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This Proves that CMKX revoked itself !
EX-99 5 ex99-2.htm WITHDRAWAL OF THE PETITION FOR REVIEW IN THE MATTER OF CMKM DIAMONDS INC. ADMINISTRATIVE PROCEEDING FILE NO. 3-11858.
Exhibit 99.2
UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION
In the Matter of: CMKM Diamonds Inc.,
ADMINISTRATIVE PROCEEDING
WITHDRAW OF PETITION FOR REVIEW
OF RESPONDENT, CMKM DIAMONDS, INC.
CMKM Diamonds Inc., by its attorneys, Stoecklein Law Group, by Donald J. Stoecklein, filed, pursuant to Rule 410 of the Commission’s Rules of Practice, to petition the Commission for review of the Initial Decision of the Administrative Law Judge, entered on July 12, 2005.
CMKM respectfully requests that the Commission withdraw CMKM’s Petition for Review and institute the Initial Decision of the Administrative Law Judge revoking the registration of the common stock of CMKM pursuant to Section 12(j) of the Exchange Act, effective immediately.
Respectfully Submitted,
Dated: October 21, 2005
/s/ Donald J. Stoecklein
Donald J. Stoecklein
Stoecklein Law Group
Counsel for Respondent
CMKM Diamonds Inc.
402 West Broadway, Suite 400
San Diego, California 92101
(619) 595-4882
(619) 595-4883 [facsimile]
Certificate of Service
I certify that on October 21, 2005, I caused the foregoing to be served on the below listed persons by being placed in the U.S. Mail postage prepaid for delivery to the following persons, and by fax as indicated.
Office of the Secretary
Securities and Exchange Commission
450 5th Street, N. W. Mail Stop 6-9
Washington D.C. 20549
(original and three copies by U.S. Mail)
Honorable Brenda P. Murray
Administrative Law Judge
450 5th Street, N.W. Mail Stop 1106
Washington D.C. 20549-1106
(and by facsimile to: 202.777.1031)
Leslie Hakala or Greg Glynn
Counsel for the Division of Enforcement
Securities and Exchange Commission
5670 Wilshire Boulevard, Suite 1100
Los Angeles, CA 90036
(and by facsimile to: 323.965.3394)
Bill Frizzell
Frizzell Law Group
305 S. Broadway, Suite 302
Tyler, TX 75702
(and by facsimile to: 903.595.4383)
What a bunch of Huweeee!!!!!!!!!
" judge revoked them " You are wrong and I'll find the SEC document to prove it.
http://www.sec.gov/comments/s7-08-08/s70808-102.htm
Why are you trying so hard to convince us that there is no NSS when we know otherwise ? Why give Bill a hard time in obtaining the data, because they knew NSS took place.
No one was cooperating and lying.
Is this how professional organizations cover up their mess ?
Shame on all of you!
CMKX is related to " SEAENA, INC. " ?
Just by accident on the SEC website do you guys remember what role they play with CMKX ?
1181 Grier Drive, Suite B
LAS VEGAS, NEVADA 89119
(702) 740-4616
March 6, 2008
Michael Moran, Accounting Branch Chief
United States
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-3561
RE:
Seaena, Inc.
Your Letter of November 30, 2007
Form 10-KSB for Fiscal Year Ended December 31, 2006
Filed April 6, 2007
Form 10-QSB for the Period Ended September 30, 2007
Filed November 14, 2007
File No.’s 000-29781
Dear Mr. Michael Moran:
This correspondence is in response to your letter dated November 30, 2007 in reference to our filing of the form 10- KSB for the fiscal year ended December 31, 2006 Filed April 6, 2007 and Form 10-QSB for the period ended September 30, 2007 Filed November 14, 2007 on behalf of Seaena, Inc., file No. 000-29781.
Form 10-KSB for the Fiscal Year Ended December 31, 2006
Item 6 Managements’ Discussion and Analysis or Plan of Operation, page 11
Critical Accounting Policies and Estimates, page 13
1. Please tell us why there is no deferred revenue on the balance sheet at December 31, 2006. Given that you no longer lease machines, tell us why you believe that this accounting policy is critical to your company. Tell us what were the significant estimates utilized by management in calculating deferred revenue. Tell us the alternative accounting treatments permitted under GAAP.
Answer:
Deferred revenue, historically was calculated pursuant to SFAS 13, and based on pre-paid lease payments received from our customers pursuant to the machine lease agreement in effect at the time. During the year ended December 31, 2006 all lease
--------------------------------------------------------------------------------
agreements had fully expired or were cancelled and no new leases had been entered into during the year thus eliminating any deferred revenue at December 31, 2006. We included deferred revenue as a critical accounting pronouncement given the materiality of the historic deferred revenue and the potential for significant future deferrals. In the future, we will omit the disclosure when it is not relevant to the financial statements as presented.
Stock based Transactions, page 14
2.
Disclose significant assumptions and provide a sensitivity analysis. See SAB Topic 14.M.
Answer:
We acknowledge the commission’s desire for a more comprehensive disclosure as prescribed by SAB Topic 14 with respect to the implementation of SFAS 123R. During the year ended December 31, 2006, our share-based compensation totaled $4,577 and was not impacted by the adoption of SFAS 123R. However, as requested, our future disclosures will be revised to include the following:
The Company has chosen to apply SFAS 123R on a modified prospective basis. This approach will not impact current and future reporting periods for share based transactions issued prior to the implementation of this standard. Furthermore, the Company had no outstanding stock options or warrants which would have caused a difference in the reporting periods under the old and the new method of accounting for stock based transactions.
Intangible Assets, page 14
3. Please provide quantification of associated intangible asset balances and any impairment losses recorded in the financial statements. Also disclose the significant assumptions you have used in assessing the recoverability of definite lived intangible assets as well as the fair value of goodwill.
Answer:
We have applied an impairment test as prescribe under guidance of SFAS 144 whereby we computed the net present value of future cash flows expected to be derived from each of our intangible assets. The results of our impairment analysis indicated the carrying value of each equaled or was less than the expected net future cash flow with one exception, which was specific to the goodwill acquired through the acquisition of UC Laser. Subsequent to the acquisition of UC Laser, it was discovered that the operations of UC Laser in Israel were substantially more difficult to sustain. As a result, the original value of the goodwill could no longer be substantiated. We therefore determined, as dictated under the guidance set forth in SFAS 144, the entire balance to be impaired.
Results of Operations, page 14
4. The current disclosure comparing consolidated revenue on a year to year basis lacks any analysis of your operating performance. In future filings please expand managements’ discussion to include financial measures and variables that management considers in its evaluation of revenue and results of operations. For example, you should discuss the operational
--------------------------------------------------------------------------------
results and material changes affected by customer classes such as corporate, colleges, infinity buying clubs and independent retail kiosks already disclosed in the filing. Also discuss and quantify the material changes within consolidated revenue caused by changes in product sales, machine sales and royalty revenue. For instance, explain the impact to your business caused by the decision to sell laser equipment rather than lease to licensees. See Item 303(b) (1) of Regulation S-B and SEC Release 33-8350. Please show us what your revised disclosure looks like.
Answer:
Respectfully, upon review of the SEC Release 33-8350 and Item 303(b) (1) of Regulation S-B, we acknowledge the commissions request for more comprehensive discussion with respect to our comparative changes in revenue. We further understand the need to provide beneficial and comprehensive information for the reader throughout our discussion and analysis. Our future disclosure will incorporate the guidance and interpretation as discussed in the aforementioned documents as illustrated below.
Our revenue for the year ended December 31, 2007 totaled $3,279,037 compared to $4,272,495 in 2006 representing a decline in gross revenue of $993,458. In 2007, approximately 63% of our total revenue was attributable to custom orders for corporate specialty and promotional items, which totaled approximately $2,082,967 compared to $2,478,000 or 58% of total revenue in 2006. We believe the decrease of $395,033 or 16% in custom orders relates directly to additional market competition. In an effort to generate additional revenue, we are focusing additional marketing efforts in the photo industry as well as developing relationships with similar companies whereby we can expand our product line and distribution channels. Our revenue generated from royalties has remained constant at $237,495 in 2007 compared to $242,715 in 2006. We anticipate royalties to remain constant throughout the upcoming year. The remainder of our revenue has been generated through sales of raw materials, glass etching, and add-on products.
Item 13 Exhibits, page 26
5. Please advise or include a list of all subsidiaries in your future filings. We note your consolidation policy lists several entities as subsidiaries. See Item 601(a) (21) of Regulation S-B.
Answer:
We have reviewed the requirements as prescribe by Item 601(a) (21) of Regulation S-B and have noted the deficiency in compliance. Our future filings will include as an exhibit under item 21, each subsidiaries name, state of incorporation or other jurisdictional identification and any alternate name the subsidiary may be doing business as where applicable. Our current subsidiaries include the following:
Crystalix USA Group, a corporation domiciled in the state of Nevada, 100% wholly owned
Lazer-Tek Designs, Ltd., a corporation domiciled in the state of Nevada, 100% wholly owned
Lazer-Tek Designs, Inc., a corporation domiciled in the state of Nevada, 100% wholly owned
UC Laser, Ltd., a corporation domiciled in the state of Delaware, 100% wholly owned
Laser Designs International, LLC, a limited liability company domiciled in the state of California, 51% owned
--------------------------------------------------------------------------------
Consolidated Balance Sheet, page F-2
6.
Please advise or revise Class B to indicate it is a convertible preferred security.
Answer:
Upon review of the guidance provided in FAS-129, Disclosure Information about Capital Structure, we believe we have complied with the all requirements as set forth in the available guidance. Pursuant to paragraphs 4 and 5, we have disclosed within our financial statements a description of voting rights, liquidation preferences, and all details relating to its convertibility including the number of common shares and resulting percentage of ownership upon conversion of each specific issuance. Further, we have clearly identified each series of preferred, the authorized number of shares and the current outstanding on the face of our balance sheet.
7. Please tell us how you account for the 49% minority owned interest in LDI, LLC and where it is presented in your financial position and results of operations.
Answer:
In August 2005, we acquired a 51% interest in Laser Designs International, LLC (“LDI”). Pursuant to Rule 3A-02 of Regulation S-X, we have presented consolidated financial statements, which include the activity of LDI. During the years ended December 31, 2006 and 2005, LDI had net losses, where the losses applicable to the minority exceed the minority interest, therefore all activity was attributable to the parent in accordance with ARB 51.
Consolidated Statements of Stockholders’ Equity, page F-4
8. Please tell us your consideration of any existing beneficial conversion feature and deemed dividend on the issuance of Class B preferred shares. It looks as if the fair value of common stock exceeds the conversion price of preferred shares into common shares as of March 31, 2006 or the date you completed the acquisition. Please be detailed in your response and include the calculation used to reach your conclusion as well as support for fair values and other assumptions made by management.
Answer:
Our Agreement to acquire UC Laser was entered into on, December 29, 2005 with an effective date of January 1, 2006. The market price of our common stock on the effective date of the agreement was $0.04 per share. We relied on the guidance of SFAS 141 in our accounting treatment of the acquisition as well as our determination in the non-existence of a beneficial conversion. We tested the beneficial conversion as follows:
Value of preferred shares
$ 7,968,783/
Number of preferred shares
2,276,795
Cost of each preferred shares
$
3.50/
--------------------------------------------------------------------------------
Converted to common
2.857
Cost per common share
$
1.23
Market value of common shares
$
0.04
Value of conversion
$
(1.19)
Consolidated Statements of Cash Flows, page F-5
9. Please disclose all non-cash investing and financing activities in the periods presented, as applicable. For example, we do not see any narrative or summarized schedule of the shares issued for U.S. Laser, Ltd. or surrendered for equipment and Crystalix Europe.
Answer:
We concur with the Commission’s request to include all required non-cash supplemental disclosure as required by SFAS 95 and will revise all future statements of cash flows accordingly.
Note 1 – Organization and Significant Accounting Policies, page F-6
10.
Tell us your consideration of SFAS No. 131.
Answer:
Respectfully, we have considered SFAS No. 131 and do not believe that any of the subsidiaries, or various operating activities constitute a business segment for which separate disclosure is possible under SFAS No. 131. Each entity operates in much the same manner as the next, and the product lines are not exclusive to the point that a separate operating segment can be defined. It is further our understanding under Regulation S-B, we were provided a level of relief from the segmented disclosure requirements as found in Regulation S-K.
Stock Splits, page F-7
11. Please tell us how the pre-split 300 million authorized common shares converts to 50 million on a post split basis. We note the reverse split ratio was 1:35.
Answer:
On March 31, 2006, we filed an amendment to our Articles of Incorporation whereby reducing our Authorized from 300 million to 50 million. This action was independent of the 1:35 reverse as evidenced by the Definitive Information Statement dated March 6, 2006. We will enhance our future disclosure with respect to each item, for clarity on each event.
Goodwill and Intangible Assets, page F-10
12. Please tell us the amount of website costs capitalized and where it is presented in your balance sheet. It is not evident from your presentation or disclosure.
--------------------------------------------------------------------------------
Answer:
We had previously incurred website development costs of $73,488, which were fully amortized as of December 31, 2006. In review of our disclosure as presented in footnote 1 of our financial statements, we understand the necessity to modify the disclosure. We currently have not incurred any additional development costs as previously disclosed and will therefore eliminate in all future filings.
Revenue Recognition, page F-11
13. Your policy note discloses that laser equipment is leased while page 13 discloses laser equipment is sold and no longer leased. Please tell us if there is a discrepancy between these disclosures and revise any inaccurate disclosures to reflect the actual economics involved with laser equipment, as applicable.
Answer:
We acknowledge the lease revenue disclosure is presented in error, as it is a remnant of the previous method of operations that was mistakenly carried over to the 2006 Form 10-KSB. We will amend and replace with the applicable disclosure regarding the Machine Sales in our future filings.
Deferred Revenue, page F-12
14. Please confirm the deferred revenue discussed here is the customer deposit balance classified as a current liability. If so, please tell us why a portion of this balance is not classified as non-current given that deferred revenue on laser equipment leases is recognized over the term of the agreement and these leases typically have 5 year terms.
Answer:
The customer deposit balance represents the down payments received on the purchase of laser equipment to be delivered in less than 12 months. This is independent of machine lease agreements and the disclosure of deferred revenue. Our future filings will include under separate caption, deposits received for the purchase of equipment.
Note 2 – Acquisition and Disposition, page F-17
15. In the Form 8-K filed on April 5, 2006 you disclose U.C. Laser Ltd. financial statements and pro forma information will be disclosed in an amended filing. Please explain why you have not since filed the information and include an analysis that supports your conclusion that the financial statements and pro forma information were not required, as applicable. Please also include the acquisition of LDI, LLC in your response and include any references to the regulations to support your conclusions.
Answer:
--------------------------------------------------------------------------------
At the time of acquisition, we engaged the services of an independent foreign audit firm to complete audit of the financial statements in order to comply with our regulatory requirements. We have been unable to neither obtain the completed audit nor complete financial information necessary to seek an alternate firm. We are diligently perusing alternate avenues so that we may fulfill our reporting requirements. As of this time, there is uncertainty as to when we will be able to correct the situation.
16. Please advise or include the pro forma comparative financial information required by paragraphs 54 an 55 of SFAS No. 141 in your next annual filing.
Answer:
We acknowledge the pro forma requirement and will include them in our earliest possible filing upon resolution of our international audit and accounting problem.
Disposition, page F-18
17. Please tell us how you have complied with the requirement to disclose the carrying values of Crystalix Europe’s assets and liabilities. See paragraph 17.a. of SFAS No 144. Please advise or provide the required disclosure in your response.
Answer:
We have reviewed our disclosure, and acknowledge the omitted information as prescribed by SFAS-144. The carrying values of Crystalix Europe’s assets and liabilities at the time of disposition on October 5, 2005 were as follows:
Cash
$
19,953
Accounts Receivable, Net
102,909
Inventory, Consisting of Raw Materials
285,694
Other Current Assets
6,518
Equipment
112,546
InterCompany Payable, Crystalix
(905,984)
InterCompany Payable, LaserTek
(360,724)
Accounts Payable
(175,884)
Deferred Income
(181,961)
Accumulated Deficit
1,096,933
Note 8 – Stockholders’ Deficit, page F-20
18. Please explain why you accounted for the extinguishment of dept with CMKXTREME as a capital transaction. Specifically tell us how this party qualifies as a related party. If they do not qualify, please tell us why the difference between the reacquisition price, or common share fair values, and the net carrying amount of extinguished debt is recorded in conformance with GAAP. Please include the applicable GAAP to support your conclusion.
Answer:
--------------------------------------------------------------------------------
CMKXTREME is deemed a related party due to their substantial share position in Seaena, Inc. upon conversion, as well as, through the holdings of common owners of CMKX. The Company, therefore conservatively included the debt conversion as a capital transaction, rather than report a gain in the income statement.
Note 7 – Related Party, page F-20
19. Please describe the nature of the relationships between the Company and each of the related note holders. See paragraph 2.a. of SFAS No. 57. Please provide the revised disclosure in your response.
Answer:
The notes payable, related party are all to Kevin Ryan, CEO and majority shareholder. The revised disclosure will be as follows in our 2007 form 10-KSB:
NOTE 7 - NOTES PAYABLE - RELATED PARTY
The Company had notes payable to the Company’s CEO, in which principal balances totaled $3,421,072 and $3,056,072 as of the years ended December 31, 2007 and 2006, respectively. The notes accrue interest at a rate of 10% per annum and are payable upon demand. The Company recorded interest expense to related parties in the amount of $321,769 and $396,632 for the years ended December 31, 2007 and 2006, respectively.
Form 10-QSB for the Period Ended September 30, 2007
Item 3, Controls and Procedures, page 22
20. In your response please make a determination regarding the chief executive officer and chief financial officer conclusions of the effectiveness of disclosure controls and procedures, at the reasonable assurance level, as of the end of the period covered by this interim filing.
Answer:
We will include the following paragraph in our future 10-QSB filings, and represent that it was true as of 9/30/07 as well:
Our Chief Executive Officer, Kevin T. Ryan and Principal Financial Officer, Doug E. Lee evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on the evaluation, Mr. Ryan and Mr. Lee concluded that our disclosure controls and procedures are effective in timely alerting each of them to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings.
--------------------------------------------------------------------------------
In connection with the response to your comments, Seaena, Inc. (the “Company”) acknowledges that:
•
The Company is responsible for the adequacy and accuracy of the disclosure in filings;
•
Staff Comments or changes to disclosure in response to staff comments in the filings reviewed by the staff do not foreclose the Commission from taking any action with respect to the filing; and
•
The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We believe that our response addresses all of your concerns. If you have any additional questions, please do not hesitate to contact the undersigned at 702-740-4616.
Sincerely,
/s/Kevin T. Ryan
Kevin T. Ryan,
Chief Executive Officer
Seaena, Inc.
Why hide the data ? Because you have something to hide LOL
I gather you will make up some great excuse once we provide the evidence that NSS took place, blaming it on the insiders selling unregistered shares and messing up your ability to keep track of numbers. It will be more Hog Wash just like you always do...
I'm sure if you stick around long enough they will offer you a position and brain wash you to believe their unrealistic point of view. LOL
How much can you NSS within a couple of days ?
or lets put it another way
How much Gold can you steel when the security guards are holding the doors for you at your bank ?
Lets wait and see ...
Actually I have to disagree.
The same way that a company can request to go Public they can request to go Private and thats what CMKX did.
Sort of like people are being fired at some company one by one due to discrimination, and instead you decide to quit and take legal action.
Subject: File No. S7-08-08
From: THOMAS THORTON, Sir
Affiliation: Bear Stearns Bond holderMarch 24, 2008
My Fellow Americans and Global Investment Community.
The case of the greatest "counterfeit shares." fraud in the UNITED STATES is in my opinion CMKX.
CMKX DIAMONDS, THE LARGEST NAKED SHORTED STOCK IN THE HISTORY OF THE UNITED STATES/WORLD" Trillions of stock shares traded and changed hands UNTIL CMKX revoked itself and had every stock holder pull stock certifcates out of brokerages out of street name and into Investors name to safely hold in their possesion. CMKX is also the LARGEST STOCK CERTIFICATE PULL IN THE HISTORY OF THE UNITED STATES"
I Hope the the SEC did not create a regulational rule during this period the above action was commited to absolve them from liability of cmkx "counterfeit shares." from this company or anyother company that used this tactic to steal from all markets. This naked shorting fraud rule be passed without a second to lose.
Naked shorts in the United States: "counterfeit shares."
Naked short selling is a case of short selling the shares without first arranging a borrow. The Securities Exchange Act of 1934 stipulates a settlement period up to three business days before a stock needs to be delivered, generally referred to as "T+3 delivery".
http://www.usnews.com/blogs/the-collar/2008/4/8/14-charged-in-alleged-stock-scheme/comments/
What are you talking about ?
The SEC didn't revoke CMKX, the company told the SEC it does not wish to be traded publicly because it feels there is something wrong with the share count and that NSS has taken place.
Feel free to go to the SEC website to confirm this for yourself.
Interesting that CMKX did that don't you think ?
Once the SEC has delt with NSS, they should go back over all records by bringing in a bunch of computer programmers (experts who would be payed with the money recovered) and starting with CMKX figure out first of all who, then how these individuals have scammed investors and charge them penalties.
This would give the SEC a nice new image because they would be demonstrating something that would state:
Watch out because we can audit you
Just like you can be audited when you file your income-tax incorrectly. So keep making noise Boiler is going bye bye.
LOL
When the new CEO is announced we'll see who is laughing, for shortly afteryou will see Bill take action
Watch the Congress get involved soon because there is one company that has legally proved there are over one trillion shares of it's stock floating around as markers in accounts in 64 countries....Yea that's One Trillion with 15 zeros
This subject has been on Dateline, CNBC and is going to get more publicity after Senators returns. Six Senators and one Senate woman have requested answers to questions that they didn't get from William Dinaldson SEC head who strangely resigned withing a week of that meeting chaired by Senator Robert Bennett-R Utah.
On the December 13, 2004 Conference Call regarding regulation SHO, with Peter Murphy, senior managing director of the Bear Stearns Clearing Division in attendance as part of the panel (as recorded and available as audio here - requires Windows Media Player):
"To give you that brief introduction in Reg SHO, the history (of) how we got to where we are today. For the past few years we have been hearing from many different regulators regarding their concerns about the increase in the level of fails that they are seeing. They believe, and they have stated on numerous occasions, that one of the primary causes of the high level of fails was that various participants in the short sale process, prime brokers, executing brokers, clients, were not following already established rules."
Here it is, in black and white. Proof positive that the regulators are aware of violations, are concerned about the increase of violations, and know the cause, and the culprits.
This implicates the entire broker/clearing house/hedge fund network in securities violations, without enforcement actions by Regulators, who instead looked the other way. Exactly what these high level of fails and illegal short sales did to the markets will be determined in State and Federal courts across America. This also implicates the Regulators in aiding and abetting the fraud.
So for any elected officials who doubt that the NCANS take on the problem is, if anything, less alarmist than the situation deserves, I would direct you to the above statement and caution you to think long and hard as to the chronicle of abuses it confirms.
And then decide whether you are part of the problem, or part of the solution.
The source of the info below is www.ncans.net
Pretty sweet deal sell shares you borrow legally and sell them over and over again, the SEC looks the other way but the best part is the DTCC makes a small % on each share regardless it if is legal or illegal last $1.1B was the revenue between the SEC/DTCC but the funds were co-mingled according to William Donaldson the two year head of the SEC that resigned about 5-7 days after an interview with banking committee chair Robert Bennett.
Since TheStreet.com ran a story questioning whether a new law aimed at curbing naked short-selling was being enforced, the topic has become something of a media phenomenon. Not really because of TheStreet.com, but because of Overstock.com (OSTK:Nasdaq) CEO Patrick Byrne, who is like watching Lost -- always entertaining if sometimes a little hard to follow.
In what will surely go down as one of the least orthodox investor calls ever, Byrne set out to explain a lawsuit his company filed against Rocker Partners, a high-profile hedge fund.
Along the way, he described what he called a "Miscreants Ball," where hedge funds like Rocker waltzed with regulators, research firms and journalists at Barron's, The Wall Street Journal and, yes, TheStreet.com. Byrne also made shoutouts to fictional characters like Lord Sith as well as Wayne and Garth. If you're weary from chewing over dry SEC filings, this transcript is a real palate cleanser.
The issue got a further hearing Wednesday on CNBC when Byrne appeared opposite hedge fund manager Jeff Matthews, who was highly critical of Byrne but denied being part of any cabal against Overstock.
(Rocker Partners owns about an 8% stake in TheStreet.com (TSCM:Nasdaq) , and the site's star columnist, Jim Cramer, as well as two former writers, were named by Byrne as guests at the Miscreants Ball. Rocker Partners said today that it plans to countersue Overstock, alleging that Byrne's recent media appearances hurt the firm's reputation.)
Byrne's call pushed the topic of naked short-selling into heavy rotation at CNBC and gave it a wider airing. In so doing, it revived the question of how serious of a threat naked short-selling really is. Some, especially those working at hedge funds, say it's a straw man -- that most of the positions created by failed deliveries are related to options trading and not a concerted effort to drive stocks down.
That may be the case. But without better data on stocks that failed to deliver, the rest of us will never know for sure. Meanwhile, what little data are available suggest that naked shorting may indeed be out of control and that a much-ballyhooed trading rule known as Regulation SHO has so far done little to rein it in.
First, a little background. Shorting stocks, or selling shares you borrowed from another shareholder, isn't illegal. Abusive shorting, done to manipulate a stock price, is. And selling the stock of a badly managed company to a less-thoughtful investor is fair -- if brutal -- game in a market where stupidity is a sin. Over the past two decades, shorting has gone from a controversial strategy to an accepted practice that, nearly everyone agrees, weeds weak and fraudulent companies from the field.
More recently, the controversy has moved to naked short-selling. Naked shorting is in essence make-believe short-selling. In the same way kids play doctor without the medical equipment, naked shorters sell unborrowed stocks -- stocks that no one has borrowed and possibly never will. The SEC allows naked shorting in two cases: to maintain liquidity in hard-to-find shares and for anyone who shorted unborrowed shares before 2005. That second exemption has generated its own share of controversy.
As is often the case, stock newsletters were among the first to suspect a problem. The straw-man theory argues that critics of naked shorting are burned investors or corrupt executives who blame hedge funds the way failed businessmen blame the government for their own failures. But in recent months, newsletters like CrossCurrents and Biotech Monthly have sounded alarms on naked shorting.
"I'm quite confident that this is a much larger issue than anyone cares to consider," says CrossCurrents editor Alan Newman. It's hard to find bears any harder-core than Newman, who in February 2000 put a then-unthinkable 3000 target on Nasdaq and who today expects the Dow to sink to 8500. When the uber-bears are worried about the adverse impact of shorting, it's time to start worrying.
Newman explains naked short-selling in eye-opening clarity. Selling unborrowed shares means the buyer doesn't get delivery of the shares he bought. "There are now two actual owners of the same shares. The exact same shares now show up long in both accounts," Newman says. "Every 100 shares of a naked short is a duplication of real shares, just as if the shares had been photocopied and distributed."
So how extensive is the naked shorting? According to Larry Thompson, the First Deputy General Counsel at the Depository Trust and Clearing Corporation, a central clearinghouse for trade settlement, about 1.5% of the dollar volume of stocks traded each day fail to deliver. In a Q&A published this March on the DTCC site, "fails to deliver and receive amount to about $6 billion daily ... including both new fails and aged fails."
Overall, 1.5% of volume may not be much of an impact. But judging from the way some stocks spend weeks and months on the threshold list of shares that face persistent delivery failures, the naked shorting is concentrated in illiquid shares known to be hedge fund targets. The bulk are traded over the counter, but some are well known, such as Netflix (NFLX:Nasdaq) , Netease (NTES:Nasdaq) , Shanda Interactive (SNDA:Nasdaq) and Taser International (TASR:Nasdaq) .
Perhaps the most telling data came from a simple Freedom of Information Act filed by an individual investor who asked the SEC for aggregate data on failed deliveries on the NYSE and Nasdaq. Before Regulation SHO was passed in September 2004, an average of about 155 million shares a day failed to deliver on the two exchanges, excluding OTC and Pink Sheet stocks, the data showed.
After Regulation SHO was passed, the delivery failures rose, averaging 205 million shares a day in December and rising as high as 259 million on Dec. 22 alone. Since the law went into effect on Jan. 3, the delivery failures have declined, but are still only about 20% below their levels of last summer.
The SEC, wanting to avoid short-squeezes in dozens of stocks caused by the closing out of naked short positions, opted to "grandfather in" any failed deliveries before Jan. 3. But that opened the door to another problem: In the four months between the date Regulation SHO went into effect and the date it took effect, the grandfather provision gave anyone who was so inclined a generous period of time to build up naked short positions in any stock he liked.
Or, to use the counterfeit analogy, imagine outlawing the printing of funny money, but giving everyone four months to print up as much as they'd like. Only then would counterfeit dollars be illegal -- but only to print, not to use.
And it wasn't as if regulators weren't expecting this. The NASD, in a 2004 proposal to tighten rules on naked short-selling, wrote, "Naked short-selling ... can result in long-term failures to deliver, including aggregate failures to deliver that exceed the total float of a security. NASD believes that such extended failures to deliver can have a negative effect on the market."
"Among other things, by not having to deliver securities, naked short-sellers can take on larger short positions than would otherwise be permissible, which can facilitate manipulative activity," the proposal read. "Further, significant failures to deliver can impact certain rights of buyers, such as the right to vote shares or the treatment of dividends."
So the hedge funds may be right in that many of the companies suffering from short-selling are badly run or on the path to insolvency anyway. And it may be that none of them are engaging in naked shorting in the era of Regulation SHO.
OPEN your EYES ! Even a chickes brain is smart enough to beat you in X & O's Right now the glass is Half Full :)
So lets have a look:
Let's see what the great and noble LapDog, Frizzy, has done for Xers.
1) He collected money from Xers in Phase 1
Thats right he did the Cert Pull
2) He collected money from Xers in Phase 2
Thats right he did the Cert Pull
3) He made a fool of himself with his nutty NSS figures
How would you know how high the NSS is ???
4) He cost Xers money via the cert pull
No actually he barely charged us anything considering how much work it took to set up the Cert pull, to have so many people put in so many hours and ensure there were no duplicate Certs and the data was correct. It was completely on a volunteer basis as I see it and because he doesn't appreciate scum taking peoples hard earned cash.
5) His delays cost Xers the ETGMF distribution
Actually he had nothing to do with the Entourage distribution, that was between Entourage and CMKX and you should clearly see that such a thing could never take place as it would be impossible to distribute such a diluted stock among us.
6) His delays gave Urbie & Edwards much more time
Actually Urbie and Edward would have never got this far if we had the correct security in place and red flags, it is undeniable proof that the MM's, Banks, Brokers, SEC everyone had no clue that Millions of $$$$$$$$ were being used by Bin Laden since no one seems to know where that money went
do they ?
7) He couldn't find Urbie to serve him
I think it can be safe to assume he is in the hands of the FBI
8) He won an uncollectible default judgment
Yes and I this explains the reason the company is ready to move forward, there is more to this than you think...
Although there are more assets and that is fact, which are tied up but are being recovered.
So unless you can provide some facts to dispute the information we have this far you need to calm down and relax the truth will come out shortly ha ha ha
So the Crow must be your mother. You guys are killing me LOL
A Simple example of NSS: LOL LOL LOL
You the Broker decide to NSS the world being so sneeky. The Shares in this case are represented by a Lawnmower. However instead of owning a real Law Mower, you put up a Huge Poster of one right up front on display on your own Lawn.
Boy that Poster looks good and so real. LOL
These are brand new mowers and they are cheaper than the price any store can sell them at. So you start off with your neighbour, and expand your scheme to the whole city, and country giving everyone an I.O.U. while taking their CASH and promissing to deliver. Soon the stores realize they can't compete because there are even Huge Posters of these mowers in front of their stores and they begin to go under.
Here is the Brokers chance to buy up all the mowevers at a price 0.0000001
Now you being the Broker begin covering the NSS postion starting with your neighbours and any big corporations with something you never owned in the first place.
Remember you never borrowed the mowers in the first place but instead printed these Huge Posters. LOL What a great idea and no one has a clue. LOL
However soon you realize that there are not enough of these mowers in the stores to cover your I.O.U's so you start making excuses like the delivery guy(Transfer Agent) lost a whole truck load but you will get them, now the SEC comes in to investigate since there are a lot of complaints that people have not received their mowers.
However the Brokers are unable to get their hands on any more mowers so they are in trouble since what they should have done is ensured they could but how could they ?
So the Police like the SEC should be monitoring such strange activity these Huge Posters should have brought on red flags.
We the CMKX shareholders bought these Mowers because it seemed like a great deal. However seeing so much money and billions of shares all over the different neighbourhoods and ignoring the signs means that there are going to be more individuals doing the same thing with other stocks.
So now we the CMKX shareholders want our Mowers and these brokers are going to have no choice but to pay up.
There are now people breathing down the SEC's neck, like politicians because their reputation is going down the drain.
Soooooooooooo here it is LOL
What is Short Selling?
Short Selling is an investment strategy which makes a bet that a company's stocks is overpriced and will likely fall. Using an analogy helps to explain a process which few retail investors actually understand. Pretend that you borrowed your neighbor's lawn mower, which your neighbor generously says you may keep for a couple of weeks while he's on vacation. You're thinking of buying a lawn mower anyway so you've been researching the latest sales and have seen your neighbor's lawn mower on sale for $300, marked down from $500. While you're mowing your lawn, a passerby stops and offers to buy the lawn mower you're using for $450. You sell him the lawn mower, then go out and but the same one on sale for $300 and return it to your neighbor when he returns. Only now you've made a $150 on the deal.
Let's return to the stock market where similar principles apply. You believe Amazon is overvalued and its price is going to fall. So as a short seller, you borrow Amazon stock which, like the lawn mower you don't own, from a broker and sell it into the market. As long as the Amazon stock is in Street name or in the brokerage firm's inventory, the broker has the right to lend it out to you. You borrow and sell 100 shares of Amazon at $50 per share, yielding a gain, exclusive of commissions, of $5,000. Your research proves correct and a few weeks later Amazon is selling for $35 per share. You then buy 100 shares of Amazon for $3500 and return the 100 shares to the broker. You then have closed your position, and in the meantime you've made $1500. If the stock had gone up instead of down, you would have lost money, and unlike on the long side where the limit of your loss is the original amount you invested (stock goes to zero), on the short side the potential loss is infinite as the stock can continue to go up and up.
In order to short stocks you must open a margin account because you're actually borrowing the stock rather than owning it. Most brokerage firms will not allow you to margin a stock under $3 per share (many will not allow it under $5 per share), so naked shorting is often a solution for low priced stocks.
What's Wrong with Short Selling?
There is nothing inherently wrong with short selling. As you can see from the example, it helps to correct the excesses in the market. The problem arises when short sellers use a scheme called naked short selling to effect their transactions. Naked short selling is a technique whereby you sell short without borrowing the stock. In this way short sellers can sell as much as they want with no accountability for returning the stock. This ability to "fail to deliver" the stock creates havoc in the micro-cap market. In particular shorts can pick on small emerging companies and drive their stock to zero, thus preventing capital raising and frightening other longs in the stock to abandon their position, not based on the fundamentals, but only on the manipulation of the stock. Obviously when you see your stock price plunging, you are most likely to sell first and ask questions later. Shorts were able to get away with this practice because only those firms that were NASD members were required to comply with delivery rules.
There are many groups, such as Canadian brokerage firms, Specialists, options players, who are not NASD members, and therefore do not have to comply with the NASD rules that require members to assure delivery of stock by the settlement date. For example, if you open a brokerage account at a Canadian firm, they are allowed to keep open "fail to deliver" orders on their books. A short selling group trading through a Canadian brokerage firm literally can get away without delivering their shares. In Canada, previous to the new regulation, investors were not required to borrow stock before selling it short.
The Initial Solutions
This is all coming to an end, however, as the NASD is instituting a rule, which takes effect on April 1, 2004 requiring NASD firms to treat non-member broker dealers in the same fashion as members regarding delivery of shares sold through US registered broker dealers. In addition the SEC has proposed Regulation SHO.
"Proposed Regulation SHO would, among other things, require short sellers in all equity securities to locate securities to borrow before selling, and would also impose strict delivery requirements on securities where many sellers have failed to deliver the securities. In part, this action is designed to address the problem of "naked" short selling."
With some expectations for market makers and specialists, the SEC has stated,
"Proposed Rule 203 would prohibit a broker-dealer from executing a short sale order for its own account or the account of another person, unless the broker-dealer, or the person for whose account the short sale is executed (1) borrowed the security, or entered into an arrangement for the borrowing of the security, or (2) had reasonable grounds to believe that it could borrow the security so that it would be capable of delivering the securities on the date delivery is due."
We've watched a number of companies be destroyed by illegal shorting practices, and it is a welcome relief that new rules will at least help control what has been as practice clearly detrimental to retail investors as well as small companies.
Interesting since this is the trend CMKX was following for the longest time and even then when the average investor was able to buy it at only 0.0001 there were individuals who managed to pick it up at a lower price including 0.000001
Its no Wonder the Brokers don't want to Play Fair!
Yes the SEC does not have enough employees to keep up with so much crime. On July 28, the SEC adopted Regulation SHO under the Exchange Act to provide a framwork for the regulation of short sales in securities. The perceived need for Regulations SHO grew out of longstanding problems involving failures to deliver stock by the end of the standard 3-Day trade settlement period, some of which were symptoms of abusive naked short selling. To help avoid failed settlement, Regulation SHO includes a "locate" requirement: "A broker or dealer may not accept a short sale order in an equity security from another person or effect a short sale in an equity security for its own account, unless the broker or dealer has
1. borrowed the security or entered into a bonafide arrangement to borrow the security
2. reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivered is due
3. documented complience with this requirement"
SEC Taking action ! CMKX is Next !!!
The U.S. Securities and Exchange Commission (”SEC”) recently signaled its continuing concern about market manipulation schemes that are designed to drive down the price of publicly traded securities by bringing an enforcement action against an unregistered investment advisor.
On February 27, 2003, the SEC sued Rhino Advisors (an unregistered investment advisor) and its president Thomas Badian for violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 as a result of a scheme to manipulate the price of Sedona Corporations’ common stock. According to the SEC, Rhino and Badian engaged in concerted short selling of the company’s stock price down ahead of planned conversions of a convertible debenture into common stock. In order to obscure the short sales and covering transactions from both the company as well as the market, the SEC charged that Rhino effected a series of matched orders and wash sales involving the covering securities. The SEC’s enforcement proceeding against Rhino and Badian was simultaneously settled with respondents paying $1 million and consenting to entry of an order enjoining future violations of the anti-fraud provisions of the federal securities laws.
This enforcement proceeding – and the size of the penalty imposed by the SEC – signal the SEC’s continuing concern about market manipulation schemes and suggests that the SEC is looking carefully at short selling activity that may be part of an effort to artificially depress stock prices.
The Alleged Misconduct
In its complaint, the SEC charged Rhino and Badian with manipulating the stock price of Sedona Corporation in order to benefit an advisory client who bought a convertible debenture from Sedona, a Pennsylvania based technology company whose stock is traded on the NASDAQ SmallCap Market.
On November 22, 2000, Rhino’s advisory client provided Sedona with $2.5 million in financing as consideration for the latter’s issuance of a $3 million 5% convertible debenture. The debenture obligated Sedona to pay $3 million on March 22, 2001. Under the agreement, the advisory client had the right tot convert all or any portion of the debenture into Sedona common stock at a price equal to 85% of the volume weighted average price (“VWAP”) of Sedona’s common stock on the NASDAQ SmallCap Market during the five day period prior to the conversion date. The debenture expressly prohibited the advisory client from selling Sedona”s stock short while the debenture remained issued and outstanding.
The SEC’s complaint alleges that Rhino violated the contractual provision by engaging in extensive short selling through a series of broker-dealers on behalf of its advisory client. As a result of the short selling, the VWAP for Sedona’s stock steadily declined, enabling the advisory client to get more common stock upon conversion of the debenture than it otherwise would have been entitled to.
What made this into an SEC enforcement proceeding – and not just a breach of contract claim – is that Rhino’s misconduct involved more that just selling Sedona’s stock short in violation of a contractual prohibition. Rather, Rhino hid its short selling from Sedona (and the rest of the market) by arranging for a “cooperating broker” to make the short sales in its own proprietary account. The broker then covered its own short position at the end of each day – after the markets had closed – by buying an equivalent number of shares from Rhino’s advisory client (and the broker did so at a slight premium so as to ensure a profit on each series of stock transaction). This left Rhino’s advisory client with an undisclosed short position. By conducting the trades in this manner, Rhino hid the short sales from the issuer because, although the cooperating broker’s short sales were included in the market’s reported price and volume data (and, therefore, affected the VWAP), neither the broker’s covering purchases nor Rhino’s short sales were printed to the NASDAQ tape.
Rhino then engaged in further manipulative conduct when it covered its advisory client’s short position (after repeatedly failing to deliver the stock sold short to the buyer on the settlement date either by borrowing the stock or covering) with share the advisory client received upon the conversion of the Sedona debenture. Although the advisory client covered its short position utilizing the stock it acquired from Sedona in the debenture conversions, Rhino did not want it to appear that the client was using the stock obtained from Sedona for the purpose (since Rhino’s advisory client had pledged to Sedona that it would not engage in short sales while the debentures were outstanding). Accordingly, rather than deliver the newly acquired Sedona shares directly to the brokers where Rhino’s advisory client had short positions, Rhino effectuated a series of wash sales and matched orders between the advisory client’s long account at one broker-dealer and the advisory client’s short account at other broker-dealers. In doing so, Rhino gave the appearance that the short position were being covered through open market purchases when, in fact, the advisory client was using the stock obtained in the debenture conversion to cover its short positions.
Conclusion
The SEC’s actions in bringing this enforcement proceeding and imposing a substantial fine on the unregistered investment advisor evidences the SEC’s commitment to crack down on market manipulation schemes of al l flavors. What is particularly interesting about this case is that by seeking to find a way around a contractual provision prohibiting short selling – thereby doing indirectly what it could not do directly – the investment advisor bought itself into a series of securities law violations, an SEC investigation and a hefty fine. At a time when hedge funds and short selling are under increasing scrutiny, this enforcement proceeding is an important reminder to always stay on the correct side of the line between lawful shorting activities and illegal market manipulation.
Harry S. Davis
Schulte Roth & Zabel LLP.
212-756-2222
harry.davis@srz.com
That Washington Post article was a nice touch to get their attention and wise. Its no wonder everyone is on their toes when they hear CMKX ! LOL
"You've already lost." what are you blabbing about...
If we had already lost you wouldn't be here would you ?
It should not surprise you once Bill is ready he will be assisted by someone like Mason Alan Dinehart III, RFC
FEND - A Securities Expert Witness in Arbitration
Telephone: (310) 641-0377; Outside CA (800) 484-6930 (7428) Email: fendmase@ca.rr.com
www.fend.com
It should not surprise you if someone like....
FEND - Securities Expert Witness in Arbitration
Mason Alan Dinehart III, RFC
Telephone: (310) 641-0377; Outside CA (800) 484-6930 (7428) Pin Number, when asked.
FAX: (310)649-3663
Email: fendmase@ca.rr.com
Website: http://www.fend.com
Will be involved...
No need to go after Nevwest just their boss.
Athough "It is entirely different to prove it in court or to even have the laws on your side. " this is true just because you're telling the truth doesn't it doesn't mean that the laws will support you. This is why Bill will certainly be not doing this alone...
Are the brokers working together to get around the restriction by passing CMKX transaction among each other at this point in time, starting the 13-day clock over again ?
How long can they keep this up ?
Perhaps this should shed some light what Bill is up to...
Behave yourselves now...
Here are the FACTS !!!!!!!!!!!!!!!!!
How bad is the problem? Listen to this story: On Feb. 3, a man named Robert Simpson filed a Schedule 13-D with the SEC describing his purchase of 1,158,209 shares of Global Links Corp. (OTCBB: GLKCE), "constituting 100 percent of the issued and outstanding common stock of the Issuer." As described in a story that ran on FinancialWire on March 4, Simpson stuck every single share of the company in his sock drawer -- and then watched as 60 million shares traded hands over the next two days.
In other words, every single outstanding share of the company somehow changed hands nearly 60 times in the course of two days, despite the fact that the company's entire float was located in Simpson's sock drawer. In fact, even as recently as last Friday, 930,872 shares of Global Links still traded hands. If Simpson's claim that he owns all shares is accurate, that is a staggering number of phantom shares being traded around by naked short sellers.
Patrick Byrne, CEO of Rule Breakers recommendation Overstock.com (Nasdaq: OSTK), for instance, has noted seeing four and five times his company's float rack up in trading volume over the course of a day. Overstock has been on the Nasdaq Threshold Security List for weeks, indicating a consistent pattern of, um, settlement failure.
What exactly are settlement failures? In a legitimate short sale, shares must be delivered within three days of the transaction. If they are not, this is called (excuse the tortured syntax) "fails to deliver." Failure to deliver -- that is, a settlement failure -- could be the result of a bureaucratic snafu or clerical oversight. But consistent failure in large volume would seem to indicate something more nefarious, or at the very least, a major bureaucratic breakdown in desperate need of repair. Failures on the scale experienced by some companies go beyond any innocent explanation.
The Threshold Security List, published daily by Nasdaq, the NYSE, AMEX, and Archipelago (AMEX: AX), is the most visible aspect of Reg SHO. To make the list, more than 10,000 shares in a company or more than 0.5% of a company's total outstanding shares must fail delivery for five consecutive days. When a stock appears on this list, it is like a red flag waving, stating "something is wrong here!" When a hedge fund is actively shorting a number of stocks that just happen to be on the Threshold Security List, it would seem to be good cause for an investigation.
Under the new rules, if shares haven't been delivered for 13 days after the transaction, the broker must buy them back -- with money it presumably would collect from the client who shorted the stock in the first place. So a bad actor can break the law a little bit, but if he breaks it a lot, he has to cover the short -- which he was going to have to do anyway and, since he's been manipulating the price by illegal activity, can probably be done at a bargain price. Now that's showing the bad guys! Moreover, as Sen. Bennett noted, brokers working together could get around even this restriction by passing the transaction among each other, starting the 13-day clock over again.
While Reg SHO stipulates that a broker is supposed to locate shares prior to executing a short sale, there are certain exceptions to this rule. One is that if a stock appears on an "Easy to Borrow" list, this is considered "reasonable grounds" to assume the stock can be located for settlement, and the short sale may proceed without the broker contacting the source of the shares or specifically locating them. (A footnote in the SEC's discussion of the final rule [release number 34-50103] adds: "Of course, securities that are 'threshold securities' pursuant to Rule 203(c) should generally not be included on 'Easy to Borrow' lists." Geez, really? But sometimes it's OK for heavily manipulated stocks to be shorted further without locating shares?)
Another exemption is for "Bona-fide market making." Is it just me, or does the specification that bona fide market making is exempt -- versus sorta market making? --point to some possible wiggle room in interpretation? The SEC is quick to explain that, among other qualifications, "Bona-fide market making does not include transactions whereby a market maker enters into an arrangement with another broker-dealer or customer in an attempt to use the market maker's exception for the purpose of avoiding compliance with Rule 203(b)(1) by the other broker-dealer or customer." Thank goodness deliberately circumventing the rules is forbidden by the rules! That's kind of a tiny echo of Reg SHO itself, which is a set of rules about not breaking 71-year-old laws. I think history has shown us that the rules aren't terribly effective without enforcement.
Volume matter too since in this case the everyone was very ware that such high volume means there is now way we have 500 investors. It took them how long to figure that out ? LOL
LEGAL DUTIES OF STOCKBROKERS!!!!!!!!!!
Brokers can lend your shares to other investors, who may want to "short sell" them. That is, they are betting your stock will fall. There is no danger you will lose your shares because the brokerage will make sure you are covered.
http://www.willkie.com/files/tbl_s29Publications%5CFileUpload5686%5C2572%5CSEC_Proposes_Naked_Short_Selling_Antifraud_Rule.pdf
"Naked" short selling refers to selling short without having stock available for delivery and intentionally failing to deliver stock withing 3 day settlement period.
On July 28, 2004 SEC adopted Regulation under the Exchange Act . To help avoid failed settlements
The SEC could bring a civil action agains violators of Exchange Act rules can result in criminal liability. The SEC also states that broker-dealers could be liable for aiding and abetting their customers' fraud under the RULE.
http://www.fend.com/ldos.html
A broker must refrain from making an unsuitable recommendation even if the customer expressed an interest in engaging in the inappropriate trade or asked the broker to make the recommendation. See, e.g. ,Dane S. Faber, Exchange Act Release No. 49216, 2004 SEC LEXIS 277, at *23-24 (Feb. 10, 2004).
DUTY TO PREVENT "FINANCIAL SUICIDE" - In the NASD Rules of Fair Practice - Rule 2310-2 (5) it states that, "recommending the purchase of securities or the continuing purchase of securities in amounts which are inconsistent with the reasonable expectation that the customer has the financial ability to meet such a commitment, exceeds the reasonable grounds of fair dealing". Further, a brokers responsibility goes beyond mechanical obedience to all customer demands As the S.E.C. stated in Clyde J. Bruff, 50 S.E.C. 1266, 1269 (1992) [h]aving undertaken to act as an investment counselor for the Pattersons, Bruff was required to make only such recommendations as were in their best interests. Thus, even if the Pattersons wished to engage in aggressive and speculative options trading, Bruff was obliged to counsel them in a manner consistent with their financial situation. (citations omitted). See Charles W. Eye, 50 S.E.C.655, 658 (1991) ("Her request for a plan to increase that income was not a warrant to escalate risks unduly. If the only approach capable of producing the desired income involved significant dangers, Eye should have advised against it"); Eugene J. Erdos, 47 S.E.C. 985, 988 (1983), aff'd, Erdos v. S.E.C.742 F.2d 507 (9th Cir. 1984) ("Even though Mrs. C. may have desired 'quick profits', that did not entitle Erdos to ignore her individual situation and place her limited assets in risky investments"); and District Business Conduct committee v. Michael R. Euripedes, No. C9B950014, 1997 NASD Discip. LEXIS 45 at *13(NBCC, July 28, 1997) (representative has consultative duty when customers wish to engage in trading that is inconsistent with their financial situation). In re John M. Reynolds, Rel. No. 34-30036, 1991: As a fiduciary, a broker is charged with making recommendation in the best interests of his customer even when such recommendations contradict the customer's wishes. Thus, even if the committee suggested that Reynolds engage in aggressive and speculative trading, Reynolds was obligated to counsel them in a manner consistent with their financial situation. Duffy v. King Cavalier (1989) 215 Cal. App. 3d 1517, defines a stockbroker's fiduciary duty as prohibiting the recommendations of unsuitable securities even if the customer requests the recommendations. See also Gordon Scott Venters, 51 S.E.C.292,294-5 (1993) (notwithstanding client's interest in investing in speculative securities, broker had duty to refrain from recommending such investments when he learned about his customer's age and financial situation); F.J.Kaufman and Company of Virginia, 50 S.E.C. 164,168 (1989) ("[t]he suitability rule...requires a broker to make a customer-specific determination of suitability and to tailor his recommendations to the customer's financial profile and investment objectives"); and as stated in James B. Chase, 2001 WL 9637888 (NASDR 2001); [The broker] argued that his recommendations of FHC, which he admitted was a speculative stock, were suitable in light of [the customer's] change in her stated investment objectives from "income" to "growth" and "speculation". A customer's investment objectives, however, are but one factor to consider in determining whether the broker's recommendations were suitable for the customer. Furthermore, a broker cannot rely upon a customer's investment objectives to justify a series of unsuitable recommendations that may comport with the customer's stated investment objectives but are nonetheless not suitable for the customer, given the customer's financial profile. Thus, even where a customer affirmatively seeks to engage in highly speculative or otherwise aggressive trading, a broker has a duty to refrain from making recommendations that are incompatible with the customer's financial situation and needs. See e.g., Paul F. Wickswat, 50 S.E.C. 785, 786-87 (1991) ("The proper inquiry is not whether [the customer'] viewed [the broker's] recommendations as suitable, but whether [the broker] fulfilled his obligation to his client."). Even in cases in which a customer affirmatively seeks to engage in highly speculative or otherwise aggressive trading, a representative is under a duty to refrain from making recommendations that are incompatible with the customer's financial profile.[FN14]. Danile Richard Howard, Exchange Act Rel. No. 46269 (July 26, 2002), 78 SEC Docket 427,429-30; See also Pinchas, 70 SEC Docket at 1526 (customer's desire to "double her money" does not relieve registered representative of duty to recommend only suitable investments); and William C. Pointek, 81 S.E.C. 2451, 2003 WL 22926821 at *7(2003).
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Geoffrey Brod, a former Aeltus Investment Management LLC portfolio manager has been charged by the SEC with concealing personal stock trades held by mutual funds that he was overseeing. The SEC is also charging him with falsifying internal reports. According to the SEC, Brod’s wrongful activities are in violation of his company’s ethics, as well as the antifraud and reporting provisions of the 1940 Investment Company Act.
SEC rules mandate that Brod turn in quarterly and yearly reports of personal securities transactions to Aeltus, which mandates pre-clearance of all portfolio managers’ securities trades, prohibits short-term trades, allows no more than 30 securities trades in a quarter, and requires both a 60-day holding period and a yearly certification of code compliance.
Brod is said to have actively taken part in personal, short-term trading in public company stocks. He had access on a regular basis to mutual fund holdings and their transactions in securities that were traded publicly. His method of trading, says the commission, required a very short-term trading pattern, and his holding period lasted about two to seven days. He engaged in about 3,5000 personal trades.
Brod is accused of making about $410,000 from his transactions. In addition, the SEC says Brod submitted bogus quarterly and yearly reports to Aeltus. In the reports, he stated that he had no securities holdings or transactions to report. According to the SEC, he also falsely certified his yearly compliance with Aeltus’ Code of Ethics.
A hearing will take place to determine the veracity of the SEC’s allegations against Brod. Aeltus, now called ING Investment Management Co., fired Brod in 2003.
For many years, Shepherd Smith and Edwards has helped investors who have lost money. because of the misconduct of brokers and other members of the securities industry, recover their losses. We have successfully represented many clients throughout the U.S. and internationally, and our offices are conveniently located in Phoenix, Chicago, New York, San Francisco, Dallas, New Orleans, Houston, and Mexico City. Contact Shepherd Smith and Edwards for your free consultation.
--
Morgan Stanley & Co. Inc., the world’s second largest securities firm, will pay $7.9 million for its failure to provide best execution to certain retail orders for over-the-counter securities, the Securities and Exchange Commission announced today. Morgan Stanley embedded undisclosed mark-ups and mark-downs on certain retail OTC orders processed by its automated market-making system and delayed the execution of other retail OTC orders, for which Morgan Stanley had an obligation to execute without hesitation.
“By recklessly programming its order execution system to receive amounts that should have gone to retail customers, Morgan Stanley violated its duty of best execution and defrauded its customers,” said Linda Chatman Thomsen, Director of the regulator’s Division of Enforcement. ``Best execution is a fundamental duty of a broker- dealer,'' Thomsen, added. ``Morgan Stanley violated its duty'' and committed fraud by setting-up its order-execution system "to receive amounts that should have gone to retail customers.''
The company began overcharging clients after embedding undisclosed fees on some trades when it adopted a new computer system to handle transactions in 2001, the SEC said. The lapses affected more than 1.2 million transactions valued at about $8 billion from 2001 through 2004. A Morgan Stanley trader stumbled onto the problem in December 2004 when unusually high trading in a company's stock generated a $400,000 profit within a few minutes, the SEC said. The trader alerted his supervisor, and by that afternoon a technician pinpointed the programming “error”.
All of Morgan Stanley’s revenues from its undisclosed mark-ups and mark-downs will be distributed back to the injured investors through a distribution plan, according to the SEC. The order requires Morgan Stanley to pay disgorgement of $5,949,222, prejudgment interest thereon of $507,978, and imposes a civil money penalty of $1.5 million.
Without admitting or denying the commission’s findings, Morgan Stanley consented to the entry of an order by the Commission that censures Morgan Stanley.``$8 million isn't enough of an impact on their revenue or bottom line to have me worried too much,'' said Jeffery Harte, an analyst at Sandler O'Neill & Partners in Chicago who recommends buying Morgan Stanley stock. ``$8 million is a rounding error.''
The SEC may examine other firms' systems for similar problems, said Elaine Greenberg, an SEC official in Philadelphia overseeing the case.
If you or someone you know has been the victim of investment fraud, contact Shepherd Smith and Edwards today to schedule a free consultation with an attorney. For decades we have successfully assisted investors recover their losses. Visit our firm's Web site for more information.
The SEC or U.S. Securities and Exchange Commission is responsible for maintaining a fair, orderly and efficient market for anyone who trades in them. The SEC governs the rules and regulation that make markets fair and it also makes sure that the corporations that trade in those markets report financial information to the markets about the health and well being of their companies. The DTCC clears, settles and provides information services on the trades that get executed on those exchanges. At any one time the DTCC holds assets and provides custody to as much as $40 trillion dollars worth of securities. Which securities? Equities, corporate and municipal bonds, mortgage backed securities and many more.
Yes its amazing how they both spend their entire weekend here ... LOL ... almost makes one wonder if they earn a living doing this
I think one of the shareholders wants to say hi to them ...
http://www.schroederianer.de/images/20050829072133_manu.jpg
Sorry to say this but brokers are responsible to ensure that all the shares purchased are not NSS. Do you disagree ?
This is exactly why you can see Bill is taking his time in documenting the evidence.
Seem like people's main objective is to discredit others as sheep even on this board.
Having done his research...to prove this while the world will watching under a microscope... LOL
Trust me there are a lot of individuals watching this stock even the White house ...
"most of us will hang around until we see lots of people discredited " sounds like an agenda ...
To discredit everyone hence CMKX will go away.
We are not going away so be prepared to face your biggest fear, the public will be your judge this time.
You can take that to the bank.
That is an interesting point. Maybe they enjoy beating dead horses. LOL
Or maybe they are worried because this horse is sleeping...
You can be certain we have NSS and you don't want to provide any of the facts till you're ready to make it hurt.
The best form of attack is to surprise them !
Hold on to them, we are about to go forward just look around CMKX is ready to proceed.
Yet you guys insult him righ on the BLOG how sad !
What will be very vital to the future of CMKX ...
The new CEO will !
This guy must not only be an expert in Law but also the Mining industry to get CMKX back on track. At least in the first year they should not be concerned with how much money he will cost CMKX because if this individual is not SHARP MEAN FAST SMART and well EDUCATED nothing will matter anyhow.
However it seems we are ready to proceed to the next phase since all these changes are taking place in the management !
This is great news.
Have a great weekend guys I'm off to a BBQ.
Maybe he exaggerated a little to make a statement, but we do have NSS and on top of that Millions of dollars were stolen by insiders with the current state of our Stock market system.
Thats not what Bill told me :) LOL
The Cert pull alone is enough to get the ball rolling.
Is that a wrinkle on your forehead... ?
LOL