Confessions Of A Paid Basher
http://ragingbull.lycos.com/mboard/boards.cgi?board=XSNX&board=XSNX&read=3689..
Following was posted on the PTII board, I thought I'll let u know that, make up your mind: [Begin: Today I want to come clean about something I feel very badly about. I cannot undo some of the things I have done, but hopefully this message will prevent other such occurrences in the future. I am a paid basher. Yes, it is true. Today is my last day at this company; I'm moving on to a new job. I've realized that there are more dignifying jobs out there that can pay me equally as well. But before I go, I want to explain a few things because this just isn't right and I won't feel good about myself until I expose this sham. It's hurt too many people and I don't want it on my conscience anymore. I can no longer live with a lie. I work for a company called Global Calumny Funds in Stamford, CT. Basically, it's a Boiler Room much like the one in the movie of the same name. The idea behind my group is to bash the price of a company's stock down low enough to where the group of investors who retained our company's services can buy the stock really cheap and perhaps even take it over all together. There are approximately 70 people at the company divided into several groups. My group, consisting of 5 people, is responsible for IDWD. While I probably shouldn't give any names of anyone working here now, what the heck, I'm leaving here, so what can they do? sue me? Ha! I can tell you that laptoptrader and janice shell were part of my group until he left last week, as was ninaturtle. Others who have been part of this include early bashers like hard data and Investorman. You may be interested to know that some hypsters, such as MONEYMADE and even Datatech!!, have also been part of the scam (more on that later). There are several companies engaged in the bashing business, ours is not the only one. However, I can tell you that not every basher in here is a paid basher. Having done this for a year, I can usually tell who is a paid basher and who is merely someone having a little fun. While unpaid bashers have a different motive than someone like me, they can be unwilling accomplices to helping me achieve my ultimate goal and they also spread rumor and confusion throughout a room, which also helps me. What is that goal? Well, I am merely a cog in a much larger machine, so my bosses never really explained the big picture to me, but I'd say essentially, Shaddowwatch2oo3 was right. There are several companies who are quite familiar with Jim Bishop and Janice Shell and who are deathly afraid of them. There are three types of bashers here at Global Calumny Funds: Advanced, Intermediate and Beginner. An Advanced-level basher (also known as a Silver Tongued Devil) would spread false or misleading information about the company. They would deal in facts, countering every longs post with articles, news reports and opinion surveys that gave a negative impression about the company. An Intermediate-level basher (also known as a Serpent) would try to weasel their way into the confidence of longs and create doubt using rumor or innuendo. Finally, a Beginner-level basher (also known as a Pitchfork) would attempt to create confusion in the room by distracting other posters with satire, name calling and pointless arguments. The idea was to make sure no serious discussion of the stock could take place. A Pitchfork was usually a basher, but not always. Sometimes, we would throw in a hypster Pitchfork such as MONEYMADE and laptop and a pumper like Datatech to create the illusion of an argument going on. What was really funny (in a perverse way, I guess) was that Datatech and I sat next to each other, laughing the whole time. I was a Serpent basher, because I am known for effective bashing based on solid facts and truth. I was paid a base wage of $18 an hour for my services. I was given a $1.25 bonus for every decent quality post over 100 per day as well as a monthly bonus of $100 for every penny the stock had dropped from the previous month. I was also paid a bonus for bashing on weekends. While this may not sound like much, I made a decent, though dishonorable, paycheck plus a nice Laptop with free wireless internet connection. Each of us sat in a small half-cubicle in a cluster with our teammates. Each group (usually five people) was made of three beginners (two who would bash and one who would hype), one intermediate and one advanced level basher. Occasionally for some of the hotter stocks, one of the beginners would be replaced by an intermediate depending on how much the stock was rising. IDWD was a low-level stock, meaning it got the 3-1-1 configuration. Honestly though, somehow, I get the feeling that WV Hillbilly may have worked for a basher company or knows someone who does because the fund websites he occasionally posts is eerily similar to our employer's websites. While not exact, I'd say it is about 90 percent the same. We do have certain rules that we follow. First, we have to develop a character and stay within that character in order to build a "following." My character, "FogOfWar," was a humorous, sarcastic, obnoxious supporter of free speech and loved to portray himself as a truth-telling superhero, but only when it came to bashers. Next, we had to follow certain guidelines on what we could say. We were urged to have an "answer" to every long's question, but we were to frame that answer in a way that ridiculed the questioner for asking such a question. However, we were never to use profanity or vulgarity because that would cause people to ignore us. We were to make fun of people, but in a civil way. The idea was to get "play," i.e. reaction from other posters. The more play we got, the more the room would be disrupted. Ignored posters get no play. One exception would be the hypsters since they were "defending" the stock against our onslaught, they got a little more leeway. People would side with the hypster because they thought he was real since he appeared to be on their side, but was really on ours, setting us up to disrupt the room. MoneyMade was quite good at this and gets paid very well. I've worked on IDWD, VLO, AGII, QBID, BKMP for a few months now. In addition to the FogOfWar alias, I've used a few others on several other boards as well. I've used so many aliases that I can not remember the monikers or the passwords. I honestly lost track of everything. I stuck with FogOfWar because it was the one that got the most play from other posters. In closing, I feel absolutely terrible about this. It's just awful how I've been part of a scam designed to cheat honest, hard-working people out of their investments all for the benefit of a few wealthy people who already have enough money to last a lifetime. These greedy people MUST be stopped. That's why I'm posting this before I leave. I want to make up for some of the damage I've done. I can't live with this lie anymore. You can't imagine how hard it is to look at myself in the mirror each morning knowing my job is to cheat and lie. I have to go now, I'm too broken up to continue. I hope this confession can make up for my sordid deeds; I would urge everyone who reads this to inform as many people as you can. Only by shining the light of truth can we drive these rats back into the darkness from whence they came. Believe me, they don't want publicity. Good luck and I hope all of you the best in your investment endeavors.
How to recognize Stock bashers on Message boards, newsgroups and in chat rooms.
http://www.nerdery.org/
LEARNING is a process and an evolution. Learning is not all fluff. Learning is a process of awareness and unfolding development; one must be willing to work at it though.
A year ago when I asked broker friends of mine if the internet message boards will have any affect on a stock. They ALL laughed at me and said those idiots having an affect on a stock?
A truth: IT IS EASIER TO SCARE PEOPLE INTO SELLING THAN IT IS TO INFORM PEOPLE INTO BUYING A STOCK.
Well I asked those same friends this last week, and the answer from all YES! message boards and "shorts" (some) can manipulate with lies, and deceit.
Now think about that, you have elderly that invest and find their way to the message boards only to see false posts about "SEC Violations" and "Class action suits" or you have a Yuppie with a kid to put in college going to these message boards only to see posts by 15-20 (probably 5 or 6 under alias) "pack of shorts" posting the same false stuff about SEC Violations or lawsuits or "there's bad news coming out" ....what do you think they will do ?
It's easier to sell the stock and put the money into the bank for nervous people like the elderly and the Yuppie who needs college funds. THAT'S WHO THE PACK OF SHORTS PRAY ON AND DEPEND ON. They bet on a stock to go down-not up! Understand? And they have just as much money and risk as you. But they have the edge of fear, lies, falsehoods to post and pray on the nervous. Longs don't have that.
Lesson 1: Remember, BASHERS NEVER BASH A BAD STOCK. Watch the board for stocks with no potential. They never have any bashers. Bashers only go after stocks that are going upwards or have excellent potential to go up. Bashers get left behind, so they want to bring the price down.
Lesson 2: BASHERS ALWAYS BRING UP OLD NEWS THAT YOU HAVE HEARD MANY TIMES. New startup companies always have a few bits of bad news. The basher will post this over and over again. The stupid basher will try to make the old news a bit fresher to try to fool you.
Lesson 3: BASHERS POST MANY TIMES A DAY. They try to wear you out. They comment on everything, every other post, and can answer every question. THEY KNOW IT ALL! There is no positive comment they won't bash. They try to control the board. True longs may have to address the bashers or they will appear to the newbies as being the people with all the information.
Lesson 4: BASHERS WILL LIE TO YOUR FACE. Never trust a basher. The truth on startup companies is that many mistakes are made and losses happen. The basher will try to make you believe all startup companies make a profit, release financials every quarter and all aspects of the business run smoothly. THIS IS NOT TRUE. THE BASHERS LIE TO YOU. Startup companies can go years without profits, financials and good business, this is the nature of the beast.
Lesson 5: The bashers know YOU CAN'T VERIFY THEIR STATEMENTS. That's why they make the statements they do.
Lesson 6: The bashers PLAY ON YOUR LACK OF KNOWLEDGE. They can lie about information and you couldn't know the difference (unless you have done your assessment of the company and know the truth and facts).
Lesson 7: Bashers play on your lack of patience. YOU have held a penny stock for a while. You knew it will be a big penny stock someday, but the BASHER CAN GET TO YOU BECAUSE YOU ARE TIRED OF WAITING FOR YOUR GAIN . That's when the basher is best. You are tired. You have forgotten the goal for the penny stock was to hold it for one year. The basher is bothersome, so you dump it on a bad day. Some others also dump. Then you get mad for your loss and return to let everyone know how mad you are. Then you turn into a basher as well. THE BASHER HAS WON, AND GAINED A NEW PARTNER TOO, to be able to get in at a great price.
Lesson 8: BRING THE PRICE DOWN. That is the basher's job. The truth is not important. Lies are the norm. Post continuously on the board every day. They are trying to hit the newbies visiting the board. They are trying to wear out the longs on the board. They do whatever it takes to wear the longs out.
Lesson 9: BASHERS WILL TRY TO CREATE DOUBT AND GET YOU TO RESEARCH ITEMS THAT THEY KNOW WILL LEAD TO THE CREATION OF DOUBT IN YOU AND IN OTHER STOCKHOLDERS. A typical trick of an advanced basher is to propose that there is a potential "problem" because "we" don't have the facts on a particular subject. The basher dares someone in the group to find out the answer to the question. The basher already knows the answer; the basher already knows what will be found. The power of this tactic is that the basher is now in control of the actions of the stockholders; the basher has you, the stockholder doing HIS/HER due diligence and when you, the stockholder come back to the group with a questionable finding then the basher gains credibility. What to do??? Solution??? Well, I think it's important to find answers but on your own terms. I actually pick up the phone and call the company and talk to the investor relations person or the CEO until I get a satisfactory answer. The problem here is that the advanced basher has you doing his bidding and his work; you have essentially joined his ranks. So, develop your own little Due Diligence package and answer questions by placing the information into the package and referring all new investors to read the answers to questions raised in the Investor Information package but DON'T GET INTO A CONVERSATION WITH THE BASHER REGARDING THE TOPIC. THAT IS WHERE YOU LOSE. DON'T CONVERSE WITH THE BASHER; ANSWER INDIRECTLY; DON'T USE THE BASHERS NAME; DON'T GET INTO A PERSONALITY CONTEST.
A BASHERS HANDBOOK: know the enemy who wishes to steal your money! Do not underestimate a bashers influence on a stock. The Pro's are good at what they do and what they do is profit from your losses. Below is their "hand-book" so to speak. Learn from it or donate your money to those who make an organized plan to steal your money!
BASHERS DO THE FOLLOWING:
1. Be anonymous
2. Use 10% fact. 90% suggestion. The facts will lend credibility toyour suggestions.
3. Let others help you learn about the stock. Build rapport and a support base before initiating your bashing routine.
4. Enter w/ humor and reply to all who reply to you.
5. Use multiple ISP's, handles and aliases.
6. Use two (2) or more aliases to simulate a discussion.
7. Do not start with an all out slam of the stock. Build to it.
8. Identify your foes (hypsters) and the boards "guru" Use them to your advantage. Lead them do not follow their lead.
9. Only bash until the tide/momentum turns. Let doubt carry it the rest of the way.
10. Give the appearance of being open minded.
11. Be bold in your statements. People follow strength.
12. Write headlines in caps with catchy statements.
13. Pour it on as your position gains momentum. Not your personality.
14. Don't worry about being labeled a "basher". Newbies won't know your history.
15. When identified put up a brief fight, then back off. Return in an hour unless your foe is a weak in reasoning powers.
16. Your goal is to limit the momentum of the run. Not to tank the company or create a plunge in the stock; be subtle and consistent.
17. Kill the dreams of profits, not the company or the stock.
18. Use questions to create critical thinking. Statements to reinforce facts.
19. DO NOT LIE, DO NOT NAME CALL and DO NOT USE PROFANITY.
20. Encourage people to call the company. 99% won't. They'll take your word for claims made. If they do call you can always find something that is inaccurate in how they report their findings.
21. Discourage people for taking the companies word for anything. Encourage them to call the company. They won't out of laziness.
22. If the companies history/PR's are negative constantly point to that. Compile a list of this data prior to beginning your efforts.
23. If the price rises blame it on the hype or the PR, temporary mass reaction, the market, etc. Anything but the stock itself.
24. If other posters share your concerns, play on that and share theirs too.
25. Always cite low volume, even when it's not.
26. Three or four aliases can dominate a board and wear down the longs.
27. Bait the hypsters into personal debates putting their focus/efforts on you and not the stock or facts. Divert their attention from facts. Show them the facts from a "different angle."
28. Promote other stocks that would-be investors can turn to instead of the one your bashing.
30. Do not fall for challenges on the "values" of what you are doing, it's a game and you are playing it with your own rules.
GRADE YOUR FAVORITE BASHER:
Advanced Basher:
Will join the message board early and actually "pump" the stock with positives; this basher is very intelligent, has the facts of the company, actually helps longs with Due Diligence and generally gets the confidence of the stockholders. Then, when the stock hits their price, the tone will change and they will start asking longs to check into this and check into that. The seeds of doubt are being planted. This basher will then start using all the tactics listed on this page to create seeds of doubt. ALWAYS LOOK AT THE PROFILE OF A PERSON YOU SUSPECT. ASK WHAT STOCKS THEY'VE "SUPPORTED" IN THE PAST AND CHECK OUT THE MESSAGE BOARD. An honest person will have a positive track record that can be followed. I strongly believe that a contrary view is needed but this person is out to steal your money and does it by deception and creates fear after gaining confidence! BEWARE, this is the most clever basher and the hardest to spot.
Grade A Basher:
Posts lots of old news, responds to all positive posts with a negative side. Never responds to being called a basher, never posts on another board. Can spend up to 80 hours a week bashing a stock.
Grade B Basher:
Very good way with words, always claims to be your "friend" taking the positive poster into confidence, never posts on another board, spends about 60 hours a week.
Grade C Basher:
Spends less time than the others but is somewhat effective and gets a C grade due to getting excited when bashers rules say not to get excited, spends about 40 hours a week.
Grade D Basher:
Needs to learn the basics about being convincing when making a negative statement. Spends a good amount of time working the stock, maybe 20 hours a week. Grade F Basher: A complete idiot, most readers are not convinced he knows anything about stocks in general. The type that says a stock "sucks", but gives no rationale, shows up every so often but no regular schedule.
WHY BASH?: MONEY (the usual reason), SPORT, ENTERTAINMENT. Some bashers are compelled to bash because they are inherently a part of the dark side of life so they must do it. It's a sad fact but never the less, a fact. It's life so you must learn how to deal with it or become a victim!
LEARN ABOUT HOW STOCK BASHERS WORK: how they are paid: (this was written by a basher) I know the following from a "friend" who needed extra money. I never answer a basher directly because I then become a basher's little money machine. IGNORE THEM FOLKS...how bashers are paid: When you REPLY to bashers you give them an opportunity to earn 5-7 bucks. The service agreement they enter into with their employer states their messages will be monitored for content, profanity, lies, etc. but Money Manager's and the like don't have the time to check all their bashers messages. Only occasional spot checks are done. Those who manage the basher will generally read the headlines to see if a basher is replying to other posters by name. That tells them the basher isn't just "posting blindly" or repeating the same message over and over since they won't pay for those. A basher will attempt to milk three to five replies per post at one to two dollars each. This way the basher spreads negative influence to as many stockholders as possible. A basher will create this discussion thread because it takes less time reading more messages than is necessary. This ultimately allows the basher more time to post and make money. In general, NEVER ENGAGE A BASHER. Make them read all the posts and think up ways to enter the discussion.
NEVER ENGAGE A STOCK BASHER; if you do so then YOU BECOME THE BASHER'S AID!
Read the news, do your own homework and make your own decisions. Get real time quotes and follow the stock for a couple of weeks. Due Diligence is key here. Know that there will be a time when the stock runs up which will be followed by the Bashers and those that missed the boat. The bashers will trash the stock by saying such things as "it's a Pump and Dump" and "the company is lying" and deceiving. There goal is to scare off newbies and potential new investors by "shaking" you out of your shares. Take the time to confirm your Due Diligence, ,trust your own judgment and believe in yourself, pick your point of return or loss and live with it. Don't listen to hype or bashers and live by the rules you have created.
Raging Bull Chat Room Devotees Get Dose of 'Whopper'By Robert Kowalski Staff Reporter11/9/00 3:12 PM ET URL: http://www.thestreet.com/tech/internet/1165692.html
If anyone needed further proof that Internet bulletin boards attract fools like winged vermin to a Shell No-Pest Strip, Steve Tracy offered it last week when he publicly "confessed" online that he was being paid to bash stocks.
In the week that followed, lots of the gullible folk still apparently didn't realize just how badly they were being had. So badly that Tracy, the originator of the little hoax, was sheepishly wondering if his prank had spiraled out of control.
"In my view, this thing has gotten totally ridiculous," he wrote in an email interview. "While at first I was pleased at the reception it received, I am quite dismayed that so many people would believe what I had thought to be an obvious joke."
The fun began last Wednesday when Tracy, who goes by the Internet alias firebird_1965, posted a tome entitled, "Confessions of a Paid Basher", on Raging Bull.
Tracy posted the purported mea culpa with considerable fanfare, including a message-by-message countdown to its launch.
In the missive, he came clean in gushing prose about what many of the conspiratorial types have suspected for months about the Internet message boards: He claimed he was being paid to bash stocks as part of an orchestrated effort to drive their prices down. He said he worked for a boiler room operation called Franklin Andrews Kramer & Edelstein in Stamford, Conn.
He said he was ashamed and wanted to be able to look himself in the mirror again. "I'm too broken up to continue. I hope this confession can make up for my sordid deeds," he wrote.
OK, that kind of talk usually brings a skeptical smirk to any reporter's face. This is Raging Bull, after all, not the Little Sisters of the Poor. And there were other red flags fluttering around this tale.
There is no listing for Franklin Andrews in the Stamford phone directory. No sign of it in standard corporate records databases either. One clever observer later noticed a pattern in the first initials of each name in the firm when linked together: F-A-K-E.
"Come on, that's as obvious and silly as those acronyms they used in the old 1960s spy movies," Tracy said.
There was also a nearly identical posting of a so-called paid basher confession on another message board site with a different name for the supposed boiler room. Then there was the clincher. At the bottom of Tracy's "confession," well past the signature (for anyone who bothered to continue scrolling), read this innocuous line: "And if you believe this -- lol."
In Internet posting lingo, "lol" is short for "laughing out loud."
Bingo.
But that's the part no one picked up initially when they electronically copied the confession and began posting it all over other message board sites under headings for at least a dozen different stocks.
Those included boards for Urbana(URBA:OTC BB), Sun Microsystems(SUNW:Nasdaq), Cyber-Care(CYBR:Nasdaq) and WaveRider Communications(WAVC:Nasdaq).
"It put 'bashers' in a whole new light for me" one person wrote in a posting on Raging Bull.
Tracy claims on his Raging Bull profile to be a 35-year old Texas marketing consultant with an MBA who likes "fast cars, faster women." But we know how much to believe about what he says online.
Still, in an email interview, he said: "I would ask that it be made clear ... that I am not a paid basher."
"The truly sad thing is that after learning it was a put on, some of these people still want to believe it was part of some grand conspiracy," he said. "My suggestion to these people is: Don't go to Burger King for a while -- you've already had your share of Whoppers!"
Date: 06/26/2000 11:14 AM
Subject: S7-24-99
HTML document
June 26, 2000
Securities and Exchange Commission 450 Fifth Street, N.W. Washington D.C. 20549-0609
RE: Short Sales: Release No. 34-42037; File No. S7-24-99
Ladies and Gentleman:
I am a private investor/trader and I am writing in response to concerns that I have regarding short selling abuses I have witnessed in the OTCBB marketplace.
Introduction
It appears that the SEC has deliberately, either through inaction or clever manipulation of the SEC's rule structure as suggested over the years by Brokerage's attorneys, created a two tier system of stock market exchanges in the US. One system for the national market exchanges that has short selling protections for the investor with pockets deep enough to afford the several dollar and up prices for stock, and a second system of exchanges for the "poor" investor, those investors who have determined they can only afford stocks trading at less than 10 cents, and who has not been afforded the same short selling protections deemed necessary solutions to the stock market crash of 1929, namely the 1934 SEC act.
This has created a system whereby the "rich" investor is protected from short selling abuses, while the "poor" investor is cheated by short selling abuses (bear raids) that are allowed by self regulation of the Market Makers. Most poor investors have been drilled by educators on the stock market crash of 1929 in grade school, and truly believe that the protections enacted in 1934 exist for them too, when in reality a double or multiple standard has been deliberately contrived.
Is the SEC is implicated in a scheme to defraud OTCBB investors of their hard earned dollars?
The SEC has allowed the structure of securities laws to favor big money interests and "manipulation of the little guy" over and above the interests and concern of the vast majority of the investing American public. The current SEC rule structure has parallels similar to the character "The Sheriff Nottingham" where the poor are robbed to pay for the rich. America is not supposed to be this way!
Discussion
Bid and Ask Volume and how it relates to Technical Analysis of a Stock
It has become painfully obvious that big money Market Makers have a stranglehold on the little guy in the OTCBB stock market. I have personally observed many times more than a 1:2 (bid:ask) volume ratio of the trades executing at the bid versus the ask, only to be followed by the bid and ask ticking down in stocks that I own. A discussion of the technical mechanics of an OTCBB investor's reality is in order here.
A comprehensive study of OTCBB time and sales reports with actual buys and sells listed proves that certain market participants sell at the ask, and buy at the bid. These reports were for about a year available to anyone requesting them free of charge from
https://www.otcbb.com/secure_asp/tradeact_report_request.asp?type=tands,
however, recently a pricing structure was devised that makes these reports much too expensive for many investors. Nevertheless, these reports, when combined with other data that report the time and price level of the inside bid and ask, do establish that some market participants are able to buy at bid and sell at ask.
Why is this noteworthy?
Because a common technical method of measuring accumulation/distribution of a stock is to measure the volume of trades at the bid (selling), and compare it to the volume of trades at the ask (buying), and to note the ratio of the two. Theoretically speaking a ratio of 1:1 should represent an equilibrium level where price neither goes up or down, since it shows that buying and selling activity are roughly equal. If there is more trading volume at the ask than at the bid, then price should go up, and conversely if there is more trading volume at the bid, then price should go down.
But in the OTCBB world, it's common knowledge that a ratio of about 1:2.5 or 1:3 (volume at bid to volume at ask) is required to move the price up, and this up move is often delayed by days and sometimes weeks. On the other hand, for prices to move down requires only fractionally less than 1:3. Prices commonly drop when the ratio is 1:2 or less.
Why is the ratio so much greater the theoretical 1:1?
In these instances which happen everyday in most OTCBB stocks there is more trading occurring at the ask than the bid, yet price falls! Why?
Certain market participants are allowed to routinely buy at the bid and sell at the ask, and these participants do much more selling at the ask than buying at the bid, in order too fool the general public that uses technical analysis in their trading arsenal into believing more buying is taking place than is actually occurring. Additionally the market participants doing the majority of the selling at the ask (the Market Makers) are not the same entities as the market participants doing the buying at the bid. It is my contention that this is allowed by the SEC to deliberately fool the "little guy" thereby allowing the Market Makers to conceal sells in the ticker tape while simultaneously making them appear to be buys because they occur at the ask. This should be considered Market Maker Manipulation, but unfortunately under the current rules it is allowed. Has the SEC been implicated in fraud by allowing this type of unusual buying and selling activity by certain market specialists while at the same time other market participants, namely the general public do not receive such favorable prices for similar trades?
Volume Manipulation and the "Market Maker orchestrated Pump and Dump"
Volume Manipulation is another area where Market Maker's collude to create the impression that there is more activity, accumulation or distribution, then there actually is. For example, Market Maker A buys 100K from Market Maker B, who then sells them to Market Maker C, then Market Maker D buys them, making it appear as if there is 300K worth of volume, when all that was happening was a "Churn" game that served to inflate volume for the day. For a more in depth discussion of how this works, please see The Forbes article titled "One Day Soon the Music's Going to Stop"
http://www.forbes.com/forbes/072996/5803072a.htm
The core aspect of this manipulation is the structure of NASDAQ's ACT system itself, and which can be discerned by studying the buys and sells as they are reported in the OTCBB time and sales reports, and by studying the reporting as it occurs in the ACT system. The major distinguishing feature here is that Market Maker to Market Maker transactions are recorded on the sell side only (same as an investor buy), in contrast, the ACT system records both buys and sells by Market Makers when the trade is being made with the general public.
Lets look at a few examples, and please note that the side of the trade is inverted depending upon the market participants "point of view." When a Market Maker buys from the general public, it's the same as an investor sell, it is recorded as an ACT system buy or "B". When a Market Maker sells to the General public, which is the same as an investor buy, it is recorded as an ACT system sell or "S". So the Market Makers report both buys and sells to the general public. Unfortunately here is where the rules change to the detriment of the average investor: A Market Maker to Market Maker transaction is recorded solely on the sell side as an "S", not on the buy "B" side. If a Market Maker buys from another Market Maker, it is not recorded in the ACT system as a "B", it is only the selling Market Maker that reports it. This is the core reason that it appears in the real time price stream for OTCBB stocks that a bid:ask ratio of greater than 1:3 is often required in order for prices to move up, since a Market Maker to Market Maker transaction represents no change in the supply demand equilibrium of a stock. The excess over 1:1 is Market Makers trading with each other.
All sorts of technical accumulation/distribution models use volume in their calculations, and this churn game where Market Makers sell to each other can be used to manipulate the buying and selling of many who use such technical models in their trading. These types of churn trades are all but impossible to discern from retail trades and to my knowledge are currently completely impossible to discern in real-time. The Market Makers combine this "churn" trading with artificial price walk downs and naked shorting, and you have the potential of complete Market Maker Manipulation of the whole price and volume chart. This would be exceedingly profitable to conspirators at critical technical junctures such as the apex of triangles and quiet, pre-breakout trading ranges to make it appear that the order flow is going opposite to the "real" order flow.
Why are MarketMaker's are allowed to report these churn trades (Market Maker to Market Maker) as volume, since supposedly a Market Maker is only concerned with "making a market?" There is no legitimate need for volume figures reported in real time price streams as well as end of day price reports to include Market Maker to Market Maker transactions. After all, who is the market being made for? Another Market Maker?
Volume manipulation is a type of "pump and dump" scheme orchestrated by and for the benefit of the Market Makers themselves. It works like this: The Market Makers start selling to each other to artificially inflate the volume figure over a period of days to generate investor interest, but they do not yet start Naked Shorting. Now after some number of investors have laid down their hard earned money and there has been some price appreciation, Market Makers then start to Naked Short the position, effectively capturing the Investors Money, as price erodes due to the dilution that the creation of the short positions cause. This capture of investors money occurs in the event the investor has a stop loss figured into their trading strategy which mandates them to limit their losses, so they sell due to price erosion caused by Naked Shorting. Stop loss's are always recommended in beginner's guides to technical analysis and automated trading strategies.
I wonder why?
In any case these stop loss strategies combined with the flawed reporting structure of the real time price stream, line the Market Makers pockets with huge sums of money.
Naked Shorting, Sophisticated Hedging, and Price Manipulation
Thomas Jefferson once said something to the effect: "Any man has the right to swing his arm as far as the next mans nose, but no further." Allowing large and sophisticated portfolio holders to short against a stock I hold long as a hedging tactic when shares of another companys shares are the other leg of the said hedge, and further which has the effect of causing my stock holdings to tick downwards, is a violation of Thomas Jeffersons idea. In a similar fashion so does Naked Shorting. Namely, that sophisticated hedging and Naked Shorting tactics "extend their arms into and through my nose." These types of tactics should be stopped since they run counter to the ideals of the vast majority of Americans, and the spirit, if not the letter of the law, as envisioned by our Founding Fathers. No one should be able to sell what they don't own, only what they do own!
To sell something before it's purchased is not a stock sale, it's a hybrid stock/futures transaction, since the timeline is artificially reversed. It's nothing more than a promise to purchase at some time in the future, and in the OTCBB the suspicion is that it's often later, rather than sooner. This contrasts with what release No. 34-42037 suggests about short selling: The buy to cover is "usually the same day the purchase of the short sale is executed." On the other hand, an outright stock buy carries no implication to sell at any time in the future, and the same can be said of a normal sell when the buy occurred first...no further obligation to buy or sell further.
The current practice of Naked Shorting and also Hedging calls into question the entire ethics of our legal system as it relates to the purchase and sale of a company's stock.
Why do you allow the Market Makers, when acting in their roles as "bona-fide Market Makers," the right to short a stock without even an affirmative determination of the existence of shares to short against?
This activity of Market Makers essentially makes counterfeit shares of a company, then introduces them into the supply demand equilibrium of any particular stock in order to deflate or dilute the current value of each share held by shareholders. It's stated that this is done so that investors aren't forced to pay artificially high prices during short and temporary supply demand imbalances.
Why aren't Market Makers required to be responsible to the Company and it's shareholders with respect to an accounting of the Short Interest in real time held by Market Makers?
There is no oversight currently that insures that Market Makers are covering their short sales when the temporary order imbalance is corrected. It appears to many OTCBB traders that the Market Makers are keeping their short sales many days before covering. A similar suggestion was made as documented in the SEC Release No. 34-42037, File No. S7-24-99 in the sections C, Previous Reviews of Short Selling, item 3, 1991 Congressional Report on Short Selling, specifically numbered items (7) and (8). This lack of action from the SEC has let the Market Makers dictate the supply and demand for any given stock they make a market in and thereby they also control or "manipulate" the pricing of each and every share, for extended periods of time.
"Section 10(a) of the Exchange Act gives the Commission plenary authority to regulate short sales of securities registered on a national securities exchange, as necessary to protect investors"
If this is so, why aren't the short sales of OTCBB stocks regulated by the SEC?
The SEC has allowed the OTCBB market to be self regulated by the NASDAQ, who in turn allow Brokers for OTCBB stocks to have "run away" naked shorting. I presume it has been convenient for the Market Makers that the SEC has not determined that the OTCBB is a "national securities exchange." The inmates are running the asylum, and the SEC needs to wake up.
Conclusions
Current Securities Law need to be amended with respect to the OTCBB market so that:
a.. The Brokerage practice of Naked Shorting in the OTCBB market is stopped immediately. The number of outstanding shares of any stock should be fixed at whatever number the issuing company has determined. Trading entities must be prevented from "adding to the trading supply of stock available to purchasers," and by so doing diluting the price value of current shareholders.
a.. Market Makers are disallowed the right to Short Sell OTCBB shares when the Market Makers are trading for their own accounts unless the seller personally owns the shares being sold. They should never have the right to borrow any other entities shares for this purpose under any circumstance whatsoever, due to their information advantage and greater flexibility granted to them through NASDAQ self regulation over other market participants such as the general public.
a.. When the Market Maker is acting it it's role as a "bona fide Market Maker" the Market Makers must be forced to report the real time current total short sales accumulation numbers in aggregate form in the real-time price stream, available to all through many market data vendors at reasonable cost. Computer Technology now allows this with the simple addition of a few lines of code in publicly available price feeds. The OTCBB already has a portion of this capability in it's ACT system, but it's not available to the public at a reasonable cost, nor is it available in real-time to the general public, only to other Market Makers. Market Makers must be held responsible to companies and the shareholders for failing to report this critical market data freely to the trading public, as a check and balance on their own corrupt trading practices.
a.. Churn trades between Market Makers should never be reported in the volume figure at all. This would halt Market Maker orchestrated and price stream centered "pump and dump" schemes.
a.. Violations of these suggested changes to existing law should be enforced with mandatory jail time, not merely monetary punishments, which serve as little deterrent when contrasted with the huge sums of money they are culling from investors day in and day out. The current monetary fines imposed by the SEC for violations of SEC rules are relatively speaking "pocket change" to the corporate firms involved. They are nothing more than a token "slap on the wrist."
Where is Robin Hood when you need him?
Kenneth Klaser,
Private Investor/Trader
United States of America
Avoiding Boiler Rooms in Stock Fraud Swindles and BoilerRoom Investment Schemes
http://www.crimes-of-persuasion.com/Crimes/Telemarketing/Outbound/Major/Investments/boiler_rooms.htm
The heart of a fraudulent telemarketing operation is usually a "boiler room," a rented space with desks, telephones, and experienced salespeople who talk to hundreds of people from across the country every day.
In a typical investment-related boiler room the "brokers" ( registered reps ) may sit crowded together in a room with long tables with up to seven phone stations per table. The firm likely holds mandatory sales meetings every morning at which time sales techniques are demonstrated and "scripts" for the firm's "house stock" are distributed. Brokers are expected to follow the script and only give customers the information it contains. They are discouraged from doing any outside research, and are told to rely on the firm's research and representations.
After the morning sales meeting, the reps are expected to spend the entire day on the phone. The firm expects a high volume of sales, and if brokers do not stay on the phone, they are fired. One registered rep told an examiner that he made 250 calls on a good day; 70 on a bad day. All of his calls had been previously "qualified" by an unregistered cold caller.
Many telemarketing firms utilize a monitoring process which randomly tape-records the sales conversations of its telemarketers and they are made aware of it. This acts as internal policing for the company to ensure that no incoming cheques are misdirected from the main operation.
False Profits Penny Stocks
Overseas Boilerroom Investments
Today, con artists see that investors are paying increasing attention to overseas investment opportunities so a new generation of scams has also gone international. Most troubling is a growing pattern of former U.S. boiler room operators who have moved their telephone sales operations outside the U.S. and Canada to Hong Kong, the Bahamas, Thailand, Panama, Costa Rica, Europe, Liberia, and even South Africa.
The locations of the boiler rooms are carefully chosen, with con artists dialing out of countries that may have no extradition arrangements with our domestic law enforcement agencies.
There are also differing views among nations about what are acceptable market activities. For example, the London Stock Exchange does not ban "bear raids" in which speculators try to drive down the price of a stock through short selling, a practice which is sharply limited under New York Stock Exchange Rules.
In some countries, including Italy, Sweden, Belgium and Taiwan, there exist few prohibitions against insider trading. Greece and Kenya are among the nations with no government agency to safeguard the interests of investors by guarding against marketplace misconduct.
Overseas Boiler Room Expose - special series by Christopher Carey
Belgians Battle Boiler Business 01/28/01
A Belgian judge sentenced long-time boiler room fraudster Canadian Jack Kronis (aka Jack Lewis) to seven years in prison for his role in running a fraudulent securities ring out of Holland where Dutch securities laws are considered lax. He and thirteen other scammers, who got sentences which ranged up to ten years ( but may be eligible for release in three ) were also ordered to repay the $33 million defrauded from 280 investors of Grimaldi Hofmann and Co.
Kronis, 41, previously had a role in other such stock scams while working at Durham Securities in Canada where 827 people lost $5 million. For that he served six months and was ordered to repay $837,000 after pleading guilty to four counts of fraud.
Still pending is his U.S. trial for defrauding Americans as far back as 1990 in schemes which sold grossly inflated metal commodities such as indium and germanium.
Given the Rubber Boot
On August 21, 2001, the Thailand SEC filed a criminal complaint against Heliocentric International Co., Ltd., Vladislov Ivanov Patrov, Roy Danny Kamiew, Brian Hare and Mark Pavic on the grounds that they conspired to conduct unlicensed securities businesses in Thailand under the name of the Wellington International.
The fancy office location promoted in their brochures was simply a switchboard service to their forty phone line, low rent boiler-room.
Following a raid in May, seventeen foreigners were arrested for having no work permit and the documents seized as evidence determined that the location was used to phone and lure overseas investors into making investments in yet another overseas market.
I have a list of scam companies that I want others to look out for. Do not trust them. I lost over $10,000. The names are: WMA, Jeff Paul, Jake Bernstein Trading Company, Carlton Sheets, Dan Kennedy, Ted Warren Stock Portfolio and Dundas System.
Anne Bolander 08/17/02
PHNOM PENH, Cambodia (Reuters) -- 07/21/03 A gang of 20 foreigners accused of running a hi-tech international telecoms and investment "boiler room" scam out of Cambodia have been expelled from the country, according to police.
The group of 14 Britons, two Americans, an Australian, a New Zealander, a Thai and a Filipino, were rounded up last week in a military police swoop on an office block in the heart of Phnom Penh, capital of the impoverished southeast Asian nation.
Investigators said they had found stacks of computers and hi-tech hardware, including a $100,000 broadband Internet server they said had been used to build an illegal international telephone gateway.
Using this, the alleged conmen were cold-calling unsuspecting people across the globe virtually for free to try to get them to put their money in risky or non-existent investments, police said.
Legal experts said war-ravaged Cambodia probably lacked the relevant financial or telecoms laws to launch a full prosecution of the gang.
The telecoms ministry, however, said it had been cheated of $27,278 in international call charges and insisted on repayment.
"They have paid the bill and all of them left on Saturday," said Chhay Sinarith, deputy chief of police in Phnom Penh.
It's full steam ahead for `boiler room' con artists
The premise of financial scams is human greed and although gullible customers get fleeced of small fortunes, many boiler rooms are not nearly as greedy as the investors they con
By John Aglionby THE GUARDIAN , LONDON - Jul 26, 2003
The three watches on the man's wrist were all set to different time zones. One gave the time in New Zealand, the second in South Africa and the third in New York. On the table in front of him were three mobile phones, one for each group of customers in each of the three countries, who all thought they were calling him locally. He was actually in Taiwan.
The man with the watches, a Briton known as "Mr Big," showed a second man sitting opposite him a fax he had just received, the contents of which left little to the imagination. "It basically said: `I'm going to come over there and I'm going to kill you. I'm going to kill all your family unless I get my money back. I've spent this much money with you.' It was really horrible," says the second man, who gives his name as Barry Stephens.
"Let me show you something," Mr Big continued. He picked up one of the phones, dialled the number on the fax and checked his watches.
"Mr So-and-so, I've just got your fax this morning," Stephens quoted Mr Big as saying. Once the torrent of invective at the other end of the line had subsided, Mr Big reportedly continued: "Look, sir, we're a brokerage company. We can't guarantee you're going to make money.
"Stocks go up and down. You're a man of the world, you know that. But what I can tell you is that I have another opportunity here... "
According to Stephens, "The conversation ended with the man agreeing to send another US$20,000 after he had just sent him a fax saying he was going to kill him."
The incident he describes is a snapshot of the world of boiler rooms, where members of the public send complete strangers who claim to be stockbrokers vast sums on the promise of making massive and rapid returns.
More than 75 percent of investors end up losing all their money. Despite gaining worldwide publicity in 2000 with the release of the Hollywood blockbuster Boiler Room, starring Giovanni Ribisi, Vin Diesel and Ben Affleck, thousands of people continue to get conned every year.
Stephens, who claims he was "intimately involved" in Mr Big's brokerage for several years, approached The Guardian after hearing that a suspected boiler room was shut down in Cambodia last week. He claims he wants to expose for the first time the full details of how boiler rooms have fleeced tens of thousands of people all over the world in the past decade, to help prevent others from a similar fate.
Out of fear for his safety -- one man who allegedly double-crossed a former boiler-room partner was gunned down in his BMW in Bangkok last year -- Stephens has asked that his real name not be used.
The premise on which all boiler rooms operate is human greed, he says.
"People think they're going to turn US$10,000 into US$100,000 by doing nothing. They don't think, it's too good to be true. They don't stop to think, if it's so great why are you telling me about it? Why am I so special?" he said.
Stephens says the operation he witnessed succeeded through an elaborate web of deception, fraud and highly refined, high-pressure telephone sales tactics in which most people didn't realize they had been snared until it was too late.
The "sting" would begin with a harmless call from a sweet-sounding, usually female, voice known as a "qualifier." She (or he) would ask if the company's database records were still accurate and offer a free subscription to a company newsletter, says Stephens.
The target would receive this glossy newsletter for several weeks. It was usually up to 24 pages long and contained a selection of business news. Among the genuine features, it would contain one article, often very small, about a company developing a new product or process. This company would have been bought by the boiler room, and listed on the NASDAQ, where the requirements are much less stringent than the New York or London stock exchanges. The boiler room would then start to inflate the share price.
"But before they do that -- say when the price is US$2 a share -- a broker would come to you and say, `Look, I represent [the boiler room],'" Stephens says. "We have some inside information, a bit naughty, shouldn't tell you, but this stock is going to go through the roof in the next two weeks." Among techniques used to convince male waverers were arguments such as: "Who wears the trousers in your family? Do you make the decisions, or your wife?"
These callers are known as "openers." Some victims would send the money straight away but those who didn't would receive a call a couple of weeks later from their "opener," who would point out that the money had not been sent but the stock had continued to climb -- because the boiler room had continued to manipulate it.
He, or she -- Stephens says women "brokers" are usually much more successful -- might offer to backdate the transaction so the investor could "buy" at the original price. With an offer like this, coupled with a little research showing that the stock had indeed performed as claimed, most people were hooked.
"But that's the last they hear about it," Stephens says. "They don't get any stock certificates, they don't get anything. So these people will eventually call back. They'll watch the NASDAQ and see the stock price go down because no stocks were ever bought, the money just went into the back account and that was it. Thank you very much."
Some people who call back in a panic are put through to a "cooler." Their task is to cool down the customer before putting them through to a "loader." Their job is to persuade the anxious investor that the share price has fallen because the company has encountered a hitch but that everything is on track, and it would actually be better to buy more stock while it is cheap rather than sell.
Others who call are just given the run around; told that their original "opener" is no longer at the company. "Eventually, 90 percent just go to sleep," Stephens says. "In other words, they just get fed up and write off the money."
Those who don't give up and start making threats are connected to the best "coolers." Sometimes the brokers will then try and fob off the investor by saying that there are no buyers at present and they should call back.
"The most threatening people were allowed to get some, or all, of their money back, though," Stephens says. "But the coolers were only ever allowed to return the money of 25 percent of the people who demanded their money back."
When too many people started complaining the company would just shut down and reopen under a different name, often less than 24 hours later. Mr Big's boiler room went through several incarnations before he was caught. He is now in prison. Police found a dozen passports in his possession when he was arrested.
The final category of boiler-room employee are the "sloppers." They come into the picture when a firm closes and changes its name. A slopper will call up a worried investor and say he has heard about his or her plight and wants to help recover their money. In order to do this there will be a fee, depending on the size of the original investment.
The irony is, says Stephens, that, relatively speaking, many boiler rooms are not nearly as greedy as the investors they con. He thinks about US$2 million his boiler room raked in each month went on expenses. He saw one monthly phone bill for US$450,000 that was about two inches thick, and he knows that tens of thousands of pounds went into making the company and its operations appear genuine.
"If you went to the company you would have sat down with a broker, sat down with a manager and you would have been convinced this was genuine. They would have bombarded you with pedigrees and testimonials.
"Meanwhile, in the same building, there's the boiler room. They're all in shorts -- some guys are standing on their heads doing yoga, taking the piss, bouncing baseballs off walls and catching them while talking on headsets.
"They have all the objections on the wall, pasted up. Anything anyone might say, below it is the stock answer in order to get by."
Most of the people involved were Jekyll and Hyde characters, Stephens says. On the phone they appeared the epitome of decorum, the reality was different. "These are the dregs of the earth, drug addicts, wasters, used-car salesmen," he says. "If you met them in person you wouldn't buy a box of matches from them. You wouldn't talk to them at a bar. But over the phone they've got it."
Victims corroborate Stephens's claims. In 1997 and 1998, an Australian named Lance (he is too embarrassed to allow his surname to be printed) was persuaded by a broker to part with more than ?8,000 (US$12,923) to buy shares in two companies allegedly on the cusp of greatness.
"No pressure was put on me," he says. "They just went for the soft sell and I bought 1,000 shares of each."
He received share certificates but has no idea whether they are genuine. Three months later, when the shares started losing value rapidly, he tried to sell, but the broker had ceased operations and its accounts had been passed on to a second broker. Lance said this firm was initially just as convincing as the first.
"They even sent round a representative but as soon as I pressed them they, too, dropped away," he said.
Two years later, in August 2000, Lance was suddenly contacted by a third broker.
He convinced Lance to send him the share certificates so he could sell them to people wanting to negatively gear their stock portfolios for tax purposes by buying the worthless stock and selling blue-chip shares in return.
"I gave up when [the broker] insisted I buy the blue-chip shares first," he said. "It's stupid to do it once, it's insane to do it again."
Now probably many haven't heard of the basher roundtable...
http://ragingbull.lycos.com/mboard/boards.cgi?board=NMKT&read=81598
These are bashers that work for a particular MM and usually consists of 5 individuals that will work a company's stock on message boards for the sole purpose of share price manipulation and cause confusion and anxiety..
Here is how it works..
Mostly these individuals are easy to spot and at least 2 of these are just plain outright bashers that you can recognize on the daily message board circuit..But,these 5 will work one company with non-stop drilling and the choice company is usually about to gain much attention through positive everyday good numbers and potential earnings in the very near-term and will expect a share price rise accordingly..The MM's will play on such a company with tactics to gain the most out of the spread with absolute zeal..
These individuals of which 2 are outright bashers and one will be a newbie with another acting like your long or solid investor, with the 5th one,who is the most articulate and has extensive knowledge in charting or T/A and understands the fundamentals..
What happens is the bashers will of course bash a stock.These are the 2 bashers..These 2 will parley their negatives together and tells the board how the other is right on the facts and correct,they will introduce old PRs and will bring distorted information to a point,but not over do it..Here comes a newbie..He is interested in investing but doesn't know much about the company or stocks in general..He will always ask a lot of questions where the bashers will inevitably knock down the stock..This Newbie will post to one of the bashers with continous questions and feel that the basher is educating him and gains his confidence and he tells him how he appreciates his help..Now we have the long, or your solid investor who's opinion is basicaly like many others and is generally viewed has an alright participant of the board and very helpful..He will be confronted by the newbie and of course berated by the bashers,but his angle will always be viewed with much agreement as being very positive...Now we have the 5th individual..This person is very good at T/A and will make projections that seem almost real,but are generally far fetched and unrealistic,but the conclusion one can get makes for open discussion as very probable and makes you want to go out and buy more shares..He also knows the fundamental art of investing and is the head guy of this roundtable..
If you have ever been on a message board that has volume and the potential for positive share price increases, these 5 are solely their to create confusion and instability among investors and their sole purpose is having you buy and sell at their discreation..They are also very aware on how this works and their job is to make money..Remember an MM can handle 2-3 clicks in any direction and he has made his money,you on the other hand will have lost far more by selling or buying at this same sequence..
You see where this is heading!!
The moral of all this is never pay attention that would go against your better judgement or investment instincts..These message boards and the posters on these boards are all into stocks for a variety of reasons and not one is towards your best interest.
Have a good day
Varok
How share price manipulation works-just one example
Picture this: You are a small-time investor who stumbles onto a start-up company that has just developed an innovative new product, acutting edge technology, or maybe a medical breakthrough that couldvery well be "the next big thing". In the back of your mind, youcan't help but think, "This could be the next Microsoft", and youhave a chance to get in on the ground floor of a hidden gem that thebig investors and analysts haven't even heard of yet. You do yourhomework, research the outstanding shares, study the recent pressreleases and filings, and read about the company on the stock messageboards. Finally, you take the plunge, and decide to buy 500,000shares at a nickel a share. That's right, you now own 1% of (there'sthat thought again) the next Microsoft, for a paltry $25,000. Sureit's a bit of a risk, but you know the saying, "no risk, no reward".You hit the buy button, turn off your computer, and wait for themoney to roll in. A couple of weeks later, the company announces thatthey have secured a major financing deal, and now have the money totake their product to market, and you know you made the rightdecision. The volume picks up, the message boards are buzzing, andall is right with the world.
But then, something goes terribly wrong. For no apparent reason atall, the stock price begins to tank, and before you even have time toreact, your 500,000 shares are down 80%, and you've just lost $20,000of your hard-earned money. What the hell happened?
The Set-up
This same scenario is being played out time and again in every cornerof America, and although there are many reasons for the failure ofsmall, struggling, publicly-traded businesses, includingmismanagement and outright corporate fraud, another, more sinister,plot is carried out every day, robbing investors of their money,businesses of their chance to achieve the American Dream of success,and hard working, dedicated employees of their dreams and even theirlivelihood. And worst of all, up to now, this fraud has been ignored(and in many cases even condoned) by the SEC and our very owngovernment.
This is how it works. Remember that great news that the company justreleased about securing financing to allow them to take their productto market? It's nothing more than an elaborate scheme perpetuatedagainst the company, its employees, and the shareholders by a networkof skilled con artists. It begins with the financial institution(usually an offshore "lending institution" based somewhere likeBermuda or the Cayman Islands), who approaches the company withpromises of funding to "help" the company get their product off thedrawing board and into the market. The company, who is usuallystrapped for cash and desperate for some financial support, considersthe terms of the offer. The lender promises them say, five milliondollars in exchange for company stock at a 20% discount to the marketprice at the time they are converted into shares (although some dealsare much worse, and the lender gets their shares at as much as a halfprice discount from the current market price). The company does themath: five million dollars converted to shares at 80% of the currentprice of around a nickle a share, not too bad a deal. Plus, once thenews of the financing is released, investors will swoop down in astock-buying frenzy, the trading volume will go through the roof, andthe share price will soar, meaning the company will give up evenfewer shares for the money they receive. The lender makes a niceprofit, the company gets their product to market, their employees arefinally rewarded for their years of dedication, and the loyalshareholders hit the jackpot. Everyone is happy.
Except that none of that actually happens. Before the ink on thecontracts has even had time to dry, the lender is on the phone,calling his co-conspirators.
The Con:
What happens next is complex, and involves the offshore lender, USBrokerage firms, and Canadian Brokers. The lender calls his broker,who is instructed to short sell the company's stock into the ground.Short selling involves the selling of imaginary shares into themarket in the hope that the price will drop, and the short seller canthen "buy back" the shares (that they never actually owned in thefirst place) at a cheaper price, and pocket the difference. Once astock is sold short, a seller (or their broker) must cover theirposition by "borrowing" shares from other stockholders (usually thoseshares that are held in a brokerage house, such as ETrade,Ameritrade, etc.), and sell them into the market. Sound unethical,and bit confusing as well? Maybe, but it is a legal practice that hasflourished unchecked for years. The real problem arises when theshort sellers dump so many "imaginary" shares into the market thatthe selling overwhelms any buying pressure, and artificially causesthe stock price to crash. And this is exactly what the lender andtheir cohorts do.
Canada: Co-Conspirators From The North
In order to sell short enough shares to truly cause the stock to tankin price, the broker often has to sell more shares than they can"borrow" from legitimate stockholders. This practice is known asnaked short-selling (meaning the short sellers never intended tocover their position by borrowing real shares from legitimatestockholders). There is only one problem. Short selling is illegal inover-the-counter stocks (known as OTC, or penny stocks), and nakedshort selling any stock is illegal. That's where the Canadianconnection comes in. While American brokers have to follow theNational Association of Securities Dealers (NASD) rules, Canadianbrokers don't. Canadian investors and brokers are allowed to sellshort as many shares as they want, and never have to borrow theshares from legitimate stockholders, effectively flooding the marketwith counterfeit shares. In fact, they can legally sell more sharesinto the market than even exist in the entire float. So, tocircumvent the rules, the American brokers funnel their short sellingactivities through their Canadian connections. If there are buyersfor a million shares, they short sell three million into the market,and on and on, until the stock price eventually collapses under theweight of millions and millions (or billions and billions, ifnecessary) of fake shares flooding the market.
The Payoff:
So, in simple terms, our lender loans the company a small part of themoney they promised them and then immediately calls their co-conspirators in America and Canada, who then flood the market withhundreds of millions of counterfeit shares, causing the share priceto collapse. Often, as an insurance policy, bashers are hired todiscredit the company on stock message boards such as RagingBull, ineffect creating an even darker picture of the company. Then, thelender converts the loaned money into shares of company stock, not at80% of the nickel stock price that the company envisioned, but at 80%of the market price after they've effectively manipulated the stockprice down to almost zero. Instead of the few million shares that thecompany expected to give the lender, they are forced to give themhundreds of millions (and sometimes even billions) of shares. Thelender turns around and dumps those shares into the market, and theprice is driven even lower, and they collect their next payment inshares at an even cheaper price. This type of arrangement has becomeknown as "death-spiral financing", because the company is oftendriven into bankruptcy by the lenders, their American brokers, andtheir Canadian cohorts.
The Damage:
In the end, this practice amounts to financial terrorism against theUnited States. Legitimate companies are forced out of business,dedicated employees (who often received stock as part of theircompensation) lose their jobs and their stock investments,communities lose out on the opportunity to earn substantial revenuesand the employee base that a successful growing business can provide,and the stockholders lose their hard-earned money. Even more, theylose their faith in the stock market as a whole, and vow to nevertake a risk on a small, unproven, start-up company again. Legitimatelenders stop loaning money to small businesses (which appear to be amuch higher risk), and eventually, the entire entrepreneurial spiritof America is put at risk. Make no mistake, lives are literallydestroyed by this insidious practice.
What Can Be Done About It?
Both the SEC and the NASD have known about this practice for years,yet have stood idly by while Canadian brokers, offshore financialinstitutions, and their American co-conspirators have systematicallyfinancially raped and pillaged our small businesses, their employees,and small investors. Recently, numerous lawsuits have been filed byvictim companies naming dozens of brokerage firms as defendants.Individuals and small independent organizations such aswww.investigatethesec.com have attempted to draw attention to theproblems, and finally, a few small publications such aswww.faulkingtruth.com have begun to provide some coverage of thesituation.
Proposed NASD and SEC rules don't go far enough to prevent thispractice. Until Congress steps in and forces everyone to play by thesame rules, and makes those rules tougher in regards to short sellingin general (and naked short selling in particular), the OTC marketwill continue to be a rigged game, and the well being of America willcontinue to be threatened by unscrupulous foreign (and yes, domestic)interests.
Anatomy of a delictive short sale
Re: Sedona Corp Case
The Purchase Agreement expressly prohibited the Client from sellingshort shares of Sedona's stock while the Debenture remained "issuedand outstanding." Sedona filed the Purchase Agreement and Debentureon its Form 8-K with the Commission on November 28, 2000.
Badian and Rhino Engaged in Short Selling that Depressed the Price ofSedona's Stock 12. Between March 1 and March 29, 2001, Rhino andBadian directed a series of short sales of Sedona stock through anaccount at a U.S. broker-dealer held in the Client's name andcontrolled by Badian.
13. At the time, the Client owned no Sedona stock. Rhino did notdeliver the shares that it was selling short by settlement day andthe broker neither bought nor borrowed stock to cover these sales.
14. In violation of the Purchase Agreement's prohibition againstshort selling, Rhino placed orders with the U.S. broker-dealer, whothereafter placed sell orders with another broker-dealer (the"Cooperating Broker-Dealer") in Sedona stock. Each day in March 2001,the Cooperating Broker-Dealer executed sales of Sedona stock in itsproprietary account. The Cooperating Broker-Dealer often placed thesesales through various electronic communications networks (ECNs),which provide anonymity to traders wishing to conceal their identityfrom the market. At the time of these sales, the Cooperating Broker-Dealer did not possess any shares of the Sedona stock that it wasselling.
15. The Cooperating Broker-Dealer covered its short sales through theECN's by purchasing the shares from Rhino's client's account at theU.S. broker-dealer. The Cooperating Broker-Dealer executed thepurchases after the sales had been effected through the ECN's andafter the market had closed. The Cooperating Broker-Dealer wouldpurchase the shares at prices slightly below the average prices ofthe sales through the ECN's, thus ensuring itself a profit. As aconsequence, these purchases were not printed to the NASDAQ tape andwere not included in reported volume for the day.
16. Because the Client owned no Sedona stock, these transactionsresulted in short positions in the Client's account. However, becauseits sales were not reported or printed to the NASDAQ tape, the shortsales were not reported to the market.
17. Rhino continued to execute short sales in the Client's account,despite repeated failure to deliver shares by settlement date. Insum, in March 2001, through Badian's trading, the Client sold short872,796 shares of Sedona stock. Of those shares, the Client soldshort 785,536 shares prior to its first exercise of its conversionrights under the Debenture. These failures to deliver triggeredclearing failures at Depository Trust and Clearing Corporation("DTCC"). As a result of the clearing failures, on March 22, 2001,the National Association of Securities Dealers ("NASD") placed ashort restriction on Sedona's stock, which required that any futuresales of Sedona would be subject to a mandatory close-out if therewas a failure to deliver the securities after 10 days.1
18. After the NASD placed the short restriction on Sedona's stock,Rhino sold short Sedona shares from an account he controlled onbehalf of the Client at a Canadian broker-dealer. Canadian broker-dealers are not members of the NASD and are not subject to its shortsale restrictions. Beginning on March 30 and continuing through mid-April 2001, Rhino executed short sales through the Canadian account.
19. Rhino sold short 350,500 shares in the Canadian account duringthis period. The shares were not delivered by settlement date. TheCanadian broker-dealer neither bought nor borrowed stock to coverthese sales and continued executing short sales. Rhino's shortselling in the Canadian account continued to put downward pressure onSedona's stock price. Between March 1 and April 16, Rhino, throughthe two accounts it controlled on behalf of the Client, accumulatedan open and undelivered short position in Sedona stock of 1,193,296shares.
Rhino's Short Selling Increased the Number of Shares the ClientReceived on Conversion
20. Rhino's short selling through the Client's accounts depressedSedona's stock price during the five day trading periods prior toeach conversion on which the VWAP of Sedona's stock was calculated.Between January 26 and March 1, 2001, Sedona's average closing pricewas $1.43 per share. By March 23, 2001, after three weeks of Rhino'sconstant short selling, Sedona's stock had declined to $.75 pershare. On March 27, 2001, Badian, on behalf of the Client, tenderedthe first notice of conversion under the Debenture and received127,517 shares of Sedona stock at a VWAP of $.9384 and a conversionprice of $.79764. During the five trading days prior to March 27,Badian's trading averaged in excess of 25% of all shares tradedduring the period.
21. Based on the conversion formula in the Debenture, the lower theVWAP, the more shares the Client received from Sedona on conversion.Between March 27 and April 16, 2001, the Client exercised itsconversion rights under the Debenture on three more occasions. OnApril 5, 2001, the Client exercised its right to receive 395,337shares of Sedona stock at a VWAP of $.75762 and a conversion price of$.64398. On April 10, the Client exercised its right to receive761,342 shares of Sedona stock at a VWAP of $.7884 and a conversionprice of $.67014. On April 16, 2001, the Client exercised its rightto receive 329,988 shares of Sedona stock at a VWAP of $.91022 and aconversion price of $.77369. As a result of the sustained sellpressure placed on Sedona's stock price, the VWAP for each of theClient's conversions in April was lower than the VWAP for its firstconversion on March 27, which increased the number of conversionshares that the Client received from Sedona under the Debenture.
22. Rhino deposited the conversion shares that the Client receivedfrom Sedona into another account he controlled at a second U.S.broker-dealer designated to receive the conversion shares (the"Conversion Shares Account"). By April 16, 2001, Rhino received1,614,184 shares of Sedona stock on behalf of the Client in theConversion Shares Account. The majority of these conversion shareswere used to close the open and undelivered short position at thefirst U.S. broker-dealer where the short selling occurred and tosignificantly reduce the open and undelivered short position at theCanadian broker-dealer.
23. Instead of delivering the shares directly to broker-dealers wherethe short sales occurred, Rhino effected wash sales and matchedorders out of the Conversion Shares Account to the short sellingaccounts. This created the appearance that the accounts that hadshort positions were purchasing shares in the open market and notcovering short positions with shares obtained through conversion ofthe debenture. On at least ten occasions during April, 2001, Badiandirected transactions involving no change in beneficial ownership ofshares of Sedona stock or placed buy orders for shares whilesimultaneously placing sell orders of substantially the same size andprice.
24. On May 1, 2001, Badian exercised the Client's right to receive261,587 shares of Sedona stock at a VWAP of $.94474 and a conversionprice of $.80303. On May 15, 2001, Badian exercised the Client'sright to receive 303,399 shares of Sedona stock at a VWAP of $1.19and a conversion price of $1.01. Badian continued to engage in shortselling in May, selling 25,000 shares in one account and 560,800shares through another. Badian and Rhino failed to deliver theseshares to the accounts were the sales occurred, thereby triggeringclearing failures at DTCC.
The Client Profited From Badian's Scheme
25. Rhino's trading allowed the Client to profit from the scheme inat least two ways. First, the short sales locked in a sale price forthe Sedona stock that was higher than the conversion price for theshares ultimately used to cover the open short positions. Second,Rhino's short sales increased the supply of Sedona shares in themarket and depressed the price. As a result of the depressed marketprice, the Client converted the Debenture to a greater number ofshares of Sedona stock, which were already discounted to the market,and which it then used to cover its previous short sales made athigher prices.
Headline: Witness Must Identify Source of Anonymous Web Postings—C.A.
Justices Say Third Party Lacks Standing to Assert First AmendmentChallenge
Byline: By KENNETH OFGANG, Staff Writer/Appellate Courts
http://www.metnews.com/articles/2006/matr041906.htm
Body: A third party who refused to answer deposition questions aboutthe identity of persons who allegedly posted defamatory statements onthe Internet lacks standing to assert those persons' First Amendmentrights, the Sixth District Court of Appeal ruled yesterday.
The justices rejected an appeal by Stephen L. Worthington, a hedgefund manager ordered to answer questions about the identities of twopersons who allegedly posted disparaging remarks about MatrixxInitiatives, Inc., a pharmaceutical company, in 2003 and 2004.
Phoenix-based Matrixx, which makes and sells the Zicam line of coldand cough remedies, brought suit in Arizona against a number of namedand Doe defendants. Matrixx claims the defendants published false andinjurious statements on investment Web sites, causing damage to thecompany's stock prices.
Sophisticated Software
Some of the anonymous postings were made under the names Veritasconariand Gunallenlies. While the posters used sophisticated software toavoid being identified, Gunallenlies neglected to activate thesoftware on one occasion prior to posting a message on Yahoo! Finance,where the poster claimed that an FDA investigation and/or lawsuitswere impending over claims that Zicam nasal gel caused a loss ofsmell.
Matrixx was able to obtain information from Yahoo! tracingGunallenlies to Worthington's firm, Barbary Coast Capital Managementin the San Francisco Bay Area. At his deposition, which was taken inSan Francisco, Worthington refused to answer any questions aboutVeritasconari and Gunallenlies, including whether he was Veritasconarior Gunallenlies.
He did admit knowing Floyd Schneider, a named defendant who had oncebeen a co-defendant of his in a lawsuit, which was settled, in whichthe defendants were also accused of posting defamatory messages oninvestment-related message boards.
Argument Rejected
Santa Clara Superior Court Judge James P. Kleinberg orderedWorthington to answer the questions, rejecting his contention thatwhoever posted the messages had a First Amendment right to do soanonymously.
On appeal, Worthington argued that at a minimum, Matrixx should berequired to demonstrate that it has a viable cause of action before itcan take discovery with respect to the identities of anonymousposters. Matrixx responded that Worthington lacked standing to assertthe First Amendment rights of persons other than himself.
Justice Franklin Elia, writing for the Court of Appeal, agreed withMatrixx, saying it was not required to have raised the standing issuein the trial court.
Elia distinguished cases holding that a party to litigation may, insome circumstances, assert the rights of a non-party, such as when acriminal defendant was allowed to assert that race-based peremptorychallenges violate the equal protection rights of potential jurors orwhen a booksellers group was allowed to litigate whether a statestatute violated the First Amendment rights of book buyers.
"Where a third party is brought into the litigation, typically througha discovery order, the anonymous plaintiff or defendant normally stepsforward to oppose the disclosure of his or her identity," the justiceexplains.
Where the court has allowed another entity to oppose discovery of theanonymous party's identity, Elia continued, it was because of a closerelationship between the subpoenaed entity and the anonymous person,as when internet service providers have been allowed to contestefforts to force them disclose the identities of customers.
Worthington, by contrast, is not alleging a close relationship, "or,indeed, any relationship" with Veritasconari and Gunallenlies, thejustice noted, nor is he alleging that those persons are unable toprotect their own interests.
The case is Matrixx Initiatives, Inc. v. Doe, 06 S.O.S. 1967.
Raging Bull Readers Beware
http://ragingbull.quote.com/mboard/boards.cgi?board=TLXX&read=120974
Certain posters on Raging Bull are professional traders trying to influence you and others to sell a stock you might otherwise planned to hold. Their goal is to manipulate the stock to a lower price. They attempt to influence you by posting misinformation. These professionals will post information that is not true, but sounds credible and creates concern. They may also post information that is true, but add editorial comment that presents the truth with a negative connotation and "spin". These professionals operate on Raging Bull under anonymous Raging Bull identities. This anonymity is how they avoid liability for their activities.
One such professional trader that exemplifies the intent and the tactics of all these professionals operates under the Raging Bull identity "EVEN". A quick review of the various company boards where "EVEN" posts demonstrates a correlation between his posting efforts and companies that have recently raised money through a public investment in a private equity.
Public companies, particularly small companies listed on the OTCBB, raise money through private investments in public stock, convertible debentures and convertible preferred stock. These financial structures typically, though not always, provide an investor with stock at a discount to the market price. The discount is a risk mitigating compensation offered to the investor for providing a company with a large cash infusion. These type of investments can be abused in a number of ways. They can be abused by the investor and they can be abused by professional traders that are aware of the investment. The investor might want to benefit from a warrant may be included with their investment and, in turn, hire a poster on Raging Bull to help drive a stock price down. A professional trader that did not invest, but is aware of the investment, might work to short the stock down to the discounted investment price and then buy shares at the discounted price to fill the short orders.
Below you will see the correlation between a sampling of the company boards where EVEN chooses to post negative information and companies that have recently been reported as having received financing from the sale of discounted shares. This correlation strongly suggests that EVEN is working to short stocks down to the discounted prices. This activity is marginally legal if not outright illegal.
EVEN Number of Recent Report on Company Financing
Board Posts by (free sign up for the Sagient Research site will be
Participation EVEN required to view these links)
NorthPoint Communications
NPNT 1647 http://www.sagientresearch.com/pt/ShowFreeDeal.cfm?RecID=2934
Advanced Viral Research
ADVR 684 http://www.sagientresearch.com/pt/ShowFreeDeal.cfm?RecID=6597
GLOBAL NETWORK
GNNU 295 http://www.sagientresearch.com/pt/ShowFreeDeal.cfm?RecID=4618
IPVoice Communications
IPVO 3017 http://www.sagientresearch.com/pt/ShowFreeDeal.cfm?RecID=8846
Universal Express
USXP 186 http://www.sagientresearch.com/pt/ShowFreeDeal.cfm?RecID=4618
Viragen
VRA 132 http://www.sagientresearch.com/pt/ShowFreeDeal.cfm?RecID=8628
This correspondence is the first effort of a group of shareholders from various companies that have been damaged by the activities of professional traders like EVEN. This email has been sent from GET_EVEN_04, a new ad hoc organization intended to provide the part time investor with information regarding the practices of professional traders. If you would like to learn more please email get_even_04@yahoo.com. You will be put on an email list to receive future information regarding stock trading abuses. Look for a future web site announcement.
NAKED SHORT SELLING
To get a handle on the concept of naked short selling, one has toknow a little about the steps and players involved in the processingof a buy order on the OTCBB and Pink Sheets.
Step 1: The purchaser either calls his broker on the phone or reacheshis brokerage firm on the Internet. Let's assume he decides to buy a1% interest in a penny stock that has 100 million shares issued andoutstanding. The buy order is thus for 1 million shares. Let's assumethe buy order is "at market".
Step 2: The broker on the receiving end of the order then writes upthe buy order and places the order on his firm's "Trading desk".
Step 3: Assuming that the firm does not make a market in thissecurity, they will hand the order on to a market maker that does.
Step 4: This buying market maker will then either go to the sellingmarket maker showing the lowest offer or to a favorite market makerof his and ask him to match the lowest offer. The trade is executedbetween the buying and selling market makers at the agreed uponlowest offering price.
Step 5: Assuming the buying and selling brokerage firms are small anddo not have the facilities to "clear" the trade, they then send thedetails of the trade to their respective clearing firms.
Step 6: Since both clearing firms have both "cash" and "shares"accounts at the DTCC, the buying clearing firm wires the purchaseprice from their "cash" account to that of the selling clearing firmin exchange for the selling clearing firm wiring the 1 million shareblock from their "shares" account to the buying clearing firm's"shares" account. This is called "Delivery versus payment". Thebuying brokerage firm then sends out both a trade confirmation and amonthly statement to their client, the buyer of the 1 million shares,indicating that he does indeed "own" the 1 million shares, what hethinks to be 1%, of that company. Thus the transaction is complete. A"real" buyer paid "real" cash to a "real" seller for "real" shares.An intermediary known as a market maker provided a mechanism to bringthe buyer and seller together. This basically is an over-simplifiedexplanation of the system used on these trading venues, the OTCBB andthe Pink Sheets. Selling market makers do not really have to have asell order in hand to sell securities. Their job is to provideliquidity and to buffer the market from sharp peaks and deep troughswhen an imbalance of buy or sell orders appears.
The phenomenon of illegal naked short selling (INSS) is a form ofmarket manipulation/securities fraud that can be perpetrated at anystep in the process. A legitimate short sale involves the sellerfollowing the letter and spirit of Rule 10(a)1, "The short salerule". It involves the selling firm making "affirmative determinationin writing" that the shares being sold are indeed "borrowable". Italso prohibits short sales on a downtick. The borrowed shares arelater returned. In illegal naked short selling, the shares were notonly not borrowed, but they never did exist in the first place. Theywere created out of thin air. The legal term that describes thisfraud is that the perpetrators created an "Artifice to defraud" thepurchasers of the shares. Rule 10(b)-5 of the 1934 "Exchange Act"addresses this behavior.
PREEXISTING CONDITIONS AMENABLE TO NAKED SHORT SELLING
In order for this fraud to be perpetrated on unsuspecting investors,two main prerequisites exist. The first is the fact that purchasersof shares on these trading venues do not request the registration andhome delivery of their shares. They see an entry on their monthlybrokerage statement and have no reason to question its validity.
The second prerequisite is the fact that brokerage firms do notmonitor for the "good delivery" of shares purchased by their clientsas mandated by "The Customer Protection Rule" or Rule 15 (c) 3-3.With the presence of these two prerequisites as being the "norm" onthese trading venues, clever opportunists have realized that they cansell nonexistent shares through Canadian margin accounts, in anundetected fashion, and thereby assume a "naked" short position.
This followed by the subsequent selling of yet more nonexistentshares tends to result in a precipitous drop in the share price, ashare rollback of the victim corporation and its disastrous loss ofmarket cap, or the outright bankruptcy of the victim corporationwhich circumvents the need for the naked short position to be closed,as it no longer trades. This lack of closure of the "sell then buy"circuit allows the massive proceeds of this fraud to bypass thetaxman.
The typical naked short selling campaign or "bear raid" results inthe death of the victim company within a 6 to 9 month period. Themanagement teams and investors are often left scratching their headswondering what hit them.
A variety of other preexisting conditions are present on thesetrading venues that allow this fraud to be perpetrated with littlechance of detection. One of these is the inherent inability of apublic corporation to communicate with its shareholders holdingshares in "Street Form".
The advent of the Internet has helped somewhat though. Statisticsshow that 8 of 10 companies trading on these 2 trading venues, theOTCBB and Pink Sheets, will die within their first three years ofexistence. These thinly traded and under-capitalized companies areoften no more than "shell" companies whose existence was designed toline the pockets of their creators. The level of chicanery on thesetrading venues is distinct and the investment community knows aboutit. When the Vancouver Stock Exchange drastically buckled down onfraudulent behavior several years ago, the scamsters headed south ofthe border to the OTCBB and Pink Sheets.
The above statistic of 8 of 10 failures combined with the knowledgeof the massive amounts of "pump and dump" programs in effect hascaused the investment community to collectively look upon thesecompanies as "future bankruptcies". This mindset leads to certainbehaviors among those opportunists that have visibility of buy ordersfor these "future bankruptcies".
When a buy order for one of these presupposed "scams" lands then theentire investment community has their antennae up and a certain"feeding frenzy" occurs wherein the investment "professionals" fightamongst themselves to be the one to naked short sell into this buyorder. Also these trading venues have very little supervision by theregulators who are strapped for cash as well as manpower. Therereally are no "cops on the beat".
The Pink Sheets, for example, are a privately run trading venue,owned and operated by the National Quotation Bureau. Who needsregulators though when you have naked short sellers determining whichcorporations are "scams" and systematically annihilating them? Themarkets themselves have no visibility whatsoever to investors, eventhose with "Level 2" machines, and market makers pretty much can dowhat they please. If a market-making firm is selling 50 millionshares per month of a certain victim company and buying only 2million shares per month and has been doing this for several years,then this would surely be nice to know.
The tremendous amount of money involved here attracts theseopportunists by the boatload. Investor naiveté is also a cornerstone.Very few people, with the exception of the perpetrators of thisfraud, know how this game is played. The inherent confusion involvedwith millions of trades settling at any given time creates a certaincloud of dust that can obscure the perpetration of this fraud. Thereis no "Day of reckoning" for these trades. The IOUs just fly aroundin Cyberspace and never seem to land. It becomes incumbent on thevictim corporations to call a "Legal time out" to get a peak at theseIOUs. There is a certain psychology involved also that is inherent tosome naked short sellers. They think of themselves as self-appointedsheriffs trying to rid the wild west of companies they diagnose asscams.
If their diagnosis is incorrect then it usually doesn't make much ofa difference anyway because they will bankrupt both legitimate andscam corporations. Bankrupting legitimate corporations is seen as"collateral damage" which occurs in any war. Brokerage firms hostingthe accounts of "Offshore Corporations", especially those located inthe tax havens, do not follow the "Know Your Customer" rules. Acommission is a commission.
The "Patriot Act" is buckling down in this regard and brokerage firmsare to be on high alert for suspicious money flow activity. For thosein need of laundering the proceeds of illicit activity, naked shortselling provides a handy way to launder that 200% margin maintenancerequirement attached to naked short sale orders for especially pennystocks.
Actually the crimes of naked short selling, wire fraud, moneylaundering, and tax evasion go hand in hand on these venues. Anotherkey preexisting condition is that market makers are not forced tomake public their naked short positions on a monthly basis as theymust on the more senior exchanges. This is yet another example of thelack of transparency on these trading venues. As far as the PinkSheets go, there are basically no demanding standards to match orsurpass in order to be granted membership.
Another contributing factor has to do with the fact that input intothe DTCC comes solely from the broker/dealers. Any picture that thebrokerage firms want to paint regarding the disposition of acorporation's shares can be painted at will. The fox is guarding thehenhouse.
All of these factors combined form an environment within which thisfraud can be perpetrated with very little risk of detection. If thelaws were to drastically change tomorrow then these same fraudsterswould just tweak their modus operandi accordingly and not even miss abeat.
THE MECHANICS OF NAKED SHORT SELLING
Referring back to the 6 steps involved in a "model buy order", onecan see the myriad of ways available to naked short sell into thispurchase order. The first individual with a shot at this opportunityis the broker who gets the phone call from his client, the purchaser.There are two main modalities used to naked short sell at this level.We've seen where the broker himself can naked short sell into the buyorder by picking up the phone and placing a matching sell order,usually through his own non-U.S. margin account, into the market atan opportune time.
The more common technique used at this level is the broker picking upthe phone and telling an associate of his about the "opportunity"that has just landed on his desktop. The broker is used as a "scout"and is usually paid back for these favors by the brokerage businesscoming his way from those he is scouting for. Manipulations at this"Step 1" level are relatively rare but do occur especially when thebroker receiving the call works in a Canadian Brokerage Firm wherethe naked short selling rules are more lax.
Step 2 level manipulations are fairly common and they involve thebroker receiving the phone call writing up this buy order and settingit on his firm's "trading desk". The trader processing this buy orderhas 3 main mechanisms to utilize in order to avail either himself ora colleague of his to this wonderful opportunity to naked short sellinto this buy order for shares of this "future bankruptcy".
The first modality involves the trader picking up the phone to hispersonal broker at a Canadian firm and having him feed in a nakedshort sell order for a matching amount of shares at an opportunetime. He can also naked short sell into the order right at histrading desk, a process called "desking", which places the nakedshort position into a "proprietary account" of his own firm. Thispractice is almost universally done to all international buy orders."Desking" is very commonplace. A third option would be to act as a"scout" for colleagues that would like to avail themselves of thiswonderful opportunity and give them a "heads up" to the fact that abuy order is about to enter the system.
Step 3 involves a heretofore unmanipulated buy order being sent to abuying market maker from the trading desk of the firm receiving thebuy order. There is an intrinsic reality in this relationship betweenthe market maker and its client, the buying brokerage firm, that iscritical to understand. The buying market makers need the order flowfrom the buying brokerage firms. It is their lifeblood.
When presented with a buy order, the buying market maker often has tonaked short sell into the order just to keep his client brokeragefirm happy with his services. The buying brokerage firm wants rapidexecution of the buy order in order to get their hands on thecommission. Since the stock of these companies is usually very thinlytraded, oftentimes there are no sellers around to satisfy the demandfor shares. The market maker is expected by his client to "perform",which means to continuously naked short sell into buy orderspresented by that client.
It is incredibly common for even the most ethical of market makers,due to this pressure to keep their clients happy, to run up immensenaked short positions just in the course of their business. Their jobis to provide liquidity to these illiquid markets. Where the crimesare often committed at this Step 3 level is in how the market makerhandles this predicament he has gotten himself into. On the otherhand, there are certain market makers that blindly naked short sellinto each buy order on these trading venues that crosses their desk.
Market makers have literally dozens of ways to cause harm to thesecorporations that they "accidentally" ran up an immense naked shortposition against. These vary from continuing to naked short sell intoevery buy order that appears, effectively neutralizing these buyorders, to contacting naked short selling consortia to lend them ahand in killing the company. There is an endless list of marketmanipulative techniques to employ.
These Step 3 manipulations are the single biggest component of theoverall naked short selling campaigns. Market makers are incrediblypowerful in these campaigns in that they are legally allowed to nakedshort sell "while acting in the capacity of a bona fide marketmaker". Not only this but they don't have to reveal the size of theirnaked short positions to anybody. The "Short Sale Rule", Rule 10 (a)-1, does not apply to the OTCBB and Pink Sheets. Step 3 manipulationsinvolving these buying market makers are collectively known as "TheWall". Very few buy orders make it over this wall and find a "real"seller.
Step 4 manipulations presuppose that the buying market maker behavedhimself and went into the market and filled that buy order byapproaching the market maker with the lowest offer price or adifferent market maker that was willing to match that lowest offer.The "Semi-ethical" buying market makers are in need of a quick"print". They want to run the order and grab a quick "markup". Theyknow only too well which brokerage firms and other market makers toapproach in order to get the buy order quickly naked shorted to them.Many of these public corporations' shares are "Piggy-back Qualified",this allows any firm to put on a "Market maker hat" and legally nakedshort sell without having to file a Form 15(c)2-11.
The same games are played with these selling market makers, but theheight of the wall is a little less. Ethical selling market makersmay or may not have a "real" sell order in hand. Oftentimes they willnaked short sell into a buy order and then go on the bid to attemptto level out this now naked short position. If they accidentally dugthemselves into a hole while servicing clients then they may sit onthe offer all day and naked short sell into every buy order thatappears. The lack of visibility that these markets provide toinvestors allows extremely manipulative techniques to go undetected.
Step 5 presupposes that both the buying and selling broker/dealersare not self-clearing. The clearing firms are in a unique position toorchestrate these manipulations behind the backs oftheir client brokerage firms.
Step 6 manipulations occur in and around the DTCC. The back officepolicies at the DTCC have long been ascribed the role as the problemhere. Activities at the "Lending Pool", both of the CanadianDepositary Service and the DTCC also provide opportunities to bothadd yet another layer of manipulations as well as cover up earliermanipulations. All of the input into the DTCC is, of course, from thebrokerage community. When attempting to drain this "lending pool" ofits contents, careful attention must be paid to those shares held inCanadian Brokerage Firms because the level of chicanery here isalleged to be extremely high.
One can now get an appreciation for the nearly limitlessopportunities available to attack one of these corporations during a"bear raid". A very small percentage of buy orders actually meet upwith a "real" seller selling "real" shares. There is just too muchmoney to be made taking on naked short positions and then killingcompanies. From a risk/reward point of view the chance of detectionis infinitesimally low and the rewards are abundant.
The ability to sell nonexistent shares in an undetected mannerprovides for a self-fulfilling prophecy of sorts. The victimcompanies find it necessary to finance their "burn rate" atartificially low levels, which leads to massive dilution. If thecompany were fortunate enough to actually have earnings at somepoint, they would be diluted so badly that it wouldn't even matter.Of all of the varieties of securities fraud in existence, and thereare many, naked short selling campaigns are usually thought of as the"manipulation of choice" providing the most favorable risk/rewardratio.
Since the "model buy order" that executed all 6 steps results in anexchange at the DTCC of cash for shares between the buying andselling firms, any "short circuiting" at any step would prevent thisexchange from happening. In order to exchange cash for shares youneed shares! There aren't any when it comes to naked short selling.There never were any. The purchaser paid hard-earned cash for "air".That monthly statement is a lie. His brokerage firm never did receive"good delivery" of a share certificate, there never was one. In fact,in the case of a Step 1 or 2 manipulation, the broker/dealer firstdamaged the company by artificially diluting it, and then he soldthis damaged bill of goods to his client.
One might ask, "Well then where is the buyer's money?" The buyer'smoney is in the hands of his own brokerage firm. The same people hejust paid a commission to and that have a fiduciary responsibility tohim. Since there was no "good delivery" of shares made to the buyingbrokerage firm in exchange for payment, ("Delivery versus payment"),the check never left the coffers of the buying brokerage firm. Therenever was a "real" seller into whose pocket the cash should havegone. In Wall Street parlance, the buying brokerage firm has a"Failure to receive" on their books. All of the intermediatebrokerage firms have both a "failure to deliver" and a "failure toreceive" on their books except for the manipulating party itself, hewould just have a "Failure to Deliver" on his books. The IOUs justtravel through cyberspace and never get addressed.
Everybody owes everybody else and as long as nobody puts their footdown and demands delivery then this will be the status quo. So whydon't all of those firms with all of these "Failures" on their booksrectify matters and level up their positions. "The CustomerProtection Rule" (Rule 15 © 3-3), clearly states that the buyingbrokerage firm is mandated by law to go into the open market and buy-in that "Failure to deliver" within 10 business days of settlement.But in the case of a Step 1 or 2 manipulation, it is the buyingbrokerage firm itself that is the crook. How can you buy yourself in?The sobering reality is that all of the brokerage firms in theirvarious roles in this buy transaction will make a ton of money ifNOBODY forces anybody to deliver. That would wreck this wholewonderful low risk/high reward game, and nobody wants to do that.
The question now becomes, "What is that entry in my monthly statementall about if there never were any shares purchased?" We refer tothese entries as "BEEs" or "Bogus Electronic Entries". Their purposeis to give the buyer a certain comfort level so that he neversuspects any fraud. It also serves to cover up the fact that thebuyer's money is actually in the coffers of his own brokerage firm,and being lent out or invested by them. The investor who boughtnonexistent shares from his brokerage firm or whomever, was thevictim of a "Double Whammy". Not only did he not get the 1% ownershipthat he thought he was buying, he actually got a much lesserpercentage of a company that he might not even recognize, one thatperhaps he would have never bought the shares of if he had known thetruth.
This company might have 100 million "real" shares issued andoutstanding according to its Transfer Agent, but it may also have 500million bogus electronic entries in existence. The bad news here isthat all 600 million "shares" of this company can be sold tomorrow.An interesting phenomenon occurs when this investor holding the boguselectronic entry decides to sell his shares. After all his brokercan't hardly tell him that he can't sell his "Bogus Electronic Entry"because we failed to get "Good Delivery" as mandated by law. When youwant to sell, your broker is going to sell this "Bogus ElectronicEntry" or "air" to some unsuspecting investor, who in no way shape orform can ever get "Good Delivery".
The seller had no idea that he bought and sold nonexistent shares,and this process will go on and on and on. As long as nobody suspectsanything and those monthly statements keep coming, then this littlesecret will never be revealed. The stock itself will trade like a bigoverweight whale, and buy orders of a significant size will not nudgethe price one iota because of all of those "extra" shares that can besold at any time. Should bad news be released a market massacre mightensue.
Typically the financiers of the company will fatigue and stop cuttingchecks, deeming that any more checks cut may be good money after bad.They will assume that all of that selling must be coming fromsomewhere and the only people that own that much stock is management,so this whole thing must have been some kind of a "Pump and dump"from the get go. Then it will be time to turn out the lights andnobody will ever know the reality of what was going on.
The transaction that this investor took part in actually created outof thin air a new million shares of stock. These shares can be boughtand sold at will. They will never be detected by anybody as beingfake, because of the lack of a "Day of reckoning". The company inquestion will show 100 million shares being owned at the DTCC byvarious firms if everybody leaves them in "Street Form".
If you, however, stack up all of the monthly statements of all of theshareholders for a given date, and add them up, you will come to thetotal of 600 million "shares" being "owned", not 100 million. Theabsolute size of naked short positions actually have a tendency toincrease in an almost geometric fashion because the larger the nakedshort position, the larger the potential losses to the naked shortsellers should something go awry. This increases the incentive levelto kill this corporation. Long-lived "Bear raids" are very scary tonaked short sellers and demand special "weapons and tactics".
The brokerage firms that perpetrate this fraud cover it up bybreaking yet more laws. By law the purchase confirmation mailed tothe buyer of the "shares" was to indicate to the buyer the capacitywithin which his broker acted. Typically the brokerage firm will actas an "agent/broker" and charge a commission.
In Step 1 and 2 naked short selling, however, the brokerage firmactually acted as a "principal/dealer" and actually charged what isknown as a "markup". If the brokerage firm were to indicate thiscapacity under which it actually acted, then the investor mightquestion what this "principal/dealer" business is all about. Sincethe brokerage firm does not want the investor to know that they nakedshort sold him this "air" and that they were sitting on his money,they will just lie on the confirmation slip as to the capacity inwhich they acted.
The question is often asked as to when the "day of reckoning" occurswherein these bogus entries must be made good upon. The law liststhree different "days of reckoning". The "Customer Protection Rule",Rule 15(c)3-3, mandates that the "Failure to receive" certificatedshares that were purchased in a transaction, are to be "bought in" bythe purchasing brokerage firm on the 10th business day past thesettlement date (T plus 3). The law also states that the selling firmin this transaction is to buy-in their client doing the selling if hehasn't produced the certificate within 30 days of settlement.
The law further mandates that brokerage firms buy-in failures toreceive and deliver within 45 days of filing quarterly reports thatnoted these "Fails". With the absence of Rule 10 (a)-1, "The ShortSale Rule", having any application to the OTCBB and Pink Sheets, theCustomer Protection Rule is the only line of defense left againstthis fraud but it is ignored almost 100% of the time. There is justtoo much money to be made while ignoring it to turn down.
Investors becoming educated as to the nature of naked short sellingand demanding the registration and home delivery of their shares hasto be the cornerstone of the effort to end the perpetration of thisfraud.
Since all 6 steps need to be completed in the "Model buy order" inorder to match up a "real" buyer with a "real" seller, all of thesemanipulations at the various steps along the way result in thecreation of new shares which exist in the form of a "bogus electronicentry". These cause massive dilution of a corporation's sharecapital, which has a depressant effect on the share price.
Since all financings of these corporations are tied to theseartificially depressed prices, the dilution problem is furtherexacerbated. All corporations have to cover their monthly "burn rate"just to keep the lights on. This accelerated dilution rate is aconstant source of discontent with shareholders. They not only seethe price per share evaporating, but their percentage ownership ofthe corporation is also dwindling due to the artificially highdilution levels.
The resultant loss in shareholder morale throws yet more fuel on thefire of this company's problems. Again there is a bit of a geometricprogression in the company's problems as opposed to a more lineararithmetic progression. Due to the inherent nature of this animalcalled naked short selling, the playing field becomes so tipped infavor of the racketeers that one wonders how any corporation couldsurvive.
SELL SIDE NAKED SHORT SELLING
The same games can be played in the absence of a buy order from thesell side of the equation. Sophisticated naked short sellerstypically work out of offshore corporations located in tax havensaround the world. Banking secrecy laws in these havens help toprevent detection of the identity of the actual perpetrator of thefraud. If one is going to break 20 or 30 securities laws then onemight as well do it in an anonymous fashion.
The modus operandi usually has an offshore corporation "A" setting upa margin account in a non-U.S.brokerage firm. This corporation "A"will have one shareholder and one director namely Corporation "B"from a different tax haven with different banking secrecy laws.Corporation "B" in turn will have one director and one shareholderbeing Corporation "C" in yet another tax haven.
For the victim company to attempt to identify Corporation "C"'s ownerwould now cost a fortune and take a great deal of time. These victimcompanies have neither. During this past February, non-U.S.regulatorsdiscovered the existence of 13,00 of these offshore corporateaccounts amongst non-U.S.broker/dealers. Corporation "A" will nowstart selling massive amounts of the victim company's stock.Corporation "A" will often be set up as a "Hedge Fund".
The non-U.S.Brokerage Firm taking the sell order knows darn well thatthis offshore corporation doesn't own any shares, but they can alwaysplay dumb later on should something go awry. Besides there's some bigcommission money to be made. The non-U.S.Brokerage Firm willtypically insist on a 150% to 200% margin maintenance requirement.The naked short selling of penny stocks is inherently dangerous andthe broker/dealer needs to be protected. It is extremely easy to"Scuttle" an offshore corporation should the plan backfire and thenon-U.S.firm knows this.
As far as the role of the non-U.S.Broker/dealer utilizing the lax non-U.S. laws regarding naked short selling, they have three mainincentives to break the law and take the order. The first is thecommissions generated. The second is the use of all of that moneyplaced for margin maintenance requirements, and the third is thevisibility of large sell orders providing opportunities for "frontrunning".
One technique the non-U.S.Brokerage Firms utilize is known as the"Hot Potato" technique. Firms are often allowed to keep a naked shortposition on the books for only a 10-day period after which fines maybe levied. After 9 days a firm carrying a large naked short positioncan hand that position off to a "Buddy" brokerage firm like a hotpotato. After another 9 days it may go to a 3rd firm or back to theoriginal firm. If it gets too burdensome then it's off to a friendlyhedge fund for long term "storage".
Non-U.S.OFFSHORE ACCOUNTS
Who are the typical holders of these non-U.S.margin accounts used forperpetrating this fraud? Offshore hedge funds are the most powerfulof these groups. Hedge funds with less than 100 participants do notneed to follow the rules and regulations dictated by The InvestmentCompany Act of 1940. This provides both anonymity and lack ofliability for the participants. Hedge funds typically contain themoney of deep-pocketed players not averse to risk. Large marketmaking firms as well as other Wall Street entities own significantpositions in these hedge funds and can count on them when caught in apinch. Hedge funds account for a very large percent of this nakedshort selling activity. The Senate Finance Committee is currentlyinvestigating the relationship between hedge funds and naked shortselling.
Various naked short selling consortia are in existence around theworld. They pride themselves on their due diligence capacities andthey really are very impressive in that regard, but not infallible,which leads to significant opportunities when they do make errors.Some of these groups have their own websites and aid their discipleson the choice of non-U.S. Brokerage Firm to set up a relationshipwith. Usually a firm with a Head Compliance Officer that is willingto turn his head the other way a lot. These groups will typicallyhave their head "guru" with good investigative connections as well as"street smarts".
Recently we've seen a lot of activity out of Europe. Shares of OTCBBand Pink Sheet stocks actually "trade" on subdivisions of variousmarkets over there, totally unbeknownst to management. Notunexpectedly 99% of the trades are "sells".
One aspect of this business that has recently been revealed is howthese various naked short selling groups communicate and collude witheach other. If one group is having a tough time killing a company andtheir intent is becoming very obvious, then they will hand the batonon to their co-conspirators to help polish off the corporation. Thisis a very scary thought. These people are incredibly deep-pocketed inthe first place.
"PILING ON/FRONT RUNNING/TRADE PADDING"
An interesting phenomenon often occurs when the non-U.S.broker/dealerfirst gets visibility of a large sell order. Let's assume that it isa 20-million share sell order of nonexistent stock "at market" to beexecuted in two weeks time. The typical source of a sell order likethis might be a market maker with a hedge fund connection that"accidentally" got into a large naked short position while servicinga valued client.
Knowing that this sell order is going to severely depress the victimcompany's share price, the non-U.S.broker/dealer will often put intheir own sell order of maybe 10 million shares and process it beforeprocessing the 20 million share sell order. The offshore corporationcan't exactly point an accusing finger should they detect the frontrunning since they are breaking the law themselves. Now the non-U.S.broker will hand a 30-million share sell order to a market maker.
When the market maker sees this now gigantic sell order they willoften front run this 30 million share sell order with a 10 millionshare sell order of their own making. They know all too well what a30 million share sell order will do to one of these thinly tradedsecurities. Thus a sell order of 20 million nonexistent shares hasnow grown to 40 million nonexistent shares.
This elucidates the "Self fulfilling prophecy" aspect of naked shortselling. Unsuspecting shareholders will pay "real" money for all 40million of those shares and not suspect any hanky-panky at all. Howcould a monthly statement from one of these prestigious Wall Streetfirms be telling a lie?
Thus naked short selling can work from left to right through thevarious steps involved in the processing of a buy order, in essence"neutralizing" the up ticking effect on share prices caused by buyorders, or from right to left with the introduction of massive sellorders of nonexistent shares.
DEATH SPIRAL FINANCINGS/TOXIC FINANCINGS/FLOORLESS CONVERTIBLES
A close cousin of naked short selling involves a form of predatoryfinancing called "Death Spirals". Companies in dire need offinancings are often forced, by necessity, to trust that financierswill not pre-sell their equity financings in an effort to clobber themarket and then convert for a very large number of shares atartificially low prices. These financings are based on fixed dollaramounts of conversions and not a fixed number of shares. A riskierform of death spirals involves potential financiers dumping tons ofshares before even cutting a deal for a financing. Conventional deathspirals are actually a form of "temporarily naked short selling"because the shares are forthcoming but usually restricted by Rule144.
RECENT DEVELOPMENTS WITHIN THIS "INDUSTRY WITHIN AN INDUSTRY"
Within the past two years the world of naked short selling has beenchanged forever. Four separate events have rocked the world of thenaked short sellers. Since the secrecy of the modus operandi is soimportant to these people, the headlines caused by these Four eventsis not welcome at all by the perpetrators.
The first event was the arrest of Anthony Elgindy and the exposure ofhis methodologies of naked short selling utilizing the services oftwo allegedly corrupt FBI agents. Elgindy and his huge following haveallegedly been one of the pillars in the naked short sellingcommunity.
The second event was the sudden bankruptcy of the non-U.S. BrokerageFirm which has been the alleged "headquarters" for naked shortselling worldwide.
The third event was the arrest of the CEO of this firm for attemptingto naked short sell $30 million worth of three companies' shares toan undercover FBI agent. The fourth event was Operation Uptick,revealing the incestuous linages between organized crime andreputable brokerages in the U.S. The "Winds of Change" do seem to beblowing a bit, and it wouldn't take much of a breeze to knock downthis "House of cards" the naked short sellers have built.
The significance of these events is not just getting theseindividuals and institutions out of commission. The real importanceis the education that the public needs to receive in regards to nakedshort selling as these trials and bankruptcies go forward. Again thesecrecy factor is the key to naked short selling. If the investingpublic knew what was going on behind the scenes on the OTCBB and PinkSheets, then the uproar caused could mushroom into a total lack ofconfidence in this system, which is already on its knees after theEnron and Anderson debacles. If this knowledge did becomecommonplace, then at least one of the main two prerequisites, that ofnot registering and demanding delivery of shares, might beeradicated.
Several non-U.S.Brokerage Firms were recently sued by clients for notdelivering the share certificates that he had demanded the deliveryof. He had obviously been naked shorted the shares by both firms. Intheir statement of defense, the attorneys for the firms claimed thatit was the actual client of theirs doing the naked short selling thatowed the share certificate to the client/buyer and not the firm. TheCustomer Protection Rule would obviously beg to differ. This is atypical example of the mentality of the non-U.S.Brokerage Firms.
The non-U.S.Regulators have "lowered the boom" on the behemoth BMONesbitt in regards to "Serious Know your client deficiencies" and"Failure to supervise brokers". Many of those 13,000 "offshorecorporate" accounts have tens or even hundreds of millions of dollarsplaying the naked short side of the market. A broker managing theseaccounts is supposed to look into the sources of these funds to ruleout any illicit activity like money laundering.
In the U.S. the Patriot Act demands that brokers scrutinize thesefunds and file "SAR"s (Suspicious Activity Reports") when illicitbehavior is suggested. This was implemented mainly as an anti-terrorist funding measure, but hopefully will spill over into keepingin check naked short selling. The dynamics of bringing to thepublic's attention this insidious disease of naked short selling, hasnever been more exciting than at the present. The public is beingimmersed in learning the mechanisms of action of the Elgindys, theValentines, the Thomson Kernaghans, these 13,000 offshore corporateaccounts, money laundering, tax evasion aspects, etc.
LONG TERM SURVIVORS
An important aspect of these naked short selling wars is the lengthof time that the victim company has been under attack. When thesenaked short selling "gurus that can smell a scam from 40 miles away"guess right and beat up a scam company, the company doesn't have achance because of the vicious nature of naked short selling. The lackof assets of the company will be exposed and announced from themountaintops.
What are interesting are the battles that ensue when these "gurus"misdiagnose a "real" company with "real" assets as a scam. The nakedshort sellers will still be able to knock the market cap down by 99%,but often it becomes tough to "Kill" the company. Investors that knowthat the company has the goods can sit back and buy shares at a tinyfraction of book value and thereby average down their previouspurchases. Since the size of the naked short position is of acumulative nature, increasing with the age of the battle, a point isreached wherein the naked short sellers cannot afford to cover thismassive naked short position without driving the share price to themoon. This is when the games get really dirty because hundreds ofmillions of dollars are now up for grabs, winner take all.
THE DAMAGES
One has to wonder how many young micro cap corporations with greatpromise have been snuffed out while in this incubator of the OTCBBand Pink Sheets. Have we missed out on any potential cures for canceror high tech breakthroughs? What happened to the dreams of all ofthose entrepreneurs who put every penny they had into their privatecompanies in preparation for going public, and then getting massacredonce public?
RECORD KEEPING AT THE DTCC
For an annual fee of $1,850, a corporation can receive from the DTCCa weekly update as to the number of shares that each of the brokeragefirms on Wall Street have for a given corporation in their "Shares"account. Keep in mind they all have "cash" accounts also. The problemwith these lists are two-fold. They only reflect the number of sharesfor which "Good Delivery" was attained. They also don't addresswhether or not that brokerage firm owes any shares to a common "pool"of shares there available to any broker/dealer in need of quickshares. If for example the weekly DTCC Summary states that a broker/dealer has 1 million shares of a given corporation's stock in theiraccount, this must be compared to the sum of all shares beingreflected as owned in the monthly statements of that firm as mailedout to their client/shareholders. Let's assume this total is 4million shares. The difference between these two figures can becharacterized in several ways. The difference represents: 1) Thenaked short position of that firm, 2) The number of shares bought bythat firm for which "Good delivery" did not occur, 3) The number of"Bogus electronic entries" that firm has on its books and that getsmailed out every month.
Wall Street can camouflage very well the number of shares representedby the sum of all shares being reflected as owned in monthlystatements. An indication of this number can be attained by acorporation receiving its "NOBO" list or list of non-objectingbeneficial owners. To this number must be added the number of sharesowned by "OBO"s or objecting beneficial owners. When a person signsup for a brokerage account he is asked to check a box denotingwhether or not the company in which he owns shares of has the rightto know of his shareholdings. If he does not object to this, then heis a "NOBO". The "NOBO" lists are available from ADP BrokerageServices Group at 1-888-237-1900.
When a person adds the total shares held of a given corporation atthe DTCC to the number of shares held by "Registered" shareholders insafe deposit boxes, the sum will equal the issued and outstandingnumber of shares of that corporation exactly. So at first glance, allseems to be in order until you realize that the DTCC list onlyrepresents "Good deliveries" which on these trading venues is theexception and not the rule. And so the fraud is perpetrated on and onand on.
In regards to the "Pool" of shares held at the DTCC that is availablein the case of an emergency, this was allowed by Addendum C- (1) ofthe NSCC's (National Securities Clearing Corp.) rules and regs. Theywere taken over by the DTC several years ago, the amalgamation ofwhich formed the DTCC. The Lending Departments of a firm monitorthings here and are one of the biggest profit centers in any firm.From a practical point of view, until this pool is 100% empty ofshares, don't expect any upward pressure on share prices due to theborrowing ability provided by the pool. Once it is empty, however,each further demand for the registration and delivery of sharesshould theoretically cause a forced buy-in of shares under a"Guaranteed Delivery" basis.
It is relatively easy to empty out the "pool" at the DTCC. If acompany has 70 million shares at the DTCC and a naked short positionof 500 million shares, then all the company has to do is create asituation that withdraws 70 of 570 million shares available to bewithdrawn. As was stated earlier, all of the brokerage firmsrepresented along the chain of events of one buy order are HIGHLYincentivised not to demand the correction of those "Failures toreceive and deliver". In order for this to occur, the shareholder andthe issuer must be educated as to how this game is played
Phantom Shares
http://video.google.com/videoplay?docid=4490541725797746038&q=phantom+shares&total=91&start=0&num=10&so=0&type=search&plindex=0
Naked shorting mechanics:
http://www.ncans.net/byrneshort.htm
http://www.ncans.net/manipulation1.htm
http://www.businessjive.com/podcasts/market-liberation
People & Power - Rigged Markets:
http://www.youtube.com/watch?v=8z66kmPRl5Y
http://www.youtube.com/watch?v=_3H6uEyR66M
The Money Masters
http://video.google.com/videoplay?docid=-1583154561904832383&q=Money+Masters
http://video.google.com/videoplay?docid=-529716659023952808&q=money+masters
No You’re Not Paranoid, The SEC Is Out To Get YouMelinda Pillsbury-Foster
http://dailyscare.com/1581/no-you-re-not-paranoid-the-sec-is-out-to-get-you
If you think that the Securities and Exchange Commission extrudes those volumes of regulations to protect you the consumer, then I have a bridge to sell you; Quite the opposite. Those regulations that the SEC mandates actually make it nearly impossible for you to dream the big American dream. The chances of the ordinary investor getting a chance to invest in that little start up that will become the next Microsoft, IBM or CISCO Systems are slim to impossible, especially if the SEC has anything to do with it!
Don’t feel alone, however; smaller companies are also being converted into cash through the machinations of the SEC’s familiars.
That is why your chances of living out a comfortable retirement, or having the luxuries you see enjoyed by others, or participating in the wealth reserved for the elite few; those "qualified" to invest in a Hedge Fund are null.
The SEC wants you exactly where you are; a working "John" who makes a day’s wages for two days’ work, worrying about whether your 401K will be enough, and whether the corporation you spent your life working for will go through down-sizing, or worse, "bankruptcy," and thus default on your retirement benefits.
It is ugly, but it is the reality faced by most Americans today.
Government carefully couches the text in terms both esoteric and bland, designed to firmly close the door on your real participation in the wealth produced by America. This happens in ways you never even imagined, all the while simulating a system they proclaim to be for your protection. But the only ones protected are the "Good Ole Boys." You scrape by with pennies, they make trillions. Hedge Funds are at present their favorite form of thievery.
Welcome to Plantation America, where ownership is more subtle but as sure as any experienced by a shackled slave in the Old South.
Here are a few terms you need to understand before we get started.
Hedge Fund. This is an investment pool where a limited number of elite investors, usually 100 or less, invest usually one million or more dollars each. Many Hedge Funds are so exclusive that their minimums are 100 million for each investor. Hedge Funds are often described as "a managed portfolio that targets a specific return goal regardless of market conditions." Translation: To do whatever is required to bring in the money. Those "strategies" include several sophisticated strategies such as: short selling, arbitrage, hedging, and leverage. These are few words that disguise the meaning of "steal it" with more taste.
Short selling. This is selling stock or another commodity whose value is expected to decline. It has two flavors — naked and covered. Naked means to sell what you do not really own. Covered means you own it and you sell it, repurchasing for less after its price has declined.. Remember this because it’s an important part of the rest of the story! I should point out that this is illegal in every other aspect of life, but was declared legal by those closely associated with the Fed, the securities industry, and U.S. Treasury, which makes perfect sense if you understand what they really do.
Arbitrage means trying to profit by exploiting price differences of otherwise identical or similar "financial instruments." You move around to find different values placed on these. Financial Instruments are things that are paper, but valuable, like mortgages, notes, bonds, and securities. They like this best when they can simultaneously buy and sell the same item, making money instantaneously through a spread. A simple analogy of arbitrage is… ever notice that when you buy a stock you always seem to pay the highest ask, and when you sell it you always get the lowest bid! You have just been arbitraged!
Hedging. This is like betting on both horses in a two-horse race. One horse is the favorite and you bet enough there to cover the whole amount of both bets if Dobbin wins. But you collect really big if the other horse comes in first. You risk nothing! Brokerage firms lend out your stock that you have in the street name, and do this all day long with your assets and don’t have to pay you a dime! To prevent this, simply take delivery of all your long-term stock investments. Otherwise know that the firm will use your stock to make them money. They will not tell you this or share the profit.
Leveraging is when you borrow money from someone else and use that money to buy something at a lower price than you can sell it for. You will already have it sold before it arrives. In other words, if you are a brokerage firm this means you borrow money from your clients, without their knowledge, to lend to a company issuing the stock who you are helping go public. The brokerage company sells you the stock for 50% less than it will be priced on the street at the IPO. Now you get commitments from clients who are agreeing to buy that same stock in the underwriting syndicate with a 5% markup over the IPO price or 55% more than you are paying. The price charged here is referred to as a premium, for whom you can see. From this is deducted the kick-backs, reimbursements of expenses, and that vacation to Hawaii on the private jet for the firm’s major executives.
If you have kept track of the profit the firm made, here’s how it works. They used your money (no firm capital at risk), they lent it to a private company they are taking public to buy stock at 50% or less of the market value, and they sell it to you for 5% more than the IPO that’s a 105% profit on your money for the firm, and all you get as Joe Paycheck investor is to own the stock that has now been fully diluted. This is the protection racket run by those friendly folks we call the SEC and its network of crony brokerage firms and political watchdogs.
They don’t pay you interest on the money most of the time; the subject is never mentioned. When the market turns south you wonder how you could lose so much money so quickly!
PIPES - Private Investment in Public Enterprise is also a type of Hedge Fund.
Brace yourself, this one will be a shock. Ever notice how certain things always have innocuous names that disguise what is really going on? This is just one of those things, PIPES, a type of hedge fund where millionaires or billionaires use the exclusive unregulated domain of private equity investment funds to manipulate the markets of thousands of small companies. Now, I will go slow, because I want to make this very clear and easy to understand. You remember Joe Paycheck. He has been wondering how he will retire on his present savings rate, so he begins looking for an investment he could buy that will present a better-than-average return on investment.
His friend John Doe tells him he was reading an article that recommended looking at small cap, micro-cap or penny stocks as potential opportunities. These are stocks just like the NYSE stocks but the share prices are much lower per share, and the SEC regulates these companies just like the big ones.
Joe never really knew much about the stock market and so had always played it safe with mutual funds,. Those, however didn’t make much. When he asked about buying stock he was told he needed to buy a round lot (100 shares), or he would pay a premium. One-hundred shares made the cost too high. With companies like IBM selling at $58 per share (or $5,800) or, say, Microsoft at $24 per share (or $2,400) that represented more money than Joe had at the time, and he had always heard it was best to diversify by owning at least a half a dozen companies or so to spread the risk around in case one company went south. It was impossible to do this when he had to buy 100 shares of each.
But Joe is worried about that retirement and so he decided to look around. After a few weeks of looking, Joe decides he will start watching the subscription services like PR Newswire, Business Wire, and Reuters. One day he reads a press release about a small startup company that has gotten a patent on the next big thing, and, low and behold, they just received $100 million dollars in equity funding from a venture capital fund that struck a private equity deal with the company and its principals. But they are only going to take a draw against it right now of $100,000. And can you believe it, those guys at the venture firm are even willing to take stock in return for the money they loaned! This has got to be a winner! More importantly, they are willing to wait on registering the stock they are getting until the company does its next stock offering! Joe assumes that these venture guys must have done their homework or they would never have agreed to loan $100,000,000 dollars to a small startup company.
Going back a bit, a few weeks earlier, Joe had received a gift from his mom and dad for $11,000 and he had gone to DATEK and opened a self-directed investment account in anticipation of doing something.So with all this new found courage Joe logs onto DATEK and places an order for 100,000 shares of this stock in Big Thing Enterprises trading at .011 cents per share or $1,100 total. Wow that’s just over a penny a share! A penny is nothing! I will own 100,000 shares of the Next Big Thing! I’m rich... and, low and behold, the next day the stock is trading at 3 cents and Joe has tripled his money.
So he decides he has to have more of this before it gets away from him and everybody else finds out about the next big thing! He decides he will buy another 100,000 shares at .03 and spends another $3,000 of his parents’ gift.
The next day he gets home from work and checks the market, and the damn thing is 8 cents per share. He has nearly a 400% total investment return and there are still three trading days left in the week.
So he says, well I am way "in the money,"so he decides what the hell, he takes the entire remaining $6,900 in his account and buys 90,000 more shares at 8 cents a share, and for the next few weeks the company issues even more press releases and the stock goes as high as 18 cents a share on low volume but rather thin trading (more buyers than sellers). Then the company announces that they have spent all the money on research and development and needs to take another advance against the equity line of credit for another $100,000. The venture firm says okay and another big spurt in the stock occurs with heavier volume (more sellers than buyers). All the company had to give up for the $200,000 it borrowed was 30 million shares of stock (or .007 cents a share) and they still have 40 million shares in treasury and the principals have the rest (20 million). The company had a float of 10 million shares before this all started. That makes a 100,000 million share capitalization.
Then, all of a sudden, news stops coming out, and the company freezes its borrowing from the venture firm, and things go very quiet. The stock continues to fall in price all the way down to3 cents a share. Then it hits 2 cents a share and them 1 cent a share the next week. Joe decides he’s just going to hold onto his stock and wait for it to come back. Then the company decides it isn’t going to borrow any more of the $99,800,000 left on its equity line of credit with the venture firm, because the cost of capital is just too high and the they would have to give up the company and still never have borrowed all the money on the equity line. Joe and the company have both received the same news, the light bulb has gone on.
Through manipulation of the rules, Chris Cox and his predecessors have made it possible for the most potentially lucrative investments to be driven, like cattle through holding pens, into the slaughter yards we learned about above called, "Hedge Funds."
Imagine for a moment you are an eager, intelligent, hardworking young American who has come up with a Great Idea. You patent that idea at not inconsiderable cost to yourself. You even do market analysis that proves that this idea is gold plated. Eyes shining with belief in the American dream you start looking around for capital. You are surprised to find that none of your local banks will back you. Doing an Initial Public Offering costs more than you can afford and still bring your product to market. What good would that do, you’d be forced to do business like all other small public companies and sacrifice the company to the vultures because you can’t sell to small investors; the brokerage forms won’t back you because they have all been scared off by the ugly, nasty SEC after the 9/11 debacle. You are puzzled and surprised.
The banks and others you contact, for instance the Small Business Administration, your local bank, say they can’t deal with you and that you need sophisticated financing and point you to places like the Venture Capital Vultures and hedge funds. There, you learn that to get the capital to take your invention into the market you will need to "cut an inside deal" that they tell you is this standard practice. That, at least, is true. But "the deal" makes it possible for the Vulture Capitalist to end up owning your business.
At first you will probably be excited. The deal means you can get all you need to secure your success — $20,000,000 is no problem. But then you learn that you never GET all that money at one time. You have to get it in smaller increments that always leave you underfunded and returning for more – and on increasingly bad terms. Because the Vultures now have reduced price stock available to them, they can "short" the stock, because the company is actually giving them shares for cash, which they get as part of the loan the company signed, meaning they can sell it (even if it is restricted or unregistered) thus making the stock sooner or later worthless. And so it goes.
This is one of the reasons so many companies fail. It seems like this would be bad for the Vultures, but surprise, the SEC and the wealthy owners in those Hedge Funds can even write off their profits as ‘losses.’ Most of them pay no taxes of any kind. And when they ultimately end up with the company, the loss carry-forwards allow them to reap all those profits and reduce their taxable income by applying the loss carry-forwards.
Like I said, these things can make really big money. They make even more money if you have a powerful friend who muscles people around like the SEC, leaving them few other options. This is how the wealthy turn ‘the market’ into their own personal playground and sock billions away in the piggy bank.Christopher Cox, the 28th head of the Securities and Exchange Commission, knows that most Americans trust the government and believe that their rules are constructed to protect them, the small investors.
Sad misconception.
Cox knows exactly what is happening. That is why he is were he is.
He was appointed by that paragon of free markets, George W. Bush, on June 2, 2005, and unanimously confirmed by the Senate on July 29, 2005. (Most Congressmen are millionaires, not when they arrived in D.C., but soon afterwards, and so have a use for Hedge Funds.) He was sworn in on Aug. 3, 2005. If you go to their website you will find that the focus under Cox is on, "the needs of individual investors."For "individual investor," think over $1,000.000.
You can keep your measly little savings in the ol’ mustard jar.
As we noticed with George W., his "core constituency" is not the little old Republican lady living on her Social Security who worked, believed, and voted for him. The "Core" folks are those who can afford to become Pioneers ($250,000) or Rangers ($100,000).
However, that does not mean you need to feel left out. George and Chris have plans for you, plans that include having you continue into slavery.
We have an alternative plan that we think you will prefer.
While Bush and his friend Chris call this, "investment," what it actually should be called is racketeering, and it’s being carried out as a conspiracy to defraud the public at large. That makes it a felony, a multi-count felony. So our plan is to sort of clean up the marketplace so that honest people can return America to a very different model for business.
We have begun writing a bill and are now looking for a sponsor to carry it through Congress. You are probably thinking, "Yea, right! Those crooks?" But right now Bush is teetering with everyone; more than 50% of Americans now favor impeachment, so this is the perfect time to get legislation passed. The bill includes the removal of Chris, demands true business transparency, and new rules for stock trading, hedge funds, PIPES, and opening up real investments that could earn the blessing of Mother Theresa instead of the envy of Al Capone.
See, we knew you would like it. Soon, you, an American who can’t afford to join a Hedge Fund will be free from the plantation of GREED, having ridden the Underground Railroad to a very different America. Welcome home.
You have always been puzzled about Hedge Funds; you wonder how it always is that you lose money while insiders seem to get richer every day.
You wonder but continue to invest. You aren't crazy. They are out to get you.
DTCC Board Members Get Attorney Letter After Second Media Interference / FinancialWire
November 7, 2005 (FinancialWire) The Depository Trust and Clearing Corp., the pervasive national clearing house that is an agent of two SROs, NASD, Inc., and the New York Stock Exchange, has once again directly, deliberately and recklessly sought to interfere with news coverage of its role in the still-unfolding StockGate naked short selling scandal, according to attorney Marshal Shichtman, Esq., Carle Place, NY, in a letter to each of the 20 members of DTCC's board.
Those receiving the letter include Jill M. Considine, Chair and CEO, and Donald F. Donahue, COO, DTCC, Frank J. Bisignano, CEO Global Transaction Services, Citigroup (NYSE: C), Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD), Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR), Heidi Miller, CEO JPMorgan Chase (NYSE: JPM), Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange, and Douglas Shulman, President, NASD, Inc.
The latest effort, the week of September 18, followed the DTCC's successful interference with FinancialWire's distribution via Investors Business Daily and Yahoo, Inc. (NASDAQ: YHOO) on February 7, 2005, a deed to which attorneys for the DTCC admitted to in a letter to Shichtman in April, in what appears to have been at the time a full-court press against unfriendly news.
On April 10, for example, a much-vaunted expose on General Electric's (NYSE: GE) Dateline NBC program was abruptly and suspiciously cancelled, and run weeks later in an extremely truncated form that made no mention of the DTCC, said to have been the program's primary target. The extent of potential interference in that programming remains a mystery, as those close to it have all declined to discuss it.
If there was interference, it would surely denigrate NBC in stark contrast to the standards set by CBS's 60 Minutes in the infamous "Big Tobacco" expose that became a highly-acclaimed movie, "The Insider," and more recently the movie "Good Night, and Good Luck," about how that network stood up to Joe McCarthy in the Communist media-baiting era of the 50s.
On or about the same time, the DTCC had castigated EuroMoney after a March, 2005 article on illegal naked short selling quoted then U.S. Securities and Exchange Commission Head of Market Regulation Annette Nazareth's assistant, James Brigagliano that prior lawbreakers were "grandfathered" because "we were concerned about generating volatility where there were large pre-existing open positions, and we wanted to start afresh with new regulation, not re-write history." Nazareth, now an SEC Commissioner, had previously told the New York Times that naked short selling amounted to no more than complaining shareholders "who want their stock to go up.
Since, one of those "large pre-existing open positions," apparently in the neighborhood of $10.5 billion, has come back to haunt the SEC, in the form of a line item, "securities sold, not yet purchased" in the bankruptcy filing of Refco (NYSE: RFX; OTC: RFXCQ), according to the Financial Times. These events apparently have created a huge crisis of confidence in the institutions previously believed to be there to protect the individual investor and create a level playing field.
A recent Investrend Poll at
http://www.investrend.com/link_redirect.asp?Url=http://www.investrendinformation.com
showed that a whopping 89% of online respondents believe the SEC should be "hugely" blamed for the Refco meltdown. An even more lopsided 92.05% stated that the DTCC should "be punished" for censorship violations of the First Amendment. And in the current Investrend Poll, 50% so far believe that these new scandals will keep individual investors on the sidelines and out of the markets.
The DTCC remains under intense pressure from regulators over its controversial "stock borrow program," its move to automated settlements that has unsettled many in the financial community, including foreign exchanges such as Sebi in India, according to the Financial Express, that are now reconsidering copying such a system, and from a score of lawsuits claiming the agency's policies and loans have undermined the financial system and hurt hundreds of small public companies and thousands of individual investors who have lost millions.
The DTCC itself admitted in its front-page editorial complaining of Euromoney and the charges it expected from Dateline NBC, that $6 billion of securities go unsettled every day. The admittance was in the form of a boast that this amounted to just a small segment of each day's clearances.
In his letter, Shichtman noted that while the DTCC's standing of an SRO, is "highly disputed," and with it "any claim to any type of immunity," that it has a "heightened responsibility to the public" as a quasi-SRO "solely owned by SROs," meaning NASD and the NYSE. He asked the DTCC directors to set a proper "tone at the top" by reigning in the media-bashing and news interferences practiced by the DTCC's top executives.
He said that the DTCC's guise of its interference as "free speech" does not excuse slander, libel and tortuous interference, nor, if the DTCC is held to be a government-aided organization, the clear violation of FinancialWire's First Amendment rights.
DTCC board members include Gerald A. Beeson, Senior Managing Director and CFO, Citadel Investment Group, Chicago; Jonathan E. Beyman, CEO, Lehman Brothers (NYSE: LEH), New York; Frank J. Bisignano, CEO Global Transaction Services, Citigroup (NYSE: C), New York; Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD), J. Charles Cardona, Vice Chair, The Dreyfus Corp.; Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc., New York; Arthur Certosimo, Executive VP, Bank of New York (NYSE: BNY), New York;
Also, Jill M. Considine, Chair and CEO, The Depository Trust & Clearing Corporation (DTCC), New York; Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB), Charlotte, NC; Randolph L. Cowen, Global Head of Technology and Operations, Goldman Sachs Group (NYSE: GS); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC), New York; Norman Eaker, Principal, Edward Jones, Des Peres, MO; Allan D. Greene, Executive VP, State Street Corp. (NYSE: STT), Boston, MA; and
Also, Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange, Boston; Heidi Miller, CEO, JPMorgan Chase & Co. (NYSE: JPM); Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR), New York; Ronald Purpora, CEO, Garban LLC, Jersey City, New Jersey; Dianne Schueneman, Senior VP, Merrill Lynch & Co. (NYSE: MER), New York; Douglas Shulman, President, NASD, Inc., Washington, DC; and Timothy J. Theriault, President, The Northern Trust Co. (NASDAQ: NTRS), Chicago.
Citing FinancialWire's coverage of the widening financial scandals associated with naked short sales, Financial Express has said the Securities and Exchange Board of India (Sebi) must rethink any automated trading systems such as those used and proposed by the Depository Trust and Clearing Corp., which it said American investors no longer trust.
Columnist Sucheta Dalal cited manipulative scandals involving Refco (NYSE: RFX) and Overstock . com (NASDAQ: OSTK) as reasons M. Damodaran, Sebi chief, should go slow on permitting short-selling by institutional investors. Short sales abuses have vexed and embarrassed American regulators as well as institutions such as Goldman Sachs (NYSE: GS) and Credit Suisse First Boston (NYSE: CSR).
Financial Express said that automation has its downsides. "Unless the regulatory system is constantly alert, ingenious crooks are always working to identify weak links.
The article is at
http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.financialexpress.com/fe_full_story.php?content_id=106477
Dulal said that a "lending and borrowing mechanism is expected to prevent rampant price manipulation and keep out naked short-sales, that led to the demise of the old badla-based system of forward trading. Will it achieve this aim?
"It is pertinent to look at the growing US controversy over illegal naked short-sales and its consequences. FinancialWire . posted an article in March 2005 about a Michigan man, Robert C Simpson, who acquired 100% of the issued and outstanding stock of Global Links Corp. Two days later, he found over 50 million shares of the company shares were traded on the bourses. This case came up for discussion by the Senate Banking Committee and was probably the earliest official acknowledgement of naked short-sales (without first borrowing shares, as is legally required).
"Since then, Patrick Byrne, CEO of a company called Overstock has gone public with the fact that his company's float changed hands four or five times in a day. How, in a perfectly functioning lending and borrowing mechanism? And where are all the extra shares coming from to give delivery, unless there is a large incidence of illegal naked short-sales? Byrne has publicly alleged his father failed to get delivery of 200,000 shares purchased by him through a blue-chip brokerage firm. He is quoted as saying anywhere between 5-20 million counterfeit shares are currently in the marketplace, presumably on the major exchanges alone.
"The US debate is important, as their trading system has become the global standard for capital markets. It is, hence, pertinent to note that extraordinary trading volumes (yet unexplained phenomena in highly manipulated Indian stocks as well) and short delivery during settlements are increasingly being flagged as manifestations of a possible scam.
"More startling, many investors have accused The Depository Trust & Clearing Corpo-ration (DTCC), a holding company that clears and guarantees almost all trades in the US, of engineering naked short-selling schemes. The DTCC has faced 12 lawsuits in this connection. Most of these were dismissed, but the corporation itself has admitted, in a Q&A posted on its website, that naked short-selling occurs, but the extent to which it occurs is unclear.
"The DTCC's stock lending and borrowing programme also continues to be under regulatory scrutiny by the NASD and other government agencies. The US debate attributes naked short-selling to counterfeiting and collusion between brokers, dealers and, of course, shadowy hedge funds. In most cases, the sales, accompanied by large, unexplained trading volumes, aimed to destroy the value of small companies.
"An October 13 report by FinancialWire also suggests research analysts, especially Net-based ones, also have a role to play in setting the stage for shorting. It quotes specific examples of alleged collusion between broker-dealers and independent research firms to publish negative information, to beat down the prices of target companies.
"This raging American debate over rampant price manipulation and misuse of automated trading systems is extremely relevant for us, since Sebi plans to permit short-selling by institutional investors. Indian investors, too, have noticed that a large and unexplained spurt in trading volumes always signals the start of a big price ramping operation. Our stock exchanges and regulators simply sleep over this phenomenon, even when these are pointed out to them.
"Second, Indian regulators are clueless about the true beneficial ownership of the most powerful market segment, namely, foreign institutional investors. Add Sebi's record of poor prosecution of important cases and our slow judicial system and we have a recipe for serious trouble. Sebi may end by attempting to regulate institutional short-sales, while remaining partially blindfolded.
Meanwhile, according to Financial Times, the $10.590,379,000 "securities sold, not yet purchased" line item in the Refco (NYSE: RFX) bankruptcy balance sheet is not only naked short selling, it is under intense investigation by authorities. The article is at
http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.efinancialnews.com/index.cfm?page=home&pdigest=18500000000074245&uid=5405-7710-922621-810209
FT says that the firm's IPO underwriters Goldman Sachs (NYSE: GS) and Credit Suisse First Boston (NYSE: CSR) both have investigators looking into the illegal but allegedly widely practiced manipulative practice among essentially unregulated hedge funds and other financial institutions that now appears to be a naked short sales bubble that could imperil the U.S. and worldwide financial markets.
Overstock's CEO Patrick Byrne appeared on News Corp.'s (NYSE: NWS) Fox with Neil Cavuto to state that there are at least twelve Refco's "buried in the system," and Cavuto said some say it could be as many as 60 institutions ready to implode. He said a "systemic" problem could cost the Depository Trust and Clearing Corp. as much as $100 billion to clean up.
The video for this is at http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.vmsdigital.com/MyFiles_Detail.aspx?mediaId=86578&onum=CDD7589F-A1E6-4B07-B635-4731FE7B438A
The line item was so unbelievably monumental that two of the major critics of naked short selling, Dave Patch, of InvestigatetheSEC . com, and Bob O'Brien, director of the National Coalition Against Naked Short Short Selling, were reluctant to positively identify the $10.5 billion as Refco's naked short position. The Financial Times says investigators are not so reticent, and "have been unable to find which shares, if any, were involved.
The document is at http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://bankrupt.com/refco.txt
Critics have said that if you lift the covers off similar financial institutions and hedge funds, and even many of Wall Street's top investment banks and brokerages, the $10 billion exposure at Refco could be multiplied 100 times over, and may inhabit every nook and cranny on the Street. Few companies initiate buy-ins, and such exposure is just bounced around, or "borrowed" from a DTCC. that may also be at significant risk should it be forced to call in its "loans." The DTCC has also said that there are $6 billion in "fails to deliver" every single trading day. That could add up to some $1.5 trillion every year, not counting attrition from late deliveries.
Already the SEC and the U.S. attorney is probing a $1.4 billion hedge fund, Alexandra Investment Management LLC, and it is not yet known what that investigation will uncover. The fund has revealed that regulators are investigating "numerous participants" in PIPEs, an anacronym for private investments in public equities. Often such investigations end, however, with only a knuckle knock, with no restitution to shareholders of targeted small public companies.
The U.S. Securities and Exchange Commission is under heavy scrutiny as well over Refco since many claim it is just the tip of the iceberg in the illegal naked short selling scandal known as StockGate.
Said the New York Post:
"It is believed the monies at the heart of the Refco scandal are in fact unsettled funds related to the illegal naked short selling, and many have theorized that there may be untold billions of dollars in other financial institutions and hedge funds in the same leaking lifeboat.
The Post said no new laws are needed. "Enforcement is needed.
In his Fox appearance, Byrne said he does not expect the SEC to be able to clean up this situation, and hinted that it will require either judicial or Congressional intervention.Gadfly David Patch's CNBC interview questioning the SEC's involvement is at
http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.vmsdigital.com/MyFiles.aspx?Onum=8FD88353-D1CF-49AB-96FB-F5B3D748534D
His site,
http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.investigatethesec.com
, has long held that the SEC has scrambled to protect illegal manipulators for fear that the lawbreaking had gone on so long and that it is so huge that it threatens the nation's financial underpinnings. On CNBC, Patch again asked why the SEC can sit by and watch scores of companies listed on the Regulation SHO threshold list for almost a year, signifying that they are in continuous default of settlements required by the law.
He also asked why the SEC would try to "grandfather" the millions of settlement failures that preceded Regulation SHO, which went into effect in January. The "grandfathering" still hasn't been court-tested as to whether it may be a kind of "pardon" that only a President may issue.
The SEC and the Depository Trust and Clearing Corp. continue to stonewall any attempt to require transparency in the marketplace as to the extent of fails to deliver, which some see as just a euphanism for "counterfeit shares.
This scandal comes hard on the heels of allegations of misdeeds by Gradient Analytics and employees of TheStreet . com (NASDAQ: TSCM), in conspiracy with David Rocker and Rocker Partners in manipulating the stock of Overstock . com (NASDAQ: OSTK) and others comes another explosive case, this time against Refco Inc. (NYSE: RFX), one of the primary alleged miscreants in destroying Sedona Corp. (OTCBB: SDNA), once a Nasdaq-listed company.
Not since the Enron and Worldcom scandals has the financial markets been under such growing suspicion, except this time the cancer is not just in a treatable part of the body. This time it has spread through the lymph nodes and appears to be present in every vital organ as scores of companies seem permanently entrenched in the threshold lists maintained by Nasdaq and the NYSE, signifying over three-quarters of a year of the existence of counterfeit shares and unsettled trades.
Overstock CEO Patrick Byrne, for instance, has released transcripts of discussions between himself and Morgan Stanley (NYSE: MWD) over shares that he could not get delivery on, and says his father has still not gotten delivery on 75,000 shares that he bought.
Byrne said that he believes between 5 million and 20 million counterfeit shares are currently in the marketplace, presumably on the major exchanges alone.
He has also added libel to the list of legal charges against Rocker and Gradient and others.
Former Refco CEO Phillip Bennett has been arrested on charges of deliberately misleading shareholders when they purchased shares in the company's recent public offering. He had been placed on leave by his company as it launched an investigation into $430 million the company said was owed by an entity he controlled in a transaction that was hidden from the public.
The company had already lost $1.65 billion in market value, leaving investors in the public offering extremely angry.
Also fired was Santo Maggio, president of Refco Securities, whom the company said was believed to have known about Bennett's activities.
According to the New York Post, Maggio was already "in the middle of an SEC probe that would have probably gotten him suspended one year from his supervisory duties" related to Refco's relationship with Rhino Advisors, a hedge fund that illegally shorted the stock of Sedona Corp.
The new case winds its way right back to the growing StockGate scandal as the Post quotes a "source familiar with the investigation" that the receivables in the latest probe "probably came from short sale positions made from a shuttered hedge fund.
The levees protecting the underworld of naked short selling, despite efforts of many regulators to try to prop up a system on weakened stilts appear to be crumbling, forecasting a potential Wall Street disaster that would not be unlike what happened in New Orleans and in other low-lying real estate.
An undermining of confidence in the "independence" of subscription-based institutional research, in the financial media that could even involve General Electric's (NYSE: GE) CNBC and of course, the undeniable clout of already besieged hedge funds and the "King of Shorts," David Rocker, whose targets are said to include Martha Stewart Living Omnimedia (NYSE: MSO), would be disastrous in the event of any one of them, but altogether, it could result in a total collapse as investors look for safer investment and savings venues than "crooked" markets.
In a commentary, Motley Fool said any "mirth" regarding "sith lords" and other irrelevant allegations are "obscuring a case with fairly broad implications for security analysis, First Amendment rights, and the credibility of our public markets.
It said that in an affidavit recently acquired by The Motley Fool, and also apparently acquired by DealFlow and others, Demetrios Anifantis, who identifies himself as a former employee of the research firm Gradient Analytics, alleges that the company conspired with David Rocker of the hedge fund Rocker Partners to publish damaging information "for the purpose of negatively influencing the price of Overstock shares so that Rocker could profit from its existing or intended short positions in Overstock shares.
"Two additional sworn statements in our possession, ostensibly by former Gradient employees Robert Ballash and Daryl Smith, also allege that Gradient provided biased research on behalf of its clients. Both Anifantis and Ballash additionally accuse Gradient of running a hedge fund advisory called Pinnacle Investment Advisors, contrary to the company's public statements at that time.
Motley Fool notes "the most detailed and apparently most damaging affidavit, if it is true, was delivered by Anifantis. He worked as a customer service representative for Gradient from November 2003 until November 2004. New York Post reported that he was fired from the research firm for forwarding his employer's client list to his personal email.
"According to his statement, Anifantis recalled being on phone discussions, during which "David Rocker, Marc Cohodes, or other representatives of a hedge fund called Rocker Partners, LP, requested that the special report contain more negative information, or that the report emphasize a specific negative fact and that the report downplay any positive facts.
"Anifantis also states that customers like Rocker would ask that Gradient not disseminate a negative report 'to the public for a specific period of time, so the customer could get their own position in the stock before the public got the information.' This conspiracy went beyond just Vickrey and Rocker, according to Anifantis, who also says that it "appeared" to him that Herb Greenberg, who then wrote for TheStreet . com, joined in coordinating the attacks on Overstock.
"At first glance, the affidavits raise troubling questions about the nature of 'independent research.' If the three former employees of Gradient are telling the truth, the alleged conspiracy between the research firm and Rocker Partners would represent an egregious example of market manipulation, which most likely would have seriously harmed individual investors, as well as Overstock itself.
The Fool points out that "the veracity of these individuals has not been established, and Rocker Partners and Gradient vigorously deny the charges.
"As New York Post has reported, at least two of the affiants may have credibility issues or reasons to hold grudges against Gradient. If this case makes it to trial, Anifantis, Ballash, and Smith will have to testify in court and withstand cross-examination by top defense attorneys. It will be interesting to see whether their charges are supported by documentary evidence, such as emails, revised reports, notes of phone calls, and the like. Within the affidavits are charges that would prove quite persuasive if supported with concrete documents.
"For example, in support of the charge that Rocker had considerable input on the creation of reports, Anifantis's affidavit refers to an "exhibit 5" (which we did not receive) allegedly containing revised reports on Overstock with Rocker's revisions in brackets.
"Ultimately, we believe that these affidavits raise important questions for investors about the integrity of our financial system. Unlike a lot of the silliness in the media relating to Overstock, this complaint is not frivolous on its face, and although Overstock will need to prove its allegations, the case must be taken seriously. The question to us is why the atmosphere around this lawsuit has, from the beginning, been comical. If the behavior set forth in these allegations is true, then the implications of the ease at which the financial professionals can manipulate the public markets are stark.
The affidavits, from former employees of Gradient, according to DealFlow state that the research firm provided "hatchet jobs" on companies chosen by clients "coordinated to deliver maximum trading benefits to them." The affidavits state that reporters for TheStreet . com "leaked" Gradient's negative reports to the market ahead of their release. It notes that Rocker Partners is the largest shareholder in TheStreet . com and that Rocker is a contributing columnist. The affiants also say that former TheStreet . com columnist Herb Greenberg had an office at Gradient where he ghost-wrote research reports for Gradient clients such as Rocker.
The former employees, one of whom had been fired after raising questions about Gradient's practices, said the firm stated its team of 18 to 20 analysts were comprised of CPAs and CFAs when none of them had advanced credentials, and were instead recent college graduates with business-related degrees.
They also note that the research firm's executives, Donn Vickery and James Carr Bettis, also managed hedge funds and a mutual fund that traded in the securities of companies covered by the research side.
If so, this, among the other allegations, is a violation of the "Standards For Independent Research Providers" at
http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.firstresearchconsortium.com.
Gradient is a member of InvestorSide, which told FinancialWire that a violation of its code of ethics, if proven, would disqualify any member from further participation in that organization.
Former employee Demetrios Anifantis, in a sworn statement, said that Gradient would regularly generate "custom reports" for clients, after receiving specific instructions from the clients on whether it should be a "negative" or "positive" report.
Many of the reports were redistributed to PIPES traders and hedge funds by Sagient Research, which distributes the Placement Tracker database of PIPES transactions. Sagient reportedly said it has not distributed Gradient reports since August, 2004. Release dates on the reports were said to have been often delayed for three to five days while Rocker and other Gradient partners secured short positions. These allegations were contained in several affidavits.
The affidavits said that an associate editor working with Greenberg, now at Marketwatch . com, Brian Harris, worked for Gradient to draft research, and had an office in a Gradient office in Seattle. It was noted that TheStreet . com removed Harris' name as an associate editor shortly after Overstock's lawsuit was filed.
The affidavits contain numerous other explosive allegations.
In other naked short selling developments, the Depository Trust and Clearing Corp., reportedly itself under NASD scrutiny for its controversial stock lending program that some, including an 11 state state North American Securities Adminitrators Association task force headed by Connecticut's chief securities officer, and former NASAA president, apparently believe facilitates the illegal naked shorting industry, has been very secretive about the status of shares for individual companies, stonewalling even companies' efforts to determine their true ownerships and short positions.
Brokerage and clearing firms are apparently under intense NASD pressure to settle failed short trades in Regulation SHO threshold securities or have their clearance firms do it for them at possible substantive losses.
The NASD is in turn acting under political and regulatory pressure from the 11-state task force.
Lambiase had publicly asked the SEC to "fix" the DTCC "problem" as it was considering the adoption of Regulation SHO last year, but taking a page from numerous U.S. Senators, he and other state regulators have grown tired of waiting for Regulation SHO to do more than simply shine a magnification light on the massive fails-to-deliver problem.
DealFlow said NASD officials are concerned that stock loan programs are being used to settle failed short trades in Reg SHO threshold stocks, which must be closed out voluntarily or through forced buy-ins within 13 days. "The regulators are concerned that the stock loan are being used instead of market purchases to provide the shares needed for settlement, creating new transactions that will ultimately fail to settle as well.
The state regulators, DealFlow said, have been "highly critical of the SEC's decision to 'grandfather' settlement failures resulting from naked short sales up to levels that trigger threshold status under Reg SHO.
NAASA was particularly concerned about Regulation SHO, because it excluded the small cap market from any meaningful regulation. "NASAA said the proposal included replacing the so-called 'tick test' with a rule that would provide a uniform price test using the "consolidated best bid" as the reference point for permissible short sales. This, however, would not address problems relating to the naked short selling of smaller, less liquid securities, because , NASAA argued, the requirement of the consolidated best bids meant it could not be applied to securities that were not subject to real-time consolidated quotes. That included Nasdaq Small Cap, OTCBB, and Pink Sheet securities.
NASAA also questioned the wisdom of grandfathering settlement failures under the threshold level, asking why the SEC was willing to permit significant settlement failures at all.
"While there are instances when settlement may be legitimately delayed, existing regulations provide for extensions for settlement. If the Commission continues to allow settlement failures, it may well facilitate the harm that the proposal is designed to remedy," Lambiase warned the SEC.
According to DealFlow, Lambiase urged the SEC to reconsider its stance regarding the role of the stock borrow program operated by the Depository Trust Corp. (DTC). NASAA wrote that as a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The utility of the overall proposed rule would be severely impaired unless the Commission undertakes to implement such a prohibition."
Brent Baker, an attorney with Woodbury Kesler in Salt Lake City and counsel to naked shorting target and eight-month old threshold list company Overstock . com, previously spent 14 years at the SEC, including time in the Division of Enforcement, was quoted as saying he believes that the SEC tried, with Regulation SHO, to put "their finger in the dike" but failed.
"Three or four years ago naked short selling was being perpetrated by promoters in the micro cap world," he says. "they would publish 'exposes' on the Internet... and they would bring pressure on these little companies."
"However, short selling has changed," noted DealFlow. He believes the SEC does not realize that abusive short selling practices have been adopted by others and are now built into business models of large, mainstream hedge funds.
Meanwhile, the NY Post has reported that traders in Nasdaq stocks are racing to beat a rumored regulatory deadline to close out their positions - or take huge losses as clearing firms do it for them.
"Naked short sales are trades executed without borrowing stock beforehand. Naked short sellers can overwhelm an orderly trading market, since unlike traditional short sellers, there is technically no limit to how much stock can be sold short illegally, noted the Post.
The Post also reported recently that the NASD and numerous state securities regulators, led by Ralph Lambiase of Connecticut's Division of Securities and Business Investments, have vowed to increase scrutiny of naked short sales.
"A buy-in is the worst possible development for a short-seller, since he has to accept any price given," it stated.
In a letter to constituent investor advocate Dave Patch, whose persistence in criticizing Federal regulators over the past several years for shareholder losses at the hands of illegal manipulators was at times a lone quest, often covered only by FinancialWire, Connecticut Division of Securities Director Ralph A. Lambiase, the immediate past president of the North American Securities Administrators Association outlined for the first time the efforts a "working group" of state regulators have been undertaking to assail abusive market practices that Lambiase said has been directly responsible for "an unmistakable loss of investor confidence by the arguably millions of investors who have lost their monies.
It was an unusual move by Lambiase to outline the states' enforcement plans in a letter to Patch, who has been vilified and scorned by many top regulators and institutions for his efforts, which includes the maintenance of a website,
http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.investigatethesec.com .
Lambiase said that his efforts, and efforts of others, such as Tanya Solov, Director of the Illinois Securities Department, Tanya Durkee, Deputy Commissioner, Vermont Department of Securities, and Rex A. Staples, General Counsel for NASAA, was stimulated by Patch, and an ever-growing group of concerned citizens who have "continued to champion the issue of reform in the naked short selling area for so long," and added that it has been those grassroots efforts that constitute the "primary reason we are beginning to see reform of any sort." Lambiase was clear in stating that it is "your determination and persistence in seeing that this wrong is righted is in part responsible for my interest, as well as that of other state regulators.
Lambiase, whose initial letter to the U.S. Securities and Exchange Commission stated that the SEC needs to look at the role of the Depository Trust and Clearing Corp. in allowing these abuse practices to continue, said that it seems "clear that had the SRO's and the SEC exercised greater diligence in enforcing pre-existing rules, Reg SHO would likely have been unnecessary.
He said his working group has begun meeting with SRO's and issuers alike, and that it will "continue to exert substantial effort to remedy the remaining abusive practices in naked short selling until we are confident at the state level that the companines in our communities and citizens that invest in them will no longer be the possible targets of abusive naked short sellers.
It had been previously rumored that the reason the NASD has been issuing subpoenas to a dozen or more brokerages over their "fails to deliver" and their failures to enforce buy-ins is due to those regulating at the Federal level not wanting to be trumped again by a state investigation such as occurred in several Spitzer reform efforts.
Lambiase so far appears to be taking the posture that the state group is ready to step in if the Federal regulators do not, thus "inspiring" the current efforts rumored to be occurring at the Federal level.
To make the point, he told Patch in the letter obtained by FinancialWire that "there remains a substantial distance between REG SHO and the ultimate goal of including substantive protections for small business issuers.
It is these small businesses in our communities, Lambiase pointed out, "who take entrepreneurial risks to grow their companies through listings on the OTCBB and Pink Sheets. These small businesses not only provide employment for the residents of their communities, but also offer the general public the opportunity to invest in local businesses with promising products or services.
"While it may be true that a number of small companies lack the financial depth to succeed, they are nonetheless entitled to succeed or fail by their own honest business decisions and not as a result of the corrupt acts of abusive short sellers.
In what some believe is another swipe at the secretive DTCC, he said that "without transparency, we cannot, as yet, precisely identify each small business that failed as a direct result of abusinve naked short selling nor quantify the exact number of jobs lost to our local economies when these companies are forced to close their doors.
In what is an unmistakable prod to the SEC, Lambiase said that institution is "moving slowly forward as Reg SHO in its current state is studied and debated seemingly ad infinitum. While slight modifications to the existing Rule may result from such an approach, a far more threatening pattern of abuse is certain to continue unless wholesale reforms are made to remedy the concerns of the small business community.
He said that even Congress, whose members have also called the SEC on the carpet for the slow progress associated with Reg SHO may in fact be missing the point that "abusive short selling poses a direct threat to the economic well being of small business and the entire community.
The 11-state task force reportedly was in serious strategy sessions a few weeks ago.
New York Post quoted one regulator as saying there is "an epidemic" of naked shorting. Regulation SHO has made that evident for the world to see. Numerous U.S. Senators have called the Regulation fully ineffective, and have repeatedly called upon the SEC Commissioners to get the practice under control.
The Post said that an SEC official confirmed to it "that no complaints have been brought in the nine months since Regulation SHO went into effect.
It quoted one state securities regulator, Bill Reilly of Florida, as saying he expects the increased effort will result in more voluntary compliance from dealers, as well as enforcement activity.
That may or may not resolve the DTCC "problem." Recently a stock transfer agent, Transfer Online Inc., had asked then-SEC Chair William Donaldson to put a stop to the control the Depository Trust & Clearing Corp. and Automatic Data Processing (NYSE: ADP) are fast gaining over the transfer business, and to demand DTCC transparency.
Excerpts from the letter, posted at
http://www.investrend.com/articles/frame.asp?sUrl=/link_redirect.asp?Url=http://www.faulkingtruth.com/Articles/LettersToEditor/1012.html
, states: "Over the years as the amount of shares held at DTC has increased it has become more and more difficult to determine who owns the shares, who is trading them and if the trading is proper. This trend, and the resulting problems I will detail below, continues to increase because a minority of the total number of shareholders are reflected on the books and records of the corporation, most activity takes place behind the wall of ownership that is designated as Cede & Co. and neither the company nor the transfer agent has any access to the underlying information.
"Furthermore, DTC recently managed to put through a rule change (Release No. 34-50758A; File No.S7-24-04) that prohibits a transfer agent from representing any company who seeks to withdraw from the DTC system. This change effectively leaves companies with no voice or choice in the management of their stock and their ability to have any transparency as to what is actually taking place in the market in regard to their stock.
"I receive calls from companies seeking information as they watch millions of shares trade in a single day, who watch their share price decrease in value and who have no access to information regarding who is behind the trading of these shares, or if in fact the trades are at all legitimate. As the system now operates, most companies have a large percentage of shares on their books registered to Cede & Co.
"Given the importance of shareholder voting and communication one would assume that the same requirements placed on transfer agents as to accuracy and reporting would be placed on ADP and Cede & Co. as they usually hold or service the majority of the shares owned in any given company.
"I have found; however, that when presented with the tabulation reports from ADP the share totals they report sometimes exceed the total number of shares outstanding for the company. Let me restate this because it is a very important part of my concern about a system that is more and more headed in the direction of increased control by DTC. The shares presented by ADP, that are the shares voted by the brokers on behalf of the shareholders for whom they hold accounts, EXCEED when added to the shareholders of record the total number of shares outstanding.
"Where are these extra shares coming from? Why are there no controls on the number of shares held in the nominee name Cede & Co. vs. the ownership on the books and records of the brokers and why is the company not privy to any information unless it pays whatever fees it is told it must pay by the organizations that control the data?
"In fact, as the system is evolving, DTC is de facto becoming the largest transfer agent in the industry even though it is an organization formed by and working for the interests of the brokerage community. If, ultimately, the S.E.C. is in place to protect investors then this issue can not be ignored because in the end when the market is completely under the control of the brokers and the org