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Yet another hedge fund goes after brokers for naked short selling

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 4/20/2006 4:00 AM

Another hedge fund filed a massive suit against the brokers, for naked short selling - and this is just the tip of the iceberg, folks.

Read all about it in Forbes:

http://www.forbes.com/2006/04/20/quark-fund-0420markets14.html?partner=msn

So the practice that doesn't exist, or does at a very minor level, but isn't a problem, is now front page news, and battle lines are drawn between industry factions who want to apportion blame.

Huh.

That is a lot of very knowledgeable people suddenly, and virtually overnight, claiming that they have been wronged by a billion dollar practice that just days before most were denying exists.

I wonder if they all just found out about it the same day?

Is it possible that they have known all along, and see that the whole ugly mess is going to be revealed, and so want to be first in line to point the finger at someone else?

What do you think?

When does the first suit on behalf of investors hit - that would be the approaching a trillion dollar one?

From the article:

"More lawsuits against prime brokers are expected, and many observers who are not connected with the pending litigation say regulators are likely to investigate prime brokers' roles in contributing to naked short selling.

"What we are seeing today is the beginning of a seismic change in the securities lending business," says Josh Galper, managing principal of Vodia Group, in a research report."

Kind of makes the Market Reform Movement look just a little ahead of its time, no?
Copyright ©2006 Bob O'Brien
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Comments (17)
Re: Yet another hedge fund goes after brokers for naked short selling By InTheKnow on 4/20/2006 2:47 PM
I love that... "more lawsuits against prime brokers expected".

Squirm baby, squirm!
Re: Yet another hedge fund goes after brokers for naked short selling By Niel Storts on 4/20/2006 2:50 PM
"Bob" you might recall a few months ago I made my own "prediction". Gist of it was that after the dastardly failure to deliver scandel was exposed by the lads at the main stream press there would be hoads of those clowns clammering for the credit. I stand by my prediction. What the hell, so long as some of the infection crippling our financial markets is exorcised............ let those worthless parasites take the credit. We all know the truth regarding just who really deserves it.
Re: Yet another hedge fund goes after brokers for naked short selling By bobo on 4/20/2006 2:53 PM
And today marks day number 250 of OSTK being on the SHO list...
Re: Yet another hedge fund goes after brokers for naked short selling By palidum on 4/20/2006 3:08 PM
I wonder why those hedge funds aren't also going after the SEC for not taking more aggressive action to prevent naked shorting since the SEC obviously knew it was going on, hence the SHO list. Maybe they'll entice Mr. Spitzer to get into the act; could be lots of headlines.
Re: Yet another hedge fund goes after brokers for naked short selling By browntrout on 4/20/2006 3:09 PM
This is just too suspicious! I think this is being orchestrated by all the perps. I think they have all come to realize they are in deep doodoo. What better way to solve the problem than to file tons of suits and counter suits. At the end of the day in rides Eliot Shitzer with his box of Get Out of Jail Cards for all perps, demanding what sounds likea BIG SETTLEMENT(several billion), a contribution to his election campaign, they grandfather everything for the good of all, the perps get to keep their ill-gotten gains, and Mom and Pop get a penny a share for their losses. General Public says that's great and goes back to watching Deal or No Deal. WTF?
Re: Yet another hedge fund goes after brokers for naked short selling By short the brokers on 4/20/2006 3:59 PM
I wonder if now is the time to legitimately short the large brokerages that are on the receiving end of these suits.
Re: Yet another hedge fund goes after brokers for naked short selling By J on 4/20/2006 4:00 PM
It's a good day for the market reform movement.

I'm proud to be aligned with you fine folks...
Re: Yet another hedge fund goes after brokers for naked short selling By mig on 4/20/2006 4:33 PM
Is my thinking about these suits wrong?

Let's say hedgie shorts 5 million shares of xyz company, it's price drops 40% almost instantly, it then shows up on the SHO list. The hedge fund didn't care then because the market got flooded with extra shares giving them their 40% gain. Now that the light has been turned on, the rush is on to file lawsuits because they got charged 10% they shouldn't have?

I suspect the lawsuits are more to point fingers and divert attention from themselves than the interest they were charged that they agreed to pay.

In my opinion, the prime brokers are the hooker, the hedge funds are the John, but they are both guilty of prostituting the system.
Re: Yet another hedge fund goes after brokers for naked short selling By oldfeller on 4/20/2006 6:03 PM
Browntrout is on the money but they didn`t just suddenly realize they were in deep doodoo. This script was written long ago. Just like the S&L ripoff. The money is gone. End of story.
Re: Yet another hedge fund goes after brokers for naked short selling By clearthinker on 4/20/2006 6:28 PM
if the end result is buyin to properly settle the trades, the money is not "gone"....that's what we must focus on...settle the trades on all FTD's....and now...
Re: Yet another hedge fund goes after brokers for naked short selling By n-tres-ted on 4/20/2006 8:03 PM
Very strange. The plaintiff hedge fund is seeking certification as representative of a class of all hedge funds similarly situated. So this class wants to prove billions in damages, take all the assets of the "prime brokers" and never get around to buying in the shares until they have the brokers' money with which to do it. Seems to me the buyins will have to start a lot sooner than that. Why isn't this broker doing it already? Very suspicious, as you say, bobo.
Re: Yet another hedge fund goes after brokers for naked short selling By Bobo on 4/20/2006 8:16 PM
What we are seeing is the liar's club, after a binge, when the check comes. Everyone starts passing it around the table, conveniently forgetting who was swigging $1000 cognac the hour before.

"I never would have done it if I had known it wasn't free!"

"I thought it was water!"

"That wasn't me!"
Re: Yet another hedge fund goes after brokers for naked short selling By CMElec on 4/20/2006 9:21 PM
Bobo,

Do you really believe the hedge funds are suing the prime brokers in any way which will impact them negatively permanently? This may be a ruse to take the problem "offline" in order to placate those that think something needs to be done... an additional "smoke screen" to cover their larcenous activities up. Sue for a couple billion, inspire some ooohs and aaaahs from the retail ranks and resume the game again.... a "half time" event so to speak.

These guys have been in bed together for so long they think as one. Don't be fooled by this "sparring". They could as well have their day in court together and make amends that afternoon in the "back office" negating any "harm" caused.

The question that needs to be asked, where is this "really going" ? I don't trust it, look for the hidden doorway for an escape from liability and identify who is making use of it.
Re: Yet another hedge fund goes after brokers for naked short selling By Rvac106 on 4/20/2006 9:44 PM
I am completely astounded by the click thru adverts on this page of missives wrt the effect of Hedge funds and their avarice on the stock market. Seven out of seven are advertising Hedge Fund services. Can you believe this? Oh, sorry, one is an investment advisory group. I think I'm gonna be sick......
Re: Yet another hedge fund goes after brokers for naked short selling By bobo on 4/20/2006 10:49 PM
Rvac: I think the ads key off the lead in paragraph words. I can't advise you to click them early and often as that is against the rules, but at least try to have patience with the system.
Re: Yet another hedge fund goes after brokers for naked short selling By virakiller on 4/21/2006 6:19 AM
Posted: Apr 21, 2006 6:42 AM

Dear Friends,

Call [202]551-2100 and ask that mother fucker Christopher Cox if he
thinks you are an "ass-hole"

Make that call-NOW !!

Today at the S.E.C they ARE TRYING TO "CON-US" that they are trying to
regulate the Hedge Fund World of rich Americans ROBBING poor Americans

DON'T BUY IT !!!

They are saying they will demand the "hedgies" enforce their trading markets
with "S.R.O' s".

The definition of an S.R.O is a SELF- REGULATED - ORGINIZATION !

The only question left is how stupid do they actually think we are ?

Hedge Funds are UNREGULATED- They are illegal trading enterprises.

We are moving in the WRONG WAY as a nation.Our securities markets
has a "leak" in it's foundation.

Defend this country from this CRIMINAL Hedge Fund "conspiracy" and
help Paul Revere[Patrick Byrne of Overstock.com] "spread this word"

Understand this-
The "unregulated" markets in which the rich rob the poor daily will
enforce a --Self-regulated ?- enforcement team to regulate these markets
they ABUSE ?

That's like telling a safecracker to monitor a safecraker ?
A theif to police a theif ?

We need to "clog" that leak in our Capital markets.

The ONLY way to do it now is with a "full court press"

Call that mother fucking "theif" in charge at the S.E.C Christopher Cox
at [202] 551-2100.

Tell him we as a nation are not "patsies" to the rich. We will not stand for
this crime DESTROYING our country through the markets any longer.

STOP THIS CRIME OF COUNTERFEITING AMERICAN SECURITIES !!

DO YOUR JOB !!

ENFORCE THE MARKETS !!

CURB THIS GREED !!

Please make this call now
I am begging you.

your friend,
Darren



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Re: Yet another hedge fund goes after brokers for naked short selling By Jeremiah 9:24 on 4/21/2006 8:22 AM
I see this as very positive, I don't think that we are seeing 'window dressing' by the criminals as some suspect (with good reason, as this was the federal regulators' game with their toothless Reg. SHO); rather I see one set of criminals pointing the finger at another to distract from their own culpability.

Look at it this way: the users (hedge funds) can't break the law unless the dealers (prime brokers and DTCC) provide the contraband (manipulation tools like ex clearing, settlement failures). While both should go to jail, if the dealers are taken off the street (pardon the pun) the users will have to take up other pursuits (honest investing? Arms dealing? Who knows?).

To carry that analogy on, if the user thinks he's facing real punishment, won't he roll on the dealer to buy a break with the law? Unless he fears the dealer more than the law, yes.

Now, I think the dealers (the prime brokers) can't do much here; if they rush to buy in the illegal shorts they put on at the behest of the hedge funds, even if they can seize the funds' margin money to effect the buy ins (which we all know they have not reserved or retained enough to do) the funds will just turn around and amend their complaints to increase the claimed damages. "Hey this is your fault, not ours, you should have borrowed real shares." That is, the prime brokers are screwed either way; so the users (hedge funds) have nothing to lose by trying to shift blame.

What may screw the hedges is if there are emails and tapes like at Refco and Rhino where the brokers and manipulator funds are joking about how they 'destroyed' their victims. Then again, that just shows complicity on the part of the prime brokers.

No naked shorting is possible without the 'consent' of the brokers, either the one selling, the one buying, or both. They are the easiest target for the lawyers, they are here in the US, they have big money, and they can't shuffle it off to Cyprus like the hedge fund crooks. We all knew this would break EVENTUALLY. Let's be thankful we are finally seeing it. The next step, not sure when it will happen, will be that the prime brokers point the blame finger at DTCC and say, it's their fault not ours. Now that will be fun to watch.

I think a number of us predicted that the trial lawyers would be the ones to break this thing open, as the (federal level) regulators and the industry protection agencies (the SRO's) would never take substantive action. The great thing about trial lawyers is that there are so many with so much money. They can lose a lot of battles and still win the war.

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