STOCKGATE TODAY, May 17th...
An online newspaper reporting the issues of Securities Fraud
May 17, 2005, David Patch
Today Refco Group confirmed the receipt of a Wells Notice by the SEC over
their participation in the 2001 illegal shorting and manipulation of Sedona
Corporation stock.
A Wells Notice is notification issued by regulators to inform individuals
and companies of completed investigations where infractions have been
discovered.
In 2001 Sedona Corporation stock was manipulated through an orchestrated
scheme of illegal shorting [naked shorting]. In February of 2003 the SEC
brought to conclusion an enforcement action against financier Rhino Advisors
and Rhino Executive Thomas Badian for their orchestration of the
manipulation. The $1 Million civil fine was only the tip of the proceedings
against Rhino as the SEC handed over audiotapes whereby the Rhino Executives
were reportedly recorded bribing US Brokers to collapse the stock of Sedona.
Excerpts of the audiotapes were later used in December 2003 criminal arrest
warrants issued against Thomas and Andreas Badian.
Now, after 4 years of conducting an investigation, the SEC stepped up to the
plate and initiated actions against one of Rhino Advisors co-conspirators in
the stock manipulation.
While we can expect more to come, some fighting this long battle are not
lost on the irony as to whom the SEC sought out for enforcement after Rhino
Advisors. A Securities Clearing firm.
According to the Refco Group website, Refco operates “As the largest
non-bank futures commission merchant, REFCO clears millions of trades daily
with efficiency in processing, accuracy in administration and speed in data
handling.” Adding further, “Centralized clearing allows you to manage your
global trading activity, margin requirements, and cash management operations
more efficiently and effectively.”
For months we have heard the Depository Trust and Clearing Corporation
[DTCC], recognized as the national clearance and settlement system for the
US Financial markets, make claims that they have no role to play in naked
shorting. The DTCC only clears and settle trades. Now, the second firm to
fall in the stock manipulation of Sedona Corporation was the clearing firm.
If a clearing firm only clears trades how are they part of the manipulation?
This only adds fuel to the allegations that the problem of naked shorting is
deeper rooted than the SEC has been willing to offer to Investors, Issuers,
and Congress. The “whacko’s” as so many are being labeled by our Government
Officials and the media may have been on to something after all.
Recent allegations brought against former SG Cowen and Co.’s former Managing
Director Guillaume Pollet are associated with a minimum of 10 separate PIPE
deals involving illegal shorting activities. The same allegations brought
against Rhino Advisors in the Sedona Corporation manipulation.
Who cleared the trades executed by SG Cowen? The DTCC?
Then there is the NASD Charges brought against Hedge Fund Manager Hilary
Shane and Brokerage Friedman, Billings, and Ramsey [FBR] in which illegal
shorting ahead of a CompuDyne PIPE deal was executed. In the NASD complaint
against Shane are details of 975 separate short sale trade executions taking
place on shares she did not possess or comply with affirmative determination
to make delivery on. How was the DTCC involved in Ms. Shane’s illegal
trading activities? In executing 975 separate trades, some had to pass
through the DTCC representing either Shane’s Fund or the buy-side Broker
Dealer.
How about the undisclosed number of trades executed by FBR? For FBR, the
allegations were damaging enough that well respected Industry insider and
co-CEO Emanuel Friedman resigned his post over the scandal.
Several weeks ago Senator Bennett questioned SEC Chairman William Donaldson
in a Financial Services hearing before the Senate Banking Committee about
the SEC’s Regulation SHO. The Senator stated SHO wasn’t working. SHO being
the SEC’s newly created reforms to short selling.
The result of the rapid dialogue was that a separate meeting between the SEC
and Senator Bennett would take place. Behind closed doors where the public
could not listen in.
Only then did we hear further allegations that the rank and file attorneys
at the SEC banded together and went to SEC management voicing displeasure at
managements desire to hush this problem. The rank and file reportedly being
fed up with taking the heat for something they have wanted to fix but
something management was trying to cover up requested resolution to this
issue. If management refused they would resign, move to the private sector,
and state their positions from the private side.
And then again last week I was in a conference call in which a DC Insider,
wishing to remain anonymous, who informed me that the Senate Banking
Committee was split over what to do regarding naked shorting. Apparently SEC
Management and Wall Street Insiders are pressuring the Committee to leave
SHO to the agency. Truly resolving the naked shorting issue could result in
substantial money being lost for the Wall Street firms if forced settlements
were mandated. Those large “pre-existing open positions” the SEC pardoned
could be costly if forced settled.
Unfortunately they have already been costly to investors, businesses, and
taxpayers while they remain profitable to Wall Street.
With Wall Street being the primary management force behind the DTCC, and
with failure in clearing and settlement being the primary mechanism of
illegal shorting, the recent Wells Notice to Refco Group closes the loop on
where this leads. The cases to date include manipulation, bribery, fancy
book keeping [2 sets of books], insider trading, and criminal conspiracy.
The cases also involve tens of thousands of trades executed that never
settled.
So why is the SEC’s Regulation SHO bad for the investor?
SHO is not based on forcing trades to settle as required by law. The SEC
actually pardoned past abuses like these very cases the SEC is slowly
seeking enforcement on. SHO is based on having regulators detect and seek
enforcement on excessive violators. SHO waits for abuse to reach excessive
levels and only then does it start to initiate forced buy-ins on future
fails. For Sedona Corporation, investors still suffer the losses as the
SEC’s investigation is entering its 4th year.
You don’t have to believe all I say here, check them out for yourself. This
is all the public information made available to us and posted on
www.investigatethesec.com.
What we the small investors seek is full transparency of the SEC on what
they are not telling the investing public and the taxpayers who continue to
foot the bill for this fraud. We simply want to know what the SEC management
team is thinking. Are we really mere pawns in their good old boy network?
For more on this issue please visit the Host site at
www.investigatethesec.com
