Categorized | The Mitchell Report

    Our Watchdogs and the Financial Scandal of the Century

    “Accountability – Integrity – Reliability”

    That’s the motto of the Government Accountability Office, and it almost makes you believe that there really is a functioning watchdog – somebody, aside from us Internet loons, to investigate and report on the incompetence and malfeasance that pervade our public institutions.

    Certainly, there were high hopes when the GAO began investigating the Securities and Exchange Commission’s oversight of the Depository Trust and Clearing Corporation (DTCC), a black box Wall Street outfit that is at the center of one of the great financial scandals of our era.

    Alas, the GAO has completed its “investigation” and issued a report on its findings. After reading this report, and considering once again that the GAO (“Accountability – Integrity – Reliability”) is the last line of defense against government miscreancy, I have concluded, and am obliged to inform you, that we are, without a shadow of a doubt, totally screwed.

    The report begins with an explanation: “An effective clearance and settlement process is vital to the functioning of equities markets. When investors agree to trade an equity security, the purchaser promises to deliver cash to the seller and the seller promises to deliver the security to the purchaser. The process by which the seller receives payment and the buyer, the securities, is known as clearance and settlement.”

    In other words, people who sell stock need to deliver real stock. That’s kind of important to the“functioning of equities markets.” If you think it is strange that the GAO ( “Accountability – Integrity – Reliability”) needs to clarify this point, you can begin to understand the scope of a scandal that has helped bring us to the brink of a second Great Depression.

    The problem is that many hedge funds and brokers engage in illegal naked short selling – selling stock and other securities that they have not yet borrowed or purchased, and failing to deliver stock within the allotted 3 days. They do this to drive down stock prices and destroy public companies for profit.

    Emmy Award-winning journalist Gary Matsumoto reported on the Bloomberg newswire last week that naked short selling is one of Wall Street’s “darkest arts” and contributed to the demise of both Lehman Brothers and Bear Stearns. SEC data shows that an astounding 32.8 million shares of Lehman were sold and not delivered to buyers as of last September 11, days before the company declared bankruptcy.

    The collapse of Lehman, of course, triggered the near-total implosion of our financial system.

    How could this have been allowed to happen?

    One answer lies within that black box – the Depository Trust and Clearing Corporation. The DTCC is a quasi-private, Wall Street owned and operated organization that is charged by Congress and the SEC with ensuring that securities trades are cleared and settled. As is evident from the cases of Lehman, Bear, and hundreds of other companies, however, the DTCC often fails to do its job.

    In fact, it enables naked short selling to go unpunished. Rather than track individual trades to ensure that delivery occurs, the DTCC merely calculates a net total of sales and purchases at the end of each day. So we know how many shares of a given company fail to deliver each day, but the DTCC won’t tell us which hedge funds or brokers are responsible.

    Meanwhile, the DTCC maintains something called the “Stock Borrow Program,” whereby it purportedly borrows a bundle of shares from cooperating brokers and uses the shares to settle failed trades. These shares are not on deposit with the DTCC, and the DTCC records a trade as “settled” with a mere electronic entry — i.e. by pushing a button on a computer rather than exchanging an actual certificate. So it is unclear that the Stock Borrow Program is actually delivering stock. Moreover, trade volume data suggests that the Stock Borrow Program might be using its bundle over and over again, settling multiple trades with the same “shares,” and generating what is, in effect, massive amounts of counterfeit, or “phantom” stock.

    While enabling hedge funds and brokers to engage in their dark art, the DTCC also goes to lengths to deny that illegal naked short selling occurs and to smear the reputations of people who say otherwise. It has orchestrated this vicious public relations campaign in cahoots with a crooked Portfolio magazine reporter named Gary Weiss, who has worked closely with a motley cast of Mafia-connected hedge fund managers and convicted criminals.

    There is indisputable evidence showing that Weiss, while posing as a journalist, not only worked inside the DTCC’s offices, but also went so far as to seize total control of the Wikipedia entries on “naked short selling” and “Depository Trust and Clearing Corporation.” Yet, to this day, Weiss flat-out denies that he has ever worked with the DTCC and insists that he has never edited any Wikipedia page, much less the fabulously distorted entries dealing with naked short selling.

    That the DTCC facilitates and seeks to cover up naked short selling is not surprising given that it is owned by the very brokerages who profit from catering to hedge funds who commit  the crime. The DTCC’s board of directors has included several market makers – including Peter Madoff, brother of Bernard Madoff, the $50 billion Ponzi schemer with ties to the Mafia — who made a tidy profit from naked short selling.

    At any rate, the SEC is responsible for overseeing the DTCC and ensuring that it is doing all it can to enforce delivery of shares and other securities. But the SEC conducts examinations of the DTCC only once every two years, and former SEC officials have admitted to Deep Capture that these visits entail nothing more than “investigators” asking a few courteous questions. Indeed, a number of former SEC officials have told us that the nation’s securities regulator doesn’t even understand what the DTCC does.

    Enter the GAO (“Accountability – Integrity – Reliability”). Ostensibly, the GAO was going to determine whether the SEC was properly monitoring the DTCC. However, the GAO’s “investigation” entailed nothing more than visiting the SEC and asking a few courteous questions. In response, the SEC told the GAO that there is nothing to worry about, and the GAO duly issued a report that concluded that the SEC had told the GAO there is nothing to worry about.

    Really, that, in essence, is what the report says.

    It notes, for example, that the SEC examines the DTCC only once every two years, but offers no opinion as to whether this is sufficient oversight of an organization that processes securities transactions worth $1.4 quadrillion – or 30 times the gross product of the entire planet – every year.

    And here’s what the report has to say about the DTCC’s Stock Borrow Program:

    “…in response to media criticism and allegations made by certain issuers and     shareholders that NSCC and DTC [units of the DTCC] were facilitating naked short selling through the operation of the Stock Borrow Program, OCIE [a unit of the SEC] also incorporated a review of this program into the scope of its 2005 examination. These critics argued that the Stock Borrow Program exacerbated naked short selling by creating and lending shares that are not actually deposited at the DTC, thereby, flooding the market with shares that do not exist. As part of their review, OCIE examiners tested transactions in securities that were the subject of the above referenced allegations or had high levels of prolonged FTD. The examination did not find any instances where critics’ claims were validated. However, we did not validate OCIE’s findings.” [Emphasis mine]

    In other words, the SEC claims to have examined the Stock Borrow Program once – in 2005 — but the GAO (“Accountability – Integrity – Reliability”) has no idea what that examination entailed. The SEC claims to have “tested transactions” in securities that had “high levels of prolonged” failures to deliver, but offered the GAO no credible explanation as to why so many companies have seen millions of their shares go undelivered nearly every day since 2005.

    The SEC says it looked into the “critics’ claims” and found them to be without merit. The GAO duly notes this as if what the SEC has to say were the final say in the matter. As to whether the SEC’s own claims might have been without merit, the GAO says only that it “did not validate” the SEC’s findings.

    Isn’t the job of the GAO (“Accountability – Integrity – Reliability”) to “validate” – or, as it were, invalidate – the SEC’s findings? It is not exactly an “investigation” to merely ask the SEC what it has to say and then publish a report confirming that that is, in fact, what the SEC had to say.

    Last year, more than 70% of all failures to deliver were concentrated on a select 100 companies that short sellers had also targeted in other ways (planting false media stories, issuing false financial research, filing bogus class action lawsuits, harassing and threatening executives, engaging in corporate espionage, circulating false rumors, pulling strings to get dead-end federal investigations launched, etc.), but the SEC told the GAO that the failures to deliver could be mostly the result of “processing delays” or “mechanical errors.”

    Billions of undelivered shares – most of them concentrated on 100 known targets of specific short sellers. Many of those shares left undelivered for months at a time. The SEC tells the GAO that this might be due to “mechanical errors.” And what does the GAO (“Accountability – Integrity – Reliability”) do? It transcribes the SEC’s claims, offers no opinion as to whether the SEC might be full of it, and then acknowledges that it is in no position to have such opinions because it “did not validate” anything.

    In a written response to the GAO, the SEC noted happily that the GAO (“Accountability – Integrity – Reliability”) “made no recommendations” in its report.

    “We appreciate the courtesy you and your staff extended to us during this review,” the SEC told the GAO.

    * * * * * * * *

    Far better is a report issued last week by the Office of the Inspector General at the Securities and Exchange Commission. Inspector General David Kotz, charged with conducting independent oversight of the SEC, is a heroic figure – an honest man in government. He has consistently lambasted the SEC for corruption and incompetence, and now he has investigated the SEC’s regulation of naked short selling. He found the regulation to be fairly abysmal and offered concrete recommendations for how the commission could reform itself.

    The report concludes:

    “The OIG received numerous complaints alleging that [SEC] Enforcement failed to take sufficient action regarding naked short selling. Many of these complaints asserted that investors and companies lost billions of dollars because Enforcement has not taken sufficient action against naked short selling practices.”

    “Our audit disclosed that despite the tremendous amount of attention the practice of naked short selling has generated in recent years, Enforcement has brought very few enforcement actions based on conduct involving abusive or manipulative naked short selling…during the period of our review we found that few naked short selling complaints were forwarded to Headquarters or Regional Office Enforcement staff for further investigation…”

    “Given the heightened public and Commission focus on naked short selling and guidance provided to the public leading them to believe these complaints will be taken seriously and appropriately evaluated, we believe the ECC’s current policies and procedures should be improved to ensure that naked short selling complaints are addressed appropriately.”

    As for the SEC’s claims that naked short selling isn’t really a problem, or that failures to deliver could be the result of “mechanical error,” the OIG nicely contrasts this blather with the SEC’s own decision last fall to take “emergency” action against naked short selling (because naked short sellers were contributing to the toppling of the American financial system) and the SEC’s statement that “we have been concerned about ‘naked’ short selling and, in particular, abusive ‘naked’ short selling, for some time.”

    In response to the OIG’s rightfully scathing report, the SEC wrote a letter in which it flatly refused to abide by most of the OIG’s recommendations.

    The SEC did not thank the OIG for its “courtesy.”

    * * * * * * * * *

    Meanwhile, that other watchdog – the media – continues to ignore the problem of naked short selling. After Gary Matsumoto’s rather earth-rattling Bloomberg report that naked short selling destroyed Bear Stearns and Lehman Brothers – and, by extension, destabilized the entire financial system – there were a total of two mainstream media stories on the subject.

    The first was in Portfolio magazine. Actually, this wasn’t really a story. It was one of those question and answer things. And the Q&A was not with some credible expert. Instead, a Portfolio magazine reporter interviewed another Portfolio magazine reporter about the Bloomberg reporter’s story. Even more shocking to those who believe there is hope for balanced media coverage of this issue, the interviewee was none other than… Gary Weiss, the crooked reporter who sidelines as a flak for the DTCC.

    Weiss, of course, smeared the messenger, suggesting that Matsumoto was a “conspiracy theorist.” He cited no data or evidence, but repeated the SEC and DTCC nonsense that failures to deliver might be caused by mechanical errors (which just happen to show up overwhelmingly concentrated in those firms targeted by the hedge funds who serve as Gary Weiss’s sources). And he asserted that naked short selling isn’t a problem because the SEC says that naked short selling isn’t a problem (except when the SEC says that naked short selling is an “emergency”).

    Read the full interview here. You’ll get a sense of the way Weiss deliberately employs straw man arguments to distort the truth, though as an example of Weiss’s dishonesty, this is rather mild.

    * * * * * * * *

    The other magazine to report on the Bloomberg bombshell was the Columbia Journalism Review, which is the most prominent watchdog of the watchdogs – an outlet for serious media criticism. As Deep Capture‘s regular readers know, I used to work as an editor for the Columbia Journalism Review. I spent ten months preparing a story for that publication about dishonest journalists (including Gary Weiss) who were deliberately covering up the naked short selling scandal.

    In the course of working on this story, I was threatened and, on one occasion, punched in the face. Then, in November 2006, shortly before the story was to be published, a short selling hedge fund that I was investigating announced that it would henceforth be providing the Columbia Journalism Review with the funding that would be used specifically to pay my salary.

    The hedge fund that bribed the Columbia Journalism Review is called Kingsford Capital. It has worked closely with criminals, including a thug named Spyro Contogouris. In November 2006, a couple weeks after Kingsford bribed the Columbia Journalism Review, an FBI agent arrested Spyro. This was the same FBI agent who was investigating a cabal of short sellers – SAC Capital, Kynikos Associates, the former Rocker Partners, Third Point Capital, Exis Capital — who were then working with Spyro to attack a company called Fairfax Financial.

    Spyro had harassed and threatened Fairfax executives, so he was going to feature prominently in my story. The centerpiece of my story, however, was to be that cabal of short sellers, not only because the Fairfax case was quite shocking, but also because these short sellers and a few others were the primary sources to dishonest journalists (especially MarketWatch reporter Herb Greenberg and CNBC personality Jim Cramer) who were then whitewashing the naked short selling scandal. Moreover, nearly every company known to have been targeted by these short sellers had been victimized by naked short selling, with millions of shares going undelivered, often for months at a time.

    Emails in my possession show that Kingsford Capital is closely connected to that cabal of short sellers. Moreover, one of Kingsford’s managers at the time, Cory Johnson, was, along with Herb Greenberg and Jim Cramer (the journalists who were going to feature most prominently in my story) a founding editor of TheStreet.com. (Johnson removed Kingsford from his online resume after I revealed the relationship in “The Story of Deep Capture.”).

    For a number of years, Kingsford Capital was partnered with Manuel Asensio, who was one of the most notorious naked short sellers on the Street. Prior to his work with Kingsford, Asensio worked for First Hanover, a Mafia-affiliated brokerage whose owner later became a homeless crack addict.

    I was investigating Kingsford and Asensio primarily because they appeared to be among the favorite sources of Gary Weiss, the crooked journalist who was then secretly doubling as a flak for the black box DTCC. Asensio, for example, helped Weiss write “The Mob on Wall Street,” a 1995 BusinessWeek story that was all about the Mafia’s infiltration of Wall Street stock brokerages, but which deliberately omitted reference to Mafia-connected naked short sellers, even though the brokerage that featured most prominently in the story, Hanover Sterling, was at the center of one of the biggest naked short selling fiascos in Wall Street history.

    According to someone who knows Weiss well, Asensio was also a source for a Weiss story about the gangland-style murder of two stock brokers, Al Chalem and Meier Lehmann. Chalem was tied to the Mafia and specialized in naked short selling. Multiple sources say that Russian mobsters killed Chalem in a dispute over the naked short selling of stocks that were manipulated by brokerages connected to the Russians and the Genovese organized crime family.

    One of these sources – a man who worked closely with Chalem – says that he tried to tell Weiss the true story, but Weiss refused to listen to anybody who would pin the murders on the Russian Mob or accuse Chalem of naked short selling. Instead, Weiss wrote a false story describing Chalem as a “stock promoter” and suggesting that he had been killed by people tied to the Gambino crime family, which was then a fierce rival of the Genovese and the Russians.

    On another occasion, the current principals of Kingsford Capital sent Weiss a fax containing false negative information about a company called Hemispherx Biopharma. Another source, who was sitting in Weiss’s office at the time, says that he tried to tell the reporter that Kingsford was working with Asensio, that Asensio might have ties to the Mob, and that Asensio was naked short selling Hemispherx stock. Weiss ignored this information and wrote a negative story about Hemispherx. Hemispherx’s stock promptly plummeted by more than 50%.

    Remember, Gary Weiss is the Portfolio magazine reporter who just who just told Portfolio magazine that only “conspiracy theorists” believe that abusive short selling is a problem.

    * * * * * * * *

    It is too much for me to believe that Kingsford Capital’s managers (along with Gary Weiss and Asensio?) could be influencing the Columbia Journalism Review’s stories, but I do know that the magazine is now an ardent defender of short sellers and has written favorably about several of the dishonest journalists – including Gary Weiss –who were to appear in my story.

    And, in its recent piece about Matsumoto’s Bloomberg bombshell, the Columbia Journalism Review cast doubt on the theory that naked short selling wiped out Lehman – never mind those 30 million shares that didn’t get delivered.

    The Columbia Journalism Review reporter, who receives a salary thanks to the beneficence of Kingsford Capital, wrote this:

    “Now, I don’t have a dog in the naked-shorts fight. I can’t tell you if this is being done illegally on a large-scale and having a real impact on companies. I just don’t know.”

    “But one of the first things that comes to mind here is—wouldn’t you expect fails-to-deliver to soar for a company teetering on the brink of bankruptcy under an avalanche of bad news? I’d expect there would be a rush to short a stock like Lehman, which was about to collapse anyway. So, people who usually could expect to borrow shares to short might have found that they couldn’t because everybody else was doing the same thing.”

    In other words, people who “could expect to borrow shares,” but “found that they couldn’t” went ahead anyway and sold 30 million shares that did not exist. This was a gross violation of securities regulations that require traders to have “affirmative determination” that a stock can, in fact, be borrowed. Assuming the intent was to manipulate the stock, it is a jailable offense.

    It is true that by mid-September of last year, Lehman was on the brink of bankruptcy. Partners backed out of deals and there was a run on the bank. But people got nervous and pulled their money only because hedge funds bombarded Lehman with rumors (which are currently the subjects of a federal investigation) while simultaneously naked shorting the stock to single digits.

    In July of 2008, the SEC issued an emergency order designed to prevent just this eventuality. For a few weeks, the order stopped naked short selling of Lehman Brothers and 18 other big financial companies. At this time, Lehman was not on the brink of bankruptcy.

    But in early August, the SEC lifted its order and Lehman immediately came under a massive naked short selling attack. On the day the SEC lifted the order, Lehman’s stock was trading at around $20. A few weeks later, the stock was worth around $3 – a fall of 85%.

    Only after this precipitous fall did Lehman’s partners begin pulling their money, making bankruptcy inevitable.

    But, apparently the Columbia Journalism Review believes that it is perfectly natural for a stock to fall 85%, even though no new information (aside from unsubstantiated rumors) had entered the marketplace. According to the Columbia Journalism Review (which has, no doubt, plowed Kingsford Capital’s money into a thorough investigation of this issue), it is perfectly natural that people who “found they couldn’t” borrow stock nonetheless proceeded to flood the market with 30 million phantom shares.

    The truth is, that 30 million share “mechanical error” helped bring this nation to its knees.

    That’s one reason why I do have a dog in this fight.

    * * * * * * * *

    This post was written by:

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    85 Responses to “Our Watchdogs and the Financial Scandal of the Century”

    1. mhelburn says:

      Weiss finally gets the prominence that he deserves…

      Here is a tidbit…that makes one ponder about the way the debt we are taking on is going to be spent…. more special interests

      http://www.voltairenet.org/article159394.html

    2. Jim Hall says:

      Looks like Patrick has to fight assholes spamming the site now.

      Probably weiss and his spawn.

    3. Jim Hall says:

      SEC being forced to consider short-selling rules:

      http://www.bloomberg.com/apps/news?pid=20601087&sid=auDbLpawAaEU&refer=home

      Hopefully Shapiro won’t roll over and accede to hedgefund demands.

      Time for the public to get some protection.

    4. Douglas says:

      The very fact that you have not been sued for libel is a clear indication that you have printed the truth, over and over and over… Maybe someone needs to point that little fact out to the regulators.

    5. lenofus says:

      You got some bark on you, Mitchell. Thanks for watching my back.

    6. harveydawabbitt says:

      hey mark i posted the part about “brink of another great depression” in our chat room and one lady said we are NOT on the brink of a great depression.
      what do i respond with?
      im thinking that perhaps the recent changes with mtm and the up tick rule beinf re instated may help a little bit so that is what i said in response.

    7. Anonamiss says:

      Well done Mark!

      Another well-written and intelligent article that is sure to inform the newly inquisitive droves that are growing in numbers each day.

      Take heart in the fact that we are in an environment that’s run out of tolerance for the cabal of parasites that have driven us to this brink. Too much damage has been done to the little guy, they’ve awoken the sleeping giant and there’s no going back now.

      “Justice is lame
      And it comes with halting steps
      But it still comes.”

      Go you!

    8. n-tres-ted says:

      Bravo, Mark. Outstanding report, and thank you for the straight-forward evaluation of the GAO report. Finding anyone in Washington D. C. willing to take on GS and the Street’s big dogs seems an impossible task these days. But we have to keep looking and marshaling forces until we have a full offensive capable of winning.

    9. Anonymous says:

      I agree with #4. You can refer to these guys as crooks and scam artists and they don’t dare sue as they don’t want to give this site free publicity.

      It’s the same reason the media won’t mention all the people wearing “911 is an inside job” t-shirts. They don’t want to be pulled into a logical debate.

      After a while, the man in the street realizes that even though every news channel, magazine, radio station, internet stock site and expert tells them that 2+2=5, they can follow the logic on why 2+2=4.

      – I count the one pile (1,2), then the next pile (3,4) and logic tells me things aren’t what they seem.

      – I listen to the talking heads tell me there is no such thing as stock counterfeiting, then I read about vote count irregularities and massive failures to deliver disclosed by the DTCC and SEC annual reports and I realize things are not what they seem

      What happens, though, is they keep it to themselves after they figure it out as they don’t want their friends to think poorly of them. They quietly believe that 2+2=4 as they tell everyone they, too believe it equals 5 because they don’t want their neighbors to laugh at them for being tin hat conspiracy theorists that think the media lies to them.

      Over time, more and more people start believing that 2+2 =4 until there is a sudden realization that every one believes that. It happened in Russia and they overthrew Communism. When people realize they aren’t alone and the crowd has power, change can happen in days, hours or even minutes.

      Suddenly, the crowd is brave and they yell 2+2 = 4 and the liars are arrested.

      Patrick, I am amazed at how often naked shorting comes up in conversation. The crowd gets it and people come up to me to tell me about shorting (they are not at naked shorting yet) and how it collapsed their retirement savings to benefit a few rich fducks at the expense of the productive economy.

      When I first google searched the phrase twelve years ago, it had almost no matches, whereas now, the average person takes it as a given that Wallstreet is stealing from them and owns the propaganda outlets and hires the politicians.

      We are due for a huge paradigm shift and it is coming quicker than you may have hoped for. It’s hard to struggle for so long, then suddenly have everything go right.

      Patrick, your vindication is about to occur and you are a hero in thousands of people’s eyes.

    10. Anonymous says:

      Dark Side of the Looking Glass is the third story down on this site right now.

      http://whatreallyhappened.com/

      It’s crazy hard to get the guy who runs this in his spare time to pick up stories (I even tried to advertise with him and he wouldn’t answer my email), but when he does, they go viral across the internet.

      The brilliant piece on naked shorting needs to be featured on WRH.

      All it would take is a few hundred of you to email

      wrh@whatreallyhappened.com

      and tell him to feature:

      https://www.deepcapture.com/the-short-heard-round-the-world/

      and tell all of his readers to upload it to at least ten sites or forward it to ten friends.

      This brilliant film deserves to go viral.

    11. Anonymous says:

      A lot of the banksters read sites like this and they know that it doesn’t matter if their wealth controls the media and elects politicians if peasants with pitchforks cut off their heads.

      http://www.washingtonsblog.com/2009/04/obama-to-bankers-my-administration-is.html

      The crowds have always had the power if they could only organize, but I’ve noticed that our metaphors are appearing more and more often in the mainstream press, which tells me the banksters read Deep Capture on a regular basis.

    12. sean says:

      “The SEC” Is this the same SEC that was warned and given evidence that Madoff was running a ponzi scheme 10 years ago and still WOULD’NT stop him because of his “JUICE” and the GAO believes the SEC is capable of overseeing the DTCC!!LOL!!LOL!!This is too funny!! ( In a SAD way of course)

    13. Scott says:

      Mark another great article. I have come to understand that the majority of people have no interest in any of the truth period.They just want to have their cake and eat it too. Naked shorting is not only a problem in the US be sure of that The whole world financial system has no integrity simply because the majority of people have no integrity. After seeing the video from Marketwatch of Jim Cramer giving his personal explaination of the modus operendi of Hedge Funds to manipulate the market on the Daily Show I thought the mob would decend on Wall Street pitchforks and torches in hand and set up a guillotine and start the revolution. It could still happen but essentially nobody really cares about the corruption even when it is plainly exposed on national television.It is just entertainment. What did MLK say after Kennedy was assassinated “We are a ten day nation” now you are a 10 second nation. Hugo Chavez today called for the end of Capitalism. 12 trillion phantom US $s later give or take a trillion capitalism is alive and well and going strong LOL. Can someone explain to me how countries like the UK or US can “donate” money to the IMF when they themselves have none and are in need of an IMF bailout as well. Your new President is a real smooth operator. He is worse than George W. The new administration is hard at work with the emperors new clothes line. Didn’t you hear the wars in Iraq and Afganistan are now to be Orwellianly known as “Overseas Contingency Operations”. Very spooky. What do we think we are getting away with anymore?

    14. mhelburn says:

      http://www.pbs.org/moyers/journal/04032009/watch.html

      Read the entire transcript linked above.

      Bill Black being interviewed by Moyer on PBS.

      WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they’re refusing to obey the law.

      BILL MOYERS: In other words, they could have closed these banks without nationalizing them?

      WILLIAM K. BLACK: Well, you do a receivership. No one — Ronald Reagan did receiverships. Nobody called it nationalization.

      BILL MOYERS: And that’s a law?

      WILLIAM K. BLACK: That’s the law.

      BILL MOYERS: So, Paulson could have done this? Geithner could do this?

      WILLIAM K. BLACK: Not could. Was mandated–

      BILL MOYERS: By the law.

      WILLIAM K. BLACK: By the law.

      BILL MOYERS: This law, you’re talking about.

      WILLIAM K. BLACK: Yes.

      BILL MOYERS: What the reason they give for not doing it?

      WILLIAM K. BLACK: They ignore it. And nobody calls them on it.

      BILL MOYERS: Well, where’s Congress? Where’s the press? Where–

      WILLIAM K. BLACK: Well, where’s the Pecora investigation?

    15. mhelburn says:

      Reply to number 10.

      Listen to the Moyer-Black interview. Most of the bankers are honest. They found that 10% during the S&L were crooks..

      These powerful banks are crooked and managed to control Congress. Black indicts both Paulson and Geitner for not closing the insolvent banks. Writing off the losses is the only way to make things right.

      The miscreants (meaning regulators and Congress) can’t have it both ways.

      If the problem of fails is small, you don’t grandfather them! The SEC mined for data and kept saying that it was mechanical errors, yet then they found the size of the fails so large they had to freeze them. The SEC was not only dishonest, they abetted the theft.

      The banks can’t be solvent and should be closed. If they aren’t insolvent, why are we giving them money? You can’t have it both ways.

    16. Jim Hall says:

      Golden Sacks is way too incestuously entrenched in our government now:

      http://www.independent.co.uk/news/business/analysis-and-features/how-goldman-sachs-took-over-the-world-873869.html

      They are allowed to naked short companies they have lent money to and then crush them with impunity.

      They don’t even have to disclose their short positions. What would a company do if Golden had lent them money but is shorting the hell out of them also???

      Our government is staffed by Golden and the best a government official can do is hope for a sweet job offer from those miscreants.

    17. Dr. Jim DeCosta says:

      THE CRITICAL ROLE OF THE “BUY-IN”

      As many of you know the single most important deterrent to abusive naked short selling crimes is the FEAR of an untimely buy-in. Qualifying as an “untimely” buy-in would be one executed in the midst of a “short squeeze”. The “buy-in” is also the ONLY cure available when the seller of securities absolutely refuses to deliver to the buyer that which he sold. The “buy-in” or the fear thereof is the ultimate provider of investor protection and market integrity when it comes to abusive naked short selling frauds.

      Over the years the NSCC management has rather curiously attained a monopoly on 15 of the 16 sources of empowerment to execute buy-ins. The 16th source of empowerment belongs to the brokerage firm of the buyer that failed to get delivery of that which he paid for. Unfortunately for investors NSCC policies essentially “bribe” the buying brokerage firm into NOT opting to exercise his empowerment to execute a buy-in when he does not receive delivery of that which his client purchased. This is done via allowing the buying brokerage firm to earn interest off of the funds of the investor UNTIL delivery occurs. This makes the buying brokerage firm the last party in the world wanting to execute a buy-in of a fellow NSCC participant.

      Further to this the NSCC has introduced a failsafe mechanism to further circumvent buy-ins. They expressly forbid their participants from executing open market buy-ins on fellow NSCC participants. What they do is to mandate any NSCC participating brokerage firm contemplating executing a buy-in to file an “Intent to buy-in” with NSCC management. Management than has the right to deal with this “Intent” filing in any manner they so choose. They could deal with the associated delivery failure by utilizing their self-replenishing “stock borrow program’s” lending pool of securities. They could also just “RECAP” the delivery failure out of existence as if by magic. They could also opt to just sit on it and do nothing.

      Why is this THEORETICAL “securities cop” known as the NSCC management so obsessed with circumventing buy-ins? The 2003 study of Evans, Geczy, Musto and Reed revealed that only one-eighth of 1% of even mandated buy-ins ever occurs on Wall Street. For one reason or another NSCC management has gone to an awful lot of trouble to make sure that the crime deterrent effect as well as the mechanism to provide the only cure available when the sellers of securities refuse to deliver that which they sell do NOT get provided when they’re needed to provide investor protection and market integrity. This is very questionable behavior for a “self regulatory organization” (SRO) THEORETICALLY acting as “the first line of defense against market frauds” like abusive naked short selling.

      The question becomes why would the NSCC with the congressional mandate “to act in the public interest, provide investor protection and to “promptly settle” all securities transactions as well as the party holding 15 of the 16 sources of empowerment to execute buy-ins mysteriously plead to be “powerless” to provide this crime deterrence and only cure available for intentional FTDs. Could it be that they are only doing the bidding of their employers namely the abusive NSCC participants that are the financial beneficiaries of all of these investor thefts and are the parties refusing to deliver that which they sold?

      What are the repercussions for this rather peculiar “attitude” taken by the DTCC and NSCC management teams? The net effect of this malfeasance is that the investment funds of U.S. citizens will predictably flow into the wallets of the abusive NSCC participants committing these crimes despite the fact that they continue to absolutely refuse to deliver that which they previously sold.

      Another consequence of this heinous behavior is that U.S. corporations SELECTIVELY have become singled out as the targets for worldwide abusive naked short selling attacks as the clearance and settlement systems in use in other countries have not yet been “captured” by the insatiable greed of their Wall Street “bankster” counterparts to the degree that ours has. The clearance and settlement systems in almost every other country still follow the foundational tenet recommended by IOSCO and the Bank for International Settlements (BIS) namely that the seller of securities is not allowed to access the funds of the purchaser of securities UNTIL “good form delivery” has been accomplished. This is also referred to as “delivery versus payment” or “DVP”.

      The foundation for the DTCC-administered clearance and settlement system in use in the U.S. has been illegally converted to one based upon mere “collateralization versus payment” or “CVP” wherein the seller of securities is only asked to collateralize the monetary amount of the failed delivery obligation on a daily marked to market basis. This policy invites abusive naked short selling activity in that the failures to deliver shares results in the procreation of what are referred to as “securities entitlements” that are allowed to be readily sellable as if they were legitimate “shares” of a corporation due to the wording unfortunately incorporated into the text of UCC Article 8-501.

      As these readily sellable “securities entitlements” invisibly accumulate in the share structure of U.S. corporations targeted for destruction then the share price by definition must tumble due to the interaction of supply and demand forces. This drop in share prices then results in a lessening of the collateralization requirements which in turn unconscionably allows the investment funds of unknowing U.S. investors to flow into the wallets of those that sold nonexistent securities and of course refused to deliver that which they sold.

      The upshot of all of this is that this peculiar “attitude” adopted by the DTCC and NSCC management in regards to the critical role of buy-ins in providing meaningful deterrence to these crimes as well as the only cure available when the sellers of securities refuse to deliver that which they sold has resulted in the throwing of U.S. corporations and the investments made therein “under the bus” whenever the congressionally mandated behavior of the NSCC management “to act in the public interest, provide investor protection and “promptly settle” all securities transactions” butts heads with the financial interests of the abusive NSCC participating “banksters” that co-own the NSCC as well as the financial interests of their hedge fund “guests”.

      The net result is that the share prices in certain U.S. corporations deemed to be an easy prey unfortunate enough to have been targeted for an abusive naked short selling attack have been essentially “rigged” to go nowhere but down. We saw this recently in the banking sector as the levels of delivery failures went absolutely through the roof as the share prices of certain banks targeted plummeted to near zero.

      One of the more heinous aspects of this crime wave is that corporations integral to our national defense or to the stability of our financial system can easily be targeted by financial terrorists that are not particularly enamored with the freedoms we enjoy. When the insatiable greed of a handful of corrupt “banksters” and hedge fund managers butts head with issues of national security then greed will typically win out. To put it mildly this is very, very scary stuff that is incredibly easy to cure by just settling the trades via the buy-ins that provide not only the cure but also the meaningful deterrence to future acts of theft.

    18. something about Mary says:

      irieblue,

      In regards to your post #19. Can a public servant bringing down money like that be counted upon to disrupt the corrupt status quo on Wall Street? Let’s pray she hasn’t already been bought and paid for!

    19. Anonymous says:

      something about Mary,
      Judging by her salary at Finra, and her leadership which failed to (turned a blind eye to) Madoff scheme brokerage side where no trades of his investment side had taken place, I think you will find your answer. Your prayer seems to be years late, after the fact. A new prayer of honesty now might be realized. The past STINKS for all these players and reeks of CORRUPTION and GREED in my opinion. That too shall pass and justice will be served one way or the other.

    20. something about Mary says:

      How did Harry Markopolos of Madoff fame describe FINRA? Corrupt beyond belief or something to that effect. Gee and self-regulation seemed like such a brilliant idea at the time! You put literally quadrillions of investor dollars up for grabs and appoint those with the ability to tilt the playing field steeply in their favor to regulate themselves. Whooda thunk?

    21. lenofus says:

      “Patrick, your vindication is about to occur and you are a hero in thousands of people’s eyes.”

      make that, “millions”. some of them don’t even know it yet.

    22. Dr. Jim DeCosta says:

      THE ROLE OF CANADA IN ABUSIVE NAKED SHORT SELLING THEFTS

      One can’t study abusive naked short selling frauds for 30 seconds without running into the role of Canada in these thefts. Almost every case brought to trial reveals the role of the same 7 or 8 Canadian broker/dealers. When you sue these firms individually their “statement of defence” (sic) always says that these firms were “unknowing conduits” in these crime sprees and besides the abusive naked short selling of U.S. corporations is TECHNICALLY perfectly legal. The suggestion will then be made to pursue those bad boy offshore hedge funds that shamelessly “used” us.

      A study was done about 7 or 8 years ago by what is loosely referred to as the Canadian securities regulators which revealed the presence of I think it was over 400,000 special “nominee” accounts hosted by offshore entities within the Canadian brokerage system. These accounts were hardly a secret to the regulators and SROs in the U.S. yet the DTCC still allowed the Canadian Depository System (“CDS”) to interface with our DTCC as if Canada was diligently pre-screening for abusive naked short selling frauds.

      What the Canadian corrupt brokerage firms and their corrupt clients really needed was to gain access to the NSCC management’s “attitude” that they were “powerless” to buy-in delivery failures. If you are theoretically “powerless” to buy-in delivery failures then you would by definition be “powerless” to provide the main deterrent to these thefts and also “powerless” to provide the only cure available when the seller of securities absolutely refuses to deliver that which it sold. Well isn’t that handy being given carte blanche authority to destroy U.S. corporations by your own country and then dovetail that into the NSCC management’s refusal to provide any meaningful deterrence to these crimes nor to provide the only cure available once the bad guys were “busted”?

      To this day Canada still does not have a national securities regulator. They have a loose network of provincial regulators which provides the opportunity to play a game referred to as “regulatory arbitrage”. Depending upon your choice of which form of securities fraud you prefer to perpetrate you just do it out of a business entity incorporated in the province with the most lax laws in regards to that specific fraud.

      Last week the clients of many Canadian brokerage firms received a memo stating that their particular brokerage firm was JUST NOW going to start complying with the terms of Reg SHO. When you study the graphs of share price versus delivery failures for the U.S. banks at deepcapture.com you’ll notice that as the FTDs recently went absolutely through the roof the share prices fell off of a cliff. One might wonder how many of these FTDs were routed through these “innocent conduits” of our neighbor to the north.

      To their credit Canada still does have what they refer to as a “tick rule” analogous to what used to be our “uptick rule”. However, when the SEC dropped our “uptick rule” Canada did the same with U.S. corporations that are “Inter-listed” and trade both on a Canadian and U.S. exchange. Canada was afraid they would lose some of their short selling business to U.S. brokerage firms so they did a little of their own pre-emptive “regulatory arbitrage” to retain their dominance in the field.

    23. Dr. Jim DeCosta says:

      Can you recognize how the NSCC management is now playing the role of the THEORETICAL “unknowing conduit” for the Canadian THEORETICAL “unknowing conduits” for the benefit of the holders of those 400,000 special “nominee” accounts held in offshore secrecy-obsessed tax havens.

    24. Dr. Jim DeCosta says:

      The level of corruption on Wall Street and the intertwined nature of the regulators and the regulated on Wall Street becomes obvious when you realize how incredibly easy it would be to address abusive naked short selling crimes once and for all.

      The buyer and the seller of securities made a deal. They would exchange the cash of the buyer for the securities of the seller on T+3 or “settlement date”. The details of the agreement were checked after the fact and the trading data was “locked in” as per the clearing process.

      Due to the length of the time that the seller of securities has refused to deliver that which he sold it became 100% obvious that the seller of securities had no intention whatsoever in ever delivering that which he sold. Criminals have a tendency to do things like that. Sometimes they don’t think of themselves as criminals, however. Sometimes they think of themselves as a member of a special group that is somehow allowed to commit criminal acts without being TECHNICALLY labeled a criminal.

      What could possibly be easier or more appropriate when the sellers of securities after an inordinate amount of time continue to refuse to deliver that which they sold than having the authorities in charge FORCE the seller to deliver that which he sold so that the purchaser can receive that which he paid for? In the securities industry this is referred to as a “buy-in.

      In a “buy-in” the missing shares are purchased out of the open market, the shares are sent to the purchaser that failed to receive that which he purchased and the bill is sent to the seller of securities that failed to deliver that which he sold. What could be more straight forward?

      This solution is readily available to all of those in authority in our markets whether they be self-regulatory organizations like the NSCC or FINRA, or the “regulators” like the SEC, the exchanges like the NYSE or to the congressional oversight committees. But yet nobody is willing to pull the trigger. How can this be explained?

      As it turns out our markets and clearance and settlement system have “devolved” into a conflict of interest-riddled mess driven by the insatiable greed of ALL of its players and authorities. Everybody is looking out for number 1. The complexity of the network of favors owed and favors rendered is beyond comprehension. This network prohibits the parties empowered to execute the buy-ins necessary to once and for all end this crime wave.

      Unfortunately for investors the buy-ins being held off on provide BOTH the meaningful deterrence to future thefts as well as the only cure available when the seller of securities refuses to deliver that which he sold. Yet those in authority continue to refuse to do what is necessary.

      The buyer and the seller of securities had an agreement. The buyer of securities fulfilled his half of the agreement on time. The seller of securities refuses to VOLUNTARILY fulfill his half of the agreement. Tell me what I’m missing here?

      It’s black or white. In the absence of executing these buy-ins there will be no cure available to past thefts and no deterrence to future thefts. I don’t get it. Is it overly punitive to FORCE the seller of securities to deliver that which it sold when it won’t VOLUNTARILY do it?

      In any body of law there are going to be divergences between the intent of the law and the letter of the law. This gives rise to loopholes. Billionaire criminals have the ability to detect and exploit loopholes. That’s only natural. Solutions like buy-ins provide the deterrence and cure that shut down the ability or desire to exploit loopholes. This is not rocket science! Buy-ins serve to unravel these networks of favors owing and favors rendered. The choice at hand is to either execute buy-ins and address the lack of receipt of that which was paid for or to withhold buy-ins and facilitate the covering up of yesterday’s thefts and the perpetrations of tomorrow’s thefts. There is no safe middle ground available any longer for the SROs, congressional oversight committees, exchanges or SEC. This Genie is well out of the bottle and the majority of U.S. citizens are pretty much aware of this.

      The refusal to provide a cure to address BOTH past refusals to deliver securities that were sold and to provide meaningful deterrence to future thefts clearly provides us a metric as to not only how “rigged” our markets truly are but also as to how intertwined the regulators and those theoretically being regulated have become. I refuse to believe that FORCING the parties that continually refuse to VOLUNTARILY deliver the securities that they earlier contracted to deliver on T+3 to finally deliver that which they previously sold is being too punitive.

    25. Ray Beane says:

      How about a simpler system. I request
      a buy of a stock. Money goes in escrow.Someone delivers the stock to escrow. They get paid I get the stock.
      No Stock no pay, no pay no stock.

      way to much rocket science. KISS

    26. Dr. Jim DeCosta says:

      Ray Beane,

      I agree 100%. Here’s how the Ponzi scheme/shell game works: the DTCC will argue that your suggestion is exactly how our system works. They will argue that the seller of shares that refuses to deliver that which he sold does not get the LEGAL TITLE to those shares UNTIL delivery is made.

      Meanwhile the buyer of the undelivered shares is given a readily sellable “securities entitlement” to those shares which includes “the ability to exercise ALL of the rights and property interest that comprise that security”. For all intents and purposes THAT IS A SHARE. In essence the failure to deliver procreates a “securities entitlement” which in essence gives rise to the “issuance” of what amounts to be a “share”.

      This financially benefits those that have established massive naked short positions by merely refusing to deliver that which they sell because with all of this extra “supply” of shares the price per share has to crash. Don’t get buffaloed by the fact that the “LEGAL TITLE” doesn’t exchange hands until delivery occurs. Who needs to be the “LEGAL OWNER” when everybody and their brother is allowed “to exercise all of the rights and property interest that comprise that security”. It’s basically a multi-trillion dollar “shell game” wherein the DTCC is moving the shells around and asking you to focus on the “LEGAL OWNER” title transfer while everybody and their brother are given the right to resell that which they purchased.

    27. Sammy says:

      The SEC keeps saying they need more liquidity while victims of naked shorting say they are already soaking wet.

      Wouldn’t forcing buyins massively increase liquidity as all the buys create trades that wouldn’t have happened otherwise?

    28. Anonymous says:

      A big scam in Canada, book4golf .com made 36 year old Scott Patterson rich. His firm Yorkton Securities paid brokers to pump the crap out of this worthless stock he secretly owned to suckers in America. He told them it would go to $100 before it went to nothing. He personally made hundreds of millions of dollars.

      Did he go to jail?

      http://siliconinvestor.advfn.com/readmsg.aspx?msgid=13526933

      How was he rewarded?

      “Mr. Paterson has served the Canadian securities industry in multiple capacities. In 2001, he was the Vice-Chairman of the TSX Group Inc., parent company of the Toronto Stock Exchange, and he is the past Chairman of the Board of Directors of the Canadian Venture Exchange Inc. Mr. Paterson served as a Governor of the Investment Dealers Association of Canada and a member of the Board of Directors of each of the Canadian Investor Protection Fund and the Canadian Securities Institute.”

      Think about it, the thieves have bought the Canadian industry. The Canadians are good people, but the thieves have got control of their stock market.

      Most Canadian naked shorts flow through Vancouver, which is on its best behavior as it is hosting the Olympics in less than a year.

      If you want to let them know they can’t be a loophole to avoid American rules:

      Regulator:

      http://www.bcsc.bc.ca/about.asp?id=16

      Premier:

      http://www.gordoncampbellmla.bc.ca/EN/1880/

      Boycott Olympics:

      http://www.vancouver2010.com/en/about-vanoc/contact-us/-/32774/nsvzrg/index.html

    29. Anonymous says:

      A big scam in Canada, book4golf .com made 36 year old Scott Patterson rich. His firm Yorkton Securities paid brokers to pump the crap out of this worthless stock he secretly owned to suckers in America. He told them it would go to $100 before it went to nothing. He personally made hundreds of millions of dollars.

      Did he go to jail?

      http://siliconinvestor.advfn.com/readmsg.aspx?msgid=13526933

      How was he rewarded?

      “Mr. Paterson has served the Canadian securities industry in multiple capacities. In 2001, he was the Vice-Chairman of the TSX Group Inc., parent company of the Toronto Stock Exchange, and he is the past Chairman of the Board of Directors of the Canadian Venture Exchange Inc. Mr. Paterson served as a Governor of the Investment Dealers Association of Canada and a member of the Board of Directors of each of the Canadian Investor Protection Fund and the Canadian Securities Institute.”

      Think about it, the thieves have bought the Canadian industry. The Canadians are good people, but the thieves have got control of their stock market.

      Most Canadian naked shorts flow through Vancouver, which is on its best behavior as it is hosting the Olympics in less than a year.

    30. Anonymous says:

      If you want to let them know they can’t be a loophole to avoid American rules:

      Regulator:

      http://www.bcsc.bc.ca/about.asp?id=16

      Premier:

      http://www.gordoncampbellmla.bc.ca/EN/1880/

      Boycott Olympics:

      http://www.vancouver2010.com/en/about-vanoc/contact-us/-/32774/nsvzrg/index.html

    31. Anonymous says:

      If you want to let them know they can’t be a loophole to avoid American rules:

      Regulator:

      http://www.bcsc.bc.ca/about.asp?id=16

      Premier:

      http://www.gordoncampbellmla.bc.ca/EN/1880/

    32. Richard 1939 says:

      QUESTIONS:
      If I were to question the veracity of the information contained on this site (DeepCapture.com) I would need to answer the following questions:
      1.Why haven’t Jim Cramer, Roddy Boyd, Herb Greenberg, David Einhorn, Jim Chanos, David Rocker, etc. filed a lawsuit against the authors of the many articles by Patrick Bryne, Mark Mitchell and Judd Bagley concerning their personal business interests and transactions?
      2.Individually or collectively do they lack the monies to support the legal fees required in defense of their reputations? Absolutely not.
      3.Could it be that it is not that they fear the publicity and attention any action on their part would bring to “Deep Capture”, but rather it is the legal “DISCOVERY” process that might actually confirm and verify their complicity in these allegations?
      4.Ok, not every person mentioned above would need to act, but how come not even one ?

    33. Anonymous says:

      Answer to 34

      They know they are guilty and know they are better off to never mention this site because any publicity will bring out the pitchforks, torches and guillotines.

    34. John says:

      “Accountability – Integrity – Reliability”
      I suppose their acronym sums it all up…

    35. Anonymous says:

      Good catch, John.

      Take the first initials of accountability, integrity and reliability and you get

      HOT A.I.R.

    36. g2nosis says:

      I am a regular reader and would like to thank you for your excellent reporting. People like you and Patrick and Judd and David Kotz and Gary Aguirre and Harry Markopolos and Mr. O’Brian give me reason to hope.

      I continue to write to my Congressman and Senators. Thank you.

    37. Dr. Jim DeCosta says:

      SUMMARY OF ABUSIVE NAKED SHORT SELLING

      1) A few decades ago the trading on Wall Street started to get pretty busy so the DTC speaks up and says that it would be a lot more efficient to clear and settle trades if there was one central “legal owner” of all shares held in “street name”. This would bypass the need to process cumbersome deed-like instruments every time a trade is done. The DTC volunteers that their nominee “Cede and Co.” should act as this centralized surrogate “legal owner”. The regulators say OK but don’t you dare try to leverage the fact that you are technically the “legal owner” because those shares really belong to their purchasers who will now be referred to as their “beneficial owners”. The DTC promises to behave themselves.
      2) UCC Article-8-501 is drafted to codify this understanding that just because the DTC is technically the “legal owner” they still have to treat the purchaser as “being able to exercise all of the rights that comprise the security”. The DTC reminds the SEC that they would never dream of leveraging their acting as the “legal owner” over the rights of the purchasers of shares. The “beneficial owner” of the shares is deemed to have a “securities entitlement” to those shares that the DTC’s nominee TECHNICALLY owns. The “securities entitlement” holder is “entitled to exercise all of the rights that comprise that security” even though he is not TECHNICALLY their “legal owner”. That title belongs to “Cede and Co.” the nominee of the DTC AND ONLY FOR REASONS ASSOCIATED WITH STREAMLINING THE CLEARANCE AND SETTLEMENT PROCESS.
      3) This new thing known as a “securities entitlement” sure looks and smells like a “share” from the point of view of an investor but the “legal owner” title is not attached. But then who cares about “legal ownership” issues when the holder of the “securities entitlement” can exercise all of the rights that comprise the security?
      4) A disconnect has now entered into the system as the purchaser of shares is no longer the “legal owner” but instead he is given a “securities entitlement”. The DTC is ENTRUSTED not to create leverage out of the fact that it technically is the “legal owner” of all shares held in “street name”.
      5) Since there are indeed legitimate reasons for ultra short termed delays in delivery the purchaser of shares is awarded one of these “securities entitlements”/”shares without legal ownership attached” when the shares he purchased do not arrive by “settlement date”. The existence of legitimate reasons for delivery delays unfortunately represents a giant loophole for fraud as criminals need to only portray their failed deliveries as being of a “legitimate” nature even when they’re not. By the time you can prove that it was “illegitimate/intentional” it is too late as the NSCC will as if on cue plead to be “powerless” to provide the only cure available which is a “buy-in”.
      6) If the seller of securities INTENTIONALLY fails to deliver that which he sold on “settlement date” the purchaser is also given a “securities entitlement” to that which he purchased. The purchaser is not given the “legal owner” title. In slow motion when a delivery failure occurs, whether of a legitimate nature or intentional/illegitimate nature a “share without the legal owner title attached” is essentially “issued”. Technically it’s a “securities entitlement” but practically it’s a “share”. Those that intentionally refuse to deliver the securities that they sold can for all intents and purposes bring about the “issuance” of “shares without the ownership title attached”. But again if the purchaser is given the ability to exercise all of he rights that comprise the security then who cares about the “legal ownership” title?
      7) THE FACT THAT THESE “SECURITIES ENTITLEMENTS” TECHNICALLY HAVE NO “LEGAL OWNER” AND THE FACT THAT THEY TECHNICALLY AREN’T “OUTSTANDING” MEANS ABSOLUTELY NOTHING. Later you’ll see how DTCC management tries to cover up these crimes by bringing up the fact that “securities entitlements” TECHNICALLY have no “legal owner”.
      8) Clever opportunists noticed that they can sell fake shares, refuse to deliver that which they sold and flood the share structure of a corporation with readily sellable “securities entitlements” WITHOUT ALTERING THE NUMBER OF SHARES “OUTSTANDING” which would obviously be noticed by management and prospective investors. You need a lot of secrecy when you’re committing a crime as blatantly obvious as refusing to deliver that which you sold. By refusing to deliver that which they sold these criminals establish a “naked short position” and by flooding the share structure of a corporation with readily sellable “securities entitlements/IOUs” they can easily drive down the share price of that corporation which gives their naked short position value. These profits match penny for penny with the losses of unknowing investors that mistakenly thought they were buying real shares of a corporation.
      9) It turns out that there are two main ways for crooks to in essence “issue” these “shares without the legal ownership title attached” and they both involve simply selling truckloads of securities and then refusing to deliver the securities. What could be easier? If the failure to deliver shares is cured by a “borrow” from the NSCC’s “Stock Borrow Program” (SBP) then a “securities entitlement” is awarded to the brokerage firm that donated the shares chosen to cure the delivery. The NSCC refers to it as a “long position” held in one of their participant’s “C” sub account. It is essentially created out of thin air and it acts as an accounting measure to denote that this brokerage firm can insist on those shares to be returned at a time of its choosing. It’s kind of interesting how a mere loan can result in the issuance of a readily sellable “share without any legal ownership attached” out of thin air.
      10) If the failure to deliver is not addressed by the SBP then a “securities entitlement”/”share with no legal owner” is “issued” to the purchaser of the failed to be delivered shares. Thus there are two easy ways to intentionally flood the share structure of a corporation targeted for destruction and they both involve merely refusing to deliver that which you sold.
      11) Let’s go back to the intent of UCC-8-501. It was a warning shot to the DTC reminding them that the purchaser of shares, the “securities entitlement” holder, gets to exercise the rights attached to the securities purchased and not you at the DTC despite the fact that you serve as the surrogate “legal owner” for streamlining purposes only. It was meant to provide investor protection. What has it morphed into? It has morphed into a loophole to allow crooks to establish massive naked short positions by selling fake shares, refusing to deliver that which they sold and wiping out U.S. corporations and the investments made therein in the process. Why? Because the holder of any “securities entitlement” BY LAW (UCC Article-8-501) needs to be allowed “to exercise the associated rights that comprise the security”. As these readily sellable accounting measures denoting delivery failures we refer to as “securities entitlements” invisibly pile up in the share structure of the corporation under attack they increase the “supply” of readily sellable “shares”, some with a “legal owner” and some not (not that it makes any difference), which forces down the share price. How do they “invisibly” pile up? It’s because they’re not “outstanding” which would make them visible.
      12) What’s particularly clever is that the one act of refusing to deliver that which you sold not only establishes a naked short position but it also drives down the share price which gives the naked short position value. What kind of a rigged casino would allow the mere method of placing a negative bet influence the outcome of the bet? All of this provided by the fact that the DTC offered to allow its nominee “Cede and Co.” to act as the “legal owner” of all shares held in street name.
      13) As the corporations under attack started going bankrupt the shareholders of those corporations approached the DTCC which acts as the holding company of the DTC and NSCC and insisted that they stop facilitating all of these thefts. What was their response? Their response was that you losers don’t know what you’re talking about and besides SINCE THE NUMBER OF “LEGALLY OWNED” SHARES AND THE NUMBER OF SHARES TECHNICALLY “OUTSTANDING” DOES NOT INCREASE THEN IT’S NO BIG DEAL!
      14) How did all of this start? It started with the promise of the DTC to not do anything that would provide LEVERAGE over investors while assuming the role of surrogate “legal owner” of all shares held in “street name”. How does it end? Abusive DTC and NSCC “participants” have leveraged it to the hilt while rerouting the investment dollars of U.S. citizens into the wallets of abusive NSCC participants that choose to make a living by selling securities that don’t exist and then refusing to deliver that which they sold.
      15) But wait there’s still a mechanism for the DTCC management to redeem themselves and close all of the loopholes in the law in one fell swoop. All they have to do is “buy-in” the delivery failures of its abusive participants when it becomes obvious that they had no intention to deliver that which they sold. What is the response of DTCC management to this plea for help? Despite the fact that they are congressionally mandated “to act in the public interest, provide investor protection and “promptly settle” all securities transactions as well as having established a monopoly on 15 of the 16 sources of empowerment to execute buy-in the NSCC management as if on cue STILL pleads to be “powerless” to execute buy-ins despite the fact that a buy-in is the only cure available when the seller of securities refuses to deliver that which he sold and the fear of being bought in is the main source of truly meaningful deterrence to these crimes. What else would you expect from the “self-regulatory organization” (SRO) known as the NSCC which stated that: SINCE THE NUMBER OF “LEGALLY OWNED” SHARES AND THE NUMBER OF SHARES TECHNICALLY “OUTSTANDING” DOES NOT INCREASE THEN IT’S NO BIG DEAL? As an SRO/”securities cop’ the NSCC makes up what the SEC refers to as “the first line of defense against market abuses” like abusive naked short selling. These are the actions of the “securities cops” for crying out loud!
      16) I believe it would have to fall under the category of “unintended consequences” when the intent of 8-501 being “DTCC don’t you dare cheat investors just because you’re the “legal owner” somehow gets converted to “Dear abusive DTCC participants here is the green light to picking the pockets of anybody you so choose”.

    38. Dr. Jim DeCosta says:

      In the above post I hope it doesn’t sound condescending to the authors of UCC-8. UCC-8 is a wonderful legal document. Its authors realized that the granting of “securities entitlements” was tantamount to the “issuance” of a rather odd species of “shares” that doesn’t TECHNICALLY have a “legal owner” and that is not TECHNICALLY “outstanding”.

      The authors of UCC-8 knew quite well that this rather odd species of “shares” was incredibly damaging from a dilutional point of view because the lack of the existence of a “legal owner” has nothing to do with the damages done to share prices from the increase in the “supply” variable that interacts with the “demand” variable to determine share prices.

      That’s why the authors of UCC-8 introduced several checks and balances into UCC-8. One is that the NSCC participants serving as the grantors of “securities entitlements” were never to grant one if the arithmetic sum of the number of shares currently “outstanding” plus the number of “securities entitlements” currently in existence were to exceed the number of shares “authorized” by that corporation’s Articles of Incorporation or “Charter”.

      In other words if a failure to deliver occurred at the NSCC the NSCC management was to check to make sure that the “securities entitlements” it was about to issue to the purchaser of those yet to be delivered shares might result in what UCC-8 refers to as an “overissuance” as described above. Every time that a stock loan was about to be made via the NSCC’s SBP (Stock Borrow Program) a check was to be made to make sure that the “securities entitlement” about to be credited to the “C” sub account of the donor of the shares about to be used to cure a delivery failure would not result in an “overissuance”.

      Newsflash: The NSCC does not keep a running tally of the “securities entitlements” already granted by its “participants” in the various places they are hidden around Wall Street like in ex-clearing arrangements. They can’t! If they kept track then they would be guilty of having knowledge about the investor thefts going on. They have to ignore the investor protection aspects of UCC-8 that counterbalance the incredibly damaging nature of granting “securities entitlements” leading for all intents and purposes to the “issuance” of this rather odd species of shares with no “legal owner” and which technically aren’t “outstanding”.

      UCC-8 also contains a mandate that the “securities intermediaries” that grant “securities entitlements” must “OBTAIN” and “MAINTAIN” the “financial assets” that underlie that “securities entitlement”. The NSCC management cannot obey that aspect of UCC-8 either. The result is that the mere “accounting measures” denoting failed delivery obligations in essence results in the “issuance” of a corporation’s shares. How can an IOU for the real McCoy magically become the real McCoy? It can’t if you follow the investor protection aspects of UCC-8 but it can when you are forced to ignore them lest you be found guilty of knowing all about the fraud that you were facilitating on behalf of the financial interests of your employers that co-own the NSCC.

    39. Anonymous says:

      Is it possible to legally challenge UCC-8?

      From Wikipeida, on the Universal Commercial Code.

      “The Code, as the product of private organizations, is not itself the law, but only recommendation of the laws that should be adopted in the states.”

      http://en.wikipedia.org/wiki/Uniform_Commercial_Code

      Have all the states adopted it? If not, can it be challenged in the states that haven’t?

    40. Anonymous says:

      From wikipedia.

      The Uniform Commercial Code plays a significant part in the theories of groups such as the Christian Patriot movement, Sovereign Citizen Movement, and the Posse Comitatus. Some believe that a secret treaty made in 1930 put the United States and other countries around the world in a state of continuing debt with the international bankers being the creditor/rulers: the makers of the currency for which everyone is forced to compete, who prefer commercial law to common law.[4]

    41. Anonymous says:

      § 8-504. DUTY OF SECURITIES INTERMEDIARY TO MAINTAIN FINANCIAL ASSET.

      (a) A securities intermediary shall promptly obtain and thereafter maintain a financial asset in a quantity corresponding to the aggregate of all security entitlements it has established in favor of its entitlement holders with respect to that financial asset. The securities intermediary may maintain those financial assets directly or through one or more other securities intermediaries.

    42. Anonymous says:

      What are the consequence to the securities intermediary of not obeying post 47?

    43. davidn says:

      Companies are generally regulated by the states and if they have 50 or more shareholders are public companies and are governed by those rules.

      If they list with an exchange, they become trading public companies.

      What happens when the SEC delists a company, but it doesn’t go bankrupt? It’s really common with penny stocks with billions of shares outstanding where the operating business fails, but the shell is still viable.

      Generally, the SEC delists it, then the brokerages delete the shares from your account.

      I have a problem with that. Who gives them the right to let themselves off the hook for delivering real shares?

      What difference does it make if the company succeeds or fails? Shouldn’t the thieves still have to deliver shares that were paid for?

      Where I am going with this is if the thieves had to deliver, the shares could go up in value and the shell could buy a real legitimate business. Who gives Wallstreet the right to fail to deliver what we bought, just because they killed the company?

    44. sean says:

      I thought we should all be aware of this…

      US watchdog calls for bank executives to be sacked
      US watchdog calls for bank executives to be sacked

      * James Doran in New York
      * The Observer, Sunday 5 April 2009
      * Article history

      Elizabeth Warren, chief watchdog of America’s $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration’s approach to saving the financial system from collapse.

      Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government’s Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be “wiped out”. “It is crucial for these things to happen,” she said. “Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade.” She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

      Warren also believes there are “dangers inherent” in the approach taken by treasury secretary Tim Geithner, who she says has offered “open-ended subsidies” to some of the world’s biggest financial institutions without adequately weighing potential pitfalls. “We want to ensure that the treasury gives the public an alternative approach,” she said, adding that she was worried that banks would not recover while they were being fed subsidies. “When are they going to say, enough?” she said.

      She said she did not want to be too hard on Geithner but that he must address the issues in the report. “The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous.”

      The report will also look at how earlier crises were overcome – the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression. “Three things had to happen,” Warren said. “Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out.”

      http://www.guardian.co.uk/business/2009/apr/05/useconomy-regulators

    45. ginger says:

      Momentum growing for naked short selling ban

      By Pauline Skypala
      Published: April 5 2009 09:59

      Should naked short selling be illegal? The practice of seeking to profit from an expected fall in the price of an asset by selling shares you do not own without borrowing, or making arrangements to borrow them, is against Securities & Exchange Commission rules in the US and banned in Australia and Hong Kong.

      Japan recently extended a ban on naked short selling first introduced in late October to the end of July, and the German financial services regulator did the same to the end of May, although its ban only applies to 11 financial companies.

      In fact, a trawl through the short selling regulations listed on Data Explorers’ website suggests the UK is relatively rare in being pretty relaxed about the activity. A discussion paper put out by the Financial Services Authority in February looks at the option of outlawing naked short selling but concludes such a restriction would have “net negative impacts”.

      It says exchange and clearing houses can deal with settlement failures and suggests problems would be better addressed by tightening settlement rules rather than bringing in a blanket ban on naked shorting.

      However, judging by the report from Iosco , the International Organisation of Securities Commissions, on the regulation of short selling, the FSA is out on a limb here. The report’s recommendations, published in March, aim to “eliminate gaps between the different regulatory approaches to naked short selling while minimising any adverse impact on legitimate activities, such as securities lending and hedging”.

      The phrase rather suggests Iosco does not regard naked short selling as legitimate. The report talks about discouraging and deterring “abusive short selling behaviour”, which it defines as “those who short sold but with no intention of or reasonable plan for delivery”.

      The Iosco task force was led by Martin Wheatley, who is also chief executive of the Securities and Futures Commission of Hong Kong, which happens to preside over one of the world’s most restrictive short selling regimes.

      Since the Asian financial crisis of 1998, Hong Kong has only allowed covered short sales, it has an uptick rule that allows short sales only if the last sale price was higher than the previous price, and demands a full audit trail for covered short sales. Breaches can result in criminal prosecutions.

      Ironically, Hong Kong was all set to discard the uptick rule, which effectively prevents short selling in a falling market, as recently as last September, on the view that it was competitively disadvantageous. The Lehman Brothers disaster put that idea to rest, and Mr. Wheatley was able to boast that Hong Kong’s tight regulation of short selling meant there was no need for a ban.

      Iosco’s recommendations were endorsed by the G20 London summit last week. The G20 working group report on enhancing sound regulation and strengthening transparency noted concerns raised during the financial crisis that short selling, “in particular naked short selling, contributed to market manipulation, securities fraud, and disorderly markets”.

      The outcome is naked short selling looks likely to be history, or at least so restricted as to make it practically impossible, although the rules still have to be enforced.

      The question of enforcement has been exercising commentators in the US recently, following press reports about a lack of enforcement actions in response to complaints about naked short selling. The story was linked to suggestions that naked short selling precipitated Lehman Brothers into bankruptcy, based on the number of failed trades.

      However, some suggest the furor around naked short selling is misplaced. The FTfm columnist John Dizard, for one, argues the activity is a sideshow and the real culprit is the trade in credit default swaps. He explained his argument in a column titled “What enemies of short selling missed” last October.

      What this all goes to show is that the whole shebang has become so complicated no one really knows what is going on. Let’s get proper transparency and a standardised approach so people can see clearly whether naked short selling is a problem or an aid to market efficiency. Banning it is one way of finding out. Judging by the Hong Kong experience, there is no reason to believe it will damage market operations.

    46. Anonymous says:

      The thing to understand is there are people who make the chits. Call it money, stock entitlements, claims on gold, claims on food, etc.

      The ten guys that make the rules for the chit machine run the world.

      They are Wallstreet.
      They own the media.
      They decide what our choices are for elections.
      Their foundations control our educational system.
      They decide who we go to war against.

      Then there is the rest of us. Geniuses like Bill Gates or Steve Jobs, who compete for the chits the lazy, slow IQ, dim witted old men who inherited the ability to create money out of thin air put up for grabs.

      The people that control the new world order are not smart. They are rich, but they aren’t smart.

      We can defeat them, because we are smart and they are not.

      And they realize that they are losing control.

      Don’t fall for platitudes. We are in charge. I don’t want to hear about new rules. I want to see the thieves arrested and charged with treason.

    47. sean says:

      I have been curious as to who recommended Mary Shapiro for the job of SEC chair to our current President and I now know that we are in for a hell of a fight in regard to getting and real “Change” in this very corrupt system. Read on….

      A Rich Education for Summers (After Harvard)

      By LOUISE STORY

      Lawrence H. Summers plays down his stint in the hedge fund business as a mere part-time job — but the financial and intellectual rewards that he gained there would make even most full-time workers envious.

      Mr. Summers, the former Treasury secretary and Harvard president who is now the chief economic adviser to President Obama, earned nearly $5.2 million in just the last of his two years at one of the world’s largest funds, according to financial records released Friday by the White House.

      Impressive as that might sound, it is all the more considering that Mr. Summers worked there just one day a week.

      Much is known about Mr. Summers’s days in Washington and Cambridge, but little attention has been paid to his two years in New York, from late 2006 to late 2008, advising an elite corps of math wizards and scientists devising investment strategies for D.E. Shaw & Company…………open the link for the rest of the story.

      http://www.nytimes.com/2009/04/06/business/06summers.html?_r=1&partner=rss&emc=rss

    48. sean says:

      This is a possible read flag when a Hedge Fund does this as D.E. Shaw has done.

      “When investors rushed en masse to withdraw their money from hedge funds last year, Shaw asserted its right to block redemptions from its fund. An exception was made for Mr. Summers, however, because the White House job he was taking required him to divest.”

      I am of the thought that any Hedge Fund that does this has something to hide!! (Ponzi Scheme???)

    49. inept says:

      Naked shorts are indeed a scandal, but unfortunately just part of the larger scandal: http://www.pbs.org/moyers/journal/04032009/transcript1.html

    50. Jim Hall says:

      Old shortmeister Chanos opines about proposals regarding shortselling imminent from formerly/presently(?) useless SEC:

      http://www.nytimes.com/2009/04/06/business/06short.html?_r=1&ref=global-home

      Sad for him!

    51. Anonymous says:

      Motive for collapsing the economy. A private controlled monetary and clearing system on a global basis.

      A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.

      “We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,” it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

      In effect, the G20 leaders have activated the IMF’s power to create money and begin global “quantitative easing”. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body.

    52. Dr. Jim DeCosta says:

      Sent today-

      Dear Commissioners and Staff of the SEC,

      I believe that if the regulators, SROs, exchanges and congressional oversight committees could get their arms around one seminal concept regarding abusive naked short selling crimes then legislation, regulation and enforcement in this arena could be much more effective.

      This concept has to do with the “issuance” of shares on Wall Street. You are aware of the standard mode for issuing shares which is done by a corporation’s board of directors through a “director’s resolution”. These shares then become “issued and outstanding” for all of the world to see. They have a designated “legal owner” at all times and they have been “registered” by the SEC.

      The type of “issuance” that your prior legislative and enforcement efforts indicate that you have forgotten about or never entirely appreciated is the “issuance” of a special species of shares that occurs every time a failure to deliver occurs or every time a failed delivery is cured by the NSCC’s “Automated Stock Borrow Program”. This special species of shares TECHNICALLY has no “legal owner” and they are TECHNICALLY not “outstanding”. They are essentially “issued” by those that fail to deliver the securities that they sold which is a rather troublesome concept as I’m sure you’ll agree.

      This special species of shares has to do with the phraseology used in UCC Article 8-501. Since the nominee of the DTC “Cede and Co.” serves as the surrogate “legal owner” of all shares held in “street name” 8-501 was drafted to “remind” the DTC that they were only acting in that “legal owner” capacity for reasons associated with streamlining our clearance and settlement process.

      Since “Cede and Co.” is TECHNICALLY the “legal owner” of these shares the purchaser of shares that have yet to be delivered to its purchaser is relegated to be acting as a “securities entitlement” holder. As such UCC 8-501 mandates that the holder of the “securities entitlement” (the purchaser of the undelivered shares) be allowed “to exercise all of the rights and property interest that comprise that security”.

      The net effect of this phraseology meant to be a subtle reminder to the DTC not to try to leverage its role of being deemed the surrogate “legal owner” is that a failure to deliver essentially results in the “issuance” of this rather odd “share” that TECHNICALLY has no “legal owner” nor is it TECHNICALLY “outstanding”. The problem is that this “share” is readily sellable just as if it was a legitimate share “issued” by a company’s board of directors and is therefore incredibly damaging from a dilution point of view because it contributes to the “supply” of that which is readily sellable whether it be legitimate shares or these special shares. These special shares add arithmetically to the number of legitimate shares that are already “issued and outstanding”. As such their presence predictably MANIPULATES share prices downwards.

      The concept of those intentionally refusing to deliver that which they sold resulting in the “issuance” of incredibly damaging “shares without a legal owner” is rather troubling in that the invitation presents itself for securities fraudsters to establish massive naked short positions by simply refusing to deliver that which they sold while SIMULTANEOUSLY manipulating the share price downward which in turn creates value for the naked short position that was ILLEGALLY established if the failure to deliver was intentional. I think you can appreciate the “two for the price of one” aspect to this form of theft. This obvious invitation for abuse is what makes ANY failure to deliver worthy of inspection.

      I can appreciate the fact that the concept of securities fraudsters being able to in essence cause the “issuance” of incredibly damaging “shares” is rather foreign at first but since the fact of whether or not that which is “issued” TECHNICALLY has a “legal owner” or not or is TECHNICALLY “outstanding” or not is immaterial from the point of view of the investor whose investment funds are being rerouted into the wallets of those accessing this “loophole” via intentionally refusing to deliver that which they sold.

      The very concept of “CROOKS ISSUING SHARES” that create value for the naked short positions they have ILLEGALLY established via refusing to deliver that which they sold is rather frightening but it is exactly what is going on in this arena. What kind of a “rigged” casino would allow the mere methodology of placing a negative bet to alter the outcome of the bet? The “price discovery” mechanism does indeed need to tally all votes cast whether they be negative votes cast from short sales or positive votes cast from the purchase of shares but with the ability to literally “stuff the ballot box” with an infinite amount of these special shares then the “price discovery” process cannot work efficiently and is subject to intentional MANIPULATION.

      With that being the reality you can imagine how a clearance and settlement system with integrity would aggressively treat ANY failure to deliver as an emergent measure needing to be “bought-in” promptly.

      The fact that these special shares being issued are kept invisible to a corporation’s management team and prospective investors is also very troubling. The ’33 Securities Act (“The Disclosure Act”) clearly mandates that all information of a “material” nature regarding a prospective investment be made available to the investing public. The lack of these special shares being “outstanding” and therefore rendering them invisible to the public prohibits their disclosure to the investing public and encourages their issuance by securities fraudsters needing to operate in the darkness.

      “Securities entitlements” are tricky. They were designed to serve as “accounting measures” to denote the DELAY of an imminent delivery. The DTCC’s default assumption is that all failures to deliver are associated with a “legitimate” delivery delay wherein it was presumed that the delivery of the missing shares was just around the corner. This allows the “issuance” of these special shares but when the delivery failure was intentional then all of a sudden it’s too late to in effect “cancel” the special shares that were mistakenly “issued” because the only way that can be done is to “buy-in” the failed delivery obligation.

      Although the NSCC management has the congressional mandate “to act in the public interest, provide investor protection and to “promptly settle” all securities transactions as well as 15 of the 16 sources of empowerment to execute “buy-ins” they still have the audacity to plead to be “powerless” to execute buy-ins despite the fact that they are the ONLY cure available when an abusive NSCC participant absolutely refuses to deliver that which it sold and that the fear of a buy-in represents the only source of meaningful deterrence to these crimes. They are also the only means to “cancel” the special shares that were mistakenly “issued” when the default assumption as to the legitimacy of the delivery delay was incorrect.

      How can one explain this mysterious behavior of this SRO known as the NSCC which is supposed to be acting as “the first line of defense against market abuses” like naked short selling? It might have something to do with the NSCC management doing exactly what their bosses the abusive NSCC participants/co-owners want them to do since they are the ones refusing to deliver that which they sell. It is usually a good idea for employees to look after the financial interests of their bosses should they want to remain employed.

      If you at the SEC could only get your arms around the concept involving the “issuance” of these special shares then the emergent nature of ANY failure to deliver will jump out at you because of the ability of securities fraudsters to intentionally “stuff the ballot box” with negative votes during the voting procedure associated with the “price discovery” process. The ability to establish massive naked short positions by merely refusing to deliver that which you sell while SIMULTANEOUSLY forcing the share price down represents the ability to easily create a “positive feedback loop” resulting in the investment funds of U.S. citizens being rerouted into the wallets of those abusive NSCC participants that merely refuse to deliver that which they sell. What could be easier?

      The insanity of removing the protective benefits of the “uptick rule” in the midst of this ability to create “positive feedback loops” is beyond description. The ability to qualify for having made a “locate” by merely having “reasonable grounds” to believe that your “locate” would result in delivery by T+3 is equally unconscionable. That policy has only made the “bogus locate” a form of currency amongst securities fraudsters. I’ll give you a “bogus locate” for shares of company “A” if you provide me one for company “B”. An appreciation for the “issuance” of these special shares and the accessibility of these “positive feedback loops” would have forewarned you that many parts of REG SHO were essentially dead on arrival.
      Sincerely,
      Dr. Jim DeCosta

    53. clearthinker says:

      Any questions about our new SEC chairwoman, the former head of FINRA?

      ______________________________________

      SEC signals no need to rush restrictions on ‘short sellers’

      http://latimesblogs.latimes.com/money_co/2009/04/the-securities-and-exchange-commission-wont-rush-possible-new-rules-to-rein-in-short-sellers-chairman-mary-schapiro.html

      SEC signals no need to rush restrictions on ‘short sellers’

      11:39 AM, April 6, 2009

      The Securities and Exchange Commission won’t hurry possible new rules to rein in “short sellers,” Chairwoman Mary Schapiro said today.

      The SEC on Wednesday will consider restrictions on short sellers, bearish traders who borrow stock and sell it, betting the price will drop. The shorts have been blamed for deepening the bear market and, in particular, for fueling the drastic declines in many financial stocks over the last year.

      At a minimum, many critics of short sellers want the so-called uptick rule restored. That rule, which the SEC revoked in 2007 after it had been on the books since 1938, required a short seller to wait for an uptick in a stock’s price before shorting it. The idea was to eliminate the potential for a cascade of short sales that could send a stock into a death spiral.

      Schapiro, speaking to reporters after giving a speech in Washington, said the commission would reconsider the uptick rule, and also would look at a “circuit breaker” proposal from major stock exchanges to limit short selling in a stock after the price has fallen by a specific percentage.

      There had been speculation that the SEC might act quickly on new short-selling restrictions. But Schapiro indicated she wasn’t in any rush,

      and wanted to get feedback from investors.

      From Bloomberg News:

      The SEC will likely take public comment on its various proposals for 45 days before commissioners decide whether to hold a second public meeting to make any rules binding, Schapiro said. The agency also plans to hold a roundtable on short-selling so investors, experts and market participants can discuss the proposals, she said.

      In September, the SEC temporarily banned short-selling of all financial stocks. The prohibition was approved behind closed-doors as an “emergency order” under then-SEC Chairman Christopher Cox. Schapiro said she would be hesitant to re-impose a ban on short-selling.

      “I’m pretty uncomfortable, and I think the commission is as well, with doing emergency orders unless absolutely essential,” she said.

      — Tom Petruno

    54. Anonymous says:

      Anyone STUPID enough to think our watchdogs will stop market manipulation, hand down indictments to those who (excluding the ones like Madoff who turned themselves in) participated in this fiasco needs to put their life savings in the market right now and deserves to lose it all. The perpetrators are so tightly connected, to indict anyone would mean to indict yourself in this mess. At least Madoff had the balls to turn himself in only after the money ran out.
      Clue to the Clueless…..only when the money runs out will the manipulation stop. Let the damn market Crash and Burn. Stop feeding the piranha’s. Let them feed on each other until the very last one dies off.

    55. something about Mary says:

      Looking at that Sears Holdings chart of failures to deliver and then hearing Mary Schapiro saying that she’s in no hurry to change any rules does not leave me with much confidence that the status quo is going anywhere.

    56. Fred says:

      I am saddened by the news from Mary Schapiro. Who got to her?

      I guess the Senators will have to push it through legislation.

    57. Anonymous says:

      What a joke….It is not who got to her it is how much $$$$$$$$.

      http://news.yahoo.com/s/nm/20090407/bs_nm/us_sec_shortselling

    58. ron doc says:

      It is sure starting to look like there is no hope for Americans to get any help from any one in our Government.

      This Country is surely rotting from the head down.

      God help us!

    59. irieblue says:

      ProShares the entity behind the various 2x ultra short ETF’s and the likes do not want to see a re-instatement of the uptick rule because it will essentially kill their business if there has to be an uptick in each of the underlying stocks that the pro shares are double shorting…

      Also how can we allow these ultra short ETF’s to even exist as they allow traders to get around regulation T which is supposed to provide a limit to how much Margin a broker can provide a customer.

      Also can the SEC not see that on some occasions more than 50% of all the selling in financials can be traced to the SKF ultra short ETF? If that isn’t circumstantial evidence for Market Manipulation, then what will it take?

    60. Fred says:

      There are several points that have been mentioned in posts on this site that need further explanation. I will keep this post to just one (others to follow). This is the remedy we have seen called “buy-in”, where a short seller who has not delivered the shares by settlement is “bought in” and his account is debited for the buyin puechase price.

      I have several questions. Who would do the buy-in? It seems that would be the DTC itself, because the DTC is the guarantor to the buyer for the shares purchases. Is that correct? And the member firm whose customer did not deliver is on the hook for the money, so the member firm would pass the debit to its account holder. This incentivizes the broker to demand shares of its short sellers to reduce its own exposure.

      Now if the DTC does the buy-in, where does the foreign broker loophole come from? I don’t see it. The DTC would do the buy-in (under proposed rules). The foreign broker is subject to US rules the same as everyone else when trading on a US market. No one needs jurisdiction in a foreign country. Trading on US markets is subject to US rules, plain and simple. What am I missing from the commenters here that say we need separate rules?

    61. Anonymous says:

      Fred, the foreign brokerage doesn’t have an account at the DTC in most cases. Only the foreign depository has an account at the DTC, so you’d have to buy in the whole foreign depository, not an individual foreign brokerage.

      The trades go both directions, with US brokerages failing to deliver to the foreign depository, so the fails can kind of cancel and net to zero even though real investors in both countries have fake stock.

      Even though many of the fails come from Canada, Canada has a good system to limit shorting on their own exchanges. You have to put up double the collateral, with a minimum in most cases.

      So, for example, if you short a stock trading at a penny, they require you to put up minimum collateral of $.25 per share. If you short one trading at $1, you have to put up the dollar from the trade, plus another dollar of your own.

      Compare this 200% rule to our 102% collateral rule.

      Also, it is quite common to be bought in on Canadian traded stocks and the members have an incentive to rip you off if the volume is low. They put out a note to their members and they bid on who gets to sell you the stock and you often get filled way above current prices, reflecting the stock is hard to borrow.

      The problem is that Canadian regulators only regulate their brokerages for stocks that trade on Canadian exchanges. There’s a loophole when they trade US stocks.

    62. mhelburn says:

      The same criminals who are counterfeiting stocks are the ones who are not paying taxes. Lucy Komisar has done some incredible work delving into the reinsurance scam which was only a way to help companies inflate or control earnings. When they were afraid that they would get caught doing reinsurance with side letters that nullified the insurance, which is an obvious fraud, they switched to CDS and managed to keep it unregulated. Here is a video she did about tax evaders, money laundering and Rubin.

      http://video.google.com/videoplay?docid=-8295984779951129935

      I highly recommend this article about AIG and other articles located here. They are posted in reverse chronological order.. so start at the bottom.
      http://www.ritholtz.com/blog/2009/04/aig-before-cds-there-was-reinsurance-part-2/

    63. something about Mary says:

      The following quote is from a “self-interview” by the DTCC’s PR folks (“@ DTCC”) with their General Counsel Larry Thompson. It provides a prima facie example of why you can’t focus in on “legal ownership” issues when studying abusive naked short selling. The “shares” being essentially “issued” with every failure to deliver and every NSCC “Stock Borrow Program” “bailout” HAVE NO “LEGAL OWNER”!

      This has to do with the phraseology used in UCC Article-8-501 in regards to what are referred to as “securities entitlements”. Raising the “legal ownership” issue presents an intentional misrepresentation to investors that our markets in some corporations targeted for destruction are not “rigged” to go anywhere but downwards.

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

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

      Once a loan is made, the lent shares are deducted from the lender’s DTC account and credited to the DTC account of the member to whom the shares are delivered. Only one NSCC member can have the shares credited to its DTC account at any one time.
      The assertion that the same shares are lent over and over again with each new recipient acquiring ownership of the same shares is either an intentional misrepresentation of the SEC-approved system, or a profoundly ignorant characterization of this component of the process of clearing and settling transactions”.

      This statement is TECHNICALLY 100% accurate but also 100% misrepresentative. NSCC participants do indeed “donate” the shares of their clients into the SBP’s lending pool of securities for use in “curing” delivery failures. Before being lent the donors of shares do indeed need to have them in their NSCC “participants share account” from which they are indeed debited. Then they are indeed “credited to the DTC account of the member to whom the shares are delivered”.

      “Legal ownership” is then transferred to the buying party whose purchase order resulted originally in a failure to deliver. This occurs via the transmission of an electronic book entry. It is also 100% accurate that “only one NSCC member can have the shares credited to its DTC account at any one time”.

      Now comes that little tiny multi-trillion dollar “material” fact that was omitted. The party receiving the borrowed shares as the new “legal owner” then has all of the right in the world to re-donate them right back into that very same SBP lending pool as if they never left in the first place. Perhaps it’s easier to picture all of the shares held in the lending pool as being white marbles of various sizes. It is critical to realize that they all look alike because they are all kept in an “anonymously pooled” format. “Anonymous pooling” forms the foundation for many, many types of fraud.

      Let’s artificially dye red the parcel of shares chosen by the NSCC to cure any particular delivery failure. The “red” parcel of shares that were borrowed are then credited to the “shares account” of the party receiving the borrowed shares i.e. the purchasing party. It as the new “legal owner” of that particular parcel of shares can then re-donate that “red” parcel of shares right back into the lending pool from whence it just came out of.

      There they sit waiting to “cure” yet another delivery failure. Soon that same “red” parcel of shares might be “co-beneficially owned” by a dozen different U.S. investors. Soon a dozen different DTCC participating brokerage firms will be earning interest from the loaning of the SAME parcel of shares. That’s why the DTCC and its participants are in no hurry to disrupt this current ultra-corrupt status quo. THE “LEGAL OWNERSHIP” OF THAT RED PARCEL OF SHARES GOES ONLY TO THE LAST PARTY RECEIVING DELIVERY OF IT.

      The other 11 purchasers of this very same parcel become “co-beneficial owners” and they don’t “legally own” anything at all. The 11 clients of these brokerage firms that purchased that same “red” parcel of shares are TECHNICALLY “securities entitlement” holders. That’s why that statement is 100% accurate but 100% misrepresentative.

      At the end of the day the LAST party of the 12 different brokerage firms receiving the “red” parcel of shares becomes the sole “legal owner”. Who cares who the “legal owner” is when UCC Article-8-501 mandates that any “securities entitlement” holder must be given the ability “to exercise all of the rights and property interest attached to that security”.

      The argument proffered is a “red herring” trying to hide the fact that the markets in certain U.S. corporations targeted for destruction are “rigged” to go nowhere but downwards.

      What the General Counsel forgot to mention is that the NSCC management mandates that all shares held in the lending pools at the SBP are held in an “anonymously pooled” format. The red dye basically reversed the “anonymous pooling” to allow a more transparent view of what is really occurring.

      These frauds are somewhere in between a Ponzi scheme and a “shell game”. The pea under one of the shells is the “legal ownership” title to any parcel of shares. The DTCC management tells the unknowing investors to concentrate on the “legal ownership” pea while it is cranking out an infinite amount of “securities entitlements” behind the curtain.

      What U.S. investors need to realize is that the “securities entitlements” that are generated by each and every failure to deliver on Wall Street and each and every “borrow” from the NSCC’s SBP’s “lending pool” of securities are for all intents and purposes “shares” due to the phraseology used in UCC-8-501. They are admittedly a rather odd species of “shares” being that they TECHNICALLY have no “legal owner” and they are TECHNICALLY not “outstanding”. That’s why it is so disingenuous for the leaders of an SRO (self-regulatory organization) to say “concentrate on the “legal ownership” pea”.

      Since this rather odd species of “shares” being “issued” are readily sellable they have all of the dilutional damage that a legitimate “share” does.
      Do not be misled by those arguing the “ownership” issues or how the number of shares “outstanding” does not go up and therefore abusive naked short selling is not harmful. Every single shareholder of the company cited above is damaged by the share price depressant effect of those 11 extra parcels of shares that are above and beyond the number of shares TECHNICALLY “outstanding”.

      Let’s look at that statement again: “The assertion that the same shares are lent over and over again with each new recipient acquiring ownership of the same shares is either an intentional misrepresentation……”.

      The same shares are indeed lent over and over again contrary to the above statement but he is correct in stating that each new recipient does not acquire “ownership” because only the last party receiving the borrowed shares does.

      Now as far as the issue of making “intentional misrepresentations” I’ll let you be the judge as to who is making “intentional misrepresentations”. As far as why the need to make “intentional misrepresentations” to the investing public that’s where the focus should be.

      Let’s address the issue raised by the interviewer in the text of the question regarding the “counterfeiting of shares”. Does the SBP Technically “counterfeit shares”? Again it’s misrepresentation through semantics. Technically what is getting “counterfeited” are “securities entitlements” and not “shares” issued by a corporation but since UCC-8-501 mandates that the holder of “securities entitlements” be allowed “to exercise all of the rights and property interest in that security” there are indeed “shares” being counterfeited but they’re that odd species of readily sellable “shares” that TECHNICALLY don’t have a “legal owner” and TECHNICALLY aren’t “outstanding” like it makes a difference to the U.S. investors whose retirement funds are flowing into the wallets of those refusing to deliver that which they sell!

    64. Anonymous says:

      JIm HALL,
      I disagree with you. I feel they always got it, but were being supressed by the powers that be. Gary Aguirre got it also and look what that got him ? This is not a case of mot understanding, this is a case of NOT BEING ABLE TO DO YOUR JOB WITHOUT REPERCUSSIONS. The folks at SEC seem to bow down to juice. Their careers after the SEC depend on it.

    65. Anonymous says:

      something about Mary,
      Any connection between General Counsel Larry Thompson with DTCC and former enforcement of SEC Linda Thompson?

    66. Anonymous says:

      Naked Short Traders In Red Hell And Black Ice

      May 11, 2008

      Elaine Meinel Supkis

      http://elainemeinelsupkis.typepad.com/money_matters/2008/05/elaine-meinel-5.html

    67. Dr. Jim DeCosta says:

      I think the light bulb of figuring out how abusive naked short selling attacks are pulled off is just about to light up in the minds of millions of investors simultaneously.

      All you have to do is to concentrate on UCC Article-8-501. It FORCES securities intermediaries (NSCC participants) on Wall Street to treat the holders of “securities entitlements” as being able “to exercise all of the rights and property interest to the shares they have an entitlement to”. Those are the exact same rights that “legal owners” of shares have.

      This phraseology converts mere “securities entitlements” which were designed to be “accounting measures”/IOUs denoting a failed delivery obligation into this weird species of “share” that TECHNICALLY has no “legal owner” and that is not TECHNICALLY “outstanding”. But from a damage point of view they are very much “outstanding”.

      They’re invisible and that’s what the crooks that sell securities to U.S. citizens and refuse to deliver that which they sell need! What I just described in the 3 lines above is that for all intents and purposes THE IOU ITSELF JUST MAGICALLY BECAME THE “SHARE” THAT IS THE SUBJECT OF THE IOU. Who cares if it TECHNICALLY has a legal owner or not? That’s why “entitlements” are so tricky and so subject to abuse.

      Thus if you can create a “securities entitlement” then you can create an incredibly damaging “share” of a slightly different species that packs all of the dilutional damage that a real “share” does. What’s the easiest way to create a “securities entitlement”? You refuse to deliver the securities that you sell. What happens when a crook refuses to deliver that which it sold? He established a naked short position. What else happens when you refuse to deliver that which you sold? You cause the “issuance” of readily sellable “securities entitlements” which automatically drive the share price down which gives your naked short position value. You get two for the price of one; you place a negative bet against a corporation and the mere method of how you placed your bet (by refusing to deliver that which you promised to deliver) has increased the prognosis for the success of your bet! Now how clever is this fraud?

      Now the task becomes to find an UNCONFLICTED member of an SRO, or of the SEC or of one of the congressional oversight committees willing to do the right thing to once and for all end these thefts of the investment funds of U.S citizens.

    68. Dr. Jim DeCosta says:

      If you look at the text of #74 above and then look at the graph of the FTDs of “Sears Holdings” in the 4/2/09 article on deepcapture.com what do you come up with as the only plausible way to end this crime wave?

      Due to the phraseology used in UCC 8-501 you are left with only two options. You can either ban failures to deliver entirely except for bona fide MMs OR you need somebody to buy-in delivery failures the second it becomes obvious that the seller of shares had no intent whatsoever to deliver that which he sold perhaps on T+6 or so.

      In regards to the execution of “buy-ins” when the NSCC management with the congressional mandate “to act in the public interest, provide investor protection and “promptly settle” all securities transactions as well as 15 of the 16 sources of empowerment to execute buy-ins pretends to be “powerless” to do so then FTDs need to be banned entirely except for truly bona fide market making.

      “Buy-ins” are the ONLY solutions available when the seller of securities refuses to deliver that which he sold. The fear of a buy-in is the only source of truly meaningful deterrence to these crime waves. The NSCC management is refusing to provide the only cure as well as the only source of deterrence to these thefts.

      The ability to merely refuse to deliver that which you sell and thereby establish a naked short position as well as cause the “issuance” of readily sellable “shares” albeit they TECHNICALLY have no “legal owner” nor are they TECHNICALLY “outstanding” which depress the share price which gives value to your naked short position is too tempting for most crooks to not take advantage of.

      Can you appreciate why the NSCC management has to attempt to “intentionally deceive” investors as shown in post # 72. Remember these are the same guys that have cornered a monopoly on the sources of empowerment to execute buy-ins and then intentionally refuse to deploy it in order to look after the financial interests of their corrupt NSCC participating “bosses” that are the financial beneficiaries of these thefts. If NSCC management has the ONLY cure available when their bosses refuse to deliver that which they sell and has the ONLY source of deterrence available to dissuade these thefts and refuses to provide it then of course their corrupt “bankster” bosses are going to set up shop in this “regulatory vacuum” they have graciously provided.

      Take another look at that “Sears Holding” chart. This occurred AFTER Reg SHO went into effect. Does it look like having “reasonable grounds” to believe that a “locate” would result in delivery by T+3 is working out well?

    69. Dr. Jim DeCosta says:

      I highly recommend the suggestion made in post #77 to access that link. There is a very good learning opportunity at hand there. The short seller being interviewed proffers the argument that short sellers should not have to borrow shares before any type of short sale. The suggestion made is that if he deems the share price of a corporation as being too high then he should be able to tee off on that corporation by selling an unlimited number of nonexistent shares to U.S. citizens and then refuse to deliver to them that which they paid for. That’s what not making a “borrow” refers to. You enter into an agreement to deliver that which you are selling on T+3 and then you turn around and refuse to follow through on your pledge.

      That’s a scary mindset but it is the mindset of the naked short selling community. How would you like to be trying to feed your family as an employee of a corporation that he and his colleagues targeted for destruction? Do you think people with this mindset bother performing “locates” as per Reg SHO before making short sales? Look at the charts on deepcapture.com illustrating share prices versus failures to deliver. I think it’s pretty easy to recognize the cause and effect. That interview should scare the absolute you know what out of you when recognizing that Wall Street is inundated with that mindset!

    70. Fred says:

      Anonymous

      Replied to my post above about the foreign broker loophole. Reply says that it’s the foreign depository, not the foreign broker who has the account with DTC/DTCC.

      I don’t see what difference that makes. Whatever entity has an account with DTC/DTCC, if that entity does a sell of 1000 shares and then does not deliver in say T+3, then that entity gets bought in for 1000 shares on T+4 and gets charged for the buyin. Anonymous said something about buying ion the entire depository, but that makes no sense. Just buyin the amount of failures.

      We need to keep up this dialog until it becomes clear.

      … Fred

    71. jburke6000 says:

      I would be curious to see how much cash was generated for short sells during the crash of the big five banks last fall. For every dollar lost in shareholder value, how many dollars are generated/collected by short sellers? I know it is a big number, but I don’t have any data to back up an estimate or even an educated guess. Anyone have an idea?

    72. Orice M. Williams, Director says:

      On March 26, 2009, GAO issued a correspondence entitled Securities and Exchange Commission: Oversight of U.S. Equities Market Clearing Agencies. It was an interim product of an ongoing study on Regulation SHO and not, as mistakenly stated in the article, a report on the findings of an “investigation.” The March 2009 correspondence was issued as an interim product to provide Congress and the public with a descriptive overview of how U.S. clearing agencies settle and clear equities securities trades and how SEC oversees the clearing and settlement systems of these agencies through its examination process. Therefore, the information provided was descriptive and not intended to evaluate SEC’s oversight of clearing agencies or to provide detailed information on examination findings. Further, as is the case with all GAO reports, the March 2009 correspondence provided an introduction that explained why GAO did this work. In this case, as noted in the letter, GAO did this work because of the importance of an effective clearance and settlement process. This is our standard reporting format and is neither strange nor uncommon. GAO’s final report on Regulation SHO and SEC’s efforts to address failures to deliver and naked short selling will be issued in May 2009. We encourage you to read the report for yourselves when it is issued.

    73. Pat says:

      It’s simply amazing that anyone would think that competetent management or leadership would be in control of a sinking ship that resulted in Titanic losses that precipitated the bail out.

      Ignoring that fact has no particular usefulness except to replace those managers with persons more competent.

      That Congress itself may be implicated from such failure due to its close association with commerce is obviously one of the first rocks to look under for the culprits. Why should anyone be reelected to ignore the obvious since most are incumbents who’ve been there right along?

      Identifying incompetence is as important as identifying the best and brightest of any leadership cadre, and in order to exercise the right of citizenship and pursue social justice. CEO’s who benefited from the financial crisis should go, just as those in Congress who allowed it to happen on their watch under their administrative obligations to the nation. It isn’t rocket science; but ignorning the impact of mismanagement surely makes imbeciles of the public returning them to office, or tolerating the mismanagement they deliver.

    74. Blondell says:

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    Trackbacks/Pingbacks

    1. […] Deep Capture: exposing the crime of naked short selling added an interesting post today on Our Watchdogs and the Financial Scandal of the CenturyHere’s a small reading […]

    2. […] Deep Capture: exposing the crime of naked short selling added an interesting post today on Our Watchdogs and the Financial Scandal of the CenturyHere’s a small reading […]

    3. […] Our Watchdogs and the Financial Scandal of the Century, April 3, 2009. […]

    4. […] Notwithstanding such general warm sentiments Deep Capture feels towards the GAO, a recent GAO publication (”Securities and Exchange Commission: Oversight of U.S. Equities Market Clearing Agencies“) disappointed my Deep Capture colleague, Mark Mitchell, enough for him to write a fairly scathing analysis of it (”Our Watchdogs and the Financial Scandal of the Century“). […]


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