Billions of Dollars of Equity in Smaller Cap US Equities, and the Future of Hundreds of US Public Companies Is At Risk. Apparently, US based Depositary Trust and Clearing Corp. is Facilitating the Naked Shorting. Allegations Include Ties to Financing Terrorism.
In what is being called "StockGate" by Wall Street insiders, more than 200 U.S. publicly traded companies have been listed on the Berlin-Bremen Stock Exchange without the Companies' prior knowledge, consent or authorization. More than 650 additional US public companies have listings pending, virtually all without the companies requesting the listings.
The listings appear to be part of an effort by domestic and foreign brokers to circumvent the recent National Association of Securities Dealers (NASD), and Securities and Exchange Commission (SEC) restrictions against "naked short selling."
Short selling is a trading practice whereby investors borrow stock from a broker to sell with the hope that the stock price will decline before they have to "deliver" the shares to cover their "short position." Often, naked shorting involves groups of people working together to manipulate the market by selling non-existent shares of stock in an effort to force a company's share price to go down. By listing the US companies' shares on the Berlin-Bremen Stock Exchange, short-sellers sought the benefit of an "arbitrage," apparently utilizing clearing facilities of US based Depositary Trust Company that none of the current regulations are designed to close.
The StockGate story has resulted in complaints to the NASD and the SEC regarding "manipulative trading" that has coincided with the "listings" on the exchange for dozens of the several hundred companies that were listed en masse by what appears now to have been one European broker.
Norma Cohen reporting in the Financial Times stated, "The Berlin listings came just weeks before a new Securities and Exchange Commission rule on so-called naked short selling. Under the new rules, those seeking to sell shares short must be able to demonstrate that they are able to gain access to the securities within two days. However, the rules contain a loophole for what are deemed to be genuine arbitrage trades, defined as short sales in shares that are listed on another stock exchange."
The Financial Times also stated that "According to a spokeswoman for the Berlin-Bremen Stock Exchange, a single broker, Berliner Freiverkehr, asked that 850 US companies that are traded Over The Counter (OTC) be added to the official list during a six-week period beginning in mid-February."
Listings for more than 200 U.S. public companies sponsored by the German brokerage Berliner Freiverkehr, have now apparently been put on hold. The companies are now shown at the Berlin-Bremen Stock Exchange's website under "filing companies" but have the designation, "NA," under the column for the "expected day of listing.
Of the companies already listed by Berliner Freiverkehr without the companies knowledge or authorization, 100 were listed on April 22. Another 43 were listed on April 2nd, and another 80 were listed on April 28th.
Many of the companies who have become listed on the Berlin-Bermen Stock Exchange are demanding the delisting of their shares. These include FemOne, Inc., Advanced ID, and GK Intelligent Systems.
At the same time many of the US companies listed on the Berlin-Bremen Stock Exchange are evaluating their legal options against the US and foreign brokerage firms that they feel are responsible for the unauthorized listings, as well as against Depositary Trust Corporation who they believe is facilitating the naked short selling.
Ray Grimm, CEO of FemOne, recently stated: "We are completely dumbfounded to learn that a corporation's stock can be listed for trading on an international stock exchange without the prior knowledge or consent of the corporation itself. There are apparently hundreds of companies in the same situation as we are, and the only plausible explanation for this is that nefarious individuals are using the arbitrage loophole to engage in naked short selling, which has had significant negative repercussions on the market price of our stock."
In a recent news release FemOne also stated, "During the past several weeks the company's share price has traded significantly lower. Management believes that the downward trending of its share price in the market is related to the unauthorized listing on the Berlin-Bremen Stock Exchange, which the Company learned became effective on April 22, 2004."
"We intend to follow the lead of other companies listed on the Berlin-Bremen Stock Exchange, all without prior authorization, in demanding both delisting and evidence of who was ultimately behind the unauthorized listings," Grimm added.
Recently, columnist, Jack Anderson, who writes the “Washington Merry-Go-Round,” alleged that much of the naked short selling in small cap stocks drains small U.S. companies of their market caps and their small investors of their nest-eggs specifically to funnel money into terrorist hands, a sort of double-whammy against the American capitalist system. Rumors circulating around Wall Street are quoting conspiracy theorists in stating that the Berlin-Bremen Stock Exchange short selling is a strategy to "get even with the US" over the US' Iraqi involvement.
On April 29th officials of the Berlin Stock Exchange confirmed to FinancialWire that U.S. public companies had been listed for trading without their knowledge or authorization, but denied that the purpose was to circumvent the new NASD rules that require U.S. brokers to gain assurances of "affirmative determinations" from short sellers in both the U.S. and abroad.
Companies with listings still pending on the Berlin-Bremen Stock Exchange include: Anacomp Inc-A, Amer Intl. Industries, Aethlon Medical, Advant-E Corp, ACR Group Inc, and Acceris Communication. Systems Evolution, Startech Enviro, Specialized Health, Solutia Inc, Skyterra Communication, Siricomm Inc., Sinofresh Health, Simtek Corp., Silverleaf Resources, Serviceware Tech, Searchhelp Inc., Schick Tech Inc., Satellite Enterprise, Safety Component,Robotic Vision, Roaming Messenge, Poseidis Inc., Polymer Group-A, Platinum Superya, Phone 1Globalwide,Pharsight Corp, Pharm Formulation, PDC Innovative, Oxford Ventures, Yi Wan Group Inc, YDI Wireless Inc, XRG Inc, Weirton Steel, Usurf America, United Energy/NV, UCI Medical Affi, Touchstone Resources, Torvec Inc, Tissera Inc, Timco Aviation, Thermoenergy, and Temecula Valley. Otish Mountain, Optio Software, Northland Cran-A, Nothern American, Newtech Brake Corp, Network Installa, Net 1 Ueps Tech, Nannaco Inc, Mr3 Systems Inc., Millstream Acqui, Mile Marker Inc, Micromem Tech, Metalline Mining, Mems Inc, Medical Makeover, Manhattan Pharma, Majesco Holdings, M2003 PLC. Loral Space &Communication, Locateplus Holdings, Life Science Resources, Liberty Star Gold, Komodo Inc, Knot Inc., Jurak Corp, Jag Media Holding-, Invisa Inc, Intl. Paper-Pfd, Integrat Security Systems, Impsat Fiber Net, Houston American, Havana Group Inc, Guardian Tech, Graphco Holdings, GFY Food Inc, Gelstat Corp., Gaming &Entertainment, Fortune Divers, First Avenue Net, Findex.com Inc, Femone Inc., Female Health, Fact Corporation, Exten Industries, Exide Technologies, Epixtar Corp., Endeavor Intl, Eline Entertainment, Ecoloclean Industries, Duravest Inc, Dtomi Inc, Dreams Inc, Directview Inc, Cytomedix Inc, CPC of America, Conectisys Corp, Comdisco Holdings, Civitas Bankgroup, Cinemaelectric, China World Trade, China Granite Co, China Enterprise, Chaus (Bernard), Chaparral Resources, Cadence Resources, Buyers United Inc., Bio-Amer Capital, Axcess Inc, Autoinfo Inc, Austral Pcific, Asia Premium Tel, Asia Pac Wire, Ascendant Solution, Aptimus Inc., Applied DNA Science, American Oil &Gas, Amer Tech Group, Amcast Industrial, Ambase Corp, Alpine Group Inc, Allegiance Telecommunicaion, Air-Q Wi-Fi orp, Aerotelesis Inc, Aegis Assessment, Accupoll Holdings, Aames Financial Corp, and Armstrong Holdings Samaritan Pharm, Sagent Tech Inc, Spacedev Inc, IVP Technology, Tech Labs Inc, Synthetic Turf C, Swiss Medica Inc, Summus Inc., Stockgroup Info, Spectrum Organic, Spear&Jackson, Sonoran Energy I, ADV Viral Research, Allergy Research Group,Zone 4 Play Inc., Zap, WinWin Gaming, Whitney Info Net, Warrantech Corp, Viragen International, Veramark Tech, Urban Television, Towne Bank, Total First Aid, Time America Inc., Thomas Group Inc., Surequest System, Summit Financial, Spectre Gaming, Sealife Corp., Scanner Technology, Roo Group Inc., Refocus Group Inc., Provectus Pharma, Power2Ship Inc, Pipeline Data, Pan American Energy, Ortec Intl. Inc, Ophthalmic Image, Northern Empire, Noble Romans Inc., New Medium Enterprises, New Jersey Mining, Naturade Inc., Nathaniel Energy, Mymetics Corp, Michelex Corp, Medicor Ltd, Market Central, Man Sang Holdings, Kolorfusion Intl, J Net Enterprises, Intl Smart Sources, International Mo, International Ca, IJJ Corp, I2 Telecom Internationa, Heritage Worldwide, Find/SVP Inc, E-The Movie Network, Ergo Science, Eos International, Elbit Vision Israel, E Med Future Inc, Dogs International, Desert Mining, Corvu Corp, Coolsavings Inc, Claxson Inter-A, Cipher Holding, China Expert Technologies, Carroll Shelby, Burzynski Research, BP International, Bns Co-Cl A, Barneys NY Inc, Ballistic Recov, Axesstel Inc, Archon Corporation, AP Henderson Group, and TVI Corp.
Apparently the naked shorting is being facilitated by the US based Depositary Trust and Clearing Corporation (DTC).
The role of the Depository Trust and Clearing Corp. in facilitating this naked shorting is just coming to light. Dow Jones recently confirmed a lawsuit by Nanopierce Technologies (OTCBB: NCPT) against the Depository Trust and Clearing Corp. and the National Security Clearing Corp. However, Dow Jones also reported that the chief spokesperson for the DTC continues to deny that it has been sued even though the papers were served on the firm's attorneys more than two weeks ago.
Nanopierce’s suit in the 2nd Judicial District Court in Nevada alleges that the DTC’s “stock borrow program” was “purportedly created to address short term delivery failures,” but that the “end result of the program has been to create tens of millions of unissued and unregistered shares to be traded in the public market,” and in some instances resulting in “two or more shareholders who purchase shares in separate transactions to own the same shares.”
The complaint alleges that the DTC has a colossal disincentive to stop the “stock borrow” program, booking revenues from services of $425,416,000.
Further, the suit alleges that “open positions” resulting from this activity at the close of business on December 31, 2003, “approximated $3,025,467,000” due to DTC, and $2,303,717,000 due by NSCC, and unsettled positions of $721,750,000 for securities borrowed through the NSCC’s “Stock Borrow Program.”
Nanopierce claims that DTC and NSCC have joined in a “scheme” to “manipulate downward the price of the affected securities, thereby reducing the market value of the open fail to deliver positions.” The suit also claims that the defendants have permitted sellers to maintain open fail to deliver positions of tens of millions of shares for periods of a year and even longer.
The suit quotes the NASD as admitting that “Concerns have been raised by members, issuers, investors and other interested parties about potentially abusive short selling activities occurring in the marketplace. In particular, naked short selling, or selling short without borrowing securities to make delivery, can result in long term failures to deliver, including aggregate failures to deliver that exceed the total float of a security. NASD believes such extended failures to deliver can have a negative effect on the market. Among other things, by not having to deliver securities, naked short sellers can take on larger short positions than would otherwise be permissible, which can facilitate manipulative activity.”
In what is being called a gigantic conflict of interest, the two preferred shareholders of Depository Trust and Clearing Corp. are the New York Stock Exchange and the NASD, the regulatory agency that also owns NASDAQ, the OTC Bulleting Board and the American Stock Exchange.
It will be interesting to see if the SEC and the NASD take action to end this activity by the Berlin-Bremen Stock Exchange, as well as the Depository Trust & Clearing Corp.'s role in facilitating this naked shorting before it destroys hundreds of smaller cap US companies, and destroys what could be billions of dollars in investor and shareholder equity.
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