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The Great Recession of 2011-2012
By James Srodes from the February 2010 issue
http://spectator.org/archives/2010/02/23/the-great-recession-of-2011-20/
They sure are!
bankfunds destroying America Society -
INFO VIDEO: Naked Short Selling Part 1
anti-US - 666 - cartel info? -
http://www.netcastdaily.com/broadcast/fsn2006-1028-2b.m3u
Long Shareholders demand nss-fraudsters should spend rest
of life in jail its a must for US Liberty future? -
http://www.faulkingtruth.com/Articles/Investing101/1058.html
In his complaint letter to the NASD, Frizzell lists a few
of the reasons that brokers have given their clients
for failing to deliver the stock certificates to their
rightful owners.
It is a list worthy of David Letterman’s Top Ten:
The most alarming problems are represented by those
shareholders who have been requesting certs from their brokers
since the company’s first announcement of a distribution
seven months ago.
Here is a sampling of excuses being given to shareholders
as reasons for their inability to obtain a cert:
1. “We had your cert, but it is now lost. It will take us
another 6 to 8 weeks to obtain another one.”
2. “This stock purchase was a book entry only and no
certificate is available.”
3. “Your stock was classified as a worthless security and is
no longer in your account.”
4. “Our clearing firm has not been able to deliver these
certificates due to a backlog of requests at the transfer
agency.”
5. “I have been instructed we are no longer pulling certs for
CMKM and there is nothing I can do. You need to contact the
company.”
6. “CMKM Diamonds has a “K” code next to it, indicating that
it is being held in safekeeping for the client.
The clearing agent has made the decision not to issue
certs but rather fax a copy of the certs it holds to
the transfer agent.”
7. “Attached herewith is evidence of ownership of shares
held electronically by XYZ clearing for ABC broker.
ABC to confirm receipt of this proof of shares of CMKM
and related companies are held with XYZ.”
8. “In light of the lack of cooperation
(by the transfer agent), your May 15th, 2006 deadline
must be bogus and must be extended, and Entourage shares
could of course still be sent to ABC for the benefit of XYZ.”
9. “MNO said they had discussed with the Task Force
the acceptability of the affidavit as proof of ownership
in lieu of the certificate, and that it would be accepted.”
No such conversation ever occurred with the Task Force members.
10. “We ordered your certificate, and it has been lost.
You must now fill out a loss certificate.”
The transfer agent confirms that no certificate was
ever issued.
Each quoted statement above is taken verbatim from a
shareholder’s letter or from a broker’s written response
to a shareholder’s request for a cert.
I could continue with pages and pages of documented
incidences of these broker responses to the requests of
the shareholders if such is necessary to establish the
need for a full investigation.
http://www.cmkmtaskforce.com/
http://millionaires.proboards81.com/index.cgi?board=main&action=display&thread=1162407888
http://millionaires.proboards81.com/index.cgi?board=main&action=display&thread=1162429886
http://millionaires.proboards81.com/index.cgi?board=main&action=display&thread=1162462369
Posted By: amoebazsighhhh
US/Global banks... Movie/Interview -
Understanding the evil that is currently the US political scene -
a government ruled by bankers and corporate interests -
takes more than one can see on any given day -
This movie brings the fascist state to light, and will stand
America on its head if it gets wide viewing -
It might, Michael Moore got his movie out, even though -
it served the oppression more than hurt it -
http://www.freedomtofascism.com
The interview with director Aaron Russo (Trading Places, is chilling and tells the truth about the fascism that supporters of Repbulicans and Democrats alike and the cabal they unknowningly support.
Take the time to enlighten yourself, understand that whatever political leaning you have matters not so long as
central bankers control the making of money -
http://video.google.com/videoplay?docid=-3254488777215293198
Btw. stay with Gold Mines -
Got Goldcorp & FMNJ Gold & Silver Mines? -
Goldcorp & Franklin Cerro Rico Silver Mines
is 99% more Safety than -
Ex. ETF! -
Ex. ETF's - a bureaucratic trap -
to easy confiscate your -
Gold & Silver holdings? -
like they robbed the Priv. -
Gold holdings - 1934 ! -
Its 100% harder to confiscate your Goldcorp &
Cerro Rico - FMNJ shares -
Got The Liberty of Goldcorp and your 3pennyworth -
FMNJ Gold % Silver Mines Treasures? -
http://www.investorshub.com/boards/board.asp?board_id=5404
http://www.investorshub.com/boards/board.asp?board_id=5406
http://www.franklinmining.com/Home/tabid...
Ps. Silver - is a strategic war metal -
good excuse to use - ex. if they want to confiscate -
your ETF or your priv. Gold & Silver bars -
coins holdings etc.
Money Masters: Federal Reserve History part 1 of 3
http://video.google.com/videoplay?docid=8442305921010099392&q=conspiracy
Money Masters: Federal Reserve History part 2 of 3
http://video.google.com/videoplay?docid=5020331178524208549&q=conspiracy
Money Masters: Federal Reserve History part 3 of 3
http://video.google.com/videoplay?docid=6666372716915416357&q=conspiracy
A good presentation of market is explaned -
in below link -
http://www.businessjive.com/nss/darkside.html
Your opinions are appreciated -
TIA
Interesting. Thanks for the post!
ps. AOL's Metal Radio...Is "The Good Shit". IMSO.
Here's a scam for ya
http://www.netcoinvestments.info
http://www.topstockguru.com/paultaylorinjail
Here's what the IEEE Thailand Chairmen and Thailand section secretary said about IDWD and it's award.
http://www.investorshub.com/boards/read_msg.asp?message_id=8321281
Dear sir,
A company named IDS Worldwide Solutions claimed that Mr.Khawar won an IEEE award for "Best Security Data Product" for 2004.
Could you verify this award?
Many Thanks,
Mike xxxx
Reply Forward
Y W Liu to Mike More options 6:07 am
Dear Mike xxxx,
Thanks for your mail. Please be informed that IEEE Region 10, Asia Pacific Region never give out any technical award as claim. It should be a kind of fraud.
Regards,
Y W Liu
http://www.investorshub.com/boards/read_msg.asp?message_id=8321420
Ekachai Leelarasmee to Mike xxxxx, More options
Mike xxxxx,
I do not know this IEEE Professional Society and have not heard about this award. The award activity might be real elsewhere but IEEE Thailand has no linkage with this activity.
Ekachai Leelarasmee (Assoc. Prof.)
Chulalongkorn University, EE Dept.
Bangkok 10330, Thailand.
IEEE Thailand Section Secretary 2005-6
You say IDWD seems to be a scam. Just not sure, are you!
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1819 Date:2/13/2006 7:51:24 AM
Post #of 1836
and from abroad..........fwiw
------------------------------------------------------------
Reported fraud 'at 10-year high'
Financial firms are counting the cost of fraud
Source: BBC Online, 2006-01-30
Intro:
Reported fraud in the UK has reached a 10-year high, with cases involving a total of almost £1bn reaching the courts, according to a study.
Accountancy giant KPMG's annual Fraud Barometer said 222 cases involving a total of £942m reached court in 2005, up from 172 cases worth £329m in 2004. . . .
Much of the rise comes from several high-profile attacks on the government, KPMG found.
Two in particular - involving the repeated use of mobile phones and tobacco to rip off the VAT system in a scam called carousel fraud - were worth almost £100m alone.
As far as individual stocks go: I base my buys and sells on charts, tech analysis, money flow into the stock and the actual trading and volume. A stock's pps trend is/can be one's friend. I tend to focus on these things now...far more than any pr's or corporate ideas/business plans.
Scam or not...it all depends which side of a stock one is on...if, one is even involved with any.
Pump and dump...or bash & trash to cover (perhaps, to never cover via BK) or at much lower prices...only becomes obvious over time and apparent though the pps price. Since, I do not have Wall St.'s advantages nor corporate insiders knowledge...my focus will remain on charts and trading. All else is likely biased speculation.
ps. Folks/investors...and the related industry...spend time defending their investments and positions. All other analyses are farcical and carry no weight nor credence with me. I'm sure you understand this for the most part.
Well, this IDS worldwide seems to be a scam...
http://www.investorshub.com/boards/read_msg.asp?message_id=9681089
Lies about the amount of autos on 995ad.com. When investors were able to do a search on the site and the total cars shown were only 26,000 even though Downs claimed 550,000 plus, Downs reverse engineered his search mechanism so that a broad search was no longer possible.
Lies about dealers "signing up" to 995ad.com. Yet when dealers were phoned, they said they had never heard of 995ad.com and had either sold the auto in question and had never had the particular VIN number in stock that the site represented was in their inventory.
Bots used to generate fake traffic for 995ad.com. This isssue has become so serious that now IDWD investors have been encouraged to help this little fraud along by running bots from their own comps for Patrick. There's nothing like being given the chance to take part in a RICO conspiracy, huh?
Lies about the fishing lure. Downs claimed to have been making and marketing the lure for the company, but when the fishing lure company was phoned, they said he simply provided packaging (the little plastic tackle box) and that the lure was made in China.
Fake pictures of the Lahore Technical building that is supposedly the world HQ of the HLS division. The pic is simply an artist's rendering of something that does not exist at that address.
A cut and pasted website for IDWD that comes from the website of a Belloruse software company doing business in Germany. Downs was so sloppy he even left the number of employees the same as well as the entire FAQ. His only original work was replacing the name of IDS-Worldwide where the other company's name had been.
A forged IEEE award. No doubts here. The chair of the Awards committee for IEEE said the Downs scam was a fraud and the evidence is overwhelming that he wasn't just a IDWD basher lmao!
A fake pic of a Bangkok meeting that never took place. (complete with a play by play live report from Datatech at the fictitious meeting) Datatech was even reporting comments overheard from this meeting that never took place. The only honest explnation is that Datatech Downs "hears voices in his head" or that the entire thing was a scam. Come on Mr. FBI Analyst. Surely you can see this one. What exactly did the FBI have you analyzing anyway?
A joke of an inconsistent PR string about a mythical dividend. This one takes the cake. It is the stuff that penny stock scam lore is made of. I guess Down's idea is that if it worked one time, why not two or three? How many stock market mullets are there anyway? Maybe he should run the whole scam one more time out of fear he may have missed one or two of them. His most recent excuse for lack of details being that he is observing a "quiet period" is totally absurd and insane. After 15 PRs during this laughable quiet period, he suddenly goes mum when an investor says "are we getting cash, stock or bubble gum coupons"?
Right now I'm just focussing on the Fed. If, you have something you think might belong here...you're welcome to post it. Others may do the same.
Great. what are some new scams swindles thefts?
I wasn't sure I was going to stay a paying member a couple months back...so, I made copies of 2 of my premium boards and put them in the free-zone. I don't think any of my copied boards were allowed to stay in the free-zone. This board here, at least has picked up some interest since it was re-issued. It's original only has my boardmark. This one has 7 boardmarks.
how come there are two boards with the same exact name as this?
OT: To the confused and huddled masses....
MESSAGE BOARD HELL is now open for business! Stop by and post all the dirt you can dig about the evil forces of corruption that rule the boards!
http://www.investorshub.com/boards/board.asp?board_id=5068
Nice post! I will look into it and study them. Thanks.
Raging Bull Corruption and Spyware
We just had a nice discussion about this on the BCIT board - thought I would catalog the links, in order, just in case anyone else is interested. Please pass this post around so everyone knows....TIA
-Serf
Raging Bull has six weeks to live?
http://www.investorshub.com/boards/read_msg.asp?message_id=9355504
http://www.investorshub.com/boards/read_msg.asp?message_id=9356571
http://www.investorshub.com/boards/read_msg.asp?message_id=9356686
http://www.investorshub.com/boards/read_msg.asp?message_id=9356762
Description of RB viruses/spyware:
http://www.investorshub.com/boards/read_msg.asp?message_id=9356791
http://www.investorshub.com/boards/read_msg.asp?message_id=9356843
RB cookies:
http://www.investorshub.com/boards/read_msg.asp?message_id=9356866
http://www.investorshub.com/boards/read_msg.asp?message_id=9356904
http://www.investorshub.com/boards/read_msg.asp?message_id=9356964
http://www.investorshub.com/boards/read_msg.asp?message_id=9357509
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1467 Date:1/18/2006 11:11:42 AM
Post #of 1469
Is there any honest people left in this world!
==============================================================
U.N. puts 8 staffers on paid leave in expanding probe of purchasing fraud, mismanagement
Associated Press WorldStream via NewsEdge Corporation :
UNITED NATIONS_The United Nations on Monday ordered eight staff members to take paid leave as part of its expanding investigation of fraud and mismanagement in U.N. purchasing for the world body's far-flung peacekeeping operations.
One company, which was not identified, has also been suspended from doing business with the United Nations pending further investigation, U.N. spokesman Stephane Dujarric said.
He said the eight staff members were put on paid leave to protect the organization as a result of an audit of the U.N. peacekeeping department's management and procurement practices by the U.N.'s internal watchdog. The United Nations did not identify the staff members but two U.N. officials said they included Assistant Secretary-General Andrew Toh, who headed the division responsible for procurement.
"This is just an administrative action," he said. "It is not at all a disciplinary action as this audit is not yet been finalized."
Asked why the United Nations had taken this action, Undersecretary-General for Management Christopher Burnham said "this is an indication that we have a vigorous and ongoing and expanding investigation."
He said Secretary-General Kofi Annan has ordered that the U.N.'s Office of Internal Oversight, its internal watchdog, cooperate fully with an ongoing criminal investigation by the U.S. attorney for the southern district of New York. That cooperation has already led to U.N. procurement officer Alexander Yakovlev pleading guilty in August to wire fraud and money laundering during his time in the Procurement Service.
A senior U.N. official, speaking on condition of anonymity because of the sensitivity of the issue, said the internal audit outlined specific cases of mismanagement and potential cases of fraud which are now being investigated by a team led by Paul Roberts, a senior investigator with the European Commission's anti-fraud unit.
Roberts will also look into more than 200 whistleblower tips received by the United Nations in recent months, the official said.
Annan ordered the urgent investigation because of compelling evidence turned up in the internal audit, the official said.
Last month, an independent review by the international accounting and consulting firm Deloitte & Touche said the U.N. Procurement Service is poorly managed and staff don't know even the basic rules governing their work. The report said the U.N. operation was too dependent on its staff to make sure purchasing contracts are free from fraud.
Burnham had ordered the review after Yakovlev pleaded guilty in federal court. A probe of the U.N. oil-for-food program had also implicated Yakovlev in corruption in the Iraq operation.
The United Nations recently retained Deloitte Consulting to undertake a six-month comprehensive audit of U.N. procurement, including the last five years of purchases for U.N. peacekeeping missions.
In 2005, the Procurement Department handled almost US$2 billion (€1.7 billion) in purchasing for the Department of Peacekeeping, almost double the amount in 2003, U.N. officials said.
"We expect the internal investigation to be completed in the next few months and we expect the forensic audit by Deloitte ... to also be completed in the next few months. Thus, we hope the actions we have taken today will last no longer than a few weeks or months," Burnham said in an interview.
As for the eight staff members placed on paid administrative leave, he said, "the secretary-general expects their complete cooperation with any and all aspects of the investigation."
The senior U.N. official said four staffers from the Department of Management had been placed on paid leave along with four members of the Department of Peacekeeping Operations who had been recalled from posts overseas.
Four other U.N. staffers from the Peacekeeping Department were recalled from field assignments to respond to the audit, but they were not ordered to take paid leave and are now being returned to their duty stations, Dujarric said.
While the U.N. refused to identify any of those involved, the two U.N. officials, speaking on condition of anonymity because no names have been released, identified several of them.
Last summer, after Yakovlev pleaded guilty and the oil-for-food probe exposed the flaws in procurement, Annan transferred authority from Toh, the assistant secretary-general, to the U.N. controller. The chief of procurement, Christian Saunders, was also switched to a different job.
Both Saunders and Toh insisted that the Deloitte findings were not news to them and they had been trying to fix the problems.
The two U.N. officials said Toh and Saunders were among those placed on paid leave along with Sanjaya Bahel, who was in procurement and most recently headed commercial activities under Toh; Christopher Fathers, who was previously in charge of logistics and transportation in the procurement office; and Paul Johnson, who previously was in charge of logistics operations in the Peacekeeping Department.
Toh and Saunders did not return calls, Bahel is on leave, and efforts to reach Fathers and Johnson were unsuccessful.
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1440 Date:1/16/2006 4:03:47 PM
Post #of 1441
yes, Tyco has a corporate office in W,Windsor, NJ...
I dont know who would want to own this stock, it is
just so pervasive with fraud IMO, you just never get
rid of it, thats why they are splitting up, but my guess
is there is still a lot of it floating between the ranks.,
deep deep pockets for upper level management.....
jmho
$$$$$
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++=
Tyco acknowledges it was source of $1.6 million pocketed by Abramoff
Thursday January 05, 2006
By SHARON THEIMER
Associated Press Writer
WASHINGTON (AP) Tyco International, whose former CEO became a symbol of corporate corruption, acknowledged Thursday it is the Jack Abramoff client referred to as ``Company A'' in court documents describing the lobbyist's scheme to funnel millions of dollars in lobbying fees to himself.
Tyco hired Abramoff in 2003 to lobby for it on a tax issue, said company spokeswoman Sheri Woodruff. She declined to comment further on the West Windsor, N.J.-based company's relationship with Abramoff or on the lobbyist's activities.
Abramoff pleaded guilty this week in Washington to mail fraud, conspiracy and tax evasion in connection with his lobbying activities and in Miami to conspiracy and wire fraud in a 2000 business deal in which he and a partner purchased the SunCruz Casinos fleet of gambling boats.
Abramoff also agreed to cooperate with federal prosecutors trying to find out whether Abramoff bought specific actions from members of Congress, their aides or members of the Bush administration by doling out large campaign contributions and gifts such as meals at his restaurant, use of his skybox and trips abroad. Investigators are examining Abramoff's ties to former House Majority Leader Tom DeLay, R-Texas, and House Administration Committee Chairman Bob Ney, R-Ohio, among other lawmakers.
In court documents released Tuesday as part of Abramoff's guilty plea, prosecutors described some of Abramoff's activities, including his alleged use of a side business to fraudulently funnel millions of dollars from lobbying clients to himself.
Abramoff, then employed by the to prison for grand larceny, conspiracy, securities fraud and falsifying business records. They are accused of conspiring to defraud Tyco of millions of dollars to fund lavish lifestyles. Both are appealing their convictions.
In October, Tyco attorney Timothy E. Flanigan withdrew his nomination to be President Bush's deputy attorney general. Flanigan's confirmation was delayed due to questions about his dealings with Abramoff when Abramoff was a Tyco lobbyist.
On the Net:
Tyco International Ltd.: http://www.tyco.com
Documents: http://www.usdoj.gov/criminal/press room/press releases/2006 index.h tml#1
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1435 Date:1/16/2006 6:43:17 AM
Post #of 1440
TYCO, what a complete waste of shareholder money,
no wonder stockholders are dumping it, TYCO just giving
money away to selected top key personnel, retention plan is to pay 2.5 x's their base salary if they stay to the completion of spinoff, among other things, get in line for your handout.
I know a couple friends that work for tyco, and believe
me, they get treated well and hardly work......
what's in your wallet?
stay tuned on this one, you just might see some class action suits developing here...
jmho
,,,,,$$$$$
Scandal-plagued Tyco International to split into three companies
Friday Jan 13 2006 18:35:22 EST
TRENTON, N.J., Jan 13, 2006 (The Canadian Press via COMTEX) --
Tyco International Ltd. (NYSE: TYC), still recovering from scandals that saw its longtime former chief executive sentenced to prison, said Friday it plans to split into three public companies.
Carving Tyco's electronics and health care businesses from its remaining operations was expected, but Wall Street still punished the company on news the breakup would reduce profits, cost $1 billion US and take a year to complete.
Tyco, best known for its ADT home alarm systems, warned its first quarter and full-year 2006 earnings from continuing operations would be lower than expected.
Its shares tumbled $3.19, or 10.5 per cent, to close at $27.12 in trading on the New York Stock Exchange.
Tyco, which has its operational offices in West Windsor, said the breakup followed an extensive strategic review and will strengthen the businesses. Operations remaining in the core company include security and fire-protection services.
"We believe that separation is a logical next step in Tyco's evolution," said chairman and chief executive Ed Breen in a morning conference call. He said the board concluded the current structure was inhibiting growth possibilities of the health care and electronics businesses, both leaders in their respective fields.
In a move expected to be completed in the first quarter of 2007, Tyco will separate the companies through issuing tax-free stock dividends to shareholders, who will own dividend-producing stock in all three companies.
Each of the new companies, still based in Bermuda, will be governed by an independent board of directors who will continue to refine those portfolios with possible selloffs or acquisitions, Breen said.
Tyco has been recovering from accounting scandals that resulted in the convictions in June of former CEO and longtime leader Dennis Kozlowski and former chief financial officer Mark Swartz, who were sentenced to prison last year for grand larceny, conspiracy, securities fraud and falsifying business records. They are appealing their convictions.
"Over the past three years, Tyco has come a long way," Breen said. "We have a strong and independent board, a rebuilt management team, outstanding corporate governance rankings and an operational culture that puts growth and operating excellence at the top of the management agenda."
In November, the company said it might split up its businesses to boost the value of the stock, and there had been reports this week that it was close to a decision. It also considered a breakup four years ago.
Breen said Friday the board considered a range of options, including selling certain businesses, and separating only one of the operations.
Tyco now expects first-quarter earnings, excluding one-time items, to be about 38 cents per share from continuing operations, down from its prior outlook of 40 cents to 42 cents per share.
The firm lowered its full-year 2006 earnings forecast to a range of $1.85 to $1.92 per share from continuing operations, compared with a forecast in November of $1.88 to $2.06. Full-year earnings in 2005 were $1.51 per share.
The $1 billion in anticipated costs are mainly for tax and debt refinancing, the company said.
Analysts expect a profit of 42 cents per share for the quarter, and $2.01 per share for the year, according to a Thomson Financial survey.
Some analysts questioned whether a divided Tyco will succeed as executives hope.
Forecasting tumultuous times ahead, Prudential Equity Group analyst Nicholas Heymann said the segment of Tyco's growth not tied to new acquisitions or currency fluctuations has been flat.
Heymann said the electronics business is subject to cyclical ups and downs, while ADT soon will begin facing competition from cable TV providers offering less expensive home-video monitoring.
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1397 Date:1/11/2006 8:46:55 PM
Post #of 1401
another slap on the wrist.........fwiw
==============================================================
Law - SEC charges McAfee Inc with accounting fraud and McAfee agrees to $50 million penalty
Washington, D.C., Jan. 7, 2006 - LAWFUEL - The Law News Network - The Securities and Exchange Commission today filed securities fraud charges against McAfee, Inc., formerly known as Network Associates, Inc., a Santa Clara, California-based manufacturer and supplier of computer security and antivirus tools. The Commission’s complaint alleges that, from the second quarter of 1998 through 2000, McAfee misled investors when it engaged in a fraudulent scheme to overstate its revenue and earnings by hundreds of millions of dollars. The complaint specifically alleges that, during the period 1998 through 2000, McAfee inflated its cumulative net revenues by $622 million and that, for 1998 alone, McAfee overstated revenues by $562 million, a misstatement of 131 percent. When the scheme began to unravel and McAfee announced, in December 2000, that it would miss its quarterly revenue projection by $190 million, the news slashed over $1 billion from McAfee’s market capitalization.
McAfee consented, without admitting or denying the allegations of the complaint, to the entry of a Court order enjoining it from violating the antifraud, books and records, internal controls, and periodic reporting provisions of the federal securities laws. The order also requires that McAfee pay a $50 million civil penalty, which the Commission will seek to distribute to harmed investors pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. In addition, McAfee has agreed to appoint an independent consultant to examine and recommend improvements to McAfee’s internal accounting controls and revenue recognition and reserves practices to better ensure compliance with the federal securities laws. This proposed settlement is subject to court approval.
“This settlement takes into account both the underlying misconduct and the resulting investor harm, as well as the significant benefit that accrued to McAfee from having artificially inflated the price of its stock,” said Linda Chatman Thomsen, the Director of the SEC’s Division of Enforcement. “The company’s channel-stuffing and use of manipulative accounting artifices warrants a severe civil sanction that will act as a deterrent for other public companies and provide a source of funds that can be distributed to injured McAfee investors.”
The Commission alleges in its complaint that McAfee used a variety of undisclosed ploys during the period to aggressively oversell its products to distributors in amounts that far exceeded the public’s demand for the products. While engaging in this channel-stuffing, McAfee improperly recorded the sales to distributors as revenue. McAfee offered its distributors lucrative sales incentives that included deep price discounts and rebates in an effort to persuade the distributors to continue to buy and stockpile McAfee products. McAfee also secretly paid distributors millions of dollars to hold the excess inventory, rather than return it to McAfee for a refund and consequent reduction in McAfee’s revenues. In other instances, McAfee used an undisclosed, wholly-owned subsidiary, Net Tools, Inc., to repurchase inventory that McAfee had oversold to its distributors. The complaint further alleges that McAfee took action to conceal the fraud from investors by, among other things, wrongly recording in its books the payments and discounts that it offered to distributors, and improperly manipulating reserve accounts to increase inadequate sales reserves and cover the costs of the distributor payments. The complaint alleges that McAfee defrauded investors by reporting false and materially misleading financial and other information in periodic reports, financial statements, and securities registration statements that McAfee filed with the Commission, and in press releases and other public statements.
Previously, the Commission has sued former McAfee chief financial officer Prabhat Goyal and former McAfee controller Terry Davis for their roles in the fraudulent accounting at McAfee. Both of those actions have been stayed by the Court pending the resolution of criminal proceedings that have been brought by the United States Attorney’s Office for the Northern District of California against Goyal and Davis.
http://www.lawfuel.com/index.php?page=press_releases&handler=focus&pressreleaseid=5115&r....
More from Alex's MDGM board:
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1347 Date:1/8/2006 3:19:11 PM
Post #of 1349
yes, well since I'm into the study of Accounting I always
come across this stuff, ,,,,,$$$$$
==============================================================
Sunday, January 8,2006
The 'Idiot Defense'
Will jury buy Enron chief's claims of ignorance?
BY GREG BURNS
Chicago Tribune
CHICAGO - The Enron Corp. trial opening Jan. 30 in Houston is shaping up to be the biggest test yet of the so-called "idiot defense."
Former Enron chief Kenneth Lay has vowed to tell jurors from the witness stand that he knew nothing about crimes committed at the energy company.
And while the recent plea bargain by co-defendant Richard Causey, a former top Enron accountant, is a blow to the defense, it is unlikely to change a defense strategy that boils down to a simple theme: Blame Fastow.
In a campaign of public appearances since his indictment last year, Lay has conceded only that he erred in trusting Andrew Fastow, the ex-Enron chief financial officer who is cooperating with the government against him.
No chief executive "knows everything going on in his company," Lay said in one of his speeches, so no one should expect him to take responsibility for the crimes of an executive he portrays as Enron's chief villain. "I did not know what he was doing."
It's a risky approach, legal experts say. In the crackdown on corporate fraud, claiming innocence by virtue of ignorance has a checkered history. Also known as the "dummy" or "ostrich" defense, it has led to the conviction of such high-profile corporate criminals as Adelphia's John Rigas and WorldCom's Bernard Ebbers.
It worked, however, for HealthSouth's Richard Scrushy, who was found not guilty in a jury trial last year even after a slew of former insiders pointed the finger at him.
Last week, jurors were to resume deliberations in the criminal trial of Walter Forbes, who contends he knew nothing of the accounting fraud committed during his long tenure at the top of the public company now known as Cendant Corp.
Like Lay, Forbes blames subordinates. Like Lay, he pins the crime mostly on a CFO who is cooperating with prosecutors.
And like Lay, the key issue seems obvious: How could a seasoned executive paid lavishly over a long period know nothing about such an audacious rip-off?
"This wasn't minutiae in the case of Enron. This was fundamental, at the very highest levels," said Charles Elson, a corporate governance expert at the University of Delaware. "If the CEO isn't responsible for that, what is he responsible for?"
Michael Clark, a former federal prosecutor who has become a defense attorney, agrees. "It's a very difficult sell to say a person making that much money, who has been in a leadership role that long, could be that oblivious," said Clark, who participated in the criminal case involving Enron's broadband division. "This is a high-risk defense."
Though the seven conspiracy and fraud counts against Lay are much narrower than the 35 charges faced by his co-defendant, former Enron executive Jeffrey Skilling, Lay by his own admission faces a high hurdle of skepticism.
In a 2004 news conference, Lay lamented that finding a fair-minded jury would be difficult in Enron's hometown of Houston, where his trial is being held, because "so many people" had made up their minds against him.
The plea by Causey could rekindle the public's bad memories, and defense attorneys last week renewed calls for a change of venue, given the negative publicity on the eve of jury selection.
Yet, even with Causey available to corroborate parts of Fastow's testimony, the case against Lay will be no slam-dunk for the prosecution. The government must prove decisively that Lay knew what was going on in the months leading up to Enron's failure, said Greg Jones of Chicago's Grippo & Elden, a former federal prosecutor not involved in the case.
"Saying, 'It was obvious' and 'He had to know' isn't going to do it," Jones said. "You want Fastow to say Lay knew of this stuff and authorized it. You want a direct, dirty conversation."
That might be impossible to achieve. The case against Lay focuses on public statements he made as the company collapsed in autumn 2001, after he took back the CEO post he had relinquished briefly to Skilling, whose charges cover a considerably longer period.
What Lay knew and when he knew it are the crucial elements in the cover-up he is accused of leading.
In September 2001, the indictment alleges, Lay knew he had sold $24 million in Enron stock through private transactions, but he told Enron employees that he and other top officers were snapping up the supposedly bargain-priced shares.
In October 2001, Lay knew that Enron's water business was failing, but claimed it was growing to avoid the financial consequences of the truth, the indictment alleges.
Later in October, Lay described a huge operating loss as an unusual, one-time event, and an overvalued Brazilian power plant as "a good asset." He touted an energy-services unit riddled with hidden losses, and he grossly inflated the value of Enron's international portfolio.
Addressing Wall Street analysts as Enron stock plunged, Lay knowingly concealed "numerous dire facts," while claiming to be "disclosing everything," the indictment alleges.
According to the indictment, on that same day he lied to his 28,000 employees again, telling them the sinking company had plenty of cash. In the end, thousands of employees lost their jobs and retirement benefits based on worthless Enron stock.
Finally, on Nov. 12, Lay told analysts that Enron had nothing to hide though he knew its financial problems were much bigger than disclosed.
Lay has said Enron was a solid company until Fastow's thieving drove it under.
Unlike Fastow, who has admitted to diverting Enron's money to himself, Lay is not accused of benefiting directly from the fraud. He did, however, reap more than $200 million in profits from stock sales and almost $20 million in salary and bonuses between 1998 and Enron's 2001 bankruptcy, the indictment says.
"You could simply say, 'I relied on other people for this information, and they lied to me,' or 'I just didn't understand these statements were misleading,' " said David Ruder, Northwestern University law school professor and a former Securities and Exchange Commission chairman. "The burden is on the government in these cases to show knowledge."
Given the need to establish the defendant's state of mind and the complexities of the transactions involved, jury selection will be critical, said David Berg, a Houston trial lawyer. In the HealthSouth criminal trial, Scrushy benefited from years of charity to the black community in Birmingham, Ala., Berg said. "That was all about choosing the right jury."
Lay's philanthropy in Houston could help him overcome the notoriety of his case, Berg said. "There is a reservoir of support here."
But Lay is likely to face a more sophisticated panel in Houston than Scrushy did in Alabama, he added. "There will be some businesspeople on that jury."
Clark said directions given at the end of the trial could be critical, especially if U.S. District Judge Sim Lake provides an "ostrich instruction," telling jurors to convict if the defendants attempted to avoid knowing the obvious. That sort of "reckless indifference" could be a "real issue" for Lay.
At the same time, the length of the trial - an estimated four to six months - could work in Lay's favor. Over a long period, Clark said, jurors tend to "focus on the individual rather than the crime" and "begin to resent their lives are being disrupted."
CEO trials can be marathons. In the Cendant case, Forbes is being tried for a second time because a previous jury, subjected to months of testimony, deadlocked after 33 days of deliberations. The original panel convicted Forbes' No. 2, Kirk Shelton, who is free on bond after being sentenced to 10 years in prison.
No one disputes that accounting fraud occurred at CUC International, which merged with HFS Inc. in 1997 to form Cendant, a travel and real estate conglomerate. But while documents linked Shelton to the crime, the primary evidence against Forbes was the testimony of his ex-CFO, Cosmo Corigliano. Forbes claims he was a hands-off executive who knew little about his company's finances and operations, trusting to subordinates and auditors. He has denied ever discussing the fraud with Corigliano.
Prosecutors countered that Forbes made a fortune while lying to investors about results that he knew were phony. Jurors in Hartford, Conn., who have deliberated nine days so far without reaching a verdict, were slated to continue after the holiday break.
--------------------------------------------------------------------------------
http://www.charleston.net/stories/?newsID=63849§ion=business
From Alex's (MDGM) board: Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1336 Date:1/7/2006 8:51:13 AM
Post #of 1337
I think I see greedy people all around us...........
=============================================================
January 7, 2006
Ex-Wal-Mart Executive Expected to Plead Guilty to Fraud
By MICHAEL BARBARO
The former vice chairman of Wal-Mart Stores, Thomas M. Coughlin, has agreed to plead guilty to federal charges that he defrauded the company of at least $350,000, people close to the negotiations said yesterday.
Mr. Coughlin, once the retailer's No. 2 executive, was ousted last year amid accusations that he used fake invoices and misappropriated gift cards to pay for items like contact lenses and a custom-made dog kennel.
He has agreed to plead guilty to five counts of wire fraud and one count of tax evasion, people close to the inquiry said, and is scheduled to enter the pleas this month in federal court in Fort Smith, Ark.
Defense lawyers and prosecutors expect Mr. Coughlin to be sentenced to slightly more than two years in prison, said people close to the case, who spoke on condition of anonymity because the investigation into the matter is still open. The court is also expected to order Mr. Coughlin to make restitution to Wal-Mart for benefits he received and money he misappropriated.
The guilty plea casts considerable doubt on Mr. Coughlin's assertion that he used company money to reimburse himself for a secret campaign, approved by senior executives, to pay union members for information about their organization drives, a potential violation of federal law.
Mr. Coughlin is still expected to advance that argument before a judge during sentencing. A person close to the matter said that the plea agreement explicitly mentions a plan to use Wal-Mart's money to buy information that would disrupt efforts to unionize Wal-Mart Stores.
Neither the United States attorney for the Western District of Arkansas nor Wal-Mart, after sifting through thousands of pages of documents, found evidence that such a proposal existed, people close to the investigation said.
A representative for Wal-Mart declined to comment last night.
The plea agreement, which has been in the works since October, represents a staggering outcome for Mr. Coughlin, who was once considered a strong candidate to become chief executive of Wal-Mart.
Mr. Coughlin came to Wal-Mart in 1978 as a chief of security, rose quickly and two decades later, oversaw Wal-Mart, Sam's Club and Walmart.com. Mr. Coughlin, a hunting buddy of Wal-Mart's founder, Sam Walton, was a celebrated figure within the company, viewed as the final link to the retail chain's humble roots.
But according to legal documents that Wal-Mart made public last year, Mr. Coughlin had for years relied on an intricate web of underlings to routinely approve purchases of gifts for himself ($900 worth of duck hunting gear) and even his son (a $1,700 computer).
Mr. Coughlin retired from Wal-Mart in January 2005 but remained on the board until March, when he was forced out.
A former aide to Mr. Coughlin, Robert Hey Jr., pleaded guilty in November to charges of wire fraud.
In one instance, according to a Wal-Mart report, Mr. Coughlin directed a subordinate to buy $2,000 worth of gift cards, which he said would be given to low-level employees to improve morale. Instead, Mr. Coughlin used the cards to buy wine and hunting gear, the report said.
In another case, Mr. Coughlin bought an all-terrain vehicle from a potential Wal-Mart supplier, using $8,500 in company money and permitting the supplier to cover the remaining $2,200, according to records. The arrangement violated Wal-Mart's ban on gifts from vendors that it has done or may do business with.
In the end, Mr. Coughlin's use of company money was discovered by a cashier, according to Wal-Mart. The employee tipped off executives when Mr. Coughlin tried to use a gift card, intended for rank-and-file workers, to buy a pair of contact lenses.
In July, Wal-Mart sued Mr. Coughlin, seeking to prevent him from collecting about $12 million in retirement benefits and to recover money the company said he had fraudulently siphoned from the company
In November, a state judge in Arkansas tossed out part of the lawsuit, citing an agreement that barred the former executive and the company from suing each other. Wal-Mart had asserted that Mr. Coughlin's conduct invalidated his retirement pact.
But a local judge ruled that Arkansas law did not require an executive to disclose misconduct before signing a release from liability. Wal-Mart, the court said, could pursue only claims of misconduct said to have been committed after Mr. Coughlin signed the agreement.
One question that remains is whether Mr. Coughlin's plea would lead the town of Bentonville, Ark., to reconsider the name of its new public library. The building, constructed with the help of $4 million from the Wal-Mart/Sam's Club Foundation and the Walton Family Foundation, was recently christened the Coughlin Library.
http://www.nytimes.com/2006/01/07/business/07walmart.html
All the credit goes to Alex...thank also serfdom:
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1323 Date:1/6/2006 12:11:24 PM
Post #of 1329
they catch em sooner or later.............
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Insider-Trading Duo Ordered to Pay $2.8M
AP Online via NewsEdge Corporation :
NEW YORK_A federal judge in Manhattan has ordered a former NationsBank credit policy officer and his accountant friend to pay more than $2.8 million in an insider-trading case.
In an order filed Tuesday, U.S. District Judge Michael B. Mukasey ordered Richard A. Svoboda, a former credit policy officer in the Dallas office of NationsBank, to pay more than $556,000 in disgorgement, prejudgment interest and penalties.
Michael A. Robles, a one-time self-employed certified accountant, was ordered to pay nearly $2.3 million.
Regulators alleged that Svoboda improperly traded in the securities of nine companies based on information he had access to at his job at the bank. Svoboda was fired by NationsBank in March 1999.
The SEC also alleged that Svoboda tipped Robles, who used the information to trade in the securities of at least 20 companies.
The men made more than $1.2 million in illicit profit, the SEC said.
Svoboda pleaded guilty to criminal fraud and conspiracy charges in the case in February 2002. Robles was convicted of conspiracy, securities fraud and tender-offer fraud in October 2002. A federal appeals court affirmed his conviction in 2003.
Lawyers for Svoboda and Robles couldn't immediately be reached for comment late Wednesday.
NationsBank has since been renamed Bank of America Corp.
<<AP Online -- 01/06/06>>
Those bastards! Nice find, barter. eom
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1319 Date:1/6/2006 6:17:46 AM
Post #of 1322
I think I see sneaky people all around us.......
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Release: 5150-06
For Release: January 4, 2006
U.S. Commodity Futures Trading Commission Assesses Penalties of $300,000 Against Shell-Related Companies and Trader in Settling Charges of Prearranging Crude Oil Trades
WASHINGTON, DC -- The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Shell Trading US Company (STUSCO) and Shell International Trading and Shipping Co. (STASCO), two companies whose ultimate parent is Royal Dutch Shell, and Nigel Catterall, who was the chief trader on behalf of STUSCO, for engaging in prearranged trades on the New York Mercantile Exchange (NYMEX).
The CFTC order, issued on January 4, 2006, finds that, on five occasions between November 2003 and March 2004, traders for STUSCO and STASCO prearranged trades for crude oil futures contracts. In each instance, according to the order, the traders prearranged the trade by agreeing in advance on the quantity and the settlement month, agreeing to take the opposite positions of the trade and executing the trade on the NYMEX. The order finds that Catterall was involved in the prearrangement of certain of these trades.
The CFTC order finds that the prearranged trades by the traders of STUSCO and STASCO, including Catterall, constituted fictitious sales in violation of the Commodity Exchange Act (CEA) and non-competitive transactions in violation of the CFTC’s regulations. The order also finds STUSCO and STASCO liable for their respective traders’ violations of the CEA and CFTC regulations.
The CFTC order directs STUSCO, STASCO, and Catterall to cease and desist from further violations of specified provisions of the CEA and comply with specified undertakings. The order also directs STASCO to pay a $200,000 civil penalty, and Catterall to pay a $100,000 civil penalty. Separately, NYMEX has taken disciplinary action against its member firm, STUSCO, and an employee of the firm. In consenting to the entry of the CFTC order, STUSCO, STASCO, and Catterall neither admitted nor denied the findings made in the order.
The Commission appreciates the assistance provided by NYMEX staff during the investigation of this matter. The following CFTC Division of Enforcement staff were responsible for this case: Manal Sultan, Eliud Ramirez, Jr., Nancy Gogel, Lenel Hickson, Jr., Stephen J. Obie, and Richard Wagner.
* * * * * * * * * * * * * *
The CFTC encourages members of the public to bring to our attention any suspicious activities involving futures or commodity options, including matters involving foreign currency (forex) investments or suspicious Internet websites.
You may contact the CFTC at 1-866-FON-CFTC (1-866-366-2382), visit us at our Customer Protection web page: (www.cftc.gov/cftc/cftccustomer.htm), or fill out our Internet Report Form identifying your concerns (www.cftc.gov/enfform.htm).
In addition, the CFTC publishes a series of Consumer Advisories at http://www.cftc.gov/cftc/cftccustomer.htm#advisory alerting the public to warning signs of possible fraudulent activity and offering precautions individuals should take before committing funds.
# # #
I knew you would be the guy to look this one over...
Interesting observations. Think I'll consider opening up a few short positions!
(just kidding, but not really)
Andy
Very interesting. Statistics that work should be considered (and used). So, from when the most recent H.Omen signal cluster occurred...late Sept. 2005...there's an approximately 85% statistical chance that a NYSE decline of around 8% will occur during the next 4 months (the % decline could be more or less than 8% but, a decline of this magnitude is likely...and the time frame for the decline could last up to 122 days from the signals).
Seems possible...and likely. As they say, it appears to statistics based on strong divergence of new highs and new lows in the NYSE. Divergence is a good indication of indecision...so, by using other factors...charts, economic data, commodities prices, inflation, interest rates...and so on...one will likely see that the H. Omen statistics/signals (IMO) have a very good chance of being right again.
We will see.
I found the following site: http://www.stockmarketcycles.com/current_observations.htm linked to the one you posted. It's very good too. Talks about long term market cycles...and points toward the year 2007 being a bottom for a 25 year cycle...with a down trend leading up to this likely major bottom.
External events can always affect what happens going forward. I hope for the best...but, I'm quite cynical right now.
No...I haven't heard of that either. That doesn't mean it doesn't exist. I did most of research into such areas back around 2001. If, you cannot find anything on it...I may look into it regardless.
The Past Performance of the Hindenburg Omen Stock Market Crash Signals 1985 - 2005
by Robert McHugh
http://safehaven.com/article-3880.htm
Evolution of the Signal: Peter Eliades (www.stockmarketcycles.com) traces the origins of this potential stock market crash signal to the work of Norman Fosback, author of Stock Market Logic, back in the 1970s. Fosback did a lot of research on Highs and Lows and developed an indicator that differed from the one we have now. Credit for discovery of the Omen is given to Jim Miekka, a friend of Kennedy Gammage who wrote a report called the Sudbury Report. Kennedy, who is probably the foremost expert on the Omen, suggested to Jim that it be dubbed the Hindenburg Omen after that ill-fated dirigible doomed to crash. Perfectly appropriate name based upon our research of its past performance. Kennedy has a missive in our Guest articles section at www.technicalindicatorindex.com on the Hindenburg Omen, for those of you interested.
During the past two weeks, we have had six Hindenburg Omen signals by the traditional definition, and based upon the research I am about to share with you, I would say we have had five signals as I have added two more filters to its qualification. Still quite a significant cluster.
So what is a Hindenburg Omen? It is the alignment of several technical factors that measure the underlying condition of the stock market - specifically the NYSE - such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high. This Omen has appeared before all of the stock market crashes, or panic events, of the past 21 years. All of them. No panic sell-off occurred over the past 21 years without the presence of a Hindenburg Omen. The way Peter Eliades put it in a recent Daily Update, September 21, 2005 (Peter is well worth the read, believe me), "The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows - but not both." When both new highs and new lows are large, "it indicates the market is undergoing a period of extreme divergence — many stocks establishing new highs and many setting new lows as well. Such divergence is not usually conducive to future rising prices. A healthy market requires some semblance of internal uniformity, and it doesn't matter what direction that uniformity takes. Many new highs and very few lows is obviously bullish, but so is a great many new lows accompanied by few or no new highs. This is the condition that leads to important market bottoms."
How has this signal performed over the past 21 years, since 1985? The traditional definition of a Hindenburg Omen is that the daily number of NYSE New 52 Week Highs and the Daily number of New 52 Week Lows must both be so high as to have the lesser of the two be greater than 2.2 percent of total NYSE issues traded that day. However, this is just condition number one. The traditional definition had two more filters: That the NYSE 10 Week Moving Average is also Rising (condition # 2), and that the McClellan Oscillator is negative on that same day (condition # 3). These measures are calculated each evening using Wall Street Journal figures for consistency. Critics have taken this definition and pointed rightly to several failed Omens (although the correlation was still quite good).
But if we add two more filters, the correlation to subsequent severe stock market declines is remarkable. Condition # 4 requires that New 52 Week NYSE Highs cannot be more than twice New 52 Week Lows, however it is okay for New 52 Week Lows to be more than double New 52 Week Highs. Our research found that there were two incidences where the first three conditions existed, but New Highs were more than double New Lows, and no market decline resulted. There were no instances noted where if 52 Week Highs were more than double New Lows, while the first three conditions were met, that a severe decline followed. So condition # 4 becomes a critical defining component. The fifth condition we found important for high correlation is that for a confirmed Hindenburg Omen, in other words for it to be "official," there must be more than one signal within a 36 day period, i.e., there must be a cluster of Hindenburg Omens (defined as two or more) to substantially increase the probability of a coming stock market plunge. Our research noted seven instances over the past 21 years where - using the first four conditions - there was just one isolated Hindenburg Omen signal over a thirty-six day period. In six of the seven instances, no sharp declines followed. In only one instance did a sharp subsequent sell-off occur based upon a non-cluster single Omen, but in that case it was incredibly close to having a cluster of two Omens as the previous day's McClellan Oscillator just missed being negative. We included this instance in our data below.
So to recap, we have an unconfirmed Hindenburg Omen if the first four conditions are met, but the fifth is not - in other words we only have one signal within a 36 day period. Once a second or more Omen occurs, we then have a confirmed Hindenburg Omen signal with substantially higher odds that a subsequent stock market plunge is coming.
Our research noted that plunges can occur as soon as the next day, or as far into the future as four months. In either case, the warning is useful. It just means, if you want to play the short side after a confirmed signal, or move out of harms way, you must be prepared to see it happen as soon as the next day, or four months from now, possibly after you forgot about it. About half occurred within 41 days.
Based upon the five parameters noted above, here's what we found: Confirmed Hindenburg Omens are very rare. Excluding the confirmed Hindenburg Omen we have now, September 2005, there were only 22 confirmed Hindenburg Omen signals over the past 21 years. This is amazing when you consider that during that time span, there were roughly 5,000 trading days. Of those 5,000 trading days where it was possible to generate a Hindenburg Omen, only 160 (3.2 percent) generated one, clustering into 22 confirmed stock market crash signals.
If we define a crash as a 15% decline, of the 22 confirmed Hindenburg Omen signals, six (27.2 percent ) were followed by financial system threatening, life-as-we-know-it threatening stock market crashes. Three (13.6 percent) more were followed by stock market selling panics (10% to 14.9% declines). Three more (13.6 percent) resulted in sharp declines (8% to 9.9% drops). Five (22.7 percent) were followed by meaningful declines (5% to 7.9%), three (13.6 percent) saw mild declines (2.0%to 4.9%), and two were failures, with subsequent declines of 2.0% or less. Put another way, there is a greater than 25 percent probability that a stock market crash - the big one - will occur after we get a confirmed (more than one in a cluster) Hindenburg Omen. There is a 41 percent probability that at least a panic or crash sell-off will occur. There is a 54.5 percent probability that a sharp decline greater than 8.0 % will occur, and there is a 77.2 percent probability that a stock market decline of at least 5 percent will occur. Only one out of roughly 7.5 times will this signal fail.
All the biggies over the past 21 years were identified by this signal (as defined with our five conditions). It was present and accounted for a few weeks before the stock market crash of 1987, was there three trading days before the mini crash panic of October 1989, showed up at the start of the 1990 recession, warned about trouble a few weeks prior to the L.T.C.M and Asian crises of 1998, announced that all was not right with the world after Y2K, telling us early 2000 was going to see a precipitous decline. The Hindenburg Omen gave us a three month heads-up on 9/11, and told us we would see panic selling into an October 2002 low. And now we have another confirmed Hindenburg Omen signal, here in the autumn of 2005.
Here's the data:
Date of first
Hindenburg
Omen Signal # of Signals
In Cluster DJIA
Subsequent
% Decline Time Until
Decline
Bottomed
9/21/2005 5 ? ?
4/13/2004 (1) 5 5.4% 30 days
6/20/2002 5 15.8% 30 days
23.9% 112 days
6/20/2001 2 25.5% 93 days
3/12/2001 4 11.4% 11 days
9/15/2000 9 12.4% 33 days
7/26/2000 3 9.0% 83 days
1/24/2000 6 34.2% 44 days
6/15/1999 2 6.7% 122 days
12/22/1998 (2) 2 0.2% 1 day
7/21/1998 (3) 1 19.7% 41 days
12/11/1997 11 5.8% 32 days
6/12/1996 3 8.8% 34 days
10/09/1995 6 1.7% 1 day
9/19/1994 7 8.2% 65 days
1/25/1994 14 9.6% 69 days
11/03/1993 3 2.1% 2 days
12/02/1991 9 3.5% 7 days
6/27/1990 17 16.3% 91 days
11/01/1989 36 5.0% 91 days
10/11/1989 2 10.0% 5 days
9/14/1987 5 38.2% 36 days
7/14/1986 9 3.6% 21 days
(1) In April 2004, the Fed pumped $155 billion in liquidity from the last week in April - right after the Hindenburg Omens were generated - to the third week of May, a 22 percent annual rate of growth in M-3, to stave off a crash. Even with the liquidity, the market still fell 5.0 percent.
(2) The 12/23/1998 signal barely qualified, as the McClellan Oscillator was barely negative at -9, and New Highs were nearly double New Lows. Had this weak signal not occurred, condition # 5 would not have been met. This skin-of-the-teeth confirmation may be why it failed. It says something for having multiple, strong confirming signals.
(3) This signal came close to having two confirming signals, which may be why as a non-cluster signal, it produced a strong sell-off.
Another point to make here is that the actual stock market declines are often greater than the measures in the prior data chart. That's because oftentimes the decline from a top has already occurred before the Hindenburg Omens have been generated. These percent declines are only measuring the declines from the first Omen in a cluster. If we measured declines from the tops, it would be worse in many cases.
Another observation is that once you get two solid Hindenburg Omens in a cluster, the probability of a severe decline does not seem to increase as more Omens occur within the cluster. Sometimes a two signal cluster produced a worse decline than a 5, 11, or 17 signal cluster. But what can be said about multiple signal clusters is that the warnings are being given further out in time, keeping us on the alert. More signals also assures us a greater likelihood of better quality signals, which seems to matter. Multiple signals are telling us things are not getting better, that something continues to remain wrong with the market.
As far as September 2005, so far, here are the five signals that meet all five of the conditions required for a potential stock market crash warning:
September 21st, 2005: The figures were 3,463 total issues traded on the NYSE Wednesday, with 136 New 52 Week Highs and 149 New 52 Week Lows. The common number of new highs and lows is 136, which is 3.93 percent of total issues traded, well above the minimum threshold of 2.2 percent. The McClellan Oscillator came in at negative 188, and the 10 week NYSE was rising.
September 22nd, 2005: We saw 102 New Highs and 165 New Lows on the NYSE, with total issues traded of 3,447. Taking the lowest common figure for Highs and Lows, 102, and dividing it by 3,447, we get 2.95 percent, well above the 2.2 percent threshold. The McClellan Oscillator was negative (-184), and the 10 week NYSE moving average was rising.
September 27th, 2005: There were 86 New NYSE Highs and 108 New NYSE Lows, on 3,463 issues traded for a 2.48 common percent, and likewise the 10 week NYSE was rising and the McClellan Oscillator was negative at -124.
September 28th, 2005: According to the Wall Street Journal online, the NYSE had 153 New Highs and 102 New Lows, from 3,433 issues traded. The common percentage is 102/3,433 = 2.97 percent. Since this ratio is above 2.2 percent, it satisfies one of five conditions we are looking for. The 10 week moving average for the NYSE was rising (it was 7,513 last week and was 7,526 Wednesday), thus condition number two was met. The McClellan Oscillator is negative, satisfying condition number three, and New Highs were not more than New Lows. This is the fourth solid Omen within the cluster.
September 29th, 2005: There were 178 NYSE New 52 Week Highs and 89 New Lows, the lowest of the two coming in at 2.60 percent of 3,417 total issues traded, above the 2.2 percent threshold. The McClellan Oscillator came in at negative -24, and the NYSE 10 Week Moving Average was rising. This is the least solid of the five signals as we almost had New highs more than twice new lows, and the McClellan Oscillator is heading toward positive territory. But it still qualifies.
Ooops...my mistake...
It's called the "Hindenburg Omen"
Hang on....
No. Have ya got any links or info. about it you could share?
Thanks.
Hey Barter...
Have you ever heard of a market signal known as the "Heisengberg Omen"?
My brother says it signals conditions that may bring about a market crash.
TIA
Serf
While searching the Net for info. on shorting in the US during the 1920's, I found this account of the period. It seems to me that we still have similar problems now. The complete posting is here: http://www.emayzine.com/lectures/1920s193.htm
(Part of the article is below)
The center piece of the New Era government was the tax policy sponsored by the secretary of Treasury Andrew Mellon. Mellon was one of the three or four richest men in the world who was a banker with close ties to the steel industry.
Mellon believed that economic prosperity depended on the extent to which capitalists reinvested their profits in economic growth Mellon favored the rich by slashing taxes that fell most heavily on them.
He reduced the personal income tax for people who made more than $60,000 a year and by 1929 the Treasury was actually refunding money to the largest corporations in the US. US Steel received a refund of $15 million in 1929.
To compensate for this loss in revenues Mellon cut government expenditures. To Pay for government Mellon raised the tariff on imported products. Second Mellon sponsored a regressive tax bill so that taxes fell harder on the middle and lower classes of the US. Also there were many new excise taxes such as on autos and cigarettes.
Mellon contended that when businessmen reinvested their government-sponsored windfalls they created jobs which led to a better standard of living for all Americans. This was the famous trickle down theory.
From 1923 to 1929 Mellon appeared to be correct in his assessment and people called Mellon the greatest Secretary of the Treasury since Alexander Hamilton.
Just how much damage his policies did to the national economy would not be realized until after 1929.
But as early as 1924 the policy of subordinating federal policy to the short-term interests of big business and banking was helping to make a shambles out of the international economy.
The key problem of the international economy was due to the cost of the war. The war had pushed every major European power to brink of bankruptcy. Britain and France were deeply in debt to the US some $10 billion and since France had been the battlefield for most of the war France demanded that Germany pay france and Britain each $13 million. As the Germans paid Britain and France these countries would pay back the US.
Thus, the flow of international payments was from Germany to France and Britain and then to the US. The problem lay in the fact that Germany was being drained of wealth for an industrial nation to exist. German gold was used to pay the debt and inflation went crazy in Germany. Many economists warned that if the European continued to bleed Germany of its wealth this would serve to promote political extremism and threaten the economies of all the European nations.
There were several ways out of this morass. First the US could import more European products but Mellon’s policies shut the door on that idea. Alternatively the US could forgive France and Britain their war debts and they in turn would cancel their Germany’s reparations. But thanks to Mellon and others in the administration the government was too closely allied with banking interests to do that.
At the same time American bankers were profiting doubly from the European financial mess by loaning money to the Germans to subsidize their reparations payments. And as far as the Republicans were concerned the profiteering was good enough for the Republican administrations of the 1920’s.
The circular flow of payments continued as American bankers loaned money to Germany; Germany paid 2.5 billion in reparations to France and Britain and they, in turn, paid $2.6 billion to the US.
The European economy was becoming sapped of its vitality and the American economy was becoming indirectly damaged by this arrangement for the capital that was to trickle down to ma and pa in middle America or be reinvested in the American economy was going abroad to Germany.
After the Washington Treaty the Harding and Coolidge administrations returned to a policy of isolationism. Still, in 1928 Senator Kellog and the French Foreign Minister created the Kellog-Briand Pact which outlawed war and 62 nations signed this pact.
In terms of Latin America the Harding and Coolidge administrations were anything but isolationist especially when it came to Nicaragua and other Caribbean Basin countries.
Part of the reason for this was the US investments in Latin America climb from $800 million in 1914 to 5.4 billion in 1929.
Industrial and agricultural productivity soared in the 1920’s but the size of the workforce remained the same.’
And while dividends on stocks rose 65% in the years between 1920 and 1929 wages increased only 25%.
Before the 1920’s people only borrowed money to start a business or buy a house for in theory borrowing money should only be invested in something that would be productive, make more money and then you could retire the debt. But this was to change in the 1920’s
For the first time in history American began to borrow money simply to live more pleasantly and they went into debt, not to produce but to consume.
The chief agency of consumer borrowing during the 1920’s was the installment plan with E-Z payments. In the 1920’s 60% of all autos were bought on credit, 70% of the furniture, 80% of heavy electrical appliances and radios and 90% of sewing machines, pianos and washing machines.
This was also the great period of consumer advertisements of buy, buy, buy and advertising became a profession.
Chain stores became common, image advertising was used, anxiety advertising was used and the automobile became the cultural symbol the New Era.
A Major weakness of the Coolidge economic approach was that significant numbers of Americans were left out of the buying spree and people in the rural areas may actually have been getting poorer during this orgy of consumer credit spending.
Since economically deprived groups are rarely politically articulate or listened too in our political system mainstream America was quite at ease. Businessman’s clubs flourished, and Henry Ford was seen as the great American wise man, afterall anyone who made $25,000 net per day must be wise most American figured.
Business was worshipped, as was conspicuous consumption, crass materialism had become the new religion of America.
There was a real estate boom in Florida and thousands of get rich quick schemes and as we have seen land in Florida became more expensive not because of tourism and it being a vacation paradise, but because each speculator sold the land to another speculator. perhaps as much as 40% of all the real estate in certain areas of Florida changed hands over a dozen times in a month. In the relatively small city of Miami there were over 2,000 real estate offices.
Every acre in Florida was skyrocketing many northern investors were willing to buy the property sight unseen and this led to much fraud.
The crash came when a hurricane that hit Miami and the price of land plunged.
In the 1920’s even the Middle Class was (s)peculating on the stock market since stock brokers offered middle class investors the option of purchasing stock on the installment plan and the brokers made it out to look that with the appreciation of the stock there would almost no payments to pay. Money for nothing, you cant go wrong.
Thus, investors with just a few hundred dollars of investment cash could buy shares of RCA Victor by paying out as little as 10% of the quoted price of that companies shares.
And in this way there were able to hold 10 times as many shares and they could buy in reality.. A banker or a broker would loan the speculator the balance of the stocks actual price with the stock themselves serving as collateral.
When the shares were sold, presumably at a high profit the loan was paid off and the shrewd speculator pocketed the difference which was also close to ten times what they would have made had they paid for them in cash. In 1926 1.5 million Americans were playing the market.
In 1927 during a bull market it did work this way for hundreds of thousands of people.
In the summer of 1929 values went crazy; ATT climbed from $209 to 303, GM went from 268 to 391 and then to $452. Overnight people were becoming millionaires.
But like land in Florida the price of stocks did not reflect their true value which was the productive and earning capacity of the corporation. By 1927 prices were rising because of the speculative mania, entire companies put their capital assets into this bull market in order to make a quick killing. At one point Coolidge told people publicly that he thought that stock prices were cheap and this stimulated another great wave of stock buying and even more inflationary stock prices.
Joseph P. Kennedy said in later years that he had sold all of his stocks in the summer of 1929 after the man who shined his shoes told him that he had invested in the stock exchange. Kennedy correctly reasoned that if such a poorly paid person was buying stock there was no one out there left to bid prices higher and he was right.
On September 3, 1929 the average price of shares on the market peaked and then dipped sharply. Then on Black Friday of October 24 a record 13 million shares changed hands and values collapsed. GE dropped 47 points that day as did most major corporations.
On Tuesday, October 29 the wreckage was worse as panicked speculators dumped 16 million shares on the market and when the dust settled the following morning more than $30 billion had been lost.
The eradication of so many dollars shattered Americas trust in the business world and culture of the 1920’s.
The Great Crash of 1929 did not cause the Great Depression of the 1930’s but it exacerbated its impact on average Americans. The Great Depression was a result of the fundamental weakness and contradictions of the world economy.
Middle class families lost their savings, Banks went broke and closed up in the middle of the night and as they closed throughout the country the average and poor American lost their life savings.
With the economic contraction corporations cut back on production, throwing people out of work or cutting wages in half or worse.
People who had mortgages contracted in the high days of 1928 and 1929 were ruined, people lost their homes and farmers their farms.
And foreclosures contributed to further bank failures. As people cut back on consumption, farmers and corporations were forced to produce less and less and even more people were thrown out of work and so it went, down, down, down.
By the end of 1930 the depression had engulfed the nation and the bad times did not really lift until 1940 after the economy had been jolted back into full productivity by the outbreak of war in Europe.
The Great Depression was the most serious economic collapse in American history but it was also the most jarring psychological and moral experience that the American people had ever to face except for the Civil War. At least 50% of all Americans were out of work 90% were underemployed and in some areas close to 85% were completely out of work. There were homeless everywhere. It was estimated that there may have been 200,000 to 300,000 homeless people within one year by 1930. In one bank alone in NY over 400,000 people lost their life savings.
Shantytowns were everywhere. It was so bad that the USSR said there 6,000 skilled jobs for Americans in the machine industries and over 100,000 people applied for these jobs to leave the US. There were over 1.5 million people who would do any job just to eat and this number excluded children who numbered just as many.
__________________________________
ps. The highlighting is mine and I fixed 2 spelling errors...although there are still more of these. The info. and it's message are what is important in mind.
Thanks. I need to try to stay current on this case.
Plea Deal in Enron Case, Bad News for Ken Lay
In a reversal that transforms the criminal case against Enron's former top officers, the company's former chief accounting officer has reached an agreement with prosecutors to plead guilty to violating federal law during his employment there, people briefed on the decision said yesterday.
http://www.truthout.org/docs_2005/122805Y.shtml
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1163 Date:12/20/2005 10:07:46 AM
Post #of 1166
64B diamond industry rocked by fraud
Bribery allegations against the Gemological Institute of America tarnish system for valuing gems.
December 20, 2005: 7:57 AM EST
NEW YORK (CNNMoney.com) - A scandal has rocked the $64 billion global diamond business and tarnished the credibility of one the industry's biggest players, according to a news report Tuesday
The Gemological Institute of America, which grades diamonds for independent dealers and big retailers, fired four employees and shuffled top management after an internal investigation of its policies, the Wall Street Journal said.
The institute's internal probe started after a jewelry dealer who was also the former head of retail operations at luxury jeweler Harry Winston claimed that the institute and two diamond dealers conspired to inflate the grade of two diamonds that he sold to members of the Saudi royal family.
The diamonds, which were sold for $15 million, were taken to an independent appraiser and found to have a lower grade that made them worth much less, the paper said.
The dealer alleged that lab workers took bribes to inflate the quality of diamonds in grading reports, according to the news report, which cited people familiar with the situation.
"The investigation uncovered a handful of employees and a handful of clients who violated GIA code of ethics," Ralph Destino, chairman of the institute and chairman emeritus of Cartier, said in an interview, according to the Journal.
Since the quality of diamonds is impossible for the average person to evaluate, dealers and retailers rely on the institute's grading system is to determine the worth of the stones, the Journal said.
While standardized measures are used in valuing diamonds, the price -- unlike that of gold and other precious metals -- varies depending on factors such as internal flaws and the absence of a yellowish hue, according to the report.
Sales of diamonds have been growing at twice the rate of the rest of the jewelry business, the paper said.
The Gemological Institute employs 700 graders who evaluate far more diamonds than any other organization in the world, the report said.
Its clients are usually dealers and retailers seeking to value diamonds over one carat, though individuals can also pay for the service.
Fees depend on a diamond's size; grading a one-carat round diamond costs about $100. In 2004, the institute, a nonprofit, had income of $104 million, the paper said.
Yes. It seems like there's been some pretty darn good chefs at the top in recent years.
This is relevant.....
Posted by: Alex Chory
In reply to: bartermania who wrote msg# 1155 Date:12/18/2005 7:11:34 PM
Post #of 1157
A year of reckoning
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A year of reckoning for scandal-tainted CEOs in the United States
December 18, 2005 - 15:44
By ERIN MCCLAM
NEW YORK (AP) - The scene said everything about the year in white-collar crime: Bernard Ebbers, the jocular, folksy former boss of WorldCom Inc., hunched forward in a courtroom chair, quietly crying.
He had just been sentenced to 25 years in prison for orchestrating the record $11-billion-US accounting fraud at the toppled telecom - essentially a life term for a man 63 years old and with a history of heart trouble.
It was a startling punishment, but far from extraordinary in 2005: In the cavalcade of recent corporate scandals, this was the year the hammer finally fell on top executives. Hard.
And the trend toward harsher sentencings for corporate crooks comes just as the curtain goes up on what's expected to be the most complex of the white-collar cases to date, the fraud trial of Enron founder Kenneth Lay and two other former officials.
Set to get underway Jan. 17, the Enron trial brings the corporate crime era full-circle: Enron's crash into bankruptcy in 2001 predates scandals at WorldCom, Adelphia Communications Corp. and Tyco International Ltd.
It also promises to be intriguing: Lay has already mounted a public defence that rivalled Martha Stewart's, including a blitz of television appearances and interviews. He claims he trusted the wrong people and valiantly tried to save the energy giant.
For Lay, former CEO Jeffrey Skilling and former top Enron accountant Richard Causey, the consequences of conviction are dire. Consider the fates met by convicted corporate executives in 2005 alone:
Ebbers' sentence, which followed a trial in which he took the witness stand and flatly denied any knowledge of the massive book-cooking at WorldCom, was the toughest to date in the business scandals.
John Rigas, the white-haired founder of cable giant Adelphia, got 15 years in prison for looting his company. His son Timothy, the former chief financial officer, got 20.
Dennis Kozlowski, the former Tyco chief whose $6,000 shower curtain and lavish parties made him almost a caricature of the boomtime CEO, finishes the year in a maximum-security prison that will allow him three showers a week.
He and his own former finance chief, Mark Swartz, will serve at least 8 1/3 years - and perhaps as many as 25 - after they were convicted of stealing $600 million from Tyco.
And former Cendant Corp. vice-chairman Kirk Shelton was slapped with 10 years in prison for his role in an accounting scandal that cost investors and the company more than $3 billion.
For judges considering the staggering harm done to investors and employees of these scandal-scarred companies, the sentences were not close calls, said Eric Chaffin, a securities lawyer at Seeger Weiss LLP and a former white-collar prosecutor in New York.
"The judges, when they really see the real victims and see that there's really strong fraud in these companies, they're going to make somebody pay the price," he said.
Some paid literally. A New York judge signed off on settlement deals that forced investment banks, auditor Arthur Andersen and former WorldCom officials to cough up $6.1 billion, much of it to be divvied among 830,000 investors and institutions who lost money in the accounting fraud.
That settlement included $25 million paid by former WorldCom board members out of their own pockets, and forfeiture of homes owned by Ebbers and former WorldCom finance chief Scott Sullivan.
And investment banks and former directors agreed to pay more than $7 billion in a similar settlement over the Enron collapse, including $13 million paid personally by 10 former board members.
But the year was not without at least one high-profile setback for government prosecutors, who had run up a winning streak worthy of the Harlem Globetrotters in securing guilty pleas and convictions in their crackdown on corporate crime.
In June, HealthSouth Corp. founder Richard Scrushy was cleared of charges, despite the testimony of five former CFOs who implicated him in a $2.7-billion fraud to inflate earnings.
"I'm going to go to a church and pray," announced Scrushy. "I'm going to be with my family. Thank God for this."
It was also a better year for Stewart, the celebrity face of the era of corporate scandal, who donned a poncho and walked out of a West Virginia prison in March after serving five months for lying about a 2001 stock sale.
After about half a year of house arrest, she roamed free again - and turned up in a daytime talk show and a spinoff of Donald Trump's The Apprentice.
Lest anyone think the Enron trial marks a close to allegations of corporate wrongdoing, there were new cases to consider in 2005:
Phillip Bennett, the former chief of commodities brokerage Refco Inc., was accused of taking part is a conspiracy to sell $583 million in stock to the public based on falsified financial statements. He has pleaded not guilty.
And New York Attorney General Eliot Spitzer sued insurer American International Group, former CEO Maurice Greenberg and an ex-CFO, accusing them of misleading investors and regulators about that company's finances. Greenberg retired from AIG in March, pressured by the board of directors amid regulatory investigations.
"In my perception there is not a cooling off" by prosecutors and regulators, said Melinda Haag, who this year helped successfully defend former McKesson Corp. CFO Richard Hawkins against conspiracy charges in a 1999 alleged accounting scheme.
"It's obvious that law enforcement authorities still have a great deal of interest in corporate America and in policing corporate America," she added.
But the year will be remembered as a time of harsh reckoning for executives whose very names - WorldCom, Tyco, Adelphia - became synonymous with corporate greed, excess and fraud.
The moment was captured by Gino Cavallo, who worked for years at WorldCom and lost tens of thousands of dollars in retirement money in the fraud. He attended Ebbers' sentencing in July.
"The man's 63," Cavallo told reporters in a hallway outside the courtroom. "He's going to die in jail. How much sterner could you get?"
Wow. And to think I was only worried about the world's oil supply drying up.
Here's my impression:
Lots of crazy predictions...but, it's the stuff about the DTCC and it's connections with the Fed. that I found interesting.
Lots of it's way out there and some of the stuff's already been proven wrong (Y2K)...but, some if it appears to be true.
Very few people understand the US Federal Reserve. Same goes for the DTCC. Some of the connections made, seem to make the naked shorting problem more clear. I had a feeling (based on my knowledge and intuition) that they were connected.
It about control and accountability. The DTCC and the Fed. have enormous control over this country's capital. They have governmental powers (supra-governmental powers), are private organizations, and still appear to be accountable to no one.
Ming the Mechanic: The unknown 20 trillion dollar company
The NewsLog of Flemming Funch
The unknown 20 trillion dollar company 2003-10-30 17:37
19 comments
by Flemming Funch.................................................................................................................
There is a busy little private company you probably never have heard about, but which you should. Its name is the Depository Trust & Clearing Corporation. See their website. Looks pretty boring. Some kind of financial service thing, with a positive slogan and out there to make a little business. You can even get a job there. Now, go and take a look at their annual report. Starts with a nice litte Flash presentation and has a nice message from the CEO. And take a look at the numbers. It turns out that this company holds 23 trillion dollars in assets, and had 917 trillion dollars worth of transactions in 2002. That's trillions, as in thousands of thousands of millions. 23,000,000,000,000 dollars in assets.
As it so turns out, it is not because DTCC has a nice website and says good things about saving their customers money that they are trusted with that kind of resources. Rather it is because they seem to have a monopoly on what they do. In brief, they process the vast majority of all stock transactions in the United States as well as for many other countries. And - and that's the real interesting part - 99% of all stocks in the U.S. appear to be legally owned by them.
In the old days, when you owned stocks you would have the stock certificates lying in your safe. And if you needed to trade them, you needed to get them shipped off to a broker. Nowadays that would be considered very cumbersome, and it would be impractical to invest via computer or over the phone. So the shortcut was invented that the broker would hold your stocks instead of you. And in order for him to legally be able to trade them for you, the stocks were placed under their "street name". I.e. they're in the name of the brokerage, but they're just holding them in trust and trading them for you. And you're in reality the beneficiary rather than the owner. Which is all fine and dandy if everything goes right. Now, it appears the rules were then changed so the brokers are not allowed any longer to put the stocks in their own name. Instead, what they typically do is to put the stocks into the name of "Cede and Company" or "Cede & Co" or some such variation. And the broker might tell you that it is just a fictitious name, and will explain why it is really more practical to do that than to put it in your name.
The problem with that is that it appears that Cede isn't just some dummy name, but an actual corporation that DTCC controls. And, well, if you ask anybody about this, who actually knows about it, they will naturally tell you that it is all a formality. To serve you better, of course. And, well, maybe it is. DTCC seems like a nice and friendly company. It is a private company, owned by the same people (major U.S. banks) who own the Federal Reserve Bank. And if they all stick to their job, and just keep the money and your stocks flowing smoothly, I'm sure that is all well and good. But if somebody at some point should decide otherwise, and there's a national U.S. emergency and/or the U.S. government becomes unable to pay its debts, well, they might just not give you your stocks back. Because legally they own them. Something to think about.
An fascinating article about this whole thing is here. I will include it at the bottom too, in case it should disappear. Not that I can vouch for or agree with everything the guy is saying, and some of it is a little whacko, but obviously he's been researching this quite a bit. You'll find very little about it on the net otherwise.
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The Unknown $19 Trillion Depository Trust Company
by Anthony Wayne
Part I of II
This exclusive report is a compilation of interviews and background research from October 1995 through April 1999.
The Depository Trust Company (DTC) is the best kept secret in America. Headquartered at 55 Water Street in New York City, the average American has no clue that this financial institution is the most powerful banking corporation in the world. The general public has no knowledge of what the DTC is or what they do. How can a private banking trust company hold assets of over $19 trillion and be unknown? In a recent press release dated April 19, 1999, the Depository Trust Company stated:
The Depository Trust Company (DTC) is the world's largest securities depository, holding nearly $19 trillion in assets for its Participants and their customers.... Last year, DTC processed over 164 million book-entry deliveries valued at more than $77 trillion.
In dealing with the trust department of Midlantic Bank, N.A. in New Jersey [now PNC Bank, N.A.], this writer was authorized, as trustee and power of attorney, to transfer original trust assets comprising of common stocks and bonds to a new trust set up in another jurisdiction. An Assistant Vice President from the Trust & Financial Management Office of Midlantic Bank said to me "it will take at least 6 weeks to do this as the majority of the stocks and bonds are not held in the name of the trust". This same Midlantic Bank Assistant V.P. also stated in a letter dated November 17, 1995, "Of the 11 municipal bonds, 8 are held in book entry only. This means they cannot be physically re-registered with a certificate sent to the new trustees." (* these are not the actual figures quoted in the letter in order to protect the privacy of the account holder, at their request. Also, we were asked not to name the Midlantic Assistant V.P. in order to protect her privacy Rights. We respect these requests with full moral compliance). In disbelief, I brought this matter to the attention of our research assistants at the Christian Common Law Institute [formerly the North Bridge News] and we began our lengthy investigation into the matter. After 3 years, the can of worms we've opened up should frighten every American. With the advent of reported Y2K computer glitches and the possible collapse of our 'paper asset' economy, every person who has a stock or bond in their portfolio had better read this report and act on the information we are disclosing here.
In November 1995, after encountering numerous "no comments" and a myriad of "that's not my department" excuses via telephone, I eventually spoke with Mr. Jim McNeff who told me his position was Director of Training for the DTC. He said he'd been employed there for 19 years and was "very proud" of his employer. During my initial telephone interview, either Jim's employer or some other unknown person or persons were illegally listening or taping our telephone conversation according to the electronic eavesdropping equipment we have installed on our end. Why did anyone feel it was necessary to illegally record our conversation without advising us? Was some federal alphabet agency monitoring DTC calls to safeguard National Security? That in itself is suspicious enough to warrant a big red warning flag.
Jim informed me back then (1995) that "the DTC is the largest limited trust company in the world with assets of $ 9.1 trillion". In July 1998, I spoke with Ms. Rose Barnabic of the DTC Finance Department who said that "DTC assets are currently estimated at around $11 trillion". As of April 19, 1999, the DTC itself has stated that their assets total "nearly $19 trillion" (see above). Mr. McNeff had also stated "the DTC is a brokerage clearing firm and transfer center. We're a private bank for securities. We handle the book entry transactions for all banks and brokers. Every bank and brokerage firm must secure their membership with us in case they become insolvent, so your assets are secure with DTC". Yes, you read that correctly. The DTC is a private bank that processes every stock and bond (paper securities) for all U.S. banks and brokerage houses. The big question is this; Just who gave this private bank and trust company such a broad range of financial power and clout?
The reason the public doesn't know about DTC is that they're a privately owned depository bank for institutional and brokerage firms only. They process all of their book entry settlement transactions. Jim McNeff said "There's no need for the public to know about us... it's required by the Federal Reserve that DTC handle all transactions". The Federal Reserve Corporation, a/k/a The Federal Reserve System, is also a private company and is not an agency or department of our federal government, according to the 1998 Federal Registry. The Federal Reserve Board of Governors is listed, but they are not the owners. The Federal Reserve Board, headed by Mr. Alan Greenspan, is nothing more than a liaison advisory panel between the owners and the Federal Government. The FED, as they are more commonly called, mandates that the DTC process every securities transaction in the US. It's no wonder that the DTC (including the Participants Trust Company, now the Mortgage-Backed Securities Division of the DTC) is owned by the same stockholders as the Federal Reserve System. In other words, the Depository Trust Company is really just a 'front' or a division of the Federal Reserve System.
"DTC is 35.1% owned by the New York Stock Exchange on behalf of the Exchange's members. It is operated by a separate management and has an independent board of directors. It is a limited purpose trust company and is a unit of the Federal Reserve." -New York Stock Exchange, Inc.
Now, let's see how this effects the average working American family. If you're not aware how the system works, you should visit or call a stock broker or bank and instruct them you want to purchase some shares of common stock or a small municipal bond, for example. They will set up a brokerage account for you and act as your agent with full durable power of attorney (which you must legally sign over to them) to conduct business on your behalf, upon your buy or sell instructions. The broker will place your stock or bond purchase into their safekeeping under a "street name". According to Mr. McNeff of the DTC, no bank or broker can place any stock or bond into their firm's own name due to Federal Trade Commission (FTC) and Security and Exchange Commission (SEC) regulations.
The broker or bank must then send the transaction to the DTC for ledger posting or book entry settlement under mandate by the Federal Reserve System. Remember, since your bank or broker can't use their name on the certificate, they use a fictitious street name. "Since the DTC is a banking trust company, we can't hold the certificates in our name, so the DTC transfers the certificates to our own private holding company or nominee name." states Mr. McNeff. The DTC's private holding company or street name, as shown on certificates we have personally examined from numerous certificate holders, is shown as either "CEDE and Company", "Cede Company" or "Cede & Co". We have searched every source known to learn who CEDE really is, but have been unable to get any background information on them. Is Cede Company fictitious or is their identity perhaps a larger secret than DTC? We must presume that the information Mr. McNeff gave us was correct when he confirmed that Cede Company was a controlled private holding company of the DTC. We have now found the following proof that CEDE is real from the Bear Stearns internet site:
NEW YORK, New York - March 16, 1999 - Bear Stearns Finance LLC today announced that it will redeem all of the 6,000,000 outstanding 8.00% Exchangeable Preferred Income Cumulative Shares, Series A ("EPICS") of Bear Stearns Finance LLC, liquidation preference of $25.00 per Series A Share, CUSIP number G09198105. All of the Series A Shares are held by Cede & Co., as nominee of The Depository Trust Company, and the payment of the redemption price will be made to Cede & Co. by ChaseMellon Shareholder Services, LLC, as paying agent, whose address is: 85 Challenger Road, Ridgefield Park, New Jersey 07660.
The banks and brokers are merely custodians for their clients. By federal law (SEC), they cannot hold any assets in the customer's name. The assets must be held in the name of DTC's holding company, CEDE & Co. That's how DTC has more than $19 trillion dollars of assets in trust... or is it really in "trust" if the private Federal Reserve System is technically holding it in their "unknown" entity's name? Obviously, if stock and bond certificates you've purchased aren't in your name, then the "holder" (the Federal Reserve System) could theoretically refuse to surrender them back to you under a "national emergency" according to the Trading with the Enemy Act (as amended). Is this the collateral being held by the private Federal Reserve System to pay off the national debt owed to them by our federal government, first initiated by Lincoln's debt bonds of 1864?
According to Mr. McNeff, the DTC was a former member of the New York Stock Exchange (NYSE), and "Our sister company is the National Securities Clearing Corporation... the NSCC" (they have since merged). He was correct since we now know that the NYSE holds 35.1% of the "ownership" of the DTC on behalf of their NYSE members. Simply put, the Depository Trust Company absolutely controls every paper asset transaction in the United States as well as the majority of overseas transactions, and they now physically hold (as of April 1999) 99% of all stock and bond book-entrys in their street name, not the actual owner's names. If you have stock or bond certificates in your name buried in your back yard or under your mattress, we suggest you keep them there. If not, it might be very wise to cancel your brokerage account and power of attorney status, re-register the stocks and bonds in your name (if you still can), and keep them hidden where only you know their location. Otherwise, you have absolutely no control over them (see Part II of our exclusive research report on the DTC for more information on beneficial ownership status). However, getting a stock or bond certificate these days is not so easy if possible at all:
"For the most part, issuers know little about the role of the Depository Trust Company (DTC). The DTC was created in 1973 as a user-owned cooperative for post-trade settlement. Our members are banks and broker/dealers, whom we refer to as participants. We handle listed and unlisted equities, including 51,000 equity issues and 170,000 corporate debt issues, equating to more than 78% of shares outstanding on the New York Stock Exchange (NYSE). We also have more than 95% of all municipals on deposit.
In the 1980s, the "Group of 30" [business leaders] recommended that stock certificates be eliminated, because physical certificates create risk. The Securities Exchange Commission (SEC) issued a concept release in 1994 to gradually decrease certificates, providing optional direct registration on the books of the issuer instead of a certificate.... this enhances the portability of shares between transfer agents and brokerage accounts. With the direct registration system, brokers transmit instructions to purchase through DTC, which the issuer or transfer agent then registers, so shares can be delivered electronically." -John D. Faith, Manager, Corporate Trust Services, The Depository Trust Company (1996)
Now we're about to reveal to you the most shocking discovery we came across during our research into this matter. Most of us remember a few years back the purported computerized selling of stocks that resulted in Wall Street's "Black Monday":
Dow Dives 508.32 Points in Panic on Wall Street
"The largest stock-market drop in Wall Street history occurred on "Black Monday" -- October 19, 1987 -- when the Dow Jones Industrial Average plunged 508.32 points, losing 22.6% of its total value. That fall far surpassed the one-day loss of 12.9% that began the great stock market crash of 1929 and foreshadowed the Great Depression. The Dow's 1987 fall also triggered panic selling and similar drops in stock markets worldwide" -Source: Facts on File World News CD ROM
The stock exchanges had dramatic record losses, and a record volume of shares were traded on that infamous Monday in October 1987. We all asked ourselves how computers could have done this by themselves without someone knowing about it. After all, someone has to program a computer to tell it what to do, what not to do, or even when to do or not do it.
During my telephone conversation, Mr. McNeff was trying to assure me that they [the DTC] have "never lost a certificate or made a mistake in a book ledger transaction". In attempting to give me an example of how trustworthy the DTC is when I asked him how he could back up such a statement, he replied "DTC's first controlled test was 4 or 5 years ago. Do you remember Black Monday? There were 535 million transactions on Monday, and 400 million transactions on Tuesday". He was very proud to inform me that "DTC cleared every transaction without a single glitch!". Read these quotes again: He stated that Black Monday was a controlled test. Black Monday was a deliberately manipulated disaster for many Americans at the whim of a controlled test by the DTC.
What was the purpose of this test? Common sense tells you that you test something before you intend to use it. It's quite obvious that the stock markets are going to 'crash and burn' at some future date and for some 'unknown' reason since the controlled test was so successful. Was this just one of the planned tests for a Y2K internationally planned worldwide economic meltdown? The Great Depression is about to be repeated, and it will be as deliberate and manipulated as the first one that began with the stock market crash of 1929. We are, without a doubt, on the brink of the Mother of all economic Depressions. As of May 3, 1999, the Dow Jones Industrial Average (DJIA) went above a record 11,000 points. Just prior to the 1929 stock market crash, Wall Street was posting record prices, record earnings, and record profits.... just like the scenario we are experiencing today. Will Y2K be a manipulated and deliberate a financial meltdown? Too many facts already support this probability.
On June 7, 1995, the federal government issued a new regulation requiring stock and bond certificate transfers to be cleared in three days instead of the previous five day time period. It coincided with the infamous Regulation CC that purportedly gave us faster three day availability of funds from deposited checks. This means that brokers and banks must get your stock or bond transaction into the street name (Cede & Co.) of the DTC within 3 working days. That's hard to do considering banks claim it takes 3 or more days to clear a check that you've submitted to pay for a stock purchase. But, there's a reason for this new regulation and it coincides with the introduction of the new FRS "dollars".
On February 22, 1996, "the DTC will flip the switch" according to Mr. McNeff. "What switch?", I asked. "This is the day that clearing house funds will no longer be accepted for stock or bond transactions" was my reply from Jim. "Instead, only Fed Funds will be accepted". Fed Funds, or a Fedwire, are electronic computer ledger debit transfers between Federal Reserve System member banks. No checks or drafts have been allowed from that day, just as Mr. McNeff accurately stated. This is more commonly called a 'cashless transaction'. I call it the reality of the mark of the beast. This is the manifestation of the new international god, the New World Order [I prefer the term 'New World DISorder' as a more accurate description].
Consider this my fellow Christian Americans: All pension funds and other institutional 'managed funds' are comprised of paper asset investments such as stocks, bonds, and mutual funds. These certificates are technically in the name of DTC's private holding company, CEDE and Company. The DTC is owned by the private Federal Reserve System owners (Click for a complete list of names). Congress has attempted, on no less than two occasions since 1995, to pass legislation allowing pension funds to be used by the government as purported 'loans'. All the Federal Reserve System has to do is hand it over. But, what happens to the people counting on those pension fund investments in order to feed themselves in their retirement? Too bad for them.... they're out of luck because for the 'good of the nation', they may be forced to share or relinquish their lifetime of hard-earned wealth. This can be done without the consent of Congress under an Executive Order based on the War and Emergency Powers Act and a state of National Emergency, just like we are already under (See further Executive Orders). Since the Federal Reserve System already holds our stocks and bonds in their fictitious DTC "street name", CEDE, then perhaps they'll cash them in for the federal government's failure to repay the loans that have become way overdue. Heck, some of Lincoln's gold backed bonds from 1864 have not been repaid yet.... and for a reason.
On March 6, 1933, all bullion gold and gold coins were forcibly taken from the hands of private citizens (see New York Times). Under the War Powers Act, President Roosevelt declared a national emergency touted as a "Banking Holiday". It was declared due to the deliberately calculated stock market crash that preceded the Great Depression. Where did this gold end up? Into the hands of the Federal Reserve System owners. The majority is stored in the impervious rock vaults they own beneath New York City. Is it any surprise that the DTC physically holds all the remaining non-book entry issued stock and bond certificates in the same place?
Technically, our entire nation is still under the Executive Order declaration of the War Powers Act and in a continual state of national emergency (See Clinton's 1994 Executive Order 12919). The President can enforce any new emergency at any time under Executive Order or Presidential Directive. In 1995, we [the former North Bridge News] published that we expected a new national "dollar" emergency to be declared within a year or two. Just like we thought at the time, they have now blamed it on the purported drug dealers who are allegedly destroying our currency by money laundering schemes.
Since late 1996, old U.S. $100 FRB notes issued by the Federal Reserve Bank are being exchanged for new $100 FRS issued by the Federal Reserve System. These new notes have scanable magnetic platinum encryption on the plastic strips embedded inside the bills. The U.S. Treasury claims this is for "the blind". Now, new $20 and $50 FRS's are replacing the older notes as well. What people don't realize is that very soon, the older FRB notes will no longer be 'legal' and there will be a penalty for hoarding them. This is what happened to those Americans holding gold and gold coins after 1933.
"We are most gratified with the successful introduction of the new $100 and $50 notes and look forward to the same success with the new $20s," Chairman Greenspan said. For the first time, a machine-readable capability has been incorporated for the blind. A new feature in the $20 will facilitate the development of convenient scanning devices that could identify the note as a $20. -U.S. Treasury, Office of Public Affairs, RR-2449 released May 20, 1998.
Why new paper 'money' and for what purpose? Because the new FRS notes in your pocket can be scanned and whoever scans them can know exactly how much money you have on you. The older FRB notes are not encoded to do this. This writer knows firsthand of at least one machine, manufactured by Diebold, Inc. (a/k/a InterBold) that scans the money in your pockets, wallet or purse no different in theory than a credit card scanner, but much more sophisticated. I participated in a 'test' of this machine at a U.S. international airport in 1998. To me, it looks much like the standard metal detector scanners you walk through at all airports. I was asked (by who I believe was a U.S. Treasury Agent, as he introduced himself and flashed his ID quickly in my face so I couldn't read it) if I had any of the new $100 or $50 bills in my pockets. I looked in my wallet and saw I had one new $100 FRS note. I told him "yes", then he said "Good, but don't tell me how much". After saying he would "really appreciate it" if I would help them with a test, he asked me to walk through what looked like a typical airport scanner. No beeps. No noise. No sound at all. He looked at a computer screen and said "Do you have a new $100 bill?". When I confirmed that was true, he thanked me and told me to please move on. I tried to ask him how the machine knew that, but he ignored my question. I took a good look at the scanning system and believe I have now spotted them at Kennedy, Atlanta, Miami and Los Angeles airports.
The odd part about this is that these machines seem to all be located in the customs areas where you enter the U.S. from a foreign country. Obviously, they want to know if someone is carrying more than $10,000 into the U.S. Common sense dictates that they should be more concerned about people leaving with more than $10,000 if they're really trying to thwart the drug dealers.... until you begin to realize that there must be some other hidden agenda: They are apparently going to stop money from entering the U.S. for a reason.
Will the President call for the confiscation of all gold bullion and bullion coins as Roosevelt did? Who will end up with it? The Federal Reserve System owners, just like before. Since June 1998, international gold supplies have been so low that some private Swiss Banks have been paying a premium above the market wholesale value for gold bullion. This was confirmed to us by a gold and diamond mining Chief Executive from Rex Mining in Guinea, West Africa, who supplies raw gold to a major Swiss Banking company smelter and processor The spot gold market has been manipulated to keep the price low so that the Federal Reserve System owners can purchase all that is available through their various trusts and corporations. World gold availability on the open market is now at a record low and mining production of gold is also at a record low output.
What happened to 'supply and demand' with gold and silver? Normally, when supply is high the price decreases. When supply is low, precious metal prices increase. Perhaps the private FED will peg the new dollar to gold prices, as many experts have already speculated. What will stocks and bonds purchased with old dollars be worth then? Pennies to the dollar, so to speak. Who ends up being the only winner? The Federal Reserve System stockholders. They control the circulation amounts of paper money in the U.S. Combine that with the new scanner to stop large amounts from entering into the U.S., and the scenario amounts to a planned shortage of paper FRS notes, the banning of the older FRB notes, and the soon to be astronomical price of gold which most Americans will be forbidden to have or hoard, once again. The facts we've presented in this report all point to this.
People will be at the mercy of the federal government for daily food and for jobs. Checks are soon to be totally phased out. Banks issue ATM debit cards and tell you they must charge more for your account if you use a real live human teller instead of the machine. The switch is being turned on. This is not speculation. This is the truth of reality. It's already been tested, and their new system works. Just ask Jim McNeff of the DTC.
The day has come when you must decide to accept or reject the beast and the New World Disorder.
Part II of II-
You don't own your Stocks....or any of your Bonds...The Depository Trust Company does.
by Anthony Wayne
In Part I of this series, excerpts of which were first published in November 1995 by the former North Bridge News, we exposed The Depository Trust Company (DTC) as the Unknown $ 9.1 Trillion Company. It appears that our startling discoveries of the inner-workings of the DTC had only scratched the surface. We'd like to add more fuel to this blazing fire by further exposing the DTC and those behind it.
The Depository Trust Company has grown since October 1995. On July 1998, this amount was estimated by a DTC employee at more than $11 Trillion. As of April 19, 1999, the DTC itself has stated in a press release that their asset value is nearly $19 trillion. In 3 1/2 years, their assets increased nearly $ 10 Trillion. That's a lot of stocks and bonds supposedly held in trust. The latest trend over the past ten years is for stock and bond brokers to offer "book-entry ownership" only. Every book-entry stock or bond is literally owned by the DTC. Since 1985, most bond and many stock issuers have converted from the issuance of certificates to book-entry systems administered and controlled by the DTC. As of March 1999, the National Securities Clearing Corporation (NSCC) and the Participants Trust Company (PTC) are now merged into the DTC. Practically, there isn't one stock or bond issued that is not controlled by the DTC.
If you purchase any stock or bond through a broker, it is being held for you under a "street name" by the DTC unless you have specifically requested to hold the certificate yourself. If you have a book entry stock or bond, you won't be issued a certificate. It's important to note that you have purchased that particular stock or bond without becoming a registered holder of the actual stock or bond certificate. Instead, you have become a beneficial owner. The difference between the two is like night and day. Take the time to absorb and understand the following definitions:
REGISTERED HOLDER- A Registered Holder literally possesses, owns, and holds, his stock or bond with his name appearing on the face of the certificate. The company that issued the certificate has registered the owner's (holder's) name on their official books. This is the safest way to own a paper asset. You literally possess the fully registered certificate and only you can transfer or sell it. By all Rights and definition of law, you are the owner. You have it, you hold it, you possess it, and you keep it. You have the complete control over it.
BENEFICIAL OWNER- A Beneficial Owner is nothing more than a beneficiary, "One who is entitled to the benefit of a contract"- A Dictionary of Law, 1893. All book-entry stocks and bonds you purchase make you the beneficial owner, not the registered holder. The owner of a book-entry stock or bond is the entity or name that it is registered under.
The DTC owns that bond or stock, not you. Rather than in your name, it's registered (as the legal Registered Owner or agent) in their "street name", Cede & Company. (In the past, it may have been registered in your broker's street name, but this is no longer allowed). The DTC is the Registered Owner - holder - of your stock or bond. The DTC is the legal property-holder, share-holder, stock-holder, owner and purchaser. Your name appears nowhere on the book entry or certificate as the actual owner. Instead, you have been designated by the legal registered owner, the DTC, as the Beneficial Owner. This means that your lawful Rights in that stock or bond are confined to that of a successor or heir.
At the University of Utah College of Law, we found the following examination question about Cede & Co.:
The common stock of LargeCo, Inc. is publicly traded on the New York Stock Exchange. Over 2/3rds of the shares are registered on LargeCo's books in the name of Cede & Co. Cede is a depository company which holds the shares as nominee on behalf of brokerage firms, mutual funds and other active traders. The brokerage firms in turn are also nominees with respect to some of the shares, which they hold on behalf of their customers. Nominees, such as Cede and brokerage firms holding for customers, view the customer as the beneficial owner of the shares and consider the customer to be the one with the right to vote the shares; mutual funds, however, view the fund as the owner of the shares it holds and vote the shares themselves.
Most of the remainder of LargeCo's stock (26% of the total) is held by the Large family, which is still actively involved in management. LargeCo is aware that the beneficial owner of about half the stock registered in Cede's name is the Small family, who live next door to the Larges in downtown Rome, and that the remainder of the Cede stock is beneficially owned by several well known mutual funds.
According to the DTC, under the US Security and Exchange Commission (SEC) rules, you only have the right to "receive proceeds or other advantages as the beneficiary". You are not the owner... you are the consignee, "One who has deposited with a third person an article of property for the benefit of a creditor"- A Dictionary of Law, 1893. In legal terms, you are considered the heir presumptive or heir at law to the stock or bond you paid for. The DTC controls, possesses as creditor, holds and owns your book-entry stock or bond. This is a difficult pill to swallow for those who have placed their assets in stocks and bonds over the past decade. Your broker sends you a fancy accounting every month of your purported holdings, along with dividend and interest payments paid. The fact is, you only receive the benefit of ownership (interest and dividends) without holding title to your property. You are at the mercy of the registered owner, the DTC. If you don't believe this is true, then call your broker right now and ask them who's name is listed as the Registered Holder of your book-entry stocks and bonds. If you're lucky, the broker will tell you "why of course you're the Beneficial Owner", then you'll know the truth. He may emphasize to you that the stocks and bonds are being held in "safe keeping" for your own protection. This is broker language for "your stocks and bonds are held by the DTC in their street name as the creditor".
From J.P. Morgan's internet site:
Registered and beneficial shareholders
There are two types of shareholders: registered, who hold an ADR in physical form, and beneficial, whose ADRs are held by third-parties and are listed under a "nominee" or "street" name.
Registered shareholders are listed directly with the issuer or its U.S. transfer agent. The transfer agent handles the record-keeping associated with changes in share ownership, distribution of dividend payments, and investor inquiries; it also facilitates annual meetings. An issuer's depositary bank can provide the identities of registered shareholders on a regular basis. However, this may not provide the level of shareholder identification required for a successful investor relations effort. Registered shareholders are typically individual investors who have physical possession of their share certificates, generally in lots of 100 shares or fewer. The registered list also includes nominee names such as Cede & Co., which represent the aggregate position of the Depository Trust Company (DTC), the primary safekeeping, clearing, and settlement organization for securities traded in the United States. DTC uses electronic book-entry to facilitate settlement and custody rather than the physical delivery of certificates.
Beneficial shareholders, which can include individual as well as institutional investors, do not have physical possession of their certificates; third-party broker-dealers or custodian banks hold their securities on their behalf. These shares are said to be held in street name because they are kept with the DTC in the name of the broker-dealer or the custodian bank - not the underlying shareholder. Lists of beneficial shareholders who do not object to disclosing their holdings are available from banks and broker-dealers. These lists, called NOBO for Non-Objecting Beneficial Owner, typically provide the names of individual investors.
To help identify institutional investors, who do not usually disclose their holdings, issuers use publicly available filings. Large holders, including investment managers, are required to make periodic filings - such as 13-F, 13-G, and 13-D - with the Securities and Exchange Commission (SEC) disclosing the name and value of the positions in their portfolios.
Which brings us to the street name used, registered, and designated by the DTC as the registered owner of over $19 Trillion (USD) of our stocks and bonds... CEDE & Co. Everyone in the brokerage business keeps pronouncing this name as "See Dee" and Company, but it's spelled C-E-D-E and pronounced "Seed". This is where the real irony comes.
According to Black's Law Dictionary, Sixth Edition, 1990, the word Cede is defined as "To yield up; to assign; to grant; to surrender; to withdraw. Generally used to designate the transfer of territory from one government to another". In the Black's 1951 Fourth Edition, it lists the following as supportive case law; Goetze v. United States, C.C.N.Y., 103 Fed. 72.
Have you made the connection yet? Your book-entry stocks and bonds and all stock and bond certificates purchased through your broker and held by them under your brokerage account are owned by CEDE & COMPANY (the DTC) as the registered owner. You have surrendered, assigned and granted ownership to someone else other than yourself. Their name says it all.
How ironic and sarcastic can they be?
"CEDE- To surrender possession of, especially by treaty. See Synonyms at 'relinquish'." -American Heritage Dictionary of the English Language, 3rd Edition of 1992
If Americans had any idea that they have relinquished the lawful ownership of their stocks and bonds to someone or something else, there would be a revolution. In a sense, that's why we are exposing this paper asset scam to you. The point is, now that you know the truth, do something about it and get your assets back into your name.
Our suggestion to you is this: If you don't literally have every stock and bond registered certificate in your possession, then promptly call your broker and tell him you want all your securities transferred and re-registered into your name as the Registered Holder and Owner. If he says he can't do that because your stock or bond is a book-entry transaction only, we strongly suggest, for your own security, that you sell your book-entry assets immediately. Don't let the broker tell you that it's "safer" for you if they keep your certificates. Remember, you know the truth. Even if all your stock and bond certificates were burned in a fire, the process to have them replaced is simple. If someone were to steal your certificates, you simply report them stolen to the company that issued them and they're automatically cancelled, just like a stolen credit card. Replacement certificates are then issued to replace the lost or stolen originals.
Most people don't realize that when they open a brokerage account, they have entered into an contractural agreement allowing the broker to assign the stocks and bonds to an undisclosed creditor, the DTC. (We suggest you read the small print on your brokerage agreement). This gives the broker your express written permission to place all your securities into the ownership of the DTC. Your broker is an agent for the DTC through mandatory Securities and Exchange Commission regulations and mandates by the Federal Reserve System private bank. Your broker represents them, not you. Your brokerage account is nothing more than a ledger of accounting. It reflects no assets held in your name. The assets are registered in a "street name" that is not you or your name. Sure.... you receive the interest and dividends, but you do so as a beneficiary to the real owner. Your brokerage account in no way, shape, or manner reflects who literally owns your securities. What you own is a brokerage account and nothing more.
A greater consideration is just exactly who does the DTC hold these securities for? As the owner, who has the DTC pledged these securities to? Our research points to the Federal Reserve System, an international private banking cartel with major offices found in Moscow, London, Tokyo, and Peking. By treaty with the United Nations and in compliance with the Bretton Woods Agreement, the DTC under regulation of the Federal Reserve System has pledged all those stocks and bonds to the International Monetary Fund (IMF). These are the same paper securities found in your IRA and pension fund accounts, as well as in your brokerage account. Remember, you don't own them.... you're just a beneficiary.
The truth is, the securities you purchased and paid for with your hard earned money is collateral for the United Nations which is backed by the Federal Reserve System and it's associated agencies, such as the International Monetary Fund. Is it any wonder that the UN can operate year after year with increasing budgets, but without sufficient funds? The UN has nearly $19 Trillion of backing and reserves, thanks to millions of duped Americans. We are financing the New World Dis-Order with our stocks and bonds.
( link to site and article here: http://ming.tv/flemming2.php/__show_article/_a000010-000923.htm )
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ps. Opinions people? Thanks.
“COOKING THE BOOKS”
ENRON CORPORATION
Accounting and Securities Fraud
MBA 8423
Law and Ethics and Business Employment Environments
July 24, 2003
“I am incredibly nervous that we will implode in a wave of accounting scandals. My eight years of Enron work history will be worth nothing on my resume, the business world will consider the past successes as nothing more than an elaborate accounting hoax.”
- Sherron Watkins, “Whistle Blower memo to CEO Kenneth Lay”
“I affirm that I have not received any impermissible assistance from others nor any unfair advantage in connection with this assignment”
Team 3
Mark Higgins ______________________________
Sean Lindsay ______________________________
Jill Miller ______________________________
Elstan Sippola ______________________________
INTRODUCTION
In January of 2000, Enron Corporation was one of the top company’s in the United States, ranked the seventh largest in terms of revenue at roughly 100 billion dollars.[1] Investors that held 1,000 shares of Enron stock at that time would roughly a $70,000 investment. What happened next was one of the biggest examples of corporate corruption, accounting fraud and securities fraud in the history of American Business. The same investors that had a comfortable investment of $70,000 in early 2000, now have an investment valued at only $40 (Based on closing price of $.07 on July 22. 2003.) The final tally of losses to Enron investors was $63 billion dollars, roughly equal to the 2002 Gross Domestic Product of Chili.[2]
Today, the energy giant is bankrupt, thousands lost their savings and are unemployed, and the world is still trying to figure out how they were duped by this once powerful and respected company. The complexity of the Enron fraud case is staggering. Congressional Committees are holding hearings to determine what went wrong and what changes in laws or regulations can prevent another Enron in the future. Shareholders are filing class action lawsuits. The Securities and Exchange Commission (SEC) is investigating insider trading and changing rules on auditing and disclosure to protect investors. The IRS is investigating Tax Code abuse by both Enron and its executives. The Justice Department is conducting criminal investigations against individuals for securities fraud, wire fraud, mail fraud, money laundering, concealing evidence, defrauding the pension fund, shredding of documents, obstruction of justice and conspiracy. Focusing on allegations of accounting and securities fraud, it is easiest to understand how Enron’s aggressive corporate policies and practices misled and confused the public and will ultimately lead to improvements in SEC and GAAP rules, while continuing the trend of a heightened sense of ethics and corporate responsibility to shareholders.
CORPORATE HISTORY
Based in Houston, Texas, the company was formed in 1985 when Houston Natural Gas merged with Omaha, Nebraska-based InterNorth. The primary scope of business originally pertained to energy trade on an international and domestic basis. The initial merger created the first nationwide natural gas pipeline system. In 1986 Kenneth Lay, formally chief executive officer of Houston Natural Gas, was named chairman and chief executive officer of Enron. In 1987, taking advantage of England’s privatization of its power industry, Enron opened an overseas office, making their first step towards global expansion while pursuing both regulated and unregulated markets.
In 1991, Jeffrey Skilling joined the company and Enron launched its Gas Bank, a program under which buyers of natural gas were able to lock in long-term supplies at fixed prices. The company also began to offer financing for oil and gas producers. In 1994, expanding on their successful international growth and growth in unregulated markets, Enron began trading electricity. The energy trading market would turn out to be one of the company's biggest profit centers over the next few years. In December of 1996, Jeffrey Skilling was elected president and chief operating officer while continuing his role as chairman and CEO of Enron Capital & Trade Resources. In 1997, Enron Energy Services was formed to provide energy management services to commercial and industrial customers. In 1999, Enron Online, the company's commodity trading Internet site was formed. It quickly becomes the largest e-business site in the world.
In 2000, Annual revenues reach $100 billion, more than double the year before, reflecting the growing importance of energy trading. Enron Field was opened in downtown Houston. In addition to buying the naming rights, Enron Chairman Ken Lay helped raise financial support for the construction project. The Energy Financial Group ranked Enron as the sixth-largest energy company in the world, based on market capitalization. Enron and strategic investors, IBM and America Online, launch The New Power Company to provide electric service in deregulated markets.
In 2001, Jeff Skilling took over as chief executive officer. Ken Lay remains as chairman. In August, Skilling unexpectedly resigns for personal reasons. Lay takes back the CEO job and investors start to question the motivation behind Skilling’s shocking resignation. Meanwhile, seven officers of Enron dumped $175 million worth of stock in 2001. In total, 18 top officers and directors executed 64 stock sales.[3]
SITUATIONAL ANANLYSIS: THE BEGINNING OF THE END
Suspicions rose and Wall Street started cranking up its requests for Enron to provide clearer and more detailed financial information about its performance. In October of 2001, Enron released its third-quarter earnings, with Non-recurring charges totaling $1.01 billion including $35 million related to investment partnerships formerly headed by Andrew Fastow, Enron's chief financial officer. “After a thorough review of our businesses, we have decided to take these charges to clear away issues that have clouded the performance and earnings potential of our core energy businesses,” according to Ken Lay.[4] Fastow was replaced as CFO. The Securities and Exchange Commission launches a formal investigation into the partnerships. In November, Enron restated its earnings for 1997 through 2000 and the first three quarters of 2001.[5] In December, Dynegy announced it wanted to merge with Enron. Enron's stock closed at $8.63 per share, an 89% drop since the beginning of 2000.
In January of 2001, roughly 60% of Enron employee’s 401K accounts were comprised of Enron stock. Kenneth Lay, CEO and Chairman of the Board, encouraged employees to maintain their holdings of Enron stock. On September 26, 2001 Lay wrote on Enron’s internal “ethink” intranet chat site, "My personal belief is that Enron stock is an incredible bargain at current prices and we will look back a couple of years from now and see the great opportunity that we currently have.” [6] Meanwhile Lay was liquidating much of his holdings to the tune of a $100 million profit from 1998 through 2001.[7]
Enron was able to camouflage a mountain of debt under a complicated matrix of partnerships. They had thousands of them, many offshore accounts, mostly throughout the late 90s and 2000-2001. The fraud was not revealed to the public until October of 2001 when Enron announced that the company was actually worth $1.2 billion less than previously reported. There was mounting evidence that the Enron board knew in 1997 that “aggressive” accounting helped bury the facts. The Securities and Exchange Commission began an investigation which has revealed many levels of deception and illegal practices committed by high-ranking Enron executives, investment banking partners, and the company’s accounting firm, Arthur Anderson. Many of the executives have been charged with wire fraud, money laundering, securities fraud, mail fraud, and conspiracy.
ENRON’S ACCOUNTS: THE TRUE PICTURE
Reported Revised True debt True Equity
Income Income
1997 $105m $77m up $771m down $258m
1998 $733m $600m up $561m down $391m
1999 $893m $645m up $685m down $710m
2000 $979m $880m up $628m down $754m
Reported and revised income, debt and shareholder equity.
Source: Enron/Power Special Report
The strongest evidence against the executives was a “smoking gun” memo sent to Kenneth Lay by Ms. Sherron Watkins shortly after the departure of Jeffery Skilling. This document raised many questions about Enron’s historical accounting practices, the motivations of internal executives and the outlook for the future due to the gross misuse of a myriad of special purpose entities. This document named multiple key executives and requested Mr. Lay’s assistance in correcting the improper dealings that had occurred. While disregarding this memo professionally, Lay personally sold 1.77 million shares of stock from February thru October of 2001 at prices from $78.79 down to $15.40. The proceeds from these sales totaled $70.1 million. He is regarded by many to have been an ineffective CEO that did not have a firm understanding of the operations of his organization. It seems that his main role was to maintain high level political relationships including a close personal relationship with George W Bush.[8]
CFO, Andrew Fastow and his web of 6 known tipees, or people that Fastow shared his inside trading information with, made roughly $42 million in profit on total investments of $161,000. Fastow was named managing director of Enron Energy Services in 1996 and failed miserably. He was then relegated to a finance position where he was the mastermind of the tangled web of “special purpose entities”, or SPEs, that were used to hide debt for Enron and create personal wealth for himself. For these transgressions, Fastow has been indicted on 78 counts of securities fraud, money laundering, wire and mail fraud, as well as conspiracy to inflate Enron’s profit.
CEO, Jeffrey Skilling has maintained complete innocence throughout Senate hearings in February, 2002. He claims that when he left the company in August of 2001 he had no idea of the company’s coming collapse. The Watkins “Smoking Gun” document tells a different story of an informed CEO that did not take action. Skilling was regarded as an extremely intelligent individual who could solve complex problems in minutes, yet he claims that he had no idea that his company was at risk of demise. Skilling, sold 160,000 shares of Enron stock in June of 2001 prior to leaving in August.
J. Clifford Baxter, the Vice Chairman of Enron, worked his way up through the Enron organization. He began as the chairman and Chief Executive of Enron North America before he became Chief Strategy Officer and then he moved up to Vice Chairman. Baxter was referenced in the Watkins memo as someone who complained mightily to Jeff Skilling and all who would listen about [the] inappropriate accounting actions”. Baxter died in an apparent suicide in January 2002.
So what was the root cause of the problems at Enron? What follows is an in depth analysis of the aspects of accounting fraud and securities fraud that led to the demise of Enron.
AUTHUR ANDERSEN’S INVOLVEMENT
Enron was looking a whole lot better on paper than it had any right to, but a savvy outsider would have had to do an amazing amount of tedious research to realize it. The public is required to trust and rely on the financial inspection performed by auditors. Auditors perform the inspection of it's clients financial statements and other important documents in order to put their stamp of approval on the operation, which in turn allows investors to act with confidence. The questions about the rapid demise of Enron also turned to the auditors, in this case Arthur Andersen, one of the biggest accountancy companies in the world.
Arthur Andersen's relationship with Enron began in the mid 1980's when Enron's predecessor, Internorth, hired Andersen as it's auditor. Andersen's reputation and prestige gave the fledgling company legitimacy, as Andersen was the oil industry's largest accounting firm. When Internorth became Enron, CEO Kenneth Lay found no reason to change accountants. As Enron grew in size and prestige, the balance of power shifted. Enron outsourced much of their consulting work to Andersen, who even had an office in Enron's Houston headquarters which rivaled the size of other Andersen regional offices. By the mid 1990's, Andersen had become extremely dependent on Enron, both for prestige and for billings, which almost eclipsed $1 Million on a weekly basis.
Enron's fast paced, win at all costs corporate culture also rubbed off on Arthur Andersen. Any Andersen auditors that questioned Enron's accounting techniques were either demoted or told that they "just didn't get it." At this time Andersen was also giving more power to their local managers and the pressure on these managers to make their numbers mounted. By 2001, Andersen had settled lawsuits and paid fines to the SEC for its dealings with Sunbeam and Waste Management. Another scandal, especially one involving one of its largest clients, proved to be disastrous to Andersen.
ISSUES: QUESTIONABLE ACCOUNTING TECHNIQUES
In the 1990's, the stock market soared, as did Enron's stock price. Enron began manipulating its earnings, just as many other companies did at the time and some still do. Enron would hold back net profits from good years and apply them to bad years in order to make Wall Street analysts’ earnings predictions. This practice while technically legal, is thought of as unethical in the business world. This caused a big problem for Enron in 1996 when they found out they were going to fall $190 Million short of their target earnings and they had no "left over earnings" to cover it with. Consequently, they decided to implement a new accounting practice for revaluing assets. They would claim that many of the assets that it held in its equity investment fund (JEDI) were being held for resale, rather than as part of the company's core investment plan. Therefore, Enron could include the unrealized gains, or the money they think they could make by selling these assets at a higher price, as profits. They entitled this method as "fair value" accounting. The problem with this method was that Enron had no intention of selling these assets and Enron could use any estimate it wanted for the future value of these assets. Therefore, Enron was able to make its earning target in 1996 once again and the stock continued to rise.
In 1991, Enron adapted a similar accounting technique involving the valuation of its energy contracts. This aggressive technique called “mark to market” accounting enabled Enron to show the projected profits from long-term energy contracts for the entire life of the project as earnings for the current quarter. This accounting method also allowed Enron to determine the total value of such deals by manipulating the factors of the long-term price of the commodity being sold. Mark-to-market helped earnings meet expectations, pump up the stock price and increase the value of the thousands of executive stock options. Many employees' bonuses were tied to the value of these deals, not the actual profit from these deals. The deal makers (or the salesmen), not the risk managers were allowed to determine the final valuation of these contracts. Therefore, these employees had a personal interest, via bonuses and incentives, to inflate the profits of these deals. Since all profits on long-term deals were realized immediately, Enron needed to continue to make more deals in order to remain profitable. As more companies entered the energy market in the late 1990's, these deals became harder to make. Therefore, future value estimates of new deals were grossly inflated to make up for the drop in the number of contracts that were sold. This translated to Enron having much more money on paper from these deals than it really had coming in the door.
SPECIAL PURPOSE ENTITIES
Enron's most complicated and controversial accounting technique was the use of special purpose entities. SPEs were created to help isolate companies from large financial risks for projects that require a large amount of funding. Many large corporations have only two or three SPEs at the most. Enron had over 900 of these partnerships that were not shown on its Balance Sheets.[9] Enron would borrow massive amounts of capital and they were able to push off large amounts of this debt into these SPEs. The accounting rules provided that if at least 3 percent of the equity in an SPE partnership was provided by outside investors, then the debt does not have to be disclosed on the company’s balance sheet. Enron would find a "friendly" partner that was willing to invest in the SPE in order to meet these requirements and it would also issue more of it’s own stock to the SPE as equity. Although, the use of SPEs is legal, at times Enron would not meet their 3% funding requirement and many times they would not report the SPEs existence in the footnotes of the company's annual report. Enron never mentioned the existence of these entities and the massive amounts of its debt in their letters to the stockholders in their annual and quarterly reports. It is in these letters that a company has the duty to disclose relevant and important information that will most likely impact the company in the future, so that stockholders may better understand their financial risk. Enron's silence on the massive debt stored away in these SPEs along with the inaccurate footnotes constitutes a breach in their fiduciary duty to their shareholders.
Neal Batson, an Atlanta lawyer who was appointed by the federal bankruptcy court in New York to investigate Enron's financial transactions, concludes in his report that the company relied on six complex accounting maneuvers to enhance it's financial standings such as noneconomic hedges, tax transactions and other devices discussed above. All of these techniques accounted for 96% of Enron's reported $979 million in net income for 2000, the report concludes. Enron also reported debt of only $10.2 billion rather than the $22.1 billion that should have been reported.[10] The Senate's July 8, 2002 report The Role of the Board of Directors in Enron's Collapse stated that, "Andersen regularly informed [Enron's] Audit Committee that Enron was using accounting practices that, due to their novel design, application in areas without established precedent, or significant reliance on subjective judgments by management personnel, invited scrutiny and presented a high degree of risk on non-compliance with generally accepted accounting principles." Enron started by taking advantage of accounting loopholes and managed to push them morally and ethically to the brink of fraud through their deceit and greed. Corporate America's current backup is the audit system, which is in place to catch such accounting discrepancies as Enron's. The audit procedure failed miserably due to massive conflicts of interest, self-dealing and the persistence of Enron’s corrupt corporate culture at the Executive level.
Source: Swartz & Watkins, Power Failure: The Inside Story of the Collapse of Enron
THE LAW FIRMS
The University of California, the lead plaintiff in the Enron shareholders lawsuit, initially filed a complaint against 29 current and former account executives. The complaint was later amended to include nine financial firms, two law firms, and additional individual defendants. The law firms accused included Vinson and Elkins, Enron’s Houston based corporate counsel, and Kirkland and Ellis, which represented Enron in a number of special purpose entities. Vinson and Elkins were closely involved in creating the special purpose entities and drawing up true sale opinions, which Enron needed in order to enter into many of the transactions leading to their demise. The law firms were also involved in reviewing SEC filings, press releases and shareholder reports. The allegations against Kirkland and Ellis were dismissed on the grounds that no material misrepresentations were ever made by the law firm.
THE FINANCIAL INSTITUTIONS
The amended University of California complaint added nine financial institutions to the list of defendants. The list included JP Morgan, Citigroup, CS First Boston, Canadian Imperial Bank of Commerce, Merrill Lynch, Bank of America, Barclays, Deutsche Bank and Lehman Brothers. The plaintiffs alleged that the financial institutions used derivatives and secret guarantees to assist Enron in hiding debt and create false profits in exchange for outrageous fees and interest rates almost double the normal rate in return. Many bank executives are also accused of personally investing millions of dollars in these transactions. JP Morgan disguised loans as forward commodities trades. Several institutions engaged in total return swaps to disguise loans. Charges against Lehman Brothers, Bank of America, and Deutsche Bank were dismissed by Judge Harmon in the Southern District of Texas.[11]
CONGRESSIONAL RESPONSES
The collapse at Enron caused congress to pass one of the most influential pieces of securities legislation since 1934. The Sarbanes-Oxley Act requires public company's top executives to certify annual and quarterly reports and make new disclosures on internal controls, ethics codes and the makeup of their audit committees. It also prohibits auditors from providing certain non-auditing functions. These controls are to assure investors that companies have the proper processes in place to prevent gross misuse of accounting techniques that executives are held responsible for company's financial statements and that conflicts of interest are prevented within each company and their accounting firm.
Both President Bush and Congress are proposing legislation to stiffen penalties on those involved in securities fraud including increasing jail time from 5 years to 10 years. Harsher penalties are also being sought for those convicted of obstruction of justice, increasing jail time from 18 months to 3 years. Bush has also asked Congress to increase the SEC budget by $100 million in 2003 to allow them to hire new enforcement officers and upgrade their technology. President Bush has also requested a Corporate Fraud Task Force to coordinate civil and criminal investigations. The Public Company Accounting Reform and Investor Protection Act of 2002, S. 2673, bans accounting firms from providing consulting services to clients they audit. This requirement is to ensure independence of the auditors and audit reports regarding the client’s financial status. S. 2673 also provides additional funding to the SEC and creates the Public Company Accounting Oversight Board. President Bush has also requested a Corporate Fraud Task Force to coordinate civil and criminal investigations.[12]
Congress created the five member Public Company Accounting Oversight Board in July of 2002 to combat a wave of corporate accounting scandals. The SEC Board agreed to seek members for a new advisory group that will consist of about two dozen individuals that mixes investors, corporate finance experts and accounting industry professionals. The advisory group must hold public meetings semiannually and annually. All recommendations by the advisory group must be made in public. Any action made by the Board itself must be approved by the SEC prior to implementation and must proceed through standard rule making process which includes notice of proposed rule to the public, evaluation of comments and adoption of rule.
FASB RESPONSES
Responding to the turmoil surrounding Enron's use of the SPEs, the Financial Accounting Standards Board (FASB) voted to change the rules governing when partnerships can be kept off a company's books. Now, publicly traded companies that use SPEs will have to add debt to their books or raise funds from outside investors. The new rules will require newly formed partnerships to have independent, outside investors provide cash totaling at least 10% of such partnership funding; rather than the 3% that Enron was required prior to its collapse.
SEC RESPONSES: VIOLATIONS OF RULE 10b-5
The class action lawsuit filed on behalf of Enron employees and shareholders by Milberg Weiss Bershad Hynes and Lerach, LLP allege that Enron officers and directors were involved in securities fraud and insider trading and that these acts were successfully executed with the cooperation and assistance from Arthur Andersen, Vinson and Elkins, and nine different banks. In order to win the lawsuit and recover damages, Milberg Weiss, et al must demonstrate the elements of SEC Rule 10b-5 were committed by the defendants. The elements of 10b-5 are as follows: (1) defendant used a facility of a national securities exchange; (2) defendant made a misrepresented statement or omitted a fact; (3) the fact was material; (4) the misrepresentation or omission was made with scienter; (5) the statement was made in connection with the purchase or sale of securities; (6) plaintiff acted in reliance of the misrepresentation or that the market price of the security accurately reflected its value; (7) the misrepresentation or omission caused the plaintiff to suffer losses.
1) The use of a facility of a national securities exchange is the first element of Rule 10b-5, which provides Congress with the power to regulate the acts of the defendant under the constitution. In the case against Enron, this requirement is easy to establish because Enron was a publicly traded company on the New York Stock Exchange with trades in all 50 states.
2) When a defendant makes a misrepresentative statement or omits a fact, they have just satisfied the second element of Rule 10b-5. Statements made by third parties can also be attributed to the company when the company is entangled with the third party. Enron misrepresented their earnings by understating its debt by billions of dollars while overstating earnings by hundreds of millions of dollars. Enron defends itself by stating that in the 10-K filing for the year 2000, a consolidated balance sheet was provided for the unconsolidated affiliates that had debt secured by Enron. However, analysts have stated that not all Enron’s partnerships were listed in this balance sheet and in the notes of the 10-K it states, “Management does not consider it likely that Enron would be required to perform or otherwise incur any losses associated with the above guarantees.” SPE’s were created to keep Enron from having to take out loans, thus increasing their debt. The funds from outside lenders were guaranteed with Enron stock. Enron then would sell assets to the SPE’s and record the sales as revenue. Therefore, Enron received the money from the lenders and investors of the SPE’s, but recorded the monies as revenue instead of as debt which construes a misstatement
3) Next, the plaintiff has to prove that the misstatement was of material importance. In order for a fact to be material, a reasonable investor would have to deem it important in deciding how to act. Materiality is determined at the time the statement was made and is not affected by the intent of the party making the statement. Generally any statement about earnings, distributions, or assets of a company will be considered material by the courts. Significant facts about a parent-subsidiary relationship are normally material.[13] In October 2001, Enron announced that the company was worth $1.2 billion less than previously reported. Financial statements for years 1997 through 2000 and the first two quarters of 2001 would be restated to correct the misstatement. This announcement ultimately resulted in Enron’s stock being downgraded to junk bond status and the company filed for Chapter 11 bankruptcy in December 2001.[14] Clearly, these misstatements had a material impact.
4) Probably the most important element of Rule 10b-5 is the element of scienter. A misstatement or omission must be made with scienter. Scienter is a mental state of mind with intent to deceive, manipulate, or defraud. However, scienter is more than negligence of lack of care. When a defendant makes a statement that they know is untrue in hopes that others will rely on the statement, the defendant is acting with scienter. The plaintiff is claiming all dependants acted with scienter because they were all aware of the dealings going on and all stood to receive significant financial gains as the stock price increased.
5) The next element of Rule 10b-5 narrows the parties who can file suit under this rule. Conduct must involve the purchase or sale or securities. This means that only those who actually purchase or sale securities can file suit under 10b-5. Those that can be sued under Rule 10b-5 include the parties that make or are responsible for misstatements or omissions that influence investors.
6) Plaintiffs filing suit under 10b-5 must prove they relied on the misrepresentative statements or that the market price of the stock accurately reflected its value. Enron’s schemes inflated earnings reported in their 10-k filings, which in turn over-inflated their stock price. Investors relied on the financial statements Enron submitted to the SEC, which were audited and approved by Arthur Andersen.
7) Finally, the plaintiffs must prove the misrepresentation caused them to suffer losses. When Enron did finally announce that earnings would be restated, their stock price dropped 91%. Enron stock had peaked at $90 and dropped to $0.26 a share after the company was downgraded to junk bond status.[15] Shareholders suffered enormous losses and employees’ 401k accounts were rendered worthless. However, inside traders sold 20.8 billion shares worth $1.2 billion in proceeds. In addition to the proceeds from the stock, Enron executives received over a billion dollars in cash bonuses based on the false revenue numbers and stock price. The accountants, law firm and banks involved in the Enron scandal also received billions in fees and commissions.
The SEC is proposing many new amendments to enhance the current financial reporting and disclosure rules as well as shorten the time it takes to get such information into the hands of the public. There has also been discussion on expanding the types of information companies must report in their 8-K filings such as officer and director securities transactions, material changes in customers, contracts, accounting policies, and equity security offerings not included in a prospectus filing. The SEC held roundtable discussions including experts from corporate America, securities regulation, financial services, academia and other fields to further determine what actions need to be taken to ensure fraud of this magnitude does not happen again.
RECOMMENDATIONS FOR FURTHER CORRECTIONS
Major changes have occurred in the accounting industry due to the Enron debacle and many more are coming. One major change that is needed is the change from a rules based accounting system to a principle based accounting system. FASB's current accounting rules are extremely complex and offer various loopholes exposed by companies on a regular basis. A principle based system would focus on broad principles and professionals exercising judgment. Accountants and auditors may be subjected to greater liability, although that liability could be decreased with the proper controls and balances. Many countries, such as Japan, already use the principal based accounting system and many more plan on switching, such as the European Union in 2005. To date, there have not been any major catastrophes in their system such as Enron's fall in the rule based system.
Corporations should also have to change accounting firms every 3 or 4 years. This allows for the auditor to work without the threat of being fired for its honest actions. Finally, accounting firms should not be allowed to police themselves. Just as corporations need auditors to report to, accounting firms need to be culpable to someone other than themselves. Businesses and the government need to help FASB institute the proper accounting principles and rules while also helping institute and enforce them. Otherwise, the accounting world can make the rules as they see fit and enforce them too.
Corporations should have to simplify the reports given to the public. It is far too easy for them to confuse the average investor with lengthy reports and complicated financial terms. The Internet and other changes have made it easy for everyone to buy and sell stocks on their own. Therefore, corporations should aim their reports at the average investor and the footnotes to financial statements should be limited in length and simplified. Investors rarely have the time or acumen to dig through 200 pages of footnotes from one company's statements, as was typical of Enron's financial statements.
The accounting and securities fraud scandal, resulting from Enron’s aggressive corporate policies and practices, has already caused major improvements in rules and regulations that govern how public companies conduct their business. The scary reality of the Enron scandal is that no matter what rules and regulations the government puts into place, it will still be up to the individuals with the resources and abilities to defraud the public to act with a heightened sense of ethics and integrity. Officers and directors have a duty to manage the company in the best interest of the shareholders. Unfortunately, many incentive programs reward for positive performance, which often results in management taking measures to enhance performance in the short run instead of considering the future repercussions of the acts.
Endnotes:
--------------------------------------------------------------------------------
[1] Enron Annual Report, 2000
[2] World Bank, July 2003
[3] Tallahassee Democrat, January 25, 2002
[4] Enron 3rd Quarter Press Release, October 16, 2001
[5] Enron Press Release, November 8, 2001
[6] Gaurdian Unlimited, Special Report – Enron, January 24, 2002
[7] Annex Bulletin, Volume XVII, No. 2002-09, April 1, 2002
[8] Truthout.org, March 6, 2002
[9] Fortune Magazine, February 18, 2002, http://accounting-net
[10] The NY Times, March 6, 2003, http://accounting-net
[11] www.ucop.edu/news/enron/art408.htm
[12] www.llrx.com/features.enron.htm
[13] Constance E. Bagley, Managers and the Legal Environment
[14] The Enron Fraud, www.enronfraud.com
[15] The Enron Fraud, www.enronfraud.com
Additional Sources:
Bush Demands Corporate Responsibility
//usgovinfo.about.com/library/weekly/aa070902a.htm
The Business Journal, March 3, 2003
http://sanfrancisco.bizjournals.com/triad/stories/2003/03/03/focus2.html
The Collapse of Enron: A Bibliography of Online Legal, Government and Legislative Resouces
www.llrx.com/features/enron.htm
Enron.com, July 8, 2002
http://www.enron.com/corp/por/pdfs/senpsi70802rpt.pdf
Enron Fraud Info Center
www.enronfraudinfocenter.com
The Houston Chronicle, October 20, 2002
http://www.chron.com/cs/CDA/story.hts/special/enron/1624822
Political Cartoons
//politicalhumor.about.com/cs/enron/index.htm
Resources Supply Management, Inc, March 2002
http://www.rsmenergy.com/newsletters/newsletter.pdf
Stiffer penalties ahead for Corporate Criminals
//usgovinfo.about.com/library/weekly/aa011603a.htm
Smart Pros, July 1, 2003
http://finance.pro2net.com/x38861.xml
Swartz, Mimi with Sherron Watkins, Power Failure: The Inside Story of the Collapse of Enron, March 2003 pp. 86-100
Testa, Hurwitz & Thibeault, LLP, September 16, 2002
http://www.tht.com/pubs/SearchMatchPub.asp?ArticleID=841
Update on US’s Enron Investment and Lawsuit
www.ucop.edu/news/enron/art408/htm
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ps. The original article is here: http://www.seanhlindsay.com/EnronProject.htm
Lowman, does this mysterious corp....
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