NO QUARTER FOR CORRUPTION (Focussing on The Fed./FRBS)

[Transat 5]

This can be stopped. The technology is there. Why dont they before the market melts down?

August 8, 2005 (FinancialWire) The complaints by a half-dozen U.S.
Senators that the U.S. Securities and Exchange Commission is
ineffective in halting the abuses spotlighted by Regulation SHO is
apparently bearing fruit, as Alliance Capital (NYSE: AC) revealed in
a regulatory filing that it and upwards of 20 firms are
receiving "Wells Notices" from the NASD and/or the New York Stock
Exchange over improper trading by research analysts and failure
to "properly identify certain short-sale transactions."

The Associated Press reported that such transactions "can be used to
artifically drive a stock down further than it would have otherwise
gone," as has happened with hundreds of public companies, from the
pink sheets to the NYSE, including Martha Stewart Living Omnimedia
(NYSE: MSO). The NASD action is purportedly aimed at trading by Brad
Hintz, the third-ranked analyst by Institutional Investor, for
selling shares of Lehman Brothers Holdings (NYSE: LEH), and
exercising options for Morgan Stanley (NYSE: MWD) a month after
terminating coverage on both firms.

The regulatory filing did not identify the other brokerages under
investigation, but it is expected that those that are public will
similarly file statements.

Unlike analysts at brokerages, analysts for independent firms
adopting the "Standards for Independent Research" at
http://www.firstresearchconsortium.com are prohibited from trading in
the stocks of companies they cover, and Investrend Research
(http://www.investrendresearch.com) recently testified at an SEC
committee hearing that the prohibition should be universally adopted.

After former U.S. Undersecretary of Commerce Robert Shapiro made the
cutting room floor in the "Dateline NBC" documentary on illegal naked
short selling, featuring Eagletech (OTC: EAGC) and supposedly
describing ongoing manipulations that plague Krispy Kreme Doughnuts
(NYSE: KKE) and Martha Stewart Living Omnimedia (NYSE: MSO), the
reporter on that feature, CNBC's Ron Insana invited him to discuss
the issue "live" on "StreetSigns" Thursday.

But like "Dateline NBC" it, Insana and his producers came to "think
twice" about it, and "postponed" it so the piece could now be
more "in-depth." In an email seen by FinancialWire, Eagletech's CEO,
Rodney Young, said nothing should be "made" of the "postponement."

Yesterday, FinancialWire noted that a "live" segment is often more
interesting because it precludes any one, even the network or as some
suggest, the unseen hand of the Depository Trust & Clearing Corp.,
from controlling the content.

Shapiro is a forensic economist who analyzed the continuous net
settlement reports in Eagletech's stock by the DTCC and its NSCC
subsidiary. Eagletech was the sole subject of the Dateline report.

Shapiro's findings were that there were delivery failures for
Eagletech for up to 252 trading days, and the average number of
undelivered shares in November 2000 were 102,239 shares per day.

Meanwhile, a judge in California has dismissed a suit brought against
the DTCC by Trident Systems, now AAMPRO Group Inc. (OTCBB: AAPO) and
its former president, Alan Sporn.

The suit had alleged that the DTCC aided and abetted illegal trading
in the company by short seller Anthony Elgindy and some 600 co-
conspirators.

The Dateline program outlined travesties of justice against Eagletech
(OTC: EAGC) and its shareholders, and referenced naked short selling
but not the alleged "counterfeit conspiracy" that attorney John
O'Quinn was quoted as saying had bankrupted over 1,000 companies,
costing shareholders over $1 billion, or that has been alleged to be
currently pillaging the shareholders of such companies as IPIX Corp.
(NASDAQ: IPIX), Overstock (NASDAQ: OSTK) and Delta Air Lines (NYSE:
DAL).

"NBC just needed to get the program off the shelf, even though it was
a journalistic `sell-out'," said one CEO in an email to
FinancialWire.

Leading up to the program, the producers refused to respond to
questions about whether the program had been interfered with in the
postponement and reediting process. There was no mention at all, for
example, of the Depository Trust and Clearing Corp., even though that
institution is the subject of many lawsuits filed by O'Quinn.

The DTCC was the target Friday of about two dozen demonstrators
demanding that the institution provide shareholder lists to public
companies and end other secrecies. Investrend Information also handed
out flyers at the DTCC regarding the institution's admitted First
Amendment violations.

Some 93.89% of the respondents to the Investrend Poll at
http://www.investrendinformation.com said that the DTCC should
be "punished" for its interferences.

The censorship has since admitted to in a letter posted at
http://www.investrend.com/Admin/Topics/Articles/Resources/349_11134034
87.pdf .

"Our participation was limited to the DTCC's secrecy and media
interference," said Gayle Essary, CEO of Investrend Communications,
Inc., parent of Investrend Information. "Public companies have a
right, if not a responsibility, to know the identities of their
shareholders, and the public has a right guaranteed by the First
Amendment to the U.S. Constitution to unexpurgated news about public
institutions such as the DTCC, without interference by the government
or any of its agencies."

He said FinancialWire has not taken an editorial position on the
naked short sales controversy but will continue to lead the industry
in reporting events about the "StockGate" scandal, a term coined by
the newswire December 29, 2003. The DTCC, in its communications to
media distributing FinancialWire, claimed that the newswire
is "opinion, not news," which even if so, would still constitute a
violation of the First Amendment if by an agency of the government,
as well as tortuous interference with the newswire's business,
according to Marshal Shichtman, Esq., who represents Investrend in
the matter. Shichtman accused the DTCC of engaging in "strong arm
tactics."

More than a half dozen highly-ranked Republican and Democratic U.S.
Senators have weighed in that the U.S. Securities and Exchange
Commission's much-ballyhooed "Regulation SHO" has highlighted the
massive extent of the illegal practice but has done nothing to stop
it.

The main lists for Regulation SHO are at
http://www.nasdaqtrader.com/aspx/regsho.aspx and
http://www.nyse.com/Frameset.html?displayPage=/threshold .

Even the DTCC has admitted its "fails to deliver" is massive,
amounting to upwards of $6 billion a day, according to DTCC Deputy
General Counsel Larry Thompson.

A former U.S. Under Secretary of Commerce for Economic Affairs,
Robert J. Shapiro, now chair of Sonecon, LLC, a private economic
advisory firm, accused Thompson of making "inaccurate or misleading"
statements. Shapiro, who holds a Ph.D from Harvard University, was
the principal economic advisor to former President Bill Clinton in
his initial Presidential campaign.

Shapiro currently provides economic analysis to the law firms of
O'Quinn, Laminack and Pirtle, Christian, Smith and Jewell, and Heard,
Robins, Cloud, Lubel and Greenwood, on issues associated with naked
short sales, which he noted includes "matters raised in an interview
published by @DTCC with DTCC deputy general counsel Larry Thompson."

He asserted in his letter that "the extent to which [naked short
selling] occurs is in dispute. While this statement may be narrowly
correct, objective academic analysis has established that naked short
selling has been a widespread practice and one which, when allowed to
persist, can pose a threat to the integrity of equity markets. A
recent study by Dr. Leslie Boni, then a visiting financial economist
at the SEC, analyzed NSCC data and found that on three random days,
an average of more than 700 listed stocks had failures-to-deliver of
60 million-to-120 million shares sold short – naked shorts – that had
persisted for at least two months. In addition, over 800 unlisted
stocks on any day had fails of 120 million-to-180 million shares sold
short that also had persisted for at least two months. The total
number of naked shorts, including those that had persisted for less
than two months, was presumably considerably greater.

"Regarding the extent of naked shorts, Thompson has provided closely-
related additional information: `fails to deliver and receive amount
to about $6 billion daily…including both new fails and aged fails.'
Thompson minimizes this total by comparing it to "just under $400
billion in trades (emphasis added) processed daily by NSCC, or about
1.5% of the dollar volume." By most people's standards, a problem
involving hundreds of millions of shares valued at $6 billion every
day is a very large problem. Moreover, the $6 billion total
substantially underestimates the actual value of all failed-to-
deliver trades measured when the trades actually occurred. Most of
the $6 billion total represents uncovered or naked short sales, many
of which have gone undelivered for weeks or months with their market
price being marked-to-market every day. As a stock's price falls, the
market price of naked shorts in that stock also declines, reducing
the total value of the outstanding failures-to-deliver cited by
Thompson.

"In other respects, Thompson's comparison to the `$400 billion in
trades processed daily by NSCC' seems disingenuous and misleading,
because that $400 billion total covers not only U.S. equity trades
which can involve most of the failures-to-deliver at issue, but many
other transactions also processed by the NSCC. The value of all
equity transactions on U.S. markets in 2004, for example, averaged
$82.3 billion/day. If Thompson is correct that the daily value of
fails-to-deliver averages $6 billion, that total is equivalent to 7.2
percent of average daily equity trades or nearly five times the 1.5
percent level suggested by Thompson.

"Furthermore, the DTCC reports on its website that on a peak
day, `through its Continuous Net Settlement (CNS) system, NSCC
eliminated the need to settle 96 percent of total obligations.'
Assuming that CNS nets out the same proportion of trades on other
days, $384 billion of the $400 billion in daily trades cited by
Thompson are netted out, leaving only $16 billion in daily trades
that require the actual delivery of securities. The $6 billion of
fails-to-deliver securities existing on any day are equivalent to
37.5 percent of the average daily trades that require the delivery of
securities, or 25 times the 1.5 percent level cited by Thompson.

"Thompson tries to explain the large numbers of shares that go
undelivered – in most cases arising from naked short sales -- by
citing problems with paper certificates, inevitable human error, and
the legitimate operations of market makers. This also seems
misleading or disingenuous. Regarding problems with paper
certificates, the DTCC estimates that 97 percent of all stock
certificates are now kept in electronic form. Nor can human error or
legitimate market-making operations explain the high levels of
failures-to-deliver that persist for months – on any day, an average
of 180 million-to-300 million shares have gone undelivered for two
months or longer – as documented by Dr. Boni's analysis of NSCC data.

"Thompson also disparages the attorneys who represent companies that
have been damaged or destroyed by massive naked short sales, and
their shareholders, by claiming falsely that the cases in this matter
have almost all been dismissed or withdrawn. The legal firms that I
advise -- O'Quinn, Petrie and Laminack; Christian, Smith and Jewell;
and Heard, Robins, Cloud, Lubel and Greenwood – have not lost any
motions against the DTCC or its affiliates and currently have one
case against the DTCC pending in Nevada and another case against the
DTCC pending in Arkansas. In addition, on February 24, 2005, these
attorneys were granted an order by the New York Supreme Court
ordering the DTCC to produce trading records involving two companies
they represent, including records from the Stock Borrow program,
which may establish whether large-scale naked short sales were used
to manipulate and drive down the stock price of those two companies.

"Thompson also asserts that the plaintiffs suing the DTCC for damages
associated with the handling of naked short sales rely on "theories
[that] are not an accurate reflection of how the capital market
system actually works." This assertion is inaccurate. There is no
dispute about how the capital markets work -- nor any doubt that
naked short sales have been used to manipulate and drive down the
price of stocks, as seen in numerous death-spiral financing cases.
The issue here is the DTCC's role in allowing or facilitating such
stock manipulation through its treatment of extended naked short
sales.

"In explaining the DTCC's role in these matters, Thompson rejects the
claim that the NSCC's Stock Borrow program allows the same shares to
be lent over and over again, potentially creating more shares than
actually exist or `phantom' shares. By Thompson's own account, shares
borrowed by the NSCC to settle naked short sales are deducted from
the lending member's DTC account and credited to the DTC account of
the member to whom the shares have been sold. Therefore, those same
shares become available to be re-borrowed to settle another naked
short sale and, if that happens, to be re-borrowed again and again to
settle a succession of naked short sales. Throughout this process,
the actual short sellers may continue to fail-to-deliver the shares
to cover their shorts and, as Dr. Boni's analysis of NSCC data found,
the underlying failure can age for months or even years. The process
which Thompson describes is one in which shares can be borrowed and
lent over and over again, introducing more shares into the market
than are legally registered and issued. If any ambiguity remains,
Thompson can clarify it by responding to the following query: Once a
share that has been borrowed through the NSCC Stock Borrow program is
delivered to the purchaser, is that share restricted in any way so it
cannot be lent again?

"It is important to note that the Stock Borrow program is used when
continuous net settlement cannot locate the shares to settle. As a
consequence, Stock Borrow is usually called into play when there are
relatively few shares available for borrowing. These are propitious
conditions for market manipulation: Unscrupulous short sellers
undertake large-scale naked short sales involving stocks for which
few shares are available for trading and lending, relying on the
Stock Borrow program to borrow the limited available shares, again
and again, at sufficient levels to drive down the market price of the
shares.

"Thompson notes that of approximately $6 billion in outstanding
failures-to-deliver existing on any day, "the Stock Borrow program is
able to resolve about $1.1 billion … or about 20% [18 percent] of the
total fail obligation." In this statement, Thompson raises very
serious questions about the integrity and operations of the NSCC and
DTCC, which he can clarify by responding to the following queries: If
the Stock Borrow program "resolves" only 18 percent of total fails,
what is the disposition of the remaining 82 percent of outstanding
fails? When failures-to-deliver occur that are not resolved through
Stock Borrow, does the NSCC credit the undelivered shares to the
member representing the buyer, creating genuine "phantom shares"?
Finally, how many shares do the borrowing brokers, clearing firms and
other participants in the Stock Borrow program owe the NSCC on a
typical day, and what is their total value?

"In a related matter, Thompson tries to distance the DTCC from
charges that shares held in restricted accounts – for example, cash
accounts, retirement accounts and many institutional accounts – are
improperly lent through the Stock Borrow program by claiming that
responsibility for segregating restricted shares from lendable shares
falls to the "broker and bank members" of the DTCC, while
responsibility for monitoring or regulating their performance in this
matter falls to the stock exchanges and the SEC. As a trust company,
the DTCC cannot hold that it has no role, duty or responsibility to
ensure the probity of its operations. Thompson could address this
issue by responding to the following queries: What procedures does
the NSCC have to ensure that shares held in members' accounts for
possible loan through the NSCC Stock Borrow program are unencumbered
by regulatory or legal restrictions from being pledged or assigned
and eligible to be borrowed? On any given day, how many participants
in the Stock Borrow program have lent shares that exceed their
lendable shares, in what numbers and of what value?

"Thompson also tries to distance the DTCC as far as possible from the
naked short selling that generates most of the extended failures-to-
deliver: `We don't have any power or legal authority to regulate or
stop short selling, naked or otherwise. We also have no power to
force member firms to close out or resolve fails to deliver … we
don't even see whether a sale is short or not.' In fact, the DTCC
chooses to not distinguish short sales from long sales, chooses to
not regulate or stop extended naked short sales, and chooses to not
force member firms to resolve protracted naked short sales.

"First, Regulation SHO requires that all transactions be clearly
marked short or long. If the DTCC and NSCC do not know whether sales
are short or long as Thompson contends, they choose to not know.
Second, the NSCC has a clear responsibility and adequate means to
stop naked short sales of extended duration, with no legal barrier
that would prevent them from so doing. As a trust company with an
acknowledged duty to provide investors certainty in the settlement
and clearance of equity transactions, the DTCC chose to carry out
that duty by assuming the role of counterparty to both sides of every
equity transaction, through the operations of the NSCC's CNS system
and the Stock Borrow program. By allowing short sellers to fail-to-
deliver shares for months or even years, the NSCC clearly fails to
provide certainty in settlement to the buyers, sellers and issuers of
securities. Since it is widely known that extended naked short sales
have been used to manipulate stock prices in cases of death-spiral
financing, and the NSCC created the Stock Borrow program to address
failures-to-deliver that prominently include naked short sales, the
NSCC and DTCC share a responsibility with the SEC and the stock
exchanges to protect investors by resolving extended fails.

"Third, the DTCC and NSCC have the clear capacity to force member
firms to resolve the extended failures-to-deliver of their customers
by purchasing shares on the open market and deducting the cost from
the member's account. A 2003 study by Dr. Richard Evans and others
provides evidence that forced buy-ins by any party occur very rarely.
They found that a major options market maker who failed to deliver
all or a portion of shares sold in 69,063 transactions in 1998-1999
was bought-in only 86 times or barely one-tenth of 1 percent of the
fails. Thompson can clarify investors' understanding of their
operations by responding to the following query: What proportion of
shares that are persistent fails-to-deliver, of one month or longer,
are ever bought in?

"Thompson acknowledges that the DTCC and NSCC know precisely how many
failures-to-deliver exist for each stock and the precise duration of
each of these fails. Yet, the DTCC refuses to disclose this
information even to the issuer of the stock in question, which
Thompson justifies by citing `NSCC rules' prohibiting such a release
of data based on `the obvious reason that the trading data we receive
could be used to manipulate the market, as well as reveal trading
patterns of individual firms.'

"This response is both disingenuous and revealing. We know now, for
the first time, that the DTCC has full knowledge of the extent of
protracted, large-scale naked short sales in all particular cases. We
also know now that the DTCC has had this information for at least a
decade, since Thompson also notes that `fails, as a percentage of
total trading, hasn't changed in the last 10 years.' Yet, based on
the DTCC's own rules, it allowed these abuses to persist and fester.
The DTCC and NSCC can change their rules at any time. Moreover, in
this case, those rules are unjustified. Data documenting outstanding
short sales in each stock are currently issued publicly, so further
data on how many of those short sales are naked would not reveal
additional information about the trading patterns of individual firms
or in any way empower manipulators. In fact, the DTCC could
substantially disarm manipulators by both publicly reporting naked
short sales in each issue and pledging to force buy-ins of all naked
short sales that persist for more than a limited period.

Surely, if large-scale, extended naked short sales have effectively
created "phantom" shares, companies have a responsibility to their
shareholders and the right to secure this information from the
organization which manages the settlement of short sales. At a
minimum, the DTCC should respond to requests by issuers for data on
extended failures-to-deliver in their own stocks, both in the past
and currently, so they can take steps to resist stock manipulators or
bring them to account for past manipulation.

Thompson also claims that the DTCC did not create or manage the Stock
Borrow program to serve its own financial interest, insisting that
the service generates less than $2 million a year in direct fees to
the DTCC and that all DTCC services are priced on a "not for profit"
basis that seeks to match revenues with expenses. Without further
information, these responses beg the question of whose private
financial interest has been served by the Stock Borrow program,
especially as the DTCC is owned by the stock markets, clearinghouses,
brokerage and banking institutions that use its services. Thompson
and the DTCC can clarify this serious matter by responding to the
following queries: Do DTCC participant/owners receive interest or
other payments through or from the Stock Borrow program for lending
the shares of their customers and, if so, how much have they received
for these activities over the last 10 years? Further, do DTCC
participant/owners receive any dividend, interest or other payments
or distributions from the DTCC or its subsidiaries?," Shapiro
concluded.

Neither Thompson nor the DTCC have responded to Shapiro's wide-
ranging allegations.