It is useless to contact the movers and shakers within the Wall Street media as it pertains to abusive selling of borrowed shares. The purveyors of this criminal activity already have an active lobby that keeps the SEC from enforcing what is an illegal activity ever since the creation of the Securities and Exchange Act of 1934.
In my view, one must begin at a place where one is. And then one expands. Ultimately, what is needed is a political lobby that allows people to peaceably asseble in order to petiton the government for a redress of a grievance, a right that is guaranteed under Article 1 of the United States Constitution.
I began by writing a snail mail letter to the editor of the local newspaper. This is only the first small step of a journey that I, at present, have no clue where it will lead me.
November 10, 2007
Kathy Nelson, Editor
Concord & Kannapolis Independent Tribune
PO Box 608
Concord NC 28026-0608
Dear Ms. Nelson:
I am writing to you regarding an issue about stock market reform that you may one day include in the business section, or perhaps the editorial pages. Although it is national in scope, I believe it has an affect on anyone in the community who invests in equities as a means to build wealth.
I will be brief. The issue involves the selling of shares that are borrowed from shareholders—often referred to as short selling—and then collecting the proceeds from the sale on the expectation that they will decline in price. The difference between the sale price and the purchase price is a profit. This practice is entirely legal. Economists have determined that such a practice is essential to maintaining equilibrium between the forces of demand and supply in the equities markets.
What has happened, however, as it pertains to short selling, is that some market participants—most likely rogue hedge funds that operate with a minimum of government regulation-- will sell shares of stock without first taking possession of those shares. This is illegal. One could compare it to my borrowing a friend’s car and selling it. In order to return it, I must buy it back. What would be both illegal and highly unethical is for me to sell the car without first having borrowed it. What I have done, in effect, is to create an IOU to the buyer.
The technical term in the stock market for this kind of practice is called fail to deliver. Although some fail to deliver instances may be due to human or mechanical error, the kind of practice that has been thoroughly documented by SEC regulators is illegal—and therefore can be described as criminal. Market participants refer to this practice as naked short selling.
An excellent source for the details of this illegal practice can be accessed at www.Thesanitycheck.com.
In my own small way, I and many thousands of other market participants, working independently and collectively, hope to create a political lobby that will address this issue and seek a redress of a grievance, which is guaranteed under Article 1 of the United States Constitution. We are aware that the small minority of naked short sellers already have a great deal of influence at the Securities and Exchange Commission. It is the laxity on the part of the SEC that allows this practice to continue.
Why is this issue so important? I believe it is because this practice destroys wealth that has been created among many small shareholders, which is then transferred to a small but exclusive group of criminals who are able to influence major brokerage firms while thumbing their noses at government regulations that were enacted since 1934.
In addition, in a period of U.S. economic history where mega companies are transferring jobs and therefore capital investment overseas, it is up the small business section of the U.S. economy to make up for the shortfall. Small companies provide most of the employment in America. We don’t live in a time when a small minority of criminals are getting rich by transferring wealth from the hands of the many into the hands of a few. They are, by default, also destroying the efforts of sincere entrepreneurs who will, I believe, be the source of most of the employment opportunities in the future.
I am not interested in communicating to the Wall Street media. It has ignored this problem for several years. This issue will only garner national attention outside of this tiny arena of editors and reporters.
In closing, I am reminded of a message I read on a Yahoo! Finance message board. “History is filled with instances where the small voices combine in revolt and major changes come about. No action guarantees no response.”
Thank you for your attention in this matter.