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NFI - Preliminary analysis shows ugly patterns

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Posted by:   bobo 4/9/2006 11:00 PM

A little bit of fun from the road. A good friend sent me the following, and it is as indicative of a problem as anything you can imagine. First, Recall the FOIA data we received recently from the SEC on NFI for 2004-2006. Here is a preliminary analysis of just one month's worth of data, and a nice indicator of how the system works to "protect" investors:

1) Here is the total outstanding ftd in NFI as we neared the end of 2004. (Note November 10, 2004: 3.223 million fails.) Column C shows the daily change: positve means the ftd's went up, negative means they went down.

 aOutlook1.jpg

2) If I sort them by day to day changes, I get that a typically high day for new daily ftd's  were 307,285 new ftd's on October 22, 2004.

Notice trading date October 19? The volume was 756,200. October 22, 2004 was the settlement day for October 19. Thus, 41% of the sales that day were of phantom stock. So here is a question - is it bad for approaching half of a day's trading volume to be phantom shares? Yes? No? Other high days were 30% of trading, or 35%, or 40%.

At what point is this considered a problem?

Now here is the punchline:

  • Is this the whole problem? Most likely not. Here are some reasons why:
    • Are these really the "total ftd's" for those days? Or are they the FTD's at the DTCC? Because if they are only the ones at the DTCC, then this is likely only 18% of the problem.

 

    • According to Dr. Trimbath, the DTCC starts using a category at some point called, "open positions," which means nothing other than, "FTD's that have been around a long time so we reclassify with a completely different set of words." These don't show up in the FTD data.

 

    • These would also not include share entitlements, which are what brokers leave behind in your account when they borrow your stock. So if they borrow a hundred shares out of your account (and leave behind 100 share entitlements), and loan those shares to someone who shorts them to someone else, there are now 200 share-like things in the system (the shares and the share entitlements).  But no ftd's!

 

    • These would also not include any desked trades, where your broker processed your buy order, and then just ledger-entried the buy as though he had gone out and purchased shares for you, but instead didn't.

 

    • At the present time, NFI shows short interest as being 38% of the float. It was about that in November of 2004 – actually a little higher.

 

The problem is stark, and undeniable. NFI has been routinely brutalized by a system that turns a blind eye to stock manipulation. No other explanation works. Is this my imagination? Easily explained away?

41% of a day's trading in a big board stock? And that is just the visible portion of the problem NOT counting all the hidden ways you can fail to deliver?

Yikes...

Nope. Just a system run amok, and shareholders being robbed, routinely, while the regulators and the complicit system pretends all is well.

 
Copyright ©2006 Bob O'Brien
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Comments (24)
Re: NFI - Preliminary analysis shows ugly patterns By Joseph Avenius on 4/10/2006 7:17 PM
Apparently, everyone in the SEc is waiting for their big time Wall Street job when they leave. To say they are unaware would be like standing at the edge of a forest fire & saying "What smoke? What fire? Were is your proof?"
Re: NFI - Preliminary analysis shows ugly patterns By rtway1 on 4/10/2006 5:20 PM
There should be a represenative of the SEC to view this chart in a public forum and then give an explanation to the public. You can,t make it any simpler than that. If they refuse to answer to these figures then they are indicting themselves and the DOJ should step in and threaten indictments. I would venture to say if any of these people in the know had a clue that they may see jail time, I think they would be extremely willing to answer any questions.
Re: NFI - Preliminary analysis shows ugly patterns By browntrout on 4/10/2006 7:23 PM
Rtway1- Great idea but will not happen because everyone is aware of this problem and will do nothing. I think we would have a better chance with the Russian Mafia than our own SEC, DOJ, White House, NASD, FBI, etc. This enormous theft has the greenlight from everyone to keep on trucking! Welcome to AMERIKA!
I assume there are FOIA req's for "open positions"? By Joe on 4/10/2006 7:25 PM
I assume you've got FOIA requests to the SEC to get the total "open positions" for the same perioed - right?

If they actually give you that, it would be educational... How many drops in FTDs are because they're covered, and how many are because they got transferred to "open positions"? Are some days when the FTDs go down, is there actually an increase in net NSS?

-Joe
Re: NFI - Preliminary analysis shows ugly patterns By rtway1 on 4/10/2006 7:43 PM
Browntrout it is stange you mentioned that. A contractor friend of mine was in Russia to bd some work and to his dismay he found out that the locals would sooner seek the assistance of the mafia rather than their own police force. We are supposed to be a leader in the world of justice and following the letter of the law, yeah right.
Re: NFI - Preliminary analysis shows ugly patterns By hwh on 4/10/2006 8:42 PM
It appears that in a free market sytem, there is a strong need for a new intermediary option for companies to utilize as an alternative to direct investment & "CEDE". Companies could pull their shares from DTC & let it die it's own death. They laughed when NASDAQ started, too...hwh
Re: NFI - Preliminary analysis shows ugly patterns By tommytoyz on 4/10/2006 9:01 PM
All FTDs are illegal according to the 1934 Securities Exchange Act, Section 9 :

"a) It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange--

1. For the purpose of creating a false or misleading appearance of active trading in any security registered on a national securities exchange, or a false or misleading appearance with respect to the market for any such security,
1. to effect any transaction in such security which involves no change in the beneficial ownership thereof,.."
______________________

FTDing is effecting a transaction without a change in the beneficial ownership.....funny how this has been illegal since 1934, yet gets done as a matter of routine, because entire companies and trading schemes rely on it. Let's at least give the SEC a round of applause for creating the REG SHO list and now releasing the FTD data. However, I think the Freedom of Information Act had something to do with it as it has teeth with jail time for government employees who try to hide information under this Act.

The 1934 Act makes no exception for arbitrage or options traders or dealers. Nor should they. Any trading that FTDs, is a trading scheme to make money off the back of regular investors.

Section 9 also makes it illegal for broker dealers to try and influence prices :

"3. If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security, to induce the purchase or sale of any security registered on a national securities exchange or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.
4. If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security, to make, regarding any security registered on a national securities exchange or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security, for the purpose of inducing the purchase or sale of such security, any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which he knew or had reasonable ground to believe was so false or misleading. "
_______________________________

Section 9 also makes Herbing a report illegal - that is to write knowingly false reports to move the prices :

"5. For a consideration, received directly or indirectly from a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security, to induce the purchase of any security registered on a national securities exchange or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security."

I think Congress saw the light after the 1929 crash and Section 9 is very explicit and what is illegal. FTDing and Herbing reports is illegal - no matter what the SEC says or how many rules they pass in conflict with the 1934 act.
Re: NFI - Preliminary analysis shows ugly patterns By tommytoyz on 4/10/2006 9:32 PM
Reading Section 9 shows me no exception even for market making functions. Back in 1934 Congress apparently understood that you don't "make" a market - a market makes itself.

Any market intervention or manipulation is not a free market. The securities market doesn't need market makers or specialists. People are not too stupid to know when and at at what price to trade securities. Investors do not need a market makers.

Works in almost every other market - Real Estate, Autos, Tomatoes, Oil, Gold.....But we stupid Americans need a market maker to control things.......Well, so long as they don't violate the 1934 Act!
Re: NFI - Preliminary analysis shows ugly patterns By Wonder Boy on 4/10/2006 10:08 PM
Tommy----
Love your research and reasoning, but we also have other laws that have just simply been ignored by our 'elected representatives'. I paid for the FSLIC and had to pay again when the government let the S & L's run out of control. I have paid for the INS that has not enforced any immigration laws. How much will that cost me in tax rebates to 13 million folks? The 'elected representatives' are too busy getting re-elected. They want no controversy. As a group, when I think about it, they have talked more and done less than everyone other than the United Nations. I hope and pray for some major changes, but it seems that the 'government' just needs to 'create' more 'emergencies' to divert attention while not doing the basic jobs for which they were elected. A few of the low level crooks will be punished without admitting any guilt while the rest go free to continue robbing the public. The SEC will claim another 'victory' and yet, the illegal lending will go on, the trades will not be 'settled', and the general public will just go on----happy as a clam.
Where's a Lawyer When You Need One By z3peru on 4/11/2006 4:09 AM
Anybody interested in discussing a lawsuit at the annual meeting?
Re: NFI - Preliminary analysis shows ugly patterns By Dear CMKX Owners Group Members on 4/11/2006 6:13 AM
FRIZZELL LAW FIRM Update 4/10/2006
602 S. Broadway
Tyler, Texas 75701
(903)595-1921


Dear CMKX Owners Group Members,



On April 5, 2006 the DTCC issued a letter to all its participants regarding CMKM shares that were on deposit at the DTCC. If you have not seen the letter, it can be found at http://www.dtc.org/impNtc/reo/reo_9516-06.pdf



The DTCC has been communicating with representatives of the Task Force for several weeks. It has been apparent to me that the DTCC is encouraging its participants to withdraw their certs from deposit at the DTCC. The participants are the thousands of broker/dealers, banks and clearing firms that use the services of the DTCC. As I understand the process, the participants are being asked to send the DTCC WT’s (withdrawal by transfer instructions) so the DTCC can then forward that participant’s respective cert (or holdings) to the transfer agent for change into the name of the beneficial owner. The DTCC would then not have a depository position as to the shares represented by this transfer request. There have been DTCC participants (broker/dealers, banks and clearing firms) that for some reason have either refused or neglected to order WT’s of their positions even though such action has been clearly called for since November of 2005. The original deadline by CMKM for shareholders to obtain their certs was December 31, 2005 as mentioned in this letter from the DTCC. We had been seeing correspondence between the DTCC and various broker/dealers for several months noting that the DTCC was requesting that its participants obtain certs per the requests of CMKM. Several firms complied promptly to the directions of the DTCC and now have no security position in CMKM at the DTCC.

This directive dated April 5, 2006 was prepared by the DTCC officials as an internal memo to its participants. It is apparent that the DTCC wished to allow its participants the option to voluntarily request withdrawal of their certs by April 14, 2006. It is equally apparent that the DTCC is telling its participants that if any respective participant does not withdraw all CMKM certs on deposit or request that the DTCC transfer the participant’s certs to the Transfer Agent, then the DTCC will perform this task for the participant. We have received many inquiries regarding the meaning of this directive from the DTCC. The letter is self explanatory. By May 15, 2006, the DTCC will have no CMKM on deposit if the acts set out in this letter occur.

What does this mean to the participants? Once the DTCC forwards all certs to the transfer agent or its participants, the beneficial owners and customers of the participants must look exclusively to their respective broker for their cert. The brokers can no longer blame the DTCC or the Transfer Agent for any failure to provide a cert to its customers.

As one of the members of the Task Force, I can tell you I am very concerned because we do not anticipate any additional extensions beyond May 15, 2006. We continue to receive communications from shareholders who are unable to obtain certs from their brokers. The actions of the DTCC will assist the Task Force in its efforts to complete the distribution list of shareholders that will receive their Entourage stock.

I am making my final recommendations to the other members of the Task Force as to the final mail out to come shortly from the company. When the company approves the final mailout to the shareholders, I will comment further with more details about the implementation of that mailout.



Onward,



Bill
Re: NFI - Preliminary analysis shows ugly patterns By Rvac106 on 4/11/2006 6:51 AM
Re: CMKM

This looks as though the DTCC is now hanging the Broker/Dealers out to dry. "We've distributed all the shares we had, now, you need to go after someone else." After they're the ones who made it possible to accomplish the dirty deeds in the first place? How's this going to play out?

Stay tuned.

RVAC
Re: NFI - Preliminary analysis shows ugly patterns By hhawes on 4/11/2006 7:06 AM
z3peru, why wait? Why not discuss it right here and now. I would willingly participate (share the costs) in a class action with everyone here. Thanks to Tommytoyz, EB and others, we clearly have a basis to go forward.
Re: NFI - Preliminary analysis shows ugly patterns By Fred on 4/11/2006 7:22 AM
When will you write a about CMKX Bob?

Is there a better example out there than CMKX when it comes to naked short selling?
Re: NFI - Preliminary analysis shows ugly patterns By cynabear on 4/11/2006 7:47 AM
ahhhhhh......so interesting to watch the very rich rats who have gone to school with each other, partyed with each other, married each other..etc. start jumping ship and pointing fingers....parties may be a bit constrained at the Hamptons this summer....
tant pis...as they used to say in Paris....
A Lawsuit On Short Selling? By Admiral Ackbar on 4/11/2006 8:19 AM
What to make of this, esspecially since MW is known to have a hand in the naked short cookie jar as well.

http://spaces.msn.com/squawkblog/

Milberg Weiss Bershad & Schulman, the big class-action law firm, is weighing a lawsuit against the major brokerage firms over the controversial practice of “naked shorting,” CNBC has learned.
Re: NFI - Preliminary analysis shows ugly patterns By bobo on 4/11/2006 8:21 AM
I don't have enough knowledge about CMKX to actually understand all the issues and write about them. Additionally, it is unclear based on my short discussions how many shares were issued by management, making it even more difficult to assess the actual impact of NSS. I have no doubt that they have been abused, as have many many others, but I don't have enough to write about them definitively - and frankly, this column is about NFI, for which there is FOIA data that is definitive. It isn't about CMKX, or their progress in their cert pull, or your feelings about them. It is about NFI, the definitive FOIA data, and the fact that a big board NYSE stock can trade 40+% fake shares on any given day.

Please try to keep on topic. I don't want to have to start deleting posts.

IF you can get FOIA data on CMKX I will be happy to write about them. As I have when OSTK FOIA data came available. But as of right now, the ONLY company for which there is a long history of FOIA data is NFI.

So that is what I am writing about.
Re: NFI - Preliminary analysis shows ugly patterns By bobo on 4/11/2006 8:24 AM
My sentiment is that this is all a smokescreen - they are "considering" filing. Like Rocker was going to countersue OSTK. But they didn't.

Look, I know of specific instances where hedge funds naked shorted through Canada, ordering the brokers to short naked as they needed the price lower. You think they are going to allow that to come out in discovery? This is, IMO, a feeble attempt to get the hedge fund crony lawfirm to file a fluff suit that will easily be dismissed to establish the fanciful notion that the hedge funds are blameless.

And I haven't been wrong about much of this yet.
Re: NFI - Preliminary analysis shows ugly patterns By bbhindyou on 4/11/2006 8:48 AM
Our 'free' market seems to be on par with all the other 'freedoms' we americans enjoy.We are free to do as we want as long as it's not inconvenient to the people in power or intruding on their 'turf'.We are free to invest in the market as long as the people in power get to decide what companys will be allowed to survive. Any company they want to die they kill by shorting. Robbing the company and its investors of funds needed to exist by selling shares in the company that dont exist and pocketing the money.Death by starvation.There is no other way to see it.I would love to see a chart showing company start ups from before the dtcc and the falure rates of those companys verses the falure of start up companys after the stock 'borrow' program 's inception.It would also be interesting to see the types of companys 'targeted' by the short sellers .I would bet it started as a 'get rid of the competition 'type of thing that quickly turned into a whatever we can get away with free for all.America was made great by small companys and new innovation .The denial of the little guys success in starting new companys is the death of capitalism and the american economy.I would say its a safe bet our elected leaders are not working for the american people who voted for them instead they are working for the people who are destroying our market from within.The people who are making money of of the death of the american dream.The people who really rule.Can the country survive the destruction of the economy?Is this what the players behind all this really want?Will america still be a 'free' country ?Is it now?If the story on this really breaks and all confidence in the markets and our current political leadership fails will the american people be allowed to elect a new political leadership or will we be told to shut up keep working for our 'masters' and end up in a openly operating dictatorship instead of this behind the scenes puppet show we now enjoy?Russia is looking good!Grand fathered fails! How stupid do they think we are?
Re: NFI - Preliminary analysis shows ugly patterns By Frad on 4/11/2006 9:08 AM
According to this post Hedge Funds may be the victims of Wall Street Brokerages.

FORCED BUY INS NOW CNBC
by: soldhibotlo 04/11/06 12:53 pm
Msg: 86410 of 86416

Subject: transcript of Gasparino on NSS, 4/11 Date: 4/11/06 9:30 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 5

class-action lawsuit, cnbc's on air editor charlie gasparino has been
working on a story. >> the hedge funds are the guys that have been harmed in
this case. it is the brokerage firms that are doing the harming. >> you
remember what a short sale is, you borrow the shares, you sell them
immediately. you wait for the price to decline. you replace it. naked short
comes where you don't actually borrow the shares. you go to your broker he
sets up the short position but he doesn't actually borrow the shares. guys
like patrick burns from overstock.com are upset about this. it is the hedge
funds engaging in this because they are paying the brokerage firms to set
this up and they are not getting the short position. at some later date when
they have to unwind their short position, they can't find the shares. they
lose some money. from what i understand a bunch of hedge funds have gone to
a major class action firm and basically said we may want to file a suit,
possibly a class action suit against major brokerage firms. there's some
unknowns here. i don't know if the law firm is going to do the suit....
they are basically on the fence with this right now. i don't know who the
plaintiffs are. although i hear it is not steven a. cohen who has been in
trouble -- he's been sued. he denies the charges by biovail for doing some
sort of improper short sale on the he stock. let's face it, i don't know
exactly what brokerage firms are going to be targeted. i hear it is the big
ones, the main brokerage firms, but i do hear that this suit is likely to
come in the next couple of weeks. this will really raise the sort of topic
of naked shorting. i think it will put it on the regulator's agenda once
more. it is going to go beyond patrick burn now to sort of bigger issue
should you be naked shorting? i've heard that overstock.com for example a
lot of its shares are shorting. that is an amazing number. how do you short
more than what you have? >> maybe the hedge funds are being forced into
playing the bad guy. i want to hear more on this. we are coming back with
more at 8:50 eastern time. i have a lot of questions. >> fire away. >>
coming up, they are saddled with cultural stumbling blocks decades old
bureaucracy and union troubles what the big three need to do to rebuild and
adapt to the auto industry of the 21st century. keep it locked right here.



Re: NFI - Preliminary analysis shows ugly patterns By teacheric on 4/11/2006 10:17 AM
We need to start seeing some people rising up and complaining in large groups like we're seeing about immigration. Then we'll get some media attention. Don't the attorneys representing OSTK have big money? Why not "pay" to get the media involved. All we need is a media blitz to get this ball really moving. After that, the average Joe will know enough that he's being ripped off. He's not going to forget it. I know I haven't forgettn it, and I'm more ticked off now than ever.
Re: NFI - Preliminary analysis shows ugly patterns By bbhindyou on 4/11/2006 10:30 AM
The reason 'we' dont pay the 'media' to publish this is that 'they' can not only pay more than 'us' to keep it quiet but 'they' can also destroy anyone who who does NOT keep quiet while they murder you and your little company too:IE: Patric Byrne .Everybody clear on things now about the publics right to know and the media.Reminds me of a film on a african gangster that was out thug or something the guy who protests the gang robbing him gets killed...sad but true to life .
Re: NFI - Preliminary analysis shows ugly patterns By cynabear on 4/11/2006 10:33 AM
ahhhh "bbhindyou" you ask some serious questions.....yes, we are free, free to be ripped off by the rich, powerful connected and criminally sociopathic, free to play in a rigged system, free to contiue to elect those that continue the rigged system and profit by it, free to read newspapers that have been bought off or are part of the system, free to watch news shows owned by major benefeciaries of the systems....i couild go on.....makes you want to wave a flag or something doesn't it???? This is the forum from which a new and better fairer system could rise up but only if the "revolution" gathers more support than EH, Patrick, and a band of merry men/women....this is a complex issue and america like "simple", likes to watch TV not read something like securities laws.....this issue is so big its hard to see....and not very gratifying once you see it.....
Re: NFI - Preliminary analysis shows ugly patterns By bbhindyou on 4/11/2006 2:35 PM
I think there has been a underestimation of how much 'joe average' can understand and or care about stock market manipulation when it becomes clear that the issue has cost HIM money .Joe may even figgure out that the killing of small companys will cost jobs in the long run for not only joe but his kids.Joe will get mad he might get even as well.

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