FYI nycinvst...re: your short selling comments...it's illegal to heroin too..but it happens.doesn't it...
interesting read for you below...I'm sure you weren't aware of this activity..(yeah right)...there are articles on this everywhere....
NASD files Civil Action against Market Maker for Naked Shorting
June 13, 2005
By: David Patch
STOCKGATE TODAY An online newspaper reporting the issues of Securities Fraud
NASD files Civil Action against Market Maker for Naked Shorting -- June 13, 2005
David Patch
In a January 13, 2005 press release the NASD identified that they have filed a civil complaint against Scott W. Ryan and Ryan and Co. for illegally executing short sales on behalf of 3 Hedge Funds.
The complaint alleges that Ryan and Co. (RYCO), acting as a Market Maker, would use the bona-fide market making exemption limited to market makers to execute short sales on behalf of the Hedge Funds. The Hedge Funds themselves could not execute the short sales, as they could not meet the obligations of the affirmative determination [locate requirements] required to execute these short sales and therefore solicited RYCO to circumvent the NASD rules. The illegal shorting, known as naked shorting, resulted in the trades to fail settlement at the time of the short sale execution applying sell side imbalances on the supply and demand of the securities traded.
The NASD claims that RYCO reaped substantial profit by engaging in the illicit acts. If RYCO reaped substantial profits, so must the Hedge funds they illegally traded on behalf of.
While this is the first complaint of this nature, it is only another of the more recent complaints being filed against Wall Street for short sale abuses involving Hedge Funds. A problem that appears more systemic than the Securities and Exchange Commission is willing to admit to.
Dating back to 2000, complaints of stock manipulation due to illegal short selling have risen substantially. A pattern that would indicate that illegal shorting, like late-trading and bogus research, was not small isolated events.
1. January 2001 the NASD fined the Fiero Brothers and John Fiero $1 Million due to the firm's participation in stock manipulation involving criminal elements. The story became the background to the Businessweek article by Gary Weiss titled 'The Mob on Wall Street.' The results of the Fiero Brothers abuses involved the insolvency of Hanover Sterling Corporation and the Adler Coleman Clearing Company as the companies did not have the net capital available to cover all the settlement failures held on their books. The illegal trading activities took place over a period of several years in the late 1990's.
2. February 2003 the SEC fined Rhino Advisors $1 Million for their participation in the manipulation of Sedona Corporation. In the Rhino case, the SEC had obtained audio recordings of Rhino Executives bribing US Brokers to manipulate Sedona Corp. stock by selling with 'unbridled levels of aggression.' The Rhino Executives were later recorded congratulating the US Brokers on 'collapsing' the security. While the SEC has the audio recordings, they have not to date taken any actions against the Brokers bribed to manipulate the stock. The period of the recorded manipulation was 2001. The SEC has recently issued a Wells notice to Refco which acts as both a Brokerage House and Clearing Agent for firms like Rhino Advisors.
3. December 2004 the NASD filed a civil complaint against Hedge Fund Manager Hilary Shane for her illegal short selling of Compudyne Co. during a Private Placement Financing Deal [PIPE]. In the civil complaint the NASD claimed that Shane executed 975 separate short sale transactions without the firm meeting the requirements of affirmative determination. The result of the trades at the time of the execution was failed settlements that were later covered by shares received Shane received in the PIPE arrangement. The NASD and SEC settled with Ms. Shane for nearly $1.45 Million regarding the sale of unregistered securities [naked shorts] as well as trading off insider information. The actions of Ms. Shane took place in September 2001.
4. March 2005 the CEO of Friedman, Billings, and Ramsey (FBR) announced his resignation amidst allegations of fraudulent trading of CompuDynes Stock. Speculation of NASD and SEC investigations into the short selling activities of CEO Emanuel J. Friedman during the PIPE deal with Hedge Fund Manager Hilary Shane apparently forcing the action. In addition, Wells notices to the Company, CEO Friedman, Head Trader Scott Dreyer, and Chief Compliance Officer Nicholas Nichols resulted in FBR the Company submitting a proposed settlement to the NASD in April 2005 for a reported $7.5 Million. While the NASD has reportedly not yet accepted the offer, this leaves the three former employees to fend for themselves on their settlement to the civil complaints.
5. April 2005 the SEC files civil charges against former Managing Director Guillaume Pollet of SG Cowen for insider trading and for short selling ahead of PIPE deals. Pollet has been accused of illegally shorting stocks in a minimum of 10 separate PIPE deals dating back to 2001 that resulted in over $4 Million in profits to the firm of SG Cowen and Co. The SEC came across this evidence in 2001 when SG Cowen presented the evidence to the SEC while at the same time terminating the employment of Pollet. Why it has taken the SEC a duration of nearly 4 years to act upon evidence SG Cowen was able to use to terminate Pollet is an open question that needs to be addressed.
To travel into each of these enforcement actions several threads of commonality appears.
· Wall Street, in working with Hedge Funds, willfully violated Securities Laws due to the cost benefits to do so. Illegal shorting activities appear commonplace for these markets.
· The illegal shorting of securities that resulted in large settlement failures failed to raise the red flags that are part of the intent of the Depository Trust Settlement system (DTCC). Hilary Shane's 975 executed settlement failures, Pollet's similar failures in a minimum of 10 separate PIPE financing deals, FBR's illegal shorting without compliance or settlement, Rhino Advsors, Fiero, and now Ryan and Co. all presumably using the DTCC stock borrow program to mask the illegal trade executions as in each case affirmative determination was not made.
· The delays in enforcement action never brought justice to the investors abused by the illegal trading activities. Instead, the SEC has fought issuers and investors each step of the way claiming the abuse never existed. SEC director of Market Regulation Annette Nazareth went so far as to say investors were merely complaining that their stock portfolios did not go up.
· Finally, the systemic proof that there is no such thing as an isolated event on Wall Street no matter how rosy the SEC tries to paint that picture. The SEC, in full awareness of the systemic problems, and with recent enforcement actions of 5-year old fraudulent acts, illegally grandfathered the failures on the books today to protect the criminal elements associated with Wall Street firms and the wealthy Hedge Fund clients.
The NASD actions today again raise the question about the integrity of the Securities and Exchange Commission and the Congress empowered to oversee them.
How much of the small investor's soul has the SEC stolen to protect the financial strength of Wall Street and the wealthy of this country? What ever happened to Senator Robert Bennett and his desire to get to the bottom of Regulation SHO and its clear lack of closure to this problem?
Rumors out of Washington are that the Republican Controlled Congress and White House are purposely delaying any formal hearings and investigations into this matter in order to put out an appearance that Wall Street has become a friendly place to invest in. The Republican agenda to invest Social Security into this rigged marketplace taking precedence over investor protection. The Congressional delays only further strip the working class of more of their hard earned savings.
It will only be a matter of time before a community of people Congress cannot quiet confronts the issue. When that happens those Senators and Representatives representing SEC oversight better have a good story put together on why they once again turned a blind eye to the people they were empowered to protect. I am not talking about the wealthy who invest in the hedge funds.
SEC spokesman John Heine would not comment on this most recent NASD action and how these actions continue to show concern that the Regulation SHO grandfathering clause only hides these types of abuses. Asked when the SEC would initiate investigations into the DTCC stock borrow program as a tool to assist manipulation Mr. Heine again stated 'no comment.' Mr Heine did come forward and admit the SEC has the oversight responsibility of the DTCC, a first for Mr. Heine who is best known for his patented 'no-comment
AI
