Are Your Stocks Bona Fide?
An adventure in Naked Shorting
www.TheStreetWire.com
(PRWEB) December 14, 2005 -- The biggest concern that investors have today isn't whether the stock they bought was overpriced or undervalued, but whether or not the stocks they have purchased on the open market actually exist. It's hard to believe, but it's true. There are millions of "counterfeit" shares floating around the market as we speak, in hundreds,
possibly thousands of publicly traded companies. You're probably thinking to yourself, "that's impossible" or "the government would never allow that", but they have. In fact very little has been done to get rid of these counterfeit shares, and the vast majority have been "legitimized" by the Securities and Exchange Commission.
So how does this happen? How did the counterfeit shares get here in the first place? It all has to do with the process in which stocks are purchased, and delivered. When you purchase shares of stock in the open market, they show up in your brokerage account immediately after the transaction as a marker or "place holder". The actual shares of stock aren't delivered to your broker's accounts until three days afterwards. So in other words the entity selling you the stock that you purchased has three days to deliver that stock and make good on their end of the deal. When the stock doesn't get delivered it results in a "failure to deliver" transaction.
Now you might be wondering "how did the seller of my shares sell them to me?" The answer to that question, is they were shorted to you. In a normal "short" transaction the seller borrows shares from a lender and sells them to you, and the seller promises the lender that he will buy them back at a
later date, hopefully for a cheaper price, and return them. When a failure to deliver occurs, the short seller never borrowed the stock from the lender, and thus was unable to deliver the stock to your broker's accounts.
The common name for this type of transaction is a "Naked Short" sale.
What this has created is a backlog of millions of failure to deliver "IOU's" floating around in people's brokerage accounts. In order to cleanse the market of these counterfeit shares the SEC adopted "Regulation SHO" which creates a threshold list of failure to deliver securities. Currently there are over 280 publicly traded companies on this list, some of which have been
listed with continuous fails for over 235 days. At the top of the list are Martha Stewart Living Omnimedia, Krispy Kreme Doughnuts, and Netflix. The CEO of Overstock.com, also on the threshold list has made fighting Naked Shorting a personal battle.
The lesser told story of Naked Shorting deals with the smaller start up companies, which makes up the majority of the threshold list. With these companies Naked Shorters flood the market with counterfeit shares, creating an imbalance of supply and demand which drives the stock's price to sub-penny levels. In these cases the aim of the Naked Shorters is to drive
the company out of business and into bankruptcy, due to lack of available financing. Thousands of small companies have fallen victim to this practice, and very few have the resources to fight back. However there is one small mining company, CMKM Diamonds Inc. which is trying to fight back against Naked Shorting, by proving to the world that a Naked Short position in their stock exists. The task of doing such is left to the shareholders of the company, which are being asked to fax in copies of their physical stock certificates to the "CMKM Task Force", which is headed by one time CIA Agent, and billionaire Howard Hughes right hand man, Mr. Robert Maheu. What the taskforce will prove, and what they are seeking to gain from this massive endeavor remains to be seen.
For more information about Naked Shorting you can visit the home pages of the Depository Trust and Clearing Corporation, or the National Coalition Against Naked Short Selling for two vastly different objectives.
AI
