Market Makers: Tricks of the Trade

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A list of 119 potential companies that could have been naked shorted:

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December 15, 2003. (FinancialWire) The charges lodged against Andreas and Thomas Badian, of Rhino Advisers, Inc., for alleged manipulative naked short-selling of Sedona Corp. (OTCBB: SDNA), which at the time was listed on the NASDAQ, is having far-reaching implications for the shareholders of at least 60 other public companies, including Avanir Pharmaceuticals (AMEX: AVN), Hollywood Media Corp (NASDAQ: HOLL), and Viragen Inc (AMEX: VRA).

December 15, 2003. (FinancialWire) The charges lodged against Andreas and Thomas Badian, of Rhino Advisers, Inc., for alleged manipulative naked short-selling of Sedona Corp. (OTCBB: SDNA), which at the time was listed on the NASDAQ, is having far-reaching implications for the shareholders of at least 60 other public companies, including Avanir Pharmaceuticals (AMEX: AVN), Hollywood Media Corp (NASDAQ: HOLL), and Viragen Inc (AMEX: VRA). The 60 are among 76 companies, some of them no longer public, who were financed by AMRO International, one of the offshore funds used by the Rhino Advisors, and the same fund that was involved in the financing of Sedona Corp. Taped conversations in the hands of the U.S. Department of Justice indicate that there may have been a pattern to the "unbridled" and "mercilous" naked short selling the Badians demanded of their brokers. Other funds used by Rhino included Celest Trust and Austost, Markham, Roseworth. Rhino's offshore trust agents included Bachofen and Hacki, as well as Ultra Finanz of Zurich for AMRO, Batliner of Lichtenstein for Markham and Roseworth, Trevisa-Treuhand-Anstalt of Lichtenstein for Celeste. There are likely hundreds of these deals. The 60 public companies that were financed just via Bachofen & Haackl, or Amro, include: All American Food Group Inc (OTC: AAFGQ), Amanda Co Inc (OTC: AMNA), Antra Holdings (OTC: RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir Pharmaceuticals (AMEX: AVN), Bionutrics Inc (OTC: BNRX), Brilliant Digital Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE), Butler National Corp (NASDAQ: BUTL), Calypte Biomedical Corp (OTCBB: CYPT), Chemtrak Inc/DE (OTC: CMTR), Clicknsettle Com Inc (OTCBB: CLIK), Corporate Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (OTC: CLWB), Dental Medical Diagnostic Systems Inc (OTC: DMDS), Detour Media Group Inc (OTC: DTRM), Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (OTC: DISS), International Inc (OTC: DYNX), Endovasc Ltd Inc (OTCBB: EVSC), Corp/CA (OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (OTC: FRBW), Greystone Digital Technology Inc (OTC: GSTN), Havana Republic Inc/FL (OTCBB: HVNR), Henley Healthcare Inc (OTC: HENL), Hollywood Media Corp (NASDAQ: HOLL), Ibiz Technology Corp (OTCBB: IBZT), Diagnostic Systems Inc/FL (OTCBB: IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc (OTCBB: RDOC), Also, Interferon Sciences Inc (OTC: IFSC), Interiors Inc (OTC: ITRNA), Laminaire Corp (OTC: THMZ), Medisys Technologies Inc (OTC: SCEP), Milestone Scientific Inc/NJ (AMEX: MS), Nevada Manhattan Group Inc (OTC: NVMH), Innovations Inc (OTCBB: NTGE), Systems Group (OTC: OSYM), Pacific Systems Control Technology Inc (OTCBB: PFSY), Professional Transportation Group Ltd Inc (OTC: TRUC), Rnethealth Inc (OTC: RNTT), Also, Sand Technology Inc (NASDAQ: SNDT), Sedona Corp (OTCBB: SDNA), Silverado Foods Inc (OTC: SVFO), Stockgroup Information Systems (OTCBB: SWEB) Surgilight Inc (OTC: SRGL), Tasty Fries Inc (OTCBB: TFRY), Tech Laboratories Inc (OTCBB: TCHL), Teltran International Group Ltd (OTC: TLTG), Titan Motorcycle Co of America Inc (OTC: TMOTQ), Trans Energy Inc (OTCBB: TSRG), Motorcycle Co (OTC: UMCC), Universal Communication Systems Inc (OTCBB: UCSY), Medical Systems Inc (OTC: UMSI), Vianet Technologies Inc (OTC: VNTK),Viragen Inc (AMEX: VRA), Webcatalyst Inc (OTC: WBCL), Worldwide Wireless Networks Inc (OTCBB: WWWNQ), and ZAP (OTCBB: ZAPZ). Earlier in the year, the U.S. Securities and Exchange Commission fined Rhino Advisors, Inc., $1 million for its representation of Amro International in the financing and manipulation of Sedona Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore haven, but was not named in the SEC settlement. Rhino and Amro specialized in death spiral financing, which has been used by many companies who are either complicit, desperate or ignorant of the impact that convertible debentures with fluctuating conversion terms can have on a company's stock price. Despite a contractual provision otherwise, the SEC said that "Rhino engaged in extensive short selling and prearranged trading on behalf of its client prior to exercising the conversion rights under the debenture. This short selling increased the supply of shares in the market and depressed Sedona's stock price. "As a result of the depressed stock price, Rhino's client received more shares from Sedona when it exercised its conversion rights under the debenture than it otherwise would have received. Following the conversions, Rhino engaged in wash sales and matched orders to cover the short positions and conceal the client's involvement in the scheme." Amro shorted almost 873,000 shares of Sedona in March, 2001, of which more than 785,000 shares were sold short before its first exercise of conversion rights of its debenture. These delivery failures triggered clearing failures at Depository Trust and Clearing Corporation, which in turn prompted the National Association of Securities Dealers to placed a shorting restrictions on Sedona shares on March 22, 2001. Under these restrictions, further short sales would be subject to a mandatory closeout if there was a failure to deliver the securities after 10 days. According to Stockwatch, Rhino then did an "end run" around the U.S. regulator by shorting Sedona in an Amro account Mr. Badian controlled at a helpful Vancouver brokerage, shorting another 350,000 shares of Sedona between March 30, 2001 and mid-April. "The aggressive shorting helped knock Sedona's market price down from $1.43 a share, the average between Jan. 26 and March 1, 2001, to $0.75 by March 23, after three weeks of continued shorting. Four days later, Amro did its first conversion at just under $0.80, based on a VWAP of $0.94. Subsequent conversions the next month were done at prices down to $0.64. The SEC stated that in the five trading days prior to March 27, the conversion day, Badian's trading averaged more than 25 per cent of all Sedona volume," said Stockwatch. "This was not all. Under the skillful hand of Badian, Rhino rigged the market further. The SEC notes that instead of delivering the converted shares directly to U.S. brokerages where the short sales occurred, Rhino did wash sales and matched orders out of the conversion shares account to the short selling accounts." The SEC stated that "this created the appearance that the accounts that had short positions were purchasing shares in the open market and not covering short positions with shares obtained through conversion of the debenture." "On at least 10 occasions during April, 2001, Badian directed transactions involving no change in beneficial ownership of shares of Sedona stock or placed buy orders for shares while simultaneously placing sell orders of substantially the same size and price." According to Stockwatch, the SEC stated that Rhino's trading allowed client Amro to profit from the scheme in at least two ways. "First, the short sales locked in a sale price for the Sedona shares that was higher than the conversion price for the shares ultimately used to cover the open short positions. Second, Rhino's short sales increased the supply of Sedona shares in the market and depressed the price." "As a result of the depressed market price, the client converted the debenture to a greater number of shares of Sedona stock, which were already discounted to the market, and which it then used to cover its previous short sales made at higher prices," a court filing revealed. Naked short-selling has embroiled at least 119 public companies, including 13 brokers such as 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). A.G. Edwards, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ:AMTD), Deutsche Bank AG (NYSE: DB), and E*Trade Group, Inc. (NYSE: ET), which have been accused by one or more public companies as allegedly participating in short selling activities or abuses, or of failing to settle trades. Andreas Badian has been released on $2 billion bail after pleading not guilty to securities fraud, but his younger brother Thomas is thought to have left the country. An arrest warrant has been issued. Rhino and Thomas Badian had already paid $1m in February to settle SEC claims, but the SEC did not charge Andreas Badian or their client, Amro International, based in Switzerland. The Wall Street Journal reports that Andreas Badian told his broker to sell Sedona shares short with "unbridled levels of aggression," and to be "merciless" with it, and later congratulated the broker on a "good job" because the stock price had "collapsed. " This account was supported by tape recordings of telephone calls to the broker. Judith Burns noted in her article in the Wall Street Journal that "Naked short selling occurs when short sellers fail to borrow stock before engaging in short sales. The SEC proposed changes this fall to curb manipulative, naked short sales, but it has yet to act on the measure, to the dismay of companies and investors that claim to have been victimized by the practice." Some observers have predicted that the criminal charges are only the tip of the iceberg, and that before it is over, numerous stock manipulators will be charged. Not content with the current effort by the U.S. Securities and Exchange Commission to enact "Regulation SHO," intended to curb illegal naked short selling which the SEC describes as rampant in the U.S., a group of individual investors are seeking to "investigate the SEC" via petition at www.investigatethesec.com for what it calls years of inaction as investors lost millions, perhaps billions of dollars. In the U.S., the controversy is the subject of Regulation SHO, which is available at the U.S. Securities and Exchange Commission website through January 5. The SEC said that comments should be sent by hard copy or e-mail, but not by both methods. Comments sent by hard copy should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Comments also may be submitted electronically at the following E-mail address: [e-mail]. All comment letters should refer to File No. S7-23-03. Comments submitted by e-mail should include the file number in the subject line. Comment letters received will be available for public inspection and copying in the Commission's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Electronically submitted comment letters will be posted on the Commission's Internet web site (http://www.sec.gov). 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. Some 106 companies among the 119 named to date 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. The complete list of those 106 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), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), 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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