| | Register
Who is Bob O'Brien?
Sanity Check Archive
Click Here to see Bob's Old Sanity Check articles.
About our Blogs

Blogs found on this website represent the opinion of the author. For more information please visit our terms of use.
Funny Bunny
Looking for something a little lighter?
Catch Bob's more irreverent and amusing pieces in his Funny Bunny Blog.

NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 3/29/2006 12:00 AM

Unbelievable.

Here's the FOIA request Tommy got in last night - for all of 2005 and part of 2006, with 2004 to follow shortly.

Note that this number does not include ex-clearing, foreign clearing imbalances (like Canada or the Caribbean), "open positions", or any desked trades (where brokers just sell you "shares" and never bother to go into the market to buy them - just keeping the trades internal).

So the true number of share entitlements floating around out there could well be orders of magnitude larger than this 5% of all outstanding shares that the 1.5 million shares represents. Of course, the DTCC might say that is an improvement over the nearly 7% of total outstanding shares that were FTD on January, 2005, but why split hairs?

Note also that when the price of NFI was falling out of bed in the first part of January 2005 FTDs were very high. Can't wait to see the numbers for Dec. 2004, as well as April/May 2004.

Again, this is just one piece of the puzzle. We really have no idea how large the true number of fake shares are. What this now does is demonstrate that the company's stock is being abused, and that the info is available for review. So what is the SEC, the NASD, and the company going to now do? It is sort of difficult to take the position in light of this that there is no significant problem. I'd call 5% significant. And abusive.

Perhaps the best thing would be to halt trading, and do a snapshot of the NOBO, OBO, ADP and DTC sheets, and see just how many claims on shares are out there versus actual shares. Even better, come up with a mechanism that would require the Canadians to come clean on their positions, as Canada is one of the largest centers for naked short selling.

At the end of the day, my question is simple - who is going to stop this abuse?

I think it is a pretty good question.
Copyright ©2006 Bob O'Brien
Permalink  |  Trackback
Comments (16)
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By Cmkxer on 3/29/2006 1:13 PM
Big Bob Maheu
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By Rivethead on 3/29/2006 1:45 PM
Insane. You can clearly correlate large daily jumps in the fails to days NFI's share price was under significant pressure.
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By rtway1 on 3/29/2006 1:48 PM
This makes our system look more criminal as each new day goes by. We are starting to approach a scandal status that mirrors third world countries.
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By bobo on 3/29/2006 1:58 PM
Criminal is the word I keep coming up with. And you HAVE to know that the ex-clearing and foreign venues are much, much, much larger than this.

So how does it feel as a regulator to know that some lucky companies have 20, 30, 50, or more % of their total shares again as fakes trading in the system?
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By mhelburn on 3/29/2006 2:01 PM
the numbers of fails and the SI could be loaded onto a spreadsheet and offset 3 days and a chart made to see how it compares to the price action. Any math/techno gurus up to this? The part that is really astounding is that the naked shares probably profitted.. How did the naked shorts come off the list? Were they just transferred back from linked accounts and handed back to the DTCC?
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By mhelburn on 3/29/2006 2:03 PM
We have evidence that the SRO's are failing to regulate naked shorting with the FOIA request. Do we need to send it back to the SEC so they can see that we want something done about it?
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By hwh on 3/29/2006 2:06 PM
Robert: So proud to see you suggesting plausible solution, or at least a way to quantify the problem so that a solution may be developed. Also proud to see the RICO & DTPA claims coming to forefront...hwh
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By dave on 3/29/2006 2:06 PM
Bobo, they can be hidden in the US, too, below the level of the DTC.

It's hard not to be wordy in describing this, so I'll do it in two posts. The first post is how ownership is structured and the second is of how fails can be hidden.

The GENI example in the next post is worth clicking on to understand it and could be a Sanity Check all to itself.

1. All real shares are held in certificate form as registered at the company transfer agent.

2. One of those certificates is typically very large and is registered to Cede & Co. Cede & Co. is the actual owner of all "street form" shares. No one seems to know who Cede & Co. is, except to say they are a "nominee" of the DTC. They are not mentioned in the DTCC annual report.

3. The Depository Trust keeps track of who holds claims on shares held by Cede & Co. Participants of the DTC are either brokerages who hold their claims directly with the DTC or clearing corporations. These clearing corporations clear on behalf of the 90% of brokerages who don't hold shares in their own name. Some of these clearing corporations clear for foreign countries. For example, participant number 5099 clears for all of Canada. Other countries also clear through brokerages or clearing houses that are participants at the DTC.

A complete list is here:

https://login.dtcc.com/dtcorg/binary/19004Part_Numerical.pdf

It is difficult to find out how many people think they own shares because of the long chains that form.

For example:

If you own shares in Canada, you have a claim on shares at your brokerage who has a claim on shares on a Canadian clearing corporation which has claims at the Canadian Depository for Securities who has claims on shares owned by Cede & Co.

If you have your certificate, then your ownership is at the same level as Cede & Co. - registered at the company transfer agent in your own name.
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By dave on 3/29/2006 2:08 PM
MJK Clearing is a big recent failure. They failed just after 911. The trustee is at http://www.mjktrustee.com/. Here are two ways that extra claims can be hidden that won't show up in the freedom of information request.

According to MJK Clearing

http://www.mjktrustee.com/pdf/memorandum_of_law.pdf, they held assets for 65 brokerages representing 175,000 customers.

Let's talk about a similar company, the imaginary NKL Clearing.

1. At the level of a brokerage, a brokerage could own less shares than the customers think they own. For example, let's say that an average brokerage is supposed to own 10,000 shares of Microsoft, but they find hardly anyone asks for their shares, so they decide to only own 8,000 shares at NKL Clearing.
In that case, customers that think they own 65 x 10,000 = 650,000 shares only own 65 x 8,000 = 520,000. At this level, the system has 135,000 counterfeit claims.

2. What if NKL Clearing cleared for 64 honest brokerages and 1 corrupt one? The corrupt one fakes ownership in some way - perhaps claiming to have a big certificate of 520,000 shares of Microsoft or collateral worth 520,000 shares. Then at the level of NKL, they could sell the 520,000 those shares that the customers had and it would net to zero and they wouldn't need to have any Microsoft at the DTC.

The real world scam was:

http://home.att.net/~fcwriter/features19.htm

Scroll down to:

THE GENI LENDERS: How a Saudi Arms Dealer and His Cronies Used a Penny Stock to Wipe Out a Minnesota Brokerage Firm

This case study would make an excellent Sanity Check. It brings in all the intrigue of Iran Contra and BCCI and helps explain why they want to cover up what naked shorting really means to the security of this country.
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By dave on 3/29/2006 2:09 PM
How come the Jesse blog (two before this one) suddenly has 0 comments?
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By bobo on 3/29/2006 2:27 PM
We have a bug in the system. We will soon be moving to a new site with a simpler interface and a linux based operating system which should solve all these issues.
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By dave on 3/29/2006 2:50 PM
Bobo, if you get time, really read that link about GENI. You have to scroll down.

THE GENI LENDERS: How a Saudi Arms Dealer and His Cronies Used a Penny Stock to Wipe Out a Minnesota Brokerage Firm

http://home.att.net/~fcwriter/features19.htm

This quote tells the whole story:

"The complaint alleged that Brooks contributed to the fraud by letting Native Nations talk him into not demanding collateral from the New Jersey firm as part of the lending arrangement over the GENI stock and the ICII bonds. The SEC also alleged that Native Nations promised to pay MJK higher fees for this consideration, and that Brooks was in a position to profit personally from this, since MJK reportedly paid him 30% of its revenue from the stock-lending conduit activities his department generated. The SEC also alleged that Brooks falsified records at MJK concerning the arrangement with Native Nations."
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By Wonder Boy on 3/29/2006 3:03 PM
Way OT, but I wonder whatever happened to Carol Remond? She certainly appears to be the most intelligent of the group since she is keeping quiet! Did she already 'rollover'? Is she in 'protective custody'? Is it her 'testimony' or whatever that seems to be getting some action from the SEC at long last? Nah, couldn't be! I must be just having a 'brain fart'! On the other hand, think about it for a while and tell us what YOU think, please.
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By milllerd1 on 3/29/2006 7:00 PM
How many fraudulent letters do we now have from the SEC and NYSE that say they looked into your complaint and saw nothing wrong, inferring there are no FTDs beyond the spurious goofy ways they cited could possibly generate FTDs'.

Scott Hartman said he would act if he was given evidence, with just this letter and the data to follow there is sufficient evidence to approach the SEC, NASD, and NYSE and demand their actions within 3 clearing days, or promise to file suit. Tommytoyz please send Hartmann a notarized copy of your letter, by registered and certified mail, with a return reciept required.

No less there is clear grounds for a shareholders federal class action for SEC, DTCC, NASD, and NYSE partie sfailure to perform their fiduciary duties three of which collected exchange fees from our tranactions, the fourth collected government salaries and gave a performance oath. The class could easily include the OSTK shareholders, BVF shareholders, and with addiitional FOIA requests, probably shareholders for the rest of the REG SHO listed companies since December 01, of 2004
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By efmartin on 3/29/2006 10:39 PM
I was thinking that it may be possible to identify some patterns in the FTD data by matching up periods of massive increases in FTDs against a timeline of events such as the release of the Gradient report or Herb Greenberg hatchet jobs.

So far, my observations are that most of the big increases in FTDs coincide with big jumps in the share price. Trade dates Feb 24-25, 2005 FTDs increased by 223K when the price went up 6.9%. Trade date Mar 17, 2005, FTDs increase by 218K when the price went up 15.7%. Trade dates Apr 29 - May 3, 2005, FTDs increased by 529K while the price went up 10%. I would guess that the specialist was naked shorting to contain the share price.

Then on trade dates Oct 10-12, 2005, FTDs increased by 430K driving the price down by 13.5%. That looks like a bear raid designed to induce panic selling. It didn't fool me though, I was buying.

The data ends just as it was starting to get interesting. On trade date Jan 30, 2006, the 230K increase in FTDs represented 42% of the trading volume. I remember a while back that someone had obtained a couple of days of OSTK data that showed FTDs at 90% of trading volume.
Re: NFI FTDs for 2005 and part of 2006 show gross abuse - 5% of outstanding shares as of Feb, 2006 By efmartin on 3/30/2006 6:37 AM
The Oct 10-12, 2005 period stands out as the most obvious example of manipulation with a 430000 share increase in fails while the price plunged 13.5%. SEC should focus their attention on trading records during this time period. Does anyone have records of disinformation released during this time period?

The next most interesting time period is May 11-13, 2005 when fails increased by 250000 while the price dropped 5.7%. Herb Greenberg wrote a misleading article titled, "PMI sues NovaStar for Fraud" on May 12. However, I think that May 12 was also the day that the judge decided not to dismiss the class action lawsuit.

Your name:
Title:
Comment:
Please limit your comments to 500 characters. For longer comments, use our forums.
Subscribe via Email
Get This Blog via Email:


Powered by Squeet.com
Sanity Check Archive
Resources
Copyright © 2006 The Sanity Check   |  Privacy Statement  |  Terms Of Use