NSS ~ Counterfeiting Stock ~ MM Games Played

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[IS NSS] TECHNICALLY “UNLAWFUL” OR “ILLEGAL”?

In regards to issues of “unlawfulness” or “illegalities” in the securities markets one has to go to the all encompassing anti-fraud rule within the ‘34 Exchange Act namely Rule 10b-5.


Rule 10b-5 -- Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

a. To employ any device, scheme, or artifice to defraud,

b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

c. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.

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The first concept to keep straight is that a technically “unlawful” act has nothing to do with whether or not that act is regularly prosecuted by the authorities. The DOJ or FBI usually need a referral from the SEC before they come on the scene. When it comes to abusive naked short selling crimes the SEC, FINRA, and the DTC and NSCC subdivisions of the DTCC are squarely in “cover up” mode. The last folks the regulators and the SROs want sniffing around is the DOJ, FBI or the FFETF with the power to put people in jail.

IS WHAT IS DESCRIBED BELOW AN “UNLAWFUL” SCHEME TO DEFRAUD DONE IN CONNECTION WITH THE SALE OF A SECURITY?

1) A corrupt MM illegally accesses the universally abused bona fide MM exemption from needing to effect a pre-borrow or “locate” before making admittedly naked short sales. He has no intent to ever deliver that which he is selling. Note that a truly bona fide MM that legally accesses that exemption would cover that naked short position on the very next downtick in share prices when the injection of buy-side liquidity is needed.

2) He sells nonexistent shares to a buyer but refuses to either deliver them or buy them back when the share price drops.

3) The buyer’s account is credited with a readily sellable share price depressing “security entitlement” as per UCC Article 8. Because of this the buyer is blindfolded to the deceit/fraud.

4) As these “refusals to deliver” and the “security entitlements” they spawn accumulate invisibly in the share structure of the corporation targeted for destruction the share price predictably tanks because the “supply” of that which must be treated as being readily sellable (shares and/or “security entitlements”) is knowingly and intentionally being manipulated upwards (scienter).

5) Since the NSCC only mandates that its “participants” collateralize the monetary value of failed delivery obligations on a daily marked to market basis as the share price drops (gets MANIPULATED downwards-a crime) so too do the collateralization requirements.

6) This results in the funds of the investor flowing to the MM that illegally accessed the bona fide MM exemption but refused to cover his naked short position on the very next downtick after the naked short sale was made as a truly bona fide MM would have. This flow of investor funds occurs despite the fact that what was sold never existed and never got delivered. With this being the NSCC policy, imagine the checks and balances that would be in place in a clearance and settlement system with integrity should abusive participants access this gold-plated invitation to defraud investors. The alarm bells would start sounding on about T+6 or so and forced buy-ins would rapidly occur.

Quite clearly this is an “unlawful scheme to defraud investors done in connection with the purchase and sale of a security”.


WHAT IS THE “SCHEME” TO DEFRAUD?

The “scheme” is to be able to sell nonexistent securities via illegally accessing the bona fide MM exemption and avoid the costs or potential unavailability associated with making legitimate pre-borrows in order to gain access to the funds of the investor without ever having to deliver the nonexistent shares you sold.

WAS THE BUYER OF THE SHARES DECEIVED OR DEFRAUDED?

The buyer was under the impression that he was buying and getting delivery of SEC-registered units of equity ownership (“shares”) in a corporation of which there are a finite amount “outstanding” as indicated on that company’s financials. He was deceived. He thought he was acquiring a voting power equal to the amount of shares he purchased divided by the number of shares advertised as being “outstanding” in the company’s 10-K. He didn’t get this. He thought he would earn preferential tax treatment for all of his shares on any “qualified dividend” the company issued. He will not get this as per IRS policies limiting the tax preferential treatment only to the number of shares legally “outstanding”.

He thought that the amount of shares readily sellable at any given time were just the number of shares “outstanding” plus any shares borrowed for the sake of legitimate short sales and subsequently sold. He was wrong. He thought that in the case of insolvency he had a valid claim to the percentage of assets calculated by dividing the number of shares “outstanding” by the number he purchased (dissolution rights). He was wrong. He thought that there were no parties on Wall Street heavily financially incentivized to bankrupt this company. He was mistaken. He thought that the DTCC was going to follow its congressional mandate to make sure that his trade would “promptly settle” i.e. buy-in the delivery failure on perhaps T+6 when it became obvious that the seller had no intent to deliver that which he sold. Again, he was deceived/defrauded.


AS PER SECTION “C” OF 10B-5 DOES THIS “COURSE OF BUSINESS…OPERATE AS A FRAUD OR DECEIT UPON ANY PERSON IN CONNECTION WITH THE PURCHASE OF A SECURITY”?

Of course it does.


WALL STREET’S REBUTTAL: STEALING THE FUNDS OF INVESTORS IN DEVELOPMENT STAGE U.S. CORPORATION ACTUALLY HAS ALTRUISTIC UNDERPINNINGS.

FACT: The most readily available supply of shares to borrow and then legally short sell come from margin accounts and institutional shareholders trying to earn a little margin interest to increase their “alpha”.

FACT: The nonmarginable “penny stocks” typically attacked do not have many if any shares in either location and are thus difficult or extremely expensive to legally short sell.

FACT: The best way to circumvent this reality is to work with crooked MMs willing to illegally access their bona fide MM exemption. Access is typically attainable by directing cash generating order flow in the direction of a willing MM.

THE MINDSET OF SOME ABUSIVE NAKED SHORT SELLERS: The destruction of certain U.S. corporations and the stealing of the funds of investors in companies that we abusive naked short sellers deem (in our infinite wisdom) to be “scams” is actually a good way to “hasten the demise” of these “scammy pump and dumps” so that future investors don’t get swindled by these scamsters. In other words, stealing from investors is a good way to address assumed stealing from investors and perpetrating a heinous form of securities fraud is the proper way to address suspected frauds.


The question arises; why not just file a complaint with the SEC in order to perform your “shareholder advocate” role.

Possible answer: That doesn’t pay as well.




ISSUES REGARDING SECTION b OF 10b-5 AND THOS MANDATED TO KEEP TALLIES OF DELIVERY FAILURES

Section b deals with facts of a “material” nature. It deems it unlawful to EITHER “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading in connection with the purchase or sale of any security”.

In connection with the “full disclosure” of all “material” facts to prospective investors what fact could possibly be more “material” to the prognosis for the success of a potential investment then the presence of an enormous amount of share price depressing “security entitlements” poisoning the share structure and prognosis for success of a corporation?

Note that Section b makes it unlawful to omit to state a material fact. Who is or should be in possession of the combined number of delivery failures residing in either the DTCC or in “ex-clearing arrangements”? The answer is BOTH the NSCC as the party keeping the tally as well as FINRA mandated to receive the reports of the NSCC and construct and maintain the “threshold lists”.

The question arises as to how these 2 SROs mandated to act as “the first line of defense against market abuses” (as per the SEC) and also acting with the mandate to create and enforce laws associated with the “business conduct” of its “participants” in the case of the NSCC and “members” in the case of FINRA can refuse to keep this most “material” of all information secret from prospective investors.

The answer is simple, due to the levels of historical abuses our SROs and regulators are stuck in “cover up” mode and by definition you cannot be acting in robust investor protection mode and cover up mode simultaneously. What is at stake here is millions of U.S. citizens learning that many of the investments they have made throughout history in development stage corporations never had a chance to succeed. Instead the fates of these corporations, the jobs they could have provided and the investments made therein were thrown under the bus in exchange for some type of corrupt vigilante type service.

It is extremely obvious that in order to move from cover up mode where investors have no clue how damaged the corporation is that they are buying shares of back into robust investor protection mode an embarrassingly obvious event must occur. The sellers of nonexistent shares caught gaming the system must be FORCED to go into their wallet, retrieve the stolen money and buy back and deliver the shares they promised to deliver on T+3 but refused to.

The obviousness of this only solution and the refusal to demand it up until now has forever tarnished the integrity of our markets. Once the share price depressing “security entitlements” are forcibly removed from these corporate share structures then an unmanipulated “supply” variable can finally interact with an unmanipulated “demand” variable to “discover” an unmanipulated share price through the price discovery process. What could possibly be a more obvious remedy to finally reroute our SROs and regulators away from cover up mode and back into investor protection mode.

SUMMARY

Relatively defenseless nonmarginable “penny stocks” are the easiest for short sellers to bankrupt. The problem is that they are the most difficult to LEGALLY short sell since very few shares are held in margin accounts or by institutions willing to loan them out. Short sellers not afraid to act outside of the securities laws can easily find corrupt MMs to ILLEGALLY “rent out” space under their “bona fide MM” umbrella of immunity from having to pre-borrow or make a “locate” before making naked short sales. Avoiding either expensive or unavailable “pre-borrows” is often the inducement to break the law. The corrupt MMs are rewarded for their breaking of the law by cash generating order flow from the criminals refusing to play by the rules.

The added expense and difficulty to legally short sell development stage securities in a sense should add protection to these corporations that are relatively defenseless during their particular stage of development in these “corporate incubators” known as the PinkSheets and the OTCBB. It is also true that these circumstances could foster and promote “pump and dumps”. The concept that abusive naked short sellers justify stealing the funds of today’s investors in order to hasten the demise of corporations in order to protect future investors in that (allegedly) “scammy” corporation from being defrauded by corrupt management teams represents a pathological mindset beyond comprehension. At the very least, these criminals should carry some form of billion dollar “malpractice” insurance when their diagnosis that “X” U.S. corporation is a “scam” proves to be unfounded.


Full message thread is here. Scroll down a lot to see the original of the above message. Emphasis above is mine.