Forbes.
You might have heard of them.
A venerated NY mainstay of the financial press? Unlike the NY Times, the WSJ, Barron's, AP, the NY Sun, and the Post, Forbes covered yesterday's astounding revelations generated by the FOIA data Dave Patch published, and did so in a factual, easy-to-grasp manner, providing balance from both camps - the anti-NSS camp, and the pro-Wall Street apologist anything-goes camp.
For those that missed it, Dave got in FOIA data that shows that, at a point when Global Links had 1.1 million shares issued, FTDs, NOT counting the ex-clearing FTDs, amounted to over 10 million shares. That is a 10:1 ratio of fake shares to real.
The company issued another 3 million by the end of March, bringing the total to 4+ million, and likely reducing the total fails to that 10 million number, from a considerably higher number.
My question, namely, "How can the SEC allow rampant defrauding of shareholders by Wall Street, while lying about the problem being inconsequential?" remains unanswered.
The Wall Street apologists have attacked the company, and Dave, and me, but what they haven't done is refute the data, or articulate how that sort of massive ongoing abuse is consistent with the SEC's mandate of investor protection.
See yesterday's blog for more on the blow by blow.
Anyhow, Forbes issued an intelligently written piece that afforded the issue more substantial coverage than most NY periodicals have, the notable exceptions being Time Magazine, and Bloomberg's coverage.
Here's some examples, excerpted for fair use:
"On Thursday, Patch got word back from the U.S. Securities and Exchange Commission on his request for information regarding failed trade data on Global Links, a Las Vegas real estate holding company that has been the target of frenzied trading activity over the last year and a half, and whose shares now trade at just fractions of a penny.
The data says on April 18, 2005, and the next day, fails in trades of Global Links stock totaled 10 million each. This compares with roughly 4 million shares in total outstanding common stock reported by the company at the end of March 2005.
So there was well over twice as many failed trades each day as there were actual common shares issued.
How can this be? Global Links is a very tiny company, but it is one example of an intensifying debate that is going on in the markets and at the SEC about possible market manipulation.
For the last year and a half, there has been a growing chorus of folks, like Patch, who argue that naked short-sellers pose a systemic risk to the markets by creating counterfeit shares that pressure stocks of targeted companies even lower and force some companies out of business (not to mention destroying the investment savings of shareholders.)
They even contend that this activity is orchestrated, involving the collusion of hedge funds, broker dealers and in some cases journalists, all under the not-so-watchful eye of market regulators."
Correct. See my question about how the SEC can allow this, without being basically a bunch of lying cheats.
"Their detractors--blogger and former BusinessWeek editor Gary Weiss mockingly calls them the "Baloney Brigade"--say they are distorting or misinterpreting the data. Or, at worst, they are scam artists bent on the opposite form of stock fraud--the "pump and dump."
Yesssss. I seeee. Of course, Gary, long on venom but short on intellect these days, fails to deliver anything approaching analysis - rather, he just declares it to all be bull, a la Cramer, as though by declaration he can substitute hot air for any sort of substance or reason, and nobody will notice the difference. Apparently, the only folks fooled by this are the few who read his blog - who rant about politics in incoherent caricatures of real people, while assuring him that he's a witty wag. For the record, on our side, there's hard FOIA data showing massive FTDs dwarfing the legitimate issued shares, and Senators demanding investigations and expressing a conviction that something's awry. On Gary's side, there's his feces-hurling vitriol absent any refutation, and a conspicuous absence of data - just his polyannaish insistence that this is all a tempest in a teacup. I don't normally read his mangling of the language, however someone emailed me a few examples of his important work, which forced me to have to slum, and skim it for substance - a thoroughly unpleasant 10 seconds.
Anyway, the boards had the usual paid crews attacking the company, as if by denigrating the enterprise they could somehow excuse the massive fraud against investors, so it was not exactly a surprise that this "attack the victim" approach was popular in the blogs of the regular Wall Street apologists. Almost scripted, one could say.
I loved this part of the article:
"Large and persistent fails to deliver," it (The SEC) says in its proposed amendment to SHO, "can be indicative of manipulative naked short-selling."
The SEC's own reporting on the issue doesn't even capture the whole problem. The agency uses data from the Continuous Net Settlement system at the Depository Trust & Clearing Corp., the New York clearinghouse that acts as the financial industry's go-to place for settling securities transactions.
The DTCC says fails-to-deliver equate to about $3 billion, if you divide in half the $6 billion figure it reported at the end of 2005 (it later explained it was double-counting delivered and received shares). The company, which reports fail data to the stock exchanges but won't release the data to the public, says it has no way of knowing how many transactions settle ex-clearing, meaning outside its walls, in special arrangements from broker to broker.
"We don't know the underlying reasons for why trades fail. All we do is process the data and provide the information" to the markets, says a DTCC spokesman.
Asked for the percentage of fails (among failures the DTCC tracks) in all stock trades settled, including ex-clearing, he says, "If you don't know the size of the whole market, how can you tell what percentage you have?"
Ha ha ha ha ha. Yes, it is hard to give straight answers to direct questions when they are framed that way, huh? "That depends on what you mean by "is"..."
Liz introduces a fair point, though, which is that nobody, including the SEC and the DTCC, will admit to knowing the actual size of the problem. We've gone from "it's hardly anything" to "how can we say for sure what anything is?"
In truth, the netting effect of the CNS system yields false numbers as to the fails totals, as it nets out many trades that are never required to settle, leaving the fails as over and above what the CNS reconciles - versus settles. And ex-clearing, wherein security entitlements are put into investor accounts, and yet no stock is acquired to support the entitlement (basically an IOU based on nothing) is of unknown, but significant size. Ditto for contracts wherein persistent failures are cleared out of the system via contractual agreements between brokers, which the DTCC and the SEC claim to be powerless to police - raising the question who does...?
Anyhow, here's my prediction. We will see slams against Dave, me, the data, the company, from all the usual suckups in the NY press, who will ignore the larger question of how the SEC allows this to happen, to continue, and why they are lying to us about it, and instead focus on attacking everything else. They will steer clear of the ugly truths that we now have to confront as to the dishonesty of the chief securities regulator, and instead take snarky potshots in an attempt to confuse and create smoke.
Forbes proves that doesn't have to be the case.
Then again, as far as I can tell, Forbes isn't on the hedge fund payroll, so they don't have a lot of interest in selling that load to the public.
Folks might want to drop Ms. Moyer a line and thank her for the coverage.