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Investing 101
- May 31, 2005
- Stockgate: Turning up the Heat
by Mark Faulk
SEC CHAIRMAN DONALDSON TO RESIGN!
Stockgate Update: May 1, 2005, 1:45 PM ET
Turning up the heat, indeed! It appears that SEC William Donaldson will resign by the end of the month. In a press release just issued by CNBC, they cite "sources familiar with the matter", saying that it "raised questions on whether the agency would press ahead with its reform agenda".
Our response? WHAT REFORM AGENDA? Donaldson has done absolutely nothing to address the issue of naked short selling, which is the biggest scandal to hit our financial markets in the history of our nation, according to many stock market reform advocates. A change in command is just another step in the right direction in the battle to return our stock market to a fair and honest system. The White House said it will make an announcement later Wednesday on Donaldson.
Score one for our side, or as one Faulking Truth reader put it......Let the games begin!
Stockgate: Turning up the Heat
May 31, 2005
Mark Faulk
In yet another major development in a week that saw several members of Congress join the battle in the stock market scandal that is shaking up the financial markets, a video released by a former broker turned activist, and a planned march on Washington, DC, the President and CEO of a transfer agency that handles the shares for 300 companies blasted the DTC (Depository Trust Company) in a letter to the Securities and Exchange Commission.
"Get Rid of the DTC"
Lori Livingston, President and CEO of Transfer Online, Inc., said in an interview with The Faulking Truth that the DTC and Market Makers are "perpetuating the entire scam against the companies and their shareholders, who are getting creamed". In her letter to the SEC, sent on Friday, May 27, 2005, she says, "As someone who has been in the transfer agent business for 23 years, I am alarmed by recent developments and trends that all work toward a system of increasing positions on the books and records of corporations in the name of Cede & Co. (nominee name for DTC). As the transfer agent for approximately 300 issuers, I am increasingly contacted by these companies as they seek information regarding the stock ownership in their companies and the underlying trading of those shares in the market."
According to Livingston, "these are not pump and dump scams, many of these companies are legitimate companies whose shares are being manipulated through the buying and selling of counterfeit shares of their stock." In some cases, "'arrangements' are being made between brokerage firms to 'loan' shares from one broker to another to cover short positions at a reduced price," so that the broker who was short to begin with can then "replace the 'borrowed' shares on the open market, as they are able to beat the share price down."
The transfer agent's job is to act as a representative for companies who issue shares, and make certain that all "buy and sells of stock are matched up with each other", in other words, that for every share bought, there is an equal number of shares sold by someone else. Livingston stated, in her letter to SEC Chairman William Donaldson, that in the past, all trades were handled by transfer agents, but that "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".
Livingston said that "now, millions of shares change hands through the DTC, and the transfer agent for that company has no idea who bought or sold those shares, and that often times, the transfer agent didn't trade a share". She questioned the fairness of a system where transfer agents are closely regulated by the SEC, but where the DTC, who now handles the majority of all trades, is "self-regulating", and where all of their activities take place "behind closed doors, and the transfer agent has no idea what's going on".
"Transfer agents used to do all of this - there's no reason that a brokerage-owned organization should act as a de facto transfer agent." When asked what could be done to fix the system, she said simply, "get rid of the DTC. Let brokers deal directly with the transfer agents. Then, every share bought can be matched up with a share that's sold."
In her letter to SEC Chairman Donaldson, Livingston asked about the millions of extra shares that many of the companies that her firm represents, "Where are these extra shares coming from? Why are there no controls on the number of shares held in the nominee name Cede & Co. (the nominee name for the DTC) 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? There have been a great deal of new regulatory levels of reporting put on companies (i.e. Sarbanes- Oxley Act compliance), but from where I am positioned in the marketplace that does not address what is a far greater problem for issuers shareholders and the integrity of the markets, and that is, who are their shareholders and how are their shares trading?"
She said that her letter was prompted by her anger over a recent press release from the DTC encouraging the elimination of physical certificates, and by a "DTC rule change that prohibits a transfer agent from representing any company who seeks to withdraw from the DTC system." According to Livingston, "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."
Stock Market System "Could be in Danger of Collapse"
At least six members of Congress have joined those who are actively pursuing the issue of naked short selling. In an article today from Financial Wire, it was reported that "U.S. Senator James M. Talent (R-MO), the Deputy Majority Whip, in joining four other Senate leaders on both sides of the aisle to question the effectiveness of Regulation “SHO,” has taken his concerns a step further, suggesting that heads should roll at the U.S. Securities and Exchange Commission.
The Financial Wire article continues by saying "'I would hold the various enforcement officers accountable for preventing illegal activity. In other words, firing a few people at the SEC will light a fire under law enforcement more than hundreds of pages of new regulations,' said Senator Talent in joining U.S. Senators Richard Shelby (D-AL), Susan Colins (R-ME), Robert Bennett (R-UT) and Richard Durbin (D-IL) in questioning U.S. Securities and Exchange Commission Chair William Donaldson about what they call the 'failure' of Regulation SHO to curtail unlawful, predatory securities trading."
"The current Senate line-up carries significant heft. Senator Collins is chair of the Homeland Security and Governmental Affairs committee, Senator Shelby is chair of the Senate Banking Committee, Senator Durbin is Assistant Democratic Leader and Senator Bennett is Republican Whip. The Senators’ letters are posted at http://www.americaneedstoknow.com "
A sixth Congressman, Joe Wilson, (R-SC) in a letter to an individual investor, says that "'Naked short selling, which is when a broker cannot deliver the borrowed stock to a buyer, has been the topic of Senate hearings regarding it's ethical and legality issues. It is believed that if only a few instances of this practice would occur, the market could handle such losses. But if the practice is widely used and major losses take place, the system could be in danger of collapse."
Stockgate Gains Exposure (But Not From Dateline)
While a video entitled "Where's My Stock?" privately produced and released by a former broker, Darren Saunders, has been receiving extensive exposure on the internet, filming continues on "Counterfeit Conspiracy", a documentary that intends to tell the story about naked short selling that Dateline won't. Dateline planned an expose' on the Stockgate scandal over a year ago, but after several postponements, it appears that they have caved in to political pressure and shelved the project, at least for now. They are, however, airing yet another American Idol interview, this time with Kelly Clarkson, who won the pop singing contest during the show's first season. Dateline producer Sharon Hoffman hasn't responded to our phone calls inquiries about re-scheduling the Stockgate expose', and the show's representatives will say only that "we will let you know" when it's scheduled to air. In conjunction with the "Counterfeit Conspiracy" documentary, a rally has been planned in Washington, DC, on June 6th and 7th.
(Editor's note: Is it possible that the con artists who oppose cleaning up the stock market are getting a bit desperate? Someone just hacked into our message board and deleted all of the posts, but only on two forums: the two pertaining to Stockgate, "Stockgate Discussion" and "Stockgate Letters to the Editor". We're working with EZBoard to see if we can find out where they disappeared to. It's nice to know someone cares about us.)
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