It's summer, and that means it is time for me to arrogantly wave my own flag, and proclaim that I have the power of ten Easter Bunnies, and have broken stories well in advance of the mainstream press catching up to the issues - largely because I'm not employed by a system whose ad revenues are dependent upon Wall Street, I'd bet.
But that's another story..
As an example, consider this excellent article in Businessweek today. And then consider this blog from a month ago, detailing how hedge funds are perfect conduits for terrorist or drug money laundering.
Huh. Who knew that unregulated, anonymous hedge funds worth over $1.3 trillion could be used for illicit purposes? Gasp! You mean there's gambling going on in there?
Next, consider the intersection of hedge funds, manipulative/naked short selling, independent analysts, co-opted journalists, class action attorneys, and regulators. Think long and hard about that, and consider next week's Senate hearing looking into that intersection between the analysts and the hedge funds, and their ability to abusively short companies into the ground. Then check out this oldy but goody blog where the actual mechanism is laid out in excruciating detail.
The only thing I would change in the description now is that the international arbitrage game is better understood, and it's the bad guys or their affiliates acting as foreign market makers and thus being allowed the latitude to legally naked short that is critical here - assuming that the trades aren't all just netted together against any buys for a far lower actual short number. That's presuming that the claims of offsetting large long positions offshore aren't being used - I mean, they do check those claims...right?
If you get a chance, go back through the archives, and the original bobosrevenge.blogspot.com Sanity Check blogs, and look at them historically for a barometer of the things that were articulated here months, if not years, before the mainstream press started paying attention. And then consider the number of blogs addressing disturbing realities that have yet to be addressed, and ask yourself why it is that the media is taking so long to figure this out.
I'm reminded again and again of BCCI, or the S&L crisis, where the large pink elephant in the room was ignored while the powers that be made a killing, at the expense of honest folk.
At least there's consistency to it.
There's that.
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Want to have a market maker rent you his naked short selling capability for a buck or so a share? Even on SHO list stocks, or stocks where there is no borrow available?
Consider this scenario, as a description of how to make money fast, and not be constrained by antiquated notions like supply and demand. And the next time you see your favorite SHO list stock being sold off on no news, or contained with a virtually infinite supply of shares, you will understand one of the games being played:
"Here's a description of how it works in OSTK - just insert NFI in place of that company, and insert specialist instead of market maker - although I believe there are options MMs for NFI as well, so you don't even need to make that change:
A broker/dealer can short without borrowing if he is a market maker - not particularly difficult to become, BTW. That means he is duty bound to make a market, so that if some people were bidding $20, and some were offering at $21, he would step in and sell at $20.50, say, just to keep the market moving. What does he sell? Stock he has not borrowed yet. So it is naked shorting, but he's exempted from the normal rules.
This exception is clearly only supposed to exist for minute to minute, or hour to hour, imbalances. It is also routinely flouted.
Here's what I, as a crooked market maker in OSTK could do all day long for you, a manipulative hedge fund:
1. Sell 500,000 shares I don't have (using my market maker exemption) to you for $20/share.
2.Hedge my risk that the stock goes up by buying calls from you struck at $20, and paying you $1/each.
3. I then sell you puts struck at $20 for $2 each.
4. You dribble your 500,000 shares endlessly into the market, hitting the stock every moment it starts to move up. When you need more ammo, just call and we'll do this deal again, say, in a few days.
No matter what the stock does, then, I make $1. And you get exactly the outcome that you would have with a naked short position - but you never did; you just bought stock, puts, and sold calls.
I basically rented you my market maker exemption for $1.
This is simplified. The spreads are not really $20 to $21, and the pricing on the options is a bit more complicated, etc. but this is the idea.
So anyone wondering what those big blocks crossing the tape without moving the price, with corresponding options activity, are doing...this is likely the scenario.
Hell of a system we have, huh?"
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Mark Cuban again offers us the gift of laughter, with his latest foray into on-line activity.
His new new thing is to have a website that will break negative stories about companies, after digging up dirt on them - not necessarily a bad idea. If there wasn't a completely corrupt system for me to battle on Wall Street, that's something I'd likely be into - bad guys are bad guys, and I don't particularly like 'em, regardless of the flavor.
The difference is that Mark indicated that he intends to take positions in the stocks before the articles break:
"...said he'll buy and sell stocks based on information before the site publishes it."
Now, a cynic might say that is precisely what Gradient and the hedge funds are accused of doing. An even more cynical person might use words like misappropriation, and point out that is what Elgindy was doing.
Thank goodness I'm not cynical.
I think it is a great idea to discover negative information ahead of the general public, and then take a short position in anticipation of the market drop your pet website can create when it breaks the info. Especially if you syndicate that to your buds at other hedge funds. Why, I bet they would be more than happy to offer up insights and ideas on companies they think suck. I bet you could make even more money by charging a lot to let special people know what will get slammed before the general public!
This is the American way of profiting off of hard work - and anyone that says that you'd have to be morally bankrupt to be confused about the ethics and legality of operating a negatively slanted mouthpiece in order to personally benefit financially from the stock action once you've broken the data - correct or incorrect, subdued or exaggerated - is being snarky. I mean, is it wrong to trade on non-public knowledge of a hugely negative campaign, which given Mr. Cuban's stature is likely to move markets (remember that there are a lot of idiots who trade based on lowest common denominator theory - they try to anticipate what the morons will do, thus trading in like morons, but earlier)? Would that be so bad?
I'm going to go with Mark didn't chitty chat with any securities attorneys before giving this interview or vetting the business plan. Call it a hunch.
Again, there's nothing wrong with digging up dirt on bad guys.
There are, however, securities laws against trading ahead of material events likely to move the price of a stock - you know, like the guy who got put away for trading ahead of the Businessweek news.
Think of it this way - how likely would people have been to buy stock from Mark (shorted) if they had known he was about to slam the price with a negative expose? They wouldn't have. By withholding that info from the public until he has gotten his trade on, some would say that he has defrauded those he sold his shorted stock to - that's how many would view it in this hypothetical case.
Because it isn't the information. It's that whatever stock is mentioned by his site is practically guaranteed to go down bigtime. Whether the info is correct or not - it's the fact of the article rather than the substance that will serve as the trigger.
My hunch is that this is all an elaborate practical joke by Mark, whose richly developed sense of humor is legendary.
Right?
...Right?