Europe Comes to Terms With Market Manipulation; the SEC and the American Media Bury Heads in the Sand

The markets go haywire, Germany responds sensibly, and the American establishment refuses to contemplate the reality of criminal manipulation.

Well, the current state of the global financial markets is certainly interesting. I mean, you have to be a bit sick in the head, but if you think about it the right way, it really is “interesting” — sort of like, oo-wee, look, the girl in the cute leotard is falling off the tightrope, there’s no net, and she’s going to go “splat” when she hits that pavement. How interesting! And check it out, the circus animals have gone berserk — the tigers are tearing the trainer into bloody shreds, the elephants are stampeding, the tent might very well collapse, maybe we’re doomed, and look at those clowns – they’re still smiling. How deliciously interesting!

Actually, I take it back — it is not in the least bit interesting. It is terrifying. Despite early attempts by the smiling clowns of the nation’s media and regulatory apparatus to portray the dramatic market collapse of May 6 as mere happenstance, it is now clear that this unprecedented event was no “fat finger” accident. It was not a “black swan” that appeared out of nowhere. And more than likely, it was not some anomalous but innocent trade that triggered a run-of-the-mill panic. What it was, exactly, nobody seems able to say – and that is what makes it all the more scary.

But we can venture some educated guesses, and my best guess is that this was an orchestrated attack on the stock market – an attack that shaved 1,000 points off the Dow Jones industrial average in a few minutes, and caused some stocks worth nearly $50 to drop to a penny in matter of seconds. I have been trying hard, but I simply cannot imagine any natural confluence of events that would cause this. I can, however, think of a number of criminal market manipulators who have caused similar, though less dramatic, events in the past. And I know that these manipulators would get a kick out of triggering a full-blown market cataclysm. They wouldn’t just get a thrill — they would also make a boatload of money.

At any rate, this much is clear: our financial system is seriously broken and the nation is vulnerable. If the May 6 “anomaly” was not an attack, there is every reason to believe that something worse can happen. It can happen because the Securities and Exchange Commission has done nothing to prevent it from happening. Despite overwhelming evidence that market manipulators contributed to the financial turmoil of 2008, not a single criminal has been apprehended. And not only does the SEC let the miscreants run loose, but it also stubbornly refuses to close gaping loopholes that enable market manipulation to occur.

To its immense peril, much of America seems disinclined to discuss market manipulation. I don’t know if it is indolence, incuriosity, or simple complacency, but the discourse in this country stands in stark contrast to the one taking place in Europe, where politicians and the mass media have declared unequivocally that the markets are under attack, with consequences that could be quite dire, to say the least.

According to BaFin, the German financial regulator, “massive” illegal short selling attacks have led to excessive price movements that “could endanger the stability of the entire financial system.” After beholding the drama in the American markets on May 6, and seeing its own market tumble precipitously, the German government finally took on the manipulators, banning naked short selling of stock in its largest financial institutions and restricting the trading of naked credit default swaps, which are often deployed in manipulative attacks.

Not all of the discourse in Europe has been helpful, however. German Chancellor Angela Merkel declared that “speculators are our enemies,” confusing law-abiding traders who passively speculate on price movements with criminal manipulators who actively seek to inflict harm on the markets. Chancellor Merkel only made things worse when she said that this is a “battle of the politicians against the markets” – a proclamation that reinforced the notion that Europe’s politicians harbor a disdain for the free market system. Our enemies are criminals, not market freedoms.

The European response has also been characterized by a certain degree of ineptitude. Germany had already banned naked short selling in 2008, and foolishly lifted the ban last January. Having given the market bullies the green light to attack, Germany’s politicians now appear like the playground dweebs, panicky and weak, hurling nothing more than small stones. It is presumed that the naked short selling and other manipulation will simply move to exchanges in London, where officialdom seems less inclined to fight. But Germany’s ban on naked short selling — though too little, too late — is perfectly sensible.

Which makes the American media coverage all the more inexplicable. The Wall Street Journal, which has for many years seemed incapable of even uttering the words “market manipulation”, reported that the German ban on naked short selling “sparked uneasiness” and actually caused markets to fall further. Sparked uneasiness? Only criminals could possibly be “uneasy” about a policy designed to prevent a crime. Perhaps some “uneasy” criminals are members of the hedge fund lobby, whose talking points tend to find their way into stories published by The Wall Street Journal.

As for the notion that a ban on naked short selling would cause markets to lose value – well, we’ve heard something similar before. It was back in 2008, when the SEC issued an emergency order banning naked short selling of stock in 19 big financial companies, only to have the hedge fund lobby (and The Wall Street Journal) holler that preventing crime would “reduce liquidity” and put downward pressure on markets.

This, of course, is precisely the opposite of what happened. While the emergency order was in place, the stock market surged. Then, on August 12, 2008, the SEC, for reasons that cannot be fathomed, lifted its emergency ban, allowing the manipulation to resume. The stock market duly tanked, and continued to spiral downwards until September, when market manipulators wiped out a large swathe of the American financial system.

It is not just me saying this. Respected economists, famous hedge fund managers, former government officials, and current U.S. Senators such as Ted Kaufman of Delaware have all studied the events of 2008, and the consensus is that illegal naked short selling and other forms of short-side manipulation contributed to the demise of Bear Stearns, Lehman Brothers, Washington Mutual, and countless smaller companies. In the months leading up to September 2008, criminal naked short sellers flooded the market with more than $8 billion worth of phantom stock every day.

As further evidence that The Wall Street Journal just doesn’t get it, consider that the newspaper reported this week that “under naked short selling, investors can sell securities before they have borrowed them. The practice is already banned in the U.S…” This, unfortunately, is patently false. Although the SEC took some half-hearted steps to prevent naked short selling in the aftermath of the 2008 carnage, it did not ban naked short selling outright — traders are still permitted to sell shares before they have borrowed them.

The SEC’s current rules state only that traders have to deliver stock within three days, or in some cases, six days after they have sold it. This means that market manipulators can flood the market with phantom stock for three to six days, inflicting serious damage on prices. When it comes time to deliver the stock they have sold, the manipulators buy stock (at the newly damaged price) on the open market and hand it over. Then they do it all over again – flooding the market with phantom stock for another three to six days.

In nearly every case, such naked short selling is designed to manipulate prices, which is blatantly illegal. But the SEC turns a blind eye to the manipulation so long as the manipulators deliver stock before the three or six-day deadline. In fact, the SEC often turns a blind eye even when the manipulators don’t deliver the stock. Every day, more than 100 million shares go undelivered before the anointed deadline, and that is in just one part of the system monitored by the Depository Trust and Clearing Corporation. Far more phantom stock is processed ex-clearing, and in other shadowy regions of the financial system.

The SEC would do well to investigate these shadowy regions in its attempt to identify the roots of the “freak accident” that took place on May 6. But, alas, the officials of that agency have been too busy picking buggers out of their noses. Ok, not just buggers – they also wrote a 100-plus page report on their investigation into the “market events” of May 6, and this report is filled with all sorts of statistics and enough head-in-the-clouds hypothesizing to bring a smile to the face of any university economist (or SEC report-writer) looking for a job at a market manipulating hedge fund.

What the report does not contain is the names of any culprits, or any evidence that the SEC is trying to identify specific culprits. The report does not even contain a plausible explanation for what happened. If the SEC were charged with writing a report on the causes of the New Orleans flood, it would provide a hundred pages telling us how many cubic meters of water there were, how many molecules of oxygen and hydrogen the water contained, and plenty of assurances that water is usually good for the health, but it would forget to mention hurricane Katrina and the broken levy.

Bottom line: the SEC’s report was designed to make it seem like the bureaucrats have been busy investigating, when in fact they have been counting beans and picking buggers out of their noses. Meanwhile, the madness of the market circus continues, and we look up at that teetering tent with great trepidation.

  1. Mark, the news reports about the German action have mostly been strange indeed.

    The press does not seem to know the difference between legal shorting and illegal shorting!

    A Reuters story about this I read spoke about banning shorting for the first half of the article then toward the middle to the end spoke about naked short selling.

    And I have not seen it mentioned that ONLY Wall Street Insiders can counterfeit, AKA, Naked Short.

  2. NYC judge blasts Wall Street greed at sentencing…

    Ex-hedge fund boss in NYC sent to prison for more than 2 years in record inside trade case

    Larry Neumeister, Associated Press Writer, On Friday May 21, 2010, 5:34 pm

    NEW YORK (AP) — A former top executive at a $1 billion hedge fund investment firm was sentenced to more than two years in prison Friday in the first sentencing to result from what prosecutors have called the largest hedge fund insider trading case in history.

    Mark Kurland, 61, of Mount Kisco, N.Y., was sentenced Friday to two years and three months in prison and ordered to forfeit the $900,000 he made through illegal trades by a judge who blamed the attitudes of people like Kurland on the country’s financial collapse two years ago.

    U.S. District Judge Victor Marrero said Kurland, a co-founder of New Castle Partners hedge fund in Manhattan, “frankly should have known better” than to join an inside trading scheme that led to the arrests of top executives including one-time billionaire Raj Rajaratnam.

    “He had a choice as a leader of the financial industry. He could have led by example. Instead, he chose to follow. He became a joiner, surrendering to a spree of mob mentality that nearly brought down this country’s financial industry,” Marrero said.

    Kurland, who had pleaded guilty to conspiracy to commit securities fraud and securities fraud, was among 11 people who have pleaded guilty in the case. Many of the others had agreed to cooperate with the government, a step which delays their sentencing.

    Rajaratnam, the portfolio manager for the Galleon Group hedge fund, has pleaded not guilty and disputed government claims that he pocketed as much as $50 million through a network of cheating executives at financial firms and companies privy to inside information.

    The judge criticized pleas for leniency on Kurland’s behalf on the grounds that he had a minimal role, that he did not benefit much financially, that others were more at fault and that there was no real harm to the markets.

    “To some extent, this country’s financial meltdown was manifested precisely by the attitudes expressed by Mr. Kurland in this proceeding,” the judge said.

    Before he was sentenced, Kurland said his crime had “destroyed my reputation and everything I have worked hard for my entire life.”

    He said he was “heartbroken and profoundly ashamed” and conceded that he should have known better.

    “The void left by the sudden end of my career will never end,” he said.

    Kurland said his torment was “unimaginable and very painful.”

    At his plea, Kurland admitted engaging in insider trading between August 2008 and January 2009, after receiving tips about confidential information involving three companies.

    New Castle Partners operated as the equity hedge fund group of Bear Stearns Asset Management Inc. until its parent company was acquired in March 2008 by JPMorgan Chase & Co. In January 2009, New Castle Partners ended its affiliation with JPMorgan and formed a new hedge fund, New Castle Partners LP.

  3. The Wall Street Journal has lost all semblance of being the newspaper of record for business and the financial markets ever since it was acquired by Mr. Murdock…and perhaps for a few years before. I read its “reporting” with incredulity as every good turn in the economy or in a particularly high profile businesses is attended by a “but the world is coming to an end” caveat. Of course, Barron’s is no different.

    It’s time for me to turn these outlets off. I find more meat and less bias in the Financial Times and even the NY Times.

  4. I’ve got a dent in my forehead where I kept having to slap myself each time some talking head on the news mentioned “efficient market theory” and the need for “liquidity” in the system.

    I’m going to go out on a limb here and speculate that there is absolutely no empirical data to support “efficient market theory”, and that it is no more than a theoretical construct based upon an emphemeral series of highly questionable assumptions, the most ridiculous of which is an assumption that only honest people will participate in the marketplace. You know, the sort of person who, when they sell you something, they actually hand it over to you.

    I’m damn near 60 years old, and my life experience has shown me that the goal of every business is to somehow exempt itself from the basic rules of free enterprise. Free enterprise postulates that in a market for fungible goods, sales will go the the lowest cost producer. Anybody wanting a share of that market has to compete on price. Eventually prices are driven down by competition to the point where the producers are no longer willing to work so hard for such a paltry profit, and every producer thereafter squeezes out a modest living doing something of benefit to society.

    While it might be nice to obtain a price advantage and a large profit margin by inventing some beneficial new method of production, or a beneficial new product to replace a less efficient older one, that is not always easy to do. There are a lot of other time-honored strategies to increase the bottom line that require less intelligence and effort. But the business of business primarily involves figuring out some way to exempt yourself from the economic rigors of free enterprise.

    Most time-honored strategies for doing so are somewhat silly, but essentially harmless, such as product differentiation or price discrimination.

    Perhaps the foremost method of exempting your business activity from free market forces is to pay a lot of money to the government to receive a special dispensation via friendly laws or regulations to shield your endeavors from ghastly, profit-squeezing competition.

    One even better way to exempt yourself from the dismal law of supply and demand is to refuse to participate in the market and instead just steal what you want. “Efficient market theory” has no application to a transaction and to a marketplace in which a party to a “sale” is not required to perform his contractual promise. Well, maybe the theory of efficient markets does have some application, since that theory would most certainly predict that once observers realize that a competitor is being allowed to steal all the want, everybody else will marvel at the efficiency of that strategy and adopt it as their own. It is far more efficient for yourself to acquire something by stealing it than by having to go into a market and pay the going price for it. You might even end up as the head of the “profit center” of your mega-corp and be remembered as a “legendary investor” before your retirement at age 35.

    It is amazing that the talking heads on MSNBC don’t seem to realize this basic proposition. It seems to me to be a pretty simple idea. If you sell a security, as part of that transaction, you actually have to give the buyer that security when you take his money, and if you intentionaly fail to deliver, you have committed larceny and should expect to see the constable on your doorstep soon.

    No industry can operate in an efficient market unless the government catches and punishes the thieves in that market, and the punishment must be huge enough to actually deter other folks inclined by greed to maybe engage in the same sort of thievery.

    In the absence of regulation and enforcement, there is no way for an efficient market to exist. What you will have, at best, is organized crime. At the worst, you will have total anarchy and the destruction of any pretense that a financial market actually exists.

    I guess that in the financial “industry”, larceny is perfectly permissable, and is to be encouraged, as long as the market makers can skim off a commission on each theft, much like Tony Soprano got a percentage of each of his henchmen’s rackets.

    So instead of talking about the massive larceny, the “experts” talk about the financial disaster that would ensue if all of the henchmen were forced by government heat to move their rackets from Wall St. to London. Instead of applauding the Germans, we get commentary the gist of which is how stupid can they be to give up all those commissions to other financial market centers?

    But I suppose I’m guilty of preaching to the choir assembled here. Instead of a government intent on catching and prosecuting the thieves in the financial industry, we have a government more interested in protecting the thieves so that their way of life shall remain undisturbed. Like Mr. Keating in the S&L scandal, Wall St. must have been paying for something with all those political contributions to both parties. Yes, Virginia, there is deep capture.

    The concept of “liquidity” is best understood in this light. If you are being allowed to steal, you can steal more money if you can do it faster and in higher volume. All hail liquidity!! Nobody said the 1000 point plunge was caused by too many sell orders hitting the market instanteously. They all said the problem was that regulators restricted the amount of buy orders, and that government interference in the efficient market caused the “price discovery” mechanism inherent in efficient markets to fail.

    If you don’t deliver what you sell, there is no price discovery mechanism at work, and no readily ascertainable value to any security when the actual total supply variable is a complete unknown.

    Proponents of “efficient market theory” should be in the front lines of those, who, like us, cry for the banning of naked short selling. But in the great Orwellian tradition, words are being twisted and redefined by Wall St. apologists to obscure rather than enlighten. The perps shout for more “liquidity” when the liquid has long ago been superheated into a plasma the properties of which are a great unknown. Does society actually need stock traders using computers preprogammed to make 10,000 trades per second?

    Or maybe the better question these days is whether the quant traders and their supercomputers need to be able to put in 10,000 per second sell orders without first having to comply with a time-consuming and troublesome locate and borrow requirement, and what would happen to Wall St. if 60% of their business was drastically changed by effective government regulation?

    At least everybody seems to agree from the German experience that if NSS is banned by one sovereign, the crooks will just take their business elsewhere. Methinks hidden in there somewhere is a reluctant admission that they are, indeed, crooks.

  5. Great reporting mark,, Great job,, Thugs looting us and we have to stand by and watch Keep it up, funny when they want to find soemthing or someone the SEC does it 5 days,, Bear puts still nothing, The players were out the other day,, They bought GS May 135 puts when stock was $140+ with 3 days to go.. and JPM puts,, Option Monster reported a story on these trades. They did work Thrusday

  6. At this point all should agree that it’s ridiculous to single out hedge funds (as commonly thought 2-3 years ago) as ‘the’ abuser of the financial system without acknowledging that the big banks are, in fact, the biggest hedge funds. Quite a predicament we find ourselves in. The irony is that the large banks (collectively, the Federal Reserve) now operate with the full faith & credit of the US government.

    Skynet has become self-aware. The automated market making function & “supplemental liquidity provider” services were the construct of these large investment banks. In their marketing literature, the alleged purpose of those automated functions is to provide for fair efficient markets & ensure sellers are able to find buyers & v/v… Funny how liquidity dried up instantaneously on May 6, as Skynet went idle. They just stopped buying for 15 min & watched prices drop precipitously. THAT is what happened. The flash crash was nothing more than a show of force.

    The central bank of the world (i.e. the Federal Reserve) is holding the economic/financial system hostage. This US financial markets defy all accepted tools of fundamental and technical analyses. Why do you think that is?

    The unintended consequence of automating market making functions is that it not only provides automated market making, but it gives a banksters a remote control facility that can be used at will to instantaneously starve the market of liquidity to effect a market crash with a few key presses from an I-phone.

    Skynet remote control market making functions:
    Even = buy only to maintain S&P average…
    Bull = buy more allow market to rise a bit…
    Bear = slow buying allow market to sink a bit…
    Burn = stop buying allow market to drop precipitously…

    The May 6 “flash crash” was engineered to trigger automatic stop loss sales. And it worked exactly as intended. They got thousands of people to liquidate their positions across a broad range of markets by inducing an automated sales frenzy. This effected a fire sale of holdings at huge discounts (i.e. losses). Once liquidity returned 20 min later, prices quickly recovered for the most part to levels similar to before the precipitous spike anomaly. When you think about it, it’d be pretty simple to control market prices when you are the only buyer. And with access to the US Treasury electronic printing press, it is not possible to run out of liquidity (as long as they don’t want to that is).

    Fair & efficient my ass! This isn’t a market. It’s a perpetual rape. It’s all about creating churn to transfer wealth to the wealthy. The US taxpayer is now funding the outright theft of their own assets. This qualifies as ‘interesting’ by anyone’s definition.

  7. The SEC’s Director of Investor Education personally told me via a phone call that “…naked shorting is not illegal…”.

    MAFIA bastards.

  8. Angela Merkel’s ban on naked short-selling is brave, not naive
    The German chancellor knows that the EU is locked in a power struggle with financial markets over the debt crisis
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    Ruth Sunderland
    The Observer, Sunday 23 May 2010
    Article history

    Angela Merkel’s government has imposed curbs on financial speculators. Photograph: Tobias Schwarz/Reuters

    The condescension rained on Angela Merkel’s unilateral clampdown on speculators is misplaced.

    The German chancellor is not naive about the workings of capitalism – she knows that democratically elected leaders are locked in a power struggle with financial markets over how the debt crisis is resolved, and on what timetable. Speculators are amoral and their tunnel vision goes no further than financial gain. They have no interest in the wider body politic, but the side effect of their actions can be to usurp the prerogative of governments, forcing them to take more draconian actions than they would wish.

    It is true that speculators exploit genuine flaws, but they can wreak their own havoc by magnifying and accelerating events, inflicting more pain on innocent citizens in the process: just ask any Greek facing austerity measures. They create emergencies, when measured progressive and united responses to complex problems would be far better.

    The credit default swaps holding eurozone governments hostage are opaque, unregulated and ripe for reform. A ban on naked short-selling is not the unprecedented, unworkable lunacy Merkel’s detractors would have you believe. Hong Kong made it a criminal offence in the wake of the Asian crisis in the late 1990s, and officials there believe this has been helpful in the current crisis.

    Despite the discrediting of the financial sector, a belief persists that markets are all-powerful. But allowing a free rein to speculators subverts democracy.

    We may sometimes despair of our leaders but it cannot be right that they are trampled by unaccountable and unelected traders, acting purely for their own profit and with no thought for the wider social good.

    Merkel was foolhardy to act alone – and the fact she went freelance at a time when unity in the eurozone is desperately needed is alarming in itself – but her instinct that the markets must be tamed is entirely correct. This is a battle that governments cannot afford to lose.

  9. In order to move forward many still need to understand the basics. NAKED SHORT SELLING is NOT illegal. That statement by rep was accurate. It is the ILLEGAL use of NAKED SHORT SELLING that is illegal. Now if we can’t get that fact clear here on a board that is cutting edge. How does one expect the laymen to understand or in fact some politicians who pretends to understand as he or she reads from cliff notes. I don’t care what industry and topic but it only takes ONE person to utter some mis statement to cause confusion.

    Mark as always your investiagtive work is spot on and cutting edge. The quesiont remains how to fix it without causing the entire deck of cards to drop. I suspect that yes many made money on that drop but that drop probably had alot to do with BAILING OUT x y or z.

    Where do we go from here. Expect more of the same at some point. After all who remembers that 500 plus drop back in 2007 that came from No WHERE. And was blamed on a computer glitch. Probably and probably INTENTIONAL.

    1. Naked short selling is not “legal” even for market makers, etc.

      The SEC doesn’t have the power to pass laws. Only congress can do that. They can only interpret laws and are bound by the securities act of 1933.

      They can’t legally provide slack in the system to facilitate settlement past three days. They’ve gotten away with it and it has become a standard practice, but only because they’ve obfuscated the process and lied to investors, even claiming in the early 2000’s that there’s no such thing as naked short selling.

      It is definitely illegal to take someone’s money for a purchase, then imply that the purchase completed and the asset is being held in trust for safekeeping, when instead the purchase never completed.

      It’s simple criminal fraud.

      On what basis do you say naked short selling is legal?

      1. It is not illegal.

        You get beyond T + 3 and you might have a remote chance of being caught as a lawbreaker.

        Meantime, if you can hot-potato the thing around, you’re fine.

        What I say is true.

        Not desirable, or moral, but true nonetheless.

        1. What you are saying is that you can get away with it, not that it isn’t illegal.

          That the DOJ let’s the SEC regulate and they don’t regulate the illegal act of naked short selling.

          The securities act of 1933 requires prompt settlement and there have been no amendments from Congress to change that except a temporary measure to allow immobilization until the paperwork crisis was solved.

          Even a five year old knows it is illegal to sell someone something that doesn’t exist, then tell them you are holding it for them in safekeeping.

  10. The “legalities” of NSS go like this: A truly bona fide MM may access the “bona fide MM exemption” from executing a pre-borrow or “locate” before making an admittedly “naked” short sale. This is because in a fast moving market MMs may not have time to execute a pre-borrow or “locate”. The job of a bona fide MM is to address order imbalances when EITHER buy or sell orders dominate over the other. Here’s the problem; you don’t know if a MM legally or illegally accessed that exemption UNTIL the next downtick in the share price. This is when a truly bona fide MM covers that preexisting naked short position.

    In reality on Wall Street most MMs with preexisting naked short positions are nowhere to be found during downticks. Why is this? It’s because the NSCC allows the sellers of even NONEXISTENT shares to gain access to the funds of the investor being defrauded. How? It only mandates that those that sell nonexistent shares and of course fail in delivering that which they sold to collateralize the monetary value of their failed delivery obligation on a daily marked to market basis.

    As the intentional delivery failures accumulate so too do the readily sellable share price depressing “security entitlements” that each FTD induces the issuance of. This increases the “supply” of that which must be treated as being readily sellable which in turn manipulates the share price downwards. As the share price tanks the money of the defrauded investor flows to the party that sold nonexistent shares and never delivered that which he sold. IN THIS CLEARANCE AND SETTLEMENT SYSTEM A MM WOULD BE CRAZY NOT TO NAKED SHORT SALE ALL DAY LONG TO GAIN ACCESS TO ALL OF THIS FREE (INVSTOR) MONEY.

    But what about that theoretically tough new rule mandating that those that fail delivery on T+3 must “purchase or borrow” the undelivered shares before the opening of trading on T+4 for non-market makers and by T+6 for (theoretically) bona fide MMs? After the close of business on T+3 during the “night time cycle” the NSCC’s totally corrupt “stock borrow program” (SBP) will “cure” those FTDs by executing a “faux-borrow” from their self-replenishing SBP lending pool of securities. Recall that the rule said to “purchase or borrow”.

    That recent tightening of the Reg SHO rules mandating the “purchase or borrow” did not address pre-existing naked short positions. Yet once again they were “grandfathered in”. Here’s the issue; those that ran up gigantic naked short positions during the “good old days” have to continue to naked short sell all day long in order to pin down their daily marked to market collateralization requirements. If you’ve been the main seller all along and you stop naked short selling all day long the share price will gap upwards and it becomes very expensive to collateralize a gigantic preexisting naked short position. Stocks that have been manipulated down into the penny range do not have to go up very much to make a LARGE PERCENTAGE GAIN.

    These crooks can’t stop this clearly CRIMINAL activity and one can only imagine how the activities at the SBP have cranked up since the tightening of Reg SHO. Are there any unconflicted regulators, unconflicted congressional oversight committee members or unconflicted SROs that care to take a peak?

    Besides all of the banking laws forbidding “kiting” the specific securities law being broken is called Rule 10b-5 which is in the ’34 Securities Exchange Act:

    Rule 10b-5 — Employment of Manipulative and Deceptive Devices

    It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

    a. To employ any device, scheme, or artifice to defraud,

    b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

    c. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security.

    You can see the obvious “MANIPULATION” of share prices downwards via intentionally inducing the issuance of readily sellable share price depressing “security entitlements” with each FTD that occurs. The “DECEPTION” being employed involves the fact that the investors being defrauded thought they were buying legitimate voting shares of a corporation that were being delivered on T+3 as previously contracted for.

  11. Actually Peter and Bernie Madoff penned the “Madoff exception”. This was a clever ruse to circumvent the then existent “uptick rule”. They (theoretically) wanted to inject more “Liquidity” on behalf of their clients.

  12. Naked short selling IS illegal, when it is done with no intent to deliver the shares as agreed on T+3. When you execute a sale, you implicitly agree that you will make good delivery on or before T+3. If you don’t have intent to deliver, you engage in fraud. Fraud is illegal.

    1. If I sell you a car, take your money and then fail to deliver the title, that is ILLEGAL.

      Otherwise, legal.

      Please get it STRAIGHT.

    2. Let’s see… ‘The Minority Report’.

      We know read minds a priori with respect to intent.


  13. Everyone seems to think the market is being manipulated and the financial systems was almost brought down by the sinister hedge funds. I to believe that some hedge funs are crooked, but it seems as though people think that there is not an economic problem currently facing the World. The fact remains the WaMu had underwritten many bad loans, and even without Naked Shorting they might have gone belly up. From what I see, there is still Trillions of dollars of bad debts circling the planet, and if not for the FASB accounting rule changes, most of the banks that made it through the 2008 crisis as in fact insolvent. Same goes for European Countries and many states. People on this site seem to believe that if we get rid of Naked short selling, then the world will be saved. I too think that Naked short selling should be eliminated, but I not sure that will cure the Worlds financial woes. The Stock Market could still crash on its own.

    1. You may rest assured the markets are manipulated. Naked shorting is but one tool in a toolbox of destruction. Burke raises some reasonable points. It’s silly to lash out simply because you do not like their message.

      The root cause of our economic troubles is that man has reached peak productivity with the readily available resources. That’s a scary thing to consider… The energy contained in cheap oil propelled economic growth in the world for the past ~100 years. Cheap/easily obtained oil is now a thing of the past. The BP gulf oil spill probably seals the deal, ensuring there will be expensive new gubmint regulation/restrictions further cost encumbering the process of bringing oil out of the ground to market. This will greatly impair a recovery since operating cost will go up for all… The interest payments from living on credit for the past 40 years greatly compounds our troubles.

      The long struggle (that is now almost finished) is that of the Wall Street elite’s (Harvard, Princeton, Yale) desire to rule over the common man. As per their plan, our nation is now so indebted to the private banking cartel that soon ‘our’ government will force austerity measures on US citizens to pay on that debt. Benefits & services must be cut back drastically. Each will have to make do with less. It’s already happened in Europe & is what the Greek riots have been about.

      De facto enslavement will be forced on us via this ‘austerity’: we’ll be debt slaves to the banking elite. Consider this the cost of socialism… All the services the government promised over the years was not without cost. Check mate.

  14. Hey Burke,,Move along, So its ok to steal and loot the amercian people. Put you address up , we will let the crooks know you dont care. LET THEM ROB you.

  15. Harvey, the root problem is not a limit on natural resources. Scientific American had articles 150 years ago on the intractable limits on the size of Manhatten because of the limits on the amount of coal smoke and horse dung which people could tolerate. Technology solved those problems because necessity is the mother of invention.

    Our root problem is that our monetary system is based on debt. When you borrow, the banking system is allowed to print brand new money to monetize your promissary note. Only the principal is created and the system is perpetually short the interest. Like a game of musical chairs, there isn’t enough money to go around and bankruptcy or inflation are required by the system.

    It’s a fiat ponzy scheme that resets once per lifetime where ever more borrowing and ever more new money is required to service the old interest. It goes exponential at some point and the system collapses.

    The game for “those in the know” is to get the population to pledge real assets (houses, cars, factories, companies, etc.) as collateral for paper that is becoming ever more worthless.

    What’s telling is that if the crisis was caused by bad debtors (note the media propaganda drumbeat of liar loans being the cause), then how come the size of the failure was so much larger than the size of the bad loans?

    The reason is there was way more paper bonds than real mortgages to back them.

    The whole thing was a ponzi scheme, designed to transfer assets before the paper became worthless.

    No wonder the big banking families that run the world want to sell (naked short) the market.

    It’s not about wealth. It’s about control and when someone’s spending their life chasing a paycheck to repay debts that are nearly impossible to repay, you have control.

    Google CAFR.

    Then ask yourself how much the publicly owned assets are worth. Imagine it was a company with 300 million shares with you owning one share. You would be a millionaire!

    So, why is everyone in debt?

    It’s because borrowers don’t have time to question why the system is set up the way it is and why the big guys like the bailed out banks, the Federal Reserve and the DTCC don’t have to follow the same rules the rest of us have to follow.

  16. Dave Burke,

    Several of your points are well taken but I think the main difference between your insights and those of the average follower of this board is the cavalier way you state: “and even without Naked Shorting they might have gone belly up”. The past employees of and the shareholders of WaMu might beg to differ.

    Abusive short selling allows predators with no economic interest in a corporation whatsoever that just so happen to perceive a corporation as being at least temporarily an “easy prey” to enter into a contract to deliver the securities it was selling by T+3, then sell nonexistent share facsimiles, refuse to deliver that which was sold and thereby drive the share price down by inducing the issuance of readily sellable “security entitlements”. To the employees of a U.S. corporation and the shareholders of the corporation that concept is heinous.

    In the development stage corporation arena ALL U.S. corporations that wish to participate in the “capital formation” process must go through a stage of development wherein they are indeed an “easy prey” regardless of the merits or the prognosis for the success of their corporation.

    In the case of mature U.S. corporations how can they not periodically go though a moment in time when they find themselves, sometimes of no fault of their own, in the “easy prey” category?

  17. Jim DeCosta, I agree, naked short selling is bad for the market, PERIOD. However, I feel that the “Shit Sandwich” that the world government’s have created by issuing easy credit will come home to roost, with or without naked short selling. A Spanish bank was seized this morning, GS, JPM, WFC, MS (all the major banks) are insolvent!!!! I feel all world markets are going to crash, and crash hard. Naked short selling will not be at the heart of this crash, the $100 trillion of potentially bad debts will be . Just one man’s opinion.

  18. Dave Burke your post was well worded and points well taken. Thank you and there is no need to move anywhere, you additional input is welcome. Thank you.

  19. Dave Burke, the average person and average company lives within their means, mostly because at some point, they can’t borrow any more.

    The SHIT_SANDWICH you speak of has nothing to do with me, the people I elected, the companies I do business with or my friends and neigbors.

    What you call a SHIT_SANDWICH is the house of cards of paper claiming to be backed by real assets, but in reality, which is backed by shit.

    In my mind, that’s bad for the bankster families that own the house of cards, but I have trouble understanding why it has anything to do with me.

    Why can’t those banks, brokerages, Federal Reserve and DTCC all go bankrupt and us people that work for a living and actually produce value, get our politicians to set up a new system that works mathematically?

    In other words, why should you and I share in the bankster families’ pain, just because their attempt to crash the system like it did in 1929 didn’t work and now they are being squeezed in the short squeeze of all short squeezes?

    Let’s let them go under and set up a new democratic financial system!

    1. Anon,
      You’re preaching to the choir regarding the ridiculous debt backed money system we are burdened with. Unfortunately, there is no advocate of the people in government able to decree that talley sticks (or US Treasury Notes) will be issued at zero interest to wrest the control of money from the central banks. So while I agree with the gist of your rant, since they own the system we have no clear way to get there.

      Regarding natural resources… One cannot be absolutely certain of the validity of the peak oil argument. Perhaps it’s just a marketing tactic that has been used to sell an agenda. But regardless, the fact remains… we do live in a finite world.

      If the “peak oil” theory is true, it’s doesn’t mean the end of the world. It just means the resource harvest we’ve depended on for growth for the past 100 or so years is nearing depletion. For continued growth, more efficient methods of harvest must be developed to pull from deeper wells, to refine less pure easily extractable ores, to dig deeper to get higher quality ores… Key is that efficiency must improve to ensure the ROIC makes it worthwhile for investors to buy in.

      You are wrong to dismiss the idea that resources will get more costly… Disregarding the reinforcing inflationary forces of our debt backed money system… The cost of harvesting natural resources is a function of the work involved in extraction. When you factor in our ponzi money system, the burden becomes overwhelming. Unless some source of “free energy” becomes available, it will continue to get more costly to extract natural resources from the ground.

      “Why can’t those banks, brokerages, Federal Reserve and DTCC all go bankrupt and us people that work for a living and actually produce value, get our politicians to set up a new system that works mathematically?”

      You’re kidding right? Answer: because they’re not “your” politicians. I think we will see a new monetary system, but only after total and complete global collapse. Hopefully, freedom will persist but I’m doubtful.

  20. In my opinion 0% interest rates are gonna destroy the global economy. As the players dissect bank earnings, they see a sh$ty picture. No organic growth. The same bad debts. Earnings based on fixed income. Ie. Buying 2 year treasuries with 0% cost. That’s just not as sustainable business model. All it does is suck the very lifeblood out of the real economy. Stealing from senior citizens, phucking savers, no real lending- it’s a giant shit sandwich with ZIRP as the bun, the ketchup and the meat. Buy and hold? Yeah right. When the entire structure is based on free money forever? They are just reinforcing deflation and the misallocation of capital. Market is gonna Crash(.)

  21. Hey Burke,. things are messed up and have always been, Naked shorts is like putting Gasoline on a fire. what could and should have been a rolling correction over time. Happened in 20 minutes. If we had a uptick rule in place and Flash trading banned and a settlement system That worked. Offshore lowlifes would not have chance to destroy our country.. Now what do we all do? my guess is LOOT the rich.. Payback is a Bitch when the shit hits the fan.

  22. Pass a law and let’s treat Naked Shorting not as a legitimate tool, but, rather, similar to having contraband, say, burglary tools on hand.

    I see Germany’s Merkle is showing some ‘nads before her market and the Euro is flushed down the sewers and over to New York’s chosen few.

    Good for her. USA???

  23. Here is an example from the Wall Street Journal of the MIS-INFORMATION being printed by main stream media business writers about Germany’s ban on Naked Short Selling………..:

    “Don’t Rule Out a Double Dip Recession
    by Christopher Wood
    Tuesday, May 25, 2010

    In addition to Europe’s woes, we have slower growth in China and a decline in bank lending and the velocity of money in the U.S.

    World financial markets reacted bearishly to Germany’s surprise announcement last week banning “naked” short-selling of euro-zone government debt, derivatives and some financial stocks. Short selling is considered naked when it involves the sale of an asset that isn’t owned by the seller and isn’t borrowed to cover the position while it’s held. The news disturbed investors because of the unilateral nature of Germany’s action. It’s also seen as a potential prelude to other antimarket actions from Germany, or for that matter the U.S. and other Western nations, where the political backlash against free markets continues.



    Who are these “investors” the writer is referring to in the following sentence:

    “The news disturbed investors because of the unilateral nature of Germany’s action.”

    I am an investor and I was NOT disturbed by Germany’s announcement! In FACT, I am VERY HAPPY to see Germany making this move!!!

    This financial writer fails to explain that ONLY WALL STREET INSIDER TYPES can NAKED SHORT SELL ANYTHING.

    And this writer FAILS to explain that Naked Short Selling is COUNTERFEITING, and that with all Counterfeiting, the counterfeiters (the Wall Street Insiders in this case) can counterfeit an INFINITE number of “government debt, derivatives and some financial stocks” short positions.

    All counterfeiters become “Disturbed” when the means for making easy money via counterfeiting is taken away from them.

    Then this writer states:

    “It’s also seen as a potential prelude to other antimarket actions from Germany, or for that matter the U.S. and other Western nations, where the political backlash against free markets continues.”

    WHAT? – “backlash against FREE markets continues.”

    Yes, all counterfeiters love FREE Money. And through all their Naked Short Selling, the counterfeiters create FREE MONEY for themselves.

    But Naked Short Selling, which is COUNTERFEITING, does NOT create the “FREE Market” this phrase is suppose to describe. Instead, NSS creates a “SLAVERY Market” in which the Wall Street Fat Cat Insiders steal money from others. All Wall Street outsiders become their Slaves in this SLAVERY Market.

  24. Harvey, I’m not a believer in peak oil. I think that oil was formed when the planet formed (not from fossils) and is quite plentiful if you go deep enough, but of course I agree resources are finite.

    My point is that when resources or energy get scarce, we will switch to something new. We use plastic instead of metal today and we have lots of alternative forms of energy. I have a single solar panel on a remote site with four deep cell batteries and it works great, powering all my needs when staying there. I’ve seen all kinds of innovative ways of creating hydrogen (rocket fuel) to power future cars using everything from bacteria, to catalytic reactions powered by the sun using alternative energy and electrolysis.

    There’s no reason why our economy can’t grow resources, energy and food to match the growing population to much larger levels.

    What it can’t do is grow enough to repay the debt, because it is mathematically impossible. There literally isn’t enough money in existence to repay all the debt because only money to back the principle was ever created and the interest has to come from devaluing the dollar over time.

    We’re at an instability where the value of the real economy and the value of the paper economy are completely mismatched.

  25. Anyone who understands the money system fraud. Anyone with a brain will exchange as many of the fraudulent coupons called money for real gold and silver metal, which no one has yet figured out how to countefeit. Protect yourselves, opt out of the paper games. All of them, now! Time is not on your side.

  26. Geithner a shortsellers dream:


    A senior U.S. Treasury official said Washington was unhappy with Berlin’s “counter-productive” decision to go it alone in banning naked shorting of shares in top financial companies and sovereign euro bonds and related transactions in sovereign credit default swaps.

    Geithner has also criticized European Union proposals to regulate hedge funds and private equity, warning that they could discriminate against non-European funds.

    Far from yielding to widespread criticism, Berlin proposed on Tuesday extending restrictions on such speculative trades to include all shares, a government source said….”

  27. From this morning. The same pyramid applies to the DTCC where share volumes have to always grow to keep the system from collapsing like a house of cards where the clearing system doesn’t own enough real shares.

    “Okay; one more time, and take notes as there will be a quiz on this later in the semester!

    When you have a private central bank issuing the public currency at interest, then the moment that first printed piece of paper goes into circulation, more money is owed than actually exists. As new borrowers are found o allow creation of more currency, the interest on the old money gets paid in what amounts to a giant pyramid scheme, but in the end, the cumulative debt always outstrips the available currency.

    That is the trap.

    The system works as long as ever larger pools of new borrowers can be found to create new money to pay the interest on the old money. But when everyone in the country (or planet) is already a borrower and nobody will borrow any more, then the pyramid collapses which is what is happening right now.

    The scale of the swindle by the Federal Reserve makes Bernie Madoff-with-the-loot look like a kid who wraps scotch tape around their fingers backwards to grab a coin from the church collection plate as it passes by.

    But despite its size, the central bank system is a pyramid and doomed to behave like one.

    Now, who wants to clean the erasers after class?”

    1. Perhaps you should.

      There have been a lot of links posted here making this argument, usually connected to the fringe political movement to restore the gold standard. It appears, also, to be a basic tenet of Marxism. The argument is ridiculous on its face.

      Every day people work. They add value to raw materials. The total real wealth of the world increases. A sure recipe for disaster would be a monetary system with a fixed money supply, since the same amount of money would be chasing an exponentially increasing amount of real assets. Either all new wealth would go unsold (deep,deep depression), or prices across the board would by definition continuously decline, since the same amount of money would have to be spread across an amazingly larger pool of real assets, creating a state of continuous asset deflation.

      Accordingly, it is necessary to have a financial system which can continuously modify the money supply. Investment activity that increases real world wealth triggers the need to put more money into the system. It is a feedback system put into motion by the loaning of money at interest.

      If anybody is in control, they should aim to increase the money supply at the same rate that real wealth is being increased. On those rare occassions that real world wealth is being diminished by depression, the money supply should be reduced to prevent price deflation. It appears that this is most readily accomplished by restricting credit, although such a move will always be politically opposed by those overly reliant on continued easy credit.

      Restrictig credit means that fewer questionable investments of the sort that really do not increase the world’s wealth, like building McMansions, will occur.

      The problem isn’t “fiat currency” or “pyramid banking”, it is the lack of any real control anywhere in a politically fragmented world. And, sorry, switching to a gold standard is not the solution.

      It might be a good move towards establishing some semblance of control to stop letting banks lend the same dollar to ten or more different people, and to stop letting brokerages leverage themselves by 40 times on the buy side, and infinitely on the naked short side.

  28. SEC didn’t even know they needed an audit trail for orders until the ‘flash-crash’:

    “… SEC proposing uniform ‘audit trail’ for orders
    SEC moves toward requiring uniform ‘audit trail’ to dissect securities trading, disruptions
    Buzz up! 1
    Marcy Gordon, AP Business Writer, On Wednesday May 26, 2010, 2:11 pm EDT
    WASHINGTON (AP) — Federal regulators moved Wednesday toward requiring a uniform system for tracking all securities orders on U.S. exchanges, in hopes of making it easier to investigate market disruptions like the May 6 plunge.

    Members of the Securities and Exchange Commission proposed, on a 5-0 vote, requiring exchanges to maintain an “audit trail” covering trading orders from start to routing to execution.

    The regulators say that would make it easier to investigate market disruptions like the so-called “flash crash” earlier this month that sent the Dow Jones industrials down nearly 1,000 points in less than 30 minutes.

    The new system, however, would be phased in under the SEC proposal and wouldn’t be fully operational until about three years from now, SEC officials said at a public meeting. It would cost market players, including exchange monitoring bodies and brokerage firms, about $4 billion to put into place and $2 billion a year to operate, according to SEC estimates.

    The proposed rule could be formally adopted sometime after a 60-day public comment period, possibly with changes.

    More than 19 billion shares changed hands on May 6. Requirements for keeping “audit trails” vary among exchanges and markets, making it hard for regulators to get their hands on current order data.

    The technology used by regulators for market oversight and surveillance hasn’t kept pace with fast-evolving and splintering markets, where sleek electronic trading platforms compete with the traditional exchanges and powerful computers give traders a split-second edge in buying or selling stocks.

    A new system would allow regulators to get access in real time to most of the data needed to reconstruct the type of market disruption that occurred on May 6, with the remaining data available in days rather than weeks, SEC Chairman Mary Schapiro said before the vote.

    The change “would be an important next step in our efforts to maintain fair, orderly and efficient markets,” she said.

    A systemwide audit trail could help regulators pinpoint the cause of market disruptions but may not eliminate every gap in tracking trades, said Menachem Brenner, research professor of finance at New York University Stern School of Business. For instance, trades of U.S. stocks executed on overseas exchanges likely won’t be included in the audit trail, Brenner said.

    “We always kind of leave out that there’s a lot trading that happens outside the U.S. in places like London and Hong Kong,” Brenner said. “But any measure being implemented by the SEC is only going to apply to U.S. exchanges.”

    Still, he said, the plan should help regulators avoid future market irregularities. “Hopefully by knowing what causes the problem, they’ll be better able to come up with a solution,” Brenner said.

    Following the “flash crash,” the SEC and the major exchanges unveiled a plan to adopt market-wide “circuit breakers” to pause trading during periods of high volatility….”


  29. It’s ‘boogers’, not ‘buggers’.

    Buggers in the nose might lead to unnatural acts in the sinuses.

  30. Golly gee, lawsuits everywhere. Leman suing JPM. WM suing JPM, Leman suing MS, BSC suing gosh and we wonder WHY no one is going to jail. Heck how can that happen when so many were complicit? So what to do. Follow the lead of Dr Decosta. Use your knowledge to your benefit. That 1000 point drop was NO accident. Neither has this recent sell off been across the avgs. What you are witnessing is a fix being put in place. If only to be able to do it again at a later date and MORE selectively without eating your own.

  31. Glad I found this board. Have been worried deeply about the unanimous condemnation of Merkel’s ban (and contempt of eurozone countries in general) in anglophone media. And it’s not just the WSJ, FT etc, but also the self-proclaimed independent business and financial blogs that have been ballooning since the financial crisis.

    The system has become deeply disbalanced by years of artificially low interest rates. After the banking crisis, these have led to ever more sophisticated ways to game the market. High-frequency trading, corrupted market makers and relentless media- and market manipulation to facilitate naked shorting.

    It’s bad, and there’s no end in sight: Sovereigns and governments are being held hostage over the socialized losses they turned into debt, by the very same people that caused those losses in the first place. This is going to get much worse before it gets better.

    For Europe, the only solution is a radical decoupling from the US and UK. Hopefully some self-sustained consumer growth in emerging markets will facilitate this process, helped by lower exchange rates – a collateral benefit of the anglophone War against the euro. History hasn’t lost its sense of irony.

    Anyway, it’s encouraging that I found this pocket of anglophone plurality in the monolithic media-manipulation tool the internet’s become…

  32. The low interest rates are a natural result of the ponzi scheme collapse of the fiat monetary system, which happens a little more than once per lifetime.

    Borrowing: Creates new money out of thin air
    Repaying Loans: Destroys existing money from existence and reduces the money supply

    The fiat money ponzi scheme requires ever higher levels of borrowing to repay previous years’ interest, because the money supply = debt, but the obligation = debt+interest.

    Naked shorting is just the fiat banking system applied to securities, where every obligation is only fractionally backed.

    When the population stops borrowing and starts selling hard assets (either voluntarily or because of foreclosures) to repay debt, the money supply begins to shrink and the existing debt becomes unpayable.

    They lower interest and lower interest until the real rate is negative and you’re literally being paid in after inflation dollars to borrow, but even still at some point, no one wants to borrow. Current borrowers are governments to fund new wars and Wallstreet to manipulate the markets.

    Finally, the shrinking money supply begins to show in terms of increasingly more valuable currency. All of our lives, we’ve known inflation, where prices go up, but we are facing a deflationary spiral where prices go down.

    Assets, including gold can go down in value (score one for the naked shorters) as the value of money goes up.

    The world’s governments are fighting hard to borrow enough to keep the money supply from collapsing.

    This manipulated scheme is like farming with four seasons and we’re in harvest. The great depression transferred wealth to the paper printers, then a series of wars renewed the system and a new monetary season began in the post war late 1940’s.

    Like a game of poker, where all the chips go to the big winner, the game will stop if they don’t allow another buy in. After the current round of war is over, the system will reset with more power in the hand of the manipulators – my guess is new privately controlled structures such as a world currency or world police force which are above governments the way the BIS or IMF are today.

    Expect to see a currency backed by the G20 countries’ GDP’s.

  33. Investigative journalist Daniel Estulin reported on the clandestine activities of the Bilderberg Group, who will soon be holding a meeting in Spain. On June 1, 2010, he’ll make history, being the first journalist to give an address on the Bilderberg Group in the European Parliament in Brussels. “Bilderberg isn’t a secret society…it’s a medium of bringing together the world’s most powerful and most predatory financial interests. And at this time it is that combination that is the worst enemy of humanity,” he stated. Among the members are CEOs of the leading corporations, bankers, and European royalty, he said, adding that it’s not so much about a New World Order, but rather a “one-world company limited…the control of corporations at the expense of government.”
    “Bilderberg is positioning itself to destroy the United States dollar,” Estulin revealed, citing a source who is a US Bilderberg delegate. He also talked about his new book, Shadow Masters, which draws connections between governments and secret service agencies (like the CIA) working together with drug dealers and terrorists for their mutual benefit.

  34. More Crap hiiting the fan..

    Thursday, May 27, 2010
    Goldman Sachs’ Morality Play
    I was watching the movie “Plunder” a couple weeks ago and it was surprising how little the plutocrats realized the damage they’ve caused. I don’t recall seeing a single person amongst them that thought their way of life was in any way immoral. Every single one of them think their hands are clean. It’s a lot like how BP refuses to acknowledge the huge amount of damage their oil river is causing. I guess it shouldn’t come as a surprise that Goldman feels the same.

    Goldman Sachs’ Morality Play

    First Goldman Sachs, then Morgan Stanley, and now several other major investment banks–including J.P. Morgan Chase, Citigroup, UBS AG and Deutsche Bank AG–are reportedly under criminal investigation for their role in packaging and marketing mortgage-related derivatives. Wall Street awaits the prosecutorial hammer’s probable drop.

    Suspicions, thus far, seem to be that banks deceived investors into betting on debt bundles destined, supposedly, to fail. If true, the practices were arguably bad business or at least inartful client relations. Whether they rose to the level of criminal conduct is another question entirely.


    But when firms are compelled to ally with the government, the tables turn. For prosecutors, a guilty plea from one or more employees–which, of course, leaves “reasonable doubt” out of the equation–is the goal. The pressure point, for financial institutions, is criminal indictment. Forget conviction; charges alone will destroy most financial firms, a reality, bolstered by recent history, that’s not lost on Goldman, Morgan or any investment bank in the hot seat. Truth has surprisingly little to do with it.


    Read the rest here
    Posted by RobertM 0 COMMENTS Links to this post
    US Probes Goldman’s Timberwolf Deal
    HuffPo Exclusive:

    US Probes Goldman’s Timberwolf Deal, Alleged Victim Says ‘Whole Thing Was Fraudulent Concoction’

    The federal prosecutors investigating Goldman Sachs are focusing on Timberwolf, the infamous “shitty deal” repeatedly cited in a tense Senate hearing last month, according to people who have been contacted by the Manhattan U.S. Attorney’s office.

    The probe raises the possibility of criminal charges against the storied Wall Street firm, which was charged in April by the U.S. Securities and Exchange Commission with civil fraud for allegedly misleading investors about another subprime mortgage-related security called Abacus.

    Investigators from the U.S. Attorney’s office have reached out to individuals involved in the deal, including David Mapley, the former independent director of an Australian hedge fund who claims that the firm collapsed shortly after Goldman sold it $100 million of securities in Timberwolf, a $1 billion collateralized debt obligation.


    Read the rest here

    Taken from


    The NSCC subdivision of the DTCC runs a totally corrupt self-replenishing “Stock Borrow Program” (SBP) in which the shares borrowed from these lending pools to “cure” a delivery failure can be placed right back into the pool by the buyer of the shares whose trade involved a delivery failure and needed an SBP “cure”. It’s as if the shares never left the lending pool in the first place. The NSCC cleverly allows the “legal ownership” of the recently borrowed shares used to “cure” the delivery failure to transfer to the new buyer. Thus as the new “legal owner” it has all of the right in the world to donate those shares into the lending pool in order to make some extra income.

    Try to picture the “guard shack” at the NSCC’s “Continuous Net Settlement” (CNS) system. Here comes a truckload of delivery failures resulting from an abusive NSCC participant selling nonexistent securities all day long and refusing to deliver that which he sold. How could he; they don’t exist. The guard sees the truckload and he stamps on the side of the truck “delivery failures officially cured by glance”. So what’s a “glance”? Since the SBP lending pool is self-replenishing let’s just mentally get rid of the borrowing of shares from the pool and the placing of them back in there by the new buyer. In essence, the guard needs to only glance over at the lending pool to see if there is water in it. There’s always plenty of water in that almost everybody holds their shares in street name at the DTCC.

    The truck driver is then told to dump the (theoretically cured by glance) delivery failures onto the “C” sub account parking lot. This is where delivery failures are hid from the investing public. When the delivery failures hit the ground the guard gets on his laptop and credits a readily sellable “security entitlement” to the “C” sub account of the NSCC participant whose borrowed shares were used to “cure” the delivery failure.
    Can you see how easy it is to sell nonexistent shares all day long in order to establish “naked short positions”? Due to the creation and crediting to an account of a readily sellable “security entitlement” the share price of the corporation whose shares were involved has to drop a “notch” due to the increased “supply” variable. The refusal to deliver that which one sold both establishes and monetizes the naked short position. This is free money available to those that refuse to deliver that which they sold.
    The recently amended Reg SHO now mandates that the seller of undelivered shares must “purchase or borrow” the missing securities by the opening for trading on T+4 or the opening for trading on T+6 for theoretically “bona fide market makers”. Can you appreciate the corruptness of an SBP “borrow by glance” qualifying as a “borrow” in order to gain compliance with this new law?
    In order for a trade to legally “settle” on Wall Street that which the buyer thought he was buying needs to be delivered “in good form” to his brokerage firm. A “glance” at a self-replenishing lending pool does not constitute “good form delivery”.

  36. In regards to the above post, that new amended Reg SHO mandate to “purchase or borrow” by the morning of T+4 for the delivery failures of non-bona fide MMs sounds pretty tough doesn’t it? This is until you realize that there is a “night time cycle” at the NSCC for curing delivery failures. This means that the “guard shack” is open all night long every night including the night of T+3. You didn’t really think there was any serious intent to tighten up abusive short selling laws with all of those current unaddressed FTDs in the system did you?

  37. David Katz, the SEC’s IG (Inspector General) recently published his Audit No. 450 in regards to how the SEC and FINRA process abusive short selling formal complaints. He reported that of the over 5,000 formal complaints filed in an 18-month period in regards to short selling abuses NOT ONE resulted in an “enforcement action”. NOT ONE! In regards to FINRA of the over 900 recommendations they made to the SEC in regards to enforcement actions they recommended NOT ONE had to do with abusive short selling. NOT ONE! The IG reported that something is sure “different” about how these regulators and SROs summarily dismiss any complaints in regards to abusive short selling. How can we explain these rather aberrant statistics?

    Point #1: Our Congress provided a 12-g exemption to tiny development stage U.S. corporations from complying with the registration and reporting requirements of the SEC because of the onerous expense. The SEC didn’t like this because it theoretically opened the door to behind the scenes fraudulent behavior done in the dark. Point #2: Short sellers often detect fraudulent behavior and do indeed offer some “vigilante-like” services against crooked corporations especially suspected “pump and dumps”. The problem with addressing crooked tiny corporations of the world is that you can’t LEGALLY short sell them as they don’t have any institutional shareholders willing to loan shares and they don’t have any shares held in margin accounts to borrow from. “Pump and dumpers” like this fact and the SEC and FINRA have historically found it repulsive.

    What the SEC and FINRA have historically done is to turn their heads to these “vigilante” MMs, hedge funds, clearing firms, naked short selling cartel and prime brokers theoretically providing a “service”. This is where those aberrant statistics in Audit No. 450 came from. These “vigilantes” have been given free range to attack and kill any corporations THAT THEY DEEMED (in their infinite wisdom) to be run by crooks. Notice the interesting concept of treating “suspected” fraud with blatant fraud.
    Soon these regulator-sponsored “vigilantes” figured out that they could attack ANY U.S. development stage corporation perceived to be an “easy prey” and predictably make a fortune by destroying them WHETHER THEY WERE CROOKED OR NOT. The securities cops could be 100% counted on to look the other way as the audit results attest to. After all, these “vigilantes” do provide a “service” (as do professional “hit men”) and don’t forget about all of that wonderful “liquidity” they provide while destroying these corporations. The question now arises as to how to rescue the U.S. corporations whose share structures have been poisoned with the readily sellable “security entitlements” resulting from all of these delivery failures facilitated by yesterday’s regulators and SROs that have managed to survive these “bear raids”? Where are the buy-ins so that the U.S. investors that bought all of these nonexistent shares can finally get delivery of that which they purchased so that these trades can once and for all “settle”?


    Buyer Bob buys $10,000 worth of Acme Corporation. A market maker (MM) naked short sells into the buy order theoretically in an effort to “inject liquidity”. T+3 comes around and a “failure to deliver” (FTD) occurs. What happens to the money? It’s no longer Bob’s but it’s not quite the MM’s either because he still hasn’t delivered anything mainly because these shares never existed in the first place. The money actually goes into a “no man’s land” temporarily until the MM delivers that which he sold which isn’t going to happen when that which was sold never existed in the first place.

    The rules in this NSCC “no man’s land” is that all a naked short seller must do is to collateralize the daily marked to market monetary value of his “filed delivery obligation” usually at about 102%. Here’s the catch; 99% of that collateralization money is furnished by the investor that didn’t get what he paid for. The naked short seller has very little “skin in the game”.

    Let’s metaphorically assume that in “no man’s land” only coins are allowed. Bob’s $10,000 worth of silver dollars gets placed into a neat pile on a special “sponsor’s table” at the NSCC. The naked short seller that refused to deliver that which he sold becomes the table’s “sponsor”. “Sponsor’s tables” have a special netting around them. The NSCC “sponsor table room” is very special in that the floor of the room tilts downwards as the share price of Acme goes downwards. Every time a naked short sale occurs in Acme’s shares another investor’s coins are brought in and placed onto a new “sponsor table”.

    Since each naked short sale results in the issuance of share price depressing “security entitlements” each placement of coins on a table makes the share price and the floor tip downwards a notch. As the floor tips downwards proportional to the share price some of the coins slide off into the netting. Despite the fact that the naked short selling “sponsor” still hasn’t delivered anything he is allowed to come in every night and scoop up all of the coins that have slid into the netting of any table he “sponsored”. Remember, at the NSCC all naked short sellers are asked to do is to collateralize the monetary value of the failed delivery obligation on a daily basis. Thus as the share price drops from all of this naked short selling so too do the collateralization requirements. Remember, nothing has been delivered yet mainly because it never existed.

    How does the NSCC justify this treatment of investor money? Their policy is that all delivery failures involve a legitimate reason and are only associated with delivery “delays” no matter how old they become. They hold that it’s quite enough to mandate that anybody that failed to deliver shares collateralize that debt on a daily marked to market basis because EVENTUALLY those shares will show up unless of course the corporation should go bankrupt in the meantime.

    With this being the policy can you imagine how financially motivated market makers and others on Wall Street with visibility of buy orders are to become table “sponsors” and to naked short sell into any buy orders they can see? It’s free money albeit that of the dumb investors that don’t know how corrupt our clearance and settlement system has become.

  39. And it only took them 10 years.

    Just heard on CNBC about an SEC attorney investigated or charged for assisting short seller Elgindy. Didn’t hear it all, but looking for more info.

    1. Herbie is back on CNBC.
      Weiss has found his ultimate support group at TSCM
      Elgindy is back in the news on CNBC.
      Hey ho the gang’s all here.

      Wonder how that “analyst” business worked out for Herbie.

  40. This is so sad, it is hiliarious…

    “The inspector general recommended disciplinary action against the two SEC regional officers for their disclosures. Both officers have been issued written memos and were required to attend training, the report said.”

    They were basically told don’t do it again please!!LOL!!!

    1. Is there any specific information, like names or corporations, about Elgindy and Russian Organized Crime available? I know it’s been reported that he has nine fingers now b/c of them.

  41. German Shorting Ban Approved
    Germany’s cabinet approved a bill banning “naked” short-selling of all stocks and euro currency derivatives not intended for hedging against currency risks.

    Germans down want lowlifes sending them back to us.

      1. Solman is spreading more confusion. For a supposed expert, he should do some homework. He plainly does not understand what he is talking about.

        1. Every once in a while, it’s worth fighting back en masse. Wikipedia. Getting Patrick on the Daily Show. Etc.

          It’s worth inundating PBS, the PUBLIC BROADCASTER with information on this.

          Duh. Of course it is counterfeiting.

          If I buy something that isn’t the item I thought I was buying, than I must be buying something counterfeit.

          Look at it from the point of view of the buyer.

          His email:

          Let’s see him get fifty questions on naked shorting by midnight.


  42. In regards to the concept of “counterfeiting” and “phantom shares” the DTCC produced a 13-question “self-interview” about 3 or 4 years ago. They asserted that there was no “counterfeiting” of shares going on at their NSCC subdivision and no such thing as “phantom shares” BECAUSE THE NUMBER OF SHARES “OUTSTANDING” REMAINS THE SAME WHEN THEIR STOCK BORROW PROGRAM (SBP) CURES A DELIVERY FAILURE.

    Technically what are being “counterfeited” at the DTCC are not “shares” of a corporation which are the units of equity ownership of a corporation. Every failure to deliver (FTD) at the DTCC results in the crediting to an investor’s account of a “security entitlement” which exists over and above the number of shares already “outstanding”. UCC Article 8 mandates that all “security entitlements” be made readily sellable under the presumption that all FTDs are associated with mere DELAYS in delivery and not REFUSALS to deliver which is the actuality. What’s actually getting “counterfeited” is the right to sell shares.

    The authors of UCC-8 didn’t screw up. They inaccurately ASSUMED that the NSCC would be all over any obvious efforts to perpetrate frauds associated with “security entitlements” being allowed to be readily sellable. In other words abusing the fact that the NSCC ASSUMES that all FTDs are associated with mere delivery “delays” and no DTCC participant would ever dare to establish naked short positions by refusing to deliver that which he sold in an effort to depress share prices and therefore route an investor’s shares into his own wallet.

    Since both legitimate “shares” issued by a corporation and mere “security entitlements” issued by the NSCC with each and every FTD are readily sellable then their numbers add up arithmetically to compose the “supply” variable of that which by law must be treated as being readily sellable. Since the rules of “supply” and “demand” do indeed work even in “rigged” markets the enhanced “supply” variable interacts with the ambient “demand” variable to “discover” a share price below where an unmanipulated “supply” and “demand” variable would interact to “discover” a price. Thus the intentional refusals to deliver that which was sold and contracted to be delivered on T+3 results in share price “manipulation” even though the number of shares technically “outstanding” doesn’t change. “Manipulation” involves the intentional tweaking of the “supply” and “demand” variables that lead to “price discovery”. Rule 10b-5 below expressly forbids the use of “MANIPULATIVE DEVICES” in connection with the purchase or sale of any security.

    Rule 10b-5 — Employment of Manipulative and Deceptive Devices

    It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
    a. To employ any device, scheme, or artifice to defraud,
    b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
    c. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
    in connection with the purchase or sale of any security.

    The question begs to be asked is why would the DTCC make such a blatant MISREPRESENTATION and “omit to state a material fact” of the truth in a public document meant to educate investors? This is expressly forbidden by “b” above. Might it have something to do with the fact that the parties REFUSING to deliver that which they sold co-own the DTCC and their employees refusing to do what the authors of UCC-8 ASSUMED they would do are only looking after the financial interests of their bosses?

  43. What is empty voting?

    Empty voting occurs when hedge funds either borrow shares or buy equity swaps to gain voting interest in a company without having the equivalent economic interest. This is another trend magnifying the clout of activist hedge funds.

    For example, in 2004 when Perry Capital, a large shareholder in King Pharmaceuticals, wanted to ensure Mylan Laboratories’ proposed acquisition of King went through, Perry bought and shorted almost 10% of Mylan’s shares through an off-market derivative transaction negotiated directly through a broker. This gave Perry the right to vote nearly 10% of Mylan’s shares without having any real economic interest in the company.

    For investor relations professionals, empty voting is troubling as it is difficult to detect. You should continue to monitor who your shareholders are (on Bloomberg and/or Thomson).

  44. Dr DeCosta

    Apparently UCC-8 is the legal substantiation for current NSS. It seems that statute needs to be rewritten to prevent abusive NSS without imposing delivery requirements that would throw sand in the gears of the markets.

    What would it take to get UCC-8 revised?

  45. I don’t get the empty voting explanation. How can I borrow shares and vote them while the lender (owner) is also voting them? How do I make sure my votes are counted and not the lender’s votes?

  46. Hi Fred,

    Actually the text of UCC-8 is fine. One part says it’s OK to credit an account with a “security entitlement” even if that which you purchased hasn’t been delivered yet BECAUSE DELIVERY IS ASSUMED TO BE RIGHT AROUND THE CORNER. Another part of UCC-8 says, however, if you credit an a/c with an SE you sure as heck better have in your inventory the shares to justify that account credit. BUT THERE’S NO TIMEFRAME GIVEN AND THIS IS WHAT NEEDS AMENDING! The authors of UCC-8 didn’t think a timeframe was needed because the DTCC already had the congressional mandate “to promptly and accurately clear and settle all securities transactions”. “Promptly settle the trade” gave way to “eventually settle the trade” which gave way to “eventually settle the trade unless of course the corporation goes bankrupt in the meantime”. If that occurs then just go ahead and take all of the investor’s money and forget paying any capital gains on your theft because TECHNICALLY the “sell then buy” cycle never got completed.

    Here’s the problem; there are indeed legitimate reasons for delivery delays and these need to be accommodated for. When an FTD occurs the NSCC says it’s time to pull off our fraudulent “trifecta”. First we’ll “cure” this SUPPOSEDLY LEGITIMATE failure to deliver (FTD) via an SBP “faux-borrow” from a self-replenishing lending pool of shares. Second, we’ll store the FTD in the “C” sub account of the party donating to the lending pool where the public can’t see it. Thirdly, we’ll pretend to be “powerless” to EVER buy in this FTD no matter how old it gets.

    In other words by the time a supposedly “legitimate” FTD is proven to be intentional/illegitimate due to its age it’s too late to do anything about it as (theoretically) the FTD has already been “pseudo-cured”! Now how slick is that? The “security entitlements” spawned by all of these intentional delivery REFUSALS invisibly pile up and drive the share price down. Since the NSCC only makes its abusive “participants” that chronically REFUSE to deliver that which they sell collateralize the monetary value of their failed delivery obligation then as the share price predictably tumbles the money of the investor actually flows to the party that intentionally broke its contract to deliver what it sold by T+3. You are financially rewarded for breaking your contract and therefore financially incentivized to do just that all day long.

    The NSCC “cherry picks” UCC-8. It obeys the part that allows the crediting of readily sellable share price depressing “security entitlements” to the accounts despite the lack of delivery and then disobeys the part mandating getting delivery of anything that you credit an account with. The authors of UCC-8 had no clue that any SRO congressionally mandated to provide investor protection like the NSCC management is would have the cajones to pull off this “trifecta” on behalf of the financial interests of their abusive bosses/co-owners that choose to REFUSE to deliver that which they sold. A question: How come the Germans figured all of this stuff out and our regulators haven’t yet? This is not rocket science; a lot of frauds have similar designs.

  47. Fred,

    In regards to your voting question the universal disobeying of UCC-8 makes voting in the U.S. a total zoo. UCC-8 unfortunately has a clause that says that the clearing firm crediting a “security entitlement” must treat that “entitlement holder” as being “entitled” to exercise the rights attached to a real share. Here again, that’s no big deal if the clearing firm obeys the part of UCC-8 mandating going out and getting delivery of shares for which you credit a “security entitlement”. Nobody does because of the corruption at the NSCC. “Security entitlements” are not supposed to have voting rights as they are not “shares”. They can only be allocated voting rights if securities intermediaries disobey UCC-8.

    In voting you hold a “pro-rata property interest” to vote a pro-rata amount of votes proportional to the amount of shares that your clearing firm did get “good form delivery” of. If you bought 1% of the # of shares outstanding in a corporation you won’t have anywhere near a 1% voting power in that corporation. If your clearing firm is one of the more corrupt ones your voting power isn’t worth diddly although you’ll never be told that. Since a lot of people don’t fill out proxies this is an easy cover up to perform. When that which is essentially being “counterfeited” i.e. a “share” or the right to exercise the rights attached to a share (an “entitlement”) also serves as the unit of equity ownership in this thing called a “corporation” based on a “one share, one vote” foundation then the entire structure built upon this corrupted foundation becomes the proverbial “house of cards” whether it be in regards to voting or any other matter. Our entire clearance and settlement system just becomes a gigantic system of cover-ups hiding the flawed foundation which favors Wall Street over Main Street.

  48. Dr DeCosta

    Thanks for the discussion of UCC-8. Since UCC-8 is having some unintended consequences, it would seem that it should be revised. Perhaps to put in rules for required buyins on T+3, or some such. Or the SE can not be credited at all unless the security is held by the broker. Or whatever … From what you said, it seems that something needs to be added to UCC-8.

    What would that take?

  49. Dr DeCosta

    From what you said, it would appear that empty voting can never be done reliably. If I borrow shares, I can anever be sure my votes will be counted in proper proportion. Is empty voting really a potential problem, as the earlier post claimed? If so, how can it work for the fund or whoever is doing it if voting is as unreliable as you say?

  50. Fred,
    I think you have to go back to the basics and say we have these things called “publicly traded corporations” that are founded upon the concept of “one share, one vote”. Wall Street can do whatever they want if they don’t mess with that foundation as tweaking with that foundation tweaks the very identity of the corporation and the Articles of Incorporation (“Charter”). When you separate the economic ownership from the voting privileges utilizing “fuzzy math” invisible to shareholders and prospective shareholders then opportunities for fraud abound.

    These theoretically wonderful technological innovations known as “derivatives” have thrown the foundational concept of a corporation under the bus. Who benefits from derivatives? Typically it’s the Wall Street securities intermediaries that earn fees and commissions while making markets in them and typically Wall Street behemoths with a superior knowledge of how to abuse them. Remember these “derivatives” are “synthetic” securities that financially benefit their securities intermediaries and abusers that are above and beyond the number of “shares” already “outstanding”.

    The people on the receiving end of these frauds are the less financially sophisticated Main Street folks naïve enough to think that “one share, one vote” is a reality and that they are the “legal owner” of that which they purchased. The “beneficial owner” of shares (us) doesn’t have a chance when the “surrogate legal owner” of shares, the DTC’s nominee Cede and Co., theoretically acting on behalf of us absolutely “rigs” the markets in favor of the financial interests of its owning “participants” whether they be acting as securities intermediaries in these new casino games or merely abusers thereof.

    Why are “derivatives” even allowed to trade? It’s theoretically because of the “LIQUIDITY” and hedging opportunities they provide. If you own 100 shares and you want to “hedge” your bet why don’t you just sell 20 shares? How in the world can you be allowed to enter into “derivative transactions” that harm the parties holding the economic interest in the corporation, its “beneficial owners”, while throwing the “one share, one vote” foundational concept under the bus? The “security entitlements” that result from delivery failures are “derivatives” of legitimate “shares”.

    All criminals need to do in abusive short selling is to refuse to deliver that which they contracted to deliver on T+3 and thereby flood the share structure of the corporation targeted for destruction with readily sellable share price depressing “security entitlements”. It sets up a self-fulfilling prophecy. Just keep selling nonexistent shares, refuse to deliver that which you sold and you get all of the investment money of the financially unsophisticated Main Street investor that was silly enough to believe that the SEC, FINRA, the DTC and the NSCC were going to follow their congressional mandate to provide investor protection. Don’t even get me started on the systemic risk implications of “derivatives” over and above the fraudulent implications.

    1. I’m okay with derivatives as long as they DERIVE value from the underlying asset, but can’t influence the price.

      The old bucket shops in little towns in the 1900’s used to be like that. They’d let you buy and sell shares, but you weren’t really buying or selling anything. You were just betting against the house and your trade and the house’s trade didn’t influence the price in NY where real trading occurred.

      It’s like betting on the football game. Your bet shouldn’t influence the outcome.

      Wallstreet derivatives are more like when the mob bets on a football game and fixes the outcome. They set it up so that the underlying asset moves in the direction that makes the house money. They can’t lose.

  51. Anonymous,

    Very true. In abusive short selling it’s even more heinous. Firstly, you need to willfully break the contract you entered into to deliver the securities you’re selling by T+3. Since the resultant FTD results in the “issuance” and crediting to an a/c of a readily sellable share price depressing “security entitlement” OVER AND ABOVE THE # OF SHARES ALREADY “OUTSTANDING” then the mere METHOD of placing the negative bet (by breaking a contract)enhances the prognosis for the success of the negative bet. This allows the investment funds of the “owners” of the corporation with an economic interest therein to flow to parties with no economic interest whatsoever in the corporation.

    This has absolutely nothing to do with the injection of liquidity, enhanced market efficiencies and an enhanced price discovery process. Criminal short sellers claim that their short selling brings new “information” to the markets and that all “votes” both positive and negative need to be tallied. I contend that “voters” need to be “registered locally” and have some skin in the game before they can vote. Acquiring access to a self-fulfilling prophecy by breaking a contract does not qualify as a means of registration.

  52. Anonymous,

    To appreciate the cleverness of this fraud you need to take it one step further. When the normal share price buoying effect of buy orders can be converted into the share price depressing effect of a “security entitlement” by simply breaking your contract to deliver on T+3 then BOTH buy and sell orders result in share price depression. You can’t get a more “rigged” market system than that especially when the simple act of REFUSING (not failing)to deliver also establishes a naked short position with access to the self-fulfilling prophecy.

    The solution is easy. Now that you can appreciate how catastrophic delivery failures are to U.S. corporations YOU SIMPLY CAN’T ALLOW THEM TO OCCUR. You can’t be allowed to “long sell” or “short sell” securities UNTIL those securities are in a position so that T+3 delivery is guaranteed. A “hard locate” doesn’t do it. This leaves 2 options. A mandated “firm pre-borrow” or move the current “purchase or borrow” option from the morning of T+4 to 2 hours before the close of trading on T+3 like Singapore just did.

  53. On Friday morning Wes Christian of the John O’Quinn legal team and his partner with 40 years with the FBI did a naked short selling interview on Tim Connolly’s (SP?) radio show. Wes cited a study by Dr. Susanne Trimbath formerly of the DTCC revealing that there is currently $600 trillion worth of delivery failures currently poisoning our markets. Andrew Cuomo was cited as stating that in the U.S. he’s found $90 trillion worth. I think between these findings and Germany’s recent actions we can finally put to rest the intellectual argument over the pandemic nature of these crimes.

    Interestingly the money stolen from us Main Street “long” investors goes offshore to get “cleansed” and then gets paid out to the thieves selling nonexistent shares via both offshore debit cards and U.S. debit cards. Apparently the crooks employ teams of people going to ATM machines to pull out the laundered cash $15,000 to $20,000 at a whack.

  54. If you think about it $600 trillion here $600 trillion there…after a while that can start representing some serious coin and something the regulators might consider looking into!

    1. Goldman Sold 44% Of Its BP Stock 3 Wks Before Blowout

      If you let yourself get really conspiratorial, the biggest threat to a privately owned fiat currency like a US Federal Reserve note or a DTCC security is competition and the best way to get rid of competition is to create a fiat note owned by all the central banks of the world…

      … and that the best thing to back that note with would be something humans need that’s ethereal, like energy.

      Ah ha.

      We’ll take something that trees breath in (carbon dioxide) and rebrand it as a poison and the new global currency will be backed by carbon credits.

      The only thing is that the only way the population will back that is if they get really mad at carbon fuels like oil.

      It’s really simple. It’s criminals operating a casino economy working with the old royal families of the world fighting against the democracy of people buying and selling in the stock market and expecting that to set a fair price of that asset.

      Good news!

      The criminals are losing.


    Gee, I wonder why the crooks keep getting away with abusive short selling thefts? This is scary!

    “Currently, there is no single database of comprehensive and readily accessible data regarding orders and executions. Instead, each SRO uses its own separate audit trail systems to track information relating to orders in its respective markets. And, the existing audit trail requirements vary significantly among markets. That means that regulators, when conducting a cross-market analysis, must obtain and merge together a large volume of disparate data from different entities.”

  56. Here’s what scares me:

    1) The failures to deliver in Bear Stearns went up 145-fold (14,400%) as their share price fell off of a cliff and the SEC could not find any contributory role of abusive short selling in their demise. The abusive short sellers breathe a sigh of relief and 6 months later go after Lehman Brothers.
    2) The failures to deliver in Lehman Brothers went up 151-fold (15,000%) and once again the SEC could find no contributory role of abusive short selling in their demise. The abusive short sellers breathe another sigh of relief and perhaps had something to do with the “flash crash” on May the 6th.
    3) The SEC has no idea what happened on May 6 because there is no consolidated audit system that allows them to trace trading activity across markets.
    4) What’s next?????????

  57. Goldman Sachs – Crisis panel subpoenas Goldman for meltdown docs

    Daniel Wagner, AP Business Writer, On Monday June 7, 2010, 12:35 pm

    WASHINGTON (AP) — A panel probing the causes of the financial meltdown has issued a subpoena for documents from Goldman Sachs Group Inc.

    The Financial Crisis Inquiry Commission said Monday that Goldman wouldn’t hand over the documents voluntarily. It said it only issues subpoenas after giving companies time to cooperate.

    It is not clear what documents the commission was seeking. The bank already has provided reams of documents to the FCIC.

    “We have been and continue to be committed to providing the FCIC with the information they have requested,” Goldman Sachs spokesman Michael Duvally said. He declined to comment further.

    Goldman, a Wall Street powerhouse, profited from its bets against the housing market before the crisis. It continued to make huge profits after accepting bailout money and other government subsidies.

    The bank’s success and lavish executive pay have drawn attention at a time when the nation is dealing with near-double-digit unemployment.

    The firm’s mortgage speculation also has drawn civil fraud charges from the Securities and Exchange Commission and a criminal probe by the Justice Department.

    Goldman is one of eight banks being investigated by New York Attorney General Andrew Cuomo on charges that they misled credit rating agencies.

    Bank stocks gave up early gains after the subpoena was announced. Goldman shares fell 86 cents to $141.39.

    Congress created the bipartisan panel to investigate the credit crisis that led to the worst recession since the Great Depression. It already subpoenaed credit rating agency Moody’s and billionaire investor Warren Buffett.

    The FCIC will hold call at 1 p.m. EST to brief reporters on the subpoena. It will issue a final report on its findings by Dec. 15.

    AP Business Writer Stevenson Jacobs in New York contributed to this report.

  58. There is a God and he loves us..

    Byrne & DC take out the Sith Lord

    Steve Cohen To Leave Trading, Says Vanity Fair

    June 7, 2010

    Well, well, well. It looks like Patrick Byrne, Judd Bagley, Mark Mitchell and the rest of the estimable team at Deep Capture are having more than some effect.

    Not only have the Germans and Austrians banned naked short- selling, Vanity Fair, our least favorite low-class, high-gloss magazine of the DC twitterati, tells us that Steve Cohen is closing up shop as a trader. Sith Lord Cohen doesn’t like the spotlight, it seems. Maybe he remembers all too well what he was up to in the 1980s……even if Reuters wants to keep it buried.

  59. Kaufman needs to get some traction. I don’t know if he wants the SEC job, but he would be good for it. He knows Biden well, so he might have some access, if indirect, to Obama. They could arrange for Schapiro to resign. Wall Street would scream. Obama would need to see the importance. He might if his approvals keep falling.

    1. Germany has always been aware of the danger of the cabalists. Taking no crap from them is the way to go here.

  60. What’s true for re-regulating Wall Street is also true of regulation for the oil and mining industries, Huffington continues. “These regulations are so full of loopholes, and the people in charge are often lobbyists or part of the revolving door,” she says. “This is really why you have that sense of being in a Banana Republic. If you are well connected, you just get away with anything.”

    Although AIG, BP and Massey Energy each showed patterns of “egregious” and “alarming” misbehavior before their respective disasters, “these violations and these fines don’t mean anything,” Huffington says.

    “Paying a fine – it’s just the cost of doing business.

    It’s the equivalent of paying bribes in the third world.”

    (,AIG,MEE,XLF,FAZ,JPM,GS&sec=topStories&pos=9&asset=&ccode= )

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