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DTCC claims FTDs trivial. Bobo says, why, sure they are...

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 6/28/2006 7:13 AM

UPDATE: Jesse Eisinger and Bill Alpert were at the hearings, and were seen chuckling together, and what some might describe as "scheming." So expect WSJ and Barron's slams. Also, Karen Hinton - Gradient's flack - was emailing on her PDA throughout the hearing, no doubt to highly interested parties back in AZ (but not interested enough to accept the Senate's request for them to testify). She then presented the press with her press blurb after the hearing. Roddy was there, in casual style. And one guy was writing down the physical descriptions of every person that spoke to Demetrios and Kasowitz, and passing the notes to an older attorney, who had 4 cell phones. Does this sound clandestine and sordid? You ain't seen nothin' yet, per my contacts. No bunnies were spotted in the audience.

I received an email from an ex-SEC staffer this afternoon, so the whistleblowers are likely going to start coming forward. You can judge for yourself:

"I know one former SEC attorney who quit after seeing almost identical political conduct from his supervisors all the way up the chain!!  I also know of a case turned down for political reasons after the defendant had already admitted guilt and paid a large monetary penalty.  It is common to be told to stand down for political reasons."

Any questions? Seems clear to me. The SEC is broken. Get a special prosecutor now. And get Gary Aguirre a bodyguard. Me too, come to think of it. These are big stakes.

---------------

A new Forbes article just came out, which echoes the last 4 blogs here, and gives a  very similar account of the Senate hearing today. It would appear that the media coverage is starting to become more balanced. It is ironic to me that I briefed the senior editorial staff at Forbes, as well as Kip Forbes. on this very topic, on April 15, 2005, at a special lunch reception at the Forbes mansion. I guess you could say I was a little ahead of my time spending 2.5 hours taking them through this. They probably thought I was nuts - I probably would have. Not so nutty anymore, though...

---------------

The DTCC is now saying that the FTD problem isn't nearly as big as we all thought it was up until this late morning. You can read a copy of their release here.

So it isn't $6 billion per day, it's $3 billion or so.

Huh.

Of course, that doesn't include the ex-clearing fails, which are routinely moved out of the DTCC's grasp, and thus their count. I've been told that number is 10 times as large as the "in-system" fails.

But here's the irony. You have the DTCC scrambling to assure investors that the FTD issues is small, and simultaneously, you have the SEC saying that it is large enough to justify grandfathering all past fails prior to 2005, so as not to destabilize the markets with volatility.

So which is it? A trivial problem, or one so large it could destabilize the markets?

Of course, neither firm will actually tell us how large that problem is in dollars or shares - far better to keep it secret. So we have to use our best guesses...

We can then turn to the FOIA data we have, and watch OSTK climb from no fails, up to 12.5+% of all outstanding shares failed, all in a matter of months, and all since being on the SHO list. We can view NFI's massive FTDs, and look at days where they accounted for 40%+ of the total trading volume for the stock.

Now, how much of that is likely due to the dog eating your certificates?

Let's assume that THIS TIME the DTCC isn't misstating the facts, as they did with Cam Funkhauser's comments, or the tall tale about not being invited to the NASAA conference. Let's assume they are telling the truth.

If that rolling $3 billion or so represents the current mark to market value of the fails, what would the actual value be if they were bought in?

Sky's the limit.

I wonder if issues like Delta are simply purged from the list when they go BK or are de-listed. That would be a convenient way to keep the number small.

And there is the ex-clearing issue, wherein the DTCC claims to be powerless, because of their own rules they passed, to police the settlement of ex-clearing trades, uh, well, you know, just because. I mean, who could expect the SRO chartered with policing its members/owners to actually do so, or that is chartered with upholding securities laws requiring prompt settlement to actually be able to do so? That's just too much to dream for!

No, I think moving the FTDs into ex-clearing, proclaiming that it is on the honor system, and then refusing to divulge how large that is speaks to a much better system.

I'm quite sure that the brokers who own the DTCC agree.

-----------

In other news, Gradient is claiming that the testimony from Demetrios delivered to the Senate today is somehow tainted.

Read all about it here.

Why tainted? Because apparently it had been handled by someone at OSTK.

Wow. That is coming from the same lady who claimed that journalists didn't have access to the Gradient reports real time, and then had to change her, ahem, story, when it Herb Greenberg's real-time access was exposed. So assign as much weight as you like to that perspective.

Want my guess? One of the attorneys who has acted as a contact and adviser to him was asked to look over the testimony to ensure that it wouldn't get him sued - a liability examination. That attorney now works at OSTK.

Mystery solved.

But no, Gradient claims that it is all a construct of an elaborate conspiracy by OSTK, and Biovail, and....well....you know, all the rest of those persecuting these proud freedom fighters.

That's an awful lot of conspiracy theory chatter from the camp that regularly mocks me as a conspiracy theorist, wouldn't ya say?

Most things have simple explanations. Who are you going to believe - established professional misstating raconteur spokeswoman for Gradient, or the Easter Bunny?

This one is an easy call. Although it is funny to me how desperate everyone is to denigrate the testimony in whatever way possible.

Aguirre? CNBC says it isn't believable because he didn't present any evidence - other than the 46 page evidence he presented to the Senate Banking Committee, that is. Oh, and he did mention that the SEC threatened him with criminal and civil charges if he did present any.

Noticing a pattern here?

-------------

Everyone that hasn't yet should check out the Intro chapter to my book about the market and this crisis: Symphony of Greed - Financial Terrorism and Super-Crime on Wall Street.
Copyright ©2006 Bob O'Brien
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Comments (74)
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Wonder Boy on 6/28/2006 12:07 PM
And naked shorting doesn't exist!
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Millerd1 on 6/28/2006 12:13 PM
Somehow it seems different this time, no? Hummm defensive reactions rather than offense reporting. Could that be the turning tide we sense?
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By tellit on 6/28/2006 3:37 PM
I am probably missing something, but IMHO, FTDs are not a case to be fought in aggregate. Whether it is 3 or 6 million does not change the real problem: that the FTDs are highly concentrated in a small number of companies. Boesky and Milken were not convicted because the aggregate number of inside trading deals finally reached a threshold. Each case of FTDs is fraud by itself. The OSTK and NFI FTDs (not counting ex-clearing) obtained by FOIA are sickening and by themselves prove fraudulent manipulation.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Browntrout on 6/28/2006 3:55 PM
Tellit-So what the DTCC is saying is comparable to law enforcement saying the amount of murders and rapes are only half what people think so there is no need to worry or prosecute the murderers and rapists?
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By daven on 6/28/2006 4:03 PM
I think that by their press release where they explained the $3 billion number applies to the NSCC they showed that the real number is $100 billion (because the NSCC only handles 3% of trades as the other 97% cancel out).

That said, even $3 billion is a huge number.

"If we wanted to make a book with a 3 billion dollar signs, printed 1000 per page with pages printed on both sides, the book would be 1,500,000 pages long."
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By gregcable2002 on 6/28/2006 4:05 PM
that trillion dollars is being made by selling property ( shares of companies )and never delivering that property ,never,and the sec grandfathered in the stolen loot so they never have to be held accountable.I think I'm going to be sick.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By gregcable2002 on 6/28/2006 4:10 PM
This is like someone robbing a bank and getting caught on tape,only the judge is the bad guys uncle so they let him off.And he keeps the money.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By fancy footwork on 6/28/2006 4:16 PM
So, the DTCC counts a transaction as a sell or a buy... making the actual count twice as high as it should be. It would then be logical to include both FTD's and FTR's as a certain proportion of the market. But now they are only reporting FTD's so they should count only the sales in the market for a comparison. If they can't make it precisely clear from the onset, Larry, etal ought to be investigated. One might consider anything coming out of the DTCC as double speak.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By daven on 6/28/2006 4:21 PM
Why doesn't the NSCC disclose the number of fails as a percentage of transactions like they do on their website? Isn't it deliberate obfuscation to talk transactions out of one breath and marked to market value out of the other?

"NSCC is the oldest and, in terms of the transaction volumes it processes, by far the largest of DTCC's clearing corporations. In 2002, it processed an average of 16.2 million transactions each day, with a peak day of 24.7 million transactions."

"effectively, the $6 billion cited by third parties actually represents $3 billion in fails to deliver, or about 1.1% of the $266.5 billion in trades processed on the average day by NSCC in 2005."

Is this $266.5 billion before or after netting? Is the $6 billion before or after netting (from their annual report, it appears to be after)?

The number would be too big if the $266.5 was after netting, so it seems like they are engaging in some deliberate deception here.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By gregcable2002 on 6/28/2006 4:25 PM
whats needed is a independent auditor to be sent in and go over the books with a fine tooth comb,now that would be a hoot.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By daven on 6/28/2006 4:31 PM
You would expect the companies that failed to have much lower marked to market values. That's exactly what we're complaining about. I bet the percentage of transactions that fail before netting is extremely high and way higher than they are implying.

If there is no BS here, they should welcome an independent auditor to go in and vouch for them.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By gregcable2002 on 6/28/2006 4:36 PM
now that we have the attention of the DOJ maybe an independent auditor is what we push for next,if the dtcc is on the up&up thay should welcome this,right?
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Granny on 6/28/2006 4:37 PM
Sounds like the people at the top of the SEC are double agents. What a total sham. Is it true that nobody else on the committee showed up? hope that Arlen Specter and Orin Hatch are up to the task to take on the miscreants. WIll there be a replay so that everybody can see it and we can hear the questions?

If they try to knock one of us down there will be ten more to take their place.

Once again, we thank ALL of you for your participation and persistence in exposing this corruption. You have done a great service to the world!

Truth will out.
Shakespeare, Lancelot, Merchant of Venice.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By robelita on 6/28/2006 4:50 PM
I have written Arlen Specter and asked for an independent prosecutor to look into Gary's allegations. Awaiting word from his staff. I intend to write both senators and my rep as well. If everyone does the same there is no way anyone in Washington can claim ignorance of this issue any longer. Let your voice be heard!
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Wonder Boy on 6/28/2006 4:58 PM
This is way too complex. How about if the Senate just says 'settle ALL the trades' by July 15th or some other certain date---all trades, even the grandfathered ones. Let the cards fall where they may, but even when the water is short an they say 'if it's yellow, let it mellow---if it's brown, flush it down'---it is still a good (and more pleasant) idea to flush things out.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By x. trapnell on 6/28/2006 5:00 PM
Bravo, Arlen! He's a senator from my state, and I'm proud of him and have written him to say so and also asked for a special prosecutor.

It's alarming how thin the line of honest politicians has become, but at least two of them haven't yet been bought out by Wall Street.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Wicked World on 6/28/2006 5:16 PM

gregcable,

I've been sick since April of last year. Wanna borrow my puke pail? The hardest part for me has been coming to terms with how naive I've been towards Wall St., our elected officials, and appointed regulators.

Let me share this. I was a person who for years would defend The Market. By that I mean I would be offended when someone (who might not ever bought or sold a single stock) would refer to investing in stocks with terms like "playing the market" or simply "gambling". I thought they were more or less uninformed since they knew nothing of skilled fundamental and technical analysis. That it was NOT like "rolling the dice" in a casino. But the joke has been on me!! Casinos are much more fair.

But don't get me wrong. I knew there was wrongdoing. I knew that the playing field was uneven. I knew that as an individual outside investor I was at a disadvantage. I knew not to believe everything said on TV or printed on paper. I knew my broker was not my friend. What I did NOT know was that I would be defrauded via illegal market manipulations being afforded hedge funds and other participants while the regulators look the other way and maybe sometimes HELP THEM DEFRAUD ME!!!!!!!!!!!

For me, the 18 page Aguirre letter is bombshell-like confirmation of at least 90% of everything BobO has outlined and detailed here and elsewhere since I've been paying attention for the last year and a half. That it comes from someone from within the SEC is AMAZING!! I am outraged and relieved at the same time.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By mhelburn on 6/28/2006 6:20 PM
SEC officials are in very hot water with the Aguirre testimony. I kept hoping that they were just overworked and underpaid..... As Patrick said... long ago, "captured regulators"... and the revolving door. The most frightening is that the worst of the lot makes his way into important government office.. and people shake his hand and treat him like he is a decent human. I hope that those who decided to fire Aquirre are puking sick with worry about potential indictments. Cox hasn't weighed in on this. Gross incompetence, favortism, obstruction of justice, influence peddling... and it is finally getting some decent coverage.. Liz Moyer of Forbes and Judith Burns both had fair coverage of the hearing.

Shelby is a four-letter word. The market has suffered an extra year because he is either bought or incompetent. The delay is inexcusible.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Little Bo peep on 6/28/2006 6:20 PM
Some people are skeptical of Mr Buffett giving his money to Bill Gates.
Because of the history of what happened with Bill Gates, Apple and IBM. When the first computers were made. The history is there to read. It does not paint Mr Gates with a white hat. That could be why or he could be tangled with Mr John Mack. Who knows the reason? But the skepticism is strongly there. I do not know the answer. I do think Mr Buffett is a man of integrity, it is just my gut. Do not know. This guy Mr Mack, must have been as smooth as silk. With all the reactions it looks like he scratched many peoples back. It isn't very hard to see where Mr Mack has had is fingers. I would bet somebody is looking at that now. That name George Soros keeps popping up also because of the connection with Mr Mack. Look to see if Mack has any connections to AXA or Mony Group. Does the Mony group have any connections with Southeastern Management or Soros to any of the three?
Many, many layers to this onion. That is just the some of the "buzz".
Today was a good day in my opinion. You have to sort through the slanted media that you see and read and decide what you believe.

Ours is not a battle between the parties. That is bullshit. Let them go at each other like children. Do they realize how foolish they look dressed up and acting so silly. If they were working for the SAKE of the American public. They would act like grown ups and get to the bottom of the fraud. Not waiting to be forced.
Unless it was working like a yes sir, I'll kiss your ass program. All the while they went into the next room and said I hate that bastard. We all know how that program works right? Who knows?

It all seems to point to money, doesn't it?

We need to focus our energy on just the facts.

Anyone that does not think that Mr Gary Aguirre was not an American Hero today is full of shit. I do not care what party, religion or what planet they live on.


Going to be a busy day tomorrow. Get your tin foil hats shined up.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Wicked World on 6/28/2006 6:59 PM

mhelburn,

"I kept hoping that they were just overworked and underpaid..... As Patrick said... long ago, "captured regulators"... and the revolving door."


Exactly! Great post.

Can you imagine being the CEO of a company about to be paid a visit by the SEC? The same SEC described in the 18 page Aguirre letter. Yikes!


"Those interests know how to reward friends and punish perceived enemies. Their tentacles reach far. They stopped the hedge fund investigation I was assigned to conduct. They cost me my job."---Aguirre's Letter to Congress


"Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker's stoutest allies."---Pecora from Wall Street Under Oath
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By mig on 6/28/2006 7:02 PM
I must say it looks as if things have come a long way from when David Rocker stood up in front of congressmen and said FTD's were the fault of people who were long the stock not selling or delivering...and everybody nodded like a bunch of bobbleheads.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Pinkice on 6/28/2006 7:16 PM
May the SEC in charge and Senator Shelby soon become like Franklin Raines of FNM, former figures. These guys need to be prosecuted like Ken Lay & Bernie Ebbers - no protecting " the public servent". Have they protected the individual investor and the public at large. No - these guys are getting their pockets lined, positions protected via the hedge fund contributions/lobbying imho.

There is no instability in the market by forcing the nss to cover. The only instability by forcing naked short covering would be the blow-up of a few hedge funds and perhaps a few broker/dealers. The wealth would be redistributed & given back as it rightfully should be - to the shareholder. The naked shorts profit was illegal to begin
with, you don't own what isn't yours to begin with or what was gotten/taken with illegal tactics. Macroeconomically speaking, by forcing the FTD's and NSS to cover, pps would rise and those with moral integrity - the shareholder's could then use profits to start other businesses/entreprenurial enterprises. By bankrupting a couple of the broker/dealers, this may allow others with perhaps more moral integrity step into the wall street fray and become a more honerable broker dealer.

DTCC - open the books and welcome an audit. If you have nothing to hide as you say you do, then give us auditied numbers with respect to OS shares vs. NSS vs. legal shorts.

Main Street America wants, no demands, Wall Street be brought to justice.

Pinkice
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Just the Facts on 6/28/2006 7:24 PM
Let's pretend you have a deadly disease that is progressive. Your HMO or insurance provider is the Senate Banking Committee. Your doctor is the SEC. The DTCC is the lab that does all of the necessary testing.

Your doctor has had 1.5 years to show some improvement in your situation/case/dilema but shows no improvement despite the claims. The doctors argue about the results and possible treatments, but they ARE in continuous meetings to determine the best course of action. Consequently, there are no new treatments offered and your situation continues to deteriorate.

The testing lab numbers are just not understandable causing confusion on the part of the doctors. They say one thing the first day and something else the next.

The HMO just refuses to hear the case so you have no idea whether you have coverage.

What is your confidence level in this situation? Sound familiar?
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By SENATOR "HAMHOCK" SHELBY on 6/28/2006 7:26 PM
Hey I promised hearings on REFCO on national TV but guess what? No hearings! I had my main squeeze Chuck "Porkchop" Schumer pipe up at the Senate Judiciary Hearing today and tell everyone there that they had no business messin in MY turf. We are going to hold all kinds of hearings over this that I will cancel. The American public will think we are actually doing something based on my proclaiming each time ; "We are holding a hearing". Let's face it, they are sooo stupid.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Tired of the games. on 6/28/2006 7:33 PM
Forbes Article- My email to Liz Moyer bounced so I sent it to her editor's email address. Hope she gets it. Here it is:

Fairest report on Senate Hearing!

To: lmoyer@forbes.net



Keep up the good work. The hearing today is hopefully just the start of an attempt to correct the massive fraud in the market place that may be too little too late but at least there is something starting to be done after so many years of abuse. Senate Banking will not bring this story unless they are either forced to or have figured out a way to help the industry cover it up. Your reporting appeared to fair and balanced(I don't work for Fox) and hopefully will continue to be so as this story starts to get more exposure.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Wicked World on 6/28/2006 7:45 PM

Just the facts,

You left out the part where one of the doctors left the practice and then published a letter stating that they had the cure to your disease all along. But they couldn't tell you about the cure because it would cause HMO volatility. Oh, and by the way, thanks for the premiums you've been sending but don't count on an actual policy backing them up because they loaned that out to the Congressional health plan administrator for the Banking Commission. Yes, they collect premiums from them too on your policy. Good Luck and don't get sicker!
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Little Bo peep on 6/28/2006 7:48 PM
Bunny, you sure did crack some rotten eggs today. Looks like the wheels are turning. "Hats off to you"! Great work. But don't you even think about trying to
get my tin foil hat, because I just got finished shining it up!

Are the people who thought they had it all (the people without undies on)?
In other news.... By robelita on 6/28/2006 7:53 PM
The Senate confirmation hearing of Henry M. Paulson Jr., CHAIRMAN AND CEO OF GOLDMAN SACHS, proceeded quietly today as the Senate Judiciary was apprised of disturbing allegations made against the SEC by former member Gary Aguirre, leaving most eyes shifted away from another potential fox-in-the-henhouse appointment by the Bush administration-not unlike the Chris Cox appointment to the SEC.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Just the Facts on 6/28/2006 7:56 PM
My apologies. I let my fingers get ahead of my thinking. I am sure I missed many more of the finer points. It is just that I am suffering from the dreaded disease of 'bullshititis' and am quite tired of things these days. My attitude, for the most part, remains positive but I sure do want to see some results and a lot less posturing.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Wonder Boy on 6/28/2006 8:00 PM
robelita---

With the list of 'settlements' over the years with GS, how could they choose anyone else?!!!???
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By WhoAmI? on 6/28/2006 8:42 PM
Bobo:

Herb in his blog today makes the same point about Overstock being involved in Demetrio's testimony. Is it just a conincidence that Gradient is making the same argument? Or, am I seeing a collusion (again!!) between Gradient and Herbie, claiming collusion (Jeez!) between OSTK, Biovail and the witness?

It appears to me that Herb's employer is making him run his blog, giving him an opportunity to tell everyone his side of the story (before they could fire his sorry a$$). If indeed the blog was Herb's idea, he is doing such a poor job (ask Mark and Pachie--they give him such a hard time), he is probably better off shutting it down ASAP. Some of his responses are so repetitive and stale, it's like his gig on CNBC, nothing substantial or intelligent ever!

As one would expect, Herb just refused to post my question at his blog site recently when I simply asked him if the blog was his idea or of that of CBS Marketwatch. What do you think? It's a stupid idea to run a blog in my opinion if the only posts that you see are the ones that cry out "Herb, you are a moron!" It's really patheticc how Herbie gets desperate sometimes fishing for complements and looking for reader support! The blog has Gary Wuss written all over it!
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By bobo on 6/28/2006 9:14 PM
WhoamI: I really hadn't paid any attention to what herb was up to. I suppose when I have a few spare minutes I could fence with him, but why bother? Of course Donn is feeding him stuff real time - do you really think that stopped once CNBC nailed Gradient cold for lying about his real-time access to their stuff?

Please.

The good news is that this is starting to look pretty hard to cover-up. We need a special prosecutor, a la Pecora, to take these scumbags apart.

IMO, of course.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Selene on 6/28/2006 10:21 PM
This may seem like a silly little point, but I've seen a few articles lately written in big time publications get the discription of PIPE financing mixed up. If I didn't know any better, I'd say it is evidence of how little the financial press understands what they are writing about.

Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By anon on 6/29/2006 1:59 AM
Donaldson in the Dock

By JOSEPH STERNBERG
June 29, 2006

Fourteen judges currently sit on the federal Court of Appeals for the District of Columbia Circuit, and eight of them have ruled against William Donaldson in the past year; one of those has done so twice. If Mr. Donaldson thought his tenure as chairman of the Securities and Exchange Commission was going to mark a new era in corporate reform, he was wrong. His real legacy is shaping up to be a series of embarrassing court defeats and, in one case, a slow bureaucratic death.

In Mr. Donaldson's latest loss, the appeals court struck down an attempt to regulate hedge funds that he had pushed through in the waning days of his chairmanship. By creatively redefining the word "client" in a statute, a 3-2 majority of commissioners had tried to bring the funds under the agency's watchful eyes for the first time.

That ruling arrived on June 23, a year and two days after Mr. Donaldson's first defeat, when a different three-judge panel ruled that the agency had violated the normal procedures for making new rules when it tried to impose new regulations on mutual funds. In that case, opponents of the rule argued that the SEC had failed to measure adequately the costs of requiring mutual fund boards and chairmen to be "independent" from the funds' management. And between the first mutual fund ruling and the hedge fund ruling, yet another three-judge panel had voted against the commission a second time on mutual funds. Mr. Donaldson had tried to enact exactly the same rule after it was struck down the first time in a frantic effort to beat the clock before his term ended on June 30, 2005.

The legal issues in the mutual and hedge fund cases have been different, but they share one thing in common. They were pushed through very quickly by Mr. Donaldson over vehement opposition from the two dissenting commissioners. The lawyer representing the chief opponents of the mutual fund rule, Eugene Scalia, suggests that this aspect is the particular oddity of these rules. That, in turn, might have caught the attention of the judges. They're no strangers to regulatory appeals since the D.C. circuit plays referee for most disputes between federal regulators and the regulated, and the law grants regulators like the SEC fairly broad latitude in setting rules.

Typically, however, the agencies before the judges have followed a slow and steady course toward the contentious rule. In contrast, the judges appear to be growing impatient with the Donaldson SEC's slipshod rulemaking. "You [the SEC] don't have the authority to act just because you exist," Judge Harry Edwards, a Carter appointee, interjected in exasperation as a commission lawyer was presenting the SEC's argument in the hedge fund case. Likewise during the hearing for the second mutual fund case, Judge Janice Rogers Brown, a George W. Bush appointee, hit a commission lawyer with a pointed question about whether the court's earlier ruling on the matter had had any effect.

The net result is that the agency is in trouble if it doesn't shape up quickly. If the commission under the new chairman, Christopher Cox, doesn't start behaving more rationally, the court will start viewing the SEC as unreliable, Mr. Scalia says. The commission's lawyers could find themselves confronting an ever more skeptical bench each time they head to court to defend a commission action.

That fate is not inevitable, however, and Mr. Cox at least is starting to take steps in the right direction. He has said he thinks the SEC needs to set up a better process for evaluating the economic rationale for potential new rules. Had Mr. Donaldson bothered to do something like that, the commission would not have been reprimanded twice by the court for its failure to consider the costs of its mutual fund rule.

The current chairman also appears to understand that one of the biggest problems at the SEC can be its own staff. One veteran SEC watcher, a scholar at the American Enterprise Institute, Peter Wallison, notes that Mr. Donaldson's controversial rules sprang from the SEC bureaucracy's power lust. As New York's attorney general, Eliot Spitzer, zeroed in on mutual funds, SEC staffers wanted a piece of the action. It was similar with hedge funds, which have grown in recent years. Another contentious rule, Regulation NMS, was an effort to substitute the SEC's judgment for that of investors in deciding at which price to execute transactions on electronic markets, such as the NASDAQ.

Mr. Donaldson was often egged on by the staff, giving little indication that he understood his underlings' own biases, which always veered toward more power for themselves. Mr. Cox, in contrast, has already demonstrated willingness to stand up to his staff in several high profile instances, as when he quashed the enforcement division's subpoenas of several journalists in a short-selling probe.

All of which will come as comforting to the investing public, which has an interest in sanity at the SEC. As for Mr. Donaldson, the legacy from his tenure at the commission is steadily going up in smoke. His attempt to regulate hedge funds is dead in its tracks. His mutual fund rule is now undergoing its second court-ordered reconsideration and is unlikely to survive another vote of the current commissioners. Regulation NMS has been deferred to at least 2007 and looks increasingly likely to die a quiet death inside the SEC's offices before it's implemented.

Mr. Donaldson can count one achievement, though. One Carter appointee, one Reagan appointee, two George H.W. Bush appointees, two Clinton appointees, and two George W. Bush appointees have voted against his rules. At a time when some might have thought legal bipartisanship in Washington was dead, Mr. Donaldson found two issues on which judges from both ends of the spectrum could agree.

NYSUN
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By SEC staff member on 6/29/2006 3:36 AM
I just got done watching CNBC interview the NYT editor this morning about Aguirre and the Mack investigation. Needless to say, I am shocked at CNBC's handling of the interview. The CNBC talking heads appeared very uncomfortable. The tone of the interview was the Aguirre shouldn't be trusted and his claims must be made up. They drilled the NYT on what was done to verify Aguirre's claims, yet they themselves are making unsubstantiated claims that Aguirre has credibility issues. Its stunning for me to see such an obvious bias towards the hedge fund industry by these "reporters."

One CNBC reporter suggested that Mack couldn't be quilty of anything because there is no evidence and he hasn't even been subpeoned on the matter. Duh! Of course he hasn't been subpeoned - Aguirre's supervisors allegedly blocked it from happened. That is why this story is an issue.

Sincerely,

A concerned SEC staff member
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By anon on 6/29/2006 4:08 AM
I thought I heard Specter comment to Aguirre during testimony that Aguirre would be given the opportunity to provide the evidence, even if it had to take place behind closed doors.
No comments on an article on page C1 in the WSJ? By short seler on 6/29/2006 4:26 AM
On the day of the hearings that tried so desperately to not discuss NSS or FTD?

I remember Bobo say ing the suit was a facade for hedgies for a cover of scrutinization. This Cappucci firm just won $1.1B for the Ahold shareholders and probably some big fees for themselves to finance their case against the brokers. Were they invted to speak?


____________
OT

And this:

Bank settles fraud case
Stockwalk award to go to creditors
BY SHERYL JEAN
Pioneer Press
Deutsche Bank has settled a lawsuit filed against it by Stockwalk Group to recover losses incurred as part of a massive securities fraud allegedly orchestrated by the German financial giant, a fugitive Saudi arms dealer and other individuals that bankrupted the Minneapolis-based securities firm.

Terms of the settlement, reached last week, are confidential. Local industry insiders estimated the settlement was for tens of millions of dollars.

"We're pleased with the results," said David Johnson, president of Stockwalk. "This is the end of our litigation with Deutsche Bank."

A spokesman for Deutsche Bank in New York confirmed the settlement but declined to elaborate.

Robert Weinstine, the Minneapolis lawyer representing Stockwalk, has said the company suffered between $75 million and $100 million in damage to its business.

Weinstine on Wednesday said a "substantial portion" of the settlement will be earmarked to repay money the company owes to creditors. In December, Stockwalk still owed about $40 million to creditors.

The amount apparently does not cover full payments to creditors. "In order to pay our creditors in full, Stockwalk anticipates the borrowing of additional funds," according to a letter sent to creditors last week that was obtained by the Pioneer Press.

Stockwalk filed the suit in September 2004 against Deutsche Bank, fugitive Saudi arms merchant Adnan Khashoggi and five other individuals.

Shortly after the Sept. 11, 2001, terrorist attacks, a Stockwalk subsidiary called MJK Clearing became insolvent after losing more than $200 million in a series of risky deals that involved borrowing and lending securities. Regulators took over MJK Clearing and forced it into the largest liquidation of a securities firm in U.S. history.

The suit alleged that the head of Deutsche Bank's stock loan department in Toronto and two acquaintances helped Khashoggi and his associates manipulate shares of a telemarketing company that Stockwalk had borrowed and re-loaned to other securities firms. The scheme fell apart when the telemarketing company's shares lost their value and a New Jersey brokerage that supplied the stock defaulted on a collateral payment to Stockwalk and went out of business.

In December, Deutsche Bank agreed to a $270 million settlement of similar securities-fraud charges brought by a U.S. Bankruptcy Court trustee overseeing the liquidation of MJK Clearing. In that settlement, the bank paid $147.5 million to the estate of MJK Clearing and will settle with three securities firms that have roughly $120 million in claims against the estate. Stockwalk received $10 million from that settlement and the rest went to the Securities Investor Protection Corp. and creditors.

Stockwalk and the trustee for MJK Clearing still have claims pending against a number of individuals and companies named in their suits, according to the lawyers for both parties.

Today, Stockwalk, which reorganized as Miller Johnson Steichen Kinnard under its 2002 bankruptcy, has 190 employees and more than $2 billion in managed assets.

Sheryl Jean can be reached at sjean@pioneerpress.com or 651-228-5576.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Johnboy on 6/29/2006 5:31 AM
Maybe a donation would be good:
http://www.iwtnews.com/
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By piddly_sum on 6/29/2006 6:04 AM
I sent a personal letter to Steve Forbes in December 2005, I had a previous personal contact with him many years ago.

I appealed to him that in his position as publisher of the leading business magazine, and someone who touts himself as an activist, he could and should play a pivitol role in much needed market reform.

In reply he wrote that he is surprised that the SEC does not do something about the problem and included an autographed copy of his book for me to read.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By bobo on 6/29/2006 6:21 AM
I am still of the belief that the Carpucci suit is a cover for the hedges. Time will tell whether that perspective is correct. In the meantime, everyone is entitled to their opinion, but nobody can be definitively right, as time hasn't spoken yet.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By bobo on 6/29/2006 6:28 AM
This is a great post from the NFI message board:

Template Letter to the NO SHOWS!
by: rvac106 (M/austin, tx)
Long-Term Sentiment: Buy 06/29/06 09:44 am
Msg: 442071 of 442094

Here’s the link to the list: http://judiciary.senate.gov/members.cfm ... Pick one, or pick ‘em all, the ones who chose to be somewhere else, of course….

Dear Senator,

It has come to my attention that you were not at the Judiciary Committee hearing that took place yesterday regarding certain questionable activities that are being brought to light concerning the actions by members of the Wall Street Community, including Stock Brokerage Houses, and the Security & Exchange Commission. Senators Specter, and Hatch, were the only Senators of the Committee in attendance.

Please let me know, as soon as you can, why you felt this hearing was not worth your time. I understand that you must be very busy, but, I am very concerned that, of the 18 members listed, of whom you are one, only two Senators were able to attend. Please let me know what you were doing, instead of attending this hearing. I am assuming that the other issue which precluded you from occupying your allotted chair on the panel was more important than making sure that the people you represent, the constituents you work for, and who pay your salary, are being protected from harm by the alleged manipulation that is being testified to in your own committee.

The hearings took place yesterday, the 28th of June, 2006. Today is Thursday, the 29th of June. I hope to hear from you soon.

Thanking you in advance for your prompt attention to this matter, I remain,

Sincerely,

XXX

Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Selene on 6/29/2006 7:33 AM
I think what the DTC is doing is taking the amount of fails and multiplying it by the average price of a stock in general. So if we have 200 million shares fail and multiply that by an average market price of 15 dollars per share, we get about 3 billion dollars in fails. It's clear to me that that's what they are doing. Now there are a number of problems with this estimate as listed by others above and that's where this issue gets out of control.

Daven: You bring up a great example. What you describe is something the Oligarchs in russia figured out a few years back in giving the perception of paying off debt by creating a trianglular relationship amongst parties. I do believe you are right in what you describe, but I don't believe the DTCC is smart enough to do it that way. Who knows...
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By daven on 6/29/2006 7:47 AM
I'm pretty sure that HAS to be what they are doing. Based on their annual report, the brokers owe the NSCC $3 billion and the NSCC and stock loan program owe the brokers $3 billion (approx.) This is AFTER netting.

They refer to the stock they owe us as "fail to receive" like it's our fault. Those bad owners failed to receive what we owe them...

Anyway, the $266.5 billion daily trading volume has to be BEFORE netting as they disclose indirectly, that they do about $500 billion per day in cash and bonds.

They also disclose that 97% of trades cancel out.

I'm happy to admit a mistake if someone can find it, but as far as I can tell, $3 billion in fails at the level of the NSCC equals about $100 billion of fails in the world, not counting x-clearing, tier 2 clearing, foreign brokerages and institutional contracts.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By mhelburn on 6/29/2006 7:59 AM
Was Liz Moyer present at the lunch? I tried to e-mail her and it bounced back. Does anyone have her address?

Perhaps the Senators have a grasp of the size of this fraud, the lack of enforcement and now why the SEC issued Reg SHO instead of making the shorts cover per the law... The theft by market manipulation from the market capitalization of target companies is financial terrorism. Who needs bombs if you can steal all the money and make the company close the doors?
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By OT on 6/29/2006 8:16 AM
Now they want to turn the internet into the haves and the have nots.

Internet giants suffer defeat in US Congress
Jun 29 10:24 AM US/Eastern

US Internet giants have suffered a defeat in the US Congress where an amendment on "Internet neutrality" was rejected by a Senate committee studying telecommunications reform.

Aimed at preventing network operators from charging an additional fee to websites seeking quicker and more effective connections for their users, the amendment failed Wednesday to gain a majority in the committee, which deadlocked 11-11.

However, the issue was to be examined by the Senate during its debate on telecommunications reform, the date for which has not been set.

Democratic Senator Byron Dorgan, one of the key promoters of "Internet neutrality," has vowed to continue his efforts.

"Any telecommunications legislation adopted by the Senate must preserve Internet freedom, and I will continue to press this issue with my colleagues as this measure moves to the floor for consideration," Dorgan said.

Opponents of the new usage toll -- predominantly the IT heavyweights -- demand nothing less than "Internet neutrality," where all traffic remains free in the spirit of democratic usage and access.

But telephone giants like Verizon, AT and T and cable TV provider Comcast argue that opponents of the fee are standing in the way of progress since the charges would cover faster Internet access, and are waging their own "hands off the Internet" campaign.

http://www.breitbart.com/news/2006/06/29/060629142420.sjgi9r1e.html
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Paul on 6/29/2006 8:25 AM
The Bush Family made all its money on Wall Street. So did the Kennedy's. New York has always been the center for stealing from the American people. I expect nothing to change unless honesty becomes necessary for our rulers to make money in the global exchanges.
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By The_Gig_is_up on 6/29/2006 9:00 AM
Bobo, from listening to the hearings yesterday, it appears to me that both Mr. Hatch and Specter made a point to say that sarbanes oxley has the teeth to go after manipulation of securities and they were puzzled why nobody like Biovail and OSTK made there cases to the DOJ since they are in charge of going after this illegal activity. To me, Hatch was INVITING someone to bring forth proof so that he could let loose on the crooks. Am I wrong in this assesment?
Re: DTCC claims FTDs trivial. Bobo says, why, sure they are... By Little Bo peep on 6/29/2006 9:08 AM
Bunny, you may need look at getting an additional manufacture for the
"tin foil hats"
It is looking like the current one is having trouble keeping up with the demand.
*** Shelby and Schumer are Disgustung *** By InTheKnow on 6/29/2006 9:41 AM
Specter gets muzzled witness, turf complaints at hearing

By Elana Schor

Steering the Senate Judiciary Committee into the secretive world of hedge funds, Chairman Arlen Specter (R-Pa.) yesterday encountered an uncooperative federal regulator and assertions from skeptical colleagues that he was encroaching on their turf.

What could have been a routine oversight hearing became a hot ticket in recent days as the committee added Gary Aguirre, a former Securities and Exchange Commission (SEC) lawyer who alleges he was fired for pursuing aggressive enforcement of hedgers, to the witness list. But Aguirre told Specter he had scrapped his original testimony after the SEC informed him of possible penalties for revealing new information.

Specter took umbrage at the SEC’s request to silence Aguirre without alerting his panel. “There is a constitutional responsibility of this committee. We need to know the facts,” Specter said, offering the whistle-blower a chance to tell his full story in a closed session.

Aguirre shared little that was not already made public in his May 30 letter to Sens. Chuck Hagel (R-Neb.) and Chris Dodd (D-Conn.), senior members of the Banking subcommittee with jurisdiction over hedge funds. Aguirre charges senior SEC officials with firing him for trying to subpoena a top investment-bank CEO during the agency’s probe of alleged insider trading at Pequot Capital Management, a $7 billion hedge fund.

But the chairman of the full Banking Committee, Sen. Richard Shelby (R-Ala.), and the ranking Democrat, Sen. Paul Sarbanes (Md.), openly questioned Specter’s authority to examine the $2-trillion-plus hedge-fund industry. In a letter delivered by Sen. Charles Schumer (D-N.Y.), the only member of both panels, the Banking leaders warned Judiciary off their turf.

“While we appreciate your interest in these important participants in the capital markets,” Shelby and Sarbanes wrote to Specter, hedge funds “fall within the exclusive jurisdiction of the Banking Committee.”

Shelby plans to hold another hedge-fund hearing before the August recess, spokesman Andrew Gray said. “We’re pleased that they are interested in our issues,” he added.

Specter asserted that he would confine his work to the adequacy of Justice Department prosecution of, and criminal penalties for, hedgers who manipulate the market. Schumer, whose state is home to many of the nation’s biggest hedge funds, nonetheless worried that the hearing’s broad focus “raises a yellow flag of caution.”

Specter called the hearing to trace the relationship between hedge funds and independent stock analysts, a link that has sparked two lawsuits against a research firm accused of illegally colluding with hedgers to reap maximum profits by driving down stock prices.

Sen. Chuck Grassley (R-Iowa), whose Finance Committee is the third panel in the upper chamber to join in the burgeoning Aguirre investigation, compared the high anxiety over hedge funds to the decade’s most explosive corporate scandal.

“The allegations we’re hearing today remind me of the Enron debacle,” which inspired Congress to rein in Wall Street through the Sarbanes-Oxley Act, Grassley said. Business groups have escalated their lobbying assault on that law, looking to ease its accounting rules, but Grassley speculated that the hedge-fund flap means that “maybe we didn’t do enough.”

The prospect of unreported “naked shorting” — where hedge funds sell stocks they do not technically own, then try to buy the shares back at a lower price — aroused the concern of Sen. Orrin Hatch (R-Utah), and he appeared convinced by the hearing’s end that Congress should try to regulate hedge funds.

Untraceable naked short-selling “could really kill the marketplace, if that’s widespread,” Hatch said. “[The SEC] had better get on the ball and start questioning these things.”

The SEC’s attempt to curb the wild growth of hedge funds, which now manage more than double their 2004 assets, was a hedger-registration rule that a federal appeals court struck down last week. Aguirre is adding to recent hedge-fund public attention with his criticism of the SEC’s enforcement, however, and Connecticut Attorney General Richard Blumenthal yesterday urged senators to step in.

“Right now hedge funds are in a regulatory void without any accountability,” Blumenthal said. “If federal agencies abandon the field, states will join together” and pass their own hedge-fund laws. Connecticut, destination of a mini-exodus of hedge funds from Wall Street, is reportedly considering one of its own.

The SEC declined to comment on the hearing but provided a copy of the letter it sent to Aguirre reminding him of regulations covering the disclosure of nonpublic information. Aguirre has retained a counsel from the Government Accountability Project, a whistle-blower advocacy group that helped lobby for a package of new legal protections included in the Senate’s recent defense authorization bill.

Pequot continues to defend itself against Aguirre’s charges that he was blocked from questioning Morgan Stanley CEO John Mack for political reasons. Aguirre says he believed Mack tipped Pequot executives to potential profits by disclosing insider information.

“Mr. Aguirre has still failed to produce a shred of evidence to support his unfounded allegations against Pequot,” a fund spokesman said yesterday.

Pequot investors and managers have donated about $20,600 to federal candidates since 2000, the majority of that going to Democrats, according to the Center for Responsive Politics. Mack is a heavyweight GOP donor, earning Bush “Pioneer” status du