STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
When it comes to Stock Manipulation, Don’t count on Regulators to Help any Time Soon – February 1, 2006
David Patch
So you think you see a problem in your investment? Do you think it is your responsibility to seek out and identify concerns in the marketplace? If you do, what course of action can you take?
Investors that log on to the NASD or SEC websites are directed to submit formal complaints to the regulatory agencies through on-line or mail filings. The process is made to be easy and efficient process that comes highly recommended by the regulators if the investor feels that they have been cheated.
The SEC and NASD also want investors to feel their comments are highly regarded and thus make such bold statements as:
SEC: We welcome hearing from you because your information may alert us to a bad broker or firm, an unfair practice in the securities industry that needs to be changed, or the latest fraud.
NASD: If you are aware of unfair practices or specific instances of abusive conduct, NASD wants to know about it immediately. Often, violations of our rules and the federal securities regulations come to light through the receipt and investigation of regulatory tips from members of the industry and other industry professionals.
Invitations to participate but do they actually serve and substantive value?
Filing the complaint is great but what happens regarding your complaint after you file it? Is the filing meant to be a placebo, something just to make you feel better or is it really an active means of protecting yourself.
Unfortunately, the former is more the answer than the latter. For those of us who have filed complaints to these regulators our return on time investment has been far from satisfactory. The placebo quickly wearing off as our vision of the fraud simply continued.
In 1995 John Fiero and the Fiero Brothers brokerage firm was engaged in “bear raid” stock manipulation through illegal shorting practices. That illegal shorting practices that has now taken on the title of “naked shorting.” In 1995 Fiero was conducting these “bear raids” on behalf of organized crime and in 2002 the NASD barred John Fiero from the industry and fined him $1 Million.
As a result of the Fiero Brother’s abuse in 1995 one of the larger private clearing firms in the country, Adler Coleman Clearing filed for liquidation due to the magnitude of unsettled trades on record. The clearing firm held insufficient net capital to settle the outstanding failures created by John Fiero.
Fiero Brother’s was not the first known activity of this nature nor has it been the last. But it was the first actual regulatory enforcement case.
Between 1996 and 2000 the SEC was monitoring a Canadian Brokerage firm, Pacific International and that firm’s involvement in money laundering for the US Organized crime families. Naked Shorting was one of the venues used to manipulate the US markets and launder money as identified in a later regulatory hearing against Pacific international by the Canadian Authorities
Since John Fiero, there have been a total of possibly 10 or fewer cases brought by Securities Regulators over the abusive practices of naked shorting “bear raids.” While literally hundreds of billions or more in investor losses were being recorded, the regulators have been slow on the trigger to stop the problem and hold the criminals accountable. Our Nation’s small businesses were being destroyed, our local economies damaged, and while complaints were being filed, nothing was happening.
Does that mean the problem does not exist to any magnitude? No! To the contrary, it simply means the desire to act upon the abuse is limited at best.
As Investors we enter this market with several strikes against us.
Retail investors do not have the working capital to protect our investments from the swings created by Wall Street Institutions. We do not have access to the “inside scoops” that routinely premise a sudden change in market valuations, nor do we have the ability to react to those swings as swiftly as the Industry insiders do. Finally, we do not have access to the trade data that the Institutions have access to. Retail Investors are the pawns and small business enterprises are the tools in the re-direction of financial wealth.
In the case of Regulation SHO, the law passed by the SEC to address naked shorting abuse, the investing public is made aware what stocks have excessive settlement failures as the major markets publish lists daily. But Investors have no idea the magnitude of the abuse.
To the Institution(s) that own those settlement failures, they not only have access to the same list the retail investor sees they know the magnitude and the break-even price of the fails on record. A leveraged game Institutions and Market Makers can play on the investing public with both the monetary clout and the access to move the markets.
The SEC feels that that restricting the public from access to the same information may be used to manipulate markets yet; the SEC does not see that the money and power to manipulate markets is in the hands of those who have access to the information. The Institutions! Ironic isn’t it.
So what then does the investor do when such manipulation is seen through daily trade patterns only Investors appear to monitor? The only thing possible; file a complaint.
Yea right!
And now the finger pointing and misdirection’s come to the retail investor like an Abbott and Costello skit. The daisy chain of double-talk about which regulator is responsible for what. “Who’s on first?”
In the case of Naked Shorting, Regulation SHO is an SEC law so they are responsible for the enforcement of that law except of course until you ask the SEC who claims the individual SRO’s are responsible for the enforcement of the law. And as the investor is kept spinning in circles, the violations continue and the criminal walks away. Who is on first anyway?
The worst of the double talk comes when you are asked to “prove” your claims. The abnormalities of Level II trading snapshots are not enough. The fact that companies are listed on Regulation SHO for months on end is not enough. The dead body is not enough. These regulators want proof first. Proof a murder happened before the state conducts an autopsy telling you it was murder. Knife in the chest doesn’t count. Investors are expected to know more than regulators before regulators will respond and react.
“Subpoena the records” they say.
Silly me, Yea I think I will try that too.
Investor: Hey Judge, can you issue me a subpoena to check into Brokerage Firm XYZ’s trading in this stock? I want to see if their trades are settling.
Judge: Sure Right away. Want a few more while I am in the signing mood?
Today, lawsuits by investors and companies across the country have tried to get State and Federal Judges to issue those subpoenas regulators suggest we use to obtain records. In one case, held up in the US District Court in NY, a Judge has sat on such a request for years. But that case is unique in that the SEC has already confirmed the manipulation occurred.
In the 2003 settlement of the SEC vs. Rhino Advisors the SEC agreed that Sedona Corporation was manipulated and that members of Wall Street were part of the manipulation. Washed trades, brokers selling shares with “unbridled levels of aggression” and illegal shorting and stock settlement were all brought forth by the SEC and DOJ.
Sedona retained legal Counsel as the SEC actions provided literally no restitution to the company or the shareholders. The SEC case was presented to a Judge as part of the claims for damage and yet the Federal Judge still sits on the court ordered subpoena. The members of the Industry Sedona seeks restitution from are now protected not only by regulatory agencies willing to overlook the abuse but also by a Judge unwilling to allow the company to take the fight into their own hands.
Investors and the business are left out of control to their own fate.
The Industry Members owns the data and the Investing public is restricted from gaining access to the data that would be the evidence needed to convict. Regulators are fully aware of this contradiction and use it as a means to scoff at the complaints.
“Complaints are Unjustified” because investors can not provide the data to support your allegations.
Securities Regulators are the only ones with easy access to the data and they too fail to go out and get it. The investing public is supposed to prove the case of manipulation by providing the data.
The data speaks for itself. Hundreds of millions to over one billion shares sit on the books of the DTCC as settlement failures. The DTCC claims that 1% of these failures are in excessive of 200 consecutive trade days as a failure to deliver. The SEC and SRO have the data and yet nothing has happened. Instead of regulatory action they claim they are “making their case.” But which case they are investigating we are not privy to know so proof that an investigation is underway is based on blind faith.
For this investor, putting faith in our securities regulators to aide in the elimination of dangerous stock manipulation is putting faith in the dead coming back to life. Time is only to the advantage of the manipulator and to these securities regulators there is no timetable. If the regulators get their criminal they get them. But unlike a murder, there is a statue of limitations and many pass without the regulators acting upon those investor complaints.
A word to the regulators – Keep it Simple Stupid. Sell a stock, deliver a stock. Pay up the way you expect the buyer to pay up. That is the law the people understand. But then that is only my opinion and who am I? I can’t understand the investing public; I don’t work in the Industry. Oh yea, when it comes to negotiating settlements, give the crooks an offer and if they refuse; take them to court. Cut out the multi-year negotiations that only delay investor restitution and deter you from moving on to the next issue.
To be frank, Smarten-up! Manpower is light, use it wisely.
Just remember, it was the Securities Regulators that watched as Conflicts of Interest in Research resulted in Hundreds of Billions in investor losses. It was Securities regulators that watched as late trading/market timing prospered for the hedge fund industry and ‘preferred clients” of Wall Street. And it was the Securities Regulators that sit back and watch American investors get fleeced as trades are executed and Wall Street takes in the profits, while our communities are being destroyed by fraud and the theft of our financial stability. Who do the regulators ultimately report to, Wall Street?
Former SEC Commissioner Arthur Leavitt put it in perspective in a recent editorial; “the concerns of ordinary investors often were subsumed to the interests of industry lobbyists by Republicans and Democrats alike.” So much for a fair market, if success can be achieved by cheating make sure you pay the ref’s.
