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BANK ACTIVITIES REFORM COMMISSION GEARS UP FOR $5 TRILLION US GOVERNMENT SUIT
BARC whose main purpose is to put ethics in on the American financial system, which it claims includes the worst offenders of them all, the 3,000 or so lawyers who run the United States Securities and Exchange Commission, has prepared preliminary court papers ready to file with the United States Court of Federal Claims.
Washington D.C. - Free and Clear Press Corps - Litigator John O'Quinn is one among hundreds of legal professionals and professors of law at schools around the United States about to be approached by a growing number of volunteers working directly and indirectly for and with the Bank Activities Reform Commission, (BARC) a group being led by financier Gabor Sandor Acs, who has challenged George Soros publicly with a $7 billion bet that George Bush will be toppled in the 2004 election. Acs is guaranteeing it.
BARC whose main purpose is to put ethics in on the American financial system, which it claims includes the worst offenders of them all, the 3,000 or so lawyers who run the United States Securities and Exchange Commission, has prepared preliminary court papers ready to file with the United States Court of Federal Claims.
The bonanza: the entire trading system in the U.S. which BARC claims has cost business and the government over $5 trillion in lost capital, $7 trillion in lost tax revenues, (enough to pay off the national debt) and a drop in the purchasing power of the US dollar in foreign markets during the past three years in excess of $20 trillion.
John M. O'Quinn, the 62-year-old senior partner of O'Quinn, Laminack & Pirtle, the law firm that has won $1.5 billion in fees from the makers of silicon breast implants and cigarettes is, according to some sources being courted by BARC volunteers to have his clients and approximately 95 million stockholders join in what is definitely the largest single claim against the United States government in known history.
The previous known record setting case was a $500 million claim against the government from the people of the Marshall Islands for damages and reparations for nuclear bomb testing which occured during the late 50's near the Atolls that caused cancer and other diseases to the natives there. The court case lasted two decades but the government eventually lost.
BARC recently announced that it is joining another multi million dollar class action led by a homeless person in Oregon against the Federal Reserve Bank system for failiing to redeem a dollar bill in gold, which is still lawful money of the United States of America.
In preliminary documents being circulated to law professors, top law firms, and various public interest groups, the preparations are being made for claims which include that the Securities and Exchange Commission has used various excuses over the past several decades, the biggest one being bugdetary consrtraint and a lack of staff another, to neglect to enforce the securities laws as passsed by Congress, and instead use them as a political tool of the financial elite to crush and destroy business people who were seeking to raise capital.
The claim? $5 trillion in punitary damages, and $15 trillion treble damages under RICO.
O'Quinn currently has a hand in 15 lawsuits alleging that various brokerages (including Ameritrade and E-Trade) and market makers like Knight have destroyed his clients by helping to sell the companies' shares short in a scheme to run their stock prices into the ground.
The damage is daunting: O'Quinn says 1,000 companies have lost at least $100 billion in market capitalization. "If you short a stock for the sole purpose of killing the value," he says, "that's a threat to the view that we have an honest market."
Rather than focus on the brokerages, which are already using their financial clout to buy off the government with multi billion dollar settlements for false analysis, market timing, and other corrupt practices, BARC is going for the jugular vein of the regulators.
"The SEC staff has known for six years, even before Harvey Pitt was ousted from office by various groups led by the CEO council, that the mutual fund industry was engaged in siphoning off on average $5 billion a year from stockholders pockets.
Various mechanisms, including decimilization have been implemented by the industry to secure the ongoing penny pinching, and current efforts at bringing the unethical trading practices could have been brought under control by any number of US Government agencies, including the FBI, the Secret Service, the Federal Trade Commission, and the newly minted Department of Homeland Security.
On one side of the coin is a big fuss is over naked shorting, a practice that's been around for decades and that is sometimes legal, although questionably ethical.
Normal short-selling involves borrowing real certificates for stock, selling the stock, buying new shares at a later date, and using the new certificates to replace the ones borrowed. Naked short-selling differs in that no real certificates change hands. Instead, the short-seller creates a paper entry showing that it owes shares to the stock buyer and will get around to delivering them later.
This type of operation has been ongoing since the evolution of book entry book keeping, a practice pioneered by the banking industry to transfer funds from the Federal Reserve to member banks to provide liquidity on an overnight basis. Wall Street has taken the electronic platforms to new levels of sophistication.
Naked short-selling is legal if done by a market maker in a temporary arrangement; it's normal for a marketmaker to be net short for a day or two and then close out the position by buying real shares later. Naked shorting can be illegal if done with the conscious intention of leaving the short position as a paper entry indefinitely. And there's the rub.
Naked shorting opens the doors to billions of dollars in unethically and ill gotten gains. The unwary investors who were not advised in prospectuses in any public offering during the past decade that such a possibility existed as a real and imminent danger to capital and risk factors when determining whether or not to invest, was in fact defrauded.
The SEC does not pass on the merits of any public offering, but it can stop a public offering from occuring if there is false, misleading or omitted information in the prospectus. They did this with great zeal and effort when an unheard of company called TOKS filed a preliminary registration statement going as far as bringing a civil action against the individual behind it.
Even in more recent IPO documents of the past twelve months, the naked short selling factor is ommitted as a significant risk factor when new issuers and their agents, underwriters and law firms offer their shares to the public. The SEC failed to ensure that the public was made broadly aware of the potential risks involved in buying stocks, bonds and other securities, even government backed securities, which have exemptions from the Securities Laws.
The public has a right to know whether it should purchase a private or public security with full disclosure of all the facts behind the issues. Too numerous sophisticated investors who qualify as being exempt from any registration requirements when surveyed by BARC volunteers were found to be completely unaware of the mechanisms behind naked short selling. Even a pension fund manager was unaware of the practice according to him.
On the flip side of the coin is the ability of powerful money managers who handle the accounts of not only the nations $7 trillion in pension funds, but the $3 trillion in money market funds sitting in cash at banks around the country, and the $20 trillion in total market capitalization of all publicly traded bonds, notes, securities and equities in the US markets.
The Federal Trade Commission, as well as other agencies of the US Government have failed or neglected to enforce various laws related not only to RICO, AntiTrust, Anti-Monopoly and other Acts passed by Congress, they have accepted payoffs in the form of settlements which neither admit nor deny guilt when the corruption is brought to the attention of the public at large.
These same market makers that can and have manipulated the prices of any stock into pennies in a matter of months, not years, can artificially prop up prices of companies like Microsoft which trades at over 500% of its true book or liquidation value or General Electric which runs a constant stream of propaganda supported by Wall Street promoting itself and its' self underwritten cartels of money managers through its CNBC talking heads unit.
99% of all stock available for trading is held in book-entry form, and thus takes the form of electronic blips on the books of a stock-clearing company. Depository Trust &Clearing Corp.'s subsidiary is one of the leaders in the clearing business. In the normal course of business DTCC tolerates so-called failed-to-deliver entries of shares offered for sale by, say, brokers. This means the seller doesn't have the certificates on hand but promises to be good for them eventually.
On the other side of the coin, giant mutual funds, pension fund managers and their advisors, have cabaled themselves into the position of being able to move the entire stock market using various index systems to give a false and misleading impression to the rest of the investment community about true values.
They use such statements as earnings multiples, and projected earnings to sell their wares to the 95 million Americans who have been trying to get out from under $40 trillion in debt for the past generation and have been thwarted at every turn by new twists in hyper marketing dynamics using the powerful medium of the internet, television, radio and newspapers to keep themselves "in the money".
It only takes three market makers with a few billion leveraged dollars to move any stock from its real value to an inflated value and profit on every trade on the way up.
In some cases a few stocks of the DOW are trading at over 1000% over their true fair economic value. None of the DOW components are going to double their net worth in the next five years, so why would anyone pay more than twice their current book value? The only reason anyone would pay that much is to secure their positions and to avoid looking bad to the public.
O'Quinn and his top lawyer on these cases, James W. Christian, senior partner with Houston-based Christian, Smith & Jewell, claim that over the last three years billions of uncovered naked shares were sold; that market makers (and/or their clients) took profits after waiting for share prices to fall before buying in--if at all; and that brokerages allowed fictitious shares to be traded two, three and four times over, in possible violation of Securities & Exchange Commission rules.
"It's the perfect murder," says O'Quinn, who is quick to smell collusion. "We've got a situation where the cop can't arrest the suspect because it causes too many problems for the police department."
BARC is going after the police department and is asking 95 million American investors to join in the fray. It goes beyond the naked shorting issues. When stock prices are pumped up by money managers, and Wall Street players, their borrowing value goes up as well.
Some banks and hedge fund managers are leveraged greater than 50% on their portfolios by virtue of the fact that they deal from offshore, and are beyond the long arm of the law.
Any stock trading 500% above its real value gives the traders leveraging power to borrow on top of that real value to keep the bubble from bursting.
In some instances, offshore hedge funds are leveraged over 100% dollar for dollar on their portfolios. "This is no longer just a matter of economics", says one high ranking government whistleblower, "it is a matter of national security that poses the single largest threat to global stability. The masses are not happy with their financial standing against the legal but unethical practices of the cartels that run Wall Street."
In some cases the police seem to be getting involved. Last February the SEC levied a $1 million civil penalty against Rhino Advisors, a small New York City investment house, and its president, Thomas Badian, for using offshore accounts to short the stock of Sedona Corp., a King of Prussia, Pa. software maker and an O'Quinn client.
Last month Louisiana's attorney general issued a subpoena on behalf of that state's Sedona shareholders against UBS PaineWebber. (He's seeking information on failed stock deliveries, among other things.)
In a separate civil suit Sedona wants a hefty $2 billion in damages against 17 defendants, including Credit Suisse FirstBoston's Pershing clearing unit and Westminster Securities, alleging their naked shorting knocked Sedona's share price so low that several big vendors shied away from doing business with it. New York's Attorney General, Eliot Spitzer, is interested in the case.
A similar situation happened to a now pink sheet traded company called Telynx, Inc. which had a sub contract with Egypt Telecom and General Dynamics through Hewlett Packard.
New contracts with Malaysia Telecom and other international telecoms were cancelled because the clients saw the stock price plummet after a group of offshore hedge funds that manage billions of convertible debenture issues led by the Laurus Funds of New York arranged "death spiral" financing.
The former management of Telynx claims it lost $30 million in market capitalization and about $100 million in business due to death spiral financing arranged by former members of the law firm of Fulbright and Jaworsky.
Another case in point is JAG Media Holdings, adding to about 100 other firms involved in what Investrend Founder and CEO Gayle Essary calls "the Short Seller Wars".
The list is growing and could include such firms as Lucent and other big names. "This focus on the brokers, the companies, their management, and the naked short sellers is misdirected," says an activist involved.
The focus should be, "where was the SEC, when you and me, were getting fleeced"? said a volunteer who dared not call it treason.
"The SEC has and uses technology to monitor the daily price movements of every stock in the market. When they see a stock jump 100 to 1000% over the course of a few days they are all over it with investigations, interogatories and docomentation from hundreds of witnesses preparing for their next civil case.
"Yet when a stock plummets and loses 99% of its value over a few months, and the people on the other side of the coin are siphoning off money to put into offshore trust accounts, secret bank accounts, and betting on the bankruptcy of the company they have caused to plunge toward oblivion, where are the money laundering patrols and government agents who are supposed to follow the flight capital before it gets into the hands of the foreign terrorists?
The case of Universal Express, a Manhattan-based logistics firm illustrates one reason it's hard to correct the abuses and collect money from not only the brokerage firms and dealers involved, but from the culprits themselves.
In 2001 it received a $389 million award levied against three Florida defendants found liable for fraud and stock manipulation, including naked short-selling. But Universal is having a tough time seeing a single penny: It says the assets are in offshore accounts.
Before anyone can collect, plaintiffs have to prove fraud or manipulation--and that's tough. It's not enough to show a sliding stock price, wild discrepancies in daily volume or even a disparity between a company's authorized number of outstanding common and the number of shares traded. The key lies in demonstrating manipulation of the entire trading system.
Negligence of the SEC and its myopic stance will be proven in the Court of Federal Claims. The SEC has over ten billion pages of documents and electronic data it will need to turn over to the Court as the claims go forward.
It is going to take an army of public citizens, not current members of the Wall Street community and their regulators to sift through the haystack to locate the key documents which will connect all the dots.
A lot of O'Quinn and Christian's claims will rest on whether they can demonstrate hanky-panky within the DTCC's stock-lending pool. These are shares set aside to assist members that come up short during the day. Market makers, for example, borrow them and promise to make good on the missing certificates--eventually.
The SEC's Rule 15c3-3 allows for "temporary lags" in possession of the shares, "provided that the broker or dealer takes timely steps in good faith to establish account control." And therein lies an area of ambiguity larger than the entire global market. The SEC has put out for public comment "Rule SHO" which will attempt to rectify certain loopholes in the legality of the trading systems. Public comments from over 5,000 separate individuals are anticipated.
Former SEC Chairman Harvey Pitt, who is being named in the suit by BARC, is already leaning toward the side of BARC as he stages a public meeting next week to discuss how a central internet database being set up for whistleblowers to post information can be coordinated.
BARC is months ahead of Pitt who resigned under pressure from various groups last year and already has a bulletin board established open to the public where information about government wrongdoing can be posted and further investigated.
The real issue is not one of legality. The real issue is that of ethics. Is it ethical to borrow hundreds of billions worth of stock and never have to pay it back because it caused the bankrurptcy or insolvency of the company?
And is it ethical to overlook the fact that this happens on a daily basis to hundreds of smaller companies struggling to gain access to capital, only to run into the brick walls that separate them from the big boys hiding behind their automated security trading systems on the other side of Wall Street?
Is it possible that some of these automated trading systems permit prices to stay within a certain range on certain stocks (brokerage house clients) while decimating the values of less prestigious yet struggling companies who represent 95% of all innovation coming to the market during the last century?
"Put into its simplest terms, this is pure suppression of not only innovation, but knowledge and products that would be for the greater public good. This cancer will be healed and those who thought they could kill these companies may find miracles in the process of raising the dead", says Sandra Gabor, Executive Director of the Free and Clear Foundations of America, sponsors of BARC.
Nutek, a Las Vegas holding company that includes a data processing and market survey firm says its stock price fell from a high of 13 cents a share to 4 cents. Scrambling to raise equity capital it had to issue at depressed prices at least 35 million more shares than it intended to, which it blames in large part on naked shorting.
Earlier this year Nutek and its shareholders filed suit against 12 brokers for failure to deliver the shares. The brokerages proposed a settlement to deliver the certificates but only a few shareholders have received them.
Nutek has hired Michael Morrison, a Reno lawyer affiliated with O'Quinn, to pursue a civil action.
Morrison will soon be contacted by volunteers of BARC to recruit him, O'Quinn and Christian to take on the government, and to consolidate the 100 or more cases slowly moving through the court system under a single class action. "We'll go after the government, and the government, once it gets its' act together, can recoup their losses for their own negligence from the companies they should have been policing who were resposible for this international mess," said another volunteer.
"The government has failed to properly and efficiently enforce the laws, and if you have a bad cop on the beat, that cop goes to jail."
Another case in point, Freddie Mac is in violation of filing requirements to remain a publicly traded firm on the New York Stock Exchange as well as SEC reporting requirements which for years it has done voluntarily. These types of exceptions to the rules create conflicts within the system that allow the corruption to continue.
If the Quantum funds were advised to short a billion shares of Freddie Mac, knowing in advance that it was heading for financial troubles next year, that its' charter as a qausi governmental agency was going to be yanked, that its artificial government guarantee on its' securities was going going to be revoked by Congress, that the SEC failed to enforce the securities laws when certain financial information presented to investors in prospectuses for raising fresh capital was false and misleading, that its' accounting firm was engaged in covering up information which could cause its' collapse, that its' stock was going to be delisted from the NYSE, and it was going to lose class actions filed by numerous law firms currently pending on behalf of stockholders, would the SEC go after George Soros for insider trading?
Probably not, because most of that information can already be gleaned or extrapolated from existing public knowledge and each possibility is a risk factor to new investors coming into the buy side of the stock. But the question remains. Where is the SEC right before the public gets another fleecing? And would the Quantum Fund ever have to cover its short position on Freddie Mac if it went out of business? Would this be both a legal and ethical trading program and would it accelerate the demise of Freddie Mac?
Endovasc, an early-stage drug development firm in Montgomery, Tex., is bringing similar charges against market makers, including Knight. The suit alleges, among other things, the company's stock was oversold by at least 1 million shares in October 2002. Christian will try to prove the marketmakers profited by letting the open positions sit for months and then buying in, if at all, at a cheaper price. During 2002 Endovasc's stock went from a split-adjusted $7.50 a share to 65 cents.
Amazon Natural Treasures, which was a Las Vegas-based maker of herbal supplements in the 1990s, sued DTCC, arguing its clearing firm improperly allowed unregistered shares to be sold on the open market. The case was settled out of court but the abuses have not stopped.
In fact, during the bear market, the number of open short positions increased by as much as 50% in one quarter alone.
Persons close to the situation noted that Attorney Generals of the States are also being named in the action, except for Eliot Spitzer, and two others who are actively working to make the system honest and ethical. "When you reward negligence you get more negligence. When you penalize it, you get less of it, said one volunteer. Its time to pay attention to the pennies!"
Soros and Acs, both Hungarians, have called for greater openness and transparency in the worlds financial systems.
While Acs barks with his BARC, Soros may just leap ahead with his Quantum funds to bust Bush, especially if the real truth comes to light over a growing public battle of wits and multi trillion dollar bets on the real value of the dollar and the US stock markets.
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