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New article from California nails SEC role in fraud cover-up

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 8/25/2006 5:49 AM

As the NY Press remains completely silent (except for Forbes) about the shocking data accumulating that our top securities cop is assisting fraudsters to dupe investors, a small paper in California broke a well-written, comprehensive article on the state of the union to date.

You can read it here.

What is truly appalling about this whole situation is not just the SEC's role in aiding and abetting a massive fraud against investors - see the previous 4 blogs - but it's the financial media's complete blackout on the news.

Floyd Norris has the latest in a long string of "Byrne's crazy" articles out in the NY Times, wherein he tries to make the case that if a broker simply executes your order, that he's done his job, even if you never get the goods. Try that argument in any other industry. Still, Floyd was able to dig up some attorney that would frame it that way.

Floyd? When Congress passed the 1934 Securities Exchange Act, and mandated a linked clearing and settling, including transfer of record ownership, did I miss the caveat wherein it says, "Unless the seller doesn't feel like delivering, in which case the buyer's broker can shrug his shoulders but still keep the commission"?

Mr. Norris, a question: Why would anyone ever deliver anything if they could be paid for it, and not have to deliver because some shyster says it's OK?

The piece isn't particularly noteworthy, other than the fact that there is genuine evidence of massive financial fraud that the press is working so diligently to ignore. That's the curious thing about the article. You have to know that Byrne had the data about Global Links, and likely told Floyd all about it - but he just ignored it all in favor of the agenda.

I've said it before, and I will say it again.

This is a new low in the history of American Journalism. Our institutions have let us down - our regulator, our market system, our elected officials, and the final watchdogs, the press. There is no need for a free press if they are so co-opted that they won't report the truth. That reduces the institution to a propaganda machine, an arm of the special interests that would frame your opinion, a Pravda insisting that happy tractor workers are begging for longer than 12 hour workdays even as they revel in the positives of low level radiation exposure and an all potato and rat tail soup diet.

This is a farce.

And you are having to read about it here, because with a few exceptions, nobody will touch it. Too much money and power wants it covered-up.

We need a special prosecutor. Now.

 

Copyright ©2006 Bob O'Brien
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Comments (24)
Re: New article from California nails SEC role in fraud cover-up By Free Press on 8/25/2006 8:02 AM
Lets try to get all the small papers outside NY to cover this. If everyone but the large NY press is covering this fairly…
Re: New article from California nails SEC role in fraud cover-up By piddly_sum on 8/25/2006 8:10 AM
The article really hits the nail on the head.

I like the Email Article function at the top.
Re: New article from California nails SEC role in fraud cover-up By gregcable2002 on 8/25/2006 8:13 AM
All I can say is,TIC TOC TIC TOC,time is running out for those who would continue to fleece the american investor and try to cover it up,the little dutch boy has only ten fingers and ten toes to try and keep the dam from bursting and he's on his last little toe,so my advise to those who read this blog and are going to be implicated,turn yourselves in NOW,try to cut a deal because grandma is going to be on the jury,you can bet your bottom dollar on that.She's going to hear how grandpa's retirerment fund was looted with your help,how do you think she's going to take that news? or what really happened to cause her to have to sell her home and depend on social security now to survive? It's not going to be a pretty sight when justice is finally served.
Re: New article from California nails SEC role in fraud cover-up By Selene on 8/25/2006 8:14 AM
Bob, I know this is off topic, but given the assumption that most readers of your blog only read comments on the latest blog I hope you will allow this replicated post to remain. (see below)

Selene

Bob and Dave

First, I changed the numbers up slightly in my post because I fealt they would be easier for others to follow the thought process and because the actaul numbers lend themselves to slight variation because of rounding errors (the actual case deals with fractions of a penny for share price). But, let me instead do my best to work with the actual numbers as Dave has provided by approximation.

Global links pre split has a 1.75 million mrkt cap ($ 1,750,000 approx). They have approx. 400 million shares outstanding. If we devide the market cap by the 400 million shares (approx) we get a price per share of $0.00438 (1.75million devided by 400,000,000 shares = .00438/share).

Now, post split we will have to reduce the share count by a factor of 1/350 or .00286. So... 400 million shares multiplied by 0.00286 equals 1,144,000 shares (the new post split share count. again these are approximates). We could just as well divided the 400 million shares by 350 and got 1,142,857 shares (close enough / the difference is accounted for by the rounding errors that creap in by working with decimals also I'm using an approximate share count of 400 million and not the actual pre split count). Eitherway we have about 1.14 million shares post split outstanding.

As for the price of Global links it should generally adjust upwards by a multiple of 350. So if the pre split price was 0.00438 then the post split price should roughly be $1.533 per share post split (.00438 x 350 = 1.533/share). The market cap stays the same. That is 1.14 million shares multiplied by $1.533 per share equals approximately $1,750,000 of market cap (again rounding errors will give slightly different numbers).

You've claimed that an investor bought 111% of the company post split for 5000 dollars. Well, 111% of the company amounts to approximately 1,265,400 shares total purchased (1.14 million shares x 1.11). If he bought it for $5000 then his purchase price per share is $0.00395/share (that is $5000 divided by 1.265 million shares). These numbers once again suggest that the investor purchased shares post split, but based on pre split prices and share count (ie. Wall Street didn't adjust for the split). In looks as if the investor actually bought 1/350th of the company and not over 100%. To purchase 100% of the company post split he would have to pay approx $1.533 per share for 1.14million shares which amounts to about 1.75 million in market value. Instead he paid the old pre split price of approx $0.004 per share which suggest, again, that the shares were not adjusted for the split as they should have been.

Again with the fails: If on the one hand we see trades taking place at the pre split share count and price, then why would we not generally want to assume that the fails data is also taking place at the pre split share count. So when we see 27 million in fails, I generally want to assume that that's based on 400 million shares outstanding. To find what it should be if the reverse split was accounted for correctly we would have to divide the 27 million in fails by 350 to get 77,000 approx. of post split share fails. When the number decreases to 10million fails, once again we would have to divide this by 350 to get 28,000 share fails. Both are approximately 10% and 3% of pre or post split shares respectively depending on how you view the data. Now if you tell me that the ftd data on global links is in no way based on pre split share count, then I'm in agreement with you that we have a big problem here. However, the numbers seem to suggest that the fails data is based on pre split share count.

Bottm line: The numbers all suggest that the reverse split never went through properly. This type of situation has happened before as I'm sure it will happen again. Obviously what is needed is for Wall Street to correct the share amounts and adjust the price / share accordingly. Nothing more than basic accounting.

As for Global links issuance of new shares. We still have a problem here. If they sold them into the market post split at 0.004 per share then they were most likely harmed. If they sold them at 1.533 per share then there is no harm and no foul.

I am not an expert in these things and most likely have not done a great job stating my position, but one person I do know who could articulate this is Patrick. If he supports your interpretation of the data, then I will shut my mouth on this topic, but for now, both of you have provided cognitive dissonance rivaling my own.

Selene
Re: New article from California nails SEC role in fraud cover-up By virakiller on 8/25/2006 8:17 AM
TIC-TOC-TIC-TOC you are right on greg when all the people start to understand
WHY they lost all their retirement money ?

it wont be pretty
public "hangings" are what I would call for
Re: New article from California nails SEC role in fraud cover-up By davidn on 8/25/2006 8:18 AM
If I send some money to an EBay seller in Germany and they don't deliver the goods, then I can sue in Germany. The thing is it is such a hassle to sue in another jurisdiction, that it is rarely worth it. The authorities will consider it a civil matter - breach of contract - as opposed to theft. IE. it isn't criminal.

That thieves on Wallstreet are doing the same thing. They are breaching your trust, but take the position that it isn't criminal and you should sue if you aren't happy.

Your brokerage signs a contract with you, where they agree to hold your shares on your behalf. They then sign a similar contract, where a clearing house agrees to hold them on the brokerage's behalf. That clearing house will sign a similar agreement with a depository such as the CDS. The depository signs a similar agreement with the DTC. The DTC signs an agreement with Cede & Co. and Cede registers themselves with the company transfer agent as the actual registered owner of those shares. Only Cede has the right to dividends, voting, splits, etc.

Unless you have your certificate, your rights are on the level of the beneficiary of a trust and hopefully, Cede follows the instructions you send up this chain of contracts.

Just like the Ebay seller, if anyone of the depositories, clearing houses or brokerages in this chain fail to deliver to you, they've only breached the contract, a contract that you aren't even a party to, in most cases. There is a bunch of case law that establishes that it doesn't matter if you are ripped off. From the clearing house's point of view, the owner of the shares is the brokerage.

These contracts are in various states and for that matter, various countries. If you try to sue, they will bounce the problem to someone else in the chain or else take someone else's shares to placate you.

To make matters worse, the SEC runs interference for the bad guys.

Q. Why would they take something as simple as matching a buyer to seller and make it so complicated?

A. Cui Bono?
Re: New article from California nails SEC role in fraud cover-up By davidn on 8/25/2006 8:23 AM
Sidley Austin has helped establish precedents where clearing houses aren't at fault, even if they know the brokerage they are dealing with is committing fraud.

http://www.sidley.com/lawyers/bio.asp?ID=M497722507

“Even if one accepts that the complaint sufficiently alleges that Bear Stearns did this with knowledge that these brokers were manipulating the securities at issue, the complaint does not establish Bear Stearns primary liability under § 10(b).”

"These firms are paid to clear trades, not to watch customers. Clearing firms will charge more or consider leaving the business if they are asked to police sales practices and that will end up hurting the average customer," says Sidley Austin Brown & Wood lawyer Henry Minnerop, who has represented most of Wall Street's clearing firms over the years.
Re: New article from California nails SEC role in fraud cover-up By bobo on 8/25/2006 8:25 AM
Selene: I replied to this on the last comment, and it is inappropriate here. Folks do read the older comments, especially if they are only a few hours old. I'll let it slide, though, and answer once again here.

What you are saying in a long, roundabout fashion is that the price should have been 350 times higher, or about a buck and a half. Wall Street didn't adjust the price up or the shares down, and just continued to trade as though neither event had happened, in spite of press releases and notices to one and all that there had been a split, and that the shares had changed radically.

You are correct that this would have been easy to solve. All the SEC would have had to do is stop trading, correct the mistake, break the trades, and it would have been fine. But that isn't what it did. It allowed this to go on to present day, effectively defrauding investors and the company, and instead of fixing it, covered it up, all the while lying to Congress, and to us, and calling those concerned over massive dilution due to unbridled selling of non-existent shares crybabies and loons.

That is not what a securities regulator is supposed to do - allow the public to be defrauded, and Wall Street to keep all the money from the massive dilution it created.

And that is what it did.

Clear?
Re: New article from California nails SEC role in fraud cover-up By NO on 8/25/2006 8:27 AM
Selene,

You are making things up here. You are asserting that Wall Street forgot or did not get the memo that Global C reverse split.

Well if it is so easy for you to see this “mistake“ why has the SEC not admitted to this?

There is no excuse because even if they committed a legitimate mistake (according to your wild theory) they COVERED IT UP!!!

They continue to cover it up. If they forgot to adjust post split; they should have halted trading, and fixed the problem, and issued a mea culpa.

FIFO
Fraud in Fraud out
Re: New article from California nails SEC role in fraud cover-up By gregcable2002 on 8/25/2006 8:32 AM
You know what,if the sec didn't reverse split the stock on time,lets say they made an honest mistake,the sec should not have let it continue to trade under no circumstance whatsoever and I'm not buying the excuse that the sec is so busy that they overlooked this issue,when we put all the other pieces of the puzzle together,the NFI piece,the OSTK piece,we seem to establish a pattern with the sec that really doesn't look good,but I could be wrong,after all I'm just a plain ol investor of the american stock market trying to invest in america because I still believe in our system and way of life.
Re: New article from California nails SEC role in fraud cover-up By bobo on 8/25/2006 8:38 AM
The SEC was told to investigate this by a member of the Senate Banking Committee - and the chairman of the SEC agreed to do so. There is no way that the SEC didn't know, or that Wall Street made some mistake. That doesn't wash.

And as we have said before, they covered it up, instead of fixing the problem. I smell a massive lawsuit against the brokers in this, as well as against the individuals at the SEC who allowed this to happen, and then aided and abetted a fraud.
Re: New article from California nails SEC role in fraud cover-up By Selene on 8/25/2006 8:44 AM
Thank you bob for leaving it up, and thank you for the response.

Selene
Re: New article from California nails SEC role in fraud cover-up By ckza on 8/25/2006 9:07 AM
Hi Bob:

I have been reading from the "pseudo" Adam Smith's, "Super Money," recently. It appears that FTD's, and certain criminal activities surrounding them, are NOT new to the financial markets. Apparently, in 1971, it was a 4 Billion dollar problem, albeit, created from a "different" source of blatant disregard for "fiduciary responsibilities.

For example, imagine depositing stolen securities into a bank, while securing a stock loan from them, then taking the money never to be seen again, while leaving those paper certs based upon fraudulent ownership in the unsuspecting banks hands?

Today, as I ponder this problem, both from a severity point of view, as well as the involvement of the "sources of power" who are engaging in this criminal behavior, i.e., the DTCC, member firms, the SEC, etc.; I continue to be washed of all innocence, if ever I possessed any at all.

How any or all of this will end well, remains a MYSTERY to me.
Grandfathering Crime By bryedge on 8/25/2006 12:49 PM
Patchie, BobO,

Concerning the grandfathering issue, I had thought that the "grandfathering" only applied to FTD's prior to SHO. As you pointed out earlier that the grandfathering comes into play when the stock qualifies for the SHO Threshold list with no regard to the date of SHO, then what would be the status of grandfathering if a stock qualified for the SHO list, then got off the list to later be back on the list, then off, and then back on once again? TIA
Re: New article from California nails SEC role in fraud cover-up By Wicked World on 8/25/2006 1:06 PM

bryedge,

I used to think that way too. I mean wasn't the "free pass" to the miscreants for the millions or billions of FTDs *prior* to SHO enough?

Nope! Evidently not.

SHO is such a farce that when a company comes off the list (say temporarily) that all the FTDs during the hiatus are Grandfatherable!!!

I bet right now you are flabbergasted that the brilliant minds (paid by your tax dollars) at the SEC crafted this BS.

I give the SEC an A+ for writing a rule that cuts off its own balls! Well done boys!

Re: New article from California nails SEC role in fraud cover-up By BrainDamage on 8/25/2006 1:14 PM
[I'm C/P-ing this another member's post on our CMKX message board, Pro66 -BD]

The article is from the San Gabriel Valley Tribune here in California, but Wayne is a lawyer specializing in policy analysis.
Since the mainstream media seem reluctant to take the issue up, let's encourage people like Wayne to push the envelope.
If you want to thank him for his attention to the NSS issue, you can email him at
wjett@polyconomics.com
and let him know. I think if he realizes how much interest there is in this matter, he might pursue it in greater length.
Re: New article from California nails SEC role in fraud cover-up By kevin on 8/25/2006 1:53 PM
The mainstream media is trying to keep this film quiet, too.

http://freedomtofascism.com/

Aimed at Joe and Joanne Sixpack, it explains the private Federal Reserve. In my mind, naked shorting is an extension of privately owned fiat currencies. The bankers initially promised that money was backed by gold, then they legitimized that money is only fractionally backed by gold.

The brokerage system is trying to legitimize the concept that electronic shares are only partially backed by real stock.
Just out - more from FORBES By The Midas Touch co-author on 8/25/2006 2:15 PM
Naked Horror by Liz Moyer

http://www.forbes.com/business/2006/08/25/naked-shorts-global-links-cx_lm_0825naked.html?partner=rss

Re: New article from California nails SEC role in fraud cover-up By otc short on 8/25/2006 2:18 PM
August OTC short numbers are out now:

http://www.otcbb.com/dynamic/shortinterest/shrt200608.txt
Re: New article from California nails SEC role in fraud cover-up By Check it out guys. Good stuff PPS is down. on 8/25/2006 2:34 PM
Pegasus Wireless (Nasdaq: PGWC - News) is going after the short sellers. Though a very shrewd maneuver, management has put shorts in a very awkward position.

On August 4th, the company announced a special "property dividend," which amounts to a common stock purchase warrant at a strike price of $8 for every ten shares of Pegasus Wireless common stock owned. The catch is that only registered shareholders are eligible to receive the warrant. Investors holding shares with their brokerage in the "Street Name" will not receive the warrants.
----------------------------
FREMONT, Calif.--(BUSINESS WIRE)--Aug. 22, 2006--Pegasus Wireless Corporation (Nasdaq:PGWC - News), a leading provider of advanced wireless solutions, issued today a notice to shareholders who are eligible to receive the previously announced property dividend. It has come to the Company's attention that hedge funds have been contacting shareholders and in an attempt to purchase their warrants. The management at Pegasus is compelled to inform its shareholders as well as any Broker/Dealers who may have been contacted with the same questions that the warrants are non-transferable. Should a shareholder or brokerage firm transfer any warrants, they will become ineligible immediately. The warrants are to be delivered to the beneficial owners of Pegasus Wireless common stock that are eligible to receive the dividend, and any attempt to transfer them out of that name will immediately make them null and void.
-----------------------------
The the inevitable hatchet job
---------------------------
Don't Bet on This Horse
By Seth Jayson (TMF Bent)

Last week, he noted that Knabb had come up with a novel way to try and foment a short squeeze. While Brendan called it an innovative move, I've got another way to describe it:

Gimmicky. Manipulative. Pathetic. Cowardly. Oh, and let's add, "Doomed to failure."

There is, after all, some pretty compelling research that shows that companies that try and fight the shorts through market manipulation don't see the stock rise. But that doesn't seem to matter to Knabb. On Tuesday, he once again tried to stir the coals.
Re: New article from California nails SEC role in fraud cover-up By Honkytonker on 8/25/2006 2:34 PM
Ironic that Liz Moyer at Forbes is one of the few biz writers with any balls. Good article in current online edition of Forbes.
Re: New article from California nails SEC role in fraud cover-up By PGWC on 8/25/2006 2:53 PM
PGWC just Retired 13M Shares and pps goes down

PGWC is going to issue a dividend and pps goes down.

The registration move has irked Wall Street and i think they want to make PGWC pay.
Re: New article from California nails SEC role in fraud cover-up By edwardb_3 on 8/26/2006 4:59 PM
Great article, but it fails to ask the question: "Where, given the bountiful evidence of SEC malfeasance, are the Federal and State legislatures?" Their failure to act is as outrageous as that of the SEC.
Re: New article from California nails SEC role in fraud cover-up By beegdawg on 8/26/2006 4:58 PM
Floyd Nottis is a friend of Jim Cramer.. according to Jim Cramer that is. In fact, Cramer was so impressed with Norris, that, according to Jim Cramer (in his first book) he tried to hire Jim Cramer to be the editor of thestreet.con..

Remember, before becoming a hedge fund manager, Cramer was first a writer and reporter. While at Harvard, Cramer was the editor of the Harvard School Newspaper. He is, and always has been, very well connected with dozens of other financial writers.

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