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Was Section 17 A of the ’34 Exchange Act a total faux pas on the part of Congress? No, it was a very well written and timely document. The problem seems to be that the DTCC management and participants have trouble deciphering 17 A (a) (2) (A) which addresses the FOUNDATION upon which this expedited clearing process was to be based - i.e. based upon showing “Due regard for the public interest and the protection of investors”. Recall also that the 1934 Securities Exchange Act mandated that this new “SEC” “purge the markets of short selling abuses” especially in light of those abuses’ role in the recent 1929 market sell off involving “Unregulated pools” of money similar to today’s hedge funds. As a side note, if the current SEC Commissioners can’t see this train barreling down the tracks at us ONCE AGAIN, then we all are going to need some help.
Chapter 1, book 3, of Dr. Jim DeCosta's work on the naked short selling crisis and its causes
CHAPTER 1
THE “BALANCE” MODEL FOR NAKED SHORT SELLING
If the Senate Banking Committee, the House Financial Services Committee, the SEC that they oversee, the Senate Judiciary Committee, the SROs like the DTCC, NASD, and NYSE, the DOJ, the IRS, the Department of Homeland Security, the State Legislatures and especially INVESTORS understood naked short selling (NSS) better, then the prognosis for the eradication of this massive “Fraud on the market” being perpetrated daily against unknowing Mom and Pop investors by abusive DTCC participants and hedge fund managers would be greatly enhanced. The absolutely heinous nature of this particular form of securities fraud/racketeering, once understood, would have to lead to its rapid removal from any society that favors law and order over blatantly fraudulent activity. This 3rd book of mine on naked short selling is being written to help advance these parties and others along the steep learning curve of naked short selling. Trust me, after studying this discipline non-stop for the last 25 years I have never been more confident that a thorough understanding of this particular form of securities fraud will lead to its demise.
In my experience the “Balance” analogy is the single best learning tool to allow students of naked short selling to get their arms around the important concepts in regards to the effect of naked short selling upon share price “Discovery” dynamics. In my second book on NSS I pictured the clearance and settlement atrocities as being similar to a scale or “Balance” with 2 trays. See Figure 1. The right tray is labeled “Corporate failure” and the left tray is labeled “Corporate success”. Under the right tray is the “Corporate vitality” candle burning brightly.
Since the formation of the DTCC in the early 1970s, our clearance and settlement system has been based upon incredibly easy to counterfeit “Electronic Boon Entries” – unfortunately representing either paper-certificated legitimate shares usually held in a DTCC vault, or not-so-legitimate share entitlements that the DTCC management and participants can, and do, refuse to allow the exercising of.
Our system is no longer based upon the use of difficult-to-counterfeit paper-certificated shares. This change was deemed necessary due to the 1969 “Paperwork Crisis” associated with increased trading volumes, and the resultant difficulty Wall Street’s back offices had with processing transactions involving paper certificates, as opposed to the much-easier-to-deal-with computerized electronic book entries theoretically representing paper-certificated shares held in a DTCC vault.
The underlying premise of this entire new and more efficient system was the assumption that those empowered to convert paper-certificated shares into electronic book entries (DTCC management) would do so in good faith, and not access the incredible amount of leverage over U.S. corporations and investors, by simply placing bets against the corporations, no matter their merits, by selling mere “Share Entitlements” or “Share Look-Alikes” and then continuing to do with unbridled aggression in an effort to flood their markets with electronic book entries, grossly in excess of the number of paper-certificated share held in DTCC vaults. With approximately $90 trillion worth of investor dollars currently in play on Wall Street, this acting-in-good-faith presumption turned out to be misplaced, in the case of certain DTCC management members, DTCC participants, Canadian B/Ds, prime brokers, and their co-conspiring unregulated hedge fund funds.
The result has been this enormous “Industry within an industry” driven in large part by the $1.3 trillion currently being held in secrecy-obsessed hedge funds, with their $10 billion + in annual commission flow available to the prime brokers, market makers, and clearing firms that can be the most “accommodative” to the hedge funds’ needs, I.e. access to the money put into play by retail investors via non-stop naked short selling into their buy orders.
Going back to Book #2, recall that a “Naked short sale” is a sale of share “Look-alikes” made by a non-owner of legitimate shares that refused to make the mandatory “Borrow” of legitimate shares prior to executing a “Short sale”. Without this “Borrow” of legitimate shares having been made then “Good form delivery” cannot be attained by settlement day (T+3) which prevents the legal “Settlement” of the trade resulting in a “Delivery failure”. Note that legitimate “Borrows” might be time consuming, they need to be paid back, might be expensive to execute and might be entirely unavailable. Recall that “Settlement” is defined by the SEC as “the conclusion of a securities transaction; a b/d buying securities pays for them; the selling broker DELIVERS (emphasis added) the securities to the buyer’s broker.” In short, “Settlement” equals “DVP” or “Delivery Versus Payment”.
Recall from Book #2 that the much less important “Clearance” of a trade involves the buyer and seller agreeing on the date of the execution of the transaction, the settlement date of the transaction, the price level of the transaction, which b/d acted as the buying party and which acted as the selling party and in what capacity the b/d operated i.e. as an “Agent” or as a “Principal”. I believe that there is a common misperception of the “Clearance” of a trade involving payment or a check “Clearing”. At the DTCC payment is made via Fedwire involving entities known as “Settlement banks” and the debiting and crediting of “Participant accounts”.
The prompt “Settlement” of a trade which necessitates “Good form delivery” aligns perfectly with the old Mission Statement of the SEC and provides “Investor protection” and “Market integrity” - whereas the “Clearance” of a trade involves only housekeeping matters related to efforts to minimize clerical errors and misunderstandings. One might naively think that the SEC might be a little more interested in the prompt “Settlement” of trades than they appear to be due to their Mission Statement’s contents. The question arises as to why the apparent “Disconnect” between their actions and their reason for existence i.e. providing “Investor protection” and “Market integrity”?
Section 17 A was a Congressional Mandate determining that it was the DTC that was in charge of “Promptly settling all trades”. They were to do this under the direct supervision of the SEC, which is in charge of enforcing the 1934 Securities Exchange Act – of which Section 17A is an integral part. This is especially critical with this direct alignment between “Investor protection” and “Market Integrity” – the mantra of the SEC – and the prompt “Settlement of Trades,” which is by far the key factor that provides the aforementioned protection and integrity. After reading the SEC’s Mission Statement one might think that the SEC would be all over any market frauds involving the lack of “Prompt Settlement” of trades caused by the lack of prompt “Good form delivery” due to its absolutely catastrophic effect on “Investor protection” and “Market integrity”.
Note that the mere “Locate” of theoretically “Borrowable” shares without their DELIVERY on settlement date is also a naked short sale involving a “Delivery failure” even though the ILLUSION of an effort having been made to execute a “Borrow” (hopefully implying “Legitimacy” to any overseeing regulators interested in providing “Investor protection” and “Market integrity”) has been cleverly concocted. The mere “Having reasonable grounds to believe that shares are borrowable” is, of course, a poor substitute for a legitimate “Borrow” resulting in delivery on “Settlement day”. The supposed “Borrowing” of shares from the self-replenishing lending pools of the DTCC’s SBP (Stock Borrow Program) is, of course, an absurdity from the onset when the buying b/d receiving the “Borrowed” shares is allowed to place these borrowed shares right back into the same lending pool from whence they just came, AS IF THEY NEVER LEFT IN THE FIRST PLACE. We’ll soon see how each and every one of these wishy-washy “Honor System Arrangements” that fail to result in “Good form delivery” on settlement day does extreme damage to targeted issuers and the investments made therein. A “Delivery failure” on Settlement day, while not of much importance to the SEC and openly welcomed by abusive DTCC participants, is a very significant event to a U.S. Corporation whether it is of a “Legitimate” short term nature or not.
When even “Mandated” buy-ins of archaic delivery failures are universally ignored in 99.875% of the time by DTCC participants (Evans, Geczy, Musto and Reed 2003) then ANY delivery failure becomes a huge issue. Peter Chepucavage, an ex-SEC attorney, did a wonderful job of describing the history of the “Locate” and “Reasonable grounds” issues and how Reg SHO inadvertently opened the door to more fraud in this “Pre-Trade” regulatory arena (6/23/06 Legal and compliance update at www.iasbda.com). Suffice it to say that throughout history the “Locate” and “Reasonable grounds” measures associated with making a “Borrow” theoretically made in an effort to maintain “Market integrity” and “Investor protection” while not bogging down the speed of the clearance and settlement system have now “Devolved” to our current sad state of affairs involving needing only “Reasonable grounds” to believe that shares were “Borrowable” in time for delivery on T+3. The lobbying for this “Loophole you could drive a truck through” was intense by certain Wall Street “Professionals” and Reg SHO represents a huge step backwards in regards to the “Pre-trade” regulatory structure.
Why are these concepts of faking a “Borrow” via bogus “Locates”, bogus “Reasonable grounds” and SBP “Pseudo-borrows” (a bogus “Borrow” made from a self-replenishing source) such a big deal? There is a gigantic line in the sand, actually more like a canyon, on midnight of T+3 or “Settlement day”. If the fake “Borrow” does not result in “Delivery” by midnight of T+3 then a “Delivery failure” results. Due to the way the DTCC is structured one single “Delivery failure” can be very damaging to an issuer. Why? Because once that “Delivery failure” has found safe refuge within a DTCC “D” sub-account DTCC management will predictably claim to be “Powerless” to “Cure” it via buying it in - which is the only way in existence to “Cure” a delivery failure by a party that continues to refuse to deliver the missing shares. That’s why Dr. Boni, after being the first outsider allowed to shine a light in the darker corners of the DTCC found what she did, in the form of her research findings of a 56-day average age of a delivery failure. So much for “Prompt settlement” necessitating prompt “Good form delivery”.
A legitimate “Borrow” resulting in delivery of the borrowed shares by midnight of T+3 is a world apart from a bogus borrow that missed this critical deadline. The “Locate” and “Reasonable grounds” options create the ILLUSION of a good faith effort having been made but the fraudsters know that they just need to get that delivery failure safely into the DTCC to pull off the heist of unknowing investors’ money and DTCC policies are meticulously designed to see to this. It’s almost as if that at 12:01 on T+4 the champagne corks can be heard popping because the crooks have bought an average of 56 days for “Father Time” and the new addition of these now readily sellable “Share entitlements” assuming their position on the “Corporate failure” tray to do their damage via dilution to the issuer under attack (see Fig. 1).
This “Reasonable grounds” wording which is now incorporated into the text of Reg SHO drastically decreased the “Intended” effectiveness of Reg SHO from its inception and amounts to no more than an engraved invitation to commit fraud via abuses of what are known as “Hard to borrow” and “Easy to borrow” lists. Without casting aspersions on the hard work of ethical SEC employees, the reason the word “Intended” is highlighted above is that since the final draft of Reg SHO provided what could arguably be construed as a “BLANKET AMNESTY” for prior acts of blatant securities fraud as well as humongous loopholes in the form of the “Locate” and “Reasonable grounds” options of tremendous utility to fake a legitimate “Borrow” then one might question the “INTENTION” of some of the participants in the drafting process. The perception is that if a security is on an “Easy to borrow” list or NOT on a “Hard to borrow” list then there must automatically be “Reasonable grounds” to believe it is “Borrowable” and can and will be delivered by settlement day. Noteworthy is the fact that the SEC has neither the resources nor the manpower to monitor obviously bogus “Hard and easy” lists - and of course the DTCC will claim that although it is mandated as an SRO to “Monitor the business conduct of its participants” this is one particular “Business conduct” of its participants that should be monitored by some other entity.
What the SEC seems to forget is that whether a short seller makes a legitimate “Locate” or has “Reasonable grounds” to believe the shares are borrowable, the short seller is still mandated to DELIVER or have delivered for him by a lender the borrowed shares by settlement day. That’s why it’s called “Settlement day” - because the 2 components of legal “Settlement”, delivery and payment, are to be accomplished by that date. This lack of delivery has always been treated, although rarely via enforcement actions, by the NASD as an infraction UNTIL Reg SHO “Accidentally” removed even this.
As we’ll soon see, DTCC policies have surgically removed the “Settlement” from “Settlement day”. In the overall scope of things whether the phraseology used is a “Locate”, having “Reasonable grounds” of borrowability, or making “Bona fide borrowing arrangements” (for “Threshold list” securities) it really doesn’t matter IF the punishment for getting caught is being allowed to keep the stolen money and paying a fine of 1% of the money stolen, and the need to sign off on an NASD “Acceptance, waiver and consent” form (an “AWC” form) stating that “I didn’t do it and I won’t do it again”. These AWC’s are an industry wide “Courtesy” being extended to DTCC “Fraternity brothers” which allows a crooked Wall Street participant to “Sort of” plead guilty in a civil manner - but not in a criminal manner - to performing criminal activity. Isn’t that thoughtful! As mentioned many times, Wall Street watches out for its own.
One might naively think that if a significant percentage of these THEORETICALLY LEGITIMATE “Locates” and “Reasonable grounds” STILL resulted in delivery failures on settlement day then the DTCC, SEC and NASD would notice that certain DTCC participants were “Gaming” the system, and just not up to the “Acting in good faith” presumption involved in utilizing “Locates” and “Reasonable grounds” instead of firm “Borrows”. The research conducted by Dr. Leslie Boni (2003) indicating that the AVERAGE age of a “Delivery failure” at the DTCC was an astonishing 56 days should have resulted in a DEAFENING noise from the alarms going off and the SEC, NASD and DTCC employees scurrying around in a mad frenzy to plug the holes in this regulatory dyke that had obviously been breached. The proponents of these wishy-washy attempts to create the ILLUSION of the legitimacy of a “Borrow” will proffer that things are so busy on Wall Street that there just isn’t time to execute legitimate “Borrows,” which are both time consuming and expensive - while the market integrity proponents that are the purchasers of these “Share facsimiles” being sold would strongly beg to differ i.e. let’s either make “Settlement day” a “Settlement day” or call it something else to keep it from being misrepresentative.
Recall from Book #2 the legal definition of Misrepresentation: THE STATUTORY CRIME OF OBTAINING MONEY OR PROPERTY BY MAKING FALSE REPRESENTATIONS OF FACT. For instance, on monthly brokerage statements after a share dividend distribution wherein DTCC participants MISREPRESENT to their clients to whom they owe a duty, that real dividend shares with their attendant package of rights have safely landed from the Transfer Agent’s office, and were placed into your account. That reads so much better than “The DTCC participant that sold you your original “Share facsimiles” STILL hasn’t delivered them, so we’re going to reward him by not making him go into the market and buy for your account the “Real” dividend shares that he owes you (as per UCC Article 8) - over and above the original shares he owes you, which we won’t make him buy-in either. Instead, we’ll just add these new dividend shares owed to the other bill he never paid and credit your account with yet more often unexercisable “Share entitlements” - and hope you don’t notice”.
Notice how these NSS related issues start to straddle that fence between securities law and criminal law and why many think that if the DTCC, SEC and NASD don’t get their act together quickly AND START “SETTLING” THE TRADES INVOLVED IN THESE CURRENT “OPEN POSITIONS” then the DOJ is going to create a turf war with much more dire consequences for the perpetrators of these frauds, their co-conspirators and those in regulatory positions that failed to reign them in - especially after their existence was irrefutably proven.
I’ve noticed over the last 25 years of studying this discipline that NSS has metamorphosed from being a good old battle between the shorts and the longs or between the “Pump and dumpers” and those that despise them, to mostly just flat out thievery being committed by the agents of the mostly ultra-wealthy i.e. hedge fund managers or those billion dollar behemoth prime brokers on Wall Street (with a superior “KAV” factor or Knowledge of, Access to and Visibility of the clearance and settlement system of the U.S.) against the average Joe. I think the lesson learned in those earlier battles is just how easy it really is to kill a U.S. Corporation no matter its merits when the DTCC management predictably acts like they do, and the SEC predictably acts like they do. You don’t really have to diagnose WHY they act like they do, you just need to be able to recognize the pattern (which isn’t very difficult) and then place your naked short selling “Bets” accordingly.
The ultra-wealthy who invest in hedge funds demand (and when factoring in “Economies of scale,” perhaps actually deserve) better returns than somebody investing .01% of what they invest. An unregulated hedge fund manager working out of the Cayman Islands who has the ability to spread around hundreds of millions of dollars in commissions and who earns his salary based on 2% of committed funds and 20% of the profits (“2 and 20”) is pretty well incentivised to assume a “Take no prisoners” approach on Wall Street. Perhaps he really does earn those exorbitant fees if he is risking his rear end going to jail if things break down. His wealthy investors, of course, can’t be touched. When you get right down to it, when an investor is responsible for all losses and has to give 2% of committed funds as a fee and 20% of all earnings, then he’d better hope that his fund manager has access to a non-level playing field and some extremely “ACCOMODATIVE” DTCC participants somewhere - because he’s counting on it and paying for it!
When market makers recently lost a good source of their income to “Decimalization” (wherein the ETHICAL MMs now must make their income off of razor thin “Spreads”) all of a sudden their best asset UP FOR BID became their immunity from borrowing before executing a short sale - accorded to THEORETICALLY “Bona-fide” MMs only (wink, wink). The marriage between MMs trying to leverage their immunity from the “Borrow,” and secrecy-obsessed and unregulated hedge fund managers well-incentivised to perform, became inevitable. Throw in a couple dozen prime brokers with a superior “KAV” factor, a “Powerless” DTCC and a few regulators trying to secure better paying jobs on Wall Street, and you’ve got the perfect wedding party.
Let’s go back to Book #2 for a couple of definitions taken from UCC Article 8. A “Securities entitlement” is defined as: the rights and property interest of an “Entitlement holder” - and an “Entitlement holder” is defined as: a person identified in the records of a “Securities intermediary” (DTCC, a clearing agency, Fed. Res. Bank, a broker) as the person having a “Security entitlement” against the “Securities intermediary”.
Notice that the “Rights” or “Package of rights” that a “Securities entitlement” is SUPPOSED TO entail is conspicuously missing from what abusive DTCC participants are naked short selling to unknowing investors. Recall also that for our purposes a “Share” is a unit of equity ownership made up of this “Package of rights” attached to a particular corporation domiciled in a particular U.S. State.
The readily-sellable “Share entitlements” above and beyond the number of “real” paper-certificated shares which result from each and every naked short sale as evidenced by unaddressed “Delivery failures” held in 1 of 3 different repositories (more about those later) stack up on an issuer’s “Corporate failure” tray like lead weights. Note that the triangular shaped “Share entitlements” pictured in Figure #1 are not legitimate “Shares” as there are no “Packages of rights” attached to them - and it is important to keep in mind that a “Share” IS the “Package of rights”. Electronic book entries and paper certificates are mere FORMATS to account for legitimate “Share” ownership but the mere FORMAT has no intrinsic value.
Section 17A mandated the change of the FORMAT for accounting for share ownership; it did not mandate nor approve the change in the definition of a “Share” which DTCC policies have resulted in. For some not so mysterious reason the existence of mere “Share entitlements” without the “Package of rights” which makes a “Share” a “Share” is kept as a tightly held secret from prospective investors as well as a corporation’s management team - BOTH of which are in desperate need of this very “MATERIAL” information regarding the “CHARACTER” of these securities, as the secrecy around their existence allows their levels to expand well beyond the number of paper-certificated shares held in DTCC vaults and elsewhere. The problem though is that the fundamental purpose of the 1933 Securities Act (“33 Act”) as expressed in its preamble is: “To provide full and fair disclosure of the CHARACTER of the securities sold in interstate commerce and through the mails, and to prevent fraud in the sale thereof.”
When the actions of the DTCC and the SEC are 180-degrees antipodal to the 2 “Fundamental purposes” (“Disclosure,” and preventing fraud during the sale of shares) of the parent of all of the Securities Acts - the 1933 Securities Act (or “The Disclosure Act”), then I would proffer that there are some issues that need to be promptly addressed in regards to naked short selling. When the fundamental purposes of the ’33 Act itself and the mission statement of the SEC BOTH literally SCREAM for the addressing of naked short selling frauds, and the SEC doesn’t respond, and the DTCC management chooses to continue on its path of denying the existence of any problems despite irrefutable evidence to the contrary, then one can just feel the SYSTEMIC RISK levels being allowed to build to a crescendo - in order to actively cover up previous crimes and to satisfy the insatiable greed of the abusive DTCC participants operating in the regulatory vacuum created by BOTH the SEC and the DTCC management’s voluntary “DEAFNESS” to these screams.
The question that obviously begs to be asked is, if these admittedly counterfeit “Share entitlements” really are necessary for our clearance and settlement system to function EFFICIENTLY, and their numbers are not totally out of control (as is constantly being proffered by the DTCC) then why isn’t a prospective investor or an issuer’s management team entitled to the “DISCLOSURE” of the number of these dilution-causing “Corporate assassins” that are in existence? One might think that in these days of “Enhanced disclosure” mandates like Reg FD, Reg SHO, and Sarbanes-Oxley that our regulators and SROs like the SEC, NASD, NYSE and the DTCC might join in on these efforts to increase TRANSPARENCY in our markets - but in fact just the opposite has happened. As our regulators and SROs push for increased transparency on the part of corporations and their management teams, these same regulatory bodies and SROs have headed in the other direction, towards actively concealing “Material” information related to “The “CHARACTER” of the securities sold in interstate commerce and through the mails,” which is so pertinent to investors and management teams.
This is a very disturbing pattern from the “Securities cops” whose mission statement centers on the provision of “Investor protection” and “Market integrity”. What could possibly be more “Material” to a prospective investor then the existence of an embarrassing (to the DTCC) amount of unaddressed delivery failures, i.e. mere “Share entitlements” that have basically preordained many of the issuers unfortunate enough to have become chosen as a target of these “Bear raids” to an early death? Why the active cover-up and the willingness to allow more U.S. investors and corporations unaware of their existence to join the list of the victimized? From the DTCC’s point of view the reasons are obvious. They want to avoid criminal prosecutions for past fraudulent behavior, and from a financial point of view their abusive participants would just as soon keep the funds irrefutably STOLEN from investors in their wallet, then to deploy them into the market in an effort to buy back and finally “DELIVER” that which they already sold. The SEC’s reticence to act is a little bit more complicated and we’ll develop that thesis in future chapters.
These extremely dilutive “Share entitlements” are basically “Electronic book-entries” whose creation was admittedly allowed by the “Immobilization and Dematerialization” mandates of Section 17 A of the ’34 Exchange Act; but only for “Legitimate” i.e. relatively short term “Delivery failures” as per Addendum C to the rules and regulations of the DTCC - and only in very minute amounts above the number of paper-certificated shares in existence, i.e. 10,000 shares and 0.5% of the “Outstanding” number of paper-certificated shares. Note that the buy-in of any excessive amount above this critical “Metric” was MANDATED (NASD Rule 11830 and its successor Reg SHO).
Thus “Congressional intent” was that 100 million paper-certificated shares would be “Immobilized” in a DTCC vault and “Dematerialized” into no more than 100.5 million, easier-to-deal-with “Electronic book entry” shares. Simple, right? The reality is that now their numbers have grown completely out of control due mainly to the DTCC management’s claim to be “POWERLESS” to perform 8 simple tasks that they actually have a CONGRESSIONAL MANDATE (via Section 17A’s “Prompt and accurate clearance and SETTLEMENT of trades”) to perform, and that they have all of the power in the world to perform, but VOLUNTARILY CHOOSE (to steal a phrase from Dr. Robert Shapiro, the Under secretary of Commerce under President Clinton) not to. The most important of these being ignored is to effect the “MANDATED” buy-ins of the excessive numbers of “Share entitlements” above the 0.5% “Metric” - necessary to “PROMPTLY SETTLE ALL TRADES” as per Section 17 A of the ’34 Exchange Act, which gave birth to the then “DTC”. The DTCC management, however, has the audacity to claim to be “Powerless” to buy-in the failed deliveries of their bosses no matter how old, DESPITE THE FACT that this simple action is the ONLY way to “Promptly SETTLE” these trades (involving a “Delivery failure” that may have slipped through the cracks provided by bogus borrowing efforts [“Locates”, “Reasonable grounds” and the SBP] and not-so bona-fide market making activity). Thus, the age of the delivery failure becomes critical, when the Congressional mandate specifies PROMPT “Settlement”.
Was Section 17 A of the ’34 Exchange Act a total faux pas on the part of Congress? No, it was a very well written and timely document. The problem seems to be that the DTCC management and participants have trouble deciphering 17 A (a) (2) (A) which addresses the FOUNDATION upon which this expedited clearing process was to be based - i.e. based upon showing “Due regard for the public interest and the protection of investors”. Recall also that the 1934 Securities Exchange Act mandated that this new “SEC” “purge the markets of short selling abuses” especially in light of those abuses’ role in the recent 1929 market sell off involving “Unregulated pools” of money similar to today’s hedge funds. As a side note, if the current SEC Commissioners can’t see this train barreling down the tracks at us ONCE AGAIN, then we all are going to need some help.
http://www.thesanitycheck.com/Blogs/DrJimDeCostasBlog/tabid/99/EntryID/374/Default.aspx
Andrew Clark in New York
Saturday June 24, 2006
The Guardian
The low-profile, high-earning world of hedge funds suffered a jolt yesterday as allegations surfaced of political influence and insider dealing at one of America's most prominent players, Pequot Capital Management.
A former investigator at the Securities and Exchange Commission has disclosed that the authority has been examining suspicious trades at Pequot - a Connecticut-based fund which has $7bn (£3.8bn) under management and operates from offices in both the US and Britain.
Gary Aguirre, who was an SEC lawyer until September, alleges that he was praised and awarded a pay rise by the authority for his work on the case - but then fired 11 days later because he sought to interview one of Wall Street's most influential figures, John Mack.
Mr Mack was briefly the boss of Pequot last year before he was appointed chairman of the investment bank Morgan Stanley. In an 18-page letter sent to senior congressmen and leaked to the New York Times, Mr Aguirre maintains that his superiors blocked him from subpoenaing Mr Mack citing his "powerful political connections". Known as "Mack the Knife", the banking chief was a leading fundraiser for President Bush's electoral campaign.
The Pequot investigation again raises questions about the conduct and regulation of hedge funds, which usually require minimum investments of at least £100,000. In the US, many are only open to those with a net worth of at least $5m.
Pequot, named after a native American tribe, is one of America's oldest hedge funds and was once the world's largest. Its quirky Connecticut campus has a half-sized baseball court next to the trading floor to help fund managers wind down.
The fund is alleged to have made 18 questionable trades ahead of big deals. In one case in 2001, Pequot bought shares in a Chicago-based lending business, Heller Financial, just before it was taken over by General Electric Capital. Pequot simultaneously took a short position in General Electric, yielding an $18m profit.
Pequot vigorously denied the allegations yesterday as "unfounded" and "unsupported by any evidence". The Senate finance committee is examining the affair.
Harvey Pitt, former chairman of the SEC, said Mr Aguirre's treatment was disconcerting and should be closely scrutinised: "There's no question that these developments are troubling."
Mark, what do you mean "who are the victims?"
Read it again ... carefully.
http://s10.quicksharing.com/v/5772585/1aguirre_congress0623.pdf.html
Once you click on the link....Look in the upper left hand corner... you will see grey colored script writing... "download file"
A 'Must Read' . The ugly truth about the SEC.
First, there is the letter to SEC Chairman Cox, mentioning the individuals who participated in what appears to be a massive cover-up for a hedge fund with tremendous power and wealth.
It describes how a regulator turns a blind eye to illegal stock manipulation/insider trading.
This is the letter:
http://www.faulkingtruth.com/Files/aguirre_cox0623.pdff
Then there is this document that was sent to the US Congress, which describes the same ugly situation:
http://www.faulkingtruth.com/Files/aguirre_congress0623.pdf
Try not to let it spoil your day.
The TF knows who the eBayer is. This cert 45623 has been faxed in to the TF so it must have had a holder's name on it... which it doesn't now.
Brokers fear Utah law.
StockGate: Naked Short Selling Scandal Poised To Overrun Brokers’ Frenetic Defenses / FinancialWire®
June 6, 2006 (FinancialWire) The brokerage industry is mounting an increasingly active campaign against Utah regulators in a frantic attempt to prevent the growing scandal around naked short selling from seeding regulation in other states.
Investment banks including Morgan Stanley (NYSE: MS), Fidelity Investments, and Bear Stearns (NYSE: BSC) have been scrambling to limit the damage from the new law while companies impacted by short selling, like Overstock.com (NASDAQ: OSTK), have praised lawmaker efforts.
Several Utah lawmakers have said they hope their efforts will prove to be the vanguard of a nationwide effort to shield investors from institutions intent on unfairly manipulating the market. Republican state representative Jim Ferrin told media outlets that the nation will "probably look to our state to see what good comes of [the law]."
Naked short selling involves the sale of a stock that the seller does not own. In legitimate short sale operations, the seller gambles that the stock's price is about to fall. The sale is locked in at a high price and the seller then purchases the "sold" shares at a lower price to fulfill the trade.
Critics of the practice say it has been abused by large institutions to drive down the value of companies and rampant failures to deliver the sold stocks endanger the stability of the market.
Utah's governor recently signed a law to limit the activity of entities involved in short sales. The law also companies impacted by short sales the ability to sue brokers and strengthens existing regulations with stiff fines.
Brokers were blindsided by the law and have scrambled to mount an effective response. Some have warned that the broker industry will abandon Utah and there are persistent threats of court action.
Critics say Utah's law violates federal law and would result in lengthy, expensive court challenges. The Securities Industry Association of New York and Washington has said the SEC already has regulations governing short selling and that The National Securities Markets Improvement Act requires any state regulation to adhere to federal standard.
The Securities Industry Association, of New York and Washington, sent a letter to the governor May 25, saying that the law could "result in a time consuming and expensive court challenge." The SIA contends that the law violates the National Securities Markets Improvement Act, which prohibits state regulations of national markets if they differ from federal securities rules.
Brokers fear that if left unchecked, the Utah law could spawn copy-cat legislation in all 50 states creating an overwhelming administrative burden. Industry insiders are already complaining about the paper work generated by federal regulations and say that individual states are likely to pass subtly different laws, creating a compliance nightmare.
Utah lawmakers have said they understand why the industry opposes their actions but that they believe naked short selling to be a legitimate problem that the SEC has yet to properly address and that they hope Utah's actions will bring the issue national attention.
Utah law may doom naked short selling
By Sara Hansard
June 5, 2006
WASHINGTON - Supporters of a new Utah law, intended to rein in the practice
of "naked short selling," last week predicted that their movement soon would
spread to other states.
The brokerage industry, caught off guard by the enactment of the law,
threatened to take Utah to court to have the law overturned. When investors
sell stock they do not own, the transaction is called naked short selling.
"Utah will be the vanguard of protecting corporate equity, or protecting the
little shareholders from the guys who would want to manipulate the market,"
said Republican state Sen. Curtis Bramble, the chief sponsor of legislation
signed May 26 by Utah Gov. Jon Huntsman.
Other states will "probably look to our state to see what good comes of it,"
commented Republican state Rep. Jim Ferrin, who voted for the legislation.
It was passed overwhelmingly in a special session of the state legislature
May 24. Mr. Ferrin is the owner of Ferrin Capital Advisors, a financial
planning firm in Orem, Utah.
But the Securities Industry Association, of New York and Washington, sent a
letter to the governor May 25, saying that the law could "result in a time
consuming and expensive court challenge." The SIA contends that the law
violates the National Securities Markets Improvement Act, which prohibits
state regulations of national markets if they differ from federal securities
rules.
In its May 25 letter to Mr. Huntsman, the SIA noted that the SEC's 2003
Regulation SHO is the agency's attempt to prevent naked short selling.
Reporting requirement
The law requires brokers doing business in the state to report to the
division of securities sizable short sales for which stock has not been
delivered for more than five trading days.
Regulation SHO took effect in January 2005 and requires clearing agents or
broker-dealers to close out positions they have failed to deliver for an
extended time. The Utah law would put more teeth into it by levying
$10,000-per-day fines to brokerage firms that do not fill their short sales
or report to the state securities regulator their failures to deliver.
In addition, the law gives companies affected by the practice of naked short
selling a private right of action to sue brokers who engage in it.
Traders typically short stocks by borrowing the security in the hope of
selling it later when the price goes down and when it can be bought back at
a lower price. Critics contend the practice is controversial because it has
been used to drive down the price of stocks and, in the process, allegedly
destroy smaller companies. Overstock.com Inc., an online retailer based in
Salt Lake City, campaigned heavily for the law.
Overstock.com chief executive Patrick Byrne claimed that the practice has
contributed to a decline in the stock price of his company, and he has
gained the ear of Sen. Robert Bennett, R-Utah, who queried SEC chairman
Christopher Cox about the practice at an April 25 Senate Banking Committee
hearing.
Mr. Bennett has no plans to introduce similar legislation to the Utah bill
"at this time," said Mary Jane Collipriest, spokeswoman for the senator.
At that hearing, Mr. Cox said the SEC is in the process of finishing
targeted examinations of 45 brokerage firms and 19 clearing firms concerning
the practice. If the results of the exams show that changes are needed, "I
will recommend changes," to Regulation SHO that require monitoring of
significant stock sales that are not delivered in a timely fashion.
"This is something that we would hope that the federal government would take
a look at and fix," said Jonathan Johnson, senior vice president for legal
and corporate affairs for Overstock.com.
The law will affect not just brokerage firms that do business in Utah but
"any individual who lives there who does any short selling, even if they're
doing business with a broker in Chicago or Phoenix," said Yolanda Holtzee,
portfolio manager of Alcap LLP in Newcastle, Wash., a private investment
club where she engages in short sales.
Last week Ms. Holtzee, who has been described as an industry gadfly for her
practice of notifying regulators about perceived wrongdoing, fired off an
e-mail to top officials at the SEC, the SIA and NASD. She raised questions
about Overstock, which is the subject of an SEC subpoena concerning its
accounting practices.
"SEC types, [it's] time to support the SIA a little, ladies and gents. We
sure as hell don't want 50 versions of Regulation SHO out there, do we?" Ms.
Holtzee wrote in her
e-mail. John Nester, spokesman at SEC, declined to comment on the Utah bill.
The new Utah law would impose a large bookkeeping burden on brokers in the
state, who already say they face a large burden from Regulation SHO, said
Mark Pugsley, shareholder of Salt Lake City law firm Ray Quinney & Nebeker
PC and a member of the SIA.
The brokerage industry does not "want a pile-on where every state decides to
pass a similar law and all of a sudden [the brokerage industry has] to
monitor trading for every company on a state-by-state basis," he said. Also,
requirements would likely differ among the states, Mr. Pugsley said. "It
would be hugely burdensome."
The SIA's letter to Mr. Huntsman expressed regret that the association
entered the legislative process late. The bill was introduced last January
and went through committee hearings and unanimous passage in the Senate
without opposition, Mr. Bramble said.
The law could "substantially and adversely impact Utah and Utah-based
companies in the future," noted Steve Judge, senior vice president of
government affairs at SIA. The law could cause brokerage firms to limit
their interaction with Utah companies, and clearing firms may not clear
trades involving Utah companies, he wrote.
There can be justifiable reasons why broker-dealers cannot deliver
securities on a settlement date, Mr. Judge said, and the legislation is
likely to cover lawful activities as well as illegal market manipulation.
"We recognize that there are those [who] are upset by the law," said
Francine Giani, executive director of Utah's Department of Commerce, which
includes the Division of Securities. However, "Naked short selling appears
to be a problem, one that I think the SEC is beginning to recognize is more
of a problem [than it thought]. Perhaps this law being moved forward will
bring the issue to the forefront."
Let the show begin! It's about time, looks like Bill had to collect some evidence first before we open up a can on these guys.
Can't wait to see the reply.
Fam ... you're the moron.
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Utah Legislature Exposes Wall Street Double Standards – May 26, 2006
David Patch
Everybody that reads these columns must own a credit card; have a mortgage payment, or a car payment. Everybody owes a bank something at some point in life.
Now for all those who fall into this category how many have had the experience of missing a payment on that loan? We all have at one time or another.
Earlier this week the Utah state legislature passed a bill that essentially treats the late delivery of a stock security into the same category as the consumer making a late payment on a lending account. The Utah legislature assigned penalties and interests for being late with the delivery and settlement of a stock transaction.
The result of such reaction was a clear and decisive uproar.
According to the Associated Press, Howard Headlee, president of the Utah Bankers Association threatened that brokerages were considering taking their business out of Utah. The AP also quoted Tony Taggert, an officer for Morgan Stanley - which operates an industrial bank in Utah and employs almost 5,000 with Discover Card operations here - that if the governor of Utah signed the bill a lawsuit would be filed on behalf of the Securities Industry Association.
So what’s all the uproar about? Securities trading and stock settlement!
The Utah legislature passed a bill that introduced fines of $10,000/day or the total value of a trade whichever is lower, as well as assess a 12% interest penalty, on trades that fail to settle within 5 days after the normal settlement period. Trades that a were purchased and paid for in full but trades where the seller failed to meet the standard 3-day settlement period on delivery plus an additional 5 days of allowable delays thereafter.
The reason for this bill is based on a growing concern that Wall Street is creating excessive unregistered securities in the name of the business issuers in order to appease wealthy clients that want to sell the security short where shares are not presently available to borrow and settle as required. The sales result in what the industry calls a “fail to deliver” and when the fails exceed certain thresholds the SEC has claimed the added leverage of dilution can be used to manipulate the value of a security.
Typically this issue of a fail would be handled between the buy-side and sell-side brokerage firms representing their clients where the buy-side would force the sell-side to make good on delivery. Unfortunately, with the growth of the hedge fund industry and the political lobbying of the federal reserve, Wall Street has allowed these funds to create “market liquidity” by selling what otherwise does not exist. Since every major brokerage firm and prime brokerage is involved, the markets have become a place of forgiveness to the seller and a detriment to the buy-side investor.
The Utah bill allows the investor to fight back and regain what they purchased or impose a fee on the firm in the same manner a late fee is imposed on the consumer when a late payment is made.
Again according to the AP, “brokers and the clearinghouse managed by the Depository Trust and Clearing Corp. say stock IOUs are essential to maintain market trading. They dispute that unsettled trades - called "failures-to-deliver" - are more than a tiny aberration in the market, or that all of them are short sales.” What I don’t understand is that an IOU requires both parties to agree to the terms of an IOU and in this case the buyer is hidden from the fact an IOU has replaced delivery.
To put this stock trading principle into a layman’s analogy consider this:
Lets say you purchase merchandise using your Discover card. I will appease Mr. Taggert here.
At the end of the month a bill arrives stating you owe $500.00. If you pay it in full there will be no interest on the charges applied. The reason there is no interest is because Discover took a percentage of this $500 off the merchant who accepted your card as guaranteed payment.
When the Discover bill arrives it indicates that a payment is due on June 1. But as June 1st approaches you find you do not have the cash to pay off the bill. Instead June 1st comes and goes with no payment made.
Discover, and Mr. Taggert’s Office, will begin to impose their penalties on you starting June 2. Those penalties will include interest accrual on the $500.00, a late-payment assessment of $25 - $35.00, and the potential that the 12% interest you had on the card was now bumped to $19% because you are no longer a consumer with a good rating.
That is how Discover operates. It works for them. The late fee is an instant 5% - 7% bonus to the company revenues and the 1% monthly interest accrual is higher than the banks rate to borrow. Profits everywhere.
What Mr. Taggert requires when it comes to securities transactions is for the brokerage firm to effectively miss the June 1st delivery date, also miss a June 8th delivery date, and see no penalties imposed on the firm. The reason they missed the date, it was not economically advantageous to make good on payment at that time.
So, back to our late credit card payment.
How do you think Mr. Taggert would respond if you called him up and stated that you missed your June 1st payment and probably would not make good on any payments for a couple more months. In the mean time, you wanted Discover to extend this as an IOU with no penalties or fees? You did not want any accrual of interest, no accrual of late charges, and if at all possible a lower interest rate not a higher one.
I will guarantee you Mr. Taggert would give you a courteous “your nuts pay the bill or suffer the consequences.”
Wall Street is threatening the state of Utah because they state has stood firm and called the firms nuts. Wall Street wants the buyer to pay a commission for services and yet receive nothing and the state of Utah said no on behalf of the people.
Wall Street wants the consumer to pay up front and have no legal recourse to seek the interests off their monies while waiting for the merchandise to be delivered once extended beyond the due date. Wall Street is threatening because this law would restrict the illegal ill-gotten gains they have reaped over these past decades. Revenues that line the pockets of the upper and middle level executives that benefit from the higher revenues generated by the business and the departments.
As for those IOU’s that are essential to the market trading? Congress actually thinks otherwise.
Congress mandated that all trades settle promptly for the safety and protection of the investing public. They did so under Section 17A of the Exchange Act of 1934. The phrase “promptly” was later identified into law as being 3 business days and was done so at a time when the 3-days allowed for paper handlers to shuttle the paper certificates back and forth between firms.
Today we use supercomputers to move shares and the 3-day allotment by law has more margin than a yardstick has when used to measure the thickness of hair.
The double standards of Wall Street and the banks are unmistakable. Wall Street is threatening to take their business out of the state of Utah merely because the state of Utah stepped up to the table and decided it was time to finally protect the businesses and the people who have been for decades cheated by the system.
I think I will send a message to Mr. Taggert – I am going to rid myself of the Discover Card I hold and ask that they forgive my payments until the time suits me to pay off the debt. Let him sue me. I will simply ask the judge to consider Mr. Taggert’s comments regarding the state of Utah bill. Anybody else want to join me? Maybe we can all send the cut up cards directly to Mr. Taggert with a friendly note.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2006
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 5/26/2006 5:49 AM
UPDATE: I just received an email that the Governor has signed the bill - apparently he just released a statement. So all of Wall Street's underhanded pressure techniques were for naught.
http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/303/Default.aspx
------------
The bill in Utah has caused a firestorm in that state, and on Wall Street.
The Governor has faced enormous pressure from the brokers, who are unwilling to have their party spoiled by being forced to report those violating federal securities laws relating to prompt delivery of shares.
This is probably because a large portion of the violation comes from Wall Street’s trading desks.
The brokers have crafted windfall profits in a time of flat markets by creating a booming stock loan business, and by trading their house accounts alongside the hedge funds who are moving, and in some cases manipulating, the markets.
So they don’t want to let anyone see how big and how terrible this crisis is – they require secrecy for their scam to continue.
And the Utah Governor has faced the full weight and wrath of Wall Street, who is lobbying against this bill as though it was the end of the world, versus a simple “sunshine” bill aimed and leveling the playing field and identifying the violators.
Morgan Stanley has threatened to pull their Discover Card call center, with 4700 or so employees.
The Securities Industry Association demanded an amendment to the bill (to stall implementation to October 1) in order to support it, and then when it was passed with the amendment, they pulled their support. They basically lied, IMO – that’s the old fashioned word for it.
Brokers in Utah are getting outraged phone calls from their NY offices demanding that they march on the Governor’s mansion, and call, email and write protesting and threatening.
I have it on good authority that they are amused by all the hubbub, as most haven’t shorted a stock in years. Thus, they fail to understand what all the ruckus is about.
They don’t realize that their NY headquarters has been printing money by creating IOUs, and failing to deliver stock for weeks or months or years. Nobody shared that with them, so they, as most honest folk, are looking at this bill going, “Hey, what’s the big deal? All it says is that they have to report anyone failing to deliver for longer than a reasonable period – what’s wrong with that?”
The level of hysteria and objection this has caused should wake everyone up as to the magnitude of the larceny and fraud being perpetrated by Wall Street. They are fighting as though their very lives depended on it, and all the bill does is add a caveat to the existing framework of regulation, requiring the reporters to report violations.
You would think it was the end of the world for them. Which in a sense, it is, as their illegal shenanigans will now carry a huge financial penalty…it won’t be long before smart attorneys sue the violators, which will create a large price tag for being a bad guy, and should act as a disincentive to further larceny.
Interestingly, the SEC and Wall Street can’t argue federal preemption here, as the bill is entirely consistent, and in no way conflicts with, federal securities law. It is sort of like California’s emission standard for cars – more stringent than the federal, but also entirely inclusive of and consistent with the federal standard. So the preemption argument falls flat here.
That Wall Street has been trying to blackmail the Governor of Utah – that is what they call it when you threaten dire consequences if you take an action (or rather extortion, I suppose, would be another good way of describing it) – is despicable. His sworn duty is to protect his citizens, both corporate and private. Wall Street is trying to extort him into selling his constituents, those he has sworn to protect, down the river. These NY parasites are so arrogant, and have been allowed to rip off the heartland of America for so long, that they have forgotten that they don’t own the whole country.
The Governor of Utah is about to send a strong signal.
Hopefully this will embolden other Governors and legislatures to mirror the Utah bill, and protect their citizens from the predations of Wall Street. There’s no reason not to, except that it will cut into Wall Street’s ability to prey on the locals.
I spoke with Patrick this morning at length, and his feeling was that if Wall Street felt that this had pissed in their Wheaties, they could look forward to another big shoe dropping sooner rather than later. 10 days or so was mentioned. Two weeks was discussed.
As can be seen from this bill, his sense of the magnitude of the changes coming at Wall Street is not given to inflation.
I really can’t wait to see what happens next. For the first time since 1934 Wall Street is getting a flavor for the rest of the country’s outrage over their larceny.
The Governor of Utah is the real thing. He deserves the strongest possible accolades, as does the Utah legislature.
I am quite sure every variety of legal BS will be conjured up as soon as Wall Street can mount a challenge – again, they CAN’T afford for their misconduct to become part of the record. The lengths they will go to in order to prevent that should be an eye opener for everyone.
I am not the least bit surprised.
More criminal behavior...
Law Firm Milberg Weiss Bershad & Schulman takes a hit, NFI Back On Reg SHO
So, is that bad, when a federal grand jury indicts your law firm for 20
counts of felony criminal behavior, including money laundering, fraud,
bribery, mail fraud...you name it? When the word racketeering is used,
implying that the government means business?
Here's the latest from Reuters, UK: http://tinyurl.com/g5h2u
And here is the indictment: http://tinyurl.com/lxwuj
I'm going to say it's bad.
Of course, Milberg insists that it is a valuable watchdog, and innocent as
the day is long.
Here's a blurb from the front page of the NY Times today I found
particularly interesting:
"According to the charges, the scheme involving Mr. Lazar and two
other paid plaintiffs worked like this: Plaintiffs would buy securities
anticipating that they would decline in value, hence positioning themselves
to be named plaintiffs in the class actions."
So here's a question: How did they know those securities would decline in
value?
That's a pretty good question, no?
I think that the example of NFI would be a wonderful one to bring to the
attention of the US Attorney General. Here's how that timeline worked out:
David Rocker bought a boatload of put options in NFI (for the first time)
just days before the WSJ came out with a huge hatchet job that resulted in a
precipitous drop in the stock's price. 48 hours later Milberg Weiss had
filed a class action suit - begging the question when they were retained,
and by whom? I mean, they had the suit literally ready to go. Doesn't that
seem odd?
Those put options wound up being worth many, many millions, BTW, instead of
expiring worthless a few weeks later. What a fortunate coincidence for Mr.
Rocker, no? Mr. Rocker, as we all know, also insists he is innocent as the
day is long of engaging in the illegal front-running of stocks he targeted,
after conspiring with research firms and journalists to issue uglies about
them.
So here we have MW insisting that the 20 count indictment is all a big
mistake, and we have Rocker, who has had a wildly high number of his short
positions sued by MW, insisting that the allegations against him are all a
big mistake.
Huh.
A year and a half ago I got on a conference call with OSTK CEO Patrick Byrne
and described a stock manipulation scheme were hedge funds used the media
and captive research firms, along with class action attorneys and co-opted
members of the SEC, to serial kill companies. Oh, and lots of Naked Short
Selling.
I described it as racketeering, and a 10b5 violation, and fraud, and a host
of other things.
And now here we have Milberg pretty much accused by the government of the
legal profession equivalent of their side in that sort of a scheme.
And everyone claiming to be innocent.
Small world.
Speaking of NFI, guess which company reappeared on the Reg SHO list of
heavily naked shorted stocks today?
That's right. NFI.
After a few weeks off, which eerily corresponded with our publishing of the
FOIA data on the litany of abusive fail to delivers that defined its history
on the list, it has reappeared - not surprisingly, in conjunction with a
massive drop in the company's stock price, for which many excuses were
tendered by the crews of bashers on the Yahoo message boards - and for which
I opined the explanation was the same as many other times: Someone is
selling a bunch of stock, and then failing to deliver it, in an effort to
manipulate the stock price down, and cause panic selling and margin calls.
Turns out my explanation is the correct one.
Again.
Isn't that something? Thank God we have the SEC on deck to ensure that
companies don't get manipulated in an obvious fashion by miscreants.
I mean, it isn't as though the Rocker Put purchase/WSJ timing/MW suit should
have set off any bells.
Nor the year and a half reign on the SHO list, with some days FTDs being
40%+ of the trading. Nor 12% of the total outstanding shares being FTDs.
No, those are apparently not enough to get the SEC clued in that they are
watching a massive, obvious manipulation.
Just as Overstock's presence on the SHO list for over 280 days now, and also
shorted by the same firm (Rocker), also apparently doesn't really warrant
their settling the trades and getting the DOJ involved.
So I look at this, and I ask the obvious: If that won't get them to move,
what, precisely, would? I mean, what would the clues have to look like?
Fortunately, we have Cox chilling the subpoenas into the network of
suspected journalists, so we won't know what their role in this is -
although the litany of negative articles from the same names certainly
raises some interesting possibilities.
I wonder what happens now to the Milberg Weiss class action suit, which uses
as its basis the WSJ hatchet job so serendipitously front-run by our
favorite hedge - and which "news" was no more than a poorly constructed
hodgepodge of the same false claims and rehashed news that had been
trumpeted on the message boards for months, by the suspiciously vocational
crews of bashers...who are still working those same boards today?
Life certainly is interesting.
In closing, we have Milberg accused of a twenty year run of illegal behavior
in buying plaintiffs, in anticipation of large drops in the companies' stock
prices - and the unanswered question as to how they knew those stocks would
drop.
We have the wildly high percentage of stocks Rocker Partners is believed to
have been short also sued by that now indicted firm. We have a wildly high
percentage of the Reg SHO list also being those companies...
If only we had a sign.
It's all just so difficult to piece together...but I'm sure there must be an
explanation...
An innocent one, of course.
As everyone is saying they are innocent...
Maybe we should make this weekend's person to email the US Attorney General,
who is prosecuting the case - U.S. Attorney Debra Wong Yang.
Refer her to this blog.
Just a thought. Anyone got her email?
Copyright C2006 Bob O'Brien
http://tinyurl.com/hkcqr
Isn't it strange that TD Waterhouse will trade the OTC & Pinks in electronic share format but won't accept the equivalent in paper share format.
Anyone know the reason for this?
Unbelievable stuff!!!
From The SABEW Conference - What Is The Best Way To Obstruct Justice?
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 5/2/2006
Would it be bad to admit, in a public forum, that you are deliberately taking steps to stop law enforcement, or the courts, from getting the data that they require, and have issued subpoenas for?
I mean, I’m not a professional journalist, nor am I an attorney, so I don’t know if discussing the steps you are taking to hamper investigations is par for the course, or not.
Any attorneys out there know if there is any rule or law against planning your data storage around the central idea of being able to keep it out of discovery, away from the prying eyes of regulators, law enforcement, the government? And basically saying so?
I’m all for freedom of speech. Love the concept. Wouldn’t have it any other way.
But when you are essentially admitting to conspiring to obstruct investigations, is that part of the mantle of journalistic protection?
If I counseled a “journalist” to keep their materials where they could easily destroy them, eradicating all record of correspondence, etc. – would that be bad? Would it cross any lines?
If at a big meeting of business journalists, one of the leading writers in her genre matter-of-factly chatted about how this planning for obstruction is standard procedure among her peers, would that cause anyone to be concerned about who and what we are dealing with here?
For instance, if I attended a meeting for CPAs, and one of the discussions centered around how to best shred documents and store sensitive data so that the IRS couldn’t get to it when they subpoenaed my files, would that be noteworthy? Or what if I was attending a seminar for Internet Service Providers, and happened to catch a discussion of how best to keep potentially sensitive information from subpoena – you know, stuff like kiddy porn, or hate propaganda, or whatnot. Would that be cause for outrage?
Yes? No?
Folks, from the recent SABEW conference, I have a treat for you. Here is a transcript of one part of a discussion with the eminently quotable Diana Enriquez of the New York Times, where she discusses how she and her colleagues are using removable media, to better hinder issuers of subpoenas (law enforcement, court-ordered discovery) from getting the information that they need.
I really am not making this up. The bold is my emphasis. This is word for word what she said.
“HENRIQUES: Diana Henriquez. At the Times we do have regular legal seminars that the staff is required to attend, and those reflect—they're offered by our in-house 1st Amendment lawyers—and they reflect the changing assessments, risk assessments, that they're making based on court judgments or interim rulings that come out in a variety of invasion of privacy cases, libel cases, in some cases contract law situations.
So we are updated about that and ever since… the threats, the subpoena threats that are emerging are largely on the national security front, and those are going to be the go-to-the-mat kind of battles over sourcing. So it's against that backdrop that the Times has been shaping its email, phone record, expense account records.
ANON: Expense account?
HENRIQUES: Well, if you put an anonymous sources name on an expense account comp for lunch and that goes to some shared services business processing center down in Virginia and somebody subpoenas that record, you've burned your source. But how are you going to get paid for that meal if you don't put a name down?
We're wrestling with this in a very direct way within the committees in the newsroom. A lot of us are turning to things like flash drives to keep sensitive email and even sensitive interview notes, early story drafts, to keep them off any piece of equipment that the Times might be required to turn over in response to a subpoena.
So I think the answer is, "Yes," it's started, but is has grown mostly out of the national security subpoena threats that have emerged that … subpoena threats against our national security coverage that we in the Washington post (bureau – Bobo) are already experiencing - and it will inevitably affect our business reporting as well.”
Huh. I mean, wow. Wow wow wow.
Does everyone get the full import of this? Commissioner Cox – do you comprehend fully the implications of what is being discussed at the very meeting you attended? Where guys like Herb Greenberg, who are currently recipients of subpoenas from your agency, are in attendance, sharing their view that they are victims? And maybe picking up tips on how best to hamper investigations by making data inaccessible to your agency?
Do I need to spell it out, maybe with cartoons?
I was honestly speechless as I sat down to write this. And I am wondering what sort of press coverage this little bombshell is going to receive. Want to bet none at all?
The irony that reporters, whose job it is to dig and gather information they can then break in order to illustrate the flaws in an organization or industry, are so lacking in awareness as to make the sorts of comments we are seeing come out of SABEW, is both very sad, and telling of the sense of omnipotence that they enjoy. A feeling of divine right, or impunity.
Hey, fellas, how do you prefer to erase your email logs so that nobody can go back and build a case against your buddies? What is the best way to engage in a cover-up? I know, declare that you are “protecting sources” or some other happy load of BS, and then conspire, with knowledge and pre-meditation, to hinder any compliance with subpoenas.
Am I getting this wrong?
These were her EXACT WORDS.
And these are supposed to be the good guys.
Wonder what the hedge fund symposiums sound like? I’d love to be a fly on the wall at one of those – I bet the ones in Costa Rica especially are dedicated to discussions of the importance of honesty and integrity and ethical behavior.
How much weirder and more outrageous can this situation get? I mean, WTF?
This is the same industry that gives you an Eisinger stalking geriatrics and being cited for trespassing before being ejected from a retirement community, and using obviously stolen bank records and cell bills, and yet who is on bully pulpits like Squawk Box regularly. Yet we are supposed to believe that they are all honest as the day is long. While getting snippets of discussions about how they will use their tremendous power to crush their critics, and how best to interfere with investigations.
Unbelievable stuff. And yet too true.
Comments? Is there anything that can even be said?
Copyright ©2006 Bob O'Brien
http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/267/Default.aspx
Why is this significant?
http://www.sec.gov/Archives/edgar/data/1052257/000101376206000897/ex99.htm
Read on…
Circle Group Holdings Declares War On Naked Short Selling
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 4/28/2006
CXN. Circle Group Holdings.
They make a fat replacement that can cut calories by up to 50%, without impacting taste or texture, according to their press releases.
Sounds great. So why care? I mean, why should we care here at this site?
Well, because today, after the bell, they filed an 8K that has one of the most remarkable letters to shareholders I've ever seen.
You can view it here. You should read it, and then consider what it means.
This is significant in a way that I've never seen before. Why? Because they are going to do a public test of the system, and have the O'Quinn law consortium standing by to sue the crap out of the miscreants, should they attempt to game the system.
What CXN is proposing is simple - they are doing a one-for-one swap on their paper certificates, with a new CUSIP number and name for the newly issued shares.
But more significantly, they are issuing a special class of share that will not carry a CUSIP, but will have substantial future cash value. And you can only get it from the company.
Because it doesn't carry a CUSIP, the system can't hypothecate the shares - meaning that the brokers can't just ledger over some bogus D share IOUs, created out of thin air. Which means that every person that owns or buys CXN in the next few weeks will need to get their certificates from their brokers, and then contact the company, to get the new shares AND the D shares. No paper, no D shares. Simple.
Why is that significant?
Because if there are millions of fake shares trading in the system, created by manipulators, then there are going to be millions of more shareholder requests for certificates than there are shares.
Ordinarily, I would guess that the brokers would just stall and tell their shareholders to pound sand at the end of the day. But O'Quinn's group is waiting for that, and it sounds like they are armed for bear, and are ready to file a class action suit for fraud against any of the brokers that try that.
And fraud takes you out of the arbitration area, and subjects you to legal redress in the courts.
Note that the CEO of CXN is Greg Halpern, who also wrote the Advanced Small Business Alliance position paper in this site's library section. So he understands the game the bad guys have been playing, and it sounds like he has created a mechanism to flush out the miscreants.
And because he has chosen to do so publicly, with O'Quinn on his side, instead of just lying to their clients, or waffling, the brokerage system has to behave, or face the mother of all suits - the one they never want to have to face, one that takes them into the courts rather than in their comfortable NY boy's club of arbitration, and one where it sounds like the proof will be ironclad.
I really don't see a way out of this for anyone naked short the company. And there are no grounds for the DTCC to "chill" trading - the CUSIP change is their prerogative, and if they want to do a one time non-CUSIP stock dividend, that is also within their rights as an issuer. There is no rule or law that requires them to do so within the DTCC system - the system that allows those shares to be hypothecated, and lent, or book-entried.
Folks, this looks like the perfect storm. Please spread this message far and wide, and especially to your elected officials, and to the SEC, and Senators Bennett and Shelby.
It would seem that these guys have done their homework, and have crafted a definitive test of the system that can't be faked or ducked by the brokers - and one that it is in our best interests to watch closely, along with the regulators and the cops. And if the SEC suddenly decides that non-CUSIP share dividends are a no-no, and changes the rules, we just got complete and total proof of their complicity in aiding stock manipulators, and trying to cover-up a systemic problem to the detriment of investors and shareholders - a de facto admission of complicity and culpability.
And it doesn't hurt that CXN is apparently a fan of NCANS and this site - who says that we can't effect change by spreading information? Talk about a bomb blast due to information dissemination. Wow.
Get this blog out to every message board and chat room you can think of. This is the single most significant event yet in our battle to end the rampant manipulation caused by a system run amok.
This could well be the little company few ever heard of that revealed that the emperor has no clothes. Trust me, this is a watershed event. I can't wait to see what happens next.
http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/260/Default.aspx
Selling, “phantom” shares con'd
EX-99 2 ex99.htm EXHIBIT 99 PRES RELEASE
Exhibit 99
CIRCLE GROUP HOLDINGS ALERTS SHAREHOLDERS TO OBTAIN PAPER CERTIFICATES
Cites rampant failures to deliver, naked short selling, “phantom” shares
Friday, April 28, 2006, 4:20 pm ET
MUNDELEIN, Ill., April 28 /PRNewswire-FirstCall/ -- Circle Group Holdings, Inc. (Amex: CXN - News), announced today that it is mailing the following letter to all shareholders of record.
___________________________
April 28, 2006
To All CXN Shareholders
Dear Loyal Shareholder,
THERE IS A CRITICAL NEED FOR YOU TO CALL THE BROKERAGE WHERE YOUR CXN SHARES ARE BEING HELD AND INSTRUCT THEM TO PROMPTLY DELIVER TO YOU ALL OF YOUR SHARES IN PHYSICAL CERTIFICATE FORM. THE CONSEQUENCES OF NOT GETTING ALL OF YOUR SHARES IN HAND COULD HAVE A SIGNIFICANT, NEGATIVE EFFECT ON YOUR INVESTMENT.
Why do I need to request my shares in physical certificate form?
It has come to our attention that a significant number of “phantom shares” of our Company’s common stock has been sold into the market during the past 24 months. It appears the sellers are acting within and through major brokerage firms in the capital markets, with their primary goal being to damage the Company and our stock’s value, while illegally profiting at our expense from any price decline. We have seen no evidence that the sellers plan to buy any shares to cover their illegitimately created positions. These manipulative actions are preventing you and all real shareholders from experiencing the value that a fair, balanced and orderly market could provide.
The “shares” you believe you own in the Company are “securities entitlements”, and are either backed by genuine stock certificates, or backed by IOUs lacking any corresponding stock certificates to support them. These IOUs are commonly referred to as counterfeit shares, phantom shares, and naked short sales.
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What is a naked short sale?
Short selling is a bet that a company’s stock will fall. In a legitimate short sale, a real investor sells stock they borrowed, hoping to buy it back at a lower price to replenish the lender. They take the risk that if a stock goes up instead of down, they must buy back in at a loss.
In a naked short sale, the seller sells stock they have not borrowed, and does not intend to borrow, and then pockets the proceeds from the sale. Naked short sellers have built an elaborate infrastructure they use to manipulate stocks - achieving spectacular gains at the expense of honest investors. The players are corrupt, well-organized industry insiders who often combine anonymous blogging, phony research reports, and crooked financial news reporters into orchestrated attacks to “short and distort” targeted companies. Company facts are twisted, skewed, and re-invented as a series of half-truths, creating the illusion that the companies and their management are unfocused - the intent is to create fear and doubt about the Company’s prospects, and to generate an endless need for management to respond to attacks, rather than tend to their business.
Billions of dollars in trades are left “unsettled” (undelivered) daily in the US capital markets. This is called ‘Failure to Deliver’ (FTD). The investor’s account is debited the cost of the stock they wish to buy, their account statement is updated to show that they bought it, but the underlying stock is not delivered - it “fails to be delivered.” The average shareholder has no idea this has taken place, as their account statement (really just a piece of paper generated by their broker) assures them they “own” genuine “shares.” This is a kind of fraud. Naked short selling accounts for a large amount of ‘Failure to Deliver’ positions, and it’s a disgraceful commentary on just how badly corrupt Wall Street insiders have abused investors’ trust. It really is a case of “the fox guarding the henhouse.” Consider this: how do you think the legal system would treat you if you sold something you didn’t own, and decided to never deliver it? Another way to describe this is to call it what it is - premeditated stealing. Worse, the problem of FTDs calls into question the issue of market integrity.
FTDs represent an attack on the fundamental fairness of the market. At the heart of a fair market is a respect for ‘supply and demand’. Once the supply side of the equation has been artificially manipulated, all bets are off as to the fairness of the marketplace. When there is no cap on the supply of shares -- because market participants are able to sell stock that they don't have, and which doesn’t exist -- prices are subject to downward manipulation. Increased supply overwhelms buyers and crushes the stock price or hampers appreciation.
In the past, our Company has successfully fought against many such onslaughts, marshalling the intestinal fortitude and management team necessary to prevail. Many firms, however, aren’t as fortunate, and have succumbed to these attacks, leading to the loss of jobs, income, investor gains, and the innovation that is a fundamental of the American economy. ”Attack of the Blogs” is a controversial cover story in last fall’s Forbes magazine, featuring our battle with this sort of shadow threat.
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Small-cap companies like Circle Group Holdings are targets.
This attack is not perpetrated exclusively on our stock. According to some estimates the problem has reached epidemic proportions in the public markets, and it has the abovementioned negative effect of diminishing the equity value of legitimate investments. To be clear, what we are describing is real, widespread and receiving increasing visibility, culminating most recently in a series of anti-trust lawsuits by hedge funds against their prime brokers for precisely this practice of naked short selling - a move unprecedented in the history of the public markets. Further dramatizing the suits is that they are seeking “class action status.” Recently, 60 Minutes covered the allegedly doctored negative reports issued by a hedge fund-friendly research firm on Biovail Corp. In another high profile case, Overstock.com Inc. has had recent success in its claims against prominent hedge funds. Skewed stories containing false information issued by major financial publications have led to SEC subpoenas of journalists. The NASD fined a broker at Citigroup on Wednesday for naked short selling. Senator Bennett of Utah made it the primary topic of his testimony with SEC Commissioner Christopher Cox in this week’s Senate Banking Committee hearings. The scope of the problem is becoming more evident with each passing day, and we are hopeful that this new visibility will result in an environment where we can work together to correct the system, and insure a future level playing field for all honest participants.
Why is Circle Group Holdings fighting back?
We’d like you to understand more about our motivation to confront this challenge, versus maintaining the Wall Street status quo. When a company’s value is destroyed by these secretive and illegal methods, funding can dry up, investors can lose faith in their investment, and companies can be driven into bankruptcy or be de-listed. This is the ultimate goal of many of these types of manipulations, because once a company is bankrupt or de-listed the culprits have no liability to ever cover their short position, and they also have no taxable event with the Internal Revenue Service. This is free money - and a lot of it - for those industry insiders who have figured out how to steal investor dollars by utilizing serious flaws in our capital markets system.
We are sickened by these abuses, and have begun our own campaign to protect the value of your investment in CXN stock. We believe in the fair, fundamental principals of free trade and the entrepreneurial spirit upon which our nation was built, and we have committed to working to restore what has been taken from all of us. We are forcing this problem out into the open and will be exposing the wrongdoers and manipulators.
What is Circle Group Holdings doing to address this situation?
The only way to correct the problem is to root out the phantom shares and create an environment where the unscrupulous players cannot continue their abusive trading. We are implementing several steps to make this happen:
1) In order to ensure success in our mission and adequate future protection from market abuses, we have engaged legendary attorney John O’Quinn, and his Consortium, led day-to-day by Wes Christian. O’Quinn and his network represent Overstock.com, and many other companies facing these problems, and have one of the most successful track records in the world of fighting and monetizing injustices arising from abuses of power and trust committed by large, influential special interests.
2) We are requesting that you contact your broker at this time, and request that your physical certificate of CXN shares be sent to you.
3) Our pending name change (which shareholders will have the right to approve via the special meeting we recently announced) will provide an opportunity for everyone to find out whether they own genuine or phantom shares. If the name change to Z-Trim Holdings, Inc. is approved, we will simultaneously change our trading symbol to AMEX:ZTM, receive a new cusip number, and issue new physical certificates. A new ZTM share with a new cusip number will replace the old CXN share, on a share-for-share basis, upon presentation of a legitimate CXN certificate. We have received our Transfer Journal from our Transfer Agent documenting all issued certificates. With this accurate record in-hand of all share issuances and transfers to date, we believe phantom shares will be unable to transfer to legitimate shares in the future. Holders who deliver genuine shares with proof of ownership will receive the new ZTM share under a ‘Mandatory Exchange’ program that the American Stock Exchange provides. We believe the program allows the market to trade our stock without interruption but can prevent settlement without physical delivery of genuine shares.
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4) In the near future, we intend to issue a non-cusip dividend share known as a “D-Share”, on a one-for-one basis for each genuine ZTM share presented directly to the Company within a designated period of time. Holders of the D-share will receive a pro-rata cash dividend from 10% of the after-tax profits from future licensing of the Z-Trim process to global food manufacturers for as long as the shares are held by the original holder - but the D-share dissolves immediately upon sale or transfer of the associated ZTM share. D-shares WILL NOT be issued to nominees. Likewise, IOUs and illegitimate phantom shares in circulation will not be honored.
What is the purpose of the D-Share?
The D-Share is intended to provide future rewards to current legitimate shareholders of record who retain their ownership interest. It will also have the additional effect of allowing shareholders to ascertain whether they own actual shares, or mere entitlements wholly lacking in the parcel of rights represented by a legitimate share. The D-Share is one of the rights a genuine share will carry in the future; hence in addition to providing you a legitimate item of potential future value, it will also ultimately provide a public integrity test of the system, in full view of Congress and the investment community, with none of the usual deception available to the malicious parties.
Management is bringing this ZTM and D-share program forward in a manner that ensures:
* There will be no way for any broker to simply credit a customer account with the new shares;
* Every shareholder has the opportunity to exercise their right to claim a physical certificate;
* As many legitimate shareholders as possible are able to claim ownership of ZTM shares while causing as little disturbance as possible to the market for ZTM shares.
Isn’t this distracting to Circle Group Holding’s management team?
Some of you may be concerned as to whether or not our actions represent a shift of focus from our business, towards an emphasis on legal action and market valuation. Oftentimes management teams are forced to choose between running the business, and protecting their shareholders’ interests. We believe that is an unacceptable choice to have to make, and so instead we’ve retained the O’Quinn Consortium as an experienced, seasoned team to deal with that specialized area. An apt analogy is a large store - it has to be well run, well stocked and well marketed - but it also can’t ignore shoplifting, shipment hijacking, employee theft and embezzlement. Building and managing a great business won’t stop robbers, but a few well armed and trained security specialists will. Please rest assured that we are intensely and fully focused on our business. At the same time, we seek to protect our shareholders’ equity value from abuse.
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What if I cannot obtain my stock certificate from my broker?
Ten trading days should be a reasonable timeframe to receive your physical delivery of shares. Those of you who are unable to receive genuine shares from your broker in a timely manner have likely been victims of abuse, and are entitled to recourse and protection - you believed you purchased a legitimate, genuine share, and through no fault of your own, you are now unable to obtain it and get your ZTM share and your D-share. That is where the Consortium led by John O’Quinn and Wes Christian will come into play. This Consortium of attorneys and law firms can provide to shareholders who cannot get their shares useful information about actions to take, what documentation to prepare, and how best to present their complaints. Shareholders having any difficulty receiving their physical certificate from their broker may contact -
James ‘Wes’ Christian - Attorney
Christian Smith & Jewel
2302 Fannin, Suite 500
Houston, TX 77002
Phone: (713) 659-7617
jwc@csj-law.com
What about the wrongdoers?
This correspondence shall herewith serve as notice to those who have sold our stock illegally, never delivering the underlying stock - and creating a “phantom float” of fraudulently manufactured IOUs. The O’Quinn-led Consortium is now fully reviewing the key elements of activities engaged in by our market participants, and documenting the scope and liability of those actions, as well as the cost to the Company, and to our shareholders. All efforts by participants to redeem phantom shares in CXN will be closely monitored, and any such attempt will be met with swift and vigorous action. Consider this fair warning that we intend to defend our organization and our shareholders against any further abuse, and have the resources necessary to do it.
We, as the issuer, have an exclusive right to control the number of outstanding shares issued into the market. If you have been tricked into believing that you actually own the shares in your account, and instead there are IOUs represented to you as shares, you have a legitimate complaint. The system cannot create shares of CXN - only the Company is authorized to do so. The market and its broker participants are not a casino where the house can create as many aces of spades as it likes to rig the game.
Our intention is to reward all genuine shareholders of record, and provide a mechanism allowing those who have been defrauded to seek redress against those who have defrauded them.
So here is your call to action…
Demand your CXN shares, and if you are given any explanation or excuse other than the prompt tendering of your shares, assume the worst, and contact the aforementioned attorney, as well as the regulators listed at the end of this document.
Our intent is to restore the integrity of the system’s trading in our stock, and protect our investors’ interests. We remain totally focused on our business, and have every expectation that the upcoming corporate events related to this stock issuance will be adequately handled by the O’Quinn Consortium, while we concentrate on the operations of the Company.
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Thank you for your attention and continued support.
Best regards,
Your Management Team
At Circle Group Holdings
Where else can I get assistance if it appears I won’t get my shares?
Illinois Securities Commission
69 West Washington,
12th Floor, Suite 1220
Chicago, IL 60602,
(312) 793-3384, (312) 793-1202 (Fax)
and/or
NASD Investor Complaint Center
1735 K Street, NW
Washington, DC 20006-1506
Phone: (240) 386-HELP (4357)
Fax: (866) 397-3290
Web site: complaint.nasd.com
Or Contact the State Securities Regulator in your state.
You can find contact information for your state regulator at the Web site, www.nasaa.org
For more information about the Failure to Deliver and Naked Short Selling situation, go to -
www.TheSanityCheck.com www.NCANS.net
Congressmen and Congresswoman are invited to contact any of the parties listed above or the Company representatives listed below regarding this issue.
Contact:
Steve Cohen - President
Circle Group Holdings, Inc.
1011 Campus Drive
Mundelein, IL 60060
847-549-6002
About our Company
Z-Trim is the Company’s solution to obesity originally developed by the USDA, which was first offered for licensing to the commercial marketplace in 2000.
Obesity is the biggest health problem in the world today, in terms of cost, and declining quality of life. In 2002, the Company acquired the global rights to all fields of use for Z-Trim - a zero-calorie, all natural fat-replacement that can reduce up to 50% of the calories from fats in most foods without affecting taste, texture, appearance, or digestive health. We spent nearly 10 million dollars over the past four years building a commercially-viable, licensable manufacturing process, the first ever Z-Trim manufacturing plant, a powerful marketing plan, and a substantial intellectual property portfolio. We recently raised several million more dollars to market Z-Trim, which was one of the last steps we needed to complete prior to being able to establish our important role in solving the fast growing global obesity epidemic.
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Z-Trim is currently being sold internationally to small and large manufacturers for pilot production and laboratory formulation in many different food applications. Additionally, Z-Trim is market-testing in domestic school lunch programs. And the Z-Trim formulation team ‘Amazing Food Creations’ is creating a line of emulsified products for many nationally and regionally known brands.
Our Company is debt-free, we own all of our assets, the ‘Going Concern’ was recently eliminated from the financial statement of our annual report, and we truly believe we have a critical breakthrough in weight control and obesity reversal. Investors in the Company own part of this, and we are proud to have you as one of our owners. You share in our success with the many people at our company headquarters in Mundelein who work diligently every day to build a future that honors the tremendous persistence, resources and capital that went into Z-Trim over the past several years to make it a reality.
For Public relations requests related to the issues raised above -
Contact Wes Christian - Attorney at (713) 659-7617
For Investor Information related to the ZTM - CXN Mandatory Exchange Program -
Contact Steve Cohen - President of CXN at (847) 549-6002
For Public relations requests related to Z-Trim, our solution to obesity -
Contact Phil Versten - V.P. of Public Relations at Z-Trim at (847) 549-6002 or
Visit http://z-trim.com
Forward-Looking Statements and Risk Factors
Statements made in this letter that relate to future plans, events or performances are forward-looking statements. Any statement containing words such as "believes," "anticipates," "plans," or "expects," and other statements which are not historical facts contained in this release are forward-looking, and these statements involve risks and uncertainties and are based on current expectations. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. Reference is made to the Company's filings with the Securities and Exchange Commission for a more complete discussion of such risks and uncertainties.
[End of letter]
_______________________________
About Z-Trim
Z-Trim is a natural zero calorie fat-substitute made from the hulls of corn, oat, soy, rice, barley that lowers 25% to 50% of calories from fats in most foods without affecting taste or texture. Z-Trim generally can’t be detected by consumers when formulated correctly in dairy, dressings, dips, sauces, baked goods, processed meats, snack foods, cookies, pies, cakes, icings, brownies, bars, ice cream, milk shakes and many other foods. It improves texture significantly; makes meats juicier, baked goods moister, dips creamier. Z-Trim lets you to eat more of the foods you love without fear of weight gain and allows you to lose weight without giving up the foods you love. Z-Trim adopts the flavor and mouth feel of most recipes and reduces aftertaste in most foods and has been proven in studies that a majority of consumers prefer Z-Trim foods over their full-fat counterparts. Z-Trim can substantially reduce harmful trans and saturated fats and adds healthy insoluble and soluble dietary fiber which can be beneficial to heart patients and diabetics. Z-Trim can improve digestion without any negative side effects sometimes associated with other fat substitutes. Invented over many years by Outstanding Senior Research Scientist Dr. George Inglett http://www.thesoydailyclub.com/Research/ars2132002.asp at the United States Department of Agriculture, Z-Trim is protected by three issued U.S. and International patents with more than 50 additional patents pending.
Forward-Looking Statements and Risk Factors
Statements made in this news release that relate to future plans, events or performances are forward-looking statements. Any statement containing words such as "believes," "anticipates," "plans," or "expects," and other statements which are not historical facts contained in this release are forward-looking, and these statements involve risks and uncertainties and are based on current expectations. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. Reference is made to the Company's filings with the Securities and Exchange Commission for a more complete discussion of such risks and uncertainties.
Contact: Steve Cohen
Voice: 847-549-6002
Email: ir@crgq.com
CIRCLE GROUP HOLDINGS ALERTS SHAREHOLDERS TO OBTAIN PAPER CERTIFICATES
Cites rampant failures to deliver, naked short selling, “phantom” shares
Friday, April 28, 2006, 4:20 pm ET
MUNDELEIN, Ill., April 28 /PRNewswire-FirstCall/ -- Circle Group Holdings, Inc. (Amex: CXN - News), announced today that it is mailing the following letter to all shareholders of record...
http://www.sec.gov/Archives/edgar/data/1052257/000101376206000897/ex99.htm
If you mean the question Janice, I suggest you ask him and let us know what he has to say.
" Then why doesn't he inform himself? Is this kind of laziness what we're paying them for? "
Chairman Cox before Senator Bennett
Transcript from April 25, 2006
FNWIRE
SEN. SUNUNU: Thank you very much.
Thank you, Mr. Chairman.
SEN. BENNETT: Thank you. Several items.
Chairman Cox, thank you for being here, and welcome to your first
experience. I hope we have a lot of subsequent ones and that they are
pleasant.
I heard the conversation about Sarbanes-Oxley. My experience during the
break was not the same as Senator Dodd's. I had some venture capitalists
tell me flatly they no longer do IPOs. And Sarbanes-Oxley is the reason. And
if it becomes necessary for them to take a company public or if it's the
logical thing, they look to do it at some foreign exchange rather than in
America. So, as you do your analysis of the reports you have, this is
anecdotal, there's nothing scientific about it, but it's a different kind of
constituent response than the one that Senator Dodd --
MR. COX: Well, I appreciate that it's anecdotal. On the other
hand, I was speaking up at Harvard University recently, Harvard Business
School to a group of venture capitalists who expressed precisely the same
views.
SEN. BENNETT: Okay.
MR. COX: That is also anecdotal, as there are now two --
SEN. BENNETT: Right. Okay. Well, I -- I just -- I heard Senator
Dodd say he found nothing but good comments about it, and I had heard some
of the other kind. Let me move to a subject that I've been on for some time
and begin my remarks by saying that the SEC staff has been responsive. I've
been talking about this for maybe a year or more, and they have staff
members have been in and been in to see me. But the problem still exists.
We're talking about naked short selling and the problems connected with
that.
One of the things that I've been told that I want to lay down and say I
think this is an immaterial excuse, when they say, but you get 99 percent
settlement, the FTDs are only in 1 percent of the dollar volume, and
therefore it's not really a big deal. You made the comment earlier with
respect to Sarbanes-Oxley that you got 80 percent of the companies that
might be made exempt, but if you look at a market cap, it'll be very large.
That same dichotomy exists with respect to the naked short selling.
I got into this because I had constituents that had little companies, and
for them, it's a huge deal. And many of them insist that they've been
destroyed by it -- that is, the naked short sellers keep hammering their
stock until finally they can't raise any money, the company goes under, and
nobody ever has to cover. And I don't know that that's the case; again, this
is an anecdotal accusation that's made. But if indeed it is true, it's a
demonstration of market manipulation that is not only clearly illegal, but
devastating to people who form companies and then try to turn to the markets
to raise money and can't because the shorts keep hammering them.
I want to make it clear also, I do not think short selling is improper. I
have sold short in my investment life. Usually, I've been burned by it, but
I've done it. And the broker that handled it gave me the old statement, "He
who buys what isn't his'n" -- or "He who sells what isn't his'n, must buy it
back or go to prison." And apparently, some of these people are not buying
it back. I always had to when I sold short. And it's gotten into the news
again.
I started doing this because, as I say, I heard from very small companies,
who were my constituents, and their stocks were traded on the pink sheets,
and it looked like nobody cared on the pink sheets. And they could hammer
companies there all day long with naked short selling, and nobody'd look at
it. And that's the thing that I raised with the SEC before.
Well, now, it's getting a little more current, see. There was a piece in the
Wall Street Journal on the 13th of April. The headline said, "Despite SEC
rules, a small amount of naked shorting appears to persist," and in that
article, they talk about companies that have stayed on the list for months
and months -- on the list where the FTDs have not been cleaned up.
Overstock.com, Martha Stewart Living, Omnimedia and Krispy Kreme Doughnuts
have been on the threshold list for months. Overstock.com happens to be
located in Utah, and so that caught my eye.
Then, on the 12th of April, Forbes had a piece about short selling in hedge
funds, and how they felt that they were being taken advantage of. The latest
Bloomberg has a piece not specifically on short selling, but entitled,
"Corporate voting charade," and says that the people who buy shares to sell
them short, then get involved in proxy fights and that people end up voting
shares they don't own. They have borrowed the shares for short-selling
purposes, and then vote them when they really have no interest in the
long-term health of the company.
And there's an interesting chart in the Bloomberg piece about how some close
corporate elections were decided by the voters of the short sales. It says
that Alaska Air Group, the short sales were 4 percent of the winning votes
-- 4 percent of the voting, and the winning votes were 2.4. Mony Group --
M-o-n-y -- 6.2 percent of the votes were in short proxies, and the winning
margin was 1.7. And El Paso, 67 percent were short votes, and the winning
margin was 17.2. And there are those who say this whole situation cries out
for more SEC oversight and attention.
So let me, with that, ask you the question; if you can't answer it here,
would like a response for the record. There have been a lot of companies --
well, a lot -- several, we'll say several companies have been on the Reg SHO
Threshold List for a very long time, and one of them, as I say, is one of my
constituents. Presumably, at least some of what has led to these companies
to be on the threshold list for so long is illegal short selling.
So I would like to know, as you examine the list, are you willing to use
your authority to have the SEC continue its pursuit of basic transparency by
requiring the disclosure of the amount of FTDs?
_ (Pause.)
MR. COX: Well, you covered a lot of ground.
SEN. BENNETT: Yeah, and I apologize, maybe overwhelmed you here,
but --
MR. COX: I'm trying to keep track of all of it.
SEN. BENNETT: We'll be happy to provide you with pieces of paper on all
of this.
MR. COX: Of course I'll take advantage of that, as well.
SEN. BENNETT: Sure.
MR. COX: To start at the beginning and end at the end, the
experiences that you describe, some of your own and many more that you've
been apprised of by your constituents and others, are experiences that in
some respects I've shared. When I first came to the Congress in 1989, I
served on a subcommittee chaired by then- chairman of the Consumer, Commerce
and Monetary Affairs Subcommittee, Doug Barnard of Georgia, that focused for
several months on bear raids and short sellers and what was going on in that
industry. I share completely your approach to this problem that short
selling is a component part, and -- of healthy markets and one that is
perfectly respectable. And indeed it's an important check and balance in our
system.
From the standpoint of orderly markets, it's vitally important that shares
be delivered. These are contracts, and they have to be fulfilled. And there
has to be a rule of law.
I also, moving to your next point, agree with you that it is faint comfort
for someone with a micro-cap company to hear that statistically we're doing
great, that we're reducing these failures to deliver, and that life is much
better now than it's ever been before, because statistically we can prove
it's so. I mean, in a thinly traded company, life is different. And so
enforcing these rules in very different circumstances is also vitally
important.
Having said that, I do think it is important to recognize the progress that
has been made under Regulation SHO, which the commission, as you know,
adopted in 2004, before I became chairman. That rule became fully effective
in January of last year. It has a modest ambition. It is designed not to
eliminate but to reduce failures to deliver on short sale transactions and
to target potentially problematic short selling, abusive naked short
selling.
What I can commit to now is that when we have internalized and understood
the results of our examinations, which are now ongoing, of compliance with
Regulation SHO -- and we've completed the examinations of some 45 firms that
include comprehensive target exams of 19 clearing firms -- that I will
recommend changes to our rules if those exams demonstrate that changes are
necessary for the reasons that you describe.
SEN. BENNETT: Let me just conclude -- and I -- Mr. Chairman, I
applaud what you're saying, and I'm sure you will go forward with that.
Picking up on what The Wall Street Journal had to say with these three
companies that are listed, that have been on list for months, that might be
one of the places to start. The company stays on the list for months.
That's an indication to me that there's something going on that is unusual.
I can understand an FTD. I can understand a flood of FTDs for a variety of
benign reasons. But when a company is on the list one month, that says,
"Well, okay, there are just some problems." When they're on -- the same
company's on the list for two months --well, maybe something is going on. We
need to pay -- when it's on for month after month after month and it catches
the attention of publications like the Journal, I think that ought to be a
rather informal but strong flag that says, "We ought to pay attention at
least to these companies to see why they keep showing up on the threshold
list."
Thank you very much.
MR. COX: Thank you very much, and I hope to be able to follow up
with you on these things.
SEN. SHELBY: Thank you, Senator Bennett.
Senator Schumer.
SEN. CHARLES E. SCHUMER (D-NY): Thank you, Mr. Chairman.
And thank you, Mr. Chairman, for being here, and glad to see you're on top
of all of these things. I have a whole bunch of questions on cats and dogs
here, but one I know you've been asked about -- I'd just like to underscore
my concern here as a New Yorker that so many of the IPOs -- none of the top
10, one out of the top 24 -- haven't listed in the United States. In 2000,
nine out of 10 listed in the U.S. And as I understand it, some people have
asked you a little about that. But, you know, obviously I hear from somebody
whose goal is to keep New York the financial capital of the world -- that
troubles me.
What can we do about it? Does it worry you, I guess is the first question I
have, and what can we do about it to try and change it? Is it temporary?
MR. COX: All right. Let me begin by saying that I share your
objective.
SEN. SCHUMER: Thank you.
MR. COX: The United States capital markets are today, and
certainly have been for some time, the largest, deepest, most liquid in the
world. They are also -- and I believe not coincidentally --subject to the
highest standards of quality in the world.
SEN. SCHUMER: Right.
MR. COX: It was remarked upon, I believe, by Senator Sarbanes
earlier that some studies show that there is a quality premium that
companies can demand when they list in the United States.
That is the way -- strategically, I believe -- the United States should
continue to approach our role in the world's capital markets, rather than
participate in a race to the bottom that surely, in terms of comparative
advantage, we would lose. It should be our objective to work together with
other high-standards countries to make sure that that's the way the world
goes as increasingly there are more global markets.
It is a fact of life that the domestic markets of other countries are
becoming rather rapidly more mature. And so I don't think that by birthright
the United States can lay claim to every large issue by every foreign
issuer. But we certainly are entitled to our share, and certainly if we are
correct in our view that our markets are, in fact, the most liquid, deepest,
largest in the world, we can expect that countries will want to come and
list here for precisely that reason and to gain that premium --
SEN. SCHUMER: Right. But they're not coming now.
MR. COX: -- the price premium that they should be getting.
The Stock Market Is Patently Unfair
By Arne Alsin
RealMoney.com Contributor
URL: http://www.thestreet.com/p/rmoney/marketcommentary/10281223.html
4/25/2006 8:02 AM EDT
In a fair market, the property of investors is secure and protected, the playing field is level, and rules are uniformly enforced.
Unfortunately for investors, that does not describe the current condition of the stock market. The current stock market is patently unfair.
The core issues are not complex. They are actually quite simple. Investors in stocks should consider these current realities:
A share may or may not be a share.
A vote may or may not be a vote.
A trade may or may not be a trade.
Shares, votes, and trades --- these involve basic, fundamental market functions that should not be at issue. But they are at issue. And a fix is needed. Here are three core principles around which stock market reform should be focused:
Investors Deserve to Know What They Own
It should be a given that brokers fully disclose exactly what sort of asset an investor owns. It's not a given because there is a sizeable roadblock: Full disclosure does not serve the financial interests of brokers.
While it's true that it's your property and you deserve to know what is in your account, don't expect the brokers to be forthcoming anytime soon. If brokers had to disclose to investors when shares are removed from their margin accounts and lent to short sellers, it might put a crimp in their massively profitable stock-lending businesses.
Brokers often generate annual yields of 10%-15% or more when they lend out your property, and rates of 25% or more are not unusual for hard-to-borrow stocks. If there were full disclosure, investors might demand a share of those lending profits.
Taxes are one obvious reason to mandate full disclosure. I own the stock of Commerce Bank (CBH:NYSE) (CBH) in a margin account. Instead of getting the benefit of the 15% tax rate on dividends, last year I paid ordinary tax rates (which are more than double) on a sizable portion of my Commerce dividend (called "in lieu" income on the 1099 form).
Why is the special 15% dividend tax rate unavailable to me?
It's because I don't really have Commerce shares in my account --- despite what it says on my brokerage account statement. My broker lent my Commerce shares to a short seller who sold my shares to someone else. The borrower of my stock paid me an amount equal to the dividend, so I don't lose the dividend income. But since I don't actually have shares in my account, it's not a real dividend and the lower tax rate is not available.
Because of the lack of disclosure, taxpayers with dividend-paying stocks in their margin accounts have to wait until after the tax year is over to see if they have a "surprise" waiting for them on their form 1099.
One Share = One Vote
The Internal Revenue Service doesn't play games. When a company pays a dividend on a share of stock, only one shareholder gets the benefit of the 15% special tax rate. Even if it's lent out to multiple short sellers who sell to multiple buyers, only one shareholder gets the special tax rate. So brokers carefully track shares of stock for tax purposes.
When it comes to voting, however, brokers do a lousy job of tracking shares.
They literally trample on the right of shareholders to vote their stock. When your shares are lent to a short seller, you are supposed to lose your voting right --- it is supposed to follow the shares.
Amazingly, your broker has the gumption to send you voting proxy materials even when your shares have been lent. In what amounts to a full-blown charade, your broker allows you to vote shares that you think you have, but really don't have.
The net result of this nonsense is predictable enough: Overvoting is a rampant problem. A trade organization (made up of stock transfer agents) recently reviewed shareholder votes for over 300 companies and found evidence of overvoting in every single case.
Some brokers have procedures in place to summarily reduce the vote totals that they report so that they don't report excess votes. Rather than report 150,000 votes when the brokerage has only 100,000 shares, for example, the broker simply trims the vote. So, as a shareholder, your vote may actually be worth only ½ or ¾ of a vote, or whatever fraction that the broker deems fair and equitable.
The voting issue is a mess that needs to be cleaned up. The right to vote should be tied to share ownership, with enforcement of a "one share, one vote" rule. If the brokers can figure out who gets the special 15% dividend tax rate, then they can figure out who has the right to vote.
Trades Mean Something
In my column last week, Why Does Failure to Deliver Go Unpunished? , I described purchasing several blocks of shares of Overstock (OSTK:Nasdaq) , shares that were not delivered within the required three-day settlement period, known as T+3. For four separate purchases, cash was taken from my mutual fund's account on the stipulated settlement date (T+3) and held in a separate account by a custodian bank. We waited as long as three weeks to get delivery of our property.
Since that column, I've heard similar stories from many other investors and money managers, including one from a major bank that has been waiting for delivery of Overstock shares for two months.
The manager at this bank says that the broker is going to cancel the trade. This should not happen.
In a fair market, with trading rules that are enforced, it would not happen. With over 300 stocks suffering from significant delivery delays, it's clear that there is a systemic problem in the market. The T+3 rule is frequently violated and the violators go unpunished.
Legislators Need to Get Involved
If a market can be abused, it will be abused. Hundreds of companies have failure-to-deliver problems. Shareholder voting is a farce. Trading rules are being ignored. Investors can't say with certainty what is in their accounts.
To hand off the market's problems to the Securities and Exchange Commission to solve behind closed doors is a less-than-optimal solution. In the interest of maintaining investor confidence, these issues are better served and solved in an open, transparent forum like Congress.
All that is needed is a member of Congress with enough courage and foresight to tackle these problems, before they develop into a crisis.
And here's some fun reading on why Spitzer is not taking any action against hedge funds in spite of their obvious impact on Wall Street and alarming penchant for larceny:
http://www.nydailynews.com
"Eliot hedges bets
By DAVID SALTONSTALL
DAILY NEWS SENIOR CORRESPONDENT
Sunday, April 23rd, 2006
Attorney General Eliot Spitzer may be known as the "sheriff of Wall Street," but there's at least one group of high rollers - hedge fund managers - that he's happy to ride sidesaddle with, records show.
The Democrat's campaign for governor has collected nearly $1 million from hedge fund honchos in the past year, according to a Daily News review, drawing complaints from GOP foes that he is taking money from a rarefied Wall Street subset over which he has regulatory oversight.
"An attorney has an ethical duty to avoid even the appearance of impropriety," said Andrea Tantaros, a spokeswoman for Bill Weld, one of Spitzer's Republican rivals. "Revelations that Mr. Spitzer is raising money from firms that he is arguably regulating seems to raise serious issues about his ethics."
There is more, but you should probably go to the site to read it...
And you should also read this piece:
http://www.forbes.com/forbes/2002/1209/072_print.html
Why anyone would believe a word that comes from anywhere near Wall Street is really the question, no?
Ironside says Where There's Smoke, There's Fire
It started with a spark, and began to smolder. It is not difficult to see the smoke looming over the horizon.
The financial world is in a tailspin of sorts. Many denied their delegated duties , landing them between a rock and a hard place.
As these problems did not manifest overnight, they will not be corrected in a short period of time.
For many years, the magnitude of the problem was denied. As the evidence mounted suggesting otherwise, the scramble to mask the conundrum began.
Who could be successful against such a formidable foe?
A coordinated, united group of stockholders who refuse to fade away like those of the past. An alliance of voices who convey the message of solidarity to regulators and government officials ,"I am here to stay. I will not go away. You will answer to me."
For those who require frequent review, I submit we are not floating belly up inside the tank. The predators pursued the company relentlessly, with fatal intent, while benefiting from the misfortunes they inflicted on others.
The ploy fell short of the expected outcome. The baited hook was swallowed without forethought, making the hunter the hunted.
The blame game has commenced, with many playing the part of the victim. Their sins are not excused and must be rectified regardless of the scape goat.
The slowness of the process is understandably frustrating. This, however, is not the fault of the task force. They want this process concluded as much as anyone.
Realistically, each and every member of the task force could have walked away, washing their hands of this mess. They have admirably chosen to fight for each and every stockholder who purchased shares, while their army fights amongst themselves, and plots to thwart their progress.
The end of the journey will not come sooner with dissension in the ranks. It is imperative to recollect common objectives, progressing mutually towards your goal.
The task force has exceeded above and beyond their call of duty. I am certain this task has been an exhausting, often exasperating experience for them.
Please be gracious for the steps they have taken for your benefit. They have been very meticulous and thorough in their quest.
You have been given the unique opportunity to challenge the financial industry. It is your choice if you rise to this challenge or become yet another statistic.
When the task force was created, a NOBO list was in their possession. This information was reportedly obtained by some individuals, allegedly stockholders, who published this information for viewing. Many skeptics and individuals with ulterior motives offered novice critiques of the information.
With this list in hand, knowledgeable of what was required of them, why would the mailing be delayed? One would assume this would have been initiated in the beginning, resulting in certificates being received and tallied in an expedited manner.
Defiance relieves no one of responsibilities and obligations. To those plagued by denial and wishful thinking assuming we cannot achieve our goals, lick your calves over. Come hell or high water, we will make it. High road, low road, or no road ,a path to success will be made.
The final tune is being played. If you want to dance, you've got to pay the fiddler.
Stay united and Thy Will Be Done.
CMKM Diamonds Shareholders Group
http://newsroom.eworldwire.com/view_release.php?id=14318
Internet:
HndtoHnd@optonline.net
http://www.CMKMTASKFORCE.COM
Company Information:
CMKM Diamonds Shareholders Group, New York USA
Ph. 845-440-6706
Media Contacts:
Barry Shipes
Sterling's Academy: CMKM Diamonds, Inc. Shareholders Group Calls For Unity Among Fellow Shareholders
For Immediate Release
NEW YORK/EWORLDWIRE/April 21, 2006 --- A group of CMKM Diamonds, Inc. shareholders are calling for unity among fellow shareholders until at least May 16, 2006 in order to allow the CMKM Task Force time to complete the daunting task before them. Barry Shipes, owner of Sterling's Academy on PalTalk.com, along with his administrators and a large group of shareholders who visit PalTalk daily, are asking that shareholders not believe the rumors and lies being spread over the internet by some posters who have ulterior motives.
Unity among the 50,000 plus shareholders of CMKM Diamonds, Inc. is more crucial now than ever before as the May 15, 2006 deadline for Wall Street to comply with the certificate pull request by the CMKM Task Force approaches.
"We shareholders should be following the direction of the Task Force at this time and relying upon those who have our best interests at heart," said Shipes. "Rumors and discussions about starting class action lawsuits against the company and Urban Casavant (CEO of CMKM Diamonds, Inc.), will not result in anything positive for shareholders at this time. There are many on the Internet, via chat rooms and/or message boards, which are determined to toy with the emotions of CMKM shareholders. And some may try to convince you to sell your shares to others through private transactions. We would strongly advise investors to check with their personal counsel and 1st Global Stock Transfer before completing such transactions to assure they are not being victimized."
The CMKM Task Force has established a Web site, www.cmkmtaskforce.com, for posting of corporate updates and other relevant information as and when it becomes available. There is also a CMKM owners group at http://www.cmkxownersgroup.com/index2.php
"We would suggest that people listen to the only reliable source of information we have at this time and not allow themselves to be tricked into doing something that might cost them a great deal in the future," said Shipes. "We are in the middle of a battle much like Overstock.com (NASDAQ: OSTK), Biovail (NYSE: BVF) and Martha Stewart Omni Living (NYSE: MSO) and we should leave the legal moves to the CMKM Task Force."
About Sterling's Academy
Sterling's Academy is part of the PalTalk Community located at http://www.paltalk.com (under the "Room List" and in thee "Business & Finance" section). Sterling's Academy requires the password "stocks" to gain entry.
The room is classified as G-Rated, and is a great place to stop in and ask a question, get directions to the best source of legitimate information about CMKM Diamonds, Inc. or to talk with other CMKM Diamonds Inc. shareholders.
HTML: http://newsroom.eworldwire.com/releases/14318
PDF: http://newsroom.eworldwire.com/pdf/14318.pdf
ONLINE NEWSROOM: http://newsroom.eworldwire.com/309338.htm
NEWSROOM RSS FEED: http://newsroom.eworldwire.com/xml/newsrooms/309338.xml
LOGO: http://newsroom.eworldwire.com/309338.htm
CONTACT:
Barry Shipes
CMKM Diamonds Shareholders Group
New York, NY
PHONE. 845-440-6706
EMAIL: HndtoHnd@optonline.net
http://www.CMKMTASKFORCE.COM
SOURCE: EWORLDWIRE
Vodia Group LLC
Extracted from Josh Galper's primer
Managing Principal
Vodia Group LLC
April 17, 2006
http://www.vodiagroup.com/pdfs/seclending1.pdf
The Lawsuit
The lawsuit alleges that Prime Brokers have allowed their clients to
illegally short stock without having the security in hand, also called naked shorting. Naked shorting is agreed to be a bad thing by pretty much every regulated participant in the industry, at least in a public forum. Typically hedge funds are made into the bad guys in naked shorting because they are the holders of the shorted positions. Not to shed tears for the hedge funds, but in fact they can not short stock illegally without their broker's consent.
The lawsuit says that the 11 Prime Brokers named effectively told their clients that they had stock, allowed their clients to short the stock, then did not deliver the stock as promised, leading to a naked short position. By naming all 11 major Primes as defendants, the plaintiffs are effectively saying that broker-driven naked shorting is an established industry practice.
In addition to simply allowing naked shorting, the hedge funds allege that the Primes charged for services they did not deliver. The funds allege that while they were charged, often up to 25% in interest for the right to borrow rare or in-demand securities, they did not receive any services in return.
If they did not receive services such as delivery of the actual stock
available to borrow, then, they say, they should not have been charged. The allegation is that the brokers used their positions of influence to manipulate the securities lending system for their own benefit.
The Mechanics of Naked Shorting and Borrowing Stock
While it is not our place to comment whether or not the lawsuit has merit, or if and who is responsible for naked shorting, there are some facts that are clear. For example, if broker-sanctioned naked shorting is or was occurring, how it is done can be explained.
In a naked short, a broker allows a fund to short a stock without having the stock in hand. This creates a failure in clearing and settling a stock and is frowned on by the SEC. Recently the SEC strongly suggested that naked shorting is bad practice by passing Regulation SHO. Among other things, Reg SHO gave firm deadlines for when excessive naked short positions had to be bought in (closed out) in the form of a Threshold List. Notably, SHO does not address the reasons that brokers fail to locate shorts or deliver stock.
It simply mandates that brokers must get the stock delivered in certain timeframes.
In shorting a stock, there is a concept known as an affirmative or
guaranteed locate. This means that before shorting, a hedge fund must know concretely who holds the stock that it wants to short and be approved by that firm for shorting their position. In practice, most hedge funds call their Prime Broker Securities Lending desk (known in equities as "Stock Loan"). This back office trading desk tells the fund whether or not they have their stock for shorting. In the lingo, they confirm whether or not a "locate is good." If a locate is good, even verbally, the hedge fund is cleared to trade. It is the Prime's responsibility to ensure that they make good on the verbal agreement to deliver the lendable security to the hedge fund's account.
So what happens if the Prime does not give the hedge fund their stock at the end of the day, even if they said their locate was good? The hedge fund shorts the stock and the Prime notes a short position that needs to be covered either from their inventory, from a friendly custodian or by calling around to other Prime Broker desks. Often the stock is not found and the Prime may choose to let it go for a while. Other times the stock is found and the Prime fills the hole in their position, or the Prime does not borrow the stock but knows that it can access that inventory at any time because of their relationship with the asset holder.
As an example of a broker-sanctioned naked short, say hypothetically that a hard to borrow stock carrying a negative rebate rate (borrower pays the lender) was verbally guaranteed to one hedge fund at 11AM. At that time the Prime held the stock in hand. Then at 3PM, another hedge fund came and asked for the same stock. The Prime guarantees the second fund the stock and creates the conditions for the first fund to have a naked short position.
The Prime is now receiving a negative rebate rate (getting paid to lend the stock out) by both funds. Both funds have done their required due diligence by verifying with their Prime that the locate was good.
The Prime now goes to locate the remaining stock at an inventory supplier.
The Prime may have guaranteed access to a portfolio of securities at a custodian or retail broker dealer as part of a master agreement between the two firms. The Prime knows that the security is available for loan but elects not to take the security in house, because that would force the Prime to pay out a negative rebate rate to the asset holder, or may be able to coerce the asset holder to give them the stock without payment. A week later, the first borrowing hedge fund covers (closes out) its position and completes the transaction without the Prime ever having borrowed the stock from the asset holder. To run through the outcomes for the players:
* The Prime gets revenues twice (from the first fund and the second fund) but violates industry regulations and best practice by allowing a naked short
* The first fund pays for services that were not rendered and has shorted stock illegally
* The second fund pays fairly for the services it received
* The custodian or retail broker dealer loses out on revenues it could have earned if the stock were lent and a negative rebate paid
* The actual owner of the assets, typically an individual or a pension plan, gets nothing
By failing to deliver stock to the first borrowing hedge fund, the Prime creates a failure in the clearing and settlement process. Primes could have a number of ways to plug this hole, ranging from creating IOUs on fails with counterparties, creating options around the fail, or creating contracts for differences on the fail. All of these new financial instruments may have value in the marketplace. However, if used, none accurately enable a Prime to meet their obligations in the securities settlement process.
Again, we can not judge whether or not this has been occurring or in how many firms. The lawsuit alleges that this is industry practice, and whether it is or is not is a matter for the courts to decide.…..
About Vodia Group LLC
Vodia Group is a consulting firm focused on financial services and financial technology. Our strengths include strategic consulting, due diligence, new business development and mergers and acquisitions. We also produce data-driven research on the industry, including a recent report on unbundling in prime brokerage and the future of US Regional Stock Exchanges.
Good explanation of the Hedgefunds' suit against Wall Street's prime brokers.
Read page 3 ... The Lawsuits.
http://www.vodiagroup.com/pdfs/seclending1.pdf
Another great great post
from the great bob obrien..
Re: The Victim Script Isn't Working
by: easter_bunny_d3 (100/Candyland) 04/18/06 02:48 pm
Msg: 88123 of 88179
The problem with liars and cheats is that they will bald-faced ignore hard facts, and no matter how obvious the proof, will deny everything and deny yet more proof.
Show them Byrne unable to get certs for months, they will say it is a lie, or proves nothing. Show them FOIA data for 2 years showing 40% shares being FTDs, they will say so what. Show them lawsuits by informed industry insiders against other insiders, and they will pretend it means nothing.
We actually saw that in the Drexel days, with Newport Securities, when they were denying everything right up until the time they were convicted on 64 of the 65 counts. Elgindy was denying everything right until he was convicted.
So was Milken. It is standard operating procedure - deny everything, pretend none of the proof is compelling, and hope the jury is as dumb as you believe them to be.
Bob O'Brien's recent conversation with a friend ...
http://tinyurl.com/hrwc4
I was on the phone this week with a friend of mine who has been following my travails, and we got to talking about the FTD/naked short selling issue, and I realized that even a fairly sophisticated guy could still be unclear on the whole picture. His background is in the securities industry at a regulatory level. This is not a dumb guy.
Here’s how the conversation sort of went:
Me: “So there are these miscreant hedge funds, and many of the same names that were gaming the system twenty years ago, and their captive research companies, their network of complicit journalists, their class action attorneys, their contacts at the SEC (to initiate inquiries at favorable points). They pick on maybe 15 or 20 companies, and play them, for years.”
Friend:: “But that is really a localized problem then, once you roll up that network. Where does the systemic risk you are always harping on come in?”
Me: “Well, if each fund is worth a billon in assets, just for the sake of conversation, and each one is leveraging those assets about 10 to 1, each fund could easily be running 10 billion in short positions – and there are international brokers in Canada and the Caribbean and Malaysia and Thailand who will require little or no collateralization to put on a naked short position – just a commitment from one of these larger funds to move money in should the position move against them – a rarity.”
Friend:: “Sort of the Donald Trump thing – the banks have a problem if the hedge fund blows up, more than the funds do.”
Me: “Exactly. So they are pre-disposed to want the targeted companies to go down, and stay down. And you know they are trading right alongside the funds, mirroring their trades, thinking if that stock is a target, might as well make some of the easy money from taking them down.”
Friend:: “So they are de facto partners in it.”
Me: “I think it’s worse than that – they could be holding hundreds of billions of liabilities if 10 of the wrong funds blew up.”
Friend:: “So that’s where the systemic risk comes in.”
Me: “Partially. But remember that these brokers and clearing entities are all also playing fast and loose with investor money. That´s a different, but related, aspect of the larceny. They are taking a certain percentage of trades, maybe it started off being only ½%, and instead of going out and buying shares when their clients place a buy order, they just desk them internally, pocketing the borrow fees.”
Friend:: “Desk?”
Me: “They tell you on your statement that you bought your shares, but in fact they never did – they are just playing the odds that few will ever need to trade their shares at any given time, and that fewer still will call their certificates and check the system.”
Friend:: “So that’s free money for them?”
Me: “Exactly. And imagine how seductive it is to be able to do that, especially in companies where you know the stock is in play and headed lower, because your hedge fund buddies and your own trading desk are pummeling it. It’s pure gold. And I’m sure there’s a ton of special purpose entities set up where they can park those and fool the auditors, who aren’t looking all that close anyway.”
Friend:: “Like Refco.”
Me: “Exactly. That´s what the recent suit is about – the hedge fund clearing firm claims the brokers were ripping them off for borrows on stock that was never borrowed – it underscores how big this is, as it names the biggest brokers in the business.”
Friend:: “But back to the hedge funds, isn’t it contained then, in terms of how badly the hedge funds working these companies over can take them down? There are finite shares, and they have to be afraid of other hedge funds coming in and causing a squeeze.”
Me: “Did you know there are companies that will allow you to create hundreds of thousands of trades via the ECNs and then just cancel them at the end of the day? So you could theoretically do all these trades and take a company down a few dollars, and then poof, the transactions are gone, but the market for the stock is still lower. So the idea that there is some sort of reasonable limit is an abstract concept – if a network of these guys wants to give a company a 50% haircut, they can and will. That’s what they do. As to the idea that “good” hedge funds will come in and counteract the “bad ones, that is naïve. The brokers are in bed with the bad guys, and if you take the position on to make a few dollars, you are hurting your survival network, the old boy’s club – and you will need them after this trade, so you don’t want to piss them off. Who would sacrifice their entire future to make a few million on one trade? It isn’t worth it. That’s why you don’t see it happening.”
Friend:: “But at the end of the day, that is just a handful of companies, maybe a hundred or two out of the thousands out there. It wouldn’t happen with a GE or Coke.”
Me: “Why not? If you knew you had to deliver for all your institutional customers, but that the retail rubes would buy their 100 shares of GE and then just hold them, why would you buy the shares for the retail customers? I mean, why, exactly? Nobody will know. There’s no real mechanism to check. The DTCC doesn’t check, and the SEC doesn’t seem to care.”
Friend:: “So the Peter Lynch buy and hold thing actually works for the brokers – they can pocket a percentage of the money, and as long as there’s no run on the stock bank, they are golden. Dude, that is the Federal Reserve System!”
Me: “Except nobody gave the for-profit brokerage houses on Wall Street the right to act like a central bank for stock and just print it out of thin air, or to play the odds that everyone won’t want their certificates all at once. That is more like a reverse Ponzi scheme, like selling the same timeshare condo 100 times, even though there are only 52 weeks in a year – they are just playing the odds that not everyone will be able to use their condo any given year, which is a safe bet. But it is basically fraud. When owner of week 53 insists that he will take any week, but he wants it now, and all 52 have already been booked, that is when it hits the fan. That’s the equivalent of demanding certificates en masse.”
Friend:: “Holy shit. So what you are saying is that there could be 2 or 3 or 5 or 10% of all trades in the market that aren’t actually ever done? That money just went into someone’s pocket?”
Me: “How do YOU think that the brokers can have years where they are breaking all records for profits and bonuses, when commissions have never been lower, and investment banking is almost dead? How do you suppose they do it? That is one of the big ways.”
Friend:: “But if that is correct, then the entire integrity of the system is a sham.”
Me: “Yup. Buffet has been warning about derivative risk for years – that there is this huge unregulated market where companies are creating huge IOUs to trade as vehicles, and that nobody even really understands how they would ever cover if one of the big events happened – a lot of the hedging is done by buying yet more derivatives, never the underlying asset. What has happened is that I think Wall Street has converted a segment of the equities market into a derivatives market without telling anyone, and has placed the entire system in profound jeopardy.”
Friend:: “But that isn’t naked short selling.”
Me: “Yes, it is, because a sales transaction is recorded, but no share is ever delivered.”
Friend:: “And it doesn’t matter if it is marked a long sale or a short sale – failure to deliver after the fact is still failure to deliver, whatever the front end of the trade was called.”
Me: “Correct. That’s why the whole naked short selling thing is a misnomer – and I think the press feeds on that because it makes it easier to muddy the water. Then they can jump in and claim that short selling is good, and legal, and whatnot – but what we are talking about is really not short selling, per se, it is creating a sales transaction, and then failing to deliver the product. I really think that my description of how it works is accurate – the whole system is defrauding retail investors, and lining its pockets, but simultaneously creating the mother of all financial crisis.”
Friend:: “I hope your are wrong about this. I mean, that is so scary.”
Me: “I wish I was wrong about it. My sense is that Wall Street has made it so bad a problem, that they are relying in the idea that they are too big to fail – that the government will just let them rip off the country “for the good of the country” rather than risk collapsing the system. I think that is why you don’t see ANY government action.”
Friend:: “It’s kind of like a junky that needs a bigger and bigger fix, and he is also the guy that wrote the code for your company’s software, and is the only one that understands it, so you look the other way while he’s shooting up in the company bathroom because without him, you’re screwed.”
Me: “Yeah. But it really is worse, because it is the retail guys that are getting screwed, the moms and pops depending on the market for their retirements.”
Friend:: “But how did it get so nuts?”
Me: “I think that back in the early nineties, after all the insider trading and Milken stuff had gone down, that the SEC couldn’t keep up with the growth of the market, and was seeing all these pump and dumps as the internet/high tech boom was just starting. I think they sort of struck a gentlemen’s agreement with the short sellers, figuring that they would act as a counterbalance to the pump con men. The problem is that the SEC never imagined that the two would quickly join forces, or that the short side of the manipulation would turn out to be so lucrative that it quickly overshadowed the very threat it was intended to counterbalance. So they created a monster, and couldn’t handle it any more.”
Friend:: “So Reg SHO was a happy hope that the industry would rein itself in and police itself – that worked great.”
Me: “The only way I can explain SHO to myself is that they were hoping by giving the bad guys a hall pass on all the past larceny, and by publicizing the names of the companies that were being scammed, they could introduce market counterbalances where good guy funds would come in and offset the selling of the scamsters. They failed to appreciate how entrenched the broker dealers were in the networks, and how aligned they were with the bad guys. Like I said, no fund in their right mind would take the other side of the bet, when they know that they would be pissing on the biggest houses on Wall Street. Who would? I mean, let’s say you knocked one out of the park on ABC company – you still need those brokers to cooperate with you, and now you are on their enemy list. Who would sign up for that? No single deal’s profit would be worth it.”
Friend:: “But why don’t the journalists break the story? I mean, there has to be some Woodward or Bernstein out there. If you are right, this is the biggest financial crime in hundreds of years.”
Me: “My theory is that the bad guys have cultivated many of the prominent names, either through the favor/influence bank, or directly. And they own a lot of the editors the same way. There’s this pervasive mindset of “Why take on an unbeatable machine” that has turned much of the press into a public relations spin machine for Wall Street. It has corrupted the profession more than you can imagine. When a blogger like me is breaking more of the story than any of the mainstream press, the press sucks.”
Friend:: “You should read “The World Is Flat.” It speaks to that.”
Me: “I’ll pick it up.”
Friend:: “This is really depressing. What do you think is going to happen?”
Me: “Honestly? I think that just like with Milken, they will nab a Levine, and sit down and have a chitty chat, and say, “Buddy, we got you cold. You are going to jail. Now the question is for how long. Give us a bigger fish, and maybe it’s a small amount of time. Don’t, and think decades.” And then they work their way up the food chain. That’s how the US attorneys work – and once it isn’t a money game, but a queen for the day game, I bet the weak links start blowing up.”
Friend:: “But what about the system?”
Me: “I think that you start to see more and more of the brokers sued, and then eventually the DTCC gets handed their head. It will take years, and in the meantime they will shift the crookery to a different flavor, and the government will run interference for their cronies on Wall Street, all for the “good of the system.” Big fines will get paid, and a few prominent brokers will go down hard, and most will wind up disgorging some of, but not all of, their ill-gotten gains, and they will find new ways to rip off the investors to pay the tab for disgorging some of the cash for their past rip-offs.”
Friend:: “And what happens to the stocks in the meantime?”
Me: “There’s probably opportunity once it really starts to unwind, just has there has been opportunity as it has run unchecked. The difference is that Wall Street runs the risk of losing when it is unwound, so they will fight that tooth and nail.”
Friend:: “That’s a cheery day’s thoughts.”
Me: “Welcome to my world. It sucks. I can see why most want to go through life never understanding how the world really works. It’s depressing.”
Friend:: “I’ll say.”
I was on the phone this week with a friend of mine who has been following my travails, and we got to talking about the FTD/naked short selling issue, and I realized that even a fairly sophisticated guy could still be unclear on the whole picture. His background is in the securities industry at a regulatory level. This is not a dumb guy.
Here’s how the conversation sort of went:
Me: “So there are these miscreant hedge funds, and many of the same names that were gaming the system twenty years ago, and their captive research companies, their network of complicit journalists, their class action attorneys, their contacts at the SEC (to initiate inquiries at favorable points). They pick on maybe 15 or 20 companies, and play them, for years.”
Friend:: “But that is really a localized problem then, once you roll up that network. Where does the systemic risk you are always harping on come in?”
Me: “Well, if each fund is worth a billon in assets, just for the sake of conversation, and each one is leveraging those assets about 10 to 1, each fund could easily be running 10 billion in short positions – and there are international brokers in Canada and the Caribbean and Malaysia and Thailand who will require little or no collateralization to put on a naked short position – just a commitment from one of these larger funds to move money in should the position move against them – a rarity.”
Friend:: “Sort of the Donald Trump thing – the banks have a problem if the hedge fund blows up, more than the funds do.”
Me: “Exactly. So they are pre-disposed to want the targeted companies to go down, and stay down. And you know they are trading right alongside the funds, mirroring their trades, thinking if that stock is a target, might as well make some of the easy money from taking them down.”
Friend:: “So they are de facto partners in it.”
Me: “I think it’s worse than that – they could be holding hundreds of billions of liabilities if 10 of the wrong funds blew up.”
Friend:: “So that’s where the systemic risk comes in.”
Me: “Partially. But remember that these brokers and clearing entities are all also playing fast and loose with investor money. That´s a different, but related, aspect of the larceny. They are taking a certain percentage of trades, maybe it started off being only ½%, and instead of going out and buying shares when their clients place a buy order, they just desk them internally, pocketing the borrow fees.”
Friend:: “Desk?”
Me: “They tell you on your statement that you bought your shares, but in fact they never did – they are just playing the odds that few will ever need to trade their shares at any given time, and that fewer still will call their certificates and check the system.”
Friend:: “So that’s free money for them?”
Me: “Exactly. And imagine how seductive it is to be able to do that, especially in companies where you know the stock is in play and headed lower, because your hedge fund buddies and your own trading desk are pummeling it. It’s pure gold. And I’m sure there’s a ton of special purpose entities set up where they can park those and fool the auditors, who aren’t looking all that close anyway.”
Friend:: “Like Refco.”
Me: “Exactly. That´s what the recent suit is about – the hedge fund clearing firm claims the brokers were ripping them off for borrows on stock that was never borrowed – it underscores how big this is, as it names the biggest brokers in the business.”
Friend:: “But back to the hedge funds, isn’t it contained then, in terms of how badly the hedge funds working these companies over can take them down? There are finite shares, and they have to be afraid of other hedge funds coming in and causing a squeeze.”
Me: “Did you know there are companies that will allow you to create hundreds of thousands of trades via the ECNs and then just cancel them at the end of the day? So you could theoretically do all these trades and take a company down a few dollars, and then poof, the transactions are gone, but the market for the stock is still lower. So the idea that there is some sort of reasonable limit is an abstract concept – if a network of these guys wants to give a company a 50% haircut, they can and will. That’s what they do. As to the idea that “good” hedge funds will come in and counteract the “bad ones, that is naïve. The brokers are in bed with the bad guys, and if you take the position on to make a few dollars, you are hurting your survival network, the old boy’s club – and you will need them after this trade, so you don’t want to piss them off. Who would sacrifice their entire future to make a few million on one trade? It isn’t worth it. That’s why you don’t see it happening.”
Friend:: “But at the end of the day, that is just a handful of companies, maybe a hundred or two out of the thousands out there. It wouldn’t happen with a GE or Coke.”
Me: “Why not? If you knew you had to deliver for all your institutional customers, but that the retail rubes would buy their 100 shares of GE and then just hold them, why would you buy the shares for the retail customers? I mean, why, exactly? Nobody will know. There’s no real mechanism to check. The DTCC doesn’t check, and the SEC doesn’t seem to care.”
Friend:: “So the Peter Lynch buy and hold thing actually works for the brokers – they can pocket a percentage of the money, and as long as there’s no run on the stock bank, they are golden. Dude, that is the Federal Reserve System!”
Me: “Except nobody gave the for-profit brokerage houses on Wall Street the right to act like a central bank for stock and just print it out of thin air, or to play the odds that everyone won’t want their certificates all at once. That is more like a reverse Ponzi scheme, like selling the same timeshare condo 100 times, even though there are only 52 weeks in a year – they are just playing the odds that not everyone will be able to use their condo any given year, which is a safe bet. But it is basically fraud. When owner of week 53 insists that he will take any week, but he wants it now, and all 52 have already been booked, that is when it hits the fan. That’s the equivalent of demanding certificates en masse.”
Friend:: “Holy shit. So what you are saying is that there could be 2 or 3 or 5 or 10% of all trades in the market that aren’t actually ever done? That money just went into someone’s pocket?”
Me: “How do YOU think that the brokers can have years where they are breaking all records for profits and bonuses, when commissions have never been lower, and investment banking is almost dead? How do you suppose they do it? That is one of the big ways.”
Friend:: “But if that is correct, then the entire integrity of the system is a sham.”
Me: “Yup. Buffet has been warning about derivative risk for years – that there is this huge unregulated market where companies are creating huge IOUs to trade as vehicles, and that nobody even really understands how they would ever cover if one of the big events happened – a lot of the hedging is done by buying yet more derivatives, never the underlying asset. What has happened is that I think Wall Street has converted a segment of the equities market into a derivatives market without telling anyone, and has placed the entire system in profound jeopardy.”
Friend:: “But that isn’t naked short selling.”
Me: “Yes, it is, because a sales transaction is recorded, but no share is ever delivered.”
Friend:: “And it doesn’t matter if it is marked a long sale or a short sale – failure to deliver after the fact is still failure to deliver, whatever the front end of the trade was called.”
Me: “Correct. That’s why the whole naked short selling thing is a misnomer – and I think the press feeds on that because it makes it easier to muddy the water. Then they can jump in and claim that short selling is good, and legal, and whatnot – but what we are talking about is really not short selling, per se, it is creating a sales transaction, and then failing to deliver the product. I really think that my description of how it works is accurate – the whole system is defrauding retail investors, and lining its pockets, but simultaneously creating the mother of all financial crisis.”
Friend:: “I hope your are wrong about this. I mean, that is so scary.”
Me: “I wish I was wrong about it. My sense is that Wall Street has made it so bad a problem, that they are relying in the idea that they are too big to fail – that the government will just let them rip off the country “for the good of the country” rather than risk collapsing the system. I think that is why you don’t see ANY government action.”
Friend:: “It’s kind of like a junky that needs a bigger and bigger fix, and he is also the guy that wrote the code for your company’s software, and is the only one that understands it, so you look the other way while he’s shooting up in the company bathroom because without him, you’re screwed.”
Me: “Yeah. But it really is worse, because it is the retail guys that are getting screwed, the moms and pops depending on the market for their retirements.”
Friend:: “But how did it get so nuts?”
Me: “I think that back in the early nineties, after all the insider trading and Milken stuff had gone down, that the SEC couldn’t keep up with the growth of the market, and was seeing all these pump and dumps as the internet/high tech boom was just starting. I think they sort of struck a gentlemen’s agreement with the short sellers, figuring that they would act as a counterbalance to the pump con men. The problem is that the SEC never imagined that the two would quickly join forces, or that the short side of the manipulation would turn out to be so lucrative that it quickly overshadowed the very threat it was intended to counterbalance. So they created a monster, and couldn’t handle it any more.”
Friend:: “So Reg SHO was a happy hope that the industry would rein itself in and police itself – that worked great.”
Me: “The only way I can explain SHO to myself is that they were hoping by giving the bad guys a hall pass on all the past larceny, and by publicizing the names of the companies that were being scammed, they could introduce market counterbalances where good guy funds would come in and offset the selling of the scamsters. They failed to appreciate how entrenched the broker dealers were in the networks, and how aligned they were with the bad guys. Like I said, no fund in their right mind would take the other side of the bet, when they know that they would be pissing on the biggest houses on Wall Street. Who would? I mean, let’s say you knocked one out of the park on ABC company – you still need those brokers to cooperate with you, and now you are on their enemy list. Who would sign up for that? No single deal’s profit would be worth it.”
Friend:: “But why don’t the journalists break the story? I mean, there has to be some Woodward or Bernstein out there. If you are right, this is the biggest financial crime in hundreds of years.”
Me: “My theory is that the bad guys have cultivated many of the prominent names, either through the favor/influence bank, or directly. And they own a lot of the editors the same way. There’s this pervasive mindset of “Why take on an unbeatable machine” that has turned much of the press into a public relations spin machine for Wall Street. It has corrupted the profession more than you can imagine. When a blogger like me is breaking more of the story than any of the mainstream press, the press sucks.”
Friend:: “You should read “The World Is Flat.” It speaks to that.”
Me: “I’ll pick it up.”
Friend:: “This is really depressing. What do you think is going to happen?”
Me: “Honestly? I think that just like with Milken, they will nab a Levine, and sit down and have a chitty chat, and say, “Buddy, we got you cold. You are going to jail. Now the question is for how long. Give us a bigger fish, and maybe it’s a small amount of time. Don’t, and think decades.” And then they work their way up the food chain. That’s how the US attorneys work – and once it isn’t a money game, but a queen for the day game, I bet the weak links start blowing up.”
Friend:: “But what about the system?”
Me: “I think that you start to see more and more of the brokers sued, and then eventually the DTCC gets handed their head. It will take years, and in the meantime they will shift the crookery to a different flavor, and the government will run interference for their cronies on Wall Street, all for the “good of the system.” Big fines will get paid, and a few prominent brokers will go down hard, and most will wind up disgorging some of, but not all of, their ill-gotten gains, and they will find new ways to rip off the investors to pay the tab for disgorging some of the cash for their past rip-offs.”
Friend:: “And what happens to the stocks in the meantime?”
Me: “There’s probably opportunity once it really starts to unwind, just has there has been opportunity as it has run unchecked. The difference is that Wall Street runs the risk of losing when it is unwound, so they will fight that tooth and nail.”
Friend:: “That’s a cheery day’s thoughts.”
Me: “Welcome to my world. It sucks. I can see why most want to go through life never understanding how the world really works. It’s depressing.”
Friend:: “I’ll say.”
http://tinyurl.com/hrwc4
Stick your head deeper into the sand Buzzbomb - there's more coming.
Short Sellers sue Wall Street for Naked Shorting Collusion
April 12, 2006
by David Patch
No the storyline is not wrong.
According to a late report out of the Dow Jones, Electronic Trading Group LLC has filed an anti-trust lawsuit in Federal Court in Manhattan alleging Wall Street giants Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill lynch, Morgan Stanley, and UBS AG individually and collectively colluded to defraud the firms clients.
The lawsuit alleges that the defendants "collusively condone and engage in these practices to their individual and collective enrichment, routinely alternating among themselves in the roles of prime broker who fails to deliver and third-party broker-dealer who permits the (failure to deliver) to persist"
These practices are better known as naked shorting.
So here we have it, the practice of naked shorting, dismissed for decades by members of Congressional Oversight Committees and Regulators alike is suddenly being challenged in Federal court and not by the long shareholders but by the short sellers. The argument by the plaintiffs, our profits were less than they should have been.
"In effect, plaintiff and other members of the class were charged and paid costs and fees, but did not receive the bargained-for value in return," the lawsuit says.
Now the lawsuit never stipulates that the short sales were not profitable, it stipulates that profits or losses were minimized by the fees charged for services not rendered.
Imagine that. Services not rendered. Isn’t that what long shareholders have long complained about? We bought a share and it was never delivered?
For the past decade, investors and issuers alike have voiced their concerns over the abuses of naked shorting. With each round of complaints to Congress and Regulators came the resounding rebuttal that “naked shorting does not exist, it is all in your imagination.” Regulators would actually justify the failed trade that occupied our accounts as “acceptable” and of no financial harm to the investor.
But we wanted what we paid for and when we paid for it. As the SEC, in the proposed rules of Regulation SHO, drafted a section on naked shorting identifying it abusiveness, SEC management like Annette Nazareth dismissed the realities of naked shorting existence.
Crazies, nutcases, people wearing tin-foil hats concerned about aliens. That is the quality and education level of the concerned investor. These people are incapable of a lucid thought and a solid line of reasoning.
Wall Street chimed in as did the financial press. SEC Commissioner Annette Nazareth eventually went public with her bias calling those that voiced concern over failed deliveries as whiners indicating their only complaint was that their investments simply did not appreciate in value.
But now what do we do? Earlier this week CNBC personality Charles Gasparino broke the news that law firm Milberg Weiss was considering a major class action lawsuit against the Wall Street prime brokers on behalf of several Hedge Funds. The allegations being identical to the suit just filed today in Manhattan.
Could more be on the way? How many will eventually be filed? Collusion amongst Wall Street firms in failing to enforce the settlement of securities transactions? Not with the DTCC watching over our markets.
Now that those that invest in hedge funds, the investment pools of the wealthy, are concerned about Wall Street collusion, failed trades, and fees charged for services not rendered you can be sure that Congress and the Regulators will step up to the plate and show concern. Now naked shorting exists because the wealthy investors in the Hedge funds are losing --- profit margin.
But how is the financial press going to now handle this?
We hear routinely by the financial press that Hedge Funds and short sellers are the smartest guys on the street. These short sellers do their research, they are thorough, and they have the inside track. So now how does the financial press cover an issue of securities fraud that they have been conditioned to deny exists. Can the financial press now call the short sellers and the long seller’s crackpots at the same time?
It is now the Hedge Fund and short selling community that is complaining about naked shorting abuses.
We can expect to hear more about this issue as it develops. We should be seeing more lawsuits and more crow on the plates of the financial press as they will now have to explain to the public that naked shorting can be a serious issue to our investments.
We should also begin to see the faces of our Congressmen.
Soon members of Congress will no longer be able to keep their heads buried in their campaign war chests. Congressmen like Rep. Barney Frank (D: MA), Richard Shelby (R: AL) and Sue Kelly (R: NY) who hold critical positions in Financial Market Oversight Committees and have been informed of this issue for years will all start to show signs of concern over our financial markets.
We can expect that we will begin to see their eyes and ears come free from the monies donated by Wall Street as the donations of the wealthy, the Hedge Fund clients, start to pull these Congressmen aside with that wink and a nod and ask for support.
It was only 5 months ago Congressman Barney Frank’s top financial services aide Lawranne Stewart identified that the federal government would not be taking up this issue any time soon. The compassion is not at the federal level and that support would have to come from state regulators, who are more directly in touch with their constituent’s needs. Apparently fraud against people of the states who elect these Congressmen is not actually a Washington politician concern even if it is a federal level act of fraud.
I guess we will see how in touch Washington is to campaign contributions.
Well this bizarre twist of fate has been a long time coming. It will take the energies of those wealthy individuals that profited from the abuses of naked shorting to expose the corruption that for so long has been denied to those who actually experienced the losses. I can’t wait to hear what Commissioner Nazareth has to say about these profitable short sellers who will be beating down her door because of some margin losses.
Of course they will get to that door because of her respect for the affluent of this country.
More will follow – be sure of it.
Subject: DJ story on lawsuit -
DJ Lawsuit Filed Vs Brokers Over Naked Short-Selling Fees
By Chad Bray
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--An antitrust lawsuit was filed Wednesday against the securities industry's largest brokerage firms over fees charged as a result of "naked short selling."
The lawsuit filed in federal court in Manhattan by Electronic Trading Group LLC alleges that the major broker-dealers charged unearned fees, commissions or interest on short sales where those broker-dealers failed to borrow or deliver the stock to back a short position.
Naked short selling exists when a stock is sold before an arrangement has been put in place to borrow the shares. It's illegal for most investors, but legal for firms that make markets in stocks and bring liquidity to the market.
"Defendants collusively condone and engage in these practices to their individual and collective enrichment, routinely alternating among themselves in the roles of prime broker who fails to deliver and third-party broker-dealer who permits the (failure to deliver) to persist," the lawsuit says.
The complaint names the broker-dealer units of Bank of America Corp. (BAC), Bear Stearns Cos. (BSC), Citigroup Inc. (C), Credit Suisse Group (CSR), Deutsche Bank (DB), Goldman Sachs Group Inc. (GS), Lehman Brothers Inc. (LEH), Merrill Lynch & Co. (MER), Morgan Stanley (MS) and UBS AG (UBS).
The lawsuit, which is seeking class-action status, claims the broker-dealers charged Electronic Trading Group and other legitimate short sellers for "covering" short positions that the broker-dealers actually didn't cover and then concealing that fact. Electronic Trading Group said it was charged improper fees, commissions and interest by the broker-dealers from April 2000 to present.
"In effect, plaintiff and other members of the class were charged and paid costs and fees, but did not receive the bargained-for value in return," the lawsuit says.
Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com
Rocker Announces Retirement, Hedge Funds Sue Brokers Over Naked Short Selling, SEC Issues Guidelines
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 4/11/2006
Notorious hedge fund operator and short seller, and currently one of the defendants in the OSTK lawsuit, abruptly announced plans to retire today. No explanation was cited.
Better stay in the country. Call it a hunch.
In other news, Electronic Trading Group LLC sued 11 of the largest brokers on Wall Street for naked short selling.
You know, the practice that Dr. Byrne and I and David Patch and Bud Burrell and Mark Faulk have been banging on at this website for some time, and that NCANS was formed to highlight last January?
The practice that we were vilified and mocked for stating was an issue that was widespread? That was denied by Wall Street as even existing, and then when proof surfaced that it exists, that it wasn't a problem?
Tut tut. Apparently it does exist, and is significant enough for a massive class action suit against the blue chip names on Wall Street.
Huh.
Want to bet that companies like NFI, where there is hard evidence of massive FTDs from 2004, 2005 and 2006, are also drivers of large class action suits - the damages being lost market cap (for the companies), and lost profits (for investors)? Because if the practice of creating huge supply of stock is one that is a Wall Street trick, then Wall Street is liable for the damage it does.
Yikes. This is going to be as ugly as anything you can think of. Hedge funds engaging in the abusive practice will be sued, and brokers doing it will be sued.
And the SEC issued its guidelines for issuing subpoenas to reporters. Appears that they followed the major ones in the Cramer, Herb, Remond, Thestreet.com instances, thus those fine folks are SOL.
I go on vacation for a week and all hell breaks loose.
Wonder how large the ex-clearing problem I have been saying is much, much larger than the FTD problem actually is? So far, that is the only way to clear large FTD positions that I can think of without causing the price of the security to rise - wanna bet that when companies like NFI or OSTK drop off the SHO list, it will be discovered that it is because the massive naked positions were just shifted elsewhere and called something else?
Stay tuned for that shoe to drop.
Unless, as I theorized earlier, that the suit is a PR sham that will be easily dismissed, thus "proving" that no problem exists, and painting the hedge funds as victims...
Copyright ©2006 Bob O'Brien
S C A N D A L
Ripping off the retail investor as has been done with CMKX.
Could this be the lawsuit Easter Bunny mentioned last week?
Refco fraud could have been found sooner-investors
Tue Apr 4, 2006 7:28 PM ET
By Dan Wilchins
NEW YORK, April 4 (Reuters) - Refco Inc.'s auditors and underwriters ignored documents that should have raised red flags about questionable loans involving the futures broker, according to a complaint filed by investors.
The complaint, filed Monday as part of a consolidated shareholder and bond investor lawsuit, blames dozens of parties including Credit Suisse Group Inc. <CSGN.VX>, Bank of America Corp. <BAC.N>, Deutsche Bank AG <DBKGn.DE> and auditor Grant Thornton for not uncovering Refco's fraud sooner.
According to the complaint, Grant Thornton in 2004 received confirmation that Refco Capital Markets lent $335 million to a customer just three days before the end of Refco's fiscal year in February 2002.
That $335 million loan was in fact designed to hide bad customer loans on Refco's balance sheet, the complaint said, and was one of 11 similar transactions involving Refco.
Refco's announcement in October 2005 of $430 million of bad loans to customers was the beginning of the end for the broker, which filed for bankruptcy protection the following week. A spokesman for Refco was not immediately available for comment.
Grant Thornton should have asked questions about a large loan taking place days before the end of the quarter, said Sean Coffey, a lawyer for Bernstein Litowitz Berger & Grossmann, one of the firms representing plaintiffs.
"Grant Thornton's audits amounted to no audits at all," Coffey said on Tuesday.
A spokeswoman for the accounting firm said in a statement that Grant Thornton notified Refco of deficiencies in its internal controls, and discovered the receivable that eventually led to uncovering the problem.
But the deception was well enough concealed by senior managers to evade inspections by "many of the most well-respected financial institutions in the country," the statement said.
Meanwhile, underwriters for the company's August 2005 stock offering and several bond offerings should have asked more questions when performing their due diligence, Coffey said.
"It appears to us that bankers were more interested in pocketing their fees than protecting their clients," Coffey said.
Representatives for Bank of America, Credit Suisse, and Deutsche Bank declined to comment.
http://tinyurl.com/lv4wk
The NFI Naked Short Selling Story - Is it bad when 12.5% of all shares are FTDs?
http://tinyurl.com/olf97
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 4/3/2006
I smell massive suit coming.
Why?
Well, we just got the 2004 FTD info in on NFI (huge kudos to Tommytoyz), and it is shocking - way worse than I would have thought. One highlight that sticks out is that in Q4, the company's FTDs hit the mind boggling number of 3.143 million failed shares, in addition to a short interest up to 11.3 million shares - and this was on a company with about 25 million shares outstanding at that point.
Now, does anyone think that having 12.5% of your total outstanding shares as failed deliveries is bad for a big board stock?
Would that be a problem, you think?
Would that tell anyone that there is a major flaw in the system that is getting gamed by miscreants?
Try this - that number DOESN'T include any of the naked short sales from offshore. It doesn't include ex-clearing. It doesn't include desked trades. It doesn't include "open positions." It doesn't include any of the mismarked trades, where short sales are "mistakenly" labeled "long" - to keep them out of the SI.
So there were almost 40 million shares of NFI trading in Q4, not counting that additional number, which we can call X.
Call it a nice even 50 million. Why not? That is probably low.
So, does anyone have a problem understanding why NFI has been trading at a 100% discount to peer yields? Yes? No?
This is around the time that geniuses like Cuban and Mathews were insisting that delivery failures are not a big deal, and that most are as a result of the dog eating one's certificates, and whatnot.
3.143 million lost shares, steadily increasing trading day by trading day as the year progressed, from not that many in April, to millions by the end of the summer.
As the short interest was also climbing.
Seems like a huge amount of shares being created out of thin air to keep the price depressed, at all costs.
I can pick random periods where the price increased by $12, like from around November 11 to December 11, and note that, surprise, the FTDs declined by 500-600K shares.
How bad is it now? Who knows? Are we into a new season where this is running up from 1.8 million, where we left off, back to the 3 million or higher numbers?
This is just an isolated data point. You have to compare it to the legit short interest, and that gives you another data point. But the real way to tell is to compare the OBO and NOBO and ADP and DTC sheets, and see how many millions of share entitlements are out there that have no shares to support them - and even that is a bit flawed, because Malaysia and Canada and the Caribbean may not be reporting everything, but rather just netting. In fact, many of the clearing agencies could be netting, skewing the numbers to appear radically lower than they are.
So for all the apologists who say it is no big deal, and that naked shorts and manipulation can't keep a stock depressed for a long time, I've got news for you - you are now provably full of it.
This is a huge problem, and companies like NFI and OSTK are being eviscerated by a system that allows miscreants to eat its young.
That is despicable.
And true.
Copyright ©2006 Bob O'Brien
kudos to Tommytoyz for this FOIA data
http://tinyurl.com/ev49z
http://tinyurl.com/gr4dg
http://tinyurl.com/g5887
http://tinyurl.com/e9849
Unbelievable.
http://tinyurl.com/mkc4q
Let's reflect again on what Lowriderbill had to say:
Folks,
The CMKX saga has been an interesting one, but I'm sure you don't need me to tell you that. I, like everyone else, bought in on the potential of vast mineral wealth due to the sheer size and location of the mineral claims. I believe that potential still exists and may be more developed than we know at this time. I find it likely that that much of the initial work was completed by Emerson Koch and Roger Glenn under the guise of Koch's private companies and CIM respectively. One only has to look at the speed with which Entourage completed it's due diligence, developed a drilling program, received permits, and drilled it's first holes. Remember that under National Instrument 43-101, assessment work can be carried out as well as drilling core samples. Once those samples are actually tested then the two year clock to report results on said samples starts ticking.
http://www.ccpg.ca/guidelines/index.html
Bottom line, the legal/NSS play is a completely separate issue, but is married to the claims. If there is no valuation then there is no reason to battle the NSS.
This brings us back to the conception of CMKX and the dream of Urban Casavant. The following points could easily take pages of text to explain. However, I'll keep it short as I've already posted a great deal of the DD myself and others share.
1) Edwards, Walters, and the Vegas Group buy a shell and turn it into a vehicle for toxic financing, naked short selling, and fraud through their financing agreements.
2) Most of the companies involved with CMKX are connected through this financing and are suceptible to the same type of problems only on a smaller scale.
3) Edwards sets out to destroy CMKX in order to take over the claims, an asset raid if you will. He uses NevWest Securities as the vehicle to acquire shares and stay under the 4.9% ownership limit. I wonder if Casavant knew he controlled all those companies or if he thought they were just "connections" of Edwards to obtain financing?
4) The A/S is raised from 200 to 500 billion in order to pay Edwards his shares when the par value of the stock is corrected. This is for the "recalculation" of all the loans.
5) The A/S is raised again from 500 billion to 800 billion to do one of two things. Either Casavant has figured out he's been screwed by Edwards and needs to gain the 51% control by issuing so many shares to people friendly to him. Or he figures out Edwards has screwed him and has the right team (read IBM, Roger Glenn, Global Intelligence) to help him setup the bad guys and catch them red handed by making the company appear to be incompentent and that they're diluting. Either way we have the proof, documentation, etc.
6) The dividends force Shorty and the SEC to the table. CMKX presents it's evidence and let's Shorty know he's royally hosed. However, the short is so big that the SEC needs to buy more time and investigate themselves. This is before CMKX is able to open the floodgates of information in October 2004 and force a squeeze through a merger with UCAD. We're now working with the government on a way out of this mess that will punish the Shorty, reward the shareholders, and return the company to the value it should be as if it were conducting it's primary business. I'm just not convinced the hearing was really about CMKX's filings. If it was, why weren't Edwards, DeSormeau, Roger Glenn, and other key figures in the know called to testify?
******************************
Here is some additional DD beyond the DEF14C I have discussed to support some of the conclusions.
First, I needed to know the entity, amount of shares issued, the date the shares were issued, the amount of shares surrendered, and the date the shares were surrendered for the 200 to 500 billion share increase.
03/01/2004 ~ Shareholder List ~ 500B Increase
http://cmkxdiamond.proboards66.com/index.cgi?board=general&action=display&thread=1127257703
By Certificate Number
~~ www.bonesgfx.com/cert.pdf
By individual
~~ www.bonesgfx.com/acct.pdf
**********
Second, I needed to know the entity, amount of shares issued, the date the shares were issued, the amount of shares surrendered, and the date the shares were surrendered for the 500 to 800 billion share increase.
08/18/2004 ~ Shareholder List ~ 800B Increase
http://cmkxdiamond.proboards66.com/index.cgi?board=general&action=display&thread=1127260729
By Certificate Number
~~ www.bonesgfx.com/cert.pdf
By individual
~~ www.bonesgfx.com/acct.pdf
**********
Third, I needed to know any DD that would identify which of these entities are directly related to John Edwards, Gary Walters, and the Vegas group.
John Martin did some extensive DD along this area.
This information is available on the Owners Group Website.
Also this list by Columbo:
http://cmkxdiamond.proboards66.com/index.cgi?board=general&action=display&thread=1128478886
**********
Last, I needed to know any DD that would identify which of these entities are directly related to Urban Casavant.
John Martin did some extensive DD along this area.
This information is available on the Owners Group Website.
**********
What I'm attempting to do is show that the increase in A/S (200-500 billion) was authorized by Edwards.
UC never controlled the company.
Edwards and his Cronies always controlled the Company.
It was the "evildoers" that voted and approved not only the A/S increase, but also voted and approved to pay themselves hundreds of billions of shares.
Not much that UC could do but sign off on the Article Amendments (being that he was the President).
**********
I believe the correction to the par value of CMKX shares last year was a way for him to demand ten times the amount of shares from CMKX. In other words, oops! We valued our shares at $.001 when they should really be $.0001. Now you owe me ten times as many shares.
Here are some more documents that you should look over.
The PAR Value Error occurred on the 12/26/2002 Amendment.
01/18/2002 ~~ http://tinypic.com/e81r9f.jpg
11/26/2002 ~~ http://tinypic.com/e81sb9.jpg
12/26/2002 ~~ http://tinypic.com/e81svo.jpg
Is this why there was a 100-1 Forward Split for only certain Individuals?
******************************
It appears that Edwards world may be coming down around him.
Crown was rumored to be one of the entities that heavily shorted CMKX.
Crown Financial Assigns All of Its Assets for the Benefit of Creditors:
http://biz.yahoo.com/prnews/051004/nytu154.html?.v=30
**********
From the Crown 10Q October 31, 2004
http://www.sec.gov/Archives/edgar/data/913781/000119312504213877/d10q.htm
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has entered into arrangements with organizations, including clearing brokers, which provide for indemnification against losses, costs, claims and liabilities arising from the performance of their obligations under our agreement, except for gross negligence or bad faith. The Company believes the likelihood of a claim being made, the adverse outcome of which, individually or in the aggregate, that can be predicted with any reasonable certainty, could have a material adverse effect on the Company’s business, financial condition and operating results, is remote.
10. CAPITAL STOCK
During the three months ended October 31, 2004, the Company issued in privately negotiated transactions 4,824,244 shares of Company common stock not registered under the Securities Act for net cash proceeds of $1,525,000. Shares totaling 4,748,486 were issued to unaffiliated accredited investors and shares totaling 75,758 were issued to an executive officer of the Company.
During the nine months ended October 31, 2004, the Company issued in privately negotiated transactions 7,031,632 shares of Company common stock not registered under the Securities Act for gross cash proceeds of $3,561,101. Placement fees totaling $35,180 were paid to two placement agents in connection with this share issuance. Shares totaling 6,302,086 were issued to unaffiliated accredited investors and shares totaling 729,546 were issued to executive officers, or family members of executive officers.
http://www.sec.gov/Archives/edgar/data/913781/000119312504213877/d10q.htm
**********
From the Crown 10K January 31, 2005
http://www.sec.gov/Archives/edgar/data/1318309/000119312505137505/d10k.htm
Financing Activities
The cash inflow from financing activities in fiscal 2004 was due to a combination of seven common stock private placements totaling $4,995,725, two cash contributions to equity totaling $1,830,000, a sale of assets totaling $980,000 and option exercises totaling $448,698. The first private placement commenced in February 2003 and raised $340,000 through the issuance of 377,776 shares to employees. The second private placement commenced in March 2003 and raised $293,150 through the issuance of 205,000 shares to employees. The third private placement commenced in March 2003 and raised $2,419,050 through the issuance of 1,612,161 shares to employees, a director and a private investor. The fourth private placement commenced in October 2003 and raised $100,000 through the issuance of 28,986 shares to an employee. The fifth private placement commenced in November 2003 and raised $811,650 through the issuance of 348,347 shares to employees and directors. The sixth private placement commenced in November 2003 and raised $110,000 through the issuance of 50,000 shares and 5,000 warrants to a private investor. The seventh private placement commenced in December 2003 and raised $921,875 through the issuance of 526,786 shares to current and former employees, plus a private investor. The Company took possession of municipal bonds from J.S.A. Investments LLC that were subsequently liquidated into cash of $1,700,000 on October 17, 2003. In May 2003, the Company completed a transaction with Martin H. Meyerson, the Company’s former Chairman and Chief Executive Officer, totaling $1,350,000, whereby he made a $130,000 cash contribution to equity, he purchased $980,000 of assets and he reimbursed the Company for $240,000 of expenditures related to certain regulatory matters.
**********
John Edwards owns 25.7% of Crown's preferred shares.
http://www.sec.gov/Archives/edgar/data/1318309/000110465905032183/xslF345X02/a3.xml
Rissington Investments owns 13.5% of Crown's preferred shares.
Mining Feasability Capital Corp owns 12.2% of Crown's preferred shares.
http://www.sec.gov/Archives/edgar/data/1318309/000110465905032187/a05-12132_1sc13d.htm
John Edwards controls Rissington and MFCC. Therefore, he controls over 51% of Crown.
**********
So why didn't we file and why are we revoked? Casavant PR'd way back that he'd bought a publicly traded pinky for it's large shareholder base. We don't have official confirmation the deal ever went through, but it is confirmed that this company was PCBM/SRCI. LoCastro of PCBM went through a series of divies and a revocation as well. I have good information that supports the theory that the attorneys for both PCBM and CMKX performed a stock swap of nearly 20 billion shares as early as 2002, before the vast tenacles of toxic financing were discovered. The difference between the struggles of CMKX and PCBM is that CMKX has tons more value while PCBM had to rebuild value over the last year. I believe revocation to lock in the crooks and perform an accurate accounting of shares was necessary. The theory goes that once in revocation, all will happen behind closed doors including any share divies, settlement tenders, cash, etc. I believe the lynch pin for this operation was the documentation of the dilution and then catching the financiers red handed. Imagine the leverage if Edwards was forced to cooperate with authorities against his short selling friends and forced to return his shares in whatever fashion. I find it very likely that Casavant Casavant has control of all 600 billion worth of O/S increases. All one has to do is look at the links provided above. It might take a little leap of faith, but to make this work IBM had to force Edwards to sell his shares back to Casavant while all other shares were being held by forces friendly to Casavant. I find it very likely that IBM has used some of his big money connections to assist. I won't speculate much here, but I have heard some of these connections have a very sour opinion of short sellers and toxic financiers. Basically, it all comes down to leverage.
I realize you raise issues as to the validity of the O/S increases and that they were of great concern to the SEC. However, the SEC ultimately revoked us due to lack of filing timely reports, not 144 share issues. At this point, we don't have anything to confirm that the SEC actually found fault with the share issuances. In my opinion, the O/S increases were perfectly legal due to the original financing agreements with Edwards and the Vegas Group. I believe it's what was done with the shares after the issuance that is illegal, ie shorting against said shares. Glenn wrote many of the opinion letters that removed the restriction to allow these shares to become free trading for a specific purpose as stated above. I find no reason to find Glenn anything other than squeaky clean. After all, he did work in the enforcement division of the SEC, has written text outlining the responsibility of corporate America, and shares a stellar reputation with his firm Edwards and Angell.
So where does that leave us now? Why the cert pull? Well, that's a tough question as we're in the middle of that play. There are too many options moving forward to pick just one at this point as most all are excellent for us.
I believe Entourage is basically a leverage maneuver. I have worked with some other folks to show that the Entourage dividend can't be covered unless the company is approached directly and decides to let loose some additional shares.
703,000,000,000 / 50,000,000 = 14,060 CMKX shares per Entourage share.
**********
There A/S of Entourage is 100,000,000. Per Columbo's DD, the A/S of Entourage is already locked up by the actual O/S plus warrants for additional private placement.
http://cmkxdiamond.proboards66.com/index.cgi?board=general1&action=display&thread=1130335027...
ETGMF has never sold a single share into the market to raise capital. All shares in ETGMF can be traced thru their filings to private placements, options and warrants connected to those private placements, and incentive plans. In effect, thru due dilligence, you will find there is no publicly trading float. The remainder of the 100,000,000 authorized, after CMKM distribution, is reserved for warrants granted to those who recieved the private placement.
undisclosed private placement 6/8/2004 http://tinyurl.com/8sbhy
6/31/2004 O/S 16,925,505 http://tinyurl.com/drfnj
8/5/2004 O/S 13,175,505 http://tinyurl.com/98zr3
9/30/2004 O/S 13,325,505 http://tinyurl.com/btldn
January 7, 2005
CLOSING OF THE PRIVATE PLACEMENT
Entourage Mining Ltd. is pleased to announce that it has closed a non-brokered private placement of 2,815,500 units at a price of US$0.15 per unit for total proceeds of $422,325.00. Each unit consists of one share and one non-transferable share purchase warrant expiring two years from the date of the placement with each warrant carrying the right to purchase one additional share at a price of US$0.22 in the first year and US$0.25 in the second year.
A finder’s fee of 132,000 treasury shares was paid in connection with the placement.
The shares were issued subject to resale restrictions expiring in Canada on May 1, 2005. Additional resale restrictions apply to shares in the USA.
The proceeds from the placement will be used as a reserve for future property acquisitions, to fund a preliminary exploration program on the Company’s Nevada property and for general working capital.
Count up the shares in the documents dated 1/19/2005 posted earlier
1/18/2005 O/S 13,325,505 http://tinyurl.com/cucoj
1/20/2005 O/S 16,141,005 http://tinyurl.com/8s3wq
4/26/2005 JV with Entourage and CMKX http://tinyurl.com/8ty2p
6/30/2005 "As of the date of this annual report, there are 16,273,505 common shares issued and outstanding in our capital stock. We are authorized to issue an unlimited number of common shares and preferred shares. We have not issued any preferred shares since our incorporation."
"Of our 73 registered shareholders, 66 are Canadian residents representing 14,174,005 common shares or 87.10% of our issued and outstanding common shares. We have 7 registered US shareholders holding 2,224,500 common shares or 13.67% of our issued and outstanding common shares."
Does that math seem odd? 100.77%? O.K.
Also do they all have Certs? Apparently so.
as of 10/14/2005 Entourage Ownership is
Paul Shatzko 1,173,000 http://tinyurl.com/a78eq
Kennedy Gregory Francis 500,000 http://tinyurl.com/87jvw
Unknown Private Placement 698,000 http://tinyurl.com/8sbhy
Unknown Private Placement 550,000 http://tinyurl.com/8zzyk
Unknown Private Placement 1,275,000 http://tinyurl.com/anm28
Unknown Private Placement 7,000,000 http://tinyurl.com/cnaz2
YK Group 6,000,000 http://tinyurl.com/9gz3j
Fayz Yacoub 125,000 http://tinyurl.com/9gz3j
Unknown Private Placement 889,500 http://tinyurl.com/9gz3j
Unknown Private Placement 698,000 http://tinyurl.com/9gz3j
Finders Fee 132,000 http://tinyurl.com/9gz3j
William Weston 1,134,000 http://tinyurl.com/9gz3j
Maryl Shatzko 1,141,000 http://tinyurl.com/9gz3j
Eric Reid 132,500
Cindy Dwyer 666,500
Wesley Casavant 666,500
Emerson Koch 666,500
Maryl Shatzko 370,000
Kjeld Werbs 133,000
Rick Walker 153,000
Linda Martinez 100,000
Sanya Asprovski 40,000
Lita Cooper 20,000
Total 24,263,500 Shares Closely Held O/S after All Private Placements.
**********
14,060 * 100,000,000 = 1,406,000,000,000 CMKX shares
In other words there are enough Entourage shares to cover 1.406 trillion CMKX shares. However, we've already shown the Entourage A/S is locked up and there is no float. Also, the private placements and the dividend are restricted. Sorry Shorty, but there are over two trillion CMKX shares in accounts around the world. I bet there are many more than that.
**********
Look what happens when you lower CMKX's O/S. I believe it will be 103 billion or less. Why? Because the first thing to do to get control of this situation was to bait, document, prove, and convince Edwards to return his shares that he was shorting against. Edwards may not be cooperating on his own free will, but I'm sure Roger Glenn and IBM had more than enough ammo to make him play ball.
103,000,000,000 / 50,000,000 = 2,060 CMKX shares per Entourage share.
2,060 * 100,000,000 = 206,000,000,000 CMKX shares
In other words, if the O/S of CMKX is only 103 billion, there are only enough Entourage shares to cover 206 billion CMKX shares. Definitely not enough and Shorty is hosed! I will also add that I believe UC has been buying back shares and the O/S may be even less.
**********
In total, Shorty needs a whole heck of a lot of Entourage shares.
3,000,000,000,000 / 2,060 = 1,456,310,679
In other words, Shorty needs 1.456 billion Entourage shares to cover the dividend on three trillion shares of CMKX. Do you think the controlling votes in Entourage have any interest in raising the A/S to accomodate Shorty? I think not. Per UC, burn in hell Shorty!
**********
I think ETGMF will make some move (either merger, another share exchange with a big dog, or move to another exchange) where the net effect is that the DTCC's control over (the clearance and settlement of) ETGMF shares will go away completely.
Next, or simultaneously, valuation of the claims is made known, one way or another.
Then, the paper exchange of physical certificates will cause huge demand for ETGMF shares and send the price through the roof. Do they cover Entourage or finally come to an agreement with CMKX?
This is why I believe a settlement could come at any time. Surely Shorty can see the writing on the wall or have been given a peek by IBM. Either way it's leverage city. In contrast, Shorty may be so arrogant that he gives us the bird and says he'll wait to see if the claims really have any value. Then he'll have to take his chances and will more than likely be paying even more.
If the FALC land claims are as valuable as we think they are, we are going to win big here, regardless. I think there's some brilliant people who have set this deal up and have dotted every I and crossed every T. I also believe elements of both the Canadian and US governments are working hand in hand to see this through to our benefit. I see no other reason for IBM to be here.
This brings me to a question that was asked, "Do you think this sting is about CMKX and it's affiliated companies only or is this a case where IBM is going after the system-wide problem including the DTCC?" The answer is both because they are tied together. I believe CMKX will be the catalyst for market-wide reform and will serve as the example to eliminate this fraudulent behavior. How do we set an example? Set the precedent on how to break a short and hit 'em where it hurts the most - right in the pocketbook! Remember also, this isn't just about capital market fraud. It's about terrorism and national defense. Nobody is going to beat the United States militarily. The only way to do it is economically. That can happen by tearing down the pillars of our society, specifically our capital markets and generally our economy. We must not allow this to happen!
The other question that was asked was, "Do you think that $.238 is an achievable number? Do you have an educated guess as to a number and timeframe?" My answer, I don't know exactly! It all depends how much value our claims hold. I believe IBM would go for the jugular on this one and try to force a settlement where the number is equal to what the share price should have been if we were allowed to conduct our primary business without the negative effects of NSS. This is why I completely disagree with you $.005 settlement estimate. I think it would be a slap in the face to shareholders who believed our company would have been trading much higher had it not been cellar boxed by the NSS.
As far as timeframe? Hell, I thought it was already over a couple of times, LOL! However, I believe we're closer than we've ever been. I even have a suspicion that the reason for the cert pull is to remove every electronic share from the market so that a settlement can be paid directly to each shareholder. No media, no fanfare, under the radar. All ther certs are is a receipt for the payment by Shorty and the final documentation of the CMKX dossier. Yes, I could be wrong and the cert pull could be our evidence to take Shorty to court. However, I feel the cert pull (on both Frizzell's part and the T/A's part) would have far greater resources and emphasis if that were the case. With the limited staff and average equipment they're using it just seems like they need a little more time to finalize the deal with Shorty.
For two years my thought has been a settlement of $.05-$.10 per CMKX share with the ability to roll into another entity and develop our assets. Many say I'm too low while only a few say I'm too high. Do I think it's possible to hit $.23 or even the infamous $.54? Yes depending on the value of the claims and the corrections to the shares structure. However, my shares purchases were always based on being able to live a very comfortable life off of $.05. Anything above that is just gravy, LOL!
In conclusion, all of the above is in my opinion. You can see the DD and how I've drawn my conclusions. Everything is left open to interpretation and there's obviously a lot of that going around! I believe that it's not a matter of IF, but WHEN. Currently, my purchases of CMKX are complete. I've gone back to dollar cost averaging into mutual funds and blue chip stocks for the core of my portfolio. I'm living life as I should. Going to work, enjoying family and friends, and being a productive member of society, LOL! I do check the boards regularly, although I rarely post. I prefer to do it my way and say something when it needs to be said...
...the Lowrider way!
Take care and we'll talk again soon...
P.S. - Many thanks go out to folks who contribute to this DD. Some prefer to remain annonymous and I'll respect that. They will recognize which parts are cut and pasted from public posts or private conversation. If they wish to be acknowledged then i will be happy to do so. I'm not a credit hound, just someone who took a great deal of time to put the pieces of the puzzle together.
Enlighten me Investorman ...
spell out for me the correct form of the following:
Panther's poor in maths, spelling, basic knowledge, intelligence etc.
It seems that Investoman is having a little trouble understanding the plural form of the word "math".
http://onelook.com/?w=maths&ls=a
Use either 'math' or the plural contraction 'maths'
Believe it or not i actually saw a post from a pathetic basher a couple days ago in which 'lewd' was spelled correctly ... but it wasn't you panther.
Thats a good point. With four letters there are 456,976 possible combinations. If you took out all the lude words, etc., that would still leave a ton of combinations to work with.
http://www.investorshub.com/boards/read_msg.asp?message_id=10304095
Jim ...
The feature you refer to is only available with a Premium Subscription.