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ot:SEC Nails Hedge Funds for Naked Shorting - Misses on Penalty – March 16, 2006
David Patch
Reports out of the Securities and Exchange Commission is that three Madison Ave. based Hedge Funds managed by portfolio manager Jeffery Thorp engaged in insider trading and naked short selling involving 23 Private Placement Equity deals (PIPE’s) between 2000 and 2002.
According to the SEC Complaint filed, Thorp created an elaborate scheme to illegally profit from short sales executed while in negotiations for a convertible private placement arrangement. In the scheme, Thorp would illegally short shares through a Canadian firm utilizing a known loophole between Canadian and US market laws.
The Madison Ave. based Hedge Funds would naked short through Canada using Canadian shorting rules resulting in settlement failures to exist on the short sales until that time where the deal was concluded and shares were received as part of the private placement. Once the shares were received as part of the private placement, Thorp would cover the fails using those shares.
This all sounds great right? The SEC is now taking enforcement action in connection with fraud they have publicly stated does not exist to any extent. Fraud the DTCC claims they have no accountability in even though the fraud is orchestrated using the leverage of settlement failures.
Unfortunately, if you dig deeper into the story, there is actually more to it than what the SEC is willing to state publicly.
Let’s start with the Canadian loophole.
Naked shorting or shorting without making proper Affirmative Determination (AD) that a share can be borrowed for delivery on settlement was legal in Canada in 2000 - 2002. These trades from non-Member firms were unregulated by the US Securities regulators even though the trades were being executed from Canada into the US. The result was settlement failures on the books of US member Firms and at the Depository Trust Clearing Corporation (DTCC).
Under US law, trades executed must abide by rules 15c3-3 and 15c6-1 which require both buy-side and sell-side Broker-Dealers (BD) to be responsible for the prompt settlement of a trade. The industry standard was 3-days after trade execution.
The Canadian loophole created a fail to receive on the books of US Member firms and created conflict with the best interests of the US Investor purchasing shares long. In 2001 the NASD recognized this loophole between countries and trade laws and proposed to the SEC a modification to NASD Rule 3370 making it the responsibility of the member firm to insure AD was made and settlement could be achieved on time (SR-NASD-2001-85).
But while the NASD recognized this as a loophole, and as we have learned since that this loophole was widely used to commit fraud, the SEC Division of Market Regulation under the direction of now SEC Commissioner Annette Nazareth sat on the proposal. The SEC delaying the submission of notice for public comment on this proposal for several years; only allowing this rule to come into affect on April 1, 2004.
This fraud we now hear of 4 – 6 years later was committed at a time where the NASD recognized it as a problem and attempted to address it but the SEC ignored their warnings. Commissioner Annette Nazareth’s willingness to ignore issues of illegal shorting resulted in her failing in her duties to protect the issuers and the investors from Wall Street abuses.
And thus we get to the vehicle used to defraud; trade settlements.
The Securities and Exchange Commission is a Federal Agency created by Congress to protect our US markets and the investing public. In 1934 Congress created the Securities and Exchange Commission and over the years since recognized the need for a national clearance and settlement system. The SEC created this system we now recognize as the DTCC through the merging of several private entities and developing a quasi self-regulatory agency.
Under Section 17A of the Securities Act of 1934 came the demand that this system be created and that prompt and accurate settlement of trades be a priority. This is US Law pertaining to US Markets. Promulgated from 17A came Rules 15c3-3 and 15c6-1.
The fraud we now are learning about used the vehicle of settlement failure to work it’s magic. Three US Hedge Funds under the regulation of the SEC went up to Canada to circumvent US Laws by naked shorting US Securities into the US marketplace. The settlement failures, failures to receive at the US end, were accounted for on US member firm books and accounted for on the DTCC ledger. The US system created to protect the US markets failed.
In the simple case of the 23 separate dealings, and $7 Million in illegal gains, the DTCC and the member firms ignored their sole responsibilities to compliance of US Securities laws and allowed excessive fails to persist without question for periods exceeding 30 – 60 days according to the SEC complaint. The US member firms failed in complying with their side of rules 15c3-3 and 15c6-1 and in doing so become willing participants in the fraud.
The SEC even today refuses to recognize this breach of fiduciary responsibility to the US client involved in this trade by the member firms. It was systemic and therefore it must be forgiven.
To this very day the DTCC refuses to accept blame or responsibility for the settlement failures. The DTCC has created a public campaign to excuse the agency from blame yet the basic principle behind the fraud is the very nature of the DTCC existence – Trade Settlement.
Finally, the SEC complaint against Thorp and the three Madison Ave. Hedge Funds accuses Thorp of conspiring with US Broker-Dealers to hide the fraud through “wash trades” and “boxing.” The complaint does not identify who those Broker-Dealers are and/or whether any regulatory action was taken against them. According to a report out of the NY Times, Floyd Norris asked the SEC attorney Jeffrey Friestad who was in charge of this case whether the brokers involved would see an enforcement action. Friestad’s response was troubling as he reportedly claimed he would "look to see whether brokers had any responsibility for this and bring charges if appropriate."
The damn complaint all but identifies broker collusion and Friestad is deciding whether that is a violation?
What we do know is that this scheme to defraud lasted for over 2 years and affected 23 separate companies. We also know that one fund manger out of SG Cowen was accused in no fewer than 10 of these similar type conspiracies and TradeStation is accused in yet another 19 cases of illegal short selling through Bear Stearns. In addition we have cases settled with Rhino Advisors, Hedge Fund Manager Hilary Shane, Hedge Fund Manager John Mangan, and a pending settlement with Emanual Friedman for illegal short selling.
These enforcement activities all lead to something more than isolated cases involving a relatively non-issue as being portrayed by the SEC and SRO’s. In fact, a betting man would say that this has been a standard practice known to all.
Today, jobs are being lost, the financial stability of US Families is being stolen, and our future technologies are being cast aside to finance the greed of wealthy individuals of Wall Street. Hedge Funds that locate themselves on the prestige of Madison Ave. have to cheat to deliver profits to their ultra-wealthy clients. Schemes include setting up accounts in Canada just to circumvent the US laws illustrate the integrity of these individuals.
The fact that many of these companies were part of the medical field and may have a product that could save lives is irrelevant to those committing this fraud as it is all about who has the bigger yacht when you play in these circles. Safety of our nation and of our generations to come have no place in the bank accounts of these wealthy criminals.
It is time the SEC and other regulatory agencies are held accountable for their actions in allowing this abuse to prosper even as these small cases are brought forth. This type of fraud is not based on rogue individuals but is well known to those in the industry as merely standard practice. Like conflicts in stock research, special trading privileges (late trading/market timing) for Hedge Funds, and front running orders the regulators have waited until meaningful time has passed and the damage is beyond repair before any type of action is taken.
The insult in this particular case the SEC did not ban thorp from the Industry. The SEC instead settled on a monetary fine and made thorp promise to never violate THIS act again. The fact that Thorp did it a minimum of 23 times previously seems to slip past the geniuses who sit on the Commission of the SEC. This crime resulted in tens if not hundreds of millions in public investor losses and the SEC fines Thorp and his Funds a total of $13 Million in fines and disgorgement of gains. Far from a deterrent to a man of who operates three Hedge Funds on the prestigious Madison Ave. in New York.
The evidence is out there – all you have to do is look for it.
For more on this issue please visit the Host site at www.investigatethesec. com .
Copyright 2006
ubss brought it down to have nite move in and fill 400k at .032 than they moved their ask back to .037
interesting nite moved bid to .032 and 400k went off than they backed off to .028
ubss .033 bid/ ubss .036 ask nite .038 ask tdcm .04 ask etrd .05 ask
ubss is the only mm on the bid and the ask
tdcm now .024 bid ahead of ubss .023 ubss ask .027
ubss ask down to .024 filled some raised it back to .025 back to .024 on no trades
tdcm just moved their bid to .025 on no trades
tdcm just moved their bid to .024
ubss lowered their bid to .02 trade went off they raised after to .021 .022 now .023 bid after 1 trade at .027
art was that a cover or a dump at .02 for 1.1 mill
anyone notice how nite has not supported the bid since the run-up? when the stock was in the mid 4's nite was at .025 bid now they are at .009
DJ UPDATE:SEC Approves Expanded Reporting Of Short Positions
(Updates with comments from Pink Sheets CEO starting in the sixth paragraph.)
By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Federal regulators have approved a new requirement for
brokers to report short positions in stocks that trade over the counter. The
Securities and Exchange Commission announced Tuesday that it has approved the
National Association of Securities Dealers' proposal for expanded short-position
reporting.
Short selling involves sales of borrowed stock. Short sellers profit when the
stock price falls, allowing them to replace borrowed shares at a lower price.
The NASD now requires its members to keep records and file monthly reports of
total short positions in their own accounts and those of their customers, but
the rule applies only to exchange-listed stocks and those on the Nasdaq Stock
Market.
Once the change takes effect, the same short-position records and monthly
reports must be made for shares traded over the counter. The NASD said the
change will increase information available to those who buy and sell OTC stocks.
NASD Regulation Inc. board members approved the rule change last summer and
filed it with the SEC last fall. The NASD said those who commented generally
supported the idea. The expanded reporting requirement is expected to take
effect by late spring or early summer. An NASD spokesman wasn't immediately
available to comment.
R. Cromwell Coulson, chief executive of Pink Sheets LLC, a privately owned New
York firm that provides pricing and financial information for OTC stocks,
applauded the move.
"How great is that," Coulson said in a telephone interview. He predicts
investors will benefit from having more light shed on short sales "because dark
corners are not good for markets."
Coulson petitioned the SEC in January 2005 to require NASD members to file
short-position reports for all publicly traded stocks, including the
approximately 4,800 quoted in the Pink Sheets and 3,300 trading on the OTC
Bulletin Board.
The Pink Sheets CEO figures the new reports will help combat penny-stock
frauds such as "pump and dumps," in which manipulators convince investors to buy
a stock while the manipulators are selling. He also expects the OTC short-sales
reports to shed light on reports of widespread "naked" short selling abuses.
"Naked" sales occur when shares are sold by sellers who don't borrow them and
have no intention of doing so. Coulson expects the expanded reports will show
that legitimate market makers are not engaged in "naked" short sales of OTC
stocks, although many of those who commented to the SEC in support of his
petition took the opposite view.
Once the new monthly reports are filed to the NASD, Coulson said the Pink
Sheets will make them available free of charge. His only complaint is that the
reports aren't filed more often: He'd prefer daily reporting on short positions.
-By Judith Burns, Dow Jones Newswires; 202-862-6692; Judith.Burns@dowjones.com
(END) Dow Jones Newswires
02-07-06 1627ET
***a must listen to interview re: naked short selling
rod young ceo of eagletech...
was given proof from the doj, which forced the sec to disclose the naked shorting case to him, because the sec was forced to do so while investigating the manipulators...the sec was forced to disclose this..rod details the fraud that was exposed in his trading..in 2000 listen to it
http://cfrn.net/investigates/
click on sec hearing rod young feb 3rd
A Silent Lynch Mob - An Open Letter From Rod Young
by Rodney Young
I am requesting the presence of all who have the ability to attend Oral Arguments in front of the SEC commissioners on 10:00AM Monday February 13, 2006, at 100 F Street, NE, Washington DC (The SEC‚s Main Headquarters) in the Auditorium on the Lower Level (Room L-002), where I will argue Pro-Se Eagletech Communications, Inc.’s affirmative defense that the SEC has violated the Constitutional 5th Amendment property rights of shareholders by Regulation SHO’s ‘Grandfathering’ of pre-Regulation SHO delivery failures. The SEC has ruled the Company’s publicly traded shares shall be De-Registered for not filing timely reports. That ruling is stayed pending appeal to the full Commission and pending further appeal to the U.S. Federal District Court and its appeal processes.
An astonishing sequence of events has presented us with this unprecedented opportunity! Fifteen minutes eyeball to eyeball with the five Commissioners appointed by the President of the United States to send any message we wish. This isn’t about whether Eagletech Communications filed its reports and everybody knows it! This opportunity to stand before the Commissioners in my opinion may be the first, last, and only that most of us may ever have. Let’s together figure out a way to use it to our greatest advantage!
This is a public meeting in a 300 person auditorium. Documentary film maker Hugo Cancio has agreed to film this meeting and the Secretary’s office has confirmed that filming such meetings is a common occurrence. The Commission will supply a court reporter; the transcript will be available for purchase the next day. Enforcement division attorney and my opponent Anthony Byrne has told me that Oral Argument hearings are typically available as real time streaming audio on the Commission’s website at www.sec.gov.
Eagletech has alleged in its affirmative defenses that the SEC has illegally taken the property of shareholder’s in violation of the 5th amendment to the U.S. Constitution. By ‘Grandfathering’ pre-regulation SHO delivery failures this agency of our Federal Government has conducted an ‘inverse taking’ of shareholder’s property without due process and without compensation when ‘Grandfathering’ suspended the settlement process which they are mandated to maintain in the Securities Exchange Act of 1934. By Grandfathering and then by De-registering Eagletech shares the SEC has taken shareholder’s property and given it to the criminal perpetrators who have sold counterfeit shares to the public with no intention of, and now no requirement to ever deliver them.
To everyone’s astonishment Administrative Law Judge Kelly gave leave to appeal his decision on this theory (see pages 4 and 5 of his opinion attached to this email).
The SEC’s Enforcement Division has chosen to blatantly ignore evidence of criminal Naked Short Selling misconduct and instead has chosen to sweep the crimes under the rug by De-Registering the Company’s stock. Eagletech has provided to the SEC the following evidence of criminal misconduct:
1 A toxic PIPE financing was organized by five managing directors of Salomon Smith Barney.
2 Ten days after the initial meeting at Salomon’s World Trade Center offices the now convicted Anthony Elgindy and his Short Selling Cartel appeared on chat boards claiming that Eagletech’s was a scam and that its press releases announcing its patent were false. The patent was issued 30 days later as well as a second patent a year later. Within the year Eagletech successfully deployed its technology in the three largest telecommunications markets in the Southeast U.S., making its “Eagle1Call” product available to 9.5 million people who could purchase provision and maintain the product from the Internet in a matter of minutes.
3 Elgindy associate Peter Michaelson testified in the Elgindy trial that he and others routinely contacted the SEC with tips of “Scam Companies” his organization had targeted.
4 Within a few months SEC enforcement attorney Justin Arnold issued a subpoena for information parroting nearly word for word Michaelson’s false allegations.
5 In an article published by author James Cummins, former 15 year former SEC Enforcement Attorney Brent Baker was quoted “For years the SEC was unable to control the infamous ‘pump-and-dump’ schemes of stock market criminals across the country, and actually developed a culture that believed that illegal naked short selling may be a counterbalancing force to the pump-and-dump.” A stunning admission!
6 On July 10, 2002 Forbes Magazine published the first national ‘expose’ of the ‘Naked Short Selling/Toxic Financing’ problem wherein Rod Young and Eagletech Communications were the lead subjects of the article. Three days later Washington DC lobbyist Jack Wynn told me that Steve Forbes was contacted by someone asking him to back off the story. A year later an unconfirmed source identified that someone as then SEC chairman Harvey Pitt. Wynn would later be drafted to author a position paper on the Naked Short Selling scandal for the Busch re-election campaign. They know!
7 Two Licensed Broker/Dealers at the CBOE (Their money ended up in the same escrow account with the five managing directors at Salomon Smith Barney) who didn’t disclose that they were Broker/Dealers invested in the PIPE financing, and began short selling Eagletech stock prior to the closing of the funding (Insider Trading).
8 The New York State Supreme Court granted Eagletech its DTC and NSCC trading records. The unprecedented ruling denied the DTCC’s request for a protective order. NSCC CNS (Continuous Net Settlement) Reports confirm that those short sales failed delivery for 252 trading days (one calendar year), making them illegal Naked Short Sales.
9 DTC participant 5099 reportedly a secret account at the CDS (Canadian Depository for Securities, the CDS is a subsidiary of the DTCC) failed delivery for 212 days. DTC Participant account 5099 is reportedly a special account that clear(s)(ed) through Euroclear for seven Canadian brokerages: Thompson Kernaghan, Wolverton Securities, Global Securities, Pacific International, Canacord Capital, Yorkton Securities, Research Capital, with now defunct TK being replaced by TD Waterhouse.
10 Forensic Economist and former Undersecretary of State Robert Schapiro analyzed three years of Eagletech’s CNS reports. He concluded that 37 DTC Participant firms used the NSCC ‘Stock Borrow Program’ to fail delivery of Eagletech stock in excess of the three day delivery rule and to continue delivery failures for up to 252 trading days. In light of DTCC Deputy General Counsel Larry Thompson’s revelation that the NSCC ‘Stock Borrow Program’ is used to cure only 18% of daily aggregate fails, it could be reasonably concluded that these 37 DTC Participants manipulating Eagletech’s stock represent only the tip of the iceberg, while the other 82% of daily aggregate fails promulgate through the Ex-clearing system.
11 The SEC produced discovery evidence to Eagletech in it’s De-Registration action, 49,489 pages and an electronic trade journal of 43,723 Eagletech trades over a 17 month period. The trading documents chronicle nearly half of the trades during that period were for the proprietary accounts of the Broker/Dealers (Market Makers) presumably using the ‘Bona Fide Market Maker’ exemption. For example: the metrics of a single days trading, May 12, 2000 revealed: 110 persons bought Eagletech stock, 3 persons sold Eagletech Stock totaling 81,934 shares. 18 Broker/Dealers bought or sold Eagletech stock for their own account totaling 300,778 shares. The marketplace reported 176,300 share Volume that day. Assuming there were Zero shares available for sale and those 18 Broker/Dealers used their ‘Bona Fide Market Maker exemption’ to fill the orders there is still a discrepancy of 206,412 shares. Where did they come from? Why weren’t they reported to the Marketplace? How’s that possible? The Metrics for May 15, 2000 are similar. So are the Metrics for May 16, 2000 and on and on and on… This data was supplied by the SEC as discovery in Eagletech’s De-Registration action. When it is put back in their face they won’t even acknowledge it let alone explain it! (See the attached Excel spreadsheet - Note that the workbook file contains 21 separate sheets)
12 In 2002 Eagletech made three official complaints to the SEC that it was being manipulated by illegal Naked Short Selling. The second of those complaints resulted in a meeting with Enforcement Division attorney Justin Arnold at the SEC’s Miami office where Eagletech’s attorneys gave him a three inch binder of evidence showing the manipulation of 200 companies. The third complaint was made by U.S. Congressman Peter Deutsch on behalf of the Company. From the SEC, even being a U.S. Congressman doesn’t get you the courtesy of a response.
13 In January 2004 FBI agents came knocking explaining that a New Jersey labor racketeering investigation turned up manipulation of Eagletech by its first Investment Banker Bryn Mawr Investment who had contracted Colombo family mobster Frank Persico’s Staten Island brokerage firm to sell Eagletech shares. Eagletech’s civil suit had been successful in procuring trading records from Bryn Mawr subsidiary brokerage firm Lloyds Bahamas Securities where the FBI had no jurisdiction. Eagletech’s attorneys freely shared the records with the FBI. Immediately the FBI brought in the SEC, and Enforcement Division attorney Justin Arnold into its now joint investigation.
14 In June of 2004 the SEC announced proposed Regulation SHO to take effect six months later in January 2005. A threshold list of company’s failing 3 day delivery would be established. Non Reporting issues would not appear on the threshold list (Pink Sheet stocks), not a mention of Grandfathering. In July 2004 the SEC announced to the media that they were “preemptively targeting shell companies ripe for manipulation for de-registration” (1300 now Pink Sheet companies almost all manipulated by illegal Naked Short Selling from the OTCBB or NASDAQ). How convenient, the most abused companies in history exempted from the new rule purported to stop such abuse, not because of the lack of transparency cited but because it sweeps the SEC’s culpability in using their own words “delivery failures greater than a company’s total public float” under the rug forever!
15 In an August of 2004 luncheon meeting with a potential witness in Eagletech’s civil case a member of the CIA showed up un-announced to me wanting details of the involvement of Jonathan Curshen and his Costa Rican Offshore asset protection company Red Sea Management in the demise of Eagletech. I was encouraged to write a criminal referral to the U.S. Secret Service who is charged with investigating counterfeiting of corporate securities under 18-USC-514. I authored 15 pages with 100 pages of evidence implicating the SEC and the DTCC as accessories to the crime. That referral was hand delivered to the Secret Service in Washington DC as a courtesy by the agent.
16 The NBC Dateline Debacle. Does anyone doubt the power of the wealthiest entity on earth the DTCC, the real owner of most all of the shares of every company in America, and held for your benefit. OK when they are benevolent, but what about when they manipulate the media, and threaten their detractors. The public doesn’t know it but at least half of the B-roll footage of me was shot after the cancellation of the April 10th scheduled airing. The story you saw on July 31st wasn’t the story ready for broadcast on April 10th. Producer Sharon Hoffman who should have resigned in protest was rewarded with a promotion to senior producer at NBC News a week later. Between 2:48 PM on July 6, 2005 and 7:22 PM on July 31, 2005 I received 11 threatening phone calls, the final one just about five minutes after the conclusion of the Dateline broadcast. You can be sure it wasn’t GE’s attorneys doing due diligence on the story.
17 Grandfathering! The SEC didn’t have the courage to make it a part of regulation SHO. Even they know how much it smells! They leaked it to the press in late December 2004 to an uproar of detractors, many of them still calling for a Constitutional test of their authority to suspend the settlement portion of their Congressional mandate to oversee the maintenance of an efficient clearing and settlement system. To the SEC and the DTCC efficient means de-materialization. De-materialization without transparency (access to short sale data) would be the final step in the perfect crime. I don’t know who to quote, reportedly somebody at NASAA said “Over my Dead Body.” Boo-Yaa!
18 Which brings us back to the subject of this appeal before the Commission; every shareholder of any Company in America who purchased shares and can not get delivery has a cause of action against the SEC as an agency of the U.S. Federal Government for violation of their 5th Amendment Constitutional property rights. An action brought as a Constitutional Tort under the ‘Federal Tort Claims Act’ in multiple Federal District Courts across the country is governed by the State eminent domain law where the shareholder’s property was taken (your home state). There is a multitude of case law in every state in the Union covering illegal inverse taking of property by Governments and their agencies. The governments successful defense using the discretionary exemption from Tort Claims in most cases since the 1947 case ‘Elizabeth Dalehite, et al. v. United States’ does not apply here. The SEC does not have discretion to suspend the settlement process (Grandfathering), even temporarily as they claim. The bottom line is they are vulnerable here. An agency with a strained budget, 1,500 mostly inexperienced attorneys, that brings 500 new enforcement actions per year would crack under the burden of 50 or 100 or 500 Constitutional Tort cases brought against it. The real benefit of such cases would be court ordered discovery of the short selling data that the SEC routinely denies shareholders, issuers and the media, under FOIA (Freedom of Information Act). The first survival of a motion to dismiss could alter the landscape.
In a perfect world: the SEC’s auditorium on February 13th would be filled with a silent lynch mob of aggrieved shareholders (CMKX shareholders welcome), the 13 State Securities Regulators who I would introduce as dignitaries one by one to the Commissioners, CEO’s of other victim companies, the media, congressional staff assistants, and our rock star advocates Byrne, Burell, Patch, Obrien (with or without the rabbit suit), Faulk, DeWayne, and Ferrara. My apologies if I missed somebody. My well rehearsed presentation would have had input from attorneys, State Regulators, and others and would have been released to the media ahead of time. I would have paper hand outs and a CD’s of evidence documents for media and congressional staffers to take away with them. The 13 State NASAA Consortium would be holding a press conference at a nearby hotel at Noon that day announcing their Joint Initiative and possibly the filing of a few cases against the miscreants in a few states. Finally the SEC would admit they are outgunned beg the Senate Banking Committee for help, we get our hearings, new clearing and settlement and Hedge Fund legislation, and a workout plan to settle the trades once and for all.
In the real world: I’ll take what I can get and I’ll soldier on! I encourage and welcome your comments and your help. This is our fight! The future for our children may depend on what we do here today!
Sincerely,
Rodney E. (Rod) Young
Eagletech Communications, Inc.
Amazingly Comprehensive Analysis of Naked Short Selling By Dr. Jim Decosta
Location: BlogsBob O'Brien's Sanity Check Blog
Posted by: bobo 2/1/2006 6:33 PM
Sitting on the plane yesterday, I was reading over some of the work a friend of mine produced on naked short selling, and it occurred to me that this info belongs in a venue where the public can access it. So I broke my commitment to take a few days off, away from computers, to post this - and then I will really stay offline...
By way of introduction, let me say that there are authorities, and then there are authorities. The gentleman in question is a true expert on the topic, partly because he’s been studying the issue for about 25 years – his comments to the SEC on Reg SHO have taken on near mythical status, as they so clearly warned of the abuse that would come should the SEC not implement the safeguards he’d advocated. His name is likely familiar to many who have closely followed this topic – Dr. Jim DeCosta.
The challenge in presenting the true state of the union is to provide data, supported by research, in bite-sized morsels that people can digest. I feel that his work is among the most comprehensive I’ve seen on the subject, so I leaned on him to allow me to publish a small sampling of his material. His premise has always been that the solution to the entire NSS mess lies in educating the investing public, the regulators, the Judiciary, and anybody else with a vested interest in the clearance and settlement system.
He’s written 2-1/2 unpublished books on naked short selling, which contain more data than any other work on the subject I’ve seen. In Chapter 42 he delineates some of what he calls “Not so bullet points”. He lists 40 of them, but I’m only going to publish the first dozen for now, as there is a lot of information to assimilate.
So without further ado, the first of Dr. Jim’s bullet points:
-------------------------------------
“I want to end this Chapter 42 with 40 “Not so bullet points” in regards to DTCC behavior in general. Many of these were revealed in the above analysis of the DTCC’s “Self-interview” and others were covered in previous chapters. My goal here is to get all readers on the same wavelength and build a foundation from which we can tackle the concepts in the last 28 chapters of this book and then move onto Book #3.
40 NOT SO BULLET POINTS IN RE: NAKED SHORT SELLING
1) Legitimate and illegitimate electronic book entries at the DTCC: Every trade involving a failed delivery that is allowed to “clear”, or more accurately, is bailed out, by a DTCC Stock Borrow Program (SBP) pseudo-borrow (a) results in a “Counterfeit Electronic Book-Entry” (“CEBE”) – an electronic book-entry held at the DTCC without corresponding paper-certificated shares held in a DTCC vault, or anywhere else, to justify their existence. (a) “Pseudo-borrow” is defined as an illegitimate borrow made from a self-replenishing anonymous pool especially one whose contents are admittedly not monitored.
Why are these pseudo-borrows illegitimate? Because the admittedly unmonitored contents (or “pseudo-shares” theoretically “borrowed” from the SBP lending pool to cure the failed delivery), are allowed to be replaced right back into the same pool of lendable shares by the new purchaser’s broker/dealer, as if they never left in the first place. (Chapter 4) Even if all of the “Shares” residing in the lending pool at a given time were legally there, i.e. a margin agreement was signed approving their being loaned or hypothecated, this policy would still be insane.
The DTCC tells us that 20% of all failed deliveries at the DTCC are dealt with via the SBP’s creation of these CEBEs. This violates Section 17A of the ’34 Act, as Section 17 A only allowed the DTCC to convert 100 million “Acme” paper-certificated shares held in their vault [and under their legal custody] into 100 million Acme electronic book-entry “Shares” in their “book-entry” system. The reasoning for moving from paper to electronic book-entries was that electronic book-entries are much more efficient to process - especially important in the midst of the 1969 “paperwork crisis” that drove the move to automation.
The CEBEs created by the SBP are above and beyond what Section 17 A permitted. NASD Rule 11830 later expanded the one-for-one ratio of paper-to-electronic shares, and effectively allowed there to be 100.5 million Acme shares (0.5% above the number of shares outstanding) held in electronic book-entry format, before buy-ins of the overage of delivery failures was mandated. Rule 11830 provided the critical “metric” in regards to the number of “Unaddressed delivery failures” (the size of the naked short position at the DTCC) above which action was mandated, to halt the incredibly obvious dilutional damage incurred by an issuer, and the investors therein.
2) CEBEs. CEBEs cause artificial dilution because they represent readily sellable share facsimiles, without any rights attached - misrepresented (a) on an investor’s monthly brokerage statement as being genuine “Shares” (with an attached package of rights). They are readily sellable facsimiles by necessity, because there is no way a DTCC participating b/d could refuse to take a sell order, or refuse to provide voting privileges, for something that it has implied to its client as being genuine “Shares held long” on their behalf (as per the fiduciary duty of care owed as an agent/broker, to its client that paid it a commission).
Recall from earlier chapters how the perceived value of each of the (dozen or so) component rights which make up a genuine “Share” are what gives a “Share” its value. The components of the rights package are the “Share.” As an example, the dividend “Right” attached to a corporation paying a generous annual dividend, would have a commensurately larger perceived value ascribed to that particular right. Paper certificates and electronic book entries are mere formats to account for “Share” ownership; they’re not the “Share” – and formats have no intrinsic value – it’s the package of rights that has the value.
(a) (Misrepresentation: A false representation of a matter of fact that should have been disclosed, which deceives another so that he/she acts upon it to his/her injury)
3) Unaddressed CEBEs kill corporations, via massive dilution, if they are not constantly and rigorously monitored for their quantity, age, and the legitimacy of the failed delivery that procreated them. In naked short selling (NSS), the mere method of placing the bet against a corporation increases the odds of winning the bet, because of the dilutional damage done with each negative bet placed that didn’t involve a legitimate “borrow”. Note that even legal short selling done as sloppily as it is done on Wall Street via “iffy locates” (as the SEC calls them), causes artificial dilution - but legal short selling has a built-in “Governor”: there are only a finite number of legitimate shares legally-loanable. NSS has no such “Governor”, and there’s no limit to the damage that can be inflicted upon an issuer. As mentioned before, “pricing efficiency” mandates that all short sales or “negative votes” against a corporation be counted - but only if they are preceded by a legitimate “borrow”.
This lack of a “Governor” creates the self-fulfilling prophecy aspect of NSS; just keep selling nonexistent shares until the company goes down. It’s analogous to ballot box stuffing. The mindset of the abusive DTCC participants and their co-conspirators becomes, “don't worry nobody's watching and you'll never be bought in, because the DTCC can be 100% counted on to pretend to be “powerless” in collecting the IOUs owed directly to them as the loan intermediary in the SBP “pseudo-borrow” process.
4) The only modality available to address archaic, excessive or illegitimate CEBEs is an open market "buy-in" - except for the extremely rare “negotiated settlement” with the victimized issuer.
5) Buy-ins force the seller of the nonexistent shares (who has refused to deliver them in a timely manner), to open his wallet, grab the investor’s money that he acquired under false pretenses as the share price “tanked,” and spend this money on purchasing the shares that he has already sold, but refuses to repurchase and deliver even after inordinate amounts of time. (See Dr. Boni’s research)
Recall the 2 parameters from earlier chapters that help address any intent to defraud issues – the length of time of this “refusal”, as well as whether or not the price has been declining during the “refusal” period. An abusive MM that refuses to cover even when the share price is tanking is, by definition, not acting in a bonafide market making capacity, and thus isn’t deserving of the pre-short-sale borrowing exemption accorded to “bonafide” MM’s only, and only while acting in that capacity. Recall that a true, bonafide MM deploys the proceeds from naked short sales at higher levels to post bids at lower levels, in order to flatten out the position and stabilize the markets. As we’ve seen time and time again, abusive market makers with these “stabilizing bids” are nowhere to be found as the share price of a victimized issuer drops - in fact, they’re still selling aggressively. If you know that you’re not going to be caught or prosecuted, why would an abusive DTCC participant decrease the size of the pile of booty taken from naïve investors by covering his naked short position? Why not increase the size of this plunder more yet? Decisions, decisions, increase or decrease the stack of stolen money sitting in front of one.
Recall the “triple whammy” from earlier chapters that occurs if an abusive DTCC participant did choose to cover. First of all, if you’ve been the only seller for a couple years, the mere action of stopping the selling will cause the share price to gap upwards, as it has been actively forced downwards in the past. Secondly, this increase in share price from the cessation of active selling will increase the collateralization requirements for the naked short position still on the books. Thirdly, if the abuser not only stops selling but actually starts buying then the share price will have am even greater tendency to gap upwards, which will exacerbate the collateralization requirements, as well as the price needing to be paid for future covering. In other words, THEY CAN’T COVER, and the SEC knew this when they grandfathered in all preexisting delivery failures as part of Reg SHO.
The mandated buy-in approach is extremely efficient because it results in the bill for the buy-in landing in the lap of the fraudster doing the naked short selling, no matter how many layers of “dummy, straw, or nominee” corporations he is acting through (usually in various offshore havens with various banking secrecy laws, that are inexplicably allowed to interface with the DTCC – Canada included). None of the intermediaries in these transactions are going to bail out those that actually placed the order. The clearing firms holding these NSS positions in their “DTCC participant” securities accounts have been well-collateralized, due to the theoretically ultra-high risk nature of the naked short selling of penny stocks -so there is money sitting there ready to be deployed.
6) The very obvious buy-in solution is violently fought by the DTCC, as well as the SEC, as witnessed in the research results of Evans, Geczy, Musto and Reed (2003), showing that only one-eighth of 1% of Rule 11830 mandated buy-ins are ever effected. Why? In the case of the DTCC, it’s because their abusive market maker participants/owners, aware of how easy it is to steal a naïve investor’s money, are net naked short almost all of the development-stage corporations they make a market in. They know how tipped the playing field is and how these OTC markets are essentially rigged in favor of the DTCC participants owing a fiduciary duty of care to their clients - the investors whose money they are rerouting into their own wallets. They wouldn't be caught net long a development-stage micro cap corporation to save their lives. They may or may not know all of the intricacies of naked short selling, but they all know enough to work from a net short position. The reason why the SEC adamantly opposes buy-ins is a little more problematic, and the subject of a variety of theories held by various securities scholars. We’ll review them in future chapters.
A truly bonafide MM will hover near net neutral positions, sometimes net long, sometimes net short. He doesn’t get painted into a corner with a massive naked short position that forces him into criminal behavior to avoid financial catastrophes. He’s happy with living off “the spread”. Unfortunately for most MMs, these spreads became razor-thin after decimalization was instituted 5 years ago. Unlike an abusive MM that’s sitting on an astronomic naked short position in need of constant collateralization, the bonafide MM is not afraid to let a market with an imbalance of buy orders over sell orders advance in price until it reaches its own equilibrium level. The bonafide MM would naturally rather NSS shares at higher levels than at lower levels. The truly bonafide MM doesn’t dictate share price – rather, he buffers the wild swings in share price, and injects much needed liquidity into the markets of thinly-traded securities, and provides “pricing efficiency”, as noted in Chapter 18. The abusive MM, however, does not have the “luxury” of allowing prices to advance in buy order-dominated markets, as the cost to collateralize large naked short positions in advancing share price environments makes it cost-prohibitive. Abusive MMs are often forced to put a blanket of naked short sales over markets where they “accidentally” ran up a huge naked short position, but where buy orders keep coming in. You’ll recognize this scenario when you see victimized issuers mysteriously trading their entire float of shares every 3 or 4 days with the market going absolutely nowhere. Does anybody really think that all of these issuer’s shareholders got up one morning and simultaneously decided to sell all of their shares? Unfortunately for U.S. citizens, this buy order-dominated scenario often occurs in promising development-stage corporations with a wonderful prognosis for success, that now have to be snuffed out, lest abusive DTCC participants take a huge financial hit.
Many NSS proponents are of the mindset that all U.S. development-stage companies that advance in share price are by default “scams” in the midst of a “pump and dump” form of securities fraud. The irony of the SEC’s historical lack of success in stamping out “pump and dumps” is that they inadvertently welcomed an “irrefutable” form of fraud involving the blatant theft of money from naïve investors (NSS), in order to address a “suspected” form of fraud which gave rise to the “vigilante” type of naked short seller.
7) At the DTCC, the deterrence value of untimely buy-ins (which provides the “natural” deterrent to NSS abuses) has been surgically removed by DTCC policies, making the risk/reward ratio of this form of securities fraud incredibly low. The consistent refusal of the DTCC to buy-in the IOUs owed directly to them as the “loan intermediary” in the SBP’s pseudo borrowing process, is one of the two main factors that creates an invitation for fraudsters to pile on naked short sales on already brutalized victim companies. This refusal to buy-in is one of the most important pillars supporting that which many securities scholars refer to as “DTCC sponsored NSS” – namely the 100% certainty the fraudsters have that the DTCC will refuse to call in their own IOUs (while acting as the “loan intermediary” of the SBP) because of their claim of being “powerless” to do so.
An equally important pillar supporting NSS “DTCC style” involves the ability to count on the DTCC to claim to be equally “powerless” in monitoring and buying-in the failed deliveries of their participants/owners held in an “ex-clearing” format. The claim here is that these non-CNS delivery “arrangements” (I love that term “arrangements”!) associated with failed deliveries represent “contracts” between the DTCC’s participants/owners, and that the DTCC does not monitor “contract” law – only “securities” laws. This, despite the fact that they volunteer to process the cash part of these naked short sales (leading to failed deliveries), and still “clear” these trades and issue “securities orders” to allow these “non-CNS delivery arrangements”. This de facto serves to artificially delay settlement, as expressly forbidden by 15c6-1 of the ’34 act.
8) NASD Rule 11830 defines the threshold for the number of CEBEs (above which mandated buy-ins are necessary) as 10,000 shares AND 0.5% of the number of shares legally issued. Any CEBEs exceeding this level indicates that abusive dematerialization (as reviewed in Chapter 3) is occurring. This level is where the alarm bells should create a deafening noise but unfortunately for investors the wire to that alarm bell was effectively short-circuited by several of the rules and regulations of the DTCC and NSCC.
9) The conventional metric for determining the age of CEBEs (above which buy-ins should occur) would naturally correspond to the spirit of Addendum C to the rules and regulations of the NSCC, which created the SBP for deliveries that for legitimate reasons couldn’t quite be delivered by settlement day. The authors of Addendum C were well aware that it was critical to keep the lifespan of the CEBE extremely short. The assumption was that the DTCC would rigorously monitor the age, quantity, and legitimacy of these representations of shares, as they were clearly capable of causing massive damage via artificial dilution.
From a statistical point of view, the question that begs to be asked is: Is it a coincidence that the DTCC management: 1) allows its participants/owners to naked short sell with abandon, 2) refuses to monitor the age, quantity and legitimacy of the resultant failed deliveries, 3) refuses to call in its own IOUs resulting from its participants’ abuse of the SBP (because of its self-imposed “powerlessness” to do so), 4) refuses to monitor its participants’ failed deliveries in the ex-clearing netherworld (because of their theoretical “contractual” nature), despite the DTCC being an SRO in charge of “regulating the conduct and business practices of its members” as well as 17 A’s mandate to “promptly and accurately “settle” all transactions, and 5) goes well out of its way to remove the one natural deterrent to naked short selling abuse - the open-market buy-in? A second question begging to be asked is: when does a long litany of coincidences fail to plausibly remain a coincidence?
Remember, the DTCC is its owners. It's not some independent 3rd party, off to the side. There are 2 parties in the investment arena: the investors, and the DTCC-participating “Wall Street professionals” - with a vastly superior “KAV” factor (Knowledge of, Access to and Visibility of the clearance and settlement system). The DTCC portends to be playing an intermediary role between the buying and selling parties, while acting in the capacity of a “contra-party” to all trades, and the “loan intermediary” in the SBP pseudo-borrow process. But, as mentioned in earlier chapters, you can’t play a legally defensible “intermediary” role when you ARE one of the two parties being “intermediated”.
10) The methodology of monitoring for the legitimacy of failed deliveries was probably assumed by Congress and the SEC to involve the DTCC’s monitoring of their participating market makers’ usage of the bona-fide market maker exemption, and detection of any suspicious trading patterns and failed delivery patterns. These patterns jump out at you when access to this data is attained, and yet no matter how often an abusive clearing firm fails delivery of shares of a given issuer, all further delivery failures of this issuer’s shares by the abusive clearing firm are still assumed to be “legitimate”, as if by default. Recall the Compudyne case cited earlier, involving nearly a thousand consecutive trades failing delivery, without a single alarm bell going off. Every regulator and SRO seems to think that the monitoring for bona fide market making activity is the job of a different regulator and SRO - which leaves us with a regulatory vacuum, and the resultant “Industry within an industry” we refer to as naked short selling.
11) As the DTCC has been recently yelling from the mountaintops, the SEC did indeed authorize the SBP in 1981 to address legitimate failed deliveries – provided that the reason for the delay was of a legitimate nature (and there are indeed “legitimate” reasons for short-term delays in delivery). The assumption was that the DTCC would create checks and balances to monitor for abuses of this ultra-risky gamble (which allowed for the deliberate creation of a minute amount of “counterfeit” share “replicas” in an effort to enhance efficiencies in the clearing process). We have already identified over a dozen of these theoretical “quests for enhanced efficiencies” that have been abused by some DTCC participants to gain leverage over the investors they owe a fiduciary duty of care to, so it is questionable if that assumption was a reasonable one. Be that as it may, the other assumption was that the participants of the DTCC would act in good faith with this gigantic new responsibility (and incredibly large temptation to leverage their “KAV” factor and steal from investors). As it turns out there is way too much money “in play” on Wall Street to assume that those with an inherent advantage won’t leverage it.
12) Dr. Leslie Boni, while working as a visiting economic scholar for the SEC, was given access to the DTCC records. This was heretofore unheard of, except for perhaps the New York Supreme Court’s granting of discovery into the DTCC trading records to the CEO of Eagletech, in their NSS case.
Professor Boni found two distinct sub-types of delivery failures whose “median” ( half younger than and half older than) age was about 13 days. Half of delivery failures averaged about 6-7 days, assuming a bell-shaped curve distribution, and were of the type that the SBP was created to address. The older half of delivery failures, however, averaged approximately 106 days, again based upon a bell-shaped curve distribution. The overall average, or “mean” age of delivery failures, was 6 days plus 106 days divided by 2, equaling 56 days as opposed to T+3. These findings were obviously not consistent with the intentions of the SBP, as promulgated by Addendum C. Some DTCC participants had obviously chosen to not act in good faith, but rather to leverage their superior knowledge, access and visibility and abuse the SBP for their own monetary gain. They learned that nobody at the DTCC was rigorously monitoring for the age, quantity, or legitimacy of these failed deliveries, and that they could sell nonexistent shares all day long, and actually get access to the unknowing investors’ money. All they had to do was let the SBP allow these trades to “clear” via a pseudo-borrow, from what turns out to be a self-replenishing lending pool, whose contents are also admittedly not being monitored (see the @DTCC self-interview where the DTCC admits that they have placed their participants on the honor system in regards to what they place into the lending pool). Once this bogus trade cleared, then all the fraudsters had to do was to collateralize this debt on a daily marked-to-market basis. The precipitous fall in share price resulting from all of this artificial dilution involving “Share facsimiles” led to an unconscionable result - the investor’s money actually falls into the lap of the naked short selling fraudsters, despite the fact that they were still refusing to purchase the shares required to cover the short sale after inordinate amounts of time.
As it turns out, short covering is not necessary to gain access to the defrauded investors’ money. One must only collateralize the ever-diminishing debt, as the share price does its 100% predictable plunge driven by all the artificial dilution being created. Unlike the DTCC and its participants, there are those investors and securities scholars who find this concept disturbing – and one hopes that the Senate Banking Committee and the House Financial Services Committee, the overseers of the SEC, will as well.
Recall from earlier chapters that the risk of being bought-in was essentially zero, as the DTCC could be counted on to see to that via their policies and procedures. The closest thing to a real buy-in was just another trip to the self-replenishing lending SBP lending pool via the DTCC’s “Procedure X-1” Policy. “
Copyright ©2006 Bob O'Brien
art are you going to the superbowl?
from yahoo ostk board re: RAGINGBULL..by: investigate_the_sec 01/21/06 07:37 pm
Msg: 60872 of 60912
By: percywhit
I didn't put the whole email in the post. Funny you said that. See below
"We have been working with several former Lycos employees that have signed affidavits to the effect that they were told, ordered (and they provided vettable emails) to "kick off" critical posters on several ket RagingBull chat boards while "protecting" others. This included altering the "rating system" that I assume no longer is present on RagingBull. In one very serious case, a manager came into a work area where line-level RB supervision by moderators was performed, told a subordinate to take an early lunch but NOT logoff (a serious Lycos security violation) and then used that terminal to erase several account records less than 1/2 hour after the Lycos lawyers had notified that individual that they had received SEC and FBI inquiries about the accounts. One concerned employee advised the "at risk" staffer about what had happened when she went to lunch, and she went back, printed out the audit trail for her terminal, and had her friends sign or initial the printout and date it as well. We have copies of that and much more.
We're working with one of the founders of RB, who has, like us, "corked off" over RB, IHUB and several other "scam sites" as he calls them. He said that the little bit we have is only the tip of the iceberg. The principal reason that the Spanish consortium sold RB to the Koreans was to divorce themselves of the civil liabilities they feel will erupt in the next several years as outsiders peer into the operations of the major "stock chat" sites.
The RB startup partner we are talking to says he believes that RB has less than 6-weeks of life left. They have shut down something like 60% of the boards that existed this time last year, and are shutting boards down daily now through attrition. He did not explain how attrition enters into the picture, but I'm sure it's fascinating. "
Posted as a reply to: Msg 60870 by investigate_the_sec
ot:Suit blames hedge fund for shares' declineBoston Partners Asset Management's short sales and other acts were illegal, ABFS trustee claims.By Todd MasonInquirer Staff WriterA Boston hedge fund participated in an illegal scheme to drive down the share price of American Business Financial Services Inc., according to the bankruptcy trustee who is liquidating the former Philadelphia mortgage lender.
Boston Partners Asset Management L.L.C. sent anonymous letters and posted Internet comments in a "vicious pattern of conduct" to damage ABFS, Trustee George L. Miller alleged in a civil lawsuit filed Dec. 30 in federal court in Wilmington.
Cynthia Perl, a spokeswoman for Boston Partners' parent, Robeco Investment Management Inc., would not comment on the lawsuit.
The suit seeks unspecified compensatory and punitive damages, plus the profits that Boston Partners earned in short sales of ABFS stock. In a short sale, investors borrow shares and then sell them, hoping to replace them later at a lower price.
Miller's lawsuit alleges that Boston Partners made illegal "naked" short sales, in which nonexistent shares are sold to put pressure on the share price, even though the transaction ultimately falls through.
Boston Partners' broker had short positions in January 2001 amounting to 30 percent of ABFS shares available then to be bought and sold, the lawsuit alleges. Legitimate short positions of that magnitude are unlikely, the lawsuit says.
The pressure applied by shorting that many shares "would be huge," said Robert Shapiro, an economist in Washington who has studied naked shorting.
"You put in sell orders on 30 percent of a company's outstanding shares, it's going to drive down the share price," he said.
In addition, Boston Partners wrote anonymous letters to regulators, the news media, and ABFS's investment bankers alleging that the company was engaged in a pyramid scheme, according to Miller's lawsuit.
The bankers withdrew from a sale of securities in June 2003, triggering a cash crisis that ultimately claimed ABFS.
ABFS filed for bankruptcy protection last January owing $521.6 million to purchasers of unsecured investment notes and $98.1 million to investors who exchanged their unsecured notes for secured notes.
Miller hired a law firm last year to explore litigation against ABFS officers and directors, who are not blameless in his view.
"I wouldn't have hired counsel to investigate them if I thought they were pure victims," Miller said in an interview last week.
ABFS had maintained that it fully disclosed the risks involved in buying its notes.
Litigation is the only hope for unsecured creditors to collect a "significant distribution," Miller said. The liquidation process, slowed by difficult dealings with secured creditors, could take two years, Miller said.
Meanwhile, the trustee said he had fielded 8,800 calls and e-mails from concerned note holders. The volume of calls is a major drain on his time, Miller said. He said he was not able to tell callers any more than he has posted on his Web site, www.abfsonline. com.
"It is a very frustrating case," he said.
http://www.philly.com/mld/inquirer/business/13648967.htm
from yahoo ostk board..by: investigate_the_sec 01/21/06 07:37 pm
Msg: 60872 of 60912
By: percywhit
I didn't put the whole email in the post. Funny you said that. See below
"We have been working with several former Lycos employees that have signed affidavits to the effect that they were told, ordered (and they provided vettable emails) to "kick off" critical posters on several ket RagingBull chat boards while "protecting" others. This included altering the "rating system" that I assume no longer is present on RagingBull. In one very serious case, a manager came into a work area where line-level RB supervision by moderators was performed, told a subordinate to take an early lunch but NOT logoff (a serious Lycos security violation) and then used that terminal to erase several account records less than 1/2 hour after the Lycos lawyers had notified that individual that they had received SEC and FBI inquiries about the accounts. One concerned employee advised the "at risk" staffer about what had happened when she went to lunch, and she went back, printed out the audit trail for her terminal, and had her friends sign or initial the printout and date it as well. We have copies of that and much more.
We're working with one of the founders of RB, who has, like us, "corked off" over RB, IHUB and several other "scam sites" as he calls them. He said that the little bit we have is only the tip of the iceberg. The principal reason that the Spanish consortium sold RB to the Koreans was to divorce themselves of the civil liabilities they feel will erupt in the next several years as outsiders peer into the operations of the major "stock chat" sites.
The RB startup partner we are talking to says he believes that RB has less than 6-weeks of life left. They have shut down something like 60% of the boards that existed this time last year, and are shutting boards down daily now through attrition. He did not explain how attrition enters into the picture, but I'm sure it's fascinating. "
Posted as a reply to: Msg 60870 by investigate_the_sec
Perspective: Create an e-annoyance, go to jail
By Declan McCullagh
Published: January 9, 2006, 4:00 AM PST
TalkBack E-mail Print TrackBack
See all Perspectives
<![endif]>Annoying someone via the Internet is now a federal crime.
It's no joke. Last Thursday, President Bush signed into law a prohibition on posting annoying Web messages or sending annoying e-mail messages without disclosing your true identity.
In other words, it's OK to flame someone on a mailing list or in a blog as long as you do it under your real name. Thank Congress for small favors, I guess.
This ridiculous prohibition, which would likely imperil much of Usenet, is buried in the so-called Violence Against Women and Department of Justice Reauthorization Act. Criminal penalties include stiff fines and two years in prison.
"The use of the word 'annoy' is particularly problematic," says Marv Johnson, legislative counsel for the American Civil Liberties Union. "What's annoying to one person may not be annoying to someone else."
It's illegal to annoy
A new federal law states that when you annoy someone on the Internet, you must disclose your identity. Here's the relevant language.
"Whoever...utilizes any device or software that can be used to originate telecommunications or other types of communications that are transmitted, in whole or in part, by the Internet... without disclosing his identity and with intent to annoy, abuse, threaten, or harass any person...who receives the communications...shall be fined under title 18 or imprisoned not more than two years, or both."
Buried deep in the new law is Sec. 113, an innocuously titled bit called "Preventing Cyberstalking." It rewrites existing telephone harassment law to prohibit anyone from using the Internet "without disclosing his identity and with intent to annoy."
To grease the rails for this idea, Sen. Arlen Specter, a Pennsylvania Republican, and the section's other sponsors slipped it into an unrelated, must-pass bill to fund the Department of Justice. The plan: to make it politically infeasible for politicians to oppose the measure.
The tactic worked. The bill cleared the House of Representatives by voice vote, and the Senate unanimously approved it Dec. 16.
There's an interesting side note. An earlier version that the House approved in September had radically different wording. It was reasonable by comparison, and criminalized only using an "interactive computer service" to cause someone "substantial emotional harm."
That kind of prohibition might make sense. But why should merely annoying someone be illegal?
There are perfectly legitimate reasons to set up a Web site or write something incendiary without telling everyone exactly who you are.
Think about it: A woman fired by a manager who demanded sexual favors wants to blog about it without divulging her full name. An aspiring pundit hopes to set up the next Suck.com. A frustrated citizen wants to send e-mail describing corruption in local government without worrying about reprisals.
In each of those three cases, someone's probably going to be annoyed. That's enough to make the action a crime. (The Justice Department won't file charges in every case, of course, but trusting prosecutorial discretion is hardly reassuring.)
Clinton Fein, a San Francisco resident who runs the Annoy.com site, says a feature permitting visitors to send obnoxious and profane postcards through e-mail could be imperiled.
"Who decides what's annoying? That's the ultimate question," Fein said. He added: "If you send an annoying message via the United States Post Office, do you have to reveal your identity?"
Fein once sued to overturn part of the Communications Decency Act that outlawed transmitting indecent material "with intent to annoy." But the courts ruled the law applied only to obscene material, so Annoy.com didn't have to worry.
"I'm certainly not going to close the site down," Fein said on Friday. "I would fight it on First Amendment grounds."
He's right. Our esteemed politicians can't seem to grasp this simple point, but the First Amendment protects our right to write something that annoys someone else.
It even shields our right to do it anonymously. U.S. Supreme Court Justice Clarence Thomas defended this principle magnificently in a 1995 case involving an Ohio woman who was punished for distributing anonymous political pamphlets.
If President Bush truly believed in the principle of limited government (it is in his official bio), he'd realize that the law he signed cannot be squared with the Constitution he swore to uphold.
And then he'd repeat what President Clinton did a decade ago when he felt compelled to sign a massive telecommunications law. Clinton realized that the section of the law punishing abortion-related material on the Internet was unconstitutional, and he directed the Justice Department not to enforce it.
Bush has the chance to show his respect for what he calls Americans' personal freedoms. Now we'll see if the president rises to the occasion.
Biography
Declan McCullagh is CNET News.com's Washington, D.C., correspondent. He chronicles the busy intersection between technology and politics. Before that, he worked for several years as Washington bureau chief for Wired News. He has also worked as a reporter for The Netly News, Time magazine and HotWired.
Perspective: Create an e-annoyance, go to jail
By Declan McCullagh
Published: January 9, 2006, 4:00 AM PST
TalkBack E-mail Print TrackBack
See all Perspectives
<![endif]>Annoying someone via the Internet is now a federal crime.
It's no joke. Last Thursday, President Bush signed into law a prohibition on posting annoying Web messages or sending annoying e-mail messages without disclosing your true identity.
In other words, it's OK to flame someone on a mailing list or in a blog as long as you do it under your real name. Thank Congress for small favors, I guess.
This ridiculous prohibition, which would likely imperil much of Usenet, is buried in the so-called Violence Against Women and Department of Justice Reauthorization Act. Criminal penalties include stiff fines and two years in prison.
"The use of the word 'annoy' is particularly problematic," says Marv Johnson, legislative counsel for the American Civil Liberties Union. "What's annoying to one person may not be annoying to someone else."
It's illegal to annoy
A new federal law states that when you annoy someone on the Internet, you must disclose your identity. Here's the relevant language.
"Whoever...utilizes any device or software that can be used to originate telecommunications or other types of communications that are transmitted, in whole or in part, by the Internet... without disclosing his identity and with intent to annoy, abuse, threaten, or harass any person...who receives the communications...shall be fined under title 18 or imprisoned not more than two years, or both."
Buried deep in the new law is Sec. 113, an innocuously titled bit called "Preventing Cyberstalking." It rewrites existing telephone harassment law to prohibit anyone from using the Internet "without disclosing his identity and with intent to annoy."
To grease the rails for this idea, Sen. Arlen Specter, a Pennsylvania Republican, and the section's other sponsors slipped it into an unrelated, must-pass bill to fund the Department of Justice. The plan: to make it politically infeasible for politicians to oppose the measure.
The tactic worked. The bill cleared the House of Representatives by voice vote, and the Senate unanimously approved it Dec. 16.
There's an interesting side note. An earlier version that the House approved in September had radically different wording. It was reasonable by comparison, and criminalized only using an "interactive computer service" to cause someone "substantial emotional harm."
That kind of prohibition might make sense. But why should merely annoying someone be illegal?
There are perfectly legitimate reasons to set up a Web site or write something incendiary without telling everyone exactly who you are.
Think about it: A woman fired by a manager who demanded sexual favors wants to blog about it without divulging her full name. An aspiring pundit hopes to set up the next Suck.com. A frustrated citizen wants to send e-mail describing corruption in local government without worrying about reprisals.
In each of those three cases, someone's probably going to be annoyed. That's enough to make the action a crime. (The Justice Department won't file charges in every case, of course, but trusting prosecutorial discretion is hardly reassuring.)
Clinton Fein, a San Francisco resident who runs the Annoy.com site, says a feature permitting visitors to send obnoxious and profane postcards through e-mail could be imperiled.
"Who decides what's annoying? That's the ultimate question," Fein said. He added: "If you send an annoying message via the United States Post Office, do you have to reveal your identity?"
Fein once sued to overturn part of the Communications Decency Act that outlawed transmitting indecent material "with intent to annoy." But the courts ruled the law applied only to obscene material, so Annoy.com didn't have to worry.
"I'm certainly not going to close the site down," Fein said on Friday. "I would fight it on First Amendment grounds."
He's right. Our esteemed politicians can't seem to grasp this simple point, but the First Amendment protects our right to write something that annoys someone else.
It even shields our right to do it anonymously. U.S. Supreme Court Justice Clarence Thomas defended this principle magnificently in a 1995 case involving an Ohio woman who was punished for distributing anonymous political pamphlets.
If President Bush truly believed in the principle of limited government (it is in his official bio), he'd realize that the law he signed cannot be squared with the Constitution he swore to uphold.
And then he'd repeat what President Clinton did a decade ago when he felt compelled to sign a massive telecommunications law. Clinton realized that the section of the law punishing abortion-related material on the Internet was unconstitutional, and he directed the Justice Department not to enforce it.
Bush has the chance to show his respect for what he calls Americans' personal freedoms. Now we'll see if the president rises to the occasion.
Biography
Declan McCullagh is CNET News.com's Washington, D.C., correspondent. He chronicles the busy intersection between technology and politics. Before that, he worked for several years as Washington bureau chief for Wired News. He has also worked as a reporter for The Netly News, Time magazine and HotWired.
art do you have a link to this page 8? thanks
fringe can you check out the chart of the stock i asked you about and let me know what you think? thanks
fringe...i was wondering what your thoughts were on...
TLYN? how do the technicals look on the charts at this point?
can post a chart and show were the resistance levels are and your thoughts? thanks
mallard do you have a o/s float for usxp? traded over 400 mill
shares in 1/2 hour
mallard you still holding tlyn?
interesting now ARCA on the ask with 999 size at .0005 on usxp
ARCA/NITE locked at .0005 bid/ask for USXP 999 SIZE
now NITE on the USXP ask w/999 size at .0005
ARCA on USXP bid popping up w/990 size..anyone have any input?
anyone notice ARCA on the bid for USXP? ecn someone looking to cover...dont you think?
what is the o/s & float of USXP?
whatever happend to cramers SHLD knuckle BUY at 150?
any price target? why do you think only 1 mm is bidding at .002 when the rest of the mms are at .0015, as well as nite sitting at .001 bid? looks like schb is only mm in .002 level..why?
ot:GE says SEC hedge accounting probe now formal
Wed Nov 2, 2005 2:01 AM ET
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NEW YORK, Nov 2 (Reuters) - A Securities and Exchange Commission probe into General Electric Co. (GE.N: Quote, Profile, Research) and its use of hedge accounting for derivatives was upgraded to a formal investigation in August, but GE delayed disclosure until its third-quarter financial statements last week.
In January the SEC's Boston district office began an informal investigation into GE's accounting for derivatives used to hedge risks, requesting that GE and its GE Capital division voluntarily provide documents and information.
But in its quarterly financial filing on Oct. 24, GE said SEC staff in August advised the company that the commission had elevated the probe to a formal investigation, which means SEC staff are authorized to subpoena witnesses and documents.
GE officials could not be reached immediately for comment. GE, in the filing, said it believed the upgrade is "a common step in the process in such matters."
The company said it has continued to voluntarily provide documents and information to the SEC Staff and "we intend to continue to cooperate fully with its investigation."
GE in May restated its earnings from 2001 through the first quarter of 2005 after an internal audit found that its accounting for currency and interest rate derivatives did not comply with accounting standards.
The company at the time said the restatement resulted in a total non-cash increase of $381 million, or less than six tenths of 1 percent of total earnings, for that period.
© Reuters 2005. All Rights Reserved.
art can you explain the difference between glkc/bcit? they both traded shares well above the o/s, yet glkc didnt go to the sec and its stock price is now 27 cents!! bcit is now trading on the grey markets due to the sec halt, what are the chances they will get a market maker to sign off on them to begin trading on the pinksheets? also, re: sacm...what is their role in this situation at this moment are they responsable for the counterfeits?
dusty what effect will the transfer of the otcbb to the nasd have on otcbb stocks? the sec approved but whats are the benefits to stocks traded on the otcbb?
still holding? appears mms lifted the ask to .0029 now
fringe can you update your opinion on the chart since you last posted..thanks?
http://www.investorshub.com/boards/read_msg.asp?Message_id=7297337&txt2find=tlyn