Naked Shorting 101: It's Harm Written By Attorney by CDLIC Diamondologist
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Posts: 262 Naked Shorting 101: It's Harm Written By Attorney « Thread started on: Today at 08:47am »
-------------------------------------------------------------------------------- Hi All,
This is a letter to the SEC from a well-known attorney, Frederick D. Lipman, Esq. regarding naked shorting. (see his resume below and a list of the fifteen books he has written or you can go to the following link to view his entire information http://www.blankrome.com/attorneys/attydetail.asp?AttNum=121).
By reading Lipman's letter to the SEC, you can quickly get the bottom line on naked shorting. If you want to "get righ into it" start reading at the 3rd paragraph.
Ciao,
CDLIC
******************************************** Letter To The SEC from Frederick D. Lipman, Esq.June 10, 2004
The proposed rule would be appropriate only after the Commission has adopted effective methods to prevent naked short-selling and has devoted sufficient resources to enforcing the prohibitions that the Commission actually adopts to prevent naked short-selling. At this point the Commission has not adopted Exchange Act Release No. 48709 October 28, 2003, 68 FR 62972 November 6, 2003, and it is not clear its proposal to prevent naked short-selling will be effective and, even if effective, will be enforced by the Commission.
Therefore, it is premature to adopt prohibitions on issuer action to avoid the deleterious effect of naked short-selling on public companies and their equity holders.
The deleterious effects of naked short-selling are extremely serious, particularly for smaller public companies. The following is a list of the serious harm caused by naked short-sellers:
1. Naked short-sellers depress the price of the stock held by existing investors by artificially increasing the supply of stock offered for sale. The depressed price of the public company stock prevents the public company from raising needed growth capital and undermines equity incentives granted to motivate employees of the public company.
2. By selling shares that do not exist, naked short-sellers undermine the authority of the board of directors under state law to control the number of outstanding shares. State corporate laws typically permit corporations to establish the number of authorized shares in their certificates or articles of incorporation and authorize the board of directors to issue those shares. Naked short-sellers can effectively increase the supply of shares beyond what is authorized by the board of directors and even beyond what is authorized in the certificates or articles of incorporation. Naked short-sellers violate the public policy set forth in the corporate statutes of the various states which permit only the board of directors to control the number of outstanding shares.
3. Naked short-sellers are incentivised to manipulate the price of the stock downward in order to maximize their profits when they cover their short-sale. Unscrupulous naked short-sellers will post false information about the company in Internet chat-rooms, spread false rumors and do everything within their power to cause harm to the company. Indeed, the ultimate triumph of a naked short-seller is to drive the company out of business, with the consequence that all of the employees would lose their jobs. The Commission does not have the resources to prevent this type of unscrupulous activity by naked short-sellers.
Although I recognize the need to promote the integrity and efficiency of the U. S. clearance and settlement system, this desirable public policy must be weighed against the evil of permitting the continuation of naked short-selling. Until the Commission develops an effective program to prevent naked short-selling, it should not interfere with the effort of small public companies to attempt to prevent this activity by restricting transfers to or from securities intermediaries.
Frederick D. Lipman, Esq.June 10, 2004
Lipman resume:
Mr. Lipman frequently appears on CNN, CNBC, and Bloomberg television as a national commentator on initial public offerings, venture capital, mergers and acquisitions, and stock options. He currently teaches venture capital in the MBA program at the Wharton School of Business and has taught corporate finance for ten years at the University of Pennsylvania Law School.
Publications (not all): "The Complete Guide To Employee Stock Options" (published April 2001 by Prima Publishing and distributed nationally to bookstores) "The Complete Guide to Valuing and Selling Your Business" (published by Prima Publishing in February 2001 and distributed nationally to bookstores) "Audit Committees" (published by The Bureau of National Affairs, Inc. in 1995 and updated in 2000) -- lead author. Cited in Blue Ribbon Committee Report "The Complete Going Public Handbook," subtitled "Everything You Need to Know to Turn a Private Enterprise into a Publicly Traded Company" (published April 2000 by Prima Publishing and distributed nationally to bookstores) "Financing Your Business With Venture Capital," subtitled "Strategies to Grow Your Enterprise With Outside Investors" (published November 1998 by Prima Publishing and distributed nationally to bookstores) "How Much Is Your Business Worth? A Step-By-Step Guide to Selling and Ensuring the Maximum Sale Value of Your Business" (published July 1996 by Prima Publishing and distributed nationally to bookstores) "Venture Capital and Junk Bond Transactions" (published June 1996 by the American Law Institute-American Bar Association) "Going Public" (published February 1994 by Prima Publishing and distributed nationally to bookstores). Designated by Fortune Book Club, a division of the Book of the Month Club. Selected as one of ten best business books for 1994. "Being Public" -- The Personal Duties of Directors, Officers and Principal Stockholders Under the Securities Exchange Act of 1934 and Rule 144 of the Securities Act of 1933." -- Packard Press, 1997 "Alternatives to Incorporating in Delaware" - New York Law Journal, November 6, 1997 "The Best Way to Launch An Initial Public Offering" - The National Law Journal, April 17, 1995 "What Should the Audit Committee Do?" The Corporate Governance Advisor, March - April, 1995 "Accounting Principles and Economic Growth" - Venture Capital Journal, November 1994 "Advanced Planning Needed for Your IPO" - The Small Business Controller, Fall 1994 The Quality Pursuit (1989) published by the American Bar Association: author of chapters entitled "Legal Opinions" and "Responding to Auditor's Letters."
« Last Edit: Today at 08:48am by CDLIC » Logged
-------------------------------------------------------------------------------- "The harder the conflict, the more glorious the triumph." Thomas Paine (1737-1809)
gluggo Dr. Of Diamonds
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Gender: Posts: 214 Re: Naked Shorting 101: It's Harm Written By Attor « Reply #1 on: Today at 09:00am »
-------------------------------------------------------------------------------- I just emailed this to all the SEC divisions and told them to read up and learn to do their jobs! I wonder if any of them will have the guts to respond! Logged
-------------------------------------------------------------------------------- "The harder the conflict, the more glorious the triumph." Thomas Paine (1737-1809)
CDLIC Diamondologist
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Posts: 262 Re: Naked Shorting 101: It's Harm Written By Attor « Reply #3 on: Today at 2:07pm »
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