ENFORCENET-Everything you wanted to know about SEC but were afraid to ask:

By John Reed Stark *

* An eleven-year veteran of the Division of Enforcement of the United States Securities and Exchange Commission, John Reed Stark is Chief of the Office of Internet Enforcement and is in charge of the Enforcement Division's Internet Program. He is also an Adjunct Professor of Law at Georgetown University Law Center where he has taught a course on the Securities Laws and the Internet for the past five years and also serves as Co-Chair of the American Bar Association Subcommittee on Securities Law and the Internet. The Securities and Exchange Commission as a matter of policy disclaims any responsibility for any private publication or speech by any of its members or staff. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or the author's colleagues on the staff of the Commission.

http://www.johnreedstark.com/ClassMaterials/StarkArticles/Redux.htm

FLORIDA SECURITIES ATTORNEY PLEADS GUILTY TO SECURITIES FRAUD AND CONSPIRACY

The Commission announced that on December 11, 2003, securities attorney Lewis Van Stillman, a resident of Delray Beach, Florida, pled guilty to criminal charges brought by the Fraud Section of the Criminal Division at the Department of Justice. Stillman is also a defendant in a related lawsuit bought by the Commission involving an alleged pump-and-dump scheme designed to capitalize on the 2001 anthrax bio-terrorist attacks in the United States.

Stillman pled guilty to one count of securities fraud and one count of conspiracy based on the same misconduct that led the Commission to take action against him.

Under his plea agreement, Stillman agreed to cooperate with Department of Justice and other law enforcement agencies.

Stillman also admitted to serving as 2DoTrade's legal counsel and conspiring to fraudulently promote and manipulate 2DoTrade's stock for his personal benefit. Stillman further acknowledged his role in the implementation a "lock-up" agreement that fraudulently restricted the public supply of 2DoTrade stock in order to control and manipulate its price and volume. Finally, Stillman admitted that, in filings he made with the Commission on behalf of 2DoTrade, he made false statements and material omissions that furthered the conspiracy's purpose and the scheme to defraud. Stillman faces a maximum penalty of 15 years in prison and a $1 million fine at sentencing, at a date to be determined later.

The SEC acknowledges the efforts of the Federal Bureau of Investigation's Dallas Field Office and the Fraud Section of the Department of Justice's Criminal Division in prosecuting this matter. For more information see Litigation Release No. 18381 (September 30, 2003).



http://www.sec.gov/litigation/litreleases/lr18510.htm

One Lawyer Down, three million to go...

FLORIDA SECURITIES ATTORNEY PLEADS GUILTY TO SECURITIES FRAUD AND CONSPIRACY

The Commission announced that on December 11, 2003, securities attorney Lewis Van Stillman, a resident of Delray Beach, Florida, pled guilty to criminal charges brought by the Fraud Section of the Criminal Division at the Department of Justice. Stillman is also a defendant in a related lawsuit bought by the Commission involving an alleged pump-and-dump scheme designed to capitalize on the 2001 anthrax bio-terrorist attacks in the United States.

Stillman pled guilty to one count of securities fraud and one count of conspiracy based on the same misconduct that led the Commission to take action against him.

Under his plea agreement, Stillman agreed to cooperate with Department of Justice and other law enforcement agencies.

Stillman also admitted to serving as 2DoTrade's legal counsel and conspiring to fraudulently promote and manipulate 2DoTrade's stock for his personal benefit. Stillman further acknowledged his role in the implementation a "lock-up" agreement that fraudulently restricted the public supply of 2DoTrade stock in order to control and manipulate its price and volume. Finally, Stillman admitted that, in filings he made with the Commission on behalf of 2DoTrade, he made false statements and material omissions that furthered the conspiracy's purpose and the scheme to defraud. Stillman faces a maximum penalty of 15 years in prison and a $1 million fine at sentencing, at a date to be determined later.

The SEC acknowledges the efforts of the Federal Bureau of Investigation's Dallas Field Office and the Fraud Section of the Department of Justice's Criminal Division in prosecuting this matter. For more information see Litigation Release No. 18381 (September 30, 2003).



http://www.sec.gov/litigation/litreleases/lr18510.htm

The Bankers and the Lawyers, they all fall down....

FLORIDA SECURITIES ATTORNEY PLEADS GUILTY TO SECURITIES FRAUD AND CONSPIRACY

The Commission announced that on December 11, 2003, securities attorney Lewis Van Stillman, a resident of Delray Beach, Florida, pled guilty to criminal charges brought by the Fraud Section of the Criminal Division at the Department of Justice. Stillman is also a defendant in a related lawsuit bought by the Commission involving an alleged pump-and-dump scheme designed to capitalize on the 2001 anthrax bio-terrorist attacks in the United States.

Stillman pled guilty to one count of securities fraud and one count of conspiracy based on the same misconduct that led the Commission to take action against him.

Under his plea agreement, Stillman agreed to cooperate with Department of Justice and other law enforcement agencies.

Stillman also admitted to serving as 2DoTrade's legal counsel and conspiring to fraudulently promote and manipulate 2DoTrade's stock for his personal benefit. Stillman further acknowledged his role in the implementation a "lock-up" agreement that fraudulently restricted the public supply of 2DoTrade stock in order to control and manipulate its price and volume. Finally, Stillman admitted that, in filings he made with the Commission on behalf of 2DoTrade, he made false statements and material omissions that furthered the conspiracy's purpose and the scheme to defraud. Stillman faces a maximum penalty of 15 years in prison and a $1 million fine at sentencing, at a date to be determined later.

The SEC acknowledges the efforts of the Federal Bureau of Investigation's Dallas Field Office and the Fraud Section of the Department of Justice's Criminal Division in prosecuting this matter. For more information see Litigation Release No. 18381 (September 30, 2003).



http://www.sec.gov/litigation/litreleases/lr18510.htm

A U.S. auditor on Friday rejected allegations that it had masked losses at Parmalat and said it had been the victim of fraud in the multi-billion-euro corporate scandal engulfing Italy's biggest food group.

Grant Thornton's Italian unit issued its statement of defense as investigators were reported to be planning to interrogate Parmalat's founder Calisto Tanzi, a key figure in a widening fraud investigation whose house was searched this week.

The probe has stirred questions over the conduct of Parmalat, its auditors and banks in the Enron-like crisis, while threatening lawsuits from creditors and Parmalat partners.

A household name in Italy and the number three cookie maker in the United States, Parmalat filed for bankruptcy protection on Wednesday after revealing a hole in its accounts that investigators say could exceed 10 billion euros.

The scandal exploded last week when Italy's eighth biggest industrial group said a document purporting to certify that Bank of America (NYSE:BAC - News) held nearly four billion euros for Parmalat's offshore unit Bonlat had been declared false.

Grant Thornton SpA signed off on Bonlat's 2002 accounts on the basis of that document, leaving many wondering how Grant Thornton could have thought an account of that size existed apparently on the basis of one forged document.

Italian prosecutors said this week that a scanning machine had been used to forge the bank documents, on Bank of America letterhead, which Grant Thornton used to certify Bonlat's books.

"VICTIMS OF SERIOUS FRAUD"

Investigators said people questioned earlier this week have told of a complex web of offshore shell companies hiding losses for more than a decade. Grant Thornton has audited Bonlat since 1998.

"As for Parmalat, we are neither the creators nor the accomplices," the headline on Grant Thornton's statement read.

A judicial source told Reuters earlier this week that a person interrogated on December 22 had called Bonlat "an empty box" created in 1998 to allow "worthless credits" to be put on Parmalat's accounts.

"Grant Thornton SpA declares that it never conceived nor collaborated in carrying out any accounting or tax activity to mask the real administrative or financial situation at the Parmalat group," the statement said.

"If anything, we are the ones who have been the victims of serious fraud," it quoted Grant Thornton SpA Chairman Lorenzo Penca as saying. It did not say who might have committed fraud.

Grant Thornton said it had instructed its lawyers to take whatever steps were necessary to protect its name. Bank of America has already filed a criminal complaint in Italy in connection with the Parmalat case.

About 20 people, including current and former Parmalat executives and unidentified outside auditors, are under investigation for fraud, false accounting and market rigging.

Investigators searched the house of Parmalat's founder Tanzi on Wednesday and sought to question him, but discovered he had left Italy for an undisclosed foreign country. Tanzi was willing to return to Italy to face questioning, a judicial source said.

Investigating magistrates in the northern city of Parma near Parmalat's headquarters have called in Tanzi to answer questions next Monday, ANSA news agency reported.

Parmalat's plight is the most spectacular corporate crisis in Italy since the Ferruzzi conglomerate sank in the early 1990s under $20 billion of debt.

Enrico Bondi, who oversaw the breakup of the Ferruzzi empire, was named on Wednesday under a new bankruptcy decree as the administrator charged with mapping a Parmalat rescue plan.

Bondi was considering wooing new shareholders to Parmalat, with France's Danone (Paris:DANO.PA - News) and Italy's Granarolo among possible interested investors, ANSA said.

Random Survey of IHUB Posters

I am doing a small random survey of IHUB posters and I hope you don't mind responding to some questions after reading this post:

http://www.investorshub.com/boards/read_msg.asp?message_id=2000806

If you do, just tell me to buzz off by PM, and remove my post from your board, otherwise, I look forward to asking you some questions about your experiences with investing in the stock market. Just send me a PM and I will send you the survey.

FREE LUNCH? Stock Patrol Should Talk...

Patroling the "Stock Patrol"

Stock Patrol, edited and run by a disbarred SEC attorney who got away with ripping off investors of over $150 million on behalf of his former clients who later went to jail because he "sang like a chicken" keeps asking such silly questions.

He noted that a stock promoter calling itself Stock Regent had been offering a $500 prize to the StockRegent.com newsletter subscriber who purchased the greatest number of shares of International Broadcasting Corporation (IBC) (OTCBB: IBCS) during a designated period in January 2003.

IBCS has never traded above six cents, despite all kinds of public relations stories and promotions, so what is Stock Patrol so concerned about?

http://finance.yahoo.com/q/bc?s=IBCS.OB&t=2y

Are they worried about this:

http://biz.yahoo.com/e/030415/ibcs.ob10ksb.html

or maybe these:

http://finance.yahoo.com/q/h?s=IBCS.OB

And why didn't he follow up on this story to determine what happened to the Chinese Investment Club?

http://biz.yahoo.com/pz/030529/40870.html

As usual, Hartley Bernstein, who is behind Stock Patrol, acts like a dumb fish with statements like, "We were puzzled."

Many have begun to ask who "We" is?" He always tends to ask the second stupid question in his articles knowing full well the answers before using his web site to libel hundreds if not thousands of individuals and companies. Questions such as "What was StockRegent.com’s agenda? What is Stock Patrol's agenda we should all be asking.

His covert and snide comments such as "Well, according to an e-mail we received shortly after the article was published, StockRegent.com has no agenda, does not own any IBC shares, has not been paid for its efforts, and has nothing to gain from the promotion. The e-mail came from a reader named Jeremy, in North Pole, Alaska, who subsequently confirmed that he is associated with StockRegent.com.

"Jeremy, who describes himself as a “Stock Market Observer,” claims that $500 is simply a gift from Stock Regent to the winning subscriber. Has StockRegent.com adopted the theme of North Pole, Alaska, “where the spirit of Christmas lives year round” and streets bear names like Santa Claus Lane?"

What kind of snide comments are these to be making about someone that Stock Patrol has never even met? What does Stock Patrol claim and why doesn't it disclose on its own web site the current status of its cozy relationship with the Securities and Exchange Commission?

Stock Patrol rarely says anything nice on any of its web pages, and has taken the fine art of twisting the facts and any semblance of truth to new heights.

In further public statements it says, "StockRegent.com has been in the news before. In January 2002, Bloomberg’s David Evans wrote that shares of the Seattle, Washington-based Wade Cook Financial Corp. soared after that company’s shares were touted on Stock Regent.com, which picked Wade Cook as a stock that had “the potential of a 100% or greater gain.” That is precisely what StockRegent.com recently said about IBC."

Really? And it looks like they were right about it going up at that time, but since then the stock is not quite at the bottom of the dog pile.

http://www.StockRegent.com

http://www.stockregent.com/custom.html

"Total shares outstanding are roughly 89.1 million shares with 36.1 million shares in the public float. New IBCS investors are encouraged to read the archived news releases at www.IBCmedia.com. From their web site"

According to current SEC rules its against the law to tout stocks, so why hasn't the SEC slammed down on the hundreds of thousands of analysts who work on Wall Street? One simply can look not far to find that every analyst report ever published by any Wall Street firm is not only a tout and form of promotion, it wreaks of falsity.

Just study any analyst report these days, even after the few heads that were put on the pike and you will see opinions stated as facts and facts distorted to encourage buying of stocks mentioned in the analyst reports. There are few if any analysts who put out strong sell anaylst reports, unless perhaps they are engaged in managing a shorting hedge fund. Let's face it, if someone is writing good things about a stock they are usually either trying to sell it, or make it go up so they can get out of a current position that is at a lower price, even when they say there are not. If they are bashing the company or the people, the opposite position can be taken that there must be some agenda behind the negatives. There seems to be this constant raging battle between the bulls and bears. What if we just killed all the bears and the bulls and created a new breed of investor called a "human".

So why has Mr. Bernstein been immune from further SEC investigation after his supposed epiphany? More than a few people are looking around asking lots of questions about Mr. Bernteins operation out of a high priced New York apartment whose wife still manages to have a license to practice law. How does he afford those payments? Where does he get his money? Or does he just live off his wife's practice while he does legal briefs without his name on them? Is he still practicing law covertly? Out of sight but not out of mind?

Stock Patrol writes, "According to the Bloomberg report, StockRegent.com is operated by part-time stock picker, Jeremy Conkle, a 20-something high school graduate who has a vending machine route in North Pole, Alaska as his full-time job. At the time, Conkle maintained that he received no compensation for the Wade Cook recommendation. Wade Cook’s marketing practices have come under fire from the Federal Trade Commission and numerous state regulators." Is Stock Patrol subject to any regulation?

So what? Some guy starts a web site just like Stock Patrol? Who is patroling Stock Patrol? On Stock Regent's web site there is the huge disclaimer, obviously not written by an attorney:

"STOCK REGENT DISCLAIMER

All information provided on the StockRegent website pertaining to investing, stocks, securities must be understood as information provided and not investment advice. StockRegent advises all readers and subscribers to seek advice from a registered professional securities representative before deciding to trade in stocks featured on StockRegent or any stocks for that matter."

Who could even begin to trust any professional registered rep these days? It goes on:

"All statements and expressions of the companies featured are not meant to be a solicitation or recommendation to buy, sell, or hold securities. StockRegent does not in any way state gain or profit will be derived from investing in companies on stockregent.com."

If Stock Patrol had issued statements like the above would it not now be under investigation by various groups who have felt libeled by its posting of false and misleading information about certain stockholders and companies who it knew could not afford to defend themselves. After all, how much money does Bernstein have salted away from his bad old days as a con man fleecing thousands of investors with legal opinions on the merits of investing in various stocks a la his former clients such as Blinder Robinson. The more you rob the son, the blinder you get.

The New York Times quotes Bernstein as saying he once had myopia? Could it be possible that a man who has taken the art and craft of asking leading questions and twisting them into falsehoods still have his eyes wide shut? How does Bernstein find the time to research all those companies and post his material? Maybe he didn't have to cough up all the money he stole from investors? Who knows, but if Stock Patrol has license to speculate about every person who might appear to have failed to post their entire life history in emails and press releases when discussing any particular stock, then shouldn't there be much more speculation about Stock Patrol itself?

At the top of Stock Regent's web site is this blazoned headline:

"Home Of 100% Gainers

Stock Regent profiles securities with the potential of a 100% or greater gain. An estimated time frame should be within 6 months of profile date."

Doesn't that contradict the previous statement, "StockRegent does not in any way state gain or profit will be derived from investing in companies on stockregent.com." ????

Maybe Bernstein couldn't understand what this Web site was saying about disbarred American Lawyers:

http://www.nafinance.com/

The long and winding disclaimer goes on:

"Investors should not rely solely on the information contained in this website."

Then why go there?

"Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. Factual statements in this website are made as of the date stated and are subject to change without notice. The receiver of this website shall not create, under any circumstances, any implication that there has been no change in the affairs of the company profiled since the date of the review.

"Many of the profiles are done pro bono." Why does he use a legal term instead of using the word "free"? Is this supposed to give some sort of legal air to the disclaimer?

It dribbles on:

"The advertisements within this website are not to be construed as offers to purchase securities in the companies which may be the subject of such advertisements pursuant to federal or state law or the laws of any foreign jurisdiction. The advertisements in this website and the news letter are believed to be reliable, however StockRegent disclaims any and all liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of material facts from such advertisement."

So if you don't know if its accurate, then why publish it? A mistake the SEC and Stock Patrol seem to retain a chronic case of myopia about. Are they both deliberately looking the other way when the giants of Wall Street who can crush them in a single blow with mountains of paperwork defending themselves against a lawsuit are running rampant and wild with all kinds of violations on a day to day basis?


"Though the web site and domain name reads as "StockRegent", it should not be understood as a stock "picking" web site." Then why mention a track record with a dead link on the same page?


"From time to time StockRegent will enlist the services of other similar web sites and share information on companies we provide market awareness for. From time to time StockRegent will offer a "Target Grid" of where we think a stock price could be after and/or within a certain period of time.

Where there are contrary facts, one or the other must be a lie or a falsehood. This is a simple deduction of logic that Stock Patrol and the SEC seem to overlook when it comes to the big boys on Wall Street, but has not problem focusing in on it when it comes to the little guys struggling to emulate the big players. The rules seem to read, "don't do as I do, do as I say and go away, this is not your place to play".

"Some of the factors that a target can be achieved are; (1) StockRegent providing market awareness for the company,"

Does this imply pumping up the stock price somehow using the old favorate saying of a former stock broker who is quoated as saying, "The stock market is nothing more than a glorified zero sum game of greater fools engaged in a form of massive chain letter. Sooner or later every stock becomes worth less than wallpaper." Bernstein is very good at cutting of the circulation of blood supply to the chain letter promoters, after all he still does it on the flip side of the coin.

"(2)Favorable market conditions for the companies business sector, (3) The company may hire another market awareness promotion.Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investor's investment may be lost or impaired due to the speculative nature of the companies profiled.Information presented on the StockRegent web site and supplied through the newsletter contain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact and may be "forward looking statements." Forward looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through the use of words such as "projects", "foresee", "expects", "will", "anticipates," "estimates", "believes", "understands" or that by statements indicating certain actions "may","could", or "might" occur.

"Understand there is no guarantee past performance will be indicative of future results. The accuracy or completeness of the information on the StockRegent web site and newsletter is only as reliable as the sources they were obtained from. StockRegent, research team, affiliates, and/or families may at times may hold positions in securities mentioned herein, and may make purchases or sales in such securities featured on our web site or within our reports.

StockRegent may receive compensation for the efforts in research, presentation, and dissemination of information on companies featured on our web site and within our newsletter reports. All compensation can easily be found on the bottom of the page for the companies being profiled.

Investments in smallcap companies are generally deemed to be highly speculative and to involve substantial risk, making it appropriate for readers to consult with professional investment advisors and to make independent investigations before acting on information published by StockRegent.com.

StockRegent.com and its staff must inform its subscribers that investment in smallcap companies could prove to be high risk investments with the result of loss of part or total principal investment. StockRegent portfolio section is simulation based on actual market data. As in compliance with the Securities Act of 1933, Section 17(b), any and all compensation received from a company is publicly stated. Once again, all compensation if any can be found at the bottom of the of the page for the companies being profiled.Internet Fraud:How to Avoid Internet Investment ScamsSEC also released an online brochure to warn investors about stock market fraud on the web. "Tips for Avoiding Stock Scams on the Internet" advises investors to be skeptical, consider the source, and independently verify web-based claims about stocks.How to Use the Internet to Invest Wisely

If you want to invest wisely and steer clear of frauds, you must get the facts. Never, ever, make an investment based solely on what you read in an online newsletter or bulletin board posting, especially if the investment involves a small, thinly-traded company that isn't well known. And don't even think about investing on your own in small companies that don't file regular reports with the SEC, unless you are willing to investigate each company thoroughly and to check the truth of every statement about the company. For instance, you'll need to:get financial statements from the company and be able to analyze them;verify the claims about new product developments or lucrative contracts;call every supplier or customer of the company and ask if they really do business with the company; andcheck out the people running the company and find out if they've ever made money for investors before.And it doesn't stop there. For a more detailed list of questions you'll need to ask - and have answered - read Ask Questions . And always watch out for tell-tale signs of fraud .Here's how you can use the internet to help you invest wisely:Start With the SEC's EDGAR DatabaseThe federal securities laws require many public companies to register with the SEC and file annual reports containing audited financial statements. For example, the following companies must file reports with the SEC:

All U.S. companies with more than 500 investors and million in net assets; and All companies that list their securities on The Nasdaq Stock Market or a major national stock exchange such as the New York Stock Exchange.Anyone can access and download these reports from the SEC's EDGAR database for free. Before you invest in a company, check to see whether it's registered with the SEC and read its reports.But some companies don't have to register their securities or file reports on EDGAR. For example, companies raising less than million in a 12-month period may be exempt from registering the transaction under a rule known as "Regulation A." Instead, these companies must file a hard copy of the "offering circular" with the SEC containing financial statements and other information. Also, smaller companies raising less than one million dollars don't have to register with the SEC, but they must file a "Form D." Form D is a brief notice which includes the names and addresses of owners and stock promoters, but little other information. If you can't find a company on EDGAR, call the SEC at (202) 942-8090 to find out if the company filed an offering circular under Regulation A or a Form D. And be sure to request a copy. Many of StockRegent profiles are done pro bono. The difference between investing in companies that register with the SEC and those that don't is like the difference between driving on a clear sunny day and driving at night without your headlights. You're asking for serious losses if you invest in small, thinly-traded companies that aren't widely known just by following the signs you read on Internet bulletin boards or online newsletters.Contact Your State Securities RegulatorsDon't stop with the SEC. You should always check with your state securities regulator to see if they have more information about the company and the people behind it. They can check the Central Registration Depository (CRD) and tell you whether the broker touting the stock or the broker's firm has a disciplinary history. They can also tell you whether they've cleared the offering for sale in your state."

Is any of the above false, misleading or in some way not complete? It appears to be giving a semi formal legal opinion on the subject of investing in stocks. Did Stock Patrol fail to mention that in its report about StockRegent? If failing to post the full facts about any particular individual and only leaving the reader with doubts and further questions is not a subtle form of libelous publishing then what would you call it?

Stock Patrol always asks loaded questions such as "Is it possible that StockRegent.com is just giving away money – with nothing to gain? If StockRegent.com is intent upon “providing information on companies” why does it tell only one side of the corporate story? Why not tell investors about the specific risks of an IBC investment – or about IBC’s limited operating history, lack of assets and minimal revenues? And if StockRegent.com does not expect to profit from its stock picks, why does the StockREgent.com disclaimer warn that it “may receive compensation for the efforts in research, presentation, and dissemination of information on companies featured on our web site and within our newsletter reports?”

Why didn't Bernstein do that for investors? After all, there is nothing currently on Stock Regents web site about IBCS, but Stock Patrol's articles never seem to go away unless someone forces the issue and files a lawsuit against him.

So in case you were wondering what they do here are some links to what is available by quicksearch on the net, not by any means a complete story...who has time for that anyway?

http://www.ibcradio.com/

http://www.ibcmedia.com/what-is-ibc.htm

http://www.ibcnn.com/

http://www.ibcradio.com/contact-us.htm

One could also ask the same questions about Stock Patrol and the people behind it? Does it get paid by the SEC or get compensated in any way to ask such questions? Has Mr. Bernstein signed some kind of long term consent decree for his previous misdeeds that allows him complete license to bury the lives and reputations of individuals who may not know the law as well as he does? Certainly there is one law that Mr. Bernstein is seemingly ignoring and that is the law of "what you sow you shall reap" or what goes around comes around. Mr. Bernstein may be in for the shock of his life and may wind up having to publish many retractions of false and misleading loaded questions when a few groups he has publicly maligned with his tongue in cheek writing style comes back to haunt him through the legal system he so rightously defends out of some sense of amends to the profession.

If StockPatrol.com is intent upon “providing information on companies” why does it tell only one side of the story? Why does it never interview the actual people about which Mr. Bernstein and his cohorts in New York writes? Why not tell investors about the $750,000 in fines Mr. Bernstein, the man behind Stock Patrol either paid or didn't pay for admitting to securities fraud on behalf of other clients who went to jail. Some of those clients are soon to be out of jail. Will Stock Patrol still be around when his former clients read about the way he has been maligning entrepreneurs for the past several years with millions of words. After all, his clients relied on his opinion when issuing securities, why isn't that mentioned on his site?

For every question Mr. Bernstein has asked on his site, one should ask him the same questions for when you have pointed as many fingers as he has, you have to realize that from his own hand there are three fingers pointing back at himself.


What kind of leading loaded question is this? "In other words, is there really a Santa Claus in North Pole, Alaska? (1/15/2003)"

The above is right off the bottom of this web page linked below:

http://www.stockpatrol.com/radar/toc.html

Maybe we should be asking whether there really is a Securities and Exchange Commission devoted to protecting investors or is it just a political cabal of past, present and future lawyers who have taken public character assasination to new levels of political science?

Where was Hartley and the SEC before the Enron story broke...chasing penny stock promoters? What is Stock Patrols' real motive behind all the loaded leading questions? What is its real agenda and why isn't this publicly stated? Has Stock Patrol actually helped anyone or has it played on the fears of investors to harm and destroy reputations, lives and cause others to terminate business relationships because Mr. Bernstein happened to ask double entendered loaded questions.

And for the public record, as I have been silent now for two years on this subject, let me state that Mr. Bernstein has made false and misleading statements about me on his web site and is according to unreliable sources planning on making more of the same, perhaps as soon as he can figure out who I am and what I am about. Either way, he will soon have his day in my court. He will learn his new lessons from a Class that is gathering to teach the truth about Mr. Bernstein and his ilk and enlighten him on the subjects close at hand.

It is in the interests of fair and accurate reporting that this and many more posts about Stock Patrol, the SEC and the organized criminals in New York, Washington D.C and Italy will come to know me and the truth, the whole truth and nothing but the truth, so please help them God!, as they are going to need all the help they can get, even if they are forever forgiven for they know not what they have done.

And what makes one mans currency (written words) more valuable than anothers? The relative amount of truth contained therein. Seek ye first the truth, and all the wealth of the universe will be yours. Never rely on the opinions of disbarred lawyers no matter how factual it may seem on the surface.

New Market Trend: Short, Distort

By Joanna Glasner

Jun 03, 2002 02:00 a.m. PDT
- - - - -
For every successful stock market scam, there is bound to be a buzzword to go along with it. In the bull market of the late 1990s, that buzzword was ''pump and dump.'' Predicated on the relentless optimism of the times, the scam involved promoting the hell out of some worthless company, boosting its stock to unsustainable heights, and then selling quickly before it fell apart.

So long as investors were willing to believe good things about obscure companies with businesses they didn't understand, the strategy worked.

Now that investors are loath to believe anything good about a public company, con artists are finding that a new tactic -- the ''short and distort'' scam –- is working better. With this strategy, scammers profit by selling short –- or placing a bet that a stock will decline -– and subsequently forcing shares down by spreading nasty rumors about the company.

Investment advisers say the technique is particularly effective for tech stocks and other so-called new economy companies that have borne the brunt of the market downturn.

''In a bear market, no one's going to believe that Amazon's going to go to $100. It's easier to say they've got some accounting problems, and the stock goes down in a heartbeat,'' said Rick Wayman, a financial advisor and co-founder of ResearchStock.com.

A recent case in point was the arrest in late May of Anthony Elgindy, a well known short-seller and publisher of now-defunct InsideTruth.com, a website with a history of warning of regulatory troubles at small- and mid-sized firms.

The federal government charged that Elgindy conspired with FBI agents to illegally obtain information about publicly traded companies under investigation. Elgindy would profit from the knowledge by short selling shares of the company -– a transaction that involves borrowing stock and selling it on the open market. He would later profit by unloading borrowed shares after the investigation became public knowledge and the stock declined.

Elgindy's case wasn't a classic short-and-distort scam, because much of the information he published, although illegally obtained, was in fact accurate. However, the high-profile arrest did draw attention to a trend that Wayman believes has been largely overlooked by regulators: the booming trade in spreading bad news.

While most traders have learned to cast suspicion on overly positive corporate press releases or puffy analyst reports, market psychologists say investors are less aware of the threat of negative rumormongering. Post-Enron skittishness exacerbates the situation.

''The psychological biases that are strong right now would help these scams,'' said John Nofsinger, a finance professor at Washington State University and author of Investment Madness: How Psychology Affects Your Investing.

Nofsinger says a consistent bias among investors is to expect whatever happened in the recent past to repeat itself. Because they've lost money recently on tech stocks and firms caught in accounting scandals, investors naturally believe there's more bad news ahead.

Wayman says short-and-distort tactics work best with smaller companies, since their stocks prices tend to be more volatile. Companies hit by short-sellers say it's generally difficult to fight back, given the speed at which rumors can be disseminated online.

''These websites don't go back and correct things generally. That's the problem,'' said Wil Williams, spokesman for SureBeam (SURE), a maker of equipment for irradiating food and other products that has been a target of Elgindy and other short sellers.

Although he doesn't mind legitimate short selling -- which can help keep stocks from reaching unsustainable heights -- Williams said the company has had issues with shorts attempting to profit by spreading false information.

Wall Street has been well aware of the Internet's power in spreading malicious untruths since the notorious Emulex hoax of 2000. In that scam, a college student sent out a phony negative press release that caused shares of the high-flying technology stock Emulex (EMLX) to tumble, costing investors nearly $110 million.

Companies whose stocks are riding high are favorite targets of shorts, said Erik Schielke, director of business development at CFG media, an investor relations firm.

''They'll say you can't sustain this growth rate forever,'' Schielke said.

But according to Wayman, even companies that haven't been performing well, and have been largely out of the public eye, make appealing targets for rip-off artists.

''The reason this is so effective for the undervalued stock is because the market is starved for information,'' he said. Without other news to compete with, ''the shorts and distorts take center stage.''


http://news.lycos.com/news/story.asp?section=LycosBusiness&storyId=52785

http://www.investortoinvestor.com/dcforum/NewsletterDiscussion/83.html

Daniel M. Prescott, Prescott Capital Management

Eighteen months ago, I left a 25 year career managing
client financial assets; most recently as a Sr. VP at
Morgan Stanley and UBS. I am now thankfully free to
"DO THE RIGHT THING" when managing client assets. The
blatant abuses of the customers financial assets and
of the system by those firms and others are
disgusting. The SEC and the public are now only
scratching the surface of the greatest abuse of all;
short selling and naked short selling. The current
proposed rule changes are helpful but do not address
the fact that unscrupulous trading entities can short
unlimited amounts of stock that is never borrowed.
This is done either through offshore accounts that are
not adequately regulated or directly through the
domestic market maker network. These criminals are
easily able to establish short positions that are
frequently multiples of the outstanding shares of
public companies with very little stock ever being
borrowed. The result of the relentless selling of
unlimited shares that do not exist causes share values
to plummet causing companies to loose credibility, not
be able to attain financing and ultimately go out of
business. How can the public stomach a financial
system that allows the basic law of supply and demand
to be violated with the creation of unlimited supply
of stock vs. steady demand? When companies fail, the
short sellers say the were justified because the
failed companies were no good and they were just being
smart. The reality is that the game is rigged! The
abused companies market caps decline to near zero so
they then fall under the radar screen of the
regulators and the investments by many unknowing
investors has been wiped out! The final ultimate
insult is that the HUGE ill gotten gains made by the
criminals may not ever be taxed because when they
drive a company out of business the do not have to
close out the short position because the stock no
longer trades! The investor gets robbed and the US
Treasury is denied much needed revenue. As companies
are being put out of business jobs are lost and
economic progress slowed. I have more to say and
information to give to those wanting to "do the right
thing" I can be contacted at danprescott@yahoo.co or
phoned at 314-374-5080. Thank you

http://www.sec.gov/rules/proposed/s72303/prescott112403.txt

Draining the Naked Shorting Swamp

The PIPEs Report
Part Three of a Three-Part Series
by Brett Goetschius
August 1, 2003

Market manipulators are bursting through loopholes littering the regulations and processes put in place to ensure the integrity of the securities markets: This is the charge that lies at the core of allegations made over the last year by PIPE issuers Sedona, Internet Law Library, JAGNotes, NanoPierce Technologies, Hyperdynamics and more than 80 other small-cap firms. They assert that, through the practice of naked shorting—selling shares of a stock without first determining that an equal number of shares is actually available to complete the trade—rogue short sellers are, in effect, counterfeiting shares of stock and selling them on the market. This scheme, its opponents charge, unfairly decimates the share value of targeted companies and threatens the integrity of the market as a whole.

As the plaintiffs in these shorting abuse suits have alleged in case after case, it is not only the short sellers that are the problem: NASD-regulated market players and the regulators them-selves facilitate these frauds by providing waivers, exemptions, and loans to short sellers. Such assistance provides perpetrators the time and leverage they need to execute their schemes, plaintiffs say. The issuers assert that damage done through shorting abuse is downplayed or denied by the clearing firms, broker-dealers, and regulators because each is complicit in supporting a trading system that accords extraordinary flexibility and discretion to brokers holding large undelivered short positions in small-cap stocks. Indeed, the toughest challenge for the prosecution in these cases typically is proving not that orchestrated naked shorting occurred, but that such schemes are specifically prohibited by law.

The trading records of the parties involved present clear pictures of the ability of short sellers to commandeer a small-cap company’s trading activity and drive down the stock price. In the Sedona case, the SEC found—and defendant Rhino Advisors did not contest— that accounts controlled by Rhino accumulated an undelivered short position in excess of 1.19 million shares in 31 trading days. That amount accounted for more than 25% of Sedona’s trading volume during the five-day pricing period prior to Rhino exercising its conversion rights on its Sedona convertibles.

In the NanoPierce case, shuttered Toronto broker Thomson Kernaghan accounted for an average 40% of NanoPierce’s daily trading volume from late October 2000 through early May 2001. Kernaghan client Harvest Court, a PIPE fund advised by Steve Hicks of Southridge Capital Management, held warrants with reset rights in the company during that time. Every trade executed by Thomson Kernaghan for that period was a sale. Total trading activity exceeded 4.5 million shares. NanoPierce’s share price fell during the seven-month period from $2.63 to $0.51.

Examination of trading records of Internet Law Library, another Southridge investment, by John Pinto, a former senior executive of the SEC’s examination and enforcement division, led him to conclude that Thomson Kernaghan’s “aggregate volume of heavy concentrated selling... is indicative of market manipulation.” In testimony as an expert witness for Internet Law, Pinto, a 29-year SEC veteran, described the one-way trading in Internet Law stock by Kernaghan as “indicative of a systematic and calculated initiative by defendants to artificially depress the price of INL shares.”

The Tunnel Under the Border

Regulatory deficiencies in the Canadian securities regime, Pinto testified in the Internet Law case, is a key enabling factor in the alleged manipulation schemes. Canadian broker-dealers trading in Nasdaq stocks are exempt from NASD and SEC regulation, despite their open access to the U.S. markets. “In my opinion,” Pinto asserted, “ this fact was a key ingredient of the manipulative activity, as it facilitated the scheme that most likely could not have been effected if executed through a U.S.-based member of NASD...”

Canadian short sellers play the U.S. markets using a rulebook that differs from those of their domestic counterparts in two key respects. First and foremost, Canada’s system of provincial securities regulations lacks any rule equivalent to NASD’s “affirmative determination” rule. Known as Conduct Rule 3370, the rule requires a U.S. broker-dealer to affirm in writing that it has pre-determined each short trade it accepts can be matched with a similar amount of shares available for purchase or loan. Reinforcing it is SEC Rule 15c3-3, which requires broker-dealers to force “buy-ins” of undelivered short positions in their clients’ accounts after 10 business days. Affirmative determination, backed by forced buy-ins, is aimed at preventing shorting abuse by limiting shorting activity to only that trading volume which can be supported by the amount of registered securities issued and outstanding.

Canadian short positions, on the other hand, legally can extend well beyond the investor’s ability to cover or even complete the trades at a company’s current float and volume. Not only is naked shorting legal in Canada; the country’s regulators aren’t convinced enacting affirmative determination and buy-in rules would prevent it. “An affirmative determination rule would be nice to have,” a regulatory affairs official at the Ontario Securities Commission told TPR last week. “But if bad actors want to do bad things, they are going to do it regardless.”

PIPE Securities as Short Collateral

While not all of them involve variable-priced convertible securities, a majority of naked shorting schemes do. Ostensibly, a forced direct issuance of stock from the naked shorting target is usually the only way to deliver enough securities to cover the undelivered short positions built up over the course of a naked short raid. For schemes involving variable-priced convertibles, Canada offers short sellers a second shorting tool unavailable to their U.S. counterparts: the ability use unregistered convertible securities to collateralize undelivered short positions in the underlying common stock almost indefinitely.

Known as Rule 100 in the Canadian Investment Dealers Association rulebook, it states:

“A Member may hedge: ...Any long convertible security, including warrants, rights, shares, instalment (sic) receipts or other securities pursuant to the terms of which the holder is entitled to currently acquire underlying securities, held in the account of a guarantor that guarantees a customer account against any short positions in the underlying securities held in that customer account; provided that the convertible securities held in the guarantor’s account are readily convertible into the related underlying securities held in that customer’s account and the number of underlying securities available on conversion shall be equal to or greater than the number of securities sold short;”

Critics of Canada’s lax shorting regulations, including NASD enforcement officials familiar with the Sedona and Internet Law cases who spoke to TPR last week, condemn Rule 100 as the “tunnel under the border” that allows privately placed, unregistered securities held in Canadian accounts to finance the short sale of registered public stocks in the United States.

U.S. Protections Weak; Violations Frequent

Loopholes in the U.S. regulatory regime, meanwhile, remain legion. It routinely permits extended undelivered short positions to be held by domestic investors at U.S.-based broker-dealers; the lack of meaningful penalties and enforcement, even in instances of flagrant violations, invites even more abuse. Citing the U.S.-based NASD member firms in the Internet Law case that are accused of aiding and abetting Southridge’s alleged manipulation scheme, Pinto testified that “it is my opinion that many of the U.S.-based NASD member firms may have violated most if not all of NASD and SEC rules .”

Though every U.S. broker-dealer is required to make an affirmative determination before executing a short trade, what should constitute a legitimate determination has been the subject of dispute between the NASD and the SEC. Current rules only require a broker to use its best knowledge and judgment to determine the availability of shares for purchase or loan, and to annotate each trade ticket that such a determination has been made. No actual seller or borrower of the securities in question need be contracted with, or even located. Nor does the information used to make the determination need to be authoritative.

In practice, affirmative determination compliance boils down to a reliance on “hard-to-borrow” lists distributed daily by large clearing firms and wire house stock loan departments. These lists are not routinely audited or reviewed by any regulator. Typically they contain no information regarding the actual liquidity; they simply are ticker lists. Criteria for inclusion in the lists vary with the list distributor, and often reflect only those companies the clearing firm or loan department regularly clears or trades—not the availability of every issue in the market. This reality makes a stock’s absence on a “hard-to-borrow” list affirmative of nothing other than the prima facie that it is absent from the list—not that it has been declared available for shorting in unrestricted amounts.

While drafting the affirmative determination rule in 1994, NASD pushed for a much more stringent determination standard. Proposed in its Notice to Members 94-80, it would have prohibited the use of such lists by requiring traders “to annotate, on the trade ticket or on some other record... the identity of the individual and firm contacted who offered assurance that the shares would be delivered or were available for borrowing by settlement date...” The NASD argued that “a ‘blanket’ or standing assurance that securities are available for borrowing is not acceptable to satisfy the affirmative determination requirement.” In particular, the NASD said brokers “cannot rely on daily fax sheets of ‘borrowable stocks’ to satisfy their affirmative determination requirements...”

Under pressure from the SEC, NASD deferred implementation of the rule for a year; then, it backed down to the agency and amended it. In a Special Notice on January 6, 1995, NASD stated that it would allow trading firms to “rely on daily fax sheets from their clearing firms as a basis for making their affirmative determinations made in connection with short sales.” Four days later, the SEC, which had never approved the more stringent rule, published a release confirming the NASD’s Special Notice. The SEC stated that one reason for the delay in confirming the affirmative determination rule was “the NASD’s concern that the prohibition against the use of daily fax sheets and other ‘blanket’ or standing assurances may have created an unnecessarily burdensome regulatory requirement on NASD members...”

Affirmative determination requirements on the books poorly protect small-cap issuers due to two major exemptions: (1) Nasdaq market makers engaged in “bona fide market making activities” and (2) short trades involving OTC stocks. NASD has defined bona fide activities to “exclude activity that is related to speculative selling strategies... and is disproportionate to the usual market making patterns or practices of the member in that security.” Decisions regarding which activities constitute speculation and which constitute market making are made by the NASD on a case-by-case basis.

Even when affirmative determination violations are discovered, which is routine according to NASD enforcement reports (the association says it keeps no data on the number of such actions), penalties typically add up to a charge of a few thousand dollars coupled with a letter of censure. A random review of the 112 NASD disciplinary actions reported for July and August 2001 reveals six actions involving affirmative determination violations and nine involving short selling violations. Penalties typically included a letter of censure and a fine of less than $20,000. NASD enforcement officials refer to such censures as “parking tickets” and admit that their resources do not allow them to “catch all the speeders.”

To date, the NASD has only successfully prosecuted one case against a naked shorting scheme brought under Rule 3370. In that case, NASD vs. Steve Carlson et. al and John Fiero, defendant Fiero was found to have committed extortion and fraud in a naked shorting scheme involving a group of OTC penny stocks. Like drivers who see parking and speeding tickets simply as costs of riding the roads, Fiero told the court that he viewed the penalties and buy-ins for failing to deliver securities sold short as “an ordinary course of business” and “pretty much a bookkeeping function.”

NASD officials admit that more naked shorting abuse cases have not been prosecuted because the likelihood of conviction is low, unless as in the Fiero case, insiders can be convinced to testify against their fellow conspirators.

For unlike a typical penny stock “pump and dump” scheme that involves managing a substantial sales staff, creating call scripts, making high volumes of out-bound calls to retail investors, and other evidence-generating activities, naked short schemes typically involve only a small, tightly-knit group with no paper trail to document trading strategies or intent. And until stricter shorting rules are established for affirmative determination and collateralization of short trades in the U.S. and Canada, they say few other short manipulation cases are likely to be brought.

http://investigatethesec.com/Report3.doc

Anatomy of a Naked Short Scheme

The PIPEs Report
Part Two of a Three-Part Series
by Brett Goetschius
July 15, 2003

After software developer Sedona completed its first financing with Ladenburg Thalmann and Rhino Advisors in early March 2000, company chairman Marco Emrich was a confident man. He was sure that, however onerous the terms of the PIPE may be, Sedona would quickly retire the preferred stock and soon secure up to $50 million in straight equity financing, as allegedly promised by Ladenburg. Less than four months later, with Sedona’s stock down more than 70%, Emrich was concerned that he was being played—and that his company was quickly heading toward financial ruin.

According to Sedona’s legal counsel, John O’Quinn of O’Quinn, Laminack & Pirtle and James “Wes” Christian of Christian, Smith & Jewell, Sedona is only one of hundreds of companies that have been victimized by stock manipulation schemes linked to variable priced convertible PIPE investments made by a handful of U.S., Canadian and off-shore-based placement agents and investors. Christian says losses from these schemes may total $1 trillion and involve up to 1,000 public companies.

Syntax of the Alleged Scheme

Christian points to a common pattern that he believes marks these schemes. First, there is the floorless convertible bait-and-switch. A company seeking $10 million or more in financing is told by a placement agent that it can indeed finance a deal, but that it first must do two things: register or expand an existing shelf registration for the total amount contemplated, and complete a small interim financing in the form of a floorless convertible to pro-vide bridge financing until the larger funding is delivered. According to Christian, the shelf registration effectively takes the company “out of the market” for competing capital by signaling to the investment community that the company has found investors to complete a large offering in the near future. It also provides a pre-arranged mechanism with which to quickly issue several times over the number of shares contemplated by the initial PIPE conversion agreement.

Second, the convertible financing offered by the agent has a conversion pricing mechanism that is biased to reflect a stock’s short-term downside volatility. Conversion formulas for these deals feature pricing terms based on the average of a stock’s three lowest closing prices over a 20-day period, or a tight price ceiling on an otherwise sharply discounted floorless security. Others offer relatively straight forward common stock placements coupled with variable-priced “make whole” warrants capable of triggering the issuance of four to six times as much stock as in the original offering.

Third, the larger funding commitment is contingent on the company’s shares maintaining a minimum price threshold. The investors are released from their larger funding commitment if the stock drops below the threshold in the intervening period when the interim PIPE financing is in place. In this way, the placement agent and its investors can avoid funding the larger capital investment. This step completes the setup for the bait-and-switch, Christian contends.

Fourth, investors come invariably from outside the U.S., often from offshore tax havens. These investors often are not named until the documents are presented to company executives for signing. Typically, investor signatories are nominee directors with little real authority over the investment funds for which they are signing. One such nominee, David Sims of Navigator Management of Tortola, British Virgin Islands, is an agent for a number of investment funds used by Rhino Advisors and Southridge Capital Management, two investors accused by several issuers of orchestrating so called “deathspiral” schemes. Most of Sims’s PIPE funds use the address of Citco Trustees, a Grand Cayman-based hedge fund administrator with offices spread throughout the Caribbean, Europe and the U.S. It claims five of the ten largest offshore hedge funds as clients and 27% of the total offshore fund administration market.

Fifth, the investors’ broker-dealer is often Canadian. Canadian brokers provide easy access to U.S. securities markets, yet remain outside the jurisdiction of U.S. regulators. Canada’s patchwork of provincial securities authorities, with limited jurisdiction and weak enforcement mechanisms, provide ample opportunity for unscrupulous investors to conduct “regulatory arbitrage.”

Key to Canada’s prominence in these schemes is the country’s lack of a prohibition on “naked” shorting of stock, that is, the shorting of stock without first borrowing the shares from accounts controlled by the broker or its clients. While such “affirmative determination” rules that force brokers to borrow shorted shares to reconcile their clients’ aggregate short positions exist in U.S. markets, no such rules constrain Canadian brokerages.

Prominent in many of the “death spiral” suits brought by O’Quinn and Christian is shuttered Toronto broker Thomson Kernaghan. Ontario securities regulators suspended and then liquidated the broker-age last year after charges of widespread trading abuses were leveled against the firm and its former chairman, Mark Valentine. Valentine currently awaits trial in the U.S. on bribery and fraud charges stemming from a sting operation known as “Bermuda Short.”

Sedona’s Second Deal

Feeling he had little recourse to save his company, but wary of the negative effects of the original variable-priced convertible offering placed by Ladenburg, Emrich again approached Ladenburg’s top banker Michael Vasinkevich, to ask him to consider refinancing Sedona’s convertible preferred stock.

Before Sedona’s executives would agree to accept new financing from Ladenburg, they first sought some answers from Vasinkevich. Why, they wondered, was Sedona’s stock reacting negatively to the first financing? Vasinkevich was invited to a meeting of the Sedona board in June 2000. At the meeting, he was questioned about possible shorting of Sedona stock by Rhino or its funds. According to Sedona’s complaint, Vasinkevich denied any involvement by Ladenburg or its investors in manipulating or otherwise causing the company’s stock to decline. He suggested that he could arrange a $3 million common stock placement with two other funds, Roseworth Group and Cambois Finance, to retire the convertible preferred stock owned by Amro, Markham Holdings, Aspen International, and the Cuttyhunk Fund.

Sedona alleges Vasinkevich failed to say about the new deal that Roseworth and Cambois were wholly owned subsidiaries of Amro’s “sister” fund, Creon Management. Creon’s director and signatory is David Sims. Creon is the guarantor of another offshore fund with PIPE investments in U.S. companies that uses the address of H.U. Bachofen in Zurich. Bachofen is president of Amro.

The Roseworth and Cambois placements were bundled with a $3 million, convertible debenture. The debenture— discounted to $2.5 million in actual proceeds to Sedona—did not include a “hard floor” on the securities’ conversion pricing, only a volume-weighted pricing formula that fixed the conversion price if the debenture was held to its 120-day maturity before being redeemed. Pre-payment or failure to redeem the debenture at maturity nullified the conversion formula and replaced it with a floorless pricing formula that reset the conversion price to 85% of the previous five-day volume weighted average price of Sedona’s common stock prior to the debenture investors’ notice of conversion.

The terms of the deal did include a con-version price ceiling of $1.41 per share upon maturity of the debenture. In addition, the debenture included warrants for up to 666,667 shares exercisable at $1.37 per share. Notably, the terms of the debenture agreement also prohibited holders from engaging in any short sales of Sedona stock. Ladenburg was paid $175,000 and given warrants for 167,576 shares of Sedona stock at an exercise price of $1.15 per share for serving as placement agent in the deal. Sedona closed the deal in late January 2001, and Ladenburg placed the debentures with Rhino’s client Amro.

What happened next is detailed in an SEC investigation and subsequent suit by the commission against Rhino Advisors and its president, Thomas Badian. Rhino settled in February, without admitting or denying the charges, for a $1 million fine.

According to the SEC, Rhino and Badian directed a series of short sales of Sedona stock through an account at a U.S. broker-dealer held in a Rhino client’s name and controlled by Badian. At the time, Rhino’s client owned no Sedona stock. Rhino did not deliver the shares that it was selling short by the settlement date, and the broker neither bought nor borrowed stock to cover the sales. Sedona’s attorneys have named Westminster Securities, a broker-dealer that has at times listed the same address as Rhino, as the broker referred to in the SEC complaint.

According to the complaint, each day in March 2001, Rhino placed Sedona sell orders with Westminster; subsequently, Westminster placed similar sell orders with a cooperating broker, identified by Sedona as Wm V. Frankel & Co., a Nasdaq market maker in New Jersey. According to the Sedona complaint, the cooperating broker often placed these sales through various electronic communication networks, providing some market anonymity to the traders.

As the cooperating broker-dealer owned no Sedona shares, it covered its short trades through the ECNs by purchasing the shares from Rhino’s client’s account at Westminster. It did this after-hours at slight discounts to its short sale positions to ensure itself a profit. Rhino’s client, however, had no Sedona shares in its account, resulting in a short position from the ECN sales. Because the purchase sides of the wash sales were executed after hours via the ECNs and because Rhino’s client did not report the sales as short trades, the trades were not reported to the market as short sales.

Despite repeated failures to deliver the shares to complete the “long” sales from Rhino’s client’s account, Rhino’s client reportedly shorted more than 872,000 shares of Sedona in March 2001 alone. As a result of the repeated clearing failures, Nasdaq placed a short restriction on the company’s stock. According to the SEC, Rhino then moved its trading activity to an account held by its client at a Canadian brokerage firm, identified by Sedona as Thomson Kernaghan. Rhino continued to short Sedona shares through Thomson Kernaghan through mid-April 2001, eventually building up an uncovered short position of 1.19 million shares in 31 trading days.

Christian says all of the uncovered shorting and false “long” sales had the effect of counterfeiting Sedona stock and flooding the market with fraudulent sell volume, decimating Sedona’s share price. In January 2003, with its share price well below a dollar, the company was delisted by Nasdaq.

Rhino, Badian, Ladenburg, Frankel and Westminster dispute Sedona’s allegations and have filed a motion to dismiss the case with Judge Kimba Wood in New York’s Southern District Court. PIPE issuers seeking redress for naked shorting and death spiral schemes have suffered a string of losses of late.

The events detailed in the Sedona case, as well as in other stock manipulation cases brought against PIPE investors by O’Quinn and Christian, leave behind troubling notions about the degree to which deficiencies in the regulation, enforcement, and execution of short sales of U.S. equities by foreign brokers and investors promote an environment ripe for manipulation. The bitter experiences of these PIPE issuers threaten to tarnish this innovative financing structure and prevent its maturation into a powerful capital-raising tool for public companies.

http://investigatethesec.com/Report2.doc

PIPE Players Accused of Global Stock Scheme

The PIPEs Report
Part One of a Three-Part Series
by Brett Goetschius
July 1, 2003

Some of the most active private placement agents and investment managers stand accused of conspiring to defraud hundreds of small-cap companies, including dozens of Private Placement in Public Equity (PIPE) issuers, TPR has recently learned. Specifically, government investigators and plaintiffs’ attorneys are charging the defendants with executing stock-kiting schemes to exploit loopholes in the U.S. stock clearing and settlement system. Through these methods, the agents and managers allegedly inflated small-cap companies’ downside trading volumes and reaped massive profits from short positions.

The allegations are contained in court documents and investigative reports of U.S. and Canadian authorities. An ongoing joint U.S.-Canadian investigation into the matter has already yielded 58 indictments of U.S. and Canadian offshore brokers and hedge fund managers. Those arrested include Mark Valentine, former president of the defunct Toronto brokerage Thomson Kernaghan. Valentine’s firm was closed by the Ontario Securities Commission a year ago. Its closure led to the largest claim ever against the Canadian commission.

Thomson Kernaghan is named in a $2.6 billion lawsuit filed in May by Sedona against its placement agent, Ladenburg Thalmann; several former Ladenburg executives; New York-based PIPE fund manager Rhino Advisors; and several offshore funds and securities firms associated with Rhino and British Virgin Islands-based Creon Management. In the lawsuit, a copy of which was obtained by TPR, Sedona’s attorneys assert that former Ladenburg executives Michael Vasinkevich, David Boris and Thomas Tohn schemed with Creon fund manager David Sims, Rhino principal Thomas Badian, and Rhino-managed funds Amro International, Roseworth Group, Cambois Finance, and Markham Holdings to defraud Sedona and its shareholders through the illegal manipulation of the funds’ investment in a $3 million floor-less convertible PIPE issued by Sedona in January 2000.

The Sedona suit goes on to allege that Rhino used its funds and cooperating broker/dealers in the U.S., the Caribbean, and Canada, including Thomson Kernaghan, to orchestrate a campaign of massive, uncovered short-selling of Sedona’s stock, despite specific prohibitions against such activity in the stock purchase agreement. Sedona claims this naked shorting campaign “painted the tape” with extraordinarily high selling volume and decimated its share value, ultimately allowing Rhino’s funds to convert their securities into common stock at a fraction of true value.

The SEC filed suit this spring against Rhino and Badian, alleging Badian manipulated the market through an illegal short-selling campaign against Sedona. The commission claimed Rhino was using brokers and electronic exchanges based in the U.S., Canada, and offshore to hide and wash short trades even after the NASD placed short restrictions on the stock. Rhino settled with the SEC for $1 million without admitting or denying the allegations.

All of the defendants in the Sedona suit have filed to have the case dismissed. Southern District of New York federal judge Kimba Wood has yet to set a hearing to rule on the motions. Court papers filed in the case set out for the first time the exact nature of the scheme. The papers also reveal the alleged players in a conspiracy that Sedona’s attorneys, famed tobacco and implant-liability lawyer John O’Quinn and accomplished attorney Wes Christian, believe has victimized hundreds of small-cap companies and cost shareholders billions.

A Rigged System

Some of the investors accused in the scheme have connections to offshore and European trusts operated by alleged money launderers working for the Russian mafia and Colombian drug cartels. Even more intriguing and insidious than these claims, however, are the methods used by the defendants to perpetrate the fraud. They are accused of exploiting weaknesses in the centralized book entry clearing and settlement system used by each of the nation’s stock exchanges. The Sedona court papers shed light on how market participants can manipulate the system, operated by the Depository Trust Company and known as FAST. The court papers argue that perpetrators have exploited the book-entry clearing system to “kite” stock by selling short shares and allowing the trades to fail, or covering them via surreptitious, off tape purchases that can drastically inflate a small-cap company’s outstanding float and greatly distort trading volume on the sell side.

Such a scheme was allegedly executed using Sedona stock by former Ladenburg executives working in concert with Rhino and its offshore network of hedge funds, U.S. market makers Wm. V. Frankel and Westminster Securities, and Thomson Kernaghan.

“The story here, in our belief, is about a rigged system. That rigged system occurs by virtue of a broker/dealer community that doesn’t deliver securities in a timely manner. We believe are aided by a lack of procedures at the DTC and the National Securities Clearing Corporation, each of which is owned by the broker/dealers,” Christian said last week in an interview in New York, where he was taking depositions for the case. “The case got much larger than just some bad guys and some money launderers when those guys found holes in the system and began using them profusely. They wouldn’t have been allowed to do this if everybody had been enforcing the rules that were created to keep this from occurring.”

Christian, of Christian, Smith & Jewell, and O’Quinn, of O’Quinn, Laminack & Pirtle, have devoted 70 attorneys to the 20 suits the Houston-based firms have filed against Rhino and other alleged perpetrators of the stock-kiting schemes. Christian says he expects to file similar suits on behalf of another 80 companies in the coming months.

“The Goldman Sachs of Small-Caps”

According to Sedona’s complaint, the scheme began to unfold shortly after Michael Vasinkevich and his team from Paul Revere Capital moved into Ladenburg Thalmann’s Long Island branch offices in the summer of 1999. There, they began soliciting financing business for Ladenburg’s structured finance group. At the time, Vasinkevich and the Paul Revere team were working with former Ladenburg executive vice president David Boris. Boris, now a managing director at Morgan Joseph, is a defendant in the suit. (All of the Sedona defendants contacted for this article declined to comment.)

Vasinkevich, in an August 1999 letter to Sedona’s CFO Bill Williams, asked Williams to consider using Ladenburg’s Secondary Offering Substitute and Private Placement Alternative, or “S.O.S.,” PIPE program to raise capital through a private offering. In the letter, Vasinkevich boasts of Ladenburg’s access to “$50 billion” of investment capital and trumpets Ladenburg as “the Goldman Sachs of small cap companies.” Vasinkevich goes on to describe the S.O.S. program as a “hard floor” convertible program that protects small-cap issuers like Sedona from short selling and arbitrage plays:

“S.O.S. . . . enables a company to raise funds when and as needed. The company sets a hard floor—a threshold price below which it will not issue any stock. The company knows exactly how much money it can receive every month during the life of the S.O.S. Product. Since the company decides when and how much money to draw down, the S.O.S. Product offers market ambiguity as to timing and dollars raised, keeping short sellers and arbitrageurs at bay.”

In what Sedona calls a “bait and switch” by Vasinkevich and former Ladenburg associate Thomas Tohn, Ladenburg allegedly agreed to provide up to $50 mil-lion over time through the S.O.S. program, beginning with a commitment to place up to $17.5 million. Sedona announced the initial agreement in January 2000. As part of the financing program, Vasinkevich subsequently suggested Sedona issue $3 million of variable-priced convertible preferred stock. He said it would “serve as interim financing in case our proposed underwritten common stock and warrant deal is delayed due to the SEC review of the registration statement,” according to a late December 1999 fax from Vasinkevich to Sedona’s Williams.

The Ladenburg PIPE did indeed include a $3.50 per share “hard floor” on the securities’ conversion pricing—but only for the first 90 days. After that, the fixed conversion price was replaced with a “floorless” pricing formula that used a conversion price equal to the lesser of $5.12 and “95% of the aver-age of the three lowest closing bid prices” of Sedona’s common stock during the 20 consecutive trading day period immediately preceding the conversion date, according to Sedona's S-3 filing for the offering.

Notably, the terms of the stock purchase agreement prohibited holders from engaging in any short sales of Sedona stock. Sedona executed the PIPE offering with Ladenburg in late March 2000. The company’s shares traded near $6 on the Nasdaq Small Cap Market.

The Offshore Players

Sedona agreed to pay Ladenburg a fee equal to 1% of the face value of an expanded $50 million shelf registration, plus 6% of the gross proceeds from each sale of the securities, and warrants equal to 7% of the gross proceeds. Ladenburg placed Sedona’s convertible securities with several funds managed by Rhino Advisors, Badian, and David Sims, a principal at Creon and British Virgin Islands-based Beacon Capital Management.

Rhino placed the Sedona securities with several offshore funds managed by Sims and a David Hassan of Gibraltar, including Amro, Roseworth, Markham, and Cambois Finance. Amro, which has invested more than $47 million in Rhino-managed PIPE deals according to private placement research firm Placement Tracker, is identified in SEC filings as a “sister fund” of Creon. Other filings declare Roseworth and Cambois as being wholly owned by Creon. Creon is also listed as the guarantor of another PIPE fund that uses the address of H.U. Bachofen in Zurich, Switzerland. Bachofen is, in fact, president of Amro. Finally, a funding announcement filed with the SEC in April 2000 by Stockgroup.com, a Rhino PIPE investment, states of Rhino that “in three years of operation its investment strategies have nearly quadrupled the base capital deposited into Amro and Creon.”

Several of Rhino’s funds, including Roseworth and Markham, are registered to a Lichtenstein-based law firm, Dr. Dr. Batliner & Partner. Batliner, who claims to hold two doctorates (hence the double Dr.), is a former German federal judge and confidant of former German chancellor Helmut Kohl. He has been the subject of investigations by German intelligence, reports of which were leaked to Der Spiegel, linking the doctor-doctor to money laundering operations with the Russian mafia, the Medellin drug cartel, the Ferdinand Marcos family, and Kohl’s Christian Democratic Union party.

Batliner has denied all wrongdoing. Nonetheless, Badian told The Daily Deal in October 2001 that Rhino had ceased doing business with Batliner after the allegations came to light. Christian said that Batliner and his firm would be added to an amended complaint in the Sedona case, expected to be filed soon.

With the $3 million of financing from the Ladenburg PIPE in hand, and a commitment letter from Ladenburg’s Boris to place up to $50 million in financing for the company over coming months, Sedona issued a press release in May 2000 announcing that it would increase its shelf registration to $50 million in anticipation of additional Ladenburg led placements. Ladenburg, however, would never fund even the original $17.5 million commitment announced in January 2000, despite alleged assurances from Ladenburg and Rhino that they could provide “all the financing the company would ever need.”

Within 90 days of closing the convertible preferred offering with Rhino, Sedona’s stock price would plummet from over $10.25 per share to less than $3, wiping away $195 million in value. By the end of 2000, Sedona’s stock hovered near $1 a share. Sedona executives, suspicious of trading patterns in its stock but still desperate for capital, would soon find themselves working on a second PIPE with Ladenburg and Rhino to retire the previously issued convertible preferred shares. It would be Sedona’s last offering as a Nasdaq-listed company.

http://investigatethesec.com/Report1.doc

Principal Employees Engaged In Market-Timing
Tuesday December 23, 6:25 pm ET


(Updates throughout.)

By Allison Bisbey Colter
Dow Jones Newswires

NEW YORK -- Principal Financial Group said it has uncovered evidence that some of its employees -- including two portfolio managers -- engaged in market timing of the company's mutual funds.

In a filing with the Securities and Exchange Commission (News - Websites) early Tuesday, the Des Moines, Iowa, insurance company said the "vast majority" of the improper trades took place between 1998 and 2000 and that the activity occurred "predominantly" through its own 401(k) retirement plan.

Principal, which has $134.8 billion under management in mutual funds and retirement plans, said it will compensate the funds affected by market timing.

The company said it had notified plan sponsor clients of the market-timing activity in an investor bulletin Monday that was posted on Principal's Web site Tuesday afternoon.

Market timing is the rapid-fire buying and selling of fund shares in order to profit from stale pricing of the underlying securities in its portfolio. It isn't illegal, but most fund companies take steps to curb the practice because it tends to hurt a fund's long-term shareholders.

The profits Principal's employees made from market timing were relatively modest. The company said employees gained a total of $175,000 through market timing of 401(k) accounts and $4,600 through market timing of mutual funds. By comparison, individuals who engaged in market timing at other fund companies have reaped millions of dollars in profits.

But as investment professionals, the employees had a responsibility to look out for the interests of the fund's other investors.

"The amount of money is irrelevant," Morningstar analyst Dan Culloton said. " It's an issue of trust and fiduciary duty. If you say you're managing a fund for long-term shareholders, you should be a long-term shareholder, too. The fact that it's not in the millions doesn't make it any less disconcerting."

The market timing by Principal employees was apparently curtailed by unspecified measures the company took in late 2000, when it detected patterns of trading activity in the international accounts at both its own retirement plan and the plans it managed for other companies that could potentially interfere with their investment strategies.

But it was only this year, when Principal undertook a review of the trading records of its employees going back to 1996, that the company identified the investment professionals who had engaged in market timing. The majority of the employees are no longer with the firm.

The review comes in the wake of a probe initiated this fall by New York Attorney General Eliot Spitzer into improper trading activities in the fund industry. Principal spokeswoman Susan Houser said the review was voluntary and the company isn't under investigation by any state or federal securities regulators.

However, the Iowa Insurance Department is looking into the market-timing activity that Principal has disclosed, according to spokesman Tom Alger.

Ms. Houser said the company's review "validated that we do have strong safeguards in place and have been able to monitor and detect" market timing. Principal hasn't uncovered any market timing by its own portfolio managers since 2000.

The review also determined that Principal hasn't allowed any late trading of its funds or entered into any special arrangements to permit certain investors to engage in market-timing trades. Late trading involves placing buy or sell orders for fund shares after 4 p.m. EST and receiving the same share price as given to orders placed before 4 p.m. Late trading is illegal because it gives an advantage to certain investors to make profitable trades at the expense of a fund's other investors.

The review also said Principal hasn't engaged in "portfolio peeking," in which certain investors are given access to information about the holdings in a fund's portfolio that aren't available to all investors.

The company is considering a number of additional measures to crack down on improper trading activity, including measures to address the stale pricing of assets in its international funds.

Ralph Eucher, a senior vice president at Principal's retirement unit and president of the firm's mutual-fund unit, said the company is engaging an independent valuation service for its global equity funds and retirement accounts. Beginning in the first quarter, the service will update prices for foreign stocks to reflect sharp movements that occur in U.S. markets after the close of trading overseas.

He said that will reduce the appeal of market timing by making it more difficult to profit by buying or selling shares of an international fund in the expectation that the prices of the underlying stocks will rise or fall in line with U.S. stocks once trading resumes in their domestic markets.

Principal will also consider raising the redemption fee it charges investors who engage in short-term trading of its mutual funds, which is currently at 1%.

-By Allison Bisbey Colter; Dow Jones Newswires; 201-938-5298; allison.bisbey-colter@dowjones.com

Jefferson-Pilot Life Insurance Co

http://finance.yahoo.com/q/bs?s=JP

Monumental Life Insurance Co

http://www.monlife.com/

New York Life Insurance and Annuity Corp

http://www.newyorklife.com/

Principal Life Insurance Co

http://www.principal.com/

Transamerica Occidental Life Insurance Co

http://www.aegonins.com/who_we_are_member.asp

Transamerica Life Insurance Co

http://www.transamerica.com/

No Respite for Parmalat as Creditors Sue
Thursday December 25, 7:37 am ET
By Svetlana Kovalyova


MILAN (Reuters) - Parmalat's troubles deepened on Thursday after six foreign creditor companies lodged a lawsuit against the global food group, which is caught up in one of Europe's biggest business scandals.

Hours after the company filed for bankruptcy protection in Italy, a group of foreign life insurers holding unpaid bonds sued to win control of two Parmalat units in the Cayman Islands.

The suit was the first publicly announced move by Parmalat creditors to recover billions of euros of investments jeopardized by an Enron-like crisis at Parmalat that has thrown a spotlight on some of the world's biggest banks and auditors.

Public prosecutors are investigating for fraud at Italy's eighth-biggest industrial group after a hole which could exceed 10 billion euros ($12.44 billion) was found in its accounts -- a "shameful disaster," according to Agriculture Minister Gianni Alemanno.

Some 20 people including Parmalat's founder and former chief executive Calisto Tanzi are under investigation for fraud, false accounting and market rigging.

Investigators sought to interrogate Tanzi on Wednesday but discovered he had left Italy for an undisclosed location.

A judicial source said Tanzi was willing to return to Italy to face questioning, but his absence complicated efforts to find out quickly how at least seven billion euros went missing from the dairy group's books.

Those interrogated so far, including three former chief financial officers, have told investigators of a complex web of offshore shell companies masking billions of euros of losses and overseen by senior company officials, judicial sources have said.

Police on Wednesday searched Tanzi's house in Collecchio, the northern Italian town where Parmalat has its headquarters, and sealed off the offices of La Coloniale, the Tanzi family's holding firm that controls the group.

CREDITORS WANT TO COOPERATE

Starting with a pasteurisation plant near Parma, Italy's gastronomical capital, in 1961, Tanzi, 65, built Parmalat into a global food group via a string of acquisitions in what for many years was one of Italy's biggest corporate success stories.

The group, whose juices, biscuits and long-life cartons of milk line shelves from Brazil to Australia, has nearly 35,000 employees in 30 countries.

Late on Wednesday, six insurers said they had asked the Grand Court of the Cayman Islands to liquidate two Parmalat offshore units, Food Holdings and Dairy Holdings.

The creditors -- Jefferson-Pilot Life Insurance Co, Monumental Life Insurance Co, New York Life Insurance and Annuity Corp, Principal Life Insurance Co, Transamerica Occidental Life Insurance Co and Transamerica Life Insurance Co -- said they wanted control of the units after Parmalat failed to repay bonds due this month.

Parmalat officials were not available for comment.

Parmalat on Wednesday filed for protection from creditors under a new, fast-track procedure, pushed into law by the government of Prime Minister Silvio Berlusconi in an attempt to save the country's biggest food group.

The government has appointed Enrico Bondi, a veteran rescue expert who was named Parmalat's new CEO just 10 days ago, as commissioner charged with drafting a turnaround plan.

Shielded from creditors by the new decree, Bondi has up to two years to restructure the group. But it was not clear whether the decree would protect Parmalat's complex offshore interests from creditors eager to be repaid.

Some experts have said North American creditors may force Parmalat to file for Chapter 11 bankruptcy protection in the United States as it could better protect their interests.

The companies that brought the suit in the Cayman Islands said they did not want to hamper Parmalat's efforts to save its business and were willing to cooperate with the firm.

But the suit puts more pressure on Bondi, who sources said was keen to take into account the interests of creditors as well as employees and suppliers.

Parmalat had a stock market capitalization of 1.8 billion euros before the crisis broke, but its shares are now almost worthless. Bonds were recently traded at about one fifth of their face value. ($1=.8039 Euro)

Police investigating fraud in the Parmalat scandal searched the home of the food company's founder Wednesday, hauling out boxes of documents in a hunt for evidence to explain the stunning near-collapse of a one-time model of Italian industry.

The company formally filed for bankruptcy protection as the Industry Ministry appointed an expert to develop a restructuring plan to save the Parma-based company, which employs thousands worldwide.

The case, dubbed by some as "Europe's Enron," has shaken this country's business leaders, who for years touted Parmalat as a proud symbol of northern Italian, family-run enterprises that help drive the economy - including the Fiat automaker in Turin, Benetton apparel in Treviso, and Premier Silvio Berlusconi's Mediaset in Milan.

Since the scandal broke Friday, evidence has mounted of a vast hole in the company's balance sheet. The latest Italian reports said a total of around $12 billion could be missing from Parmalat accounts after what may have been 15 years of false accounting.

The scandal also raised questions about Italy's regulatory framework. Premier Silvio Berlusconi has said the case damaged the country's credibility and reputation, and his government promptly intervened Tuesday with a bankruptcy-protection law tailored to save Parmalat and the jobs of 36,000 people it employs in 29 countries.

The government Wednesday appointed Enrico Bondi, who became Parmalat CEO this month after founder Calisto Tanzi was ousted, to the post of special commissioner under the bankruptcy-protection plan.

Bondi, who has a reputation as a corporate savior after rescuing chemicals group Montedison SpA from bankruptcy in the early 1990s, must draw up a restructuring plan for approval by the Industry Ministry.

Prosecutors have placed Tanzi and 20 other officials, including former finance directors, under investigation for possible fraud and other charges concerning the suspected falsification of company documents.

The financial police branch searched Tanzi's home near Parma for several hours Wednesday, hauling out boxes of documents and handing them over to investigators. Tanzi himself was not there, and reports said he left the country.

The founder's son, Stefano, said he did not know where his father was.

He "knows his father is not in Parma, but hasn't had communication with him for some days," lawyer Sergio Ravaglia said from Milan.

The elder Tanzi has kept a low profile and not offered a public defense since the scandal broke.

Parmalat revealed Friday that Bank of America Corp. was not holding about $4.9 billion of its funds, as the Italian company reported in September. Since then, the estimated amount of money missing from the balance sheet has ballooned.

The bank says the letter guaranteeing the $4.9 billion was fake. Bank of America, based in Charlotte, N.C., also said it has filed a criminal complaint with Italian authorities.

"Bank of America is continuing to cooperate fully with both U.S. and Italian and other legal and regulatory authorities," the company said in a statement. "Because we believe a potential crime may have been committed under Italian law, we have made a request to the proper Italian authorities that a criminal proceeding be started against those who may be responsible."

Milan business newspaper Il Sole-24 Ore reported Wednesday that former Parmalat chief financial officer Fausto Tonna told investigators there had been systematic falsifying of accounts at Parmalat for 15 years and that he was taking orders from superiors.

Giuliano Panizzi, a consultant who worked with Parmalat for more than 15 years, told Il Sole-24 Ore he was unaware of any fraud. But if it happened, he suspected management - not just fiddling financiers.

"If what is emerging is all true, the hole has huge, unthinkable dimensions," he said. "I don't believe that there were personal enrichments. The false accounting was probably done to cover up industrial and financial losses, not to extract money from the company."

Tanzi founded the company in 1961 and ran it until earlier this month, when he was replaced by Bondi. Shortly thereafter, Parmalat's balance-sheet hole came to light.

The company, which has annual sales of around $9.2 billion, produces and sells milk, yogurt, juice and other food products around the world.

Its products include UHT milk, which is processed at ultrahigh temperatures so it can be stored without refrigeration for months.

Italy probes maddening milk company woes...

The scope of the alleged financial chaos at Italy's dairy giant, Parmalat SpA, has topped $8 billion, the Wall Street Journal reported Wednesday.

Italian prosecutors, probing the maddeningly confusing finances of one of the world's largest dairy operators, said the current amount now missing exceeds $8 billion.

On Wednesday, Parmalat filed for bankruptcy protection with the Italian Industry Ministry and the Parma prosecutor's office, as prosecutors ordered a search of the home of the founder, Calisto Tanzi, who is being criminally investigated along with some 20 top Parmalat officers.

Italy's government has vowed to keep the company afloat and Tuesday rushed through new bankruptcy rules to quarantine the damage to the dairy and related industries. Parmalat has 36,400 employees.

But it remains unclear how much that will help; the European Union has regulations limiting state subsidies for industry.

Parmalat's woes compares with those of Enron Corp. and WorldCom Inc.

In the Enron case, the U.S. Securities and Exchange Commission accused banks of helping the company improperly pump its earnings by more than $1 billion and hide more than $8 billion in debt.

The WorldCom fraud has been pegged at $12 billion.

The Italian dairy giant Parmalat filed for bankruptcy protection on Wednesday to deal with a cash crunch amid allegations of accounting irregularities.

Meanwhile, prosecutors looking into the scandal ordered a search of the founder's home.

The Parmalat scandal exploded last week when the company acknowledged a multibillion dollar hole in its balance sheet. The tangled case has expanded as prosecutors look into whether fraud was committed on a massive scale.

Parmalat said in a statement that it had approached the Industry Ministry to enter the government's new bankruptcy-protection plan. Hoping to rescue the company, Italy's Cabinet issued a decree Tuesday that set up a streamlined bankruptcy-protection system.

The move was widely expected.

Also Wednesday, news reports said company founder Calisto Tanzi and his son Stefano may have left the country. However, Stefano Tanzi's lawyer later said his client was in Milan, although he didn't know where the elder Tanzi was.

Stefano Tanzi "knows his father is not in Parma, but hasn't had communication with him for some days," lawyer Sergio Ravaglia said by phone.

Some have dubbed the case "Europe's Enron," and a feared collapse could have widespread effects. Parmalat, long a model of northern Italian industrial success, employs 36,000 people in 29 countries.

The scandal may also bring major changes to Italian business oversight. Premier Silvio Berlusconi's Cabinet promised reforms in the regulatory framework.

The scandal erupted Friday when Parmalat revealed that Bank of America Corp. did not have about euro3.95 billion ($4.9 billion) of its money, as the Italian company had reported in September. The bank says the letter guaranteeing the funds was fake, and prosecutors are investigating whether any crimes were committed.

The ANSA news agency said prosecutors now believe the total hole in Parmalat's balance sheet may be almost euro7 billion (about $8.5 billion), after the discovery of euro2.9 billion ($3.6 billion) in bonds Parmalat said it had bought back but had not. They are also investigating whether a scanning machine was used to falsify Bank of America documents, it said.

Authorities have been questioning former Parmalat chief financial officer Fausto Tonna. Business daily Il Sole-24 Ore said Tonna disclosed to prosecutors that there had been systematic falsifying of accounts at Parmalat for 15 years and that he'd been taking orders from his superiors.

Giuliano Panizzi, a consultant who worked with Parmalat for more than 15 years, told Il Sole-24 Ore in an interview that the false accounting was probably done to cover up industrial and financial losses, not to extract money from the company.

"If what is emerging is all true, the hole has huge, unthinkable dimensions," he said.

The government's rescue plan would involve the appointment of a special commissioner to draw up a restructuring plan, which must then be approved by the Industry Ministry. The government said it will choose Enrico Bondi, recently appointed Parmalat CEO after Tanzi was ousted, for the commissioner post.

Industry Minister Antonio Marzano indicated that the commissioner should avoid a wholesale sell-off. "The main brief of the commissioner is to overhaul the company, and not to sell the company's assets," he said.

Tanzi founded the company in 1961 and ran it until earlier this month, when he was replaced by Bondi. Shortly thereafter, Parmalat's financial woes were revealed.

The company, which has annual sales of around euro7.5 billion ($9.2 billion), produces and sells milk, yogurt, juice and other food products in Europe, the United States and around the world. It is based in Parma, about 250 miles northwest of Rome.

Parmalat grew to success as a family run enterprise and became one of the emblems of northern Italy's business prosperity. Other northern Italian companies run by families include the Fiat automaker in Turin, Benetton apparel in Treviso, and Berlusconi's Mediaset in Milan.

The government also said Tuesday it would ask the European Union Commission to grant "crisis" status to the nation's dairy industry - a move aimed at injecting fresh cash into the sector.

In Brussels, spokesman Thorsten Muench said the Commission's agriculture unit would ask the Italian government to explain the type and amount of aid planned. Italy must "explain who's being affected" by the subsidies so officials can determine whether the measures distort the EU milk market, he said.

Meanwhile, The Charlotte Observer newspaper reported Wednesday that Bank of America Corp. has filed a criminal complaint with Italian authorities in connection with the Parmalat investigation.

In a statement, the bank, which is based in Charlotte, N.C., said it met with Italian prosecutors Tuesday before filing a complaint "in accordance with Italian law," the paper said.

The bank also said it was cooperating with U.S. and other legal and regulatory authorities.

Bank of America, the nation's No. 3 bank in assets, has done extensive business with Parmalat over the past six years, including making loans and assisting with bond offerings.

Last week, Parmalat nearly defaulted on an euro150 million ($186.5 million) bond.

The ratings agency Standard & Poor's, alleging that Parmalat misled investors and was in default on a Brazilian deal, downgraded its debt to D, its lowest rating.

Parmalat must make more than euro100 million ($124.4 million) in bond payments in January and February.

Prosecutors looking into the Parmalat financial scandal ordered a search of the founder's home Wednesday, as the Italian dairy giant made a formal request for bankruptcy protection.

The Parmalat scandal exploded last week when the company acknowledged a multibillion-dollar hole in its balance sheet. The tangled case has expanded as prosecutors look into whether fraud was committed on a massive scale.

Some have dubbed the case Europe's Enron and a feared collapse could have widespread effects. Parmalat, long a model of northern Italian industrial success, employs 36,000 people in 29 countries.

The scandal exploded Friday when Parmalat revealed that the Bank of America Corp. was not in fact holding about $4.9 billion US of its funds, as the Italian company had reported in September. The bank says the letter guaranteeing the funds was fake.

Prosecutors have placed under investigation company founder Calisto Tanzi and 20 other officials, including former finance directors, for possible fraud and other charges concerning the suspected falsification of company documents.

Investigators now believe the total hole in Parmalat's balance sheet may be almost $8.5 billion US after the discovery of $3.6 billion in bonds Parmalat said it had bought back but had not, ANSA said.

Authorities have been questioning former Parmalat chief financial officer Fausto Tonna. Business daily Il Sole-24 Ore said Tonna disclosed to prosecutors that there had been systematic falsifying of accounts at Parmalat for 15 years and that he'd been taking orders from his superiors.

The Italian government intervened in the case Tuesday with a decree that set up a new bankruptcy protection plan aimed at rescuing the company. Parmalat said Wednesday it had applied for protection under this plan.

The government's rescue plan would involve the appointment of a special commissioner to draw up a restructuring plan, which must then be approved by the Industry Ministry. The government said it will choose Enrico Bondi, recently appointed Parmalat CEO after Tanzi was ousted, for the commissioner post.

Industry Minister Antonio Marzano has indicated the commissioner should avoid a wholesale selloff, and said Tuesday that Parmalat should remain in Italian hands.

Tanzi founded the company in 1961 and ran it until earlier this month, when he was replaced by Bondi. Shortly thereafter, Parmalat's balance-sheet hole came to light.

Also Wednesday, the ANSA news agency reported that Tanzi and his son Stefano may have travelled to an unidentified overseas location. Parmalat said Wednesday it had no information on Tanzi, noting he was no longer CEO. Tanzi's representatives could not be reached for comment.

The company, which has annual sales of around $9.2 billion, produces and sells milk, yogurt, juice and other food products in Europe and around the world. It is based in the wealthy city of Parma, about 400 kilometres northwest of Rome.

Go contrarian:

Bank of America Corp. on Tuesday said it filed a criminal complaint in connection with an investigation of Italian food maker Parmalat Finanziaria SpA, which has filed for bankruptcy protection.

On Friday, the maker of Archway cookies and Sunnydale Farms milk said Bank of America had denied the authenticity of a document that certified Parmalat had an account worth $4.9 billion with the bank, escalating the food conglomerate's financial crisis.

Parmalat is unable to account for as much as $11 billion in funds, according to a Bloomberg News report.

In a statement, the Charlotte-based bank said it met with Italian prosecutors Tuesday before filing a complaint "in accordance with Italian law." The complaint is not against the company or a specific individual, bank spokeswoman Betsy Weinberger said.

"Because we believe a possible crime may have been committed, under Italian law we have made a request to the appropriate Italian authorities that a criminal proceeding be started against those who may be responsible," she said.

The bank said it was cooperating with U.S., Italian and other legal and regulatory authorities.

Bank of America, the nation's No. 3 bank in assets, has done extensive business with Parmalat over the past six years, including making loans and assisting with bond offerings, according to research firms that track the banking industry.

The bank was part of bond offerings that raised a total of $3.3 billion for Parmalat and its subsidiaries from 1997 to 2002, according to Thomson Financial. It also was the lead lender on a $75 million term loan made in July 2001, according to Loan Pricing Corp.

Standard & Poor's Rating Services this week said Bank of America has "significant" on- and off-balance-sheet exposure to Parmalat, but said any potential losses were manageable in context of its earnings and capital. Bank of America in the first nine months of the year had pretax profits of $12 billion and as of Sept. 30 had $39 billion in tangible common equity, a measure of its common stock and retained earnings that is a cushion against losses.

The troubles could pose a distraction to the bank's management as it prepares for a merger with FleetBoston Financial Corp., but Bank of America "has sufficient financial flexibility to address its exposures without a permanent impairment to its creditworthiness," S&P said in a statement Monday.

The ratings agency, which did not change its positive outlook on Bank of America, said it is impossible to assess the bank's potential losses because of the unreliability of Parmalat's financial information. Weinberger, the bank spokeswoman, declined to comment on the bank's exposure to the Italian company.

Food and agricultural companies may be glad that stock markets are closing early Wednesday for Christmas Eve.

A U.S. mad-cow report is expected to damage shares in meatpackers and restaurant chains like McDonald's when North American markets open for a half-day of trading.Early Wednesday, McDonald's Japan dropped 3.1 per cent despite the fact its restaurants use only Australian beef.

In Italy, meanwhile, dairy giant Parmalat has filed for bankruptcy protection amid an accounting scandal. Observers say that could put Parmalat's large Canadian assets in play, among other holdings.

What had been an uneventful pre-Christmas period for American business was jolted late Tuesday by news that a Holstein in Washington state had tested positive for mad cow.

It's the disease's first suspected appearance in the United States, and although the Bush administration assured Americans their food is "absolutely safe to eat," traders were looking at the impact on agriculture and restaurant companies.

Fear of bovine spongiform encephalopathy has disrupted the beef industry previously in Europe and Canada. A case of mad cow disease in Alberta last May, which officials described as a single isolated incident, had devastating economic consequences.

Canadian and U.S. stock markets will close early, at 1 p.m. ET, and will be closed Thursday for Christmas. The Toronto market remains closed through Boxing day until Monday, but Wall Street will open for a half-day on Friday.

Early Wednesday, Wall Street futures were flat to negative while European indexes edged higher.

Asian markets closed mostly higher amid thin trading across Asia ahead of the Christmas holiday, but restaurant shares in Tokyo fell because of growing fears of mad cow.

Japan's Nikkei Stock Average of 225 issues shed 1.24 points to 10,371.27.

Hong Kong's share market edged up slightly in a lacklustre half-day Christmas Eve session as investors continued to snap up newly listed mainland companies. The blue-chip Hang Seng Index climbed 36.19 points, or 0.3 per cent, to 12,456.7.

After the markets closed Tuesday:

- Manulife Financial Corp. said it has received a subpoena from New York State Attorney General Eliot Spitzer as part of his investigation into improper trading practices in the U.S. mutual fund industry.

- Atlas Cold Storage Income Trust indefinitely suspended distributions and announced it will not pay debenture interest due Dec. 31. The trust said its failure to service $15.2 million in 12 per cent convertible debentures "does not constitute an event of default" and interest will continue to accumulate.

- KPMG resigned as auditor of Hollinger Inc. as a result of ongoing problems engulfing the Conrad Black-controlled holding company and its Chicago-based subsidiary Hollinger International.

On Tuesday, the Canadian dollar continued to pile on gains as new data showed growth in the Canadian economy. Stock markets were little changed in light trading.

The Toronto market got a lift from Research In Motion as shares in the maker of the BlackBerry e-mail device rocketed up 50 per cent after a positive earnings report.

The Canadian dollar closed up 0.42 of a cent at 75.61 cents US - on top of Monday's 0.41-cent advance - as Statistics Canada reported the economy edged up 0.2 per cent in October. Early Wednesday, the loonie moved up to 75.93 cents US.

On the last full day of trading before Christmas, the S&P/TSX composite index edged up 3.00 points to 8,138.43. The junior TSX Venture Exchange was up 4.66 points at 1,666.79.

In New York, the Dow industrial average inched ahead 3.26 points to 10,341.26 - a 19-month high. RIM's earnings report gave a boost to the Nasdaq, which advanced 18.98 points to 1,974.78. The S&P 500 was ahead 3.08 points at 1,096.02.

In its report on gross domestic product, Statistics Canada said continuing strong consumer demand and a hot housing market translated into higher activity in October.

The U.S. government confirmed the American economy put in its best quarterly performance in 20 years. The Commerce Department cited tax cuts and low interest rates, and left its earlier estimate of third-quarter GDP growth unchanged at 8.2 per cent.

Also, American consumers remained active in the current quarter with consumer spending rising by 0.4 per cent in November, the best showing since August

"The bottom line is the market has been creeping higher pretty much every day," said Brian Pears of Victory Capital Management in Cleveland. "It's a continuation of the rally based on optimism for next year.

"People want to be fully invested coming into year's end that it's hard to believe we'll have a major move down for the rest of the year."

Prosecutors looking into the Parmalat financial scandal ordered a search of the founder's home Wednesday, as the Italian dairy giant made a formal request for bankruptcy protection.

The Parmalat scandal exploded last week when the company acknowledged a multibillion-dollar hole in its balance sheet. The tangled case has expanded as prosecutors look into whether fraud was committed on a massive scale.

Some have dubbed the case Europe's Enron and a feared collapse could have widespread effects. Parmalat, long a model of northern Italian industrial success, employs 36,000 people in 29 countries.

The scandal exploded Friday when Parmalat revealed that the Bank of America Corp. was not in fact holding about $4.9 billion US of its funds, as the Italian company had reported in September. The bank says the letter guaranteeing the funds was fake.

Prosecutors have placed under investigation company founder Calisto Tanzi and 20 other officials, including former finance directors, for possible fraud and other charges concerning the suspected falsification of company documents.

Investigators now believe the total hole in Parmalat's balance sheet may be almost $8.5 billion US after the discovery of $3.6 billion in bonds Parmalat said it had bought back but had not, ANSA said.

Authorities have been questioning former Parmalat chief financial officer Fausto Tonna. Business daily Il Sole-24 Ore said Tonna disclosed to prosecutors that there had been systematic falsifying of accounts at Parmalat for 15 years and that he'd been taking orders from his superiors.

The Italian government intervened in the case Tuesday with a decree that set up a new bankruptcy protection plan aimed at rescuing the company. Parmalat said Wednesday it had applied for protection under this plan.

The government's rescue plan would involve the appointment of a special commissioner to draw up a restructuring plan, which must then be approved by the Industry Ministry. The government said it will choose Enrico Bondi, recently appointed Parmalat CEO after Tanzi was ousted, for the commissioner post.

Industry Minister Antonio Marzano has indicated the commissioner should avoid a wholesale selloff, and said Tuesday that Parmalat should remain in Italian hands.

Tanzi founded the company in 1961 and ran it until earlier this month, when he was replaced by Bondi. Shortly thereafter, Parmalat's balance-sheet hole came to light.

Also Wednesday, the ANSA news agency reported that Tanzi and his son Stefano may have travelled to an unidentified overseas location. Parmalat said Wednesday it had no information on Tanzi, noting he was no longer CEO. Tanzi's representatives could not be reached for comment.

The company, which has annual sales of around $9.2 billion, produces and sells milk, yogurt, juice and other food products in Europe and around the world. It is based in the wealthy city of Parma, about 400 kilometres northwest of Rome.

At the end of the day, a fund's job is simply to make money for shareholders.

Top ten money makers so far for the year 2003. Only 6 more trading days left in the year as money managers began to lock in year end profits, driving the markets slightly down in the United States. Expect a wave of selling before year end to lock in cash profits.


1. Vanguard 500 Index VFINX

The biggest fund also made the most money for investors in 2003. Collectively, Vanguard 500 shareholders are $12.7 billion richer than they were when the year began. This fund is big with good reason: It's on track to beat the average large-blend fund in seven of the past eight years.

2. Fidelity Magellan FMAGX

This was an off year for Magellan, but its place as the second-largest stock fund enabled it to land in the second-best slot with a net gain of $10.3 billion.

3. American Funds Growth Fund of America AGTHX

2003 has been an awesome year for this fund, as a tech rally has spurred it to big gains. It made $9.2 billion for investors, and it figures to overtake Magellan's spot as the second biggest stock fund fairly soon.

4. American Funds Washington Mutual AWSHX

This fund, which made $7.8 billion for shareholders, hasn't been as hot as the Growth Fund of America, but that probably means it's set to outgain Growth Fund next year.

5. Fidelity Contrafund FCNTX

Considering that it held up nicely in the bear market, this fund's solid returns look quite good, even if they don't match those of the Growth Fund of America. Manager Will Danoff made $6.8 billion for shareholders.

6. American Funds New Perspective A ANWPX

This fund made a killing on fallen growth stocks such as Tyco TYC, and Time Warner TWX, Thus, shareholders are up $6.1 billion.

7. Fidelity Growth Company FDGRX

This fund's ranking on the list is pretty impressive when you consider it ranks only 14th by assets. Manager Steve Wymer held a healthy tech weighting at the beginning of the year, and he's ridden it to strong gains. He's made $6 billion for investors.

8. Fidelity Low-Priced Stock FLPSX

Manager Joel Tillinghast made $5.9 billion for shareholders.

9. American Funds EuroPacific Growth AEPGX

The only foreign entrant on the list made $5.5 billion for investors. If you wondered why American, Vanguard, and Fidelity were getting the lion's share of inflows this year, wonder no longer.

10. Vanguard Primecap VPMCX

Although this fund ranks 21st by assets, it made $4.5 billion for shareholders thanks to great stock picks, low costs, and a knack for finding cheap growth stocks.

Adding another chapter to the ongoing Wall Street scandals, the giant California Public Employees' Retirement System yesterday filed suit against the New York Stock Exchange and its specialist trading firms, alleging that systematic fraud caused fund members to lose millions of dollars.

The nation's largest public pension fund said the trading specialists, in conjunction with the NYSE, routinely engaged in "wide-ranging manipulative, self-dealing, deceptive and misleading conduct" that hurt investors seeking to trade stocks.

Investors depend on the specialists – seven firms that fulfill orders to buy and sell 2,600 NYSE stocks – to honestly execute their trades. But the specialists also are allowed to trade for themselves, although they are barred from doing so at their clients' expense.

CalPERS alleges that the specialists traded for themselves, skimming profits that let them generate pretax profit margins of 51 percent to 69 percent.

Those hefty profits translated into high costs for NYSE customers, CalPERS said. And the biggest customers – those who trade frequently and in large volume – suffered the biggest losses.

CalPERS is one of Wall Street's largest customers, with a $154 billion portfolio.

The money lost was taken out of the pockets of firefighters, police officers and teachers, said state Treasurer Phil Angelides, a member of the CalPERS board.

"Every dollar that was stolen is a dollar that the taxpayers of California have had to make up," he said.

The CalPERS lawsuit, which did not specify a dollar amount for damages or restitution, detailed three types of improper trades allegedly conducted by the specialist firms, including "freezing" the display of prices on a given stock so a firm could trade for its own account before executing investor orders.

It also claimed "front-running," when a firm uses its knowledge of pending orders to trade ahead of their completion, and "inter-positioning," when a firm fails to match buy and sell orders to get a better price on a stock.

CalPERS President Sean Harrigan said at a news conference that the NYSE had "looked the other way" when trading rules were violated.

"We intend to seek recovery of every single dollar lost," he said.

The firms named in the suit include LaBranche & Co.; Van der Moolen; Spear Leeds & Kellogg, which is owned by Goldman Sachs Group; Fleet Specialist, a division of FleetBoston Financial; Bear Wagner Specialists, partly owned by Bear Stearns & Co.; Susquehanna Specialists and Susquehanna International Group; and Performance Specialist Group.

The NYSE and the Securities and Exchange Commission declined to comment on the filing. LaBranche and Goldman Sachs also had no comment.

A spokesman for Susquehanna said the two companies should not have been named in the lawsuit.

"We believe that there is no factual basis for our inclusion in this lawsuit," said Todd Silverberg, general counsel for Susquehanna International Group.

The other specialist firms could not be reached for comment.

The lawsuit, filed in U.S. District Court in New York, comes three months after CalPERS' protests helped oust former NYSE Chairman Richard Grasso after the disclosure of his $188 million compensation package.

The lawsuit comes at a particularly tricky time for the exchange. Today the SEC is slated to vote on the governance proposals of John Reed, the NYSE's interim chairman.

The NYSE has proposed a series of changes, including a smaller, more independent board of directors. While passage of the reforms is expected, the measures have come under fire for Reed's refusal to ask for the jobs of NYSE chairman and chief executive to be split.

In April, the NYSE launched its own investigation into whether at least two of its specialists may have engaged in trading shares ahead of clients in a possible abuse of the exchange's trading system.

State Controller Steve Westly said the exchange needs a better trading system.

"Our patience has run out," Westly said. "The NYSE must take responsibility for its failure to govern itself."

CalPERS said it would seek to expand its lawsuit into a class-action case involving potentially millions of investors who bought or sold shares in NYSE-listed companies during the past five years.

CalPERS is represented by Milberg Weiss Bershad Hynes & Lerach, the leading U.S. class-action law firm. The firm's most prominent class-action attorney, William Lerach, is based in its San Diego office, which also prepared the CalPERS complaint filed yesterday.

"Wherever you see Bill Lerach involved as lead counsel, you're talking about real money," said Patrick McGurn, special counsel for Institutional Shareholder Services, which advises large institutional investors, including CalPERS, on corporate governance matters.

McGurn noted that many large investors, including mutual-fund giant Fidelity Investments, are dissatisfied with efforts by the NYSE to reform itself.

"California and some other states feel their concerns are not being addressed with this reform effort," McGurn said. "A lot of mainstream investors question the current trading structure at the Big Board."

A San Diego financial-markets expert said the role of Lerach and state regulators has undergone a fundamental shift.

"People are giving up on enforcement by the SEC and taking the law into their own hands," said Frank Partnoy, professor of law at the University of San Diego and author of the recently published "Infectious Greed: How Deceit and Risk Corrupted Financial Markets."

"This means that people like (New York state Attorney General) Eliot Spitzer and Bill Lerach are now the enforcers of securities law."

Partnoy said abuses by NYSE specialists had cost investors billions of dollars and predicted that revelations of more Wall Street scandals will be forthcoming.

Over the past two years, those scandals have included massive accounting fraud at Enron Corp., WorldCom Inc. and other large companies, as well as more recent revelations of illegal insider trading in the mutual-fund industry.

"The financial markets are corrupt and have been out of control for years," Partnoy said. "The problems have been swept under the rug by a weak SEC, no enforcement, no punishment and very little in the way of lawsuits.

"This is the price we pay for looking the other way for a decade."

News of the lawsuit dragged down shares of publicly traded specialist firms. LaBranche shares fell 7.1 percent to close at $9.32, and Van der Moolen's shares closed down 6.7 percent at $8.12.

The CalPERS complaint also noted that the price of a seat on the NYSE has plummeted by as much as 35 percent since revelations of apparent wrongdoing by specialist firms surfaced. The pension fund said the decline was caused by the awareness that profits have been bloated by illegal conduct.

Italy's government paved the way on Tuesday for Parmalat to rush into bankruptcy protection while prosecutors widened a probe into an accounting hole at the food group now estimated at seven billion euros ($8.7 billion).

In a bid to stem one of Europe's biggest ever corporate crises, the cabinet approved a decree setting out new rules for rescuing big firms that will take effect on Wednesday.

``The goal of the decree is not to save the controlling shareholder or managers, but small savers, ... suppliers, the integrity and the Italian nature of the firm,'' Industry Minister Antonio Marzano told reporters.

Parmalat's Chairman and Chief Executive Enrico Bondi, a veteran turnaround expert brought in last week to rescue the group, will be made government-appointed commissioner of the company by Christmas Day, a farmers group said.

Parmalat's board began meeting on Tuesday evening and was widely expected to announce it would file for protection from creditors under the new rules.

Italy's eighth-biggest industrial group had been teetering on the brink of a default on its bonds for weeks before last week's bombshell announcement of accounting irregularities, which raised fears it might collapse.

Parmalat's crisis exploded last Friday week when it said that Bank of America had rejected as false a document purporting to certify that a Cayman Islands unit of the group, Bonlat Financing Corp, held 3.95 billion euros of securities and cash.

HIGH POLITICAL STAKES

That hole is now estimated at about seven billion euros, a judicial source said on Tuesday, confirming media reports that the group's previous management apparently did not buy back 2.9 billion euros of Parmalat's own bonds as stated in its accounts.

Parmalat officials could not be reached for comment.

Newspapers have said the accounting hole could turn out to be as big as 10 billion euros.

Under existing administration procedure, Bondi and his team would have up to two years protection from creditors, who are owed at least six billion euros by the food group.

Details of the new procedure were not immediately available but were expected to be published by Wednesday morning.

Parmalat has 35,000 employees in 30 countries and buys up eight percent of the Italy's milk production.

Underscoring the high political stakes, Prime Minister Silvio Berlusconi said over the weekend the government would save Parmalat's business operations and jobs.

The government on Tuesday also said it would ask the EU Commission for permission to help Italy's dairy industry after farmers said Parmalat owed them 120 million euros for unpaid milk bills.

In Milan, public prosecutors stepped up their investigation into suspected fraud. Bank of America said on Tuesday it had filed a criminal complaint in Italy regarding the Parmalat case.

Prosecutors told Reuters that a scanning machine had been used to forge Bank of America documents that were then sent to auditors who certified the Bonlat unit's accounts.

One of roughly 20 people named in the probe told prosecutors that Bonlat was ``an empty box,'' a judicial source said.

SEVEN-BILLION-EURO HOLE

On Monday, Parmalat's founder Calisto Tanzi and three former finance directors of the company -- known around the world for its long-life milk -- were named in the criminal probe.

Also included were Tanzi's brother and son, former members of the firm's board and outside auditors, judicial sources said.

``As the investigation goes on there will clearly be a slimming down of the list,'' one of the sources said.

The seven billion euro figure would dwarf a one billion-euro accounting scandal at Dutch retailer Ahold.

The crisis has been compared with the collapse of energy giant Enron two years ago, after revelations of complex accounting schemes that hid debt, inflated cash flow and fooled the markets.

Italy's Treasury called a meeting of key ministries for Tuesday evening amid government concern about small investors who lost money in the Parmalat crisis, which follows the collapse of smaller food group Cirio last year.

A minister said regulatory changes would be approved in coming meetings of the government's cabinet.

Parmalat had a market value of 1.8 billion euros before the crisis broke, but its shares are now almost worthless and its bonds are trading at barely 20 percent of face value. Shares in Parmalat were suspended from trade on Tuesday. ($1-.8069 Euro)

How hard will the dollar fall?

Though Federal Reserve Chairman Alan Greenspan said the huge U.S. trade deficit can shrink without crippling the dollar, and U.S. financial markets along with it, analysts warned a dollar plunge can't be ruled out.

In a speech in Washington, Greenspan said the U.S. current account deficit, the broadest measure of U.S. trade with the world, which has widened to about 5 percent of gross domestic product (GDP), can shrink without a sharp dollar correction.

"Should globalization be allowed to proceed and thereby create an ever more flexible international financial system, history suggests that current imbalances will be defused with little disruption," Greenspan said.

The District of Columbia Retirement Board has launched a search for managers to oversee its new 5% allocation to real estate and for firms to advise on but not manage investments in its private equity portfolio. The $2.4 billion retirement fund also is seeking a mid-cap growth manager and is considering adding a small-cap equity manager, though fund officials have not yet determined the amount of either search, nor has a style been selected for the small-cap search. Betty Ann Kane, executive director, said the mid-cap search and consideration of a small-cap search are upshots of an asset allocation study completed late last year that suggested diversification into real estate and the addition of more domestic equity managers in order to boost returns. A decision on whether to search will be made sometime in the first half of next year. She said that 10% of the fund currently is invested in small- and mid-cap stocks.

Regarding private equity, the plan is seeking two or three managers to oversee a 10% allocation, which would include venture capital and LBO fund managers. Kane said the managers would not manage the money. Rather, they would set the asset allocation of the portfolio and search for money managers to handle the assets. The allocation would be funded over an undetermined period, said Kane. The fund previously allocated 5% to the asset class but never fully funded the portfolio. The D.C. plan currently has about $66 million in private equity through 14 partnerships, and will likely hire two or three gatekeepers to invest about $75 million per year over the next few years until it reaches the 10% mark, Kane said.

Regarding real estate, Kane said the fund would seek one or two managers to oversee the portfolio. The fund stopped investing in real estate in 2002 when it sold its final property, but after the asset allocation study the board has voted to get back into the asset class. "It was decided that real estate investments represent a systematic way to produce value," said Kane.

Consultant Rob Ryan at Watson Wyatt Investment Consulting is handling the public equity manager searches, while Jeanne Murphy at Watson Wyatt is handling the private equity and real estate manager searches. Kane said manager inquiries should be directed to the consultants, who will then create a shortlist of candidates. "We want to make the searches as equitable and inclusive as possible," said Kane, adding that the fund could begin interviewing candidates for the mid-cap equity search as early as next month. "We have a lockout policy," she said. "Once our consultant has produced a shortlist of managers, our trustees and staff members are not to have contact with any manager on that list except at our public meetings."

Credit Agricole Asset Management 's (CAAM) Paris-based deputy ceo, Paul-Henri de la Porte du Theil , has been named head of the sales & marketing team at the entity to be formed in a merger with Credit Lyonnais Asset Management (CLAM). His appointment follows that of Pascal Voisin , executive v.p. at CAAM in Paris, who was recently named head of asset management. These two senior appointments suggest the merged entity will be dominated by CAAM officials.

Jean-Luc Bianchi , CLAM's head of sales & marketing, has left the firm because Porte du Theil bagged the head position. Bianchi could not be reached by press time but Catherine Lowinger , CLAM's spokeswoman, confirmed his reason for leaving and added that several other CLAM employees have also recently left the firm.

Porte du Theil referred calls to Martin Forrest , spokesman at M:Communications in London, who declined comment on the moves. Voisin was not available for comment. Voisin and Porte du Theil are both members of the seven-strong executive committee, headed by Thierry Coste , ceo at CAAM in Paris, which is overseeing the merger. The committee includes one other CAAM representative and three more CLAM professionals. It will decide by next year how operations should be run between the two managers and whether they should keep their separate brands or create a new one.

The mutual fund scandal may have rocked the industry and regulators and may have preoccupied the media and politicians, but it didn't have much effect on investors, according to an IBD/TIPP poll.

Asked if the scandal had caused them to change their fund investment plans, 75% of the respondents said no. 12% said they had plans to move out of funds into other types of investments. Only 5% said they planned to move from one fund to another because of the scandal.


"As might be expected, the recent scandals that shook the industry have created some doubts among individual investors. However, this sentiment is by no means widespread," said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence.


The scandals erupted in September when New York Attorney General Eliot Spitzer announced the settlement of a civil suit against a state hedge fund. The fund made money by trading mutual funds after the 4 p.m. deadline and was given the closing price, which is illegal.


The fund also engaged in a practice of murky legality in which it exploited short-term price inefficiencies. Known as market timing, the profits come from shareholders' pockets.


Since then, a number of big fund companies have been caught allowing the practice for favored customers. In a few cases, fund firm executives and managers have been using it to profit from their own funds.

The Securities and Exchange Commission (news - web sites) is enacting new regulations to bar the practices.

The TIPP poll, taken in December, showed 49% of respondents said the scandals posed a minor threat. 23% said it posed a serious threat.

"The majority of investors do not plan on changing their fund portfolios due to the scandals," Mayur said. "This is likely in part because today's investors, having endured a particularly volatile market over the past few years, are acutely aware of the inherent risk involved with any type of investment vehicle."

Most respondents didn't seem to be following the scandals or the regulatory fallout all that closely. Asked if the proposed changes in regulations would be enough to stop abuses, 44% said they were not familiar enough with the proposals to say. 34% said the regulations would not be enough, and 18% thought they would be sufficient.

Asked if they were worried the proposed regulations would mean increased fees on their holdings, 76% said they were not concerned or not familiar enough to say.

"There were strong indications that the average investor is not all that familiar with the details of the scandals," Mayur said.

Mercer, founded in 1972, is one of the largest investment consulting firms in the country, as it has $1.7 trillion in assets under advisory--about one-third of which is from clients in the U.S., said Braming. The firm also has 43 offices worldwide and handles over 350 U.S. clients. Braming herself handles 11 institutional clients that include corporate pension funds, hospitals and public defined benefit plans. Among her clients are fund for the Illinois Municipal Retirement Fund , Indiana Public Employees Retirement Fund , the Public School Teachers' Pension and Retirement Fund of Chicago , Anthem Blue Cross/Blue Shield , OhioHealth and Provena Health .

The appearance of a conflict-of-interest is dangerous, which is why Mercer Investment Consulting , one of the country's largest investment consultants, takes careful steps to make sure that its sister firm, Putnam Investments , does not get any special treatment--especially as of late. Stephanie Braming , a consultant in Mercer's Chicago office, said that although both firms share the same parent, Marsh & McLennan Companies , Putnam is treated like any other manager. Avoiding the appearance of a conflict-of-interest is especially important now, as Putnam has been hemorrhaging clients and assets ever since state and Federal regulators accused the firm of improper mutual fund trading activities at the end of October. "A number of our clients are in the process of replacing Putnam," said Braming, adding that Mercer consultants always disclose to clients that it and Putnam share a parent, and that Putnam is reviewed as thoroughly and impartially by the firm as every other money manager. "As it happens, none of my clients have had assets with Putnam for at least the past 12 months."

Overall, Mercer consultants have been providing clients with advice on how the various mutual fund trading scandals could affect their separate accounts. "We are dealing with the situation on a client-by-client basis," Braming said. "In our opinion, where there is a significant issue, we have recommended a search."



On Manager Searches

In order for a manager to be considered in a Mercer search, it generally must be in the firm's proprietary Global Investment Management Database, which managers can register for by visiting (www.mercergimd.com). Braming said that once a manager registers, it must pass several quantitative and qualitative screenings, as well as on-site visits from Mercer's research team. The team then will come up with a "strategy rating" for the manager, which then has to be approved by the firm's research review committee. The decision to include a manager in a search is "generally focused on firms that are highly rated by our research group," said Braming, adding that there are some exceptions to the process. "The discussion may also include other firms that have responded to that particular RFP or are familiar to the client," she said.

Some of the factors that are considered most important by Mercer include "organizational stability and incentives, team experience and cohesiveness, a clearly defined process applied consistently over time, and repeatable and consistent results versus peers and indices."

Two more public funds have either terminated or are close to terminating Putnam Investments due to underperformance. The Iowa Public Employees Retirement System has already terminated Putnam from a $585 million European equity mandate and is searching for a replacement, while the $2.9 billion Detroit Police & Fire Retirement System will consider terminating Putnam from a $170 million core EAFE account at its board meeting next month.

Jeff Beisner, senior investment officer at the $15.8 billion Iowa plan, said fund officials hope to complete the search in the second quarter. "We'll be making recommendations to the investment board March 26," said Beisner. "But in the meantime, Schroder Investment Management, one of our existing managers, has been contracted to manage the assets on a temporary basis until a permanent replacement manager is hired." He would not say if Schroder had a chance to win the mandate. He added that Putnam had been on the fund's watch list since Oct. 1. The seven-year track record of the candidates must be better than the MSCI Europe Index, he said. RFPs are due Jan. 5. Consultant Eileen Neill at advisor Wilshire Associates is assisting with the search.

Waltor Stampor, Detroit Police & Fire's executive director, said fund officials are awaiting a recommendation from the fund's consultant, Adrian Anderson at Gray & Co., on whether to terminate Putnam, which has been on the fund's watch list for several quarters for underperformance. Anderson should make his recommendation next month, he said. Anderson did not return calls.

Putnam's core international strategy returned 6.07% in the third quarter, and -6.8% over seven-years ending Sept. 30, according to data gathered by Effron-PSN and available at iisearches. The MSCI EAFE Index returned 7.57% during the third quarter and -1.1% over seven years. The performance figures for Putnam's European equity benchmark could not be ascertained. Laura McNamara, a Putnam spokeswoman, said in a written statement that the firm is in the process of developing stricter compliance standards that should appease existing clients. "We believe those standards will come to be recognized by investors," she said.

Duncan McFarland, a 35-year employee and current chairman and ceo of Wellington Management Co., will step down June 30 and be replaced by Perry Traquina, the firm's president, according to a Dec. 5 letter sent by the firm to clients and consultants. In 1994 he was elected ceo and in 2001 was elected chairman. The letter also states that the long-term plan was to have Traquina, who served as director of global industry research before becoming president in Nov. 2001, succeed McFarland as ceo. "[Traquina and McFarland] have been working together to ensure a seamless transition, and we are confident that the completion of this process will be smooth and successful," said the letter. Calls to both McFarland and Traquina were referred to Lisa Finkel, a Wellington spokeswoman, who declined to comment.

The City of Edinburgh Council has put several mandates out to tender because incumbent managers' five-year contracts have expired. The outgoing managers are Putnam Investments and Oppenheimer Capital for active U.S. equity and Baillie Gifford for Asia Pacific equity and for a balanced equity and bond mandate, said Douglas McGougan, director of finance. The outgoing incumbents could not be reached by press time.

Up for grabs are a GBP145 million U.S. equity mandate and a GBP80 million Asia Pacific equity brief for the Lothian Pension Fund, with assets in excess of GBP1.5 billion, and a GBP110 million balanced mandate for the Lothian Bus Balanced Fund. The tender document states that the council will start to search for managers on Jan. 15 and McGougan expects new managers to be hired by June.

The three incumbents' contracts have expired, McGougan said, adding that "there are other issues with Putnam that we might be reviewing anyway."

Incumbents will be able to apply for the mandates because under European Union procurement rules, tenders must be open. When selecting new managers, the council will consider performance, the stability of the fund management firms, the investment process and fees, he continued. The council will not use a consultant to advise on manager hires.

The bus fund will make a first foray of 8-10% of assets into real estate with Standard Life Investments, which already manages property for the larger Lothian fund. The remaining 90% will be put out to tender as a balanced equity and bond brief.

The larger Lothian fund's other managers are the Bank of Ireland Asset Management, Deutsche Asset Management, Edinburgh Fund Managers, Henderson Global Investors, INVESCO Asset Management, Lloyd George Management, UBS Global Asset Management and BlackRock International.

Appointment of Bank of China (Hong Kong) as the RMB Clearing Bank in Hong Kong by the People's Bank of China


Bank of China (Hong Kong) Limited ("BOCHK") welcomed the announcement today by the People's Bank of China ("PBOC") regarding the appointment of BOCHK as the Renminbi ("RMB") Clearing Bank for banks in Hong Kong to conduct personal RMB business.

Mr He Guangbei, Vice Chairman and Chief Executive of BOCHK, said, "We are honoured to be appointed by the PBOC. BOCHK has long been dedicated to enhancing Hong Kong's economic and financial stability and prosperity. We are committed to complying with the regulations and requirements of the PBOC as stipulated in the Authorization Agreement to provide a fair, timely, accurate and professional RMB clearing service for the Hong Kong banks to operate personal RMB business. BOCHK undertakes to ensure the efficient operation of RMB clearing system and a smooth launch of the RMB business in Hong Kong."

As the Clearing Bank, BOCHK will offer a unified clearing service to the local licensed banks (" participating banks") in relation to personal RMB deposit, exchange, RMB bank cards and remittance business. BOCHK will open RMB clearing accounts for the participating banks and settle their clearing payments. BOCHK will work closely with PBOC and the Hong Kong Monetary Authority to discuss and confirm the various details and schedule of implementing RMB clearing service.

"The local banking sector will soon be able to launch personal RMB businesses to better meet the needs of the ever closer economic and commercial relationship between Hong Kong and the Mainland of China. This indeed marks a milestone in the cooperation between Hong Kong and the Mainland in the financial aspect. A new horizon of development is also opened up for the local banking sector, which will further strengthen Hong Kong's edge and status as an international financial centre," added Mr He.

BOCHK, a listed commercial bank with a solid base and a good reputation, enjoys various unique edges. These include a good track record of operating RMB business, undertaking of the role of foreign currency notes delivery between Hong Kong and the Mainland of China for years, experience in being an agent bank in handling cross-border clearing, possession of the relevant advanced system coupled with strong contingency backup capabilities, extensive connection in the Mainland of China, a broad branch network in Hong Kong and the familiarity with the financial policies and regulations of both places. All these help lay down a solid foundation for BOCHK to act as RMB Clearing Bank and to provide quality RMB service in the near future.

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Short-sellers buzzed through Research In Motion's message boards Tuesday, some burned by the nosebleed surge in share price and others drooling at the chance to capitalize on the potential pullback.

Shares of the BlackBerry handheld device maker (RIMM) added more than half their value after the company said it swung to profit, crushed Wall Street targets and upped its forecast for the next two quarters.

The frenetic session was painful for whipsawed short-sellers who were already holding a position, but it presented a frothy mound of possibility for those scouring the market for bloated stocks.

Yahoo's EJN1099 chanted the mantra: "Repeat after me: Irrational Exuberance!"

TrailerTrashTrader agreed: "Blackberry's are like Santa Clause ... Everyone wants to believe but neither exist."

Then there were those like MiniMaestro2003 who got caught on the wrong side of the rally: "I wrote a message in my log today (the one with really important lessons). Don't fight the insane. They are too strong. What I witnessed today was insanity -- not investing. I had to take a loss but the show was worth it.

"I am sure this will keep going up as eager shorts continue to impale themselves as they chase to cover."

Speaking of impaling themselves, DoctorDuufus wasn't exactly singing "Jingle Bells": "Why did I short RIMM before earnings? When will this financial nightmare end for me? Someone wake me up and tell me this is all a bad dream ... please!"

Awhile later, he was still feeling the burn with this follow-up: "Right now, I feel like I am being barbequed alive just like a pig on a spit!"

Of course, plenty of investors like QRD gloated over the prospects: "I shorted some shares around $60 earlier today, but shorted the majority position in the high $60's. What a dream of a short at these bubble valuations."

MyTek was every bit as confident: "I have never, and I mean never shorted before but this is a no-brainer. I have seen crazy runs like this occur in both directions and there will be a correction, either tomorrow or Friday ... how much who knows?"

ForceToZero went so far as to call RIMM the "Short of the Year" in his post: "How long can turkeys investors believe RIMM's BS about the future outlook? Haven't we heard the same BS before?"

So, are Research-In-Motion shares screaming to be shorted or would you let this surge run its course for a bit? Share your thoughts in CBS MarketWatch's "RIMM" discussion.

Shawn Langlois is a reporter for CBS.MarketWatch.com, and the editor of its community message boards.

Naked shorting and non-delivery of shares" is intrinsically unjust and those found guilty of having done it should be meaningfully punished and required to repurchase the counterfeit stock on the open market, just as they sold it.

Honest and lawful people are suffering significant financial losses at the hands of stock trading scam artists. These white-collar crooks have fraudulently increased hundreds of companies' float, collapsed their share price, and unless reversed will ultimately lead to bankruptcy. These crooks line their own pockets with the ill-gotten monies estimated to-date to be in the trillions of dollars.

The practice of "naked" shorting is nothing less than the fraudulent sale of unregistered unauthorized virtual securities to unwitting purchasers by industry agents. It's outrageous that this conspiracy between certain brokers and representatives of the DTC has gone on for years with regulatory bodies reportedly knowing about it but doing little to stop it.

"Naked shorting and non-delivery of shares" is outright theft of an investment in the country's future. Please stop it now.

Sincerely,

Katalin de Korompay


http://edgar.sec.gov/rules/proposed/s72303/kkorompay121903.htm

Naked short selling used to be rampant on the old V.S.E. many years ago, and Fail To Deliver Slips were normally accepted.

All of this has since been cleaned up and we probably have a far superior system in Canada at this time .. WITHOUT MARKET MAKERS. Each company is responsible to maintain an orderly market in its own stock.

As a deterrent to pump and dumps the exchanges monitor the promoters and the quality of professional work done in the field .. referring specifically to our penny mineral exploration stocks. Our new rules require the hiring of mandatory independent qualified professionals to supervise the work and this gives the public speculator ample protection. It has become a very good system now. The markets are much freer and less manipulated than ever before. And in my opinion naked short selling is illegal in Canada. The onus is on our brokers to police this. The ' know your client rule ' is well adhered to.

In contrast your Market Maker System allows unscrupulous brokers to short sell for themselves or indirectly for favored clients without limitation in the name of ' market making '. This not only keeps a lid on fast rising prices that may be warranted but serves to drive them down disasterously as well ( because bids can be hit on a falling market ) -- thereby hurting the public speculator and helping to destroy the company itself. If I was a Market Maker I could sell unlimited shares that I did not own, nor have to deliver, I would become very wealthy. In this business buyers are much harder to find than sellers. The selling part into a good demand is always easy. When the demand stops .. down go prices ( especially if I can help them go down ). When my victims go to 2 cents, I can then go on the buy side if I wish. Pretty good game I would say .. for the brokers !!!!

Respectfully submitted,
Emilia Alexsandru

http://edgar.sec.gov/rules/proposed/s72303/ealexsandru122203.htm