HOME
Message Board
CURRENT COLUMNS
- Editor's Corner
- Blogfest 2005
- Commentary
- Commentary Too
- Down The Middle
- Faulking Around
- Global Warning
- This guy walks into a bar...
- Investing 101
- Faulking Opinions
- Off The Rail
- Words
ARCHIVES
LINKS
CONTACT US
 | |||
Investing 101 - May 25, 2005 - Printable Version
- Ninety-Four Trade Days and Counting
by Dave Patch
How long is the SEC willing to allow Wall Street stock manipulation of our Investments? Ninety-four trade days [5 calendar months] and counting by the records provided. On January 7, 2005 the major market centers were required by law to publish a list of Issuers who had excessive trade settlement fails on the books through the Depository Trust CNS Settlement system. The list was dubbed a “threshold list” and the law was Regulation SHO.
On January 7, 2005 that list contained names of over 300 NASDAQ, NYSE, and AMEX Companies.
Ninety-four trading days later, 23 companies from that original list remain entrenched. Most of these 23 companies have suffered significant double-digit losses in stock valuations over this period of excessive settlement failures. Companies like Delta Airlines, Krispy Kreme, Global Crossing, Martha Stewart Living, TASER, Netflix, and Cal-Maine are samples of those listed companies seemingly never to be free of the oversold burdens of excessive settlement failures.
When questioned about certain aspects of Regulation SHO, the SEC’s Division of Market Regulation arrogantly mocked investor concerns hinting towards investor ignorance and greed. The Investor concerns stem from the possible illegal actions of the SEC to “grandfather” past settlement failures from the mandatory closeout provisions of past and present law. “Grandfathering” fraud!
In March 2005, Euromoney Magazine published a story on naked shorting whereby James Brigagliano, Asst. Director of Market Regulation responded to the issue of grandfathering fails stating “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.”
Never once did Mr. Brigagliano address the legal nature of those large pre-existing open positions that have been on the records of the DTC for 6, 8, 10 months or greater. Brigagliano wanted to start fresh. So does Ken Lay but he can’t.
Apparently the SEC has no concerns about those large pre-existing fails and how they impacted past performances of these securities. Brigagliano is only concerned about creating upside volatility. I thought upside was good for the economy. As for re-writing history, that is what the SEC does. They go back into history, identify past sins, and take enforcement action on those sins. The SEC, over the years, has never proven to be distinguished for their proactive nature.
Mr. Brigagliano, while probably well educated on his own behalf, was schooled by a pro. His teacher would be none other than Annette Nazareth, SEC Director of Market Regulation and wife of U.S. Federal Reserve Vice Chairman Roger Ferguson.
Ms. Nazareth was quoted in a New York Times article in February belittling concerned investors almost challenging their ability to have a lucid thought. To Floyd Norris, Ms. Nazareth stated that the rule was aimed at assuring that new naked shorts will be cleaned up relatively quickly. Some people, she said, "are very disappointed that the impact of this rule was not to make these stocks go up."
To a layman these comments appear benign but read carefully what Ms. Nazareth has stated “Aimed at assuring new naked shorts will be cleaned up relatively quickly” and they are far less benign. What about the “old naked shorts”? The naked shorts that amassed into Mr. Brigagliano’s referenced “large pre-existing open positions”? The naked shorts that have resulted in issuers remaining on the Regulation SHO threshold list for 94 consecutive trading days and counting. Certainly 94 trading days are not very quick when the law requires all trades to settle in three trading days.
Personally, I think Ms. Nazareth’s aim was off and off on purpose. There was a desire to protect in the newly released regulation and I am not talking about protecting investors. The Regulation should have been poised to address past fraudulent acts and to curb future occurrences. It didn’t.
As for victim’s sole desire for stocks to move up, she again demeans our intelligence. It was Ms. Nazareth after all that proposed Regulation SHO to the Commissioners claiming illegal naked shorting existed and was harmful to investors. If Ms. Nazareth is going to claim it exists, she can at least have some compassion for the victims of the fraud she admits takes place. Yet, instead of compassion she mocks the victims. A true class act!
For the record, all the victims ever asked for was the proper settlement of trades. If that means prior wrongs in depressed market manipulations would be corrected so be it. If not, so be that as well. Settlement of trades is the law after all and all victims are asking for. Ninety-four trade days and counting!
Now fast forward.
Recent events taking place at the SEC and NASD Enforcement Divisions are identifying Hedge Funds as active participants in illegal shorting practices. Wall Street firms such as SG Cowen and Co. and Friedman, Billings, and Ramsey (FBR) are also being named in illegal shorting. FBR and Hedge Fund Manager Hilary Shane are allegedly responsible for shorting Compudyne stock in 2001 resulting in greater than the entire public float being pooled into settlement failure status. Shane conducted 975 separate transactions alone that failed settlement. In 2001, as victims complained, the SEC laughed at the victims. Today they enforce the fraud.
Ms. Nazareth and the SEC watched it happen and only now are seeking enforcement because of those “complaining investors.” Nazareth mocks those that forced the agency to react. The term credibility comes to mind.
Ultimately the SEC is only placating the real problem. These actions being undertaken involve 2001 stock manipulations, not ones still on the books. SG Cowen, FBR, and Hilary Shane were only evaluated on a single 2001 event. Nothing recent was under investigation. According to Larry Thompson, Deputy Chief General Counsel for the Depository Trust present settlement failures occurs at an alarming rate of $1 Billion daily. That is with a “B.” The best we can imagine is that we expect 2009 enforcement actions on these abuses? By then the victims really will be damned.
Even those in the Industry and Congress know what is taking place.
In a Reuters article last Friday regarding the Hedge Fund illegal shorting practices, and most recent enforcement activities, the article had this to say. “What is perhaps an indication of how widespread the practice is, the SEC said on Thursday it settled with three other hedge funds for trading violations during secondary stock offerings in 22 other companies besides CompuDyne.” Compudyne being the Hilary Shane and FBR debacle.
One Hedge Fund Manager interviewed for the article told the reporter the SEC and NASD may not have to look very far to prosecute similar violations. “A lot of guys made these kinds of moves when there were a lot of PIPE deals. It was automatic. Sometimes you’d have a friend do the trades and settle it later.”
Automatic? Settle it later? You mean naked short and cover at a profitable level? Where were regulators and compliance? This Manager must certainly be confused.
SEC Director Annette Nazareth claims settlement abuses is a myth created by investors upset over poor investment decisions. These PIPE dealers selling illegally short for future profits when stocks move down has nothing to do with losses occurring by the long side investors in those same securities. Longs can’t lose when illegal short sellers win. It just can’t be.
Adding to the hysteria, Senator Bennett also informed the SEC in an open Senate Hearing that Reg SHO wasn’t working. Senators Durbin and Collins have responded in like to constituents through memo’s. Are they too simply looking for stock prices to rise? Is everybody wrong because the SEC is right? Did the SEC ever hear the phrase “you are only as good as your last performance”? With that thought, the SEC stinks!
The question thus remains, how long will the SEC cover up the fraud on Wall Street that has victimized so many? How long will the SEC illegally provide the manipulators time to slowly cover the manipulative trades at the present manipulated prices?
We know that for some companies it is 94 trading days and counting. For others, the SEC isn’t even starting to look.
For those smaller companies the SEC has already written them off, abused or not. They may be in our markets but they are not on the minds of our Federal Regulatory Enforcement Agency. A statement that can be backed up with documented evidence the SEC handed over to one public company fighting for its life. The SEC provided the very evidence that they walked away from taking enforcement actions against some Wall Street giants. Walked away!
And some actually consider Annette Nazareth for a post as SEC Commissioner. My preference would be for Ms. Nazareth to spend some time in Martha Stewart’s old Jail cell for possibly aiding in the fraudulent acts of Wall Street. Jail helps build character, strength, and humility. It may help grow a conscience as well.
This article is reprinted by permission. For more information on Stockgate, check out our other articles. To sign the petition to investigate the sec, go to www.investigatethesec.com
Add your name to our "Stockgate activist list" on our homepage. We will email you only when we have new articles or information dealing with this issue. Please link the articles everywhere you can, post them on stock message boards, and send them to the appropriate public entities. To enact positive change requires positive action.
Voice your opinion on our message board (you don't have to sign up to post).