OT: But a GREAT read !!!
By: narvo0
21 Jun 2007, 11:04 AM EDT
Msg. 341483 of 341488
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Stockgate today:
Dave Patch has owned JAGH for over 5 years, fyi.
By: wowtheking
21 Jun 2007, 10:59 AM EDT
Msg. 83064 of 83064
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STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Bear Raids; Goldman Rules - June 21, 2007
David Patch
What happens when Wall Street is backed into a corner with problematic and costly trade positions? This past week some questionable behavior by Goldman Sachs, Citigroup Smith Barney, Penson Financial, and the market members in general have raised doubts over the SEC’s ability to regulate fraud and manipulation out of our capital markets.
Recall that last year the SEC held a roundtable conference where consensus of SEC staff and the hand selected panel of financial economists concluded that the bear raid was non-existent in the regulatory environment of today’s capital market. Each concluded bear raids either can’t happen or don’t happen based on amassing large quantities of data.
How quickly things change; or stay the same depending on your personal outlook.
This past week a Bear Raid has been underway. The Raid has been calculated with the only unknown being why. The raid was orchestrated under the watchful eye of the SEC, who has been holding out on approval of an S-4 registration statement filed in March, and to an outsider has an the appearance of an act to protect the financial liabilities of member firms who have failed to comply with securities law. Laws the SEC has ignored for decades in order to protect such member liabilities.
Consider that last week the SEC Staff unanimously approved amendments to Regulation SHO whereby the Staff approved minimal yet controversial changes to the 2004 SHO rule making. While making some important steps towards change the Commission again delayed change to the meat of the proposed rule amendments. The SEC eliminated the much criticized ‘grandfather clause’ of the 2004 SHO reforms but delayed any responsibility to addressing market making abuses by options and equity market making operations.
So how bad did it get?
In the trading this past week of a pinksheet company that SEC has single-handedly tried to destroy the issue of how bad it gets is only an emotion public investors can answer. The members of Wall Street, and members of the SEC are both willing to deny the investors a right to a fair market as pressure to protect member liabilities surmounts.
The company is Jag Media (JAGH), well known for its fight against market abuses, and the issue is market manipulation.
Consider that during a recent run from $0.70 - $1.59 last week on trade volumes that far exceeded 10-day moving averages Jag Media was poised for a breakout. The market explosion was supported by an upcoming deadline for a proposed reverse merger that would put significant value into the stock as well as a market publication that priced such a market at near $10.00/share potential if the short liabilities publicized were real.
During the run from $0.70 to $1.59 over a 3-day span Goldman Sachs, Citigroup Smith Barney, and other member firms were making a market in the stock and were well represented on the offer during the recent run. But as is law, what is sold in the market must be delivered 3-days thereafter and to a market maker on the wrong side of the trade during a run up, settlement failures can be costly if they are to be closed at prevailing market prices.
That is unless you can manipulate the market down to profitability.
Starting in pre-market Tuesday morning and following through Wednesday, the run created not only stalled but also turned 180 degrees and collapsed. With Monday trading 4 times normal trade volume, and investors watching their investment spike from $1.18 to highs of $1.59 before closing at $1.45, Tuesdays pre-market looked like the crash of 1929. The pre-Market offering of $1.50 X $1.51 was snuffed out on a suspicious 500-share sale at $1.50 that was later cancelled as that single trade immediately resulted in a pre-Market adjustment to $1.45 X $1.46. Five minutes into the trading day the stock was down to $1.34 on light volume. The remaining 6.5 hours and near 1 million shares traded around the mark set within the first 5 minutes as the day closed at $1.36
Wednesday would be no different as the opening trade at the $1.36 was erased quickly again and within the first 5 minutes of Wednesday the stock had fallen to $1.18 on the same light volume. The market makers who were on the wrong side of the bet during the run up were nowhere to be found on the buy side of this raid. By noon Wednesday the stock was down to $0.93 and in barely 9 hours of trading the momentum of the prior three days had not only been destroyed but so did better than $20 Million in investor accounts. (Note the volatility in teh chart below)
By 9:35 Thursday the stock again gapped down at the open, trading down better than 12% at $0.96 on what would be considered light volume.
The raid was on and how far will regulators and members let it go?
Calls started coming in and message boards started lighting up and what was being told are stories Wall Street and regulators can’t let go public. Stories of possible fraud orchestrated to manipulate the pricing of securities.
The first story told was that of a source inside Smith Barney Citigroup who claims that for the first time in better than five years Citigroup was offering Jag Media shares for loan in a short sale. The source claims that as a matter of policy Citigroup Branch Managers will not approve the shorting of microcaps due to the risks involved yet the policy changed suddenly as Jag Media began it’s upward swing.
Goldman Sachs, the premiere firm of Wall Street, went one step above Citigroup according to a different source who clears through Goldman Sachs. This source claims Goldman not only had shares to lend for the short selling of this microcap pink sheet stock but was willing to lend out the shares at no cost to institutional clients. I wonder, can I go to my bank and get an interest free mortgage as well.
Certainly Goldman did not become the top Wall Street earner by giving out freebies to their clients without a return opportunity so retail investors can only wonder what the return might be. A spokesman for Goldman denied that such an offer was made but also denied any wrongdoing in the $2 Million settlement recently reached with the SEC where Goldman was charged with allowing institutional clients to illegally trade through their electronic systems by marking short sales as longs to avoid the short sale locate rules. The spokesman also had no comment on the 2006 NYSE fine against Goldman for failing to properly mark short sales and for failing to properly close out fails as required under regulation SHO. I believe it was all passed off as simple misunderstandings between Goldman and Regulators and between Goldman and their institutional clients.
And today, as the market again gapped down at the open yet a third source came forward and told tale of how Penson Financial was offering more than 2 Million shares of Jag Media to institutional short sellers looking for locates. Two million shares, which is roughly 4.5% of the total issued and outstanding. Where are all these shares coming from? This is a penny stock company trading on teh pink sheets.
Was the 35% collapse and $20 Million drop in market cap precipitated by the sudden infusion of short sales into the marketplace? With no price test restrictions, was the raiding of the bid simply the 2007 version of the bear raids of 1929 orchestrated this time to protect the bona-fide market making liabilities of these same firms who were caught on the wrong side of the market during the recent climb from $0.70 to $1.59?
Since timing is everything, and coincidences are really not coincidences on Wall Street, consider this. The beginning of the bull run was last Thursday and lasted exactly 3-days. By Tuesday, representing T+3 on the Thursday trades the market suddenly collapsed and allowed for the cover of fails created on that first day. With a majority of the bull run volume trading between $1.45 and $1.55 these firms needed to average out the fails such that they could cover with a profit in the end. Today is the third consecutive day of sell off since the Monday to Tuesday reversal and the volumes have been close enough to match what was needed to cover any fails created during the run up.
In a nation where Goldman Sachs rules much of Washington, is there little doubt this raid will be swept under the rug like most others the SEC has witnessed and denied. No Mr. Chairman, bear raids no longer exist in our markets unless of course a raid is needed to cover positions taken on the wrong side of the market.
Annette Nazareth and the Commission staff touted from their pulpit the rationalization of the grandfather clause and the concern over abusive short squeezes despite short squeezes being legal in these markets. Never once did Nazareth or the rest of the Commission staff voice concern over a market where the members control the entire sequence of events and orchestrate a volatile raid that drives investors out of their positions and drives a 35% reduction in a market for no reason. Nazareth simply showed little concern or understanding of the bear raids she excuses as acceptable business practices.
With the SEC is protecting this ‘proprietary trading practice’, the necessary information to prove my argument will require a 4-month delay. In two months a FOIA request will be made into the level of fails in Jag Media during this weeks trading. Some months later the SEC will respond to the request (despite a 30 day requirement). I can predict that the data will show an increase in fails associated with the run up and a miraculous closing of these same fails during the raid that transpired thereafter.
The SEC agreed to close down these abuses but left gaping loopholes large enough to drive a Mack truck through. Market members who will be forced to close out fails under the new laws will be allowed to continue making markets in the stocks they must close creating a conflict of interest with the firm. These members will control the stock offerings to create appearances of a sell off and manipulate the markets into closeout profitability. That and with the illiquid micro-caps, they will simply send out the institutional short sellers to drive the markets down for them.
You heard it here first as always.
Disclosure: I own a position in Jag Media and have for better than 5 years. I would normally not write about an issuer I have a personal stake in but in this case it was the evidence and not the issuer that drove me to this report. It was years ago that a member of the SEC labeled me a stock promoter requesting that I at least identify to my readers what issues I was involved with. My response then and has been policy since has been to stay with the Global issue and thus without naming an issuer there could be no accusations of stock pumping.
