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This'll be the mother of all fights ...
Whenever I think of the power of the human spirit I am reminded of the image of the lone protester standing in front of a tank minutes before the Tiananmen Square massacre. The following quote encapsulates the moment;
“a citizen, armed only with his battered briefcase staring down a column of tanks. A makeshift lady liberty, flimsy and idealized, warning Communist Party bosses that there were alternatives to their rule.”
Now, we are that lone protester, facing a battle that seems un-winnable. Every time we stand up we get knocked down. We have watched nothing happen for months and for some of us years. We surf the net, check the stock price, cruise the boards, waiting, just waiting for something to change; and nothing does; and there is nothing we can do about it.
Naked short selling is theft. Not only is it theft of our money, it is the theft of something much bigger. It strips us of trust in the establishments that are supposed to protect us. Is the SEC protecting us? Who are they protecting? How many of you are angered over the injustice? How many of you are angered over the arrogance of those who make the rules? How many of you want it to stop? What are you going to do about it? What can you do about it?
In all of history, the most extraordinary events have always been started by ordinary people, ordinary people just like us. The greatest moments in history grow from a lone voice in the crowd, a single person that has had enough, someone who shouts from the roof tops, someone who will not give up.
John Martin is that lone person who had enough and stood up with his fists clenched in a in a fit of rage. He is the one who took it upon himself to start a movement to try and bring an end to the corruption and injustice, to show the SEC that we are not going to roll over and die. That we are here, we are strong and we will fight for what is right.
Do not make this about the 25$ and do not make this about how much Frizzell is making or not making. Now, more than ever, we need to stand together as one voice and present ourselves in front of that column of tanks.
I have put aside my own rule to come out and urge those who have not signed up to sign up, only because this is important. We need to present ourselves as a single united front to confront those who steal our money and violate our trust. This is not about Naked Shorting. We are but mere peasants, the elite stepping on our heads, holding us to the ground, and telling us what is good for us. We are better than that, “you” are better than that.
I do not know what will happen, what the future holds, or how big this will become or if it will fall flat on its face. But we can’t sit back and wait for something to happen. We have to make things happen. Where is the pioneering spirit? Where is the willingness to take a chance, to stand behind a cause that is worth while? Are we asleep? Has the mightiest country in the world now become a victim of its own success and now stealing from its own people? Is this America? Are you proud of it?
Friends, this could very well be the genesis of a huge movement to bring down the SEC, to show those in power that “we” are in control, that we will not be punched, kicked, spit on and dragged through the mud. Stand up and be counted, be a part of the solution, show that we are united, we are mighty, and we are fighting back. This is the America I know.
‘All that is necessary for the triumph of evil is for good men to do nothing’
http://cmkxdiamond.proboards32.com/index.cgi?board=general&action=display&num=1115186167
Thanks for your summary Zen ... I've now got a better grasp.
The ones that created the program are the ones using it ... it's name has been carefully chosen to deceive. You've made that clear.
Matrix, do you have any legal training?
Judge Brent Adams in dismissing the case said, "State law may not be applied as to impose damages on DTCC. To do this would be to forbid Defendants from doing what the SEC authorized them to do."
We (CMKX) are on trial with SEC not DTCC, We can use DTCC trading records against SEC and SEC is responsible because as Judge Brent Adams stated " SEC authorized them"
IMO Stoecklein knows what he’s doing.
Of course the borrowed share is still in the market !!!
The investors whose shares have been borrowed are permitted to sell what shows in their accounts and the persons who bought the shorted shares can sell what they bought if the tranaction shows up in their accounts.
Why can't you admit the obvious and stop trying to confuse the readers.
Stockgate on CMKX and PRRM shorting
StockGate: Pink Sheets Seeks Publication of Short Positions For OTCBB, OTC Companies
(financialwire.net via COMTEX) -- May 3, 2005 (FinancialWire) Companies on the Pink Sheets and the OTCBB may soon have their short positions published by the NASD as a result of a request by Cromwell Coulson, CEO of the Pink Sheets and some timely footwork by Investrend's Director of Corporate Development Drew Connolly, who is serving in an advisory capacity to U.S. Securities and Exchange Commission Chair William Donaldson.
The Pink Sheets quote request leaders for Monday included Global Triad (OTC: GTRD), Prime Rate Investors (OTC: PRRM), and CMKM Diamonds (OTC: CMKX) and it traded as much as $34 million for such listed companies as LUKoil Holding (OTC: LUKOY).
The request for rulemaking, which Coulson has told companies traded on the Pink Sheets, is needed "to make regulators turn on the lights and protect investors from the menace of hidden short selling in the OTC market," is at http://sec.gov/rules/petitions.shtml
Coulson had put in the request for comments at the SEC several weeks ago, and Connolly interceded to move the request to a front burner, leading to the rulemaking.
In an email to Donaldson, Coulson had said "I believe that it is very important to require the disclosure of short positions because the lack of transparency is allowing promoters to defraud investors by blaming all selling on naked market maker short selling. Disclosure and transparency can easily remedy the issue."
Comments are being urgently solicited by both Coulson and Connolly, who also serves as executive director of the CEO Council.
In other news on the naked short-selling front known as "StockGate," adding to what TheStreet.com founder James Cramer calls the "Hedge Fund Relief Act," the termination of the Uptick Rule, is the fact that those using illegal naked short selling in the past have been granted a kind of amnesty for acts before the first of 2005. The SEC just "grandfathered" those illegally-begotten gains and resultant counterfeit shares into the system, so these windfall gains are now available to downtick with reckless abandon on downticks.
The "grandfathering" admission is at http://www.sec.gov/spotlight/keyregshoissues.htm
In the same document, the SEC has inexplicably stated that not all forms of illegal naked short selling, the equivalent of counterfeiting shares in public companies, are actually "illegal."
The DTCC actions in the StockGate mire are the most serious, if not notorious since the agent of two SROs, the New York Stock Exchange and NASD is also peopled by some 21 directors whose companies, such as Merrill Lynch & Co. (NYSE: MER), State Street Corporation (NYSE: STT) and Goldman Sachs (NYSE: GS), are unlikely to support the DTCC in what attorney Marshal Shichtman, Esq., has termed "strong-arm" tactics.
The DTCC has admitted it has engaged in an act of censorship of this newsletter in squelching its redistribution by Investors Business Daily, and via Investors Business Daily, to Yahoo Finance, a portal owned by Yahoo! (NASDAQ: YHOO), and it is a suspect in the sudden and so far unexplained "postponement" of a widely anticipated expose by Dateline NBC.
In a wide-ranging letter to the DTCC, Robert J. Shapiro has charged statements made by Larry Thompson, DTCC Deputy General Counsel, were "inaccurate or misleading," and asked the DTCC to correct the record and respond to his comments and questions.
Shapiro is chair of Sonecon LLC, a private economic advisory firm in Washington, D.C., who served as U.S. Under Secretary of Commerce for Economic Affairs from 1998 to 2001, Vice President and co-founder of the Progressive Policy Institute from 1989 to 1998, and principal economic advisor to Governor William J. Clinton in the 1991-1992 presidential campaign.
He holds a Ph.D. from Harvard University and has been a Fellow of the National Bureau of Economic Research, Harvard University, and the Brookings Institution.
Shapiro currently provides economic analysis to the law firms of O'Quinn, Laminack and Pirtle, Christian, Smith and Jewell, and Heard, Robins, Cloud, Lubel and Greenwood, on issues associated with naked short sales, which he noted includes "matters raised in an interview published by @DTCC with DTCC deputy general counsel Larry Thompson."
He asserts the following in his letter:
Thompson begins by asserting that "the extent to which [naked short selling] occurs is in dispute." While this statement may be narrowly correct, objective academic analysis has established that naked short selling has been a widespread practice and one which, when allowed to persist, can pose a threat to the integrity of equity markets. A recent study by Dr. Leslie Boni, then a visiting financial economist at the SEC, analyzed NSCC data and found that on three random days, an average of more than 700 listed stocks had failures-to-deliver of 60 million-to-120 million shares sold short ' naked shorts ' that had persisted for at least two months. In addition, over 800 unlisted stocks on any day had fails of 120 million-to-180 million shares sold short that also had persisted for at least two months. The total number of naked shorts, including those that had persisted for less than two months, was presumably considerably greater.
Regarding the extent of naked shorts, Thompson has provided closely-related additional information: "fails to deliver and receive amount to about $6 billion daily including both new fails and aged fails." Thompson minimizes this total by comparing it to "just under $400 billion in trades (emphasis added) processed daily by NSCC, or about 1.5% of the dollar volume." By most people's standards, a problem involving hundreds of millions of shares valued at $6 billion every day is a very large problem. Moreover, the $6 billion total substantially underestimates the actual value of all failed-to-deliver trades measured when the trades actually occurred. Most of the $6 billion total represents uncovered or naked short sales, many of which have gone undelivered for weeks or months with their market price being marked-to-market every day. As a stock's price falls, the market price of naked shorts in that stock also declines, reducing the total value of the outstanding failures-to-deliver cited by Thompson.
In other respects, Thompson's comparison to the "$400 billion in trades processed daily by NSCC" seems disingenuous and misleading, because that $400 billion total covers not only U.S. equity trades which can involve most of the failures-to-deliver at issue, but many other transactions also processed by the NSCC. The value of all equity transactions on U.S. markets in 2004, for example, averaged $82.3 billion/day. If Thompson is correct that the daily value of fails-to-deliver averages $6 billion, that total is equivalent to 7.2 percent of average daily equity trades or nearly five times the 1.5 percent level suggested by Thompson. Furthermore, the DTCC reports on its website that on a peak day, "through its Continuous Net Settlement (CNS) system, NSCC eliminated the need to settle 96 percent of total obligations." Assuming that CNS nets out the same proportion of trades on other days, $384 billion of the $400 billion in daily trades cited by Thompson are netted out, leaving only $16 billion in daily trades that require the actual delivery of securities. The $6 billion of fails-to-deliver securities existing on any day are equivalent to 37.5 percent of the average daily trades that require the delivery of securities, or 25 times the 1.5 percent level cited by Thompson.
Thompson tries to explain the large numbers of shares that go undelivered ' in most cases arising from naked short sales -- by citing problems with paper certificates, inevitable human error, and the legitimate operations of market makers. This also seems misleading or disingenuous. Regarding problems with paper certificates, the DTCC estimates that 97 percent of all stock certificates are now kept in electronic form. Nor can human error or legitimate market-making operations explain the high levels of failures-to-deliver that persist for months ' on any day, an average of 180 million-to-300 million shares have gone undelivered for two months or longer ' as documented by Dr. Boni's analysis of NSCC data.
Thompson also disparages the attorneys who represent companies that have been damaged or destroyed by massive naked short sales, and their shareholders, by claiming falsely that the cases in this matter have almost all been dismissed or withdrawn. The legal firms that I advise -- O'Quinn, Petrie and Laminack; Christian, Smith and Jewell; and Heard, Robins, Cloud, Lubel and Greenwood ' have not lost any motions against the DTCC or its affiliates and currently have one case against the DTCC pending in Nevada and another case against the DTCC pending in Arkansas. In addition, on February 24, 2005, these attorneys were granted an order by the New York Supreme Court ordering the DTCC to produce trading records involving two companies they represent, including records from the Stock Borrow program, which may establish whether large-scale naked short sales were used to manipulate and drive down the stock price of those two companies.
Thompson also asserts that the plaintiffs suing the DTCC for damages associated with the handling of naked short sales rely on "theories [that] are not an accurate reflection of how the capital market system actually works." This assertion is inaccurate. There is no dispute about how the capital markets work -- nor any doubt that naked short sales have been used to manipulate and drive down the price of stocks, as seen in numerous death-spiral financing cases. The issue here is the DTCC's role in allowing or facilitating such stock manipulation through its treatment of extended naked short sales.
In explaining the DTCC's role in these matters, Thompson rejects the claim that the NSCC's Stock Borrow program allows the same shares to be lent over and over again, potentially creating more shares than actually exist or "phantom" shares. By Thompson's own account, shares borrowed by the NSCC to settle naked short sales are deducted from the lending member's DTC account and credited to the DTC account of the member to whom the shares have been sold. Therefore, those same shares become available to be re-borrowed to settle another naked short sale and, if that happens, to be re-borrowed again and again to settle a succession of naked short sales. Throughout this process, the actual short sellers may continue to fail-to-deliver the shares to cover their shorts and, as Dr. Boni's analysis of NSCC data found, the underlying failure can age for months or even years. The process which Thompson describes is one in which shares can be borrowed and lent over and over again, introducing more shares into the market than are legally registered and issued. If any ambiguity remains, Thompson can clarify it by responding to the following query: Once a share that has been borrowed through the NSCC Stock Borrow program is delivered to the purchaser, is that share restricted in any way so it cannot be lent again?
It is important to note that the Stock Borrow program is used when continuous net settlement cannot locate the shares to settle. As a consequence, Stock Borrow is usually called into play when there are relatively few shares available for borrowing. These are propitious conditions for market manipulation: Unscrupulous short sellers undertake large-scale naked short sales involving stocks for which few shares are available for trading and lending, relying on the Stock Borrow program to borrow the limited available shares, again and again, at sufficient levels to drive down the market price of the shares.
Thompson notes that of approximately $6 billion in outstanding failures-to-deliver existing on any day, "the Stock Borrow program is able to resolve about $1.1 billion . or about 20% [18 percent] of the total fail obligation." In this statement, Thompson raises very serious questions about the integrity and operations of the NSCC and DTCC, which he can clarify by responding to the following queries: If the Stock Borrow program "resolves" only 18 percent of total fails, what is the disposition of the remaining 82 percent of outstanding fails? When failures-to-deliver occur that are not resolved through Stock Borrow, does the NSCC credit the undelivered shares to the member representing the buyer, creating genuine "phantom shares"? Finally, how many shares do the borrowing brokers, clearing firms and other participants in the Stock Borrow program owe the NSCC on a typical day, and what is their total value?
In a related matter, Thompson tries to distance the DTCC from charges that shares held in restricted accounts ' for example, cash accounts, retirement accounts and many institutional accounts ' are improperly lent through the Stock Borrow program by claiming that responsibility for segregating restricted shares from lendable shares falls to the "broker and bank members" of the DTCC, while responsibility for monitoring or regulating their performance in this matter falls to the stock exchanges and the SEC. As a trust company, the DTCC cannot hold that it has no role, duty or responsibility to ensure the probity of its operations. Thompson could address this issue by responding to the following queries: What procedures does the NSCC have to ensure that shares held in members' accounts for possible loan through the NSCC Stock Borrow program are unencumbered by regulatory or legal restrictions from being pledged or assigned and eligible to be borrowed? On any given day, how many participants in the Stock Borrow program have lent shares that exceed their lendable shares, in what numbers and of what value?
Thompson also tries to distance the DTCC as far as possible from the naked short selling that generates most of the extended failures-to-deliver: "We don't have any power or legal authority to regulate or stop short selling, naked or otherwise. We also have no power to force member firms to close out or resolve fails to deliver ... we don't even see whether a sale is short or not." In fact, the DTCC chooses to not distinguish short sales from long sales, chooses to not regulate or stop extended naked short sales, and chooses to not force member firms to resolve protracted naked short sales.
First, Regulation SHO requires that all transactions be clearly marked short or long. If the DTCC and NSCC do not know whether sales are short or long as Thompson contends, they choose to not know. Second, the NSCC has a clear responsibility and adequate means to stop naked short sales of extended duration, with no legal barrier that would prevent them from so doing. As a trust company with an acknowledged duty to provide investors certainty in the settlement and clearance of equity transactions, the DTCC chose to carry out that duty by assuming the role of counterparty to both sides of every equity transaction, through the operations of the NSCC's CNS system and the Stock Borrow program. By allowing short sellers to fail-to-deliver shares for months or even years, the NSCC clearly fails to provide certainty in settlement to the buyers, sellers and issuers of securities. Since it is widely known that extended naked short sales have been used to manipulate stock prices in cases of death-spiral financing, and the NSCC created the Stock Borrow program to address failures-to-deliver that prominently include naked short sales, the NSCC and DTCC share a responsibility with the SEC and the stock exchanges to protect investors by resolving extended fails.
Third, the DTCC and NSCC have the clear capacity to force member firms to resolve the extended failures-to-deliver of their customers by purchasing shares on the open market and deducting the cost from the member's account. A 2003 study by Dr. Richard Evans and others provides evidence that forced buy-ins by any party occur very rarely. They found that a major options market maker who failed to deliver all or a portion of shares sold in 69,063 transactions in 1998 -1999 was bought-in only 86 times or barely one-tenth of 1 percent of the fails. Thompson can clarify investors' understanding of their operations by responding to the following query: What proportion of shares that are persistent fails-to-deliver, of one month or longer, are ever bought in?
Thompson acknowledges that the DTCC and NSCC know precisely how many failures-to-deliver exist for each stock and the precise duration of each of these fails. Yet, the DTCC refuses to disclose this information even to the issuer of the stock in question, which Thompson justifies by citing "NSCC rules" prohibiting such a release of data based on "the obvious reason that the trading data we receive could be used to manipulate the market, as well as reveal trading patterns of individual firms." This response is both disingenuous and revealing. We know now, for the first time, that the DTCC has full knowledge of the extent of protracted, large-scale naked short sales in all particular cases. We also know now that the DTCC has had this information for at least a decade, since Thompson also notes that "fails, as a percentage of total trading, hasn't changed in the last 10 years." Yet, based on the DTCC's own rules, it allowed these abuses to persist and fester. The DTCC and NSCC can change their rules at any time. Moreover, in this case, those rules are unjustified. Data documenting outstanding short sales in each stock are currently issued publicly, so further data on how many of those short sales are naked would not reveal additional information about the trading patterns of individual firms or in any way empower manipulators. In fact, the DTCC could substantially disarm manipulators by both publicly reporting naked short sales in each issue and pledging to force buy-ins of all naked short sales that persist for more than a limited period.
Surely, if large-scale, extended naked short sales have effectively created "phantom" shares, companies have a responsibility to their shareholders and the right to secure this information from the organization which manages the settlement of short sales. At a minimum, the DTCC should respond to requests by issuers for data on extended failures-to-deliver in their own stocks, both in the past and currently, so they can take steps to resist stock manipulators or bring them to account for past manipulation.
Thompson also claims that the DTCC did not create or manage the Stock Borrow program to serve its own financial interest, insisting that the service generates less than $2 million a year in direct fees to the DTCC and that all DTCC services are priced on a "not for profit" basis that seeks to match revenues with expenses. Without further information, these responses beg the question of whose private financial interest has been served by the Stock Borrow program, especially as the DTCC is owned by the stock markets, clearinghouses, brokerage and banking institutions that use its services. Thompson and the DTCC can clarify this serious matter by responding to the following queries: Do DTCC participant/owners receive interest or other payments through or from the Stock Borrow program for lending the shares of their customers and, if so, how much have they received for these activities over the last 10 years? Further, do DTCC participant/owners receive any dividend, interest or other payments or distributions from the DTCC or its subsidiaries?, Shapiro concluded.
In a recent editorial, Investrend Information head Gayle Essary questioned whether the board and principal shareholders would "be party to shenanigans that lead to the censorship or disabling of any media" that he says is "un-American activity."
The DTCC's letter to Investrend's counsel, Marshal Shichtman, Esq., is posted at
http://www.investrend.com/Admin/Topics/Articles/Resources/349_1113403487.pdf
Essary said that the arrogance the DTCC expressed in its censorship efforts shows that the entity has "become too large, too encompassing, too powerful, too unresponsive to those it serves, primarily the investing public, and too unresponsive to the Congress under whose auspices it should be operating.
"First, it is time to unconflict it, with real public representations on its board," he said, and second, "it is time to break it up, with its various duties provided by smaller agencies under separate unconflicted boards."
DTCC board members include Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine, Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); and Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C), Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).
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STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Regulation SHO, Illegal Shorting, and Clear Evidence of Fraud – May 2, 2005
David Patch
The list of public companies denied the right to fair market practices continues to grow. With the daily publication of the Regulation SHO threshold list is the continued evidence of regulatory neglect and securities fraud. The only remaining question, where are the Congressional Oversight Committee’s and how far out of control will it get before they step in?
At the present time, 27 listed companies have resided on the Regulation SHO threshold list for a period of no less than 70 trading days [4 Calendar Months]. For each the failures to settle, failure to deliver, has exceeded 0.5% of the shares issued and outstanding for a period that far exceeds the normal settlement cycle, 3-days, and is far beyond any legal limits set forth by the SEC or Congress. Yet, the SEC protects the violators of settlement as if it is they that have the rights and not the investor. They [violators] are undertaking ‘important and secret trading strategies’ that we the investors do not need to know about.
In addition to the 27 companies with excessive fails above 70 trading days are those 39 other public companies that have been on the list for a period of no less than 50 trading days. Companies with greater than 50 days in oversold settlement failures include household names like Delta Airlines, United Air Lines, Martha Stewart Living, TASER, Global Crossing, Krisby Kreme, and Netflix.
(For the complete updated listing of companies and time duration on the list go to www.buyins.net )
So what gives with the SEC’s Regulation SHO and why have they circled the wagons at the agency and played Mickey-the-Dunce to the glaring evidence of abuse? Why has the SEC gone into stealth mode when they have historically gone public to champion their major reforms?
To start with, lets talk securities law. The laws the SEC appears to have forgotten exist.
The SEC guidelines require that all trades, with few exemptions, are cleared and settled within 3-days (Rules 15c3-3, 15c6-1, and Section 17A of the Securities Act of 1934). The goal behind such rule making is to protect the financial safety of the investor and the overall safety and integrity of the financial markets. Yet, we have stocks with excessive persistent fails that the SEC is completely ignoring by their own evidence. Evidence of excessive fails dating back to October of 2004 and before.
The NASD, in July 2000, provided a guidance memo to the industry members [00-45] regarding the reason codes to be applied to Rule 15c3-3 settlement failures. In the guidance memo, the terms provided prior to mandatory buy-in settlement requirements never reached or exceeded 50 trading days. Most were limited to a meager allowance of 14 days including such causes as “lost certificates” or “death”. There were even acceptable reason codes like “can’t buy-in” - which begs the question, if a stock is trading in the open market daily why can’t a stock be bought in within a 14-day window by a seller who did not own the shares already sold? What are the buyers buying on these days where an illegal seller can’t buy-in a fail? Are the buyers simply purchasing more non-existent shares? More fails? Am I missing something?
By the SEC’s own admissions in June 2004, the large “pre-existing fails” were so pervasive and potentially damaging, they provided 6 months of implementation time - and – an additional grandfather clause to allow the fails to slowly be closed out. So far, after 10 months [June 2004 SHO Release – Present] the large fails have not been reduced below acceptable levels in some of the major public companies. Companies whose stocks have churned their public float over greater than 5 - 10 times and whose market cap losses have neared 50% or more.
So who owns these fails in the system and how has the SEC and Self-Regulatory Agencies sanctioned them as benign? Where is the Depository Trust in complying with the Securities Act of 1934 mandate for prompt and accurate settlement of trades?
While the DTCC claims the fails are not their problem, certainly the guidelines of their very existence indicate it should be if it is not today. If DTCC wants to void itself of responsibility for trade settlements than we should certainly be looking for an alternative operation that will live to the spirit and the letter of the Securities Act of 1934. The DTCC, while a not-for-profit corporation, certainly generates income that pays handsomely the salaries of the executive team and provides significant revenues to Wall Street. Unfortunately the DTCC is also mandated to protect the investors who, at this point in time, are being defrauded by a systemic problem of settlement abuses. We the People are not getting our monies worth out of the DTCC.
One can surmise from recent SEC and NASD enforcement proceedings against Friedman, Billings, and Ramsey and SG Cowen & Co., evidence of fraud would point directly to the Private Placement (PIPE) financiers who are “assisting companies” with operating capital. While the companies identified in the SEC enforcements against these firms do not appear on the SEC’s Regulation Threshold list today, one could easily conclude they would have been had the SEC been more pro-active in 2001. Further begging, if the SEC has missed these select illegal activities for the past 4 years and tens of thousands of complaints, how many others have they been missing or --- ignored?
For the record, SG Cowen actually handed over the evidence to the SEC in 2001 and the US Attorney has received a criminal plea of guilty by the managing director of SG Cowen (G. Pollet) yet the SEC is still working the case. Ask yourself how a criminal conviction and guilty plea can precede a simple civil enforcement action by the SEC. The SEC only has to prove fraud and the US Attorney not only proved fraud but criminal intent.
The other opportunity beyond the Wall Street PIPE dealers [Hedge Funds] for creating the settlement failures would be the Market Makers. Under Securities Law Market Makers are provided the opportunity to sell short without delivery for settlement [naked short] in instances where they are flattening out “temporary imbalances” between supply and demand. These exemptions are intended to be temporary in nature and are not to be used in house account trading strategies over the long term. The practice is also supposed to work both ways. Market Makers are also supposed to become buyers when imbalances on the sell side occur. A condition set forth in exchange for the short sale exemption. Bona-Fide market making is making a market on both sides of the market.
In review of the companies remaining daily on the threshold list, most have seen tremendous losses in stock valuations. Krispy Kreme is down 40%, Delta Airlines is down 43%, Taser is down 62%, Martha Stewart is down 31% and Global Crossing is down 25%.
Due to the continuous fall in valuations, the markets in these stocks would be considered bearish. Bear Markets do not require market makers to provide sell side liquidity. In fact, under the guidelines of market making, it is expected that they provide buy-side liquidity in order to balance the temporary sell-side volatility.
If Market Makers are thus to be considered the cause for the settlement failures presented by the SEC, the SEC is protecting their financial well being at the detriment to every investor in these securities. Market Makers have no rationale excuse to remain naked short a security for a duration of 70 trade days. Certainly not when the stock has been sold down by nearly 50% during that same window of time. At some point a forth grader could point out that the trades were not for liquidity but were trades that were made as a market strategy and thus do not qualify for the exemption.
Taking the Market Makers short position one-step further, theoretically they could have become trapped in a stock valuation increase at a time when they held, on their books, excessive short positions. They could then force upon themselves additional short selling executions to control stock rises that would impact their pre-existing short position. Doing so would be considered stock manipulation. It would also explain the raiding of stocks on “good news” days.
If by using the short sale exemption, a market maker can sell short into the investors coming into a stock, to protect their economic position they would not be acting in a bona-fide market making strategy but in a self-preservation mode at the expense of the investing public. The first step of a “Bear Raid” would be to control any possible buy-side pressures and that control would show up as settlement failures. For any member to control a stock valuation for house account preservation is in violation of not only securities laws but of the public trust afforded to them in these markets.
So then, is this who the SEC is protecting? Is it the Market Makers or Hedge Funds? Who else has the luxury of selling short without delivery? Certainly not “Joe Average Investor”.
While the SEC will not speak of this issue publicly the silence they have taken is the ultimate in admitting failure. The SEC has not claimed the “Success” they so repeatedly undertake when they change the laws to account for other fraudulent acts. Instead, in this case, the SEC has their scarlet letter. The publication of the Threshold Security list daily and the easily accessible volume trade reports on Yahoo and elsewhere, clearly prove, without a shadow of doubt, that illegal trading and Wall Street collusion is taking place. The SEC reform bombed!
For the record, the SEC has painted us all as nut cases who don’t understand the markets. They have vindictively attacked any and all that complain, trying to quiet the story by tarnishing reputations through SEC enforcement threats. But the SEC is missing one critical piece of data. The evidence is out there and all it takes is one Federal Judge to force the SEC to disclose what it has as the evidence.
The SEC can de-list companies for not maintaining their filings but a good corporate attorney can also subpoena the trade records and identify the massive fraud the SEC covered up in taking such actions. De-listing companies while massive settlement failures exist is the epitome of SEC negligence. The actions taken were not about investor protection but an industry-wide self-preservation of the illegal acts of fraud and manipulation.
Our Congress also owns responsibility for this issue. Investors across the US and elsewhere have written to them asking for hearings and investigations. The Senate and the House both have oversight committees responsible for evaluating the actions of the SEC. Why have they not acted on behalf of the investing public?
When Senator Sarbanes of the Senate Banking Committee received a response from the SEC that was false and misleading, why did the Senator sit on it without taking corrective measures? The Senator has the oversight responsibilities and he let the SEC lie to him. Ultimately the Senator only placated the constituent that was being represented. Senator Sarbanes never truly sought out what was best for the constituent when he accepted the lie and moved on. The Senator has not been alone in these transgressions.
How does the SEC justify the magnitude and duration of settlement failures? Whom are they protecting? And is the SEC guilty of criminal violations of aiding and abetting securities fraud? All good questions for Government agencies like the Department of Justice to look into.
Last week President Bush called for the privatization of Social Security. What better place to put your retirement income than a “good old boys” club of bandits out to destroy the US Economy. Ask the President what he knows about naked shorting, his staff has attended meetings in April 2004 and a white paper was written for the President last year under a request by the White House. Maybe the President can explain why he wants our futures placed in the hands of criminals when he sits back and watches Wall Street steal us blind.
Step out of the crowd and be heard. Ask your Congressman to protect your rights to fair market practices and request formal public hearings on these abuses. It will only get worse if Congress continues to ignore the issues.
For more on this issue please visit the Host site at www.investigatethesec.com
Copyright 2005
From: [rbitulsa]
Sent: Sunday, May 01, 2005 11:14 PM
To: 'mkrantz@usatoday.com'
Subject: Regarding your "Naked Cover up" Q&A of 4/21
Dear Matt,
When you attempt to explain the real underlying issue to average investors or the general public, it tends to soar over their heads. So we "Kleenex" the issue and call it naked shorting; counterfeit shares is even easier to understand.
But the real issue is the Stock Borrow Program's love affair with persistant settlement failures, primarily against companies trading on the lower-tier venues.
No doubt here that the SBP was created to make money, period. Yes, there was a growing number of arbitrary settlement failures, and it was disrupting the continuity of the settlement system. And that caused the DTCC to take notice. But they didn't put their heads together and create a system that prevented the delivery failures. They put their heads together and devised a system that could handle unlimited delivery failures, and created a managed and regulated process that provided equal access to this illegal profiteering, for all of its participants. It had become obvious that settlement failures were screwing up the system. And the DTCC participants asked, figuratively, "How can we profit from this?" The answer was the SBP.
Every share your broker "lends" into the SBP, to cover a delivery failure "within the system", puts cash into an account 'owned' by your broker - he can't spend the principle, but he earns the interest income on it, daily. Think about the incentive for your broker to fail delivery - the game is lending shares for cash flow, and the ticket is failed delivery. Hypothetical example: Your broker sells shares to another broker and then doesn't deliver them on T+3. Your broker then lends your shares to the buying broker via the SBP, and immediately begins to earn interest on YOUR shares. And make no mistake about it. Your shares are now owned by someone else. What you get is a guarantee from the DTCC to receive shares back (of like kind and quantity) when the originating delivery failure is settled. How do you feel knowing this? Your broker will deny it. Why? Because your broker's stock "loans" are accounted for as long shares on his DTCC records. How is this possible? Rule 11-2 Paragraph C of the NSCC Rules and Procedures: “The assumptions … of this Section for any CNS Transaction of any Member shall occur when the [DTCC’s] guarantee to complete the transaction becomes effective. For purposes of the preceding sentence, the [DTCC] shall be deemed to have guaranteed completion of a CNS Transaction when the clearance and settlement process for the transaction has reached the stage at which the [DTCC] will complete the CNS Accounting Operation for such transaction.” Your broker has given away your shares for cash-flow, and you've unknowingly received, in their place, the rights to an IOU for a share that has yet to be purchased by the person who owes it to you. Don't be mistaken. If you invest in the OTCBB or Pink Sheet stocks, someone else likely owns the shares printed on your brokerage statement.
Have you read Leslie Boni's report? It might be a year before that originating failure is delivered. The continued recycling of this process, when you compare an increasing number of settlement failures against a decreasing number of settlements, creates shareholders whose cumulative long positions, as shown in their brokerage accounts, add up to four, five, maybe ten times the actual number of shares the company has issued. Now, what percentage of ownership did you think you were paying for when you bought the stock?
You might want to get up to speed on this issue. It will monopolize the mainstream media, at some point in the near future.
Sincerely,
[rbitulsa]
The BIG SNOWBALL is picking up speed.
Patrick:
Just wanted to drop by and say hello. I am the one who wrote Ms. Hadley this weekend. Ready to join the fight with you, and do whatever I can from the East Coast. I bring several hundred as part of my group, and hundreds more followers from the Yahoo boards ready to bring these criminals down. I have been active on this issue for 4 years now when it was obvious a Nasdaq at 5000 could not go straight to 1100. Stocks at $100's of dollars did not deserve to be pennies. It was too obvious. I was "the crazy" that educated the entire Yahoo community on what was occurring. They all called me a Conspiracy Theorist, and tried to laugh me out of town as a sore loser. Nobody is laughing now, except all the shorts, hedges, media, and off-shore factions that are in on it.
On a related note, just to show you how quickly the problem is progressing. Two weeks ago, a stock on the Nasdaq Eltek (ELTK) reported great earnings. Another low-float stock that broke out to much higher levels. It immediately came down on the lack of liquidity. Then, this past Monday [March 28], it surged from $4.12 to set a new 52 week high at $6.40. Since that instant on Monday, it has come straight down with no breath of holding an uptick. The naked shorters are sitting on the ask all day and operating through CIBC World Markets. No amount of buying can get through their unlimited supply of naked shares.
I tell you this because, just in the matter of a few days, they have popped up on the European Exchanges, without their consent. They also have gone into FTD status now appearing on the SHO list. Just one week ago, they were the largest one day gainer on the Nasdaq because of a true company turnaround. Now, there is no reason to suggest the stock could ever go higher anytime in the future.
This has got to stop. Stockgate IS about to be the biggest scandal in World History. Almost $5 trillion has been lost to this practice.
Our current list of demands is growing. If the naked shorts have a problem with any of them, then come out of the closet and discuss your concerns with us. I'm sure everyone would love to know who you are, and how you justify your illegal activity.
The American people will call for immediate reform and DEMAND no less than the following:
1). Donaldson...gone.
2). 300 attorneys at the SEC...gone.
3). DTCC reform and present officials...gone. No more protection of their illegal $50 bil. a year income.
4). A newly formed SEC comprised of private investors. An SEC formed solely for the purpose of which the Securities Act of 1934 called for...protection of the private investor.
5). No security prospectus anywhere warns any investor of the perils of naked short selling. Therefore, the SEC by its own admonition has created a securities market where they have openly committed fraud on the individual investor by allowing any practice of naked short selling as a part of bonafide market making. By grandfathering all previous naked shorting previous to Jan. 2005, they are committing a second fraud on the American investor. Therefore, the SEC shall immediately be called to answer some 40000+ charges of fraud and market manipulation.
6). An immediate call of all outstanding short shares. The SEC does know exactly who is naked short selling our securities. All companies will then re-issue their "authorized" number of short shares. Since "the sum of the parts cannot be more than the whole", then all the parts are deemed null and void. A private agency will then be formed to administer the short shares of every US listed company. Seven days notice will be required to locate the short shares of any US listed security.
7). There will be no more pools of short shares created on a daily basis as naked shares to counteract the effect of buying on margin. This is called "kiting" shares. It is illegal anywhere else in the world with a check, and illegal in the markets. There is no accountability in this practice and no justification for it. It forces every stock on the board to have twice as many buyers as sellers for it to appreciate in price.
8). Immediate enforcement of the uptick rule. No more shorting into the bid.
9). Immediate access to Level 3 for all investors. It is not a level playing field until it is a level playing field.
10). No more trading off the board by market makers. All trades must cross the tape during market hours.
11). No more painting the tape by specialists. The 4pm close is the 4pm close.
12). Immediate reform and disclosure for all hedge funds. They changed the rules without telling anybody. They won't mind if we demand changing the rules for the benefit of the private investor.
13). No get out of jail free cards. No deals. This is the largest crime in World History and they all need to be made an example of. The practice of shorting should be a scary endeavor where even the slightest news will cause panic. That was the way it was designed. For years now, it has been the other way and anybody long a stock cannot even sleep at night because the criminals never sleep.
14). An immediate daily publication of all open short interest on every stock, with name or entity and number of shares.
15). Immediate delisting of all companies listed on foreign exchanges without the companies consent.
16). Immediate investigation of all media, reporters, and news writers who have received funds for writing articles about any company. All payola payments will be found, off-shore accounts will be seized, and those involved immediately thrown in jail. I’m sure a good place to start is CNBC with their off-shore accounts and their blatant attack against Taser. There are a few thousand others. CNBC doesn't report news. They create news. There is no first amendment right to freedom of speech when you harm a stock price through a news story. Even airing a commercial for which you were paid is in fact receiving $$$ for airing slam stories against a company. News is news. Repeating the same news over and over is slamming. And CNBC is guilty as charged.
The list will grow larger every day.
http://forums.auctions.overstock.com/viewtopic.php?p=79895
It's becoming more and more obvious gump.
The BusinessWire refusal to issue a news release is adding fuel to the fire.
You've made my point Euthy!
Show me the word BLADE.
"If the assault is made with the use of a deadly weapon, or the present ability to use a deadly weapon, for a category B felony by imprisonment in the state prison for a minimum term of not less than 1 year and a maximum term of not more than 6 years, or by a fine of not more than $5,000, or by both fine and imprisonment.
Sec10, there's no need for a regulation to tell you not to stick a blade into your mother-in-law.
Likewise there's no need for a regulation to tell you not to file using corrupt data.
... Nonsense, ignutz. Claims of an NSS have nothing to do with an audit.
Care to cite the Regulation that says it does?
You hit the bull's eye DiamondTrader.
... right in the center.
" .. An audit cannot be completed NOR signed off on if the share structure is corrupted. The T/A is irrelevant when dealing with NSS ..."
A Nasdaq disappearing trick ...
The page cannot be displayed
The page you are looking for might have been removed or had its name changed.
--------------------------------------------------------------
Please try the following:
Open the regulationsho@nasdaq.com home page, and then look for links to the information you want.
If you typed the page address in the Address bar, make sure that it is spelled correctly.
If you still cannot open the page, click the Internet Explorer
Search button to look for similar sites.
Internet Explorer
Annette Nazareth subpoenaed.
http://www.cmkxownersgroup.com/CMKMSubpoenatoSEC.pdf
That's dumb Retflyr ...
As soon as you surrender the certs to your broker and he gets his hands on them he'll short them into the market and you won't be a registered shareholder anymore.
Put them away for the long term in a safety deposit box or other safe place until this saga is resolved.
No room left at the inn ...
http://www.cmkxownersgroup.com/SECResponsetoCourtRoomChange.pdf
StockGate: Small Companies Back To Square One, Asking Shareholders To Hold Certs / FinancialWire®
April 29, 2005 (FinancialWire) Back before Regulation SHO and before the national financial scandal known as Stockgate spilled over into courtrooms, the halls of the U.S. Senate and accusations of media tampering of General Electric’s (NYSE: GE) “Dateline NBC” and censorship of this newswire by the Depository Trust and Clearing Corp., there was a time when hundreds of individual companies such as Union Equity Inc. (OTC: UNQT) and their shareholders mounted their own defensives to protect themselves from illegal manipulators.
Now, to add to the distress, the U.S. Securities and Exchange Commission has stated that not all forms of illegal naked short selling, the equivalent of counterfeiting shares in public companies, are actually “illegal,” and has effectively told those who had in fact illegally shorted companies on the Regulation SHO threshold list, such as Martha Stewart Living Omnimedia (NYSE: MSO) and Overstock.com (NASDAQ: OSTK) before the first of the year that their manipulations have been “grandfathered” in, in what some are calling an “amnesty” by regulatory fiat.
Union Equity has said it is encouraging shareholders to request as much of their stock as possible be delivered to them in certificate form. This is being done to make it more difficult for market players to short the company's stock, the company stated.
"I don't believe in the concept of shorting, I never have," said Union Equity CEO Michael Anthony. "If you are going to speculate in the market you should do so based on the belief that smaller business entities are going to become larger, more financially successful companies. The concepts of economic growth and entrepreneurial innovation are the backbone of the American way of life. Personally, I would never bet on the demise of any company."
According to a recent article by journalist Joel S. Hirschhorn, noted Union Equity: "Company stocks can be sold short. Shares are borrowed from brokers who actually have them (or can get them), transferred to the purchaser, and then returned to the lender by the short seller. The short seller sees a relatively high price in the stock market and bets that the price will decline significantly. Then the stock can be bought and returned to the original lender within three days. But `naked shorting' is different. No actual stock is borrowed and delivered to the purchaser, even though the purchaser pays the short seller. The investor believes that real stock has been delivered to their account. Naked short selling has been illegal since 1933, but it has still flourished."
Union Equity said it requests that shareholders contact their broker/dealers and request that their shares of company stock be delivered to them in certificate form in order to make it more difficult for short-sellers to borrow stock. “Theoretically, if there are fewer shares out there for short-sellers to borrow, it makes it harder for them to achieve their objective.”
The DTCC actions in the StockGate mire are the most serious, if not notorious since the agent of two SROs, the New York Stock Exchange and NASD is also peopled by some 21 directors whose companies, such as Merrill Lynch & Co. (NYSE: MER), State Street Corporation (NYSE: STT) and Goldman Sachs (NYSE: GS), are unlikely to support the DTCC in what attorney Marshal Shichtman, Esq., has termed “strong-arm” tactics.
Meanwhile, a former managing director of SG Cowen & Co., Guillaume Pollet, has been charged by the SEC with insider trading and fraud by short selling the stock of companies prior to the companies closing on PIPES – the private offering of stock – in which SG Cowan invested.
Pollet routinely sold short the publicly traded securities of these PIPE issuers prior to the close of the PIPE transaction in order to lock in gains for SG Cowen's proprietary account. As a result of Pollet's illicit trading, SG Cowen locked in over $4 million in trading profits, in addition to other gains SG Cowen made on the transactions.
In several instances, SG Cowen also acted as the PIPE issuer's investment banker.
The Commission's complaint also alleges that, in several instances, Pollet's short selling was directly contrary to representations that SG Cowen made to PIPE issuers in connection with the PIPE transactions. For example, SG Cowen specifically represented to some of the PIPE issuers that SG Cowen would not short sell the securities of such issuer prior to the close of the PIPE transaction. SG Cowen also represented to each of the PIPE issuers that it was acquiring the PIPE securities with investment intent. SG Cowen made these representations at a time when Pollet had already started to short sell the securities of these PIPE issuers.
Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "While PIPE transactions may help a company meet its financing needs, they also create opportunities for fraud. This case sends the message that we will actively patrol this area so that issuers and investors alike can have confidence in these financing vehicles."
In a commentary, James Cramer, founder of TheStreet.com (NASDAQ: TSCM), cautioned that most small corporate CEOs are easy prey for hutlers.
“For years, when I have met privately with troubled companies, I have told them that under no circumstances should they ever succumb to a bank's wishes to place private equity money into their public structures. I have told them over and over again that the game is so rigged, the people you open up to will short your stock and the people they talk to will short your stock and you will have a vicious spiral down.
“To a person, these managers have criticized me for being paranoid, for being too suspicious and for being, well, nuts.
“Most CEOs have no idea how the stock market works. They are clueless. They have no idea how corrupt it can be, how dangerous it can be. This is a game for card sharps and for hustlers. It is a game where bankers are betting against you as they try to help you, where arbitragers and convertible-bond specialists crush you even as they claim to be in your camp.
“Every once in a while they get nailed; most of the time they get away with it. So they can prey again,” he noted.
In a wide-ranging letter to the DTCC, Robert J. Shapiro has charged statements made by Larry Thompson, DTCC Deputy General Counsel, were “inaccurate or misleading,” and asked the DTCC to correct the record and respond to his comments and questions.
Shapiro is chair of Sonecon LLC, a private economic advisory firm in Washington, D.C., who served as U.S. Under Secretary of Commerce for Economic Affairs from 1998 to 2001, Vice President and co-founder of the Progressive Policy Institute from 1989 to 1998, and principal economic advisor to Governor William J. Clinton in the 1991-1992 presidential campaign.
He holds a Ph.D. from Harvard University and has been a Fellow of the National Bureau of Economic Research, Harvard University, and the Brookings Institution.
Shapiro currently provides economic analysis to the law firms of O’Quinn, Laminack and Pirtle, Christian, Smith and Jewell, and Heard, Robins, Cloud, Lubel and Greenwood, on issues associated with naked short sales, which he noted includes “matters raised in an interview published by @DTCC with DTCC deputy general counsel Larry Thompson.”
He asserts the following in his letter:
Mr. Thompson begins by asserting that “the extent to which [naked short selling] occurs is in dispute.” While this statement may be narrowly correct, objective academic analysis has established that naked short selling has been a widespread practice and one which, when allowed to persist, can pose a threat to the integrity of equity markets. A recent study by Dr. Leslie Boni, then a visiting financial economist at the SEC, analyzed NSCC data and found that on three random days, an average of more than 700 listed stocks had failures-to-deliver of 60 million-to-120 million shares sold short – naked shorts – that had persisted for at least two months. In addition, over 800 unlisted stocks on any day had fails of 120 million-to-180 million shares sold short that also had persisted for at least two months. The total number of naked shorts, including those that had persisted for less than two months, was presumably considerably greater.
Regarding the extent of naked shorts, Mr. Thompson has provided closely-related additional information: “fails to deliver and receive amount to about $6 billion daily…including both new fails and aged fails.” Mr. Thompson minimizes this total by comparing it to “just under $400 billion in trades (emphasis added) processed daily by NSCC, or about 1.5% of the dollar volume.” By most people’s standards, a problem involving hundreds of millions of shares valued at $6 billion every day is a very large problem. Moreover, the $6 billion total substantially underestimates the actual value of all failed-to-deliver trades measured when the trades actually occurred. Most of the $6 billion total represents uncovered or naked short sales, many of which have gone undelivered for weeks or months with their market price being marked-to-market every day. As a stock’s price falls, the market price of naked shorts in that stock also declines, reducing the total value of the outstanding failures-to-deliver cited by Mr. Thompson.
In other respects, Mr. Thompson’s comparison to the “$400 billion in trades processed daily by NSCC” seems disingenuous and misleading, because that $400 billion total covers not only U.S. equity trades which can involve most of the failures-to-deliver at issue, but many other transactions also processed by the NSCC. The value of all equity transactions on U.S. markets in 2004, for example, averaged $82.3 billion/day. If Mr. Thompson is correct that the daily value of fails-to-deliver averages $6 billion, that total is equivalent to 7.2 percent of average daily equity trades or nearly five times the 1.5 percent level suggested by Mr. Thompson. Furthermore, the DTCC reports on its website that on a peak day, “through its Continuous Net Settlement (CNS) system, NSCC eliminated the need to settle 96 percent of total obligations.” Assuming that CNS nets out the same proportion of trades on other days, $384 billion of the $400 billion in daily trades cited by Mr. Thompson are netted out, leaving only $16 billion in daily trades that require the actual delivery of securities. The $6 billion of fails-to-deliver securities existing on any day are equivalent to 37.5 percent of the average daily trades that require the delivery of securities, or 25 times the 1.5 percent level cited by Mr. Thompson.
Mr. Thompson tries to explain the large numbers of shares that go undelivered – in most cases arising from naked short sales -- by citing problems with paper certificates, inevitable human error, and the legitimate operations of market makers. This also seems misleading or disingenuous. Regarding problems with paper certificates, the DTCC estimates that 97 percent of all stock certificates are now kept in electronic form. Nor can human error or legitimate market-making operations explain the high levels of failures-to-deliver that persist for months – on any day, an average of 180 million-to-300 million shares have gone undelivered for two months or longer – as documented by Dr. Boni’s analysis of NSCC data.
Mr. Thompson also disparages the attorneys who represent companies that have been damaged or destroyed by massive naked short sales, and their shareholders, by claiming falsely that the cases in this matter have almost all been dismissed or withdrawn. The legal firms that I advise -- O’Quinn, Petrie and Laminack; Christian, Smith and Jewell; and Heard, Robins, Cloud, Lubel and Greenwood – have not lost any motions against the DTCC or its affiliates and currently have one case against the DTCC pending in Nevada and another case against the DTCC pending in Arkansas. In addition, on February 24, 2005, these attorneys were granted an order by the New York Supreme Court ordering the DTCC to produce trading records involving two companies they represent, including records from the Stock Borrow program, which may establish whether large-scale naked short sales were used to manipulate and drive down the stock price of those two companies.
Mr. Thompson also asserts that the plaintiffs suing the DTCC for damages associated with the handling of naked short sales rely on “theories [that] are not an accurate reflection of how the capital market system actually works.” This assertion is inaccurate. There is no dispute about how the capital markets work -- nor any doubt that naked short sales have been used to manipulate and drive down the price of stocks, as seen in numerous death-spiral financing cases. The issue here is the DTCC’s role in allowing or facilitating such stock manipulation through its treatment of extended naked short sales.
In explaining the DTCC’s role in these matters, Mr. Thompson rejects the claim that the NSCC’s Stock Borrow program allows the same shares to be lent over and over again, potentially creating more shares than actually exist or “phantom” shares. By Mr. Thompson’s own account, shares borrowed by the NSCC to settle naked short sales are deducted from the lending member’s DTC account and credited to the DTC account of the member to whom the shares have been sold. Therefore, those same shares become available to be re-borrowed to settle another naked short sale and, if that happens, to be re-borrowed again and again to settle a succession of naked short sales. Throughout this process, the actual short sellers may continue to fail-to-deliver the shares to cover their shorts and, as Dr. Boni’s analysis of NSCC data found, the underlying failure can age for months or even years. The process which Mr. Thompson describes is one in which shares can be borrowed and lent over and over again, introducing more shares into the market than are legally registered and issued. If any ambiguity remains, Mr. Thompson can clarify it by responding to the following query: Once a share that has been borrowed through the NSCC Stock Borrow program is delivered to the purchaser, is that share restricted in any way so it cannot be lent again?
It is important to note that the Stock Borrow program is used when continuous net settlement cannot locate the shares to settle. As a consequence, Stock Borrow is usually called into play when there are relatively few shares available for borrowing. These are propitious conditions for market manipulation: Unscrupulous short sellers undertake large-scale naked short sales involving stocks for which few shares are available for trading and lending, relying on the Stock Borrow program to borrow the limited available shares, again and again, at sufficient levels to drive down the market price of the shares.
Mr. Thompson notes that of approximately $6 billion in outstanding failures-to-deliver existing on any day, “the Stock Borrow program is able to resolve about $1.1 billion … or about 20% [18 percent] of the total fail obligation.” In this statement, Mr. Thompson raises very serious questions about the integrity and operations of the NSCC and DTCC, which he can clarify by responding to the following queries: If the Stock Borrow program “resolves” only 18 percent of total fails, what is the disposition of the remaining 82 percent of outstanding fails? When failures-to-deliver occur that are not resolved through Stock Borrow, does the NSCC credit the undelivered shares to the member representing the buyer, creating genuine “phantom shares”? Finally, how many shares do the borrowing brokers, clearing firms and other participants in the Stock Borrow program owe the NSCC on a typical day, and what is their total value?
In a related matter, Mr. Thompson tries to distance the DTCC from charges that shares held in restricted accounts – for example, cash accounts, retirement accounts and many institutional accounts – are improperly lent through the Stock Borrow program by claiming that responsibility for segregating restricted shares from lendable shares falls to the “broker and bank members” of the DTCC, while responsibility for monitoring or regulating their performance in this matter falls to the stock exchanges and the SEC. As a trust company, the DTCC cannot hold that it has no role, duty or responsibility to ensure the probity of its operations. Mr. Thompson could address this issue by responding to the following queries: What procedures does the NSCC have to ensure that shares held in members’ accounts for possible loan through the NSCC Stock Borrow program are unencumbered by regulatory or legal restrictions from being pledged or assigned and eligible to be borrowed? On any given day, how many participants in the Stock Borrow program have lent shares that exceed their lendable shares, in what numbers and of what value?
Mr. Thompson also tries to distance the DTCC as far as possible from the naked short selling that generates most of the extended failures-to-deliver: “We don’t have any power or legal authority to regulate or stop short selling, naked or otherwise. We also have no power to force member firms to close out or resolve fails to deliver … we don’t even see whether a sale is short or not.” In fact, the DTCC chooses to not distinguish short sales from long sales, chooses to not regulate or stop extended naked short sales, and chooses to not force member firms to resolve protracted naked short sales.
First, Regulation SHO requires that all transactions be clearly marked short or long. If the DTCC and NSCC do not know whether sales are short or long as Mr. Thompson contends, they choose to not know. Second, the NSCC has a clear responsibility and adequate means to stop naked short sales of extended duration, with no legal barrier that would prevent them from so doing. As a trust company with an acknowledged duty to provide investors certainty in the settlement and clearance of equity transactions, the DTCC chose to carry out that duty by assuming the role of counterparty to both sides of every equity transaction, through the operations of the NSCC’s CNS system and the Stock Borrow program. By allowing short sellers to fail-to-deliver shares for months or even years, the NSCC clearly fails to provide certainty in settlement to the buyers, sellers and issuers of securities. Since it is widely known that extended naked short sales have been used to manipulate stock prices in cases of death-spiral financing, and the NSCC created the Stock Borrow program to address failures-to-deliver that prominently include naked short sales, the NSCC and DTCC share a responsibility with the SEC and the stock exchanges to protect investors by resolving extended fails.
Third, the DTCC and NSCC have the clear capacity to force member firms to resolve the extended failures-to-deliver of their customers by purchasing shares on the open market and deducting the cost from the member’s account. A 2003 study by Dr. Richard Evans and others provides evidence that forced buy-ins by any party occur very rarely. They found that a major options market maker who failed to deliver all or a portion of shares sold in 69,063 transactions in 1998-1999 was bought-in only 86 times or barely one-tenth of 1 percent of the fails. Mr. Thompson can clarify investors’ understanding of their operations by responding to the following query: What proportion of shares that are persistent fails-to-deliver, of one month or longer, are ever bought in?
Mr. Thompson acknowledges that the DTCC and NSCC know precisely how many failures-to-deliver exist for each stock and the precise duration of each of these fails. Yet, the DTCC refuses to disclose this information even to the issuer of the stock in question, which Mr. Thompson justifies by citing “NSCC rules” prohibiting such a release of data based on “the obvious reason that the trading data we receive could be used to manipulate the market, as well as reveal trading patterns of individual firms.” This response is both disingenuous and revealing. We know now, for the first time, that the DTCC has full knowledge of the extent of protracted, large-scale naked short sales in all particular cases. We also know now that the DTCC has had this information for at least a decade, since Mr. Thompson also notes that “fails, as a percentage of total trading, hasn’t changed in the last 10 years.” Yet, based on the DTCC’s own rules, it allowed these abuses to persist and fester. The DTCC and NSCC can change their rules at any time. Moreover, in this case, those rules are unjustified. Data documenting outstanding short sales in each stock are currently issued publicly, so further data on how many of those short sales are naked would not reveal additional information about the trading patterns of individual firms or in any way empower manipulators. In fact, the DTCC could substantially disarm manipulators by both publicly reporting naked short sales in each issue and pledging to force buy-ins of all naked short sales that persist for more than a limited period.
Surely, if large-scale, extended naked short sales have effectively created “phantom” shares, companies have a responsibility to their shareholders and the right to secure this information from the organization which manages the settlement of short sales. At a minimum, the DTCC should respond to requests by issuers for data on extended failures-to-deliver in their own stocks, both in the past and currently, so they can take steps to resist stock manipulators or bring them to account for past manipulation.
Mr. Thompson also claims that the DTCC did not create or manage the Stock Borrow program to serve its own financial interest, insisting that the service generates less than $2 million a year in direct fees to the DTCC and that all DTCC services are priced on a “not for profit” basis that seeks to match revenues with expenses. Without further information, these responses beg the question of whose private financial interest has been served by the Stock Borrow program, especially as the DTCC is owned by the stock markets, clearinghouses, brokerage and banking institutions that use its services. Mr. Thompson and the DTCC can clarify this serious matter by responding to the following queries: Do DTCC participant/owners receive interest or other payments through or from the Stock Borrow program for lending the shares of their customers and, if so, how much have they received for these activities over the last 10 years? Further, do DTCC participant/owners receive any dividend, interest or other payments or distributions from the DTCC or its subsidiaries?, Shapiro concluded.
In a recent editorial, Investrend Information head Gayle Essary questioned whether the board and principal shareholders would “be party to shenanigans that lead to the censorship or disabling of any media” that he says is “un-American activity.”
The DTCC’s letter to Investrend’s counsel, Marshal Shichtman, Esq., is posted at http://www.investrend.com/Admin/Topics/Articles/Resources/349_1113403487.pdf
Essary said that the arrogance the DTCC expressed in its censorship efforts shows that the entity has “become too large, too encompassing, too powerful, too unresponsive to those it serves, primarily the investing public, and too unresponsive to the Congress under whose auspices it should be operating.
“First, it is time to unconflict it, with real public representations on its board,” he said, and second, “it is time to break it up, with its various duties provided by smaller agencies under separate unconflicted boards.”
DTCC board members include Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); and Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C), Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).
CMKX Subpoena to the DTCC
See ther web page. www.cmkxownersgroup.com
CMKX Subpoena to the DTCC
See our web page. www.cmkxownersgroup.com
Another case ...
aeroTelesis Issues Year-End Letter to Shareholders
LOS ANGELES--(BUSINESS WIRE)--April 28, 2005--aeroTelesis(TM), Inc. (OTCBB:AOTL) President, Joseph Gutierrez, issued the following year-end letter to shareholders:
Dear Shareholders,
Our fiscal year (March 31) has recently ended, and it is appropriate for me to update you on our latest progress and developments prior to our annual 10-KSB filing which is due in June.
I also want to use this letter as a vehicle to provide you with the assurance and confidence that the Company is making significant strides forward. Our philosophy and focus has always been and continues to be set on building fundamental business value into the Company.
The topics for this letter are as follows:
-- 1. Acquisitions Update
-- 2. USM(TM) Developments and Satellite Partnerships
-- 3. AOTL Stock Activity
-- 4. Financing from Nations
-- 5. Expanding the aeroTelesis Team
Acquisitions Update
In my previous letter dated February 8, 2005, I outlined an acquisitions strategy that the Company would pursue for its VOIP (Voice Over Internet Protocol) business division. Today, I am pleased to report that we have signed Memorandums of Understanding and Letters of Intent with three Los Angeles-based companies. Each of these companies has healthy revenues and is profitable. For confidentiality purposes, we cannot disclose the names of these companies until a later date, as we are currently in various stages of due diligence and negotiations with them. Pending the completion of our due diligence and acquisition-related financing (which is now in process), we expect to close one or more of these acquisitions in the near term.
USM Developments and Satellite Partnerships
In early March, we made our most significant USM-related news announcement to date. This was done in conjunction with Photron, the developer of the USM (Ultra Spectral Modulation) technology, and AccelChip (www.accelchip.com), a renowned chip development partner. Through the extensive involvement of AccelChip, we now have the first set of independent 3rd party assessment for the technology. This is a great foundation for USM to build upon, as world-class technology experts are now observing and working directly with USM. Most notably, the CEO of AccelChip remarked that USM is the most exciting approach in wireless design activity that they have come across to date.
While the USM technology progresses through the chip development stages, the Company has continued to pursue new satellite partnerships in Southeast Asia. Recently, we established a new international alliance with PT Citra Sari Makmur (CSM) in Indonesia. CSM is part owned by PT Telkom, the national telephone company of Indonesia, and is a well respected partner for aeroTelesis to deploy satellite-based USM services to Indonesia -- a country with a population in excess of 200 million people and over 14,000 islands that can certainly benefit from satellite communications. Additionally, the aeroTelesis team continues to work closely with Mabuhay Satellite, its satellite partner for the Philippines -- a country with approximately 100 million people and over 7,000 islands.
AOTL Stock Activity
Over the past 6 weeks, the AOTL stock price has been volatile. However, the stock market activity and price swings in the aeroTelesis stock are something that we do not control. Our dedication and focus remains centered on the long term growth of the Company.
We have suspected that there may be a number of "rogue" traders who have been actively "shorting" our stock. There is an industry term for this type of trading behavior called "naked shorting". This is not a phenomenon unique to aeroTelesis alone. It is something that plagues the market in general, especially for companies listed on the OTC Exchange. Government legislation is being put in place to remedy the problem.
To address the problem of the "naked shorts" in our stock, there are a number of measures that we have been considering. This includes a greater effort to bring more institutional and retail support to the stock. The Company has also retained special litigation counsel to further investigate this matter. But at a more fundamental level, we firmly believe that as our business milestones continue to be achieved and as more value is created for the Company, there will be new momentum to carry the stock price forward regardless of the "rogue" traders.
The Company is optimistic that the dynamics and growth opportunities are excellent:
-- Our acquisitions program is on track to help us achieve revenues and profitability in the near term.
-- The USM technology is advancing in its chip development process with high level 3rd party assessment and validation being established. Additionally, a series of new, physical USM test demonstrations should be ready by end of summer.
-- Our existing USM satellite partnerships will be deepened and new alliances will continue to be pursued.
It is understandable that you may feel anxiety about the Company's stock price. However, this is the time to see that the Company is being built with significant value that will hopefully be properly recognized in the near future.
Financing from Nations
From time to time, we are asked about the sources of funding for the Company. Since inception, our financial support has come from our majority shareholder, Nations Mobile Networks Ltd. ("Nations").
In September 2003, aeroTelesis entered into a loan agreement with Nations for a revolving line of credit up to $1,000,000 for a period of twelve months as a working capital loan. The loan agreement contained an interest provision of 7% to be accrued quarterly. Nations had an option to convert the principal amount of the loan and any accrued interest into restricted common shares of aeroTelesis. Through December 31, 2004, Nations has converted a cumulative amount of $1,054,093 of debt and accrued interest since the inception of the financing commitment. Furthermore, Nations committed to additional financing as an extension of the original agreement. We are very appreciative for their continued support and commitment to our company.
Expanding the aeroTelesis Team
Lastly, I would like to inform you that we are taking immediate steps to expand the aeroTelesis team at all levels: management group, advisory board and board of directors. Since my last shareholders letter, we have identified and met with several individuals who can meet our needs for these areas. Although we have certainly recognized the necessity to build out the team with more expertise and talents, we have often been preoccupied with our immediate business focus on the VOIP and USM platforms. But as the Company is now on the verge of making serious moves on both fronts, it becomes increasingly important for us to strengthen the core team. I expect to have positive feedback for you throughout the next few quarters.
We are moving forward into the new fiscal year with high confidence and enthusiasm. We thank you deeply for your continued interest and support.
Sincerely,
Joseph Gutierrez
President
About aeroTelesis, Inc.
Headquartered in Los Angeles, aeroTelesis is a technology-driven communications company dedicated to providing a portfolio of next generation communication services and offering its customers a more efficient, cost-effective delivery of voice, data and video services on a global basis. The Company's targeted application markets include Voice over Internet Protocol (VoIP), fixed and mobile wireless broadband, and satellite communications. The Company's core technology platform is an exclusively licensed modulation technique known as Ultra Spectral Modulation(TM) (USM). USM is a technology that significantly increases spectral efficiency in wireless applications and provides for high-speed and high-capacity networks at substantially lower cost relative to existing wireless technologies. USM is designed to avoid bottlenecks by providing data transmission channels with higher quality and throughput rates than those of conventional modulation techniques. For more information on aeroTelesis Inc., please visit www.aeroTelesis.com.
Forward Looking Statements
This press release contains forward-looking statements made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements include, but are not limited to, the Company's growth strategy, future milestones and projected operations. Forward-looking statements are inherently subject to uncertainties and other factors, which could cause actual results to differ materially from the forward-looking statements. These factors and uncertainties include: the Company's ability to develop and commercialize its USM(TM) technology, expand its operations to meet anticipated demand; the ability of the company's technology to achieve anticipated benefits for its customers; ability to secure operating licenses in host countries; anticipated growth of the Company's target markets; unanticipated delays in manufacturing or shipments to customers, and its ability to achieve anticipated sales and profits. The Company refers interested parties to its most recent Annual Report on form 10KSB and its other SEC filings for a description of additional uncertainties and the factors that may affect forward-looking statements. Forward-looking statements are based on information presently available to senior management, and the Company has not assumed any duty to update its forward-looking statements.
http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20050428005...
He's selling a credit Jim ... which in this case is a counterfeit share.
Fuego Entertainment production crew will be going to take their cameras and microphones across the US.
Counterfeit Conspiracy is a documentary aimed at getting to the truth! Fuego Entertainment will be going straight to the CEO of companies and their affected shareholders to retrieve direct testimonials of current counterfeit actions from this investor devastation. Fuego's producers will be asking all the tough questions that America needs the answers too for educating the world on what has been going on for years. Fuego Entertainment production crew will be going to take their cameras and microphones across the US, approaching the SEC, DTCC, Capital Hill, and market insiders on Wall Street.
The SEC has mandated that each of the markets put out a daily list that shows companies that currently have been naked shorted through this counterfeiting of shares. This is due to a failure to deliver the required amount of shares after the mandated time frame allotted from the SEC. Here is a very small list of some of those companies known as Threshold Companies: U.S. Canadian Minerals (OTCPK: USCA), Global Links Corp (OTCPK: GLKC), Infotopia Inc (OTCPK: IFTA), Wi Fi TV Inc (OTCBB: WFTV), Winn-Dixie Stores Inc (OTCPK: WNDXQ), General Credit Corp (OTCPK: GNIZQ) and Gateway Distributors LTD (OTCPK: GWD)
Another company, CMKM Diamonds Inc (OTCPK: CMKX) of Las Vegas, is currently facing problems that may be related to having already fallen victim to this counterfeiting crime. A large group of extremely loyal CMKX shareholders have formed an owner’s group. These loyal shareholders are going after the very Wall Street insiders that want to see this company fail. If the company fails, then traditionally the NSS problem goes away for those that perpetuated the problem. But not this time, the shareholders are fighting back and supporting their company.
These are just a handful of the many companies facing this problem today .... "
Fuego Entertainment production crew will be going to take their cameras and microphones across the US.
Counterfeit Conspiracy is a documentary aimed at getting to the truth! Fuego Entertainment will be going straight to the CEO of companies and their affected shareholders to retrieve direct testimonials of current counterfeit actions from this investor devastation. Fuego's producers will be asking all the tough questions that America needs the answers too for educating the world on what has been going on for years. Fuego Entertainment production crew will be going to take their cameras and microphones across the US, approaching the SEC, DTCC, Capital Hill, and market insiders on Wall Street.
The SEC has mandated that each of the markets put out a daily list that shows companies that currently have been naked shorted through this counterfeiting of shares. This is due to a failure to deliver the required amount of shares after the mandated time frame allotted from the SEC. Here is a very small list of some of those companies known as Threshold Companies: U.S. Canadian Minerals (OTCPK: USCA), Global Links Corp (OTCPK: GLKC), Infotopia Inc (OTCPK: IFTA), Wi Fi TV Inc (OTCBB: WFTV), Winn-Dixie Stores Inc (OTCPK: WNDXQ), General Credit Corp (OTCPK: GNIZQ) and Gateway Distributors LTD (OTCPK: GWD)
Another company, CMKM Diamonds Inc (OTCPK: CMKX) of Las Vegas, is currently facing problems that may be related to having already fallen victim to this counterfeiting crime. A large group of extremely loyal CMKX shareholders have formed an owner’s group. These loyal shareholders are going after the very Wall Street insiders that want to see this company fail. If the company fails, then traditionally the NSS problem goes away for those that perpetuated the problem. But not this time, the shareholders are fighting back and supporting their company.
These are just a handful of the many companies facing this problem today .... "
America Needs to Know !!!
Why did Business Wire REFUSE to publish the Counterfeit Conspiracy press release?
By: Kevin M. West
On Wednesday, April 27, 2005, Business Wire refused to publish a PR (viewable at www.ahandup.us/fuego.htm) for Hugo Cancio of Fuego Entertainment. Even after all the objections had been satisfied, Business Wire flat REFUSED to publish the press release about the upcoming documentary called “Counterfeit Conspiracy”.
(www.CounterfeitConspiracy.com) Let's take a minute and find out what possible reason that Business Wire could have for REFUSING to publish this PR.
What does the word “Conspiracy” mean anyway? Well, the dictionary defines conspiracy as: An agreement to perform “together” an illegal, treacherous or evil act.
I believe that the coming together of many separate entities, with the blessings of a governing authority, to perform the illegal, treacherous AND EVIL act of destroying our great country’s financial system would be considered a CONSPIRACY!
What does the word “Counterfeit” mean? Back to the dictionary and we find that counterfeit means: Made in imitation of what is genuine with the intent to defraud.
Can we agree that the manufacturing of a “pool” that contains imitation shares of stock that are sold to investors for real money, as if they were real shares of stock, could be descriptive of an intent to defraud? OK, the answer here has to be a resounding YES!
So let’s put it together, Counterfeit Conspiracy is the manufacturing of imitation or fictitious shares that are created within one entity that loans these “imitation securities” to several other entities that sell them to other entities that charge you a fee to mark them as the genuine thing in your portfolio.
Everything done with a direct intent to defraud not only the buyer of the “imitation security”, but to also dilute and harm the financial structure of the company that is only liable for the GENUINE securities in the market. And to top it all of, this is all transacted under the watchful eye of the governing body of the Securities and Exchange Commission!
NO WAY, say it is not true. Unfortunately we cannot say this is not a true story, it is a reality so shocking and dangerous, that only a few brave people are daring to get video coverage and show it to the rest of America.
Naked short selling, as it is commonly called, is a federal securities crime and puts extreme risks on our national security. It is destroying small businesses and peoples lives. As quoted by Dan York, “This crime is destroying small business which is the very foundation that this country was built on and the largest source in America for jobs”.
With all of this corruption, why in the world would America’s leading source of press releases to the media, Business Wire, flat out refuse to publish a press release about a production company that is filming a documentary of this crime!
Mr. Cancio has been a client of Business Wire for over one year, Fuego Entertainment had just joined. It’s part of his business to be up to date on news and to be able to release news as it happens.
However, on his second attempt to get the PR released, Business Wire stated that they had to get approval from NY and would call back. This was after many questions about items in the PR were answered. Upon the return call, Business Wire says we can’t publish your PR because you are selling a video at the web site listed at (www.CounterfeitConspiracy.com), Mr. Cancio states “Take that part out”.
Silence on the other end of the phone, and then Mike, Business Wire’s representative, states that they can’t publish the PR because it contains a company called CMKM Diamonds in it and he doesn’t know that Mr. Cancio has this company’s permission to add their name. To which Mr. Cancio replies, “I can make a phone call right now and get their permission, but for the sake of time, let's just take it out”.
More silence…… “Business wire cannot let you print the other companies mentioned in this PR without knowledge of their permission also”, states Mike. Mr. Cancio replies, “Take them out too”.
Another reason was Rodney Young's quote. He said: "I'm sure Mr. Young from Eagletech has a special interest in this press release", Mr. Cancio replied "NOT". “But take it out”, replies an understandably disturbed but yet calm Mr. Cancio, “What else”!
Very long silence, and Mike finally explains that he needs until tomorrow morning and as of right now, Business Wire reserves the right not to publish this PR. Mr. Cancio tells Mike that he will give Business Wire until 2pm on 4-28-05 to publish the press release he has paid for, or Fuego Entertainment will send the PR along with the new Business Wire story out to 10,000 media contacts he has in his email data base. This was not a threat, it was a PROMISE!
Now 5th Amendment rights are possibly being violated on top of Securities fraud and wire fraud and mail fraud and all the other Federal and State crimes that are being committed because of this counterfeiting crime that has been outlawed since the Securities act of 1934.
Where is the SEC during all of this? I say, it the Federal Government won’t take care of this crime, then let’s attack this problem State by State!
America wants to Know: Which State Attorney General will be BRAVE and take the first steps to start prosecuting these crimes on a Statewide basis? How many will back the first one up?
“Stand up America” and TAKE YOUR COUNTRY BACK!
Sincerely,
Kevin M. West
www.aHandUP.us/Business_Wire.htm
UPDATE
Business Wire called Hugo Cancio and cancels his Membership!
This morning, 4-28-05, Business Wire contacts Mr. Cancio and tells him that under the disclaimer that he signed with them.... Business Wire has a right to do business with whomever they want! Mr. Cancio replies, "So, you are refusing to do business with me"? Business Wire replied, "Yes".
NEW UPDATE at bottom of page!
America Needs to Know
Why did Business Wire REFUSE to publish the Counterfeit Conspiracy press release?
By: Kevin M. West
On Wednesday, April 27, 2005, Business Wire refused to publish a PR (viewable at www.ahandup.us/fuego.htm) for Hugo Cancio of Fuego Entertainment. Even after all the objections had been satisfied, Business Wire flat REFUSED to publish the press release about the upcoming documentary called “Counterfeit Conspiracy”.
(www.CounterfeitConspiracy.com) Let's take a minute and find out what possible reason that Business Wire could have for REFUSING to publish this PR.
What does the word “Conspiracy” mean anyway? Well, the dictionary defines conspiracy as: An agreement to perform “together” an illegal, treacherous or evil act.
I believe that the coming together of many separate entities, with the blessings of a governing authority, to perform the illegal, treacherous AND EVIL act of destroying our great country’s financial system would be considered a CONSPIRACY!
What does the word “Counterfeit” mean? Back to the dictionary and we find that counterfeit means: Made in imitation of what is genuine with the intent to defraud.
Can we agree that the manufacturing of a “pool” that contains imitation shares of stock that are sold to investors for real money, as if they were real shares of stock, could be descriptive of an intent to defraud? OK, the answer here has to be a resounding YES!
So let’s put it together, Counterfeit Conspiracy is the manufacturing of imitation or fictitious shares that are created within one entity that loans these “imitation securities” to several other entities that sell them to other entities that charge you a fee to mark them as the genuine thing in your portfolio.
Everything done with a direct intent to defraud not only the buyer of the “imitation security”, but to also dilute and harm the financial structure of the company that is only liable for the GENUINE securities in the market. And to top it all of, this is all transacted under the watchful eye of the governing body of the Securities and Exchange Commission!
NO WAY, say it is not true. Unfortunately we cannot say this is not a true story, it is a reality so shocking and dangerous, that only a few brave people are daring to get video coverage and show it to the rest of America.
Naked short selling, as it is commonly called, is a federal securities crime and puts extreme risks on our national security. It is destroying small businesses and peoples lives. As quoted by Dan York, “This crime is destroying small business which is the very foundation that this country was built on and the largest source in America for jobs”.
With all of this corruption, why in the world would America’s leading source of press releases to the media, Business Wire, flat out refuse to publish a press release about a production company that is filming a documentary of this crime!
Mr. Cancio has been a client of Business Wire for over one year, Fuego Entertainment had just joined. It’s part of his business to be up to date on news and to be able to release news as it happens.
However, on his second attempt to get the PR released, Business Wire stated that they had to get approval from NY and would call back. This was after many questions about items in the PR were answered. Upon the return call, Business Wire says we can’t publish your PR because you are selling a video at the web site listed at (www.CounterfeitConspiracy.com), Mr. Cancio states “Take that part out”.
Silence on the other end of the phone, and then Mike, Business Wire’s representative, states that they can’t publish the PR because it contains a company called CMKM Diamonds in it and he doesn’t know that Mr. Cancio has this company’s permission to add their name. To which Mr. Cancio replies, “I can make a phone call right now and get their permission, but for the sake of time, let's just take it out”.
More silence…… “Business wire cannot let you print the other companies mentioned in this PR without knowledge of their permission also”, states Mike. Mr. Cancio replies, “Take them out too”.
Another reason was Rodney Young's quote. He said: "I'm sure Mr. Young from Eagletech has a special interest in this press release", Mr. Cancio replied "NOT". “But take it out”, replies an understandably disturbed but yet calm Mr. Cancio, “What else”!
Very long silence, and Mike finally explains that he needs until tomorrow morning and as of right now, Business Wire reserves the right not to publish this PR. Mr. Cancio tells Mike that he will give Business Wire until 2pm on 4-28-05 to publish the press release he has paid for, or Fuego Entertainment will send the PR along with the new Business Wire story out to 10,000 media contacts he has in his email data base. This was not a threat, it was a PROMISE!
Now 5th Amendment rights are possibly being violated on top of Securities fraud and wire fraud and mail fraud and all the other Federal and State crimes that are being committed because of this counterfeiting crime that has been outlawed since the Securities act of 1934.
Where is the SEC during all of this? I say, it the Federal Government won’t take care of this crime, then let’s attack this problem State by State!
America wants to Know: Which State Attorney General will be BRAVE and take the first steps to start prosecuting these crimes on a Statewide basis? How many will back the first one up?
“Stand up America” and TAKE YOUR COUNTRY BACK!
Sincerely,
Kevin M. West
www.aHandUP.us/Business_Wire.htm
UPDATE
Business Wire called Hugo Cancio and cancels his Membership!
This morning, 4-28-05, Business Wire contacts Mr. Cancio and tells him that under the disclaimer that he signed with them.... Business Wire has a right to do business with whomever they want! Mr. Cancio replies, "So, you are refusing to do business with me"? Business Wire replied, "Yes".
Fuego Entertainment Begins Filming of the “Counterfeit Conspiracy” Documentary to Reveal the Fictitious Creating and Selling of Shares in the US Markets
Fuego Entertainment proudly announces the beginning of filming the “Counterfeit Conspiracy” documentary to reveal the fictitious creating and selling of shares within the market. Most investors aren’t aware that it is just as against the law to counterfeit corporate securities (18-USC-514) as it is to counterfeit $100 bills, nor are they aware that they are likely to have these securities in their portfolios.
The producer of this informative documentary is Mr. Hugo Cancio. "This will be an in depth documentary on counterfeiting stock shares through a myriad of key market authorities to victimize public shareholders" said Mr. Cancio.
This counterfeit creation of shares is usually done in the small cap market which are primarily your penny stocks. This counterfeiting of shares is known throughout to many as Naked Short Selling (NSS).
Counterfeiting anything of monetary value in the United States is illegal. Yet shares of stocks involving hundreds or even thousands of companies are counterfeited on a daily basis without penalty. The documentary will be revealing for all to educate investors and key authorities to what have been going on for years.
According to their website at www.SEC.gov , the Securities and Exchange Commission (SEC), states that Naked Short Selling is NOT NECESSARILY against federal securities laws. The SEC admits that the counterfeiting of stock shares is a reality by bringing forth a new law, called Regulation SHO, which was enacted this past January, to try and get this issue under control. However, there has yet to be one single case brought to justice!
Counterfeit Conspiracy is a documentary aimed at getting to the truth! Fuego Entertainment will be going straight to the CEO of companies and their affected shareholders to retrieve direct testimonials of current counterfeit actions from this investor devastation. Fuego's producers will be asking all the tough questions that America needs the answers too for educating the world on what has been going on for years. Fuego Entertainment production crew will be going to take their cameras and microphones across the US, approaching the SEC, DTCC, Capital Hill, and market insiders on Wall Street.
The SEC has mandated that each of the markets put out a daily list that shows companies that currently have been naked shorted through this counterfeiting of shares. This is due to a failure to deliver the required amount of shares after the mandated time frame allotted from the SEC. Here is a very small list of some of those companies known as Threshold Companies: U.S. Canadian Minerals (OTCPK: USCA), Global Links Corp (OTCPK: GLKC), Infotopia Inc (OTCPK: IFTA), Wi Fi TV Inc (OTCBB: WFTV), Winn-Dixie Stores Inc (OTCPK: WNDXQ), General Credit Corp (OTCPK: GNIZQ) and Gateway Distributors LTD (OTCPK: GWDB)
Another company, CMKM Diamonds Inc (OTCPK: CMKX) of Las Vegas, is currently facing problems that may be related to having already fallen victim to this counterfeiting crime. A large group of extremely loyal CMKX shareholders have formed an owner’s group. These loyal shareholders are going after the very Wall Street insiders that want to see this company fail. If the company fails, then traditionally the NSS problem goes away for those that perpetuated the problem. But not this time, the shareholders are fighting back and supporting their company!
These are just a handful of the many companies facing this problem today. These types of companies usually end up as a casualty and in bankruptcy through no fault their own. These are usually the repercussions behind the dilution of the company’s stock.
“This is Financial Terrorism against Americans, it’s a culture of fraud perpetuated by Wall Street, its self regulatory organizations, the SEC, and a cornucopia of offshore criminals” Rodney E. Young, Founder/President/CEO of Eagletech Communications, Inc. (OTCPK: EATC)
As Bob O’Brien of NCANS.net summed it up: “A couple of hundred guys in New York are robbing the system and investors blind.”
Come along with us as we EXPOSE the Counterfeit Conspiracy to America! We invite shareholders and anyone that wants to stand up for their rights and be a part of history as we interview Washington D.C. and then travel by bus to New York City to visit the DTCC and Wall Street. Visit us at www.CounterfeitConspiracy.com and sign up to join our fight to clean up the corruption on Wall Street! The righteous shall prevail!
The Counterfeit Conspiracy documentary will be released within the next 60-90 days for more information please visit: www.counterfeitconspiracy.com
Disclaimer:
The companies mentioned above and their corresponding stocks are being represented as currently on the NASDQ Security Threshold list or as an example of what may be happening in the market place for the purpose of this documentary. No investment advice to either buy or sell any of the securities mentioned in this press release has been given. Please consult with an investment professional if investment advice is warranted.
http://www.gocmkx.com/fuego.html
Canada: Class Action Accuses Banks of Illegal Creation of Money ... April 19, 2005
John Ruiz Dempsey, criminologist and forensic litigation specialist filed a class action suit on behalf of the People of Canada alleging that financial institutions are engaged in illegal creation of money, reports Tom Kennedy, a Canadian activist for economic reform.
One of the best kept secrets is the mechanism of money creation in today's economic system. Although not really a secret at all, the fact that money is created not by and for the people who use it and not even by the government, but is issued by commercial banks when giving loans to private persons or government, is hidden by what could be described as thick clouds of smoke, put out by economists and government departments.
The complaint was filed Friday April 15, 2005 in the Supreme Court of British Columbia at New Westminster. It alleges that all financial institutions who are in the business of lending money have engaged in a deliberate scheme to defraud the borrowers by lending non-existent money which are illegally created by the financial institutions out of "thin air."
The legal action brings to the fore one of the major economic "drag factors" - the interest charged by banks for money that technically and legally is not theirs to lend, because even governments end up paying interest to banks lending money for public spending, and they in turn charge tax payers. A large part of every country's tax revenue goes first and foremost - before any "internal" spending - to payment of interest, largely because of the basic flaw in our way of creating money by the rich and for the rich.
Here is some more detail about the class action filed in Canada.
Class Action Suit Filed on Behalf of the People of Canada
forwarded by Tom Kennedy
New Westminster, B.C., April 15, 2005.
John Ruiz Dempsey BSCr, LL.B, a criminologist and forensic litigation specialist filed a class action suit on behalf of the People of Canada alleging that financial institutions are engaged in illegal creation of money.
The complaint filed Friday April 15, 2005 in the Supreme Court of British Columbia at New Westminster, alleges that all financial institutions who are in the business of lending money have engaged in a deliberate scheme to defraud the borrowers by lending non-existent money which are illegally created by the financial institutions out of "thin air."
Dempsey claims that creation of money out of nothing is ultra vires these defendants' charter or granted corporate power and therefore void and all monies loaned under false pretence contravenes the Criminal Code.
The suit which is the first of its kind ever filed in Canada which could involve millions of Canadians alleges that the contracts entered into between the People ("the borrowers") and the financial institutions were void or voidable and have no force and effect due to anticipated breach and for non-disclosure of material facts.
Dempsey says the transactions constitute counterfeiting and money laundering in that the source of money, if money was indeed advanced by the defendants and deposited into the borrowers' accounts, could not be traced, nor could it be explained or accounted for.
The suit names Envision Credit Union ("Envision"), a credit union; Laurentian Bank of Canada ("Laurentian Bank"), Royal Bank of Canada ("Royal Bank"), Canadian Imperial Bank of Commerce ("CIBC"), Bank of Montreal ("BOM"), TD Canada Trust ("Canada Trust") and Canadian Payment Association ("CPA") as civil conspirators.
The plaintiff in the lawsuit is seeking recovery of money and property that was lost by way of confiscation through illegal "debt" collection and foreclosure. The Plaintiff is also seeking for the return of the equities which rightfully belong to the People of Canada, now being held by the defendant financial institutions as constructive trustees without color of right.
At all material times, these defendant banks and all of them have no legal standing to lend any money to borrowers, because:
1) these banks and credit unions did not have the money to lend, and therefore they did not have any capacity to enter into a binding contract;
2) the defendants did not have any cash reserve, they are not legally permitted to lend their depositor's or member's money without expressed written authorization form the depositors, and:
3) the defendants have no tangible assets of their own to lend and all their "assets" are "paper assets" which are mainly in the form of "receivables" created by them out of "thin air," derived out of loans whereas the monies loaned out were also created out of thin air.
Other than bookkeeping and computer entries, no money or substance of any value was loaned by the defendants to the Plaintiff. In all of the loan transactions entered into between the Plaintiff and the Defendants, the financial institutions did not bring any equity to any of the transaction.
All the equities were provided by the borrowers. The practices of the defendant financial institutions alleged in the complaint starkly contrast the practices of responsible and ethical money lenders who actually lend real, tangible, legal tender cash money.
The complaint alleges that the loan transactions are fraudulent because no value was ever imparted by the defendants to the Plaintiff; these defendants did not risk anything, nor lost anything and never would have lost anything under any circumstances and therefore no lien has been perfected according to law and equity against the Plaintiff.
The foreclosure proceedings which comes as a result of the borrower defaulting on such fraudulent loans were carried out in bad faith by the defendant banks and credit unions, and as such, these foreclosures were in every respect unlawful acts of conversion and unlawful seizure of property without due process of law which always results in the unjust enrichment of the defendants.
The suit alleges that the defendants utilize fraudulent banking practices whereby they deceive customers into believing that they are actually receiving "credit" or money when in fact no actual money is being loaned to their customers. However, the complaint describes a practice whereby there is realistically no money other than ledger or computer entries being loaned to the borrowers.
Rather than real money being received by the borrowers, "electronic" or "digitally created money", created out of nothing, at no cost to the financial institutions are entered as "loans" into their customers' accounts. The borrowers are then required to pay criminal interest rates for the money they never received. The suit alleges that the defendants effectively turn consumers into virtual debt slaves, forcing them to pay for something they never received, and then seizing their properties if they can no longer pay the banks with real money.
There is no law in Canada that could remotely suggest that the defendant financial institutions have the legal right to create money out of nothing. Dempsey says: "only God has the power to create anything out of nothing."
The class action suit, the first and the biggest of its kind in Canada is intended to give the justice system the opportunity to prove to itself and to the People of Canada who is really in control or whether they would continue to allow itself to be used by the banks as a tool in their unlawful and fraudulent banking practices which always ends in the enslavement of the people and confiscation of the people's properties.
Two other class action suits were filed by John Ruiz Dempsey against the banks. The first one was filed by Dempsey on behalf of Ian Dennis Gravlin of Calgary, Alberta and Pavel Darmantchev of Kelowna, B.C. versus the Canadian Imperial Bank of Commerce. This matter is set for case management conference hearing on April 26, 2005. The Plaintiff expects a stiff opposition from the defendant's law firm. Madam Justice Garson is the case management judge assigned to the case.
A second class action suit was filed against MBNA CANADA BANK on behalf of Pavel Darmantchev of Kelowna, B.C., Ian Dennis Gravlin of Calgary, Alberta and Dena Alden of Vancouver, B.C.
A copy of the Dempsey legal action as filed can be found here to download as PDF.
See also:
Canada Revenue Agency Class Action
Beyond Greed and Scarcity
An interview with Bernard Lietaer
How money is created in Australia
E Pluribus Unum: Dollar Hegemony and Money Creation in IPE
HOW PRIVATE, COMMERCIAL, NATIONAL and INTERNATIONAL MONEY is CREATED
(from the works of Michael Rowbotham)
Tracking The World Great Depression Of 2005
It's not just stocks that get manipulated ... the racketeers are coming out of the woodwork.
http://www.newmediaexplorer.org/sepp/2005/04/19/canada_class_action_accuses_banks_of_illegal_creatio....
Entourage Mining Adds Joint Venture Partners to Nevada Gold Project
VANCOUVER, British Columbia, April 26, 2005 (PRIMEZONE) -- Entourage Mining Ltd. (the "Company") (OTCBB:ETGMF) announces that the Company has added two partners to participate in its Black Warrior gold/silver project in Esmeralda County Nevada (the "Nevada Gold Project").
United Carina Resources Corp. (TSX-V:UCA) and CMKM Diamonds Inc. (Other OTC:CMKX) have each been granted the right to acquire a 10% interest in the Nevada Gold Project. Each of the optionees can exercise its option to acquire a 10% interest by:
(a) paying $40,000 to Entourage upon Entourage executing its
sub-lease option agreement to purchase a 100% beneficial
interest in the Nevada Gold Project; and
(b) making $85,000 USD in work commitments or an amount equal
to but not to exceed 10% of Entourage's work expenditures
on the Nevada Gold Project.
Entourage welcomes the participation of these companies as the size of the Nevada Gold Project is increasing as more claims are being staked contiguous to the original Black Warrior claim blocks. The company is awaiting drill permits from the Bureau of Land Management and expects to have an extensive drill program underway in the near future.
Entourage Mining Ltd.
"Gregory F. Kennedy"
Gregory F. Kennedy
President
Forward-Looking Statement
Except for historical information contained herein, the statements in this Press Release may be forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Entourage Mining Ltd.'s actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, volatility of commodity prices, product demand, market competition, and risks inherent in Entourage Mining Ltd.'s operations. These and other risks are described in the Company's Annual Report on Form 20-F and other filings with the Securities and Exchange Commission.
CONTACT: Entourage Mining Ltd.
Craig Doctor
604-278-4656
866-301-4077
craig@entouragemining.com
Big Investment Bank settles with SEC without admitting or denying any wrongdoing ...
FBR Announces Proposed Settlement with the SEC and NASD
Tuesday April 26, 5:38 pm ET
ARLINGTON, Va., April 26 /PRNewswire-FirstCall/ -- Friedman Billings Ramsey Group, Inc. (NYSE: FBR - News) announced today that its broker-dealer subsidiary, FBR & Co., Inc. ("FBR & Co." or "the company") has made an offer of settlement to the staff of the Division of Enforcement ("SEC staff") of the Securities and Exchange Commission ("Commission") and the staff of the Department of Market Regulation of NASD ("NASD staff"), and that the company has requested the SEC and NASD staffs recommend such proposal to the Commission and NASD National Adjudicatory Council or NASD Office of Disciplinary Affairs, respectively, pending final negotiation of the settlement language, to resolve ongoing, previously disclosed investigations by the SEC and NASD staffs. The proposed settlement concerns insider trading and other charges concerning the Company's trading in a company account and the offering of a private investment in public equity ("PIPE") on behalf of CompuDyne, Inc. ("CDCY") in October 2001.
Following discussions with both the SEC and NASD staffs, the company made an offer of settlement in order to resolve this matter. In the SEC proceeding, the company, without admitting or denying any wrongdoing, offered to pay disgorgement, civil penalties, and prejudgment interest totaling approximately $3.5 million and to consent to the entry of a permanent injunction with respect to violations of the antifraud provisions of the federal securities laws. The company also agreed to consent to an administrative proceeding under Section 15(b) of the Securities Exchange Act of 1934 in which the company would be subjected to a censure and would agree to certain undertakings, including review by an independent consultant of its Chinese Wall procedures and implementation of any recommended improvements. FBR & Co. has requested that the SEC staff recommend to the Commission that such an offer of settlement be approved, pending final negotiation of the settlement language. The offer of settlement is subject to approval by the Commission, and the Commission may accept, reject or impose further conditions or other modifications to some or all of the terms of the proposed settlement. Furthermore, the SEC staff is unable to make any assurances regarding the Commission's consideration or determination of any offer of settlement, and no settlement is final unless and until approved by the Commission.
In the parallel NASD proceeding, based upon the same circumstances described above, the company will submit a Letter of Acceptance, Waiver and Consent ("AWC"), pending final negotiation of appropriate language, proposing a settlement of alleged violations of the antifraud provisions of the federal securities laws and NASD Rules 2110, 2120, 3010 and 3370. The Company will also agree to the same undertakings provided for in the proposed settlement with the SEC, including agreeing to an independent consultant to review its Chinese Wall procedures and implementing any recommended improvements, and FBR & Co. offered to pay a fine of $4 million to NASD. The AWC must be reviewed and accepted by NASD's Department of Market Regulation and National Adjudicatory Council or the Office of Disciplinary Affairs. The proposed settlement of the proceedings and the injunctive action is subject to the Company obtaining relief from certain statutory disqualifications, which result from the entry of the injunction and findings of violations in the proceedings. Any relief from the statutory disqualifications must be reviewed and approved by the Commission, and the SEC staff can make no assurance that any or all of the requested relief will be granted by the Commission. FBR has recorded a $7.5 million charge in its 2005 first quarter with respect to the offer of settlement to the SEC and the AWC to NASD.
Three individuals, including Emanuel J. Friedman, who recently announced his retirement as Co-Chairman and Co-Chief Executive Officer of FBR and is no longer involved in the operations of the broker-dealer, are in discussions with the staffs of the SEC and NASD regarding this matter. The other two individuals in discussions with the regulators were the company's head trader and chief compliance officer. Both the head trader and chief compliance officer have retired from the company. The company has named their replacements.
"We take this incident very seriously and are pleased to be moving toward what we believe will be a satisfactory resolution with the regulators. We cooperated fully with the investigations and believe that we have made the changes necessary to put this behind us and move forward for our clients and our shareholders," said Eric F. Billings, Chairman and CEO of FBR.
Friedman, Billings, Ramsey Group, Inc. provides investment banking*, institutional brokerage*, asset management, and private client services through its operating subsidiaries and invests in mortgage-backed securities and merchant banking opportunities. FBR focuses capital and financial expertise on eight industry sectors: consumer, diversified industrials, energy and natural resources, financial institutions, healthcare, insurance, real estate, and technology, media and telecommunications. FBR, headquartered in the Washington, D.C. metropolitan area, with offices in Arlington, Va. and Bethesda, Md., also has offices in Boston, Cleveland, Dallas, Denver, Houston, Irvine, London, New York, Phoenix, Portland, San Francisco, Seattle, and Vienna. For more information, please see http://www.fbr.com.
*Friedman, Billings, Ramsey & Co., Inc.
http://biz.yahoo.com/prnews/050426/dctu090.html?.v=2
New documentary on the NSS crimes.
http://www.counterfeitconspiracy.com/
Euthy, Euthy, Euthy ... LMAO@U
You are:
A. Naive and in for a rude awakening.
B. Part of the problem.
C. Part of the problem, in for a rude awakening, and naive.
AIMHO
While Financial Community Awaits Answers, SG Cowen PIPES Shorters Go Down / FinancialWire® -- StockGate
April 25, 2005 (FinancialWire) While the financial community waits for answers to new revelations that the U.S. Securities and Exchange Commission grandfathered “amnesty” to illegal market manipulators in the adoption of Regulation SHO, and how the Depository Trust and Clearing Corporation has figured into admitted censorship of a newswire and suspected media tampering into the “indefinite postponement” of an expose on General Electric’s (NYSE: GE) “Dateline NBC,” new developments keep coming.
The DTCC activities are the most serious, since the agent of two SROs, the New York Stock Exchange and NASD is also peopled by some 21 directors whose companies, such as Merrill Lynch & Co. (NYSE: MER), State Street Corporation (NYSE: STT) and Goldman Sachs (NYSE: GS), are unlikely to support the DTCC in what attorney Marshal Shichtman, Esq., has termed “strong-arm” tactics.
Meanwhile, a former managing director of SG Cowen & Co., Guillaume Pollet, has been charged by the SEC with insider trading and fraud by short selling the stock of companies prior to the companies closing on PIPES – the private offering of stock – in which SG Cowan invested.
Pollet routinely sold short the publicly traded securities of these PIPE issuers prior to the close of the PIPE transaction in order to lock in gains for SG Cowen's proprietary account. As a result of Pollet's illicit trading, SG Cowen locked in over $4 million in trading profits, in addition to other gains SG Cowen made on the transactions. In several instances, SG Cowen also acted as the PIPE issuer's investment banker.
The Commission's complaint also alleges that, in several instances, Pollet's short selling was directly contrary to representations that SG Cowen made to PIPE issuers in connection with the PIPE transactions. For example, SG Cowen specifically represented to some of the PIPE issuers that SG Cowen would not short sell the securities of such issuer prior to the close of the PIPE transaction. SG Cowen also represented to each of the PIPE issuers that it was acquiring the PIPE securities with investment intent. SG Cowen made these representations at a time when Pollet had already started to short sell the securities of these PIPE issuers.
Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "While PIPE transactions may help a company meet its financing needs, they also create opportunities for fraud. This case sends the message that we will actively patrol this area so that issuers and investors alike can have confidence in these financing vehicles."
In a commentary, James Cramer, founder of TheStreet.com (NASDAQ: TSCM), cautioned that most small corporate CEOs are easy prey for hustlers.
“For years, when I have met privately with troubled companies, I have told them that under no circumstances should they ever succumb to a bank's wishes to place private equity money into their public structures. I have told them over and over again that the game is so rigged, the people you open up to will short your stock and the people they talk to will short your stock and you will have a vicious spiral down.
“To a person, these managers have criticized me for being paranoid, for being too suspicious and for being, well, nuts.
“Most CEOs have no idea how the stock market works. They are clueless. They have no idea how corrupt it can be, how dangerous it can be. This is a game for card sharps and for hustlers. It is a game where bankers are betting against you as they try to help you, where arbitragers and convertible-bond specialists crush you even as they claim to be in your camp.
“Every once in a while they get nailed; most of the time they get away with it. So they can prey again,” he noted.
In a wide-ranging letter to the DTCC, Robert J. Shapiro has charged statements made by Larry Thompson, DTCC Deputy General Counsel, were “inaccurate or misleading,” and asked the DTCC to correct the record and respond to his comments and questions.
Shapiro is chair of Sonecon LLC, a private economic advisory firm in Washington, D.C., who served as U.S. Under Secretary of Commerce for Economic Affairs from 1998 to 2001, Vice President and co-founder of the Progressive Policy Institute from 1989 to 1998, and principal economic advisor to Governor William J. Clinton in the 1991-1992 presidential campaign.
He holds a Ph.D. from Harvard University and has been a Fellow of the National Bureau of Economic Research, Harvard University, and the Brookings Institution.
Shapiro currently provides economic analysis to the law firms of O’Quinn, Laminack and Pirtle, Christian, Smith and Jewell, and Heard, Robins, Cloud, Lubel and Greenwood, on issues associated with naked short sales, which he noted includes “matters raised in an interview published by @DTCC with DTCC deputy general counsel Larry Thompson.”
He asserts the following in his letter:
Mr. Thompson begins by asserting that “the extent to which [naked short selling] occurs is in dispute.” While this statement may be narrowly correct, objective academic analysis has established that naked short selling has been a widespread practice and one which, when allowed to persist, can pose a threat to the integrity of equity markets. A recent study by Dr. Leslie Boni, then a visiting financial economist at the SEC, analyzed NSCC data and found that on three random days, an average of more than 700 listed stocks had failures-to-deliver of 60 million-to-120 million shares sold short – naked shorts – that had persisted for at least two months. In addition, over 800 unlisted stocks on any day had fails of 120 million-to-180 million shares sold short that also had persisted for at least two months. The total number of naked shorts, including those that had persisted for less than two months, was presumably considerably greater.
Regarding the extent of naked shorts, Mr. Thompson has provided closely-related additional information: “fails to deliver and receive amount to about $6 billion daily…including both new fails and aged fails.” Mr. Thompson minimizes this total by comparing it to “just under $400 billion in trades (emphasis added) processed daily by NSCC, or about 1.5% of the dollar volume.” By most people’s standards, a problem involving hundreds of millions of shares valued at $6 billion every day is a very large problem. Moreover, the $6 billion total substantially underestimates the actual value of all failed-to-deliver trades measured when the trades actually occurred. Most of the $6 billion total represents uncovered or naked short sales, many of which have gone undelivered for weeks or months with their market price being marked-to-market every day. As a stock’s price falls, the market price of naked shorts in that stock also declines, reducing the total value of the outstanding failures-to-deliver cited by Mr. Thompson.
In other respects, Mr. Thompson’s comparison to the “$400 billion in trades processed daily by NSCC” seems disingenuous and misleading, because that $400 billion total covers not only U.S. equity trades which can involve most of the failures-to-deliver at issue, but many other transactions also processed by the NSCC. The value of all equity transactions on U.S. markets in 2004, for example, averaged $82.3 billion/day. If Mr. Thompson is correct that the daily value of fails-to-deliver averages $6 billion, that total is equivalent to 7.2 percent of average daily equity trades or nearly five times the 1.5 percent level suggested by Mr. Thompson. Furthermore, the DTCC reports on its website that on a peak day, “through its Continuous Net Settlement (CNS) system, NSCC eliminated the need to settle 96 percent of total obligations.” Assuming that CNS nets out the same proportion of trades on other days, $384 billion of the $400 billion in daily trades cited by Mr. Thompson are netted out, leaving only $16 billion in daily trades that require the actual delivery of securities. The $6 billion of fails-to-deliver securities existing on any day are equivalent to 37.5 percent of the average daily trades that require the delivery of securities, or 25 times the 1.5 percent level cited by Mr. Thompson.
Mr. Thompson tries to explain the large numbers of shares that go undelivered – in most cases arising from naked short sales -- by citing problems with paper certificates, inevitable human error, and the legitimate operations of market makers. This also seems misleading or disingenuous. Regarding problems with paper certificates, the DTCC estimates that 97 percent of all stock certificates are now kept in electronic form. Nor can human error or legitimate market-making operations explain the high levels of failures-to-deliver that persist for months – on any day, an average of 180 million-to-300 million shares have gone undelivered for two months or longer – as documented by Dr. Boni’s analysis of NSCC data.
Mr. Thompson also disparages the attorneys who represent companies that have been damaged or destroyed by massive naked short sales, and their shareholders, by claiming falsely that the cases in this matter have almost all been dismissed or withdrawn. The legal firms that I advise -- O’Quinn, Petrie and Laminack; Christian, Smith and Jewell; and Heard, Robins, Cloud, Lubel and Greenwood – have not lost any motions against the DTCC or its affiliates and currently have one case against the DTCC pending in Nevada and another case against the DTCC pending in Arkansas. In addition, on February 24, 2005, these attorneys were granted an order by the New York Supreme Court ordering the DTCC to produce trading records involving two companies they represent, including records from the Stock Borrow program, which may establish whether large-scale naked short sales were used to manipulate and drive down the stock price of those two companies.
Mr. Thompson also asserts that the plaintiffs suing the DTCC for damages associated with the handling of naked short sales rely on “theories [that] are not an accurate reflection of how the capital market system actually works.” This assertion is inaccurate. There is no dispute about how the capital markets work -- nor any doubt that naked short sales have been used to manipulate and drive down the price of stocks, as seen in numerous death-spiral financing cases. The issue here is the DTCC’s role in allowing or facilitating such stock manipulation through its treatment of extended naked short sales.
In explaining the DTCC’s role in these matters, Mr. Thompson rejects the claim that the NSCC’s Stock Borrow program allows the same shares to be lent over and over again, potentially creating more shares than actually exist or “phantom” shares. By Mr. Thompson’s own account, shares borrowed by the NSCC to settle naked short sales are deducted from the lending member’s DTC account and credited to the DTC account of the member to whom the shares have been sold. Therefore, those same shares become available to be re-borrowed to settle another naked short sale and, if that happens, to be re-borrowed again and again to settle a succession of naked short sales. Throughout this process, the actual short sellers may continue to fail-to-deliver the shares to cover their shorts and, as Dr. Boni’s analysis of NSCC data found, the underlying failure can age for months or even years. The process which Mr. Thompson describes is one in which shares can be borrowed and lent over and over again, introducing more shares into the market than are legally registered and issued. If any ambiguity remains, Mr. Thompson can clarify it by responding to the following query: Once a share that has been borrowed through the NSCC Stock Borrow program is delivered to the purchaser, is that share restricted in any way so it cannot be lent again?
It is important to note that the Stock Borrow program is used when continuous net settlement cannot locate the shares to settle. As a consequence, Stock Borrow is usually called into play when there are relatively few shares available for borrowing. These are propitious conditions for market manipulation: Unscrupulous short sellers undertake large-scale naked short sales involving stocks for which few shares are available for trading and lending, relying on the Stock Borrow program to borrow the limited available shares, again and again, at sufficient levels to drive down the market price of the shares.
Mr. Thompson notes that of approximately $6 billion in outstanding failures-to-deliver existing on any day, “the Stock Borrow program is able to resolve about $1.1 billion … or about 20% [18 percent] of the total fail obligation.” In this statement, Mr. Thompson raises very serious questions about the integrity and operations of the NSCC and DTCC, which he can clarify by responding to the following queries: If the Stock Borrow program “resolves” only 18 percent of total fails, what is the disposition of the remaining 82 percent of outstanding fails? When failures-to-deliver occur that are not resolved through Stock Borrow, does the NSCC credit the undelivered shares to the member representing the buyer, creating genuine “phantom shares”? Finally, how many shares do the borrowing brokers, clearing firms and other participants in the Stock Borrow program owe the NSCC on a typical day, and what is their total value?
In a related matter, Mr. Thompson tries to distance the DTCC from charges that shares held in restricted accounts – for example, cash accounts, retirement accounts and many institutional accounts – are improperly lent through the Stock Borrow program by claiming that responsibility for segregating restricted shares from lendable shares falls to the “broker and bank members” of the DTCC, while responsibility for monitoring or regulating their performance in this matter falls to the stock exchanges and the SEC. As a trust company, the DTCC cannot hold that it has no role, duty or responsibility to ensure the probity of its operations. Mr. Thompson could address this issue by responding to the following queries: What procedures does the NSCC have to ensure that shares held in members’ accounts for possible loan through the NSCC Stock Borrow program are unencumbered by regulatory or legal restrictions from being pledged or assigned and eligible to be borrowed? On any given day, how many participants in the Stock Borrow program have lent shares that exceed their lendable shares, in what numbers and of what value?
Mr. Thompson also tries to distance the DTCC as far as possible from the naked short selling that generates most of the extended failures-to-deliver: “We don’t have any power or legal authority to regulate or stop short selling, naked or otherwise. We also have no power to force member firms to close out or resolve fails to deliver … we don’t even see whether a sale is short or not.” In fact, the DTCC chooses to not distinguish short sales from long sales, chooses to not regulate or stop extended naked short sales, and chooses to not force member firms to resolve protracted naked short sales.
First, Regulation SHO requires that all transactions be clearly marked short or long. If the DTCC and NSCC do not know whether sales are short or long as Mr. Thompson contends, they choose to not know. Second, the NSCC has a clear responsibility and adequate means to stop naked short sales of extended duration, with no legal barrier that would prevent them from so doing. As a trust company with an acknowledged duty to provide investors certainty in the settlement and clearance of equity transactions, the DTCC chose to carry out that duty by assuming the role of counterparty to both sides of every equity transaction, through the operations of the NSCC’s CNS system and the Stock Borrow program. By allowing short sellers to fail-to-deliver shares for months or even years, the NSCC clearly fails to provide certainty in settlement to the buyers, sellers and issuers of securities. Since it is widely known that extended naked short sales have been used to manipulate stock prices in cases of death-spiral financing, and the NSCC created the Stock Borrow program to address failures-to-deliver that prominently include naked short sales, the NSCC and DTCC share a responsibility with the SEC and the stock exchanges to protect investors by resolving extended fails.
Third, the DTCC and NSCC have the clear capacity to force member firms to resolve the extended failures-to-deliver of their customers by purchasing shares on the open market and deducting the cost from the member’s account. A 2003 study by Dr. Richard Evans and others provides evidence that forced buy-ins by any party occur very rarely. They found that a major options market maker who failed to deliver all or a portion of shares sold in 69,063 transactions in 1998-1999 was bought-in only 86 times or barely one-tenth of 1 percent of the fails. Mr. Thompson can clarify investors’ understanding of their operations by responding to the following query: What proportion of shares that are persistent fails-to-deliver, of one month or longer, are ever bought in?
Mr. Thompson acknowledges that the DTCC and NSCC know precisely how many failures-to-deliver exist for each stock and the precise duration of each of these fails. Yet, the DTCC refuses to disclose this information even to the issuer of the stock in question, which Mr. Thompson justifies by citing “NSCC rules” prohibiting such a release of data based on “the obvious reason that the trading data we receive could be used to manipulate the market, as well as reveal trading patterns of individual firms.” This response is both disingenuous and revealing. We know now, for the first time, that the DTCC has full knowledge of the extent of protracted, large-scale naked short sales in all particular cases. We also know now that the DTCC has had this information for at least a decade, since Mr. Thompson also notes that “fails, as a percentage of total trading, hasn’t changed in the last 10 years.” Yet, based on the DTCC’s own rules, it allowed these abuses to persist and fester. The DTCC and NSCC can change their rules at any time. Moreover, in this case, those rules are unjustified. Data documenting outstanding short sales in each stock are currently issued publicly, so further data on how many of those short sales are naked would not reveal additional information about the trading patterns of individual firms or in any way empower manipulators. In fact, the DTCC could substantially disarm manipulators by both publicly reporting naked short sales in each issue and pledging to force buy-ins of all naked short sales that persist for more than a limited period.
Surely, if large-scale, extended naked short sales have effectively created “phantom” shares, companies have a responsibility to their shareholders and the right to secure this information from the organization which manages the settlement of short sales. At a minimum, the DTCC should respond to requests by issuers for data on extended failures-to-deliver in their own stocks, both in the past and currently, so they can take steps to resist stock manipulators or bring them to account for past manipulation.
Mr. Thompson also claims that the DTCC did not create or manage the Stock Borrow program to serve its own financial interest, insisting that the service generates less than $2 million a year in direct fees to the DTCC and that all DTCC services are priced on a “not for profit” basis that seeks to match revenues with expenses. Without further information, these responses beg the question of whose private financial interest has been served by the Stock Borrow program, especially as the DTCC is owned by the stock markets, clearinghouses, brokerage and banking institutions that use its services. Mr. Thompson and the DTCC can clarify this serious matter by responding to the following queries: Do DTCC participant/owners receive interest or other payments through or from the Stock Borrow program for lending the shares of their customers and, if so, how much have they received for these activities over the last 10 years? Further, do DTCC participant/owners receive any dividend, interest or other payments or distributions from the DTCC or its subsidiaries?, Shapiro concluded.
In a recent editorial, Investrend Information head Gayle Essary questioned whether the board and principal shareholders would “be party to shenanigans that lead to the censorship or disabling of any media” that he says is “un-American activity.”
The DTCC’s letter to Investrend’s counsel, Marshal Shichtman, Esq., is posted at http://www.investrend.com/Admin/Topics/Articles/Resources/349_1113403487.pdf
Essary said that the arrogance the DTCC expressed in its censorship efforts shows that the entity has “become too large, too encompassing, too powerful, too unresponsive to those it serves, primarily the investing public, and too unresponsive to the Congress under whose auspices it should be operating.
“First, it is time to unconflict it, with real public representations on its board,” he said, and second, “it is time to break it up, with its various duties provided by smaller agencies under separate unconflicted boards.”
DTCC board members include Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); and Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C), Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).
StockGate: While Financial Community Awaits Answers, SG Cowen PIPES Shorters Go Down / FinancialWire®
April 25, 2005 (FinancialWire) While the financial community waits for answers to new revelations that the U.S. Securities and Exchange Commission grandfathered “amnesty” to illegal market manipulators in the adoption of Regulation SHO, and how the Depository Trust and Clearing Corporation has figured into admitted censorship of a newswire and suspected media tampering into the “indefinite postponement” of an expose on General Electric’s (NYSE: GE) “Dateline NBC,” new developments keep coming.
The DTCC activities are the most serious, since the agent of two SROs, the New York Stock Exchange and NASD is also peopled by some 21 directors whose companies, such as Merrill Lynch & Co. (NYSE: MER), State Street Corporation (NYSE: STT) and Goldman Sachs (NYSE: GS), are unlikely to support the DTCC in what attorney Marshal Shichtman, Esq., has termed “strong-arm” tactics.
Meanwhile, a former managing director of SG Cowen & Co., Guillaume Pollet, has been charged by the SEC with insider trading and fraud by short selling the stock of companies prior to the companies closing on PIPES – the private offering of stock – in which SG Cowan invested.
Pollet routinely sold short the publicly traded securities of these PIPE issuers prior to the close of the PIPE transaction in order to lock in gains for SG Cowen's proprietary account. As a result of Pollet's illicit trading, SG Cowen locked in over $4 million in trading profits, in addition to other gains SG Cowen made on the transactions.
In several instances, SG Cowen also acted as the PIPE issuer's investment banker.
The Commission's complaint also alleges that, in several instances, Pollet's short selling was directly contrary to representations that SG Cowen made to PIPE issuers in connection with the PIPE transactions. For example, SG Cowen specifically represented to some of the PIPE issuers that SG Cowen would not short sell the securities of such issuer prior to the close of the PIPE transaction. SG Cowen also represented to each of the PIPE issuers that it was acquiring the PIPE securities with investment intent. SG Cowen made these representations at a time when Pollet had already started to short sell the securities of these PIPE issuers.
Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "While PIPE transactions may help a company meet its financing needs, they also create opportunities for fraud. This case sends the message that we will actively patrol this area so that issuers and investors alike can have confidence in these financing vehicles."
In a commentary, James Cramer, founder of TheStreet.com (NASDAQ: TSCM), cautioned that most small corporate CEOs are easy prey for hutlers.
“=For years, when I have met privately with troubled companies, I have told them that under no circumstances should they ever succumb to a bank's wishes to place private equity money into their public structures. I have told them over and over again that the game is so rigged, the people you open up to will short your stock and the people they talk to will short your stock and you will have a vicious spiral down.
“To a person, these managers have criticized me for being paranoid, for being too suspicious and for being, well, nuts.
“Most CEOs have no idea how the stock market works. They are clueless. They have no idea how corrupt it can be, how dangerous it can be. This is a game for card sharps and for hustlers. It is a game where bankers are betting against you as they try to help you, where arbitragers and convertible-bond specialists crush you even as they claim to be in your camp.
“Every once in a while they get nailed; most of the time they get away with it. So they can prey again,” he noted.
In a wide-ranging letter to the DTCC, Robert J. Shapiro has charged statements made by Larry Thompson, DTCC Deputy General Counsel, were “inaccurate or misleading,” and asked the DTCC to correct the record and respond to his comments and questions.
Shapiro is chair of Sonecon LLC, a private economic advisory firm in Washington, D.C., who served as U.S. Under Secretary of Commerce for Economic Affairs from 1998 to 2001, Vice President and co-founder of the Progressive Policy Institute from 1989 to 1998, and principal economic advisor to Governor William J. Clinton in the 1991-1992 presidential campaign.
He holds a Ph.D. from Harvard University and has been a Fellow of the National Bureau of Economic Research, Harvard University, and the Brookings Institution.
Shapiro currently provides economic analysis to the law firms of O’Quinn, Laminack and Pirtle, Christian, Smith and Jewell, and Heard, Robins, Cloud, Lubel and Greenwood, on issues associated with naked short sales, which he noted includes “matters raised in an interview published by @DTCC with DTCC deputy general counsel Larry Thompson.”
He asserts the following in his letter:
Mr. Thompson begins by asserting that “the extent to which [naked short selling] occurs is in dispute.” While this statement may be narrowly correct, objective academic analysis has established that naked short selling has been a widespread practice and one which, when allowed to persist, can pose a threat to the integrity of equity markets. A recent study by Dr. Leslie Boni, then a visiting financial economist at the SEC, analyzed NSCC data and found that on three random days, an average of more than 700 listed stocks had failures-to-deliver of 60 million-to-120 million shares sold short – naked shorts – that had persisted for at least two months. In addition, over 800 unlisted stocks on any day had fails of 120 million-to-180 million shares sold short that also had persisted for at least two months. The total number of naked shorts, including those that had persisted for less than two months, was presumably considerably greater.
Regarding the extent of naked shorts, Mr. Thompson has provided closely-related additional information: “fails to deliver and receive amount to about $6 billion daily…including both new fails and aged fails.” Mr. Thompson minimizes this total by comparing it to “just under $400 billion in trades (emphasis added) processed daily by NSCC, or about 1.5% of the dollar volume.” By most people’s standards, a problem involving hundreds of millions of shares valued at $6 billion every day is a very large problem. Moreover, the $6 billion total substantially underestimates the actual value of all failed-to-deliver trades measured when the trades actually occurred. Most of the $6 billion total represents uncovered or naked short sales, many of which have gone undelivered for weeks or months with their market price being marked-to-market every day. As a stock’s price falls, the market price of naked shorts in that stock also declines, reducing the total value of the outstanding failures-to-deliver cited by Mr. Thompson.
In other respects, Mr. Thompson’s comparison to the “$400 billion in trades processed daily by NSCC” seems disingenuous and misleading, because that $400 billion total covers not only U.S. equity trades which can involve most of the failures-to-deliver at issue, but many other transactions also processed by the NSCC. The value of all equity transactions on U.S. markets in 2004, for example, averaged $82.3 billion/day. If Mr. Thompson is correct that the daily value of fails-to-deliver averages $6 billion, that total is equivalent to 7.2 percent of average daily equity trades or nearly five times the 1.5 percent level suggested by Mr. Thompson. Furthermore, the DTCC reports on its website that on a peak day, “through its Continuous Net Settlement (CNS) system, NSCC eliminated the need to settle 96 percent of total obligations.” Assuming that CNS nets out the same proportion of trades on other days, $384 billion of the $400 billion in daily trades cited by Mr. Thompson are netted out, leaving only $16 billion in daily trades that require the actual delivery of securities. The $6 billion of fails-to-deliver securities existing on any day are equivalent to 37.5 percent of the average daily trades that require the delivery of securities, or 25 times the 1.5 percent level cited by Mr. Thompson.
Mr. Thompson tries to explain the large numbers of shares that go undelivered – in most cases arising from naked short sales -- by citing problems with paper certificates, inevitable human error, and the legitimate operations of market makers. This also seems misleading or disingenuous. Regarding problems with paper certificates, the DTCC estimates that 97 percent of all stock certificates are now kept in electronic form. Nor can human error or legitimate market-making operations explain the high levels of failures-to-deliver that persist for months – on any day, an average of 180 million-to-300 million shares have gone undelivered for two months or longer – as documented by Dr. Boni’s analysis of NSCC data.
Mr. Thompson also disparages the attorneys who represent companies that have been damaged or destroyed by massive naked short sales, and their shareholders, by claiming falsely that the cases in this matter have almost all been dismissed or withdrawn. The legal firms that I advise -- O’Quinn, Petrie and Laminack; Christian, Smith and Jewell; and Heard, Robins, Cloud, Lubel and Greenwood – have not lost any motions against the DTCC or its affiliates and currently have one case against the DTCC pending in Nevada and another case against the DTCC pending in Arkansas. In addition, on February 24, 2005, these attorneys were granted an order by the New York Supreme Court ordering the DTCC to produce trading records involving two companies they represent, including records from the Stock Borrow program, which may establish whether large-scale naked short sales were used to manipulate and drive down the stock price of those two companies.
Mr. Thompson also asserts that the plaintiffs suing the DTCC for damages associated with the handling of naked short sales rely on “theories [that] are not an accurate reflection of how the capital market system actually works.” This assertion is inaccurate. There is no dispute about how the capital markets work -- nor any doubt that naked short sales have been used to manipulate and drive down the price of stocks, as seen in numerous death-spiral financing cases. The issue here is the DTCC’s role in allowing or facilitating such stock manipulation through its treatment of extended naked short sales.
In explaining the DTCC’s role in these matters, Mr. Thompson rejects the claim that the NSCC’s Stock Borrow program allows the same shares to be lent over and over again, potentially creating more shares than actually exist or “phantom” shares. By Mr. Thompson’s own account, shares borrowed by the NSCC to settle naked short sales are deducted from the lending member’s DTC account and credited to the DTC account of the member to whom the shares have been sold. Therefore, those same shares become available to be re-borrowed to settle another naked short sale and, if that happens, to be re-borrowed again and again to settle a succession of naked short sales. Throughout this process, the actual short sellers may continue to fail-to-deliver the shares to cover their shorts and, as Dr. Boni’s analysis of NSCC data found, the underlying failure can age for months or even years. The process which Mr. Thompson describes is one in which shares can be borrowed and lent over and over again, introducing more shares into the market than are legally registered and issued. If any ambiguity remains, Mr. Thompson can clarify it by responding to the following query: Once a share that has been borrowed through the NSCC Stock Borrow program is delivered to the purchaser, is that share restricted in any way so it cannot be lent again?
It is important to note that the Stock Borrow program is used when continuous net settlement cannot locate the shares to settle. As a consequence, Stock Borrow is usually called into play when there are relatively few shares available for borrowing. These are propitious conditions for market manipulation: Unscrupulous short sellers undertake large-scale naked short sales involving stocks for which few shares are available for trading and lending, relying on the Stock Borrow program to borrow the limited available shares, again and again, at sufficient levels to drive down the market price of the shares.
Mr. Thompson notes that of approximately $6 billion in outstanding failures-to-deliver existing on any day, “the Stock Borrow program is able to resolve about $1.1 billion … or about 20% [18 percent] of the total fail obligation.” In this statement, Mr. Thompson raises very serious questions about the integrity and operations of the NSCC and DTCC, which he can clarify by responding to the following queries: If the Stock Borrow program “resolves” only 18 percent of total fails, what is the disposition of the remaining 82 percent of outstanding fails? When failures-to-deliver occur that are not resolved through Stock Borrow, does the NSCC credit the undelivered shares to the member representing the buyer, creating genuine “phantom shares”? Finally, how many shares do the borrowing brokers, clearing firms and other participants in the Stock Borrow program owe the NSCC on a typical day, and what is their total value?
In a related matter, Mr. Thompson tries to distance the DTCC from charges that shares held in restricted accounts – for example, cash accounts, retirement accounts and many institutional accounts – are improperly lent through the Stock Borrow program by claiming that responsibility for segregating restricted shares from lendable shares falls to the “broker and bank members” of the DTCC, while responsibility for monitoring or regulating their performance in this matter falls to the stock exchanges and the SEC. As a trust company, the DTCC cannot hold that it has no role, duty or responsibility to ensure the probity of its operations. Mr. Thompson could address this issue by responding to the following queries: What procedures does the NSCC have to ensure that shares held in members’ accounts for possible loan through the NSCC Stock Borrow program are unencumbered by regulatory or legal restrictions from being pledged or assigned and eligible to be borrowed? On any given day, how many participants in the Stock Borrow program have lent shares that exceed their lendable shares, in what numbers and of what value?
Mr. Thompson also tries to distance the DTCC as far as possible from the naked short selling that generates most of the extended failures-to-deliver: “We don’t have any power or legal authority to regulate or stop short selling, naked or otherwise. We also have no power to force member firms to close out or resolve fails to deliver … we don’t even see whether a sale is short or not.” In fact, the DTCC chooses to not distinguish short sales from long sales, chooses to not regulate or stop extended naked short sales, and chooses to not force member firms to resolve protracted naked short sales.
First, Regulation SHO requires that all transactions be clearly marked short or long. If the DTCC and NSCC do not know whether sales are short or long as Mr. Thompson contends, they choose to not know. Second, the NSCC has a clear responsibility and adequate means to stop naked short sales of extended duration, with no legal barrier that would prevent them from so doing. As a trust company with an acknowledged duty to provide investors certainty in the settlement and clearance of equity transactions, the DTCC chose to carry out that duty by assuming the role of counterparty to both sides of every equity transaction, through the operations of the NSCC’s CNS system and the Stock Borrow program. By allowing short sellers to fail-to-deliver shares for months or even years, the NSCC clearly fails to provide certainty in settlement to the buyers, sellers and issuers of securities. Since it is widely known that extended naked short sales have been used to manipulate stock prices in cases of death-spiral financing, and the NSCC created the Stock Borrow program to address failures-to-deliver that prominently include naked short sales, the NSCC and DTCC share a responsibility with the SEC and the stock exchanges to protect investors by resolving extended fails.
Third, the DTCC and NSCC have the clear capacity to force member firms to resolve the extended failures-to-deliver of their customers by purchasing shares on the open market and deducting the cost from the member’s account. A 2003 study by Dr. Richard Evans and others provides evidence that forced buy-ins by any party occur very rarely. They found that a major options market maker who failed to deliver all or a portion of shares sold in 69,063 transactions in 1998-1999 was bought-in only 86 times or barely one-tenth of 1 percent of the fails. Mr. Thompson can clarify investors’ understanding of their operations by responding to the following query: What proportion of shares that are persistent fails-to-deliver, of one month or longer, are ever bought in?
Mr. Thompson acknowledges that the DTCC and NSCC know precisely how many failures-to-deliver exist for each stock and the precise duration of each of these fails. Yet, the DTCC refuses to disclose this information even to the issuer of the stock in question, which Mr. Thompson justifies by citing “NSCC rules” prohibiting such a release of data based on “the obvious reason that the trading data we receive could be used to manipulate the market, as well as reveal trading patterns of individual firms.” This response is both disingenuous and revealing. We know now, for the first time, that the DTCC has full knowledge of the extent of protracted, large-scale naked short sales in all particular cases. We also know now that the DTCC has had this information for at least a decade, since Mr. Thompson also notes that “fails, as a percentage of total trading, hasn’t changed in the last 10 years.” Yet, based on the DTCC’s own rules, it allowed these abuses to persist and fester. The DTCC and NSCC can change their rules at any time. Moreover, in this case, those rules are unjustified. Data documenting outstanding short sales in each stock are currently issued publicly, so further data on how many of those short sales are naked would not reveal additional information about the trading patterns of individual firms or in any way empower manipulators. In fact, the DTCC could substantially disarm manipulators by both publicly reporting naked short sales in each issue and pledging to force buy-ins of all naked short sales that persist for more than a limited period.
Surely, if large-scale, extended naked short sales have effectively created “phantom” shares, companies have a responsibility to their shareholders and the right to secure this information from the organization which manages the settlement of short sales. At a minimum, the DTCC should respond to requests by issuers for data on extended failures-to-deliver in their own stocks, both in the past and currently, so they can take steps to resist stock manipulators or bring them to account for past manipulation.
Mr. Thompson also claims that the DTCC did not create or manage the Stock Borrow program to serve its own financial interest, insisting that the service generates less than $2 million a year in direct fees to the DTCC and that all DTCC services are priced on a “not for profit” basis that seeks to match revenues with expenses. Without further information, these responses beg the question of whose private financial interest has been served by the Stock Borrow program, especially as the DTCC is owned by the stock markets, clearinghouses, brokerage and banking institutions that use its services. Mr. Thompson and the DTCC can clarify this serious matter by responding to the following queries: Do DTCC participant/owners receive interest or other payments through or from the Stock Borrow program for lending the shares of their customers and, if so, how much have they received for these activities over the last 10 years? Further, do DTCC participant/owners receive any dividend, interest or other payments or distributions from the DTCC or its subsidiaries?, Shapiro concluded.
In a recent editorial, Investrend Information head Gayle Essary questioned whether the board and principal shareholders would “be party to shenanigans that lead to the censorship or disabling of any media” that he says is “un-American activity.”
The DTCC’s letter to Investrend’s counsel, Marshal Shichtman, Esq., is posted at http://www.investrend.com/Admin/Topics/Articles/Resources/349_1113403487.pdf
Essary said that the arrogance the DTCC expressed in its censorship efforts shows that the entity has “become too large, too encompassing, too powerful, too unresponsive to those it serves, primarily the investing public, and too unresponsive to the Congress under whose auspices it should be operating.
“First, it is time to unconflict it, with real public representations on its board,” he said, and second, “it is time to break it up, with its various duties provided by smaller agencies under separate unconflicted boards.”
DTCC board members include Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); and Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C), Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).
Why are you siding with hedge fund managers Capt'n ...
????????????
Make note of use of the word "insiders" in Sensenbrenners statement ...
"The SEC was years late in uncovering these massive abuses that are nothing short of theft," panel chairman Rep. James Sensenbrenner, R-Wis., said in a statement. "The SEC must take a stronger position on finding, preventing and punishing abuses by insiders, or Congress will be forced to take another look at how mutual funds are examined and regulated."
Substitute "mutual funds" with "small-cap securities" and you have another scandal to uncover.
This is the part worth noting ...
"The SEC was years late in uncovering these massive abuses that are nothing short of theft," panel chairman Rep. James Sensenbrenner, R-Wis., said in a statement. "The SEC must take a stronger position on finding, preventing and punishing abuses by insiders, or Congress will be forced to take another look at how mutual funds are examined and regulated."
Substitute "mutual funds" with "small-cap securities" and you have another scandal to uncover.
So you agree with me algae ...
SHO isn't working.