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Hedge Fund Laws...

Hedge Fund Lawsuit 2 of 2

mhatmccane

409 posts

Joined
1/20/2006

Hedge Fund Lawsuit 2 of 2
Posted: 14 Apr 06 9:18 PM

LAWSUITS TARGET NAKED SHORTS - II by: smoothjazz0204	04/13/06 04:10 pm Msg: 422846 of 423128
Sometimes, especially with illiquid or highly shorted stocks, there is an imbalance, and the shares "fail to deliver." If the trader executes the short sale without possession of the shares, that is known as naked short-selling. Hedge funds have grumbled for years about paying high fees for hard-to-locate stocks only to find that they were never delivered, even after the trade was executed. The crux of Wednesday's lawsuit isn't that naked short-selling is bad, it is that traders are being taken advantage of by a vast conspiracy among the prime brokers to keep up this façade of phantom trading while charging high fees for no service. "Defendants effectively operated in a tag-team fashion--rotating in the roles of prime broker, clearing agent or counterparty that enabled the short sale transaction to go forward without the expectation of delivery," the complaint says. Representatives of the banks named as plaintiffs in the suit either had no comment or did not return calls seeking comment. The complaint does not name money damages for ETG, but it does put the time period from April 2000 to the present. The complaint also doesn't mention specific short sales for which ETG was charged a fee but the shares were not delivered. The U.S. Securities and Exchange Commission has been studying the issue of naked short-selling and even instituted new regulations in January 2005 that require the stock exchanges to report stocks that routinely fail-to-deliver. Companies like Martha Stewart Living Omnimedia and Overstock.com have been on the so-called SHO list practically since the beginning. Overstock.com Chief Executive Patrick Byrne has tried to put a spotlight on naked short-selling. Attorneys not connected with the Entwistle or Milberg firms say the suits could potentially hit Wall Street for billions of dollars if the accusations of collusion and unfair pricing can convince a jury that damages are warranted. And the issue could attract the attention of state and federal regulators, as hedge funds increasingly manage money for pensions and other institutions who manage money for ordinary investors.
Posted as a reply to: Msg 422845 by smoothjazz0204

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Specific Stocks

Novastar Financial, Inc (NFI)

Hedge Fund Laws...