MM's & Short Selling Bashers

[Francois+Goelo]

¶ Deceptives Practices by Brokerages and Message Boards...

http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=15844917

What this law means, among other things, is that any licensed brokerage firm engaged in deceptive or manipulative business practices is in violation of the law. Examples of illegal practices might be:
1. engaging in agreements with unlicensed entities such as chat sites which could be construed to have the intent to manipulate traders for benefit of the brokerage firm and the chat site;

2. either directing or persuading chat sites to offer specific recommendations, or to design their "trader education" or "trader training" around the interests of the brokerage and chat site;

3. a licensed firm such as a brokerage extending any undisclosed compensation or kickbacks to a chat site as a reward for cooperation in generating commissions revenues;

4. Encouraging chat sites to manipulate traders, interfering in any way with a chat site in order to further the practice of scalping a high volume of trades, and dividing the proceeds with that chat site;

5. any artifice, scheme or deceit in any forum - and if sent by US Mail then this would constitute mail fraud, a felony - intentionally designed to mislead clients about the true nature of the ownership and direction of a chat site, for the purposes of cloaking the true intent and interests of a chat site from clients who would otherwise believe recommendations were being made in good faith, free from external bias and interference against their own best interests.

These are but a few of the practices specifically prohibited by this Act. I would restate what was published in the headline story of The New York Times Money&Business Section on October 15, after my extensive interviews with Assistant Business and Financial Editor, Gretchen Morgenson:

Payment for customer orders is common among brokerage firms. But the Securities and Exchange Commission requires such deals to be disclosed to customers, and the National Association of Securities Dealers prohibits the payment of such referral fees to unregistered individuals or entities like chat rooms.

To support his assertion, Mr. Asser points to two e-mail messages from [the chat site] Trading-places to brokerage firms discussing the terms of such deals. One message, written last May to an electronic brokerage firm specializing in futures, says that Trading- places will be paid $6 for each round- trip trade - trades getting in and out of a position - by a client referred by the Web site. The other e-mail message, to another futures broker, confirmed discussions with Trading- places about the Web site receiving $5 per round-trip trade by a Trading- places participant...

One of those firms, CyberCorp, a subsidiary of the Charles Schwab Corporation, said late Friday that it was reviewing its relationship with Trading-places.

Bloomberg reported the following October 16:

Asser claims Rea discussed terms with brokerage firms under which Rea would receive a fee for directing his subscribers to them -- a practice that would be illegal without disclosure to subscribers.

These issues are quite clear: any brokerage who has paid a chat site in compensation for generating or :"churning" stock trades has violated the law. Both the brokerage firm and the chat site would be liable for any and all damages which accrued from this activity, including punitive sanctions. For example, any broker and/or chat site operating a business according to the following process would be in clear and blatant violation, under current Federal Securities Law:

Chat Sites and Instant-execution Broker-dealers, and How the Intent to Defraud Day Traders May Be Carried Out in the Modern Era

1. A day trader joins a chat site, where he/she may be asked to provide privileged information about which broker he/she currently uses;

2. The site recommends one or more brokers, with whom the site has made illegal payment-for-order-flow agreements;

3. The trader becomes a client of the recommended broker;

4. The broker reports to the chat site the account has been opened;

5. The brokerage and/or chat site may "train" the trader in the hopes he/she does not go bankrupt too soon;

6. The site issues countless buy and sell advisories, in an effort to rack up as high a trading volume of its members for commissions as possible;

7. For providing this commission revenue stream, the broker pays the chat site a percentage of all commissions (often as high as 30%).

All perfectly despicable.

All absolutely and completely illegal in the United States.

All continuing to take place right now, today, at many well-known chat sites and brokerage firms - all moral concerns, ethical dilemmas and securities laws bedamned.

It is time for this particularly pernicious form of abuse to be halted, immediately. Many of us are working to this end and will continue to keep you informed of our progress.

Sincerely,

Olivier L. F. Asser