Lawsuits against THE DTC --- The lawsuit alleges that the Depository Trust and Clearing Corp. has a lot of reasons, almost one billion of them a year, to keep illegal naked short selling in operation. It was the proverbial shot across the bow by the legendary Houston law firms of Christian, Smith, Wukoson and Jewell, and O'Quinn, Laminack and Pirtle, whose notches already include environmental targets, the breast implant industry and the tobacco industry, all brought to their knees.
In comments to the U.S. Securities and Exchange Commission, C. Austin Burrell, who is providing litigation support and research for the law firms, said that StockGate is more massive than anyone may have imagined. "Illegal Naked Short Selling has stripped hundreds of billions, if not TRILLIONS, of dollars from American investors," and have resulted in over 7,000 public companies having been "shorted out of existence over the past six years." Burrell said some experts believe as much as $3.5 trillion to $4 trillion has been lost to this practice.
He stated that the restrictions on short selling were deliberately put into the Securities Acts of 1933 and 1934 because of the first-hand evidence then available that the "sheer scale of the crashes was a direct result of intentional manipulation of US markets through abusive short selling by a massive conspiracy."
Burrell noted that the 65-lawyer team presided over by lead lawyers Wes Christian and John O'Quinn has uncovered more than 1,200 hedge fund and offshore accounts working through more than 150 broker-dealers and market makers in a joint cooperative effort to strip small and medium size public companies of their value.
Recently the NASD and U.S. Securities and Exchange Commission approved an interim naked short-selling band-aid, requiring U.S. brokers to make an "affirmative determination" that short-sellers, even foreign short-sellers, mostly Canadian, can find certificates to cover before processing the order.
The SEC is considering even more stringent rules under proposed "Regulation SHO," but even before the ink has dried on these orders and proposals, some three dozen of the most "shorted" small public companies listed in the FinancialWire "StockGate 100" were listed on the "wild west" Berlin Stock Exchange, whose executives admitted in an exclusive FinancialWire interview was without their permission or authorization. This allows market manipulators the benefit of the "arbitrage" loophole that none of the present regulations or proposals aim to fill. Among the most recent demanding "delisting" from the Berlin exchange include BGR Corp. (OTCBB: BGRR), Advanced ID Corporation (OTCBB: AIDO), Goldspring Inc. (OTCBB: GSPG), Whistler Investment (OTCBB: WHIS), and Datascension, Inc. (OTCBB: DTSN). Berliner Freiverkehr (Aktien) AG has been singled out as the broker and market maker that has been "listing" the companies. It is suspected that one broker, RA Angsar Limprecht, is involved in all if not most of the listings.
The SEC band-aid hasn't been entirely effective, either. As late as Sunday, May 9, one of the most outspoken thorns in the side of the NASD and SEC over the naked short-selling scandals, small investor Dave Patch, was still demanding shares of Datascension a month after Al Laubenstein, Compliance Director for Computer Clearing Services had emailed him that it had "issued a buy-in notice." On April 21, Laubenstein wrote Patch that it's buy-in notice "was not accepted by the seller, as they reportedly have certificates in transfer. As you are no doubt aware, all of the issuers in question have unusual registration policies which impede the settlement process between firms. While we regret these delays, given the circumstances, they are not unexpected." Patch has complained to the SEC and NASD that he has lost 50% of his value while his shares are in limbo, although the money for the shares had been extracted from his account and are being used by the broker.
Last year, many besieged public companies sought refuge from the manipulation by seeking to exit the DTC, but on June 4, 2003, the SEC stated "the issues surrounding naked short selling are not germane to the manner in which DTC operates as a depository registered as a clearing agency. Decisions to engage in such transactions are made by parties other than DTC. DTC does not allow its participants to establish short positions resulting from their failure to deliver securities at settlement. While the Commission appreciates commenters' concerns about manipulative activity, those concerns must be addressed by other means."
The Nanopierce lawsuit, said to be the first of many out of the box, emphatically suggests otherwise. According to lawyer Christian, et.al., the DTC is at the very heart of the problem, and has almost a billion dollars a year at stake in keeping the problem.
The Depository Trust Company (DTC) is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the SEC. The depository supposedly brings efficiency to the securities industry by retaining custody of some 2 million securities issues, effectively "dematerializing" most of them so that they exist only as electronic files rather than as countless pieces of paper. The depository also provides the services necessary for the maintenance of the securities it has in "custody."
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. And, as the SEC's June 4 ruling indicates, its monopoly over the electronic trading system appears even to be protected.
How entrenched is the Depository Trust and Clearing Corp.? It's two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the NASDAQ (OTCBB: NDAQ) and the embattled American Stock Exchange! Regulators, regulate thyself?
In an era when corporate governance is the primary interest for the SEC and state regulators, the DTCC is hardly a role model. Its 21 directors represent a virtual litany of conflict:
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