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Wednesday, July 11, 2018 9:01:26 PM
So I've been doing some research into this alleged SEC investigation and the Probes Reporter who has unearthed this investigation. I have developed an opinion as to what's going on based on what I was able to find today.
First, according to www.probesreporter.com, the probes reporter is basically a hired gun. For $1200/yr, you can become a client of this service, then ask them for a report of any open, ongoing SEC investigations regarding your particular company of interest (BTW - for a cool $20,000/yr you can get the deluxe Probes treatment). Apparently, once you've paid for your subscription, Mr. probes reporter then files FOIA requests with the SEC regarding any open investigation of the target company. According to the SEC.gov website, Probes Reporter has filed ~500 FOIA requests since October, 2017. Here's an example of one he filed regarding Bojangles, Inc. in December 2017 (lol)
[url][/url][tag]https://www.sec.gov/files/18-00851-T.pdf[/tag]
Second, according to the SEC.gov website, the SEC enforcement division:
Quote:
obtains evidence of possible violations of the securities laws from many sources, including market surveillance activities, investor tips and complaints, other Divisions and Offices of the SEC, the self-regulatory organizations and other securities industry sources, and media reports
.
An SEC investigation can be initiated due to:
Quote:
Common violations that may lead to SEC investigations include:
Misrepresentation or omission of important information about securities
Manipulating the market prices of securities
Stealing customers' funds or securities
Violating broker-dealers' responsibility to treat customers fairly
Insider trading (violating a trust relationship by trading on material, non-public information about a security)
Selling unregistered securities.
Now just because there is an ongoing investigation doesn't mean that Zion has actually done anything wrong. At this point, if there is an investigation, depending on the timing, Zion may not yet have even be aware there is an investigation ongoing as:
Quote:
All SEC investigations are conducted privately. Facts are developed to the fullest extent possible through informal inquiry, interviewing witnesses, examining brokerage records, reviewing trading data, and other methods. With a formal order of investigation, the Division's staff may compel witnesses by subpoena to testify and produce books, records, and other relevant documents. Following an investigation, SEC staff present their findings to the Commission for its review. The Commission can authorize the staff to file a case in federal court or bring an administrative action. In many cases, the Commission and the party charged decide to settle a matter without trial.
It is probable, especially given Mr. Probes voluminous FOIA requests of the SEC (and he's not the only one), the SEC may have opened a case, but has not yet even started an informal inquiry, much less a issued any subpoenas.
So, my hypothesis is that, some time ago, someone, quite probably a short, but could also be a former disgruntled employee, an anti-semite, or some other disgruntled party, called the SEC Enforcement division with a complaint or a tip against Zion regarding one of the common violations above. They then hired Mr. Probes Reporter's service, which then triggers an FOIA request. Once Mr. Probes Reporter get's his vague response from the SEC, he then uses it to declare that the company is under investigation, and by subtle suggestion either corrupt or a fraud, resulting in Zion's corresponding price drop. Mr. Probes and his clients walk away with a tidy sum from their short.
What I would like to know is if Mr. Probes Reporter (and his clients, who for that cool $20k can get "private meetings & conference calls" with Mr. Probes himself) shorts a stock once he (and his clients) receives the affirmative response from the SEC of an investigation, prior to accusing a company of being under investigation on social media. Would this activity be illegal?
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