$tacks Upon $tacks Of Moolah

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Posted by: sprintcar
In reply to: None Date:9/25/2003 4:08:38 PM
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SEC Reported Ready to Crack Down on Naked Shorters /
September 25, 2003. (FinancialWire) The Securities and Exchange Commission will consider changes to short-selling rules this fall, looking to ease restrictions on short-sales of big companies while tightening them for small firms, reports the Dow Jones (NYSE: DJ) newswires.

"It's expected that the commission will consider short selling reforms in the next few months," SEC market regulation division director Annette Nazareth said in a telephone interview with Judith Burns, a reporter for Dow Jones.

If approved, said Burns, the SEC would lift restrictions on short-sales of the largest U.S. corporations on a trial basis while imposing more controls on short sales of stocks traded in the over-the-counter Bulletin Board. Burns said the SEC has received more than 2,700 letters on the subject, many of them from small companies that say they have been victimized by manipulative short selling.

Burns states that short-selling, which involves selling shares of borrowed stock, isn't illegal, but has been subject to SEC oversight since the 1930s. However, naked short selling, in which no settlements occur, is illegal.

Burns said SEC rules now allow short sales of exchange-listed stocks only when the stock price is rising. This "tick test" has come under scrutiny since U.S. markets began pricing stocks in decimals, rather than fractions. Critics of the short-sale rule say decimal trading has resulted in fast-moving price swings that make it hard to tell whether the last price was an uptick or downtick. However, none of these rules apply to the over-the-counter bulletin board marketplace, which was the subject of several resolutions advanced this past week at the annual SEC Small Business Forum by the CEO Council.

"A tick test makes very little sense" in today's world, Burns quoted Howard Kramer, a former SEC associate director, now a partner with the Washington law firm of Schiff, Hardin & Waite.
Burns said the SEC staff is expected to propose scrapping the tick test and replacing it with a bid test already in use in the Nasdaq Stock Market. That would allow short-selling if the last bid - an offer to buy a stock - is higher than the previous bid. Advocates say that would make the short-sale rule easier to apply and give short-sellers more flexibility.
In a more dramatic move,Burns said the SEC will consider an experiment that eliminates the bid and tick tests for short sales of the most actively traded stocks. After a trial period, the agency would decide whether such restrictions should be removed permanently for certain large-cap stocks.

However, Burns did not say whether the “most actively traded stocks” applies only to the large caps, since many OTCBB and pink sheet stocks trade more actively than those on the big boards.

She did sy that “new restrictions on short sales of smaller companies are also being contemplated in an attempt to curb ‘naked’ short sales,” the subject of a series in FinancialWire for the past ten months.
“Short sellers profit when stock prices decline because they can replace borrowed securities at a lower price. A naked short sale occurs when the short seller doesn't intend to borrow and deliver stock to settle the trade,” said Burns. She quoted Kramer as saying the practice "is a problem and should be regulated."

To combat such abuses, the SEC will look to increase borrowing requirements for some short sales and call for stronger enforcement, including late charges or other financial penalties for short sellers who fail to cover short positions by the settlement date, said the Dow Jones. "It will address problems that we have seen with naked short selling," said Nazareth, in what appears to be the first admission by an SEC regulator that naked short selling is occurring.
“Such changes would be welcome news for small companies who say the SEC hasn't done enough to combat manipulative short sales,” said Burns, in what may be an understatement.
Burns noted Wednesday’s story in FinancialWire regarding Universal Express Inc. (OTCBB: USXP), which operates private postal stores and offers luggage-delivery services, is so fed up it is urging shareholders to complain to Congress about short-selling abuses.

"We're going to declare war on the naked short sellers," Universal Express President and Chief Executive Richard Altomare told Dow Jones Newswires a day after he was quoted in FinancialWire on the same subject. “He said he isn't opposed to legitimate short sales, but believes naked short selling is a national scandal that is costing investors millions of dollars in annual losses,” said Burns.
“Altomare has seen the problem up close, as Universal Express stock skidded from more than $2 to just pennies a share in 1998. Altomare said the company was attacked by manipulators who used naked short sales to drive the stock into the ground.
“New York-based Universal Express fought back and won $526 million in judgments in two jury trials in Florida, including $275 million in punitive damages. It has yet to collect the funds,” concluded Burns.

There are 117 public companies that have so far been touched by the growing national financial scandal.
Some thirteen on the list of 117, such as A.G. Edwards, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ: AMTD), Deutsche Bank AG (NYSE: DB), E*Trade Group, Inc. (NYSE: ET), FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (NYSE: GS), Knight Securities, LP (NASDAQ: NITE), Ladenburg Thalmann & Co., Inc. (AMEX: LHS), M. H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto-Dominion’s (NYSE: TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN), have been accused by one or more public companies as allegedly participating in short selling activities or abuses, or of failing to settle trades.
Observers have said that trades to not settle because broker-dealers do not effect buy-ins, as required by law, and that there is an unspoken understanding that any brokerage that tries to force a buy-in will be retaliated against.
The remaining 104 companies have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.
On June 4, the SEC stated “the issues surrounding naked short selling are not germane to the manner in which DTC operates as a depository registered as a clearing agency. Decisions to engage in such transactions are made by parties other than DTC. DTC does not allow its participants to establish short positions resulting from their failure to deliver securities at settlement. While the Commission appreciates commenters' concerns about manipulative activity, those concerns must be addressed by other means.”
Nevertheless, short positions do in fact exist due to failures of the electronic settlement system to balance their electronic books, and the SEC has provided shareholders and small companies with no inkling of what the Commission has in mind in “addressing” these concerns “by other means.”
Recently the NASD revealed its plan to stop the practices that have ravaged these public companies and their shareholders – a wrist-slap to perpetrators such as Paragon Capital Markets, which was “censured” and fined $35,000 after the NASD said it had “executed short-sale orders in certain securities and failed to make an affirmative determination prior to executing such transactions.”
The complete list of those 104 companies include Advanced Viral Research Corp. (OTCBB: ADVR), AdZone Research, Inc. (OTCBB: ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (OTCBB: AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (OTC: ATSC), Federal Agricultural Mortgage / Farmer Mac (NYSE: AGM) Allied Capital (NYSE: ALD), American Motorcycle (OTC: AMCYV), American International Industries (OTCBB: AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), Bluebook International (OTCBB: BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (OTCBB: BIFT), Biocurex (OTCBB: BOCX). Broadleaf Capital Partners, Inc. (OTCBB: BDLF), Chattem, Inc. (NASDAQ: CHTT), Critical Home Care (OTCBB: CCLH), Composite Holdings (OTC: COHIA), CyberDigital, Inc. (OTCBB: CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (NASDAQ: DCEL), Eagle Tech Communications (OTC: EATC), Edgetech Services (OTCBB: EDGH);
Also, Endovasc Ltd. (OTCBB: EVSC), Enviro-Energy Corporation (OTCBB: ENGY), Environmental Products & Technologies (OTC: EPTC), EPIXTAR Corp. (OTCBB: EPXR), eResearchTechnologies, Inc. (NASDAQ: ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (NYSE: FRE), FreeStar Technologies (OTCBB: FSRCE), Geotec Thermal Generators, Inc. (OTCBB: GETC), Genesis Intermedia (OTC: GENI), GeneMax Corp. (OTCBB: GMXX), Global Explorations Inc (OTC: GXXL), Global Path (OTCBB: GBPI), Group Management (OTCBB: GPMT), Hop-On (OTC: HPON), H-Quotient, Inc., (OTCBB: HQNT), Hyperdynamics Corp. (OTCBB: HYPD), International Biochem (OTCBB: IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (OTCBB: IBCS), InternetStudios, Inc. (OTCBB: ISTO), ITIS Holdings (OTCBB: ITHH), Investco Corp. (OTCBB: IVCO), Lair Holdings (OTC: LAIR), Lifeline BioTechnologies Inc. (OTC: LBTT), Life Energy & Technology (OTCBB: LETH), MBIA (NYSE: MBI);
Also, MegaMania Interactive (OTC: MNIA), MetaSource Group, Inc. (OTCBB: MTSR), Midastrade.com (OTC: MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (OTC: MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (OTCBB: NPCT), Nutra Pharmaceutical (OTCBB: NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (OTC: NVGV), Orbit E-Commerce, Inc. (OTCBB: OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (OTC: PYST), Petrogen Corp. (OTCBB: PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (OTCBB: PDVN), PrimeHoldings.com, Inc. (OTC: PRIM), Phlo Corporation (OTCBB: PHLC), Resourcing Solutions (OTC: RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (NASDAQ: SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (OTCBB: SDNA);
Also, Sionix Corp. (OTCBB: SINX), Sonoran Energy (OTCBB: SNRN), Starmax Technologies (OTC: SMXIF), Storage Suites America (OTC: SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (NASDAQ: SPRI), Technology Logistics (OTC: TLOS), Swiss Medica, Inc. (OTCBB: SWME), Ten Stix, Inc. (OTCBB: TNTI), Tidelands Oil (OTCBB: TIDE), Titan Construction (OTC: TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (OTCBB: USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (AMEX: VRA), Viragen International (OTCBB: VGNI), Vista Continental Corporation, (OTCBB: VICC), Viva International (OTCBB: VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (OTCBB: WIZD), WorldTradeShow.com (OTC: WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK).
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