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Undisclosed Interests
By Alex J. Pollock
Thursday, May 25, 2006
With today's intense network of communication, the Securities and Exchange Commission cannot regulate the capital markets from an Olympian height. It is itself immersed in the markets: its own investigations are market-moving events. This effect has been magnified in the environment of the post-Enron or Sarbanes-Oxley era. Unavoidably, some market actors draw this conclusion: If I can move the SEC, I can move the market to my personal profit.
How should the SEC deal with the fact that other people wish to use it to change the price of certain stocks? Consider the following scenario.
While establishing a large short position in the stock of a target company, a manipulative group or its representative urges claims of accounting or financial deficiencies as "tips" to the SEC. Let us stipulate that these claims are spurious. Whether or not the claims are spurious, however, the fact that the group is pushing them on the SEC and knowledge of how the SEC staff is reacting constitute key non-public information, highly relevant to the price of the stock in question.
In our scenario the claims are spurious, so when the SEC staff asks the company about the question, it receives a reasonable explanation. That should close the matter, since there is no real problem. But the group tirelessly continues to press its claims with strident rhetoric and urge an SEC investigation.
Now consider the position of the SEC staff in the post-Enron era. They are well aware that such claims often reflect the financial self-interest of those making them and their intense desire to cause adverse movement in market prices. This is the so-called "short and distort" strategy. But in the post-Enron era, the political and public relations penalty for the SEC staff of missing any problem is great, however low they may view its probability. However, there is no political or public relations penalty on the SEC for imposing great costs and market losses on the shareholders of the target company. None. In this environment, the SEC staff cannot afford to take the personal and bureaucratic risk of not commencing an investigation.
An SEC investigation is therefore begun, and in compliance with the SEC's own disclosure requirements, is publicly announced by the company. As the manipulative group planned all along, the price of the company's stock drops. This means that the group has itself caused the realization of handsome profits on its short position by using the SEC's regulatory structure to manipulate the stock market. The strategy has successfully developed from "short and distort" to "short, distort, and get the SEC to support" the attack.
The public rationale leading to this scenario is the watchword of the Sarbanes-Oxley requirements: disclosure. But the most essential element underlying this situation--the financial interest of the investor group and its activity with the SEC--is not required to be disclosed at all! Even though the group benefits by causing fear of an SEC investigation among stockholders of the target company, and thereby transfers wealth from them to itself, that critical fact is never has to be revealed so the market can weigh its claims accordingly.
A scenario like this is certainly not what the authors of the Sarbanes-Oxley Act had in mind and obviously should not be permitted in well-designed capital markets. Everyone should be able to agree on this point.
However, situations like this are in fact one source of the informal investigations the SEC has in process, at great cost to everyone concerned. Especially great cost is imposed on the shareholders of the target companies who are supposedly being "protected," while profits are created for the group with the undisclosed short interests.
A related scenario has become well publicized through the allegations in the lawsuits brought by Biovail Corp. and Overstock.com Inc. These suits assert that short-selling hedge funds, having conspired with an investment research firm to produce misleading negative research reports, had non-public information of the content and timing of their release. They could then time their market moves to benefit from the market price reaction.
It is well known that short sellers routinely and aggressively push views favorable to their investment positions on journalists, analysts and regulators. "We have had hedge funds twist our arms to write reports in a certain way," said one analyst. ("Fair Comment or Foul?"--The Economist, 4-1-06.) But if this morphs into the use of privileged, non-disclosed, market price moving information, it is a different matter.
As another related example, consider using private knowledge that there will be a lawsuit filed, as insightfully discussed by Professor Moin Yahya. Use of the non-public information that there is an imminent lawsuit, especially when the short-selling group is itself initiating or arranging the suit to cause the resulting price movement from which it will profit, is self-evidently manipulation. "The failure of the short-seller to disclose the impending suit," Yahya writes, ". . . is arguably a material omission and constitutes fraud. . . . No rational investor would ever consent to purchasing stock from someone who was about to sue the company." ("Plaintiffs, Lawyers, and Short-Sellers: The Legal Status of 'Dump and Sue'"--Washington Legal Foundation, 2-24-06.)
Let us return to the scenario of the group selling you stock while doing its utmost in private to cause the SEC to commence an investigation of the company. No rational investor would ever consent to purchase stock from a seller working hard to use the SEC to knock down the price of the stock.
The principle of disclosure provides a straightforward way to help address this problem: Require that any party bringing claims of accounting or financial irregularities to the SEC publicly disclose all the short or long financial interests it has or represents in the company involved. A simple SEC questionnaire could provide this disclosure. Appropriate penalties for failure to disclose would automatically be covered by existing sanctions for making false statements.
Disclosure should be a continuing requirement for all interests acquired or disposed of while any contacts between the group and the SEC continue and/or during the life of the SEC's inquiry or investigation of the issues raised. This is because ongoing communication with the SEC can allow the group to have trading advantages based on its private knowledge of how the SEC staff is responding.
Such a disclosure requirement would reveal how much profit the group has realized while involving the SEC with the intent to move market prices. The SEC could then measure this effect.
Any profits derived by effective insider information of coming SEC investigations or actions should be treated as exactly as other profits from trading on insider information.
The good news is that this problem can be addressed with a simple and obviously appropriate requirement. This could be enacted as legislation, adopted as policy by the SEC, or implemented as a required procedure by the SEC staff. One of the three needs to be energetically put in place, as promptly as possible.
Alex J. Pollock is a resident fellow at AEI.
Haven't some of CMKX's assets been rolled into ETGMF?
Entourage Mining Identifies Several Radioactive Target Areas on Doran Uranium Property
VANCOUVER, BRITISH COLUMBIA -- (MARKET WIRE) -- 05/10/2006 -- Entourage Mining Ltd. ("Entourage" or the "Company") (OTCBB: ETGMF) reports that several radioactive targets have been identified by a recent airborne geophysical survey of the Doran uranium property. The Doran uranium property is located in eastern Quebec, immediately north of the Gulf of St. Lawrence, just north of provincial highway 138 about 25 kilometers west of Aguanish, and approximately 85 kilometers east of Havre St. Pierre. Entourage Mining Ltd has an option to acquire 100% interest in the 44-claim Doran property, subject to 2.5% royalty.
A recent airborne geophysical survey of the Doran property by Terraquest Ltd. delineated a large number of zones of anomalous radioactivity, including two zones on which uranium exploration previously had been undertaken. Seven high priority uranium targets and 12 secondary uranium targets have been identified on or adjacent to the 44 Doran claims. Among the high priority uranium targets are the Main Grid and North Zone prospect areas that were investigated by the company during the 2005 field season.
Based on the results obtained from Entourage's initial 2005 program of work and the results obtained from the airborne survey of the property, a second phase work program has been recommended by the Company's management and consultants. The recommended 2006 program will expand technical coverage to include all of the recently identified target areas and will include at least 2000 meters of diamond drilling, geological mapping, rock stripping and rock sampling, and radiometric and magnetometer surveys. This work will help define and measure the sources of strongly anomalous radioactivity and may result in identification of additional uranium prospects.
The possibility of demonstrating the presence of high tonnage, low-grade occurrences of radioactive mineralization will also be assessed in the field and may permit development of a conceptual geologic model that can then be further evaluated. The Company's objective at Doran is to locate and delineate a large tonnage, low-grade, open-pit mineable uranium deposit. The rapidly changing energy market accompanied by the escalating price of uranium compels the evaluation of such potentially mineable zones for possible production.
Although historical exploration on the property has demonstrated the possibility of high tonnage low-grade uranium mineralization, the property is still in the early stage of exploration. The drilling and field crews are expected to mobilize to the Doran property by May 15th.
Erik Ostensoe, P.Geo, and a qualified person and the project geologist, has reviewed this press release.
Forward-Looking Statements
Except for historical information contained herein, the statements in this Press Release may be forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Entourage Mining Ltd.'s actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, volatility of commodity prices, product demand, market competition, and risks inherent in Entourage Mining Ltd.'s operations. These and other risks are described in the Company's Annual Report on Form 20-F and other filings with the Securities and Exchange Commission.
Gregory F Kennedy, President & CEO
Contacts:
Entourage Mining Ltd.
Craig Doctor
(604) 278-4656
info@entouragemining.com
www.entouragemining.com
SOURCE: Entourage Mining Ltd.
http://www.marketwire.com/mw/release_html_b1?release_id=128307
“60 Minutes” threatening to cut to the heart of the matter ...
March 24, 2006 (FinancialWire) General Electric’s (NYSE: GE) “Dateline NBC” didn’t quite make it all the way out of the “can” with its truncated piece on naked short selling, believed by most to have been intimidated by the Depository Trust & Clearing Corp., which has been known to exercise blatant media interference, including with this newswire.
Now comes Viacom’s (NYSE: VIA).CBS network’s “60 Minutes” Sunday night, threatening to cut to the heart of the matter – the battle between Biovail (NYSE: BVF) and a major hedge fund, SAC Capital, with Gradient Analytics in the middle, and possibly including a major financial news personality, James Cramer, co-founder of TheStreet.com (NASDAQ: TSCM).
“Investment pools for the very rich are known as hedge funds. One of the major ones is being accused of spreading negative information about a major company and then betting on its falling stock price,” the network is trumpeting at http://www.cbsnews.com/stories/1998/07/08/60minutes/main13502.shtml
Meanwhile, another of the journalists, Herb Greenberg, formerly of TheStreet.com and now with Marketwatch, a unit of Dow Jones (NYSE: DJ), will welcome U.S. Securities and Exchange Commission Chair into a lion’s den of supporters when both speak at the annual conference of the Society of American Business Editors and Writers. The announcement is at http://www.sabew.com It may be the venue in which the Commissioner unveils the SEC’s proposed new “guidelines” for the circumstances under which journalists may be subpoenaed.
Greenberg will discuss the subpoenas himself on a panel with Joseph Nocera, a New York Times (NYSE: NYT) columnist, Dan Colarusso, business editor for the New York Post, and Dave Beal, columnist for the St. Paul Pioneer Press, who will moderate the panel.
Greenberg, who has been alleged in affidavits as having close ties with Gradient Analytics and whose reporter has been accused of having ghost-written some of the research firm’s reports, was more recently famously associated with Cramer in a joint TV appearance where Cramer wrote “BULL” on his subpoena and tossed it ceremoniously on the floor.
Also, Myron Kandel, the retired TV business news reporter, will moderate the annual Gary Klott Ethics Symposium, focusing on hedge funds, short sellers, regulators and the ethical challenges for journalists and editors working in that realm. Participating will be Dave Kansas, Money & Investing Editor of The Wall Street Journal; Jane Kirtley, Silha Professor for Media Ethics and Law University of Minnesota, and Ed Wasserman, Knight Chair of Ethics at Washington and Lee University.
At the same time, Cramer and TheStreet.com’s current President, James Lonergan, have been selling shares in the company. Lonergan sold 10,000 shares last Friday. Cramer exercised an option to buy 12,500 shares at $1.73 to $2.93 on March 15, and turned them over immediately at a price range of $7.76 to $7.87, enjoying about $5 differential.
In another strange turn of events, a TheStreet.com publication, RealMoney, has been stringently arguing for a higher valuation for Overstock.com, leaving observers scratching their heads, knowing Cramer’s and Overstock (NASDAQ: OSTK) CEO’s Patrick Byrne’s histories of animosity. The writer even visited Overstock.com and came out claiming Byrne is a genius manager, and not at all “crazy.”
Finally, there have been questions raised about the early history of the “subpoenas,” with one online publisher calling it “SubpoenaGate.”
According to the website, when U.S. Securities and Exchange Commission Chair Chris Cox first reacted to the news that three journalists, Herb Greenberg and Carol Remond, both of Dow Jones, and CNBC’s television personality James Cramer, a co-founder of TheStreet.com, had been issued subpoenas by enforcement, he indicated that neither he nor other Commissioners were aware of them.
The subpoenas, issued by the SEC’s office of enforcement, are part of an investigation into whether there was front-running and fraudulent reports, as well as certain media witting or unwitting cooperation as part of an alleged collusion between hedge fund Rocker Partners and Gradient Analytics as part of a possible naked short selling and/or short selling campaign against Overstock.com and other public companies.
The Commission has held the subpoenas until it can set new guidelines for subpoenas issued to journalists, guidelines that according to the SEC’s proposed schedule, appear slightly overdue at this point.
Dave Patch, editor of Stockgate Today, published by http://www.investigatethesec.com, is questioning whether the Commissioner’s statements were accurate. He says that before subpoenas can be issued to anyone, the enforcement attorneys must fill out a standard form that outlines specifically what the attorneys are seeking and who they are seeking it from. According to Patch, Chairman Cox or one of his designated staff members must approve the case, including authorization for all subpoenas.
While Cox’s schedule is not precisely known before the dam broke, he had been hospitalized for more than a week sometime just before the episode.
Patch said that SEC Spokesperson John Heine, when asked, neither confirmed nor denied that the Chairman or the Chairman’s office had approved the case and the subpoenas when presented the prescribed document by the San Francisco office that was afterwards vilified for allegedly “not” giving the Commission advance notice of its intentions.
If Cox did not give direct approval, did he misspeak when he initially threw his enforcement division to the wolves? He is new, and might not have known the procedures. Or did he know the procedures and deliberately give the impression the enforcement division had not followed them? Or are these not the procedures, or if so, were they actually not followed?
Patch is calling for an independent investigation into the matter.
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Wall Street's Next Nightmare?
Rob Wherry, 10.06.03
http://www.forbes.com/archive/forbes/2003/1013/066.html
Flamboyant litigator John O'Quinn is gunning for another bonanza: the entire trading system in penny stocks
From his 23rd-floor suite of offices in Houston's Lyric Centre, John M. O'Quinn is plotting what he hopes will be his next multibillion-dollar jackpot. Not that the 62-year-old senior partner of O'Quinn, Laminack & Pirtle needs the dough; FORBES estimates his law firm has won $1.5 billion in fees from the makers of silicon breast implants and cigarettes. This time he's aiming at Wall Street. O'Quinn has a hand in 15 lawsuits alleging that various brokerages (including Ameritrade and E-Trade) and marketmakers like Knight have destroyed his clients by helping to sell the companies' shares short in a scheme to run the stock prices into the ground. The damage is daunting: O'Quinn says 1,000 companies have lost at least $100 billion in market capitalization. "If you short a stock for the sole purpose of killing the value," he says, "that's a threat to the view that we have an honest market."
The fuss is over naked shorting, a practice that's been around for decades and that is sometimes legal. Normal short-selling involves borrowing real certificates for stock, selling the stock, buying new shares at a later date, and using the new certificates to replace the ones borrowed. Naked short-selling differs in that no real certificates change hands. Instead, the short-seller creates a paper entry showing that it owes shares to the stock buyer and will get around to delivering them later.
Naked short-selling is legal if done by a marketmaker in a temporary arrangement; it's normal for a marketmaker to be net short for a day or two and then close out the position by buying real shares later. Naked shorting can be illegal if done with the conscious intention of leaving the short position as a paper entry indefinitely.
It's often hard to tell the legal variety of shorting from the illegal. Nowadays most stock available for trading is held in book-entry form, and thus takes the form of electronic blips on the books of a stock-clearing company. Depository Trust &Clearing Corp.'s subsidiary is one of the leaders in the clearing business. In the normal course of business DTCC tolerates so-called failed-to-deliver entries of shares offered for sale by, say, brokers. This means the seller doesn't have the certificates on hand but promises to be good for them eventually. Is the clearing firm too tolerant of failed-to-delivers, thereby facilitating illegal naked shorting by brokers (or their customers)? That's the allegation in the lawsuits.
O'Quinn and his top lawyer on these cases, James W. Christian, senior partner with Houston-based Christian, Smith & Jewell, claim that over the last three years billions of uncovered naked shares were sold; that marketmakers (and/or their clients) took profits after waiting for share prices to fall before buying in--if at all; and that brokerages allowed fictitious shares to be traded two, three and four times over, in possible violation of Securities & Exchange Commission rules. Defendants deny the charges and have tried to dismiss some of the cases.
"It's the perfect murder," says O'Quinn, who is quick to smell collusion. "We've got a situation where the cop can't arrest the suspect because it causes too many problems for the police department."
But in this case the police seem to be getting involved. Last February the SEC levied a $1 million civil penalty against Rhino Advisors, a small New York City investment house, and its president, Thomas Badian, for using offshore accounts to short the stock of Sedona Corp., a King of Prussia, Pa. software maker and an O'Quinn client. (Rhino and Badian didn't admit or deny any wrongdoing.) Just last month Louisiana's attorney general issued a subpoena on behalf of that state's Sedona shareholders against UBS PaineWebber. (He's seeking information on failed stock deliveries, among other things.) In a separate civil suit Sedona wants a hefty $2 billion in damages against 17 defendants, including Credit Suisse FirstBoston's Pershing clearing unit and Westminster Securities, alleging their naked shorting knocked Sedona's share price so low that several big vendors shied away from doing business with it. New York's Attorney General, Eliot Spitzer, is interested in the case.
Still, a tobacco-size payoff for O'Quinn is not in the bank. The case of Universal Express, a Manhattan-based logistics firm (and not an O'Quinn client), illustrates one reason it's hard to collect. In 2001 it received a $389 million award levied against three Florida defendants found liable for fraud and stock manipulation, including naked short-selling. But Universal is having a tough time seeing a penny: It says the assets are in offshore accounts.
Before anyone can collect, plaintiffs have to prove fraud or manipulation--and that's tough. It's not enough to show a sliding stock price, wild discrepancies in daily volume or even a disparity between a company's authorized number of outstanding common and the number of shares traded. The key lies in demonstrating manipulation of the entire trading system.
"These claims divert attention away from the real problems: failed business plans, poor management, little revenue and no prospects," says Michael S. Rosenblum, a Los Angeles lawyer who has represented some of the defendants in these cases.
A lot of O'Quinn and Christian's success will rest on whether they can demonstrate hanky-panky within the DTCC's stock-lending pool. These are shares set aside to assist members that come up short during the day. Marketmakers, for example, borrow them and promise to make good on the missing certificates--eventually. But here's where it gets fuzzy. The SEC's Rule 15c3-3 allows for "temporary lags" in possession of the shares, "provided that the broker or dealer takes timely steps in good faith to establish … control." And therein lies an area of ambiguity larger than Texas.
Temporary, shmemporary, says Nutek, a Las Vegas holding company that includes a data processing and market survey firm. Last year its stock price fell from a high of 13 cents a share to 4 cents. Scrambling to raise equity capital (it made $732,000 on sales of $6.6 million in 2002), it issued at depressed prices at least 35 million more shares than it intended to, which it blames in large part on naked shorting. Earlier this year Nutek and its shareholders filed suit against 12 brokers for failure to deliver the shares. The brokerages proposed a settlement to deliver the certificates but only a few shareholders have received them. Now Nutek has hired Michael Morrison, a Reno lawyer affiliated with O'Quinn, to pursue a civil action.
Endovasc, an early-stage drug development firm in Montgomery, Tex., is bringing similar charges against marketmakers, including Knight. The suit alleges, among other things, the company's stock was oversold by at least 1 million shares in October 2002. Christian will try to prove the marketmakers profited by letting the open positions sit for months and then buying in, if at all, at a cheaper price. During 2002 Endovasc's stock went from a split-adjusted $7.50 a share to 65 cents. It's an easy stock to be bearish about: Endovasc has lost $5.4 million on revenues of $293,000 over the nine months ended Mar. 31.
Which raises the question of whether some of O'Quinn's clients are really worth rescuing. Amazon Natural Treasures, which was a Las Vegas-based maker of herbal supplements in the 1990s, sued DTCC, arguing its clearing firm improperly allowed unregistered shares to be sold on the open market. The case was settled. In the meantime Amazon's fortunes sank. The last time it filed a complete 10-K, Amazon reported a loss of $4.8 million on sales of $392,000. That was for 1998.
What's really making these stocks go down: the way the trades are cleared--or how the managers run the firms?
The practice does not lend itself to naked short selling ...
David Hendricks: New breed of IPO just might work here
Web Posted: 03/16/2006 12:00 AM CST
San Antonio Express-News
Up-and-coming companies needing $20 million to $100 million to boost their chances for success have few choices.
Bank loans? Venture capital? Going public?
The choices narrow even more in South Texas. Bank loans are unlikely and expensive, especially for new companies. Venture capital has never been abundant in this part of the country. Going public, a favorite avenue in the late 1990s, became more expensive and a labyrinth after the Sarbanes-Oxley Act was enacted in 2002.
The London Stock Exchange has developed an initial public offering product, however, aimed at small U.S. energy and technology companies. The San Antonio Technology Accelerator Initiative and the law firm of Haynes and Boone are bringing London exchange representatives to San Antonio next week to explain their decade-old "Alternative Investment Market."
To date, AIM has attracted more than $42 billion for companies on the London Stock Exchange. AIM lists 1,400 quoted companies, including 220 based outside the United Kingdom — 29 of them in the United States. Nineteen U.S. companies listed in 2005 alone.
AIM does not require a minimum market capitalization, earnings, stockholders' equity, trading volume or share price.
That's bound to raise a trading floor full of questions. Didn't too many technology companies go public in the 1990s with business models that ignored earnings? Will abusive short-selling techniques called "naked short selling" pound these stocks into near worthlessness, as they do with many low-priced small-cap companies in the United States? Who buys AIM stocks anyway?
Bryce Linsenmayer, a Haynes and Boone partner in Houston, gives a preview for some of the answers.
"To say this is a wild and wooly market is not really fair" to AIM, Linsenmayer said. Due diligence on companies is performed thoroughly and rigorously, he said. Company managements are vetted for their reputations, and all company claims are verified.
IPOs are limited to 100 shareholders, but typically only 30 to 40 purchase the initial shares, Linsenmayer said, adding, "They all know each other."
That practice does not lend itself to naked short selling, in which traders abuse the time period between bidding and paying for shares that don't technically exist to manipulate prices.
"As a practical matter, it doesn't seem to happen. There have been no complaints," Linsenmayer said.
Nearly all initial shareholders are institutional firms such as Fidelity Investments, JP Morgan and other U.S. companies that operate investment activities through European headquarters, Linsenmayer said.
The London Stock Exchange itself certainly isn't chopped liver. Nasdaq last week bid $4.2 billion to buy it, and the New York Stock Exchange is said to be pursuing it too.
Obviously, any company must devote much thought and care before going public on any exchange. Given the options, though, it never hurts to explore the few that exist.
The free AIM seminar will be from 5 to 7 p.m. Wednesday at the University of Texas at San Antonio's downtown campus, in the Riklin Auditorium in the Frio Street Building. Registration may be arranged by calling SATAI at (210) 458-2523 or visiting www.satai-network.com.
dhendricks@express-news.net
The CMKX Cert Pull Program ...
FRIZZELL LAW FIRM
305 S. Broadway, Suite 302
Tyler, Texas 75702
(903)595-1921
E-Mail jmartin@cmkxownersgroup.com
Greetings CMKX Owners Group members,
This office is aware that a large number of shareholders have not received their certs from their brokers. Some shareholders are being told they will not receive their certs by the current deadline of March 15, 2006. The company plans to respond on March 15, 2006 by way of an official press release. This upcoming press release will address many of the questions that are now being asked about the need for additional time to obtain your certs. The question of adequate notification of shareholders will also be addressed. This press release will be coming from Mr. Stoecklein’s office.
This office has been working closely with the transfer agent in the last month or so. We have been provided with a current shareholder list based on certs issued by First Global Stock Transfer. These lists contain the names of all shareholders whose certs have been issued through the present. Our list also includes activity by certificate holders that have liquidated their positions. We do not believe that the transfer agent will need additional time to finish the cert requests which have been given to her at this point. We are closely monitoring the situation with the transfer agent.
We began moving my offices on February 28, 2006. This move has allowed us to upgrade the fax system that was originally designed by our tech people. During the move we consulted with Ma Bell representatives and other IT people and made some minor modifications. The fax system is working much more efficiently now. If you are attempting to get your cert added to our list, try the fax method before mailing your cert to us. The fax number is 903-595-5394. Your patience is appreciated. I acknowledge we had some breakdowns along the way but I am proud of the work and effort my staff has put into this project. They have been diligent in handling the problems and trying to answer questions and concerns of the shareholders. We are dealing with massive amounts of information and extremely large files. We are receiving several hundred certs a day and we have ramped up staff to get the data entered.
Many of you know about the new confirmation system that our staff has developed. You can now confirm that your certs have been included by clicking on the appropriate place on the task force web site and follow the instructions. www.cmkmtaskforce.com As with any new technology application or new programming feature, we expect to have some glitches. We are dedicated to resolving the problems that come up and we appreciate your understanding. If you have used the cert confirmation feature and have found that one or more of your certs are not in the system, please simply refax the certs that are missing to our office. Calling to tell us your certs have been omitted does not get your certs into the system. This has happened on a few occasions and we hope to get all bugs worked out. Refax and this should solve the problem. If you have recently ( in the last day or two) sent in your certs, please allow a couple of days for our office to input your cert before checking this site due to the current influx of certs.
Creating this data collection system and hiring the staff to record this data has been expensive and time consuming. Urban Casavant has spent over $100,000 since November of 2005 to pay for the costs of collecting this information. I expect additional expenses and Urban has assured the task force that all expenses will be paid by him so that all shareholders will benefit from this distribution.
This office has received communications from many brokerage houses about problems they are having in complying with this request for certs. I am especially concerned about certain brokers that are withholding certs from their customers for some reason unknown to us. It is apparent from recently obtained shareholder lists that certs have been issued by the transfer agent but some brokerage houses are not sending the certs to their customers. We will continue to monitor this situation.
If you have not received your certs you should continue calling your broker to find out why you have not received them.
I recently spoke with Greg Kennedy at Entourage Mining. Greg is considering a mail out to all shareholders with an update on the progress of Entourage. Greg believes it is important for the shareholders to know of his company progress and he is looking at various ways to communicate with such a large group of shareholders. Although his company stock has not been distributed at this time, I have offered to be of assistance to him in such an endeavor.
I get email daily from many of you wanting me to comment on various rumors that continue to circulate. I hear of new rumors each day. I am not privy to any discussions about settlements with any third parties. I do not know of any payouts or pending distributions. If there is any such activity ongoing, I am not being included in any such discussions.
I will have more to comment on when the company releases its statement on March 15, 2006.
Onward!
Bill
NY Financial Press Engage in Whitewash and Cover-up, Byrne Tells it Like It Is
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 3/8/2006 11:46 PM
Dr. Byrne issued forth a fun missive yesterday, directed at Rocker Partners and Gradient, after they lost their SLAPP motion and it was made official by the courts. Here's the release - sort of speaks for itself:
PR Newswire - March 08, 2006 21:29
Overstock.com Fights Campaign of Stalls and Lies by Rocker and Gradient
SALT LAKE CITY, March 8, 2006 /PRNewswire-FirstCall via COMTEX/ -- Overstock.com(R) (Nasdaq: OSTK) President Patrick Byrne issued the following response to Gradient Analytics' notice of appeal, filed in response to the California Superior Court ruling denying Gradient's Anti-SLAPP Motion to Strike all causes in the Overstock.com lawsuit:
"Eight months ago Gradient and Rocker were thumping their chests threatening to counter-sue us. I said at the time that they would not because these miscreants could not survive the discovery a counter-suit would trigger. They still have not filed suit, and now, once again, they are doing whatever they can to stall the discovery process. I once again invite them to counter-sue, and let us move to discovery quickly."
"In addition, while Gradient, Rocker and their cronies attempt to spin this as a First Amendment issue, let me remind observers that the activities described in our witness's declarations are covered by a technical term: 'illegal.' It is 'illegal' to let favored clients doctor research then publish it as independent; it is 'illegal' to permit such clients to front-run that same research; it is 'illegal' to front-run it themselves through hedge funds they secretly control. Their arguments that this conduct is somehow all protected by the First Amendment were roundly rejected by the Honorable Vernon Smith, whose decision these blackguards now dismiss as an 'erroneous trial-court ruling.' Good luck with that, fellows."
Overstock.com filed its original lawsuit against research firm Gradient Analytics and hedge fund Rocker Partners in August 2005 when it learned the firms colluded to publish false and misleading research in a scheme to engineer stock fluctuations from which Rocker and Gradient's owners could front-run stock trades while harming Overstock's reputation with consumers, suppliers, and employees."
Huh. That about says it all.
Illegal. Blackguards. False bluster and trickery.
The NY financial press hasn't commented on this at all. They are still busy trying to spin the subpoenas from the SEC as 1st Amendment stuff, which nobody west of NJ buys for a second.
Why does the NY financial press seem to be so intent on whitewashing this story, and covering it up? Why haven't we heard all about the CNBC poll that showed 89% of the respondents supported the SEC in their subpoenaing Herb, and Carol and Jim (Oh my!)?
Why not a word about all the insider sales at TSCM once they had been served, but before shareholders were told?
Why is it that the NY financial press seems to be so comfortable being the lapdogs of super-wealthy hedge funds? Some even seem to celebrate it, have made a career out of it? Is this the marvelous 1st Amendment wars were fought over - to keep everyone parroting the same party line?
Wanna bet not a word is uttered about this latest salvo from Byrne?
Guilty Dog Look?
Location: BlogsBob O'Brien's Sanity Check Blog
Posted by: bobo 2/23/2006 10:34 PM
I just got an email as I was logging out of the little internet café I’m at, and it contained a truly remarkable piece from our good friend Herb Greenberg, of Marketwatch.com.
Apparently he received a subpoena from the SEC in the Gradient/SEC matter, requesting all his correspondence about OSTK, and 4 other stocks.
You can read his somewhat rambling piece here. (Everyone's a critic.)
Now, when I was a kid, I had a dog that had a distasteful quality - he was fond of munching on his own little "treasures."
Some dogs are just like that - nobody knows what causes it, or how to stop them from doing it.
Anyway, whenever he would go into the yard and do his deed (he really was an inveterate poop eater), he would come back in, and have a certain look on his face.
I always thought of it as his “guilty dog look.”
It was unmistakable. Really. I never understood his fascination with his digested meals, but I digress.
It's the look that's important.
When I read Herb’s indignant piece, as he wraps himself in the flag, and apple pie, and the Constitution, etc. filled with anger over the SEC (How dare they!!! This is about free speech!!!) subpoenaing his records pertaining to Gradient, and presumably Rocker, and perhaps other newsworthy hedge funds, I just thought – and I know this doesn’t mean anything….I thought……
Guilty dog.
Don’t know why. But there it is.
Maybe it's the whole lapdog thing. Maybe it's just something that popped into my head, unbidden. Don't know.
Just tossing it out there.
On a more personal note, here's some advice for another scribbler - although I am mostly into writing non-fiction lately, whereas Herb, well...you know:
Herb. Sweety. Babe. Deep breaths. The reason they are coming at you is because they are investigating stock manipulation. That is illegal. Save the whiney, acrimonious, “I talk to all kinds of sources” BS for someone who cares. This isn't Nazi Germany or Stalin's Russia and you are not being persecuted. The SEC’s job is to investigate stock manipulation, the $hit is hitting the fan, and the previously untouchable network of smug, self-congratulatory parasites are getting subpoenas left and right, and this is just the start. So save it for the courtroom (assuming that there’s anything to all this).
Oh, and Herb? It isn’t about free speech. It's about conduct. As I've said all along.
This is just the first step as they slowly, methodically roll this up, is my hunch.
And you don't want to be like the "underpriveleged youths" in COPS, who invariably when they are pulled out of the car they just drove in a 100 mile chase through a school district, will proclaim, "I din't do it." If you haven't done anything wrong, you have nothing to hide, no reason to mewl like a kitty. Celebrate the opportunity to vindicate your ethical superiority. Revel in it. The glass is half full...
But here’s a question for the Lickspittle, as he is affectionately called by some. I think it's a great question. I would hope someone emails him this question, and reports back to me with the answer:
Did you shut down your newsletter before, or after, you got the subpoena?
It’s just a question. Nothing more. Consonants and vowels with a bit of punctuation. Not even iambic pentameter. Just words.
I'm curious as to the answer...and it won’t necessarily mean anything - we all understand that. But I’m curious.
As to the brave-in-the-face-of-adversity façade, and trotting out 7 year old hits with Aremisoft, puhleese. Either you are a guilty dog, and have been dining on forbidden and distasteful fruit, or you aren’t. No need for 1200 words on why you should be untouchable.
So now everyone needs to ask themselves the same question - are you a guilty dog, or not?
I suppose time will tell. But do spare us all the “I’m a victim” stuff. It doesn’t play – lacks the ring of sincerity, so to speak…
And this time is different.
Any brave reporters feel like calling Rocker now to confirm the subpoena story?
No?
Why is that, do you think?
Copyright ©2006 Bob O'Brien
Posted by: jimdecosta 2/17/2006 12:50 PM
This is Chapter 72, from my second book. It explains the ex-clearing process, and how it is integral to FTD fraud. I don't get a lot of time to follow things online, so my ability to respond to questions will be severely limited. Apologies in advance.
-------------
OF DUST STORMS, TORNADOES, AND EX-CLEARING
One of the best ways to summarize how abusive DTCC participants and abusive DTCC management members pull off and facilitate naked short selling frauds is to relate it to the nature of law-making. When the securities laws (or any laws, for that matter) are written, there is always the “spirit” of the law which addresses a need perceived by the authors of the law - and there is the much weaker “text” of the law, which is the product of the human attempt to transfer the spirit of the law onto paper. Often the disparities between the two leave a “mini-dust storm” of confusion presenting loopholes which opportunistic fraudsters take advantage of.
I can think of no better example of this than the one cited in Chapter 42 involving the DTCC’s public statement implying that their DTCC participants need not follow the “spirit” of the new Reg SHO Federal law (“Mandating” the “Forced” buy-in of all 13-day old failed deliveries of threshold list securities). Why? Because the phraseology of the new Federal Law states that if you cannot do these “Forced” and “Mandated” buy-ins (which seems a bit paradoxical unless the definition of “Mandated” and “Forced” were recently changed) then you at least have to behave yourself in the future. I do credit the SEC for later clarifying that a b/d cannot use financial reasons as a valid excuse to circumvent “Mandated” buy-ins. Where does that leave us on this particular issue? It leaves us with the abusive DTCC participants playing the ace up their sleeve mentioned in Chapter 16. You remember - it’s that one-line rule in the 800-page rulebook of the DTCC stating that DTCC participants need not perform “Mandated” buy-ins (as per the old NASD Rule 11830) if they may be “Disruptive” to the market. Well isn’t that special! How many hundreds of billions of investor dollars has that little ditty cost U.S. investors?
What securities scholars refer to as “DTCC-sponsored” naked short selling is basically the result of clever attorneys and other opportunists, in and around our clearance and settlement system, that have managed to link the “dust storms” around the various securities laws, into a tornado that has swept through the U.S. corporate landscape - leaving the carcasses of probably thousands of otherwise promising development-stage U.S. corporations in its wake.
Nothing exemplifies this in practice more than the “Ex-clearing” processes used by the perpetrators of naked short selling frauds. A lot of people have trouble getting their arms around the concept of “Ex-clearing” naked short selling frauds. Ex-clearing frauds are a classic example of linking together these minor dust storms into a tornado of monstrous proportions.
Ex-Clearing Means Never Having To Say “I Deliver”
One of the most important concepts to understand in regards to ex-clearing frauds is the structure of share ownership on Wall Street. Recall from prior chapters how CEDE & Co., the nominee of the DTCC, “Owns” shares FBO its DTCC participant clearing firms, who in turn “Own” these shares FBO its “Correspondent” or “Introducing” broker/dealers, who then “Own” the shares FBO their clients, the investors - also known as the “Beneficiary owners”. The “Entitlement holders” we just discussed in regards to UCC Article 8 follow the same sequence.
Prior to Reg SHO, a person or firm was deemed to “Own” a security if the person had: “Purchased, or had entered into an “Unconditional contract”, binding on both parties thereto, to purchase it, but had not yet received it”. Thus, you technically “Owned” it even if you hadn’t received it yet. This definition of “Ownership” was codified by the old Rule 3b-3 of the ’34 Exchange Act. I can only imagine those of you rolling your eyes and saying, holy cow, there’s your death spiral financing loophole - and you’re partially right. In the past, if you financed a company via a death spiral convertible, you actually “Owned” the shares that you could later convert into.
The key to “Ownership” from the NSS fraudsters’ point of view is the ability of your b/d to sell that which you “Own,” without having to declare it as a “short sale” - and going out and executing an expensive and perhaps nearly impossible “Borrow”, or “Making an affirmative determination of the borrowability of shares prior to selling”. The execution of these “Unconditional contracts” not involving the receipt of shares, i.e. not involving “Good form delivery”, forms the foundation for ex-clearing frauds associated with naked short selling. The key for the fraudsters is to circumvent the necessity to make the “Borrow” especially in the case of thinly traded development stage corporations with very few shares held in margin accounts i.e. “nonmarginable” securities.
Abusive DTCC participants can legally (except for the obvious fraud implications) enter into “Unconditional contracts,” which basically state that, “I will eventually deliver an “electronic book entry” or “Entitlement” to you” (note this often has nothing to do with legitimate “shares” with an attendant “package of rights”). This then led to the creation of readily sellable book entry “Entitlements” to shares, which damage targeted corporations via dilution and the sometimes meteoric rise in the supply of these readily sellable “Book entries and/or Entitlements”. Recall that the arithmetic sum of all legitimate “Book entries” with paper-certificated shares in a DTCC vault plus all “Book entries” without paper-certificated shares in existence in a DTCC vault which UCC Article 8 allowed Wall Street to refer to as “Entitlements” to shares, becomes the “Supply” variable of the supply and demand interactions that determine share price. Why? Because they’re all “Readily sellable” and are “Implied” to investors as being shares held long somewhere within the system.
The DTCC facilitates this “Ex-clearing” process by their granting of “Securities orders” that lead to what they refer to as “Non-CNS delivery arrangements” –I love that term “Arrangements”, it even sounds devious.
What followed was abusive DTCC participant Market Makers and clearing firms pairing off with each other, and basically b/d “A” would promise to “eventually deliver” the $3 billion in failed deliveries of ACME owed to it by b/d “B”, in exchange for b/d “B” promising to “eventually deliver” the $3 billion in failed deliveries of XYZ Corporation. What this amounted to was a promise to never “buy-in” the failed deliveries of the other. When the debt amounts don’t match exactly, then collateralization cash must be transferred (a banking transaction).
Now, what is noticeably missing in this convenient “Arrangement”? It’s called “Good form delivery”, which is a necessity to accomplish what the law refers to as “settlement” of the trade. Now, you ask, wasn’t the DTCC mandated by Section 17A “to promptly and accurately clear and settle transactions involving the transference of ownership”? Where in 17A does it say that DTCC management can “delegate” out the settlement process and then put on a blindfold and claim to be “Powerless” to monitor the fulfillment of these “unconditional contracts”, i.e., “Powerless” to effect “settlement” of the trade that its participants enter into with each other via these “Non-CNS delivery ARRANGEMENTS”?”
Referring back to Table 12, this is example #14 of instances where DTCC policies create a gigantic temptation and capability for their abusive participants to defraud investors, followed by DTCC management’s “self-blindfolding” procedure and subsequent claiming to be “Powerless” to regulate the “business conduct” of the DTCC management’s bosses, the 11,000 b/ds and banks that comprise the DTCC. Recall from Chapter 43 the definition of an SRO like the DTCC as being: “An entity, such as the NASD, responsible for regulating its members through the adoption and enforcement of rules and regulations governing the business conduct of its members”.
Recall also from earlier chapters the DTCC’s claim to be “Powerless” in buying in the “Entitlements” owed directly to it as the voluntary “loan intermediary”, in each and every SBP failed delivery bailout. Now how clever is that - to volunteer to be the “Loan intermediary’ in the SBP “pseudo-borrows”, and then turn around and claim to be “Powerless” in buying-in the resultant IOUs/entitlements owed directly to it by its bosses?
The transference of ownership in ex-clearing frauds is “kinda/sorta” accomplished according to the old 3b-3 definition of “ownership”. How about “Prompt settlement”? In no way, shape, or form is that accomplished. These trades obviously don’t “settle” as there is no “Good form delivery” of that which was thought to be being purchased.
How can the SEC and DTCC allow abusive DTCC participants to commit these frauds? Well, technically they’re not occurring within the DTCC, according to the DTCC. Both the DTCC and SEC publicly maintain that these “Arrangements” are technically an “Unconditional contract” executed by the parties and that neither regulator is responsible for monitoring “contract law” only “securities law”. I’m not sure what happened to the responsibility of these regulators to regulate the “business conduct” of the participants of the DTCC.
And what about “Settlement”? That is the beauty for the fraudsters. When “Buyer Bob” finally takes his 90% loss on his purchase out of sheer frustration, then the “Settlement” of his purchase becomes a moot point. What ex-clearing technically does is it extends the timeframe between the “Clearance” of a trade and the “Settlement” of the trade. “Settlement” gets pushed off indefinitely, until it becomes a moot point i.e. when the purchaser sells his “entitlements” to “shares” that never existed in the first place. The extension of “settlement date” is clearly forbidden by Rule 15c6-1, as mentioned many times before. Artificially decoupling and extending the timeframe between “Clearance” and “Settlement” allows the commission of crimes related to this “Float” period, which are referred to as crimes involving “Kiting”. Remember the DTCC is a banking entity, a member of the Federal Reserve, and theoretically under the regulation of both the SEC and the New York State Banking Authorities. Kiting would legitimately be considered to be a no-no under these circumstances.
Summary
“Ex-clearing” provides larcenous participants with a perfect opportunity to collude with one another and create an unregulated, unobserved secondary market for the parking of “Entitlements” to nonexistent “shares”. The handy Chinese wall that the ex-clearing process introduces allows the fiction to be created and sustained that the system is performing as mandated, with prompt delivery assumed to be the case, on the honor system, behind the wall.
What is created in “ex-clearing” is the illusion that settlement is occurring. Things move so fast on Wall Street that in order to appreciate the fraud, one needs to put things into slow motion, as is the goal of the blow-by-blow nature of this chapter. The old Seventies anti-drug slogan “Speed kills” applies to development stage U.S. corporations in our equities markets nowadays, and that is tragic – the loopholes make it far too easy to serial kill these companies at their most vulnerable stage in their growth.
Fortunately for the naked short selling fraudsters there is no periodic reconciling of the books, or public viewing of the failed deliveries at the DTCC and those held/hidden in “ex-clearing” mode – it is all a secret. Why? Because all of this information is theoretically “Privileged and proprietary”, and the DTCC management does not want to reveal any “Proprietary trading methodologies” of its participants/bosses, and their co-conspiring unregulated hedge fund clients. The DTCC’s self-created rules and regulations conveniently don’t allow this. It is a handy black box, where anything can and does happen, away from prying eyes of regulators or investors.
A Final Note
I’ve been critical of certain aspects of Reg SHO in several chapters, but the SEC really did a decent job on redefining share “Ownership” to eliminate some of the aforementioned loopholes. There are now 8 qualifying parameters to share “Ownership”, which were well thought out and will make it especially tough for death spiral financiers to work their magic. Reg SHO’s requirement to aggregate long and short positions was also well executed. No longer can an abusive DTCC participant with 100 shares held “long” in one subdivision, and 100 million shares held “Short” in a different subdivision, refuse to mark its sell orders in the correct manner - without breaking Federal Law.
Those victimized issuers that have historically noticed all of the market making firms being long 100 of their shares on the DTCC’s “SPLs” (Securities Positions Listings) now know why this was so.
http://www.thesanitycheck.com/Blogs/DrJimDeCostasBlog/tabid/99/EntryID/80/Default.aspx
So you are wondering what the Market Reform Movement is all about, what naked short selling is, what resources you should be scanning for a quick learn, and why you should care about any of it.
Fair enough.
The Market Reform Movement is a loose affiliation of shareholder advocates, websites, attorneys, market pundits, shareholders and investors who are concerned about manipulative practices in the U.S. stock markets. The primary current focus is on Naked Short Selling/Failing to Deliver, which is a practice that many believe poses a systemic crisis to the market system.
To learn more about Naked Short Selling/Failing to Deliver, the following steps are probably advisable for anyone wishing to come up the learning curve quickly ...
http://www.thesanitycheck.com/GettingStarted/tabid/73/Default.aspx
Refco failed to execute trades
By Tom Becker
NEW YORK (Bloomberg) – Two former Refco Inc. employees said there were times the company failed to execute trades on behalf of customers because it had used the securities in client accounts to support other transactions.The employees, Adam Weis and Vera Kovar, were deposed by lawyers for Moscow-based hedge fund VR Global Partners, which has lawsuits pending against two Refco subsidiaries to recover $750 million it had deposited with the units.
The testimony was disclosed on the second day of hearings on a request by customers owed $1.7 billion, including VR Global, for a liquidation of Refco’s Bermuda-registered Refco Capital Markets Ltd. subsidiary. Refco, a committee for unsecured creditors, and a second customer group oppose such a move, saying it would lead to costly litigation and reduce recoveries in the bankruptcy case.
“On occasion Refco was short and could not make the delivery,” Kovar, who worked on VR’s transactions, said in her deposition. “If a counter-party didn’t deliver the security to us we could not deliver it because we didn’t have it.”
Lawyers for VR Global, Inter Financial Services Inc., and other pro-liquidation customers have accused Refco of misrepresenting how it would treat cash and securities in customer accounts.
Kovar said Refco failed to execute a trade on behalf of a client “once every three or four months.” She said the securities the customers had deposited in their accounts were not available to execute the trade because “I believe they were loaned out.”
The other former Refco employee, Weis, said in his deposition that VR Global executives, including President Richard Deitz, knew some trades were failing. He said they may not have understood Refco was loaning out their securities for its own benefit.Deitz “was aware securities in the account were unavailable because of fails,” Weis said. “I’m not sure he knew why they were failing.”
The deposition testimony was disclosed one day after Thomas Moloney, a lawyer for Inter Financial, accused Refco Capital of operating a “Ponzi scheme”. In a Ponzi scheme, people are promised high returns on their investments, with the money coming from new investors.
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20060216/BUSINESS/102160104
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20060216/BUSINESS/102160104
Entourage Mining Intersects Kimberlite on Second Target in Smeaton Drilling
2006-02-13 08:30 ET - News Release
VANCOUVER, British Columbia, Feb. 13, 2006 (PRIMEZONE) -- Entourage Mining Ltd. ("Entourage" or the "Company") (OTCBB:ETGMF) wishes to report on the 2006 winter diamond-drilling program being carried out in the Weirdale-Smeaton area of Saskatchewan. Ivan Young, P. Geo, and a "qualified person" as that term is defined in NI 43-101 has informed the Company that drilling on the second anomaly, D-WJ-7 has intersected kimberlite at a depth of 194.1 meters.
Here is a summary of the drilling completed to date:
Target One Anomaly C-Gpp-2
Further to the Company news release, dated January 10, 2006, wherein the Company stated: "the Operator intersected kimberlite (WD-2(a)) or a closely related kimberlitic rock type (now established as kimberlite from petrographic analysis) on the first target in the Smeaton/Forte a la Corne diamond prospect drilling program", the Company has drilled an additional hole (WD-3) on this magnetic anomaly. WD-3 was drilled into this magnetic anomaly 30 meters north east of WD-2. This hole was completed at a depth of 349.0 meters. Kimberlite was intersected in WD-3 from 181.0 meters to 332.7 meters. ((a) Drill hole WD-1 was drilled with incorrect GPS coordinates and is not considered meaningful in the Company's data)
Target Two Anomaly D-WJ-7
WD-4 was drilled to test magnetic anomaly D-WJ-7, located 11.8km north east of magnetic anomaly C-Gpp-2. This hole was completed at a depth of 288.6 meters where abnormal drilling conditions were encountered. Kimberlite was intersected in WD-4 from 194.1 meters to 281.3 meters.
Mr. Young also reports that: "drill core from WD-3 (Target No. 1, second drill hole) is being split and will be sent to the Saskatchewan Research Council in Saskatoon for caustic fusion for diamond recovery and indicator mineral analysis."
Kimberlite is being used as a "field term" in this news release pending completion of detailed petrographic work. Ivan Young has reviewed the contents of this news release.
Entourage Mining Ltd. is an exploration mining company actively exploring for diamonds in the Forte a la Corne region of Saskatchewan Canada as well as uranium in the Athabasca area of Saskatchewan and Costebelle Township, Quebec Canada and for gold and silver in Nevada.
On behalf of the Board,
Entourage Mining Ltd.
"Gregory Kennedy"
President
Forward-Looking Statements:
Except for historical information contained herein, the statements in this press release may be forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Entourage Mining Ltd.'s actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, volatility of commodity prices, product demand, market competition, and risks inherent in Entourage Mining Ltd.'s operations. These and other risks are described in the Company's Annual Report on Form 20-F and other filings with the Securities and Exchange Commission.
CONTACT: Entourage Mining Ltd.
Craig Doctor
(604) 278-4656
craig@entouragemining.com
www.entouragemining.com
Dr. Jim has graciously offered up his latest installment in his 40 bullet points on the NSS issue. Here is number thirteen:
13) Although the NSCC division of the DTCC acted as the “Loan intermediary,” and did the actual “pseudo-borrowing” of “shares” from the “Lending pool,” and is directly owed these shares by the clearing firm failing delivery, they contend that they don’t have the power to demand the payment of this IOU owed directly to them as the loan intermediary. This volunteering by DTCC management to act as the intermediary “straight man” or “shill,” (that did the SBP pseudo-borrow and directly holds the resultant IOU - theoretically for “enhanced efficiency” reasons only), which can later claim to be “powerless” to demand the repayment of it from its own bosses/employers (the 11,000 participating b/ds and banks of the DTCC), is held by many securities scholars as nothing short of genius.
Recall from previous chapters that the other parties to the trade and the “borrow” are certainly not going to volunteer to pay back or demand the payment of this debt. Party #1, the DTCC participant clearing firm failing delivery, certainly won’t volunteer because he doesn’t want to go to the open market and cover his naked short position. Party #2, the DTCC participant “lending b/d,” won’t demand the shares back because he’d rather have the cash equivalent of his client’s shares to earn interest off of and to count towards his net capital reserves. This is a lot better than an electronic book entry or a paper certificate gathering dust. Party #3, the buyer’s b/d, also a DTCC participant, that owes a direct duty of care to his client, the purchaser of the borrowed shares, doesn’t even know that his client’s purchase involved a delivery failure because he did get the “pseudo-delivery” of an electronic book entry (which may or may not have any paper-certificated shares held in DTCC vaults to justify its existence). This keeps the buying b/d pacified, and it keeps him from making any proactive efforts to secure delivery of the shares for his client, as per his duty. It’s important to impart plausible deniability to the DTCC participant owing the most direct duty of care, this being the purchasing b/d. Note how his duty of care is conveniently “snuffed out”.
So, who does that leave to demand the payment of this IOU? It leaves Party #4, the NSCC, the holder of the IOU and the creditor of this debt that all of a sudden, out of nowhere, claims to be “powerless” in demanding its payment. Imagine that - a “banking entity”, A Limited Purpose Trust Company, and member of The Federal Reserve, unable to call in its own debts. We should all have the good fortune to be able to borrow money from such a bank. Sorry, you need to be a DTCC Participant to gain access to this very special bank.
I told you way back in Chapter 1 of how truly brilliant this “fraud on the market” really is. The key is to have DTCC management willing to play the “powerless shill” role on behalf of their 11,000 employers. As Dr. Bob Shapiro once said in a research piece, the DTCC goes way out of their way and voluntarily chooses to not buy-in those failed deliveries. In Chapters 43 and 44 we’ll list 18 reasons why the DTCC does indeed have not only the “Power,” but the “Duty” to buy-in those failed deliveries - especially since it acts as an SRO (see definition below) and as a “Qualified” control location as per our old friend 15c3-3 of the ’34 Exchange Act. Recall the definition of a Self-Regulatory Organization (SRO): an entity, such as the NASD, responsible for regulating its members through the adoption and enforcement of rules and regulations governing the business conduct of its members.
Now compare that definition with recent statements made by the DTCC:
1) “Naked short selling, or short selling, is a trading activity. We don’t have any power or legal authority to regulate or stop short selling, naked or otherwise.”
2) “Reg SHO also allows market makers to legally “naked short” shares in the course of their market making responsibilities, and those obviously result in fails. We can’t do anything about them but what we are doing: that is, report all fails of more than 10,000 shares in any issue to the marketplaces and the SEC for their action.”
3) “NSCC and DTC do not exercise regulatory or enforcement powers over their members and participants. They cannot, for example, initiate a buy-in-only brokers can do that. And they cannot compel brokers to initiate buy-ins.”
4) “We also have no power to force member firms to close out or resolve fails to deliver.”
5) “Simply put, DTCC’s subsidiaries are not participants in the marketplace and concerns relating to marketplace activities (such as short selling) should not be confused with the clearance and settlement function”.
(Newsflash: An SRO is mandated to regulate the business conduct of its members. Investors don’t really care if the DTCC “Subsidiaries” had a banner year or not.)
MY SYNOPSIS OF THE DTCC MINDSET: As an SRO we are mandated to regulate our members by enforcing regulations governing their business conduct, BUT WE DON’T HAVE THE “POWER” TO REGULATE OUR MEMBERS BY ENFORCING REGULATIONS GOVERNING THEIR BUSINESS CONDUCT. (Okee-dokee! I wonder why the SEC website claims that the SROs are the first line of defense for maintaining investor protection and market integrity? Let’s review a question from Book #1. Why does this “first line of defense” for investors have their rifles aimed at these investors and why does the SEC through the filing of their “Amicus” briefs in NSS cases not only provide ammunition to the DTCC marksmen but actually run around and remove the combat helmets from investors?)
Since Wall Street is a “Zero sum” game, and all of the DTCC participants that employ DTCC management are left with huge smiles on their faces from failed deliveries bailed out by the SBP, then somebody must be left with a frown. Oh that’s right, it’s on the faces of the investors (owed the fiduciary duty of care by these characters), that watch as their investment dollars fall into the lap of these “Professionals” while the share price of their investment falls out of bed.
Note how the investor’s money first goes to the lending b/d to collateralize the “pseudo-borrow,” and then as the share price drops, the collateralization requirements also drop, and this money is shunted over to the naked short seller’s clearing firm, even though he has failed to cover after an inordinate amount of time and may have no intention whatsoever to ever cover his naked short position.
Note also that if the NSCC DIDN’T generously volunteer to be the “Loan intermediary” (for “enhanced efficiency” reasons, of course), then a clearing firm failing delivery would have to go directly to a lending b/d and be subject to an open market buy-in at any time if the lending b/d needed his shares back.
With the purchasing b/d insanely being allowed to place the “pseudo-borrowed” shares he just bought right back into the lending pool from whence they just came nanoseconds ago, this morning’s “Purchasing b/d” becomes this afternoon’s “Lending b/d” able to convert his client’s shares into the b/d’s cash. Now can you see how these discount brokers charging $7 per trade make their money? They pull in opportunistic investors with their cheap commissions, set them up with a margin account, and rent their investments to the mortal enemy of their investment, the naked short seller, to “Facilitate” the naked short seller in his efforts to dilute the preyed upon company out of existence. So much for fiduciary duties of care! Oh that’s right, the party with the most direct duty of care, the purchasing b/d, had it snuffed out.
This ability to place recently purchased shares right back into the anonymous lending pool (without any identifying markers) allows this particular parcel of shares to be replicated many times over, and to be loaned out to perhaps 10 different naked short selling fraudsters simultaneously, all to those with the intent of bankrupting the invested-in company. The margin agreement that the investor signed said that his shares can be loaned out or hypothecated to others. It didn’t say anything about being replicated 10-fold and then being simultaneously loaned out to 11 b/ds intent on killing the invested-in company.
What would a “Lending pool” with integrity look like? It would mandate the identification of the parcels of shares in the lending pool and the notifying of the owner of any loaned shares that he just lost his voting and dividend rights. This would end the “Self-replenishing” nature of the lending pool. No doubt about it this would mandate a lot of computerized “paper shuffling” with the frenetic pace that Wall Street moves at. This brings us back to the old “Efficiency vs. integrity” trade-off studied in Chapter 5, involving the DTCC’s sacrificing of market integrity and investor protection for their desire to clear trades at supersonic speeds.
How is Naked Short Selling Fraud?
Location: BlogsBob O'Brien's Sanity Check Blog
Posted by: bobo 1/29/2006 1:05 PM
I got involved in a discussion on the Yahoo message boards which questioned my assertion that naked short selling is fraud – specifically, the other party indicated that there couldn’t be fraud, absent damages.
Which got me thinking – what are the damages?
And here’s what I came up with: The damage is the entire value of the FTD. Why?
Because it is un-sellable once you know that it is an FTD, from a moral and ethical standpoint, not to mention a legal one. Why? Because an FTD is a counterfeit.
Why is it a counterfeit?
Well, simple, really. It is represented to the buyer, by the seller, as the genuine article – that is why it commands full price.
And yet it is no such thing – it has none of the rights associated with a genuine share – voting, the right to legal redress, etc. Just doesn’t – because it isn’t a share. It is something else.
The industry calls this non-share a share, in the interests of keeping everyone believing that as long as the same name is used, that it is the same thing, and you can keep right on trading, no harm done.
Only it isn’t the same thing. It is a counterfeit, a facsimile that is represented as genuine, but in point of fact isn’t.
Because this occurs electronically, the average person’s eyes glaze over at this point – because there is no easy way to tell what an electronic counterfeit is, much less visualize it. However, if you imagine it in the real world with paper stock, it is easy.
The seller offers for sale a “share”, and the buyer agrees to buy it. His account is debited the funds, and the seller promises to deliver the share in 3 days, and then doesn’t.
So no share delivered. Nothing in the box marked “account” with the buyer’s name on it, if you lift the lid and look inside.
That is the fraud part. But in order for there to be fraud, there needs to be damages. Where are they? Let’s keep on following the trail.
The buyer is told that he now has his “share” in the account – and nobody ever really goes and looks at the share – they just take the broker’s word for it. But it isn’t just the broker’s word. The broker actually sends a statement through the mail, and over the internet, which shows a share in the buyer’s account. Which is a claim on a share in the vault at the DTC. Eliminate that claim and collapse it, and it is a share. Fine. But no share was deposited with the DTC to back up that claim. THERE IS NO SHARE CERTIFICATE IN THE BUYER’S ACCOUNT “BOX”.
So what is that “claim on a share that doesn’t exist”, but is represented as a “share” to the next person, when the seller wants to sell the “share”? Is there a market where claims on shares that don’t exist trade with full disclosure that no share exists to back them up? No. There isn’t. There is only the market where genuine shares are bought and sold.
So the system needs to treat those facsimiles as genuine in order to affect trades, or you couldn’t sell the facsimiles.
But wait. The facsimiles weren’t authorized by the company as shares. They don’t have any rights attached to them. They aren’t genuine shares.
And yet they are represented as such when you buy them from the holder of the FTD. Nobody tells you that you aren’t getting a legit share – it is represented as genuine, in order to separate you from your money – because otherwise you wouldn’t pay anything for it, as it has none of the qualities of a legit share.
Huh.
So, is there a word for a facsimile, which is not genuine, being used as a surrogate for a genuine article? Specific to securities, for instance?
Yes.
It is, “Counterfeit.”
Here is the code section. 18 USC, section 514. Says that trading in these “counterfeits” is a Class B felony, and which describes how to identify a counterfeit – what the characteristics are:
“Section 514. Fictitious obligations
(a) Whoever, with the intent to defraud -
(1) draws, prints, processes, produces, publishes, or otherwise makes, or attempts or causes the same, within the United States;
(2) passes, utters, presents, offers, brokers, issues, sells, or attempts or causes the same, or with like intent possesses, within the United States; or
(3) utilizes interstate or foreign commerce, including the use of the mails or wire, radio, or other electronic communication, to transmit, transport, ship, move, transfer, or attempts or causes the same, to, from, or through the United States, any false or fictitious instrument, document, or other item appearing, representing, purporting, or contriving through scheme or artifice, to be an actual security or other financial instrument issued under the authority of the United States, a foreign government, a State or other political subdivision of the United States, or an organization, shall be guilty of a class B felony.
(b) For purposes of this section, any term used in this section that is defined in section 513(c) has the same meaning given such term in section 513(c).
(c) The United States Secret Service, in addition to any other agency having such authority, shall have authority to investigate offenses under this section.”
The bold sections are my emphasis.
I’m sure the legal-minded will argue that there is no intent to defraud. Huh. Really. Then why represent it as genuine to the buyer, other than to get their money for the article you know isn’t genuine?
That is the fraud part.
And the aiding and abetting counterfeiting, or rather the trafficking of counterfeits, would be the selling the facsimile once you are aware it isn’t the genuine article.
Now, a lot of folks address this by saying, “but everyone is doing it.”
I am reading the code, printed above, and I don’t see language that says “unless everyone is doing it, or Wall Street decides to do this on a large scale.”
Because it doesn’t say that.
So where is the damage that constitutes fraud? The purchase price, for which you received a facsimile, and which once you understand it is a facsimile, I would argue makes you a party to counterfeiting if you try to resell it.
Now, there are certainly greater legal minds than mine out there – what am I missing? I’m not a lawyer, but how is an FTD, in your account, represented to you as a genuine share, not a counterfeit in every aspect of the above description?
Anyone? Have I gone off the reservation here, or does the code say what it appears to?
In which case, wouldn’t the trafficking of FTDs, represented as real shares, be simple counterfeiting, albeit electronic? Just as if you could figure out a way to credit your bank account with a hundred thousand dollars of electronic dollar representations, which you just created on your computer?
Help me out here. Gary Weiss and the gang that say this is all silly are busy mocking this line of reasoning, with no clarity or rebuttal afforded. But here, where adults are in attendance, I’d like to hear from informed folks who know the law. Their arguments come down to: "everyone's doing it", or "Wall street doesn't call them counterfeits, so they aren't, even if they 100% match the code's description of counterfeits", or "nobody is enforcing that law W/R/T securities, so it is OK to violate the law whole cloth."
Does anyone have a problem with all this? Doesn't it start to seem like if you have enough money and power you can simply violate the law, constantly, and pay to have your violations ingnored or grandfathered, and then cite the lack of prosecution of the violations as proof that the rules don't apply to you?
And of course, I’m always interested in everyone else’s comments, as well. But I would LOVE to hear from attorneys who can disabuse me of my reasoning, or confirm it.
Copyright ©2006 Bob O'Brien
The issue is pure and simple fraud and all attempts to dance around the issue need to be outed for what they are.
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Keep It Simple, Stupid - Why Naked Short Selling Is Bad, Definitively, And The Markets Need To Be Reformed
Location: BlogsBob O'Brien's Sanity Check Blog
Posted by: bobo 1/27/2006 10:03 AM
The Anti-naked Short Selling Manifesto – Or Why There Needs To Be Market Reform
As I responded to a gentleman in one of our forums, I was struck by a glaringly obvious central point that all of the apologists for naked short selling want to avoid like the plague, and that drove me to jot down some thoughts on why I am opposed to illegal naked short selling, and why I believe the markets need to be reformed. So with no further preamble, here it goes:
1) Naked short selling (NSS) is fraud. FRAUD. That is what it is. A product is advertised for sale, the buyer’s money is taken, and the product is not delivered. Naked short selling = fraud – nothing else, no matter what terms are used.
2) The impact of the fraud on the company is immaterial to the fraud perpetrated against the investor – the fact that the first fraud is a central part of a different fraud, namely to depress a stock’s value (stock manipulation using NSS), doesn’t change the first, and core, fraud.
3) The arguments for naked short selling being good, or positive, ignore this simple truth. As does the SEC’s grandfathering. As do the euphemisms created by an industry that benefits directly from the fraud.
4) Apologists for the practice routinely float a number of arguments, each specious, and yet the arguments are floated credulously by the press as though they hold water. They don’t, and I’ll describe them briefly and explain why they don’t:
* Argument A – Good companies aren’t hurt by naked short selling; if they are solid, the company will ultimately do well.
Truth: Defrauding shareholders is fraud, and the impact on the company is a red herring. Either you are pro-fraud, or anti-fraud – arguing that fraud ultimately won’t hurt a good company deliberately ignores that shareholders are being defrauded, and attempts to shift the discussion to a different sort of fraud – stock manipulation using NSS, and the long-term success likelihood of the manipulation.
* Argument B – Naked short selling counterbalances crooked companies, and pump artists.
Truth: Defrauding shareholders is fraud, and arguing that one sort of fraud should be used to counter a different sort of fraud is lunacy.
* Argument C – Naked short selling isn’t a big problem – only 1% of all trades per day in dollar volume fail, thus it is insignificant.
Truth: 1% of those trades in dollars fail per day, meaning 1% of the money changing hands every day is being done so fraudulently - over a billion dollars a day of fraud. This fraud is not evenly distributed across the entire market - it is disproportionately concentrated in a handful of companies on the SHO list - thus a small number of companies have runaway fraud in the trading of their shares. And we have a list of which companies those are: The Reg SHO list.
* Argument D – Not all NSS is illegal, some is innocent.
Truth: Sure it is. Market makers, for instance, can NSS in order to provide liquidity – temporary liquidity. When market makers NSS in order to sustain a price depression, it shifts back into the fraud area. And because some is innocent (dog ate the certificate) doesn’t mean all is – and anyone arguing that it isn’t a large problem argues from ignorance – the SEC and DTCC won’t tell us how large the problem is, and how much is fraud vs. innocent. So it could be 95% fraud, 5% innocent, or the inverse, but nobody is talking. So the question is, how much fraud is OK, and why won't anyone provide definitive data as to the exact amount of fraud that is taking place? And why, in today’s Six Sigma world, is any fraud OK?
*Argument E – Only bad companies are victims of NSS.
Truth: Arguing that only “bad” companies’ shareholders are systematically defrauded, thus defrauding them is somehow OK, again, ignores that NSS is fraud. This argument is a variant of A, but seeks to place the blame for fraudsters defrauding investors on the targeted company – forgetting that the company’s shares are just the vehicle being used to commit the fraud. Sort of like saying stealing from “bad” stores is OK. Makes no sense.
*Argument F – By being anti-NSS, you are really saying you are anti-short selling, period.
Truth: This seeks to confuse a legal investment tactic with fraud, because the terms used to describe the two sound alike. Legal short selling involves borrowing a security, and selling it and delivering it to the buyer, hoping for a price decline before the seller has to buy a share in the market to return to the lender. NSS involves advertising something for sale, creating a sale transaction, debiting the buyer’s account, and then not delivering the product – again, simple fraud.
*Argument G – NSS increases liquidity, and liquidity is good.
Truth: Liquidity is good if you are in the business of being compensated for executing lots of buy/sell trades. Liquidity is meaningless if you are an investor holding shares – it only becomes an issue when you want to sell, or want to buy. Fraud does increase the number of transactions, and the APPARENT amount of sell-side liquidity (supply) – but again, arguing that fraud is good because of the end effects of it being perpetrated in large-scale manner, is specious. Fraud is fraud, and increasing liquidity by increasing the number of frauds is bad, for obvious reasons.
* Argument H – Speculators should avoid stocks that are on the SHO list, as they are being warned that there is a problem – they are bringing it on themselves.
Truth: Fraud is illegal, in all instances. Having a list of companies where the fraud is massive does nothing but highlight that massive fraud has taken place. Arguing that investors should avoid buying the shares of companies whose shares have been fraudulently abused is again, blaming the victim, and while it makes sense to avoid bad areas of town where the murder rate is high, it does not make sense to condone rampant murder – anywhere. Condoning lots of murder in some areas of town, versus eradicating it, is cultural chaos. Condoning fraud in the trading of certain companies is systemic chaos.
* Argument I – Nobody is hurt by NSS – investors can sell their shares instantly, even if fraudulently created IOUs, thus no harm done to the investor.
Truth: Argues that because the system is very efficient at trading in frauds, that fraud does no harm. Fraud is fraud, and is illegal. Whether or not a system exists for trading or perpetuating fraud does not change the nature of the crime. Property rights are protected by the Constitution, and arguing that because it is easy to defraud the next person in the chain, who buys your fraud, ignores the basic crime, and instead argues that fraud is OK as long as it is easy and efficient to commit. A completely separate absurdity is that this argument is very much akin to arguing that piracy doesn't hurt the companies being pirated, as there is a liquid market for pirated goods.
* Argument J – NSS doesn’t impact the share price long term, as demand will eventually return a company’s stock to fair value.
Truth: Argues for price action in a stock, rather than acknowledging that NSS is fraud, and thus bad. Also attempts to introduce a straw man – company fundamentals/stock price – rather than focus on NSS, and the basic fraud committed.
* Argument K – Getting paper certificates is foolish, or a waste of time, or will negatively impact you (difficulty in trading) or the market (decreased liquidity). Variations include arguments of low statistical likelihood of a broker failure resulting in a situation where veracity of shares is in question, or liquidity/valuation arguments.
Truth: Paper certificates are the only protection against being defrauded by a naked short sale (actually the Direct Registration System also can, but is esoteric). Arguments as to trading ease, or market valuation, ignore the effectiveness of certs as a prophylactic against being defrauded – if you have the asset in your hand, you have the asset in your hand. All other arguments are arguments against something different than the basic fraud of NSS, and seek to shift the discussion from that fraud, and how to avoid being a victim of it.
There are countless variations, but they all have the same quality: the arguments advanced attempt to ignore the basic fraud, and create straw man arguments that avoid or diminish the obviousness of the basic fraud.
With this newfound understanding of the core fraud, the SEC’s logic in Grandfathering is particularly onerous – how is it good for anyone but those that perpetrated the fraud, to be excused from ever having to make good on the commitment to deliver the goods? Isn’t that simply state-sanctioned fraud? I maintain it is.
Talking with an expert on this subject yesterday, another issue that became obvious is that in a share tender offer, the acquiring company inevitably goes down, even if the acquisition is accretive to the acquirer. Why is that? Well, because the system defrauds the acquirer. Imagine Bigco acquires Smallco, and that Smallco has 1 million shares outstanding, and another 1 million of NSS. Bigco issues one share of Bigco stock for each share of Smallco, which at the brokers and the DTC translates to changing all the Smallco shares to read Bigco. The problem is that now Bigco, who thought they were increasing the float of shares by one million, actually increased their float by 2 million, as the 1 million NSS are also changed to read Bigco. This is an invisible fraud against Bigco. One could argue that because the DTCC knows how many NSS shares there are, they are a party to this fraud against Bigco - they know how many in-system FTDs there are, and they know how many ex-clearing FTDs there are - they have to issue a special permission, charge for it, in fact - to take a transaction ex-clearing, thus know the number or can easily get it. This raises some interesting liability questions, I would think, and I would welcome hearing from some attorneys on the subject - I know a lot read these, so chime in here, understanding that your words do not consitute legal advice.
The reason that there needs to be Market Reform is because the current ideology seeks to obfuscate fraud, which begets a culture of fraud, at every level.
I think that it is necessary to bring arguments back to the central point, as the apologists for NSS always seek to ignore that point, or argue around it. Our job, as market reform advocates, is to keep it simple, and explain the basic fraud in a simple manner. One of the things I hear all the time is that eyes glaze over when you start talking about NSS or describing it. That is because we tend to lose sight of the basic truth – NSS is fraud, fraud is bad (and criminal). Keep it simple, and the average person gets it.
The issue is pure and simple fraud and all attempts to dance around the issue need to be outed for what they are.
January 27, 2006 (FinancialWire) New developments in StockGate include a scandal reported in News Corp.’s (NYSE: NWS) New York Post regarding purported naked short sales in Compudyne (NASDAQ: CDCY), by a hedge fund manager associated with Friedman Billings Ramsey (NYSE: FBR), and associated with a partner whose father was called the architect of Bank of America (NYSE: BAC), and who had been recommended by Marvin P. Bush, the brother of President George W. Bush.
Neither Friedman Billings Ramsey nor Bank of America were named by the NASD in any wrongdoings, and apparently were not parties to the alleged illegal stock manipulations.
At the same time, the claim reported here yesterday that a press release issued by the Depository Trust and Clearing Corp. that it was not invited to a North American Securities Administrators Association public forum November 30 was sharply disputed by David Patch, an audience member, and editor of Stockgate Today at http://www.investigatethesec.com
“According to the Press Release, the DTCC contends that they were not invited to speak at the NASAA Public Forum held in November to discuss the issues of Naked Shorting. Ralph Lambiase, Director of Securities for the State of Connecticut and moderator of the forum, specifically identified to the audience attending the forum that the DTCC was invited to attend but had declined the invite. Panelist Dr. Susan Trimbath, former Operations Manager for the DTCC, also confirmed the DTCC invite during the forum discussions,” said Patch.
He also said that the Stuart Z. Goldstein of the DTCC, who was quoted in the press release, did not respond to his request for “clarification.”
The article in the Post, by Roddy Boyd, said that “Investors in Mangan and McColl Partners' flagship hedge fund were never told John Mangan was nailed by the NASD for sleazy trading in a separate business, in a puny Nasdaq stock called Compudyne.
“Mangan, an arbitrage trader managing $1 billion as recently as 2004, and his partner Hugh McColl Jr., son of Bank of America architect Hugh McColl, declined to volunteer the information in the fund's December letter to investors.
“McColl was not involved in any wrongdoing. Mangan was fined $125,000 and barred from NASD member firms for life. He was accused of making naked short sales, in which you sell stocks you don't own and fail to properly borrow the stock before trading.”
The article also said that at the time of the illegal trades, Mangan also was managing hedge funds for Friedman Billings Ramsey Group, a fact disclosed to investors. “Though the illegal trading did not take place in M&M's fund, a former investor in the fund, whose investment was pulled 18 months ago, said their decision to avoid the issue is baffling.”
"You are given a chance to make an argument in front of people and institutions who have given you millions of dollars and are reading about you doing illegal acts," the former investor told the Post. "Their silence spoke volumes."
It went on to note that the fund also has a close relationship with Marvin Bush, the brother of President George W. Bush and a founder of private-equity and fund-of-funds Winston Partners. Bush told The Post he happily served as a reference for Mangan when he was raising capital for the fund.
"John [Mangan] was a neighbor and a friend from Alexandria going back nearly 15 years. We started out playing tennis - he's an incredible player - and the relationship grew," Bush reportedly stated.
"He needed a reference and he was one of the hardest working and smartest guys I knew, so I was happy to tell anyone about that," he added.
The Post said Bush declined to comment on whether he had an investment with Mangan and McColl. An admittedly biased discussion of Bush’s connections and dealings are separately found at http://www.informationclearinghouse.info/article3336.htm
http://www.investrend.com/articles/article.asp?analystId=0&id=22449&topicId=160&level=16...
Suit blames hedge fund for shares' decline
Boston Partners Asset Management's short sales and other acts were illegal, ABFS trustee claims.
By Todd MasonInquirer Staff Writer
A Boston hedge fund participated in an illegal scheme to drive down the share price of American Business Financial Services Inc., according to the bankruptcy trustee who is liquidating the former Philadelphia mortgage lender.
Boston Partners Asset Management L.L.C. sent anonymous letters and posted Internet comments in a "vicious pattern of conduct" to damage ABFS, Trustee George L. Miller alleged in a civil lawsuit filed Dec. 30 in federal court in Wilmington.
Cynthia Perl, a spokeswoman for Boston Partners' parent, Robeco Investment Management Inc., would not comment on the lawsuit.
The suit seeks unspecified compensatory and punitive damages, plus the profits that Boston Partners earned in short sales of ABFS stock. In a short sale, investors borrow shares and then sell them, hoping to replace them later at a lower price.
Miller's lawsuit alleges that Boston Partners made illegal "naked" short sales, in which nonexistent shares are sold to put pressure on the share price, even though the transaction ultimately falls through.
Boston Partners' broker had short positions in January 2001 amounting to 30 percent of ABFS shares available then to be bought and sold, the lawsuit alleges. Legitimate short positions of that magnitude are unlikely, the lawsuit says.
The pressure applied by shorting that many shares "would be huge," said Robert Shapiro, an economist in Washington who has studied naked shorting.
"You put in sell orders on 30 percent of a company's outstanding shares, it's going to drive down the share price," he said.
In addition, Boston Partners wrote anonymous letters to regulators, the news media, and ABFS's investment bankers alleging that the company was engaged in a pyramid scheme, according to Miller's lawsuit.
The bankers withdrew from a sale of securities in June 2003, triggering a cash crisis that ultimately claimed ABFS.
ABFS filed for bankruptcy protection last January owing $521.6 million to purchasers of unsecured investment notes and $98.1 million to investors who exchanged their unsecured notes for secured notes.
Miller hired a law firm last year to explore litigation against ABFS officers and directors, who are not blameless in his view.
"I wouldn't have hired counsel to investigate them if I thought they were pure victims," Miller said in an interview last week.
ABFS had maintained that it fully disclosed the risks involved in buying its notes.
Litigation is the only hope for unsecured creditors to collect a "significant distribution," Miller said. The liquidation process, slowed by difficult dealings with secured creditors, could take two years, Miller said.
Meanwhile, the trustee said he had fielded 8,800 calls and e-mails from concerned note holders. The volume of calls is a major drain on his time, Miller said. He said he was not able to tell callers any more than he has posted on his Web site, www.abfsonline. com.
"It is a very frustrating case," he said.
http://www.philly.com/mld/inquirer/business/13648967.htm
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For those that have not yet read Dr. Brynes azz whipping of a lap dog hack reporter, you wont want to miss it.
http://biz.yahoo.com/prnews/060113/laf033.html?.v=32
Hedge Fund Manager Registration
Nir Yarden , 12.28.05, 6:00 AM ET
The hedge fund industry is on the verge of significant regulatory changes. A recently adopted U.S. Securities and Exchange Commission rule has narrowed the exemption that hedge fund managers have relied on to avoid federal registration.
The new rule will result in many hedge fund managers registering for the first time with the SEC by Feb. 1, 2006. The new registration rule is not without controversy--the SEC is sharply split on its merits, and a lawsuit is currently pending in federal court seeking to have the rule overturned.
The costs of registration to a hedge fund manager are significant.
Among other requirements, a manager will be subject to periodic SEC examinations on key aspects of the manager’s business, and its principals will be required to disclose personal information to investors and regulators, including criminal backgrounds.
In an effort to keep up with the changing regulatory environment, hedge fund managers have been on a recent spending spree, hiring scores of lawyers, accountants and other back office compliance personnel.
Smaller investors are increasingly investing in hedge funds either directly or indirectly through the investment activities of their pension plans. One unintended consequence of the registration rule may be that new, inexperienced hedge fund investors--the type of investors the new rule is intended to protect--will be lulled into a false sense of security that their investment is somehow safer, simply because the hedge fund manager is SEC-registered.
For this reason, investors should understand what registration does and does not do.
First, what registration does not do: Hedge funds are private investment vehicles that cater to wealthy individuals and institutions. Because hedge funds are private in nature with sophisticated investors, a hedge fund manager is free to use a variety of aggressive portfolio management techniques and investments that a mutual fund manager may be restrained from using because of regulatory constraints governing a mutual fund’s investments. Hedge fund documents are purposely drafted broadly to provide managers maximum flexibility to invest in a wide variety of derivative instruments, short extensively and use leverage, all of which are limited in a "long only" mutual fund portfolio.
The investment flexibility available to hedge fund managers partly explains the explosive growth in these vehicles over the past five years. As "absolute return" or "market neutral" investment strategies have become popular with institutions in recent years, they have increasingly turned to hedge fund managers who can employ a variety of complex investment techniques and products to achieve their goals, something a long-only manager may not be able to provide.
But there is always risk attached to a hedge fund manager's investment style. On any given day markets can become illiquid, complex derivatives instruments react in ways that a hedge fund manager doesn't anticipate, pricing models may prove faulty, leverage magnifies losses and supposed market-neutral trading strategies drift with the market. These are all factors that can have dramatic negative consequences for a hedge fund's portfolio value.
While the disclosures that a manager must provide as a part of SEC registration might tell you if one of its principals has a criminal background, information is limited on issues associated with a portfolio’s risk or its risk relative to market or interest rate movements, credit or liquidity factors. Before committing to invest in a particular hedge fund, many large institutions use the information contained in a manager’s registration statement as the bare minimum starting point to conduct extensive business and financial due diligence on these risks far in excess of the registration disclosure requirements.
Still, proponents of the new rule hail heightened registration as an important step by the SEC to monitor and oversee the rapidly expanding hedge fund sector. They cite the recent hedge fund scandals as proof that the industry needs SEC oversight to weed out unscrupulous managers who commit fraud with investor money.
Opponents counter that the new rule will have limited impact in ferreting out the bad apples since the SEC has created a loophole in the new registration requirements that permits a manager to avoid registration if it "locks up" investors (i.e., doesn’t permit fund redemption) for two years or more.
Like any booming industry, the hedge fund industry has and will attract its share of snake oil salesmen. To the extent registration is able to detect and ferret out these individuals, such a result should be applauded.
The hedge fund industry has, however, done a good job of self-policing with respect to fraud. Blow-ups do occur, but the majority of managers with established track records have consistently displayed fiduciary responsibility toward their investor bases and assets (which often contain a large percentage of a manger's own net worth). They are held accountable by tough security law antifraud provisions that apply regardless of whether a manager is registered, and a sophisticated investor base that analyzes the myriad risks associated with a particular hedge fund and is ruthlessly efficient in dropping managers who don’t perform or meet legal fiduciary standards.
While useful information may be conveyed to investors by a registered hedge manager, it is only one piece of the puzzle. It should never be relied on exclusively at the expense of fundamental analysis of the other numerous investment risks associated with a manager's investment style.
Registration requirements in no way lessen those risks. Smaller first-time investors looking to cash in on this "hot" investment sector, but who lack the resources to fully investigate the risks inherent in hedge fund investing, would be wise to heed the advice of Augustus: Hasten slowly.
Nir Yarden is an attorney specializing in hedge-fund-related work with the New York law firm of Greenberg Traurig. He represents hedge funds, investment managers and investors.
From: C. Austin Burrell
Sent: Wednesday, February 23, 2005 11:11 AM
To: Duncan MacCalman
Subject: Observations on Keeping Your Head On Straight When All Are Losing Theirs (and this isn't' a Revolution YET). Edited 2
An Open Letter on the Shorting Scandal:
Like many who have come to the Naked Shorting Manipulation Issue, I had a major problem at first of simply not believing the industry and its regulatory agencies would allow fraud of such enormous scale to have been perpetrated. I finally got over this problem, but it was extremely difficult, in no small part because I had viewed the SEC to be almost sacrosanct. This was the second big hurdle I had to overcome, and it was d**ned difficult.
I have known, indeed, been friends with a number of former senior SEC personnel, executives, and counsel of impeccable personal credentials and integrity. Today, they are uniformly appalled by the SEC's failures, incompetence, arrogance, bias and in many cases, suspicions of far worse, the appearance of corruption and wholesale conflicts of interest. The old SEC we knew had one mission: To protect the individual investor at all costs.
That mission has been lost in a morass of institutional and political issues created by the financial revolution seeded by ERISA in 1974. When I first came to the industry, it was to work as an administrator for the Block Trading Desk at Bache and Company. I was, to my good fortune, given additional responsibilities for administration of Over-The-Counter Trading, Options Trading, and Corporate Bonds. Within a short time, I was doing that work on the side and executing orders for regional accounts. Later, I would be responsible for block trading coverage of 13 Southeastern States for White, Weld, eventually leading me to listed options marketing to institutions, trading options and related equities for institutional options accounts, handling options and cash arbitrage account trading, and eventually selling clearing and execution services internationally.
This last job would lead me to start my own company and to sell its concept to a major Wall Street firm, where I started and ran a broker-dealer and registered investment advisor for them. In that job, I would use extensive computer, math and accounting skills in a number of special assignments that included building the first AI expert system emulation for trading mortgage-backed securities, on the first SUN LAN on Wall Street. Throughout this career path, my first love was development stage companies, beginning with a proposal to buy the first European and Middle Eastern franchise for revolutionary exercise equipment in 1975, to the first application of holography for Computer Aided Design, and many more transactions along the way.
In twenty-nine years, I have had the opportunity to work on an enormous range of projects in more than 30 separate domains. Through the steps along the way, I worked on major trading system initiatives for Wall Street, on clearing systems for international stock exchanges and the first entirely electronic exchanges, on stock indexes for major publications globally, on every form of imaginable intellectual property, ultimately sitting on the Boards of four public and three private companies, all in their early stages of development. The real point of all this is that I had been there, seen it and done it, or at least I thought so until I ran into this shorting scandal. When I first encountered this, I had to go back into my technical charts to find a parallel, and it was the 1929 Crash.
I remembered the stories from some of the old timers I met when I first came to Wall Street, who lived through that period. One of those stories related to the magnifier effect on the Crash caused by criminals and professional stock manipulators SELLING AND SHORTING "WATERED" STOCK to take advantage of what they considered excessive valuations. Well, the 2000 Crash was a bigger one than 1929 on a percentage basis. The central contributing factor to the scope of this 2000 Crash was the illegal sale of unregistered securities, via the mechanism of using holes in the DTCC system that permitted naked shorting by non-US persons and entities, broker-dealers, market makers, hedge funds domestic and international claiming the arbitrage exemption and more. In essence, this became obvious to professionals in 1998 through 2000.
The bad guys found a way to electronically counterfeit stock never registered by, known to, or issued by the real underlying company. And investors never knew the difference. I had the experience of living through a volatile and typically short-lived dot.com, and what I saw was that real investors never sold their stock. So where did this stock that was sold come from? I was able to analyze where the selling had come from, to whose benefit. The answer was ugly. DTCC was re-hypothecating a single share over and over again, collecting a fee from the Stock Borrow program in the process.
Hedge funds, and others globally, jumped on the dying body of American securities markets in droves. In July, 2000, before I had a really had a hard handle on the scope of this fraud, I warned a CEO of a Major Stock Exchange that DTCC was dirty on the shorting, not knowing at the time he was on the Board of that entity. Counterfeit/kited shares were being created wholesale by naked shorting, with DTCC taking it to the bank on both sides.
Any trader with experience will tell you that the market is ultimately a zero sum process. That means in layman terms that for every dollar lost, there is a dollar made somewhere else.
If American retirement accounts lost 50% of their value, that value went into someone else's pocket. The ultimate canard (cover-up lie) is that these accounts had "Paper Losses", like they weren't real. This is absolute horse manure, a pure form of political BS, designed to give politicians and bureaucrats cover for malfeasance, incompetence and in more than a few cases, venality.
So where did this money go? In an ill-conceived move to "globalize" US securities markets, the NASD, the NYSE, the AMEX, and others offered open access to US markets to persons and entities (such as offshore hedge funds, etc) who had no imperative to comply with US Securities Laws. The result was as if our market was a budding elm tree hit by a billion locusts, who stripped the life out of those segments of the markets that didn't know they had a problem, that didn't know how to protect themselves, and that got no help from their own US Regulators, including the SEC, the NASD and the DTCC.
At the bottom of this crash, some $17 Trillion dollars were gone from US investments' market caps, and this didn't include the sector hit the hardest, the small public company stocks. Over 5000 companies in this segment were bankrupted, more if you use the more aggressive estimates of 7500 plus. Some of these companies had officers and directors who would not go quietly into the night, but chose instead to fight. It has been ugly. There have been thousands of outright lies by those who were supposed to protect us, instances of criminals warned by regulators to avoid arrest, of bribes paid to other regulators to look the other way, ad infinitum, ad nausea.
Now, with everything crashing in on them, these same parties who absolutely denied the existence of any naked shorting problem are reversing their positions ever so slowly, so as to protect those who stole so much. And what has been the attitude displayed towards those who made these problems public? They have been systematically attacked for speaking out, harassed, denied financing, had their lives threatened repeatedly, been sued by the Government and worse. Their only defense has been an active plaintiff's bar who have championed these parties out of funds coming from their own pockets. One very bright observer of Naked Shorting has labeled this "Reverse Regulator Syndrome". This week, the SEC put out the most insulting and morally offensive proposed rule yet, one that would bar companies from putting restrictions on their stocks that would impair their effortless transfer, in an honest effort to protect themselves from professional thieves.
Annette Nazareth of the SEC's Market Regulation Unit said that actions taken by companies to protect themselves in this manner from criminal predators were improperly impairing a more important goal of getting to paperless, electronic, straight through settlement. Her position is the "Stalin" analog: "To make an omelet, you have to break a few eggs." But instead of shooting Ukrainian Kulak farmers to create Farming Co-ops, she says we have to let many small companies be killed off for the greater good of automated securities markets. This Socialist clap-trap run amok, treason to its core in our American system. When the American people become fully aware of the sheer chutzpah of fraud on this scale, and who the beneficiaries are, God help them. The ACLU won't be able to save them. Some cumulative number NORTH of $4 TRILLION DOLLARS is GONE. If the thieves don't cough it up, they should be hunted for profit and sport. BEWARE THE MOB. This old Roman saying has real relevance here. The scum here need to have it screamed at them: YOU AREN'T GOING TO GET AWAY WITH THIS. To paraphrase an old movie line about prison, I remember the words: "It is an insane bunch of people, in an insane place, with insane rules, behaving insanely. SO IT HAS ITS OWN KIND OF LOGIC." I remember once hearing about the necessity for a lawyer to be able to put himself in a "Moral Vacuum", so he could represent guilty clients. The lawyers representing these bad guys have gone from a "Moral Vacuum" to a "Moral Black Hole", whose immorality is so strong, nothing can escape. Their lawyers can be treated no differently than the criminal scum they represent. Scum seeks its own level. And these types work well with insanely amoral structures.
Enough philosophizing. WE HAVE TO GET ANGRY, AND STAY THAT WAY. WE MUST ESCALATE THE RHETORIC, AND BURY LIARS WITH THEIR OWN CONTRADICTORY STATEMENTS. Mark my words, THIS IS GOING TO GET UGLY. Too much has been stolen by too many. I had hoped the system would right itself of its own accord, but I am now 90/10 this isn't going to happen. America is the loser.
Best Regards,
C. Austin (Bud) Burrell
The Quantum Matrix,
Inc. Scottsdale, Arizona
An open letter to the NASAA ...
North American Securities Administrators Association, Inc. (NASAA) 2005-11-24
750 First Street, N.E., Suite 1140
Washington, D.C. 20002
To the members of NASAA:
Ladies and Gentlemen of NASAA, thank you for taking the critical step of holding a conference focused on Naked Short Selling (in Washington, D.C. on Nov. 30). I am pleased that there is recognition at the state level of a pervasive, dangerous problem in our markets, and that NASAA is taking the lead in addressing this issue with this groundbreaking meeting, featuring an august panel of authorities. I have no doubt that it will be productive.
As I read your news release, I noted verbiage congratulating the SEC on their passage of Reg SHO. I presume that was a gracious tip of the hat to that agency, rather than a statement of the States' sentiment on the efficacy of Reg SHO. As I am sure you will hear during your meeting, the position of many outside of Federal regulatory chambers is less positive when discussing the agency's performance on this issue.
With that in mind, let me offer an observation or two about the SEC and Reg SHO, from the perspective of a shareholder advocate immersed in the subject.
Reg SHO A Provable Failure
My first observation is that Reg SHO has been a provable failure in curtailing this illegal and destructive manipulation tactic.
Provable, as naked short selling continues to be rampant - one glance at the infamous Reg SHO Threshold List turns up quite a few companies that have been on that list for approaching the entire year it has been published - a virtual impossibility if Reg SHO's rules were being adhered to or enforced, or if the rules themselves actually achieved any desirable effect.
To make matters confusing for many, all naked short selling is not illegal - some naked short selling is actually permitted under Reg SHO, which specifically allows many different entities to do so, with the SEC’s full support - even for companies on the Reg SHO List. As an example, NYSE specialists can not only naked short sell, but can maintain the unsettled trade for months, with the Exchange's blessing. Of course this blessing is given in secret, and nobody is told that it has taken place.
How can naked short selling be eliminated with loopholes like this? How do ordinary investors or victim companies benefit from these sweetheart deals and exceptions, which literally enable a host of participants to print an endless supply of stock at will? With specialists and market makers and foreign financial institutions all able to naked short sell legally, what real obstacle does Reg SHO present for a motivated fraudster with decent resources?
I think it is safe to say, after almost a year of ineffectiveness, that Reg SHO is worse than useless. I have yet to see a shred of evidence that it has achieved anything positive for investors, or the companies naked short sellers (market manipulators, really) target. On the contrary, it has created an environment where the practice is officially condoned and protected by federal regulators - via the numerous exceptions to the anti-naked short selling rules, the non-penalties for violation of the rules, and perhaps most onerous, Reg SHO's grandfathering provision. Which brings me to the second observation I'd like to tender:
What Does Grandfathering Accomplish In Reg SHO?
My second observation is that the "grandfathering" provision of Reg SHO violates Rule 17A - the Congressional mandate to clear and settle ALL trades in a prompt manner (including transfer of record ownership). While the SEC can apparently choose to disregard Congressional mandates, a fair question is what useful purpose is served by grandfathering, and who benefits/is protected?
The SEC's James Brigagliano admitted that the SEC grandfathered unsettled trades due to volatility concerns, which is a euphemism for wanting to avoid short squeezes - legitimate run-ups in price caused by unsettled trades being bought-in, returning the victimized stocks to levels consistent with genuine supply and demand. Why this upside volatility is to be avoided, and yet the downside volatility arising from naked short selling is rewarded by being grandfathered, is unclear, other than that it would place a financial hardship on naked short sellers.
Why it is acceptable for investors to be subjected to downside volatility from these "bear raids", and yet those violating the rules should be protected from upside volatility, remains a mystery. Perhaps Mr. Brigagliano can speak to this double standard, as well as help us all understand the desirability of limiting upside volatility/return to fair value, and protecting downside volatility/perpetually depressed prices by sanctioning a pool of failed trades which can remain undelivered in perpetuity.
Need For Clear Language and Clear Thinking
My third observation is that the language used by Wall Street to describe the offense is a deliberate obfuscation, designed to confuse the issue and make it less understandable for the layman. I think that is wrong, and needs to end. I'm not talking about rare episodes where certificates get lost, or the dog ate them, or someone died after making a trade and failed to mail their cert. When most investors use the term naked short selling, or failing to deliver, we mean deliberate selling of stock without delivering, in order to manipulate the price.
Stock manipulation is a time honored Wall Street tradition. In the 1900's to 1930's, stock manipulation "pools" were common, and share counterfeiting was well understood - the term for it was "watered stock" - unscrupulous manipulators then, as now, used share counterfeiting and naked short selling to create drops in stock prices, creating windfalls from their short positions. Some attribute much of the 1929 Crash's precipitous severity to this practice. Back then everyone understood that counterfeiting a stock certificate and delivering it in place of the genuine article was fraud - nobody argued that. Everyone also understood that taking money for a trade, and never delivering the stock, was also fraud. It is only recently that our moral compass was knocked out of kilter, and the terms failing to deliver and naked short selling were offered as descriptors. This less specific language was introduced and put into play, and soon selling something you didn't own was a delivery failure, a niggling little oversight, a licentious-sounding faux pas, a forgivable speed bump on a fast moving road.
Enough is enough. Let's start using appropriate terms for the acts that are being discussed, not flowery euphemisms devoid of any meaning for the average person.
The act of illegal naked short selling is simple fraud. Money is exchanged for shares, which aren't delivered. It is actually very straightforward at its essence - sales transactions are processed in order to cap or depress a stock's price, money changes hands, the participants are all paid their commissions, but the product is not delivered.
Why does our system, and our regulatory mechanism, have a lexicon of special terms which serve to disguise the nature of this fraud? Why don't we stop calling it naked short selling, or failing to deliver, and call it what it actually is: Fraudulent Stock Trades?
And why is the size and scope of this fraudulent activity kept secret? Who is served by this other than the fraudsters? Why does an entire system conceal the extent of the fraud, and why do our regulatory bodies accommodate this sham? Would we keep the number of bank robberies secret? The number of currency counterfeiting incidences secret? Why do we keep the number of Fraudulent Stock Trades secret, and why can't investors and companies get straight answers as to the number of transactions in their stocks that are fictions - frauds designed to depress their stock's price?
I think that if we use simple, accurate terminology, everyone can better appreciate what is occurring. When you advertise something for sale, take money for it, lower the selling price in the market by artificially creating an illusion of supply, and then don't deliver the item, that is fraud - and the motive is profit. Everyone can understand that. No need to soften it up so it is less repellent or ugly. We all understand defrauding folks for profit, and that it is illegal in every instance we can think of.
So let's just call it what it is: Fraudulent Stock Trades - FST.
Reg SHO Is Ineffective As A Prophylactic
Reg SHO is useless for protecting investors and victim companies. Gentlemen like Dr. Patrick Byrne and his father can't get confirmation of delivery of their shares for months, due specifically to fraudulent stock trades in OSTK, and neither Reg SHO nor the SEC have done a thing to protect them, nor any other shareholders, from those who knowingly and willfully abuse the rules (Dr. Byrne, and his father, purchased shares in the open market in August, 2005, while OSTK was on the SHO list – as it remains today – and it took approximately 60 days for Dr. Byrne to receive delivery of his shares, and almost 90 days for his father to receive his, during which time the price dropped by $10).
Because of the Byrnes' profile, this travesty receives visibility, but if not for their willingness to expose the hypocrisy and lack of enforcement that is the SEC's norm in this area, shareholders would continue to be routinely violated in silence. That is deplorable.
Reg SHO has failed in its essential purpose, and sections of it violate Congressional mandates, so it is inappropriate to view it as any sort of a solution.
The number of FSTs has remained in the centi-million per day range before and after SHO (per multiple FOIA disclosures cited in The Pipes Report, September 15, 2005), proving that the rule has had no measurable deterrent effect in curtailing this threat to our markets. The conceit that a pilot program is required to measure this lack of effect while investors continue to be robbed by unscrupulous participants who use FSTs as a trading strategy is insulting - the SEC fights any disclosure of the size of the problem, delays and stalls any meaningful reform by killing effective rules (like the NASD amendment intended to replace NASD rules 11830 and 3210, which WAS having an effect when implemented in early 2004, until supplanted by Reg SHO), and in general behaves more like an agency attempting to run interference for the industry it is chartered with regulating, rather than an agency attempting to make a good faith effort to address a crisis with the markets. This begs a critical and mystifying question:
Why All The Secrets?
The cult of secrecy surrounding the relatively mundane task of clearing and settling stock trades is alarming, and one must question the requirement for the existent opacity in the system, and ask who is served by this lack of transparency? Why is it desirable or necessary to keep the level of FSTs in a specific stock secret? Why does the plumbing of the system require the cloak of darkness to operate? What is being covered-up with self-important rules mandating secrecy? If millions of shares of a particular stock are being FST'd, who besides the market manipulators are shielded by keeping the information hidden from public view? Since when did understanding how many investors have been defrauded out of their funds, thinking they had purchased and received shares but instead received nothing, become something that investors shouldn't be told?
Exactly how big is the problem? And why is it so dangerous for the public to know? We are discussing delivery of shares that have been paid for, not the secret to building the A-bomb, so why is it all so shrouded in mystery? If investors and CEO's don't have the right to understand how many of the transactions in a given stock are fictions designed to depress the price, why not?
Some market observers state that thousands of companies have been put out of business by FSTs, their access to capital squashed in their infant or growth stage. Others reasonably assert that the amount of tax revenue lost from companies being de-listed or going out of business, the FSTs remaining open in perpetuity and thus never triggering a taxable event, numbers in the many billions. Why not put the speculation to rest and give investors a straight answer?
While we are on the topic of interrogatives the SEC avoids like the plague, here's my all time favorite simple, easy and reasonable Reg SHO question: How many FSTs were grandfathered in Reg SHO, representing what total dollar value of transactions (not current mark to market - actual cash exchanged for non-existent shares at the time of the transactions)?
Every FST grandfathered represents hard cash that was pulled out of the market, with no product ever delivered, leaving the rubes who paid their life savings for the sham FSTs holding nothing - the ultimate fraud. Why won't anyone tell us how many billions of dollars Wall Street manipulators took from the markets, delivering nothing in return? Where is the harm in investors knowing? The only answer I have been able to arrive at is that the number is so egregious, so much of a palpable violation to our reason, that there would be a full scale investor revolt if the number was known.
I have yet to hear a coherent or reasonable answer to these questions, so perhaps NASAA can obtain better responses. I am cautiously optimistic.
I applaud NASAA's willingness to tackle the FST problem, and sincerely hope that this is the commencement of a new era of understanding and genuine effort to curtail a destructive, illegal practice. In the interest of offering up some discussion points for the group's meeting, I'd like to comment on where I believe the major offenses in the FST process occur. It seems that the SEC prefers to ignore these, thus I thought it would be useful to review what is so studiously ignored - that way we can all understand the logic to selective enforcement, or rather complete non-enforcement, of the agency's own rules and regulations.
Anatomy Of A Fraudulent Stock Trade
When an FST occurs, a number of steps in the clearing and settlement process take place, and there are violations of rules/laws at every stage. Note that there are two offenders in an FST:
First offender : Selling broker, who has no shares to deliver.
Second offender : Buying broker, who posts shares into customer accounts (cash and margin) - despite having insufficient shares on hand, thus violating SEC 15c3-3.
Here is a list of the violations and a rough chronology of the sequence:
1) The Seller (or Seller's broker) fails to locate shares. This is a clear violation of NASD Rule 3370(b)(2)(B).
2) The Seller's broker fails to deliver shares to the NSCC (the contra party in all CNS trades) at T+13 (T+3 +10). This is a violation of 17A, and Reg SHO.
3) Alternatively, in the case of non-CNS system trades ("ex-clearing"), the Seller's broker fails to deliver shares to the Buying broker at T+13. Again, a violation of 17A, and Reg SHO.
4) The Buying broker treats these unsettled trades as delivered (rather than canceling the transaction and returning the funds, or buying in the FST Seller), and claims settlement to clients with IRA, 401k and other types of cash accounts (instead of advising them that he's failed to receive the shares, and that he has insufficient shares on hand to match the number of shares in cash accounts). Violation of 15c3-3[1]. Additionally, this misrepresentation on account statements of settlement to cash and retirement account customers constitutes mail and wire fraud, breach of fiduciary duty, and a breach of honest dealings.
5) If handled ex-clearing, there is a failure to tell the shareholder/buyer that nothing was delivered (by the buyer's broker). Also a 15c3-3 violation, and mail and wire fraud.
6) At the 10,000 foot level, the use of FSTs as described above as a manipulative trading strategy by unscrupulous hedge funds/brokers is a violation of 10(B)5, as it constitutes violating a host of rules and laws for the sole purpose of depressing the share price of the victim company - a nice definition of one type of stock manipulation, and a clear 10(B)5 violation.
A Crisis Of Catastrophic Proportions
My perspective is that the FST problem represents a systemic crisis for the U.S. equity markets. The combination of the SEC's non-enforcement of its own rules (as indicated above) along with its passage of Reg SHO, complete with loopholes large enough to drive a truck through and meaningless non-penalties for violations, creates an environment of lawlessness wherein investors are preyed upon by ever-bolder predators. What is the financial penalty to FST practitioners for violating the rules? What are the meaningful disincentives for defrauding investors in this manner? What is the SEC's track record of enforcement for this type of stock fraud? The answers to these questions are disturbing - there are no financial disincentives of note, and the SEC stands idly by as a nation is fleeced, making pretend rules and mouthing platitudes as the predators steal their next billion with impunity.
This situation cannot continue. The flagrant violation of 17A that Reg SHO's grandfathering represents (and its attendant concern that the problem is large enough to warrant grandfathering), combined with the cult of secrecy that characterizes the SEC's approach to the issue, leads me to conclude that years of ignoring the violations have resulted in a buildup of FSTs in the system that could devastate any faith in the market's integrity. The only possible explanations for grandfathering are:
A) The SEC recognizes that the scope of the problem represents a contingent liability of catastrophic proportions, and that any requirement that all the trades actually settle and shares get delivered would cause financial chaos; or,
B) The SEC is protecting the illegally generated profits of those who have been using FSTs as a trading strategy.
If A, the agency is making the classic mistake of hoping that the same industry that created the problem will fix it over time - a tactic that proved fatal in the S&L crisis. If B, the agency is acting as a protector of the industry versus protector of the investor, and requires the strongest possible censure, if not dismantlement and restructuring.
A Thought About "Ex-Clearing"
When the topic of FSTs comes up, generally what is being discussed is the trackable float of failure to delivers recorded by Reg SHO's Threshold List. The omission of the non-Continuous Net Settlement (CNS) system fails - the notorious "ex-clearing system" fails - from this discourse does everyone a disservice, as that system's FSTs likely eclipses the number that are existent within the official system.
For the casual reader, the DTCC (Depository Trust Clearing Corporation) has a mechanism at their subsidiary, the NSCC (National Stock Clearing Corporation), wherein the NSCC will process the clearing (exchange of moneys, including payment of commissions) portion of the trade, and leave the settlement portion (the actual delivery of the stock) out of the system, as an obligation to be handled between the selling and buying brokers. These off-balance sheet delivery obligations don't show up as FSTs on Reg SHO - the DTCC and the SEC take the position that they represent private contractual arrangements between two consenting adults, and they trust that the two parties will settle their trades honorably, in a timely manner.
The obvious problem here is that Wall Street's history is one wherein the participants have been known to behave in a less than honorable manner, especially when money is involved. Witness the analyst scandal, the specialist scandal, the mutual fund front-running scandal, REFCO, etc. etc. By allowing the ex-clearing system to create its own float of IOUs, which freely trade and are treated as genuine between the brokers involved, the SEC and DTCC have compounded the FST problem, and quite literally afforded the clearing brokers an opportunity to print the equivalent of shares of stock (without the annoying cost of goods that buying genuine shares entails), with no real restrictions or oversight. Nobody knows the number of FSTs that are floating around in ex-clearing. I've never seen any accounting for them. And yet we know they exist, as there is a mechanism for handling them at the NSCC, and the General Counsel for Bear Stearns references them in an ominous manner during his Reg SHO conference call (Fall, 2004).
Consider these questions, and you will understand the potential catastrophe lurking beneath the surface of Wall Street, residing in the ledgers in the back offices of the clearing brokers.
1) What is the size of the non-CNS system FST fail to delivers?
2) How are they accounted for by the participants? To whom are they accounted? What mechanism exists to ensure timely settlement? How is delivery tracked and verified? Who administers and regulates this?
3) If NASAA doesn't know how large the problem is (with verifiable data), and can't get access to the numbers, how can it regulate the markets effectively? How can it protect investors?
4) Does anyone know how large this contingent liability of undelivered stock is? If so, who, what data is being collected, and why isn't it being reported? If nobody knows how large it is, why not? Wouldn't this then represent a potentially cataclysmic liability, a float of IOUs of unknown size, collateralized in presumably vastly inadequate ways - essentially an unofficial stock counterfeiting scheme, carried on in Wall Street's back offices?
5) If this is the case, wouldn't that mean that nobody could ever be sure that they own genuine stock, and not just some IOU between brokers?
6) Wouldn't the existence of an undocumented, unregulated float of ex-clearing IOUs represent an industry-wide fraud perpetrated against investors, wherein their cash is exchanged, not for shares of stock, but for bogus markers of questionable actual value?
7) And wouldn't this result in an environment wherein Wall Street has powerful motivation to maintain depressed stocks at depressed levels, given that it is in the industry's best interests to never strain the inadequate collateralization of the ex-clearing FSTs?
8) Why is this NEVER discussed in an open manner, by any regulator? Is it so frightening in its implications that nobody wants to touch it? I've had private discussions where regulators admitted that they had been "told" that it wasn't "that big" a problem, but that they had never seen any data, nor been told exactly how big the problem was. Isn't that scary? If our regulators can't get access to how large the problem is, who is watching the store?
The non-CNS system FSTs could be many orders of magnitude larger than the Reg SHO FSTs, and it is disturbing in the extreme that nobody has any hard data on how pervasive or large the problem is. My belief is that the non-CNS system FSTs are the real iceberg, and the Reg SHO FSTs are simply the tip floating above the surface. Any regulator that chooses to ignore the implications of the 8 questions outlined above shouldn't be a regulator, IMO. Thusfar the SEC won't touch this. Now it is NASAA's opportunity to turn over the rocks, or follow in the SEC's footsteps, and ignore the problem entirely.
Contingent Liabilities
Finally, there is the logistical question of where the money will come from to cover the FSTs failed trades when they are forced to settle, as 17A, and any semblance of a reasoned system, mandates they eventually must. If many years of abuse have truly resulted in a secondary market of non-shares trading in the system, treated by the participants as genuine, then we could well be looking at the financial crisis of our lifetime, as the leverage inherent in hedge fund operations creates a situation where there isn't enough ready liquidity to settle the trades in an auction market.
Given that the difference in cash between the sale price of the FST and the current mark to market price of that undelivered share is available for use by the violator, and given that the cash was likely used to perform more of the same sort of highly profitable, albeit illegal, trades, it is likely that brokers are holding inadequate collateral for most or all the FSTs on their books, should the shares be required to be delivered (prices go up when artificial depressions due to artificial supply end, and the ten cents of collateral now in the account for the shares that will cost $20 tomorrow after steady buy-ins commence, is inadequate to truly settle the trades without damaging the broker or annihilating the violator.) This creates an environment wherein the industry has a vested interest in never settling the trades, and maintaining depressed stocks at depressed prices.
The fraudulent stock trading parties, their brokers, and the clearing and settlement agencies likely have enormous contingent liabilities arising from years of abusing the system, and from permitting unsettled trades to build with inadequate capital collateralizing the obligations. This might well explain the grandfathering, cloak and dagger secrecy, and the multitude of exempted parties - if the rules were enforced, most of the participants would be insolvent or badly damaged once the shares were bought in, thus new nonsense rules and a perpetual vacation from prompt settlement mandates were required - hence Reg SHO.
The question of whether the SEC understands the contingent liability issue, and has been forced to write ineffective rules in order to safeguard the survival of the worst offenders, or is merely protecting their illegally generated profits, is not necessarily a meaningful distinction for investors and companies victimized by this fraudulent practice. Either way, investors lose, and the fraudsters keep their ill-gotten gains.
Proposed Solutions
NASAA is in a unique situation to rectify the deficiencies in Reg SHO, by introducing rules and requrements at the state level which would then drive reasoned rulemaking at the federal level. Here are a list of proposed solutions which could eliminate the Fraudulent Stock Trade problem:
1. Eliminate partial settlement, and prohibit the release of any funds to non-delivering sellers (regardless of what the share price does), until all shares of the trade involved are delivered to the original buyer. This eliminates the current mark to market release of funds to Fraudulent Stock Traders, and prohibits them from using any portion of the proceeds until the shares are delivered. That terminates a large part of the financial reward for FSTs.
2. Hold back all commissions until the shares have been delivered.
3. Force buying brokers to inform their customers when delivery has failed.
4. Upon notification of delivery failure, give the buying customer the option to cancel the trade, and have his money returned.
5. If a customer decides not to cancel trade (presumably because the price has changed in his favor), require the broker to implement a buy-in.
6. Create a "Brokers With Current Delivery Violations" master list, itemized by security - brokers who have current unsettled trades for Reg SHO Threshold List stocks.
7. Implement a financial penalty for delivery violations for SHO Threshold List securities – 33% of the trade value would likely eliminate delivery failure as a trading strategy.
In Closing
Regardless of the motivations of the agency, as protectors of the investing public go, the SEC has failed with Reg SHO. Now it is NASAA's turn to fulfill its obligation to protect investors. I sincerely hope that NASAA will accept the challenges presented in taking responsible, meaningful and swift action, and return our markets to some semblance of the fair system we all hope to participate in.
Thank you for the opportunity to have the FST issue addressed by your group. It is reassuring that someone is willing to tackle this. Investors owe you a tremendous debt of gratitude for your efforts - I hope that they bear meaningful fruit.
Respectfully,
Bob O'Brien
NCANS.net
Counterfeit America ...
http://www.counterfeitamerica.com/
Fungus ....!!
Posted by: jimmym4
In reply to: None Date:11/18/2005 10:29:44 AM
Post #of 193652
NOW THIS IS INTERESTING >>>>>>>> frozen and rejected by the SEC and DTC... SOOOO SOON? LOL
THIS JUST HAPPENED TO A FRIEND FROM PERSHING....GAME OVER!!!
... Fungus, why are you panicking?
Something to chew on ... from Zeninvestor
CMKX ... In my very firm opinion a major cash settlement is coming our way. As noted, I have been speculating on pink sheets for 11 years now. Something is happening right now that is so out of the realm of possibility that it defies logic - and imo means things have finally reversed course in our favor. There is ABSOLUTELY NO WAY imo that brokers would start waiving fees and going above and beyond to facilitate the ordering of certs in a REVOKED pink sheet unless either:
a) they are being coerced,
b) it is in their best financial interest to do so, or
c) they are attempting to curry favor with their clients now in anticipation of much larger accounts they might have in the near future.
The old standard for handling revoked stocks was that they would be more than happy to cash out your position for a dollar so that you could take the tax loss. Suddenly, they are pumping sunshine up everyone's backside trying to get them their certs as quickly and efficiently as possible. Of course, I'm talking about the major brokerages that actually ARE doing that. Naturally, others are balking and stalling, and isn't that telling in its own right? But for major brokerage firms to take the time and resources and money to 1) waive fees, 2) try to coordinate and expedite the process to ensure a pre-12/31 delivery and 3) do so willingly, means something BIG is up.
This just DOES NOT HAPPEN. EVER. Especially to a revoked pink sheet. This stock is dead. Done. Over. Think about it. Why are brokers falling over themselves to make this happen. To waive $50 fees? All for a pink sheet? To automatically pull certs for shareholders? Just out of kindness? I think NOT. There is something infinitely bigger going on here that I believe will finally prove why we have been through more machinations and disinformation than any other stock in the history of the financial markets. It's time to break out the popcorn again.
It's been 18 LONG, PAINFUL months for me, but I believe they have finally fixed the projector and we should be ready for the feature movie soon. The funniest part is that everybody is LOCKED IN now. You cannot leave. The only way you can lose now is if you voluntarily decide you want zero.
Given that no more cmkx can be sold or bought legally or illegally (outside of private transactions), I'd say we have now officially entered "mop-up" phase. Time for Maheu to clean the rest of the riffraff up and I think the brokerage compliance on the cert issue is a MAJOR signal that the tide has officially turned. Stay tuned. I have no doubt the CMKM Task Force will keep us apprised.
About Time ...
Now it's written up in Time Magazine.
http://bobosrevenge.blogspot.com/
A world wide concern with counterfeiting of shares ....
October 31, 2005 (FinancialWire) Citing FinancialWire coverage of the widening financial scandals associated with naked short sales, Financial Express has said the Securities and Exchange Board of India (Sebi) must rethink any automated trading systems such as those used and proposed by the Depository Trust and Clearing Corp., which it said American investors no longer trust.
Columnist Sucheta Dalal cited manipulative scandals involving Refco (NYSE: RFX) and Overstock.com (NASDAQ: OSTK) as reasons M. Damodaran, Sebi chief, should go slow on permitting short-selling by institutional investors. Short sales abuses have vexed and embarrassed American regulators as well as institutions such as Goldman Sachs (NYSE: GS) and Credit Suisse First Boston (NYSE: CSR).
Financial Express said that automation has its downsides. “Unless the regulatory system is constantly alert, ingenious crooks are always working to identify weak links.”
The article is at http://www.financialexpress.com/fe_full_story.php?content_id=106477
Dulal said that a “lending and borrowing mechanism is expected to prevent rampant price manipulation and keep out naked short-sales, that led to the demise of the old badla-based system of forward trading. Will it achieve this aim?
“It is pertinent to look at the growing US controversy over illegal naked short-sales and its consequences. FinancialWire … posted an article in March 2005 about a Michigan man, Robert C Simpson, who acquired 100% of the issued and outstanding stock of Global Links Corp. Two days later, he found over 50 million shares of the company shares were traded on the bourses. This case came up for discussion by the Senate Banking Committee and was probably the earliest official acknowledgement of naked short-sales (without first borrowing shares, as is legally required).”
“Since then, Patrick Byrne, CEO of a company called Overstock has gone public with the fact that his company’s float changed hands four or five times in a day. How, in a perfectly functioning lending and borrowing mechanism? And where are all the extra shares coming from to give delivery, unless there is a large incidence of illegal naked short-sales? Byrne has publicly alleged his father failed to get delivery of 200,000 shares purchased by him through a blue-chip brokerage firm. He is quoted as saying anywhere between 5-20 million counterfeit shares are currently in the marketplace, presumably on the major exchanges alone.
“The US debate is important, as their trading system has become the global standard for capital markets. It is, hence, pertinent to note that extraordinary trading volumes (yet unexplained phenomena in highly manipulated Indian stocks as well) and short delivery during settlements are increasingly being flagged as manifestations of a possible scam.
“More startling, many investors have accused The Depository Trust & Clearing Corpo-ration (DTCC), a holding company that clears and guarantees almost all trades in the US, of engineering naked short-selling schemes. The DTCC has faced 12 lawsuits in this connection. Most of these were dismissed, but the corporation itself has admitted, in a Q&A posted on its website, that naked short-selling occurs, but the extent to which it occurs is unclear.
“The DTCC’s stock lending and borrowing programme also continues to be under regulatory scrutiny by the NASD and other government agencies. The US debate attributes naked short-selling to counterfeiting and collusion between brokers, dealers and, of course, shadowy hedge funds. In most cases, the sales, accompanied by large, unexplained trading volumes, aimed to destroy the value of small companies.
“An October 13 report by FinancialWire also suggests research analysts, especially Net-based ones, also have a role to play in setting the stage for shorting. It quotes specific examples of alleged collusion between broker-dealers and independent research firms to publish negative information, to beat down the prices of target companies.
“This raging American debate over rampant price manipulation and misuse of automated trading systems is extremely relevant for us, since Sebi plans to permit short-selling by institutional investors. Indian investors, too, have noticed that a large and unexplained spurt in trading volumes always signals the start of a big price ramping operation. Our stock exchanges and regulators simply sleep over this phenomenon, even when these are pointed out to them.
“Second, Indian regulators are clueless about the true beneficial ownership of the most powerful market segment, namely, foreign institutional investors. Add Sebi’s record of poor prosecution of important cases and our slow judicial system and we have a recipe for serious trouble. Sebi may end by attempting to regulate institutional short-sales, while remaining partially blindfolded.”
Meanwhile, according to Financial Times, the $10.590,379,000 “securities sold, not yet purchased” line item in the Refco (NYSE: RFX) bankruptcy balance sheet is not only naked short selling, it is under intense investigation by authorities. The article is at http://www.efinancialnews.com/index.cfm?page=home&pdigest=18500000000074245&uid=5405-7710-92...
FT says that the firm’s IPO underwriters Goldman Sachs (NYSE: GS) and Credit Suisse First Boston (NYSE: CSR) both have investigators looking into the illegal but allegedly widely practiced manipulative practice among essentially unregulated hedge funds and other financial institutions that now appears to be a naked short sales bubble that could imperil the U.S. and worldwide financial markets.
Overstock’s CEO Patrick Byrne appeared on News Corp.’s (NYSE: NWS) Fox with Neil Cavuto to state that there are at least twelve Refco’s “buried in the system,” and Cavuto said some say it could be as many as 60 institutions ready to implode. He said a “systemic” problem could cost the Depository Trust and Clearing Corp. as much as $100 billion to clean up.
The video for this is at http://www.vmsdigital.com/MyFiles_Detail.aspx?mediaId=86578&onum=CDD7589F-A1E6-4B07-B635-4731FE7...
The line item was so unbelievably monumental that two of the major critics of naked short selling, Dave Patch, of InvestigatetheSEC.com, and Bob O’Brien, director of the National Coalition Against Naked Short Short Selling, were reluctant to positively identify the $10.5 billion as Refco’s naked short position. The Financial Times says investigators are not so reticent, and “have been unable to find which shares, if any, were involved.”
The document is at http://bankrupt.com/refco.txt
Critics have said that if you lift the covers off similar financial institutions and hedge funds, and even many of Wall Street’s top investment banks and brokerages, the $10 billion exposure at Refco could be multiplied 100 times over, and may inhabit every nook and cranny on the Street. Few companies initiate buy-ins, and such exposure is just bounced around, or “borrowed” from a DTCC. that may also be at significant risk should it be forced to call in its “loans.” The DTCC has also said that there are $6 billion in “fails to deliver” every single trading day. That could add up to some $1.5 trillion every year, not counting attrition from late deliveries.
Already the SEC and the U.S. attorney is probing a $1.4 billion hedge fund, Alexandra Investment Management LLC, and it is not yet known what that investigation will uncover. The fund has revealed that regulators are investigating “numerous participants” in PIPEs, an anacronym for private investments in public equities. Often such investigations end, however, with only a knuckle knock, with no restitution to shareholders of targeted small public companies.
The U.S. Securities and Exchange Commission is under heavy scrutiny as well over Refco since many claim it is just the tip of the iceberg in the illegal naked short selling scandal known as StockGate. Some 89% of those voting in The Investrend Poll at http://www.investrendinformation.com say the SEC should be “hugely” blamed for the Refco implosion.
Said the New York Post:
“It is believed the monies at the heart of the Refco scandal are in fact unsettled funds related to the illegal naked short selling, and many have theorized that there may be untold billions of dollars in other financial institutions and hedge funds in the same leaking lifeboat.”
The Post said no new laws are needed. Enforcement is needed.
When SEC Commissioner Annette Nazareth, the former head of SEC market regulation, was asked about the SEC’s lax attitude towards the Refco’s and its peers, she told the New York Times (NYSE: NT) that it was much ado about nothing, and that the uproar was only from people who “want their stock to go up.”
One can only theorize that it is this attitude that has resulted in the complete collapse of public confidence in the enforcement division of the SEC, as was the collapse of public confidence in FEMA. In his Fox appearance, Byrne said he does not expect the SEC to be able to clean up this situation, and hinted that it will require either judicial or Congressional intervention.Gadfly David Patch’s CNBC interview questioning the SEC’s involvement is at http://www.vmsdigital.com/MyFiles.aspx?Onum=8FD88353-D1CF-49AB-96FB-F5B3D748534D
His site, http://www.investigatethesec.com , has long held that the SEC has scrambled to protect illegal manipulators for fear that the lawbreaking had gone on so long and that it is so huge that it threatens the nation’s financial underpinnings. On CNBC, Patch again asked why the SEC can sit by and watch scores of companies listed on the Regulation SHO threshold list for almost a year, signifying that they are in continuous default of settlements required by the law.
He also asked why the SEC would try to “grandfather” the millions of settlement failures that preceded Regulation SHO, which went into effect in January. The “grandfathering” still hasn’t been court-tested as to whether it may be a kind of “pardon” that only a President may issue.
The SEC and the Depository Trust and Clearing Corp. continue to stonewall any attempt to require transparency in the marketplace as to the extent of fails to deliver, which some see as just a euphanism for “counterfeit shares.”
This scandal comes hard on the heels of allegations of misdeeds by Gradient Analytics and employees of TheStreet.com (NASDAQ: TSCM), in conspiracy with David Rocker and Rocker Partners in manipulating the stock of Overstock.com (NASDAQ: OSTK) and others comes another explosive case, this time against Refco Inc. (NYSE: RFX), one of the primary alleged miscreants in destroying Sedona Corp. (OTCBB: SDNA), once a Nasdaq-listed company.
Not since the Enron and Worldcom scandals has the financial markets been under such growing suspicion, except this time the cancer is not just in a treatable part of the body. This time it has spread through the lymph nodes and appears to be present in every vital organ as scores of companies seem permanently entrenched in the threshold lists maintained by Nasdaq and the NYSE, signifying over three-quarters of a year of the existence of counterfeit shares and unsettled trades.
Overstock CEO Patrick Byrne, for instance, has released transcripts of discussions between himself and Morgan Stanley (NYSE: MWD) over shares that he could not get delivery on, and says his father has still not gotten delivery on 200,000 shares that he bought.
Byrne said that he believes between 5 million and 20 million counterfeit shares are currently in the marketplace, presumably on the major exchanges alone.
He has also added libel to the list of legal charges against Rocker and Gradient and others.
Former Refco CEO Phillip Bennett has been arrested on charges of deliberately misleading shareholders when they purchased shares in the company’s recent public offering. He had been placed on leave by his company as it launched an investigation into $430 million the company said was owed by an entity he controlled in a transaction that was hidden from the public.
The company had already lost $1.65 billion in market value, leaving investors in the public offering extremely angry.
Also fired was Santo Maggio, president of Refco Securities, whom the company said was believed to have known about Bennett’s activities.
According to the New York Post, Maggio was already “in the middle of an SEC probe that would have probably gotten him suspended one year from his supervisory duties” related to Refco’s relationship with Rhino Advisors, a hedge fund that illegally shorted the stock of Sedona Corp.
The new case winds its way right back to the growing StockGate scandal as the Post quotes a “source familiar with the investigation” that the receivables in the latest probe “probably came from short sale positions made from a shuttered hedge fund.”
The levees protecting the underworld of naked short selling, despite efforts of many regulators to try to prop up a system on weakened stilts appear to be crumbling, forecasting a potential Wall Street disaster that would not be unlike what happened in New Orleans and in other low-lying real estate.
An undermining of confidence in the “independence” of subscription-based institutional research, in the financial media that could even involve General Electric’s (NYSE: GE) CNBC and of course, the undeniable clout of already besieged hedge funds and the “King of Shorts,” David Rocker, whose targets are said to include Martha Stewart Living Omnimedia (NYSE: MSO), would be disastrous in the event of any one of them, but altogether, it could result in a total collapse as investors look for safer investment and savings venues than “crooked” markets.
In a commentary, Motley Fool said any “mirth” regarding “sith lords” and other irrelevant allegations are “obscuring a case with fairly broad implications for security analysis, First Amendment rights, and the credibility of our public markets.”
It said that in an affidavit recently acquired by The Motley Fool, and also apparently acquired by DealFlow and others, Demetrios Anifantis, who identifies himself as a former employee of the research firm Gradient Analytics, alleges that the company conspired with David Rocker of the hedge fund Rocker Partners to publish damaging information "for the purpose of negatively influencing the price of Overstock shares so that Rocker could profit from its existing or intended short positions in Overstock shares.
“Two additional sworn statements in our possession, ostensibly by former Gradient employees Robert Ballash and Daryl Smith, also allege that Gradient provided biased research on behalf of its clients. Both Anifantis and Ballash additionally accuse Gradient of running a hedge fund advisory called Pinnacle Investment Advisors, contrary to the company's public statements at that time.”
Motley Fool notes “the most detailed and apparently most damaging affidavit, if it is true, was delivered by Anifantis. He worked as a customer service representative for Gradient from November 2003 until November 2004. New York Post reported that he was fired from the research firm for forwarding his employer's client list to his personal email.
“According to his statement, Anifantis recalled being on phone discussions, during which "David Rocker, Marc Cohodes, or other representatives of a hedge fund called Rocker Partners, LP, requested that the special report contain more negative information, or that the report emphasize a specific negative fact and that the report downplay any positive facts.
“Anifantis also states that customers like Rocker would ask that Gradient not disseminate a negative report ‘to the public for a specific period of time, so the customer could get their own position in the stock before the public got the information.’ This conspiracy went beyond just Vickrey and Rocker, according to Anifantis, who also says that it "appeared" to him that Herb Greenberg, who then wrote for TheStreet.com, joined in coordinating the attacks on Overstock.
“At first glance, the affidavits raise troubling questions about the nature of ‘independent research.’ If the three former employees of Gradient are telling the truth, the alleged conspiracy between the research firm and Rocker Partners would represent an egregious example of market manipulation, which most likely would have seriously harmed individual investors, as well as Overstock itself.”
The Fool points out that “the veracity of these individuals has not been established, and Rocker Partners and Gradient vigorously deny the charges.
“As New York Post has reported, at least two of the affiants may have credibility issues or reasons to hold grudges against Gradient. If this case makes it to trial, Anifantis, Ballash, and Smith will have to testify in court and withstand cross-examination by top defense attorneys. It will be interesting to see whether their charges are supported by documentary evidence, such as emails, revised reports, notes of phone calls, and the like. Within the affidavits are charges that would prove quite persuasive if supported with concrete documents.
“For example, in support of the charge that Rocker had considerable input on the creation of reports, Anifantis's affidavit refers to an "exhibit 5" (which we did not receive) allegedly containing revised reports on Overstock with Rocker's revisions in brackets.
“Ultimately, we believe that these affidavits raise important questions for investors about the integrity of our financial system. Unlike a lot of the silliness in the media relating to Overstock, this complaint is not frivolous on its face, and although Overstock will need to prove its allegations, the case must be taken seriously. The question to us is why the atmosphere around this lawsuit has, from the beginning, been comical. If the behavior set forth in these allegations is true, then the implications of the ease at which the financial professionals can manipulate the public markets are stark.”
Overstock has been on the Regulation SHO list, the government’s official list of illegal fails to deliver, for “only” 114 days, far less than 32 other companies. Martha Stewart Living Omnimedia (NYSE: MSO) and Krispy Kreme Doughnuts (NYSE: KKD), among others, have been on the list for 186 days. Legally, trades are supposed to settle within a few days time.
The affidavits, from former employees of Gradient, according to DealFlow state that the research firm provided “hatchet jobs” on companies chosen by clients “coordinated to deliver maximum trading benefits to them.” The affidavits state that reporters for TheStreet.com “leaked” Gradient’s negative reports to the market ahead of their release. It notes that Rocker Partners is the largest shareholder in TheStreet.com and that Rocker is a contributing columnist. The affiants also say that former TheStreet.com columnist Herb Greenberg had an office at Gradient where he ghost-wrote research reports for Gradient clients such as Rocker.
The former employees, one of whom had been fired after raising questions about Gradient’s practices, said the firm stated its team of 18 to 20 analysts were comprised of CPAs and CFAs when none of them had advanced credentials, and were instead recent college graduates with business-related degrees.
They also note that the research firm’s executives, Donn Vickery and James Carr Bettis, also managed hedge funds and a mutual fund that traded in the securities of companies covered by the research side.
If so, this, among the other allegations, is a violation of the “Standards For Independent Research Providers” at http://www.firstresearchconsortium.com.
Gradient is a member of InvestorSide, which told FinancialWire that a violation of its code of ethics, if proven, would disqualify any member from further participation in that organization.
Former employee Demetrios Anifantis, in a sworn statement, said that Gradient would regularly generate “custom reports” for clients, after receiving specific instructions from the clients on whether it should be a “negative” or “positive” report.
Many of the reports were redistributed to PIPES traders and hedge funds by Sagient Research, which distributes the Placement Tracker database of PIPES transactions. Sagient reportedly said it has not distributed Gradient reports since August, 2004. Release dates on the reports were said to have been often delayed for three to five days while Rocker and other Gradient partners secured short positions. These allegations were contained in several affidavits.
The affidavits said that an associate editor working with Greenberg, now at Marketwatch.com, Brian Harris, worked for Gradient to draft research, and had an office in a Gradient office in Seattle. It was noted that TheStreet.com removed Harris’ name as an associate editor shortly after Overstock’s lawsuit was filed.
The affidavits contain numerous other explosive allegations.
In other naked short selling developments, the Depository Trust and Clearing Corp., reportedly itself under NASD scrutiny for its controversial stock lending program that some, including an 11 state state North American Securities Adminitrators Association task force headed by Connecticut’s chief securities officer, and former NASAA president, apparently believe facilitates the illegal naked shorting industry, has been very secretive about the status of shares for individual companies, stonewalling even companies’ efforts to determine their true ownerships and short positions.
Brokerage and clearing firms are apparently under intense NASD pressure to settle failed short trades in Regulation SHO threshold securities or have their clearance firms do it for them at possible substantive losses.
The NASD is in turn acting under political and regulatory pressure from the 11-state task force.
Lambiase had publicly asked the SEC to “fix” the DTCC “problem” as it was considering the adoption of Regulation SHO last year, but taking a page from numerous U.S. Senators, he and other state regulators have grown tired of waiting for Regulation SHO to do more than simply shine a magnification light on the massive fails-to-deliver problem.
DealFlow said NASD officials are concerned that stock loan programs are being used to settle failed short trades in Reg SHO threshold stocks, which must be closed out voluntarily or through forced buy-ins within 13 days. “The regulators are concerned that the stock loan are being used instead of market purchases to provide the shares needed for settlement, creating new transactions that will ultimately fail to settle as well.”
The state regulators, DealFlow said, have been “highly critical of the SEC's decision to ‘grandfather’ settlement failures resulting from naked short sales up to levels that trigger threshold status under Reg SHO.”
NAASA was particularly concerned about Regulation SHO, because it excluded the small cap market from any meaningful regulation. “NASAA said the proposal included replacing the so-called ‘tick test’ with a rule that would provide a uniform price test using the "consolidated best bid" as the reference point for permissible short sales. This, however, would not address problems relating to the naked short selling of smaller, less liquid securities, because , NASAA argued, the requirement of the consolidated best bids meant it could not be applied to securities that were not subject to real-time consolidated quotes. That included Nasdaq Small Cap, OTCBB, and Pink Sheet securities.
NASAA also questioned the wisdom of grandfathering settlement failures under the threshold level, asking why the SEC was willing to permit significant settlement failures at all.”
“While there are instances when settlement may be legitimately delayed, existing regulations provide for extensions for settlement. If the Commission continues to allow settlement failures, it may well facilitate the harm that the proposal is designed to remedy,” Lambiase warned the SEC.
According to DealFlow, Lambiase urged the SEC to reconsider its stance regarding the role of the stock borrow program operated by the Depository Trust Corp. (DTC). NASAA wrote that as a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The utility of the overall proposed rule would be severely impaired unless the Commission undertakes to implement such a prohibition."
Brent Baker, an attorney with Woodbury Kesler in Salt Lake City and counsel to naked shorting target and eight-month old threshold list company Overstock.com, previously spent 14 years at the SEC, including time in the Division of Enforcement, was quoted as saying he believes that the SEC tried, with Regulation SHO, to put "their finger in the dike" but failed.
“Three or four years ago naked short selling was being perpetrated by promoters in the micro cap world," he says. "they would publish 'exposes' on the Internet... and they would bring pressure on these little companies."
“However, short selling has changed,” noted DealFlow. He believes the SEC does not realize that abusive short selling practices have been adopted by others and are now built into business models of large, mainstream hedge funds.
Meanwhile, the NY Post has reported that traders in Nasdaq stocks are racing to beat a rumored regulatory deadline to close out their positions — or take huge losses as clearing firms do it for them.
“Naked short sales are trades executed without borrowing stock beforehand. Naked short sellers can overwhelm an orderly trading market, since unlike traditional short sellers, there is technically no limit to how much stock can be sold short illegally, noted the Post.
The Post also reported recently that the NASD and numerous state securities regulators, led by Ralph Lambiase of Connecticut's Division of Securities and Business Investments, have vowed to increase scrutiny of naked short sales.
“A buy-in is the worst possible development for a short-seller, since he has to accept any price given,” it stated.
It seems that everytime the DTCC, which is also the target of numerous lawsuits brought by failed companies and a scorching expose in Investment Dealers Digest, gets under pressure, it begins striking out blindly in all directions. FinancialWire can often determine when the heat has been turned up because it is among the media, also thought to have included Dateline NBC, that begins to receive threats from the organization.
In February, the DTCC interfered with FinancialWire’s distribution to Investors Business Daily, and in the past week it sought once more to interfere with another distribution, saying that FinancialWire receives monies for its editorial coverage of the naked short selling issue.
Marshal Shichtman, Esq., attorney for FinancialWire, has been in touch with Proskauer Rose, the outside counsel for the DTCC, warning it of slander, tortuous interference with FinancialWire’s business and because the DTCC is owned by two SROs, the NASD and the NYSE, of First Amendment violations.
Shichtman will be similarly warning the SROs and the directors of the DTCC of what he terms their risks associated with the ruthless, reckless and irresponsible actions of their clearance entity.
In a letter to constituent investor advocate Dave Patch, whose persistence in criticizing Federal regulators over the past several years for shareholder losses at the hands of illegal manipulators was at times a lone quest, often covered only by FinancialWire, Connecticut Division of Securities Director Ralph A. Lambiase, the immediate past president of the North American Securities Administrators Association outlined for the first time the efforts a “working group” of state regulators have been undertaking to assail abusive market practices that Lambiase said has been directly responsible for “an unmistakable loss of investor confidence by the arguably millions of investors who have lost their monies.”
It was an unusual move by Lambiase to outline the states’ enforcement plans in a letter to Patch, who has been vilified and scorned by many top regulators and institutions for his efforts, which includes the maintenance of a website, http://www.investigatethesec.com .
Lambiase said that his efforts, and efforts of others, such as Tanya Solov, Director of the Illinois Securities Department, Tanya Durkee, Deputy Commissioner, Vermont Department of Securities, and Rex A. Staples, General Counsel for NASAA, was stimulated by Patch, and an ever-growing group of concerned citizens who have “continued to champion the issue of reform in the naked short selling area for so long,” and added that it has been those grassroots efforts that constitute the “primary reason we are beginning to see reform of any sort.” Lambiase was clear in stating that it is “your determination and persistence in seeing that this wrong is righted is in part responsible for my interest, as well as that of other state regulators.”
Lambiase, whose initial letter to the U.S. Securities and Exchange Commission stated that the SEC needs to look at the role of the Depository Trust and Clearing Corp. in allowing these abuse practices to continue, said that it seems “clear that had the SRO’s and the SEC exercised greater diligence in enforcing pre-existing rules, Reg SHO would likely have been unnecessary.”
He said his working group has begun meeting with SRO’s and issuers alike, and that it will “continue to exert substantial effort to remedy the remaining abusive practices in naked short selling until we are confident at the state level that the companines in our communities and citizens that invest in them will no longer be the possible targets of abusive naked short sellers.”
It had been previously rumored that the reason the NASD has been issuing subpoenas to a dozen or more brokerages over their “fails to deliver” and their failures to enforce buy-ins is due to those regulating at the Federal level not wanting to be trumped again by a state investigation such as occurred in several Spitzer reform efforts.
Lambiase so far appears to be taking the posture that the state group is ready to step in if the Federal regulators do not, thus “inspiring” the current efforts rumored to be occurring at the Federal level.
To make the point, he told Patch in the letter obtained by FinancialWire that “there remains a substantial distance between REG SHO and the ultimate goal of including substantive protections for small business issuers.”
It is these small businesses in our communities, Lambiase pointed out, “who take entrepreneurial risks to grow their companies through listings on the OTCBB and Pink Sheets. These small businesses not only provide employment for the residents of their communities, but also offer the general public the opportunity to invest in local businesses with promising products or services.
“While it may be true that a number of small companies lack the financial depth to succeed, they are nonetheless entitled to succeed or fail by their own honest business decisions and not as a result of the corrupt acts of abusive short sellers.
In what some believe is another swipe at the secretive DTCC, he said that “without transparency, we cannot, as yet, precisely identify each small business that failed as a direct result of abusinve naked short selling nor quantify the exact number of jobs lost to our local economies when these companies are forced to close their doors.”
In what is an unmistakable prod to the SEC, Lambiase said that institution is “moving slowly forward as Reg SHO in its current state is studied and debated seemingly ad infinitum. While slight modifications to the existing Rule may result from such an approach, a far more threatening pattern of abuse is certain to continue unless wholesale reforms are made to remedy the concerns of the small business community.”
He said that even Congress, whose members have also called the SEC on the carpet for the slow progress associated with Reg SHO may in fact be missing the point that “abusive short selling poses a direct threat to the economic well being of small business and the entire community.”
The 11-state task force reportedly was in serious strategy sessions a few weeks ago.
New York Post quoted one regulator as saying there is “an epidemic” of naked shorting. Regulation SHO has made that evident for the world to see. Numerous U.S. Senators have called the Regulation fully ineffective, and have repeatedly called upon the SEC Commissioners to get the practice under control.
The Post said that an SEC official confirmed to it “that no complaints have been brought in the nine months since Regulation SHO went into effect.”
It quoted one state securities regulator, Bill Reilly of Florida, as saying he expects the increased effort will result in more voluntary compliance from dealers, as well as enforcement activity.
That may or may not resolve the DTCC “problem.” Recently a stock transfer agent, Transfer Online Inc., had asked then-SEC Chair William Donaldson to put a stop to the control the Depository Trust & Clearing Corp. and Automatic Data Processing (NYSE: ADP) are fast gaining over the transfer business, and to demand DTCC transparency.
Excerpts from the letter, posted at http://www.faulkingtruth.com/Articles/LettersToEditor/1012.html , states: “Over the years as the amount of shares held at DTC has increased it has become more and more difficult to determine who owns the shares, who is trading them and if the trading is proper. This trend, and the resulting problems I will detail below, continues to increase because a minority of the total number of shareholders are reflected on the books and records of the corporation, most activity takes place behind the wall of ownership that is designated as Cede & Co. and neither the company nor the transfer agent has any access to the underlying information.
“Furthermore, DTC recently managed to put through a rule change (Release No. 34-50758A; File No.S7-24-04) that prohibits a transfer agent from representing any company who seeks to withdraw from the DTC system. This change effectively leaves companies with no voice or choice in the management of their stock and their ability to have any transparency as to what is actually taking place in the market in regard to their stock.
“I receive calls from companies seeking information as they watch millions of shares trade in a single day, who watch their share price decrease in value and who have no access to information regarding who is behind the trading of these shares, or if in fact the trades are at all legitimate. As the system now operates, most companies have a large percentage of shares on their books registered to Cede & Co.
“Given the importance of shareholder voting and communication one would assume that the same requirements placed on transfer agents as to accuracy and reporting would be placed on ADP and Cede & Co. as they usually hold or service the majority of the shares owned in any given company.
“I have found; however, that when presented with the tabulation reports from ADP the share totals they report sometimes exceed the total number of shares outstanding for the company. Let me restate this because it is a very important part of my concern about a system that is more and more headed in the direction of increased control by DTC. The shares presented by ADP, that are the shares voted by the brokers on behalf of the shareholders for whom they hold accounts, EXCEED when added to the shareholders of record the total number of shares outstanding.
“Where are these extra shares coming from? Why are there no controls on the number of shares held in the nominee name Cede & Co. vs. the ownership on the books and records of the brokers and why is the company not privy to any information unless it pays whatever fees it is told it must pay by the organizations that control the data?
“In fact, as the system is evolving, DTC is de facto becoming the largest transfer agent in the industry even though it is an organization formed by and working for the interests of the brokerage community. If, ultimately, the S.E.C. is in place to protect investors then this issue can not be ignored because in the end when the market is completely under the control of the brokers and the organizations that represent them then the market can neither be transparent nor fair.”
The DTCC actions in the StockGate mire are the most serious, if not notorious since the agent of two SROs, New York Stock Exchange and NASD is also peopled by some 21 directors whose companies, such as Merrill Lynch & Co. (NYSE: MER), State Street Corporation (NYSE: STT) and Goldman Sachs (NYSE: GS), are unlikely to support the DTCC in its media censorship.
DTCC board members include Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); and Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C), Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).
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CMKX - They said all along... "If you're in, you win".
It's nice to be a winner!!!!!!!!!!!
http://www.paherald.sk.ca/default.aspx
...
The day before CMKM withdrew its appeal, Vancouver-based Entourage Mining Ltd. issued a release saying it had acquired CMKM’s 36 per cent interest in some diamond claims covering about 200,000 hectares in the Fort a la Corne area 70 kilometres east of Prince Albert.
The release also said Entourage made an agreement with a numbered company, 101047025 Saskatchewan Ltd., to acquire an 80 per cent interest in other diamond claims in the area covering more than 400,000 hectares.
Those claims were previously the subject of an agreement between the numbered company and CMKM in 2003, says the release.
In documents filed with the securities and exchange commission, CMKM said it is in default under an agreement with another company, United Carina Resources Corp., regarding exploration of claims near Hatchet Lake for uranium.
Hatchet Lake is 600 kilometres northeast of Prince Albert.
The same day as the diamond deals were made, CMKM assigned its 50 per cent interest in United Carina’s claims in the Hatchet Lake area of Canada to Entourage.
In total, Entourage agreed to issue 50 million shares of its common stock to CMKM in exchange for the property interests.
“We cut a straight-up deal,” Gregory Kennedy, president of Entourage, said in a telephone interview.
Kennedy said he has known Casavant for many years but that the transactions were done at arm’s length.
“We think these properties have a lot of merit.”
Other documents filed with the commission by CMKM say Casavant will remain the sole officer and director until the company’s affairs are wound up.
The filings also say, as a result of health concerns, Casavant intends to resign as the sole officer and director as soon as all shares of Entourage and other assets of CMKM have been properly disbursed to its stockholders.
A future release or security exchange commission filing will provide information about the procedures for the distribution of Entourage shares, say the documents.
CMKM, Casavant and other company officials were also hit with a cease trade order in 2004 by the Saskatchewan Financial Services Commission.
That order was issued because the parties were selling securities in Saskatchewan without being registered to do so, trading securities without filing a prospectus and making misrepresentations about securities, said the SFSC.
Re CMKX from Zeninvestor on the Pro32 board ...
The Maheu Bittchslap
« Thread Started on Today at 13:57 »
This is what I believe is going on right now:
1. The SEC is probably in private talks with the British Columbia Securities Commission to try to get an investigation launched against Entourage or throw some other roadblock in the way of Entourage. This is a political game imo now and I believe some high heat is getting thrown around in some high-up places.
2. Some of the short holdouts may be coming to the table, but they may first be waiting to hear back from their SEC/DTC cronies on how things went with the SEC and BCSC. As the days move forward, this situation may become potentially very, very suffocating for the shorts. What if USCA and GEMM were rolled into EGTMF and the shorts would have to cover all the outstanding dividends on all naked shares of THOSE companies too?
Lots remaining to happen. But I do believe a strategic map of "if this, then that" type decisions is unfolding that should lead to a near-term resolution. The reason perhaps the company can't say much is that they probably don't honestly know how the SEC and shorts will choose in terms of which poison, how long and how painful they want it to be. I agree that the 28th MAY give us some more information. In all likelihood, though, it won't be revealing. Just more information that may show which way we're going, but not yet the end destination.
All you faithful CMKX shareholders ...
By: richerob
26 Oct 2005, 03:36 PM EDT
Msg. 273101 of 273183
Jump to msg. #
I'm thinking Maheu, Stocklein, Glenn left absolutely nothing to chance for the squeeze on shorty. IMO the next 8K will make sure EVERY ANGLE IS COVERED to NOT ALLOW SHORTER TO GET OUT OF COVERING CMKX. What I mean is they are about to unveil every possible type dividend in the assets ex. unrestrict current dividends, offer some cash dividend, offer 50 million entourage dividend, offer SGGM dividend, offer revenue from american shaft, and ecuador mine, offer $10 million cash dividend that was given to cmkm last year from SGGM which is an ASSET belonging to CMKX shareholders, offer the remaining GEMM 2 dividend which is still on stocklein's desk, offer the $15,000,000 from U.S canadian minerals as cash dividend for the 5% claims of cmkx, etc. etc. etc.
Do you now see what is coming down the pipe in the NEXT 8k....that is when you better make sure you HAVE DEPENDS on because your eyes may pop out$$$$$$$$$$
DO you see why Frizzell is now on the company's side? NO hesitations at this point....
GO CMKX...SQUASH SHORTY ONCE AND FOR ALL:)))))
See Dave Patch on CNBC:
http://www.vmsdigital.com/MyFiles.aspx?Onum=8FD88353-D1CF-49AB-96FB-F5B3D748534D
Dr. Patrick Byrne's Message to the Motley Fool Board
Usually Sanity Check is my bully pulpit, from which I pontificate, complain, berate, and mock.
Especially mock. Nothing drives powerful forces up to no good crazier than being mocked. It is almost as though once you have the tens or hundreds of millions of dollars, the next must have is the awe and respect of a breathless public. And when a fun-filled rodent mocks you, or shines a light on your ugly hypocrisy, that apparently doesn't go over very well.
Which is part of the joy in doing it.
This segment of our regular broadcast will be devoted to the enormously erudite and insightful words of a man I have grown to respect, both intellectually, as well as for intestinal fortitude and true moral integrity. As one goes down the road of life it is all to often that our actions seem small and pointless, and our will to excel or attempt the daunting diminishes over time. Dr. Byrne has a way of demanding more out of himself, as well as those fortunate enough to share his company, and by doing so, leads by example. That is rare. Rarer still is a guy who does the right thing, even when he knows doing so will be invite character assassination, will subject him to enormous hardship, and will gain him little or nothing personally from doing it. Dr. Byrne is without question one of the rare ones.
This was posted by Dr. Byrne on the Motley Fool message board today, and represents his capsule summary of the latest rounds of slanderous charges against him, as well as his responses. It should be required reading for anyone that questions his character, his abilities, his commitment, or his honesty.
Without further ado, here is the content of that post:
" Dear Fools (Motley and Otherwise),
Bill has written an excellent piece on the battle we are waging. In that article he quite fairly suggests that something about the news coverage so far seems strangely misguided, but that also, my own over-the-top behavior my be hurting my cause. Again, it is fair to say that, but I would politely respond that my behavior is not so over-the-top is many would pretend, as should be clear when all the truths are known. However, Mr. Mann has given me an idea: I am going to answer some of the flak that gets shot at me by various parties, and then ignore it in the future. I do this both to give the general reader a more detailed look at my arguably over-the-top behavior, and also so that, when folks come back and post and repost the criticisms, perhaps some friendlies can answer for me by copying and pasting from what appears below.
Why do I do this? Because I feel that this is how conversations with SOME (unnamed people) go:
Me: I went out last night to see a movie.
Hostiles: But you were seen at midnight in Howard Johnson's having an ice cream!
Me: That's right, on the way home I stopped at Howard Johnson's to have an ice cream.
Hostiles: But why'd you say you went out to see a movie when you had an ice cream?!? Why didn't you say you had ice cream the first time? And besides, how could you have had an ice cream at the movies? I've been going to movies for 25 years and they don't serve ice cream there. Well, they do in some, but which movie theater were you in having ice cream anyway? I bet it does not serve ice cream and besides, you were wearing a blue shirt, but three years on a conference call you said you prefer red to blue, so were you lying then or now? And what about the ice cream?
In other words, sometimes sincere, sometimes trivial, sometimes self-contradictory stuff which I generally ignore for three reasons:
1) I suspect it is transparent to most adults, and so they don't need me to answer it anyway;
2) When I assume the best and answer it anyway, the person just goes on and on anyway as though I have not answered to drown out my response, or finds something else in my answer to jump on, which leads me to...;
3) I suspect at times that the writer is just trying to waste my time and obfuscate any informative discussion. Thus he does not really believe what he writes anyway, and thus I should not waste time answering points that are not sincerely being asserted. That said, I will, for the record answer all the things that have been bandied about that I can remember at the moment. I will do so clearly, and then I will ignore further discussion on them: again, I ask of readers who follow these matters, when they see the kind of behavior described above, just cut and paste from below and answer for me, to save me answering the same (often trivial or harassing) questions over and over:
A) The SPE for the diamond: we have a great relationship with some folks in the diamond industry who wish to remain in the background. We need their expertise, they need our channel. The SPE gave us a way to compartmentalize our work together and get the economics extremely clean and auditable.
B) Press release: We release news when we have it. We had a 5 week hiatus in uploading products, but as we got that part of the system nearly working it occurred to us to do a marketing blitz about it. We send emails Monday, Wednesday, and Friday, and so decided to devote one of them to pound a "largest inventory upload in our history!" theme, along with a bunch of messaging on our home page, along with some messages to our affiliate marketing partners (who focus a lot on new inventory), along with a press release that we hoped would get picked up in a few newspapers and drive some consumers to the site.
I reviewed the marketing email theme and the home page messaging, and wrote the bones of a press release over the weekend. But the inventory upload was not working by Sunday (though we hoped it might be), so scratched it for the Monday email. IT kept working away on the program and we hoped we could upload Tuesday, but the program kept clogging, so we scratched Wednesday. Thursday it began working in fits and starts, but did not get out of test mode until around 11 PM Thursday night. They began uploading products through the night, saying it would take until sometime Friday for all to be complete (I believe there were tens of thousands of products). Someone in marketing made the (correct) decision to release the Friday marketing email to about 6 million people, but set it to go later in the morning than our normal email, I believe, to give time for more products to be populating the site. The product loader continued running at full blast until noon on Friday. We knew we had uploaded somewhere between $16 million and $40 million of inventory, depending on what one counted and how one counted it, and asked for IT to run a query to get an answer. They came back at 1:40 PM with the number (I think it was $30 million). We are in Utah: 1:40 PM is 3:40 PM in New York. Our guys put out a press release twenty minutes later.
Somewhere late in that process it occurred to us to add to the end of the press release a section for the benefit of shareholders, filling them in on internal events, as is my habit with quarterly earnings letters. Also, somewhere late in that process when it became clear when we would be hitting the "Go" button it occurred to some among us: "Wait! If you release news on a Friday afternoon people say you are trying to bury it." I gave that objection somewhere less than 10 seconds of consideration before deciding to ignore it for the following reasons:
i) It is a dumb convention:
_____a) It dates from the days of print journalism;
_____b) The rest of the world works on Friday afternoon until 5: so can Wall Street.
i) I don't care about Wall Street conventions anyway (anyone notice how we went public, or our earnings letters, or our earnings calls, etc.?)
iii) It seems right to release news when we have it, and to ignore all such considerations anyway (with the exception of not releasing news on weekends, and the possible exception of placing important news at the beginning or end of a trading day);
iv) If we did not release it Friday we had to wait until Monday, but the whole point was to get it to coincide as closely as possible with the 6 million recipient marketing blast and the home page announcement. Now among my colleagues there may have been some whose reaction was, "Perception is reality." The mere fact that some will perceive it as objectionable means that it IS objectionable!” To which my internal response was, “Above nearly any expression I can think of, I detest 'Perception is reality' above all. Reality is reality, perception is perception: get that neo-Kantian drivel out of here (Immanuel Kant is the enemy of the human race, but that is for another day). I deal in reality, not perception. Etc.” Well, my response was not so philosophical, but that is about what I was thinking. (If you had a choice between doing A and B, and you knew A was the right thing to do and B the wrong, but you knew that the arrangement of facts was such that the world was going to see A as being wrong and B right, which would you do? You do the right thing and take your lumps.)
Of course, the usual suspects showed up on blogs and message boards within a few days: "Can you believe that they ignored a convention of Wall Street and put out news on a Friday afternoon?!?!?!? Oh my God!!!!!!!!!! Don't they know that there is a convention of Wall Street that says you don't do that?!?!?! And they ignored it?!?!?! Oh my God!!!!!!!!!! How could anyone ignore a convention of Wall Street?!?!?!”
C) Moles and disinformation: this is one of those things that I explained on the Miscreants' Ball conference call, knowing full well that the bad guys would twist it all around and make hoo-hah about it. But consider: in Bill Mann's excellent piece on our three affidavits one of his most telling points is something he puts quite subtly. "Unlike a lot of the silliness in the media relating to Overstock, this complaint is not frivolous on its face, and although Overstock will need to prove its allegations, the case must be taken seriously. The question to us is why the atmosphere around this lawsuit has, from the beginning, been comical."
I told this story with care on my Miscreants' Ball call, and will tell it again with greater care here. I ask the reader to consider it against how it was treated by a few members of the "press". Compare this story to what they wrote, for it perhaps gives a road map to who the bent journalists are.
Sometime last autumn I came to suspect I was being bugged because in a phone call to my girlfriend (Gina, the woman in New York who runs a restaurant whom I have mentioned in a conference call or two) a figure of speech I used showed up on the message boards in a posting from a basher. I do not remember the expression, but I recall it was neither a common one nor a really arcane one. I think it was something along the lines of, "Such-and-such an idea of mine really sh-t the bed." A few days later, an attacker on Yahoo (the message board was not so clogged then that I could spend 20 minutes once or twice a week and catch up on it) then wrote something like, "Byrne's idea on such-and-such really sh-ts the bed." I don't recall the idea or if this was the precise expression, so I am just trying to give a feel for it: the expression was just odd enough and the Yahoo post just dead on enough that it piqued my suspicion.
About this same time, as you will understand when the whole story gets told someday (I hope Brad Pitt plays me in the movie!), I began to get a lot clearer picture of the players involved in the Miscreant's Ball, including certain professionals who have a reputation for being as crooked as the day is long and who are quite capable of bugging phones and apartments (and whose modus operandi includes placing moles).
In any case, when next I saw Gina, we agreed that we would test this occasionally and try to confirm or falsify it. I considered using financial information, but decided against it for two reasons. First, it gets stale within months, and if I lied one time ("Gina, we are having a terrible Christmas!") and then later came out with a good one, the miscreants would know I was on to them. Secondly, if I did it and people (even miscreants and blackguards) started trading on it in the marketplace, then it would be like poisoning a town well supply to get at a few hooligans. So if I could not use financial information, I had to use personal information: thus, we agreed on "cocaine" for the cell phone and "gay" for the landline, that periodically we would put that information down those channels and see if it bubbled up anywhere. Again I apologize to anyone offended by appearing to equate the two: I just needed two things that, if they appeared, I would have no question about where they came from nor would I care if they appeared. (Incidentally, it was in that context that I mentioned on the Miscreants Ball conference call that with the exception of one evening I have never even seen coke in my life, so if the rumor appeared I would have no doubt where it came from: in the hands of the miscreants that turns into "Why is Byrne denying he is a cokehead? He must be a cokehead!").
Within a few weeks I did start noticing occasional message board posts along the lines of, "Byrne is such a f-g." But nothing decisive, and for all I know it was some 15 year old. Then I got a call from my old dissertation advisor from Stanford, who now lives in England. He told me that a woman had called him claiming to be an investor doing due diligence, and wanted to ask about me. She had asked him a lot of personal questions about me, including was I into drugs, especially cocaine. Again, nothing conclusive (although such due diligence is common with privately held companies, and not the kind of thing that mutual funds or legitimate investors do when considering buying stock in a public company, in my experience).
Then in this July's conference call I described how tightly held OSTK is by myself and my parents, my brothers and cousins ("folks I had taken a bath with" when I was a toddler), a few friends, and 10 institutions. Almost immediately a reporter named Carol Remond, whom is widely thought to be in league with the same hedge funds I am battling (look for companies that David Rocker is short that Carol has written stories on), starting calling people to tell them that the phrase "folks I had taken a bath with" was a reference to (I kid thee not) a gay bathhouse cabal which I run. Again, I kid thee not.
Now is any of that decisive? No. As I say in my conference calls, "You now know everything I do." Well, not actually, but you know a lot.
I also began hunting for a mole within the company. There are various ways to do this that I cannot go into (except to say that we considered using financial misinformation within the company and then tracking where it leaked, but discarded it for the same reason mentioned above). Also, I do not want to identify the individuals at this time so I must be circumspect in how I tell this story. In any case, the hunt was on and went nowhere for some time. Then a funny thing happened: after a lot of negatives, suddenly one indicator went strongly, strongly positive for a couple people. These alarms concerned apparent regular contact with certain elements in New York, along with unusual and ultimately inexplicable financial matters. Fill in the blanks yourself (but please know that "elements in New York" refers to people other than David Rocker).
At roughly the same time, one of those people requested a very odd transfer within the company. I do not want to identify this person, so all I will say is that the request was as strange as if someone working in the inbound trucking department suddenly wanted to work in the department that creates art for the home page. Except that the arena this person wanted to work in was one that would provide detailed information on all the workings in the company. Behind the scenes I made arrangements for the request to be approved. The person assumed the new position and began acting in ways that mystified and alarmed colleagues. Within Overstock, only two people besides myself knew of my suspicions, yet the four people close to this person began sounding the alarm that some extremely odd behavior was occurring.
I repeat, this is a person who had access to our daily financial information, as well as a weekly packet that covers everything going on within the company. Who was having, I believe, regular contact with a certain hedge fund and related party in New York, through a channel they had disguised only with some effort. And who had some quite strange personal financial dealings. In a perfect world or in different settings we could have played various games for a long time to sting the miscreants. However, I could not use financial information (for the reasons given above), and was cognizant of the responsibility to put an end to a leak that I believe probably existed since January (that is, I suspect a hedge fund has been receiving all our financial and operational details since January, on a weekly basis). Also, I was tired of dancing with these folks. So I confronted the person. Again, I do not wish to disclose identifying details, so I will recount the conversation in the framework of Charlie Brown.
"Charlie, do you know Linus, Snoopy, or Lucy?"
"No, I never met Linus, Snoopy, or Lucy."
"OK, here is a photo of you with Linus."
"Oh that's right, I do know Linus, but I don't know Snoopy or Lucy."
"OK, here is information that you and Snoopy own this bank account together."
"Oh that's right, I do have a bank account with Snoopy. But I don't know Lucy."
"OK, here is where you and Lucy have a dummy corporation together."
"Ah, yes we do. I forgot."
"OK, what does the company do?"
"I don't really know."
Seriously, it was that bizarre a conversation. With three witnesses. Obviously, the person is no longer employed here.
Incidentally, we alerted authorities, who have tried to question this person: the person has refused to be questioned and instructed the authorities to contact a certain lawyer (the call from the law seems to have been expected). Even that is relatively strange and sophisticated behavior in such circumstances for a person who had been working in the job equivalent of inbound trucking.
D) IT? Stuff happens. Shawn is awesome, and got us through a massive re-architecture over the last two years. First, he got us through a period when our then current systems were redlining so badly we were in danger of imploding. Second, he got us onto a set of systems that scale horizontally and vertically for the foreseeable future (see my Q2 conference call for greater detail). Third, we had reached the point where our code writing was log-jammed: it was taking longer and longer to add new features besides so much of the code was just hard-wired patches. This is not completely fixed yet, incidentally: still, large elements of our code base have gotten transformed, made modular, upgraded, or been replaced by professional third party packages. Not bad for two years' work. And not bad for a tiny fraction of the cost of our competitors.
That said, Shawn has been begging to step down for a year, either to go back into business development or take a leave of absence. I described in my Q2 call that there was one more large package to be delivered, probably in August: he delivered it and left for a vacation that might have stretched out to a couple of months. At that time I appointed Sam Peterson Acting CIO, thinking we would sort it all out when Shawn returned. In fact, however, the last package did not really spin up as well as we had hoped, and after a few weeks Shawn canceled his leave to come back and help. He has been here a few weeks, things are much better (albeit not completely resolved), and so he has taken a leave of absence. Sam is CIO (although, since we eschew "C" titles here, officially it is "SVP Technology").
I do have a non-IT mission for Shawn that will keep until he returns, if he decides to return: he has put in 5 hard years working for Overstock and is due a rest. Since our executives rarely if ever sell stock, and since I keep buying it, the miscreants claim that there is some kind of "blood oath" among us not to sell stock. Shawn in fact has only bought stock, except for the time he exercises options to buy a car, and the time he exercised some to get $50k to fund a small restaurant in his hometown.
Yet Shawn met a girl in Europe and wanted her to come back with him to the USA when he was done his vacation. He needed money to move out of the Marriott Residence Inn (where has lived for 5 years) to buy a home and her a car. So he sold 2,700 shares, some or all of which were shares that he had personally bought in the open market at $11 a couple years ago. This leaves him with about 60,000 options (if memory serves), at least half of which have vested and which he could have cashed in for half a million to a million, but which he choose not to do. He got off the plane and placed an order to sell some shares because our blackout period was about to go into effect (September 15), so he could have the funds to move out of the Marriott and find a home when his gal showed up. He placed the order before even being back in the office, and before he was aware of any inventory uploads or marketing blitz the following Friday.
The reason Shawn sold when he did, then, was that we have about the most restrictive blackout period in corporate America, and if he did not do it then he would not have been able to sell a share until late October or early November; he had a gal moving over from England, and did not want to start off with her in the same Marriott room he has been living for five years; and he was not aware of quite what was going on in the office.
That said, Shawn has now split again, and does not expect to come back. When Shawn left he reminded me of what Jason said when he left. Jason Lindsey, you may remember, was my partner in getting Overstock off the ground: he started as CFO but became President to my CEO, but resigned almost immediately, giving the miscreants opportunity to rail about that, of course. What actually happened was that (as Jason has given me permission to disclose) his wife turned out to have a hole in her heart and he needed to take care of her and his family, and when he came and asked for a few weeks off I suggested he feel free to leave and attend to her full-time. Before he left he said, "Dude, I feel like there is some wild bull that no one else has ever ridden. All these fancy cowboys show up with million-dollar diamond studded saddles and get thrown in seconds. There is some fat slob in the corner who has wasted billions and the crowd fawns over him saying, 'Look at gracefully he sailed into the pile of manure! Look at how quickly he good he looks as the clowns carry him out of the arena.' But here we are, we show up like Mike Tyson wearing a pair of black shorts and some sneakers, and we ride this bull like no one ever rode it. We go like a few years ago no one thought it could be ridden. But all the knuckleheads in the stands say, 'Oh but you said you were going to smile over your right shoulder when you rounded and you smiled over your left, you were supposed to hold that wave a little longer than you did.' Why do you want to work for these jerks another day?" That pretty much sums up Shawn's attitude as well.
The quarter we are in (q4 2005), I expect to reach an interesting mark: we should be somewhere between 1/4 and 1/3 the size of Amazon in North America (in about half their lifespan). We have been growing since we went public at a rate of near 100%: hypothetically, if we continue at 75% we catch Amazon North America in size in about two more years (q4 2007). Our gross margin is quite close to theirs, and has even passed it in at least one recent quarter (put their fulfillment back into COGS to get an apples-to-apples comparison with ours). We have done this on about 1/15th of their corporate G&A, 1/25th of their technology spending, and 1/30th their losses. And we have done it while being true the whole way to the principles of fairness to the common investor: from the way we went public through a Hambrecht Dutch auction (though we were warned that we would be a Wall Street pariah for doing so), to the degree with which we treat shareholders like true owners (though every securities lawyer we knew warned of the high exposure in doing so), to my decision to risk fortune and reputation to start a barroom brawl against a group of folks who for years have used Wall Street machinations to suck the blood of small companies, though most think suicidal of me to do so (wait until you read the affidavits before you make up your mind on that one).
So a bunch of quisling bloggers, lapdog journalists, and hedge fund shills vilify me, lie about what I say, smear my colleagues as strippers and what-not, and try to spew as much mirth, mockery, venom and distortion as they can to prevent any discussion of the claims, which as Bill Mann says, are really quite straightforward. Well, boo-freaking-hoo. Go figure. Never saw that one coming.
Anyway, I hope that this gives folks who want to understand what is going here the psychic inoculation they will need for what the future holds. And I am not saying that everyone who criticizes me on these boards is a shill, but the way: some may be quite sincere. It is hard for me to tell at this point. But if anyone wants to use any of this material to answer either the the Yahoo jackanapes on my behalf, or the putatively sincere ones, I'd be much obliged.
Respectfully,
Patrick
http://bobosrevenge.blogspot.com/
Janice .... it's your fall they're all waiting for.
Tuesday, October 04, 2005
The OSTK Affidavits - Nuclear Detonation in Hedgeland
I just got finished reading the October 1, 2005 edition of the PIPEs Report, and its summary and dissection of the infamous OSTK affidavits, which are apparently a big part of the evidence against Gradient Analytics and Rocker Partners.
Now, I may not know much about SEC regs or even fair business practices, but I do know that if the charges being leveled in the sworn testimony are true, that some very bad behavior has been going on for some time, and that the company has indeed been harmed, as have its shareholders, by a group that cynically manipulated research, as well as the press, for their own enrichment. Everything from Gradient running hedge funds that invested in the stocks that were being "researched" to enabling hedge fund clients to write their own research and publish it as Gradient's, to misrepresenting their staff as CPA's and CFA's when they were in reality college kids, to holding reports to allow the hedge funds to take short positions - what seem like, if true, an awful lot of 10(b)5 violations, not to mention good old racketeering, to this admitedly untutored opinion. So when do our brave regulators get on this and start doing their jobs? Or do they just pretend that the allegations haven't been made, and keep trying to find a way to hang Dr. Byrne for having the temerity to shine a light on the cockroaches? What's it going to take for them to do their GD jobs?
I particularly liked where Gradient is claimed to have given Herb's editor office space, paid for by that firm - and ostensibly while he was busy writing nasty reports that went on Gradient letterhead. Now, is that bad? I mean, if you have a financial journalist who is bashing the company relentlessly, who is known to be a friend of the biggest short in the company's stock, would it cross any lines to have his editor working out of Gradient's offices?
Help me out here.
I get this odd feeling that the reason the messengers have been shot by all of the financial pundits who are friendly with this group is because they know that there is no way to explain away the charges, no facile aphorisms which will trivialize the charges of frontrunning customized reports designed to negatively impact the company's stock, and slandering companies for profit, and all the rest. And there is always Herb's editor working out of Gradient's offices. Or Gradient ostensibly running money out of their offices while issuing "independent research". And the list goes on, and on, and on.
No wonder they want to make Byrne look like a kook and spend a lot of time on the Easter Bunny's favorite color.
Who would want to have to confront the charges in the affidavits? They are wildly damaging, obviously ethically over every line one can think of, and likely criminal (I don't know, not being an attorney, but they seem criminal to me - and if what they are accused of isn't against the law, my question is, why isn't it?).
So it will be interesting to see what the spin squad comes out with now that the affidavits are out there in the public domain, to see how they explain Herb's editor working out of Gradient's offices, to see how they rationalize frontrunning the reports, allowing the hedge fund to write the reports, etc. - whether that is all OK, and acceptable behavior - particularly from the WSJ, who seemed way more interested in the ex-employees and any dirty laundry they could dig up on them rather than on the actual charges. The WSJ and the Post both seem to be shocked that whistleblowers tend to be disgruntled ex-employees rather than the CEO's of the companies who have been up to no good. What a surprise. How unusual. I guess they never saw Norma Rae, or followed the Deep Throat thing, or paid attention to the mutual fund frontrunning scandal - you know, little things like that.
I just can't wait to see how long it takes the AG's of the relevant states to haul some asses into court and demand some explanations. But that is just me. Maybe enough money and power buys you immunity from the long arm of the law.
Again, I have no way of knowing if the charges in the sworn statements are true, but I do have to wonder that anyone would go out on a limb and go on the record making these allegations if they weren't.
So have at it, guys. I'm sure Jeff Matthews will have a smirking retort - although it is noteworthy that Herb, who is always game for snide snipes at Dr. Byrne, didn't comment when contacted by the PIPEs Report. Neither did his "editor". Suddenly the whole glib gang has lockjaw.
I guess the strategy now moves to the timeworn "deny everything, keep quiet, demand proof, and blame everyone else" strategy that has been the modus operandi of every perp ever accused of anything on Wall Street. They've had months to attack the messengers and claim that everyone connected with the case is a nut or a fraud, and that hasn't altered the contents of the affidavits nor the damage of the information contained therein, so one wonders what is next - you just know that the fabled countersuits will claim that all the perps are victims, innocent babes being tormented by the bad old lawyers and the demon company with the nutty CEO.
Let's see how that plays before a jury. I'm going to bet that a Marin jury can see through all the bombast to simple right and wrong.
It's pretty clear to me.
But then what do I know?
http://bobosrevenge.blogspot.com/
SEPTEMBER 27, 2005 - 14:09 ET
Entourage Mining Ltd.: Sandstone Boulder Sampling Successfully Defines Three Uranium Targets in the Hatchet/Wollaston Lake Area of Northern Saskatchewan
VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Sept. 27, 2005) - Entourage Mining Ltd. (the "Company") (OTCBB:ETGMF) has been informed that United Carina Resources Corp., has received favorable results from the 2005 boulder sampling program on its uranium property situated along the eastern edge of the Athabasca Basin, in the Wollaston Lake area of northern Saskatchewan. The property is located approximately 30 km north of major uranium production centers near the Rabbit Lake and McClean Lake mills and their associated high-grade unconformity uranium deposits.
The recent exploration program consisted of sampling Athabasca sandstone boulders for geochemical analysis. Sandstone boulder geochemistry is used to map regional variations in clay minerals and trace element levels to detect hydrothermal alteration associated with unconformity-type uranium mineralization. Important alteration signatures in this part of the Athabasca Basin are elevated proportions of illite and chlorite clays and above background geochemistry for boron, lead, arsenic, molybdenum and uranium.
Previous work identified five areas requiring detailed exploration. This summer's exploration program highlighted three areas (Areas A, G and a new area - Le Drew) having anomalous sandstone boulder geochemistry defining targets areas for follow-up exploration.
Area A
Encouraging results were obtained south of Hatchet Lake in an area west of Turkey Lake. Sandstone boulders were found exhibiting alteration features and geochemistry common to all the unconformity-related deposits in the eastern Athabasca Basin.
Sandstone boulders found at one sample site have outstanding visual alteration features including gray pyritic sandstone, silicified sandstone and a boulder with secondary "hydrothermal" hematite. Boulders in the area have anomalous geochemistry, with boron values up to 26 ppm (median 6 ppm), uranium values up to 0.67 ppm (median 0.21 ppm), lead values up to 0.96 ppm (median 0.53 ppm) and arsenic values up to 0.5 ppm (median 0.2 ppm). The sandstone is moderately illitic.
Immediately up ice from the site and within the overall geochemical anomaly are two untested geophysical conductors. These conductors occur 10 km along strike of Areva's Moonlight Zone which has intersections up to 1.76% U/1.5m.
Sandstone thickness in the area of the conductors is estimated to be 50 metres.
Area G
Boulder sampling identified target Area G along the eastern edge of the Athabasca sandstone, south of Tromberg Bay. Geo-chemical values are up to 0.31 ppm uranium (median 0.21 ppm), up to 31 ppm boron (median 6 ppm) and the sandstone is strongly illitic. These values are associated with an untested geophysical conductor.
Le Drew
Boulder sampling highlighted the Le Drew Lake area, near the edge of the Athabasca sandstone. Previous work identified outstanding radon-in water (uranium pathfinder) anomalies. These were interpreted to coincide with the junction of two major fault systems. The boulder sampling confirms the presence of anomalous uranium values up to 0.89 ppm (median 0.21 ppm) and anomalous lead up to 1.17 ppm (median 0.53 ppm). A weak untested geophysical conductor is closely associated with the anomalous boulders.
The boulder sampling program found several other areas weakly anomalous in trace elements and these require more work. One of these is the South Bear property, with uranium values up to 0.56 ppm (median 0.21 ppm), lead up to 2.83 ppm (median 0.53 ppm) and one sample with 0.4 molybdenum (median 0.05 ppm).
United Carina plans to establish ground grids and complete geophysical surveys over the three target areas as soon as logistically possible. Following data interpretation, the resulting targets will be drill tested.
The Hatchet Lake property is currently 100% owned by United Carina and consists of four claim blocks totaling 41,864 acres. Entourage Mining Ltd. is earning a 20% interest in the property and CMKM Diamonds Inc. (Pink Sheets: CMKX) is earning a 40% interest in the property. When the earn-ins have been completed, the property ownership will be: United Carina Resources Corp. 40%, CMKM Diamonds Inc. 40% and Entourage Mining Ltd. 20%.
The Qualified Person responsible for the technical information in this news release is Mr. Daniel Studer, P.Geo. All samples were analyzed at the Saskatchewan Research Council (SRC) geo-analytical laboratories.
Entourage Mining Ltd.
Gregory F Kennedy, President
OFFSET TO BAD NEWS RELEASED by SEC
This post is courtesy of "RBITULSA" he is helping me on "PROJECT 100"
As the longest shareholder in this stock I have sought information for validation because I went thru it & did not understand what happened.
- - -
I bring this to you because contrary to volumes of bad sounding information about UC. This "annotated" email will go a long way to understanding CMKX current problem.
On Thursday, I emailed Jarvis requesting information relative his acquisition and subsequent sale of the CMKI shell. On Friday afternoon, he called me at my office. He was very congenial and forthright, and appeared to be sincere with his answers. He did ask up front if I was with the SEC or any other government agency. I explained to John that I was independently researching strategic delivery failures, that my overall interest was to gain a better understanding manipulative trading and financing, and that CMKX was quite the fascinating case study. The conversation lasted about 30 minutes.
The CMKI shell has been controlled by three different groups: The initial group appears to have been lead by an individual named Samuel Singal. This is true Jarvis later purchased the shell and then sold it to the "current owners".
Jarvis described Cybermark as "basically a laser tag company; a warehouse in Canada, with some technology and a few people". Jarvis said the company had some "VR technology that I was interested in". When he initially reviewed the company, it appeared that the "liabilities were balanced - the assets and liabilities were basically a wash".]This is also true & important as to state company was in 2000 Jarvis said it was not long after his acquisition that he learned that there had been some "let's just call it creative financing", some "debts that were not recorded" or disclosed at the time he acquired the shell. He also made reference to two S-8 deals that he inferred were initiated by Singal. Jarvis said "it didn't take long for us to figure out the shell was a bust. They had raped the community and the public." Jarvis said the filings were delinquent when he bought the shell, and had already spent "a whole lot of money" getting the books current. But the past "creative financing" deals were going to cost him "hundreds of thousands to clean up". Jarvis said during this time the O/S had grown to over 50 million shares, and "shareholder value went down by over 70%". Jarvis said he "sought counsel from the SEC" but they "couldn't care less", and "suggested I find a good securities attorney". Never-the-less, Jarvis had the "VR technology" that he needed, and began meeting with potential buyers for the shell. At this time I held 1m@ .0006after a 10:1 split in 10/01
According to Jarvis, he was approached by an "outside agency" from Las Vegas. I asked him for the name of this outside agency, but he would only reply that it was "really a group, a conglomerate of people". THE SELLERS He said several other people had interest in the shell, but the Las Vegas group showed the greatest "financial capability" to maintain the shell. Jarvis added that he was assured that they would "stay on the OTC", and he was "shocked that they would even consider a forward split" and, Jarvis assumed, if anything, they would reverse split, noting that he felt 50 million shares was too many.
At this point, Jarvis referred me back to the email I had sent him the previous evening, specifically to the list of names I had included (John Edwards, David Coffey, David Desormeau, Chris Jenson, Gary Walters, and NevWest Securities). I had also written the following in my email to Jarvis: "If there were “up-front” agreements or conditions at the time of Urban’s acquisition of the CMKI, or if there were pre-existing or concurrent equity financing arrangements, or share-structure conditions, your advice would be appreciated." CRITICALbegin-1 Jarvis repeatedly emphasized the point that, while Urban Casavant was "mentioned in the presentation", and was "part of the deal", Urban was never present at any of several meetings between the parties, which took place at his attorneys office, nor did he ever speak to Urban at any time during the sale of the shell. Jarvis says that at all of the meetings, Gary Walters was the "promoter of the deal". In addition to the meetings, all phone calls made relative the "conglomerate's presentation and acquisition" were between Jarvis and Walters. Jarvis further explained that deal, as presented to him, was for CMKI to "be a holding vehicle for several entities that would be pulled together". He commented that he was surprised when the "diamond mining basically took over CMKI". He was surprised that the FALC claims came into the CMKI shell. He again stated that this was not how the deal was pitched to him. CRITICAL end
As I recollect it, here is a rundown of the q/a when I asked Jarvis about "the other names":
Edwards: "There were always several people at the meetings, so he may have been one of those there, but I don't remember him being there"
Desormeau: "Never heard of him" (note: he even badly mispronounced his name)
Coffey: "Never heard of him"
Jensen: "Never heard of him"
NevWest: "I know of NevWest, but have no idea if they were involved somehow"
NOW speaking about 14c
I brought up the cusip change, and the cancellation of the preferred shares that occurred after "the conglomerate" had bought the shell. Jarvis replied that he was not involved at all with the company at that time, and had no idea why that happened. He added that it is common after acquisitions to "draw a line" between the old and the new shares, and speculated that it could have also been done to get out from under "those old creative financing deals".
There was some small talk that followed. Jarvis said that I was not the first to have called him about CMKX. He also said, as if he was surprised by it, that he has never been contacted by the SEC or any other agency, about CMKX. He advised me that, if I really wanted to get more information on CMKX, I should contact the SEC.
My Comments: (RBITULSA)
Jarvis makes his case that the CMKI shell was corrupt from the beginning, but it still looks unlikely (if Jarvis is being forthright), that any current problems are linked to problems that existed prior, or during, the latest acquisition. However, I believe that Samual Singal should be looked into, along with the "sophisticated investors" mentioned in the early CMKI 10Q's, on the outside (an unlikely) chance that the original "creative financeers" might be linked to Edwards or Walters or Hackman.
CRITICAL begin-2
It is, in my opinion, very significant that Gary Walters, not Urban, was the lead in the purchase of the CMKI shell. I never could understand how or why a "Rupert Perrin" would be named to the board of a diamond mining company. It does not appear to me that Urban has ever been in control of CMKI/CMKX. CRITICALendThis verifys that 14c states UC is AGENT between Seller who are running company & Claims-AS agent SELLERS Manipulated UC
In terms of Jarvis' description of this deal, it leads me to look at other filings, PR's, and other D/D, and summarize the following: It is my opinion that CMKX was to be a holding (parent) vehicle for at least the following shells: Microsignal (Nanosignal), Barrington Foods (USCA), Mirador (later replaced with SGGM), Juina Mining, CIM, and PCBM/SRCI. I would further assume that it was not long after the acquisition that the claims in the FALC became larger than the conglomerate as a whole, and the "strategy" was changed accordingly, and possibly to the chagrin of some.
The question I find most important, is as follows: What is it that links all these different entities together. What is the common element amongst all of them. Did they all share the same lender? The same broker? The same attorney? How did it come about that the above mentioned companies became linked together in a plan to be held under CMKI as a holding vehicle (who really owns the holding vehicle? I think the T/A data helps answer the question.
Noting that these notes and comments assume that Jarvis was sincere and forthright, I hope it helps with the general "big picture", and helps to put other issues in context.
Other notes:
From the 14C we know that Urban acquired most all of the original 14C claims between March and September of 2001. (Only a few claims by Morgain Minerals were acquired after September of 2001 – relative to the 14C claims).
CMKI was purchased by “the Vegas group” on September 30, 2001; AFTER UC had acquired most of the 14C claims.
The 14C majority shareholders were without question the same “Vegas group” (with Walters as lead promoter) that bought the shell from Jarvis. They were the one’s financing Urban going back as far as March 2001, 6 months before they acquired the CMKI shell, and 20 months prior to the release of the 14C.
“Vegas Group” = Majority Shareholders (86%) = Forbearance Agreement holders
Read these two excerpts from the 14C:
In order to effectuate the merger with the Casavant Mineral Claims, the majority shareholders' holding more than 51% of the voting shares approved an increase in the authorized capital of the Company from 500,000,000 to 10,000,000,000 with the cancellation of all preferred shares. Prior to this action, the Company had 3,000,000 preferred shares authorized with 1 Preferred share issued and outstanding. This Preferred share had been purchased by the majority shareholders in 2001 for $235,000 from the Jarvis Entertainment Group, Inc., thereby giving them voting control of the Company.
(6) Majority Shareholders (not including Urban Casavant and the Casavant Family) consists of individuals, corporations, trusts and other legal entities which do not control more than 4.9% of the Company's shares per shareholder. The Majority Shareholders acquired their shares by purchase in consideration of $2,000,000 in cash and the forbearance of monies due them for loans and services rendered in connection with the Casavant Mineral Claims and their assignment to the Company.
----------
As I gathered more data today it seems logical to me to offer this:
1-Urban has never been a great seasoned CEO
2-SELLERS understood this but needed claims and UC was their ticket
3-UC was looking for claim money
4- UC is really an Explorer
5-Conviently for sellers they got UC to agree to head the company, where they found it easy to manipulate him.
6-SELLERS did illegal acts and covered it up(like they had done in many company’s in past
7-URBAN FOUND OUT
8-URBAN called someone for help (insert noahltl) recent post"STING or SCAM
VAN
Coastal Holdings, Inc. to Form Joint Venture with Russian Oil and Gas Company
2005-09-09 09:00 ET - News Release
HOUSTON, Sept. 9, 2005 (PRIMEZONE) -- Coastal Holdings, Inc. (Pink Sheets:CSJJ), today announced that it has reached preliminary agreement to form a joint venture with a Russian oil and gas company.
Under the terms of the agreement, Coastal Holdings will assist in the financing of the joint venture by sourcing investment capital from the equity market and in identifying a suitable location for the development of an oil refinery. In return for its investment, Coastal Holdings will hold a percentage working interest in the joint venture. The joint venture involves the development of an oil refinery in Eastern North America to expand the refining capacity of the Russian oil and gas company. This established company currently has leases on several crude oil slits and has signed contracts to supply major refining factories and gas stations in Russia. The Russian company presently supplies mazut and gasoil to Eastern Russia and is licensed to export petroleum products.
Vice President of the Russian company, Mr. V. Politanskiy stated: "We are pleased to be working with Coastal Holdings on this major project and with their help the development of our company will proceed more rapidly than at present."
Coastal Holdings CEO Andrea Cortellazzi stated: "This is a very attractive investment to add to Coastal Holdings' portfolio. This is a first step for the company towards the establishment of an oil and gas division, which we foresee as a profitable one for shareholders. The name of the Russian oil and gas company and proposed location for the development of the oil refinery will be disclosed to shareholders upon completion and signing of a MOU."
For more information please contact CEO Andrea Cortellazzi at (514) 288-9699 or visit the Company website at www.coastalholdings.com.
Forward-Looking Statements
Please be advised that statements made herein, other than historical data, constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those stated or implied by such forward-looking statements. The potential risks and uncertainties include, among others, potential volatility in the company's stock price, increased competition, customer acceptance of new products and services offered by the company, and uncertainty of future revenue and profitability and fluctuations in its quarterly operating results. Please also be advised that the company's stock is not currently registered with the Securities and Exchange Commission.
CONTACT: Coastal Holdings, Inc.
Andrea Cortellazzi, CEO
Phone number (514) 288-9699
E-mail: aandre005@sympatico.ca
URL: www.coastalholdings.com
An Ugly State Of The Union
I've been thinking about the whole ugly clearing and settlement system and resultant FTD mess, and the DTCC and SEC's culpability in the matter, and Reg SHO, and abusive naked short selling as part of a stock manipulation strategy, and after having been on vacation for a week, I can honestly say that I believe I have some clarity.
In the interest of capturing my thinking for posterity, I thought I would do a September State Of The Union address, and recap my understanding of the current situation. So here it is, in no particular order:
1) Reg SHO is a failure.
It fails to protect investors, and fails to live up to the most basic requirements of a reasonable measure. The reason it is a failure is fundamental to the flaw in the thinking that created it, namely that some settlement failures are acceptable.
If one views the SEC's mandate, it is theoretically to protect investors, thus justifying a restored faith in the system following the Crash of '29 and subsequent financial chaos. One of linchpins of that restored faith was that trades would clear and settle in a timely manner, eliminating the potential for abusive short selling that typified that period. The thinking was that if one established a reasonable period for clearing (the processing of the order and the buy/sell transaction) and settling (the physical delivery of the shares and the funds, e.g. the conclusion thereof) that one could eliminate naked short selling, wherein a stock was sold into the ground with a stream of sells, and delivery was never made, or was delayed beyond a reasonable period. Back with 1934 technology, reasonable was five business days following the transaction day - T + 5, later ammended to T + 3 in the 80's.
That was great, and settlement failures were pretty academic - if there was no delivery of shares, then no payment was made, and the transaction was void - a broken trade. Seems reasonable - if you didn't deliver the goods, you didn't get any money, and no commissions were paid to either broker (buyer or seller). That worked well. Everyone was motivated to make the trades settle.
Because otherwise nobody got paid. And Wall Street loves to get paid.
There were no extended settlement failures - rule 17(a) required timely settlement, and everyone's pay was based on timely conclusion of the trade.
Before we continue, understand that 17(a) still requires timely settlement of trades (the exact wording is "the prompt and accurate clearing and settlement of securities transactions including the transfer of record ownership"), and does not authorize anyone, not the DTCC, not the SEC, to just waive the requirement that trades settle promptly and reasonably (the part where delivery is achieved and ownership is transferred) - thus, the notion of grandfathering hundreds of millions of past settlement failures that SHO pronounced with a stroke of the pen violates one of their primary mandates - prompt settlement of trades. If it ever faces a legal challenge, I believe it would be struck down as unlawful. I know it, the SEC knows it, and the participants know it. The only reason nobody has sued is because there's no money in it. But make no mistake, it is unlawful.
Now, the SEC will likely argue that the NSCC has Carte Blanche via Addendum C (which was passed by the NSCC to enable the now infamous Stock Borrow Program) and its allowance of "reasonable" settlement in light of "legitimate" failures to deliver, but I would simply direct everyone to consider the idea of "reasonable" settlement.
Reasonable.
In 2005.
In a Six Sigma world of nanosecond technology.
Professor Boni's research paper concluded that the average age of a fail was 56 days. Does anyone think that 56 days would survive the reasonableness test in 2005? It would have failed 71 years ago, and it would fail today - hence Reg SHO is a farce and a failure, and I believe illegal in its grandfathering provision. Now the DTCC will fall back on the NSCC's self-penned Addendum C, which allows for settlement failures for "Legitimate" reasons - but does anyone believe that hundreds of millions of FTDs aged for months are "Legitimate", much less reasonable?
2) Fast forward to the modern era, specifically to the 90's, when Congress agreed that it was a good idea to dematerialize paper stock certificates, and to let the DTC act as a bank, where the certificates would be kept, and one electronic book entry (tick) would be created for each legitimate share. Great in theory. No more paper running around the Street, and increased efficiency. The problem is that the DTCC, the parent of the NSCC and the DTC, decided that it was going to separate out clearing and settling, and no longer require that trades settle in order for everyone to get paid.
You read that right. On Wall Street, signing a contract to attempt to deliver stock at some point in the future now gets everyone paid. Imagine if selling a house worked like that - your real estate broker would get paid and your account debited at the point that he agreed to try to get you a house matching certain specifications. Or imagine a car salesman getting paid the second you sign the agreement, and you get an IOU instead of a car - he'll try to find you one just as soon as he can.
Does anyone else see how badly broken this is?
By breaking out clearing and settling as two separate items, the DTCC and the participants that own it have engaged in a nice little rhetorical fraud. They can "clear" the trade the same day it is entered, and the DTCC, the brokers, even the SEC all get paid, and the settlement portion is left as an afterthought that is not really a requisite for anything.
That creates institutionalized fraud, wherein your money is taken, you receive a brokerage statement indicating that you received "shares", but what you got was an IOU, which has no voting rights, and no ETA as to when it will be converted into real shares - IF EVER!!!
One of the neat tricks the system set up was where the NSCC became the contra party in both sides of the trade, meaning that if the Stock Borrow Program was used in a settlement failure situation, there was no direct connection between the buyer and the seller. By intermediating the exchange, the NSCC now could create plausible deniability if shares didn't show up - it could "borrow" shares held in an anonymous pool, which would be credited to the buyer's broker's account, which would then go right back into the anonymous pool the next day - creating a virtually unlimited stock creation scheme, unlicensed and unauthorized by anyone (again, the DTCC will argue that addendum C gave them that right, to which I would direct them to the reasonable terminology, and the open-ended failures that are the reality - certainly more than 1934's standards, thus unreasonable given current technology).
So we have a de facto stock manufacturing scheme, wherein the number of electronic book entries has nothing to do with the actual number of shares in the DTC vaults (that's how it was originally intended; 1 electronic share for 1 paper share) due to the Borrow Program's abuse by its participant owners - a function of the DTCC becoming a monopoly, with nobody to ensure that anything about the scheme was rational or reasonable - certainly not its participant owners, who now get paid without delivering anything, and for which failure there is no apparent deterrent or penalty. And it is all presided over by the SEC, who relies on the conceit that the brokers and the DTCC will act in good faith, in the shareholders' best interests, on the honor system.
Institutionalized fraud.
Simple.
Absolute power corrupts. As always. And yet the SEC and the DTCC act as though this time in history is different than all other similar times in history. Why would any reasonable person believe that?
3) The worst is yet to come, though. If I am correct, the ex-clearing problem that was created when the DTCC decoupled clearing from settling is now wildly out of control, and is likely at least 5 times as great, if not 10 times or more as great, as the REG SHO Fails.
Here's how the ex-clearing shell game works: The DTCC has a system wherein they will clear the exchange of money for the two parties, but then let the two parties arrange for settlement off-line, between the two of them. You read that right. Again, everyone gets paid, but now the DTCC is out of the loop, as it is just between the two brokers as to when the actual goods will be delivered - if ever.
Now, does everyone get this? The brokers that own the DTCC get to decide when and if the shares get delivered, and they tell nobody at the DTCC - it isn't the DTCC's business what two companies do, after all - that's their business, and presumably they are obeying the rules and delivering promptly.
Am I the only one that understands that this creates a system where the brokers can literally create money at will, and as long as nobody breaks ranks, nobody ever has to deliver anything, ever? Does anyone see any difference between this and just printing as many shares of stock as a broker feels like? No cost of goods sold, and no real barriers as to how many shares can be sold into the market, as long as the den of thieves keeps its second set of books away from the prying eyes of the DTCC - who being owned by them, isn't particularly interested in upsetting the apple cart anyway.
This whole out-of-control scheme has now gotten to the point where I believe that the entire market system is dangerously jeopardized, and is in fact now constructed to ensure that companies which have been abusively shorted using Stock Borrow and ex-clearing FTDs stay depressed in price, or better yet, go out of business. Besides eliminating any effective requirement for delivery, one of the other nice things the DTCC came up with was to allow the sellers who sold the FTDs to have access to the cash they generated due to the FTD sale, over and above whatever the current mark to market price is today.
What that means is that if Short Seller A sold a million shares of NFI naked and FTD'd them at $60 or so, and today's price is $35, Short Seller A gets to use and in fact keep the delta between $35 and $60 (with some remaining above the $35 for collateralization requirements). Call it a cool $20 million assuming that $5 was kept as a collateralization premium. Now, in what other world does the seller get the proceeds from a sale that he never delivered the product on, and which he likely never will?
But it gets better. If Short Seller A gets into bad trouble, and has 20 companies he's done this to, and if he goes belly up, guess what? The DTCC has the financial obligation to make good on buying and delivering the shares, along with the brokers that sold the FTDs, and which are also owners of the DTCC. Does everyone see how it is in the best interests of everyone in the system EXCEPT the company and the shareholders to ensure that once a company is under an attack that results in FTDs significant enough for the company to show up on the SHO list, that it stay chronically depressed, for the duration? How can one achieve that? Why, keep selling more FTD's, and take them ex-clearing!
Folks, I believe that this is a centi-billion dollar problem now. The math bears that out. The DTCC says that the Stock Borrow Program satisfies 18% of the daily FTDs. If 82% of the daily FTDs are not handled by the Borrow Program, then the obvious answer to the question of where they all go is simple - they go ex-clearing. The end result is that now the brokers have significant skin in the game to ensure that the companies' share prices stay low in perpetuity.
That is where I believe that the fraud is the worst. The brokers no longer have to deliver squat, thanks to rules that their SRO, the DTCC, passed, so their interests are no longer as the custodians of the shareholders' interests. Their interests are in fact the diametric opposite. They are alligned with their biggest customers - the short selling hedge funds. How convenient.
So that is where I have arrived, after working this issue for 6 months or so (NCANS was created in February) - we have the SEC knowingly violating its mandate to protect investors and ensure that trades are settled in a timely and reasonable manner, we have the DTCC and the participants removing the delivery obstacle to separating investors from their money, and we have a system that is now organized to perpetuate a systemic fraud that is large enough to where it likely exceeds the DTCC and the participants' NAV and ability to buy all the shares it has created - leaving it with the only alternative it can use - destroy most if not all of the companies that have been the most brutalized. Either that, or face financial Armageddon.
You can't be forced to buy millions of shares if the company is out of business, or is de-listed.
Does everyone completely understand just how far this has gone?
Feel free to send this to your elected representatives, and your state securities representatives. Forget about the SEC - they are clearly part of the problem, IMO.
http://bobosrevenge.blogspot.com/