Free World Airs Short Sale Scandal; America Blocks the Signal

You don’t read about it in the American press, but major news organizations in just about every other nation on the planet are reporting that it is really bad that some hedge funds and brokers do not deliver the stock that they sell to unsuspecting investors.

In a story this week, for example, Euromoney, one of the Continent’s more prestigious publications, concludes that “fails to deliver in the U.S. equity market have exacerbated the sharp declines in share prices of financials.”

“Had those failures been averted through better regulation,” Euromoney asks, rhetorically, “would Bear Stearns have had a slower downfall, or even avoided outright collapse? And what of Lehman Brothers, Fannie Mae and Freddie Mac? Indeed, would all financial companies have enjoyed more resilient share prices, instead of seeing sudden, sharp price declines that were the final nudge to creditors and counterparties abandoning firms and driving them into bankruptcy?”

“On March 14, 128% of Bear Stearns stock outstanding was traded,” Euromoney reports. “These ‘phantom shares’ can be on-lent without delivery again and again, further diluting the stock.”

Translation: Criminal naked short sellers (hedge funds selling phantom stock to drive down stock prices) very nearly vaporized the American financial system.

Euromoney continues: “One former employee of regulator NASD says he knows of a hedge fund that was shorting Freddie Mac and Fannie Mae on a ‘massive scale’, with no intention of ever locating stock. ‘His prime broker let the trade go through regardless as he was a large client of theirs,’ he says.”

Translation: Euromoney knows the name of a hedge fund that committed a “massive” crime. A former regulator knows the name of a hedge fund that committed a “massive” crime. Everybody can guess which hedge fund it was. And yet, the manager of that hedge fund is not in jail.

Many other former regulators – not to mention Congressional investigators and an inspector general – say that officials at the Securities and Exchange Commission quashed investigations into naked short selling crimes, even as it became apparent that illegal naked short selling was doing serious damage to at least a hundred companies.

As a result, the U.S. government is now spending trillions of dollars – money that it will confiscate from honest citizens (criminal billionaires don’t pay taxes) – to bail out the investment banks that employed the criminal prime brokers who processed the phantom stock for their criminal hedge fund clients.

Once upon a time, American journalists would have called this a “scandal.”

Instead, some influential journalists participated in the cover-up. In May, Deep Capture published a story alleging that a small but influential clique of journalists, most of whom had ties to CNBC’s Jim Cramer, had covered up the naked short selling scandal in service to a small number of hedge fund managers, most of whom had ties to CNBC’s Jim Cramer.

The day after we published that story, Cramer, who had always denied that naked short selling was a problem, began a “crusade” against “diabolical” naked short sellers. His now-regular diatribes against the evils of naked short selling are spectacles of some anthropological interest.

In his latest live-on-television rant, Cramer said that naked short selling hedge fund “maniacs” are sowing “fear and destruction” in the markets. Therefore, said Cramer, the new president must appoint Cramer to be the chairman of the Securities and Exchange Commission.

To emphasize this point, Cramer held up a bright pink and florescent green sign that said “Cramer for SEC chairman.”

Cramer continued: “This isn’t my megalomania talking I don’t mean to brag but look I’m a lawyer by training — I sound like an ad, right? – I’m a stock jock and a former hedge fund manager and a guy who knows the tricks and has seen others do them and although to be very clear I never did anything illegal or even close to unethical because in the end I am a goody two-shoes and I actually have a new pair of goody two-shoes but I have seen other money managers do things and I know how to detect them and — Wow! — hey, he went to Harvard he must be really smart…and it takes a fox to guard the hen house.”

This guy is the only mainstream American journalist reporting on a crime that helped bring us to the brink of another Great Depression.

* * * * * * * *

Mark Mitchell email: [email protected]

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  1. This guy is the only mainstream American journalist reporting on a crime that helped bring us to the brink of another GreatDepression. The “brink” of the Great Depression lasted several years and, like then, those in charge now are continuing to do the wrong things on purpose, even when the right things would be easier. The people taking charge in January appear to be cut from the same cloth. I don’t think journalists of mainstream media are likely to be our salvation, because as soon as they write anything close to the real story, they will become unemployable in their chosen field. Thanks for your work.

  2. Mark, why have’nt a group of companies got together and sued the SEC/DTCC for all of these crimes perpitrated against them? Why have they gone about it individually? Would’nt there have been power in numbers and more cost effective? Just asking.

  3. ” …why have’nt a group of companies got together and sued the SEC/DTCC…?”

    Federal Court Dismisses Lawsuit Against DTCC

    New York, June 2, 2006 – The Depository Trust & Clearing Corporation (DTCC) announced today that by order entered May 31, 2006, the United States District Court for the District of Nevada, Las Vegas, has dismissed Whistler Investment, Inc.’s lawsuit against DTCC and its subsidiaries. The dismissal was “with prejudice,” meaning that Whistler may not seek to amend its complaint.

    In granting DTCC’s motion to dismiss, the court agreed with DTCC that clearing and settlement rules promulgated by DTCC’s subsidiaries and approved by the U.S. Securities and Exchange Commission (SEC) cannot be challenged under state law. Because DTCC’s Stock Borrow Program (SBP), the target of the lawsuit, is explicitly approved by and subject to the ongoing oversight of the SEC, the legal challenge is barred by the Supremacy Clause of the U.S. Constitution, on grounds of both “field” and “conflicts” preemption.


  4. Mark,

    What does it take for the SEC to act? We can all talk about Euromoney’s article, but we have to make certain that the SEC has the same information.

    I assume that Helen Avery wrote the article. She has very good sources. She knew that when Reg SHO was put forth that it was organized to be worthless as far as a regulatory tool. Before the final edition was published, someone slipped in “locate” instead of “borrow”. Whoever got that word in there knew that it would protect wrongdoers from prosecution.

    This was probably churned out before the vote, but forging has taken place in the process of legislation. There was an incident in Congress, money was set aside to fix I 75 and after it was voted on and before the President signed the bill, someone altered the bill to specify Coconut Road to benefit a developer. The same developer had given a gift to a Congressman.

  5. GINGER — Maybe No Longer Just Whistler’n In The Wind

    The Court of Appeals decision in Whistler was rendered in late summer upholding dismissal on solely ‘conflict’ preemption grounds; however, barely one month later the SEC issued its final Short Selling Antifraud Rule 10b – 21 and Comments, which I submit contains good news for subsequent litigation if the right attack is framed:
    [ See discussion contained on page 2 of THE GREATEST CRIME IN HISTORY thread, post titled – ‘Fraud Is Still Fraud, And Then Some’, et seq.

    “This discussion accompanying the rule change should help clarify a claim that the intention is to promote the widest enforcement effort possible — encouraging the entire regulatory scheme of private civil remedies and penalties imposed by state administrative agencies without any intent to federally preempt the field. In other words, it should be easier to argue, under the language accompanying these rule changes, that these enhanced SEC measures are not intended to be mutually exclusive of other antifraud remedies. Rather, “manipulative scheme[s]” are “already illegal” and this rule is intended to “further evidenc[e] the illegality of these activities”. Accordingly, it is now more apparent these federal regulatory provisions are aimed at creating a nonexclusive regulatory scheme of federal enforcement. Such clarification here could have a beneficial effect in the courts which have stiff armed plaintiffs who brought civil claims against predatory short selling poachers, collaborators and clearing houses that aid and abet those who have enjoyed this happy hunting ground with no bag limit.… In response to the failures of the Commission to responsibly provide regulatory interdiction, investors and afflicted companies have taken their pleas to the state and federal courts where the courts amazingly rejected legal remedy in systematic deference to the SEC… Numerous federal cases alleging a broad array of fraudulent actions have been routinely dismissed under the theory that the SEC stock borrow program was intended to be a comprehensive enforcement scheme to the exclusion of other remedies and, therefore federally preempted…”

    “…this language makes clear that fraud through abusive naked short selling, and aiding and abetting these schemes with culpable intent or scienter, has always been illegal and actionable. This rule is ostensibly intended to remove any doubt, and provide greater emphasis, that simple compliance with technical deadlines will not insulate against legitimate claims of fraud and illegal stock manipulation,…”

    Maybe there are some grounds for hope in light of this language, applied to a well-plead complaint raising particular facts such as the recently surfacing evidence of corrupt collaboration among hedge funds, broker dealers and the clearing and regulatory bodies who appear to have intentionally aided and abetted in criminal manipulations.

  6. Unbelievable !!!

    Headlined on 11/28/08:
    AIG Pulls Fast One — “Cash Awards” Going To Managers

    by Jonathan Tasini Page 1 of 1 page(s)

    vote nowBuzz up!

    Tell A Friend

    When you are a pro at a scam–the definition of “scam” also can be found under the term “insurance industry” — you know how to try to pull a fast one. And AIG is trying to pull one — under cover of the holidays. Check this out.

    You may remember that AIG — which is afloat only thanks to a bailout by you, the taxpayer, to the tune of $152 billion and counting–made a whole lot of public relations when its top seven executives agreed not to take bonuses this year.

    Well, on the eve of Thanksgiving, obviously knowing the markets would be closed on the holiday and obviously knowing that just before the holiday few people would pay attention, AIG actually notified regulators that, well, yes, bonuses would be given out, as Bloomberg News and The Financial Times reports today:

    American International Group Inc., the insurer that said yesterday it scrapped bonuses for top executives after a U.S. bailout, will still pay 130 managers “cash awards” to stay with the firm, including $3 million to retirement services chief Jay Wintrob.

    Wintrob, 51, will get the “retention” payment in two installments, the first in April 2009 and the rest a year later, New York-based AIG said today in a regulatory filing. The firm previously disclosed the program in a Sept. 26 filing and said today that Wintrob and Chief Financial Officer David Herzog elected to get the payments four months later than planned.

    “The expectation from the public and Congress was that they weren’t getting bonuses, not that they’d be pushed off by several months,” said David Schmidt, a consultant at executive pay firm James F. Reda & Associates. “That clearly violates the spirit of AIG saying they’ll forgo their bonuses.”[emphasis added]

    From the FT:

    However, the UBS news comes just a day after it emerged AIG, which has received more than $150bn in bail-out financing from the US government, would still pay 130 managers “cash awards” to stay with the firm. AIG disclosed the bonuses in a regulatory filing on the evening before Thanksgiving, a day when US markets are closed. The insurer had previously said its seven top executives would forgo their bonuses for 2008.

    They just can’t help themselves, can they? Call it “retention pay” or “cash bonuses” or some other euphemism — but the fact is that your tax dollars are going to reward people who are lucky to even have jobs. There should have been a housecleaning that swept the entire top level of managers out on their asses for playing a role in the financial crisis that is hurting millions of people.

    I have not seen this reported in other mainline traditional media. But, this is a scam.

    Jonathan Tasini is the executive director of Labor Research Association. Tasini ran for the Democratic nomination for the U.S. Senate in New York. For the past 25 years, Jonathan has been a union leader and organizer, a social activist, and a commentator and writer on work, labor and the economy. From 1990 to April 2003, he served as president of the National Writers Union (United Auto Workers Local 1981).He was the lead plaintiff in Tasini vs. The New York Times, the landmark electronic rights case that took on the corporate media’s assault on the rights of thousands of freelance authors. For the last twenty years, he has written about labor and economics for a variety of newspapers and magazines including The New York Times Magazine, The Atlantic, Business Week, The Washington Post, The Village Voice, The Los Angeles Times, and The Wall Street Journal. He is the author of two books: The Edifice Complex: Rebuilding the American Labor Movement to Face the Global Economy, a critique and prescriptive analysis of the labor movement (1995); and They Get Cake, We Eat Crumbs: The Real Story Behind Today’s Unfair Economy, an average reader’s guide to the economy (1997). He also runs a regular blog called Working Life, which explores the economy and the labor movement.—Cas-by-Jonathan-Tasini-081128-318.html

  7. There has to be some law enforcement organization with a pair of balls that wants to make a name for themselves, and go after these criminals with the RICO ACT.

    The collusive short, and naked short selling against target companies by a band of ruthless Wall Stree criminals is RACKETEERING.

    It is more insidious than Mafia-style organized crime, as the participants appear outwardly as legitimate and respected Wall Stree players.

    The corruption and greed however, are so widespread that the players and regulators are in bed together; minimal enforcement and meaningless penalties are the rule.

    This is RACKETEERING and CORRUPTION of the largest scale ever seen in American history, and it will be incredibly difficult to stop as the general public and congress are required to educate themselves in order to understand what is going on.

    The average person I speak to barely understands what a short sale is, and even the eyes of the very intelligent begin to glaze over when I try to explain what naked short selling is, and why it is so detrimental.

    The complexity of the issue is probably the strongest crutch which these criminals lean upon, as it makes those trying to educate and inform the general public appear as foaming-at-the-mouth zealots spouting out a bunch of financial jibberish.

    I really do hope that this isue becomes understood, and the criminals brought to justice, but I am not expecting anything of substance.

  8. Yes Mark, once upon a time that would have been a “scandal”. But once upon a time, America had honest ethical journalists who searched and reported the truth. Something that has become extinct now…. present company excluded of course. Thanks for the work.

  9. Thank you again Mark for your continued reporting on the crimes being committed against the American People.

    It is good news that Euromoney is now reporting the crimes being committed against the American people.

    And thank you Patrick for the GIF images of the Crimes being committed against individual companies, and the one showing how ineffective the SEC’s “Band-aids” have been in stopping these crimes.

    I am beginning to think that the ultimate solution will have to come from Congress, since it apparently created the laws surrounding the Unregulated Hedge Fund Industry.

    And it appears that they will only change the law if are embarrassed into taking action. For example, I just received an answer from one of my Senators after writing a letter to him about naked shorting. His response was an explanation of the difference between shorting and naked-shorting with a one sentence promise to look out for any pending legislation to deal with this problem. So my Sentor “educated” me and then promised to let someone else introduce a bill addressing naked-shorting.

    Since no one in Congress is introducing a bill to address naked shorting, I can guarantee that my Senator will do nothing to address the problem.

    So I think that we need to write a letter that will frame the problem in such a way that no Congress person can say that they will wait for someone else to introduce a bill.

    One thought that comes to mind is to frame this in the context of “national security.” The terrorist undoubtedly are already using naked shorting to increase the net value of its bank accounts to fund their attacks on Western Civilizations, since the Mafia is reportedly using it already. The Governments around the world have already tightened the rules regarding money, and yet it seems they have totally overlooked naked-shorting as a vehicle to fund and promote terrorist attacks.

    With this in mind, I will attempt to create a generic letter to Congress and post it here for others to improve upon. Maybe between us, we can created a generic letter to Congress that will get their attention and the attention of the American People who will send it to their representatives. And I would invite everyone to attempt the same – to write a generic letter to Congress.

  10. I sent impassioned letters to several senators and congresspersons in September. Hardcopies, certified mail. Nary a word in response. They are either too busy or else they are in the pocket of the lobby and hedgies who contribute massively to their campaigns.

  11. First, thank you Mr. Mark Mitchell — for telling it like it is. And, yes sir, you are the ONLY mainstream investigative journalist in America that has written in detail about the scurge of Naked Short Selling — and how the manipulation and corruption are tearing at the heart of the American financial markets. Mr. Mitchell — you need to be cloned — and multiplied by 10,000! Other investigative journalists worldwide, not just Euromoney, should publish their findings about the Hedge Funds’ targeted financial destruction via Naked Short Selling. Any journalist with an ethical-mindset should do their job — and REVEAL & EXPOSE the injustices & corruption.

    Sean, I agree — there has to be a way for a Class Action lawsuit against the perpetrators of Naked Short Selling (The Hedge Funds & Broker-Dealer facilitators). I imagine every company that has appeared on the Reg. SHO Threshold List just one (1) time — would be happy to join a Class Action lawsuit. To the best of my knowledge, Patrick’s company,, is one of only a few companies that have filed lawsuits against Hedge Funds to stop securities manipulation. It’s high-time for the victims of Naked Short Selling to band-together with a Class Action Lawsuit (reducing the legal cost for all participants) — to stop Naked Short Selling from destroying their companies.

    iStandUp, as Patrick as suggested, there needs to be a 9-11 Commission kind of investigation into our nation’s clearing and settlement system. I’m sure you’ve seen the letter Patrick sent, but here’s the link for everyone to see:

    We should not underestimate our adversary – The Hedge Funds who can “buy” just about anything. It seems the enemy has deeply-influenced the Federal government and the regulators.

    This is why I was so hopeful at the “grass-roots movement” in South Dakota led by the former Attorney General, Mr. Mark Meierhenry, to place the Measure 9 Initiative on the General Election Ballot. However, I was disheartened that it was narrowly-defeated. At the State-Level, in any State, does anyone know if Mr. Meierhenry’s organization is moving forward to continue the fight for reform? I tried to contact them via both phone & email, but I received no reply.

    Just an idea — since TEXAS has so many publicly-traded companies in the energy industry and cumulatively has a lot of invested market capital in the S&P 500 companies, wouldn’t it be a good idea to push for reform in TEXAS to legislate a law with verbiage similar to that proposed by Measure 9? See link below:

    Since “time is of the essence”, and the financial collapse of the markets hangs in the balance, I suggest moving forward via the “path of least resistance” — which may be at the State-Level. Any comments?

    People with the financial-means to take legal-action — must do so — for the benefit of us all. The time to act is — NOW. Thank you.

    I want justice.


  12. Patrick,

    I forgot to mention how important I think the pictures your team created are.

    The old saying is so true:
    “A Picture is worth a thousand words.”

    With the pictures your team created, we can now say to someone – Let me show you a picture of HOW Counterfeiting Hedge Funds illegally manipulate stock prices of publicly traded companies.

    I think these pictures have a very powerful potential for educating people who do not understand the words used to describe of the crimes of the Counterfeiting Hedge Funds.

    In the generic letter to Congress persons I will write, I plan on using the URL address of these images so Congress members can simple click and view.

    So I request that you keep these images live at the same location for years to come so I and others can use them to educate the public.

    And if possible, more images would be very useful as we attempt to educate all Americans about the attacks upon the very fibers of our great nation.

    Thank you.

  13. I recently found this link

    Very interesting. Talks about the dollar being the world reserve currency and how it plays into the problems we are seeing now. It also argues for going to a gold standard for the world monetary systems.

    Going to a gold standard might be a good idea if it was done intelligently.

    I would argue that our markets need to be fixed before making any fundamental monetary system changes though.

    Keep up the good work!

  14. Unfortunately the very size and scope of this crime renders it nearly invisible to many.

    Great job, Mark and Patrick.

    The contemptible and totally corrupt SEC and congress and its many hollowed-pocketed scoundrels must be prosecuted by an independent, and new, branch of government staffed by UNASSAILABLE and UNIMPEACHABLE individuals.

    Please forge ahead.

    Real INVESTORS need your assistance as our country has made a mockery of the market.

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