CMKM Diamonds Inc. (fka CMKX)

[Ignutz]

April 8, 2005 (FinancialWire)

It has been suggested that the sudden cancellation of General Electric’s (NYSE: GE) “Dateline NBC” expose on naked short selling might make a nice script if Al Pacino and Russell Crowe could be induced to play the leads, as they did in “The Insider,” produced by Disney’s (NYSE: DIS) Touchstone Pictures and distributed by its Buena Vista unit.

Of course, that movie, about Viacom’s (NYSE: VIAb) CBS “60 Minutes” cancellation of a story about Big Tobacco and how the program was killed after its then-parent, Westinghouse, was leaned on by Brown and Williamson, an RJ Reynolds (NYSE: RJR) unit.

Many observers are alleging that General Electric may have been similarly leaned on by those with reputations and money at stake should the public become outraged over counterfeit shares, manipulative trading and illegal naked short sales that have been allowed by regulators in the name of what has now proven to have been a “disorderly market.”

Lawsuits that were believed to have been a part of the “postponed” show have even alleged that the NYSE, Nasdaq and perhaps even the U.S. Securities and Exchange Commission, through transaction fees associated with the Depository Trust and Clearing Corp.’s “Stock Borrow Program,” may have profited along with market makers and a motley crew of underworld characters, an offshore network, and U.S. hedge funds in keeping the practice relatively enforcement-free.

At least one website has sprung up to put pressure on NBC to reschedule the cancelled program. The website, http://www.faulkingtruth.com , has even published email addresses for various NBC officials, including its president, Bob Wright.

NBC is not the only media outlet that has apparently been tampered with.

The Depository Trust and Clearing Corp. has received a letter from Marshal Shichtman, Esq., warning the DTCC not to destroy or tamper with evidence relating to its alleged successful plot to interfere with the media.

On February 7, Investors Business Daily asked MarketWatch, then co-owned by Viacom (NYSE: VIAb) but now owned by Dow Jones (NYSE: DJ) to shut off its FinancialWire feed that it also re-propogated to Yahoo (NASDAQ: YHOO).

An investigation by FinancialWire revealed that the newsfeed was shut down at the request of an official of the DTCC, who had complained to Investors Business Daily that FinancialWire publishes “opinions and not news.” FinancialWire learned that this is contained in emails sent by Investors Business Daily to the Dow Jones publication.

Shichtman demanded that the DTCC “preserve” all communications regarding the media’s disruption, since these are evidence that is “part of an ongoing investigation into the culpable conduct” related to the events.

“Lastly,” concluded Shichtman, “I am shocked and appalled that your organization, one of the cornerstones of an orderly market, that has done such tacit yeoman’s job, could engage in such cheap thuggery as utilizing strong-arm tactics more suitable to organized crime than an SRO. I would have thought that as a pre-eminent organization, and what should be a model to the world, the DTC would be above such acts.”

Despite the purported efforts by the DTCC, however, FinancialWire has since been provided to another 300 outlets.

The DTCC has been accused by many of acting with impunity, and is hardly a role model for unconflicted governance. Its 21 directors include Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); and Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C).

The largely unregulated DTC has become something of a defacto Czar presiding over the entire U.S. markets system, wielding more day-to-day influence and control than the SEC, the NASD and NASDAQ combined. Transparency is not of the DTCC’s strong suits. In the past it has stonewalled all requests for full and complete trading records.

The DTCC’s two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the Nasdaq and until recently, the American Stock Exchange.

Other DTCC board members include Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);

Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).

In their comments to the U.S. Securities and Exchange Commission regarding Regulation SHO in January, the 50 state regulators, through their association, the North American Association of Securities Administrators (NASAA) issued what many consider to be a strong warning that if the DTCC is not dealt with in the final regulations, state regulators such as New York State Attorney General Eliot Spitzer may step to the plate.

In what many considered to have been explosive comments, Ralph Lambiase, then-NASAA president and Director of the Connecticut Division of Securities, warned "NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). As a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The ability of the overall proposed rule would be severely impaired unless the Commission undertakes to implement such a prohibition.”

Many of the lawsuits believed to have been part of the program allege that the DTCC operates a “stock lending” program that aids and abets illegal naked short selling, and in doing so, admittedly takes in $1.67 million annually.

In a further rare display of transparency, however, while framing it in terms of a small percentage of daily transactions, Thompson has admitted in an interview posted at http://www.dtcc.com that some $4.9 billion, involving an estimated 20,000 daily transactions remain unresolved “fails to deliver and receive.”

“The markets check to see if the amount of fails to deliver is more than 1/2 of 1% of the total outstanding shares in that security,” said Thompson.

“If it is, then it goes on a ‘Threshold List.’ If it is then on the Threshold List for 13 consecutive settlement days, restrictions on short selling then apply. The “close-out” requirement forces a participant of a registered clearing agency to close out any “fail to deliver” position in a threshold security that has remained for 13 consecutive settlement days by purchasing securities of like kind and quantity. If the participant does not take action to close out the open fail to deliver position, the participant is prohibited from making further short sales in that security without first borrowing or arranging to borrow the security. Even market makers are not exempt from this requirement.”
In his questioning of SEC Chair Donaldson, Senator Robert Bennett (R-Utah) suggested, however, that a loophole in the regulation allows market makers to “pass along” these “fails to deliver” from one to the other, leaving them “unclosed out” indefinitely. A video of that exchange is posted at http://www.investrendinformation.com

While in the overall scheme of the U.S. markets system, the fails to deliver of that magnitude represents the entire market caps of upwards of 500 smaller public companies every trading day, which if victimized in this admitted fashion, can find their survivals and the safety of the entire investments of their shareholders questionable indeed.

This comes hard on the heels of an ad in the New York Times (NYSE: NYT) from The Washington Legal Foundation, located at http://www.wlf.org , which has considerable clout in the Bush administration, with ten of its board members now serving in various capacities, including three, headed by U.S. Attorney General John Ashcroft, in the Bush cabinet. Its “In All Fairness” advertorial, “What’s Up With The SEC?” may be seen at http://www.wlf.org/upload/032805IAFSEC.pdf

The advertorial alleges that class action lawyers are colluding with short sellers “right under the noses of SEC investigators,” whose abuses cause “investors, employees, pensioners and companies” to “lose millions of dollars in stock value each year.”

The WLF said that the SEC has been “sitting on several complaints of misconduct” that it and the U.S. Chamber of Commerce have filed that detail “examples of questionable stock manipulation by short sellers and class action attorneys.”

The group says that the SEC is “looking the other way while class action attorneys enjoy a free-for-all, reaping millions in windfall fees to the detriment of shareholders,” and asks “why isn’t the SEC taking legal and regulatory action to prevent stock manipulation and to protect investors from the looting by plaintiffs’ lawyers? Shouldn’t there be rules and oversight to deter these trial lawyer abuses?”
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