Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Luck in the sky with diamonds
By: Gareth Tredway
Posted: '29-NOV-04 21:00' GMT
" ... Management says that although Letšeng is the lowest grade mine in the world at a grade of less than 2.5 carats per hundred tons, the high incidence of 10+ carat stones and high per carat prices keep the mine economically viable.
Already a feasibility study is underway on a .. “
http://www.mineweb.net/columns/african_renaissance/394072.htm
Luck in the sky with diamonds
By: Gareth Tredway
Posted: '29-NOV-04 21:00' GMT
“ ….
Management says that although Letšeng is the lowest grade mine in the world at a grade of less than 2.5 carats per hundred tons, the high incidence of 10+ carat stones and high per carat prices keep the mine economically viable.
Already a feasibility study is underway on a .. “
http://www.mineweb.net/columns/african_renaissance/394072.htm
SEC Paper Presented at SIA Symposium Calls Counterfeiting 'Pervasive'
Nov 29, 2004 (financialwire.net via COMTEX) -- (FinancialWire) The recent Securities Industry of America symposium on Regulation SHO, which was supposed to curtail illegal naked short selling, only further deepened the U.S. Securities and Exchange Commission divide as a dramatic ' some say startling ' new 22-page working paper, "Strategic Delivery Failures in U.S. Equity Markets," was published.
Moderators at the symposium included Steven Kessler, Associate General Counsel for Goldman Sachs & Co. (GS), and Deborah Mittelman, Deputy Director of Global Compliance for Reuters' (RTRSY) Instinet. Panelists included Jeffrey Bernstein, Senior Managing Director of Bear Stearns (BSC), and Robert O'Connor, Executive Director of the Law Department for Morgan Stanley (MWD).
The referenced working paper by University of New Mexico Professor Leslie Boni was initiated while the author was visiting financial economist at the SEC.
She termed the "failures to deliver," which litigants have called "counterfeiting," as being "pervasive."
The full report is published at http://www.investrendinformation.com
Dave Patch, editor of "Stockgate Today," credited the SEC with "putting members on notice that the settlement failure issues presently floating in the markets must be changed."
Patch quoted Boni as noting that "strategic failures" occur "when the short sellers choose not to deliver shares that would be too expensive to borrow". Her analysis of Regulation SHO was that, "pre-Regulation SHO, equity and options market makers strategically failed to deliver shares that were expensive to borrow or impossible to borrow".
Boni said "strategic fails (i.e. naked short sales) likely accounted for a higher percentage of short interest pre-Regulation SHO than previously understood".
The professor said that a whopping 42% of listed stocks at the New York Stock Exchange, NASDAQ and AMEX, and 47% of unlisted stocks in the OTCBB and Pink Sheets had persistent fails of 5 days or more with 4% being above the SEC's threshold limits for failures.
The standard for settlement is presently 3 days with a concept proposal by the SEC in comment to reduce 3 day settlement to 1 day, noted Patch.
The economist pointed to a study conducted by Evans, Geczy, Musto, and Reed in 2003 that provided evidence that while the SRO's have buy-in requirements, such buy-ins almost never occur. She noted that an audit of one market maker showed that all or a portion of shares in 69,063 transactions during 1998-1999 were "fails to deliver."
"The market maker was bought-in on only 86 of these positions," she stated.
Patch said that his own review of the Securities Acts of 1933 and 1934 finds no reference to "strategic failures." In fact, he said, Section 17a of the 1934 act "mandates prompt and accurate clearance and settlement of trades, and the admission of Strategic Failures is also in direct violation of Rule 15c6-1."
Rule 15c6-1 defines the settlement cycle for trades executed and states that no Broker Dealer may enter into a contract for the sale of a security whereby the payment for that security and the delivery of that security is greater than 3 business days. For market making activities there is a slight exemption from the delivery in a Bona Fide Market Making activity but as the SEC and SRO's have repeatedly stated, Bona Fide Market making is not simply supporting the best offer in a naked short sale without also representing the best bid or near best bid in a long trade. They must be actively making a market on both sides of trading to use the exemption, noted Patch.
NBC's "Dateline" recently confirmed to FinancialWire that it is preparing a comprehensive expose of the "naked short selling" controversy.
The reportage is said to focus on allegations that "brokers, through their wholly owned clearing house system, the Depository Trust Corporation (DTCC), have effectively been creating counterfeit shares of stock through their 'Stock Borrow Program', which allows brokers to 'borrow' the same shares over and over again, artificially inflating the share count and driving the price of the stock down.
Stockgate, a growing global malady, is being contested on multiple levels, including judicial, legislative and political.
Delegates to the September 20 annual SEC Forum on Small Business passed several resolutions on the issue to be submitted to the SEC. Among them were:
1. Extend Reg. SHO to apply to all publicly traded companies including non-reporting companies.
2. Recommend that the SEC Commissioners reinstate the proposed provision in Regulation SHO that prohibited a selling shareholder from withdrawing his/her profits from the trade until after delivery of the underlying sold shares.
3. SEC should require all SROs, and any clearinghouse for an SRO that receives securities into accounts for security holders to disclose the fact of the ability to loan the securities in the accounts and allow security holders to opt out of allowing the securities to be loaned.
Robert Shapiro, chair of Sonecon LLC, an economic advisory firm and former Under Secretary of Commerce from 1998 to 2001 and principal economic advisor to President William Clinton in his 1992 campaign, has expressed "serious concerns about the impact of the final version of Regulation SHO regarding short sales on the equity and transparency of our equity markets."
Shapiro holds a Ph.D. from Harvard University and has been a Fellow of the National Bureau
of Economic Research, the Brookings Institution, and Harvard University.
Shapiro said the SEC is correct to broaden the terms of regulation of short sales, and applauded the section directing broker dealers to mark all equity orders as "long," "short" or "short exempt." More important, he said, the new "locate and delivery" requirements could substantially reduce stock manipulation carried out through naked short sales -- but only if those requirements are
widely applied and strictly enforced.
"Unfortunately, Regulation SHO does not meet either of these two standards. The troubling result is that the Regulation, in effect, establishes an official level of tolerance for unsettled or naked short sales," Shapiro charged.
Shapiro said he strongly concurs with the comments of the North American Securities Administrators Association (NASAA) on the draft rule, which said NASAA was "unable to determine why the Commission proposes 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."
"Until Regulation SHO, this economic counterfeiting has been facilitated by electronic record keeping and the apparent practice of the DTCC and its subsidiary National Securities Clearing Corporation (NSCC) of often disregarding persistent unsettled short positions. With Regulation SHO, the SEC has provided its implicit imprimatur for the same practice in cases covering the vast majority of public companies and billions of dollars."
Shapiro urged the SEC to "reconsider the provisions of Regulations SHO and, at a minimum, apply the 'locate and delivery' requirements for threshold securities to all short sale transactions, and adopt a zero-tolerance policy for significant settlement failures. American investors should feel confident that the SEC will ensure the integrity of every equity transaction they undertake and fully protect their right to receive what they have paid for."
While the battle is still waged in the U.S., some of the threats to small investors' investments are being exacted overseas. Despite some 250 companies winning their exit pass, the FaulkingTruth.com website reported that dozens of companies are still being refused delistings from the Berlin-Bremin Exchange, including ImageWare Systems (IW) and Action Products International (APII). FinancialWire also reported that Sontra Medical Corp. (SONT) is among those whose shares Berlin has resisted delisting.
In all, Faulk said Berliner Freiverkehr CEO Holger Timm reported he has been asked by 386 firms to cease their trading. He is said to have balked at the term delisting, noting that "Trading foreign shares on the third-tier market segment at the Berlin or any other German exchange is not being regarded as a 'listing', therefore it is incorrect to use the term 'delisting' if a company wants to cease trading."
FaulkingTruth said others refused delistings include Endevco Inc. (ENDE), Limelight Media Group (OTCBB: LMMG), IpVoice Communications (OTCBB: IPVO), now NewMarket Technology Inc, (NMKT), Force Protection (FRCP), Cyber Digital Inc. (CYBD), and XRAYMEDIA (XRYM). Others mentioned yesterday included Military Communications Technology (MLTA), Dalrada Financial Corp. (DRDF), and Mannatech Inc. (MTEX).
Timm sent a letter to companies asking to be delisted, which promised if "after considering the above aspects, should you still prefer your stocks not to be traded in Germany we will respect your wish and apply for delisting on the Berlin stock exchange."
However, for dozens of companies, that appears to have been an empty offer.
In a comment letter to the U.S. Securities and Exchange Commission, Larry Thompson, Managing Director and Senior Deputy General Counsel for the DTCC, said it is a violation of Section 17A of the Securities Act of 1934 to impose any process or restriction that would cause delays in the settlement process, said the online newsletter, published by http://www.investigatethesec.com.
"Although not the intent of the comment letter, Mr. Thomson has just become part of a growing number of people who contend that the most recent short selling reform package out of the SEC, Regulation SHO, may not be in compliance with federal law.
"The letter submitted to the SEC on August 16, 2004 was addressing the SEC's proposal to restrict all transfer agents from clearing trades on those issuers who created a 'Custody Only"' restriction on the trading of their securities," noted the newsletter.
"His legal points, presumably unintended, actually shot squarely across the bow of the SEC's Regulation SHO," said StockGate Today, pointing to http://www.sec.gov/rules/proposed/s72404/s72404-14.pdf
"Thompson concludes his opinion letter to the SEC by surmising that the SEC should proceed on with this proposal as written because issuers are not authorized to put restrictions on their stock. For transfer agents to clear these stocks would be aiding and abetting unlawful conduct. The point of law being the settlement requirements defined in Section 17A of the Securities Act of 1934.
"Thus, asked the newsletter, with Thompson "claiming that a delay in the settlement of trades is unlawful how can Regulation SHO be grounded by the presumption that trade settlements are not a mandatory part of the Markets?
"The SEC, in Regulation SHO claims that 4% of all publicly traded companies have levels of settlement failures that exceed an abusive threshold. They also admit that in some cases the failures exceed the entire public float of companies. These are market conditions not only create delays and inefficiencies but fraud and manipulation as well. The SEC's final package never addressed forced settlements and forced timelines on the failures but instead simply threatened 'future enforcement' possibilities and placed "restrictions' above abusive levels.
The final Regulation SHO rules are at http://www.sec.gov/rules/final/34-50103.htm. The trade reporting requirements are at http://www.nasdr.com/2610_2004.asp#04-54.
Recently it was reported that regulated companies, such as dealers, brokers, mutual fund companies, financing firms, and investment houses, have been told they have to submit revised operating manuals to incorporate changes in the Anti-Money-Laundering Act of 2001 by Oct. 29.
The key is a requirement that regulated firms "must know their customers" to prevent money-laundering practices. The firms have to have a procedure to get satisfactory proof of the customer's identity and ensure that effective procedures for verifying the identity of new customers are in place.
However, FinancialWire interviews with spokespersons at the SEC has determined that individuals may open nominee offshore firms without providing their identities to anyone, and by using a multiple number of such nominee firms can even gain complete control of a public company while never revealing their true identities.
The SEC told FinancialWire that it has no power to require identification of individuals behind such firms.
Columnist Jack Anderson has stated that millions if not billions of dollars are laundered through naked short selling schemes.
Twenty civil cases have now been filed by O'Quinn, Laminack & Pirtle, Christian Smith & Jewell, and Heard, Robins, Cloud, Lubel & Greenwood, LLP, all of Houston, Texas. The consortium of law firms, famed for the giant awards they obtained suing tobacco companies. The group recently brought suit against the Depository Trust and Clearing Corp. for allegedly participating in the short-selling conspiracy through its "stock borrow" program which the attorneys say is nothing more than an illegal electronic printing press for stock certificates.
Lead counsel John O'Quinn said: "We are committed to the relentless pursuit of justice."
All this has led to some major changes on Wall Street, if not regulatory attentiveness.
Recently observers were surprised to find a comment letter submitted to the SEC by Mike Alexander, Senior VP of Charles Schwab, that admits outright that brokerages regularly ignore rules and regulations, saying it is not rules that need to be written; it is changes in behavior that is needed.
"Schwab opposes the notion that securities intermediaries such as broker-dealers be required to police compliance," he stated. "The NYSE and other SROs have had trade affirmation rules on their books for some time. However, such rules have not been effective in changing the behavior
of Buy-Side firms or their custodians; nor do the rules provide assurance that the affirmed trade will settle.
"Recognition of this fact is evidence that changes to the settlement cycle not only require overhauling systems, but also changing behavior. We believe that only by holding all market
participants directly accountable for making required affirmations will the necessary changes to behavior," he stated at http://www.sec.gov/rules/concept/s71304/charlesschwab061604.pdf .
"The SEC claims that the number of companies involved in this 'threshold security' category is 4% of all publicly traded companies. If in fact it is that small the process is certainly manageable," said the website InvestigatetheSEC.com at http://www.investigatethesec.com . "It is also the right of every issuer, in protecting their business and their investors to know the status of their stock trading."
Some were discussing whether the SEC can keep such information private under the Freedom of Information Act.
The marketplace is already upset over promises by the Berlin Stock Exchange, since broken, that it would delist any company upon request.
"Please understand that cessation of trading in the shares of XRAYMEDIA Inc. (XRYM) is not possible," the exchange told one such requester.
It's not just U.S. companies such as Whistler Investments (OTCBB: WHIS), Sonoran Energy (SNRN), Celsion Corporation (CLN), and eLinear Inc. (ELU) or Israeli companies that have had serious concerns about their unannounced and unathrorized listings on the Berlin-Bremen Stock Exchange.
According to court filings supported by the O'Quinn/Christian legal network, almost $1 billion annually is received by the Depository Trust and Clearing Corp. for its "Stock Borrow Program," which the lawsuits claim is just a fancy name for counterfeiting, as the DTCC purportedly lends out many multiples of the actual certificates in the float. Apparently the SEC receives a transaction fee for each transaction facilitated by these loans of non-existent certificates, which could knock a hole in its budget should the revenues from the practice be halted.
The North American Securities Administrators Association, comprised of state and Canadian regulators, has pointedly told the SEC that either it must rethink its cozy DTCC relationship, or it hints, some of its more aggressive state practitioners (think Eliot Spitzer) may do the rethinking for the SEC.
Naked short selling is worrisome for hundreds of small U.S. companies, including those recently asking to be delisted from the Berlin Stock Exchange, such as Golden Phoenix Minerals, Inc. (GPXM), Nannaco, Inc. (OTCBB: NNCO), 5G Wireless Communications, Inc. (FGWC), CyberAds, Inc. (CYAD), Provectus Pharmaceuticals, Inc. (PVCT), House of Brussels Chocolates (HBSL), InforMedix, Inc. (IFMX), Tissera, Inc. (OTCBB: TSSR), Americana Publishing, Inc. (OTCBB: APBH), Celsion Corporation (CLN), ChampionLyte Holdings, Inc. (CPLY), Pickups Plus, Inc. (PUPS), China Wireless Communications Inc. (CWLC), CareDecision Corp. (CDED), Titan General Holdings, Inc. (TTGH), IPVoice Communications, Inc. (OTCBB: IPVO), Whistler Investments (OTCBB: WHIS), WARP Technology Holdings, Inc. (OTCBB: WRPT), BGR Corp. (OTCBB: BGRR), ICOA, Inc., (ICOA), DICUT, INC. (OTCBB: DCUTE), NHC Communications Inc. (NHC), Stratus Services Group, Inc. (OTCBB: SERV), Golden Phoenix Minerals, Inc. (GPXM).
Small public companies are squeezed not only by hedge funds, naked short sellers, overseas listers such as the Berlin Stock Exchange, and the out-of-control "Stock Borrow Program" run by the governance-conflict-laden Depository Trust and Clearing Corporation, but to the amazement of the industry, as often and not by their own regulators.
A new staff recommendation by Annette Nazareth, director of the division of market regulation at the U.S. Securities and Exchange Commission to "outlaw" ownership of paper certificates at the same time the Depository Trust and Clearing Corporation is under intense scrutiny for alleged electronic counterfeiting has begun hitting the small public company markets, company executives, shareholders and manipulative short-selling opponents like the proverbial ton of bricks.
A Dow Jones (DJ) article by Judith Burns sparked the uproar, as the inextricably intertwined web of connections between the SEC and the DTC, which is sagging from the weight of conflicted governance by representatives from a rollcall of industry heavyweights, including NASD, which owns NASDAQ (NDAQ), the New York Stock Exchange, Goldman Sachs (GS) and Lehman Brothers (LEH), to name only a few.
The Dow Jones report noted that "naked short-selling occurs when sellers don't buy shares to replace those they borrowed, a manipulative practice that can drive a company's stock price sharply lower.
The recent lawsuit filed by Nanopierce Technologies (NPCT) alleges that the Depository Trust and Clearing Corp. has a lot of reasons, almost one billion of them a year, to keep illegal naked short selling in operation. It was the shot across the bow by the legendary Houston law firms of Christian, Smith, Wukoson and Jewell, and OQuinn, Laminack and Pirtle, whose notches already include environmental targets, the breast implant industry and the tobacco industry, all brought to their knees.
In comments to the U.S. Securities and Exchange Commission, C. Austin Burrell, who is providing litigation support and research for the law firms, said that StockGate is more massive than anyone may have imagined. "Illegal Naked Short Selling has stripped hundreds of billions, if not TRILLIONS, of dollars from American investors," and have resulted in over 7,000 public companies having been "shorted out of existence over the past six years." Burrell said some experts believe as much as $1 trillion to $3 trillion has been lost to this practice.
He stated that the restrictions on short selling were deliberately put into the Securities Acts of 1933 and 1934 because of the first-hand evidence then available that the "sheer scale of the crashes was a direct result of intentional manipulation of US markets through abusive short selling by a massive conspiracy."
Burrell noted that the 65-lawyer team presided over by lead lawyers Wes Christian and John O'Quinn has uncovered more than 1,200 hedge fund and offshore accounts working through more than 150 broker-dealers and market makers in a joint cooperative effort to strip small and medium size public companies of their value.
According to lawyer Christian, et.al., the DTC is at the very heart of the problem, and has almost a billion dollars a year at stake in keeping the problem.
The Depository Trust Company (DTC) is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the SEC. The depository supposedly brings efficiency to the securities industry by retaining custody of some 2 million securities issues, effectively "dematerializing" most of them so that they exist only as electronic files rather than as countless pieces of paper. The depository also provides the services necessary for the maintenance of the securities it has in "custody."
According to the suit, the DTCC has an enormous pecuniary and conflicted interest in the entire short selling scandal through the huge income stream they were realizing from it every day. They have made literally billions of dollars lending individual real shares, in most cases over and over, getting a fee each time they made a journal entry in the "Stock Borrow Program."
The Stock Borrow Program was purportedly set up to facilitate expedited clearance of stock trades. Somewhere along the line, the DTCC became aware that if it could lend a single share an unlimited number of times, it could collect a fee each time, according to Burrell. "There are numerous cases of a single share being lent ten or many more times," giving rise to the complaint that the DTCC has been electronically counterfeiting just as was done via printed certificates before the Crash.
"Such re-hypothecation has in effect made the potential 'float' in a single company's shares virtually unlimited and the term 'float' meaningless. Shares could be electronically created/counterfeited/kited without a registration statement being filed, and without the underlying company having any knowledge such shares are being sold or even in existence." Burrell said the Christian/O'Quinn lawsuits will seek to show that the "counterfeiting/creation of unregistered shares is a specific violation of the Securities Act of 1933, barring the 'Sale of Unregistered Securities'."
One lawsuit alleges that the DTC has a colossal disincentive to stop the "stock borrow" program, booking revenues from services of $425,416,000 and similarly, the NSCC deriving revenues of $293,133,000.
Further, the suit alleges that "open positions" resulting from this activity at the close of business on December 31, 2003, "approximated $3,025,467,000" due to NSCC, and $2,303,717,000 due by NSCC, and unsettled positions of $721,750,000 for securities borrowed through the NSCC's "Stock Borrow Program."
Nanopierce claims that DTCC and NSCC have joined in a "scheme" to "manipulate downward the price of the affected securities, thereby reducing the market value of the open fail to deliver positions." The suit also claims that the s have permitted sellers to maintain open fail to deliver positions of tens of millions of shares for periods of a year and even longer.
It quotes the National Association of Security Dealers as admitting that "concerns have been raised by members, issuers, investors and other interested parties about potentially abusive short selling activities occurring in the marketplace. In particular, naked short selling, or selling short without borrowing securities to make delivery, can result in long term failures to deliver, including aggregate failures to deliver that exceed the total float of a security. NASD believes such extended failures to deliver can have a negative effect on the market. Among other things, by not having to deliver securities, naked short sellers can take on larger short positions than would otherwise be permissible, which can facilitate manipulative activity."
The largely unregulated DTC has become something of a defacto Czar presiding over the entire U.S. markets system, wielding more day-to-day influence and control than the SEC, the NASD and NASDAQ combined.
The Depository Trust and Clearing Corp.'s two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the NASDAQ (NDAQ) and the embattled American Stock Exchange! Regulators, regulate thyself?
In an era when corporate governance is the primary interest for the SEC and state regulators, the DTCC is hardly a role model. Its 21 directors represent a virtual litany of conflict:
They include Bradley Abelow, Managing Director, Goldman Sachs (GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (LEH); Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (C); Michael C. Bodson, Managing Director, Morgan Stanley (MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (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 (WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (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 (STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (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 (JPM).
In their comments to the SEC regarding Regulation SHO in January, the 50 state regulators, through their association, the North American Association of Securities Administrators (NASAA) issued what many consider to be a strong warning that if the DTC is not dealt with in the final regulations, state regulators such as New York State Attorney General Eliot Spitzer may step to the plate.
In what many considered to have been explosive comments, Ralph Lambiase, NASAA president and Director of the Connecticut Division of Securities, warned "NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). 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 ability of the overall proposed rule would be severely impared unless the Commission undertakes to implement such a prohibition."
Recently, leading market makers and brokers named in various lawsuits and other actions, including FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group, Bank of America's (BAC) Banc of America Securities LLC, Societe Generale's (SCGLF) SG Cowen Securities Corp. vFinance, Inc. (VFIN), Knight Trading Group, Inc. (NITE), A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), and ETrade Group, Inc. (ET), were forced to comply with new short-selling market regulations imposed by the NASD after the SEC had "sat on" the NASD request to plug material loopholes for almost 2-1/2 years.
"The new rules expand the scope of the affirmative determination requirements to include orders received from broker/dealers that are not members of NASD ("non-member broker/dealers").
The new rule is on the web at http://www.nasdr.com/2610_2004.asp#04-03
Some 122 companies, including 13 brokers, such as FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group and vFinance, Inc. (VFIN). A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), Knight (NITE) and ETrade Group, Inc. (ET), have been embroiled for over a year in a raging controversy
The remaining 109 companies among the 122 named to date have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.
The complete list of those 108 companies include Advanced Viral Research Corp. (ADVR), AdZone Research, Inc. (ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (ATSC), Federal Agricultural Mortgage / Farmer Mac (AGM) Allied Capital (ALD), American Motorcycle (OTC: AMCYV), American International Industries (AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), ATSI Communications,Inc. (ATSC) Bluebook International (OTCBB: BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (BIFT), Biocurex (BOCX). Broadleaf Capital Partners, Inc. (OTCBB: BDLF), Chattem, Inc. (CHTT), Critical Home Care (OTCBB: CCLH), Composite Holdings (COHIA), CyberDigital, Inc. (CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (DCEL), Eagle Tech Communications (EATC), Edgetech Services (EDGH);
Also, Endovasc Ltd. (EVSC), Enviro-Energy Corporation (ENGY), Environmental Products & Technologies (OTC: EPTC), Environmental Solutions Worldwide, Inc. (ESWW), EPIXTAR Corp. (EPXR), eResearchTechnologies, Inc. (ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (FRE), FreeStar Technologies (OTCBB: FSRCE), Front Porch Digital,
Inc. (OTCBB: FPDI), Geotec Thermal Generators, Inc. (GETC), Genesis Intermedia (GENI), GeneMax Corp. (GMXX), Global Explorations Inc (GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On (HPON), H-Quotient, Inc., (HQNT), Hyperdynamics Corp. (HYPD), International Biochem (IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (IBCS), InternetStudios, Inc. (OTCBB: ISTO), ITIS Holdings (ITHH), Investco Corp. (IVCO), Lair Holdings (LAIR), Lifeline BioTechnologies Inc. (OTC: LBTT), Life Energy & Technology (OTCBB: LETH), MBIA (MBI);
Also, MegaMania Interactive (MNIA), MetaSource Group, Inc. (MTSR),Midastrade.com (MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (NPCT), Nutra Pharmaceutical (NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (NVGV), Orbit E-Commerce, Inc. (OTCBB: OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (PYST),Petrogen Corp. (PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (PDVN), PrimeHoldings.com, Inc. (OTC: PRIM), Phlo Corporation (PHLC), Resourcing Solutions (OTC: RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (SDNA);
Also, Sionix Corp. (SINX), Sonoran Energy (SNRN), Starmax Technologies (OTC: SMXIF), Storage Suites America (SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (SPRI), Technology Logistics (TLOS), Swiss Medica, Inc. (SWME), Ten Stix, Inc. (TNTI), Tidelands Oil (TIDE), Titan Construction (TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (VRA), Viragen International (VGNI), Vista Continental Corporation, (VICC), Viva International (VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (WIZD), WorldTradeShow.com (WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK).
Earlier in 2003, the SEC fined Rhino Advisors, Inc., $1 million for its representation of Amro International in the financing and manipulation of Sedona Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore haven, but was not named in the SEC settlement. Another 60 public companies may have been manipulated by the fined Rhino Advisors and its indicted principals, or its funding apparatus, Amro.
These include:
All American Food Group Inc (AAFGQ), Amanda Co Inc (AMNA), Antra Holdings (RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir Pharmaceuticals (AVN), Bionutrics Inc (BNRX), Brilliant Digital Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE), Butler National Corp (BUTL),Calypte Biomedical Corp (OTCBB: CYPT), Chemtrak Inc/DE (CMTR), Clicknsettle Com Inc (CLIK), Corporate Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (CLWB), Dental Medical Diagnostic Systems Inc (DMDS), Detour Media Group Inc (DTRM),
Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (DISS), International Inc (DYNX), Endovasc Ltd Inc (EVSC), Esynch Corp/CA (OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (FRBW), Greystone Digital Technology Inc (GSTN), Havana Republic Inc/FL (OTCBB: HVNR), Henley Healthcare Inc (HENL), Hollywood Media Corp (HOLL), Ibiz Technology Corp (IBZT), Diagnostic Systems Inc/FL (IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc (RDOC),
Also, Interferon Sciences Inc (IFSC), Interiors Inc (OTC: ITRNA), Laminaire Corp (OTC: THMZ), Medisys Technologies Inc (SCEP), Milestone Scientific Inc/NJ (MS), Nevada Manhattan Group Inc (NVMH), Innovations Inc (OTCBB: NTGE),Systems Group (OSYM), Pacific Systems Control Technology Inc (PFSY), Professional Transportation Group Ltd Inc (TRUC), Rnethealth Inc (RNTT),
Also, Sand Technology Inc (SNDT), Sedona Corp (SDNA), Silverado Foods Inc (SVFO), Stockgroup Information Systems (SWEB) Surgilight Inc (SRGL), Tasty Fries Inc (TFRY), Tech Laboratories Inc (TCHL), Teltran International Group Ltd (TLTG), Titan Motorcycle Co of America Inc (TMOTQ), Trans Energy Inc (TSRG), Motorcycle Co (UMCC), Universal Communication Systems Inc (UCSY), Medical Systems Inc (UMSI), Vianet Technologies Inc (VNTK),Viragen Inc (VRA), Webcatalyst Inc (WBCL), Worldwide Wireless Networks Inc (WWWNQ), and ZAP (ZAPZ).
For up-to-the-minute news, features and links click on http://www.financialwire.net
FinancialWire is an independent, proprietary news service of Investrend Information, a division of Investrend Communications, Inc. It is not a press release service and receives no compensation for its news or opinions. Other divisions of Investrend, however, provide shareholder empowerment platforms such as forums, independent research and webcasting. For more information or to receive the FirstAlert daily summary of news, commentary, research reports, webcasts, events and conference calls, click on http://www.investrend.com/contact.asp
Listen to StreetSignals" (Investrend "ON-THE-AIR") "live" Saturdays from 9 p.m. to 10 p.m. on Business TalkRadio Network stations coast-to-coast, or right now on the web at http://www.StreetSignals.com
The FinancialWire NewsFeed is now available in multiple formats to your site or desktop, free. Click on: http://www.investrend.com/XmlFeeds?level=268
http://www.financialwire.net
(C) 2004 financialwire.net, Inc. All rights reserved.
© 1997-2004 MarketWatch.com, Inc.
StockGate: SEC Paper Presented at SIA Symposium Calls Counterfeiting 'Pervasive'
Nov 29, 2004 (financialwire.net via COMTEX) -- (FinancialWire) The recent Securities Industry of America symposium on Regulation SHO, which was supposed to curtail illegal naked short selling, only further deepened the U.S. Securities and Exchange Commission divide as a dramatic ' some say startling ' new 22-page working paper, "Strategic Delivery Failures in U.S. Equity Markets," was published.
Moderators at the symposium included Steven Kessler, Associate General Counsel for Goldman Sachs & Co. (GS), and Deborah Mittelman, Deputy Director of Global Compliance for Reuters' (RTRSY) Instinet. Panelists included Jeffrey Bernstein, Senior Managing Director of Bear Stearns (BSC), and Robert O'Connor, Executive Director of the Law Department for Morgan Stanley (MWD).
The referenced working paper by University of New Mexico Professor Leslie Boni was initiated while the author was visiting financial economist at the SEC.
She termed the "failures to deliver," which litigants have called "counterfeiting," as being "pervasive."
The full report is published at http://www.investrendinformation.com
Dave Patch, editor of "Stockgate Today," credited the SEC with "putting members on notice that the settlement failure issues presently floating in the markets must be changed."
Patch quoted Boni as noting that "strategic failures" occur "when the short sellers choose not to deliver shares that would be too expensive to borrow". Her analysis of Regulation SHO was that, "pre-Regulation SHO, equity and options market makers strategically failed to deliver shares that were expensive to borrow or impossible to borrow".
Boni said "strategic fails (i.e. naked short sales) likely accounted for a higher percentage of short interest pre-Regulation SHO than previously understood".
The professor said that a whopping 42% of listed stocks at the New York Stock Exchange, NASDAQ and AMEX, and 47% of unlisted stocks in the OTCBB and Pink Sheets had persistent fails of 5 days or more with 4% being above the SEC's threshold limits for failures.
The standard for settlement is presently 3 days with a concept proposal by the SEC in comment to reduce 3 day settlement to 1 day, noted Patch.
The economist pointed to a study conducted by Evans, Geczy, Musto, and Reed in 2003 that provided evidence that while the SRO's have buy-in requirements, such buy-ins almost never occur. She noted that an audit of one market maker showed that all or a portion of shares in 69,063 transactions during 1998-1999 were "fails to deliver."
"The market maker was bought-in on only 86 of these positions," she stated.
Patch said that his own review of the Securities Acts of 1933 and 1934 finds no reference to "strategic failures." In fact, he said, Section 17a of the 1934 act "mandates prompt and accurate clearance and settlement of trades, and the admission of Strategic Failures is also in direct violation of Rule 15c6-1."
Rule 15c6-1 defines the settlement cycle for trades executed and states that no Broker Dealer may enter into a contract for the sale of a security whereby the payment for that security and the delivery of that security is greater than 3 business days. For market making activities there is a slight exemption from the delivery in a Bona Fide Market Making activity but as the SEC and SRO's have repeatedly stated, Bona Fide Market making is not simply supporting the best offer in a naked short sale without also representing the best bid or near best bid in a long trade. They must be actively making a market on both sides of trading to use the exemption, noted Patch.
NBC's "Dateline" recently confirmed to FinancialWire that it is preparing a comprehensive expose of the "naked short selling" controversy.
The reportage is said to focus on allegations that "brokers, through their wholly owned clearing house system, the Depository Trust Corporation (DTCC), have effectively been creating counterfeit shares of stock through their 'Stock Borrow Program', which allows brokers to 'borrow' the same shares over and over again, artificially inflating the share count and driving the price of the stock down.
Stockgate, a growing global malady, is being contested on multiple levels, including judicial, legislative and political.
Delegates to the September 20 annual SEC Forum on Small Business passed several resolutions on the issue to be submitted to the SEC. Among them were:
1. Extend Reg. SHO to apply to all publicly traded companies including non-reporting companies.
2. Recommend that the SEC Commissioners reinstate the proposed provision in Regulation SHO that prohibited a selling shareholder from withdrawing his/her profits from the trade until after delivery of the underlying sold shares.
3. SEC should require all SROs, and any clearinghouse for an SRO that receives securities into accounts for security holders to disclose the fact of the ability to loan the securities in the accounts and allow security holders to opt out of allowing the securities to be loaned.
Robert Shapiro, chair of Sonecon LLC, an economic advisory firm and former Under Secretary of Commerce from 1998 to 2001 and principal economic advisor to President William Clinton in his 1992 campaign, has expressed "serious concerns about the impact of the final version of Regulation SHO regarding short sales on the equity and transparency of our equity markets."
Shapiro holds a Ph.D. from Harvard University and has been a Fellow of the National Bureau
of Economic Research, the Brookings Institution, and Harvard University.
Shapiro said the SEC is correct to broaden the terms of regulation of short sales, and applauded the section directing broker dealers to mark all equity orders as "long," "short" or "short exempt." More important, he said, the new "locate and delivery" requirements could substantially reduce stock manipulation carried out through naked short sales -- but only if those requirements are
widely applied and strictly enforced.
"Unfortunately, Regulation SHO does not meet either of these two standards. The troubling result is that the Regulation, in effect, establishes an official level of tolerance for unsettled or naked short sales," Shapiro charged.
Shapiro said he strongly concurs with the comments of the North American Securities Administrators Association (NASAA) on the draft rule, which said NASAA was "unable to determine why the Commission proposes 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."
"Until Regulation SHO, this economic counterfeiting has been facilitated by electronic record keeping and the apparent practice of the DTCC and its subsidiary National Securities Clearing Corporation (NSCC) of often disregarding persistent unsettled short positions. With Regulation SHO, the SEC has provided its implicit imprimatur for the same practice in cases covering the vast majority of public companies and billions of dollars."
Shapiro urged the SEC to "reconsider the provisions of Regulations SHO and, at a minimum, apply the 'locate and delivery' requirements for threshold securities to all short sale transactions, and adopt a zero-tolerance policy for significant settlement failures. American investors should feel confident that the SEC will ensure the integrity of every equity transaction they undertake and fully protect their right to receive what they have paid for."
While the battle is still waged in the U.S., some of the threats to small investors' investments are being exacted overseas. Despite some 250 companies winning their exit pass, the FaulkingTruth.com website reported that dozens of companies are still being refused delistings from the Berlin-Bremin Exchange, including ImageWare Systems (IW) and Action Products International (APII). FinancialWire also reported that Sontra Medical Corp. (SONT) is among those whose shares Berlin has resisted delisting.
In all, Faulk said Berliner Freiverkehr CEO Holger Timm reported he has been asked by 386 firms to cease their trading. He is said to have balked at the term delisting, noting that "Trading foreign shares on the third-tier market segment at the Berlin or any other German exchange is not being regarded as a 'listing', therefore it is incorrect to use the term 'delisting' if a company wants to cease trading."
FaulkingTruth said others refused delistings include Endevco Inc. (ENDE), Limelight Media Group (OTCBB: LMMG), IpVoice Communications (OTCBB: IPVO), now NewMarket Technology Inc, (NMKT), Force Protection (FRCP), Cyber Digital Inc. (CYBD), and XRAYMEDIA (XRYM). Others mentioned yesterday included Military Communications Technology (MLTA), Dalrada Financial Corp. (DRDF), and Mannatech Inc. (MTEX).
Timm sent a letter to companies asking to be delisted, which promised if "after considering the above aspects, should you still prefer your stocks not to be traded in Germany we will respect your wish and apply for delisting on the Berlin stock exchange."
However, for dozens of companies, that appears to have been an empty offer.
In a comment letter to the U.S. Securities and Exchange Commission, Larry Thompson, Managing Director and Senior Deputy General Counsel for the DTCC, said it is a violation of Section 17A of the Securities Act of 1934 to impose any process or restriction that would cause delays in the settlement process, said the online newsletter, published by http://www.investigatethesec.com.
"Although not the intent of the comment letter, Mr. Thomson has just become part of a growing number of people who contend that the most recent short selling reform package out of the SEC, Regulation SHO, may not be in compliance with federal law.
"The letter submitted to the SEC on August 16, 2004 was addressing the SEC's proposal to restrict all transfer agents from clearing trades on those issuers who created a 'Custody Only"' restriction on the trading of their securities," noted the newsletter.
"His legal points, presumably unintended, actually shot squarely across the bow of the SEC's Regulation SHO," said StockGate Today, pointing to http://www.sec.gov/rules/proposed/s72404/s72404-14.pdf
"Thompson concludes his opinion letter to the SEC by surmising that the SEC should proceed on with this proposal as written because issuers are not authorized to put restrictions on their stock. For transfer agents to clear these stocks would be aiding and abetting unlawful conduct. The point of law being the settlement requirements defined in Section 17A of the Securities Act of 1934.
"Thus, asked the newsletter, with Thompson "claiming that a delay in the settlement of trades is unlawful how can Regulation SHO be grounded by the presumption that trade settlements are not a mandatory part of the Markets?
"The SEC, in Regulation SHO claims that 4% of all publicly traded companies have levels of settlement failures that exceed an abusive threshold. They also admit that in some cases the failures exceed the entire public float of companies. These are market conditions not only create delays and inefficiencies but fraud and manipulation as well. The SEC's final package never addressed forced settlements and forced timelines on the failures but instead simply threatened 'future enforcement' possibilities and placed "restrictions' above abusive levels.
The final Regulation SHO rules are at http://www.sec.gov/rules/final/34-50103.htm. The trade reporting requirements are at http://www.nasdr.com/2610_2004.asp#04-54.
Recently it was reported that regulated companies, such as dealers, brokers, mutual fund companies, financing firms, and investment houses, have been told they have to submit revised operating manuals to incorporate changes in the Anti-Money-Laundering Act of 2001 by Oct. 29.
The key is a requirement that regulated firms "must know their customers" to prevent money-laundering practices. The firms have to have a procedure to get satisfactory proof of the customer's identity and ensure that effective procedures for verifying the identity of new customers are in place.
However, FinancialWire interviews with spokespersons at the SEC has determined that individuals may open nominee offshore firms without providing their identities to anyone, and by using a multiple number of such nominee firms can even gain complete control of a public company while never revealing their true identities.
The SEC told FinancialWire that it has no power to require identification of individuals behind such firms.
Columnist Jack Anderson has stated that millions if not billions of dollars are laundered through naked short selling schemes.
Twenty civil cases have now been filed by O'Quinn, Laminack & Pirtle, Christian Smith & Jewell, and Heard, Robins, Cloud, Lubel & Greenwood, LLP, all of Houston, Texas. The consortium of law firms, famed for the giant awards they obtained suing tobacco companies. The group recently brought suit against the Depository Trust and Clearing Corp. for allegedly participating in the short-selling conspiracy through its "stock borrow" program which the attorneys say is nothing more than an illegal electronic printing press for stock certificates.
Lead counsel John O'Quinn said: "We are committed to the relentless pursuit of justice."
All this has led to some major changes on Wall Street, if not regulatory attentiveness.
Recently observers were surprised to find a comment letter submitted to the SEC by Mike Alexander, Senior VP of Charles Schwab, that admits outright that brokerages regularly ignore rules and regulations, saying it is not rules that need to be written; it is changes in behavior that is needed.
"Schwab opposes the notion that securities intermediaries such as broker-dealers be required to police compliance," he stated. "The NYSE and other SROs have had trade affirmation rules on their books for some time. However, such rules have not been effective in changing the behavior
of Buy-Side firms or their custodians; nor do the rules provide assurance that the affirmed trade will settle.
"Recognition of this fact is evidence that changes to the settlement cycle not only require overhauling systems, but also changing behavior. We believe that only by holding all market
participants directly accountable for making required affirmations will the necessary changes to behavior," he stated at http://www.sec.gov/rules/concept/s71304/charlesschwab061604.pdf .
"The SEC claims that the number of companies involved in this 'threshold security' category is 4% of all publicly traded companies. If in fact it is that small the process is certainly manageable," said the website InvestigatetheSEC.com at http://www.investigatethesec.com . "It is also the right of every issuer, in protecting their business and their investors to know the status of their stock trading."
Some were discussing whether the SEC can keep such information private under the Freedom of Information Act.
The marketplace is already upset over promises by the Berlin Stock Exchange, since broken, that it would delist any company upon request.
"Please understand that cessation of trading in the shares of XRAYMEDIA Inc. (XRYM) is not possible," the exchange told one such requester.
It's not just U.S. companies such as Whistler Investments (OTCBB: WHIS), Sonoran Energy (SNRN), Celsion Corporation (CLN), and eLinear Inc. (ELU) or Israeli companies that have had serious concerns about their unannounced and unathrorized listings on the Berlin-Bremen Stock Exchange.
According to court filings supported by the O'Quinn/Christian legal network, almost $1 billion annually is received by the Depository Trust and Clearing Corp. for its "Stock Borrow Program," which the lawsuits claim is just a fancy name for counterfeiting, as the DTCC purportedly lends out many multiples of the actual certificates in the float. Apparently the SEC receives a transaction fee for each transaction facilitated by these loans of non-existent certificates, which could knock a hole in its budget should the revenues from the practice be halted.
The North American Securities Administrators Association, comprised of state and Canadian regulators, has pointedly told the SEC that either it must rethink its cozy DTCC relationship, or it hints, some of its more aggressive state practitioners (think Eliot Spitzer) may do the rethinking for the SEC.
Naked short selling is worrisome for hundreds of small U.S. companies, including those recently asking to be delisted from the Berlin Stock Exchange, such as Golden Phoenix Minerals, Inc. (GPXM), Nannaco, Inc. (OTCBB: NNCO), 5G Wireless Communications, Inc. (FGWC), CyberAds, Inc. (CYAD), Provectus Pharmaceuticals, Inc. (PVCT), House of Brussels Chocolates (HBSL), InforMedix, Inc. (IFMX), Tissera, Inc. (OTCBB: TSSR), Americana Publishing, Inc. (OTCBB: APBH), Celsion Corporation (CLN), ChampionLyte Holdings, Inc. (CPLY), Pickups Plus, Inc. (PUPS), China Wireless Communications Inc. (CWLC), CareDecision Corp. (CDED), Titan General Holdings, Inc. (TTGH), IPVoice Communications, Inc. (OTCBB: IPVO), Whistler Investments (OTCBB: WHIS), WARP Technology Holdings, Inc. (OTCBB: WRPT), BGR Corp. (OTCBB: BGRR), ICOA, Inc., (ICOA), DICUT, INC. (OTCBB: DCUTE), NHC Communications Inc. (NHC), Stratus Services Group, Inc. (OTCBB: SERV), Golden Phoenix Minerals, Inc. (GPXM).
Small public companies are squeezed not only by hedge funds, naked short sellers, overseas listers such as the Berlin Stock Exchange, and the out-of-control "Stock Borrow Program" run by the governance-conflict-laden Depository Trust and Clearing Corporation, but to the amazement of the industry, as often and not by their own regulators.
A new staff recommendation by Annette Nazareth, director of the division of market regulation at the U.S. Securities and Exchange Commission to "outlaw" ownership of paper certificates at the same time the Depository Trust and Clearing Corporation is under intense scrutiny for alleged electronic counterfeiting has begun hitting the small public company markets, company executives, shareholders and manipulative short-selling opponents like the proverbial ton of bricks.
A Dow Jones (DJ) article by Judith Burns sparked the uproar, as the inextricably intertwined web of connections between the SEC and the DTC, which is sagging from the weight of conflicted governance by representatives from a rollcall of industry heavyweights, including NASD, which owns NASDAQ (NDAQ), the New York Stock Exchange, Goldman Sachs (GS) and Lehman Brothers (LEH), to name only a few.
The Dow Jones report noted that "naked short-selling occurs when sellers don't buy shares to replace those they borrowed, a manipulative practice that can drive a company's stock price sharply lower.
The recent lawsuit filed by Nanopierce Technologies (NPCT) alleges that the Depository Trust and Clearing Corp. has a lot of reasons, almost one billion of them a year, to keep illegal naked short selling in operation. It was the shot across the bow by the legendary Houston law firms of Christian, Smith, Wukoson and Jewell, and OQuinn, Laminack and Pirtle, whose notches already include environmental targets, the breast implant industry and the tobacco industry, all brought to their knees.
In comments to the U.S. Securities and Exchange Commission, C. Austin Burrell, who is providing litigation support and research for the law firms, said that StockGate is more massive than anyone may have imagined. "Illegal Naked Short Selling has stripped hundreds of billions, if not TRILLIONS, of dollars from American investors," and have resulted in over 7,000 public companies having been "shorted out of existence over the past six years." Burrell said some experts believe as much as $1 trillion to $3 trillion has been lost to this practice.
He stated that the restrictions on short selling were deliberately put into the Securities Acts of 1933 and 1934 because of the first-hand evidence then available that the "sheer scale of the crashes was a direct result of intentional manipulation of US markets through abusive short selling by a massive conspiracy."
Burrell noted that the 65-lawyer team presided over by lead lawyers Wes Christian and John O'Quinn has uncovered more than 1,200 hedge fund and offshore accounts working through more than 150 broker-dealers and market makers in a joint cooperative effort to strip small and medium size public companies of their value.
According to lawyer Christian, et.al., the DTC is at the very heart of the problem, and has almost a billion dollars a year at stake in keeping the problem.
The Depository Trust Company (DTC) is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the SEC. The depository supposedly brings efficiency to the securities industry by retaining custody of some 2 million securities issues, effectively "dematerializing" most of them so that they exist only as electronic files rather than as countless pieces of paper. The depository also provides the services necessary for the maintenance of the securities it has in "custody."
According to the suit, the DTCC has an enormous pecuniary and conflicted interest in the entire short selling scandal through the huge income stream they were realizing from it every day. They have made literally billions of dollars lending individual real shares, in most cases over and over, getting a fee each time they made a journal entry in the "Stock Borrow Program."
The Stock Borrow Program was purportedly set up to facilitate expedited clearance of stock trades. Somewhere along the line, the DTCC became aware that if it could lend a single share an unlimited number of times, it could collect a fee each time, according to Burrell. "There are numerous cases of a single share being lent ten or many more times," giving rise to the complaint that the DTCC has been electronically counterfeiting just as was done via printed certificates before the Crash.
"Such re-hypothecation has in effect made the potential 'float' in a single company's shares virtually unlimited and the term 'float' meaningless. Shares could be electronically created/counterfeited/kited without a registration statement being filed, and without the underlying company having any knowledge such shares are being sold or even in existence." Burrell said the Christian/O'Quinn lawsuits will seek to show that the "counterfeiting/creation of unregistered shares is a specific violation of the Securities Act of 1933, barring the 'Sale of Unregistered Securities'."
One lawsuit alleges that the DTC has a colossal disincentive to stop the "stock borrow" program, booking revenues from services of $425,416,000 and similarly, the NSCC deriving revenues of $293,133,000.
Further, the suit alleges that "open positions" resulting from this activity at the close of business on December 31, 2003, "approximated $3,025,467,000" due to NSCC, and $2,303,717,000 due by NSCC, and unsettled positions of $721,750,000 for securities borrowed through the NSCC's "Stock Borrow Program."
Nanopierce claims that DTCC and NSCC have joined in a "scheme" to "manipulate downward the price of the affected securities, thereby reducing the market value of the open fail to deliver positions." The suit also claims that the s have permitted sellers to maintain open fail to deliver positions of tens of millions of shares for periods of a year and even longer.
It quotes the National Association of Security Dealers as admitting that "concerns have been raised by members, issuers, investors and other interested parties about potentially abusive short selling activities occurring in the marketplace. In particular, naked short selling, or selling short without borrowing securities to make delivery, can result in long term failures to deliver, including aggregate failures to deliver that exceed the total float of a security. NASD believes such extended failures to deliver can have a negative effect on the market. Among other things, by not having to deliver securities, naked short sellers can take on larger short positions than would otherwise be permissible, which can facilitate manipulative activity."
The largely unregulated DTC has become something of a defacto Czar presiding over the entire U.S. markets system, wielding more day-to-day influence and control than the SEC, the NASD and NASDAQ combined.
The Depository Trust and Clearing Corp.'s two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the NASDAQ (NDAQ) and the embattled American Stock Exchange! Regulators, regulate thyself?
In an era when corporate governance is the primary interest for the SEC and state regulators, the DTCC is hardly a role model. Its 21 directors represent a virtual litany of conflict:
They include Bradley Abelow, Managing Director, Goldman Sachs (GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (LEH); Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (C); Michael C. Bodson, Managing Director, Morgan Stanley (MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (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 (WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (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 (STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (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 (JPM).
In their comments to the SEC regarding Regulation SHO in January, the 50 state regulators, through their association, the North American Association of Securities Administrators (NASAA) issued what many consider to be a strong warning that if the DTC is not dealt with in the final regulations, state regulators such as New York State Attorney General Eliot Spitzer may step to the plate.
In what many considered to have been explosive comments, Ralph Lambiase, NASAA president and Director of the Connecticut Division of Securities, warned "NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). 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 ability of the overall proposed rule would be severely impared unless the Commission undertakes to implement such a prohibition."
Recently, leading market makers and brokers named in various lawsuits and other actions, including FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group, Bank of America's (BAC) Banc of America Securities LLC, Societe Generale's (SCGLF) SG Cowen Securities Corp. vFinance, Inc. (VFIN), Knight Trading Group, Inc. (NITE), A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), and ETrade Group, Inc. (ET), were forced to comply with new short-selling market regulations imposed by the NASD after the SEC had "sat on" the NASD request to plug material loopholes for almost 2-1/2 years.
"The new rules expand the scope of the affirmative determination requirements to include orders received from broker/dealers that are not members of NASD ("non-member broker/dealers").
The new rule is on the web at http://www.nasdr.com/2610_2004.asp#04-03
Some 122 companies, including 13 brokers, such as FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group and vFinance, Inc. (VFIN). A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), Knight (NITE) and ETrade Group, Inc. (ET), have been embroiled for over a year in a raging controversy
The remaining 109 companies among the 122 named to date have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.
The complete list of those 108 companies include Advanced Viral Research Corp. (ADVR), AdZone Research, Inc. (ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (ATSC), Federal Agricultural Mortgage / Farmer Mac (AGM) Allied Capital (ALD), American Motorcycle (OTC: AMCYV), American International Industries (AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), ATSI Communications,Inc. (ATSC) Bluebook International (OTCBB: BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (BIFT), Biocurex (BOCX). Broadleaf Capital Partners, Inc. (OTCBB: BDLF), Chattem, Inc. (CHTT), Critical Home Care (OTCBB: CCLH), Composite Holdings (COHIA), CyberDigital, Inc. (CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (DCEL), Eagle Tech Communications (EATC), Edgetech Services (EDGH);
Also, Endovasc Ltd. (EVSC), Enviro-Energy Corporation (ENGY), Environmental Products & Technologies (OTC: EPTC), Environmental Solutions Worldwide, Inc. (ESWW), EPIXTAR Corp. (EPXR), eResearchTechnologies, Inc. (ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (FRE), FreeStar Technologies (OTCBB: FSRCE), Front Porch Digital,
Inc. (OTCBB: FPDI), Geotec Thermal Generators, Inc. (GETC), Genesis Intermedia (GENI), GeneMax Corp. (GMXX), Global Explorations Inc (GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On (HPON), H-Quotient, Inc., (HQNT), Hyperdynamics Corp. (HYPD), International Biochem (IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (IBCS), InternetStudios, Inc. (OTCBB: ISTO), ITIS Holdings (ITHH), Investco Corp. (IVCO), Lair Holdings (LAIR), Lifeline BioTechnologies Inc. (OTC: LBTT), Life Energy & Technology (OTCBB: LETH), MBIA (MBI);
Also, MegaMania Interactive (MNIA), MetaSource Group, Inc. (MTSR),Midastrade.com (MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (NPCT), Nutra Pharmaceutical (NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (NVGV), Orbit E-Commerce, Inc. (OTCBB: OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (PYST),Petrogen Corp. (PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (PDVN), PrimeHoldings.com, Inc. (OTC: PRIM), Phlo Corporation (PHLC), Resourcing Solutions (OTC: RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (SDNA);
Also, Sionix Corp. (SINX), Sonoran Energy (SNRN), Starmax Technologies (OTC: SMXIF), Storage Suites America (SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (SPRI), Technology Logistics (TLOS), Swiss Medica, Inc. (SWME), Ten Stix, Inc. (TNTI), Tidelands Oil (TIDE), Titan Construction (TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (VRA), Viragen International (VGNI), Vista Continental Corporation, (VICC), Viva International (VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (WIZD), WorldTradeShow.com (WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK).
Earlier in 2003, the SEC fined Rhino Advisors, Inc., $1 million for its representation of Amro International in the financing and manipulation of Sedona Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore haven, but was not named in the SEC settlement. Another 60 public companies may have been manipulated by the fined Rhino Advisors and its indicted principals, or its funding apparatus, Amro.
These include:
All American Food Group Inc (AAFGQ), Amanda Co Inc (AMNA), Antra Holdings (RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir Pharmaceuticals (AVN), Bionutrics Inc (BNRX), Brilliant Digital Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE), Butler National Corp (BUTL),Calypte Biomedical Corp (OTCBB: CYPT), Chemtrak Inc/DE (CMTR), Clicknsettle Com Inc (CLIK), Corporate Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (CLWB), Dental Medical Diagnostic Systems Inc (DMDS), Detour Media Group Inc (DTRM),
Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (DISS), International Inc (DYNX), Endovasc Ltd Inc (EVSC), Esynch Corp/CA (OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (FRBW), Greystone Digital Technology Inc (GSTN), Havana Republic Inc/FL (OTCBB: HVNR), Henley Healthcare Inc (HENL), Hollywood Media Corp (HOLL), Ibiz Technology Corp (IBZT), Diagnostic Systems Inc/FL (IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc (RDOC),
Also, Interferon Sciences Inc (IFSC), Interiors Inc (OTC: ITRNA), Laminaire Corp (OTC: THMZ), Medisys Technologies Inc (SCEP), Milestone Scientific Inc/NJ (MS), Nevada Manhattan Group Inc (NVMH), Innovations Inc (OTCBB: NTGE),Systems Group (OSYM), Pacific Systems Control Technology Inc (PFSY), Professional Transportation Group Ltd Inc (TRUC), Rnethealth Inc (RNTT),
Also, Sand Technology Inc (SNDT), Sedona Corp (SDNA), Silverado Foods Inc (SVFO), Stockgroup Information Systems (SWEB) Surgilight Inc (SRGL), Tasty Fries Inc (TFRY), Tech Laboratories Inc (TCHL), Teltran International Group Ltd (TLTG), Titan Motorcycle Co of America Inc (TMOTQ), Trans Energy Inc (TSRG), Motorcycle Co (UMCC), Universal Communication Systems Inc (UCSY), Medical Systems Inc (UMSI), Vianet Technologies Inc (VNTK),Viragen Inc (VRA), Webcatalyst Inc (WBCL), Worldwide Wireless Networks Inc (WWWNQ), and ZAP (ZAPZ).
For up-to-the-minute news, features and links click on http://www.financialwire.net
FinancialWire is an independent, proprietary news service of Investrend Information, a division of Investrend Communications, Inc. It is not a press release service and receives no compensation for its news or opinions. Other divisions of Investrend, however, provide shareholder empowerment platforms such as forums, independent research and webcasting. For more information or to receive the FirstAlert daily summary of news, commentary, research reports, webcasts, events and conference calls, click on http://www.investrend.com/contact.asp
Listen to StreetSignals" (Investrend "ON-THE-AIR") "live" Saturdays from 9 p.m. to 10 p.m. on Business TalkRadio Network stations coast-to-coast, or right now on the web at http://www.StreetSignals.com
The FinancialWire NewsFeed is now available in multiple formats to your site or desktop, free. Click on: http://www.investrend.com/XmlFeeds?level=268
http://www.financialwire.net
(C) 2004 financialwire.net, Inc. All rights reserved.
© 1997-2004 MarketWatch.com, Inc.
Tune to 8:35 AM ET
AM Business with Kim Parlee
Lou's Mailbag: Shore Gold Inc.
Lou Schizas, equities analyst, Report on Business Telelvision
Duration: 3 m 15 s
http://www.robtv.com/shows/past_archive.tv
Tune to 8:35 AM ET
AM Business with Kim Parlee
Lou's Mailbag: Shore Gold Inc.
Lou Schizas, equities analyst, Report on Business Telelvision
Duration: 3 m 15 s
http://www.robtv.com/shows/past_archive.tv
Fort a la Corne diamond valuation from 2001.
According to GoldenClaude who posts on the SH board ...
Just in case anyone might want to know if there have ever been any valuation projections done on the diamonds of the Fort Corn kimberlite fields, well, there have.
Just yesterday I spoke to a top mining analyst in Toronto who told me that the valuation modeling that was done by both Debeers and WWW International Diamond Consultants should hold true for all of the Fort Corn kimberlites. According to this expert, the diamonds of the KRT/DeBeers' JV should be of the same quality as those collected by Shore in the BIG DIG as all of these diamonds come from the same mantle material deep within the bowels of the earth directly below the Fort Corn kimberlite fields.
The $$/carat numbers given by the JV were derived from about 40 carats worth of samples taken from kimberlite bodies 122 and 144. The modeled valuation for these two kimberlite bodies was, on average, about $150 per carat. However, since this study was done, the price of diamonds has gone up substantially, so perhaps we are looking at a valuation model that is more likely in the $170 plus range. Below is the URL of the above mentioned valuation study from the Kensington Resources archive:
http://www.kensington-resources.com/s/NewsArchives.asp?ReportID=60083&_Type=News-Archives&_T...
Read the NOTES on this ..
http://www.otcbb.com/asp/dividend.asp?sym_id=cmkx
Refer to the D/L of 9/28/04, P/D revised by Co. +Approx .00012267 of a restricted share of Juina Mining Corp (OTC: GEMM) for each share held. Will not be quoted Ex.
~~~~~~~ ALSO THIS FROM THE CMKX COMMUNITY BOARD:
I just got off the phone with Andrew Hill, the CMKM Diamonds IR Person. I called him earlier this morning and left a message. He returned my call as soon as he got into the office.
I have to say, that he is a very knowledgeable, articulate, and interesting person to talk with. I really enjoyed the fact that he took the time to talk with me and even asked what the general mood of the shareholders was.
My purpose for calling Andy was to investigate the rumors going around about a change in the dividend dates for the GEMM dividends.
Andy explained to me that the dividend dates have not changed. There is still a dividend that was payable on November 15 and a dividend that was payable on November 30. However, the DTC (who distributes the shares) decided on it's own that it would distribute ALL of the dividend shares (both sets) to the brokers on November 29.
Many brokers have already credited people's accounts with dividend shares, this is fine. They will also be crediting accounts on November 30. Those people who have not received shares in their accounts are not to worry. It just means that their brokers are refusing to put shares in their accounts until the shares have been physically received from the DTC.
That is the entire explaination. There is no push back of dividend dates. No conspiracy theories. Just an administrative move by the DTC to payout both sets of dividends to the brokers at once.
Andy told me that everyone needs to spend less time listening to rumors and dates and just follow the press releases. When everyone chases dates and rumors it only leads to disappointment and bad feelings. The company is working very hard. They are drilling in Smeaton. There is a legal team working on the Saskatchewan Finance Committee issue. Everyone just needs to be patient.
Andy's only contact within the company is Urban Casavant. He get's his information from Urban (whom he has not yet met) and he only gives out information that he receives from Urban. He is not running out to the drill site or looking for scraps of information to pass on.
Andy also said that he feels the stock is undervalued (as do we all). However, some of the valuation techniques floating around are just plain ridiculous. We all need to take a step back and let the company get things under control.
I hope this answers a few of the questions that are floating around and helps to bring us all back to reality.
Denmage
Have a safe and Happy Thanksgiving
Tim, I think what you got are called "markers" ... they're used to stop clients phoning to bug the a$$ off the security dealer. They're not tradable instruments.
The first and second distributions of GEMM divvies will be arriving together on Nov 30. This was a decision made by the DTCC, not by the company.
We'er in the Punjab now ...
http://www.onlypunjab.com/money/fullstory-newsID-6424.html
The latest from Shore Gold ...
http://www.stockhouse.com/news/news.asp?tick=SGF&newsid=2546269
In the neighborhood ..
Shore Gold Inc. - Star Diamond Project: Over 2,394 carats to date - More large diamonds in 273 carat parcel ...
http://www.stockhouse.com/news/news.asp?tick=SGF&newsid=2546269
Kensington drills for larger carat crop
2004-11-24 14:10 ET - Street Wire
by Will Purcell
Kensington Resources Ltd. and its Fort a la Corne partners continue to hunt higher grade zones on their diamond project in central Saskatchewan. The partners completed five large diameter holes into the No. 140/141 kimberlite complex and drilled 32 core holes into several top prospects on the play. The 10-hole large diameter drilling will provide a better sign of the grade in the richer regions of the two top pipes, while the core holes will hopefully reveal similar zones in the other promising pipes.
A nearby rival, Shore Gold Inc., is getting most of the attention of late with its 25,000-tonne bulk sample. Nevertheless, Kensington and its partners are also spending a large amount of cash to advance their play. Kensington's method is less promotable than that of its rival, but it could ultimately pay off.
The Fort a la Corne game plans
Shore Gold has just one kimberlite, but the company thinks it can make a large and profitable diamond mine out of the mammoth Star pipe. The body could hold as much as 500 million tonnes of kimberlite, although at least 20 per cent of the material is lower-grade kimberlite in the top of the body.
Still, speculators believe there will be about 300 million tonnes of rock with an average diamond content of about 0.15 carat per tonne. If so, Shore would have about 45 million carats of diamonds in the richer part of Star, with perhaps another five million carats in the lower-grade upper reaches of the pipe. At last report, Shore was hoping for a diamond value of at least $125 (U.S.) per carat, and there are several signs suggesting that target could be conservative.
Things are markedly different just to the north. The Fort a la Corne play of Kensington and De Beers produced over 70 kimberlites over the past 15 years and most of those discoveries proved to be diamondiferous. None of the finds produced a promotable average grade, but there are regions within some of the pipes that could have grades comparable with what Shore is finding at Star.
Most of De Beers and Kensington's attention went to the No. 140/141 kimberlite over the past few years, but the additional bodies and the supposedly smaller extent of the higher-grade regions prompted a change of plan. The partners now propose to identify up to 100 million carats of diamonds, but spread over several kimberlite pipes, unlike the approach of Shore Gold, which is putting all of its carat wishes on its Star pipe.
As a result, De Beers and Kensington are using core holes to help delineate richer regions within their huge pipes. The partners then drill a series of reverse circulation holes into those better areas. The work provides modest parcels of carats and enough size distribution data to start the grade and value modelling work.
The method of extraction allows for the recovery of diamonds across many different zones within several different pipes, but it would be expensive and time consuming to collect a large parcel in that manner. Meanwhile, Shore will have a good idea of the grade and value of its Star sample, but the underground method of mining limits its knowledge to a small section of the mammoth pipe.
Shore will have to complete a major drill program in other parts of Star to translate its bulk sample results to other zones of the pipe. Meanwhile, Kensington and De Beers may have to produce larger carat parcels to produce a satisfactory degree of confidence in their modelled estimates. Although the approach taken by Kensington and De Beers lacks the promotional oomph of a big bulk sample, it is the best method to test several pipes quickly.
The reverse circulation program
Kensington and its partners completed five reverse circulation holes into the breccia beds of the No. 140/141 kimberlite complex. That test should produce a promotable array of diamonds, based on a smaller sample and the results of De Beers's modelling.
Earlier this year, De Beers and Kensington came up with an estimate indicating there were about 29 million tonnes of kimberlite in the south breccia beds at No. 140/141. That rock has a grade of about 0.16 carat per tonne, according to the latest calculation of De Beers.
The grade expectation resulted from about 74 tonnes of breccia processed in earlier tests. The rock produced about 13.7 carats of diamonds larger than a 0.15-millimetre cut-off. That suggests a grade of just less than 0.19 carat per tonne, one of the few instances that a De Beers forecast fell short of the sampled value.
As a result, the much larger test this year will be a key part of the $7.6-million program. The five holes into the breccia beds extracted nearly 850 tonnes of kimberlite. Although it seems likely that a significant portion of that material came from other rock units, the sample will provide a much better idea of the grade within the breccia.
De Beers and Kensington also have an estimated 105 million tonnes of kimberlite within the coarse megagraded beds at No. 140/141. That rock has a grade pegged at roughly 0.09 carat per tonne and the latest test should provide more clues about that region as well.
The partners will also drill some reverse circulation holes into No. 122, which they last tested with three holes in a 2000 exploration program. That work produced 17.3 carats from about 330 tonnes of kimberlite, suggesting a grade of a bit better than 0.05 carat per tonne.
The partners seemed to lose interest in No. 122 after that, but another round of core drilling has sparked new hope for the pipe. De Beers now thinks there are about 80 million tonnes of kimberlite within the main southern pyroclastic unit. That rock has a predicted grade of about 0.13 carat per tonne. There are some encouraging signs from the microdiamond results that could bode well for the current test of No. 122.
The core drilling promise
It is no surprise that many of the 32 core holes targeted the No. 140/141 and No. 122 pipes, as the partners tried to zero in on the more promising spots to drill the larger holes. As well, De Beers and Kensington poked several holes into at least three other bodies this fall. That suggests the partners have high hopes for new promise from those old finds.
De Beers drilled eight holes into the No. 147 kimberlite, which lies about three kilometres north-northwest of the No. 140/141 complex and about five kilometres east of the No. 122 pipe. As well, No. 147 is just northeast of the No. 148 pipe, which had several core holes poked into it last year and is also a prospective pipe. De Beers thinks there are more than 150 million tonnes of kimberlite in a richer part of No. 148, with a modelled grade of 0.07 carat per tonne.
Like the other intriguing pipes, No. 147 is huge, covering an area of about 135 hectares at the surface and containing nearly 500 million tonnes of kimberlite. The partners processed about 207 kilograms of rock for microdiamonds, coming up with 658 stones that weighed 0.121 carat. That prompted some brief mini-bulk tests, which resulted in a grade of about 0.07 carat from about 75 tonnes of kimberlite.
That was one of the better sample grades, but the average diamond size was well down the list. Still, De Beers selected No. 147 as one of the six top pipes during a detailed examination of the play in 2000, based on a forecast grade that was as high as 0.15 carat per tonne. Nevertheless, the partners viewed No. 147 and No. 148 to be lower priorities than the other bodies, until now.
De Beers and Kensington are drilling core holes into a few pipes that did not make the 2000 priority list. Eight holes targeted the No. 120 pipe, which is immediately to the northwest of No. 148 and just west of No. 148. The body seems comparable in size to No. 148, covering about 135 hectares at the surface.
The Fort a la Corne explorers extracted over 200 tonnes of kimberlite from the body over the years, producing a grade of about 0.03 carat per tonne. That modest value is a tough tout, but the partners processed nearly 900 kilograms of core for microdiamonds. Large variations in the results may account for the new enthusiasm for No. 120. That seems reasonable, as the 655 micros recovered from the pipe weighed nearly 0.10 carat.
Five new core holes tested the No. 121 pipe, which is about one kilometre east of No. 147 and No. 148. The body is small by comparison, covering just 35 hectares at the surface, but that is still huge when compared with most Canadian pipes. The partners processed over 60 tonnes of rock in their earlier efforts, coming up with a modest grade of about 0.04 carat per tonne.
Once again the new encouragement may stem from the microdiamond recoveries. About 777 kilograms of kimberlite produced 357 stones that weighed over 0.09 carat. As a result, it would not be a shock if there were signs of richer regions within the pipe.
Kensington and De Beers apparently tested the No. 221 pipe with at least one new hole. The body covers about seven hectares on the northwest side of No. 121 and earlier work delivered better results than its sister. A mini-bulk test examined just 5.5 tonnes of material, coming up with a grade of 0.062 carat per tonne. Microdiamond recoveries were also promising. The partners processed 265 kilograms of core and recovered 73 micros. Those stones weighed nearly 0.08 carat.
Interest in Kensington's play carried the company's shares above the $1.40 mark this spring and again in the fall, although it dipped as low as 75 cents during the summer blahs and now trades near the $1 mark.
Kensington lost a penny on Tuesday, closing at 94 cents.
God's country
East Side Diamond Property,Fort a la Corne,
Saskatchewan.
Forest Gate's East Side diamond property is situated at Fort à la Corne, Saskatchewan, location of the largest field of diamondiferous kimberlite pipes in the world. The property hosts the Dizzy kimberlite and is approximately four kilometres northeast of the De Beers-Kensington 140 - 141 kimberlite, one of the largest diamondiferous kimberlites in the world. Contiguous and roughly six kilometers to the south of the East Side property is Shore Gold's Star kimberlite into which a 4.5 metre vertical shaft has been sunk and on which a modular diamond recovery plant has been built.
Gravity and ground magnetic surveys over the Dizzy kimberlite suggest that the kimberlite may be as much as 100 metres thick. Modeling indicates that the Dizzy kimberlite footprint is probably around 250 metres in diameter (about 5 hectares in area) consisting of both magnetic and non-magnetic kimberlite.
Forest Gate has also identified a new anomaly straddling the southern border of its East Side property and the adjacent property held by Shore Gold Inc. Modeling suggests that this feature, if caused by kimberlite could be as large as 600 metres north-south by 400 metres east-west.
East Side Diamond Property,Fort a la Corne,
Saskatchewan.
Forest Gate's East Side diamond property is situated at Fort à la Corne, Saskatchewan, location of the largest field of diamondiferous kimberlite pipes in the world. The property hosts the Dizzy kimberlite and is approximately four kilometres northeast of the De Beers-Kensington 140 - 141 kimberlite, one of the largest diamondiferous kimberlites in the world. Contiguous and roughly six kilometers to the south of the East Side property is Shore Gold's Star kimberlite into which a 4.5 metre vertical shaft has been sunk and on which a modular diamond recovery plant has been built.
Gravity and ground magnetic surveys over the Dizzy kimberlite suggest that the kimberlite may be as much as 100 metres thick. Modeling indicates that the Dizzy kimberlite footprint is probably around 250 metres in diameter (about 5 hectares in area) consisting of both magnetic and non-magnetic kimberlite.
Forest Gate has also identified a new anomaly straddling the southern border of its East Side property and the adjacent property held by Shore Gold Inc. Modeling suggests that this feature, if caused by kimberlite could be as large as 600 metres north-south by 400 metres east-west.
GEMM trading at 9 cents
Shore announces the listing of its common shares on the Toronto Stock Exchange
Tuesday November 23, 5:23 pm ET
Stock Symbol: SGF: TSX-VEN
SASKATOON, SK, Nov. 23 /CNW/ - Kenneth E. MacNeill, President and Chief Executive Officer of Shore Gold Inc. ("Shore"), is pleased to announce that Shore's application to the Toronto Stock Exchange (the "Exchange") for listing of its common shares has been accepted by the Exchange. Effective November 26, 2004, Shore's common shares will commence trading on the Exchange under the symbol "SGF" and will no longer trade on the TSX Venture Exchange.
Shore is a Canadian-based corporation engaged in the acquisition, exploration and development of mineral properties.
anyone watching FALC play Consolidated Pine Channel Gold Corp?
Do I sense a GEMM covering?
The Commission's Office of Economic Analysis today announced the selection of Leslie Boni as a visiting academic scholar for a one-year term. Currently, Professor Boni is a faculty member at the University of New Mexico.
http://tinyurl.com/6h4zp
ROAD SHOW IN EUROPE!
Mr. Du Plessis most recently was the mineral resource manager at the De Beers Group's Jwaneng mine in Botswana, the richest diamond mine in the world. He spent 15 years with the De Beers group prior to joining Forest Gate.
"We have only just started to unlock the value of our discovery. And we have only just started executing our business plan of exposing our shareholders to the best in diamond exploration opportunities," said Michael Judson, Forest Gate's president.
In other news, Mr. Judson and Mr. Plessis will be in Europe this week to meet with institutional investors. Forest Gate will travel through Zurich, Geneva, Paris and London.
Drillbit, this is worth a read too.
http://www.antandsons.com/therealdeal/
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Wall Streets Rigged Market Status – November 22, 2004
By Dave Patch
Earlier last week the Securities Industry Association (SIA) held a symposium for Wall Street Members on the SEC’s recent short selling reform package; Regulation SHO. The symposium, with a panel consisting of SRO and SEC personnel, highlighted the context of the new regulation and presented the members with the necessary tools to insure compliance. In the end, the SEC put the members on notice that the settlement failure issues presently floating in the markets must be changed. For that I give the SEC some credit.
But what of the Settlement Failure issue itself and how has it impacted Wall Street?
During the symposium, the panel members addressed a working document that was created by Professor Leslie Boni of the University of New Mexico. Professor Boni was employed as a visiting financial economist for the SEC in 2004 and had been documenting the background to settlement failures as well as the impacts of Regulation SHO in the marketplace. The document is now a published report titled “Strategic Delivery Failures in the US Equity Markets”. Her published report is startling.
Professor Boni’s report relies on a consistent theme of the industry, which she calls “Strategic Failures”. To a layman like me it is better stated as “Rigged Market Conditions”.
According to Professor Boni, Strategic Failures occur “when the short sellers choose not to deliver shares that would be too expensive to borrow”. Her analysis of Regulation SHO was that, “pre-Regulation SHO, equity and options market makers strategically failed to deliver shares that were expensive to borrow or impossible to borrow”. With evidence that “strategic fails (i.e. naked short sales) likely accounted for a higher percentage of short interest pre-Regulation SHO than previously understood”. The professor claims ultimately that 42% of listed stocks (NYSE, NASDAQ, AMEX) and 47% of unlisted stocks (OTCBB, Pink Sheets) had persistent fails of 5 days or more with 4% being above the SEC’s threshold limits for failures. The standard for settlement is presently 3 days with a concept proposal by the SEC in comment to reduce 3 day settlement to 1day.
Professor Boni delved deeper into the bowels of the settlement process and investigated the buy-in proceedings of the market place and the compliance to this rule. Her reference to a study conducted by Evans, Geczy, Musto, and Reed in 2003 provided evidence that while the SRO’s have buy-in requirements buy-ins, in themselves, are rarely requested in settling these failures. One such market maker who was audited failed to deliver all or at least a portion of shares in 69,063 transactions through the years of 1998-1999 and was only bought in on 86 of these positions or .12% of the time. The remaining failures would fall into the category of strategic failures accepted by the Industry.
The published report only gets more accusatory of Industry motives for settlement failures. Each concept ultimately resorting to financial rationalizations to dilute our securities with unreported settlement failures. With such a report in hand, it is only left to our imaginations why the SEC has yet to take action against the member firms for their self serving activities.
Going back to the SIA Symposium, a particular question by a member is now made clearer. The Industry was requesting “Commercially Reasonable” time to close out failures in threshold securities because they “don’t want to impact present market conditions”. The member was concerned that if they have a significant position of failures than they would drive the price up during the buy-in and the cost to settle would not be financially beneficial. I was amused by this question as all pre-threshold fails are grandfathered so, by default, that large failure position being forced to close out was sell side pressure that would have already impacted market pricing. That large block of fails would have had to fail the requirements of Affirmative Determination and, it would have had to take place over a short duration of time. Overselling in a short period of time can only affect a stock in one way.
The SEC did highlight for the members in attendance that there was no “commercially reasonable” language built into the reform and that the close outs would be mandatory on threshold securities.
In my research into this matter of strategic failures I have reviewed the SEC’s charter document; Securities Acts of 1933 and 1934 and I have failed to find any language detailing strategic failures. In fact, I find just the opposite. Section 17A of the Securities Act of 1934 mandates prompt and accurate clearance and settlement of trades. The admission of Strategic Failures is also in direct violation of Rule 15c6-1.
Rule 15c6-1 defines the settlement cycle for trades executed and states that no Broker Dealer may enter into a contract for the sale of a security whereby the payment for that security and the delivery of that security is greater than 3 business days. For market making activities there is a slight exemption from the delivery in a Bona Fide Market Making activity but as the SEC and SRO’s have repeatedly stated, Bona Fide Market making is not simply supporting the best offer in a naked short sale without also representing the best bid or near best bid in a long trade. They must be actively making a market on both sides of trading to use the exemption.
Strategic Fails being defined in the Professor’s report as a known execution of short sales for which there is no intention of meeting 3-day settlement is the violation. It was pre-determined that it was not cost beneficial to seek out and borrow that security for delivery and thus the contract could be deemed illegal. A conscious decision was being made to violate rule 15c6-1 and the compliance departments never blinked.
Recently the industry has gone through allegations of price rigging in insurance contracts and market timing in the mutual fund industry. These frauds were orchestrated to achieve higher corporate financial success at the expense of the innocent and unsuspecting. Strategic failures and the collusion of this as an industry wide practice has affected every investor regardless of the security they have purchased over time. Strategic Fails affect the balance of supply and demand and do so as a sell side attack on the market pricing of that security. It would be my contention that the stock market burst of the late 1990’s and early 2000 were exacerbated by strategic failures orchestrated by the industry.
The SEC is committed to regulation SHO and we can only hope they tightly enforce these rules. Whether the SEC will take a step back and address the past sins of the Industries conspiracy to defraud will be something else we will watch closely. A rigged marketplace is a dangerous marketplace.
Editors Note:
Reporters who have spoken to member firms about the plight of my efforts and those like me have received responses like ones I have personally received by members of the Securities and Exchange Commission. We are being categorized as stock promoters looking to initiate a short squeeze after losing money in the market. To this I will answer all who question my motives.
My motives are simple. As an investor I want to fight for every right to trade in a fair marketplace void of any appearance of rigged conditions. For those stocks I own, I rarely if ever mention them by name in my writings, as it is not these stocks singularly for which I fight this battle. My fight is for the global settlement of trades. If I don’t mention a particular security I thought I could not be accused of pumping any particular stock. I guess I was wrong. It appears some are turning defensive at a time of guilt.
For those within the Industry who fear the possibility of a short squeeze, they are doing so because they know they had taken advantage of the situation and have now been caught. They are feeling the pressures of guilt and fear. A short squeeze can ONLY happen if there is an issue with a securities settlement status at these firms. No squeeze can happen without a problem on the books or valid business growth that drives market performance.
I believe, and have stated several times, that there are companies who are claiming abuse trying to initiate an action that does not exist. They do so because the Industry and the Regulators have allowed the situation to get out of control for so long. The Industry created the presence of strategic fails and Investors have finally caught wind of this practice. Shame on the members for doing it in the first place and shame on them for now lobbying to continue to get away with it. Investors should not have to read on a frequent basis the Industries practices of fraud to achieve higher bottom lines and higher compensation packages.
I challenge all in the industry that oppose me to simply come clean and open their books for an audit of settlement status. Do not fight discovery in our courts if you have nothing to hide. It only makes the Industry look that much guiltier with documents like Professor Boni’s validating my concerns.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2004
An online newspaper reporting the issues of Securities Fraud
STOCKGATE TODAY ...
Wall Streets Rigged Market Status – November 22, 2004
By Dave Patch
Earlier last week the Securities Industry Association (SIA) held a symposium for Wall Street Members on the SEC’s recent short selling reform package; Regulation SHO. The symposium, with a panel consisting of SRO and SEC personnel, highlighted the context of the new regulation and presented the members with the necessary tools to insure compliance. In the end, the SEC put the members on notice that the settlement failure issues presently floating in the markets must be changed. For that I give the SEC some credit.
But what of the Settlement Failure issue itself and how has it impacted Wall Street?
During the symposium, the panel members addressed a working document that was created by Professor Leslie Boni of the University of New Mexico. Professor Boni was employed as a visiting financial economist for the SEC in 2004 and had been documenting the background to settlement failures as well as the impacts of Regulation SHO in the marketplace. The document is now a published report titled “Strategic Delivery Failures in the US Equity Markets”. Her published report is startling.
Professor Boni’s report relies on a consistent theme of the industry, which she calls “Strategic Failures”. To a layman like me it is better stated as “Rigged Market Conditions”.
According to Professor Boni, Strategic Failures occur “when the short sellers choose not to deliver shares that would be too expensive to borrow”. Her analysis of Regulation SHO was that, “pre-Regulation SHO, equity and options market makers strategically failed to deliver shares that were expensive to borrow or impossible to borrow”. With evidence that “strategic fails (i.e. naked short sales) likely accounted for a higher percentage of short interest pre-Regulation SHO than previously understood”. The professor claims ultimately that 42% of listed stocks (NYSE, NASDAQ, AMEX) and 47% of unlisted stocks (OTCBB, Pink Sheets) had persistent fails of 5 days or more with 4% being above the SEC’s threshold limits for failures. The standard for settlement is presently 3 days with a concept proposal by the SEC in comment to reduce 3 day settlement to 1day.
Professor Boni delved deeper into the bowels of the settlement process and investigated the buy-in proceedings of the market place and the compliance to this rule. Her reference to a study conducted by Evans, Geczy, Musto, and Reed in 2003 provided evidence that while the SRO’s have buy-in requirements buy-ins, in themselves, are rarely requested in settling these failures. One such market maker who was audited failed to deliver all or at least a portion of shares in 69,063 transactions through the years of 1998-1999 and was only bought in on 86 of these positions or .12% of the time. The remaining failures would fall into the category of strategic failures accepted by the Industry.
The published report only gets more accusatory of Industry motives for settlement failures. Each concept ultimately resorting to financial rationalizations to dilute our securities with unreported settlement failures. With such a report in hand, it is only left to our imaginations why the SEC has yet to take action against the member firms for their self serving activities.
Going back to the SIA Symposium, a particular question by a member is now made clearer. The Industry was requesting “Commercially Reasonable” time to close out failures in threshold securities because they “don’t want to impact present market conditions”. The member was concerned that if they have a significant position of failures than they would drive the price up during the buy-in and the cost to settle would not be financially beneficial. I was amused by this question as all pre-threshold fails are grandfathered so, by default, that large failure position being forced to close out was sell side pressure that would have already impacted market pricing. That large block of fails would have had to fail the requirements of Affirmative Determination and, it would have had to take place over a short duration of time. Overselling in a short period of time can only affect a stock in one way.
The SEC did highlight for the members in attendance that there was no “commercially reasonable” language built into the reform and that the close outs would be mandatory on threshold securities.
In my research into this matter of strategic failures I have reviewed the SEC’s charter document; Securities Acts of 1933 and 1934 and I have failed to find any language detailing strategic failures. In fact, I find just the opposite. Section 17A of the Securities Act of 1934 mandates prompt and accurate clearance and settlement of trades. The admission of Strategic Failures is also in direct violation of Rule 15c6-1.
Rule 15c6-1 defines the settlement cycle for trades executed and states that no Broker Dealer may enter into a contract for the sale of a security whereby the payment for that security and the delivery of that security is greater than 3 business days. For market making activities there is a slight exemption from the delivery in a Bona Fide Market Making activity but as the SEC and SRO’s have repeatedly stated, Bona Fide Market making is not simply supporting the best offer in a naked short sale without also representing the best bid or near best bid in a long trade. They must be actively making a market on both sides of trading to use the exemption.
Strategic Fails being defined in the Professor’s report as a known execution of short sales for which there is no intention of meeting 3-day settlement is the violation. It was pre-determined that it was not cost beneficial to seek out and borrow that security for delivery and thus the contract could be deemed illegal. A conscious decision was being made to violate rule 15c6-1 and the compliance departments never blinked.
Recently the industry has gone through allegations of price rigging in insurance contracts and market timing in the mutual fund industry. These frauds were orchestrated to achieve higher corporate financial success at the expense of the innocent and unsuspecting. Strategic failures and the collusion of this as an industry wide practice has affected every investor regardless of the security they have purchased over time. Strategic Fails affect the balance of supply and demand and do so as a sell side attack on the market pricing of that security. It would be my contention that the stock market burst of the late 1990’s and early 2000 were exacerbated by strategic failures orchestrated by the industry.
The SEC is committed to regulation SHO and we can only hope they tightly enforce these rules. Whether the SEC will take a step back and address the past sins of the Industries conspiracy to defraud will be something else we will watch closely. A rigged marketplace is a dangerous marketplace.
Editors Note:
Reporters who have spoken to member firms about the plight of my efforts and those like me have received responses like ones I have personally received by members of the Securities and Exchange Commission. We are being categorized as stock promoters looking to initiate a short squeeze after losing money in the market. To this I will answer all who question my motives.
My motives are simple. As an investor I want to fight for every right to trade in a fair marketplace void of any appearance of rigged conditions. For those stocks I own, I rarely if ever mention them by name in my writings, as it is not these stocks singularly for which I fight this battle. My fight is for the global settlement of trades. If I don’t mention a particular security I thought I could not be accused of pumping any particular stock. I guess I was wrong. It appears some are turning defensive at a time of guilt.
For those within the Industry who fear the possibility of a short squeeze, they are doing so because they know they had taken advantage of the situation and have now been caught. They are feeling the pressures of guilt and fear. A short squeeze can ONLY happen if there is an issue with a securities settlement status at these firms. No squeeze can happen without a problem on the books or valid business growth that drives market performance.
I believe, and have stated several times, that there are companies who are claiming abuse trying to initiate an action that does not exist. They do so because the Industry and the Regulators have allowed the situation to get out of control for so long. The Industry created the presence of strategic fails and Investors have finally caught wind of this practice. Shame on the members for doing it in the first place and shame on them for now lobbying to continue to get away with it. Investors should not have to read on a frequent basis the Industries practices of fraud to achieve higher bottom lines and higher compensation packages.
I challenge all in the industry that oppose me to simply come clean and open their books for an audit of settlement status. Do not fight discovery in our courts if you have nothing to hide. It only makes the Industry look that much guiltier with documents like Professor Boni’s validating my concerns.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2004
Another Saskatchewan property with promise ...
Forest Gate's diamond future. [v.FGT]
If the company does spin off its New Brunswick projects to Blue Note, Forest Gate would keep just its East Side diamond project. The property, on the southeastern edge of the Fort a la Corne district, contains one diamondiferous kimberlite and at least one other intriguing anomaly. Still, the property has just a modest amount of promotability, barring a pleasant surprise.
The company drilled several holes into the Dizzy kimberlite, coming up with 37 diamonds from nearly 500 kilograms of material. A bit less than half of the kimberlite came from the central and western part of Dizzy, but it accounted for 31 of the diamonds, including all eight macrodiamonds in the parcel. That provides a hint of hope that Dizzy has better zones. Nevertheless, it would take a significantly larger diamond haul and some heftier stones to excite the market.
Forest Gate is rather quiet about its East Side project, although the company is working on a new exploration plan for the play. The plan likely will include a new look at Dizzy, but as well, the company may also try poking holes into at least one other anomaly.
The East Side project is just a few kilometres northeast of the Star kimberlite, where Shore Gold Inc. should produce well over 3,000 carats from a 25,000-tonne bulk sample. The grade of the better kimberlite phase at Star is about 0.15 carat per tonne, and a diamond value of over $100 (U.S.) per carat could bring the deposit to an economic threshold. As well, a group led by De Beers Canada Corp. and Kensington Resources Ltd. have several intriguing kimberlites just north of Star. Those partners are testing those pipes once again, in the hope of finding richer zones.
====
004-11-19 13:43 ET - Street Wire
by Will Purcell
Michael Judson's Forest Gate Resources Inc. plans to buy the old Caribou mine from Breakwater Resources Ltd. The 17-cent diamond explorer also plans to spin off its other New Brunswick metal projects into a new company. Breakwater invested over $100-million in the Caribou operation over the years, but the mine has sat mothballed for most of the past 15 years. As a result, Forest Gate can pick up the Caribou project for next to nothing. Mr. Judson's company currently has three other metal prospects in the Bathurst area of New Brunswick that it would transfer to its subsidiary. That company, Blue Note Metals Inc., would then become a separate public entity.
The Caribou mine
Anaconda Mines Ltd. discovered massive sulphides at Caribou, about 50 kilometres west of Bathurst, in 1955. The company completed a considerable amount of exploration, coming up with a small cap that contained a high-grade copper deposit. Anaconda mined copper from that cap for nearly a decade.
The mine ran from the mid-1960s until 1974, when the open pit deposit ran out. In the early 1980s, Anaconda built a heap leach plant for precious metals, designed to process about 60,000 tonnes of material stockpiled during the heyday of the mine.
Others had more energetic plans for Caribou, and Anaconda passed the project over to one of them in 1986. The Australia-based East West Minerals NL purchased the mine and completed a feasibility study based on the lead and zinc potential of the deposit. In 1988, the company built a 2,000-tonne-per-day concentrator and the operation ran for about a year.
The plant closed in 1989, but began running again in 1990, just before Breakwater bought the subsidiary that owned Caribou from East West. At the time, there was just an estimated 12 million tonnes of material in the deposit. The rock had an estimated zinc content of about 7.7 per cent, with a lead grade of about 3.7 per cent.
Unfortunately, the economy suffered a major slump in 1990. Falling metal process combined with poor recoveries forced Breakwater to shut Caribou down that fall, just months after the purchase.
Caribou collected dust until the mid-1990s, when Breakwater decided to make a major investment in getting the mine running again. The company completed metallurgical work and came up with a new plan, based on a new method. Breakwater also increased the mill capacity to 3,000 tonnes per day.
The operation began running in 1997, with the usual series of glitches and bugs. The performance improved steadily, but Caribou never reached full production, as once again Breakwater was a victim of bad timing. The resource sector hit the skids in 1998 and declining metal process forced another shutdown in the summer of 1998.
By then, Breakwater had invested well over $100-million in the Caribou project. The company began writing off its investment in 1999, when it took a $30-million hit. Another $27.1-million was written off in 2000, and in 2001, the company wrote off the remaining $53.4-million assigned to the Caribou assets.
Forest Gate's Caribou plans
Breakwater will receive 600,000 Forest Gate shares for the Caribou mine. That suggests an effective purchase price of just $120,000, based on the average value of Forest Gate's shares over the past few months. The real value of the deal to Breakwater lies elsewhere. The company will no longer have to pay for the mothballed mine, and the Forest Gate transaction will relieve it of any future obligations.
Meanwhile, Mr. Judson and Forest Gate have high hopes for the old mine. Based on Breakwater's last plan, Forest Gate thinks that it will take about $15-million in capital spending to get the mine running again, plus another $20-million over its life. The plan projects operating costs of about $43 per tonne of ore milled.
In the late 1990s, Breakwater estimated the deposit contained 9.4 million tonnes of rock, with a zinc content of 7.1 per cent, a lead grade of 3.6 per cent and nearly 100 grams of silver per tonne. That works out to a gross value of about $130 (U.S.) per tonne, which would suggest a healthy profit margin. Still, Forest Gate will have to succeed where Breakwater failed. Although Breakwater was plagued with bad timing, its metal recoveries also fell well short of expectations.
Forest Gate thinks it has the answers to the metallurgical problems. The company proposes its own series of changes to the process, based on Breakwater's latest round of metallurgy. More design and equipment changes planned for the concentrator as a result.
Forest Gate found a believer to assume responsibility for the new project. John Martin was Breakwater's manager at Caribou from 1999 to 2001. There was no real mining to manage during that period, but the company was busy trying to find a solution to its metallurgical woes. It was during Mr. Martin's stint as manager that the company developed the revised plan that Forest Gate is now banking on.
The exploration projects
If all goes according to plan, Mr. Martin will be the president of Blue Note, which would also assume responsibility for Forest Gate's three metal prospects in New Brunswick. Those projects are in the same general area as Caribou, about 50 kilometres to the west of Bathurst and just 15 kilometres from Noranda's big Brunswick No. 12 lead-zinc mine.
Forest Gate has been active on the California Lake silver project this year. Earlier, more than 30 drill holes intersected a system of veins that produced assays of up to about 7,000 grams of gold per tonne, over narrow widths. Earlier this year, the company identified an intriguing geophysical anomaly on the California Lake property, and Forest Gate drilled the target this summer. Assays are pending.
Forest Gate also poked holes into an anomaly on the Rio Road property, a gold project that is eight kilometres east of the California Lake play. The company also found a target on Rio Road this year. Earlier efforts produced small amounts of gold near the surface, but Forest Gate is seeking a deeper feature, as the gold values increase with depth.
Forest Gate's third play is about 10 kilometres to the south of the California and Rio projects. The Canoe Lake polymetallic deposit contains roughly 20 million tonnes of sulphide rock according to estimates. That material has modest grades of gold, silver, copper, lead and zinc. As well, higher-grade lenses are present. The company planned a geophysical survey on the property this summer, on a portion of the play that remains untested.
Forest Gate's diamond future
If the company does spin off its New Brunswick projects to Blue Note, Forest Gate would keep just its East Side diamond project. The property, on the southeastern edge of the Fort a la Corne district, contains one diamondiferous kimberlite and at least one other intriguing anomaly. Still, the property has just a modest amount of promotability, barring a pleasant surprise.
The company drilled several holes into the Dizzy kimberlite, coming up with 37 diamonds from nearly 500 kilograms of material. A bit less than half of the kimberlite came from the central and western part of Dizzy, but it accounted for 31 of the diamonds, including all eight macrodiamonds in the parcel. That provides a hint of hope that Dizzy has better zones. Nevertheless, it would take a significantly larger diamond haul and some heftier stones to excite the market.
Forest Gate is rather quiet about its East Side project, although the company is working on a new exploration plan for the play. The plan likely will include a new look at Dizzy, but as well, the company may also try poking holes into at least one other anomaly.
The East Side project is just a few kilometres northeast of the Star kimberlite, where Shore Gold Inc. should produce well over 3,000 carats from a 25,000-tonne bulk sample. The grade of the better kimberlite phase at Star is about 0.15 carat per tonne, and a diamond value of over $100 (U.S.) per carat could bring the deposit to an economic threshold. As well, a group led by De Beers Canada Corp. and Kensington Resources Ltd. have several intriguing kimberlites just north of Star. Those partners are testing those pipes once again, in the hope of finding richer zones.
The players
Mr. Judson and Lorne Woods created Forest Gate in 1999 and took the company public early in 2003. The two are principals of Judson Woods Inc., a Montreal-based public relations company that is no stranger to diamond and metals promotions. Mr. Judson is president of Judson Woods, while Mr. Woods is its managing partner.
Judson Woods provided a helping hand to Rhonda Corp. in the early 1990s. Rhonda was an active player on several diamond plays at the time, with stakes in several projects in Saskatchewan and the North. One of Rhonda's properties included what is now the East Side play. Rhonda sold the project to Judson Woods, which quickly passed it on to Forest Gate.
Mr. Woods is content to stay on the sidelines with Forest Gate, but Mr. Judson remains far more active. He served as president and a director of the company since the start. If Forest Gate does spin off its New Brunswick plays to Blue Note, the latter company would seem to have the more promotable projects. As a result, it is possible that little Forest Gate would add to its diamond projects.
Forest Gate's shares crested at 34 cents early this year, as speculators awaited the Dizzy diamond counts. The company has been a tougher tout of late, and a share cost just 12 cents for a time this summer.
Forest Gate closed at 17 cents on Thursday.
http://www.stockhouse.com/bullboards/forum.asp?symbol=FGT&table=LIST&all=0&t=0&time=...
Forest Gate's diamond future. [v.FGT]
If the company does spin off its New Brunswick projects to Blue Note, Forest Gate would keep just its East Side diamond project. The property, on the southeastern edge of the Fort a la Corne district, contains one diamondiferous kimberlite and at least one other intriguing anomaly. Still, the property has just a modest amount of promotability, barring a pleasant surprise.
The company drilled several holes into the Dizzy kimberlite, coming up with 37 diamonds from nearly 500 kilograms of material. A bit less than half of the kimberlite came from the central and western part of Dizzy, but it accounted for 31 of the diamonds, including all eight macrodiamonds in the parcel. That provides a hint of hope that Dizzy has better zones. Nevertheless, it would take a significantly larger diamond haul and some heftier stones to excite the market.
Forest Gate is rather quiet about its East Side project, although the company is working on a new exploration plan for the play. The plan likely will include a new look at Dizzy, but as well, the company may also try poking holes into at least one other anomaly.
The East Side project is just a few kilometres northeast of the Star kimberlite, where Shore Gold Inc. should produce well over 3,000 carats from a 25,000-tonne bulk sample. The grade of the better kimberlite phase at Star is about 0.15 carat per tonne, and a diamond value of over $100 (U.S.) per carat could bring the deposit to an economic threshold. As well, a group led by De Beers Canada Corp. and Kensington Resources Ltd. have several intriguing kimberlites just north of Star. Those partners are testing those pipes once again, in the hope of finding richer zones.
====
004-11-19 13:43 ET - Street Wire
by Will Purcell
Michael Judson's Forest Gate Resources Inc. plans to buy the old Caribou mine from Breakwater Resources Ltd. The 17-cent diamond explorer also plans to spin off its other New Brunswick metal projects into a new company. Breakwater invested over $100-million in the Caribou operation over the years, but the mine has sat mothballed for most of the past 15 years. As a result, Forest Gate can pick up the Caribou project for next to nothing. Mr. Judson's company currently has three other metal prospects in the Bathurst area of New Brunswick that it would transfer to its subsidiary. That company, Blue Note Metals Inc., would then become a separate public entity.
The Caribou mine
Anaconda Mines Ltd. discovered massive sulphides at Caribou, about 50 kilometres west of Bathurst, in 1955. The company completed a considerable amount of exploration, coming up with a small cap that contained a high-grade copper deposit. Anaconda mined copper from that cap for nearly a decade.
The mine ran from the mid-1960s until 1974, when the open pit deposit ran out. In the early 1980s, Anaconda built a heap leach plant for precious metals, designed to process about 60,000 tonnes of material stockpiled during the heyday of the mine.
Others had more energetic plans for Caribou, and Anaconda passed the project over to one of them in 1986. The Australia-based East West Minerals NL purchased the mine and completed a feasibility study based on the lead and zinc potential of the deposit. In 1988, the company built a 2,000-tonne-per-day concentrator and the operation ran for about a year.
The plant closed in 1989, but began running again in 1990, just before Breakwater bought the subsidiary that owned Caribou from East West. At the time, there was just an estimated 12 million tonnes of material in the deposit. The rock had an estimated zinc content of about 7.7 per cent, with a lead grade of about 3.7 per cent.
Unfortunately, the economy suffered a major slump in 1990. Falling metal process combined with poor recoveries forced Breakwater to shut Caribou down that fall, just months after the purchase.
Caribou collected dust until the mid-1990s, when Breakwater decided to make a major investment in getting the mine running again. The company completed metallurgical work and came up with a new plan, based on a new method. Breakwater also increased the mill capacity to 3,000 tonnes per day.
The operation began running in 1997, with the usual series of glitches and bugs. The performance improved steadily, but Caribou never reached full production, as once again Breakwater was a victim of bad timing. The resource sector hit the skids in 1998 and declining metal process forced another shutdown in the summer of 1998.
By then, Breakwater had invested well over $100-million in the Caribou project. The company began writing off its investment in 1999, when it took a $30-million hit. Another $27.1-million was written off in 2000, and in 2001, the company wrote off the remaining $53.4-million assigned to the Caribou assets.
Forest Gate's Caribou plans
Breakwater will receive 600,000 Forest Gate shares for the Caribou mine. That suggests an effective purchase price of just $120,000, based on the average value of Forest Gate's shares over the past few months. The real value of the deal to Breakwater lies elsewhere. The company will no longer have to pay for the mothballed mine, and the Forest Gate transaction will relieve it of any future obligations.
Meanwhile, Mr. Judson and Forest Gate have high hopes for the old mine. Based on Breakwater's last plan, Forest Gate thinks that it will take about $15-million in capital spending to get the mine running again, plus another $20-million over its life. The plan projects operating costs of about $43 per tonne of ore milled.
In the late 1990s, Breakwater estimated the deposit contained 9.4 million tonnes of rock, with a zinc content of 7.1 per cent, a lead grade of 3.6 per cent and nearly 100 grams of silver per tonne. That works out to a gross value of about $130 (U.S.) per tonne, which would suggest a healthy profit margin. Still, Forest Gate will have to succeed where Breakwater failed. Although Breakwater was plagued with bad timing, its metal recoveries also fell well short of expectations.
Forest Gate thinks it has the answers to the metallurgical problems. The company proposes its own series of changes to the process, based on Breakwater's latest round of metallurgy. More design and equipment changes planned for the concentrator as a result.
Forest Gate found a believer to assume responsibility for the new project. John Martin was Breakwater's manager at Caribou from 1999 to 2001. There was no real mining to manage during that period, but the company was busy trying to find a solution to its metallurgical woes. It was during Mr. Martin's stint as manager that the company developed the revised plan that Forest Gate is now banking on.
The exploration projects
If all goes according to plan, Mr. Martin will be the president of Blue Note, which would also assume responsibility for Forest Gate's three metal prospects in New Brunswick. Those projects are in the same general area as Caribou, about 50 kilometres to the west of Bathurst and just 15 kilometres from Noranda's big Brunswick No. 12 lead-zinc mine.
Forest Gate has been active on the California Lake silver project this year. Earlier, more than 30 drill holes intersected a system of veins that produced assays of up to about 7,000 grams of gold per tonne, over narrow widths. Earlier this year, the company identified an intriguing geophysical anomaly on the California Lake property, and Forest Gate drilled the target this summer. Assays are pending.
Forest Gate also poked holes into an anomaly on the Rio Road property, a gold project that is eight kilometres east of the California Lake play. The company also found a target on Rio Road this year. Earlier efforts produced small amounts of gold near the surface, but Forest Gate is seeking a deeper feature, as the gold values increase with depth.
Forest Gate's third play is about 10 kilometres to the south of the California and Rio projects. The Canoe Lake polymetallic deposit contains roughly 20 million tonnes of sulphide rock according to estimates. That material has modest grades of gold, silver, copper, lead and zinc. As well, higher-grade lenses are present. The company planned a geophysical survey on the property this summer, on a portion of the play that remains untested.
Forest Gate's diamond future
If the company does spin off its New Brunswick projects to Blue Note, Forest Gate would keep just its East Side diamond project. The property, on the southeastern edge of the Fort a la Corne district, contains one diamondiferous kimberlite and at least one other intriguing anomaly. Still, the property has just a modest amount of promotability, barring a pleasant surprise.
The company drilled several holes into the Dizzy kimberlite, coming up with 37 diamonds from nearly 500 kilograms of material. A bit less than half of the kimberlite came from the central and western part of Dizzy, but it accounted for 31 of the diamonds, including all eight macrodiamonds in the parcel. That provides a hint of hope that Dizzy has better zones. Nevertheless, it would take a significantly larger diamond haul and some heftier stones to excite the market.
Forest Gate is rather quiet about its East Side project, although the company is working on a new exploration plan for the play. The plan likely will include a new look at Dizzy, but as well, the company may also try poking holes into at least one other anomaly.
The East Side project is just a few kilometres northeast of the Star kimberlite, where Shore Gold Inc. should produce well over 3,000 carats from a 25,000-tonne bulk sample. The grade of the better kimberlite phase at Star is about 0.15 carat per tonne, and a diamond value of over $100 (U.S.) per carat could bring the deposit to an economic threshold. As well, a group led by De Beers Canada Corp. and Kensington Resources Ltd. have several intriguing kimberlites just north of Star. Those partners are testing those pipes once again, in the hope of finding richer zones.
The players
Mr. Judson and Lorne Woods created Forest Gate in 1999 and took the company public early in 2003. The two are principals of Judson Woods Inc., a Montreal-based public relations company that is no stranger to diamond and metals promotions. Mr. Judson is president of Judson Woods, while Mr. Woods is its managing partner.
Judson Woods provided a helping hand to Rhonda Corp. in the early 1990s. Rhonda was an active player on several diamond plays at the time, with stakes in several projects in Saskatchewan and the North. One of Rhonda's properties included what is now the East Side play. Rhonda sold the project to Judson Woods, which quickly passed it on to Forest Gate.
Mr. Woods is content to stay on the sidelines with Forest Gate, but Mr. Judson remains far more active. He served as president and a director of the company since the start. If Forest Gate does spin off its New Brunswick plays to Blue Note, the latter company would seem to have the more promotable projects. As a result, it is possible that little Forest Gate would add to its diamond projects.
Forest Gate's shares crested at 34 cents early this year, as speculators awaited the Dizzy diamond counts. The company has been a tougher tout of late, and a share cost just 12 cents for a time this summer.
Forest Gate closed at 17 cents on Thursday.
http://www.stockhouse.com/bullboards/forum.asp?symbol=FGT&table=LIST&all=0&t=0&time=...
A description of what appeared to be happening in today’s trading commencing around 1:00 PM EST ....
At times the market will go to $.0001 bid and $.0003 offer. This sets up a juicy 200% spread for the MMs and tends to dissuade any buyers from reaching up to the "lofty" level of $.0003. If a $.0002 bid should appear from a MM not "playing ball" with the unscrupulous MMs, it will be hit so quickly that Level 2 will never reveal the existence of the bid. The $.0001 bid at $.0003 offer market sets up a "stalemate" wherein market makers can leisurely enjoy the huge spreads while the victim company slowly dilutes itself to death by paying the monthly bills with "real" shares sold at incredibly low levels. Since all of these development-stage corporations have to pay their monthly bills, time becomes on the side of the naked short sellers.
http://www.clubeinvest.com/phorum/read.php?f=10&i=45696&t=45696
There’s a form of the securities fraud known as naked short selling that is becoming very popular and lucrative to the market makers that practice it. It is known as “Cellar boxing” and it has to do with the fact that the NASD and the SEC had to arbitrarily set a minimum level at which a stock can trade. This level was set at $.0001 or one-one hundredth of a penny. This level is appropriately referred to as “the cellar”. This $.0001 level can be used as a "backstop" for all kinds of market maker and naked short selling manipulations.
“Cellar boxing” has been one of the security frauds du jour since 1999 when the market went to a “decimalization” basis. In the pre-decimalization days the minimum market spread for most stocks was set at 1/8th of a dollar and the market makers were guaranteed a healthy “spread”. Since decimalization came into effect, those one-eighth of a dollar spreads now are often only a penny as you can see in Microsoft’s quote throughout the day. Where did the unscrupulous MMs go to make up for all of this lost income? They headed "south" to the OTCBB and Pink Sheets where the protective effects from naked short selling like Rule 10-a, and NASD Rules 3350, 3360, and 3370 are nonexistent.
The unique aspect of needing an arbitrary “cellar” level is that the lowest possible incremental gain above this cellar level represents a 100% spread available to MMs making a market in these securities. When compared to the typical spread in Microsoft of perhaps four-tenths of 1%, this is pretty tempting territory. In fact, when the market is no bid to $.0001 offer there is theoretically an infinite spread.
In order to participate in “cellar boxing”, the MMs first need to pummel the price per share down to these levels. The lower they can force the share price, the larger are the percentage spreads to feed off of. This is easily done via garden variety naked short selling. In fact if the MM is large enough and has enough visibility of buy and sell orders as well as order flow, he can simultaneously be acting as the conduit for the sale of nonexistent shares through Canadian co-conspiring broker/dealers and their associates with his right hand at the same time that his left hand is naked short selling into every buy order that appears through its own proprietary accounts. The key here is to be a dominant enough of a MM to have visibility of these buy orders. This is referred to as "broker/dealer internalization" or naked short selling via "desking" which refers to the market makers trading desk. While the right hand is busy flooding the victim company's market with "counterfeit" shares that can be sold at any instant in time the left hand is nullifying any upward pressure in share price by neutralizing the demand for the securities. The net effect becomes no demonstrable demand for shares and a huge oversupply of shares which induces a downward spiral in share price.
In fact, until the "beefed up" version of Rule 3370 (Affirmative determination in writing of "borrowability" by settlement date) becomes effective, U.S. MMs have been "legally" processing naked short sale orders out of Canada and other offshore locations even though they and the clearing firms involved knew by history that these shares were in no way going to be delivered. The question that then begs to be asked is how "the system" can allow these obviously bogus sell orders to clear and settle. To find the answer to this one need look no further than to Addendum "C" to the Rules and Regulations of the NSCC subdivision of the DTCC. This gaping loophole allows the DTCC, which is basically the 11,000 b/ds and banks that we refer to as "Wall Street”, to borrow shares from those investors naive enough to hold these shares in "street name" at their brokerage firm. This amounts to about 95% of us. Theoretically, this “borrow” was designed to allow trades to clear and settle that involved LEGITIMATE 1 OR 2 DAY delays in delivery. This "borrow" is done unbeknownst to the investor that purchased the shares in question and amounts to probably the largest "conflict of interest" known to mankind. The question becomes would these investors knowingly loan, without compensation, their shares to those whose intent is to bankrupt their investment if they knew that the loan process was the key mechanism needed for the naked short sellers to effect their goal? Another question that arises is should the investor's b/d who just earned a commission and therefore owes its client a fiduciary duty of care, be acting as the intermediary in this loan process keeping in mind that this b/d is being paid the cash value of the shares being loaned as a means of collateralizing the loan, all unbeknownst to his client the purchaser.
An interesting phenomenon occurs at these "cellar" levels. Since NASD Rule 3370 allows MMs to legally naked short sell into markets characterized by a plethora of buy orders at a time when few sell orders are in existence, a MM can theoretically "legally" sit at the $.0001 level and sell nonexistent shares all day long because at no bid and $.0001 ask there is obviously a huge disparity between buy orders and sell orders. What tends to happen is that every time the share price tries to get off of the cellar floor and onto the first step of the stairway at $.0001 there is somebody there to step on the hands of the victim corporation's market.
Once a given micro cap corporation is “boxed in the cellar” it doesn’t have a whole lot of options to climb its way out of the cellar. One obvious option would be for it to reverse split its way out of the cellar but history has shown that these are counter-productive as the market capitalization typically gets hammered and the post split share price level starts heading back to its original pre-split level.
Another option would be to organize a sustained buying effort and muscle your way out of the cellar but typically there will, as if by magic, be a naked short sell order there to meet each and every buy order. Sometimes the shareholder base can muster up enough buying pressure to put the market at $.0001 bid and $.0002 offer for a limited amount of time. Later the market makers will typically pound the $.0001 bids with a blitzkrieg of selling to wipe out all of the bids and the market goes back to no bid and $.0001 offer. When the weak-kneed shareholders see this a few times they usually make up their mind to sell their shares the next time that a $.0001 bid appears and to get the heck out of Dodge. This phenomenon is referred to as “shaking the tree” for weak-kneed investors and it is very effective.
At times the market will go to $.0001 bid and $.0003 offer. This sets up a juicy 200% spread for the MMs and tends to dissuade any buyers from reaching up to the "lofty" level of $.0003. If a $.0002 bid should appear from a MM not "playing ball" with the unscrupulous MMs, it will be hit so quickly that Level 2 will never reveal the existence of the bid. The $.0001 bid at $.0003 offer market sets up a "stalemate" wherein market makers can leisurely enjoy the huge spreads while the victim company slowly dilutes itself to death by paying the monthly bills with "real" shares sold at incredibly low levels. Since all of these development-stage corporations have to pay their monthly bills, time becomes on the side of the naked short sellers.
At times it almost seems that the unscrupulous market makers are not actively trying to kill the victim corporation but instead want to milk the situation for as long of a period of time as possible and let the corporation die a slow death by dilution. The reality is that it is extremely easy to strip away 99% of a victim company’s share price or market cap and to keep the victim corporation “boxed“ in the cellar, but it really is difficult to kill a corporation especially after management and the shareholder base have figured out the game that is being played at their expense.
As the weeks and months go by the market makers make a fortune with these huge percentage spreads but the net aggregate naked short positions become astronomical from all of this activity. This leads to some apprehension amongst the co-conspiring MMs. The predicament they find themselves in is that they can’t even stop naked short selling into every buy order that appears because if they do the share price will gap and this will put tremendous pressures on net capital reserves for the MMs and margin maintenance requirements for the co-conspiring hedge funds and others operating out of the more than 13,000 naked short selling margin accounts set up in Canada. And of course covering the naked short position is out of the question since they can’t even stop the day-to-day naked short selling in the first place and you can't be covering at the same time you continue to naked short sell.
What typically happens in these situations is that the victim company has to massively dilute its share structure from the constant paying of the monthly burn rate with money received from the selling of “real” shares at artificially low levels. Then the goal of the naked short sellers is to point out to the investors, usually via paid “Internet bashers”, that with the, let’s say, 50 billion shares currently issued and outstanding, that this lousy company is not worth the $5 million market cap it is trading at, especially if it is just a shell company whose primary business plan was wiped out by the naked short sellers’ tortuous interference earlier on.
The truth of the matter is that the single biggest asset of these victim companies often becomes the astronomically large aggregate naked short position that has accumulated throughout the initial “bear raid” and also during the “cellar boxing” phase. The goal of the victim company now becomes to avoid the 3 main goals of the naked short sellers, namely: bankruptcy, a reverse split, or the forced signing of a death spiral convertible debenture out of desperation. As long as the victim company can continue to pay the monthly burn rate, then the game plan becomes to make some of the strategic moves that hundreds of victim companies have been forced into doing which includes name changes, CUSIP # changes, cancel/reissue procedures, dividend distributions, amending of by-laws and Articles of Corporation, etc. Nevada domiciled companies usually cancel all of their shares in the system, both real and fake, and force shareholders and their b/ds to PROVE the ownership of the old “real” shares before they get a new “real” share. Many also file their civil suits at this time also. This indirect forcing of hundreds of U.S. micro cap corporations to go through all of these extraneous hoops and hurdles as a means to survive, whether it be due to regulatory apathy or lack of resources, is probably one of the biggest black eyes the U.S. financial systems have ever sustained. In a perfect world it would be the regulators that periodically audit the “C” and “D” sub-accounts at the DTCC, the proprietary accounts of the MMs, clearing firms, and Canadian b/ds, and force the buy-in of counterfeit shares, many of which are hiding behind altered CUSIP #s, that are detected above the Rule 11830 guidelines for allowable “failed deliveries” of one half of 1% of the shares issued. U.S. micro cap corporations should not have to periodically “purge” their share structure of counterfeit electronic book entries but if the regulators will not do it then management has a fiduciary duty to do it.
A lot of management teams become overwhelmed with grief and guilt in regards to the huge increase in the number of shares issued and outstanding that have accumulated during their “watch”. The truth however is that as long as management made the proper corporate governance moves throughout this ordeal then a huge number of resultant shares issued and outstanding is unavoidable and often indicative of an astronomically high naked short position and is nothing to be ashamed of. These massive naked short positions need to be looked upon as huge assets that need to be developed. Hopefully the regulators will come to grips with the reality of naked short selling and tactics like "Cellar boxing" and quickly address this fraud that has decimated thousands of U.S. micro cap corporations and the tens of millions of U.S. investors therein.
An online newspaper reporting the issues of Securities Fraud
STOCKGATE TODAY
Lack of Regulatory Transparency – The Darker Side – November 19, 2004
Dave Patch
In a sordid tale of a short seller, rogue FBI agents, and possible regulatory conspiracy a Federal Prosecutor in New York is laying out its case against Anthony Elgindy for stock manipulation and extortion. Over the past 10 days the prosecutor has had Derrick Cleveland on the stand testifying to the intricacies between the various parties. At the center of the twisted tale are Mr. Elgindy and his web site www.anthonypacific.com.
Derrick Cleveland, who has already plead guilty to securities fraud, has outlined not only players involved in the illegal shorting scheme but has testified on behalf of the web site logs that have been entered into evidence in the trial. The value to the site was critical as is evidence below:
“The idea was that "we could go long, then give (the information) to Elgindy and with the power of Elgindy’s site, we could crush (the company) and make money on the long and the short side," Cleveland told the court.”
The companies Mr. Cleveland is referencing are those being identified to them by former FBI Agent Jeffrey Royer who is also under indictment for his role in the stock manipulation and securities fraud.
But is there more to this story that is not being told?
In January 2001 the National Association of Securities Dealers (NASD) fined John Fiero $1,000,000 and barred him from the industry for illegal shorting and stock manipulation violations. Fiero was considered to be responsible for the demise of Hanover Sterling and the bankruptcy of Clearing Firm Adler Coleman due to his short selling abuses and extortion. Fiero was also considered to be a player in US Organized Crime operations as detailed in a Businessweek article labeled “The Mob on Wall Street”.
As is the standard within the American judicial system, with every conviction there can be an appeal process and Fiero appealed his NASD conviction. What happened to Fiero during this appeal process may be disturbing. According to Anthony Elgindy, the agency that convicted him (NASD) gave him an office and set up shop for him to continue his trading.
Below are October 1, 2001 transcripts from the www.anthonypacific.com web site. The same type of transcript the Federal Prosecutor is using today against Elgindy in his trial. Reports are that thousands of pages of these transcripts have been entered into evidence.
10/01/01 transcripts;
[12:19] anthony>>want to hear the most ironic thing in the world
[12:20] aplongman>>thank you ERTS up to my ears
[12:20] peter>>yes
[12:20] steviee>>sure
[12:20] steviee>>sure
[12:20[ anthony>>the NASD which barred and banned FSCO and fined him 1,000,000 bucks, gave him machines and a room to trade from at their offices
[12:20] anthony>>FSCO is trading from NASD offices
[12:21] nico>>Nasdaq is a scam
[12:21] JP_Trader>>did FSCO pay the fine??
[12:21] peter>>new anti-shorting thread http://www.siliconinvestor.com/stocktalk/subject.gsp? subjectid=51782
[12:21] Jetups>>anthony, it’s no more bizarre than our early financial support of Bin Laden years ago
[12:21] anthony>>he doesn’t have to,
[12:21] anthony>>its under appeal
[12:21] JP_Trader>>k
[12:22] anthony>>jetups bond isn’t anything like that
[12:22] JP_Trader>>Tony how is Bond holding up??
…..
[12:24] Jetups>>I didn’t say anything about Bond, oh well
……
[12:24] zeez>>Tony, say hi! to bond if you talk to him.
[12:24] anthony>>I will
[12:24] anthony>>He would love to be on but he only has twop machines and he can’t make room for chat
……
[12:25] hope it’s working out ok for bond
http://www.anthonypacific.com/logs/quicktrades/011001.htm
Testimony of Derrick Cleveland yesterday in Court reported that John Fiero was in fact a member of the AnthonyPacific web site. That provides a solid link between short seller Anthony Elgindy and short seller John Fiero. Reading the transcript above, could “Bond” actually be John Fiero as it is all in line with the conversation taking place about Fiero?
I have sought answers to the allegations made by Elgindy in this transcript and have, to date, received none other than advice to not trust all of what Elgindy had to say on his site. In fairness to the NASD, this could simply be posturing by Elgindy and in fact not reality. Without the transparency of the NASD we may never know and thus with this document it is the NASD that needs to show verification that this is in fact fiction. Maybe the NASD can answer these questions at the same time.
If the NASD is about shutting down fraud, why has the NASD failed on taking any enforcement actions against the co-conspirators in the SEC’s conviction of Rhino Advisors for stock manipulation (Ref: SEC vs. Rhino Advisors and Thomas Badian, February 2003)? Within the transcripts of the conviction it is clear that Rhino was working with members of the Industry to conduct this manipulation, why no further actions?
If the NASD was about investor protection, why has the SEC identified that 4% of all present public companies fall into a category of threshold security whereby settlement failures are excessive and potentially abusive? These settlement failures can only come about via the short selling activities such as what Elgindy and Fiero were famous for. Where is the NASD in protecting the investors in these companies identified?
The NASD and SEC both want to be considered regulators for the Investors. It is actually the mandate of their mission statement. To date, their lack of concern and lack of action as it pertains to the small investors of these small companies would indicate otherwise. Elgindy claims that it was the FBI and Regulators that used him to police the scam companies out there. Question is who identified the scams and what about the investors caught in the middle?
The SEC and NASD have repeatedly failed to protect innocent investors abused in scam as well as clean companies alike because they have categorized them all together as scams. To the regulators the Micro-caps are a haven for fraud and thus every company in the micro-caps is a scam. What proof do they have – None other than their own prejudice!
The fact is innocent investors were caught up in the purchase of both good and scam companies that are not simply relegated to the micro-caps. Worldcom, Enron, etc…were scams on a higher market; does that make all NYSE companies scams because of a select few? The Regulators do not believe so and thus take each as independent cases. For the micro-caps that approach is lost as regulators have resorted to living behind a common generalization; all micro-caps are scams and thus investors deserve to be abused! That generalization simply creates MORE FRAUD against the innocent.
It is time the SEC and NASD are confronted regarding their roles in market players such as Fiero and Elgindy. Elgindy and Fiero required a network, including market participants and regulators, to succeed in their fraudulent acts. We know members of the Industry are involved and now the Elgindy website documentation certainly raises questions as to whether the regulators were also involved. Were the regulators allowing illegal short sellers to control the policing of our markets and allowed the member firms to violate securities laws in support of them?
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2004
I mean 0.0003
Traded at 0.003
By: holdnolonger
18 Nov 2004, 12:23 AM EST
Msg. 685451 of 686029
********* THIS IS FOR THE DISCOURAGED******
Think of the whole picture and reason things have been done the way they have.
Roger Glenn hired in June. 6 months ago.
CMKX pumps the PR press all summer long.Why? Not to dump shares.Why dump shares when you have a fortune in NSS sitting on your stock. PRs got inverstors to invest and dividends locked them in, tightening the NSSr's rope.
Meeting with Roger and companies in August.
Dividend dates set and arranged accordingly to Rogers plan.
Bear trap has been set.
Dividends date distrubution chnage according to Rogers plan.
Dividends distrubuted.
NSS can't cover 3 for 1 split
Bear caught in trap( NSS ) SEC involved now!!
Quite period. One more dividend to distribute, Nov. 30th. as planned by Roger.
Melvin no longer IR for CMKX. Did a great job for Urban as a decoy and studge. Thats what Urban hired him for, keep us and NSS of balance. Andy Hill new professional IR contact.
Nov. 30th last dividend distribution date. This date marks the end of Rogers plan. I do not expect it to continue, we have already caught the bear (NSS) and the SEC is involved.
I expect things to be quiet for 3 to 4 more weeks.
Folks this is what we have all been waiting for. I expect we will have our pot of gold around the 2nd week in Dec. Hang in there, don't forget your goals and most of all be patient. GLTA
Here's another corrupt industry ...
SPITZER TELLS CONGRESS STATE INSURANCE REGULATION HAS FAILED
WASHINGTON (BestWire) - To the group of insurance executives and industry lobbyists gathered before a Senate panel this week, New York Attorney General Eliot Spitzer presented a clear and potentially chilling message: He thinks the insurance industry is fundamentally corrupt, and he's urging the federal government to turn the industry upside down.
Spitzer, who alleged that the insurance industry was riddled with corruption when he filed suit against ...
http://www.insurancenewsnet.com/article.asp?a=1&lnid=240963460
http://www.nola.com/news/t-p/frontpage/index.ssf?/base/news-2/1100593617173350.xml
Brings to mind my 19 year old uncle who lost his life in a similar fashion in WW2.
May they both RIP.
Thanks for the post oldblue.
Ignutz
Update on NBC Dateline
http://www.faulkingtruth.com/Articles/Investing101/1012.html
A must read update :
http://www.faulkingtruth.com/Articles/Investing101/1012.html