Brokers naked short sold BCIT hugely. They are also liable for the shares they sold, if they did not have certs of that company's stock to sell, nor checked prior to selling if they were on deposit. The brokers are no angels believe me.
The reality is, is that brokers naked short sell penny stocks hugely as they did with BCIT, and have made multiplied millions doing it, and generally never care (as most are bought/sold by daytraders/short-term traders) if there are actual certs on deposit at DTC first. these trades (and their huge profits happen in real time and often for a brief few days when a pennystock is running), and there is no due diligence done by brokers in advance of an all-of-a-sudden buying frenzy on a given penny stock. Brokers naked short. big. especially back in 2005. The flimsy attempts by SEC to curtail it were largely symbolic gestures and rarely enforced. Anyway, the buying and selling frenzy hits for a few days, some people make some big money, some lose, and then that stock is a ghost-town, and nobody asks, "hey, where there actual certs on deposit at DTC for all this action?"
James Femia of dtc may have repeatedly lied to the brokers (when exactly I am not privvy to), but i am 99% sure that the brokers were gladly naked short selling this over and over and over and over raking in huge amounts of money - as all major brokers have done for 20-plus years to the tune of billions (especially in pennystocks/microcaps); and don't give a crap (or have the staff to check) while they're doing it as to whether "everything is in perfect order at the DTC" --- and only became concerned here with BCIT after the SEC suspension and the subsequent legal actions by shareholders. There was some concern when the DTC posted their Aug 16 memo, but still after that, the buying frenzy kept going and brokers were raking it in, thinking that, once again, there would be no day of reckoning, as daytraders arent going to 'ask for paper certs' as they almost never do.
my point is that while Femia acted wrongly and DTC is liable, the brokers were selling this as fast as they could, they were in full naked short selling mode, they are not innocent here at all make no mistake.
in my humble opinion, brokers should bear part of the burden for a settlement.
IMHO
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