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 Confessions of a paid basher
 
motzu
125 posts
5th
Joined
1/29/2006

Confessions of a paid basher
Posted: 07 Mar 06 4:04 PM Modified By motzu  on 5/22/2007 2:45:53 PM)

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.

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 08 Mar 06 4:44 AM Modified By motzu  on 5/22/2007 2:44:28 PM)

 

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.

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 09 Apr 06 5:24 AM Modified By motzu  on 6/20/2007 10:51:34 AM)

Raging Bull Chat Room Devotees Get Dose of 'Whopper'
By Robert Kowalski
Staff Reporter

11/9/00 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

 

Blastoff

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!" 

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 18 May 06 4:52 AM Modified By motzu  on 6/20/2007 10:56:30 AM)

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

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 18 May 06 5:08 AM Modified By motzu  on 6/20/2007 11:02:47 AM)

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."

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 29 May 06 1:12 AM Modified By motzu  on 5/22/2007 2:25:37 PM)

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

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 22 Jan 07 9:46 AM Modified By motzu  on 5/22/2007 2:29:01 PM)

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, a
cutting edge technology, or maybe a medical breakthrough that could
very well be "the next big thing". In the back of your mind, you
can't help but think, "This could be the next Microsoft", and you
have a chance to get in on the ground floor of a hidden gem that the
big investors and analysts haven't even heard of yet. You do your
homework, research the outstanding shares, study the recent press
releases and filings, and read about the company on the stock message
boards. Finally, you take the plunge, and decide to buy 500,000
shares at a nickel a share. That's right, you now own 1% of (there's
that thought again) the next Microsoft, for a paltry $25,000. Sure
it'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 the
money to roll in. A couple of weeks later, the company announces that
they have secured a major financing deal, and now have the money to
take their product to market, and you know you made the right
decision. The volume picks up, the message boards are buzzing, and
all is right with the world.

 

But then, something goes terribly wrong. For no apparent reason at
all, the stock price begins to tank, and before you even have time to
react, your 500,000 shares are down 80%, and you've just lost $20,000
of your hard-earned money. What the hell happened?


The Set-up

 

This same scenario is being played out time and again in every corner
of America, and although there are many reasons for the failure of
small, struggling, publicly-traded businesses, including
mismanagement 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 their
livelihood. And worst of all, up to now, this fraud has been ignored
(and in many cases even condoned) by the SEC and our very own
government.

 

This is how it works. Remember that great news that the company just
released about securing financing to allow them to take their product
to market? It's nothing more than an elaborate scheme perpetuated
against the company, its employees, and the shareholders by a network
of skilled con artists. It begins with the financial institution
(usually an offshore "lending institution" based somewhere like
Bermuda or the Cayman Islands), who approaches the company with
promises of funding to "help" the company get their product off the
drawing board and into the market. The company, who is usually
strapped for cash and desperate for some financial support, considers
the terms of the offer. The lender promises them say, five million
dollars in exchange for company stock at a 20% discount to the market
price at the time they are converted into shares (although some deals
are much worse, and the lender gets their shares at as much as a half
price discount from the current market price). The company does the
math: five million dollars converted to shares at 80% of the current
price of around a nickle a share, not too bad a deal. Plus, once the
news of the financing is released, investors will swoop down in a
stock-buying frenzy, the trading volume will go through the roof, and
the share price will soar, meaning the company will give up even
fewer shares for the money they receive. The lender makes a nice
profit, the company gets their product to market, their employees are
finally rewarded for their years of dedication, and the loyal
shareholders hit the jackpot. Everyone is happy.


Except that none of that actually happens. Before the ink on the
contracts 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, US
Brokerage 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 the
market in the hope that the price will drop, and the short seller can
then "buy back" the shares (that they never actually owned in the
first place) at a cheaper price, and pocket the difference. Once a
stock is sold short, a seller (or their broker) must cover their
position by "borrowing" shares from other stockholders (usually those
shares 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 has
flourished unchecked for years. The real problem arises when the
short sellers dump so many "imaginary" shares into the market that
the selling overwhelms any buying pressure, and artificially causes
the stock price to crash. And this is exactly what the lender and
their cohorts do.


Canada: Co-Conspirators From The North

 

In order to sell short enough shares to truly cause the stock to tank
in price, the broker often has to sell more shares than they can
"borrow" from legitimate stockholders. This practice is known as
naked short-selling (meaning the short sellers never intended to
cover their position by borrowing real shares from legitimate
stockholders). There is only one problem. Short selling is illegal in
over-the-counter stocks (known as OTC, or penny stocks), and naked
short selling any stock is illegal. That's where the Canadian
connection comes in. While American brokers have to follow the
National Association of Securities Dealers (NASD) rules, Canadian
brokers don't. Canadian investors and brokers are allowed to sell
short as many shares as they want, and never have to borrow the
shares from legitimate stockholders, effectively flooding the market
with counterfeit shares. In fact, they can legally sell more shares
into the market than even exist in the entire float. So, to
circumvent the rules, the American brokers funnel their short selling
activities through their Canadian connections. If there are buyers
for a million shares, they short sell three million into the market,
and on and on, until the stock price eventually collapses under the
weight of millions and millions (or billions and billions, if
necessary) of fake shares flooding the market.


The Payoff:

 

So, in simple terms, our lender loans the company a small part of the
money they promised them and then immediately calls their co-
conspirators in America and Canada, who then flood the market with
hundreds of millions of counterfeit shares, causing the share price
to collapse. Often, as an insurance policy, bashers are hired to
discredit the company on stock message boards such as RagingBull, in
effect creating an even darker picture of the company. Then, the
lender converts the loaned money into shares of company stock, not at
80% of the nickel stock price that the company envisioned, but at 80%
of the market price after they've effectively manipulated the stock
price down to almost zero. Instead of the few million shares that the
company expected to give the lender, they are forced to give them
hundreds of millions (and sometimes even billions) of shares. The
lender turns around and dumps those shares into the market, and the
price is driven even lower, and they collect their next payment in
shares at an even cheaper price. This type of arrangement has become
known as "death-spiral financing", because the company is often
driven into bankruptcy by the lenders, their American brokers, and
their Canadian cohorts.


The Damage:

 

In the end, this practice amounts to financial terrorism against the
United States. Legitimate companies are forced out of business,
dedicated employees (who often received stock as part of their
compensation) lose their jobs and their stock investments,
communities lose out on the opportunity to earn substantial revenues
and the employee base that a successful growing business can provide,
and the stockholders lose their hard-earned money. Even more, they
lose their faith in the stock market as a whole, and vow to never
take a risk on a small, unproven, start-up company again. Legitimate
lenders stop loaning money to small businesses (which appear to be a
much higher risk), and eventually, the entire entrepreneurial spirit
of America is put at risk. Make no mistake, lives are literally
destroyed 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 financial
institutions, and their American co-conspirators have systematically
financially raped and pillaged our small businesses, their employees,
and small investors. Recently, numerous lawsuits have been filed by
victim companies naming dozens of brokerage firms as defendants.
Individuals and small independent organizations such as
www.investigatethesec.com have attempted to draw attention to the
problems, and finally, a few small publications such as
www.faulkingtruth.com have begun to provide some coverage of the
situation.

 

Proposed NASD and SEC rules don't go far enough to prevent this
practice. Until Congress steps in and forces everyone to play by the
same rules, and makes those rules tougher in regards to short selling
in general (and naked short selling in particular), the OTC market
will continue to be a rigged game, and the well being of America will
continue to be threatened by unscrupulous foreign (and yes, domestic)
interests.

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 22 Jan 07 9:49 AM Modified By motzu  on 5/22/2007 2:32:11 PM)

Anatomy of a delictive short sale

 

Re: Sedona Corp Case

 

The Purchase Agreement expressly prohibited the Client from selling
short shares of Sedona's stock while the Debenture remained "issued
and outstanding." Sedona filed the Purchase Agreement and Debenture
on its Form 8-K with the Commission on November 28, 2000.

 

Badian and Rhino Engaged in Short Selling that Depressed the Price of
Sedona's Stock 12. Between March 1 and March 29, 2001, Rhino and
Badian directed a series of short sales of Sedona stock through an
account at a U.S. broker-dealer held in the Client's name and
controlled by Badian.

 

13. At the time, the Client owned no Sedona stock. Rhino did not
deliver the shares that it was selling short by settlement day and
the broker neither bought nor borrowed stock to cover these sales.

 

14. In violation of the Purchase Agreement's prohibition against
short selling, Rhino placed orders with the U.S. broker-dealer, who
thereafter 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 its
proprietary account. The Cooperating Broker-Dealer often placed these
sales through various electronic communications networks (ECNs),
which provide anonymity to traders wishing to conceal their identity
from the market. At the time of these sales, the Cooperating Broker-
Dealer did not possess any shares of the Sedona stock that it was
selling.

 

15. The Cooperating Broker-Dealer covered its short sales through the
ECN's by purchasing the shares from Rhino's client's account at the
U.S. broker-dealer. The Cooperating Broker-Dealer executed the
purchases after the sales had been effected through the ECN's and
after the market had closed. The Cooperating Broker-Dealer would
purchase the shares at prices slightly below the average prices of
the sales through the ECN's, thus ensuring itself a profit. As a
consequence, these purchases were not printed to the NASDAQ tape and
were not included in reported volume for the day.

 

16. Because the Client owned no Sedona stock, these transactions
resulted in short positions in the Client's account. However, because
its sales were not reported or printed to the NASDAQ tape, the short
sales 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. In
sum, in March 2001, through Badian's trading, the Client sold short
872,796 shares of Sedona stock. Of those shares, the Client sold
short 785,536 shares prior to its first exercise of its conversion
rights under the Debenture. These failures to deliver triggered
clearing 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 a
short restriction on Sedona's stock, which required that any future
sales of Sedona would be subject to a mandatory close-out if there
was 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 on
behalf of the Client at a Canadian broker-dealer. Canadian broker-
dealers are not members of the NASD and are not subject to its short
sale 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 during
this period. The shares were not delivered by settlement date. The
Canadian broker-dealer neither bought nor borrowed stock to cover
these sales and continued executing short sales. Rhino's short
selling in the Canadian account continued to put downward pressure on
Sedona's stock price. Between March 1 and April 16, Rhino, through
the two accounts it controlled on behalf of the Client, accumulated
an open and undelivered short position in Sedona stock of 1,193,296
shares.

 

Rhino's Short Selling Increased the Number of Shares the Client
Received on Conversion


20. Rhino's short selling through the Client's accounts depressed
Sedona's stock price during the five day trading periods prior to
each conversion on which the VWAP of Sedona's stock was calculated.
Between January 26 and March 1, 2001, Sedona's average closing price
was $1.43 per share. By March 23, 2001, after three weeks of Rhino's
constant short selling, Sedona's stock had declined to $.75 per
share. On March 27, 2001, Badian, on behalf of the Client, tendered
the first notice of conversion under the Debenture and received
127,517 shares of Sedona stock at a VWAP of $.9384 and a conversion
price of $.79764. During the five trading days prior to March 27,
Badian's trading averaged in excess of 25% of all shares traded
during the period.

 

21. Based on the conversion formula in the Debenture, the lower the
VWAP, the more shares the Client received from Sedona on conversion.
Between March 27 and April 16, 2001, the Client exercised its
conversion rights under the Debenture on three more occasions. On
April 5, 2001, the Client exercised its right to receive 395,337
shares of Sedona stock at a VWAP of $.75762 and a conversion price of
$.64398. On April 10, the Client exercised its right to receive
761,342 shares of Sedona stock at a VWAP of $.7884 and a conversion
price of $.67014. On April 16, 2001, the Client exercised its right
to receive 329,988 shares of Sedona stock at a VWAP of $.91022 and a
conversion price of $.77369. As a result of the sustained sell
pressure placed on Sedona's stock price, the VWAP for each of the
Client's conversions in April was lower than the VWAP for its first
conversion on March 27, which increased the number of conversion
shares that the Client received from Sedona under the Debenture.

 

22. Rhino deposited the conversion shares that the Client received
from 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 received
1,614,184 shares of Sedona stock on behalf of the Client in the
Conversion Shares Account. The majority of these conversion shares
were used to close the open and undelivered short position at the
first U.S. broker-dealer where the short selling occurred and to
significantly reduce the open and undelivered short position at the
Canadian broker-dealer.

 

23. Instead of delivering the shares directly to broker-dealers where
the short sales occurred, Rhino effected wash sales and matched
orders out of the Conversion Shares Account to the short selling
accounts. This created the appearance that the accounts that had
short positions were purchasing shares in the open market and not
covering short positions with shares obtained through conversion of
the debenture. On at least ten occasions during April, 2001, Badian
directed transactions involving no change in beneficial ownership of
shares of Sedona stock or placed buy orders for shares while
simultaneously placing sell orders of substantially the same size and
price.

 

24. On May 1, 2001, Badian exercised the Client's right to receive
261,587 shares of Sedona stock at a VWAP of $.94474 and a conversion
price of $.80303. On May 15, 2001, Badian exercised the Client's
right to receive 303,399 shares of Sedona stock at a VWAP of $1.19
and a conversion price of $1.01. Badian continued to engage in short
selling in May, selling 25,000 shares in one account and 560,800
shares through another. Badian and Rhino failed to deliver these
shares to the accounts were the sales occurred, thereby triggering
clearing failures at DTCC.

 

The Client Profited From Badian's Scheme

 

25. Rhino's trading allowed the Client to profit from the scheme in
at least two ways. First, the short sales locked in a sale price for
the Sedona stock that was higher than the conversion price for the
shares ultimately used to cover the open short positions. Second,
Rhino's short sales increased the supply of Sedona shares in the
market and depressed the price. As a result of the depressed market
price, the Client converted the Debenture to a greater number of
shares of Sedona stock, which were already discounted to the market,
and which it then used to cover its previous short sales made at
higher prices.

 

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 22 Jan 07 9:53 AM Modified By motzu  on 5/22/2007 2:34:38 PM)

Headline: Witness Must Identify Source of Anonymous Web Postings—C.A.

Justices Say Third Party Lacks Standing to Assert First Amendment
Challenge

 

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 about
the identity of persons who allegedly posted defamatory statements on
the Internet lacks standing to assert those persons' First Amendment
rights, the Sixth District Court of Appeal ruled yesterday.

 

The justices rejected an appeal by Stephen L. Worthington, a hedge
fund manager ordered to answer questions about the identities of two
persons who allegedly posted disparaging remarks about Matrixx
Initiatives, Inc., a pharmaceutical company, in 2003 and 2004.

 

Phoenix-based Matrixx, which makes and sells the Zicam line of cold
and cough remedies, brought suit in Arizona against a number of named
and Doe defendants. Matrixx claims the defendants published false and
injurious statements on investment Web sites, causing damage to the
company's stock prices.

 

Sophisticated Software

 

Some of the anonymous postings were made under the names Veritasconari
and Gunallenlies. While the posters used sophisticated software to
avoid being identified, Gunallenlies neglected to activate the
software on one occasion prior to posting a message on Yahoo! Finance,
where the poster claimed that an FDA investigation and/or lawsuits
were impending over claims that Zicam nasal gel caused a loss of
smell.

 

Matrixx was able to obtain information from Yahoo! tracing
Gunallenlies to Worthington's firm, Barbary Coast Capital Management
in the San Francisco Bay Area. At his deposition, which was taken in
San Francisco, Worthington refused to answer any questions about
Veritasconari and Gunallenlies, including whether he was Veritasconari
or Gunallenlies.

 

He did admit knowing Floyd Schneider, a named defendant who had once
been a co-defendant of his in a lawsuit, which was settled, in which
the defendants were also accused of posting defamatory messages on
investment-related message boards.

 

Argument Rejected

 

Santa Clara Superior Court Judge James P. Kleinberg ordered
Worthington to answer the questions, rejecting his contention that
whoever posted the messages had a First Amendment right to do so
anonymously.

 

On appeal, Worthington argued that at a minimum, Matrixx should be
required to demonstrate that it has a viable cause of action before it
can take discovery with respect to the identities of anonymous
posters. Matrixx responded that Worthington lacked standing to assert
the First Amendment rights of persons other than himself.

 

Justice Franklin Elia, writing for the Court of Appeal, agreed with
Matrixx, saying it was not required to have raised the standing issue
in the trial court.

 

Elia distinguished cases holding that a party to litigation may, in
some circumstances, assert the rights of a non-party, such as when a
criminal defendant was allowed to assert that race-based peremptory
challenges violate the equal protection rights of potential jurors or
when a booksellers group was allowed to litigate whether a state
statute violated the First Amendment rights of book buyers.

 

"Where a third party is brought into the litigation, typically through
a discovery order, the anonymous plaintiff or defendant normally steps
forward to oppose the disclosure of his or her identity," the justice
explains.

 

Where the court has allowed another entity to oppose discovery of the
anonymous party's identity, Elia continued, it was because of a close
relationship between the subpoenaed entity and the anonymous person,
as when internet service providers have been allowed to contest
efforts 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, the
justice noted, nor is he alleging that those persons are unable to
protect their own interests.

 

The case is Matrixx Initiatives, Inc. v. Doe, 06 S.O.S. 1967. 

 

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 07 Feb 07 11:23 AM Modified By motzu  on 5/22/2007 2:36:54 PM)

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.

 

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 16 Apr 07 4:38 AM Modified By motzu  on 5/22/2007 2:21:36 PM)

NAKED SHORT SELLING



To get a handle on the concept of naked short selling, one has to
know a little about the steps and players involved in the processing
of a buy order on the OTCBB and Pink Sheets.



Step 1: The purchaser either calls his broker on the phone or reaches
his brokerage firm on the Internet. Let's assume he decides to buy a
1% interest in a penny stock that has 100 million shares issued and
outstanding. The buy order is thus for 1 million shares. Let's assume
the buy order is "at market".



Step 2: The broker on the receiving end of the order then writes up
the buy order and places the order on his firm's "Trading desk".



Step 3: Assuming that the firm does not make a market in this
security, they will hand the order on to a market maker that does.



Step 4: This buying market maker will then either go to the selling
market maker showing the lowest offer or to a favorite market maker
of his and ask him to match the lowest offer. The trade is executed
between the buying and selling market makers at the agreed upon
lowest offering price.



Step 5: Assuming the buying and selling brokerage firms are small and
do not have the facilities to "clear" the trade, they then send the
details 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 purchase
price from their "cash" account to that of the selling clearing firm
in exchange for the selling clearing firm wiring the 1 million share
block from their "shares" account to the buying clearing firm's
"shares" account. This is called "Delivery versus payment". The
buying brokerage firm then sends out both a trade confirmation and a
monthly statement to their client, the buyer of the 1 million shares,
indicating that he does indeed "own" the 1 million shares, what he
thinks 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 bring
the buyer and seller together. This basically is an over-simplified
explanation of the system used on these trading venues, the OTCBB and
the Pink Sheets. Selling market makers do not really have to have a
sell order in hand to sell securities. Their job is to provide
liquidity and to buffer the market from sharp peaks and deep troughs
when an imbalance of buy or sell orders appears.



The phenomenon of illegal naked short selling (INSS) is a form of
market manipulation/securities fraud that can be perpetrated at any
step in the process. A legitimate short sale involves the seller
following the letter and spirit of Rule 10(a)1, "The short sale
rule". It involves the selling firm making "affirmative determination
in writing" that the shares being sold are indeed "borrowable". It
also prohibits short sales on a downtick. The borrowed shares are
later returned. In illegal naked short selling, the shares were not
only not borrowed, but they never did exist in the first place. They
were created out of thin air. The legal term that describes this
fraud is that the perpetrators created an "Artifice to defraud" the
purchasers 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 purchasers
of shares on these trading venues do not request the registration and
home delivery of their shares. They see an entry on their monthly
brokerage statement and have no reason to question its validity.



The second prerequisite is the fact that brokerage firms do not
monitor for the "good delivery" of shares purchased by their clients
as mandated by "The Customer Protection Rule" or Rule 15 (c) 3-3.
With the presence of these two prerequisites as being the "norm" on
these trading venues, clever opportunists have realized that they can
sell nonexistent shares through Canadian margin accounts, in an
undetected fashion, and thereby assume a "naked" short position.



This followed by the subsequent selling of yet more nonexistent
shares tends to result in a precipitous drop in the share price, a
share rollback of the victim corporation and its disastrous loss of
market cap, or the outright bankruptcy of the victim corporation
which 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 the
taxman.



The typical naked short selling campaign or "bear raid" results in
the death of the victim company within a 6 to 9 month period. The
management teams and investors are often left scratching their heads
wondering what hit them.



A variety of other preexisting conditions are present on these
trading venues that allow this fraud to be perpetrated with little
chance of detection. One of these is the inherent inability of a
public corporation to communicate with its shareholders holding
shares in "Street Form".



The advent of the Internet has helped somewhat though. Statistics
show that 8 of 10 companies trading on these 2 trading venues, the
OTCBB and Pink Sheets, will die within their first three years of
existence. These thinly traded and under-capitalized companies are
often no more than "shell" companies whose existence was designed to
line the pockets of their creators. The level of chicanery on these
trading venues is distinct and the investment community knows about
it. When the Vancouver Stock Exchange drastically buckled down on
fraudulent behavior several years ago, the scamsters headed south of
the border to the OTCBB and Pink Sheets.



The above statistic of 8 of 10 failures combined with the knowledge
of the massive amounts of "pump and dump" programs in effect has
caused the investment community to collectively look upon these
companies as "future bankruptcies". This mindset leads to certain
behaviors among those opportunists that have visibility of buy orders
for these "future bankruptcies".



When a buy order for one of these presupposed "scams" lands then the
entire investment community has their antennae up and a certain
"feeding frenzy" occurs wherein the investment "professionals" fight
amongst themselves to be the one to naked short sell into this buy
order. Also these trading venues have very little supervision by the
regulators who are strapped for cash as well as manpower. There
really 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 needs
regulators though when you have naked short sellers determining which
corporations are "scams" and systematically annihilating them? The
markets themselves have no visibility whatsoever to investors, even
those with "Level 2" machines, and market makers pretty much can do
what they please. If a market-making firm is selling 50 million
shares per month of a certain victim company and buying only 2
million 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 these
opportunists by the boatload. Investor naiveté is also a cornerstone.
Very few people, with the exception of the perpetrators of this
fraud, know how this game is played. The inherent confusion involved
with millions of trades settling at any given time creates a certain
cloud of dust that can obscure the perpetration of this fraud. There
is no "Day of reckoning" for these trades. The IOUs just fly around
in Cyberspace and never seem to land. It becomes incumbent on the
victim corporations to call a "Legal time out" to get a peak at these
IOUs. There is a certain psychology involved also that is inherent to
some naked short sellers. They think of themselves as self-appointed
sheriffs trying to rid the wild west of companies they diagnose as
scams.



If their diagnosis is incorrect then it usually doesn't make much of
a difference anyway because they will bankrupt both legitimate and
scam corporations. Bankrupting legitimate corporations is seen as
"collateral damage" which occurs in any war. Brokerage firms hosting
the accounts of "Offshore Corporations", especially those located in
the tax havens, do not follow the "Know Your Customer" rules. A
commission is a commission.



The "Patriot Act" is buckling down in this regard and brokerage firms
are to be on high alert for suspicious money flow activity. For those
in need of laundering the proceeds of illicit activity, naked short
selling provides a handy way to launder that 200% margin maintenance
requirement attached to naked short sale orders for especially penny
stocks.



Actually the crimes of naked short selling, wire fraud, money
laundering, and tax evasion go hand in hand on these venues. Another
key preexisting condition is that market makers are not forced to
make public their naked short positions on a monthly basis as they
must on the more senior exchanges. This is yet another example of the
lack of transparency on these trading venues. As far as the Pink
Sheets go, there are basically no demanding standards to match or
surpass in order to be granted membership.



Another contributing factor has to do with the fact that input into
the DTCC comes solely from the broker/dealers. Any picture that the
brokerage firms want to paint regarding the disposition of a
corporation's shares can be painted at will. The fox is guarding the
henhouse.



All of these factors combined form an environment within which this
fraud can be perpetrated with very little risk of detection. If the
laws were to drastically change tomorrow then these same fraudsters
would just tweak their modus operandi accordingly and not even miss a
beat.



THE MECHANICS OF NAKED SHORT SELLING



Referring back to the 6 steps involved in a "model buy order", one
can see the myriad of ways available to naked short sell into this
purchase order. The first individual with a shot at this opportunity
is 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 buy
order by picking up the phone and placing a matching sell order,
usually through his own non-U.S. margin account, into the market at
an opportune time.



The more common technique used at this level is the broker picking up
the 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 business
coming his way from those he is scouting for. Manipulations at this
"Step 1" level are relatively rare but do occur especially when the
broker receiving the call works in a Canadian Brokerage Firm where
the naked short selling rules are more lax.



Step 2 level manipulations are fairly common and they involve the
broker receiving the phone call writing up this buy order and setting
it on his firm's "trading desk". The trader processing this buy order
has 3 main mechanisms to utilize in order to avail either himself or
a colleague of his to this wonderful opportunity to naked short sell
into this buy order for shares of this "future bankruptcy".



The first modality involves the trader picking up the phone to his
personal broker at a Canadian firm and having him feed in a naked
short sell order for a matching amount of shares at an opportune
time. He can also naked short sell into the order right at his
trading desk, a process called "desking", which places the naked
short position into a "proprietary account" of his own firm. This
practice 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 this
wonderful opportunity and give them a "heads up" to the fact that a
buy order is about to enter the system.



Step 3 involves a heretofore unmanipulated buy order being sent to a
buying market maker from the trading desk of the firm receiving the
buy order. There is an intrinsic reality in this relationship between
the market maker and its client, the buying brokerage firm, that is
critical to understand. The buying market makers need the order flow
from the buying brokerage firms. It is their lifeblood.



When presented with a buy order, the buying market maker often has to
naked short sell into the order just to keep his client brokerage
firm happy with his services. The buying brokerage firm wants rapid
execution of the buy order in order to get their hands on the
commission. Since the stock of these companies is usually very thinly
traded, oftentimes there are no sellers around to satisfy the demand
for shares. The market maker is expected by his client to "perform",
which means to continuously naked short sell into buy orders
presented 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 immense
naked short positions just in the course of their business. Their job
is to provide liquidity to these illiquid markets. Where the crimes
are often committed at this Step 3 level is in how the market maker
handles this predicament he has gotten himself into. On the other
hand, there are certain market makers that blindly naked short sell
into each buy order on these trading venues that crosses their desk.



Market makers have literally dozens of ways to cause harm to these
corporations that they "accidentally" ran up an immense naked short
position against. These vary from continuing to naked short sell into
every buy order that appears, effectively neutralizing these buy
orders, to contacting naked short selling consortia to lend them a
hand in killing the company. There is an endless list of market
manipulative techniques to employ.



These Step 3 manipulations are the single biggest component of the
overall naked short selling campaigns. Market makers are incredibly
powerful in these campaigns in that they are legally allowed to naked
short sell "while acting in the capacity of a bona fide market
maker". Not only this but they don't have to reveal the size of their
naked short positions to anybody. The "Short Sale Rule", Rule 10 (a)-
1, does not apply to the OTCBB and Pink Sheets. Step 3 manipulations
involving these buying market makers are collectively known as "The
Wall". Very few buy orders make it over this wall and find a "real"
seller.



Step 4 manipulations presuppose that the buying market maker behaved
himself and went into the market and filled that buy order by
approaching the market maker with the lowest offer price or a
different 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". They
know only too well which brokerage firms and other market makers to
approach 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 naked
short sell without having to file a Form 15(c)2-11.



The same games are played with these selling market makers, but the
height of the wall is a little less. Ethical selling market makers
may or may not have a "real" sell order in hand. Oftentimes they will
naked short sell into a buy order and then go on the bid to attempt
to level out this now naked short position. If they accidentally dug
themselves into a hole while servicing clients then they may sit on
the offer all day and naked short sell into every buy order that
appears. The lack of visibility that these markets provide to
investors allows extremely manipulative techniques to go undetected.



Step 5 presupposes that both the buying and selling broker/dealers
are not self-clearing. The clearing firms are in a unique position to
orchestrate these manipulations behind the backs of
their client brokerage firms.



Step 6 manipulations occur in and around the DTCC. The back office
policies at the DTCC have long been ascribed the role as the problem
here. Activities at the "Lending Pool", both of the Canadian
Depositary Service and the DTCC also provide opportunities to both
add yet another layer of manipulations as well as cover up earlier
manipulations. All of the input into the DTCC is, of course, from the
brokerage community. When attempting to drain this "lending pool" of
its contents, careful attention must be paid to those shares held in
Canadian Brokerage Firms because the level of chicanery here is
alleged to be extremely high.



One can now get an appreciation for the nearly limitless
opportunities available to attack one of these corporations during a
"bear raid". A very small percentage of buy orders actually meet up
with a "real" seller selling "real" shares. There is just too much
money to be made taking on naked short positions and then killing
companies. From a risk/reward point of view the chance of detection
is infinitesimally low and the rewards are abundant.



The ability to sell nonexistent shares in an undetected manner
provides for a self-fulfilling prophecy of sorts. The victim
companies find it necessary to finance their "burn rate" at
artificially low levels, which leads to massive dilution. If the
company were fortunate enough to actually have earnings at some
point, they would be diluted so badly that it wouldn't even matter.
Of all of the varieties of securities fraud in existence, and there
are many, naked short selling campaigns are usually thought of as the
"manipulation of choice" providing the most favorable risk/reward
ratio.



Since the "model buy order" that executed all 6 steps results in an
exchange at the DTCC of cash for shares between the buying and
selling firms, any "short circuiting" at any step would prevent this
exchange from happening. In order to exchange cash for shares you
need 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 first
damaged the company by artificially diluting it, and then he sold
this damaged bill of goods to his client.



One might ask, "Well then where is the buyer's money?" The buyer's
money is in the hands of his own brokerage firm. The same people he
just paid a commission to and that have a fiduciary responsibility to
him. Since there was no "good delivery" of shares made to the buying
brokerage firm in exchange for payment, ("Delivery versus payment"),
the check never left the coffers of the buying brokerage firm. There
never was a "real" seller into whose pocket the cash should have
gone. In Wall Street parlance, the buying brokerage firm has a
"Failure to receive" on their books. All of the intermediate
brokerage firms have both a "failure to deliver" and a "failure to
receive" on their books except for the manipulating party itself, he
would just have a "Failure to Deliver" on his books. The IOUs just
travel through cyberspace and never get addressed.



Everybody owes everybody else and as long as nobody puts their foot
down and demands delivery then this will be the status quo. So why
don't all of those firms with all of these "Failures" on their books
rectify matters and level up their positions. "The Customer
Protection Rule" (Rule 15 © 3-3), clearly states that the buying
brokerage 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 buying
brokerage firm itself that is the crook. How can you buy yourself in?
The sobering reality is that all of the brokerage firms in their
various roles in this buy transaction will make a ton of money if
NOBODY forces anybody to deliver. That would wreck this whole
wonderful low risk/high reward game, and nobody wants to do that.



The question now becomes, "What is that entry in my monthly statement
all about if there never were any shares purchased?" We refer to
these entries as "BEEs" or "Bogus Electronic Entries". Their purpose
is to give the buyer a certain comfort level so that he never
suspects any fraud. It also serves to cover up the fact that the
buyer's money is actually in the coffers of his own brokerage firm,
and being lent out or invested by them. The investor who bought
nonexistent shares from his brokerage firm or whomever, was the
victim of a "Double Whammy". Not only did he not get the 1% ownership
that he thought he was buying, he actually got a much lesser
percentage of a company that he might not even recognize, one that
perhaps he would have never bought the shares of if he had known the
truth.



This company might have 100 million "real" shares issued and
outstanding according to its Transfer Agent, but it may also have 500
million bogus electronic entries in existence. The bad news here is
that all 600 million "shares" of this company can be sold tomorrow.
An interesting phenomenon occurs when this investor holding the bogus
electronic entry decides to sell his shares. After all his broker
can'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 you
want to sell, your broker is going to sell this "Bogus Electronic
Entry" or "air" to some unsuspecting investor, who in no way shape or
form 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 suspects
anything and those monthly statements keep coming, then this little
secret will never be revealed. The stock itself will trade like a big
overweight whale, and buy orders of a significant size will not nudge
the price one iota because of all of those "extra" shares that can be
sold at any time. Should bad news be released a market massacre might
ensue.



Typically the financiers of the company will fatigue and stop cutting
checks, deeming that any more checks cut may be good money after bad.
They will assume that all of that selling must be coming from
somewhere 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 and
nobody will ever know the reality of what was going on.



The transaction that this investor took part in actually created out
of thin air a new million shares of stock. These shares can be bought
and sold at will. They will never be detected by anybody as being
fake, because of the lack of a "Day of reckoning". The company in
question will show 100 million shares being owned at the DTCC by
various firms if everybody leaves them in "Street Form".



If you, however, stack up all of the monthly statements of all of the
shareholders for a given date, and add them up, you will come to the
total of 600 million "shares" being "owned", not 100 million. The
absolute size of naked short positions actually have a tendency to
increase in an almost geometric fashion because the larger the naked
short position, the larger the potential losses to the naked short
sellers should something go awry. This increases the incentive level
to kill this corporation. Long-lived "Bear raids" are very scary to
naked short sellers and demand special "weapons and tactics".



The brokerage firms that perpetrate this fraud cover it up by
breaking yet more laws. By law the purchase confirmation mailed to
the buyer of the "shares" was to indicate to the buyer the capacity
within which his broker acted. Typically the brokerage firm will act
as an "agent/broker" and charge a commission.



In Step 1 and 2 naked short selling, however, the brokerage firm
actually acted as a "principal/dealer" and actually charged what is
known as a "markup". If the brokerage firm were to indicate this
capacity under which it actually acted, then the investor might
question what this "principal/dealer" business is all about. Since
the brokerage firm does not want the investor to know that they naked
short sold him this "air" and that they were sitting on his money,
they will just lie on the confirmation slip as to the capacity in
which they acted.



The question is often asked as to when the "day of reckoning" occurs
wherein these bogus entries must be made good upon. The law lists
three different "days of reckoning". The "Customer Protection Rule",
Rule 15(c)3-3, mandates that the "Failure to receive" certificated
shares that were purchased in a transaction, are to be "bought in" by
the purchasing brokerage firm on the 10th business day past the
settlement date (T plus 3). The law also states that the selling firm
in this transaction is to buy-in their client doing the selling if he
hasn't produced the certificate within 30 days of settlement.



The law further mandates that brokerage firms buy-in failures to
receive and deliver within 45 days of filing quarterly reports that
noted these "Fails". With the absence of Rule 10 (a)-1, "The Short
Sale Rule", having any application to the OTCBB and Pink Sheets, the
Customer Protection Rule is the only line of defense left against
this fraud but it is ignored almost 100% of the time. There is just
too much money to be made while ignoring it to turn down.



Investors becoming educated as to the nature of naked short selling
and demanding the registration and home delivery of their shares has
to be the cornerstone of the effort to end the perpetration of this
fraud.



Since all 6 steps need to be completed in the "Model buy order" in
order to match up a "real" buyer with a "real" seller, all of these
manipulations at the various steps along the way result in the
creation of new shares which exist in the form of a "bogus electronic
entry". These cause massive dilution of a corporation's share
capital, which has a depressant effect on the share price.



Since all financings of these corporations are tied to these
artificially depressed prices, the dilution problem is further
exacerbated. All corporations have to cover their monthly "burn rate"
just to keep the lights on. This accelerated dilution rate is a
constant source of discontent with shareholders. They not only see
the price per share evaporating, but their percentage ownership of
the corporation is also dwindling due to the artificially high
dilution levels.



The resultant loss in shareholder morale throws yet more fuel on the
fire of this company's problems. Again there is a bit of a geometric
progression in the company's problems as opposed to a more linear
arithmetic progression. Due to the inherent nature of this animal
called naked short selling, the playing field becomes so tipped in
favor of the racketeers that one wonders how any corporation could
survive.



SELL SIDE NAKED SHORT SELLING



The same games can be played in the absence of a buy order from the
sell side of the equation. Sophisticated naked short sellers
typically work out of offshore corporations located in tax havens
around the world. Banking secrecy laws in these havens help to
prevent detection of the identity of the actual perpetrator of the
fraud. If one is going to break 20 or 30 securities laws then one
might as well do it in an anonymous fashion.



The modus operandi usually has an offshore corporation "A" setting up
a 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 shareholder
being Corporation "C" in yet another tax haven.



For the victim company to attempt to identify Corporation "C"'s owner
would now cost a fortune and take a great deal of time. These victim
companies have neither. During this past February, non-U.S.regulators
discovered the existence of 13,00 of these offshore corporate
accounts amongst non-U.S.broker/dealers. Corporation "A" will now
start 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 that
this offshore corporation doesn't own any shares, but they can always
play dumb later on should something go awry. Besides there's some big
commission money to be made. The non-U.S.Brokerage Firm will
typically insist on a 150% to 200% margin maintenance requirement.
The naked short selling of penny stocks is inherently dangerous and
the broker/dealer needs to be protected. It is extremely easy to
"Scuttle" an offshore corporation should the plan backfire and the
non-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 main
incentives to break the law and take the order. The first is the
commissions generated. The second is the use of all of that money
placed for margin maintenance requirements, and the third is the
visibility of large sell orders providing opportunities for "front
running".



One technique the non-U.S.Brokerage Firms utilize is known as the
"Hot Potato" technique. Firms are often allowed to keep a naked short
position on the books for only a 10-day period after which fines may
be levied. After 9 days a firm carrying a large naked short position
can hand that position off to a "Buddy" brokerage firm like a hot
potato. After another 9 days it may go to a 3rd firm or back to the
original firm. If it gets too burdensome then it's off to a friendly
hedge fund for long term "storage".



Non-U.S.OFFSHORE ACCOUNTS



Who are the typical holders of these non-U.S.margin accounts used for
perpetrating this fraud? Offshore hedge funds are the most powerful
of these groups. Hedge funds with less than 100 participants do not
need to follow the rules and regulations dictated by The Investment
Company Act of 1940. This provides both anonymity and lack of
liability for the participants. Hedge funds typically contain the
money of deep-pocketed players not averse to risk. Large market
making firms as well as other Wall Street entities own significant
positions in these hedge funds and can count on them when caught in a
pinch. Hedge funds account for a very large percent of this naked
short selling activity. The Senate Finance Committee is currently
investigating the relationship between hedge funds and naked short
selling.



Various naked short selling consortia are in existence around the
world. They pride themselves on their due diligence capacities and
they 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 disciples
on the choice of non-U.S. Brokerage Firm to set up a relationship
with. Usually a firm with a Head Compliance Officer that is willing
to turn his head the other way a lot. These groups will typically
have 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 OTCBB
and Pink Sheet stocks actually "trade" on subdivisions of various
markets over there, totally unbeknownst to management. Not
unexpectedly 99% of the trades are "sells".



One aspect of this business that has recently been revealed is how
these various naked short selling groups communicate and collude with
each other. If one group is having a tough time killing a company and
their intent is becoming very obvious, then they will hand the baton
on to their co-conspirators to help polish off the corporation. This
is a very scary thought. These people are incredibly deep-pocketed in
the first place.



"PILING ON/FRONT RUNNING/TRADE PADDING"



An interesting phenomenon often occurs when the non-U.S.broker/dealer
first gets visibility of a large sell order. Let's assume that it is
a 20-million share sell order of nonexistent stock "at market" to be
executed in two weeks time. The typical source of a sell order like
this might be a market maker with a hedge fund connection that
"accidentally" got into a large naked short position while servicing
a valued client.



Knowing that this sell order is going to severely depress the victim
company's share price, the non-U.S.broker/dealer will often put in
their own sell order of maybe 10 million shares and process it before
processing the 20 million share sell order. The offshore corporation
can't exactly point an accusing finger should they detect the front
running 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 will
often front run this 30 million share sell order with a 10 million
share sell order of their own making. They know all too well what a
30 million share sell order will do to one of these thinly traded
securities. Thus a sell order of 20 million nonexistent shares has
now grown to 40 million nonexistent shares.



This elucidates the "Self fulfilling prophecy" aspect of naked short
selling. Unsuspecting shareholders will pay "real" money for all 40
million of those shares and not suspect any hanky-panky at all. How
could a monthly statement from one of these prestigious Wall Street
firms be telling a lie?



Thus naked short selling can work from left to right through the
various steps involved in the processing of a buy order, in essence
"neutralizing" the up ticking effect on share prices caused by buy
orders, or from right to left with the introduction of massive sell
orders of nonexistent shares.



DEATH SPIRAL FINANCINGS/TOXIC FINANCINGS/FLOORLESS CONVERTIBLES



A close cousin of naked short selling involves a form of predatory
financing called "Death Spirals". Companies in dire need of
financings are often forced, by necessity, to trust that financiers
will not pre-sell their equity financings in an effort to clobber the
market and then convert for a very large number of shares at
artificially low prices. These financings are based on fixed dollar
amounts of conversions and not a fixed number of shares. A riskier
form of death spirals involves potential financiers dumping tons of
shares before even cutting a deal for a financing. Conventional death
spirals are actually a form of "temporarily naked short selling"
because the shares are forthcoming but usually restricted by Rule
144.





RECENT DEVELOPMENTS WITHIN THIS "INDUSTRY WITHIN AN INDUSTRY"



Within the past two years the world of naked short selling has been
changed forever. Four separate events have rocked the world of the
naked short sellers. Since the secrecy of the modus operandi is so
important to these people, the headlines caused by these Four events
is not welcome at all by the perpetrators.



The first event was the arrest of Anthony Elgindy and the exposure of
his methodologies of naked short selling utilizing the services of
two allegedly corrupt FBI agents. Elgindy and his huge following have
allegedly been one of the pillars in the naked short selling
community.



The second event was the sudden bankruptcy of the non-U.S. Brokerage
Firm which has been the alleged "headquarters" for naked short
selling worldwide.



The third event was the arrest of the CEO of this firm for attempting
to naked short sell $30 million worth of three companies' shares to
an undercover FBI agent. The fourth event was Operation Uptick,
revealing the incestuous linages between organized crime and
reputable brokerages in the U.S. The "Winds of Change" do seem to be
blowing a bit, and it wouldn't take much of a breeze to knock down
this "House of cards" the naked short sellers have built.



The significance of these events is not just getting these
individuals and institutions out of commission. The real importance
is the education that the public needs to receive in regards to naked
short selling as these trials and bankruptcies go forward. Again the
secrecy factor is the key to naked short selling. If the investing
public knew what was going on behind the scenes on the OTCBB and Pink
Sheets, then the uproar caused could mushroom into a total lack of
confidence in this system, which is already on its knees after the
Enron and Anderson debacles. If this knowledge did become
commonplace, then at least one of the main two prerequisites, that of
not registering and demanding delivery of shares, might be
eradicated.



Several non-U.S.Brokerage Firms were recently sued by clients for not
delivering the share certificates that he had demanded the delivery
of. He had obviously been naked shorted the shares by both firms. In
their statement of defense, the attorneys for the firms claimed that
it was the actual client of theirs doing the naked short selling that
owed the share certificate to the client/buyer and not the firm. The
Customer Protection Rule would obviously beg to differ. This is a
typical example of the mentality of the non-U.S.Brokerage Firms.



The non-U.S.Regulators have "lowered the boom" on the behemoth BMO
Nesbitt in regards to "Serious Know your client deficiencies" and
"Failure to supervise brokers". Many of those 13,000 "offshore
corporate" accounts have tens or even hundreds of millions of dollars
playing the naked short side of the market. A broker managing these
accounts is supposed to look into the sources of these funds to rule
out any illicit activity like money laundering.



In the U.S. the Patriot Act demands that brokers scrutinize these
funds and file "SAR"s (Suspicious Activity Reports") when illicit
behavior is suggested. This was implemented mainly as an anti-
terrorist funding measure, but hopefully will spill over into keeping
in check naked short selling. The dynamics of bringing to the
public's attention this insidious disease of naked short selling, has
never been more exciting than at the present. The public is being
immersed in learning the mechanisms of action of the Elgindys, the
Valentines, the Thomson Kernaghans, these 13,000 offshore corporate
accounts, money laundering, tax evasion aspects, etc.



LONG TERM SURVIVORS



An important aspect of these naked short selling wars is the length
of time that the victim company has been under attack. When these
naked 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 a
chance because of the vicious nature of naked short selling. The lack
of assets of the company will be exposed and announced from the
mountaintops.



What are interesting are the battles that ensue when these "gurus"
misdiagnose a "real" company with "real" assets as a scam. The naked
short sellers will still be able to knock the market cap down by 99%,
but often it becomes tough to "Kill" the company. Investors that know
that the company has the goods can sit back and buy shares at a tiny
fraction of book value and thereby average down their previous
purchases. Since the size of the naked short position is of a
cumulative nature, increasing with the age of the battle, a point is
reached wherein the naked short sellers cannot afford to cover this
massive naked short position without driving the share price to the
moon. This is when the games get really dirty because hundreds of
millions of dollars are now up for grabs, winner take all.



THE DAMAGES



One has to wonder how many young micro cap corporations with great
promise have been snuffed out while in this incubator of the OTCBB
and Pink Sheets. Have we missed out on any potential cures for cancer
or high tech breakthroughs? What happened to the dreams of all of
those entrepreneurs who put every penny they had into their private
companies in preparation for going public, and then getting massacred
once public?



RECORD KEEPING AT THE DTCC



For an annual fee of $1,850, a corporation can receive from the DTCC
a weekly update as to the number of shares that each of the brokerage
firms on Wall Street have for a given corporation in their "Shares"
account. Keep in mind they all have "cash" accounts also. The problem
with these lists are two-fold. They only reflect the number of shares
for which "Good Delivery" was attained. They also don't address
whether or not that brokerage firm owes any shares to a common "pool"
of shares there available to any broker/dealer in need of quick
shares. If for example the weekly DTCC Summary states that a broker/
dealer has 1 million shares of a given corporation's stock in their
account, this must be compared to the sum of all shares being
reflected as owned in the monthly statements of that firm as mailed
out to their client/shareholders. Let's assume this total is 4
million shares. The difference between these two figures can be
characterized in several ways. The difference represents: 1) The
naked short position of that firm, 2) The number of shares bought by
that firm for which "Good delivery" did not occur, 3) The number of
"Bogus electronic entries" that firm has on its books and that gets
mailed out every month.



Wall Street can camouflage very well the number of shares represented
by the sum of all shares being reflected as owned in monthly
statements. An indication of this number can be attained by a
corporation receiving its "NOBO" list or list of non-objecting
beneficial owners. To this number must be added the number of shares
owned by "OBO"s or objecting beneficial owners. When a person signs
up for a brokerage account he is asked to check a box denoting
whether or not the company in which he owns shares of has the right
to know of his shareholdings. If he does not object to this, then he
is a "NOBO". The "NOBO" lists are available from ADP Brokerage
Services Group at 1-888-237-1900.



When a person adds the total shares held of a given corporation at
the DTCC to the number of shares held by "Registered" shareholders in
safe deposit boxes, the sum will equal the issued and outstanding
number of shares of that corporation exactly. So at first glance, all
seems to be in order until you realize that the DTCC list only
represents "Good deliveries" which on these trading venues is the
exception and not the rule. And so the fraud is perpetrated on and on
and on.



In regards to the "Pool" of shares held at the DTCC that is available
in the case of an emergency, this was allowed by Addendum C- (1) of
the NSCC's (National Securities Clearing Corp.) rules and regs. They
were taken over by the DTC several years ago, the amalgamation of
which formed the DTCC. The Lending Departments of a firm monitor
things here and are one of the biggest profit centers in any firm.
From a practical point of view, until this pool is 100% empty of
shares, don't expect any upward pressure on share prices due to the
borrowing ability provided by the pool. Once it is empty, however,
each further demand for the registration and delivery of shares
should 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 a
company has 70 million shares at the DTCC and a naked short position
of 500 million shares, then all the company has to do is create a
situation that withdraws 70 of 570 million shares available to be
withdrawn. As was stated earlier, all of the brokerage firms
represented along the chain of events of one buy order are HIGHLY
incentivised not to demand the correction of those "Failures to
receive and deliver". In order for this to occur, the shareholder and
the issuer must be educated as to how this game is played

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 20 Jun 07 11:41 AM Modified By motzu  on 6/20/2007 11:43:09 AM)

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 

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 23 Jun 07 6:32 AM Modified By motzu  on 6/25/2007 5:14:59 PM)

No You’re Not Paranoid, The SEC Is Out To Get You
Melinda 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.

 

motzu
125 posts
5th
Joined
1/29/2006

Re: Confessions of a paid basher
Posted: 25 Jun 07 5:24 PM

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

 

 

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