsed those banks are, in my view, aiding and abetting the crime.

    23. Dr.Jim DeCosta says:

      John Olagues,

      The role of abusive naked short selling in the demise of both Bear Stearns and Lehman Brothers has been clearly elucidated in a very thorough “post mortem” performed by Dr. Rob Shapiro and Dr. Nam Pham in their April 2009 research paper which you can find at http://www.sec.gov/comments/s7-08-09/s70809-2850.pdf

      I’ve had the honor of serving on abusive naked short selling committees with Dr. Shapiro and he is the real McCoy. He served as the Undersecretary of Commerce back in the Clinton administration. In Figures 2 and 3 of the paper cited above you can see how the failures to deliver grew astronomically as the short interest spiked and the share price literally fell out of bed.

      As Bear Stearns short interest spiked 4-fold their FTDs spiked 145-fold. In the case of Lehman Brothers as their short interest spiked 4-fold their FTD rate went up 150-fold. You just cannot write statistics like this off as “background noise”. Each of the borrows associated with the increase in the short interest and each of the FTDs resulted in the issuance of a readily sellable share price depressing “security entitlement”. Each and every one of these “security entitlements” resulted in an increase in the “supply” of that within these corporations’ share structure that is treated as being readily sellable as per UCC Article-8. Each and every one resulted in share price depression. These “security entitlements” are the “bullets” that Matt Taibbi cited in his Rolling Stone article as being the cause of the demise of these corporations.

      The coincident timing of the spike in the short interest and the spike in the FTDs after the regression analysis was completed clearly shows that these two very damaged corporations were pushed off of the cliff. I agree that their own actions got them in the vicinity of the edge of a cliff.

      The question that you should be asking is why have the SEC, FINRA, the DTCC and the financial media all failed to acknowledge the obvious role of abusive naked short selling in the demise of these two corporations. The answer has to do with the fact that the circumstances surround the demise of these two corporations just barely scratches the tip of a very ugly iceberg in the form of massive numbers of unaddressed FTDs underlying many U.S. corporations unfortunate to have been targeted for destruction. The creators of this iceberg would just as soon not deal with this iceberg as these “bullets” work their magic in bringing down these corporations, the jobs they provide and the investments made therein.

      • John Olagues says:

        Dr.Costa.

        Most of the fails to deliver were caused by options market makers making early exercises of their puts. Of course that’s something that’s over your head.

        The idea that alleged short sales of stock at 13 cents caused the collapse of Lehman from 16 dollars a week earlier is sheer lunacy.

        Its like claiming that a person who was murdered on Thursday was shot and killed by someone on the following Tuesday.

        Anyone who is capable of holding that view obviously has the ability to believe that “naked short sales” collapsed Lehman and should be resting peacefully in some psychiatric ward.

        JO

        • iStandUp says:

          JO,

          You said:

          “Anyone who is capable of holding that view obviously has the ability to believe that “naked short sales” collapsed Lehman and should be resting peacefully in some psychiatric ward.”

          So this is the type of response you write when someone with a superior knowledge of the facts points out your mistaken logic? mistaken explanation?

          Should we assume that this last sentence your last “bullet” to convince everyone that your explanation of the murder of Bear Stearns and Lehman Brothers is correct?

          • John Olagues says:

            I am 100 percent certain that my analysis is correct and that you are just relying on your ability to deceive those who do not have an understanding of the facts.

            There were 20 additional fails when the stock was below 20 cents and lower. How can anyone believe that event caused the collapse of Lehman.

            Please tell me your explanation for that idea? Almost all the fails took place after the collapse.

            • John Olagues says:

              There were 20 million shares failed to deliver when the stock was below 20 cents. None could influence the collapse of Lehman. If the rest of the fails were analyzed closely, it would be found that most were a result of options market makers exercising puts early. The explanation of why they exercise early is beyond the scope of this comment. If anyone wants me to explain it in detail. I will be happy to do so.

              The idea that BS and Lehman were collapsed by “naked short selling” is a complete fabrication. I have read the Paper referred to by “Dr.” Costa. It is poorly written and is nothing more than propaganda.

              I was a options market maker for 10 years and when there probably traded more options than anyone in every diverse situation.

              The idea of naked short selling caused the collapse of BS and Lehman falls apart when the simple question is asked. How can the cause occur after the event?

              John Olagues

    24. Anonymous says:

      This is an interesting post found on previous DC article. Think maybe the SEC or whomever might do something needs to see this?

      “ghostbuster says:
      November 9, 2009 at 3:47 pm
      caught up with b-school buddies at Third Point, SAC not too long ago. They’re both quite worried about the whole Galleon thing because they all engaged in the very same things Galleon did. Good luck sleeping at night guys!”

    25. Anonymous says:

      ““ghostbuster says:
      November 9, 2009 at 3:47 pm
      caught up with b-school buddies at Third Point, SAC not too long ago. They’re both quite worried about the whole Galleon thing because they all engaged in the very same things Galleon did. Good luck sleeping at night guys!”

      Better tell those B School buddies that whomever turns first might get favorable sentencing by helping prosecutors ( ask Sam Antar about that). I sure wouldn’t wait until they raid the office. Better suck it up and start squealing like a pig !!!

    26. Master says:

      Excellent read from MarketWatch:

      “Financial innovation is Wall Street’s new ‘soul sickness'”

      http://www.marketwatch.com/story/wall-streets-shell-game-will-ruin-us-2009-11-10

    27. sean says:

      Now why would an unbiased reporter use a word like “Snitch” to describe a whistle-blower? Seems like Bloomberg is running all its articles thru Dan Calloruso (sp) for that Hedge Fund type of spin huh? Also 50K the Hedge Funds hire these SEC employees for 10time more that tah for an annual salary. They missed the boat again.

      SEC’s Internal Whistleblowers Could Get Reward Under Dodd Plan Share Business ExchangeTwitterFacebook| Email | Print | A A A
      By Jesse Westbrook

      Nov. 10 (Bloomberg) — Securities and Exchange Commission employees would get $50,000 awards for snitching on each other, under Senator Christopher Dodd’s proposed legislation to overhaul financial regulation.

      SEC Inspector General H. David Kotz could pay any employee who makes an allegation that eliminates abuse or misconduct, according to a copy of Dodd’s measure that was obtained by Bloomberg News. SEC staff could also get awards for suggestions that boost productivity or reduce waste.

      Employee awards may exceed $50,000 if Kotz determines that “the suggestion or allegation has extraordinary merit,” Dodd’s measure said. It would also establish a telephone hotline for SEC staff to make confidential complaints to the inspector general. Kotz declined to comment on Dodd’s proposal.

      Lawmakers are trying to increase SEC accountability after the agency drew fire for missing Bernard Madoff’s $65 billion Ponzi scheme. Dodd’s measure would grant broad authority by giving the inspector general sole discretion over awards and mandating that decisions aren’t subject to review by judges.

      Kotz has stepped up internal probes of the agency since he was appointed two years ago. In September, he released a 457- page report that detailed missed opportunities to catch Madoff dating back to 1992 because the SEC assigned inexperienced lawyers to investigations and staff failed to aggressively pursue leads.

      Rest of article below.

      http://www.bloomberg.com/apps/news?pid=20601087&sid=aPOX2XqEXjl8&pos=3

    28. SteveSadlov says:

      The so called Israeli/Russian Mafiya may well have been false flag recruited by GRU, SVR or other hostile foreign services.

    29. Dr.Jim DeCosta says:

      John Olagues,

      Let’s put the cause of death of Bear and Lehman off to the side for a moment. As an ex-options MM (OMM) do you have an “issue” with an unregulated hedge fund approaching an OMM and agreeing to direct tons of order flow in that OMM’s direction via the purchase of “put” options from that OMM if he promises to naked short sell the “puts” to the hedge fund manager and then access its OMM exemption to naked short sell a corresponding amount of shares in order to “hedge” its “put” sales to the hedge fund? Oh and by the way the OMM also has to promise to “direct” (an illegal act) the sale order of the pseudo-shares sold for the “hedge” in the direction of the hedge fund so that the hedge fund can establish a “synthetic long position” which he can sell in a manner that drives the share price down markedly in the absence of any “uptick rule” which creates value for his “put” option?

      Wouldn’t this be analogous to a form of insurance fraud involving the taking out of life insurance on a corporation, naming yourself as beneficiary and then intentionally killing the corporation by selling these “bullets” that comprise a “synthetic long position”?

      Do you have an “issue” with the fact that the investors that bought those “fake” shares that made up that “synthetic long position” sold by the hedge fund manager ordered legitimate “shares” and entered into a contract to pay legitimate dollars in exchange for the delivery of legitimate shares on T+3?

      Wouldn’t the net-net of this scenario result in the OMM doing just fine with all of that extra commission flow that he otherwise wouldn’t have gotten, the hedge fund manager doing just fine with the increased value of those “put” options and all of these profits being subsidized by the losses sustained by the investors buying these nonexistent “pseudo-shares” that entered into that contract to exchange legitimate dollars for legitimate shares on T+3 that got reneged on?

      I don’t think the market reform advocates at deepcapture.com are spouting “propaganda” or “conspiracies”. Perhaps they’re guilty of being “overly sensitive” to the transfer of wealth from less financially-sophisticated Main Street investors to more financially-sophisticated Wall Street insiders aware of the complexities of Wall Street and the ability to leverage their superior knowledge. Thank goodness investors have the SEC, the DTCC and FINRA there to provide robust “investor protection” to these less financially-sophisticated parties.

    30. Fred says:

      John Olaques

      You say above, ” If the rest of the fails were analyzed closely, it would be found that most were a result of options market makers exercising puts early. ”

      Let’s grant that is true for the moment. Doesn’t that mean the buyers were paying for nonexistent shares? The sales are naked short sales. How does that support your position?

      … Fred

      • John Olagues says:

        Gentlemen and Ladies:

        I am not supporting any kind of illegal scheme that you are mentioning. I do not believe that market makers need the exemption (i.e allowing short positions without borrowing stock). If the OMM can not make liquid markets without the exemption, let them get out of the way and invite some who can.

        And I think the introduction of the uptick rule would be just fine.

        I agree that if the OMM is conspiring with hedge funds to influence the market in the stock, they both should be investigated and prosecuted.

        I agree that the OMM exemption allows potential abuses.

        I am against insider trading as I have been the victim of it several times. In fact I was the victim of it in Bear Stearns.

        However, I do not believe the culprit in Bear Stearns and Lehman was “naked short sellers”.

        Most of the fails to deliver in my view were made as a result of market makers exercising far in-the-money puts after the stock has dropped substantially. I do not believe that there were actually short sales made at 10 cents or 20 cents.

        The total fails to deliver prior to the Lehman stock and BS stock dropping are rather small. But there were continuous buying of puts both in the money and out of the money, because some knew the collapse was coming.

        The problem as I see it is the OMM and hedge funds are allowed to hold enormous positions in calls and puts and short stock, far beyond what is necessary. They then combine to manipulate the stock and options. That’s the problem. So I am favor of going after the real criminals here . And in my view it’s not the naked short sellers. I do concede that in the past there perhaps were some companies that were abused by naked short selling. But it was not in Bear Stearns and Lehman.

        Why would shysters like Richard Fuld, James Dimon, Jim Cramer, Christopher Cox, John Mack, Pandit, Dodd and others promote the view that the a “naked short selling” did it? The reason is that exonerates them from the crimes.

        • Jim Hall says:

          FTD’s are documented. When money can be freely stolen, without legal implications, rest assured it will/has be/been.

          Any thing else is obsfucation.

          The FBI has to be called in, and since this could/did/will cripple our country, the CIA as well.

          There is a RICO case here, dying for resolution with the approriate punishment for the offenders in wallstreet and in washington (small w’s, capital letters no long deserved).

    31. lenofus says:

      To the chump who doesnt believe NSS was part of the Leh collapse:

      “As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.”

      http://www.businessinsider.com/naked-short-selling-alleged-in-lehman-collapse-2009-3

      That day, Fuld announced LEH was being naked shorting, and he had the proof. It has yet to surface, but I’m pretty sure you’ll see it soon. Without subpoena power, where would he get such proof so quickly (real time)? His own trading desk. You know. Guys with their.401k’s in LEH stock.

      • Fred says:

        lenofus

        I am afraid Fuld may never tell what he knows. Someone may have offered to protect his family if he keeps it to himself.

    32. Dr.Jim DeCosta says:

      As far as the immediate cause of death of Bear and Lehman take a look at Figures 2, 3 and 4 in Dr. Shapiro’s and Dr. Pham’s study at: http://www.sec.gov/comments/s7-08-09/s70809-2850.pdf You can clearly see how the FTDs spiked up astronomically as the legal short sales involving a pre-borrow (“short interest” or “declared short interest”) spiked. Why? Because as the “supply” of legally borrowable shares dwindled these now “hard to borrow” shares became “expensive to borrow” and cost conscious criminals simply refused to make a pre-borrow. OK, so what’s the legal definition of an FTD and what percentage of the real story is being shown on these graphs?

      The FTDs charted here only apply to those registered within the NSCC’s Continuous Net Settlement (CNS) system after the delivery obligations were “pre-netted”. The FTDs not represented on these figures are those pre-netted out of existence, those held in ex-clearing “arrangements” between co-conspiring clearing firms, those held in Canada at their “CDS”, those held at trading desks, those held in Europe and other offshore locations, etc.

      If you are going to attack institutions like these and risk triggering the potential systemic risks involved and the obvious microscopic scrutiny you are bound to have to endure I would think that a very high percentage of the abusive naked short selling was not routed through the NSCC’s CNS system and is therefore not represented on these graphs.

      Abusive naked short selling is used as a WEAPON by powerful Wall Street behemoths accustomed to getting what they want (Main Street investors’ money) and exacting any revenge they choose to exact. These people didn’t forget Bear Stearns’ refusal to chip in on the LTCM bailout.

      Study the Overstock case. Patrick Byrne had the audacity to circumvent the typical onerous expenses of doing the standard IPO that enriches investment banks and he held a “Dutch auction” on behalf of his new shareholders saving them a fortune. Wall Street took this as an insult and had to send the message that this type of behavior was not to be tolerated. They attacked ruthlessly but couldn’t break Patrick’s and Overstock’s backs. Patrick happened to have brains, resources and a fighting spirit that Wall Street wasn’t use to encountering. Overstock spent a world’s record 800-plus days on the Reg SHO “threshold list”. Coincidence?

      If you want a chuckle study the webcasts of the recent SEC “roundtable” on short selling abuses. How many times did the Wall Street insiders state that they had seen no evidence that naked short selling played a role in bringing down Bear or Lehman and nearly our entire financial system? This paper was out in April of 2009; the SEC “roundtable” was held on September 29 and 30 of 2009. Study the curriculum vitaes of the 2 authors at the end of the article. Enough said on that issue.

      The question that needs to be asked is WHY would Wall Street utter such obvious insanities when the most thorough “autopsy” ever done on 2 corporations was right at their hands. The answer is that they would just as soon not face the consequences if Main Street ever woke up and realized that the theoretical benefits of short selling are greatly exaggerated by those earning their living on Wall Street from short selling or servicing short sellers and that their investments in many development stage U.S. corporations seen as an “easy prey” by Wall Street never did have a chance for success.

      • John Olagues says:

        Dear Dr.Decosta

        On page 8 of the Report Shapiro and Pham, they claim that “In both cases, the incidence of fails-to-deliver soared in the month prior to the companies’ destructive collapses.”

        That statement is false for both Bear Stearns and for Lehman, which can be seen by merely going to the SEC data.

        In the case of Lehman there were 42,000 cumulative fails on average per day five days prior to the decline of Lehman on September 8-9, 2008. When the stock was trading for less than 1/2 its value five days earlier, the cumulative fails were 1.09 million (with the stock trading volume of 383 million shares), the next day the cumulative fails were 5.87 million ( with the stock trading volume of 256 million shares). The next day when the stock traded below 4.35 all day, there were increases of 16.7 million fails, with the trading volume of 472 million shares).

        During the period of September 8 through September 17, 2008, the open interest in all puts was between 1.1 million and 1.5 million, giving the holders the right to sell between 110 million shares and 150 million shares. Thus the fails, were relatively puny compared with the total volume and the total puts outstanding.

        And I can prove that only a small portion of the fails came from naked short sales. Most of the fails came from OMMs exercising early, carrying out a strategy that i created in 1983.

        Cheers:

        John

        • harveydawabbitt says:

          “Most of the fails came from OMMs exercising early, carrying out a strategy that i created in 1983.”

          the above sounds criminal to me.
          you created a strategy to create fails to deliver in opposition of 1934 sec. ex act section 17a?

          sorry but that is what it appears as to me.

          are you writing from prison?

          • John Olagues says:

            When I was doing the strategy, it was very legal because we were borrowing the stock and there was no fails to deliver. What is done today is an abuse of the strategy which involves fails to deliver. But neither approach to the strategy resulted in depressing the stock then and would not now.

            I may write a book on advanced options trading strategies, so I will keep you in mind for an advanced copy. Harvey.
            Until then you may wish to visit my web site:

            http://www.optionsforemployees.com/articles

            for some reading on stock options.

            • Kevin says:

              I’m all in favor of options trading, as long as the bets on the future of the stock price don’t AFFECT the stock price. Options shouldn’t be able to be used to manipulate stock prices.

              Case into account is how futures have been used to manipulate gold prices.

              Read this.

              http://seekingalpha.com/article/172797-the-global-oil-scam-50-times-bigger-than-madoff?source=article_sb_popular

              The trading of bets on the thing shouldn’t affect the price of the thing.

              Could you imagine if bets on the outcome of a fight influenced who won the fight? Crazy, right. Yet, bets on the future price of a stock are allowed to influence the price of the stock.

              Options, which were created to manage risk are instead making the world way more risky and increasy volatility because the options which is supposed to have it’s value derived (derivative) from the underlying asset are being used to actually determine the price of that asset.

            • harveydawabbitt says:

              as i understand it fail to deliver is always illegal as it is a failed trade i give ya my money and you dont give me my stock.
              that constitutes a failure.an incomplete legally binding contract that is re-negged on.
              i seem to remember a t+3 settlement period (mandated by congress)
              beyond that it is a fail to deliver which is illegal.
              so i dont get it when you say it was legal then.
              maybe you didnt mean fails to deliver in your statement above.

    33. Kevin says:

      So instead of buying and selling real contracts to deliver oil in the future, you buy and sell IOU’s that can never be honored.

      Just like the counterfeit trading in the stock market which makes a mockery of supply and demand and sets fake prices for real companies, this fake trading sets the price for real commodities.

      http://seekingalpha.com/article/172797-the-global-oil-scam-50-times-bigger-than-madoff?source=article_sb_popular

      When is the average person going to realize the trading of counterfeit pieces of paper backed by nothing, setting the price for real things is RIPPING THEM OFF?

      Don’t they ever wonder how someone that facilitates a transaction (the stock brokers) are making more money than the economy produces in real goods?

      How can a piece of the action be worth more than the action?

      How come no one asks why the bank bail outs are worth more than the bad mortgages? Because, if you asked that question, you’d realize the same mortgage backed more than one fake bond.

      • John Olagues says:

        If large numbers of puts are bought, the immediate seller is usually a options maker maker or some entity acting similar to an options market maker. The buy makes the put buyer short deltas(i.e. have an equivalent short position). The seller of the puts has long deltas (i.e. an equivalent long position in the stock).

        The put buyer may want to be purely short deltas or he may be hedging his previously created long position in the stock. The seller may believe that the buyer is paying too much for the puts and sells the puts and could be willing to just hold the short put position that created for him long deltas. Or he could immediately be looking to hedge the risk by buying other puts or shorting stock.
        So the purchase of the puts one way or the other will bring some pressure to bear on the stock. There is no difference between buying puts and “naked short selling” because there is no borrowing of stock required to make your bearish bet.

        But later on if you exercise the puts, you become short stock unless you already own the stock to cover the short stock position. If you are an options market maker you can now fail to deliver. And when the fails appear, the promoters of the “naked short selling caused the collapse” theory point to the fails as evidence of “naked short selling”. However, the fails were caused by the exercise of the puts and OMMs not borrowing.

        Now who are the market makers who do all of the fails. Who was the DPM at the CBOE and who were the other large OMMs exercising Bear Stearns and Lehman puts? Who was requesting from the exchanges the opening for trading puts that were far out of the money with just five days of trading left? The answer is Citigroup, Goldman, JPM, Citadel and others who met with Bernanke on March 11, 2008.

        And I am sure that the puts that they were exercising were not all puts they bought to hedge other short put positions. And I am sure that executives who met with Bernanke March 11, 2008 all personally had very large “short deltas” when the collapses came.

        Find out who made the decision to collapse BSC and LEH and check their positions at the time and you will complete the picture.
        The amounts of money stolen is sufficient to pay propagandists to misdirect honest investigators.

    34. Dr.Jim DeCosta says:

      Harvey,

      Not all FTDs are technically “illegal”. There still is a “bona fide” MM exemption in place wherein a bona fide MM is exempt from making a pre-borrow or “locate” before making an admittedly “naked” short sale. This is there because in fast moving markets MMs sometimes don’t have time to effect a pre-borrow or “locate”. He’ll mark his sell order as “SSE” or “short sale exempt”.

      Here’s the catch, a truly bona fide MM that is LEGALLY accessing that (universally abused) exemption will cover his pre-existing naked short position on the very next downtick in share price. This is when those that marked their sale as “SSE” are typically nowhere to be found. Why? Because the NSCC has illegally converted our clearance and settlement system to a foundation based on “collateralization versus payment” or CVP wherein the sellers of nonexistent shares are only asked to “collateralize” the monetary value of their failed delivery obligation on a daily marked-to-market basis.

      As long as the crooks keep selling nonexistent shares then both the share price and therefore the “collateralization” requirements go down resulting in the investor’s money flowing to those that refuse to deliver that which they sold. A MM would have to be an idiot to EVER cover his naked short position. Why? Because the act of covering will drive the share price upwards which increases his collateralization requirements of his yet to be covered short position and covering costs money. Thus if he chooses to cover, his pile of stolen money will drain out in 2 directions.

      The obvious solution is the “98% rule”. A theoretically bona fide MM must be forced to prove his bona fides when he marks a sale ticket “SSE” by placing a bid at perhaps 98% of the value at which he did the naked short sale for an equal amount of shares as he naked short sold. Putting theoretically bona fide MMs on the “honor system” didn’t work; we tried it. There’s too much free money available to cheaters in a CVP-based clearance and settlement system.

      Harvey-as far as legal versus illegal, Rule 10b-5 expressly forbids the sellers of shares from creating an “artifice/contrivance to defraud” the purchasers of shares. So who’s being “defrauded”? It’s notonly the buyers of shares that entered into a contract to deliver legitimate cash by T+3 in exchange for the delivery of legitimate shares by T+3 but it’s also every shareholder of the corporation under attack.

      Several years ago our markets moved to “decimalization” wherein the spreads between the bid and the ask became razor thin. The old minimum spread was one-eighth of a dollar or 12.5-cents. Now it’s a penny. Abusive naked short selling went through the roof. Why? Because a truly bona fide MM could no longer make a living.

      At this point human MMs subject to temptations to steal when operating on a playing field tipped in their favor should have gone the way of the dinosaurs and been replaced by incorruptible computers linking up buyers and sellers. But then we wouldn’t have all of this wonderful “liquidity” we saw being showered upon the buyers of Bear and Lehman shares during their demise. Our clearance and settlement system is a train wreck. The shareholders of Bear and Lehman entrusted bona fide MMs to cover their “open short positions” during the collapse which might have offered some support.

      Can you blame any MMs from not covering their pre-existing naked short positions as Bear and Lehman went down in flames and all of those capital gains in the case of Lehman would be tax free? How dumb would covering have been when the SEC after receiving over 5,000 complaints related to abusive naked short selling never had one resultant “enforcement action” and your employees within the NSCC management after procuring 15 of the 16 sources of empowerment to execute “buy-ins” has the audacity to pretend to be “powerless” to buy-in the delivery failures of its abusive “participants/bosses” even when they absolutely refuse to deliver that which they sold? If the 98% rule were in effect then there would have been at least some stability.

      • harveydawabbitt says:

        thank you Dr. Decosta,
        i s’pose i am just old fashioned or something.
        when ya buy something or sell something ya keep to your end of the bargain.
        its a shame our capital markets cant do the same.

        shawn

    35. mthomas says:

      really interesting article on gold, the gold price in the market, and gold mining companies in light of the Fed’s continued efforts to debase our currency: Gold Price Headed to $2,300 on Hyperinflation Risk?

      here’s an excerpt: “The gold price, and the price of other hard assets, is rising as more investors across the globe ask themselves how these deficits and debts will be resolved. Furthermore, new congressional initiative aimed at politicizing the Fed would give the Secretary of the Treasury a veto over Section 13(3) governing emergency action by the Federal Reserve – and effectively taking away the independence of the central bank. Setting aside discussion of the power that the Federal Reserve currently has, if politics enters the arena of monetary policy, then the U.S. dollar’s fate is sealed. Political leaders who reflexively seek political refuge in populist pork-barrel and loose fiscal policies during difficult economic times may soon have the same power – and ballot-box pressure – over monetary policy.”

    36. Dr.Jim DeCosta says:

      The following is from today’s opening remarks by the Chief Executive, Mr. Donald Tsang, at the Asia-Pacific Economic Cooperation (APEC) CEO Summit 2009 – Summit Dialogue on Global Economic Governance: “Regulating the Global Economy for Global Growth” in Singapore today (November 13):

      “For example, we have an effective short-selling regime in Hong Kong, under which people are prohibited from conducting naked short selling. This arrangement is stricter than in many other places but conducive to better market discipline. We are further considering the introduction of short position reporting requirements to increase transparency. We stand ready to share our experience and, indeed, our Securities and Futures Commission currently chairs the Task Force on Short Selling under the International Organization of Securities Commissions.” [end quote]

      As many of you deepcapture.com readers might know Hong Kong has a “mandated pre-borrow” requirement before short sales are made. The question arises as to why at the recent SEC “roundtable” on short selling abuses every single Wall Street insider fought this concept tooth and nail while their cohorts in Hong Kong embraced the concept and actually brag about their embracing of the concept and the resultant integrity of their markets?

      Another question, why does this concept of abusive naked short selling be of such a priority in Asia to be addressed in the opening statements of a huge summit like this APEC Summit attended by our President while in the U.S. the topic is constantly dismissed as a “conspiracy” propagated by the “baloney brigade”?

      Yet another question, why is Wall Street currently so obsessed with playing down the obvious role of abusive naked short selling in the Bear Stearns and Lehman Brothers debacles that nearly brought down our entire financial system? Might it have something to do with the lack of desire to deploy the previously stolen funds in order to cover the astronomical levels of yet to be bought-in delivery failures CURRENTLY weighing down on the share prices of U.S. corporations refusing to go bankrupt as planned? Just what is it that the Asian version of Wall Street and its regulators have that our version of Wall Street and its regulators and SROs don’t have? How cool would it be when it’s our turn to host the summit to be able to brag about recent enhancements in the integrity of our clearance and settlement system in the short selling arena?

    37. Fred says:

      John Olagues

      I am trying to understand your objection to Shapiro-Pham, p. 8, on soaring fails prior to BSC and LEH collapse. You appear to be saying that these were exercises and OMM covering. But whoever was doing it, and whether technicall legal or not, a fail is a fail, right? The supply-demand was out of balance, right? A buyer delivered moner, but the seller did not deliver the shares. I am considering you to be sincere for the moment, and not just a flame thrower trying to confuse the issue. It is hard for me to see how Shapiro-Pham can interpret the same data differently from you.

      • John Olagues says:

        These are my words from an earlier comment where I quote from the Report of Shapiro and Pham….On page 8 of the Report Shapiro and Pham, they claim that “In both cases, the incidence of fails-to-deliver soared in the month prior to the companies’ destructive collapses.”

        The fails to deliver did not increase substantially in the month preceding the companies collapses. So what is their purpose in lying about it. The large fails occurred after the collapses as anyone who does the research can see, although there was some increase during the collapses. And I believe the large fails that occurred after the collapses were mostly caused by Options Market Makers exercising their long put positions and not delivering the stock. The exercises that caused the fails were not new trades that was made on an exchange and added no new supply of stock and was not depressive on the stocks price.

        And with a lot of work I can probably be more precise about the totals and the timing. But what is clear is that there were few accumulated fails prior to Lehman’s collapse or Bear’s collapse. If someone thinks they are, why don’t they point them out.

        JO

    38. harveydawabbitt says:

      here are some of bears fails numbers from 3/13 to 3/31

      20080313 073902108 BSC 19424 BEAR STEARNS COMPANIES INC 61.58
      20080314 073902108 BSC 201768 BEAR STEARNS COMPANIES INC 57.00
      20080317 073902108 BSC 1247876 BEAR STEARNS COMPANIES INC 30.85
      20080318 073902108 BSC 749837 BEAR STEARNS COMPANIES INC 2.00
      20080319 073902108 BSC 2120638 BEAR STEARNS COMPANIES INC 5.91
      20080320 073902108 BSC 13789126 BEAR STEARNS COMPANIES INC 5.26
      20080324 073902108 BSC 12588395 BEAR STEARNS COMPANIES INC 6.39
      20080325 073902108 BSC 11736910 BEAR STEARNS COMPANIES INC 11.25
      20080326 073902108 BSC 7673413 BEAR STEARNS COMPANIES INC 10.94
      20080327 073902108 BSC 9340963 BEAR STEARNS COMPANIES INC 11.21
      20080328 073902108 BSC 12396655 BEAR STEARNS COMPANIES INC 11.23
      20080331 073902108 BSC 4677810 BEAR STEARNS COMPANIES INC 10.78

      • John Olagues says:

        And the following are the fails for the earlier 5 days in BSC

        3-12….135,647
        3-11….149,700
        3-10…..36,297
        3-07…..16,405

        so where are the “soaring fails to deliver prior to the collapse”.

        The fails soared after the collapse in BSC.
        ——————————————————

        In Lehman we see the following:

        transaction date
        stock price
        fail date…9-5-08 … 62,030 16.13
        9-8-08 ….52,239 16.94
        9-9-08 ….12,818 15.17
        9-10-08 .. 53,135 16.20
        9-11-08 …31,700 14.15
        9-12-08 …1.09 million 7.79
        9-15-08 … 5.8 million 7.25
        9-16-08 …22.6 million 4.22
        9-19-08 …29.8 million .30
        9-22-08 …49.6 million .13

        In both cases it is obvious that relatively very small amounts of fails occurred prior to the collapse and most took place after.

        • Patchie says:

          The fails data alone does not tell all the story. Those doing short swing trades can abuse the stock locate system and naked short and cover within settlement period. The sales can manipulate the market while going undetected by the methods used.

          Consider for example that FTD’s that occur outside the CNS system (off-shore FTD’s) are not part of these numbers. An offshore trade that results in a FTR at the DTCC is not accounted for here.

        • Terry Santino says:

          Olaques

          If the shares showed up as FTD on the days as the PPS was falling, and the few days after, would that not indicate the shorting occured just before, as a short share would not become an FTD until after the settlement date. Your numbers above show me exactly what the study says – that the short SALES (when inititated) attributed to driving the prices down as opposed to when they finally show up as FTD.

      • John Olagues says:

        Dear Harvey:

        Thanks for the info. here are the fails data for the four trading days earlier.

        3-07-08 …….16,405
        3-10-08……..36,297
        3-11-08…….149,700
        3-12-08…….135,647

        As a percentage of the daily volume or total outstanding shares, the fails prior to the collapse are very small.

        Res ipsa loquitur

        • iStandUp says:

          John Olagues,

          You quote the FTDs data for four days, and your comment at the end “Res ipsa loquitur” (“the thing itself speaks,” / “the thing speaks for itself.”) implies that you think these low levels for these 4 day levels prove your point.

          Surely you know, John, as a Wall Street insider, that these numbers do NOT reflect the total number of FTDs, since all the Black Markets on Wall Street where FTDs are hidden are NOT included in these totals.

          So my questions John are these…

          Can you tell me?, can you quantify?, the total number of actual FTDs in the Black Markets on Wall Street where FTDs are hidden from public view? for those 4 days you quoted? So we can obtain an Accurate FTD Total for each of these 4 days?

          What do you say are the Accurate Grand Total FTDs for these 4 day?:

          3-07-08 …….16,405 + Totals in Hidden Black W.S. Markets? = ??
          3-10-08……..36,297 + Totals in Hidden Black W.S. Markets? = ??
          3-11-08…….149,700 + Totals in Hidden Black W.S. Markets? = ??
          3-12-08…….135,647 + Totals in Hidden Black W.S. Markets? = ??

    39. Dr.Jim DeCosta says:

      John Olagues,

      Your argument seems to be that the NSS associated with the option MMs doing their exercising didn’t cause the demise of Bear and Lehman because the FTDs didn’t go up UNTIL the initial collapse in the share price had already occurred. That’s exactly how abusive NSS works.

      Once targeted the first wave of the attack is via legal short selling involving legitimate pre-borrows while the rental rate for the shares is low due to high supply. The share price drops due to the “issuance” of readily sellable share price depressing “security entitlements” with each and every legal pre-borrow. Yes, even legal short selling manipulates share prices lower. No fails to delivery are registered because there aren’t any yet the share price still tanks. The share price drops because the “supply” of that which must be treated as being readily sellable goes up. The “supply” variable consists of the “float” of readily sellable “shares” already outstanding PLUS the amount of readily sellable “security entitlements” that result from each and every legal pre-borrow as well as each and every NSCC SBP “borrow” as well as each and every FTD registered at the NSCC. This is due to UCC Article 8.

      Later in the attack the rental rates go up because of the decreased “supply” of that which can be legally rented and the crooks shift over to abusive naked short selling. This is when the FTDs get registered at the NSCC. This results in the typical pattern in the share price tanking BEFORE the FTD levels go berserk.

      • John Olagues says:

        Reply to Dr. D.

        Perhaps you have information that there was massive off-track betting against Bear Stearns that does not appear in the SEC fails. Lets assume that is true. That still does not prove that the massive off-track betting “caused” the collapse.

        First of all, the stock dropped from a closing price of 30.70 on Friday March 14 to an opening price on Monday March 17 of 3.18, between which there was not any on-track betting or off-track betting. No one would claim that “naked short selling caused the collapse’ from 30.7 to 3.18.
        The cause of the drop was the FED of NY’s refusal to lend the promised $28 billion to Bear Stearns and the agreement to lend $55 Billion ($29 of which was non recourse) to JP Morgan. You would have to study the April 4 hearing to understand the earlier sentence.

        What knocked the stock down from 57 to 30.70 on Friday was a plan by “too big to be prosecuted” criminals. The buying of puts and the short selling of stock (on-track or off-track) was done knowing the FED’s plan to collapse Bear Stearns.

        The buying of puts with strike prices of 5, 10, 15, 20, 25, 30 when the stock was 40-50 on Friday was done with the fore knowledge of the coming FED – JPM deal Monday. That buying of puts and short selling of stock before the collapse of BS is exactly the same as the buying of calls and stock prior to an announced take-over making the price of the stock double.

        The illegal insider buying of calls and buying of stock did not cause the take-over.

        jo

    40. sean says:

      Some justice..maybe

      Financial Crisis Committee – Modern Day Pecora Commission
      The commission has subpoena power and has the authority to refer wrongdoers for criminal prosecution but Angelides is more interested in gathering information. http://www.huffingtonpost.com/2009/11/13/financial-crisis-commissi_n_357203.html

    41. ron doc says:

      Ted, naked shorting gold has a easy solution. that is buy actual gold coins minted buy the US, Canada or others you trust, using only long established dealers like Colorado Gold or Investment Rarities who insure the stuff they deal in. Besides the coins are too small to mess with and these dealers broker direct from gov. mints to your address if you desire.

      By buying the physical gold you sweeze the naked shorters if enoufg buyers will just take actual delivery, no phoney certs involved.

      I love the idea of my little contribution to hitting back at the JPM crooks.About the only way I have figured out how I can hit back while getting some insurance for my family against the financial collapse we still might suffer from these criminals actions.

    42. Fred says:

      John Olagues

      The naked short selling that occurred in the week prior to the collapse of BSC and LEH will not be reflected as FTD’s until much later, when the failures actually get recorded. If you use the SEC data, that can be 13 trading days. So you are looking at the wrong time period.

    43. Dr.Jim DeCosta says:

      John Olagues,

      I think I know where you’re getting hung up. The price of Bear at Friday’s close was $31 and it opened up Monday at $3. You’re correct in that there was no naked short selling over the weekend. The “supply” and “demand” variables intersect to determine share price via the “price discovery” process. The “supply” didn’t change over the weekend but after all of the bad press the “demand” variable sure did.

      I think you’re trying to extrapolate that the $28 share price drop over the weekend had absolutely nothing to do with abusive naked short selling and therefore abusive naked short selling had relatively little to do with the demise of Bear and Lehman because that $28 drop was a big chunk of the share price drop towards the end.

      I can see your reasoning and it kind of makes sense. But I don’t think the statistic to study is what percentage of the total share price drop happened over weekends and what percentage happened over the trading days of the week.

      The bad press might have been the proximate cause of the $28 price drop but after all of the previous increase in “open interest” from legal short selling as well as FTDs left that “supply” variable artificially high. This exacerbated the share price drop over the weekend when the demand variable tanked. That artificially jacked-up “supply” variable then interacted with a diminished “demand” variable. When BOTH the “demand” and the “supply” variable get simultaneously tweaked in opposite directions then some synergies kick in that lead to dramatic drops in share prices.

      That Bear Stearns “tree” had already been chain sawed down quite a bit by the combination of the previous legal and illegal short selling. Thus the previous legal and illegal short selling need to be credited for a portion of that $28 drop even though TECHNICALLY you’re right in asserting that there was no actual naked short selling over the weekend.

      Since all collateralization requirements for short positions are marked-to-market on a daily basis the shorts woke up Monday morning with cash gushing out of their margin accounts. This cash could help them collateralize that much higher of a naked short position because our greatly-flawed NSCC only mandates the collateralization of the monetary value of the failed delivery obligation. The big incentive then became to drive Bear all the way into bankruptcy to circumvent any tax consequences for those ill-gotten gains. As the share price tanked a “self-generated leverage” became available which lead to a positive feedback cycle and thus a self-fulfilling prophecy. Just keep deploying the cash proceeds flowing out of the margin accounts into larger naked short positions. T-I-M-B-E-R!!!!

      • John Olagues says:

        If they kept deploying the extra cash in to “larger naked short positions” as you claim, they would have gone broke because five days later the stock was trading above 10.

        Its amazing to me that you do such gymnastics to explain a simple case where there was a planned collapse by competitive banksters, who then together with their friends shorted stock bought puts and sold calls on illegal inside information and profited by billions when the event they planned was carried out.

        The fix was in and Bear Stearns was going to be collapsed even if there was never a put bought of a share shorted.

        I and every serious trader I know agrees on that point.

        I believe there may indeed be organized hyper short selling and manipulating by the media to destroy smaller companies. However, there is a relatively simple way to destroy naked and regular way short sellers who carry out such theft. The companies themselves can carry out measures to force the “naked short seller” to buy in the shares and the results would be similar to what happened to Volkswagen and Porsche.

        Why don’t they do it?

        JO

      • Jim Hall says:

        Mr Obliques’ article is rather like that of those who say “look, the ban on shorting didn’t save the Financials, did it?”.

        The internal hemorrhaging had already become unstoppable and fatal by the time Chris CoxKnocker came to the rescue. Too little too late.

        It’s apparent that there was an orchestrated hit on these stocks via the naked shorts.

        What’s unfathomable is that there is such denial and our news “organs” lack the testicularity to call it as such.

    44. sean says:

      Jim, Obliques as you called him (hilarious by the way) is only here to change the topic of the blog and deflect away from the SAC and Steve Cohen saga. What I really want to know and maybe somehere cam help is why the REAL Hedge Funds that committ larger instances of insider trading have yet to be disclosed? Pequot and Samberg disbanded just in time huh? Coincidence or you this Art knew what was about to come down the pike and was given a heads up by Mack and his politically connected buddies? I think this will unwind really slowly but it will unwind and when it does Einhorn, Chanos, Cohen, John Paulsen, Mr. Pink and others will begin to become unravelled. I can’t wait.

    45. Dr.Jim DeCosta says:

      The CBOE just submitted a “comment letter” to the SEC recommending not going to a mandated “pre-borrow” or “hard locate” and thereby maintaining the status quo. It kind of makes you wonder as to what percentage of options market making is done to aid and abet abusive short selling. I know, I know it’s all about the provision of all of this wonderful “liquidity” and these “hedging” opportunities that benefitted the purchasers of Lehman Brothers stock towards the end.

    46. Dr.Jim DeCosta says:

      There’s one downside to all of these recent insider trading busts occurring. It makes the SEC and the SROs look like they’re busy on the job which might induce a false sense of security for investors in regards to abusive short selling crimes. Addressing abusive short selling crimes is going to be a lot tougher for the SEC and the SROs due to the risk of revealing not only how far asleep at the wheel these parties have been for decades but also the risk of revealing to U.S. investors the fact that many of the past investments they made in especially development stage issuers deemed to be an “easy prey” by these fraudsters never did have a chance to succeed.

      The other issue that will obviously arise is what to do with all of those FTDs CURRENTLY poisoning the share structures of the U.S. corporations that survived their attacks. As the U.S. investors continue to get educated as to the nature of these crimes the constant sweeping under the rug of these issues is going to be tougher. It’s a lot easier for Congress to force the “buy-in” of all of these FTDs still on the books of surviving corporations then it is to identify the investors that were damaged by insider trading frauds.

      The other group that is yet to be heard from is all of the employees of these corporations whose jobs were displaced due to the efforts of abusive short sellers that targeted their corporation as an “easy prey”. I would think that this is when the pitchforks come out.

      You’ve got to keep in mind that there is a reason that the SEC and the SROs cannot admit to the OBVIOUS role of abusive short selling in the Bear Stearns and Lehman Brothers debacles that nearly took down our entire financial system. That has to do with the revelation of prior fraudulent behavior as well as the FTDs still on the books that are CURRENTLY manipulating share prices downwards. The scariest thing is that if you can’t admit to the role of abusive short selling crimes in these two cases what is there to keep it from happening again. You can’t be in “cover up” mode at the same time you’re in “robust regulator” mode.

      • Jim Hall says:

        The SEC’s stock in trade is denial, obfuscation, diversion, and ultimately, inaction.

        What a deadly combination.

        Will the next orchestrated crash be our coda?

    47. Fred says:

      Dr Jim,

      Do you have a link to the CBOE “comment letter” opposing preborrow and hard locate? This should be brought to the attention of Senator Kaufman. MM should not use naked shorting to make a market in options. I think even John Olagues might agree.

      … Fred

    48. Dr.Jim DeCosta says:

      Fred:

      http://www.sec.gov/comments/4-590/4590-97.pdf

      I’ve found studying these “comment letters” to be one of the best educational tools out there. Those in favor of the corrupt status quo need to weigh in lest the SEC change the corrupt status quo. All of those in favor of the corrupt status quo read the same bullet points off of the same game plan sheet but sometimes in different order. “Pre-borrows” should not be mandated because there are no empirical studies saying that they work. They would be too expensive, too burdensome,hedging would be difficult,pump and dumps will go nuclear,Reg SHO is a huge success already, there are tons of reasons for legitimate delivery failures, 99.9% of trades settle on time,rule 10b-5 already addresses manipulative behavior, etc. My personal favorite is the often quoted “pricing efficiency” is enhanced with unencumbered short selling.

      Let me get this straight, allowing crooks to manipulate the “supply” of that which must be treated as being readily sellable upwards at the same time “demand” is snuffed out by short selling into any buy orders that appear somehow leads to enhanced “pricing efficiency”. Converting the normal share price buoying effect of buy orders into readily sellable share price depressing “security entitlements” resulting in BOTH buy and sell orders depressing share prices enhances “pricing efficiency”. Okeedokee!

    49. Fred says:

      Dr Jim

      I fear the worst. This stuff is indeed educational, but I find it so depressing that I can’t read it all at once. They may get their way. They say there is no proof, but they won’t even agree to reporting and auditing that would test for the true number of FTD’s and unsettled trades in the market on any particular date. Self-reporting is not good enough. Simply net up all the account statements for long and short positions on a particular day, and compare that against the number of shares in street name as showing on the transfer agent books for that day. Won’t that give a true measure of the unsettled trades, if any?

    50. harveydawabbitt says:

      i keep waiting fer hannibal to drop the other shoe.
      im here daily eagerly awaiting the names of the boss miscreants…

    51. Your arguments against short sellers just went up in smoke, along with what little credibility you had, when you fired your auditor tonight…you gonna rail about auditing being unfair too? you belong in the loony bin, but they probly would kick you out as you’d complain too much!

    52. sean says:

      Hedgie, is this the best you and Tim/Gary can come up with to disparage Dr. Byrne? LOL!! Man, Patrick is dismantling your organizations of corruption and you come here with this crap. How did Jon Stewart get a black eye? Apparantly you did’nt see what he did to humiliate Jim Cramer on his show huh? NOW that was a black eye and then some. Please REALLY guys come back with something more stinging than he fired his auditors please. Now back to Steve Cohen an his criminal activities..

    53. sean says:

      Tim/Gary/Hedgie, worry about this, not Auditors!!LOL!!

      Insider trading “systemic”

      SEC Enforcer Says Insider-Trading ‘Systemic,’ Expresses ‘Concern’ About Hedge Funds

      November 17, 2009

      Insider-trading may be widespread in the hedge fund industry, the head of enforcement for the Securities and Exchange Commission said.

      Robert Khuzami said his office’s recent crackdown on insider-trading, which has snared several hedge funds, including the Galleon Group, may be an indication that such activity is “systemic” among hedge funds. And he warned that anyone engaged in illicit trading on insider-tips “should be worried.”

      Speaking at the Bloomberg Washington Summit, Khuzami said that “the vast majority of hedge funds and others operate in a lawful manner.” But he added that “there are some aspects to hedge-fund operations that do give enforcement types like myself concern,” including algorithmic trading, dark pools and poor attitudes towards compliance.

      “You have funds whose business model consisted of vigorous attempts to collect information from corporate insiders and to utilize that information to trade,” Khuzami said. But he warned that his agency’s crackdown on insider-trading would continue, and that it was becoming harder to get away with.

      New regulations, including mandatory registration with the SEC, will make it easier to catch wrongdoing among hedge funds, he said. What’s more, the widely-publicized crackdown, which has netted more than 20 alleged insider-traders, has led to an “uptick” in individuals reporting alleged misconduct to the agency.

      http://www.finalternatives.com/node/9696

      • Huck says:

        Little stevie cohen expects to be advised prior to anyone else about such market moving event as downgrades etc. He has been know to berate brokers who failed to inform him first of upcoming announcements. Not a quote but such claptrap was published in a link posted here, proving how much “juice” he had I suppose. Of course that was 5 years ago before this major crackdown on “INSIDER TRADING” became such a concern of our glorious watchdog whores at s.i.c.

    54. Anonymous says:

      Maybe this explains why we never see any of these scondrels in the mSM news?

      http://www.thedailytimes.com/article/20091117/BIZ/911179992

      New York Times, Daily News, other NYC papers’ circulation offices raided
      By Colleen Long
      The Associated Press
      Originally published: November 17. 2009 1:22PM
      Last modified: November 17. 2009 1:24PM
      NEW YORK — A law enforcement official says the New York Police Department raided circulation offices at some of the nation’s largest newspapers as part of a union corruption probe.

      The official says the offices of The New York Times, the New York Post, El Diario and the Daily News of New York were raided Tuesday. The official spoke to The Associated Press on the condition of anonymity because the investigation is ongoing.

      The official says the newspaper delivery system around the city is under investigation and the news organizations are not involved.

      The 1,600-member union that delivers papers was previously accused by the Manhattan district attorney’s office of being run by the mob.

      Calls to the four newspapers weren’t immediately returned Tuesday.

    55. Andrew Frazier says:

      I was watching a documentary on PBS about the day Bear Stearns collapse and one commentator said something I found very interesting, he was talking about how Henry Paulson was extremely devout about combating moral hazard, and how he didn’t want to see Bear Stearn’s stockholders benefiting from an intervention, so “he made a phone call.” And the stock price dropped substantially.

      When I saw that, I thought immediately of Deep Capture.

    56. bandc says:

      Thank you sooo much. I am relieved that I stumbled upon this site. For some time now, I’ve been feeling that I am on the fringes of society. I have been questioning all the B.S. in the media. If there is any grass root movement taking shape, please write about it.
      MY IDEAS:
      1.) Abolish corporate personhood. (remove politician purchasing)
      2.) Re-Esatblish banking usary laws and Separate investment banking from actual banking
      3.) Stop printing money.
      4.) Re-establish FCC rules to break up media giants.
      5.) Evaluate all trade deals – especially GATT and NAFTA.
      Please leave comments: I’m interested in what you think

    57. thinkfish says:

      Thank you from all the little fish, many of us who are broke and jobless that still believe in this market. With the belief in ourselves, I have the Faith that we can over come any adversity. But keeping that dream alive becomes more and more like a NITEmare for us everyday investors. It is just or even more difficult to get a leg up for us, when our small problems do not matter.
      Here is a update from deep in the trenches, we continue to fight the righteous fight. Do you know what the biggest problem is for us everyday investors? I think it is because the rules of the game have no rules! Your friends at Goldman Sachs also has many friends, like Knight Capital… OTC’s most powerful Market Maker.
      President of Knight Capital is also the CEO of Scottrade…. is that legal? What about when Scottraid halts the buying of some stocks, then turns around and lends those same shares to NITE/ Knight Capital to be Short Naked against us….. is that legal?
      When market makers like ABLE/ NATIXIS BLEICHROEDER LLC team up with Goldman Sachs Executions. How do all the small fish survive with all these sharks in the dark pools who have joined forces?
      Let me tell you about my favorite stock, that all the sharks that smell the profits are trying to get a piece of. I believe along with many others, the most undervalued and the most shorted stock on the market. Health Sciences Group Inc., HESG which is trying to be one of the first publicly traded companies to generate revenues from Medical Marijuana.
      I’m an investors at .0001 and will continue to hold my shares no matter what these market fakers continue to do. Like Scottrade who halted the buying of this stock, the day when HESG CEO Tom Gaffney retired 2 Billion shares of this stock. NITE has traded over 20 Billion shares of this stock in Nov. & Dec. …YTD combined total shares traded of HESG is 36 BIllion shares from a stock that only has 2.2 Billion shares Outstanding and 3 Billion shares Authorized with a current price per share of .0006.
      Hmmmmm sounds fishy to me, how about you? But back to my original point…Is it legal for the CEO of Scottrade to halt the buying of certain stocks and then loan those shares to NITE where he is the current President? Continuing to Naked Short these shares borrowed from Scottrade to dilute the stock with phantom shares? Manipulating the HESG shareholders with their own stock in hopes of buying those shares back at a lower price before they Fail To Deliver. Or before a merger or name change which could bring a settlement of most of those unaccounted share sold by the Market Makers…
      2.2 Billion HESG Shares Outstanding
      36 Billion HESG Shares Total Trade Volume YTD
      What Are The Rules To This Game?
      Peace
      † h i n k f i s h

    58. That information is really awesome….i like the post you have provided here. and the site too its really very difficult to maintain this type of big site..great job..i love the posts you have posted on your site..

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