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The New, New Thing - A Return To The "Good Old Days..."

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Posted by:   bobo 8/10/2006 5:21 AM

A funny thing happened in the trading of Bristol Meyers.

Back on June 15, 2006, their short interest was about 27 million shares.

Then there was a massive spike to 47 million shares, by July 15.

That is unprecedented short selling. Unprecedented, of course, unless you were one of a group that had gotten inside information from the Feds that they were getting ready to launch a probe into the company. Then it would be completely explainable.

Now, back in the 1980s, insider trading ahead of mergers and acquisitions was an epidemic issue for the SEC. Everyone was doing it, and you could see the patterns in stocks ahead of the news being released.

The head on a pike in that era was Milken, with Boesky's right alongside of him. They had developed a sophisticated network of loosely affiliated arbs and traders who would frontrun the info, and manipulate the markets. When their little shindig was rolled up, that sent the message to Wall Street that the party was over, and that the behavior in question would carry jail time.

The cynic in me looks at that, and wonders if Boesky and Milken weren't taken down by their competitors at the big, established Wall Street banks, whose underwriting business had been cannibalized by Drexel's domination of the junk bond biz. I mean, it is conceivable, knowing Wall Street's history, that competitor A had  lot of clout, and wanted to take out their smaller competitor, upstart maverick Drexel - and so planted the right bug in the right ear to point the cops in the right direction. Sort of like the mob tipping the cops as to their rival's misbehavior.

But I digress.

The point is that insider trading had been a huge problem, and the process was so badly compromised that many felt a complete lack of faith in the integrity of the system. Rich, powerful, connected special interests were able to benefit financially from info the rank and file didn't have access to.

Now consider Bristol Meyers.

Here we have a clear indication of the system breaking down in precisely the same way. Rich, powerful special interests are trading ahead of info the retail investor doesn't have, reaping huge profits. And those special interests have the clout to then drive the price into the ground, further sealing their profitability in the manipulative trade.

They are called hedge funds. Used to be called arbitrageurs in Boesky's day. Arbs. Called stock pools before that. Same beast.

We saw Vonage naked shorted in tremendous volume at their IPO, when there were no shares available to legally short. Now we see clear evidence of massive short selling ahead of a Fed probe of the company.

How clear does it have to be that the system is completely out of control, and has failed us?

We have Shelby mushmouthing his way through a, "If it ain't broke don't fix it" minstrel show, while Cox and the SEC pretend polite interest in massive short selling manipulation, and yet every day we see the signs of a system whose integrity is gone.

Naked short selling is one aspect of the destructive power of Wall Street's acceptance of the wisdom that it is far easier to destroy than to build. Frontrunning bad news, in such a blatant fashion, is also a symptom of that disease. That it is so blatant should tell everyone that the perpetrators have no fear of any sanctions, or wrist slaps involving no admission of guilt. There is no fear of the cops on Wall Street, because the cops are either impotent, or bought and paid for.

Exactly how much worse or obvious does this have to get? Companies are abandoning the US market as an IPO choice due to this larcenous norm. Companies are seeing their market caps crushed if they are foolish enough to be in the US market. Investors are being robbed by special interests.

How much worse does it have to get?

We have become an animal that allows our population to be used as food for rapacious predators whose fear of repercussions is wholly absent. Our regulators have demonstrated a complete inability to bring any sort of semblance of fairness to the markets. It is out of control when a company the size of BM can be savaged like this, with no press coverage - just business as usual.

Gasparino is the ONLY one that even mentioned it. The rest of the NY press has been stone silent about it, as though it didn't happen.

Forget about micro-cap or penny stocks being manipulated by scumbags. Pretend you haven't heard all about OSTK and NFI from me, and the movement up the food chain by the manipulators to hit $1 billion companies. Act as though you haven't heard about FFH or Biovail, and their allegations against powerful special interests. Now we have massive mainstream companies being used like Kleenex by the same machine, in the same manner. Destroy and profit. And nobody is doing a thing to stop it.

Any questions?
Copyright ©2006 Bob O'Brien
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Comments (29)
Re: The New, New Thing - A Return To The "Good Old Days..." By bbhindyou on 8/10/2006 7:30 AM
The only thing you forgot to mention is the power they have increases as the dollar value of the gutted companys increase .The people and positions they have acess to influencing increases with the cash flow. Now with a ability to force money into the market through the mandatory retirement accounts which now can be invested in a higher risk without the contributors permission and increases that can be automaticly deducted and the attempt to have social security invested in wall street is there any doubt where the money is buying influence ? Your comment on the sacrifice of the competition is dead on as well.The big fish swam away to come and feed another day.I wonder who the fall guy will be this time. Pinned as the big bad market crasher who must be punished while the true perps who set the poor sap up slide out the back door.
Re: The New, New Thing - A Return To The "Good Old Days..." By Niel Storts on 8/10/2006 7:32 AM
It's broke "Bob". Only solution I can think of is to throw it away. When those half witted whores in d.c. fail to fix it........throw them away too. Quite frankly, I believe it might be time to strip away virtually every action that this country has made in the past 200 years, and start over. When the government fails to protect the interests of the governed. It is the responsiblity of the people to institute a new government. Anyone who still thinks the current system will rectify this mess.......... well, good luck. I'd wager there is great nashing of teeth going on in shortlandia today because the terrorists were caught. I also believe that our "regulaters" are in the pay of those self same culprits. Glad I will soon be leaving this vale of tears. Disgusting. Seems that way back when the cousins declared themselves Amish, and refused to touch unclean things, they were right.
Re: The New, New Thing - A Return To The "Good Old Days..." By anon on 8/11/2006 4:01 AM
http://www.nwfdailynews.com/articleArchive/jul2006/taxshelters.php

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/31/AR2006073101097.html

http://news.yahoo.com/s/afp/20060807/wl_afp/ustaxprobepeople
Re: The New, New Thing - A Return To The "Good Old Days..." By Boomer losing interest in the stock mkt. on 8/11/2006 8:33 AM
The Boomers will age, retire, and realize how vital fixed income investing is for the long haul...then the gamesters on and off Wall St. will have a lot less of our capital to play this game against.

I think that's a demographic reality that makes this current "land grab" of equity investment fraud a likely "last hurrah". When soon to be retired Jane and Joe from Peoria realize their stock investments aren't much better than they were 5 years ago I think they will finally throw in the towel with letting Wall St. "manage" their money.

CD's, Muni bonds, etc. will... as they always have, be the vehicles of favor for the age 65+ demographic group. And that's gonna be one heaping big pile of money exiting the stock game starting in earnest 5 years from now.
Re: The New, New Thing - A Return To The "Good Old Days..." By GPE on 8/11/2006 6:24 PM
Yes, this is all quite disgusting to most of us. It makes me want to request the actual stock certificates for the stocks I own from my brokerage house so that I "know" that yes, I actually DO own the shares I thought I purchased. No this wont stop these crooks from naked shorting my pics and manipulating the prices, but I feel that it might help me to sleep better knowing I have the certificates.. Am i crazy or what ??
Re: The New, New Thing - A Return To The "Good Old Days..." By Little Bo peep on 8/10/2006 7:37 AM
Help! Help! Somebody save me! Heeeeeelp!
I am a bird, I live in a cage. My name - Tweety.

" I tawt I taw a puddy tat. I did, I did see a puddy tat.!"

Granny, gets home just in time.

Hello, puddy tat
Whatsamatter? Something going on behind my back?
You bad old puddy tat!

Grandma wants to eat "boiled spice steamed shrimp" with lots of
"burn your eyes" sauce on the side.

Option fraud first, Naked short selling coming soon to a theater near you.
Re: The New, New Thing - A Return To The "Good Old Days..." By Bear..... on 8/10/2006 8:31 AM
Bravo Bob,

Even more reason to sell every stock you own.

But you do invest in stocks even knowing these condictions exist according to you.

Does that mke any sence Bob?
Re: The New, New Thing - A Return To The "Good Old Days..." By Paladin on 8/10/2006 8:42 AM
Ah, Bear/Bare/Bare-naked??

Not selling what I own, but not buying either. And neither is anyone in my extended family or circle of friends.

The 2 stocks I own in certificate form are rock solid businesses paying a steady income stream via high dividends. Same for the others mentioned above.

The game is rigged.... why play?

********************
Re: The New, New Thing - A Return To The "Good Old Days..." By wolf_at_the_door on 8/10/2006 8:57 AM
This is a huge problem only in the grassroots of the NFI, OSTK, and a few other boards. There isn't a major newspaper in the country that cares one iota about this problem, when a Pulitzer is there waiting for the taking. Bobo, your essays are worthy of publishing in any newspaper. Have you ever attempted to condense these and forward to every "letter to the editor" in every major city?
Re: The New, New Thing - A Return To The "Good Old Days..." By InTheKnow on 8/10/2006 8:58 AM
We all live for the day that the naked shorts get squeezed to a pulp and that day is coming fast. The pendulum swings both ways....

Bear, your basher days will end sooner than later.
Re: The New, New Thing - A Return To The "Good Old Days..." By bobo on 8/10/2006 9:04 AM
Everyone? Say bye bye Bear. Bye bye Bear.

I will leave his latest up, as the inability to spell single syllable words is a powerful testament to the poster's intellect and acumen and reasoning capability, but I won't allow any more harangues from him. I think I've been more than patient.

So good bye, bear. We shall all be the poorer for missing your next misspelled, illiterate missive. But we shall bravely struggle on, minus your insights.

Ciao.
Re: The New, New Thing - A Return To The "Good Old Days..." By Little Bo peep on 8/10/2006 9:14 AM
Is this information correct?
Currently, nearly 45 per cent of Australia’s investment funds are either managed by foreign-owned companies or by a joint venture between a domestic and a foreign financial institution.
Of the top 10 fund managers in Australia, five are foreign institutions – State Street Global Advisors, Axa Asia Pacific Holdings, Barclays Global Investors, Deutsche Asset Management and UBS Global Asset Management - and one – ING/ANZ - is a joint venture.

Can anyone shine some light here? Who knows that answer?
Re: The New, New Thing - A Return To The "Good Old Days..." By Repost on 8/10/2006 10:05 AM
Gotta take care of your own.

He is a top patron of the Mariane A. Boesky art gallery.
http://en.wikipedia.org/wiki/Steven_A._Cohen
Re: The New, New Thing - A Return To The "Good Old Days..." By Little Bo peep on 8/10/2006 10:23 AM
Deputy attorney general Paul McNulty said: "Investors take risks and do their best to see into the future when picking companies in which to invest. We cannot allow corporate leaders to operate under different rules, using 20-20 hindsight to line their own pockets."

"Phantom"

http://business.guardian.co.uk/story/0,,1840784,00.html
Re: The New, New Thing - A Return To The "Good Old Days..." By bobo on 8/10/2006 10:41 AM
I didn't realize that Cohen, who is obviously accused of being involved in shenanigans, is connected to Boesky via the gallery.

Isn't it funny how the same names keep coming up, over and over, when discussing the market, and insider trading, and manipulation?

Probably all one big coincidence. NY is filled with those.
Re: The New, New Thing - A Return To The "Good Old Days..." By ckza on 8/10/2006 10:48 AM
Wow! At the SEC site, one retired professor from Irvine, CA offered similar words to describe today's "investment climate." If I am not mistaken, he talked about his current "need" to "forecast" the "potential" illegal activities that will move stocks, instead of "traditional" valuing methods based upon future number projections during the "guessing" process. I wish that I was as gutsy as the professor in making my "investment decisions" in similar fashion. On another note, would someone direct me to the "exact" location for filing a commentary on REG SHO? Tia
Re: The New, New Thing - A Return To The "Good Old Days..." By Paladin on 8/10/2006 10:52 AM
ckza....

I believe you can make comments here:

http://www.sec.gov/cgi-bin/ruling-comments?ruling=s71206&rule_path=/rules/proposed/s71206&file_num=S7-12-06&action=Show_Form&title=Amendments%20to%20Regulation%20SHO

Lay it on 'em!!
***********************************
Re: The New, New Thing - A Return To The "Good Old Days..." By Jim on 8/10/2006 11:05 AM
These past two or three essays are some of your best ever, bobo. Keep on this track!

Also, are there any countries that still have a legitimate trading system where a company can do an IPO and not have to consider the risk of being savaged by FTDs? Have these countries seen any increase in IPOs different from the US trend? This would be powerful evidence pointing to a need for change that could be presented to our legislators as well as to business associations, chambers of commerce, etc.

I know there are some accounting and independent finance consultants out there that are now advising companies to use alternate means of raising capital... there truly is serious impact on national entrepreneurial activity.
Re: The New, New Thing - A Return To The "Good Old Days..." By davidn on 8/10/2006 12:47 PM
"The SIA’s suit also states that with current technology there is no feasible way for broker-dealers to be able to comply with the rule and it reiterates the group’s point that “failure to deliver” does not constitute an illegal act."

Do you notice their mantra, "failure to deliver does not constitute an illegal act"?

Yes it does. If you misrepresent to an investor that he or she has purchased shares, even going as far as pretending to let the investor vote and providing confirmation slips and brokerage statements that imply the investor has successfully purchased something, then that is fraud.

It's criminal and you can go to jail for it.

The same applies if the DTC misrepresents to a participant, company or regulator, if a clearing brokerage misrepresents to another brokerage, etc. If you take someone's money and misrepresent what they are getting in return, then you have committed fraud.

Fails to deliver would only be lawful if the purchaser was "in on it". The investor would need a big asterisk next to the purchase that says "PENDING".
Re: The New, New Thing - A Return To The "Good Old Days..." By davidn on 8/10/2006 12:54 PM
Companies TRY to avoid the US market listing in Canada or Europe only to find them listed on the pink sheets in the US AGAINST THEIR PERMISSION. (Memories of Berlin...)

Then all you have to do is naked short the pink version of the stock and arbitrage will force the price down in the foreign, regulated market.
Sen Feinstien replies: By friendofthedevil on 8/10/2006 1:01 PM
6/24/06

Dear Senator Feinstein;

The Securities and Exchange Commission is broken and should be overhauled or replaced.

This Wednesday, the Senate Judiciary Committee will be investigating the relationship between hedge funds and independent analysts. Good for you. If the Senate Banking Committee won't do the job, I'm happy someone will. With your knowledge of our capital markets I am strongly hoping you are active in this investigation. I also hope you will consider expanding the scope of the Committee's mission to include looking into the recent complaints of former SEC investigator, Gary Aguirre.

In Mr. Aguirre's May 30th letter to the Senate Banking Committee, (http://www.faulkingtruth.com/Files/aguirre_congress0623.pdf) (or see the June 23 New York Times front page article about him) he describes an SEC that systematically turns a blind eye to abuses such as front-running, insider trading, and other kinds of market manipulation such as wash sales and naked short-selling. He calls for increased oversight of the increasingly incestuous relationship between the prime banks and hedge funds, not for the sake of the hedge fund investors, but for all the rest of us small private investors who are thus cheated out of fair returns on our investments.

Hooray for Mr. Aguirre. He seems to be a brave man. And he seems to believe in an "Ownership Society" that is fair for all classes of investors. Please call him as a witness and listen to what he has to say about fixing the SEC. Thank you.

Sincerely,

reply:

August 10, 2006

Dear Dr. F :

Thank you for writing to me with your concerns regarding
the short selling of securities. Like you, I believe that it is
important that the Securities and Exchange Commission (SEC)
send a message that intentionally misleading shareholders will not
go unpunished.

Due to scheduling conflicts, I was unable to attend the June
28 Judiciary Committee hearing on Hedge Funds. However,
please know that I have directed my staff to follow this issue
closely. As you know, Regulation SHO, which became effective
on January 3, 2005, is intended to provide new regulations for the
short selling of securities. According to the SEC, Regulation SHO
was created to make it more difficult to sell securities short when
they are on the "Threshold Security List" and to provide uniform
requirements to tackle problems like failures to deliver and
"naked" short selling. As mandated by US SEC Regulation SHO,
if a significant number of shares of a particular stock are not
delivered by sellers when trades are settled, the stock is placed on
the list. I understand your concerns about the effectiveness of this
regulation and believe that the SEC should modernize and simplify
regulations. Please know that I will keep your thoughts in mind if
legislation related to short selling should come to the Senate floor.

Once again, thank you for your letter. I value and respect
your opinion and hope that you will continue to share your
thoughts and ideas with me. If I can be of further assistance,
please do not hesitate to call my Washington, D.C. staff at (202)
224-3841. Best regards.


Sincerely yours,

Dianne Feinstein
United States Senator
Re: The New, New Thing - A Return To The "Good Old Days..." By hemingway811 on 8/10/2006 1:06 PM
Bobo,

"I didn't realize that Cohen, who is obviously accused of being involved in shenanigans, is connected to Boesky via the gallery."

Mariane Boesky, owner of the gallery, is Ivan Boesky's daughter.
Re: The New, New Thing - A Return To The "Good Old Days..." By piddly_sum on 8/10/2006 1:10 PM
If it is not feasible for a broker-dealer to comply with this rule, then on any given day, how does each know if they are actually selling an item for which they will be paid?

I think they do not want to trot that argument out in front of a federal judge.

Name any other industry, where before a customer purchases an item, the seller doesn't check its inventory and ensure that item is in stock. Then if it happens to be out of stock (indefinitely), they collect the money anyway without notice of a backorder.
Re: The New, New Thing - A Return To The "Good Old Days..." By InTheKnow on 8/10/2006 1:31 PM
I thought electronic trading was the future that would expidite all transactions thus eliminating FTD's. However it seems that electronic trading is the future that expidites relieving every investor of his net worth.

Gimme that old time religion.
Re: The New, New Thing - A Return To The "Good Old Days..." By ginger on 8/10/2006 1:51 PM
Good gawd... Dianne Feinstein, United States Senator, another one who doesn't know naked short selling is not short selling.

Can't we dispence with the "short selling" and call it NAKED SELLING.
Re: The New, New Thing - A Return To The "Good Old Days..." By rtway1 on 8/10/2006 2:48 PM
I can not take it any longer and I have got to get this off my chest and Bobo you helped me make my decision. I must preface my comments by admitting that I watch Cramer's Mad Money show for only one purpose and that purpose is to validate my beliefs that Cramer is a crook and a puppet for the big hedgies or MM,'s that offer the best deal. I have no proof of this it is just my own opinion. When you mentioned Vonage Bob the bells went off. Ever since that stock announced that it was going public he bashed it. His original statement was anybody participating in the IPO should sell at the end of the day. There was not a day that went by that Cramer did not go out of his way, sometimes for minutes just to bash this stock. He nicknamed it "Vonage the Dog". I have never seen anybody attack any company with such fervor every day on public T.V. and the strange part about all this is that his show is about buying, not short selling or buying puts. I really can't figure out how you could make this scenario any more blatant. I've seen him take shots at Reg. SHO stocks in a subliminal fashion with the usual wink, wink. But Vonage has been an obsession and now I hear their is an investigation about Vonage. I hope someone at SEC watches that clown show and they can see for themselves. This show is so bad you almost need a bottle Malox to get through it. Scumbag clown would be a compliment to this phony. Again IMO but I'm convinced.
Re: The New, New Thing - A Return To The "Good Old Days..." By rtway1 on 8/10/2006 3:00 PM
Someone here mentioned that we should start using the phrase " counterfeiting stock certs". This seems like a better choice than naked short selling. Either phrase will require more validation but the majority can relate to counterfeiting as most people do not understand short selling and that's the very reason the miscreants can do this so easily because it is confusing to the public and that is their intention to keep the masses confused and ill informed.
Re: The New, New Thing - A Return To The "Good Old Days..." By friendofthedevil on 8/10/2006 3:43 PM
You know, I actually think Sen Feinstein gets it. I'm sure there are political considerations limiting her actions, but note that my letter did not emphasize NSS. That subject was buried in the middle with a general rant against the SEC. It was SHE (or, at least, her staff) who emphasized NSS, Reg SHO and the pending reform. I don't think the letter was that bad.

fotd
Re: The New, New Thing - A Return To The "Good Old Days..." By daven on 8/10/2006 4:16 PM
I'm going to make a point of using the phrases "counterfeit shares" and "naked selling".

This has nothing to do with shorting as that requires borrowing a share with the potential of being bought in if the owner wants the share back. With shorting, the owner lends the share for the benefit of being able to buy on margin and the buyer receives a real share with full voting rights.

1. Selling real shares long
2. Selling real shares short
3. Selling counterfeit shares

3 is quite different than 1 or 2.

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