Nekid shorting?Waz dat?Short Sellers sue Wall Street for Naked Shorting Collusion – April 12, 2006
David Patch
No the storyline is not wrong.
According to a late report out of the Dow Jones, Electronic Trading Group LLC has filed an anti-trust lawsuit in Federal Court in Manhattan alleging Wall Street giants Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill lynch, Morgan Stanley, and UBS AG individually and collectively colluded to defraud the firms clients.
The lawsuit alleges that the defendants "collusively condone and engage in these practices to their individual and collective enrichment, routinely alternating among themselves in the roles of prime broker who fails to deliver and third-party broker-dealer who permits the (failure to deliver) to persist"
These practices are better known as naked shorting.
So here we have it, the practice of naked shorting, dismissed for decades by members of Congressional Oversight Committees and Regulators alike is suddenly being challenged in Federal court and not by the long shareholders but by the short sellers. The argument by the plaintiffs, our profits were less than they should have been.
"In effect, plaintiff and other members of the class were charged and paid costs and fees, but did not receive the bargained-for value in return," the lawsuit says.
Now the lawsuit never stipulates that the short sales were not profitable, it stipulates that profits or losses were minimized by the fees charged for services not rendered.
Imagine that. Services not rendered. Isn’t that what long shareholders have long complained about? We bought a share and it was never delivered?
For the past decade, investors and issuers alike have voiced their concerns over the abuses of naked shorting. With each round of complaints to Congress and Regulators came the resounding rebuttal that “naked shorting does not exist, it is all in your imagination.” Regulators would actually justify the failed trade that occupied our accounts as “acceptable” and of no financial harm to the investor.
But we wanted what we paid for and when we paid for it. As the SEC, in the proposed rules of Regulation SHO, drafted a section on naked shorting identifying it abusiveness, SEC management like Annette Nazareth dismissed the realities of naked shorting existence.
Crazies, nutcases, people wearing tin-foil hats concerned about aliens. That is the quality and education level of the concerned investor. These people are incapable of a lucid thought and a solid line of reasoning.
Wall Street chimed in as did the financial press. SEC Commissioner Annette Nazareth eventually went public with her bias calling those that voiced concern over failed deliveries as whiners indicating their only complaint was that their investments simply did not appreciate in value.
But now what do we do? Earlier this week CNBC personality Charles Gasparino broke the news that law firm Milberg Weiss was considering a major class action lawsuit against the Wall Street prime brokers on behalf of several Hedge Funds. The allegations being identical to the suit just filed today in Manhattan.
Could more be on the way? How many will eventually be filed? Collusion amongst Wall Street firms in failing to enforce the settlement of securities transactions? Not with the DTCC watching over our markets.
Now that those that invest in hedge funds, the investment pools of the wealthy, are concerned about Wall Street collusion, failed trades, and fees charged for services not rendered you can be sure that Congress and the Regulators will step up to the plate and show concern. Now naked shorting exists because the wealthy investors in the Hedge funds are losing --- profit margin.
But how is the financial press going to now handle this?
We hear routinely by the financial press that Hedge Funds and short sellers are the smartest guys on the street. These short sellers do their research, they are thorough, and they have the inside track. So now how does the financial press cover an issue of securities fraud that they have been conditioned to deny exists. Can the financial press now call the short sellers and the long seller’s crackpots at the same time?
It is now the Hedge Fund and short selling community that is complaining about naked shorting abuses.
We can expect to hear more about this issue as it develops. We should be seeing more lawsuits and more crow on the plates of the financial press as they will now have to explain to the public that naked shorting can be a serious issue to our investments.
We should also begin to see the faces of our Congressmen.
Soon members of Congress will no longer be able to keep their heads buried in their campaign war chests. Congressmen like Rep. Barney Frank (D: MA), Richard Shelby (R: AL) and Sue Kelly (R: NY) who hold critical positions in Financial Market Oversight Committees and have been informed of this issue for years will all start to show signs of concern over our financial markets.
We can expect that we will begin to see their eyes and ears come free from the monies donated by Wall Street as the donations of the wealthy, the Hedge Fund clients, start to pull these Congressmen aside with that wink and a nod and ask for support.
It was only 5 months ago Congressman Barney Frank’s top financial services aide Lawranne Stewart identified that the federal government would not be taking up this issue any time soon. The compassion is not at the federal level and that support would have to come from state regulators, who are more directly in touch with their constituent’s needs. Apparently fraud against people of the states who elect these Congressmen is not actually a Washington politician concern even if it is a federal level act of fraud.
I guess we will see how in touch Washington is to campaign contributions.
Well this bizarre twist of fate has been a long time coming. It will take the energies of those wealthy individuals that profited from the abuses of naked shorting to expose the corruption that for so long has been denied to those who actually experienced the losses. I can’t wait to hear what Commissioner Nazareth has to say about these profitable short sellers who will be beating down her door because of some margin losses.
Of course they will get to that door because of her respect for the affluent of this country.
More will follow – be sure of it.
