Steve Cohen, the anti-Midas

This brings us to another interesting phenomenon: the startlingly high mortality rate of SAC-sponsored spin-off hedge funds.

My most recent post, showing emails suggesting an instance of insider trading on the parts of short-selling hedge funds SAC Capital, Kynikos Associates and Third Point Partners, included a brief appearance by a fellow named Jeff Perry.

As with all those included on these emails, I had to do some research to determine the role each played for their respective employers at the time the emails were sent. For most, this was easy. But for Jeff Perry, it was difficult. That’s because since 2002, when the emails were originally sent, Perry has worked for SAC, Third Point, and Kynikos.

So, not only do these supposedly fierce competitors share and profit from inside information, they also share employees.

The sender of possibly the most damning of the highlighted emails was, at the time, SAC portfolio manager Forrest Fontana, who, with the help of a SAC investment of $50-million, left to start his own hedge fund, Fontana Capital, in 2005. However, despite a very strong start, Cohen suddenly pulled his money out of Fontana Capital in 2007, leaving the firm far out of the money and, according to Reuters, hardly a hedge fund at all these days.

And this brings us to another interesting phenomenon, recently examined by financial blogger and author Lila Rajiva: the startlingly high mortality rate of SAC-sponsored spin-off hedge funds. As Lila notes, the consistently poor performance of Cohen’s anointed proteges — often a result of Cohen’s inconsistent support of them — contrasted with the strong showing of one fund launched by former SAC traders who left under a cloud, is a little suspicious…as though maybe these satellite SACs weren’t supposed to succeed.

Here are Lila’s observations on the matter:

1. The high number of SAC traders who seem to have gone off into their own businesses.

You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite.  People seem to have been leaving all the time to form their own businesses.

But SAC was also said to be a very tough environment. You produced, or you left.

So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.

2. None of the spin-off firms seems to have been very successful.

Why not? Why couldn’t these hot-shot traders make money on their own?

The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.

But those things are likely to be true of other firms as well, not solely SAC.

Still not convinced.

Furthermore, consider this.

3. A spin-off fund that didn’t get money from Cohen ended up quite successful:

“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.

Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”

4. Even spin-offs that were doing well were shut down.

When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.

Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006.  But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.

Reuters quotes someone familiar with the record of ex-SAC traders:

“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.

Shades of Bernie Madoff….

Someone need to look closely at what happened to the money at these firms…

  1. I have said this to Mark Mitchell and to several others on this blog.. “All Hedge Funds are Ponzi Schemes” This is being proven more and more everyday. I wonder what would happen if the SEC (Just for the sake of it mind you) investigated the “REAL ASSETS” of these Funds. I bet in 90% of the cases 75% of the funds were be untraceable. In otherwords nonexistant!!! Anyone want to place a friendly wager on this? Thanks Judd!!

    1. You people have no idea what you are talking about. Do some work on Cohen and the spinoffs and hedge funds in general before you spew this crap on websites.

      1. Well, Bill, I’m just an occassional visitor here and, I think, a neutral observer. Your complaint would carry much more weight if you could give me just one concrete example where Judd Bagley is wrong about SAC spinoffs. Just one concrete fact? Do you mean EVERYTHING he says is wrong, even the fact that very few SAC spinoffs succeed? Inquiring minds want to know.

      2. Bill,
        I wrote this piece, and will admit that I didn’t do a shred of original research on the matter of the success rates of SAC spin-offs. Instead, I’ve relied on the reporting of other credible journalists. If there’s something significant that’s missing, I’d appreciate it if you’d bring it to my attention.
        [email protected]

  2. Hi Bill –

    Why is it “crap” to ask questions – or, as you delicately put it, “spew”? Why shouldn’t someone point out what might strike them as odd?

    I’m curious.

    Is it your contention that fewer questions should be asked in general about the financial industry? That would be a strange position to take post-2008, don’t you think?

    Or is it your contention that fewer questions should be asked about hedge-funds specifically? Is so, why?

    Or is it your contention that Steven Cohen alone shouldn’t be questioned?

    I would be glad to know what exactly anyone has said about the notoriously unregulated world of hedge-funds, or the notoriously secretive and widely adulated Steve Cohen, or the hitherto unexamined spin-offs from Cohen’s fund that so incenses you.

    If everything’s kosher, why not dig a bit more? At least, we yokels will get a tour of the rarefied world that you financial geniuses breathe regularly.

    And if it’s NOT kosher, then the digging’s warranted, right?

    Either way, the emotional reaction seems misplaced.

    Journalists are not..and need not be.. masters of high finance.
    That’s Steven Cohen’s job.

    Out job is asking questions.
    That’s what we’re doing.

    Cohen and company have plenty of ways of responding, either in PR releases, or in kid-glove interviews with flattering lighting, or to the SEC or even to the FBI, where the lighting may not be so good, but the questions might carry more heft.

    Sounds a reasonable way to get some sunlight into a few dark corners.

    Or does unquestioning deference to the financial industry have some intrinsic merit I’ve overlooked?

    Do let us know.
    We want to be fair.

    Lila Rajiva

  3. Bill, when Judd put this post out he placed facts and a well thought out blog, you on the oter hand posted..?? Please if you are going to come in here and dispute what is written and proven by other sources no less would it be possible to provide some fact to back up your c..p or just remain silent and watch the rest of your cronies lives unravel before they go to jail.”The Domino effect”.

    1. Let’s say I naked short $5 million in an illiquid penny stock trading a few thousand shares per day and pull out an average of $1 pushing it from $5 to a penny.

      I’ll have $5 million in cash and an obligation of only $50,000 even though there’s no chance I could cover for even $5 million (my buying would attract other buying and a run).

      On the books, I have a $5 million profit on a $50,000 investment and can pay myself a management fee based on that. The covering is my stupid investors problem – they should know my fund is a game of musical chairs.

  4. SAC Capital’s Cohen Sued by Ex-Wife for Racketeering, Fraud

    In late 1985, Steven Cohen told his wife that “he had received inside information in advance of the purchase of RCA Corp. by General Electric Co.,” Patricia Cohen alleged in her complaint.

    “Defendant Cohen assured Ms. Cohen that, although he knew the insider (who was a Wharton classmate of Cohen), he had not received the information directly from the insider but from a mutual friend,” according to her complaint. “According to defendant Cohen, this meant that he was not involved in insider trading.”

  5. Insider Trading

    Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.

  6. SAC Capital Headed for a Crackdown over Insider Trading

    Here’s the short version: in late 2002, a group of short-selling hedge funds, led by Kynikos Associates, learned from a Morgan Keegan analyst that he was preparing to initiate very pessimistic coverage of Canadian insurance company Fairfax Financial Holdings (NYSE:FFH). Kynikos promptly alerted SAC Capital and Third Point Partners about this prime shorting opportunity. In the days that followed, traders at Kynikos and SAC met with the analyst, reviewed and offered input on drafts of his forthcoming report, and, together with Third Point Partners, built up large short positions in Fairfax, which they very profitably covered following the report’s publication.

    In one particularly telling email, a SAC trader sends an email to Steve Cohen himself, in which he explicitly states that SAC will cover their Fairfax short position following the Morgan Keegan report’s publication.

    In regards to your question: “What happens to naked short obligations when a fund goes under after pulling out their profits?” The failed delivery obligation actually belongs to the clearing firm that the fund used. The clearing firm could be the fund’s “prime broker”, its “executing broker” or a 3rd party. These failed delivery obligations need to be collateralized at about 102% of the monetary value of the failed delivery obligation calculated on a marked to market basis daily.
    Clearing firms enjoy all of the business sent their way by abusive naked short sellers but they have to be careful because it is easy for an abusive naked short seller to attack and drop the targeted corporation’s share price by 95%. As the collateralization requirements which are based on share price diminish the funds of the investor are shunted to the abusive hedge fund manager even though he still hasn’t delivered that which he sold. How can this be allowed? It’s because the DTCC has illegally converted the foundation for our nation’s clearance and settlement system from “delivery versus payment” or “DVP” to “collateralization versus payment” or “CVP”. In a CVP system you can sell nonexistent shares all day long and intentionally depress the share price. All the NSCC subdivision of the DTCC asks its abusive “participants” to do is to collateralize the monetary value of the failed delivery obligations. As the share price predictably crashes so too do the collateralization requirements which allows the funds of the investor to flow to the seller of nonexistent shares that continuously refuses to deliver the securities that they sold.
    The clearing firm is on the hook if a corrupt hedge fund manager walks away with the “stolen” money and abandons the account. When the abusive hedge fund manager stops leaning on the share price the share price will go back up naturally and the clearing firm’s collateral will be insufficient. If this happens the clearing firm will typically hide the failed delivery obligation via “ex-clearing arrangements” made with an equally corrupt clearing firm which is basically a black hole within which clearing firms that fall into trouble “pair off” with each other and promise not to buy-in the failed delivery obligations of each other. This amounts to one abusive clearing firm agreeing with another to let it sell all of the nonexistent shares it wishes to its clients if the other clearing firm extends the same “courtesy”. In other words the failed delivery obligation will never be bought-in.
    The DTCC, the DTC, the NSCC, the SEC and FINRA all claim in unanimity that these “ex-clearing arrangements” are not their business to monitor. They claim to be only responsible to uphold the “securities laws” and not “contract laws”.

    1. Thanks, De. DeCosta. Why don’t clearing firms self police problem funds, though?

      Also, Bear Stearns was supposed to be THE clearing firm to the most blatant naked shorts. What happened to the problem when BS went under (gotta love their initials)?

  8. Is FBI Special Agent King Set To Take Down Stevie Cohen?

    The man who brought down Galleon is not finished, and if the report by Reuters’ Matt Goldstein is correct, FBI special agent B.J. Kang may well have his sights set on the top of the hedge fund pantheon: SAC Capital itself. This is not a surprise to Zero Hedge, and is something we have speculated on in the past, however the intricacies of such a spectacular take down would have to be refined beyond any reasonable doubt as any allegations against Mr. Cohen will likely see the involvement of every single $1,000/hour billing lawyer in the world, taking on any DOJ case.

    The background on the chase…….

  9. Does anyone think that since Steve “Sith Lord” Cohen is being outed by his friends, that the news that it may have been SAC who placed those $1.7 mill in puts on Bear Stearns that yielded $268 million of profit in less than 9 days may soon be released? I was thinking it was John Paulsen myself but its anybody’s guess right? I thought a year and a half would have been more than sufficient time for the SEC,FINRA and the DOJ to discover the guilty parties and bring them to justice but I guess they must be pretty high on the food chain huh Bill?

  10. More on the recycled corrupt officils of our Regulatory Agencies

    With the release of this information from Attorney Cuneo, we now learn that if his assertion is proved credible then Ms. Schapiro’s lie represented a $175-350 million transgression. How is that figured? FINRA paid 35k per firm. With 5100 FINRA member firms, FINRA’s total payment was $175 million. Cuneo’s figures represent that FINRA could have paid two to three times that amount, or another $175-350 million, making for a total payment of $350-$525 million. Not exactly chump change.

  11. Was there ever a doubt that this woman was all wrong to stop the criminal activities on Wall Street when in fact she may be one of them?

    Commentary by Susan Antilla

    Dec. 21 (Bloomberg) — The chairman of the Securities and Exchange Commission has a past that is fast coming back to haunt her.

    Mary Schapiro’s story has none of the lurid details of philandering celebrity golfers or hedge fund titans who get sued by ex-wives for concealing marital money.

    Her history and two pending lawsuits, though, raise an important question for investors: Is the woman who oversees the U.S. financial markets someone willing to fudge the facts to get things done?

    If what I heard in federal Judge Jed Rakoff’s New York courtroom last week is even close to accurate, I’d say that it’s time for some serious conversations as to whether Schapiro is the person we should entrust to the top SEC job.

    Schapiro was chief executive officer of the self-regulatory organization National Association of Securities Dealers in 2006 when it and the New York Stock Exchange decided to combine their regulatory operations, which ultimately became known as Finra. NASD pulled out all the stops to pitch the deal, putting on a 26-city promotional tour to persuade its 5,100 members to vote to change the bylaws so the merger could get done.

  12. With all this damning factual information, time will tell who has who by the cahunas’s. Lack of indictments will surely tell the tale.

  13. Dr. DeCosta:

    They say our current dilemma is at least partly due to excessive leverage, at times in excess of 30:1, by banks, hedgies……. It is my belief given the total reluctance of anyone to address naked shorting, especially in penny stocks, is because of the intense leverage of the clearing firms (Wall St.)bear in relation to these fails. That is to say, a move up is an exponential hit to their margin.

    Is there anyway of putting in terms of leverage, thereby quantifying the risk to the system, what these fails mean to Wall St., and to us? Maybe that way, we could impress upon these clueless wealthseekers in Washington they need to heed what we say.

  14. Bank Executives to Testify Before the Financial Crisis Inquiry Commission

    Posted Dec 27th 2009 2:20PM by Connie Madon

    Is this the first time you’ve heard about the Financial Crisis Inquiry Commission? Probably. It seems that Treasury Secretary Geithner organized the commission to investigate what went wrong during the financial crisis of 2008! That’s right 2008! Can you imagine — the public has been clamoring for answers as to what happened during the meltdown, and now a year later they decided to open an investigation.

    The Commission was created by Congress to examine the causes of the collapse that roiled global markets and led to a $700 billion U.S. bailout of the nation’s banks.

    The Commission is headed by Phil Angelides. For starters, they don’t even know where to begin. The Commission’s vice president, Bill Thomas, said: “It is hard to say where you should begin.”

    To kick off the hearings, Jamie Dimon of JPMorgan Chase (JPM), Lloyd Blankfein of Goldman Sachs (GS) and John Mack of Morgan Stanley (MS) will testify.

    Come on folks. We know what caused the collapse. It was excessive greed and speculation. So, with that in mind begin by following the money.

    Here’s where to start:

    Subpoena the trading records of each major bank that was involved in the crisis.
    Determine the number of naked short sales and short sales traded against the banks that failed; i.e., Bear Stearns, Lehman, WaMu, etc.
    If any bank was engaged in excessive short selling, bring the executives and traders to court and prosecute them for endangering the welfare of the country.
    This is just a starting point. From there, you should be able to get a better picture of what happened. Unless you follow the money, this investigation is useless and a white wash.

    Do you have any other areas where the Commission might investigate?

    1. I was told Randolf Pace is a bigwig behind naked shorting today.

      From the last link.

      “Harriton allegedly told Bressman to contact Randolph Pace, former principal of penny stock firm Rooney Pace (also a former Bear Stearns clearing customer), to set up a nominee account.”

      Pace was supposed to be the head of three wings, with Mark Valentine (operation Bermuda Short) being one of the three.

  15. Luckily, the SEC officer who was supposed to regulate, got a job at BS because of the $35 settlement without admitting wrongdoing.

    “Harriton resigned from the firm when the settlement was announc”ed. Richard Lindsey, who in March left his post as director of the SEC’s division of market regulation to fill a newly created No. 2 spot at Bear Stearns Clearing Corp., was named co-president of the clearing unit”

  16. And you wonder how much clout and juice these rich criminals like Cohen, Chanos,Paulsen,Einhorn really have. Here you go.The best politicians money can buy!! Madoff bought the SEC, Stanford bought congress. What can Cohen afford? We’ll soon find out, won’t we?

    Feds probing many ties of banker Allen Stanford and U.S. Congress
    The ties between indicted banker Allen Stanford and members of Congress — including millions in contributions and weekends in five-star Caribbean resorts — are now the subject of a sweeping federal investigation.
    Related Content
    Meeks’ trip to Venezuela raises some hefty ethics questions
    Who got money from Stanford?
    [email protected]
    Just hours after federal agents charged banker Allen Stanford with fleecing investors of $7 billion, the disgraced financier received a message from one of Congress’ most powerful members, Pete Sessions.

    “I love you and believe in you,” said the e-mail sent on Feb. 17. “If you want my ear/voice — e-mail,” it said, signed “Pete.”

    The message from the chair of the National Republican Congressional Committee represents one of the many ties between members of Congress and the indicted banker that have caught the attention of federal agents.

    The Justice Department is investigating millions of dollars Stanford and his staff contributed to lawmakers over the past decade to determine if the banker received special favors from politicians while building his spectacular offshore bank in Antigua, The Miami Herald has learned.

    Agents are examining campaign dollars, as well as lavish Caribbean trips funded by Stanford for politicians and their spouses, feting them with lobster dinners and caviar.

    The money Stanford gave Sessions and other lawmakers was stolen from his clients while he carried out what prosecutors now say was one of the nation’s largest Ponzi schemes.

    The rest of the story can be read in the following link..

  17. Lenofus,

    Your comment in regards to assessing the systemic risk issues to all of us in regards to abusive short selling is very pertinent. In abusive naked short selling there exists what I refer to as “self-generated leverage” or “SGL”. As the share price predictably drops from the invisible accumulation of readily sellable share price depressing “security entitlements” from each and every legitimate short sale involving a pre-borrow, each and every FTD and each and every NSCC SBP “borrow” the collateralization requirements drop also. This allows the funds of the investor taking the “long” position to flow to the abusive short seller’s clearing firm and then on to the abusive short seller despite the fact that he continues to refuse to deliver the securities that he sold.

    This “stolen” money can then be redeployed back into the market in order to establish and collateralize that much higher of a naked short position. This generates SGL and sets up a “self-fulfilling prophecy” resulting in the mere targeting of a U.S. corporation for an attack pretty much predisposing the corporation and the investments made therein to die an early death regardless of the merits of the corporation.

    What “supercharges” this process from a leverag point of view is the fact that of the typical 102% of the monetary value of the failed delivery obligation needing to be collateralized to protect the crooked clearing firm 100% of the 102% is supplied by the investor’s funds. Thus a little bit of stolen money can establish and collateralize a huge increase in the naked short position.

    Other sources of leverage include the borrowing of cash from a hedge fund’s “prime broker”. The “critical mass” of these behemoths is beyond comprehension. They start with managing billions of dollars. They have access to borrow many more billions of dollars. Layer upon that the SGL. Then layer upon that the redeployment of the stolen funds while only putting up 2% of the 102% needed. The size of the bulldozer pushing these U.S. corporations off of the cliff is very, very large. The multi-billionaire hedge fund managers are not necessarily smarter than the aveage Joe. They simply have more critical mass. Some of those stolen funds are aimed at the political coffers of politicians willing to fight for the totally corrupt status quo. Some of the stolen funds are aimed at lobbyists fighting for the corrupt status quo in a manner in which the crooked hedge fund can’t be identified as the provider of the funds i.e. through “managed fund associations and organizations”.

  18. Lenofus, I’m sorry that was me answering your question.I’m on a new conmputer that didn’t have my name preinscribed.

    1. Let’s play a game. We can call it fleece the sheep. First a less than ethical hedge fund manager establishes a “stellar reputation” for profits. Then he sets up minion clowns he has mentored to attract idiots money. “Invest with the copy. Cheaper nick and still stellar returns. Build a large enough pool of assets under management. The king pin crook pulls his funds out. The minion then enters into trades with the “mentor” designed to favor the mentor. After enough of the “sheep” nvestors wealth has been siphoned off to the mentor, close the fund. The sheep get fleeced. The mentor increases his stellar reputation for returns. The minion kicks back with his fees (until he is hired by the mentor again)…. Rinse and repeat. We need to name the game. How about sac?

  19. Huck,

    I think your analogy is spot on. The spin off hedge funds serve as the Ezra Merkins/”finders” did in the Madoff case which steer the money about to be stolen to a central location. The “finders” get 900% on the money they personally invested while the hedge fund managers running the satellite funds make huge fees. Because Wall Street is a “zero sum” game you need a constant inflow of money from those targeted to be fleeced. Any well-designed fraud needs to incorporate a mechanism to bring in the money of new victims once the old investors have been taken to the cleaners.

    In abusive naked short selling there is a built-in modality to bring new money into the trap. As the share price predictably plunges there is always a long line forming of investors with cash in hand sensing a bargain. They have no idea that the corporation they are investing in has already been all but preordained to die an early death. Who has access to the number of yet to be bought in “security entitlements” that has rendered certain U.S. corporations to die an early death? It’s the NSCC subdivision of the DTCC, the SEC and FINRA. Why don’t these congressionally mandated providers of “investor protection” warn U.S. citizens that they are being led into a trap? They can’t lest U.S. citizens come to learn that the investments they made in many development stage U.S. corporations over the years never did have a chance to succeed.

    Our regulators and SROs are handcuffed from doing the right thing without revealing their prior facilitation of these crimes. They have to stay in “cover up” mode and try to “grandfather in” FTDs as they attempted in Reg SHO and rescind 75-year old “Uptick rules”. They have to pretend to be powerless to buy-in delivery failures. They have to pretend to not be responsible to address the crimes going on within “ex-clearing arrangements” because they are theoretically of a “contractual” nature.

    When the SEC recently received over 5,000 formal complaints in regards to abusive short selling and absolutely NONE of them resulted in “enforcement actions” this had to occur lest an investigation reveal all of these cover-ups. When a victimized issuer sues the DTCC for facilitating naked short selling abuses via their “Stock Borrow Program” or SBP the SEC has to come to the rescue and file an amicus curiae brief recommending to the judge not to let this case go on into the discovery phase. Despite the fact that the SBP has morphed into a counterfeiting machine that does nothing but crank out readily sellable share price depressing “security entitlements” all day long which are hidden in the NSCC’s “C” sub accounts the SEC has to claim that it indeed approved of an SBP a few decades ago.

    There is only one way to end these cover ups and unshackle our currently handcuffed SROs and regulators. That is to buy-in each and every FTD no matter where on Wall Street it is hiding and deliver to the purchasers of securities that which they purchased. Once a clean slate is established then you never allow this to happen again. Until this is done the corrupt status quo will never change; it can’t. You can’t be in “cover up” mode and “investor protection” mode at the same time!

    1. Dr. DeCosta. You are forgetting how the scum regulars “think”. The big boys are the “investors” so “protecting” the fraud IS providing investor protection. Neat little psychological conscience quieter, isn’t it. Of course beings the “investors” being protected are the same ones providing payola to the cops doesn’t have a thing to do with it. We all know that. Our dutiful public employees are honest, hard working, selfless, servants of the people. We have their assurance of that. (Want to buy a bridge?) On the copy cat stevie cohen master plan. Hells bells, these people aren’t really very bright. Copying is easier than devising something original. The real “beauty” of the counterfeit shares is that when a meltdown does hit, THERE WILL BE MANY MORE “SHARES” out there for the sheep to sell, putting additional downside pressure. The equity markets are a sham. Too bad. Keep up the good effort though, we are seeing some progress, and the light could force the bad guys to hide for a year or 2.

  20. Huck, Dr. DeCosta, and All,

    I am coming to the realization that we are losing the argument over FTD’s because the other side can throw doubt about whether they exist and claim it is not a significant problem. I believe we should refocus our efforts, away from what new regs are needed, and focus on the INFORMATION and DISCLOSURE role which is central to the SEC.

    We need to raise the need for timely regular reporting by the DTCC of the total shares long in all their accounts on a monthly (or even daily) basis, along with the total shares in short positions for the same date. Also the total number of shares registered in street name on the company’s books at the transfer agent. These three numbers should all balance out: longs – shorts = total street name (float). If they don’t balance, the excess of longs over shorts are the FTD’s!

    The SEC should simply require the disclosure of these numbers, and should additionally require an independent audit of the DTCC at least quarterly to verify these numbers.

    Instead of arguing over the problem, this would show clearly what stocks have a FTD problem. With herd evidence in front of their eyes, the crooks will no longer be able to deflect the debate into vague claims of its non-existence.

    It seems we might have a better chance with lawmakers to pressure them to simply require disclosure. After the violations become apparent, we will have a better case for pushing enforcement.

    1. Well, I was a bit fuzzy. Those data won’t reveal the exact number of FTD’s. The information will help, but will not be conclusive. Sorry.

      But the main point remains. We should focus on better disclosure and transparency in the markets and clearing system. That way we don’t get lost in accusations and denials. The data will tell the story.

      1. Of course having the total number of “shares” “owned” would provide an honest assessment. That is exactly why we won’t get it. How could the scam continue when everyone could see that the total number of “shares” “owned” in any company greatly exceeded the total number of share in existence. You ever notice how the equity markets are described as a means of generating capital? Tell you what I believe that means. The masters of the universe, gaming the system, “raise capital” OUT OF OUR POCKETS AND INTO THEIRS by selling non existent “shares”. and that’s the way it is.

  21. Note holders Sue CompuCredit(CCRT) 23-Dec-09 10:49 pm It looks like that the note/bond holders have shorted this company and would do anything possible to make this compnay go bankcrupt.

    That way note holders don’t have to cover their shorts, made a killing, and then pick up the assets after the bankcruptcy.

  22. years ago Tudor Jones used to give out I beleive 1-5 Million to 20-30 guys looking for money to trade. I think the time period was a 1/4. Each dope would do anything to get the highest return and then get money to run. The people I knew NONE got any, Mr Jones did get retruns of 30-40% avg from what i remember. Nice way to let his hired gang loot and he walks away with a nice return

  23. Huck,

    Part of the cover-up of abusive short selling frauds has to do with the legal definition of the “ownership” of securities as referenced in Reg SHO. If a corporation has 100 million shares “outstanding” then 100 million shares will be “legally owned”. There is a critical difference between “legally owning” securities and “holding a long position” in securities. If the naked short position is 80 million shares in the above company then 180 million shares have been purchased and are being “held long” but only 100 million are “legally owned”. “Security entitlements” have no “legal owner” and they are technically “outstanding”. They are invisible to the investing public. Your monthly brokerage statement does not use the term “own” it cleverly uses the phraseology “securities held long”.

    The theme of the entire ’33 Securities Act also known as “the Disclosure Act” is that the purchasers of securities have the right to have access to all information “material” to making an investment. There is nothing more “material” to making an investment in the above corporation than knowing that there are 80 million share price depressing “securities entitlements” currently poisoning the share structure and the prognosis for success of that corporation.

    In a “prospectus” the SEC mandates that any corporation release to potential investors every tiny grain of sand of risk associated with an investment in that corporation. Yet this same SEC as well as the DTCC and FINRA refuse to “disclose” to a prospective investor the gigantic boulder of risk associated with the presence of 80 million share price depressing “security entitlements” that may have already preordained that corporation to die an early death. How can the parties congressionally mandated to provide “investor protection” and to enforce the ’33 Act be allowed to know about those 80 million “security entitlements” over and above the 100 million shares “outstanding” and yet not release it to the investing public?

    Once again the answer has to do with the fact that if U.S. investors ever learned that the investments they have made in various development stage corporations over time never had a chance to be successful then there would be a revolt and the parties FACILITATING these thefts by refusing to disclose these extremely “material” facts would be held accountable. Due to past transgressions of the law these parties have to continue to cover up and further facilitate these frauds UNTIL all share price depressing “security entitlements” are forcefully removed from the share structures of U.S. corporations under attack via mandated buy-ins. The question arises is it too onerous to FORCE those that refuse to deliver the securities they previously sold to their purchasers when they absolutely refuse to voluntarily deliver them? The congressionally mandated providers of “investor protection” i.e. the DTCC,FINRA and the SEC all answer that question “YES, it’s too onerous”. That’s how corrupt our markets currently are!

  24. Sentence #5 above should say NOT outstanding. Being invisible to the public, unregistered and not technically “outstanding” in a corporation’s share structure is why “security entitlements” are sometimes referred to as “phantom shares”. Although they are not technically “shares” since UCC Article 8 mandates that they be treated as being readily sellable then they do indeed add to the “supply” of that needing to be treated as being readily sellable and therefore they decrease share prices via adding to the “supply” variable that interacts with the “demand” variable to determine share prices through the “price discovery” process.

    1. Yes. In case you missed it the latest twitter regarding the 5 most shorted companies blah blah blah blatantly shows how 142% of the overstock shares outstanding were sold short. Never even batted an eye when stating that. Would it be so so very difficult for ANYONE to ask the obvious question? to wit. Ummm How could there be more shares sold short than there are shares? Every time the scum hide behind the “it’s legal” crap we ought to ask them that simple question. How can more shares be sold short then the total number of shares? In fact that ought to become a rallying point. Ask your idiot congressperson. How can more shares than exist be sold short?????????? Let them twist in the wind.

    2. I have mostly been a lurker on this site and I have found your insight into this naked shorting phenomenon invaluable in determining what has happened to a company that I have invested in. The above scenario you describe is exactly what I believe has happened to this company could be the poster child for exactly the synopsis you provide to the readers here.

      I believe this company was heavily shorted 10 years ago and was left for dead. Myself and a few other shareholders were contacted by the only director left standing a few years ago and were informed by him that he had kept the core asset intact (video compression software technology)and that the tech was still relevant. We got together and had the company reinstated and looked to move the company forward. As soon as the stock started to show the faintest sign of a pulse Janice Shell was recruited to start a thread on Investors Hub on the company and the spreading of false and misleading information began. Never have I witnessed such vicious attacks of a public company as I have come see with this one.

      The downward manipulation of the stock is brazen to say the least. With every uptick in the price of the stock it is met with a corresponding down tick in price often with uneconomic fractional trades. This lowly pinksheet company is given such close attention that often there is a fractional trade printed at the bid mere seconds into the opening. I’m lead to believe that these rogue traders must have such a serious naked short position that the very act of covering will spell their doom and the only tact they can currently use is to suppress the price of the stock for as long as they can to either force the company into raising money at such an artificially low price causing massive dilution in the share structure or box in the price long enough that the technology eventually becomes obsolete. Fortunately neither has happened yet.

      I am encouraged by your analysis of this naked shorting phenomenon and I have some hope that the company’s groundbreaking technology will ultimately lead to their demise.

      I would like to further correspond with you privately if it is at all possible.

        1. The stock symbol is TMMI and today’s trading is typical of the ongoing manipulation. Quite unbelievable to say the least. I think this company could make a terrific case study of just what happens when a company survives the onslaught of abusive naked short selling.

  25. Jim, congressman you mean like thiscrook.. Just who do these guys work for anyhow? I know it ain’t us!!!

    Pete Sessions To Allen Stanford: ‘I Love You And Believe In You’ — Now that’s loyalty. When a top supporter gets busted by the Feds for allegedly running a massive Ponzi scheme, most big-time pols are usually pretty quick to distance themselves. ( See Crist, Charlie , for the locus classicus of the genre). Not Pete Sessions though. Hours after Allen …

    These guys worship billionaires and hate middle class and poor people. This is the proof right here.

    1. ,

      SeanWonder if these congressional mudderfuggers have anything but contempt for the ‘common’ man.

      “I love you” — what a hoot!

      What were those lobster dinners really about on Antigua?

  26. Devastated,

    Those noneconomic “bid tappings” are fairly diagnostic that somebody is concerned about a preexisting naked short position. Remember these “open positions” need to be collateralized on a daily marked to market basis. You’ll almost always see them on a large volume day within five minutes of the close. Without an “uptick rule” the crooks can easily knock out the high bid and any underlying bids. For those that don’t watch the intra-day trading they’ll come home to learn that their stock is down perhaps 20% on heavy volume. This is a sell signal to many.

    Yesterday on this forum we chatted a bit on the various forms of “self-generated leverage” that these crooks have. In the example there was a company with 100 million shares “outstanding” and a naked short position of 80 million shares. This means people bought and paid for and think they “own” 180 million shares. Let’s assume that 5% of the people that come home from work and see that their stock was down 20% on heavy volume decide to sell the next morning. This means that 9 million shares are going to be for sale the next morning even though perhaps the stock was up all day except for the last 5 minutes wherein it was artificially MANIPULATED lower.

    Abusive short sellers can flood the share structure with readily sellable share price depressing “security entitlements” with ease. Think of these “extra shares” as an extra 3 feet of new snow on top of the mountain. Then the Internet bashers,corrupt analysts, manipulative traders banging bids or corrupt financial reporters can induce the avalanche to take off down the mountain.

    I’ve had an opportunity over the years to write extensively on the psychology of abusive naked short selling. It’s fascinating in that some of these see themselves as “shareholder advocates.They assert that destroying a U.S. corporation and stealing the money of its shareholders will prevent future investors from losing money to the supposed scamsters that run the company. They’ll enter into contractual relationships with the buyers of securities to deliver that which they are selling by T+3 then they’ll sell nonexistent securities to these buyers and refuse to deliver that which they just contracted to deliver. Intentionally stealing the funds of existing investors to theoretically protect future investors is an interesting way to think about it. The obvious question arises as to what happens when the diagnosis of the corporation being destroyed as being a “scam” is made in error. There is no malpractice insurance on Wall Street to cover these situations. Thus errant diagnoses to the thieves is no big deal.

    1. The methods employed by the manipulators has been fascinating to say the least. I have personally witnessed the collusion amongst market makers that helped to facilitate completely off market transactions that totally misrepresented the trading activity for the day.

      I believe that what we are being subjected to is nothing short of corporate homicide and all those who have participated in these malicious acts against the shareholders of these targeted companies should be exposed and prosecuted for what is clearly criminal activity.

      I applaud you and Deep Capture for your ongoing efforts to educate the investing public as to what is really happening within our markets. Bravo!!

  27. Don’t hold your breath for any real change to be made on Wall Street.. just read on.

    Wall Street Waits as SEC Fails to Bring Madoff-Inspired Reforms Share Business ExchangeTwitterFacebook| Email | Print | A A A
    By Jesse Westbrook
    Dec. 30 (Bloomberg) — Mary Schapiro, chairman of the U.S. Securities and Exchange Commission, said she wanted to show that her agency was cracking down after missing Bernard Madoff’s $65 billion Ponzi scheme. In May, she proposed that almost 10,000 money managers undergo surprise inspections to make sure they weren’t ripping off clients.
    “Investors are looking to the SEC to assure the safekeeping of their assets,” Schapiro said at the time. “We cannot let them down.”
    On Dec. 16, she settled for something less sweeping. Schapiro joined four other commissioners in approving a rule that requires about 1,600 U.S. fund managers to submit to unannounced audits, 83 percent fewer than seven months ago. The revision came after lobbying by fund companies, including executives from T. Rowe Price Group Inc., who met with Schapiro, and Legg Mason Inc., who met with another commissioner, SEC records show.
    The diminished inspections rule is one of at least four Schapiro announced as a way to protect investors and boost confidence, then later scaled back or delayed. In August, she bought herself more time on a rule to rein in short-sellers, after lobbying by hedge funds. In October, Schapiro put off plans to give investors more power to decide who sits on corporate boards after the U.S. Chamber of Commerce questioned the SEC’s jurisdiction.
    ‘Driving Hard’
    “I’ve been driving people very, very hard in this building,” Schapiro said in a Dec. 22 interview. “We just don’t have the capacity to move any faster. We’re still at, I think, a very good pace.”
    Schapiro became SEC chairman in January, having been nominated by President-elect Barack Obama to attack Wall Street’s “culture of greed” and bring the “new ideas, new reforms and new spirit of accountability” to an agency whose failures, Obama said, helped spur the 2008 market meltdown.
    In her first year in office, Schapiro’s found that issuing proposals is easier than completing rules. “You get zero points in history for what you proposed,” said former SEC Chairman Richard Breeden, who now manages a hedge fund that tries to remove directors at companies he says are underperforming. “You get points for what you get over the goal line.”
    The SEC under Schapiro, 54, has suffered some setbacks, including a public humiliation in September by a federal judge who called a proposed $33 million settlement of an enforcement case with Bank of America Corp. a “contrivance.”

    Democratic Relations

    read rest of article in link below..

  28. Here is the Website Address of…
    Financial Crisis Inquiry Commission Website:
    (NOTE: This website is still >> BLANK…
    >> I hope this is not an indication of NON-Transparency coming out of this Commission??? )

    Their budget seems small > $8 Million – See article below….


    Financial-meltdown commission sets first hearings
    December 22, 2009 | 2:12 pm

    The panel set up by Congress to tell us why the financial-system meltdown happened — i.e., who and what to blame — will hold its first hearings Jan. 13 and 14 in Washington.

    The Financial Crisis Inquiry Commission, chaired by former California Treasurer Phil Angelides, said today the initial hearings will focus on the “causes and current state of the financial crisis.”

    The witness list is pending, a spokeswoman said. (So is the commission’s website, still a blank page at this point.)

    Congress is expecting a final report from the 10-member, bipartisan commission by Dec. 15, 2010. The panel has a budget of $8 million.
    — Tom Petruno

  29. I have been tracking and writing about Ms. Schapiro and her FINRA cronies for the better part of 2010. There is no doubt that both Mary and FINRA were/are deep in bed with the industry. The outstanding lawsuits against FINRA are:

    1. Standard Investment Chartered v FINRA: I address specifics in my commentary NASDAQ Sale: Why Would Schapiro and FINRA Execs Lie?

    2. Amerivet Securities v. FINRA: this complaint alleges many things about FINRA, including that FINRA invested funds from its own internal investment portfolio in Bernie Madoff.

    I was a guest on a Fox Business panel in mid-September that addressed this complaint. I think you will find the attached video clip enlightening. It deserves much wider dissemination.

    Attorney Claims Wall Street’s Cop, FINRA, Invested in Madoff

    In turn I hosted Attorney Richard Greenfield on my own weekly internet radio show in mid-October and he had other pearls of wisdom and insight which I captured in my commentary, Attorney Richard Greenfield Brands Mary Schapiro and FINRA Execs as “Liars”

    I strongly believe this material is compelling, factual, and worthy of widespread distribution.

    America deserves the truth.

  30. Looks like SAC, Soros, Einhorn, Loeb, Cramer and the rest of the cabal better step up their ‘philanthropic’ giving lest the be called out for the thieves they are.

    Not that the ‘paid-for’ press would do that…

  31. Einhorn and Soros are genuinely smart people. Cramer is an idiot. Loeb is an insecure douche who probably should get busted along with Raj and Cohen. hey, speaking of ****** criminals, can you all believe Fastow will be out of jail soon?

    1. We need to take down chanos before we get to soros. Going after the king pin before all the hacks are destroyed would be a mistake. Going after soros before all the scum minions have been sacrificed will leave too much of the cartel intact. Why? BECAUSE soros owns the damn white house AND congress. He can’t be taken out until we get the scum currently occupying those houses in the circular file. That won’t happen for years. So let’s just move up the food chain systematically.

      1. Agreed. Whatever order makes strategic sense is best.

        However, If I could anhiliate them all simultaneously, that would be ideal.

        1. What would be ideal would be able to freeze all the assets before anything is distributed. Then let anyone that provided capital to aid felonies attempt to extract any ill gotten gains. Make them prove that they were suckered in. Allowing time for the funds to be extracted will simply enable the next set of frauds to set up brand new hedge funds to run the nuts and bolts of the scam that the equity market has become.

  32. Watch MNKD over the next 8 trading days. Going for FDA label hearings, under HEAVY short attack, a la DNDN. Will yet another nascent company face the threat of demise?


    What sec?

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