ringao--More on illegal short sales
I'm just throwing out thoughts and concerns about the unbelievable short interest here. All thoughts welcome.
Illegal naked shorting is still a huge, un-prosecuted, crime. I urge all of you to read an extremely illuminating article that appears in the October 2013 issue of Wall Street Lawyer (Vol 17 Issue 10). It’s about 10 pages long, and written by an attorney who specializes in this area It describes how naked shorting was not just routinely practiced against micro and mid-cap stocks, but it was probably the reason for the downfall of several of the big boys. In 2008, with the collapse of the economy, even the big companies and financial institutions began to gripe about the extent of naked shorting. (Evidently it had been alright to kill the Vringo-sized companies with naked short-selling, but naked shorting had reached the point where sometimes tens of millions of naked shares were outstanding in some of the BIG companies. That evidently wasn’t considered fair.) Selected author’s comments:
Naked short selling was likely
a factor in the collapse of Bear Stearns,4
Lehman Brothers,5 and the near collapse of
Morgan Stanley.6
For the first time, it was not merely the small cap
and microcap public companies whose stock value
was being hammered by naked short selling.
Instead, the victims were the nation’s investment
banks—Bear Stearns, Merrill Lynch, and Lehman
Brothers. On March 14, 2008, shareholders were
holding 128% of Bear Stearns’ acknowledged
float.20 In Lehman’s case, there were 33 million
shares of counterfeit stock.21 A 2013 article cowritten
by two prominent economists explains
why the banks were especially vulnerable to naked
short selling during the crisis.22 The failure of
these two investment banks validated Irving Pollack’s
warning two decades earlier.23
The article points out how there are some thirty (30) ways companies have found to avoid the reporting requirements of SHO relating to naked short sales, etc.
The article points out how commonplace naked shorting was, despite the SHO rules and regs. Using the two examples of UBS and Credti Suisse, the author notes that each company participated in over 30 MILLION violations of applicable rules and regs. The author simply refers to naked short sales as “counterfeit stock”---which of course is what it is.
The article is chuck full of information, pointing out that the naked short selling is still undoubtedly occurring, even with complicity by almost everyone. Just a few of the author’s other comments:
With two cockroaches in the naked short cupboard,
the classic pattern is beginning to form. Indeed,
Goldman Sachs and Merrill Lynch cockroaches
may also reside in the cupboard, as evidenced in
a memorandum inadvertently released this year
by Goldman Sachs counsel in the Overstock.com
litigation.31
And then there is the complicity of the exchanges
for profit in naked short selling, like the
Chicago Board Options Exchange (CBOE).
.....
The CEOs of the major investment banks repeatedly told the SEC in 2008 that naked short selling was the catalyst
causing the banks to collapse. In March 2009, the
SEC’s Inspector General (IG) published his audit
confirming that Enforcement rarely investigated
complaints about naked short selling.
....
No rational policy of deterrence can be inferred
from the government’s enforcement of the securities
laws over the five years since the financial
crisis struck. The U.S. General Accounting Office
(GAO) has fixed the cost of the 2008 crisis at $22
trillion. A Senate investigation isolated a cause:
pervasive fraud, mostly by the major investment
banks such as Goldman Sachs and Deutsche Bank.
Yet, there have been no criminal prosecutions of
the banks or their executives. Nor any SEC prosecution
against any bank executive higher on the
corporate ladder than former Goldman Sachs
trader Fabrice “Fabulous Fab” Tourre.
Even worse, the Wall Street executives who
guided their banks into the 2008 train wreck have
been richly rewarded for their skill in doing so. A
Harvard study found that the top five executives
of Lehman and Bear Stearns pocketed $1.5 billion
and $1 billion respectively for the decisions that
buried their companies.66 The total sum pocketed
by top bank executives for engineering the crisis
is unknown. But one thing is clear: they kept their
billions. The SEC did not collect a dime from top
bank executives for their role in delivering the financial
crisis.
One fraud which deepened the crisis was the
sale of counterfeit stock. The SEC briefly awakened
to this threat at the height of the crisis when
the CEOs of the largest Wall Street banks cried
out for the cavalry: their banks were in the crosshairs.
In a burst of hyperactivity, the SEC issued a
dozen releases to stop naked short selling. As the
banks’ vital signs improved with the infusion of
trillions of dollars, the SEC’s interest in prosecuting
naked short selling quickly waned. By March
2009, the SEC had reversed its thinking: naked
short selling did not exist, but if it did, it brought
needed liquidity to the markets.67
[MyRed Angus comments again]: Can you imagine that? Now that the big banks are making money again the SEC is not only not enforcing the law regarding naked short selling, it actually thinks that illegal naked short selling brings “liquidity to the market”. Are we losing control of our government or what?
Anyway, I hope Vringo is doing the necessary investigation about how such immense short selling is occurring in this low-float stock.
