Senator Shelby: "Naked short selling isn't fraud"....Wait, could you repeat the question?
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6/26/2006 2:23 PM |
Here we go again. Today, in an interview on CNBC, after discussing the illegality of “back-dating options,” Joe Kernan asked Senator Richard Shelby point blank, “What about naked shorting?” It went something like this:
Kernan: "What about naked shorting? And I don't, uh...I'm not saying anything nasty...naked shorting of stocks...what about that?"
Shelby’s reply? “Well, that's been going on a long time, and I've never had anyone talk to me and tell me that's fraud.” The response on the internet was instantaneous and vocal, one of shock and disbelief.
The Chairman of the Senate Banking Committee, whose job it is to oversee the nation’s stock market, said on national television that naked short selling isn’t fraud? The same senator who a year ago killed a Senate Banking Subcommittee hearing into naked short selling? The same senator whose aide Jonathon Grassio told Dave Patch of www.investigatethesec.com in September of 2005 that the Banking Committee was “committed to the issue,” and has done absolutely nothing ever since?
But wait, did any of this actually happen at all? Or was it all just a big misunderstanding, one of those wacky things that happen in life that seem important at the time, but everyone laughs about over drinks at the local pub later on? Was it all just an illusion?
Let’s begin by contrasting Senator Shelby’s comment on naked short selling with the comments of some of his colleagues, in letters to concerned constituents.
Senator Shelby: “I've never had anyone talk to me and tell me that's fraud.”
Senator Susan M. Collins: “The practice of naked short selling, which manipulates the borrowing of stock by selling nonexistent shares on the expectation that the price will fall, has been illegal since the SEC was founded in 1933.” (April 5, 2005)
Senator Richard Durbin: “The practice of naked short selling, in which investors short shares they don’t own or intend to borrow before selling, is illegal and regulated by the Securities and Exchange Commission.” (May 4, 2005)
Senator Elizabeth Dole: “’Naked’ short selling occurs when the broker does not actually borrow the shares bought by the investor. I agree with you that this practice has become a serious problem, as it can potentially distort the market.” (June 17, 2005)
Here’s a statement from Shelby in a letter to a frustrated shareholder on May 11, 2005: “You may be assured that the Senate Banking Committee will continue to pursue an active and aggressive oversight agenda in pursuit of the continued safe and sound operation of U.S. financial markets.”
And then we have Grassio’s comment in September of 2005 that Shelby was “Monitoring Regulation SHO.”
More compare and contrast:
Senator Robert Bennett (to then SEC Chairman William Donaldson): "You put out a new rule in January to deal with naked short selling, and as nearly as I can tell from my constituents, who feel victimized by this - it's not working." (March 9, 2005)
Bennett (later in the same Banking Committee hearing): "My main message here is that the evidence is Rule SHO is not working.” (March 9, 2005)
Senator Collins: “On January 7, 2005, the SEC implemented Regulation SHO (for ‘short selling’), with the intent to curtail the practice of naked short selling by requiring companies to issue a daily listing of short selling abuses. Unfortunately, the rule has not yet had a significant influence on the stock market. More must be done to reduce and, I hope, eliminate abuses in the markets system.” (April 5, 2005)
Senator Durbin (in a letter to SEC Chairman Donaldson): “It has come to my attention that Regulation SHO may not be curtailing abusive naked short selling practices.” (April 15, 2005)
So that brings us back to today’s bizarre turn of events, and Senator Shelby’s nakedshortsellingisnotfraud statement.
In an interview with Senator Shelby’s aide Andrew Gray today, he put a spin on the day’s events that left me a bit dizzy, and nauseous too. I know I say this a lot, but….are you ready for this? Take a deep breath. Here we go:
While it’s true that millions of Americans did indeed hear Senator Shelby utter the words “No one has talked to me that’s said it’s fraud,” Gray told me today that….and I can hardly even say this with a straight face….that “Shelby didn’t hear the question.” That’s right, Shelby claims that the questions were flying so fast and furiously that he missed the “naked” part of “What about naked short selling?” In fact, he missed the word naked not once, but twice.
So, instead, he thought that a reporter from CNBC felt it was relevant to ask him if legal short selling is legal, which in some ways makes his answer of “I've never had anyone talk to me and tell me that's fraud” even more bizarre. So let’s assume for a minute that he really didn’t hear the question. (I know, but bear with me on this one.) The only reason that the Chairman of the Senate Banking Committee knows that legal short selling isn’t fraud is because no one has told him that it isn’t? And this is the guy in charge of overseeing our stock market system?
And to top it off, Shelby’s office hadn’t issued a retraction or clarification of any kind to CNBC at the time of my interview with Gray, instead choosing to let stand a comment that was on the face of it an out and out lie. And I won’t even get into why Kernan didn’t choose to clarify that obviously erroneous comment from a senator who, at the very least, should have known better.
At some point in my conversation with Gray, I mentioned that Shelby had shelved a planned Senate Subcommittee Hearing investigating naked short selling over a year ago. Gray replied that he had, indeed, read my articles on the subject (so much for "no one telling me about it"), but that I was wrong, Shelby didn’t cancel any hearings on naked short selling….because the hearing never existed in the first place. In reply to my question about why no one ever responded to my phone calls to Shelby’s office and his aide’s cell phone or to my emails, he said that since the hearing never existed, they would have been responding to a "non-issue." And in answer to my question about how my sources, who were meeting with Senator Bennett on a regular basis, could have gotten it so wrong, he said “You’ll have to talk to Senator Bennett about that.” So…finally, a year late and billions of dollars short, Shelby’s office answers my charges that he cancelled the hearing on naked short selling, by claiming that it was all just a figment of everyone who was involved in the planning of the hearing’s imaginations.
I have calls in to Bennett’s office, but haven’t received a response yet. I’ll let you know when I do. In the meantime, here’s a rundown of the September 6, 2004, phone conversation with my source, who I was working closely with, when he first told me that the hearing was a done deal, after extensive face to face meetings with Bennett in Washington.
“The hearing will be a subcommittee hearing in February on the illegal shorting of small cap companies.”
The hearing will 3 to 4 hours long, so we need to be concise and make our case clearly and quickly.”
“I’m counting on you to provide us with information and to help put together a witness list.”
“Senator Bennett’s aide Mike Nielson has been assigned to work directly with us to assist us in preparing for the hearing.”
“We will need written testimony from victims, expert witnesses, and companies affected by naked short selling.”
“Should we implicate the SEC? Brokers? Or just confine it to the hedge funds?”
Over the next year, I spoke with this person on a regular basis, as he worked diligently behind the scenes to try to make this hearing a reality, as it was postponed time and again – first to March, 2005, then to May, then June, then, finally, on September 20, 2005:
"The authority and the responsibility to take the necessary steps to deal with the issue of naked short selling lies squarely at the feet of Senator Shelby, and he has chosen not to allow the planned Senate Banking Subcommittee hearing to go forward.”
In summary, here’s the official story: the Senate Banking Subcommittee hearing on naked short selling (that never existed) wasn’t shelved by Senator Shelby, who has “continued to pursue an active and aggressive oversight agenda in pursuit of the continued safe and sound operation of U.S. financial markets” (by doing absolutely nothing) until today, when he went on national television and said that naked short selling isn’t fraud, or maybe he said that legal short selling isn’t fraud….at least no one has told him that it is yet.
And that’s the Faulking…..Truth?
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