It is possible, though rare, for a stock to have a dual Pink Sheets and Bulletin Board listing. It's possible that this is what is going on here. I'm not that familiar with the particulars of ETLO.

The Hudson and Knight orders are unsolicited. Only the KBRO orders can be market-making.

Theoretically any firm can place unsolicited orders in the stock, though some may be reluctant to do so.

In the mean time, I've been trading long enough to know when a stock has been naked shorted, and I'm telling you thats what I believe we have here...

I must have less experience than you, because I have no idea how a company could avoid the reporting requirements for a short position. I would much appreciate being enlightened on this. And please draw on your own long experience, not the foolishness which is circulated around the Internet by people who have never shorted a stock in their lives and couldn't tell a broker-to-broker from a Pink Link.


The DTC has done a pretty good job of hiding the NS problem in the market, and a lot of non-sheep have made a lot of money off of that...

That's interesting. The money that I see being made is by people who are preying on shortsellers' needs for borrows: http://www.businessweek.com/magazine/content/07_22/b4036059.htm. As I'm sure that you know from your long experience, lending stock is a $10 bil a year business on Wall Street. Why would hedge funds pay that kind of money if they could simply naked short? I guess those hedge fund guys aren't too bright.

If someone is still posting on this board regularly and they're not a shareholder than by process of elimination you are short. No one spends time posting on stock boards, let alone a gray sheet stock, unless they have a financial interest in it.

As you may or may not be aware, every week millions of Americans spend time and money on something where there is a certainty that they will lose every penny and every minute they invest. That something is called "a movie". Since they keep coming back for more, evidently there must be something quite compelling about those movies, separate from financial gain.

CSHD is like a movie. Like a comedy actually. It's about a group of amazingly stubborn people, who, rather than admit that they had made a mistake and gotten conned, work themselves into paroxysms of righteous indignation. Despite a mountain of evidence which keeps growing, these people develop ever more outlandish and hysterical theories to avoid saying, "I was wrong." As movies go, it is quite funny. But I grant that it's a little long and repetitive.

European Swaptions are options on swaps which like all European options can be exercised only at maturity. They used to be very exotic instruments, but the explosion of the credit default swap business has given them a greater interest. The entire CDS business, however, is bizarre since the notional amount of the derivatives is ten times that of the underlying. There are, in fact, very few people who would have a natural need for a European Swaption. The only kind of people who might would be people holding variable rate bonds and wishing they didn't or people with a huge, concentrated bond portfolio where preservation of principal is worth the few basis points hit, but where hedging cost is a consideration. Ironically this latter description is a pretty good fit for Conversion Solutions Holdings, if the bonds were real.

That is an eloquent, albeit long winded, explanation...

Well, I could have made it more long-winded by explaining the extremely rare use of the term as regards converts.

As regards the main point, the term is meaningless as regards stocks. But for people who are not in the securities business it has the ring of something legitimate. In the context that Mr. Harris was using the term it is gobbledy-gook. He might just as well have used the term "European Swaption" to describe some aspect of his proposed CSHD stock transactions. These terms might have fooled the uninitiated, but they do not fool the SEC.

CSHD board approved TPR and instructed TA to carry it out. They did not, instead insisted that it be a divy which it is not, because either they were inept and didn't know what a TPR is...

The Transfer Agent was not alone. The only person who had ever heard of a Threshold Price Reset was Mr. Harris. The Transfer Agent probably correctly recognized that Mr. Harris was flouting SEC rules, and, if the Transfer Agent aided him, he might also be party to an SEC enforcement action later.

Mr. Harris evidently correctly figured that none of his marks would be familiar with SEC rules--in particular, this one: "It shall constitute a 'manipulative and deceptive device or contrivance'...for any issuer of a class of securities...to fail to give notice...of the following actions related to such class of securities: 1) A dividend or other distribution in cash or in kind, except an ordinary interest payment on a debt security, but including a dividend or distribution of any security of the same or another issuer."

The SEC has not heard of a Threshold Price Reset either, but they have had a long history of dealing with people who try to utilize "manipulative or deceptive devices" by calling things by different names. That is why they specify the language they do with the words "or other distribution in cash or in kind".

Now it happens that Mr. Harris's transgressions are so serious that this particular one will most likely be overlooked--sort of like a jaywalker who shoots someone to death. Mr. Harris will end up serving time for the false Sarbanes-Oxley certification and for the false financials. SEC cases almost always take several years, but maybe in this case because of the seriousness of the crimes there will be some kind of record, and it will take only months.

Do you think someone can make 540 million a year and it be all on the up and up?

That was the take-home pay of the top 25 hedge-fund managers. Let's take the only name on the list whose every move we know in excruciating detail: http://finance.yahoo.com/q/sec?s=SHLD

What's not on the up-and-up?

As for the others, we have a pretty good idea what they do. You may find stat arb, convert arb, nat gas spreads, and bankruptcy arcana boring, but they are certainly legit.

No one has ever argued that hedge fund managers' compensation is commensurate with their contribution to society. On the other hand, I don't know that hitting someone hard in the head on HBO entitles someone to $25 million or that extorting companies through "class-action" lawsuits entitles someone to $60 million. These salaries are all indicative of a society with strange values--but that hardly makes them illicit.

I can think of nothing that would stop a market maker, say NITE, from buying shares of a grey sheets stock like PROL for their own account, (if their quotes were unpublished, i.e. only verbal) whether it was offered to them by another market maker from its own account or indirectly from a retail order.

You are probably right technically. However, as a practical matter NITE is in business to make money. Market-makers tend to get used to having a superior position to that of retail traders. They're used to buying on the bid and selling on the ask; they're used to seeing order flow; they're used to shorting without screwing around for twenty minutes to find a locate; they're used to probing a bid to find out if the buyer has size; and they're used to dissembling with their own trading. A market where they have an inferior position--where they can't do any of those things and where a retail trader can theoretically post a quote but they can't--for some reason, this tends to be a little less appetizing than the markets they're used to.

On the other hand, for pre-existing positions (from before the company went on the gray sheets) there's nothing wrong with what you suggested as a way for a market-maker to close the position.

I understand that Market Makers can make a verbal market and match buy and sell orders electronically in grey market stocks, and take positions, long and short.

Actually not. The relevant rule is the exception section of 15c2-11, paragraph f.

f. The provisions of this Section shall not apply to:

1. The publication or submission of a quotation respecting a security admitted to trading on a national securities exchange and which is traded on such an exchange on the same day as, or on the business day next preceding, the day the quotation is published or submitted.

2. The publication or submission by a broker or dealer, solely on behalf of a customer (other than a person acting as or for a dealer), of a quotation that represents the customer's indication of interest and does not involve the solicitation of the customer's interest; Provided, however, That this paragraph (f)(2) shall not apply to a quotation consisting of both a bid and an offer, each of which is at a specified price, unless the quotation medium specifically identifies the quotation as representing such an unsolicited customer interest.

(there is also exception 3, which deals with quotation systems where unsolicited customers cannot be identified as such, but I've left it out because it's long and convoluted)

Okay, that's the rule. Now for the real world. Similar to the gray market, unsolicited Pink Sheet stocks are not subject to, among other things, Rule 11Ac1-4. Fine. But strangely broker/dealers almost never display a limit order in an unsolicited Pink. What possible reason could they have for NOT displaying a limit order, if in fact they have no proprietary trading in the security? I can't think of any. I once brought up this great mystery of life to Compliance at Knight and got a very hissy, defensive response. Draw your own conclusion.

This is what I think is going on: the firm's official policy is to comply with all relevant SEC and NASD regs. On the other hand, an individual trader is looking at the screen, trying to balance entering quotes with eating his tuna fish sandwich, sees a Grand Canyon between the bid and ask, knows that his bonus is based upon his P&L, knows that entering proprietary quotes on an unsolicited Pink is not a hot button of the NASD, and thus "forgets" that this particular stock is off-limits to proprietary trading. Does this happen constantly? No, because then the firm would be subject to a serious hit during a trading audit. Does it happen sometimes, especially before bonuses are determined in December? Well, I don't know for sure. But I do note that no market-maker has yet been nominated for sainthood at the Vatican.

Yes, you are more at risk as to liquidity and regulatory protection on the gray market. This is an entirely separate matter from the riskiness of Philippines Royal, on which I have no opinion.

In terms of whether it is good that market makers don't affect the stock, that depends on your perspective. Market makers provide a service, but they do so with the intention of making a profit. Thus, the good news is that their absence will mean one less party trying to make money from the trading of a stock. The bad news is that their absence will guarantee much wider spreads and much lower liquidity. Plus, the broker/dealer executing the trade will still get a commission, and I would doubt that the 5% rule could be enforced on a gray market stock. On the other hand, if you really hate market makers, then this is a market-maker-free environment.

The rules relating to the gray market are themselves gray. My best guess is that the Limit Order Display Rule, the firm quote rule, and the interpositioning rule probably do not apply in the gray market. The best execution rule probably does apply, but I can't imagine a successful case being brought against a broker/dealer for violating this rule here. As a practical matter, this appears to me the order in which broker/dealers handle their workload:

1. NASDAQ orders
2. Listed stock orders
3. Tracking daily P&L
4. NASD Reporting requirements
5. Managing the firm's inventory
6. Getting the right pastry with the Starbuck's order
7. Verifying every 5 minutes that the trader has the winning bid on his Ebay auction
8. Editing his MySpace page
9. Calling his mother on her anniversary
.
.
.
22) Trimming his cuticles
23) Matching that stupid gray market buy order with some other schmuck's gray market sell order

HYRF wasn't filing "audited" financials. CSHD was. Plus, Mr. Harris signed off on the Sarbanes-Oxley certification. Fraud on these is about as bad as it gets in terms of SEC violations. If guilty, he will almost certainly be going to prison.

While Mr. Harris, if guilty, is basically a goner, there's no reason that CSHD has to be. But obviously they need to answer the SEC's charges and revise their financials, irrespective of how bleak they may turn out to be. If CSHD doesn't do this, then an unpleasant result can hardly be a surprise.

I agree with you that it doesn't help that Mr. Harris is pointing the finger at the SEC. As a general rule, if you're arrested by a black cop, it's probably not a great idea to make racist remarks. But this concept is seemingly lost on Mr. Harris.

However, if there is a huge naked short position, say double the float of 62 million as has been rumored...

This is the short position: 77,804 shares. This is $9,000 worth of stock. http://www.pinksheets.com/marketactivity/short_interest.jsp?symb=cshd&symbdate=Jan24%2C2007


...and Rufus can prove he is in control of the 500 M bond then CSHD is back on otcbb...

CSHD can't return to the OTCBB without a market-maker filing a 15c-211. The SEC has written in the suspension order, "The Commission temporarily suspended trading in the securities of Conversion because of questions that have been raised about the accuracy and adequacy of...public filings with the Commission concerning, among other things, the company's purported ownership and control of two bond issuances...The Commission cautions brokers...that they should carefully consider the foregoing information..." In plain English, this means that, if a market-maker files a 15c-211, the market-maker is now on the hook for the accuracy of CSHD's statements. Do you really think a market-maker is going to risk its business for CSHD? How much could the market-maker possibly make trading this stock to take this risk?


...and the 6 for 1 is issued...

There is nothing stopping CSHD from splitting 6 for 1 now AS LONG AS IT COMPLIES WITH SEC RULE 10b-17. There is not now nor is there ever going to be a retro-active split because that does not comply with 10b-17. I would think that any attempt to circumvent SEC rules at this point would result in a sure-fire revocation of the stock. On the other hand, CSHD has been guilty of self-destructive behavior in the past, so who knows?


...then the shorts will have to cover...

CSHD is already a punitive short for most holders: that's why the short interest is so low. Unless one is exempt from Reg T and can get your prime or clearing broker to go along with the reduced margin on a low-priced stock (reputedly as much fun as surgery without anesthetics), this means that, even assuming a measly 5% return, CSHD would have to drop to 1 cent in 8 months to break even. Would you want to take this gamble?

Can one plead insanity as a defense in a securities case?

IMO Rufus is just trying to save his ass...he will most likely make a deal and then name names......

I doubt that strategy will be successful. He violated the one law that certain politicians and bureaucrats really care about defending.

Many people (the Committee on Capital Markets Regulation, Michael Bloomberg, and recent converts such as Eliot Spitzer and George Bush) feel that Sarbanes-Oxley goes way too far. But the legislation has strong defendants among the newly strengthened Democratic Congress and the SEC, who promoted it to begin with.

The original excuse for the legislation was to prevent corporate fraud. Unfortunately to my knowledge there has not been one single prosecution which depended on Sarbanes-Oxley. When the debate heats up and this uncomfortable fact starts getting repeated in the press, there is going to be a lot of pressure to find some justification for the legislation. And what better justification than nailing a fraudster (a Republican yet!) who signed off on the Sarbanes-Oxley certification and thus is ending up behind bars? I think it's quite possible that the leisurely pace of the SEC investigation into CSHD might suddenly change and even that Mr. Harris might become the poster child for this pro-Sarbanes-Oxley campaign.

Many people originally hoped that Mr. Harris would get a lot of attention in the national press. They may well get their wish--though not the kind of attention they envisioned.

I give Rufus full credit for getting this to $4.

I'm afraid I disagree. This stock got to $4 not by planning and execution but by luck. It was such an obvious fraud that short-sellers loaded the boat at $1.25, scarcely believing their good fortune at finding such a sure thing. By the time it started to run a second time in late September, there were not only no more shares available but the current short positions were already starting to get bought in. After $3 short-sellers started covering and boxing, since there was no way to average up. This, of course, just amplified the feedback loop. From a short-seller's perspective CSHD was the perfect storm--all because the CEO was such an obvious, ignorant scammer.

So I give Mr. Harris no credit. On the other hand, in the future any CEO who deliberately comes across as an ignorant scammer in order to get short-sellers salivating too early--that guy I'll give a lot of credit to.

That sounds good too. But it's a SALE, not a buy.

Yes, as I said, it's a long sale, not a short sale. That's how the ticket is marked.

"how do convertible shares get hedged physically overseas"

?? Someone puts a short order in...

Actually it's not a short order. It's a long order. It's marked "long" with the intention (at least supposedly) of delivery through the conversion shares. It is not subject to short sale rules or reporting.

Obviously the procedure has been abused sometimes.

but mine is in the filing and yours is not.

But his is based on SEC rules. In the past CSHD has felt its filings were above SEC rules, and it has not worked out well.

Rule 10b-17:

a. It shall constitute a "manipulative or deceptive device or contrivance" as used in Section 10(b) of the Act for any issuer of a class of securities publicly traded by the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange to fail to give notice in accordance with paragraph (b) hereof of the following actions relating to such class of securities:

1. A dividend or other distribution in cash or in kind, except an ordinary interest payment on a debt security, but including a dividend or distribution of any security of the same or another issuer;

2. A stock split or reverse split; or

3. A rights or other subscription offering.

CSHD could try to circumvent 10b-17, but I doubt that they would prevail in the revocation proceeding which would probably follow such an action.

WOW---all I can say is I suck at buying stocks in my opinion.

No one is naturally good at investments. It is an acquired skill--like playing the violin. And even experts have bloopers. If you've ever read a Berkshire Hathaway annual report, you can see that Warren Buffett, the greatest investor in history, regularly makes significant errors of judgment. As for the rest of us--the words "regularly" and "significant" do not do justice to the magnitude and frequency of errors.


I am DONE---Out of the market---Finished.

People can lead productive, happy lives never thinking about the market for a moment, but ironically you have shown in your post that you have acquired one of only two traits necessary for success in the markets: humility. People learn humility only at great financial cost (at least that's how I learned it). You've got it now, so you're halfway there, if you ever decide to return to the market.

(The other necessary trait is discipline.)

More misinformation from Bud Burrell. But I guess that misinformation repeated often enough starts to sound like the truth to some people.

India is [going to Straight Through Processing], moving to T+0 shortly.

Not true. India has T+2. It has no intention of going to T+0 (though T+1 has been discussed). Prior to 1995 India's system was T+infinity.


India's SEBI rejected the DTCC model for its custody system...So the US and its markets' and regulators' positions on these matters are being roundly rejected globally.

Not true. The DTCC (and the NSCC) was the explicit model chosen by India when it went to a depository system a few years ago.

Burrell was making the point about India's disfavor toward naked shorting. That is incorrect; India neither knows nor cares about naked shorting. In fact, India has no structure for shorting, period (it's not illegal--it's just that there's no structure for borrowing). Nor does India have a structure for foreign ownership of securities. These and many other areas are on the list of reforms being considered.

One thing India does have is single-stock futures. I would love to see those on more U.S. equities--CSHD comes to mind, for example.

25 LOL you are still too high. this is subpenny brother

I doubt it. There are still over 2 million shares short, most of which are subject to punitive margin requirements. Plus, this play was appealing to the HSM crowd--believers rather than investors. For many of them, admitting that this was a scam will be more painful than losing money. Thus, IMO while CSHD will eventually see a very low price, "eventually" can take much longer than you'd expect.

No, it's not a SAR issue; it's a self-protection issue. There are a bunch of rules ("know your customer", fiduciary responsibility, avoidance of negligence, etc.) which even Ameritrade's fancy attorneys have not been able to circumvent fully. Arbitrations regularly go in favor of customers (don't forget that, if the amount disputed is less than $50,000, the arbitrator CANNOT be from the industry). Even discount brokers are now concerned that their gazillion disclaimers about customers being responsible for their trades won't cut it in arbitration. Theoretically the brokers have access to superior news feeds and are better equipped than ordinary customers to evaluate really stinky situations. Thus, the brokers look at certain stocks and go, "Gee, we can make $15 on this trade, but we might lose $20,000 in arbitration. Are we really that sure that PGWC is going up? Hmmmmm."

As long as customers feel comfortable contacting attorneys when they lose money trading, brokers will make certain trades off-limits.

Right. I know that Ms. Hakala has been diligent. I just wasn't sure if she had support from above. That's why I hypothesized a situation where the Commission can't get motivated to go the full nine yards, but someone there leans on the SRO.

Okay, that's interesting. Are the accounts still frozen? Was money-laundering alleged?

The thing that caught my attention about this was that the NASD was so upset about a SAR violation. Filing a SAR is a judgment call. If there was no money-laundering, then NevWest made the right call. If not, then that should have been (or should eventually be) specified. The SAR violation liability is in there to give the NASD a catch-all to go after B/D's when they can't determine and they'll never be able to determine whether a crime was committed (which sometimes happens with funding of terrorist organizations) or when the B/D was privy to a crime (which sometimes happens with securities fraud).

One of the other claims was "failure to supervise". This is what nails most B/D's when something goes wrong. The NASD may not be able to prove the heavy-duty stuff, but they can usually prove "failure to supervise".

Right, that's a SAR violation. Likewise, there was a failure to supervise violation.

These are not heavy-duty things unless you close the loop. Maybe I just read it too quickly and missed it.

Or, maybe, as I first suggested, this is the opening salvo in a string of actions, which will, in fact, allege that there was money-laundering and fraud. Or, as a third suggestion, maybe the SEC has gotten out of the Pink Sheet fraud business, and someone at the Commission "suggested" to the SRO that they go after the broker/dealer. This would be consistent with what I've been inferring from SEC actions recently.

You're probably right. I just haven't found it yet.

No, the NASD is calling it failure to file a SAR.

This is a strange (and weak) charge unless there was actually money-laundering. What is bizarre is that on a quick first reading I did not actually see the NASD allege that there was, in fact, money-laundering.

I'm not that knowledgeable about CMKX. Was there money-laundering involved?

If not, perhaps this is the early warning that the regulators regard what Mr. Edwards did for Mr. Casavant as a kind of money-laundering. (Forgive me if this has all been covered before.)

"Number of companies destroyed by naked shorting: 0"
You don't know that and if you believe that you are naive as hell.

Well, I've been called a lot of things in the financial world, but this is the first time anyone's ever called me naive.

My skepticism on this issue, or "naivete" as you call it, is born from two facts: first, no one has ever been able to provide a ticker symbol of the phenomenon you mention, and, second, I can't even imagine how the phenomenon could work to begin with. Perhaps you'd like to enlighten this naif on either issue. I know how naked shorting works with toxic convertibles (and even with ETF's), but for the life of me I can't figure out how it could be done in anything other than small quantities for brief periods of time in other securities.

I await your explanation. I just know it's going to be more educational than those fantasies posted by Internet "commentators"--the type who speak with supposed authority but who couldn't tell a negative rebate from a Pink Link.

No, [Patrick Byrne] knows exactly how it works and how peoples money is stolen through the manipulation of the markets.

Number of companies destroyed by naked shorting: 0
Number of companies destroyed by venal, dilutive management: hundreds
Number of companies destroyed by floorless convertibles (claimed by both anti-NSS complainers and their detractors as examples of their case): around 150

So, if Mr. Byrne knows exactly how it works and how people's money is stolen, why isn't he concentrating on the problem?

This same issue comes up as regards his stewardship of Overstock. The company has many problems; the fail-to-deliver problem is one of the least serious (once again, I don't condone it). Why concentrate on a small problem when he's got big ones? Isn't prioritizing an important part of management?

OT: Much more interesting to me than the FTD problem at Overstock is the question of what is so damn interesting about it as a short at $18. Why would anyone even bother to go through the gyrations of keeping a short for this buy-in-ridden stock at this price? This is, in my opinion, the classic case of a heuristic-driven bias--the financial equivalent of a rat being rewarded for pushing a lever and then pushing the lever long after the reward has disappeared. The heuristic here is that any company which complains about short-sellers is itself a perfect short. This has been the most reliable financial algorithm that I am aware of over the last 30 years. But just because it's been a way to make money without thinking doesn't mean that it will be so in every case. Shorting Overstock at this price is in my opinion a case of confusing probability of return with expected value of return. There are a lot of out-of-the-money options which have a low likelihood of paying off but which pay off big those rare times when they go in-the-money--big enough to make the expected value positive. Overstock has a high likelihood of going under, but the payoff if it doesn't is big. And even if it does goes under, the salvage value has got to be a few hundred million dollars, as I think that Ebay or Amazon would pay that to acquire it. And in case this point was too subtle for people, Citadel has acquired a position which ought to have raised some red flags for short-sellers. So, for me, far more mysterious than the FTD problem there is its haunting, seductive beauty as a short.

I certainly do not condone the FTD problems of OSTK, especially since it's a NASDAQ company. That said, let's be honest: the short interest has been very beneficial to the OSTK stock price. Without the shorts covering over the last six months, the stock would be at $12. A company which has had as many mis-steps as OSTK would simply never have found this number of natural buyers, unless it was absurdly cheap, which OSTK isn't. Management ought to be sending the short-sellers thank-you notes, but I'm not holding my breath.

(In my opinion, the huge short interest has even figured into Citadel's calculation.)

Actually this mis-states the problem. You do get the car. You get to use it as you normally would. But the paperwork is screwed up. And when you do eventually sell the car, the screwed-up paperwork is no longer your problem. You get the beneficial interest in the car including the unimpeded right to sell it, but the chain of title is flawed. I'm not saying that this is the way things OUGHT to be, but I am saying that the problem ought not to be grossly exaggerated.

I notice that this exaggeration problem seems to recur so often with those on the complaining side of this issue that it makes me wonder if misrepresentation is not a deliberate part of the campaign. Failed shares are frequently referred to as "counterfeit". Yet everyone knows that the purveyor of counterfeit money expects to get something for nothing and has no intention of being on the hook for the transaction. By contrast, someone who sells shares naked is still on the hook for dividends, negative rebate interest, buy-ins, and price appreciation. The right analogy for creating an obligation out of thin air is not "counterfeiting" but "using a credit card". Somehow, though, I don't think this is the analogy that the complainers will start using.

My favorite misrepresentation is the frequent claim that naked short-selling has destroyed hundred of companies. Wow, that sounds really bad. So there are hundreds of companies out there which have been destroyed--companies with a real product, without a toxic convertible, and with a business plan which involves something other than insider dilution? No kidding? Can you name just one?

Terrific story. Thank you.

There is much about Mr. Byrne (and his family) that is very admirable. I am a longtime shareholder of his father's company as well as the company his dad used to work for, Berkshire Hathaway. His father has always handled adversity with grace--and humor. And he has prevailed as well. I owe a lot to the family--literally--since the investments have gone up many fold.

Unfortunately I think Patrick Byrne is being sullied by his current jihad. There are examples in history of exceptional people being seduced by ignoble causes--Ezra Pound and Charles Lindbergh come to mind--but it's always sad.

E*Trade is wrong. There are no shorting rules regarding upticks on OTCBB and NASDAQ Capital Market stocks. And ticks have nothing to do with the shorting requirements on NASDAQ Global Market stocks; the direction of the bids is what counts there.

He is making sense, but he is incorrect on the following point:

IMHO, A request for certificate by a brokerage firm would need to be legally challenged in order to refuse such a request, as the brokerage firm is usually listed as the actual owner of the security and the client as the beneficiary. This gives the brokerage firms the right to loan and use our securities as collateral without first obtaining permission from us and/or compensating us for the use of our securities by the brokerage firm.

What gives a firm the right to loan out securities are the Hypothecation Agreement and Loan Consent Agreement, which are executed by customers.

In camera
From Wikipedia, the free encyclopedia
Jump to: navigation, search
In camera (Latin: "in chamber") is a legal term meaning "in secret"...

Note the cap.


From Wikipedia:

Idiot
Idiot is a word derived from the Greek idiotes ("layman," "person lacking professional skill," "a private citizen," "individual"), from , idios ("private," "one's own").

Moron
Moron may refer to:

* An idiotic or foolish person, pejorative
* Moron (psychology), a psychology-related term for a person with a genetically determined mental age between 8 and 12

Ignorance
Ignorance1) is a lack of knowledge. Ignorance is also a "state of being ignorant" or unaware/uninformed. Ex: "In debate class Bill lost the debate because he was ignorant in (without knowledge of) that subject."


Note the caps.

Um, read my comments again...carefully.

"Who are the victims?" referred to the Sacane case, so forcefully recounted by Aguirre. My comment could perhaps even be expanded to hedge funds in general. However, it could never be extended to insider trading, as my post makes very clear. Insider trading is bad, period; and I stated that it is a particular problem with PIPE's and acquisitions. Hedge fund registration or scrutiny does not affect insider trading cases. The Insider Trading Act of 1988 already provides plenty of firepower to enforce insider trading cases, whether the miscreants are CEO's, friends of CEO's like Martha Stewart, or hedge fund execs.

The problem with insider trading is that it is frequently hard to make a strong case. The Commission correctly does not want to waste its time and limited resources. Thus, it has to pick its battles. In fact, it is possible that CMKX (to bring the topic back to the subject of this thread), while not an insider trading case, is a victim of SEC triage; either the Commission is putting together the case very slowly, or they have decided to apply their resources to more important things. Either way, I think that they have correctly assessed that CMKX shareholders are vivid examples of the human tendency to accept any explanation for events other than the one which has the complainer as a greedy sucker. Thus, even if the SEC were to nail the miscreants, the people wronged would still believe that they were the victim of a massive conspiracy reaching to the very depths of Wall Street and Washington, rather than of a few clever con men. Thus, there is not going to be a lot of pressure for justice.

In every case a prosecutor or regulator has to walk the line between pursuing miscreants and letting innocent people go on with their lives, undisturbed. While we would all like the benefit of having bad guys put away, we would also like to avoid the considerable expense and jeopardy of the government pursuing us unfairly. Thus, we hope that those in authority will weigh these issues appropriately.

In reading the Aguirre letter, I was struck by the paucity of evidence against the Mack tipper. Aguirre had searched through "millions of e-mails", yet he had not a single shred of evidence that identified the tipper directly. All he had was his deduction by a process of elimination that a certain guy had to be the tipper. He had already pursued this investigation by questioning Mack himself, yet this was all he had.

In the letter Aguirre makes a big deal about the profits Pequot made from this transaction: "$18 million in 30 days". Yet, he conveniently forgets to mention that this particular deal had been written up in the Wall Street Journal as a likely acquisition just before Pequot had done the trade.

Yes, insider trading ahead of PIPE's or acquisitions is a problem. Yes, the SEC is right to be looking into it. But Aguirre's bosses were also right to be concerned about whether they had the correct case in which to make a stand.

Would we all have received the protection from overzealous prosecution that Mack's supposed tipper got? Undoubtedly not. He was wealthy and powerful. But the solution is not to go after the wealthy and powerful with flimsy evidence. It is to accord the same protection to the poor and powerless. Or better still, to develop cases carefully so that they have a high probability of success. It doesn't matter whether O.J. Simpson killed his wife and Mr. Goldman; a prosecutor still has to competently assemble a case to prove it in court.

In fairness, Mack and his supposed tipper may yet be guilty. If you embark on enough witch-hunts, sooner or later you might find a witch. But in the meantime you run the risk of having some trials like the one in Salem.

Yes, Aguirre's firing appears to have been handled sloppily. Unless there is more in his file than the commendation Aguirre cites, then his bosses are going to look pretty foolish over the coming weeks. That doesn't mean they were wrong in letting him go, though. And there is evidence in Aguirre's own letter that he is not the kind of guy you would like to have working at the SEC.

The letter is sensationalistic, trying to paint a picture of broad abuse where in certain instances it simply is not true. The letter certainly begins reasonably enough, acknowledging that hedge fund assets under management are but a small part of global financial assets. But by the end Aguirre is in territory he does not understand--but ought to. To bolster his case of widespread SEC incompetence, he details the market-timing abuses, but he seems not to understand the critical point about them. He writes, "'70 percent of the brokers said they were aware that some of their customers were timing the market.' They just looked the other way. The SEC survey showed that 25 percent of brokerage companies allowed late trading." Huh? Market timing was perfectly legal. Not only that, but it was available to the retail investor. I remember seeing a description on Silicon Investor in 1997 by a poster (George Cole?) who described exactly how to do it and who mentioned that the profits were extraordinary. What was not legal was working out arrangements with the funds to give yourself a special deal and cutting the fund insiders in on the action. That's what Canary did, and that's why they quickly coughed up tens of millions in a settlement. One would hope that a regulator and lawyer like Aguirre would understand these distinctions.

But of even greater concern is Aguirre's citing of the Sacane case at the end of the letter. Sacane's case certainly makes for great, lurid reading. But the whole point of Aguirre's letter is that hedge funds need greater regulation. Who was victimized in the Sacane case? The companies, Esperion and Aksys, got his short-swing profits. The ordinary shareholders of the stocks saw their holdings go through the roof. And what about the investors in the fund? Well, my sister and mother were both investors. Yes, there was a lot of legal wrangling, but in the final accounting the investors ended up with a handsome profit.

So who were the victims? I don't know. Shortsellers? And that's why we need new, extensive regulation--to protect shortsellers?

You wrote:

I DO have a problem with the personal attacks on myself, the accusations that I am apart of YOUR suggested "pump" team, yours because as of now, its only speculation and not fact, regardless if PR today stated they hired firm, does not imply that there are messege board pumpers. If, and only if that is the case, you have no right to falsely accuse myself for being apart of that. YOu have no right for accusing myself for associating with and scamming with the company...

Yet in an earlier post (msg #12211) you wrote:

There are a few genuine concerns brought up here, and after weeding through the nonsense and obvious bashing and fluff with no substance whatsoever, seeing the same posters doing their immoral jobs here makes me feel all the more better, knowing they wouldn't waste so much of their lives bashing a stock as bad as they claim it to be.

Let he who is without sin cast the first stone.