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SEC vindicates Elgindy in NASD's Saf T Lok case
2004-03-11 14:44 ET - Street Wire
by Brent Mudry
In a major win for Amr Ibrahim (Anthony) Elgindy, the U.S. Securities and Exchange Commission has thrown out all the serious penalties imposed against the controversial California shortseller and fraudbuster by the National Association of Securities Dealers. In a humbling defeat for the NASD, the SEC dismissed the NASD's ban, expulsion and $50,000 fine against Mr. Elgindy, after finding no credence to the industry regulator's conclusion that his shorting of Saf T Lok, a controversial penny stock promotion, was manipulative in any way.
"I'm obviously very thrilled with the decision," Mr. Elgindy told Stockwatch. "When I heard (of the dismissal) I just screamed."
The NASD saved a little face, however, as the SEC upheld its modest $1,000 fine against Mr. Elgindy for neglecting to mention in bearish press releases that his then-firm, Key West Securities Inc., was a market maker in Saf T Lok shares.
"I made a small mistake on the press release and got a ding for it, which I should have," Mr. Elgindy told Stockwatch.
The near-total vindication by the SEC comes as Mr. Elgindy prepares for the biggest challenge of his life, an unrelated four-to-six-week criminal trial set to start June 1 in New York. Mr. Elgindy, who built a reputation as whistle-blower on numerous dubious penny stock promotions, remains hopeful the jury will see through the government's charges that he allegedly used stolen FBI information to short inflated penny stocks. "I am just hoping that it is the truth that matters -- my life is on the line," he told Stockwatch.
Mr. Elgindy is no stranger to Howe Street, having used such Vancouver brokerages as Pacific International Securities and Global Securities for his shorting activities. Based on the NASD and FBI cases, the British Columbia Securities Commission imposed preliminary trading restrictions on Mr. Elgindy in mid-2002, with an update review set for April 1.
Mr. Elgindy, who proclaims innocence on all charges, suggests the criminal case is as trumped up as the flopped NASD prosecution. He finds his status as a high-profile target particularly ironic, given the extensive assistance he has provided authorities probing suspect stock deals. "I had helped so many SEC agents -- probably 45 or 50 SEC guys, five or six FBI guys and I testified for the NASD against (banned broker) Jerry Rosen."
THE SEC VICTORY
In an administrative opinion released Wednesday, the SEC dismissed virtually the entire NASD case against Mr. Elgindy and Key West. "Based on the record before us, we cannot conclude that the evidence demonstrates that applicants engaged in a manipulative scheme," stated SEC chairman William Donaldson and commissioners Cynthia Glassman, Harvey Goldschmid and Paul Atkins in the decision.
The Saf T Lok case traces back to late 1997. "By October 9, 1997, Saf T Lok was nearly insolvent and facing delisting," states the SEC. That day, however, the stock skyrocketed after a wire story reporting President Clinton had signed an agreement requiring handguns to have gun locks. On Oct. 9, the stock opened at 43 cents and shot up to $3 on volume of 12 million shares. The next day, the stock closed at $4.56 on 17.6 million shares.
Enter Mr. Elgindy, an experienced professional skeptic. According to the SEC, he called Saf T Lok and was told the Clinton edict would not benefit the company, and no handgun makers had bought its products because they were too expensive and relatively ineffective.
Mr. Elgindy issued a series of press releases dousing red-hot Saf T Lok with cold water and began shorting the stock, reaching a peak short position of 58,000 shares.
(Saf T Lok had an intriguing history before and after Mr. Elgind's short fling. In June, 1997, Nasdaq Stock Market officials notified Saf T Lok management that the company faced delisting from the SmallCap Market because its assets had fallen below the $2-million threshold. In an ill-fated bid to raise capital, Saf T Lok began negotiating with Sholam Weiss, also known an Shalom Weiss, who claimed to represent various offshore entities. Two years later, in November, 1999, Mr. Weiss fled Florida just before a jury convicted him of 78 counts in an unrelated case. He was sentenced in absentia to 845 years in jail and $248-million in fines and restitution and extradited from Austria several years ago, although he filed appeals with the United Nations human rights committee.)
Since then Mr. Elgindy has fought several rounds with NASD Regulation.
First the NASD launched a case claiming Mr. Elgindy manipulated Saf T Lok trading. This first round flopped on Dec. 30, 2001, when a hearing panel found no evidence of manipulation. Instead, Mr. Elgindy was found liable for two lesser offences: failing to honour a series of high bids and issuing the incomplete press releases, for which he was fined $2,000 and $1,000, respectively.
In round two, the regulatory appealed to its National Adjudicatory Council, which overturned the dismissal on May 7, 2003. The appeal panel found Mr. Elgindy had engaged in market manipulation. He was fined $50,000, barred from any association with any NASD member, and had his brokerage Key West expelled from NASD membership.
In the third round, Mr. Elgindy appealed to the highest level of the SEC, which threw out the key manipulation charge and the related penalties. The dishonoured-bids charge was already effectively dead, as the NASD appeal panel made no findings. This leaves Mr. Elgindy with just the $1,000 fine for his incomplete press release, the regulatory equivalent of a jaywalking ticket.
Although Mr. Elgindy accepts his lumps on this minor offence, he defends his conduct with an explanation. He says he wrote similar press releases only twice before, on desert-dirt play International Precious Metals and another company, innocently neglected to mention his status as a market maker, submitted both in advance to the NASD regional office, never heard anything back, and assumed he had done no wrong.
Mr. Elgindy's vindication by the SEC is not the first time he has beaten the folks at NASDR, who do not often lose cases.
In a separate NASDR prosecution stemming from Saf T Lok, the regulator charged him with perjury for lying to investigators in an interview. The regulator claimed he gave a false answer when asked whether he had ever entered into an immunity agreement with any prosecution office. "Never," he replied. "Never. Never. No. Everything I've ever done was voluntary. I have no immunity from anybody for any reason," he added later. Based on this answer, the regulator sought to bar Mr. Elgindy from the industry.
In an April 2, 2002, decision, the hearing panel threw out this charge as the regulator failed to show by a preponderance of evidence that Mr. Elgindy knowingly provided false testimony. The panel was critical of NASDR's assistant chief counsel for imprecise questioning of Mr. Elgindy during the contentious interview, specifically by not explaining which of several types of immunity he was talking about, and by not posing follow-up questions to clarify the issue.
In the contentious interview, Mr. Elgindy confirmed he had worked with the U.S. Attorney's Office, the U.S. Department of Justice, the SEC, the FBI and the Internal Revenue Service on a stock bribery case, which resulted in 11 convictions over a three-year period and the shutdown of Armstong McKinley, a controversial brokerage.
Oddly enough, while NASDR's Web site posts countless disciplinary cases, including those which Mr. Elgindy lost before his recent vindication, the dismissal of his serious perjury charge is absent. Mr. Elgindy would like to see this previous victory posted too, not just his previous losses.
Asst. DA: Tyco Was Ex-Execs' 'Piggy Bank'
March 16, 2004 2:44:00 PM ET
By Paul Thomasch and Jeanne King
NEW YORK (Reuters) - Two former top Tyco International Ltd. (TYC) executives bought the loyalty of their employees and then used the company as their own ``personal piggy bank'' to loot the conglomerate of $600 million, Manhattan prosecutors said on Tuesday in closing arguments.
Portraying former Tyco Chairman Dennis Kozlowski and Chief Financial Officer Mark Swartz as greedy, manipulative and deceptive, Manhattan Assistant District Attorney Ann Donnelly told jurors that the pair ``made no distinction between themselves and the company.''
``They are here not because they blurred the line between themselves and Tyco,'' Donnelly said in her closing argument. ``They are here because they obliterated it, because they erased it'' in using the company ``as their personal piggy bank.''
Both defendants occasionally scribbled notes as the prosecution made its last appeal to jurors in one of the biggest corporate corruption cases in U.S. history. Kozlowski, however, looked serious and while Swartz appeared loose and relaxed -- as he has throughout the trial.
Kozlowski and Swartz are accused of securities fraud, conspiracy, grand larceny and falsifying documents. They went on trial in September in a case that pitted them against former Tyco directors who made them among the best paid executives in the United States.
Several directors testified they never approved tens of millions of dollars in bonuses and forgiven loans for Kozlowski and Swartz. They are accused of stealing $170 million and obtaining another $430 million through illicit stock sales.
Kozlowski's lavish lifestyle, in which he bought Master paintings, jewelry and a $6,000 shower curtain, were a focal point of the trial. A $2 million birthday party in Sardinia, Italy, for his wife also captured the country's imagination.
``This (birthday party) tape is evidence just as a tape of a robbery would be evidence,'' said Donnelly. ``You can have any entertainment you want ... you just have to pay for it.''
Addressing testimony by several former Tyco employees that they received big-ticket bonuses and had loans forgiven on their homes while working under Kozlowski and Swartz, the prosecutor said the executives ``purchased the loyalty of their employees to get them to do what they wanted.''
An events planner, for example, testified she received a $1 million bonus and admitted having an affair with Kozlowski.
Kozlowski never took the stand in his own defense. But Swartz, the only defense witness, issued strong denials to the prosecution's claims during several days of testimony.
Earlier on Tuesday, Kozlowski's top defense lawyer, Stephen Kaufman, said the case never should have been a criminal matter, but belonged in a civil court.
``This is a case in search of a crime,'' Kaufman told jurors during the final hour of his summation.
Kaufman acknowledged people are angry over corporate corruption, but he sought to distance Kozlowski and Swartz from the scandals that roiled Enron, WorldCom and Adelphia.
``Is this a time to win one for the little guy?'' Kaufman asked. ``But that has nothing to do with facts of the case.''
Donnelly later responded by asking jurors, ``Don't these guys have credit cards? Don't they have check books? Why is Tyco paying all their bills?''
© 2004 Reuters
Knight Securities Trader Gets 18 Months in Prison for $1.4 Million Fraud Against the Company
NEWARK - A former equity trader at Knight Securities in Jersey City was sentenced today to18 months in prison for conspiracy and wire fraud, in connection with a scheme that defrauded the company of more than $1.4 million in 11 months, U.S. Attorney Christopher J. Christie announced.
Brian Delaney, 32, of Morris Plains, pleaded guilty Sept. 8, admitting that he concocted a scheme to buy and sell securities in a manner that effectively guaranteed that he would gain a substantial profit at Knights' expense. The scheme began in March 2001 and ended in February 2002.
U.S. District Judge Katharine S. Hayden also fined Delaney $25,000 and ordered him to serve three years of supervised release upon completion of the prison term. Delaney must surrender May 1 to begin serving the sentence.
Delaney had pleaded guilty to an Information charging him with wire fraud and conspiracy to commit wire fraud. As part of his plea agreement with the government, Delaney agreed to cooperate with the government's investigation, and had already made restitution to Knight Securities by the time of his guilty plea.
In return for his cooperation, the U.S. Attorney's Office recommended a downward departure from federal sentencing guidelines. Delaney had faced a range of between 57 and 71 months in prison under the sentencing guidelines.
Knight Securities, a registered broker dealer, is a subsidiary of Knight Trading Group, Inc., a market maker of NASDAQ securities.
Also in September, the New Jersey Bureau of Securities (which referred the case to the federal government for prosecution) and the Securities and Exchange Commission both filed separate actions against Delaney and others allegedly involved in the scheme - the SEC for securities fraud and the Bureau of Securities to bar Delaney and others from the securities business in New Jersey.
The scheme was accomplished in two stages, according to the Information to which Delaney pleaded guilty. Using his position as an equity trader at Knight and using nominee accounts he established, Delaney would first cause Knight to sell him specific thinly traded securities at the same wholesale price (or "bid" price) that Knight would ordinarily pay for them when purchasing those securities on its own behalf. Then, Delaney would cause Knight to buy those same securities back at the retail price (or "ask" price) that Knight would ordinarily charge third parties buying those securities from Knight. In effect, this allowed Delaney to buy securities from Knight at prices below their value on the open market, and sell those same securities to Knight at prices above their value on the open market, according to the Information.
Delaney admitted that he bought and sold securities in this manner beginning in March 2001 and ending in February 2002. He also described some of the trades. In one instance, for example, Delaney caused Knight to sell 7,000 shares of a stock to one of his nominee accounts at a price of $8.25 per share, which was Knight's approximate bid price at the time, and 75 cents less than its ask price. In other words, the price was 75 cents less than the price at which Knight would have sold that security on the open market.
One day later, Delaney caused Knight to buy back those same 7,000 shares at prices of $9.90 and $9.95 per share, which at the time approximated Knight's ask price for the security. These prices were also $1.65 and $1.70 more than Knight's bid price, and thus, between $1.65 and $1.70 more than the price at which Knight would have paid for the securities on the open market.
Delaney admitted that as a result of such trades, he locked in a large profit for his nominee accounts and caused Knight to sustain a substantial loss. Specifically, Delaney admitted that, during the 11 months in which he executed the scheme, he generated profits of approximately $1.4 million from the trades.
Christie credited Special Agents of the FBI, under the direction of Special Agent in Charge Louie F. Allen, for conducting the criminal investigation against Delaney; and the New Jersey Bureau of Securities, under the direction of Chief Franklin Widman, and the Securities and Exchange Commission, under the direction of Paul Berger, Associate Director of Enforcement for the SEC in Washington, for their respective roles in the case.
The government is represented by Assistant U.S. Attorneys John M. Fietkiewicz and Andrew Leven, of the U.S. Attorney's Office in Newark.
Defense Attorney: Lawrence S. Horn, Esq., Newark.
Litigation Releases
The list below provides links to litigation releases concerning civil lawsuits brought by the Commission in federal court.
http://www.sec.gov/litigation/litreleases.shtml
Feds slap cuffs on Google stock scammer
By Jan Libbenga
The FBI has arrested a Dutch man in connection with a $2.8m stock fraud. Shamoon Rafiq, who has been living in New York City since October 2003, sold non-existent Google stock prior to the company's impending IPO.
Rafiq told his victims he was a limited partner of prominent venture capital firm Kleiner, Perkins, Caufield & Byers. He falsely claimed to be involved with what he said were "the ongoing efforts of Google to execute an IPO".
Google is to engage in an IPO later this year, with a rumoured $15bn-plus market cap, but it is not raising capital at this time. However, Rafiq said that he could purchase "Series B Preferred Stock" which had been issued to Google "friends and family" in advance of the IPO.
Rafiq was a BT employee based in Amsterdam, but was transferred to New York. Immediately after arrival, he opened several bank accounts. Between November 2003 and February 2004, his victims deposited more than $500,000 in New York and Europe. When the victims were unable to provide full payment for the stock, Rafiq offered to loan them the additional funds.
Among the victims were several financially successful and sophisticated members of the international technology and business community, the FBI says. These include a New York investment banker, the chairman of a global telecom company, a brokerage firm executive and counsel for a telecommunications company.
Rafiq allegedly used the money to support a lavish lifestyle in New York, California and the Netherlands. If convicted, he faces a maximum sentence of 30 years imprisonment and a $1m fine.
The above information was first published 12/03/2004.[b/]
mmayr- I doubt that Lycos really cares at this point. They let their trademark image of the 'raging bull' expire. (See USPTO records) Do you think Martin Scorcese or Jake LaMotta are concerned? LOL!
Seriously, since the court records are actually in the name of an individual named 'Keener', and there doesn't seem to be a class action, what we have is another reference to an old press release by one who didn't bother to check the facts first.
Looks to me like someone should be picking on somebody over an infringement in "naming" their corporation.
3 former Knight Trading workers get Wells notices
Associated Press
JERSEY CITY, N.J. - Three former employees of Knight Trading Group Inc., a top market maker in Nasdaq stocks, have received Wells notices from federal regulators informing them they could be subject to enforcement or disciplinary actions, the company said Monday.
Knight Trading said earlier this month that the Securities and Exchange Commission and National Association of Securities Dealers issued Wells notices to the company's Knight Securities L.P. unit and its founder and former chief executive, Kenneth D. Pasternak.
The notice from the SEC Division of Enforcement said its investigations relate to trading, supervision and record-keeping from 1999 through 2001, focusing in particular on whether the company traded in front of client orders.
In its annual report issued Monday, Knight Trading said that three other former employees also received Wells notices. The company did not identify them.
Wells notices offer those receiving them an opportunity to explain why regulators shouldn't pursue enforcement or disciplinary actions.
The notices came from both the SEC and NASD, company spokeswoman Margaret Wyrwas said Monday. The company would have no further comment, she said.
Knight Trading said it did not expect the resolution of the SEC and NASD investigations to have a serious adverse effect on the company's financial condition, but the annual report said the probes could have a material impact on operating results in a particular period.
http://www.miami.com/mld/miamiherald/business/8191521.htm
Indeed, mmayr, the case apparently isn't a class action.
8:03-cv-00421 Keener v. Ameritrade Holding et al (PAPER FILE)
Thomas M. Shanahan, presiding
Pro Se Docket, referral
Date filed: 10/10/2003 Date of last filing: 02/20/2004
Docket Information and Related Docket Entries
Case 8:03-cv-00421 Document 1
Filed by Denton L. Keener
Filed: 10/10/2003
Entered: 10/16/2003
Entered By: KBJ
Event Name(s): Complaint
Full Docket Text for Document 1:
COMPLAINT with jury demand against all defendants; Ameritrade Holding, Gene L. Finn, Knight Trading Group, Robert M. Lazarowitz, Kenneth D. Pasternak, Walter F. Raquet, J. Joe Ricketts, and Steven L. Steinman. No Summonses issued, with receipt number 817347, in the amount of $ 150.00; filed by Plaintiff, Denton L. Keener (Attachments: # (1))(KBJ)
8:03-cv-00421 Keener v. Ameritrade Holding et al (PAPER FILE)
Thomas M. Shanahan, presiding
Pro Se Docket, referral
Date filed: 10/10/2003 Date of last filing: 02/20/2004
Parties
Ameritrade Holding
Added: 10/10/2003
(Defendant) represented by Patrick B. Griffin
KUTAK ROCK, LLP
1650 Farnam Street
Omaha, NE 68102-2186
(402) 346-6000
(402) 346-1148 (fax)
patrick.griffin@kutakrock.com
Assigned: 12/15/03
ATTORNEY TO BE NOTICED
Robert J. Kriss
MAYER, BROWN LAW FIRM
190 South LaSalle Street
36th Floor, Suite 3900
Chicago, IL 60603-3441
(312) 701-7165
(312) 706-8646 (fax)
rkriss@mayerbrownrowe.com
Assigned: 12/31/03
ATTORNEY TO BE NOTICED
Joshua D. Yount
MAYER, BROWN LAW FIRM
190 South LaSalle Street
36th Floor, Suite 3900
Chicago, IL 60603-3441
(312) 701-8423
(312) 706-8521 (fax)
jyount@mayerbrownrowe.com
Assigned: 12/31/03
ATTORNEY TO BE NOTICED
Gene L. Finn
Added: 10/10/2003
(Defendant) represented by Thomas H. Dahlk
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
tdahlk@blackwellsanders.com
Assigned: 01/16/04
ATTORNEY TO BE NOTICED
Patrick B. Griffin
KUTAK ROCK, LLP
1650 Farnam Street
Omaha, NE 68102-2186
(402) 346-6000
(402) 346-1148 (fax)
patrick.griffin@kutakrock.com
Assigned: 12/15/03
ATTORNEY TO BE NOTICED
Robert J. Kriss
MAYER, BROWN LAW FIRM
190 South LaSalle Street
36th Floor, Suite 3900
Chicago, IL 60603-3441
(312) 701-7165
(312) 706-8646 (fax)
rkriss@mayerbrownrowe.com
Assigned: 12/31/03
ATTORNEY TO BE NOTICED
Joshua D. Yount
MAYER, BROWN LAW FIRM
190 South LaSalle Street
36th Floor, Suite 3900
Chicago, IL 60603-3441
(312) 701-8423
(312) 706-8521 (fax)
jyount@mayerbrownrowe.com
Assigned: 12/31/03
ATTORNEY TO BE NOTICED
Denton L. Keener
177 Walnut Street
Suite 9
Waynesville, NC 28786
(828) 734-2097
Added: 10/10/2003
(Plaintiff)
PRO SE
Knight Trading Group
Added: 10/10/2003
(Defendant) represented by Janet A. Beer
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3418
(212) 269-5420 (fax)
jbeer@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Thomas H. Dahlk
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
tdahlk@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Kristen L. Hauser
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3000
(212) 269-5420 (fax)
khauser@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Theresa D. Koller
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5017
(402) 964-5050 (fax)
tkoller@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Angela M. Lisec
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
alisec@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Thorn Rosenthal
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3823
(212) 269-5420 (fax)
trosenthal@cahill.com
Assigned: 12/19/03
ATTORNEY TO BE NOTICED
Robert M. Lazarowitz
Added: 10/10/2003
(Defendant) represented by Janet A. Beer
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3418
(212) 269-5420 (fax)
jbeer@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Thomas H. Dahlk
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
tdahlk@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Kristen L. Hauser
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3000
(212) 269-5420 (fax)
khauser@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Theresa D. Koller
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5017
(402) 964-5050 (fax)
tkoller@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Angela M. Lisec
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
alisec@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Thorn Rosenthal
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3823
(212) 269-5420 (fax)
trosenthal@cahill.com
Assigned: 12/19/03
ATTORNEY TO BE NOTICED
Kenneth D. Pasternak
Added: 10/10/2003
(Defendant) represented by Janet A. Beer
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3418
(212) 269-5420 (fax)
jbeer@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Thomas H. Dahlk
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
tdahlk@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Theresa D. Koller
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5017
(402) 964-5050 (fax)
tkoller@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Angela M. Lisec
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
alisec@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Thorn Rosenthal
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3823
(212) 269-5420 (fax)
trosenthal@cahill.com
Assigned: 12/19/03
ATTORNEY TO BE NOTICED
Walter F. Raquet
Added: 10/10/2003
(Defendant) represented by Janet A. Beer
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3418
(212) 269-5420 (fax)
jbeer@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Thomas H. Dahlk
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
tdahlk@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Kristen L. Hauser
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3000
(212) 269-5420 (fax)
khauser@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Theresa D. Koller
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5017
(402) 964-5050 (fax)
tkoller@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Angela M. Lisec
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
alisec@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Thorn Rosenthal
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3823
(212) 269-5420 (fax)
trosenthal@cahill.com
Assigned: 12/19/03
ATTORNEY TO BE NOTICED
J. Joe Ricketts
Added: 10/10/2003
(Defendant) represented by Thomas H. Dahlk
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
tdahlk@blackwellsanders.com
Assigned: 01/16/04
ATTORNEY TO BE NOTICED
Patrick B. Griffin
KUTAK ROCK, LLP
1650 Farnam Street
Omaha, NE 68102-2186
(402) 346-6000
(402) 346-1148 (fax)
patrick.griffin@kutakrock.com
Assigned: 12/15/03
ATTORNEY TO BE NOTICED
Robert J. Kriss
MAYER, BROWN LAW FIRM
190 South LaSalle Street
36th Floor, Suite 3900
Chicago, IL 60603-3441
(312) 701-7165
(312) 706-8646 (fax)
rkriss@mayerbrownrowe.com
Assigned: 12/31/03
ATTORNEY TO BE NOTICED
Joshua D. Yount
MAYER, BROWN LAW FIRM
190 South LaSalle Street
36th Floor, Suite 3900
Chicago, IL 60603-3441
(312) 701-8423
(312) 706-8521 (fax)
jyount@mayerbrownrowe.com
Assigned: 12/31/03
ATTORNEY TO BE NOTICED
Steven L. Steinman
Added: 10/10/2003
(Defendant) represented by Janet A. Beer
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3418
(212) 269-5420 (fax)
jbeer@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Thomas H. Dahlk
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
tdahlk@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Kristen L. Hauser
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3000
(212) 269-5420 (fax)
khauser@cahill.com
Assigned: 01/08/04
ATTORNEY TO BE NOTICED
Theresa D. Koller
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5017
(402) 964-5050 (fax)
tkoller@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Angela M. Lisec
BLACKWELL, SANDERS LAW FIRM - NEBRASKA
1620 Dodge Street
Suite 2100
Omaha, NE 68102
(402) 964-5000
(402) 964-5050 (fax)
alisec@blackwellsanders.com
Assigned: 12/16/03
ATTORNEY TO BE NOTICED
Thorn Rosenthal
CAHILL, GORDON LAW FIRM
80 Pine Street
New York, NY 10005
(212) 701-3823
(212) 269-5420 (fax)
trosenthal@cahill.com
Assigned: 12/19/03
ATTORNEY TO BE NOTICED
mmayr- Please read news releases more carefully. I think you'll find that Raging Bull Holdings has nothing whatsoever to do with Lycos' Raging Bull message boards.
The heat is on for funds' Pipe strategy
By Jason Huemer
Published: March 15 2004 4:00 / Last Updated: March 15 2004 4:00
The crusade by Eliot Spitzer, New York's attorney-general, against market timing in mutual funds has opened a Pandora's Box, leaving hedge funds wondering what other practices will appear on the regulatory radar screen. To some, there is one obvious candidate: the so-called Reg D hedge fund investment strategy.
The Reg D sector, also known as the "Pipe" sector, for private investments in public entities, refers to the market in which securities in public companies are purchased directly in negotiated transactions, usually at a discount to current value. These sales are made under the auspices of Regulation D of the 1933 Securities Act, which allows the sale of certain unregistered securities to qualified investors.
Pipe financing has legitimate applications but it has also witnessed its share of abuse and controversy, so much so that many practitioners have come to be known as corporate America's loan sharks.
Perhaps the most controversy has been generated by "death-spiral" or "toxic" converts, convertible bonds that have a resetting conversion price, granting more stock to the Pipe investor as the stock price declines.
These bonds became especially popular several years ago, in the wake of the telecoms and internet bust, as rapidly sinking companies grasped at straws to keep themselves afloat.
As the true impact of these deals became felt, with massive shorting driving the companies' stocks further down, a number of transactions resulted in litigation, including Ariad Pharmaceuticals and Log On America, both of which sued hedge fund Promethean Investment Group.
These cases were settled but not before the world caught a glimpse of the hardball tactics employed by some Reg D investors in stripping value out of fading companies.
Because of its unsavoury reputation, many hedge fund investors avoid Reg D or Pipe investments. But while they may avoid firms such as Promethean or BayStar, two of the largest Reg D-focused firms, they may not realise how much exposure they have through multi-strategy firms. In fact, over the past few years, some of the largest buyers of Pipes have included firms such as Citadel, Angelo Gordon and Ramius, all blue-chip names in the hedge fund business.
Defenders of the Pipe strategy focus on cases in which the capital gives otherwise failing companies a new lease on life. They also say that bad publicity has made toxic converts a thing of the past. The data support that contention: figures compiled by PlacementTracker indicate that issuance of such so-called structured Pipes fell from a high of almost $3.2bn in 2000 to under $250m last year. It is worth noting, however, that year-to-date tallies already eclipse the 2003 total.
Pipe investors also stress that they make more money if the stocks they buy go up rather than down. That argument, however, is misleading at best. A closer look reveals that taking directional exposure would be a sucker's bet. In fact, a recent University of Virginia study looked at 2,158 Pipes issued by 1,062 firms from 1995 to 2000 and found that the median abnormal return for Pipes in the 12 months following issuance was -40.7 per cent for "protected" deals (including reset converts) and was -26.7 per cent for "unprotected" Pipes (fixed-price deals).
Instead, it seems that much of the return in the sector has been generated by arbitrage trades - buying securities at a discount and capturing a spread through short sales or options. While this offers an attractive risk-adjusted return to the manager, it usually has the effect of driving the stock price down sharply, shifting the burden to existing shareholders.
The SEC has said it is looking at all areas of the Pipe financing market. Unfortunately for regulators the sector may be difficult to police since it is largely private and most investors play within the letter, if not the spirit, of the law.
In one rare exception, the SEC last year completed an enforcement action against Rhino Advisors, alleging the firm manipulated the stock of Sedona Corporation through a toxic convert and shorting. Rhino agreed to pay $1m to settle the complaint.
Far more interesting are Sedona's civil actions, which expose a tangled global web of offshore investment vehicles, Canadian brokerage firms and even a US investment bank, Ladenberg Thalmann, in a story that makes Rhino's involvement look like just the tip of the iceberg.
Despite the difficulty in regulating the sector, many believe more can be done, starting with one of the biggest smoking guns in the industry: shorting into the overnight convert market (bonds marketed privately for next day issue). While the subsequent equity hedging activity could be expected to depress the company's stock price, what is remarkable is that the price action often begins before any announcement, meaning some investors may be shorting on material non-public information. Where there's smoke, there could well be fire.
My Day in Court
Recommended "The majority makes state politicians into the new prelates and priests of our day, selling the junk trinkets of false religion and superstition and gladly taking the shillings of an over-taxed peasantry in order to hear souls spring every time the coin box rings! It is no wonder to me that we are just a breath away from the New Dark Ages, a time when computer databases and technology will replace medieval castles and knights. The people are hungry and desperate for feudal lords who would pen their gates in and protect them from freedom, rather than leaving them free." Column by Abe Arias.
Source Link: http://www.strike-the-root.com/
NetEase.com Reports Receipt of SEC ``Wells Notice''
BEIJING--(BUSINESS WIRE)--March 15, 2004--As previously disclosed by NetEase.com, Inc. (Nasdaq:NTES), the staff of the U.S. Securities and Exchange Commission (SEC) has been conducting an investigation related to NetEase's restatement of its financial statements for the year ended December 31, 2000. NetEase today announced that it has received a "Wells notice" from the SEC staff which states that the staff intends to recommend that the SEC bring a civil injunctive action against the Company for alleged violations of the federal securities laws, which action NetEase believes will be in connection with the circumstances relating to the restatement. NetEase believes that any such action will relate only to conduct that occurred more than two and a half years ago and has no relation to its present management or operations.
Under SEC procedures, NetEase has the opportunity to respond to the SEC staff before the staff makes a formal recommendation regarding any action to be taken against NetEase by the SEC. NetEase will continue to fully cooperate with the SEC in this matter and attempt to resolve it as soon as possible.
About NetEase
NetEase.com, Inc. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. Our online communities and personalized premium services have established a large and stable user base for the NetEase Web sites which are operated by our affiliate. As of February 29, 2004 we had approximately 185 million accumulated registered accounts, and our average daily page views for the month ended February 29, 2004 exceeded 309 million.
Community products and services which the NetEase Web sites offer include instant messaging, personals, matchmaking, alumni clubs, personal home pages and community forums. NetEase is also the largest provider of free e-mail services in China. Furthermore, the NetEase Web sites provide 20 channels of content. NetEase sources news content on world events, sports, science and technology, and financial markets as well as entertainment content such as cartoons, games, astrology and jokes from over one hundred international and domestic content providers.
NetEase offers Internet advertising on its Web sites as well as paid listings on its Search Engine, Web Directory and Classified Ads, and an Online Mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet.
NetEase also offers Wireless Value-added Services such as news and information content sent over SMS, MMS and WAP technologies, and Online Game services through three massively multi-player online role-playing game titles, Westward Journey Online 2.0, Fantasy Westward Journey and PristonTale 2.0.
This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the outcome of the SEC's investigation into NetEase's restatement of its financial statements for the year ended December 31, 2000, which could include the imposition of fines and penalties and other remedies and sanctions; the risk that the trading price of NetEase's American Depositary Shares may decrease for a variety of reasons, some of which may be beyond the control of management; the risk that current or future appointees to management are not effective in their respective positions; the difficulty in locating and recruiting suitable candidates for middle and senior management positions; NetEase's ability to develop and implement additional operational and financial systems to manage NetEase's operations; and other risks outlined in NetEase's filings with the Securities and Exchange Commission, including its registration statements on Form F-1 and Form F-3, as amended. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law.
Contacts
NetEase.com, Inc.
Ms. Olive Wang, +8610-8518-0163, ext. 8243
ir@corp.netease.com
or
Ogilvy Public Relations Worldwide
Ms. Christina Splinder, +8610-6443-6488 ext.505
christina.splinder@ogilvy.com
“CELLAR BOXING”
There’s a form of the securities fraud known as naked short selling that is becoming very popular and lucrative to the market makers that practice it. It is known as “Cellar boxing” and it has to do with the fact that the NASD and the SEC had to arbitrarily set a minimum level at which a stock can trade. This level was set at $.0001 or one-one hundredth of a penny. This level is appropriately referred to as “the cellar”. This $.0001 level can be used as a "backstop" for all kinds of market maker and naked short selling manipulations.
“Cellar boxing” has been one of the security frauds du jour since 1999 when the market went to a “decimalization” basis. In the pre-decimalization days the minimum market spread for most stocks was set at 1/8th of a dollar and the market makers were guaranteed a healthy “spread”. Since decimalization came into effect, those one-eighth of a dollar spreads now are often only a penny as you can see in Microsoft’s quote throughout the day. Where did the unscrupulous MMs go to make up for all of this lost income? They headed "south" to the OTCBB and Pink Sheets where the protective effects from naked short selling like Rule 10-a, and NASD Rules 3350, 3360, and 3370 are nonexistent.
The unique aspect of needing an arbitrary “cellar” level is that the lowest possible incremental gain above this cellar level represents a 100% spread available to MMs making a market in these securities. When compared to the typical spread in Microsoft of perhaps four-tenths of 1%, this is pretty tempting territory. In fact, when the market is no bid to $.0001 offer there is theoretically an infinite spread.
In order to participate in “cellar boxing”, the MMs first need to pummel the price per share down to these levels. The lower they can force the share price, the larger are the percentage spreads to feed off of. This is easily done via garden variety naked short selling. In fact if the MM is large enough and has enough visibility of buy and sell orders as well as order flow, he can simultaneously be acting as the conduit for the sale of nonexistent shares through Canadian co-conspiring broker/dealers and their associates with his right hand at the same time that his left hand is naked short selling into every buy order that appears through its own proprietary accounts. The key here is to be a dominant enough of a MM to have visibility of these buy orders. This is referred to as "broker/dealer internalization" or naked short selling via "desking" which refers to the market makers trading desk. While the right hand is busy flooding the victim company's market with "counterfeit" shares that can be sold at any instant in time the left hand is nullifying any upward pressure in share price by neutralizing the demand for the securities. The net effect becomes no demonstrable demand for shares and a huge oversupply of shares which induces a downward spiral in share price.
In fact, until the "beefed up" version of Rule 3370 (Affirmative determination in writing of "borrowability" by settlement date) becomes effective, U.S. MMs have been "legally" processing naked short sale orders out of Canada and other offshore locations even though they and the clearing firms involved knew by history that these shares were in no way going to be delivered. The question that then begs to be asked is how "the system" can allow these obviously bogus sell orders to clear and settle. To find the answer to this one need look no further than to Addendum "C" to the Rules and Regulations of the NSCC subdivision of the DTCC. This gaping loophole allows the DTCC, which is basically the 11,000 b/ds and banks that we refer to as "Wall Street”, to borrow shares from those investors naive enough to hold these shares in "street name" at their brokerage firm. This amounts to about 95% of us. Theoretically, this “borrow” was designed to allow trades to clear and settle that involved LEGITIMATE 1 OR 2 DAY delays in delivery. This "borrow" is done unbeknownst to the investor that purchased the shares in question and amounts to probably the largest "conflict of interest" known to mankind. The question becomes would these investors knowingly loan, without compensation, their shares to those whose intent is to bankrupt their investment if they knew that the loan process was the key mechanism needed for the naked short sellers to effect their goal? Another question that arises is should the investor's b/d who just earned a commission and therefore owes its client a fiduciary duty of care, be acting as the intermediary in this loan process keeping in mind that this b/d is being paid the cash value of the shares being loaned as a means of collateralizing the loan, all unbeknownst to his client the purchaser.
An interesting phenomenon occurs at these "cellar" levels. Since NASD Rule 3370 allows MMs to legally naked short sell into markets characterized by a plethora of buy orders at a time when few sell orders are in existence, a MM can theoretically "legally" sit at the $.0001 level and sell nonexistent shares all day long because at no bid and $.0001 ask there is obviously a huge disparity between buy orders and sell orders. What tends to happen is that every time the share price tries to get off of the cellar floor and onto the first step of the stairway at $.0001 there is somebody there to step on the hands of the victim corporation's market.
Once a given micro cap corporation is “boxed in the cellar” it doesn’t have a whole lot of options to climb its way out of the cellar. One obvious option would be for it to reverse split its way out of the cellar but history has shown that these are counter-productive as the market capitalization typically gets hammered and the post split share price level starts heading back to its original pre-split level.
Another option would be to organize a sustained buying effort and muscle your way out of the cellar but typically there will, as if by magic, be a naked short sell order there to meet each and every buy order. Sometimes the shareholder base can muster up enough buying pressure to put the market at $.0001 bid and $.0002 offer for a limited amount of time. Later the market makers will typically pound the $.0001 bids with a blitzkrieg of selling to wipe out all of the bids and the market goes back to no bid and $.0001 offer. When the weak-kneed shareholders see this a few times they usually make up their mind to sell their shares the next time that a $.0001 bid appears and to get the heck out of Dodge. This phenomenon is referred to as “shaking the tree” for weak-kneed investors and it is very effective.
At times the market will go to $.0001 bid and $.0003 offer. This sets up a juicy 200% spread for the MMs and tends to dissuade any buyers from reaching up to the "lofty" level of $.0003. If a $.0002 bid should appear from a MM not "playing ball" with the unscrupulous MMs, it will be hit so quickly that Level 2 will never reveal the existence of the bid. The $.0001 bid at $.0003 offer market sets up a "stalemate" wherein market makers can leisurely enjoy the huge spreads while the victim company slowly dilutes itself to death by paying the monthly bills with "real" shares sold at incredibly low levels. Since all of these development-stage corporations have to pay their monthly bills, time becomes on the side of the naked short sellers.
At times it almost seems that the unscrupulous market makers are not actively trying to kill the victim corporation but instead want to milk the situation for as long of a period of time as possible and let the corporation die a slow death by dilution. The reality is that it is extremely easy to strip away 99% of a victim company’s share price or market cap and to keep the victim corporation “boxed“ in the cellar, but it really is difficult to kill a corporation especially after management and the shareholder base have figured out the game that is being played at their expense.
As the weeks and months go by the market makers make a fortune with these huge percentage spreads but the net aggregate naked short positions become astronomical from all of this activity. This leads to some apprehension amongst the co-conspiring MMs. The predicament they find themselves in is that they can’t even stop naked short selling into every buy order that appears because if they do the share price will gap and this will put tremendous pressures on net capital reserves for the MMs and margin maintenance requirements for the co-conspiring hedge funds and others operating out of the more than 13,000 naked short selling margin accounts set up in Canada. And of course covering the naked short position is out of the question since they can’t even stop the day-to-day naked short selling in the first place and you can't be covering at the same time you continue to naked short sell.
What typically happens in these situations is that the victim company has to massively dilute its share structure from the constant paying of the monthly burn rate with money received from the selling of “real” shares at artificially low levels. Then the goal of the naked short sellers is to point out to the investors, usually via paid “Internet bashers”, that with the, let’s say, 50 billion shares currently issued and outstanding, that this lousy company is not worth the $5 million market cap it is trading at, especially if it is just a shell company whose primary business plan was wiped out by the naked short sellers’ tortuous interference earlier on.
The truth of the matter is that the single biggest asset of these victim companies often becomes the astronomically large aggregate naked short position that has accumulated throughout the initial “bear raid” and also during the “cellar boxing” phase. The goal of the victim company now becomes to avoid the 3 main goals of the naked short sellers, namely: bankruptcy, a reverse split, or the forced signing of a death spiral convertible debenture out of desperation. As long as the victim company can continue to pay the monthly burn rate, then the game plan becomes to make some of the strategic moves that hundreds of victim companies have been forced into doing which includes name changes, CUSIP # changes, cancel/reissue procedures, dividend distributions, amending of by-laws and Articles of Corporation, etc. Nevada domiciled companies usually cancel all of their shares in the system, both real and fake, and force shareholders and their b/ds to PROVE the ownership of the old “real” shares before they get a new “real” share. Many also file their civil suits at this time also. This indirect forcing of hundreds of U.S. micro cap corporations to go through all of these extraneous hoops and hurdles as a means to survive, whether it be due to regulatory apathy or lack of resources, is probably one of the biggest black eyes the U.S. financial systems have ever sustained. In a perfect world it would be the regulators that periodically audit the “C” and “D” sub-accounts at the DTCC, the proprietary accounts of the MMs, clearing firms, and Canadian b/ds, and force the buy-in of counterfeit shares, many of which are hiding behind altered CUSIP #s, that are detected above the Rule 11830 guidelines for allowable “failed deliveries” of one half of 1% of the shares issued. U.S. micro cap corporations should not have to periodically “purge” their share structure of counterfeit electronic book entries but if the regulators will not do it then management has a fiduciary duty to do it.
A lot of management teams become overwhelmed with grief and guilt in regards to the huge increase in the number of shares issued and outstanding that have accumulated during their “watch”. The truth however is that as long as management made the proper corporate governance moves throughout this ordeal then a huge number of resultant shares issued and outstanding is unavoidable and often indicative of an astronomically high naked short position and is nothing to be ashamed of. These massive naked short positions need to be looked upon as huge assets that need to be developed. Hopefully the regulators will come to grips with the reality of naked short selling and tactics like "Cellar boxing" and quickly address this fraud that has decimated thousands of U.S. micro cap corporations and the tens of millions of U.S. investors therein.
U.S Sec Sued in Florida-Here comes the Avalanche
The U.S. Securities and Exchange Commission is being sued in the U.S. District Court,
Southern District of Florida, for harassment and intimidation by Universal Express, Inc. (OTCBB: USXP), in part rising out of the SEC's investigation into
claims that Universal Express has been a victim of naked short selling. As of this writing, the company has not disclosed in a press release or other filing
that it has filed.
Recently, leading market makers named in various lawsuits and other actions, including Ameritrade Holding Corp. (NASDAQ:AMTD), Deutsche Bank AG (NYSE: DB),
and ETrade Group, Inc. (NYSE: ET) were given a "reprieve" until April 1 to comply with new short-selling market regulations imposed by the NASD after
the SEC had "sat on" the NASD request to plug material loopholes for almost 2-1/2 years.
According to a non-affiliated source that provided the document to FinancialWire, the filing occurred March 3. The lawsuit infers that SEC subpoenas issued to funding and acquisition targets have spooked and interfered
with the company's ability to raise capital and to complete acquisitions, such as that of North American Airlines.
It also states that USXP and its executives have been served with what appears
to have been dozens of subpoenas, over many months, asking for virtually every
document in the company's possession. The lawsuit notes that the company had
complied with all of them, despite due dates often as short as two days, but
that the SEC appears bent on "harassing" the company with ever
increasing demands.
The reason given for delaying the implementation of the "loophole" close
was that many NASD members, most of whom have argued in the past that their
trading systems do not allow for "naked" short selling, "need to
make significant technological changes to
their systems to comply with the new requirements." This could easily become
fodder for the many lawsuits that have been filed in this long-standing national
scandal called StockGate.
For some in the industry, the fact that the new date coincides with "April
Fool" was not lost.
The NASD noticed its members that it is "delaying the effective date of
amendments to Rule 3370 (Prompt
Receipt and Delivery of Securities-the "Affirmative Determination" Rule)
approved by the SEC in November 2003,1 until April 1, 2004.
"The amendments expand the scope of the affirmative determination
requirements to include orders received from broker/dealers that are not members
of NASD ("non-member broker/dealers"). The effective date of the amendments
originally was March 5, 2004," said the notice.
The proposed and now delayed rule is on the web at
http://www.nasdr.com/2610_2004.asp#04-03
The rule itself, while welcomed by small companies and their shareholders in the
U.S., nevertheless raised an outcry because the NASD's request to put it into
effect had set on a shelf at the SEC since 2001.
Meanwhile, CBS Marketwatch, a venture between Marketwatch (NASDAQ: MKTW) and
Viacom's (NYSE: V) CBS unit, has suggested that victims of securities fraud may
be able to file for theft claims on tax returns instead of capital losses.
The scandal has embroiled hundreds of companies and dozens of brokers and
marketmakers, in a web of international intrigue, manipulative short-selling
and cross-border accusations and denials.
Comments on Regulation SHO ended January 5, and may be viewed at
http://www.sec.gov/rules/proposed/s72303.shtml .
Some 122 companies, including 13 brokers, such as FleetBoston (NYSE: FBF),
Goldman, Sachs & Co. (NYSE: GS), H. Myerson & Co., Inc. (NASDAQ:MHMY), Olde /
H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto-Dominion's (NYSE:
TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN). A.G. Edwards at, Inc.
(NYSE: AGE), Ameritrade Holding Corp. (NASDAQ:AMTD), Deutsche Bank AG (NYSE:
DB), and ETrade Group, Inc. (NYSE: ET), have been embroiled for over a year in a
raging controversy
The remaining 109 companies among the 122 named to date have issued press
releases or been named in the media as having been victimized, or as taking
various actions, either alone or in concert with other companies, to oppose
manipulative trading in the form of illegal naked short selling. The actions
have ranged from lawsuits to withdrawals and threatened withdrawals from the
electronic trading system managed by the Depository Trust & Clearing Corp., to
withdrawals from toxic financings, to the issuance of dividends or name changes
designed to squeeze manipulators, to joining associations or networks or to
contacting regulatory authorities to provide documentation of abuses or
otherwise complain.
The complete list of those 108 companies include Advanced Viral Research Corp.
(OTCBB: ADVR), AdZone Research, Inc. (OTCBB: ADZR), Amazon Natural Treasures
(OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American
Ammunition, Inc. (OTCBB: AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI
Communications, Inc. (OTC: ATSC), Federal Agricultural Mortgage / Farmer Mac
(NYSE: AGM) Allied Capital (NYSE: ALD), American Motorcycle (OTC: AMCYV),
American International Industries (OTCBB: AMIN), Ameri-Dream (OTC: AMDR),
Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), ATSI Communications, Inc.
(OTC: ATSC) Bluebook International (OTCBB: BBIC), Blue Industries (OTCBB:
BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation
(OTCBB: BIFT), Biocurex (OTCBB: BOCX). Broadleaf Capital Partners, Inc. (OTCBB:
BDLF), Chattem, Inc. (NASDAQ:CHTT), Critical Home Care (OTCBB: CCLH), Composite
Holdings (OTC: COHIA), CyberDigital, Inc. (OTCBB: CYBD). Diamond International
Group (OTCBB: DMND), Dobson Communications Corp. (NASDAQ:DCEL), Eagle Tech
Communications (OTC: EATC), Edgetech Services (OTCBB: EDGH);
Also, Endovasc Ltd. (OTCBB: EVSC), Enviro-Energy Corporation (OTCBB: ENGY),
Environmental Products & Technologies (OTC: EPTC), Environmental Solutions
Worldwide, Inc. (OTCBB: ESWW), EPIXTAR Corp. (OTCBB: EPXR),
eResearchTechnologies, Inc. (NASDAQ:ERES), Flight Safety Technologies (OTCBB:
FLST), Freddie Mac (NYSE: FRE), FreeStar Technologies (OTCBB: FSRCE), Front
Porch Digital,
Inc. (OTCBB: FPDI), Geotec Thermal Generators, Inc. (OTCBB: GETC), Genesis
Intermedia (OTC: GENI), GeneMax Corp. (OTCBB: GMXX), Global Explorations Inc
(OTC: GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI),
Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On
(OTC: HPON), H-Quotient, Inc., (OTCBB: HQNT), Hyperdynamics Corp. (OTCBB: HYPD),
International Biochem (OTCBB: IBCL), Intergold Corp. (OTCBB: IGCO),
International Broadcasting Corporation (OTCBB: IBCS), InternetStudios, Inc.
(OTCBB: ISTO), ITIS Holdings (OTCBB: ITHH), Investco Corp. (OTCBB: IVCO), Lair
Holdings (OTC: LAIR), Lifeline BioTechnologies Inc. (OTC: LBTT), Life Energy &
Technology (OTCBB: LETH), MBIA (NYSE: MBI);
Also, MegaMania Interactive (OTC: MNIA), MetaSource Group, Inc. (OTCBB: MTSR),
Midastrade.com (OTC: MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (OTC:
MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (OTCBB:
NPCT), Nutra Pharmaceutical (OTCBB: NPHC), Nutek (OTCBB: NUTK), Navigator
Ventures (OTC: NVGV), Orbit E-Commerce, Inc. (OTCBB: OECI), Pitts & Spitts (OTC:
PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar
Corporation (OTC: PYST), Petrogen Corp. (OTCBB: PTGC), Pinnacle Business
Management (OTC: PCBM), Premier Development & Investment, Inc. (OTCBB: PDVN),
PrimeHoldings.com, Inc. (OTC: PRIM), Phlo Corporation (OTCBB: PHLC), Resourcing
Solutions (OTC: RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp.
(OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (NASDAQ:SFLK), Safe
Travel Care (OTCBB: SFTVV), Sedona Corp. (OTCBB: SDNA);
Also, Sionix Corp. (OTCBB: SINX), Sonoran Energy (OTCBB: SNRN), Starmax
Technologies (OTC: SMXIF), Storage Suites America (OTC: SSUA), Suncomm
Technologies (OTC: STEH), Sports Resorts International (NASDAQ:SPRI), Technology
Logistics (OTC: TLOS), Swiss Medica, Inc. (OTCBB: SWME), Ten Stix, Inc. (OTCBB:
TNTI), Tidelands Oil (OTCBB: TIDE), Titan Construction (OTC: TTCS), Trezac Corp.
(OTCBB: TRZAV), Universal Express, Inc. (OTCBB: USXP), Valesc Holdings, Inc.
(OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (AMEX: VRA), Viragen
International (OTCBB: VGNI), Vista Continental Corporation, (OTCBB: VICC), Viva
International (OTCBB: VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software
(OTCBB: WIZD), WorldTradeShow.com (OTC: WTSW) and Y3K Secure Enterprise
Software, Inc. (OTCBB: YTHK).
Earlier in 2003, the SEC fined Rhino Advisors, Inc., $1 million for its
representation of Amro International in the financing and manipulation of Sedona
Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore
haven, but was not named in the SEC settlement. Another 60 public companies may
have been manipulated by the fined Rhino Advisors and its indicted principals,
or its funding apparatus, Amro.
These include:
All American Food Group Inc (OTC: AAFGQ), Amanda Co Inc (OTC: AMNA), Antra
Holdings (OTC: RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir
Pharmaceuticals (AMEX: AVN), Bionutrics Inc (OTC: BNRX), Brilliant Digital
Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE),
Butler National Corp (NASDAQ: BUTL), Calypte Biomedical Corp (OTCBB: CYPT),
Chemtrak Inc/DE (OTC: CMTR), Clicknsettle Com Inc (OTCBB: CLIK), Corporate
Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (OTC: CLWB), Dental Medical
Diagnostic Systems Inc (OTC: DMDS), Detour Media Group Inc (OTC: DTRM),
Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (OTC: DISS),
International Inc (OTC: DYNX), Endovasc Ltd Inc (OTCBB: EVSC), Esynch Corp/CA
(OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (OTC:
FRBW), Greystone Digital Technology Inc (OTC: GSTN), Havana Republic Inc/FL
(OTCBB: HVNR), Henley Healthcare Inc (OTC: HENL), Hollywood Media Corp (NASDAQ:
HOLL), Ibiz Technology Corp (OTCBB: IBZT), Diagnostic Systems Inc/FL (OTCBB:
IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc
(OTCBB: RDOC),
Also, Interferon Sciences Inc (OTC: IFSC), Interiors Inc (OTC: ITRNA), Laminaire
Corp (OTC: THMZ), Medisys Technologies Inc (OTC: SCEP), Milestone Scientific
Inc/NJ (AMEX: MS), Nevada Manhattan Group Inc (OTC: NVMH), Innovations Inc
(OTCBB: NTGE), Systems Group (OTC: OSYM), Pacific Systems Control Technology Inc
(OTCBB: PFSY), Professional Transportation Group Ltd Inc (OTC: TRUC), Rnethealth
Inc (OTC: RNTT),
Also, Sand Technology Inc (NASDAQ: SNDT), Sedona Corp (OTCBB: SDNA), Silverado
Foods Inc (OTC: SVFO), Stockgroup Information Systems (OTCBB: SWEB) Surgilight
Inc (OTC: SRGL), Tasty Fries Inc (OTCBB: TFRY), Tech Laboratories Inc (OTCBB:
TCHL), Teltran International Group Ltd (OTC: TLTG), Titan Motorcycle Co of
America Inc (OTC: TMOTQ), Trans Energy Inc (OTCBB: TSRG), Motorcycle Co (OTC:
UMCC), Universal Communication Systems Inc (OTCBB: UCSY), Medical Systems Inc
(OTC: UMSI), Vianet Technologies Inc (OTC: VNTK),Viragen Inc (AMEX: VRA),
Webcatalyst Inc (OTC: WBCL), Worldwide Wireless Networks Inc (OTCBB: WWWNQ), and
ZAP (OTCBB: ZAPZ).
The American Stock Exchange LLC ("Amex" or "Exchange") respectfully submits the following comments with respect to File No. S7-23-03 (Short Sales; Proposed Rule)1, in which the Securities and Exchange Commission (the "Commission") proposes new Regulation SHO - Regulation of Short Sales and certain other changes to the rules applicable to short sales under the Securities Exchange Act of 1934 (the "Exchange Act").
http://www.sec.gov/rules/proposed/s72303/amex022004.htm
Naked shorting takes place every day through Canada and ...
Friday, March 5, 2004...
Whisper Stocks
Market Digest Online
info@marketdigestonline.com
www.marketdigestonline.com
Market Digest Online, Inc.
JAG MEDIA HOLDINGS: (JGMHA) $1.39 Up $.09 and traded on the OTC Bulletin Board….. MDO first recommended Jag Media Holdings on Wednesday, March 3, 2004 to Flash Alert subscribers when the stock was priced at $1.20 per share. The company provides financial and investment information. However, this recommendation centers around the illegal shorting of penny stocks that has been taking place for years. The average investor thinks it is not possible to short stocks priced under $5.00, but for the pros this is not the case. The illegal shorting of penny stocks takes place every day through Canada and offshore accounts, but rules will soon go in force that will supposedly make it illegal to "naked short." Think about it folks.....penny stocks are generally very thinly traded. On the Bulletin Board, it's a given that 95% of those companies never make it and illegal shorting of Bulletin Board stocks has played a major role in most of these companies going out of business. The story of Jag Media Holdings is likely no different than hundreds of other penny stocks, but there's a huge difference. The management of Jag Media has taken it upon themselves to crucify those responsible for shorting their stock. The company has hired O'Quinn Laminack & Pirtle and is suing a host of major brokerage firms in connection with naked short selling of Jag Media's stock. This law firm has taken on big tobacco and is widely acknowledged as one of the most accomplished trial lawyer firms in the nation, holding some of the largest verdicts and settlements in the country. We plan to make this a two part story, as to fully understand this soap opra it will take much reading to familiarize yourself with the entire story.....and this story is truly like a soap opra. The only script that hasn't been written yet is the ending and many pros believe the ending will be a melt up in the price of Jag Media's stock. Today, we'll tell the story of a company by the name of Eagletech as published in Forbes and then we'll tell you about Mark Valentine, the former chairman of Canadian based Thomas Kernaghan. Valentine is currently in custody in south Florida and is set for trial later this month. Valentine is widely known as a person who has been solely responsible for putting hundreds of penny stock companies out of business through his illegal naked short selling. Finally, there are 40 million shares outstanding for Jag Media Holdings. Management believes there is in excess of 100 million shares short.
Insider Trading: Information on Bounties
Section 21A(e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78u-l(e)] authorizes the Securities and Exchange Commission ("Commission") to award a bounty to a person who provides information leading to the recovery of a civil penalty from an insider trader, from a person who "tipped" information to an insider trader, or from a person who directly or indirectly controlled an insider trader. This pamphlet is designed to provide interested persons with information on bounties and the Commission's rules for making a bounty application. Section 21A(e) of the Exchange Act and the Commission's bounty rules are set out at the end of this pamphlet.
What is "Insider Trading?"
"Insider trading" refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped" and securities trading by those who misappropriate such information. Examples of insider trading cases that have been brought by the Commission are cases against: corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments; friends, business associates, family members, and other "tippees" of such officers, directors, and employees, who traded the securities after receiving such information; employees of law, banking, brokerage and printing firms who were given such information in order to provide services to the corporation whose securities they traded; government employees who learned of such information because of their employment by the government; and other persons who misappropriated, and took advantage of, confidential information from their employers.
Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the Commission has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.
How Much May be Paid as a Bounty?
Insider trading may result in enforcement action by the Commission or in criminal prosecution by the Department of Justice. The Exchange Act permits the Commission to bring suit against insider traders to seek injunctions, which are court orders that prohibit violations of the law under threat of fines and imprisonment. The Commission may also seek other relief against insider traders, including recovery of any illegal gains (or losses avoided) and payment of a civil penalty. The amount of a civil penalty can be up to three times the profit gained (or loss avoided) as a result of insider trading.
The Commission is permitted to make bounty awards from the civil penalties that are actually recovered from violators. With minor exceptions, any person who provides information leading to the imposition of a civil penalty may be paid a bounty. However the total amount of bounties that may be paid from a civil penalty may not exceed ten percent of that penalty.
How Will the Commission Make Bounty Determinations?
All Commission determinations regarding bounties including whether to make a payment, to whom a payment shall be made, and the amount of a payment (if any), are in the sole discretion of the Commission. Any such determination is final and not subject to judicial review. Nothing in the Commission's rules or in this pamphlet is intended to limit the Commission's discretion with respect to bounties.
In making determinations regarding bounty applications the Commission will be guided by the purposes of the bounty provisions. These purposes include the intent of the United States Congress to encourage persons with information about possible insider trading to come forward. The Commission will also consider other factors that it deems relevant. Examples of other factors that may be relevant are: the importance of the information provided by an applicant; whether the information was provided voluntarily; the existence of other applications in the matter; and the amount of the penalty from which bounties may be paid.
Normally, the Commission will not make any determination on a bounty application until a payment of a penalty is both ordered by a court and recovered. A person who files an application meeting the requirements of the Commission's rules will be notified of the Commission's determination on the application.
How and When Do You Apply for a Bounty?
An application must be clearly marked as an "Application for Award of a Bounty," and must contain the information required by the Commission's rules. The application must give a detailed statement of the information that the applicant has about the suspected insider trading.
Any person who desires to provide information to the Commission that may result in the payment of a bounty may do so by any means desired. The Commission encourages persons having information regarding insider trading to provide that information in writing, either at the time they initially provide the information to the Commission or as soon as possible afterwards. Providing information in writing reduces the possibility of error, helps assure that appropriate action will be taken, and minimizes subsequent burdens and the possibility of factual disputes. In any event, a written application for a bounty must be filed within 180 days after the day on which the court orders payment of the civil penalty.
Can You Apply for a Bounty Anonymously?
The Commission recognizes that there may be instances when a bounty applicant wishes to remain temporarily anonymous. The bounty rules take these instances into account. While the Commission will only award bounties to applicants who provide their identity and mailing address, that information may be added by a later amendment to the application. The amendment must be filed within 180 days after the entry of the court order requiring the payment of the penalty upon which the bounty is based. An anonymous applicant who fails to file such an amendment (and anyone who fails to make a written application) runs the risk of losing eligibility for a bounty through lapse of time and ignorance of the fact that a penalty has been recovered.
Absent compelling cause, the Commission ordinarily does not disclose the identity of a confidential source. In some instances however disclosure of that identity will be legally required, or will be essential for the protection of the public interest. For example, a court may order disclosure during litigation, or the Commission may need to present the testimony of a bounty claimant to ensure the success of an enforcement action. Consequently while the Commission and its staff will give serious consideration to requests to maintain the confidentiality of a source's identity, no guarantees of confidentiality are possible.
Statutory and Regulatory Provisions
Section 21A(e) of the Exchange Act
[T]here shall be paid from amounts imposed as a penalty under this section and recovered by the Commission or the Attorney General, such sums, not to exceed 10 percent of such amounts, as the Commission deems appropriate to the person or persons who provide information leading to the imposition of such penalty. Any determinations under this subsection, including whether, to whom, or in what amount to make payment, shall be in the sole discretion of the Commission, except that no such payment shall be made to any member, officer, or employee of any appropriate regulatory agency, the Department of Justice, or a self-regulatory organization. Any such determination shall be final and not subject to judicial review.
Subpart C of Part 201 of Title 17 of the Code of Federal Regulations
Procedures Pertaining to the Payment of Bounties Pursuant to Subsection 21A(e) of the Securities Exchange Act of 1934
Rule 61 Scope of subpart
Section 21A of the Securities Exchange Act of 1934 authorizes the courts to impose civil penalties for certain violations of that Act. Subsection 21A(e) permits the Commission to award bounties to persons who provide information that leads to the imposition of such penalties. Any such determination, including whether, to whom, or in what amount to make payments, is in the sole discretion of the Commission. This subpart sets forth procedures regarding applications for the award of bounties pursuant to subsection 21A(e). Nothing in this subpart shall be deemed to limit the discretion of the Commission with respect to determinations under subsection 21A(e) or to subject any such determination to judicial review.
Rule 62 Application required.
No person shall be eligible for the payment of a bounty under subsection 21A(e) of the Securities Exchange Act of 1934 unless such person has filed a written application that meets the requirements of this subpart and, upon request, provides such other information as the Commission or its staff deems relevant to the application.
Rule 63 Time and place of filing.
Each application pursuant to this subpart and each amendment thereto must be filed within one hundred eighty days after the entry of the court order requiring the payment of the penalty that is subject to the application. Such applications and amendments shall be addressed to: Office of the Secretary, Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C., 20549.
Rule 64 Form of application and information required.
Each application pursuant to this subpart shall be identified as an Application for Award of a Bounty and shall contain a detailed statement of the information provided by the applicant that the applicant believes led or may lead to the imposition of a penalty. Except as provided by Rule 65 of this subpart, each application shall state the identity and mailing address of, and be signed by, the applicant. When the application is not the means by which the applicant initially provides such information, each application shall contain: the dates and times upon which, and the means by which, the information was provided; the identity of the Commission staff members to whom the information was provided; and, if the information was provided anonymously, sufficient further information to confirm that the person filing the application is the same person who provided the information to the Commission.
Rule 65 Identity and signature.
Applications pursuant to this subpart may omit the identity, mailing address, and signature of the applicant; provided that such identity, mailing address and signature are submitted by an amendment to the application. Any such amendment must be filed within one hundred eighty days after the entry of the court order requiring the payment of the penalty that is subject to the application.
Rule 66 Notice to applicants.
The Commission will notify each person who files an application that meets the requirements of this subpart, at the address specified in such application, of the Commission's determination with respect to such person's application. Nothing in this subpart shall be deemed to entitle any person to any other notice from the Commission or its staff.
Rule 67 Applications by legal guardians.
An application pursuant to this subpart may be filed by an executor, administrator, or other legal representative of a person who provides information that may be subject to a bounty payment or by the parent or guardian of such a person if that person is a minor. Certified copies of the letters testamentary, letters of administration, or other similar evidence showing the authority of the legal representative to file the application must be annexed to the application.
Rule 68 No promises of payment.
No person is authorized under this subpart to make any offer or promise, or otherwise to bind the Commission with respect to the payment of any bounty or the amount thereof.
Source: SEC Form 2222 (6-89)
http://www.sec.gov/divisions/enforce/insider.htm
Get ready for a deluge of lawsuits prior to April 1:
Majority Shareholder of Sports Resorts International, Inc. Files Law Suit
Against 'Short Sellers'
OWOSSO, Mich., Feb. 3 /PRNewswire/ -- Donald J. Williamson, the largest
shareholder of Sports Resorts International, Inc. (the "Company") (Nasdaq:
SPRI), today announced he has filed a lawsuit in the United States District
Court, State of Nevada, against various brokerage firms and market makers
alleging they have engaged in unlawful "naked short sales" of shares of SPRI
stock. The lawsuit alleges that "naked short sales" result in manipulation
of the market price of the publicly-traded shares of SPRI and present false
or misleading information concerning the price, actual trading activity
and/or the number of free-trading shares of SPRI in the trading market.
Among the parties named as defendants in the lawsuit are Goldman, Sachs &
Co.; Archipelago Holdings, LLC; Knight Securities, LP; M. H. Myerson & Co.,
Inc.; and Westminister Securities Corp.
A "short sale," which is legal, becomes "naked" and illegal when the seller
does not own or control and is unable to borrow sufficient shares to cover
the seller's "short" positions. This conduct has several very serious
negative results on a public company's stock:
* it allows a potentially unlimited number of shares to be sold, without
regard for the number of free-trading shares issued and outstanding;
* it destroys the integrity of the trading market;
* it artificially dilutes shareholder interests; and
* it devalues the value of the shares.
In addition to violations of the federal securities laws, the lawsuit also
alleges other claims based on civil fraud, racketeering and conspiracy, and
various claims based on state law, and seeks damages in excess of
$10,000,000 from each defendant.
Currently, the Company -- through its subsidiaries -- is engaged in the
manufacture and sale of bedliners and other truck accessories, and the
ownership and operation of a multi-purpose motor sports facility located
near Brainerd, Minn.
Certain statements included in this press release are "forward-looking"
statements, such as those relating to anticipated events or activities. The
Company's performance and financial results could differ materially from
those reflected in the forward-looking statements due to financial,
economic, regulatory and political factors as described in the Company's
filings with the Securities and Exchange Commission. Therefore, current or
prospective investors are cautioned not to place undue reliance on any such
forward- looking statements. The Company does not undertake any obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information or future events.
For further information contact Investor Relations or Donald J. Williamson,
Chief Executive Officer, at 989-725-8354 or visit the Web site at:
http://www.sportsresortsinternational.com .
SOURCE Sports Resorts International, Inc.
/CONTACT: Donald J. Williamson of Sports Resorts International, Inc.,
+1-989-725-8354/
Interesting RB would take that type of action. . .considering the repurcussions that could come their way from permitting assistants of these organizations to post libelous and defamatory statements on their investor forum.
Raging Bull Holdings Announces Filing of a Class Action Lawsuit Against Ameritrade Holdings, Knight Trading Group and 6 Key Individuals -- AMTD, NITE
WAYNESVILLE, N.C., Oct. 23, 2003 (PRIMEZONE) -- Raging Bull Holdings et al -- (a consortium of private investors) on behalf of themselves and others similarly situated, announced today that a class action lawsuit was filed on October 10, 2003 in the United States District Court for the District of Nebraska, case number 8:03CV421, on behalf of customers of Ameritrade Holdings Inc. (Nasdaq:AMTD) et al ("Ameritrade") who became customers of Ameritrade between March 29, 1995 and September 30, 2003, inclusive the ("Class Period"). The lawsuit additionally names Knight Trading Group Inc ("Knight") (Nasdaq:NITE), J. Joe Ricketts, Gene L. Finn, Kenneth D. Pasternak, Steven L. Steinman, Walter F. Raquet and Robert M. Lazarowitz as defendants.
The complaint charges Ameritrade, Knight and certain key officers and directors with mutiple violations of SEC Rules 3b, 10b and 11Ac. Ameritrade violated Rule 11Ac in that they failed to disclose to their customers their true affiliation with Knight, the true level of customer order flow routed to Knight for execution and the true payments for order flow received from Knight. Knight violated Rules 11Ac regarding order handling and display in connection with the orders placed via Ameritrade's customers. Both companies filed false historical data in required SEC filings and reports. All defendants violated Rules 10b and 3a in a scheme to defraud Ameritrade's customers through improper order execution by not properly revealing the true affiliation shared between the parties as complained of in this action.
Plaintiffs allege that approximately 70 percent of all customers' orders were routed to Knight for execution during the 8 1/2 year Class Period. This resulted in improper order handling and execution of nearly 40,000 trades per day on all securities on all major exchanges. The amount defrauded of the 3 million plus Class members in this action resulted in losses of billions of dollars of investment capital. The lawsuit seeks $4.5 billion in restitution, or $1500 per member.
Ameritrade failed their fiduciary responsibility to disclose the affiliation shared with Knight to their customers, the regulatory agencies and the investing public. Ameritrade's ownership position of Knight common stock, revenues received for payment for order flow and past equity income gains from Roundtable Partners LLC obligates Ameritrade to properly disclose all levels of this affiliation to the public. By not disclosing this affiliation, and Knight's willful violations of SEC Rules, as sanctioned by the SEC and the NASD, the Class Members have sustained the damages complained of herein.
If you became a customer of Ameritrade between March 29, 1995 and September 30, 2003, and were victim to your orders placed via Ameritrade and Knight not receiving the execution deserved, and sustained financial losses thereby, and wish to serve as lead plaintiff in this action, you must move the Court no later than December 29, 2003.
If you are of counsel, with a leading law firm, experienced in prosecuting complex cases involving brokerage and market maker firm fraud, breach of fiduciary duty and SEC and NASD Rules violations, and wish to represent this Class in this action, you may contact the filer of this complaint as per below.
Direct all inquiries regarding this matter to Denton L. Keener of Raging Bull Holdings by telephoning (828) 734-2097, via email to ragingbullinvgroup@charter.net, via regular mail to 177 Walnut Street Suite 9, Waynesville, NC 28786. A copy of this complaint is available from the Court or by contacting Raging Bull Holdings.
CONTACT: Raging Bull Holdings
Denton L. Keener
177 Walnut St. Suite 9
Waynesville, NC 28786
828-734-2097
ragingbullinvgroup@charter.net
The above appears to be rather dated.
USXP is still waiting to collect on over $200 million judgement. Once the money goes offshore it is very difficult to recover. Some companies are considering cancelling stock certificates held by foreign naked shorters under convertible debentures by April 1, 2004, resulting in double jeopardy for the likes of NITE and AMTD and their naked partners. Its time to see all the emperors with no clothes.
It will be interesting to see if the "covering" (should it actually transpires) effects the price on some of the stocks with death-spiral financing. /CDs
I have noticed on a couple of boards. . .particularly on RB, the bashers appear to be out in full force. Perhaps they are working for agents to keep share prices down and they are already covering their shorts so no effect will be seen?
At any rate, several companies have pursued the naked shorting myth to no avail. I'm not sure that USXP ever collected on their judgement.
Let the war of words begin!
Penny King Predicts Knight Trading will be merged out of Existence to prevent a collapse of the stock market!
Based on this story:
Knight Trading served with Wells notice
Knight Trading Group Inc, a market-maker for Nasdaq stocks, and its former chief executive received notices from federal regulators that civil charges may be filed against them for securities violations.
The Securities and Exchange Commission issued a Wells notice to the Jersey City, N.J.-based firm and its former CEO Kenneth Pasternak, who retired in January 2002. Wells notices give the recipients a chance to respond before formal charges are filed.
The SEC and the National Association of Securities Dealers began investigating Knight's activities in June 2003, after an ex-employee filed an arbitration claim against the securities firm. The claim alleged illegal front-running-trading that takes advantage of inside knowledge that an investor is planning to make a significant move in a particular stock. The timeframe under investigation is 1999 through 2001.
The company was unavailable for immediate comment.
And the fact that Knight has the largest outstanding naked short positions on over 3,000 stocks which will need to be covered come April 1, 2004 according to new NASD rules, Knights days appear to be numbered.
There are 37 million pages of documents available through various law firms in the United States that documents SEC negligence on the naked short selling issue.
TAX REPORT
By TOM HERMAN
States Join Forces To Combat Tax Shelters
Effort Will Target Individuals
Who Misuse Partnerships,
Trusts, Offshore Accounts
Some 37 states, including California and New York, are set to intensify their crackdown on tax shelters and a range of other tax-dodging transactions.
Officials in these states plus New York City and Washington, D.C., will agree Thursday on a new pact to trade more information about the types of tax shelters they are encountering as well as names of individual taxpayers and promoters involved in them. They are also planning to increase coordination of audits and other enforcement activities, and to work more closely with the Internal Revenue Service in the process.
California, which has been facing major budget problems, is among those leading the charge against shelters. Officials in Sacramento estimate they lose from $600 million to $1 billion in tax money each year because of transactions that typically have no real economic purpose except to cut taxes.
The new agreement is the latest in a series of crackdowns by states and the IRS. Last month, the IRS said it had started sharing leads with most states, New York City and Washington, D.C., on more than 20,000 taxpayers engaged in "abusive tax avoidance."
The newest assault increases the odds that individual taxpayers -- particularly high-income people who sign up for complex shelters designed by accountants and tax lawyers -- will owe taxes, interest and possibly penalties. Among those being targeted are wealthy individuals who have sold their businesses and who have sizeable capital gains they are seeking to shelter. States are also going after people who set up trusts both in the U.S. and abroad to hide income from the tax collector.
Abusive shelters and bogus transactions come in many forms. It's often hard for average taxpayers to tell the difference between a legitimate and a bogus tax shelter. But, says Andrew S. Eristoff, New York State's tax commissioner, "If it sounds too good to be true, it probably is."
One of the most basic shelters being targeted involves moving assets to offshore banks, which issue debit or credit cards to the individuals involved. The individuals then use the cards to make purchases in the U.S. and don't report the income earned on those assets to tax officials.
In some cases, the tax dodgers actually earn the income abroad, making it all the more difficult for tax collectors to detect. Officials say surprisingly large numbers of people are involved in such schemes, which often involve banks in the Caribbean.
Other shelters involve the use of multiple layers of domestic and foreign "pass-through entities," such as partnerships and "S corporations." They're known as pass-through entities since they typically pass along income or losses to partners, shareholders and other beneficiaries, who in turn are supposed to report their share on their own individual returns. These scams can be especially hard to detect because "it's often simply a shell game that they play, passing the income through one partnership to another partnership to another offshore entity and back," says Harley Duncan, executive director of the Federation of Tax Administrators. "It's tough to follow."
WARNING FLAGS
Factors that should make you question a shelter
• Offshore trusts or overseas banks used to hide income from U.S. tax authorities.
• Financial derivatives that create artificial losses. The losses are then used to offset gains and avoid taxes.
• Any transaction that has no real economic purpose except to avoid taxes.
Taxpayers often hear about shelters from high-priced promoters, who wave opinion letters from law firms saying the transactions are likely to pass muster. The peddlers aren't just fly-by-night operators. Accounting giant KPMG LLP, for example, said recently that federal prosecutors have started a criminal investigation of certain shelters formerly offered by the firm.
One way to protect yourself if you're unsure: Always get an independent opinion from a tax lawyer or accountant who has nothing to do with the transaction you're being pitched. In general, be wary of transactions that seem designed only to cut taxes.
Despite the tough talk, it's not clear whether budget-strapped states will have enough personnel and muscle to follow through on their ambitious plans. Some of the tax shelters under attack are enormously complex, and it will take a lot of work to make cases against their participants.
Many bogus transactions depend on "dozens of layers of transactions -- each one intended to bury the taxable income a little deeper," says Stephen M. Cordi, Maryland's deputy comptroller and president of the Federation of Tax Administrators. "The layers are then scattered among any number of states. We can only uncover these types of schemes by sharing knowledge."
New York State plans to scrutinize major accounting firms, lawyers, accountants and other promoters of tax-avoidance schemes, says Mr. Eristoff, the tax commissioner. New York officials say some types of tax shelters are designed to avoid state taxes only, making interstate cooperation especially important.
State officials say their new pact complements one signed late last year between 45 states, Washington, D.C., and New York City. That one was aimed at coordinating efforts and sharing data on illegal schemes to evade both federal and state taxes. The new pact provides a formal structure for states and cities to notify each other even when a shelter or bogus transaction is designed to avoid state and local taxes only, says Verenda Smith of the Federation of Tax Administrators.
California officials say they already have collected about $113 million this year from individuals who turned themselves in under the state's new "voluntary compliance" offer involving "abusive" shelters. The state expects to collect far more by the time its offer expires April 15. California's offer is simple: If you come in from the cold voluntarily by the deadline, you can save significant amounts of money in penalties. That may also avoid possible criminal prosecution.
States are focusing their guns on tax shelters for much the same reason Willie Sutton robbed banks: That's where the money is. Despite the recent economic upturn, many states still face budgetary woes. A recent survey by the National Conference of State Legislatures in Denver found at least 18 states struggling to plug budget gaps. That report also cited 10 states, including California and Connecticut, whose fiscal health has deteriorated since the last survey in November.
"Abusive tax-avoidance transactions have become a threat to the fiscal health of our states," said Mr. Cordi of the Federation of Tax Administrators.
U.S. Mutual Legal Assistance Treaties..
Official US State Department lists..
http://www.irs.gov/pub/irs-apa/treaty.pdf
SEC Market Proposal Not Just for NYSE
Britt Erica Tunick
March 1, 2004
As late last week Wall Street eagerly awaited the specifics of the
Securities and Exchange Commission's proposal to alter several aspects of
the U.S. equity markets, the focus was on expected changes in the
long-controversial trade-through rule, which currently allows specialists
more time to find the best price for a stock order.
Altering the trade-through rule could hurt the New York Stock Exchange's
specialist system. But there are other equally significant issues to be
ironed out that could negatively affect some ECNs, rebate traders and
regional exchanges.
For one, the SEC is expected to propose a $0.001 cap on the access fees
currently charged by ECNs and exchanges-a change that industry observers say
will effectively eliminate access fees. While the SEC thinks that change
would make it more appealing for investors to trade in multiple locations,
ECNs have long relied on these fees to pay for order flow to be directed to
their books. Thus, the change could augur further consolidation in the ECN
arena.
"For the fringe ECNs that were out there charging up to a penny a share,
once they're told they can only charge a tenth of a cent, I don't know what
they'll do, and I think they're done," said Steve Swanson, chief executive
of Automated Trading Desk. "This basically spells the end of the game for
them." But the change is likely to have little impact on the larger ECNs, he
said.
Rebate traders are another group Swanson predicts will be hard hit by the
proposed change, labeled Regulation NMS. Rebate traders profit solely from
market data rebates-the money generated from printing trades to the tape.
"There are firms that specialize in rebate trading and aren't trying to earn
money in the spread, but are just trying to trade to earn the rebate," said
Swanson. He added that there are also a number of large retail firms that
split their market and limit orders so they can direct the latter to ECNs
for the $0.02 they are paid for that flow. "In the future, when there's
little to no rebate, they're going to be trying to figure something new to
do with those limit orders," he said. "And that is certainly a category of
firm where economics will change."
Similarly, the SEC will propose a new methodology for determining market
data rebates in a manner that more accurately rewards a firm's contribution
to the trading process. Although little is known about the specifics of the
new calculation methods, the move is essentially thought to be the SEC's
effort to stop exchanges from using rebates as the primary means of enticing
people to print their trades with them. Instead of rewarding fees based on
the number of trades an exchange or ECN generates, the new method will
reward those who provide price discovery (i.e., original bids and offers).
Now a 100-share trade in NYSE-listed stocks generates the same fees as does a trade for a million shares, whether or not the exchange or ECN handling the trade provides any quotes or has any impact on market data. Changing this process would put distribution of market data fees for NYSE stocks more in line with the process used in the OTC market. There, market data fees are rewarded based on a combination of both the share size and number of trades done.
Regional exchanges are expected to feel the brunt of this change. In
particular, industry observers pointed to the Cincinnati Stock Exchange,
which has generated sizable tape revenues by sharing them with ECNs, such as
Instinet and Island, as a means of persuading them to report their trades
there instead of with Nasdaq.
"The Cincinnati Stock Exchange just prints a bunch of shares but doesn't
necessarily act in the price discovery, because the ECNs are doing that,"
said one analyst who tracks the exchanges. "But more of the price discovery
is actually taking place on Nasdaq or Archipelago, so now they can actually
get a larger piece of the overall pie."
But with the new calculation method rumored to be so complicated that it is
jokingly said to involve a square root, the exchanges were nervously
awaiting specifics, uncertain of exactly what the changes would mean for
them. In the case of the Chicago Stock Exchange, which generates significant
order flow and quotes alike, optimism was still the name of the game late
last week.
"People are going to have to have accessible quotes in order to get their
fair share of market data revenue, and you can't have a model that simply
relies on matching other people's quotations," said David Herron, CEO of the
Chicago Stock Exchange.
A requirement for accessible quotes would likely bring a change to many of
the so-called upstairs firms (where brokerage traders can trade an
exchange's listed stocks off its floor). Upstairs firms now take their
orders and internally match them with the national best bid or offer,
without ever exposing them to the market. These firms then generate market
data revenues by reporting the trades to Nasdaq or alterative reporting
venues.
"These are orders being generated out of Chicago, the NYSE or Archipelago,
and somebody else is just matching that price and printing it elsewhere,"
said Herron. "So perhaps you shouldn't get tape revenue when you do that.
The Federal Reserve Board on Wednesday announced that it is removing all fifty-one stocks from its current List of Foreign Margin Stocks because they have not been recertified as required under procedures approved by the Board in 1990. The list is one of two methods for foreign securities to qualify as margin securities under Regulation T (Credit by Brokers and Dealers).
The list, which has been published twice each year by the Board since 1999, is composed of certain foreign equity securities that qualify as margin securities under Regulation T. Stocks on the list qualify as margin securities by meeting certain financial requirements specified in Regulation T.
In determining the qualification of particular foreign equity securities, the Board has relied on a list of proposed margin stocks submitted by the New York Stock Exchange (NYSE). The eligibility of the stocks must be certified by at least two NYSE members under procedures adopted by the NYSE and approved by the Board in 1990.
Foreign securities may also qualify as margin securities if they are deemed by the Securities and Exchange Commission (SEC) to have a "ready market" under its net capital rule. This includes all foreign stocks in the FTSE World Index Series.
The stocks being removed from the list are named in the attached Federal Register notice. The Board will publish a new list of foreign margin stocks if eligible securities are identified pursuant to the existing listing procedures.
http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040303/
Provides Status Report On Its $200 Million Case Against Alleged Stock Manipulators
MONTGOMERY, Texas--(BUSINESS WIRE)--Feb. 13, 2004--Endovasc Inc. (OTCBB: EVSC - News), a drug development company that pioneers new cardiovascular and metabolic drug therapies, announced today an update on the Company's civil lawsuit against J.P. Turner & Co. LLC et al Inc., Number 02-CV-7313, in the United States District Court, Southern District of New York. The complaint is for damages as a result of an alleged fraud and stock manipulation. The Company is seeking monetary damages in excess of $200,000,000.
According to Dwight Cantrell, CFO of Endovasc, "Our attorneys report the present suit against J.P. Turner & Co., LLC; CCM Group, LLC; LH Financial Services Corp.; Laurus Master Fund, Ltd.; Laurus Capital Management, LLC; Keshet Fund, L.P.; Keshet, L.P., Keshet Management, Inc.; Talbiya B. Investment Ltd.; Nesher, Ltd.; Alon Enterprises Ltd.; Balmore Fund S.A.; Libra Finance S.A.; Celeste Trust Reg.; Patrick Power; Arie Rabinowitz; Abraham Grin; David Grin; Eugene Grin; John Clarke; Thomas Hackl; Francois Morax; Gisela Kindle; Matityahu Kaniel; Seymour Braun; and Shmuel Lmakias is pending outcome of decisions on motions now before Judge Preska. Discovery in the case is stayed pending outcome. Further, our attorneys report the scope of the scheme is more widespread than originally contemplated. They anticipate filing actions on our behalf against other defendants who participated in the scheme resulting in damages to us."
According to Endovasc's attorney, James W. "Wes" Christian, "The theory of our case has been adopted by other companies that have experienced similar losses from 'death spiral' conduct by lender/investors. This spread of other cases and criminal investigations by the attorneys general or U.S. Attorneys of several states has been fueled by the civil enforcement actions and criminal complaint against Thomas Badian, his brother Andreas, and various SEC actions. Mr. Thomas Badien is currently believed to be a fugitive. The conduct of those defendants is the same type of conduct we believe our defendants have engaged in."
Attorney's John O'Quinn and James W. "Wes" Christian represent several other bulletin board companies in their claims for damages against alleged stock manipulators. The cases claim alleged SEC 10b-5 violations, stock manipulation and fraudulent misrepresentation by alleged "investors" whose true intent allegedly was to drive down the company's stock prices through short-selling in order to receive much greater amounts of the company's shares when converting from preferred stock, debenture, or other convertible provision in financing deals with targeted bulletin board companies.
About Endovasc
Endovasc, Inc., established in 1996, is an innovative drug development company with two new cardiovascular and metabolic drug therapies. Endovasc's mission is to design the delivery, and release drugs to their intended targets in an efficient and controlled manner. Endovasc's lead drug candidates include Angiogenix(TM) and Liprostin(TM). Endovasc also has a stent coating technology, PROStent(TM), in pre-clinical trials.
For more information about Endovasc, please visit www.endovasc.com.
Safe Harbor Statement
The foregoing statements are made under the "Safe Harbor" Private Securities Litigation Reform Act of 1995 and may contain forward-looking statements that involve risks and uncertainties that may not be evident at the time of this release.
Contact:
FOCUS Partners LLC David Zazoff, 212-752-9445 evsc@focuspartners.com
Source: Endovasc Inc.
Related Companies
The El Paso Shuffle
Should investors balk when energy companies adjust downward their estimates of proved reserves? If you ask W.D. Crotty, the answer is yes. Read on for W.D.'s take on this unsettling trend in the oil and gas sector -- and whether a shaken El Paso is a reasonable gamble.
By W.D. Crotty
March 1, 2004
Troubled natural gas producer and pipeline operator El Paso (NYSE: EP) is the latest to announce now-you-see-them, now-you-don't proved reserves. But it's the magnitude in this case that is shocking: Proved reserves were revised down 35% from 2002 year-end levels. The latest estimates will last 6.2 years at 2003 production rates, but let's face it, that is a gigantic revision.
Overlooking for a moment the very serious "mistakes" that precipitate such things, revisions of proven reserves are bad news. When reserves dip below production levels, a company slowly eats up its inventory -- and its future. Lowered proven reserves can also lead to cash flow issues, as companies spend to get reserves into the proved (i.e., ready for production) category.
El Paso's heart of darkness
By way of assurance, El Paso offers this with it latest earnings: "Ryder Scott [petroleum consultants] cited a difference of less than two percent with the company's internal reserve analysis, which it deemed as insignificant." In plain English, "The reserves now reported as proven are there, and the auditor agrees."
That makes the revisions sound like a non-event. That is, until you read that the company is taking a $1 billion "pre-tax ceiling test charge" in the fourth quarter. In other words, this does matter, even if it results in a non-cash charge. The charge would have been $1.5 billion more had natural gas prices been $5 per million British thermal units (MBtu) instead of $6. With natural gas prices now around $5.40/MBtu, further charges might well be coming.
Moody's (NYSE: MCO) and Standard & Poor's apparently didn't like what they saw. Both credit-rating agencies cut El Paso's debt one grade -- and both maintain a "negative" outlook. At absolute minimum, this confirms that reserves do matter.
Reserves defined
SEC Rule 4-10 classifies reserves as either proved, proved developed, or proved undeveloped. Reserves are proved if "economic producibility is supported by either actual production or conclusive formation test." That sounds pretty cut and dried. How can 35% of a company's reserves fall out of this category?
Proved developed oil and gas reserves are "reserves that can be expected to be recovered through existing wells with existing equipment and operating methods." When El Paso's final overall reserves are posted, some of the formerly proved reserves will fall into this category.
Proved undeveloped oil and gas reserves are "reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion." Reserves that no longer qualify as proved developed will fall into this category.
Just a game
The current El Paso CEO (who started in September) and the senior executive for exploration and production (started three weeks ago) are on record as to why the reserve changes needed to be made. Certain explanations appear reasonable enough. With no sales agreement in Brazil, production cannot start. Others appear technical: Production in coalbed methane is booked in 160-acre blocks, while production indicates it will take 80-acre blocks (which are not yet contracted for) to meet previous production estimates.
OK, this is not exactly three-card monte at work, but it isn't transparent, conservative corporate governance, either.
And as mentioned, El Paso is not alone in recording significant reductions in proved reserves. In January, Royal Dutch/Shell -- represented by two trading stocks, Royal Dutch (NYSE: RD) and Shell Transport (NYSE: SC) -- cut its reported proven reserves of crude and natural gas by close to 3.9 billion barrels, correcting a reporting error it traces to 1996. That represented a 20% cut in proved reserves.
Forest Oil (NYSE: FST) also recently reported reserve reductions. At year-end, 25% of its reserves were reclassified from proved to proved undeveloped -- again, the lowest SEC-defined classification. The company cancelled its earnings release to provide time to evaluate the effect on its financial statements.
Nexen (NYSE: NXY), Canada's fourth-largest oil explorer and producer, reduced its reserves by 8%. With Canadian regulators tightening reporting standards, other Canadian producers are expected to report downward revisions -- but likely not so high as Nexen's.
Why so many adjustments?
The passage of Sarbanes-Oxley in 2002 set new standards for financial reporting. The law provides the SEC with the legal power to make company executives think twice before reporting anything but the facts. So far, the response to errors, even if they do not have a meaningful financial impact, has been to engage outside council to investigate why reserves were booked incorrectly, as Royal Dutch/Shell and El Paso have done.
If nothing else, Sarbanes-Oxley got executives to pay attention to reported estimates and results. For shareholders, that is good news, but it does raise the question of why the widely tracked reserve numbers were not handled more carefully in the past. Clearly, there are corporate governance issues involved, though you'd not know it by the actions of companies like Royal Dutch/Shell. The company tweaked its procedures, but, so far, its CEO hasn't paid any price beyond embarrassment.
This is important
When reserves are shuffled among categories, it might seem like small change. After all, oil is oil. Nothing's lost, just reclassified. But anyone who has been through a military draft or driven a big rig knows that classification can be everything. Classifications exist for a reason. In this case, proved reserves are the only reserves assured to be available for production.
Clearly, some companies (and some countries) have not been diligent about classifying oil and gas reserves. Others, like ChevronTexaco (NYSE: CVX), have gone out of their way to make it clear they have conservatively booked reserves. With Sarbanes-Oxley the law of the land, it looks like Chevron's methods will become the norm.
For investors, the bad news about reclassification is in the marketplace. For a company like Royal Dutch/Shell, the result is mostly a damaged reputation. The financial impact is negligible, the company has clearly identified its upcoming changes, and the stock will probably trade at a discounted price-to-earnings multiple until the company shows it is back on track.
Canadian companies like Nexen are expected to make adjustments to higher standards this year. The fallout will be minimal if the proved reserve reductions remain minimal.
End game
All that being said, for a company like El Paso, the impact of the latest revisions and accompanying publicity can be lasting. As longtime Fool Bill Mann points out:
The company exhibits three of the riskiest characteristics in investing: It's in a recovery, following spectacularly bad decisions that nearly tanked the company; it's weighed down by enormous amounts of debt, which it's obligated to service; and it requires additional financing for ongoing projects it needs to work its way out.
That is not a pretty picture. And speaking of pictures, El Paso's executives paint this one for 2006: earnings of $1 a share and net debt of $15 billion. Tempting as that buck in earnings may be, it's painted by an executive team that just joined the company. Do you really think these guys can see 2006 clearly or predict earnings with such clarity? If you do, the hydrocarbon shell game is for you.
Place your bets. But watch monte's hands. You want the shell with the $1 earnings.
Fool contributor W.D. Crotty owns stock in ChevronTexaco but none of the other companies mentioned. W.D. met monte in college and is richer for the experience. So is monte. The Motley Fool is investors writing for investors.
http://www.fool.com/news/commentary/2004/commentary040301dc.htm?source=eptyholnk303100&logvisit=...
Testimony of Chairman Alan Greenspan
Government-sponsored enterprises
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
February 24, 2004
Mr. Chairman, Senator Sarbanes, and Members of the Committee: Thank you for inviting me to discuss the role of housing-related government-sponsored enterprises (GSEs) in our economy. These GSEs--the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks (FHLBs)--collectively dominate the financing of residential housing in the United States. Indeed, these entities have grown to be among the largest financial institutions in the United States, and they now stand behind more than $4 trillion of mortgages--or more than three-quarters of the single-family mortgages in the United States--either by holding the mortgage-related assets directly or assuming their credit risk.1 Given their ties to the government and the consequent private market subsidized debt that they issue, it is little wonder that these GSEs have come under increased scrutiny as their competitive presence in the marketplace has increased.
In my remarks, I will not focus on the Federal Home Loan Banks, although much of this analysis applies to them as well. In fact, because the Home Loan Banks can design their advances to encompass almost any type of risk, they are more complex to analyze than other GSEs and, hence, raise additional issues.
http://www.federalreserve.gov/boarddocs/testimony/2004/20040224/default.htm
Raging Bull BASHERS to be IDENTIFIED...........
By Jack Burney
Published by OTCNN.com
If you have a nasty disposition, an undefined anger at the world in general, and a gift for venomous verbosity, here’s the perfect job for you: Paid Basher for the MMs.
Any illusion that such tactics are beneath the MMs was shattered recently when a Florida court issued an injunction again one of the defendants, "Cats3," in the lawsuit filed by QuestNet Corp. (OTCBB: QNET). "Cats3" turned out to be Jerome Rosen, senior trader with J. Alexander Securities (ALEX), a major market making firm.
Rosen was enjoined from "publishing any false and defamatory statements concerning QuestNet and its current and former officers, directors, and employees in any manner," and from "interfering with any contractual/business relationships between Quest Net and its employees, customers, suppliers, consultants, shareholders and/or investors."
Now, InvestAmerica (OTCBB: INVT) has subpoenaed Raging Bull to identify 14 INVT-bashers who posted on RB’s message boards, and is waiting for the response.
"Purpose of the suit," said Bryan Kitts, director and secretary-treasurer of INVT, "is ultimately to find out if any of these 14 bashers is employed directly or indirectly by a market maker or by a member firm of the SEC or the NASD."
If they are, as INVT expects, then ultimately, the next question is: "Is the entity that employed the bashers responsible for the actions of its employees?" If anyone is transmitting messages designed to enhance the position of his employer or influence the price of the stock to the employer’s advantage, what is the employer’s culpability?
....
The INVT complaint asserts causes of action alleging violations of the Racketeering Influenced and Corrupt Organization or RICO Act, the Massachusetts Consumer and Business Protection Act, and common law defamation. It alleges that the defendants have conspired to post statements on Raging Bull. The message here...BASHERS BEWARE!!
http://ragingbull.lycos.com/mboard/boards.cgi?board=PAVP&read=8507
SEC Delays Implementation of Section 404
The June 15 deadline that was fast approaching has been pushed back to November.
Stephen Taub, CFO.com
February 26, 2004
The Securities and Exchange Commission has postponed the implementation of Section 404 of the Sarbanes-Oxley Act for the second time.
Section 404 directed the SEC to adopt rules regarding internal controls at public companies. It also requires that a company's independent auditors attest to and report on management's controls assessments, following standards established by the Public Company Accounting Oversight Board (PCAOB).
Most senior managers will now have to report on — and certify — their companies' internal financial controls starting with fiscal years ending on or after November 15, 2004. The prior compliance date was June 15, which itself was revised from last September.
The November 15 reporting date applies to "accelerated filers" — U.S. companies with a market cap over $75 million that have filed annual reports with the SEC. All other issuers, including small businesses and foreign private companies, must comply with the new requirements beginning with fiscal years ending on or after July 15, 2005. Their compliance date had been April 15, 2005.
The commission also extended the compliance date for related requirements regarding evaluation of internal control over financial reporting and management certification requirements, including certification and related requirements applicable to registered investment companies.
The SEC gave no rationale for the postponement, but one reason might be that the PCAOB still has not finalized its standard for auditors, which it proposed in October 2003. The oversight board has reviewed some 180 letters regarding the standard, most of which comment on the scope of work involved in compliance.
Yesterday the board scheduled an open meeting on March 9 to adopt a final standard. Speaking at a conference in New York, PCAOB chief auditor Douglas Carmichael stated that the standard would then be posted on the board's Web site within a few days. After a short comment period, added Carmichael, the standard would have to be approved by the SEC before taking effect.
http://www.cfo.com/article/1,5309,12438//T/381,00.html?f=home_todayinfinance
Regulation NMS National Market System Reforms Proposed
The Securities and Exchange Commission today posted a release
proposing new Regulation NMS, which would incorporate proposals designed to
enhance and modernize the regulatory structure of the U.S. equity markets
and would consolidate existing rules governing the national market
system into a single regulation. Release No. 34-49325 (Feb. 26, 2004).
The proposals are intended to prevent trade-throughs (the execution of an
order in its market at a price that is inferior to a price displayed in
another market), to modernize the terms of access to quotations and
execution of orders in the national market system, to require a minimum
pricing increment of one cent (except for securities with a share price
below $1.00), and to revise the rules for disseminating market
information to the public. Comments must be received within 75 days after
publication in the Federal Register. The SEC press release is reproduced
below, and the 346-page proposing release is available, in PDF format
only, at
http://www.sec.gov/rules/proposed/34-49325.pdf
If you have difficulty accessing this large file directly, go to
http://www.sec.gov/rules/proposed.shtml
Find the Regulation NMS proposal, download it to your hard drive, and
open it with Adobe Acrobat Reader.
SEC To Publish Regulation NMS for Public Comment
FOR IMMEDIATE RELEASE
2004-22
Washington, D.C., Feb. 24, 2004 - The Commission today voted to publish
for public comment Regulation NMS, which would contain four
interrelated proposals designed to modernize the regulatory structure of the U.S.
equity markets. The substantive topics addressed by proposed Regulation
NMS are (1) trade-throughs, (2) intermarket access, (3) sub-penny
pricing, and (4) market data. In addition, Regulation NMS would update the
existing Exchange Act rules governing the national market system, and
consolidate them into a single regulation.
1. Trade-Throughs
Regulation NMS would establish a uniform trade-through rule for all
market centers that would affirm the fundamental principle of price
priority, while also addressing problems posed by the inherent difference in
the nature of prices displayed by automated markets, which are
immediately accessible, compared to prices displayed by manual markets, which
are not.
Specifically, the proposal would require self-regulatory organizations
(SROs), as well as any market center that executes orders, to establish
procedures to prevent the execution of an order for national market
system stocks at a price that is inferior to the best bid or offer
displayed by another market center at the time of execution.
At the same time, the proposal would include two exceptions to the
general trade-through rule.
First, a market center would be allowed to execute an order that trades
through a better-priced bid or offer on another market center if the
person entering the order makes an informed decision to affirmatively opt
out of the trade-through protections. Informed consent would need to be
given on an order-by-order basis. This exception is designed to provide
greater flexibility to informed traders while preserving the average
customer's expectation of having his or her orders executed at the best
price.
Second, an automated market - one that provides for an immediate
automated response to incoming orders for the full size of its best displayed
bid or offer, without restriction - would be able to trade through a
better displayed bid or offer on a non-automated market up to a de
minimis amount of one to five cents, depending on the stock's price. This
exception reflects the comparative difficulty of accessing market quotes
of non-automated markets.
Overall, the proposal is designed to be a practical response to
developments in the marketplace that still preserves the important customer
protection and market integrity goals of best execution and the
protection of limit orders.
The proposed trade-through rule would not change a broker-dealer's
existing duty to obtain best execution for customer orders.
2. Intermarket Access
Non-Discriminatory Access
Regulation NMS would establish a uniform market access rule that would
help assure non-discriminatory access to the best prices displayed by
market centers, but without mandating inflexible, "hard" linkages such
as the Intermarket Trading System (ITS).
At its core, the proposal would prohibit a market center from imposing
unfairly discriminatory terms that prevent or inhibit any person from
accessing its quotations indirectly through a member, customer, or
subscriber.
This standard is intended to assure that a member, customer, or
subscriber of a market center can sponsor access to quotes and order execution
without receiving disparate treatment in the handling of those orders
with respect to fees, speed, or other terms.
Quote Standardization
Regulation NMS also would establish an access fee standard. This
standard - designed to promote a common quoting convention - is intended to
harmonize quotations and facilitate the ready comparison of quotes
across the national market system.
The proposal would establish a de minimis fee standard for all market
centers and broker-dealers that display attributable quotes through
SROs. Specifically, access fees would be capped at $0.001 per share, and
the aggregation of this fee would be limited to no more than $0.002 per
share in any transaction.
Locked and Crossed Markets
Finally, the proposed rule would require each SRO to establish and
enforce rules requiring its members to avoid - and prohibiting them from
engaging in a pattern or practice of - locking or crossing the markets.
3. Sub-Penny Pricing
Regulation NMS would ban sub-penny quoting in most stocks.
Specifically, it would prohibit market participants from accepting, ranking, or
displaying orders, quotes, or indications of interest in a pricing
increment finer than a penny in national market system stocks, other than
those with a share price below $1.00.
This proposal is intended to prevent sub-penny pricing from being used
by some market participants to "step-ahead" of customer limit orders
for an economically insignificant amount. This "sub-pennying" could, over
time, discourage investors from placing limit orders, which are an
important source of market liquidity.
4. Market Data
Regulation NMS would amend the existing arrangements for disseminating
market data in order to better reward SROs for their contributions to
public price discovery, as well as implement most of the recommendations
of the Commission's Advisory Committee on Market Information.
Under existing rules and joint industry plans, the trades and best
quotes in thousands of listed and Nasdaq stocks are made available on a
real-time and consolidated basis.
The proposal would replace the current plan formulas for allocating
revenues derived from market data fees to the SROs, which are based solely
on the number of trades or share volume reported by an SRO. This method
of allocation has led to serious economic and regulatory distortions,
creating incentives for "print" facilities, "wash" trades, and
"shredded" trades. In addition, those markets that generate the highest quality
quotes (i.e., the best prices and the largest sizes) are not
necessarily rewarded.
In general, the proposed new formula would divide market data revenues
equally between trading and quoting activity, in order to reward
markets that publish the best accessible quotes.
The proposal also includes a number of improvements that were
recommended by the Advisory Committee on Market Information. For example, the
proposal would broaden participation in plan governance by creating
advisory committees composed of non-SRO representatives. Such committees
would help assure that interested parties have an opportunity to be heard
on plan business, prior to any decision by the plan operating
committees.
In addition, the proposal would authorize market centers to distribute
their own additional data, such as limit order books, separate from
other markets, as well as establish uniform standards for the terms of
such distribution.
Comments on these proposals should be submitted to the Commission
within 75 days of publication in the Federal Register.
Why hedge funds are not a fad
By Tony Jackson (Filed: 15/02/2004)
If you find hedge funds worrying, this story is for you. Earlier this month, a group of proprietary traders at Deutsche Bank decamped to set up their own hedge fund. The bank's reaction to this dastardly act was prompt and revealing: it gave them around $1bn (£537m) to manage.
This is thought-provoking in two ways. Hedge fund operators, if successful, earn much more than mere fund managers or traders, since they keep a slice - typically a fifth - of the profits. So the traders reckoned they deserved a pay rise, and Deutsche implicitly agreed.
More importantly, Deutsche took money previously subject to all kinds of rules and regulations, and handed it to gamblers over whose actions it has no control.
Now, $1bn may be loose change in the investment world, but it all adds up. Hedge funds now dominate the equity markets, accounting for some 60 per cent of all the business done by the big US broking houses. So what does this mean for the markets?
Let's start with a little history. The original hedge fund operator was Alfred Winslow Jones, a US financial journalist who set up a so-called "long-short" equity fund in 1949. He aimed to short overvalued stocks and go long of undervalued ones, thus profiting by market mistakes at either extreme.
He also borrowed to gear the fund up. Since both shorting and gearing were illegal for conventional funds, his was set up as a limited partnership.
Jones toiled in profitable obscurity until 1966, when Fortune magazine drew attention to his record. The timing was perfect: in the late 1960s, the long post-war bull market was ending, and investors were scrabbling for the returns they were used to. From then until the final market collapse of 1973-74, hedge funds blossomed.
That wonderful Wall Street book of the period, The Money Game, tells of the so-called "gunslingers" - young men with gnawed finger nails, given to such remarks as "the garbage is moving: it's the best market for garbage since '61".
Anyone watching the rise of the flakier tech stocks recently may find this familiar. It also prompts an essential question. Are hedge funds a cyclical phenomenon, or are they here to stay?
I asked Narayan Naik, the head of hedge fund research at the London Business School. Hedge funds themselves, he said, are not cyclical; just what they invest in, and how.
Through the 1990s, hedge funds followed the example of George Soros. They took big bets on the future path of currencies, interest rates and bond yields. Long-short equity funds scarcely existed. Now, Naik reckons, they account for 50 to 55 per cent of all the hedge fund money in the world.
Partly, this reflects the scramble for yield in a world of low inflation. But there is a deeper reason. The risks run by hedge funds and conventional funds are different in kind. The managers of long-short funds may get it wrong and self-destruct. But to the extent that their long and short positions are in balance, they are not exposed to the risk of general market movements.
Conventional long-only funds are set up to prevent reckless gambling, but their exposure to the market is unavoidable; and investors, scarred by recent experience, are terrified of market risk.
The big brokers, meanwhile, find hedge funds attractive as clients. Dealing commission may be negligible; but the investment banks lend the hedge funds stock to short with and money with which to gear up, besides providing them with all kinds of fancy derivatives.
But in the end, this boils down to a single proposition: that hedge funds can produce better returns without a commensurate amount of risk. Maybe so, but I doubt it. The yield famine is driving punters into some pretty dodgy plays these days, from Third World debt to Chinese flotations. The rise of the hedge fund seems to me part of the same phenomenon.
As such, it will play itself out eventually. Either the equity market will collapse further, and investors will lose heart as they did in the 1970s; or it will recover, in which case they will regain their appetite for market risk, and will be disinclined to hand a fifth of their gains to a hedge fund manager who might blow the lot.
Not, of course, that hedge funds will die out as a species. They will simply leave equities in peace, and go and stir things up somewhere else.
Stewart Judge Throws Out Fraud Charge
By ERIN McCLAM, Associated Press Writer
NEW YORK - A federal judge on Friday tossed out the most serious charge against Martha Stewart (news - web sites), a count alleging she deceived investors in her company when she publicly declared her innocence in the ImClone stock trading scandal.
The decision by U.S. District Judge Miriam Goldman Cedarbaum came just five days before jurors are expected to begin deciding the case against the celebrity homemaker and her stockbroker.
"I have concluded that no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market for the securities of her company," Cedarbaum wrote.
Stewart still faces four criminal counts — conspiracy, obstruction of justice and two counts of lying to investigators. The judge declined to throw out any of the five counts against broker Peter Bacanovic.
The securities fraud count carried a potential prison sentence of 10 years and a $1 million fine. The remaining four counts against Stewart each carry a prison sentence of five years and a $250,000 fine.
"I'm pleased that the judge has dismissed the most serious of the charges against me, concluding that there is no evidence to support it," Stewart said in a message posted on her personal Web site.
Legal analysts said the ruling was cause for celebration for Stewart's defense team — but cautioned that it was by no means a signal that she will be cleared of all charges by a jury.
"There's no question the government put forth evidence that at least supports their version of events," said Jack Sylvia, a veteran Boston securities lawyer. "And there is a very minimalist case the defense put on."
The securities fraud charge had been criticized by Stewart's lawyers as a violation of the First Amendment, and the judge herself has referred to it as "novel" and "problematic."
The count accused Stewart of trying to prop up the stock price of Martha Stewart Living Omnimedia when she claimed in 2002 that she had sold ImClone because of a deal with Bacanovic to dump the stock when it fell to $60. Stewart personally stood to lose $30 million for every dollar her stock price dropped.
The government claims that was a lie, and that Stewart sold instead because Bacanovic sent word to her that her friend, ImClone founder Sam Waksal, was frantically trying to sell his ImClone shares.
Still, many legal experts said they believed the charge was unprecedented, and Stewart's most ardent supporters cried that she was being prosecuting for simply saying she was innocent.
Cedarbaum issued her decision just as lawyers in the case began meeting with her behind closed doors to discuss the instructions the judge will give jurors when they begin deliberating next week.
The decision put a charge into Martha Stewart Living Omnimedia stock, sending its shares up $1.49, or more than 11 percent, to $14.59 in afternoon trading on the New York Stock Exchange (news - web sites).
Stewart herself was in the meeting with lawyers and the judge. Prosecutors, leaving the judge's robing room for lunch, declined to comment, and a spokesman for the U.S. attorney's office did not immediately return a call for comment.
The securities fraud charge focused on three statements in 2002 — one on June 6 by her lawyer, and two on June 12 and June 18 by Stewart herself.
Each time, the $60 agreement was given as the reason for Stewart's stock sale. Stewart's lawyers said she was just trying to clear her name, but the government contended that she was spreading a lie with deliberate purpose.
The judge conceded that Stewart had a motive — her heavy investment in her own company — to deceive investors. But she said the government had not sufficiently shown an intent by Stewart to defraud investors.
The judge also pointed out there was no evidence Stewart showed particular concern for Martha Stewart Living's stock price around the time of her statements. The stock price actually fell, from $19.01 on June 6 to $12.55 on June 24.
"Here, the evidence and inferences the government presents are simply too weak to support a finding beyond a reasonable doubt of criminal intent," the judge wrote in a 23-page ruling.
Closing arguments in the trial are scheduled to begin Monday and last well into Tuesday. The jury is expected to receive its instructions and begin deliberating on Wednesday.
Stewart's lawyers still must convince the jury that she was not lying to investigators when she told them in 2002 that she had no memory of being tipped about Waksal.
The government's star witness in the trial was Douglas Faneuil, the former Merrill Lynch & Co. assistant who claims he gave Stewart the tip about Waksal on orders from Bacanovic, his boss.
Stewart's personal assistant also testified that Stewart changed a computerized record of a phone message Bacanovic left for her on the day she sold ImClone stock — then ordered the assistant to change it back.
Competitors Blast NYSE in Hearing
By MICHAEL J. MARTINEZ
AP Business Writer
February 20 2004, 8:35 PM EST
NEW YORK -- The new chief of the New York Stock Exchange received a fiery
introduction to politics in a House subcommittee hearing Friday when his
competitors criticized the exchange's controversial specialist system as
corrupt and outdated and urged congressmen to overturn a federal rule they
claim gives the NYSE an unfair advantage.
Even the veteran congressmen were surprised at the vitriol directed at NYSE
chief executive John Thain's institution from Nasdaq Stock Market chief
executive Robert Greifeld and the heads of the Instinet Group Inc. and
Archipelago Holdings electronic markets.
Greifeld noted that five NYSE specialist firms agreed to a tentative $240
million settlement with the Securities and Exchange Commission for skimming
profits on trades that put investors at a disadvantage, and said the SEC's
"trade-through" rule, designed to ensure investors received the best price,
was ineffective and handed the NYSE a monopoly.
"The New York Stock Exchange did not protect investors, as the recent
settlement makes clear," Greifeld testified before the Capital Markets
subcommittee of the House Financial Services Committee, meeting a few blocks
from Wall Street in lower Manhattan. "They are the beneficiaries of an
anticompetitive rule that allowed these specialists to intermediate
themselves between trades."
Thain defended the exchange's actions in the wake of the specialist scandal
and last year's ouster of former CEO Dick Grasso over his $187.5 million
compensation package. He said measures have been put in place to prevent
specialists from trading illegally, and noted that the NYSE has turned over
the investigation of Grasso's pay to the SEC and New York Attorney General
Eliot Spitzer.
He also defended the trade-through rule, saying specialists ensure that
volatility in stock prices remains at a minimum, and that research showed
the NYSE had the best price for any given stock 93 percent of the time,
despite conflicting figures provided by Greifeld.
"There are many ways to slice and dice data, but I have never seen
information used in quite so misleading a way as I've seen here to day,"
Thain said in a jab at Greifeld.
Rep. Richard Baker, R-La., chairman of the subcommittee, said he hoped to
take action on the trade-through rule in the short term, although he
admitted he was torn on whether the rule was ultimately beneficial to
investors or anticompetitive. While each market has its own competitive
reason for its stance on the rule, Baker said the ultimate goal would be to
protect investors.
"When the sharks are fighting each other, you just want to keep them at
arm's length," Baker said. "But when the sharks turn their attention to the
minnows, it's important for the minnows to know exactly what the sharks are
doing."
The electronic markets, in seeking to have the rule relaxed or repealed,
claim that the best execution of a stock trade isn't necessarily about
price. Some investors, primarily large brokerage houses, would prefer to
have a trade done quickly over an electronic market than to take the trade
to the floor of the Big Board, which takes longer, and taking the chance
that a better price might be had.
The NYSE, however, said the rule must remain intact to protect small
investors. Thain promised to work with the other markets on improving
electronic links between them to ensure that any trade could flow freely to
the market with the best price.
He also touted the exchange's proposed improvements to its own electronic
system, designed to match buyers and sellers without as much input from
specialists. Greifeld, however, called the plan "transparent and shallow,"
noting that specialists would still have ultimate control over prices.
Nonetheless, the representatives of the four markets agreed that more SEC
oversight would be welcomed to ensure that investors would receive the best
price.
The agreement on that point was a pleasant surprise to many on the
subcommittee after the rancorous testimony.
"We have fights in Congress, but ... don't you all have a drink together
after work?" asked Rep. Paul Kanjorski, D-Pa., ranking minority member of
the subcommittee.
Copyright © 2004, The Associated Press
After months of slamming the New York Stock Exchange's rules as restrictive and bad for investors, the Nasdaq is now trying to stop its own bellwether companies from trading on the Big Board.
The electronic stock market, which recently moved to dual list six NYSE-listed companies, recently said stocks in the Nasdaq 100 must not list on any other exchange if they want to remain part of the index.
The move is particularly ironic since Nasdaq argued for years against the NYSE's Rule 500, dubbed "the roach motel," which made it difficult for NYSE-listed companies to leave the exchange.
"It's the most hypocritical thing anybody could do - stomping around screaming about Rule 500 and coming up with your own," said Archipelago exchange CEO Jerry Putnam. "At the minimum, you look like a hypocrite. It's indefensible."
The move could be a harsh punishment for companies that choose to list on more than one exchange - something Nasdaq CEO Robert Greifeld has recently been encouraging NYSE-traded companies to do.
Dual listing, Greifeld said in numerous interviews, was good for investors and good for companies.
The listing debate has heated up as the NYSE - the premiere exchange for listings - has come under pressure from scandals ranging from an investigation into its trading specialists to the fat pay package of ousted chief Dick Grasso.
Now it seems Nasdaq-listed companies that choose to dual list will be punished by being kicked out of the prestigious Nasdaq 100 index.
That index represents the Nasdaq's top 100 non- financial companies and is the backbone of more than 400 financial products in 39 countries.
"Being included in a Nasdaq index is a benefit we reserve for listed companies, but this does not impede trading on other markets," said Nasdaq spokeswoman Bethany Sherman.
In its petition to have Rule 500 revoked, the Nasdaq said Rule 500 "impedes issuers in selecting the marketplace best suited to their needs" and is "antithetical to the free and open competition that the commission has consistently advanced and that is the bedrock of the U.S. capital markets system."
To be sure, Archipelago is aggressively courting companies to dual list on their own exchange and is at odds with the Nasdaq over a lawsuit filed in October alleging they were engaged in unauthorized trading of the QQQ's.
Stocks that are part of the Nasdaq 100 enjoy the prestige of the index, as well as the exposure of being part of popular products like the QQQ's - an exchange-traded fund made up of the Nasdaq 100.
Kicking a company out would put pressure on that stock, say traders. "It would cause selling," said one trader on the Big Board who is familiar with the listing debate. "The upside is they would no longer have to list on a fragmented market," he chided.
--------------------------------------------------------------------------------
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are trademarks of NYP Holdings, Inc. Copyright 2004 NYP Holdings, Inc. All rights reserved
NYSE, rivals square off at hearingCongressional panel examines role of
specialists
By Roland Jones
Wall Street reporter
MSNBC
Updated: 7:56 p.m. ET Feb. 20, 2004
NEW YORK - Revising or eliminating rules on how stocks are traded could end
up costing investors billions of dollars a day, New York Stock Exchange CEO
John Thain said Friday. Thain and rival stock market executives testified
before the House Financial Services Committee in Manhattan.
Chaired by Rep. Richard H. Baker, (R-La.), the committee's capital markets
subcommittee met to discuss the role of specialist firms, who match buyers
and sellers on the floor of the NYSE. The Big Board insists that specialists
are essential to setting the best prices for shares traded on the exchange
and for smoothing trading volatility, but their role has come under fire
recently following charges they defrauded investors of millions of dollars
through trading abuses.
Thain, along with executives from Nasdaq, Instinet and Archipelago, met to
discuss market-structure issues. Each made their case for keeping, modifying
or eliminating the highly-contentious trade-through rule, which requires
that stock orders are channeled to the market that offers an investor the
best price for buy and sell orders of stock.
Electronic markets such as ECNs, which are newer rivals to traditional
markets like the NYSE, say the 20-year old rule is outdated because it
doesn't prioritize the trading speed and certainty of execution their
electronic markets provide. For its part, the NYSE argues the rule is
crucial as it ensures investors receive the best transaction price.
Thain told the congressional panel that eliminating the trade-through rule
could cost investors as much as $3 billion daily. If similar markets offer
the same trade execution capabilities, the price of a trade is what matters
most, he said. And given that the NYSE handles 1.7 billion shares daily, a
two- or three-cent difference on a trade "can quickly add up to billions of
dollars," he added.
Nasdaq CEO Robert Greifeld told the panel that the trade-through rule
effectively stifles competition in the marketplace, which ultimately hurts
investors. The rule requires all markets to complete a trade at the exchange
that offers the best price - often the NYSE. He said the recent settlement
between regulators and specialists reveals "a structural flaw at the New
York Stock Exchange," because the NYSE failed to stop the abuses earlier and
has used the trade-through rule to "insulate" specialists from outside
competition.
"Absolute power corrupts," Greifeld said. "And if specialists didn't have
this absolute power in the first place they would never have been able to do
harm to investors."
The House subcommittee is expected to make a recommendation to the
Securities and Exchange Commission about changes to the rule and the SEC is
expected to propose a revision to it next week. Although the panel appeared
undecided in its course of action, it did agree that technology that allows
trading between the exchanges must be improved.
Specialists agree to settlement
Friday's hearing came just a few days after news of a proposed settlement
was reached between regulators and five large NYSE specialist firms accused
of trading ahead of investors, an illegal practice known as "front-running."
The five firms involved in the agreement have reportedly agreed in principle
to pay $155 million in restitution and another $85 million in fines. None of
them have admitted to any wrongdoing.
Five NYSE firms settle with SEC
Thain, formerly president of Goldman Sachs, who took control of the NYSE
about a month ago, has come under pressure from regulators to eliminate the
barriers surrounding specialists and is in the process of introducing more
automation into the exchanges' trading system. He is also eager to repair
the image of the exchange, tarnished by the forced exit of former CEO
Richard Grasso last fall following an investigation into his compensation.
At Friday's hearing, Thain outlined his plans to overhaul trading practices,
including making it easier for listed companies to change the specialists
that make markets in their stocks, developing metrics to assess the
performance of specialists and allowing the rapid, automatic matching of
anonymous buyers and sellers -- effectively offering the same trading
execution found on rival electronic markets and bypassing specialists.
The changes look likely to crimp the NYSE's specialist system, an
open-outcry stock-trading system that is nearly as old as the 211-year-old
exchange. Individual brokers, or specialists, manage the sale of stocks on
the floor of the exchange. They are required to buy or sell shares from
their own holdings to keep the market for a stock orderly and in balance.
Rival electronic trading networks have cried foul over the specialist
system. They say it allows dishonest brokers to step in between transactions
and skim off profits. The powerful California Public Employees' Retirement
System recently filed a lawsuit against the NYSE and its specialist firms,
accusing them of widespread trading abuses.
One key factor in the specialists' settlement with regulators is the
establishment of a restitution fund, which is expected to total $155
million. The thinking, experts say, is the fund will deter investors from
launching their own civil lawsuits against the NYSE and the specialist
community.
"The fact that the settlement contains some restitution may eliminate the
possibility that investors will come after the specialists, so we may get
some closure," said Michael Malloy, a former counsel for enforcement policy
at the SEC and now a professor of law at the University of the Pacific in
Stockton, Calif.
But with billions of shares traded on the Big Board each day, working out
who lost what and when promises to be a technical nightmare according to
Michael A. Goldstein, an associate professor in the finance department at
Babson College in Massachusetts and who has served a one-year term as
visiting economist at the NYSE.
"It's possible to do this, but it means a lot of data and it will be a holy
mess," Goldstein said, adding that the tens of thousands of investors who
are owed money may end up actually receiving a very small portion of the
restitution pie.
© 2004 MSNBC Interactive
Regulators Consider Global Standard For Compliance Officers
Compliance Reporter
February 23, 2004
Compliance Reporter
Prevent costly compliance fiascos with the crucial information needed by broker/dealers and investment advisors.
The International Organization of Securities Commissions (IOSCO) plans to propose a global standard for compliance officers. IOSCO standards are expected to be adopted by regulators in all IOSCO member countries, which include the U.S., the U.K., France and Germany. An IOSCO standard on compliance officers could lead to compliance officers in some countries such as Canada and Switzerland having to obtain compliance-specific qualifications for the first time.
Compliance has become a much more high profile role over the last few years, said Michael McKee, director at the British Bankers' Association. The European Commission's Financial Services Action Plan and the U.K.'s Financial Services and Markets Act, have both raised the profile and importance of compliance, he said.
IOSCO is starting to take a tougher line (CR, 11/3). The main points that need to be considered are whether a qualification in compliance is required, what compliance officers should be responsible for and whether compliance officers should have a minimum level of seniority, said Philippe Richard, IOSCO secretary general. He said it is important to create a global standard now because rules in many areas, such as investment research and market abuse, are being standardized globally and it therefore makes sense to do the same for compliance officers.
IOSCO is at the stage of surveying how different countries regulate the compliance function, said Ethiopis Tafara, director in the Securities and Exchange Commission's Office of International Affairs. It may result in a set of high level principles to guide securities regulators, he noted. Richard said this is a long-term project for IOSCO. "This will take more than a year. It is huge," he noted.
Orix To Press For Summary Judgment On 1997 Nomura Deal
Securitization News
February 23, 2004
In a Web cast last Thursday, Orix Capital Markets said it would file for summary judgment in the case of ASC-1997 D5, a $1.8 billion commercial mortgage-backed securities deal. The Dallas-based company, which is the deal's special servicer, is suing Nomura Securities over a roughly $44 million mortgage on Doctor's Hospital in Chicago, saying that the mortgage never should have been included in the loan pool.
Orix became the deal's special servicer in March whenit purchased the B-piece assets from Lend Lease Asset Management. The litigation is the continuation of a lawsuit initiated by Lend Lease in 2000 on the Doctor's Hospital loan. LaSalle National Bank, the trustee on the deal, also filed a lawsuit against Nomura and affiliate Asset Securitization Corp. The hospital's operator filed for bankruptcy in April 2000 and subsequently rejected the lease. Since then, the deal has been accruing interest shortfalls. The property is vacant and has environmental issues in addition to legal expenses.
Orix wants Nomura to buy back the loan and is arguing that the loan is not a qualified mortgage because it is not principally secured by real property. In addition, Orix contends that the mortgage was not underwritten correctly and that Nomura breached its representations and warranties.
Michael Wurst, director, led the webcast, which included a question and answer session for investors. A Nomura spokeswoman was unable to comment while Wurst did not return calls.
SEC Guidance on Broker-Dealer Customer Identification Rule
The Securities and Exchange Commission staff recently announced that,
in following the new broker-dealer customer identification rule,
broker-dealers may treat registered investment advisers as if they were
subject to an anti-money laundering program rule. Securities Industry
Association, SEC No-Action Letter (Feb. 12, 2004). The customer
identification rule provides that broker-dealers may rely on certain other
financial institutions to undertake the required elements with respect to
shared customers if, among other things, the other financial institution is
subject to an anti-money laundering rule. Investment advisers are not
currently subject to anti-money laundering requirements, although a
rule was proposed last year. The staff position will be automatically
withdrawn upon the earlier of the date upon which an anti-money laundering
rule for advisers becomes effective, or February 12, 2005. The letter
is available online at
http://www.sec.gov/divisions/marketreg/mr-noaction/sia021204.htm
New York investment and technology firm seeks staff attorney
Brodie Research has been retained by a fast-growing Midtown Manhattan
hedge
fund/technology venture firm to find an exceptionally intelligent and
creative staff attorney for its legal department.
The successful candidate will work on projects such as launching new
businesses, capital raising, overseeing various intellectual property
matters, firm wide organizational matters and negotiating contracts and
legal arrangements. Much of the work will involve interaction with PhDs
in a
very demanding intellectual environment.
QUALIFICATIONS
Extensive experience in securities offerings (including private
placements
and IPOs) and intellectual property matters is required. Experience
advising
software companies or biotech firms would be ideal.
We are looking for a superb drafter, a hard worker, someone with an
obsession for detail and excellent organizational skills. We require at
least three years of experience managing deals and advising clients
directly. The ability to identify and analyze legal issues in a
fast-paced
and rapidly changing business environment is essential.
Stellar academic credentials and superb writing skills are critical.
COMPENSATION
The firm is prepared to offer a generous salary for a highly qualified
individual.
TO APPLY
Send a resume and cover letter (including GPAs and SAT and LSAT scores)
to
careers@brodieresearch.com or contact Alice Brodie at (914) 472-2446.
Alice Brodie
Recruiting Consultant
Brodie Research
914-472-2446
alice@brodieresearch.com
www.brodieresearch.com
Mutual Fund Market Timing/Late Trading Actions Consolidated
The Judicial Panel on Multidistrict Litigation has consolidated more
than 170 civil actions involving market timing/late trading allegations
against mutual funds, as well as any later-filed related actions, in a
single multidistrict docket. In re Janus Mutual Funds Investment
Litigation, Docket Nos. MDL-1576, MDL-1577, MDL-1582, MDL-1585, MDL-1586,
MDL-1590, MDL-1591 (J.P.M.D.L. Feb. 20, 2004). The consolidated docket
will be MDL-1586, In re Mutual Funds Investment Litigation, and will be
transferred to the District of Maryland. The parties generally
supported some form of consolidation but none, apparently, had sought the
District of Maryland as the transferee district; the Southern District of
New York and the District of New Jersey were more popular choices. The
panel said it had searched for a transferee district with the capacity
and experience to steer the litigation on a prudent course.
The panel took the unusual step of assigning the litigation to
multiple transferee judges: J. Frederick Motz, Andre M. Davis, and Frederick
P. Stamp, Jr. The judges will sit individually and/or jointly in their
own discretion. The panel's order is available online at
http://www.jpml.uscourts.gov/MDL-1586-TransferOrder.pdf
Investment Companies, Broker-Dealers Subject to Customer
Disclosure Requirement
As a result of a recent statutory change, investment companies and
broker-dealers, as well as certain other "financial institutions," are now
required to produce financial records relating to a "customer or
entity" when requested to do so by certain federal authorities engaged in
intelligence activities. Intelligence Authorization Act for Fiscal Year
2004, Public Law No. 108-177, sec. 374, 117 Stat. 2599, 2628 (Dec. 13,
2003). When the information is requested for foreign counter
intelligence purposes to protect against international terrorism or clandestine
intelligence activities, disclosure to the government is required and it
is illegal to disclose the request to any person. The statute also
provides that nothing in the title shall prohibit a Government authority
from obtaining financial records from a financial institution if delay
would create imminent danger of physical injury to any person, serious
property damage, or flight to avoid prosecution; there is no prohibition
against disclosing the request in these cases. Public laws can be
accessed at
http://www.access.gpo.gov/nara/publaw/108publ.html
Public Law 108-177 effects the statutory change by changing the
definition of "financial institution" in 12 U.S.C. 3414, which codifies
section 3414 of the Right to Financial Privacy Act. The new, much broader
definition is the same as that used in the USA Patriot Act to regulate
money laundering. The statutory change has attracted little attention
to date, although the Investment Company Institute advised its members
of the change in a January 30 memorandum. 12 U.S.C. 3414, prior to
amendment, is available online at
http://www4.law.cornell.edu/uscode/12/3414.html
Penthouse International Completes $24 Million Financing with Laurus Funds and Acquires Guccione New York City Mansion
Tuesday February 24, 10:30 am ET
NEW YORK, Feb. 24 /PRNewswire-FirstCall/ -- Penthouse International (OTC Bulletin Board: PHSL) announced today that it has completed the placement of $24 million in three-year, 7.5% convertible senior secured notes with Laurus Master Fund, Ltd. ("Laurus Funds"), a financial institution specializing in providing asset-based financing to public companies. The notes, acquired by Laurus Funds, are secured by a first mortgage on the double townhouse located at 14-16 East 67th Street, New York, New York and occupied by Robert Guccione, Chief Executive Officer of General Media, Inc., Penthouse's 99.5% owned- subsidiary and the editor-in-chief of Penthouse Magazine.
Penthouse used the proceeds to acquire the 67th Street townhouse residence previously foreclosed upon by creditors of Mr. Guccione and his affiliates and to retire related institutional mortgage debt on the property held by affiliates of Deutschebank and Merrill Lynch.
General Media and its subsidiaries, the entities that own and operate Penthouse Magazine and its related adult entertainment businesses, are debtors-in-possession in a Chapter 11 bankruptcy case currently pending in the United States Bankruptcy Court for the Southern District of New York. General Media intends to propose a revised plan of reorganization under which all of its secured and unsecured creditors will receive greatly enhanced recoveries generated by an infusion of new capital into the company by Penthouse. This plan would supercede the current plan under which control of General Media and subsidiaries would be transferred to its bondholders, principally an entity affiliated with Marc Bell, formerly of Globix Corporation.
"We are encouraged to complete needed debt restructuring for the real estate," said Claude Bertin, Executive Vice President and Director of Penthouse International. "Under a lease agreement with Penthouse, Mr. Guccione will continue to reside at the townhouse and expects to continue to edit Penthouse Magazine from his private offices located on that site. His continued involvement with the magazine and related enterprises is a key factor in Penthouse's ability to refinance General Media and emerge from Chapter 11." Bertin added, "Longstanding media speculation about Mr. Guccione's demise will hopefully be ended with this transaction. We anticipate that Mr. Guccione will continue to spend many more satisfying years living at 67th Street as well as remain Chief Executive of Penthouse Magazine, publisher of General Media and Editor-in-Chief of the magazine."
The townhouse is reported as one of the largest residences in Manhattan. The historic property was originally built in approximately 1896 and has served as the personal residence of Mr. Guccione for nearly 30 years. Penthouse anticipates hosting promotional events at the mansion.
Through another subsidiary, Del Sol Investments LLC, Penthouse owns real property in Zijuantanejo-Ixtapa, Mexico and, subject to General Media and subsidiaries emerging from bankruptcy as a continuing operating affiliate of Penthouse, plans to develop a membership-based resort complex.
About Penthouse International, Inc.
Penthouse International, Inc., through its 99.5% owned subsidiaries General Media, Inc. and Del Sol Investments LLC, is a brand-driven global entertainment business founded in 1965 by Robert C. Guccione. General Media's flagship PENTHOUSE brand is one of the most recognized consumer brands in the world and is widely identified with premium entertainment for adult audiences. General Media caters to men's interests through various trademarked publications, movies, the Internet, location-based live entertainment clubs and consumer product licenses. General Media licenses the PENTHOUSE trademarks to third parties worldwide in exchange for recurring royalty payments.
Safe Harbor
This release contains statements relating to future results of the Company (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the availability of DIP financing for the General Media subsidiary, the impact that public disclosures of the Company's liquidity situation and Chapter 11 filing may have on the Company's businesses, the fact that no assurances can be given that the General Media Plan of Reorganization will enhance the Company's competitive position, as well as other risks and uncertainties detailed from time to time in the filings of the Company with the Securities and Exchange Commission. On August 12, 2003, General Media and its direct and indirect subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. Penthouse International, Inc. owns 99.5% of the capital stock of General Media. Penthouse did not file for protection under the Bankruptcy Code and its activities are not subject to Bankruptcy Court supervision. On December 22, 2003, the Debtors filed their Joint Plan of Reorganization and the disclosure statement with respect to the Plan (as such Disclosure Statement may be amended). If the Plan is confirmed pursuant to its current terms, no distribution on account of equity is proposed under its terms. For additional information, reference is made to publicly available documents filed with the bankruptcy court to determine the most current status of all matters related to the bankruptcy case of General Media. The website of the Bankruptcy Court is http://www.nysb.uscourts.gov .
For more information, contact:
Gary Geraci
OTC Financial Network
781-444-6100 ext. 629
garyg@otcfn.com
http://www.otcfn.com/phsl
All about hedge funds..what, why, when, where..
Hedge funds are growing like leylandii
(Filed: 22/02/2004)
What are they? Who runs them? And why are they booming? Abigail Hofman looks at this most secretive - and lucrative - of investment vehicles
As investment banking bonuses hit employees' bank accounts, the managements of some of the City's biggest firms are experiencing a frisson of nervousness. For a worrying trend is developing - top traders earning millions of pounds are deserting their desks to set up their own hedge funds with the potential to make squillions.
Earlier this month, proprietary trader Dan Gold quit Deutsche Bank with some of his colleagues to set up a hedge fund, QVT Financial, which it is thought will manage over $2bn (£1.05bn). And just weeks before, William De Winton, the co-head of European banks research, quit Morgan Stanley to join Lansdowne, a London-based hedge fund.
This trend is partly about lifestyle - a chance to run your own show and escape the bureaucracy and politics of a large organisation - and partly about money. Why share the fruits of your labour with your employer when you're the one bringing home the bacon?
As one banker put it: "Compensation within banks always comes down to a murky compromise. And somehow, you end up cross-subsidising that desk which consistently loses money. Why bother schlepping down to Canary Wharf every day when you can go and work with your chums in the West End?"
"Hedges are for gardeners," my ex-boss, the head of syndicate at a leading bond house, used to snort. But in 2004, his words no longer ring true. It seems that every week there is another hedge fund story in the press and one could be forgiven for thinking that hedge funds are taking over the world.
Ironically, there is no legal definition of a hedge fund. The key characteristics of such a fund are that the manager can go "short" (sell something he doesn't own) and borrow money to "leverage" or enhance returns.
Hedge funds are usually unregulated, offshore vehicles (domiciled in the Cayman Islands or Bermuda, for example) which charge hefty fees - annual management fees may be 1.5 per cent, but performance fees, earned if returns are above a certain threshold, can typically be 20 per cent.
Hedge funds promise "absolute returns", unlike unit trusts or mutual funds which measure their returns against an index. Hedge funds aim to take advantage of price inefficiencies in the markets and adopt a great variety of investment strategies from buying commodity futures to betting on currencies.
A mysterious veil shrouds hedge funds. Managers generally refuse to talk to the press. "They are terrified of scrutiny and the possibility of further regulation. It's sort of a self-fulfilling prophecy of paranoia," one proprietary trader says.
The reason cited for this low profile is that hedge funds compete both with each other and with other traders and don't want anyone "second-guessing" their positions. "Under the radar screen is where they want to be," a hedge fund salesman commented dryly.
And the best hedge funds don't need the publicity. "There are simply too many assets chasing too few competent managers," says one banker. According to Tass Research, which tracks hedge funds, their global assets increased by a net $72bn in 2003 to $750bn (£397bn). It estimates that 1,000 hedge funds were launched last year, taking the total to about 6,700.
The CSFB/Tremont Hedge Fund Index (which claims to be a reasonable proxy for the market's performance) rose by 15 per cent in 2003, though this was rather less than the 26 per cent increase in the S&P 500 index. However, average is a meaningless concept in this secretive world where essentially one backs a specific manager and annual returns can be over 50 per cent.
"The data on hedge funds is rather like the story of the four blind men and the elephant - one holds the trunk and insists it is a horse, another holds a leg and claims it is a tree," says Professor Narayan Naik of the London Business School. Naik himself estimates that there are 3,000 hedge funds globally with approximately $350bn under management.
Anyway, traditional fund managers are leaping, lemming-like, onto the hedge fund bandwagon. Goldman Sachs, the US investment bank, is thought to be one of the world's biggest global hedge fund managers. Gartmore, the British fund manager, has built up its hedge fund business in recent years and now manages $4bn of assets, while revenues from Deutsche Asset Management's hedge fund business increased by 97 per cent last year.
So who is investing in hedge funds? Man Group, run by Stanley Fink, the chief executive, is the only listed, independent hedge fund manager and has about $34bn of assets under management. Mark Chambers, the head of sales management, estimates that 75 per cent of hedge fund investors are from North America: a mixture of rich private clients, family investment vehicles and pension funds.
Outside the US, investors are still predominantly private clients. However, in the past two to three years there has been a significant move by pension funds and insurance companies into hedge funds.
Investors may be flocking to hedge funds but the Financial Services Authority, the City regulator, is concerned. In the latest edition of its Financial Risk Outlook, published last month, the FSA highlights the increased borrowing of hedge funds and the growing competition between prime brokers. Prime brokerage is the operation within banks which provides leverage, clearing and administrative services to hedge funds.
"There is a risk," says the report, "that heightened competitive pressures could result in brokers relaxing counterparty credit risk management standards."
The problem is that although hedge fund assets may only be a small proportion of the universe of assets which can be invested (less than 1 per cent according to Professor Naik), hedge fund managers are disproportionately large clients for the investment banks.
Indeed, some experts estimate that hedge funds can account for as much as 40 per cent of trading volumes in certain individual shares or markets. The mega hedge funds such as those run by George Soros, Caxton, Citadel, Moore Capital and Tudor are accounts to die for if you're an investment banker.
But there is another aspect to the hedge fund boom: many investment banking proprietary desks are basically hedge funds under another guise.
"Proprietary trading desks are the mothers of hedge funds," says Naik. This is why "prop" traders can segue so seamlessly from investment bank employee to hedge fund owner/manager. Essentially it's the same job. And lately, these "prop" desks have become incredibly profitable for the investment banks.
This has raised concerns for shareholders, since proprietary trading tends to produce volatile and risky earnings. "If there is a control lapse, it can be a huge hit for the shareholders," says Naik.
So are hedge funds really taking over the world? Naik ridicules such a view: "If they were a large portion of the investing universe, they wouldn't be able to achieve the high returns. Hedge funds add value at the margin. They need to be small and nimble to succeed."
Naik also points out that the survival rate of hedge funds is low. He estimates that 2,200 funds have disappeared or, as he puts it, "gone missing in action" since the industry started to grow rapidly in the 1980s.
Others are less sanguine: they see the headlong rush into hedge funds as a "sell" signal for the sector. "When everyone piles into something, that's the time to get out," one managing director said. "If something bad happens and liquidity dries up, there's nowhere to go. The market's going down and you need a bid. I don't care who you are: the party's over. Remember Long-Term Capital Management."
LTCM was a major hedge fund, run by supposedly some of the most brilliant brains on Wall Street, which spectacularly blew itself up in September 1998. The scandal temporarily threatened the stability of the banking system before the US Federal Reserve organised a rescue operation.
They say history never repeats itself, but some observers are already asking if the current love affair with hedge funds represents a Trojan horse at the heart of our financial markets.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2004/02/22/cchedge22.xml&sSheet=/money/20...
U.S. Pressing for High-Tech Spy Tools
By MICHAEL J. SNIFFEN, Associated Press Writer
WASHINGTON - Despite an outcry over privacy implications, the government is pressing ahead with research to create ultrapowerful tools to mine millions of public and private records for information about terrorists.
Related Links
• ARDA - official site
• High-Tech Spy Agency Has Low Profile (AP)
Congress eliminated a Pentagon (news - web sites) office that had been developing this terrorist-tracking technology because of fears it might ensnare innocent Americans.
Still, some projects from retired Adm. John Poindexter's Total Information Awareness effort were transferred to U.S. intelligence offices, congressional, federal and research officials told The Associated Press.
In addition, Congress left undisturbed a separate but similar $64 million research program run by a little-known office called the Advanced Research and Development Activity, or ARDA, that has used some of the same researchers as Poindexter's program.
"The whole congressional action looks like a shell game," said Steve Aftergood of the Federation of American Scientists, which tracks work by U.S. intelligence agencies. "There may be enough of a difference for them to claim TIA was terminated while for all practical purposes the identical work is continuing."
Poindexter aimed to predict terrorist attacks by identifying telltale patterns of activity in arrests, passport applications, visas, work permits, driver's licenses, car rentals and airline ticket buys as well as credit transactions and education, medical and housing records.
The research created a political uproar because such reviews of millions of transactions could put innocent Americans under suspicion. One of Poindexter's own researchers, David D. Jensen at the University of Massachusetts, acknowledged that "high numbers of false positives can result."
Disturbed by the privacy implications, Congress last fall closed Poindexter's office, part of the Defense Advanced Research Projects Agency, and barred the agency from continuing most of his research. Poindexter quit the government and complained that his work had been misunderstood.
The work, however, did not die.
In killing Poindexter's office, Congress quietly agreed to continue paying to develop highly specialized software to gather foreign intelligence on terrorists.
In a classified section summarized publicly, Congress added money for this software research to the "National Foreign Intelligence Program," without identifying openly which intelligence agency would do the work.
It said, for the time being, products of this research could only be used overseas or against non-U.S. citizens in this country, not against Americans on U.S. soil.
Congressional officials would not say which Poindexter programs were killed and which were transferred. People with direct knowledge of the contracts told the AP that the surviving programs included some of 18 data-mining projects known in Poindexter's research as Evidence Extraction and Link Discovery.
Poindexter's office described that research as "technology not only for `connecting the dots' that enable the U.S. to predict and pre-empt attacks but also for deciding which dots to connect." It was among the most contentious research programs.
Ted Senator, who managed that research for Poindexter, told government contractors that mining data to identify terrorists "is much harder than simply finding needles in a haystack."
"Our task is akin to finding dangerous groups of needles hidden in stacks of needle pieces," he said. "We must track all the needle pieces all of the time."
Among Senator's 18 projects, the work by researcher Jensen shows how flexible such powerful software can be. Jensen used two online databases, the Physics Preprint Archive and the Internet Movie Database, to develop tools that would identify authoritative physics authors and would predict whether a movie would gross more than $2 million its opening weekend.
Jensen said in an interview that Poindexter's staff liked his research because the data involved "people and organizations and events ... like the data in counterterrorism."
At the University of Southern California, professor Craig Knoblauch said he developed software that automatically extracted information from travel Web sites and telephone books and tracked changes over time.
Privacy advocates feared that if such powerful tools were developed without limits from Congress, government agents could use them on any database.
Sen. Ron Wyden, D-Ore., who fought to restrict Poindexter's office, is trying to force the executive branch to tell Congress about all its data-mining projects. He recently pleaded with a Pentagon advisory panel to propose rules on reviewing data that Congress could turn into laws.
ARDA, the research and development office, sponsors corporate and university research on information technology for U.S. intelligence agencies. It is developing computer software that can extract information from databases as well as text, voices, other audio, video, graphs, images, maps, equations and chemical formulas. It calls its effort "Novel Intelligence from Massive Data."
The office said it has given researchers no government or private data and obeys privacy laws.
The project is part of its effort "to help the nation avoid strategic surprise ... events critical to national security ... such as those of Sept. 11, 2001," the office said.
Poindexter had envisioned software that could quickly analyze "multiple petabytes" of data. The Library of Congress (news - web sites) has space for 18 million books, and one petabyte of data would fill it more than 50 times. One petabyte could hold 40 pages of text for each of the world's more than 6.2 billion people.
ARDA said its software would have to deal with "typically a petabyte or more" of data. It noted that some intelligence data sources "grow at the rate of four petabytes per month." Experts said those probably are files with satellite surveillance images and electronic eavesdropping results.
The Poindexter and ARDA projects are vastly more powerful than other data-mining projects such as the Homeland Security Department's CAPPS II program to classify air travelers or the six-state, Matrix anti-crime system financed by the Justice Department (news - web sites).
In September 2002, ARDA awarded $64 million in contracts covering 3 1/2 years. The contracts went to more than a dozen companies and university researchers, including at least six who also had worked on Poindexter's program.
Congress threw these researchers into turmoil. Doug Lenat, the president of Cycorp Corp. in Austin, Texas, will not discuss his work but said he had an "enormous seven-figure deficit in our budget" because Congress shut down Poindexter's office.
Like many critics, James Dempsey of the Center for Democracy and Technology sees a role for properly regulated data-mining in evaluating the vast, underanalyzed data the government already collects.
Expansions of data mining, however, increase "the risk of an innocent person being in the wrong place at the wrong time, of having rented the wrong apartment ... or having a name similar to the name of some bad guy," he said.
___
On the Net:
DARPA: http://www.darpa.mil
ARDA: http://www.ic-arda.org
OFFICE OF NEW YORK STATE ATTORNEY GENERAL ELIOT SPITZER
FROM WALL STREET TO WEB STREET: A REPORT ON THE PROBLEMS AND PROMISE OF THE ONLINE BROKERAGE INDUSTRY
PREPARED BY: INVESTOR PROTECTION INTERNET BUREAU AND SECURITIES BUREAU
NOVEMBER 22, 1999
D. Market Makers: Trade Execution Solutions for Online Investors
-- Knight Securities, L.P.
1. Complaints relating to poor executions.
A recurrent theme of the investor complaints reviewed by our office relate to delayed or questioned trade executions, particularly during the period from late October 1998 through February 1999. Knight Securities was the leading provider of automated trade executions ("auto-ex") for online brokers, and the curtailment of auto-ex services by Knight was a likely source of many of these complaints. Accordingly, our inquiry evaluated Knight's performance, as well as other market makers. For illustrative purposes, the following sections address the performance of Knight during the 1998-99 Market Storm and the issues that arise for online investors involving market makers.
The tremendous stress placed upon NASDAQ market making firms in the Market Storm are best illustrated by the volatility witnessed in Internet stocks:
On November 30, 1998, Onsale (ONSL) traded from 108 to 50 in 25 minutes.
On November 13, 1998, the shares of theglobe.com (TGLO) commenced trading after an IPO at $9 per share, traded as high as $97, closed at $63.50.
Also in mid-November, Avtel Communications (NASDAQ symbol "AVCO") went from $11 to $31 in the last 30 minutes of trading as a result of a mention on CNBC. At this trading peak AVCO had a market capitalization of $3 billion; today it is in violation of a loan covenant that it maintain a minimum net worth of $2 million.
On January 14, 1999, CMGI opened at $146, traded down to $88 and back up to $130 in 15 minutes.
Volatility of this magnitude can be simply lethal for novice investors -- and is even hazardous for market makers. These and similar events prompted SEC Chairman Arthur Levitt and the NASD Regulation in late January 1999 to call upon investors to employ limit orders, as opposed to market orders, in order to gain price protection against such volatile trading conditions.109 Online firms acted quickly to disseminate this information via their websites, monthly statement stuffers and advertisements. We have sought to weigh the performance of Knight Securities under these circumstances and conclude that the NASDAQ market place must facilitate, as Knight itself has urged, better tools by which market makers may effect executions against other market makers so that auto-ex providers will have an enhanced ability to offer uninterrupted liquidity to investors.
2. Who is Knight Securities?
Knight Securities is a wholly owned subsidiary of Knight/Trimark Group, Inc. a public company since July 1998. While Knight Securities concentrates upon NASDAQ market making from its Jersey City headquarters, sister corporation Trimark Securities provides off-exchange executions for NYSE listed securities. The origin of Knight/Trimark Group began in 1995. Until just prior to its initial public offering, the business was 60% owned by a consortium of 27 broker-dealers and their affiliates with management owning the remaining 40%.110 After the 30% of Knight now owned by executive officers and directors, online broker-dealers remain the largest shareholders in Knight.111 Waterhouse owns 8.53%, Ameritrade 7.13% and E*Trade and Discover collectively about 5%.112 Waterhouse, Ameritrade and E*Trade each contributed about 12% of Knight's order flow in the quarter ending June 30, 1999, totaling 36.5%.113 The total payments-for-order-flow earned by Waterhouse and Ameritrade from Knight in the June 30 quarter was $12.4 million. Knight employs sophisticated trading systems and proprietary methods to offer "best execution" services to broker-dealers and institutional customers emphasizing automated execution. The firm also utilizes proprietary risk management systems which provide Knight with real-time, online risk management and inventory control. Knight is also beginning to deploy innovative Internet based tools that permit customer broker-dealers to access information, such as pending order status, within Knight's system.114 Knight makes markets in more than 7,000 NASDAQ and OTC Bulletin Board stocks.115 Through its Trimark subsidiary, it also makes off-exchange markets in all NYSE and AMEX-listed equity securities. As of June 1999, Knight held the largest market share, at 17.5%, of total OTC dealer trading volume.116 In the course of accomplishing its market making business, Knight may either carry inventory (be long) or borrow shares (be short). As of June 30, 1999 Knight held $200 million in long positions and $220 million in short positions.117
3. Making payments for order flow.
As a market maker in NASDAQ securities, Knight engages in the widespread industry practice of "payments for order-flow." Under this practice, broker-dealers who originate market orders receive rebates of typically between 1 cents and 2 cents per share for orders directed by them to selected market makers for execution. This payment is not reflected in the trade confirmation seen by the investor but is paid by the dealer executing the trade from its market making profits. The customer agreements of the online brokers examined typically disclosed the firm's practice of accepting such payments. Further, the fact that the broker may receive other remuneration in connection with the order is typically a disclosure on the back of the trade confirmation documents issued to an investor.118 The absence of payment for order flow revenue from investor limit orders has typically resulted in online firms charging a higher price for limit orders as compared to market orders.119 Recently, one online firm has advertised its refusal to accept payment for order flow.120
Broker-dealers that do not make markets in individual securities, including online firms, direct order flow to firms such as Knight and Mayer & Schweitzer to achieve fast and advantageous executions for their customers. Market conduct rules obligate these originating firms to closely monitor the performance of firms providing such execution services for consistency with applicable market rules and practices. Periodic reports are compiled and furnished to the firms that sell their customer order flow which analyze the market maker's execution services and the frequency of achieving price improvement for customer's orders. However, this information does not reach customers or the public.121
Payments for order flow represent the second highest expense item of Knight's business, at 24% of net trading revenues in the three months ending September 30, 1999. A closer look at Knight's most recent 10Q reveals, however, that, as a percentage of net trading revenue, payments for order flow have declined 21.6% in the first nine months of this year. For the first nine months of this year, such payments constituted 18.85% of net trading revenues compared to 24% for the same period in 1998. This change potentially reflects heightened investor understanding of the risks of market orders and greater use of limit orders which are not eligible for order flow payments. Payments for order flow have been surrounded in controversy since well before online brokerage firms arrived.122 Critics have assailed them as outright bribery and a breach of the broker's agency obligations to the customer. At a minimum, a broker's opportunity to sell customer order flow presents a potential conflict with customers receiving "best executions" since market makers paying for order flow may be less vigilant in obtaining price improvement for customers where it might reduce their own profits. The SEC has not elected to bar the practice and the New York Court of Appeals has determined that application of our common law agency disclosure duties was impliedly preempted by the conflict that would arise with the "policy-based delicate balance Congress directed the SEC to achieve."123
Amid signs that the payment for order flow practice is now gaining a foothold in the options market,124 the SEC is again sounding alarms that the practice is not clear to investors and harmfully conflicts with the broker's "best execution" duty.125 A further assault on the practice may develop when equity pricing converts to decimals on June 30, 2000. The anticipated squeeze on market makers' quote spreads is expected to reduce, if not eliminate this practice. In fact, long-term revenue estimates of analysts for online brokers omit order flow payments.126
Investors should inform themselves about the payment for order plan practices of their brokers. "With today's low commissions, investors need to start focusing on other transaction costs," says John Markese, president of the American Association of Individual Investors.127 In placing orders, they should weigh the impact of the practice in light of their price and time objectives. In selecting their brokers, they should determine what percentage of its customers get price improvement, the average savings and the time it takes to obtain these savings.128
4. Automated executions.
The average online investor clicking the order entry box on their computer probably believes that their electronic buy/sell request for a particular security is directly connected to another party who has an inventory of the stock or seeks to buy the stock. This may occur if different customer limit orders are matched. In fact, such is the model upon which electronic communication networks (ECNs) such as Instinet, Island, REDIBook and Archipelago operate. Nonetheless, NASDAQ itself is not a marketplace of firm orders but a collection of market making dealers quoting bids/asks and profiting from the spread between the bid and ask. A quote is not the equivalent of an order. An order is firm. How firm is a quote if the market maker delays responding to another dealer's attempt to trade at the quote?129 How much size is in the quote? If the quote size is only for 200 shares, how liquid is the market? How long will it take for my order to be filled?
NASDAQ requires that dealers fill orders at the price and at the size represented in their quotes "at the time of receipt of any such offer."130 However, this has never been construed by the NASD to mean instantaneous, yet that is frequently the expectation of public customers. After its quote is hit, the market maker has an additional 10 seconds to change the quote's price and size during which period it is not required to honor its quote. The minimum size for a quote on NASDAQ National Market ("NNM") securities varies, depending on volume, between 1000, 500 or 200 shares.131 In addition, NASDAQ operates the Small Order Execution System (SOES) which does operate as an automatic execution system for small orders from the public.132 In sum, the image and the legal reality of NASDAQ are quite distinct. The basis for the investor's perception of NASDAQ lies in the fact that market makers, such as Knight, go beyond NASDAQ's minimum practices and guarantee to automatically execute transactions at NASDAQ's national best bid/best offer (the NBBO) substantially beyond NASDAQ's minimum practices and in amounts well in excess of NASDAQ legal requirements.
But Knight is not a charity. It is a NASDAQ market maker like all the rest. It has no better position than any other market maker in getting executions against other dealers. During periods of abnormal volatility and volume in a particular stock or group of stocks, Knight reserves the right to suspend its auto-ex guarantee. If the flow of customer orders to Knight exceeds the parameters it has set for auto-ex in an individual security, its traders decide order-by-order whether, to trade or pass the order along.133 Knight's calculation is ultimately dependent upon whether, if it adds to a long or short position by filling the order, it will be able to reverse that position by executing trades for itself against other NASDAQ market makers. Hence, the size of market makers' quotes is the barometer of NASDAQ's liquidity. The volatility of stock prices cited above illustrate what happens when NASDAQ's market makers see risk, step on the brakes (widen their spreads and reduce the size of their quotes), liquidity disappears and prices consequently gyrate.
Under these circumstances, market makers, such as Knight, that provide auto-ex can be expected to and do in fact curtail or suspend auto-ex. As a result all orders reaching these market makers queue up and take longer to manually execute. Separate, but related, delays may occur at the broker-dealers, online or offline, that originate customer orders. These delays may arise in the event of equipment failure or insufficient bandwidth to accommodate transmitting all of the information that must be dispatched to Knight or other market makers. The correspondent's bandwidth constraint may exist at an overall ceiling level, a destination level (the size of the pipe to Knight or other market makers) or an individual security level.
During the past year's Market Storm, Knight constantly recaliberated the auto-ex parameters that it offered for securities. Changes in auto-ex parameters or suspension of auto-ex after a pre-set threshold is hit are electronically disseminated by Knight to its customer broker-dealers before the market opening and as they occur. Knight does not publicly post this information on its website and brokers who receive this data have varying practices as to what they disclose to individual investors. The prevailing practice appears to be a pop-up notice to the investor advising that a group of securities is trading in a "fast market." Since the events of January this year, online brokers have made informational efforts to educate investors of the meaning, resultant risks and behavioral adjustments arising from such conditions. Of course, there may be a general notice if such condition is endemic to the entire NASDAQ market place as has occurred this year on a number of occasions. The following is representative of the message that Ameritrade displayed during the Market Storm relating to Internet stocks:
Due to the extreme volatility in certain Internet related securities, the quotes carried by market data services may not be reflective of the actual price at which trades are occurring. In addition, most NASDAQ market makers have turned off "Auto-Execution" facilities for many of these stocks. Manual execution procedures can take much longer to complete and partial executions at various prices on market orders often occur during these types of markets. Thank you.
At the time of our July 16, 1999 on-site visit at Knight's facility, the predominant auto-ex circuit breaker on intra-day execution was a trade that created a long or short position ("inventory") aggregating thousands of shares above the minimum NASDAQ NNM quote sizes. For volatile issues, such as Internet stocks, the threshold was 60% lower, but still well above the NASDAQ quote sizes. If the trade flagged by the circuit breaker results in shares only marginally above the pre-set inventory benchmark, the Knight trader will frequently click and accept the orders. The purpose of the software is to allow Knight to tap the brakes on how much stock it will either be long or short after the trade. Knight's options, of course, always include curtailing on suspending auto-ex down to NASDAQ's minimum requirements. However, the growth in Knight's business 134 Efficient Networks, Inc., a supplier of high-speed digital subscriber lines, accounted for 65% of the parameter breaking trades. National Information Consortium, Inc. (EGOV), a builder of Internet portals to access information from and transact business with governments, was the other IPO.
For the day previous to our visit, only 31 stocks of the 4600 stocks where Knight offers an auto-ex guarantee saw trades that exceeded Knight's circuit breakers. Half of these stocks saw only five or fewer trades exceed the threshold. In contrast, 73.5% of trades exceeding the threshold were in just two securities that went public on July 15th. Both of these were Internet related issues.134 Finally, 18% of the circuit breaker trades occurred in big name NASDAQ stocks such as Amazon, Microsoft, Network Plus, Glenayre Technologies, Cisco and Viasoft.
Apart from intra-day operating parameters, Knight extends specially tailored execution services for NASDAQ's high-volume morning opening of trading. In June of this year, Knight announced a mid-point pricing plan that accommodates orders aggregating to 250,000 shares in 4800 NASDAQ issues.135 Knight guarantees that orders up to the ceiling will be executed at the mid-point of the first unlocked, uncrossed NBBO regardless of market imbalances. Knight maintains that mid-point pricing results in price improvement for all pre-opening market and marketable limit orders.
Knight is currently conducting an advertisement campaign that proclaims, "Who's the force behind the online trading revolution? We're Knight, the world's leading market maker . . . ."136 Certainly, it is true that today's market volume and speed of executions is inconceivable without auto-ex facilities by market makers at thresholds substantially greater than NASDAQ's firm quote rule.
It is our conclusion that the only way for the NASDAQ market to progress and dispense with the auto-ex curtailments witnessed during the Market Storm, not to mention preparedness for the storms of activity that may lie ahead, is for NASDAQ itself to create a tool that will permit market makers to auto-ex each other at size levels much above the current firm quote rule. Only when immediate access exists for auto-ex providers to other sources of liquidity, can we expect to stem NASDAQ execution delays.
5. Capacity and reliability.
The centrality of Knight in the online trading revolution raises significant questions.
Is Knight a potential single point of failure that would impact the entire market if it experienced either a hiccup or a more serious event?
How reliable are the systems that Knight has constructed?
How much capacity does Knight have and how much capacity will it need for the market to weather the next Market Storm?
In the following sections we present the information gathered on these topics during our inquiry. We do not suggest that we can answer these questions. We did find thoughtful, competent managers that are seeking to insure satisfactory answers in an environment where there are only general directives from either NASD or the SEC.137
(a) Single point of failure.
At its present Jersey City facility Knight has built in redundant systems, including emergency power generation, to insulate itself and investors from a system outage. However, the firm lacks a "hot" back-up data center and is in the process of establishing such a facility.138 Such a facility would substantially diminish Knight's exposure to a business interruption due to fire, weather, environmental or other emergency. Knight's Trimark affiliate, located in New York, is now available as a back-up site.
No online brokers are solely reliant upon Knight as they maintain relationships with other firms, together with the communications infrastructure to reach these alternate execution points.
(b) System reliability.
Knight's uptime availability for the eighteen months covered by our inquiry was 99.95%. This performance was superior to that of any of the online brokerage firms that we examined. A single 45-minute-outage was experienced by Knight on November 30, 1998 -- a Market Storm day when Ameritrade also experienced an outage.139 On November 30th, the Monday, following the Friday (November 27th) after Thanksgiving that also witnessed unprecedented volatility in Internet stocks, Knight saw order imbalances on the morning of the 30th and suspended auto-ex for 60 stocks before the opening. Knight's systems were overwhelmed as it explained in a subsequent letter to its customers:
The additional processing required to handle approximately 40,000 orders manually significantly impacted our trading system. This deluge of order flow also strained every part of our end-to-end service from our help desk response time to our P&S department reconciliation process. As a result, we have taken action to change our auto-ex procedures and to reconfigure our system to handle the type of trading situations encountered on November 30th.140 As indicated in the letter, Knight, as a consequence, made adjustments to its systems and improved its notification procedures to its broker customers.
(c) System capacity.
Knight/Trimark recorded a 600,000 trade day on November 7, 1999, representing cumulative share volume of 328 million shares of OTC and listed securities.141 Knight claims that its installed technology provides capacity of 1.2 million trades per day. This data indicates excess capacity of 50% over a peak day, but it does not capture the relationship that the day's order flow at 9:31 AM, one of the busiest times of the day, bears to total transaction capacity at that time.
It is impossible for a regulator to say that Knight's excess capacity is sufficient -- dependent as such a prognostication would be upon both general market activity and Knight's share (recently increasing) of overall activity. As we set forth below in our recommendations, periodic public visibility of all firm's performance metrics and capacity planning will serve to ensure that firms such as Knight continue to manage responsibly the growth of the electronic marketplace.
http://www.jimjacobson.com/NITE/nysag.shtml
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•._.•´¯`•._.•´¯`• PURPOSE OF THIS THREAD •._.•´¯`•._.•´¯`•._.•
Regulatory Actions
This page provides links to releases concerning SEC rulemaking activity, including concept releases, proposed rules, final rules, interpretive releases, and policy statements. It also links to announcements concerning SRO rulemaking, PCAOB rulemaking, instructions for Exchange Act Exemptive Applications, other Commission notices, and public petitions for rulemaking submitted to the SEC. http://www.sec.gov/rules.shtml
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