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Naked shorting: More story:

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http://www.investigatethesec.com/DP110305.htm

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STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud

SEC’s Donaldson to Senate on Naked Shorting “Shorting Selling is not Illegal” – March 10, 2005

David Patch


For those fighting the uphill battle of abusive naked shorting the March 9th Senate Hearing with Chairman Donaldson was at least amusing to watch.

In a pre-arranged agenda for the Senate Hearing with SEC Commissioner William Donaldson on the Financial Markets, Utah Senator Robert Bennett wanted to talk about naked shorting. Chairman Donaldson did not address the issue in his opening remarks but it was on the agenda none the less. The amusement came when the floor was given to the Senator from Utah and he launched into the naked shorting story.


The Senator started by reading a telling story of the fraud utilizing a Friday March 4, 2005 Financialwire news article about Global Links and their new “owner”. The Friday March 4 article was about a shareholder that had purchased 100% of a Companies security and has filed with the SEC the nature of that ownership. The Stock, with one person on file as having 100% ownership continued to trade heavy volume over the ensuing weeks trading the equivalent of nearly 100 times the outstanding shares. The Senator went on to read the trading volumes raising his voice inflections as he read off “and the next day 37, 044,500 shares traded and then another 22,471,600 the day after”. With each number stated a long look and pause at the Chairman sitting at the table across from the panel.


Senator Bennett: “Thirty three million shares traded in a single day when there are only one Million shares available and there is one investor who has filed a statement with you that he has all of them. That’s clearly something that needs work”


Chairman Donaldson, with the smirk of a cat who just ate the canary responded, "As you yourself note, short selling is not illegal". As if trading thirty three times the entire shares outstanding in a single day is merely simple legal short selling.


Senator Bennett quickly corrected the bewildered Chairman addressing him on the specific issue being addressed, naked shorting. "I approve of short selling; it's the naked short selling we're going after." This as if maybe the Commissioner glossed over the agenda where naked shorting was one of the subject matters. The animations of the Senator and the extended pauses over critical points were clear. While the canary may be gone, the feathers were still in the cat’s mouth.



As the Chairman continued his bewilderment by fumbling verbally for a clear response to the Senator and fumbling physically through a manual that must not have contained much by way of insight on naked shorting the Senator concluded by dismissing the conversation to a later date. The Senator leaving the subject with finality “"My main message here is that the evidence is Rule SHO is not working, so that's what we need to get into in detail."

The amusement here is not that Chairman Donaldson appeared clueless to address this issue but that he actually tried once again to pull the wool over the Senate’s eyes. The Chairman instantly redirected the conversation from the illegal acts of naked shorting to the legal act of shorting through a simply smirk as if to confuse the Senate. No confusion here.


Recall in earlier STOCKGATE TODAY editorials published we had caught the SEC trying to mislead the Senate on inquiries about naked shorting abuses pertaining to Jag Media Holdings. Last September Asst. Director of Market Regulation James Brigagliano responded to Senator Sarbanes inquiries with a trail of intended misdirection’s. With the Senator providing April 2003 brokerage and clearing firm e-mail evidence of settlement failures they could not address the SEC dismissed the memos as issues pertaining to company actions. Mr. Brigagliano claimed that the e-mail evidence of fails occurred due to a corporate action taken by the company and yet, under an SEC filing, that corporate action was exercised in June of 2004 and the e-mails were dated April 2003, nearly 14 months prior to the corporate action. To the best of my knowledge, and that of the constituent that filed the complaint to the Senator, the original issues pertaining to the e-mails and the inability to settle trades in Jag Media were never addressed. The SEC successfully diverted the issue away as if the e-mails never existed.


To the SEC nothing is about naked shorting. Every Investor and Issuer complaint will be thrown back at the injured by placing blame on the issuer and blaming the investor for investing in that security. Never is it Wall Street and naked shorting. That logic would work well except it was also the SEC that admitted naked shorting abuses occur.


We have yet to see any enforcement on naked shorting abuses. We have yet to see any corrective measures to the confirmed abuses the SEC referenced in their October 2003 proposal for Regulation SHO. Funny thing is we have not heard the SEC admit to any abuses within any of the companies that have claimed it to have happened to them. Nobody is abused! Which just begs the question: If naked shorting abuse exists according to the SEC in Regulation SHO Proposal, and none of the hundreds of companies vocalizing concern are being abused by the process according to the SEC, and with hundreds of companies also being listed daily on the SEC’s Regulation SHO threshold list as having high settlement failures, exactly who are the companies the SEC was referring to when they published the Regulation for comment and when they released it nine months later? The SEC has refuted each and every issuer voicing a complaint and instead goes after the company for taking their concerns public like rabid IRS agents.


By now you would have thought the SEC would have learned that public opinion and trust is not on their side. They misdirect too frequently for us to believe in them. Far too often we have seen the deer in the headlights look from Chairman Donaldson as he attempts to placate those who know better with that patented smirk of his.


Senator Bennett said it right – SHO is not working. What are you going to do Chairman Donaldson, continue to protect Wall Street’s fraud or deal with it once and for all? The casual nature of Mr. Donaldson to this issue and the mocking smirk for those abused are reason one why those abused have little confidence in the man or the agency. Presentation alone breeds distrust.


For the record, the SEC had no comment on the Senate Hearing and the obvious lack of preparedness by the Chairman to an agenda item. Maybe the SEC will file to have Global Links de-listed and then those 50 Million shares illegally sold recently can simply ----- Vanish ----- as all the other illegal trades have done with the SEC’s accelerated efforts to de-list companies.

The recorded hearing can be located at

http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=140 Time Spot 1:19:45


For more on this issue please visit the Host site at www.investigatethesec.com .

Copyright 2005

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