You mean this SEC???$1 Billion Investor Fraud Orchestrated by SEC – October 12, 2005
David Patch
Now I am not one to say I told you so but…yea maybe I am.
For the past several years I and a growing number of concerned investors have lobbied for a formal investigation into the Securities and Exchange Commissions participation in covering up massive securities fraud. We started out quietly but soon we orchestrated an on-line petition and gathered momentum. People from across the nation and across the globe came but Congress ignored our requests. Now Congress can’t deny it any longer. It is no longer just investigatetheSEC.com but ‘Time to investigatetheSEC.com’.
On Monday the news that rocked Wall Street was involving one of the largest commodities brokerage houses, Refco Inc.. Refco announced they had placed Chairman and Chief Executive Phillip Bennett and President Santo Maggio on leave regarding 4430 million in undeclared debt. Striking was that this news comes only 8 weeks after Refco Inc. went public under a heralded IPO brokered by some big Wall Street Institutions. The $22.00 August IPO grew to a $30.00 stock in no time.
By Wednesday the Department of Justice was holding a press conference announcing the criminal indictment of Chairman and CEO Phillip Bennett for securities fraud. At the root of the problem was this mysterious bad debt of $430 Million that suddenly surfaced in the Refco books. The debt had originated from a Bennett private firm; a firm managed by Santo Maggio, and was undisclosed at the time of the IPO. This debt reportedly dating back to 1998 and is identified as bad “uncollectible” debt associated with Hedge Funds.
The impact this issue has brought to Refco Inc. shareholders as been boggling. The once $30.00 stock now trades at $10.85 representing over $1 Billion in investor losses since Monday.
Who then is to blame for this most recent investor debacle? Who is responsible for the $1 Billion in investor losses? It would be easy to blame Bennett for his actions but that would be small minded. The real criminals are part of your Federal Government, the Securities and Exchange Commission. They orchestrated this entire debacle.
Time to investigatetheSEC.com.
The story of naked shorting, stock manipulation, and the Securities and Exchange Commission complacency runs deep. It runs so deep that Refco Inc. has reportedly covered up over $500 Million in bad debt, mark-to-market value on today’s stock prices, since 1998. Just last month Bennet had as much as $115 Million of the debt quietly paid down by an unnamed source presumed to be New Jersey Hedge Fund Liberty Corner Capital who was reportedly hiding this debt over the years.
Refco is presently sitting on $430 Million of bad debt associated with unsettled trades executed for hedge funds. The actual value of the debt, mark-to-market at the time of trade, is probably closer to $500 Billion than $500 Million. In other words, Refco sold $500 Billion worth of stock naked short over the years and has never covered the trades. The fails in the system represent the debt remaining on the present day value of the stock. The Hedge Funds have all but disappeared with the money on the short sale leaving the debt to Refco.
So how is it the SEC hasn’t picked this up before?
I believe they have. I believe they not only knew about Refco’s bad debt but know of many other Wall Street Institution debt of this general nature and they tried to cover it up under Regulation SHO.
In February 2003 the SEC concluded a multi-year investigation into the short-selling stock manipulation of Sedona Corporation (OTCBB; SDNA). The result of the SEC investigation was a $1 Million fine against now defunct Rhino Advisors for illegal shorting and stock manipulation.
As part of the investigation the SEC uncovered audio recordings of Rhino Executives bribing US brokers to manipulate Sedona’s stock. The SEC handed these audio recording over to the Department of Justice which led to arrest warrants being issued against Thomas and Andreas Badian. According to the arrest warrants, the audio recordings captured the bribes taking place and captured Andreas Badian telling the brokers to “sell the stock with unbridled levels of aggression” [naked short]. The recording later captured Badian congratulating the brokers on “collapsing” the stocks.
Can anybody guess where those brokers were employed?
If you haven’t guessed by now a source has confirmed they were in fact employed at Refco. The SEC handed over to the DOJ audio recordings of Refco Brokers being bribed to manipulate Sedona. And about those naked shorts used to manipulate Sedona?
For the SEC’s part in this awareness of the near destruction of an American Business, the SEC did nothing. Earlier this year Refco announced in one of their filings that they had received a ‘Wells notice’ from the SEC and was “nearing settlement for their participation in the short selling of Sedona and other matters. Refco reported to have aside $5 Million in liability. Refco also announced that President Santo Maggio would be suspended from administrative tasks for 1 year.
But doesn’t a Wells Notice indicate you uncovered something? It could not have been based solely on the audio recording of bribery and stock manipulation because that is old news – better than 2 year old news. The SEC could not be still negotiating a settlement of stock manipulation based on hard evidence gathered years ago could they?
No way. The SEC must have known about the bad debt, the unsettled trades, and the naked shorts. They have spent 4 years reviewing the case and they had to have more than just the audio recordings or the enforcement would have been settled long ago. The SEC requested trading records for their investigation and most certainly uncovered that trades have not been covered even after all these years.
It is my belief that the SEC fully knew of this bad debt, and all the other bad debt that is visualized by the daily publication of the Regulation SHO threshold list. Hundreds of companies listed as trading on excessive shares that fail settlement. We have already obtained under previous court order, trade records in Eagletech Communications (EATC) where the SEC was aware of trade fails lasting 250+ days and excused the activities. These trades executed short at near $11.00/share and only covered a year later when the stock reached a mere $.0.50.
To address the magnitude of this fraud, industry wide, the SEC incorporated a special clause in the June 2004 short selling reform, Regulation SHO, which hid this bad debt and violated the laws of the Securities Exchange Act of 1934. They created a ‘grandfather clause’. That is right, what was done before can not be touched but what takes place today can no longer be accepted as it was in the past. The ‘grandfather clause’ was intended to hide the bad debt and it may have worked had the auditors of Refco not uncorked the news.
So how does the SEC let a company go public while they are negotiating a settlement with the executives for their participation in stock manipulation and securities fraud? I am not sure but those now sitting on $1 Billion in losses in Refco should certainly be asking those questions. The SEC certainly orchestrated their losses. Refco never should have been allowed to go public.
While you’re at it ask the SEC how many other Institutions are they aware of that have similar bad debt associated with failed trades.
For the DC Beltway, Congress and specifically Senate Banking Chairman Richard Shelby (R; Al) have purposely avoided this subject matter of naked shorting. They have acknowledged that people, issuers, and State Regulators are concerned about the impact the abuse has on our economy yet have taken no actions to date. The Senate Banking Committee approved Regulation SHO and the ‘grandfather clause’ without regard to those who have suffered under the practices the clause was intended to cover up. With the Refco scandal now before us they can hide no longer. Chairman Shelby owes the people and certainly the investors of Refco an explanation as to why this happened. Why the SEC was allowed to cover up securities fraud.
As one who has been mocked repeatedly by the main stream media, I now laugh at how you professionals missed what a mere amateur has scooped you on for all these years. Where you waited for the event to unfold, I found the event and presented it. My “Timeline to financial terrorism” articles of years past are now historical reference to what you all overlooked – willingly.
To the SEC who has ostracized me for holding your feet to the fire, I will now seek the justice of accountability. Government immunity does not prevail over intent to defraud and with SHO there was intent. Mark my words the questions will come and the answers will box you in a corner. The evidence will show that the intent of the ‘grandfather clause’ was to protect the $430 Million liability of Refco and all the other Institutions carrying similar liabilities. A liability that will only grow as the mark-to-market value of these illegal trades grows as companies prosper instead of fold as you expected.
Folks, Congress it is ‘Time to investigatetheSEC.com’. Any further delays simply risk the investments of the remaining investors of these markets. This week was a $1 Billion hit, how many more weeks of this can we handle?
For this investigator and amateur writer, I will not stop until it is finally over. The people of this nation and globally who trade our markets deserve a federal Agency committed to our protection.
investigatesec.com
