Replies to post #617970 on Zeev's Turnips Patch-No Politics (ZEEV)

[Bruce A Thompson]

Yes and no

They had to collateralize the transaction. You and I can't do that but hedge funds can.

There is also the Puts Trick. Buy 20,000 out of the money Put contracts and the MM will short 2,000,000 shares naked for you.

Collateralizing the transaction meant putting up 50% of the sale price. Dumping millions of fake shares into the float meant that they killed demand and the share price sunk. The lower it went, the less money was needeed to collateralize the transaction. Read that as the lower the share price went, the more money the hedge fund could pull out of the account. That meant that more naked shares could be sold further depressing the share price and releasing even more cash to do it again. The very definition of the Death Spiral.

“Clearance and settlement systems like that of the DTCC which utilize “central counterparties” and the legal concept of “novation” are extremely susceptible to abuse. At one moment the seller of securities owes an investor half way around the world the delivery of the securities he sold to him. Two seconds later after “novation” takes place the seller, an NSCC “participant”/co-owner of the NSCC, owes delivery to the NSCC management which are its employees. Two seconds after that the NSCC management (the employees) informs the seller of securities (one of its bosses) that it is a “powerless” creditor of that debt and that it can’t force its boss to deliver that which he sold but that his boss should at least collateralize the monetary amount of the delivery obligation on a daily marked to market basis to lend the whole process a sense of legitimacy. A day or two after that the presence of all of the readily sellable “securities entitlements” resulting from all of these “we can’t force you to delivers” causes the share price to plummet which lowers the collateralization requirements which in turn unconscionably allows the funds of the victimized investor to flow to those refusing to deliver that which they sold. Now that is one well-designed “fraud on the market”.”
http://www.sec.gov/comments/s7-30-08/s73008-75.pdf