I’ve astounded even myself!

Last week, I dared to predict the number of then unreleased delivery failures in shares of Sears Holdings. The numbers are out…

Last week I dared to predict the number of then unreleased delivery failures in shares of Sears Holdings (NASDAQ:SHLD). The figures I ultimately settled upon (after two minor tweaks in the days to follow) were:

1/29/2010 879,444
1/28/2010 873,222
1/27/2010 870,570
1/26/2010 851,904
1/25/2010 848,742
1/22/2010 865,266
1/21/2010 857,106
1/20/2010 1,535,508
1/19/2010 1,540,914

This morning, the SEC having yet to release the numbers, I explained the basis for my prediction, which is in simple terms, based on a pattern of apparently manipulative naked short “reset” transactions the Deep Capture team has observed in SHLD, and how those trades consistently predict how many shares of SHLD will fail to deliver after two days.

Well, literally moments after I published my explanation, the SEC released the numbers.

I asserted that my prediction would be accurate to within +/-2.5%. I’m embarrassed to reveal that in the end, my predictions were on average accurate to within 2.55%.

Sorry. I’ll try harder next time ;).

For the record, here’s a table comparing my predictions and the actual numbers.


At this point, the most relevant question is: will the SEC do anything about this obvious violation of the law?

Sadly, I predict that no, the SEC will not.

The next most relevant question is: will the manipulator continue manipulating, knowing he or she has been spotted?

Because I suspect the manipulator is operating without much concern over being held accountable, I must also predict that no, this pattern is unlikely to change.

However I can confidently predict that Deep Capture will continue identifying and reporting on these sorts of abuses, in the trading of SHLD and several other companies, in the very near future.

Mostly inconsequential postscript: Deep Capture team member Patrick Byrne points out to me that instead of average error, I should have used weighted error, in which case my prediction was off by just 2.51%.

    1. Jim,
      The SEC already has it figured out, and they figured out that We The People don’t matter. We must finally face the reality that their actions are by design, not default.

  1. my joy at witnessing your outstanding work embaressing the culprits is tempered by the realization that the SEC is just not going to ounish them.

  2. The end of this looks like the scene from Frankenstein where the townsfolk show up with pitchforks and torches. Then, they’ll cry for mercy. What scoundrels. What selfish over the top thieves. I’ll probably have to shower after saying this, but I almost have more respect for Antar and Weiss than the players at the SEC and Beltway scum that allow this to percolate. At least they are in the open.

  3. So- after Madoff and Stanford, Aguirre, Samberg, Bear, Lehman, and countless thousands of CRIMES, you have exposed another….

    and the world lets out a collective yawn….

    I remember in the movie “Broken Arrow”, where a Washington suit hears the military describe a Broken Arrow as a missing nuclear weapon….and his response was this…

    “I don’t know what’s worse, the fact that the nukes are missing, or that you actually have a term for it…’

    And so the same can be stated about naked short selling and the complete lack of political will to fix it.

    The foxes not only guard the henhouse, they sell tickets to the slaughter

  4. Here is the effect that the illegal manipulation and naked short-selling has on the host company..

    Sears and Kmart to Close Some Stores This Spring


    I hope these criminals are proud of their handiwork. Judd, thanks for this blog. The timing could not have been better (or worst) for Sears and their employees to see what is really happening to their company!! This is SAD and disgusting.

  5. Judd

    Funny on an incredible story like this, as of yet no attacking comments from the peanut gallery.

    Think they are waiting for high command to give them a diversionary story to spread?

    Lenofus-I understand your comment, but after mentioning Weiss and Antar, I recommend a shower none the less.

  6. http://www.foodconsumer.org/newsite/Non-food/Miscellaneous/forbes_gone_psychotic_or_taken_the_blue_pill_3001101127.htm
    Any of the recent storys by Brad Friedman in ,of all places, Hustler .
    The recent peices done by Matt Tabbi in Rolling Stone

    Where are the mainstream media?
    Why is this VITAL information not on the national news?

    Can nondisclosure of KNOWN crimes by the major media be considered abbeting and being a acessory to the crime?

    We all know that to yell fire in a crowded theater when there is no fire is a criminal offense.
    The damages caused by such a action can be used to prosecute the person who yelled fire.

    But what about when the theater is burning down around us and no one yells fire?
    Not only does no one yell fire but those of us who have smelled smoke and felt heat or seen the fire are being told by the major news and media ‘Fire ,don’t be silly there is no fire.’

    As the ‘Fire Alarms’ of society are the mainstream news outlets and media responsible for the damages caused by their deception and nondisclosure?
    Can we the people hold them responsible for the damages they have caused to us?
    If a individual can be prosecuted for yelling fire where none exists then surely those charged as being the alarm system of society MUST BE CHARGED WITH CRIMES for not alerting those who they are supposed to protect as the world burns WHEN THEY WERE WELL AWARE AND COVERED UP THE FACT THE FIRE IS BLAZING.
    ACCOUNTABILITY FOR ALL WHO HELPED THE CRIMINALS MUST HAPPEN. These crimes would not have happened or been nearly as profitable without the media as acessories to the CRIME

  7. European Parliament.

    Hedge funds directive: MEPs start scrutiny of draft legislation

    “It is immoral to influence markets through the practice of naked short-selling and such scandalous practices needed to be eliminated”, said Mr Goebbels. The directive needs to be strict, so as to protect companies from such practices, agreed Mr Giegold. By contrast, Mr Kamall, called for a distinction to be made between naked and covered short-selling with the latter being a valid activity which increases liquidity.


  8. Judd –

    Judd, I’m impressed…

    Re – Olagues and others.

    Partisanship and professional ideology can be a potent combination..

    The way people discredit arguments if they come from someone with different political ideas is frightening; it’s a sign of rabid anti-intellectualism…


  9. When the hell is someone going to state the obvious. At any large corp. or gov’t. institution the blame lays on the shoulders of the ceo or the commander in chief. Who the hell put these useless bastards in their positions and has the power to remove them , our president. I wish everybody would forget about politics and start to worry about saving whats left of this country. Vote these crooks out and demand jail time at the state level. We are a republic not a federal pawn.

  10. This going on with many stocks and the SEC doesn’t step up to stop or doesn’t have the ability to follow the trades. MNKD is one that comes to mind. Just like SHLD, this stock is being heavily shorted and manipulated via options in an attempt to keep the price down. I wish you’d pull the research on MNKD for us. I wouldn’t be surprised to see it’s many of the same people that were involved on the DNDN and probably the SHLD shorts. Thanks for all your insight! keep it up.

          1. I feel that MNKD is being waterboarded by one of its suitors via Golden Sacks.

            Would be nice to get proof.

          2. Blocks seem to still be occuring in Amedisys although not on quite the same scale as January/February.

  11. Hmmmmm….. I am recalling a quote from Mark Mitchell’s recent column about “Activist Investor” David Einhorn https://www.deepcapture.com/how-activist-investors-david-einhorn-and-dan-loeb-brought-their-special-talents-to-bear-on-new-century-financial/ in which he says “It is not unusual for money managers in this network to appear as long investors in the companies they are attacking”…. consider the following:

    Wasn’t Bill Ackman’s Pershing Square supposedly long on SHLD for quite some time up until last year, when he sold his nearly 5% stake?

    Isn’t Bill Ackman’s Pershing Square also invested in David Einhorn’s Greenlight Capital Re?

    Ackman and Einhorn are close (they’ve appeared on CNBC together on a few occasions and it looked like a love fest. I was waiting for them to start hugging and kissing!) So, is it out of the realm of possibility that they’ve shared valuable information? I think not.

    The premise of the Mitchell piece is that Einhorn may have had a hand in the demise of New Century. What was one of the companies mentioned as being severely impacted by the demise of New Century? MBIA and Lehman. Who was one of the most prominent shorts of MBIA? Bill Ackman. Who was one of the most prominent shorts of Lehman? David Einhorn.

    Let’s not forget that Lehman was shorted all the way to zero and there were millions of failed trades. MBIA was on the RegSHO list for most of 2008 with millions of failed trades. The CEO’s of both companies complained about Naked Short Selling and both were excoriated in the press by (surprise, surprise) Herb Greenberg! Who else wrote articles about these companies’ problems (basically regurgitating Ackman and Einhorn’s talking points)? None other than Bethany McLean, Floyd Norris, Roddy Boyd, and even sock-puppet extraordinaire Gary Weiss! Anyone else? Why yes, of course, Jim Cramer!

    Of course, these could just be more coincidences….. but it sure would be nice to know what firms have caused this recent surge of failed SHLD trades in recent months…. and whether they’re connected to the same old cabal.

  12. Scroll down to Mark Valentine, boy wonder, who was arrested in operation Bermuda Short. He made $750 million net after all the fines, etc. for naked shorting the crap out of dozens of companies, but was set free without any charges because he knew where the bodies were buried.


    It turns out the boy wonder was only a chef in someone else’s kitchen.

    I was told he was one of three kids, with three networks, working for Randolf Pace who was affiliated with Bear Stearns and who was himself working for much larger players and it had as much to do with money laundering, arms dealing, drugs and alphabet agencies as it did with making share prices go down.


    My point is if you know their names, including Milken or Cohen, then they probably aren’t the real masterminds, who are smart enough to cash the checks and stay out of the limelight.

    The people behind this are much, much, bigger and that’s why nothing ever happens to them.

    The fundamental problem is that we allow private banking interests to rule us like kings, making a mockery of the whole concept of democracy.

    Why does my money say “Federal Reserve Note” on it, implying the Federal Reserve owes me an IOU? Why do people like Kennedy or Lincoln that tried to print treasury money rather than borrow bankster issued IOU’s keep getting assassinated?

  13. Maybe this is a quibble, Judd, maybe not…

    Both you & P.B. used the _absolute_ values of the daily differences between predicted & actual fails in your calculations, hence the overall percent difference of 2.5x%.

    When I looked at your table of predicted vs. actual delivery failures, some days you had underestimated the fails, and other days you had overestimated them. Do you think it matters that, for example, on 1/19/10 there were 25,520 _more_ fails than you predicted while on 1/20/10 there were 36,570 _fewer_ fails than you predicted?

    When summed across the entire nine-trading-day period in your table, you had predicted a total of 9,122,676 fails-to-deliver and the actual value was 9,160,108. You had underestimated the… dare I use the word?… _net_ FTD by 37,432 shares, a difference between actual & predicted of 0.41%.

    (None of this detracts from your painstaking matching of the CBOE trades and call-option contracts data. Yowza!)

    1. Dr. Mark,
      I can’t tell you how pleased I am to know that somebody is taking the time to really look at the numbers (though I really wish it were the SEC asking me these kinds of questions).

      Anyway, I want to make sure I understand your question. Are you saying that if over and under-estimations are allowed to cancel each other out, my clairvoyant capacity is even greater than I give myself credit for?

      If so, I should point out that I did take a look at tallying things up in the manner you describe (and even arrived at a number that was probably 0.0041…all I remember is that it was so close to zero I assumed I’d made a mistake), but decided to take the more conservative approach of treating each day’s error in absolute terms and then averaging the result.

      I should also take this opportunity to give credit to Deep Capture team member and keeper of the database, Evren Karpak, who dug for the matched trading data. Having done plenty of that myself lately, I can assure you it takes Rainman-like attention to detail.

      1. Thank you.

        It’s easy enough to copy & paste the figures into an Excel spreadsheet and double-check the analysis. I can see the argument both ways regarding signed versus absolute differences between your predicted and the actual FTDs. Part of the reason that the signed difference was 0.41% while the absolute difference was 2.51% was the choice of the nine-day period for totaling. If you set up Excel to do a series of two-day, three-day, or four-day “rolling averages” across the data you’ll see what I mean.

        I also took a look at the raw CBOE & options data you had posted. I never knew that Excel could handle “time” in the format of hh:mm:ss.000, that is with the precision of one-thousandth of a second! Has your team looked careful at the time-stamps and indicated sequences of the various suspect transactions? I wonder if they’re spaced far enough apart for one person to have entered them by hand.

        A final point, regarding the SEC raw data on FTDs. Looks like if you can trade it, someone can fail-to-deliver it: preferred stock, shares of ETFs, you name it. For real weirdness, take a look at FTDs in companies operating under bankruptcy protection (usually with five-letter trading symbols ending in Q). One example was Idearc, the phone-directory spinoff from Verizon. All the old shares (IDARQ) were canceled on 12/31/09 when the Chapter 11 reorganization was completed and new shares (under a different ticker) were issued to former bond-holders, which began to trade right after the New Year’s break. So why-oh-why would anyone be trying to trade IDARQ shares in late January 2010, and who would be surprised – or care – that FTDs in canceled stock occurred?

  14. On the measurement issue raised above:

    In supply chain forecasting one speaks of “MAPE”, that is, Mean Absolute Percent Error. That is, one does not let percentage errors cancel each other out, but instead uses the absolute values of the percent errors.

    My two cents on the issue raised by drmark.


  15. Judd,

    One question that remains in my mind. Can you explain the how the FTDs are related to the published total stock volume for a given day?

    Specifically I pulled the total stock volume from Google for SHLD from Jan 19 to Jan 29. See table below:
    Date FTD Total Volume FTD as a % of TV
    1/19/2010 1,566,164 1,683,244 93.0%
    1/20/2010 1,498,938 1,859,277 80.6%
    1/21/2010 910,786 1,791,897 50.8%
    1/22/2010 914,056 1,649,181 55.4%
    1/25/2010 854,491 1,592,619 53.7%
    1/26/2010 846,268 1,550,381 54.6%
    1/27/2010 851,094 1,450,722 58.7%
    1/28/2010 851,705 1,888,510 45.1%
    1/29/2010 866,606 2,008,439 43.1%

    This data says to me that of the total volume for the days in question approx ~59.5% of the total volume failed to deliver.

    Am I reading this data correctly?

    1. This is a very good question, and on a topic I happen to be deeply immersed in right now. After publishing about SHLD, I had intended to show the relationships between fails and matched block trades for AMED and MNKD (and still intend to do this) but have found so many fascinating patterns in SHLD I can’t quite break free from the analysis. AMED and MNKD are coming…but not until I publish my codebreaking post based on SHLD, which I REALLY think is just a few days away.
      As to your question…as I said, it’s a good one, but you need to keep one key factor in mind: a fail is not a fail until T+3 (three days after the trade). In other words, the 866,606 shares that failed to deliver on 1/29 actually entered the market (and thus are reflected in the trading volume) on 1/26. Taking that into account, your table would look like this:
      date   FTD(-3 days)   Vol   FTD/vol
      1/19/2010 914,056 1,683,244 54.30%
      1/20/2010 854,491 1,859,277 45.96%
      1/21/2010 846,268 1,791,897 47.23%
      1/22/2010 851,094 1,649,181 51.61%
      1/25/2010 851,705 1,592,619 53.48%
      1/26/2010 866,606 1,550,381 55.90%
      1/27/2010 857,506 1,450,722 59.11%
      1/28/2010 854,886 1,888,510 45.27%
      1/29/2010 847,174 2,008,439 42.18%
      Average: 50.56%
      Notice how it smooths out the 93 and 80% outliers?
      What’s really fascinating, and a major topic in my upcoming post, is the extreme amount of volume generated simply by playing the games needed to maintain a naked short position free of the mandatory closeout requirement, to say nothing of the days where the position is expanded. What’s REALLY wild is the increase in options activity, which is often 1,000% over a normal, manipulation-free day.

      1. Oh yeah… last fall JB & I had a private e-mail conversation about FTD versus daily volume in the context of BSC in March 2008 and LEH in July & September 2008.

        Since the T+3 rule requires that once-transacted shares become “locked” until settlement, certainly no one share can change hands more than once per day. Hence, daily volume that exceeds the number of shares outstanding is pretty darned good evidence that _something_ shady has occurred. Similar argument would apply to moving-two-day-volume, and to moving-three-day-volume.

        What’s that Latin phrase that’s so popular around here? The one that translates as “if only there was a pattern”?

        (Am waiting on tenterhooks for the AMED & MNKD trading data, plus part 2 of the SHLD story.)

  16. Nice job

    that’s the way these crooks killed SUF back on 2006, failure to deliver and rolling over their naked position, selling in the money calls

    Good job Mr. Judd, we need people like you out there in order to stop this madness

  17. Hey Judd,remember me complaining to you about David E Patch bashing on SpongeTech(SPNG) and on IHUB,well SPNG has gone on the offensive and is sueing him and a number of others.
    If you go to IHUB you’ll see it mentioned at the top of the SPNG blog.Or check it out other ways in NY.
    This is a bigger story than you can imagine.
    Just look at who else is named.
    I have a long memory Judd and you said to me,”I’d listen to him(Patch) and take his advice if I were you”
    Sure Judd,you’d better take off your blinders.
    IMO,watch the SEC’s actions on this one.
    She’s a good read if you have time.Amazing.

  18. Say Judd, any signs of the MO during the BP CDS blowout June 8, 2010, along with rumors of impending bankruptcy and small cash position?

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