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WTF? WTFF? The Tune Changes Again...

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Posted by:   bobo 4/10/2006 11:00 PM

So, how weird is this? We went from Bobo and Patrick are crazy and there is no naked short selling problem, to there might be a teensy weensy problem but it isn't really a problem, to (once the FOIA data proved without a doubt that the problem was significant) there is a problem but it isn't as big as the nutcases are making out, to it isn't our fault - it's the brokers - and the problem is big enough to sue over.

Huh.

So is it that we are nuts and there isn't a problem? Or is it significant enough to sue the brokers?

I suppose the good news in all this is that we now have confirmation from the industry that there is a significant problem - now the question is who to blame.

Here's what I think it all means:

1) The hedge funds now need to figure out a way to create a sense that they are victims. One good way is to announce publicly that they are victims, and then threaten to file a lawsuit. Note that the press release that came out was timed to hit about 2 minutes after Gasparino broke the "rumor." Very smooth, guys.

2) Have your pet lawfirm file the suit (if it ever gets filed at all - hedge funds have been announcing suits for almost a year now without actually filing them, so a lot of this is likely PR interference) against the brokers, officially establishing the mantle of victimhood.

3) Level such a poorly constructed suit that it will easily be dismissed, or beaten. That way you have it on record that you are a victim, and further, vindication that there really is no problem, the proof being that the suit was dismissed.

Now, perhaps that is overly cynical.

But remember that a year ago these same outraged voices were claiming that there was no problem.

My hunch is that there is no way in hell that a hedge fund is going to expose itself to discovery - the defense by the brokers being that the funds were engaging in all sorts of naked short selling from their offshore accounts, and the proof being their trading records. So instead there will be much sabre rattling and noise making, but at the end of the day there will be no more transparency than there is now - no actual culpability will be demonstrated or clarified, and it will all be for show.

So choice A, much talk, no suit, or choice B, suit, but deliberately constructed so as to be dismissed easily.

But finally, admission from the hedge funds that naked short selling exists, is a significant and real problem, and that it is now a matter of who is doing what to whom rather than whether the issue exists in the first place.

Now back to my mojito - on vacation. They always taste better when the bad guys are squirming and trying to find a way out of their rathole.
Copyright ©2006 Bob O'Brien
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Comments (40)
Re: WTF? WTFF? The Tune Changes Again... By rtway1 on 4/11/2006 12:08 PM
What was hilarious Bob, was that usually the whole buffoon crew of CNBC, with the exception of Carl Q. , usually jump all over Gasparino like he is the enemy of all mankind and therefore should not even be in their divine presence. They all sat their staring down at the table, not even looking at the camera. It looked like it was the Charlie Gasparino show instead of Goofsqualk. Not one of them can say naked short selling, maybe they will be turned into pillars of jello if they do.
Re: WTF? WTFF? The Tune Changes Again... By J on 4/11/2006 12:22 PM


What a riot! All the thieves are turning on each other now.

Does anyone have a link to this "PR"?

I can't find this stuff anywhere.

Thanks.
Re: WTF? WTFF? The Tune Changes Again... By J on 4/12/2006 3:12 AM


LOL

That Forbes article is awesome... it makes ABSOLUTELY no mention of the fact that if the evil brokers "naked short" that it works in the Hedge Funds favor! haha

Good to see the exposure though...
Re: WTF? WTFF? The Tune Changes Again... By Sean on 4/12/2006 3:33 AM
Forbes.com now giving this topic some pub.
http://www.forbes.com/2006/04/11/hedge-funds-suit-prime-brokers-cx_lm_0413shorts_print.html
Re: WTF? WTFF? The Tune Changes Again... By Y on 4/12/2006 6:36 AM
This is a pretty damning paper on UBS and the markets.

http://mail.indymedia.org/imc-india/2001-November/000258.html
Re: WTF? WTFF? The Tune Changes Again... By InTheKnow on 4/12/2006 12:00 PM
The politician, team B player has spoken! Time for a letter writing campaign to tell the whimp what we investors feel about getting screwed by the crooks!

What a POS cop-out!
Re: WTF? WTFF? The Tune Changes Again... By bobo on 4/12/2006 12:17 PM
This pretty much says it all as to the level of intellect and sophistication we are dealing with at the WSJ:

"Uh huh. If so, why don't these millions of investors let out a mighty yelp when their dividend checks, proxy materials and annual reports don't show up?"

Sweety. Did you miss the recent 6 page Bloomberg article on voting fraud caused by overvoting caused by...brokers sending out proxies and annual reports to holders of IOUs?

Happen to miss the DTCC's elaborate mechanism for distributing dividends to FTDs and to lent stock?

In other words, did you happen to miss ALL THE EASILY OBTAINABLE FACTUAL ANSWERS TO THE QUESTION YOU ASKED?

Did you have a chimp write this? Drinky drinky before we typy typy?

Happen to miss things like the FOIA request on NFI showing 3.22 million FTDs in October 2004, and almost 2 million in early 2006?

I love when dolts ignore easily obtainable facts to name call - that seems to be this cretin's job at the WSJ - call Patrick names, ignore what a 3 minute phone call to the DTCC and a quick browse of relevent articles would have shown him, and then construct this moronic notion supported by his own ignorance of he facts - like the FOIA requests.

Now maybe he is just ignorant or dim, and not crooked. Somebody send him this comment and see how he responds. The FOIA info is clear, as is the DTCC's mechanism for distributing dividends to FTDs and lent shares, as are the articles discussing over-voting and the issues of allowing IOUs and phantom shares to vote, thereby diluting legitimate shareholders.

That he then tries to frame this in a fundamental argument is absurd - sort of like ignoring the video footage of thugs slashing a car's tires and then blaming the driver for not winning the race. My money is that he refuses to acknowledge this collosal blundering, as it is frankly embarrassing.
Re: WTF? WTFF? The Tune Changes Again... By Cynic on 4/12/2006 12:18 PM
"spokesman for New York State Attorney General Eliot Spitzer, who led the conflicts and mutual fund trading-abuse cases, had no immediate comment."

Cramer's roommate? Hmmmm? Gee, I wonder why there is no action on this? But he did chase down HR Block for some innocous stuff.

Hence, my screen name.
Re: WTF? WTFF? The Tune Changes Again... By Jeremiah 9:24 on 4/12/2006 1:03 PM
Bob is probably right, the hedge funds won't really sue the prime brokers, or if they do it will all be for show and no discovery will ever be taken on either side. These groups are symbiotic parasites and neither can alert their mutual host (the investing public) as to what they are up to, for fear the host will kill both of them.

BUT, what we may see happen, now that the world is hearing about how Wall Street is screwing the investing public in yet another manner, is a few big long side players filing law suits against their own brokers, claiming that their brokers breached their fiduciary duties to their clients by not buying in unsettled trades for guaranteed delivery.

Damages alleged? Commissions charged for trades never completed, and diminution in value of the holdings due to falselly inflated float of victim companies. The repeated fraud in mailing false confirms and statements may get an 'unfair and deceptive trade practices' claim at the state level, and thus trebled damages.

A few enterprising class action law firms should take these cases on, on behalf of every shareholder of every Reg. SHO listed company, including without limitation any pension funds, mutual funds, etc., that own shares in the Reg. SHO listed securities.
Re: WTF? WTFF? The Tune Changes Again... By Chris "Limpy" Cox on 4/12/2006 1:20 PM
FOR IMMEDIATE RELEASE 2006-56 SEC Headquarters. Christopher Cox Chairman of the Securities and Exchange Commission announces the SEC will host the First Miscreants Ball to be held on Memorial Day May 29th, 2006. Market Miscreants past and present are invited to attend and be honored for contributions in fleecing Americans. Names from the past to be honored include Boesky, Milliken, Keating, and Levine. Present day miscreants such as Cramer, Greenberg, Kudlow, Rocker, Cohen, Roddy, Elgindy, the DTCC, Frank Quattrone and most of the financial reporters and journalists at CNBC, the NY Post and the Dow Jones publications who daily demonstrate that there is no honor in stating the truth so why bother are also to be invited and honored.
Christopher Cox hopes that all Financial Miscreants will attend and join him in this joyous celebration. There will be many photo opportunities with Chris Cox and he hopes to dance the Tango with each and every Miscreant present. The highlight of the evening will be the burning in effigy of a giant Easter Bunny and a life size replica of Dr. Patrick Byrne complete with tin-foil hat. "This is expected to become an annual event so if you are not on the list this year keep naked shorting those stocks and something good may come out it for you beyond the billions that you are fleecing from Mom and Pop" says Cox.
Re: WTF? WTFF? The Tune Changes Again... By fRED on 4/12/2006 4:22 PM
Bob said: ": "Here's my guess. The hedge funds will never file a suit. Ever. This is all noise to advance the rather ludicrous proposition that the poor hedge funds are innocent. It supposes that we are all morons. Posts like yours that say "the hedge funds are clearly the victims" are nothing more than a thinly veneered effort to advance that silly notion and repeat it enough so that it becomes reality"

Even heros make mistakes Bob. lol


Firm sues 11 banks over "naked" short-selling fees
Wed Apr 12, 2006 7:46 PM ET
Printer Friendly | Email Article | Reprints | RSS

By Jonathan Stempel

NEW YORK (Reuters) - A firm on Wednesday filed an antitrust lawsuit against 11 major U.S. broker-dealers, accusing them of colluding over six years to collect unearned fees as a result of a "naked short selling" practice.

In its complaint filed with the Manhattan federal court, Electronic Trading Group LLC accused the defendants of improperly charging fees by failing to borrow or deliver stock needed to back short sales, essentially resulting in "phantom" transactions. The plaintiff seeks triple damages, and the lawsuit seeks class-action status.

Defendants include the broker-dealer units of Bank of America Corp. (BAC.N: Quote, Profile, Research), Bank of New York Co. (BK.N: Quote, Profile, Research), Bear Stearns Cos. (BSC.N: Quote, Profile, Research), Citigroup Inc. (C.N: Quote, Profile, Research), Credit Suisse Group Inc. (CSGN.VX: Quote, Profile, Research), Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research), Goldman Sachs Group Inc. (GS.N: Quote, Profile, Research), Lehman Brothers Holdings Inc. (LEH.N: Quote, Profile, Research), Merrill Lynch & Co. (MER.N: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research) and UBS AG (UBSN.VX: Quote, Profile, Research).

Short-selling involves a bet that a company's stock will fall. Typically, an investor sells borrowed stock, and hopes to buy it back at a lower price to replenish the lender.

In a naked short sale, the investor sells stock that has not yet been borrowed. Naked short selling is usually illegal, in part because the stock supposedly underlying the transaction may never be borrowed or may not exist. It can be permitted to promote market stability.

The 32-page complaint claims the broker-dealers charged the plaintiff and others for the cost of securities lending, when in fact the broker-dealers did not "cover" short sales, failed to disclose this, and nevertheless charged inflated fees.

"Defendants dominate the market for prime brokerage services to short sellers and tolerate among themselves chronic failures to deliver by which clients are charged for 'borrowing' when in fact no borrowing actually takes place," the complaint said. "Plaintiffs and class members were charged fees, commissions and/or interest for nothing."

The plaintiffs, according to the complaint, "were being used as pawns in defendants' naked short selling scheme to their detriment."

Citigroup spokeswoman Christina Pretto said the lawsuit is without merit. Bank of America spokeswoman Shirley Norton, Credit Suisse spokeswoman Victoria Harmon, Lehman spokeswoman Kerrie Cohen and Merrill spokesman Mark Herr declined to comment. The other banks and the plaintiff's lawyer did not immediately return phone calls.



© Reuters 2006. All Rights Reserved.

Re: WTF? WTFF? The Tune Changes Again... By jcline on 4/12/2006 4:24 PM
By Alistair Barr
Last Update: 6:07 PM ET Apr 12, 2006
SAN FRANCISCO (MarketWatch) -- David Rocker, the managing general partner of short-selling hedge fund Rocker Partners, has announced plans to retire. A representative at the firm confirmed late Wednesday Rocker's plans to retire and referred all further inquiries to Rubenstein Associates, a public relations firm that represents Rocker Partners. A representative at Rubenstein wasn't immediately available to comment.
Re: WTF? WTFF? The Tune Changes Again... By ZEUS on 4/12/2006 8:24 PM
I GOT MY CMKX SHARES! LOL
Re: WTF? WTFF? The Tune Changes Again... By vanillaiceteabag on 4/12/2006 10:49 PM
If the Brokers end up taking the blame for all this, then who pays the bill? Is it the SPIC or the brokers? I'm ignorant here, but might this be a way to push the cost off on the American taxpayer somehow through the insurance.
Re: WTF? WTFF? The Tune Changes Again... By JLB on 4/13/2006 4:12 AM
It seems to me that in the race to grab a chair as the music stops, the hedge funds have tried drawing first blood. Whenever 2 equally powerful (and in this case guilty, IMO) entities go to battle, often the advantage goes to the one that draws first blood.
The hedge funds are apparently feeling the residual heat as a result of all these pesky subpoenas being issued to some of our "pillars of society". We all know that the best defense is a good offense, so lets sue, because after all, it WAS all THEIR fault.
This is starting to remind me of the child's card game, Old Maid. Now who will get stuck with the old maid after all the cards are gone? It couldn't happen to a nicer bunch of vipers. Thanks Bobo, you're Aces in my book!
Re: WTF? WTFF? The Tune Changes Again... By ginger on 4/13/2006 6:01 AM

"So choice "A", much talk, no suit, or choice "B", suit, but deliberately constructed so as to be dismissed easily."

I see it being choice "B" ... and I wouldn't trust Gasparino one minuite.

I sense a plot to gather everyone's attention then dismiss.
Re: WTF? WTFF? The Tune Changes Again... By hwh on 4/11/2006 12:30 PM
http://storefront.theplatform.com/GetStorefrontEvent.event?pid=1xEV4p8aahmXyPTgprWFw8en8qIeZavq All the shows you want...hwh
Re: WTF? WTFF? The Tune Changes Again... By Fred on 4/11/2006 12:43 PM
Bob, what is it that you dont understand?

Wallstreet Brokerages the "Licensed Professionals" find stock to lend to hedge funds iso that they can short a stock. If WallStreet Brokerages are saying that they have the stock to lend out and realy dont isnt that a fraud of the Brokerage and "Licensed Proffesional?

Isn't the Hedge Fund the victim?

Your comments Bob.
Re: WTF? WTFF? The Tune Changes Again... By Fred on 4/11/2006 12:46 PM
To continue Bob. If a fund boxes a stock (long in one account and short in another) and then the Licensed Professional" lends the same stock out to someone else to short isnt this a fraud against the hedge funds?

Your comments Bob.
Re: WTF? WTFF? The Tune Changes Again... By J on 4/11/2006 1:01 PM

Here we go:

http://tinyurl.com/enkx3


April 11
A Lawsuit On Short Selling?
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.
A short sale involves borrowing shares selling them immediately, and the replacing the borrowed shares at some later date, hopefully when the stock drops in value and you can make a profit. Naked shorting involves a short sale where some or all of the shares aren’t borrowed—it’s been a controversial issue thanks to CEOs of small companies who blame their falling stock price on naked shorts. People Patrick Byrne of Overstock.com, say hedge funds have crushed their share price by engaging in naked shorting of their stock.
But apparently the Patrick Byrne’s of the world aren’t the only ones complaining about the naked shorts. Ironically, the hedge funds are complaining as well. The suit, if filed, would state that the big brokerage firms are charging hedge funds huge fees to develop a full short positions when, in fact, the brokerage firms can’t find enough stock in the market to complete the short position. Instead, the funds are saying that the brokerage firms are creating a false short position by borrowing some of the stock and engaging in a naked short for the rest. The real damages come apparently when the short sale needs to be unwound, meaning that the target stock has dropped in value and the fund needs to pay back the borrowed shares that don’t exist or can’t be found quickly.
Let me be clear that there are a lot of unknowns here. First Milberg Weiss isn’t sure it wants to file the suit, and I have no idea how much damages will be sought, though a person with knowledge of the matter say it will be significant. Also, I don’t know who the plaintiffs are, though from what I hear it wont be SAC Capital, Stephen Cohen’s firm that is a target of a lawsuit for shorting shares of Biovail Corp.

Charles Gasparino - CNBC
Re: WTF? WTFF? The Tune Changes Again... By dave on 4/11/2006 1:18 PM
I don't like the phrase "naked short selling" because the weasels in the financial press use the phrase to talk about legal short selling, then titter on about the "naked" part. I like using words like "counterfeiting", "IOU's", "markers", etc. that the average person can understand at a gut level in less thaan a second.

Bobo, I think you've nailed it. Any significant lawsuit won't come from the hedgies - this is just posturing for the media.
Re: WTF? WTFF? The Tune Changes Again... By dave on 4/11/2006 1:28 PM
My account A is getting bought in. No problem, I'll naked short to myself from account B in another jurisdiction and buy another 13 days.

There is no way in heck hedgies will expose themselves to discovery.

Fred, you're right that it could be fraud on the hedge funds (nudge, nudge, wink, wink).

The avalanche is starting and the players are going into damage control to see who will be left holding the bag.

I have a friend who is involved in a brokerage that decided to close down a couple weeks ago. The owners are concerned about personal liability and are winding down operations. (They aren't even selling it.)

The US based brokerages and clearing houses are most likely to be left holding the bag when the lawsuits start flying. The hedgies are in other jurisdictions and much of their profit is long gone.
Re: WTF? WTFF? The Tune Changes Again... By gregcable2002 on 4/11/2006 2:12 PM
I saw a commercial over the weekend for SPIC,thats the insurance carrier for the brokerage houses,the jist of it was that we investors need not worry because SPIC has us covered.What I find interesting is that it seems there is a effort now on the part of the government to reassure us that our investments are protected.There was no other reason for this advertisement.A tidal wave is getting ready to hit wall street.
Re: WTF? WTFF? The Tune Changes Again... By Fred on 4/11/2006 2:38 PM
The Hedgefunds are clearlly the victims but on another thought this is what happened in Genie and I think that WallStreet Brokerages found a loop poll and that lending out shares again is legal. If not could someone show me a nasdaq rule which prohibits such conduct.

Nasty as it is it may be legal
Re: WTF? WTFF? The Tune Changes Again... By Fred on 4/11/2006 2:47 PM
Trouble is relending out shares may be a loop poll and that Wall Street Brokerages are doing nothing against the rules by doing so. Lets say I am short 1000 shares of overstock in one account and long 1000 shares of overstock in another. My position is boxed. The Wallstreet firm then lends out the shares in the long account to another short seller. You basicly have 2000 shares short with 1000 being long.

The rebates WS firms get for lending out shares is a huge part of their business.

Sounds like a Stock Laddering Lending out scheme
Re: WTF? WTFF? The Tune Changes Again... By bobo on 4/11/2006 2:55 PM
As to your first post, sure thing, Fred. That is the brokers taking advantage of the hedge funds, and it is possible some of that is going on. Possible. Just as it is possible that NFI had 3.143 million FTDs because the dog ate the certificates. Anything is possible - it is more a question of what is likely.

Of course, if the hedge funds are publishing bogus doctored research and frontrunning it, then that isn't really the brokerages, now is it? And if there are groups in Canada who will sell as many naked shares as you want - ditto for Malaysia and the Caribbean and Thailand, etc. - that isn't really the brokers either, now is it?

I am delighted to see that everyone is now admitting that what wasn't possible a few months ago is not only taking place, but the rats are scurrying to try to apportion the blame. But I smell a ruse here. Call me nutty.

I believe that the brokers are guilty of all sorts of chicanery, as are the hedge funds.

But most of all I believe that this is all theater to get folks to take their eye off the ball.

But at least we are past the universal denial and anger and mockery to acceptance. That is progress of a sort...

As to your second post, this blog is not to discuss the legal lending of shares (and relending) which is as old as the hills and is legal. It is to discuss the illegal naked short selling of companies, which is where FTDs come in. Relending wouldn't create new FTDs as the buyer always gets a real share - the borrowed one.

So it isn't clear at all to me that the hedge funds are victims any more than Milken was a victim when he was insisting that it was everyone but his fault that all that insider trading and frontrunning and self-dealing were going on. There is a long tradition on Wall Street of whining that it is everyone else's fault when you get caught. I see absolutely no evidence that this "announced" rumor that MW may be "considering" a lawsuit as anything but public relations spin.

Hey, I know, if Rocker and SAC are victims, how about they welcome discovery, instead of trying to stall it into the next millenium? That work for you? No? Yes?

The discovery should show them as innocent lambs being taken advantage of by their evil prime brokers, not as miscreants gaming the system via the ECNs and hundreds if not thousands of offshore accounts and related party trading mechanisms.

So why is it that you think that they are fighting so hard to avoid discovery?

Here's my guess. The hedge funds will never file a suit. Ever. This is all noise to advance the rather ludicrous proposition that the poor hedge funds are innocent. It supposes that we are all morons. Posts like yours that say "the hedge funds are clearly the victims" are nothing more than a thinly veneered effort to advance that silly notion and repeat it enough so that it becomes reality.

Lets try this. If the hedge funds are benefitting financially from the stocks going down, they are making money from the practice, and this is all a rather clumsy effort to try to pretend that they don't understand how their trading is affecting the markets - and it ignores Canada and the Caribbean and Malaysia, etc.

I'm not fooled. And neither is anyone else reading this.

But again, it is nice to see that everyone is now admitting that this is a significant problem.
Re: WTF? WTFF? The Tune Changes Again... By dave on 4/11/2006 7:05 PM
Bobo, you said "most of all I believe that this is all theater to get folks to take their eye off the ball."

This is only possible because the DTCC and regulators let it happen. To me, our focus should be on why this is possible when the NSCC guarantees settlement.

The ball should be that human beings committed a breach of trust for personal benefit and those individuals need to be held accountable.

"NSCC offers certain guaranteed services through its CNS system, in which NSCC as a central counterparty provides settlement related guarantees regarding certain trades cleared and netted at NSCC."

http://www.sec.gov/rules/sro/34-48846.htm
Re: WTF? WTFF? The Tune Changes Again... By aldigit01 on 4/11/2006 3:25 PM
It also suggests to me that some hedge funds are very concerned about new investor money coming in and old investor money moving out due to the publicity.
Re: WTF? WTFF? The Tune Changes Again... By jersey_devil on 4/11/2006 7:06 PM
Bobo- I think you are right. I think the hedge funds are trying to scare the broker-dealers into cooperating further with them. I believe after the recent exposure of FTD's and the list of brokers not in compliance on OSTK made public recently by Patrick Byrne there has to be at least "some" pressure to clean things up. Maybe the BD's are threatening to finally buy-in the perps and the hedge funds are resisting by spreading lawsuit rumors to Charlie. I would have liked to see the regulators play a more visible roll but with Cox at the SEC I doubt that unless this whole situation explodes beyond the current containment game we won't see a regulator forcing any buy-ins. Hope I am wrong but Cox has done nothing so far to help the individual investor since arriving at the SEC and I don't expect that to change. Can you imagine COX appearing in a public forum with an individual(HERB) that the SEC enforcement thought was involved in something necessary to subpoena and Cox stopped it all and will appear at a panel with Herb! Get the picture? Cox is America's worst nightmare when it comes to protecting investors. Oh-by the way; where are those "new journalist subpoena rules" that were supposed to be released a month ago?
Re: WTF? WTFF? The Tune Changes Again... By nsbrum on 4/11/2006 7:07 PM
Gee, I wonder if Annette would like to take back her famous saying, now that NSS is becoming a "fact". Naw, that would mean she'd have to admit she was a WS ....... (subsitute your own noun for .....). Wonder why Cox still has her around?
Re: WTF? WTFF? The Tune Changes Again... By golden1101 on 4/11/2006 7:07 PM
EXACTLY . . . I think as all of this comes out, the brokers are going to become the scapegoat. With the memo recently seen by the DTCC and now hedgies crying fowl play on the brokers . . . Those poor SOB's (and I use the term poor loosely) are going to publicly take the heat. I hope to see the hedgies get wedgies the time it fully hits the light though . . . We will just have to see what transpires.
Re: WTF? WTFF? The Tune Changes Again... By mig on 4/11/2006 7:08 PM
Bobo you may be as nutty as you ever were, but you are also still right on the money.
Thanks
Re: WTF? WTFF? The Tune Changes Again... By robelita on 4/11/2006 7:24 PM
Right on bobo-we ain't buying it.

I think we've passed ridiculous speed and are approching ludicrous speed. I am enjoying watching our "friends" squirm. Sabre-rattling, finger-pointing, first and fifth amendment-invoking...we have it all here. It's true when they say if you swim with the sharks you're likely to be eaten. The securities cannibals have set their sights on each other in a high-stakes game of who's left holding the bag. This is extra-butter popcorn entertainment.

I propose we sponsor and host the World's First Miscreants Ball and make it an annual event. Make it strictly a black-tie affair complete with live music, ballroom dancing, cocktail bunnies (of course) and invite the likes of Herb and Jimmy and Steve. A changing theme each year would make each event special and memorable. One year make it a courtroom theme, next time a prison theme, perhaps a broke back theme another time-there's no limit to the creative process here. Of course, a bunny-hop would have to be played at each event. I think I may be on to something-or is it on something...genius from a prescription bottle.

Anyhoo, the tide is surely turning and I've waxed my surfboard-ready for a good, long run. As events unfold the largely uninformed (I didn't say ignorant-but wanted to) masses will finally start to see what we have been pounding our fists on tables about and will at long last be vindicated.

HASSENPFEFFER

p.s. Did you make the right turn at Albuquerque ;)
Whiskey Tango Foxtrot! The Tune Changes Again... By Cynic on 4/11/2006 7:26 PM
So, is this the Class Action lawsuit Byrne predicted would be filed last week? He said we would be surprised at who would be filing it. We are all surprised.

This is like a suspense novel, we never quite know which direction the plot will turn.
Re: WTF? WTFF? The Tune Changes Again... By InTheKnow on 4/11/2006 7:49 PM
Cynic... I suggest you read the other posts for the answer.

By the way if I were a broker and this suit was filed I would just buy in all the FTD's and that would be the end of that. Yeah, fat chance!
Re: WTF? WTFF? The Tune Changes Again... By rtway1 on 4/11/2006 7:50 PM
How long will it be before Charlie starts to report how Cramer has the ability to move after hours trades by 25% on one tenth the original volume for the day. Take any 100 people and tell them not to peek behind the curtain and guess what they will do. Put wet paint signs on a post and guess what they will do? Up until a couple of months ago, his pitch was "you need to own this stock NOW". This is being said while the after markets are still trading, and you can watch this stock go flying up on little volume and the next day it is back where it was before all the hoopla from the day before. Recently he has chastised those who trade in the after hours after he has just told them this could be a double. Thats like telling a kid not to eat his candy until tommorrow. Between the love affair he has for himself and the pump scheme, I don,t know which is more sickening, IMO. But I think Charlie might write about him some day as well as Herbie.
Re: WTF? WTFF? The Tune Changes Again... By doc on 4/11/2006 8:06 PM
From another site. It applies to the financial press.

"Because the truth is, you see, that beneath all the bluster and arrogance, they are terrified of you. It’s hard to believe, I know, but it is true nonetheless. The powers-that-be view you as a sleeping giant that, if fully awakened, is capable of laying waste to their cherished plans.

Although they have convinced you that you are utterly powerless, they know that that is not the case. They know that they would not be able to contain the seething anger of the masses should it ever fully surface. They know the fury that will be unleashed should the dormant beast awaken to the fact it has been deliberately and systematically lied to. And they fear that some day soon one of their provocations will awaken you.

They will never let you see that fear, of course, for to do so would shatter the illusion that they are omnipotent and you are powerless to resist. But the fear is there, lurking just beneath the arrogant façade. In Washington, in the halls of academia, and in the newsrooms of Fox and CNN and ABC and NBC and CBS, the fear is palpable. It can be found in all the institutions of society that are complicit in serving you up your daily portion of lies."
Re: WTF? WTFF? The Tune Changes Again... By rtway1 on 4/11/2006 8:45 PM
No one has the power to change history. Once a lie has been told or a crime committed the offenders must work twice as hard to conceal what has been told or what actions have taken place to committ the crime. The concealement is harder than the crime because of the human factor. One can almost make a formula for the accuracy of human failure when trying to cover a crime. The genie is out of the bag and now the colloseum is filled with spectators to see who slays who to cover them from going to jail or looosing millions. Bob is right, don,t let the smoke and mirror game take our eyes off counterfeit trades, and remember we got this far by getting our own shares and supporting our own company.This company has sure brought a lot of good people together and thats what drives these bashers crazy, keep it up, I know I will. I am just one of the common folk, not a high roller, but I like what I see and hear.
Re: WTF? WTFF? The Tune Changes Again... By aries on 4/12/2006 2:38 AM
http://online.wsj.com/article/SB114480254610823574.html

>>
Do Nudists Run Wall Street?

By HOLMAN W. JENKINS, JR.
April 12, 2006

Many and colorful were the emails noting our failure to delve into the menace of "naked short selling" in our brief discussion of the Biovail and Overstock.com lawsuits against short sellers last week. To wit, we are lackeys of the Wall Street establishment, hedge funds, etc.

Never mind that his lawsuit doesn't mention naked short selling. All who find this subject interesting owe a debt to Patrick Byrne, founder of Overstock, who has flamboyantly adopted exposing the crimes of the naked short sellers as his personal cause, which he likens to a "movement." His elaborate Webcasts can be found at businessjive.com. Briefly, legitimate short selling occurs when a speculator borrows shares and sells them, hoping to buy them back later at a cheaper price. Naked shorting is selling stock without having it or making plans to borrow it.

Now nobody doubts that a certain amount of the latter is accommodated by the clearing and settlement system, which requires shares to be delivered three days after a trade and will allow longer "failures to deliver" more or less on demand. But two questions are implicated in Mr. Byrne's devil theory of naked short selling:

1) Is there no effective check on the sale of shares for which delivery doesn't occur, allowing a massive build-up of IOUs that endanger the financial system?

2) Does the creation of these IOUs dilute a company's stock, undermining its price?

Naked short selling is explicitly permitted for brokers who serve as "market makers" and stand ready to meet demand for a stock even when they have none in inventory. Do these brokers extend this favor to trading clients who want to sell short? Possibly. But this is more like an acceptable kludge, helping the market work better, than a cesspot of corruption liable to bring down the financial system.

How so? In a naked short, the buyer's broker must accept an IOU from the seller's broker, and the seller's broker must accept an IOU from his client, the seller. All of the above are in the business of assessing creditworthiness, so an obvious check on naked short selling is the unwillingness of Wall Street firms to blow themselves up by advancing large sums against undeliverable shares. Yet this point is religiously overlooked by the devil theorists.

Mr. Byrne's podcasts are instructive here, albeit in the tactics of self-deception. He claims to detect an ambiguity in numbers released by the SEC on daily "fails" -- are they gross or net? -- then slides effortlessly into an assumption that hundreds of millions of shares are added daily to a backlog of trades that take months or years to clear, if they ever do. "There's grandma who has these FTDs [failure-to-deliver] in her account at Merrill Lynch and she think she owns stock," he says.

Uh huh. If so, why don't these millions of investors let out a mighty yelp when their dividend checks, proxy materials and annual reports don't show up?

Let's attempt Question 2: Even if naked short selling doesn't threaten the financial system, doesn't it dilute a company's stock, driving down its value? Here, Mr. Byrne and his followers fulsomely embrace an analogy as loaded as it is misleading -- that naked shorting is tantamount to "counterfeiting" shares.

A share of stock is a claim on a company and its earnings stream. Naked shorting doesn't create any new claims on a company. It only creates claims, in the form of IOUs for stock, on parties involved in a stock trade. Yet in insisting Overstock is beset by naked shorts, Mr. Byrne's clincher is that "short interest" in Overstock has hovered near 100% of its public float, and even reached 107% in one reporting period. This allegedly proves naked shorts have put more "shares" in the hands of the public than the company has issued.

Really? Or does it merely show the company's trading volume is high in relation to its skimpy public float? Amazon, another Internet retailer, sees its 309 million publicly traded shares turn over every 50 days. EBay's 1.15 billion shares turn over every 90 days. In contrast, Overstock's 10.4 million shares turn over every 13 days.

We can't read the minds of all those trading its stock, but the company is among the lowest rated by 10 analysts who follow it. It's expected to lose 53 cents a share this year. Its CEO devotes much of his time to what he calls a "jihad" against perhaps mythical naked short sellers. He happily cites rumors and unnamed tipsters to the effect that millions of "counterfeit" shares are circulating. Would it be any surprise if day traders and short sellers found his stock an interesting plaything?

He does have one powerful circumstantial argument on his side: "If I'm crazy, why am I running a public company?"

Just eyeballing it, Overstock's $550 million market cap wouldn't seem unreasonably shabby given its business performance and uncertainty about its future and leadership. Yet its CEO has been allowed to propound a theory whose logical corollary is that its shares are grossly undervalued -- diluted by millions of "counterfeit" shares. It follows that Overstock should soar to its true, undiluted value when Mr. Byrne's jihad finally defeats those he calls "miscreants" (among whom he apparently numbers at least one journalist for Dow Jones, publisher of this newspaper).

Tell us again: What do we have an SEC for? Freud eventually concluded that human beings are possessed of a powerful drive to know reality for what it is, rather than just believing whatever meets our needs. Mr. Byrne has made some wrong choices on this score (his podcasts are a catalog) but here's guessing that someday he will decide he prefers living in the land of the real after all.
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Re: WTF? WTFF? The Tune Changes Again... By jersey_devil on 4/12/2006 2:43 AM
Forbes jumps on this story: http://www.forbes.com/2006/04/11/hedge-funds-suit-prime-brokers-cx_lm_0413shorts.html?partner=yahootix
New York - Get your hankies ready: Hedge funds feel they're the newest victims.

A long-simmering issue may soon come to a boil, potentially putting Wall Street's largest firms on the hook for billions more in liabilities years after the research scandal that extracted $1.4 billion in legal fines from ten of the most influential investment banks.

This time, prime brokers face scrutiny for the fees they charge hedge fund clients, with securities lending being a particular focus.

Attorneys at plaintiffs' firm Milberg, Weiss, Bershad & Schulmanare investigating securities lending fees and other practices by the biggest prime brokers and are considering bringing a class-action lawsuit on behalf of hedge funds.

Steven Schulman, a partner at the firm, said Tuesday that it's still investigating the issues and declined to discuss details of any lawsuit. But he did say, "We're thinking about what we need to do."

Prime brokerage is the business of catering to hedge funds, everything from loaning securities so funds can sell them short to providing office space for startup funds. The business has consolidated among the biggest three: Goldman Sachs Group (nyse: GS - news - people ), Morgan Stanley (nyse: MS - news - people ) and Bear Stearns Cos. (nyse: BSC - news - people ) in recent years, though several other banks have tried to get bigger in it, including Bank of America (nyse: BAC - news - people ), Credit Suisse (nyse: CSR - news - people ) and Merrill Lynch (nyse: MER - news - people ).

Securities lending is among the most lucrative of prime brokerage services to the banks, reaping some $10 billion in annual fees, and the business just keeps growing as more hedge funds pop up. But it is also among the most opaque of businesses, with plenty of opportunity for abuse, lawyers unconnected with the Milberg firm say.

Hedge funds have alleged privately for years that they are being overcharged for prime brokerage services or charged wrongly for services that haven't been performed. Most of the griping has to do with securities loaned but never delivered, the allegation being that the prime brokers are lending securities at high fees without actually having possession of the securities to lend in the first place.

Playing by the rules, a trader can't sell short a security without having possession of it by the settlement date, or the trade would be what's called a naked short. A trade is often made while the settlement process continues, and most trades wind up with the security being delivered in ten days. Prime brokers lending securities to clients presumably assure their client that the borrowed securities will be delivered.

The hedge fund pays a fee to borrow the shares, presumably with the knowledge that the delivery will occur. The allegation of fraud comes in when the prime broker takes the fee and never delivers the shares and doesn't intend to.

The New York Stock Exchange and the Nasdaq keep lists of stocks that routinely fail to deliver, and some of the companies that have been on those lists since a new rule was enacted in January 2005 say they are the victims of naked short-selling. The most famous of these is Overstock.com (nasdaq: OSTK - news - people ), whose chairman, Patrick Byrne, has been on a mission to bring the issue to the attention of regulators and lawmakers.

Bringing prime brokers into the loop would put the biggest firms at the center of yet another potentially explosive scandal. Lawyers not connected with the Milberg firm say a lawsuit could attract the attention of state attorneys general, who were instrumental in assessing the fines in the conflicts-of-interest scandal and in the mutual fund trading-abuse cases of recent years. Why? Hedge funds increasingly manage investments from pensions and endowments, meaning regular investors could be bearing the brunt of abusive fee schemes in the form of lower returns on their investments.

A spokesman for New York State Attorney General Eliot Spitzer, who led the conflicts and mutual fund trading-abuse cases, had no immediate comment.

"Some hedge funds feel they have been taken advantage of by their prime broker," says Josh Galper, principal at Vodia Group, a New York consulting firm. "Naked short-selling is an example of how pricing abuses can enter the market."

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