<<<<<< Funny, that stock didn't materialize out of thin air >>>>>>
Counterfeiting Stock 2.0 Illegal naked shorting and stock manipulation are two of Wall Street’s deep, dark secrets. These practices have been around for decades and have resulted in trillions of dollars being fleeced from the American public by Wall Street. In the process, many emerging companies have been put out of business. This report will explain the magnitude of this problem, how it happens, why it has been covered up and how short sellers attack a company. It will also show how all of the participants; the short hedge funds, the prime brokers and the Depository Trust Clearing Corp. (DTCC) - make unconscionable profits while the fleecing of the small American investor continues unabated.
Why is This Important? This problem affects the investing public. Whether invested directly in the stock market or in mutual funds, IRAs, retirement or pension plans that hold stock – it touches the majority of Americans.
The participants in this fraud, which, when fully exposed, will make Enron look like child’s play, have been very successful in maintaining a veil of secrecy and impenetrability. Congress and the SEC have unknowingly (?) helped keep the closet door closed. The public rarely knows when its pocket is being picked as unexplained drops in stock price get chalked up to “market forces” when they are often market manipulations.
The stocks most frequently targeted are those of emerging companies who went to the stock market to raise start-up capital. Small business brings the vast majority of innovative new ideas and products to market and creates the majority of new jobs in the United States. It is estimated that over 1000 of these emerging companies have been put into bankruptcy or had their stock driven to pennies by predatory short sellers.
It is important to understand that selling a stock short is not an investment in American enterprise. A short seller makes money when the stock price goes down and that money comes solely from investors who have purchased the company’s stock. A successful short manipulation takes money from investment in American enterprise and diverts it to feed Wall Street’s insatiable greed - the company that was attacked is worse off and the investing public has lost money. Frequently this profit is diverted to off-shore tax havens and no taxes are paid. This national disgrace is a parasite on the greatest capital market in the world.
10. Fails-to-Deliver – The process of creating shares via naked shorting creates an obvious imbalance in the market as the sell side is artificially increased with naked short shares or more accurately, counterfeit shares. Time limits are imposed that dictate how long the sold share can be naked. For a stock market investor or trader, that time limit is three days. According to SEC rules, if the broker dealer has not located a share to borrow, they are supposed to take cash in the short account and purchase a share in the open market. This is called a “buy-in,” and it is supposed to maintain the total number of shares in the market place equal to the number of shares the company has issued. Market makers have special exemptions from the rules: they are allowed to carry a naked short for up to twenty-one trading days before they have to borrow a share. When the share is not borrowed in the allotted time and a buy-in does not occur, and they rarely do, the naked short becomes a fail-to-deliver (of the borrowed share).
The Creation of Counterfeit Shares – There are a variety of names that the securities industry has dreamed up that are euphemisms for counterfeit shares. Don’t be fooled: Unless the short seller has actually borrowed a real share from the account of a long investor, the short sale is counterfeit. It doesn’t matter what you call it and it may become non-counterfeit if a share is later borrowed, but until then, there are more shares in the system than the company has sold. The magnitude of the counterfeiting is hundreds of millions of shares every day, and it may be in the billions. The real answer is locked within the prime brokers and the DTC. Incidentally, counterfeiting of securities is as illegal as counterfeiting currency, but because it is all done electronically, has other identifiers and industry rules and practices, i.e. naked shorts, fails-todeliver, SHO exempt, etc. the industry and the regulators pretend it isn’t counterfeiting. Also, because of the regulations that govern the securities, certain counterfeiting falls within the letter of the rules. The rules, by design, are fraught with loopholes and decidedly short on allowing companies and investors access to information about manipulations of their stock.
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