Naked Short selling : een bedrieglijke speeltuin …

Door: Geert Muylaert

“Short selling” en “naked short selling” staan de laatste maanden ter discussie. Internationaal bestaat veel weerstand tegen deze vorm van speculatie. Duitsland heeft zelfs enige tijd geleden een verbod op naked short selling uitgevaardigd wat bij sommigen op weerstand stuit. Maar wat betekent short selling nu juist ? En wat is het verschil tussen “short selling” en “naked short selling” ?

Short selling is simpel gezegd het verkopen van een aandeel door een belegger. Het verschil met een gewone verkoop is enkel dat de aanbieder van het aandeel bij ?short selling? niet de eigenaar ervan is ! De verkoper leent aandelen bij een bank en verkoopt ze op zijn beurt door. Daarna hoop hij dat de aandelen in waarde zullen dalen ? zodat hij ze nadien opnieuw goedkoper kan kopen en dan terug kan geven aan de bank. Het verschil tussen verkoop en aankoop is dus winst. Tenminste als alles zoals verhoop evolueert in de juiste richting. Bij pech kosten deze transacties geld.

Bij ?naked short selling? heeft de verkoper van aandelen zelfs g??n aandelen geleend bij de bank. Hij verkoopt gewoon iets wat hij zelf niet in bezit heeftheeft ! Met de koper van zijn ?doos van Pandora ? spreekt hij gewoon af dat de aandelen op een bepaald moment moeten geleverd worden. De verkoper hoopt en gokt gewoon dat op het moment van levering het aandeel goedkoper is dan op het moment van verkoop. Hij heeft er dus alle belang bij dat een aandeel daalt. Het verspreiden van geruchten kan dus helpen …

Beste Croesusvolgelingen, wie iets verkoopt wat hij niet in bezit heeft is een oplichter en bedrieger ! ?Naked short selling? is niets anders dan ordinaire bedriegerij al dan niet toegestaan door de overheid. Door een massale ?naked short selling? gaat de notering van een aandeel automatisch naar beneden. Als eerlijke belegger wordt je dus door ?grote jongens? bij het pietje genomen. Als je het mij vraagt : weg met deze bedrieglijke rommel van speculanten die mede verantwoordelijk voor een daling van aandelenkoersen. Wie een andere mening heeft is bevoordeelde partij en denkt enkel als speculant aan zijn eigen beurs. U bent gewaarschuwd ?

Gepubliceerd: 13 juli 2010 in Aandelen.

Reacties

13 reacties.

Reactie door Ina Vaag - 13 juli 2010 om 15:35

Helemaal mee eens ! Maar zou in geval van naked short selling de koper ook niet beter op z’n tellen passen ? B.v. door te zeggen “laat eerst eens zien wat je hebt” ? Of is de koper ook all??n maar aan ’t gokken en zijn ze elkaar waard ? ‘N enorme short seller van o.a. edelmetaal is b.v. JPMorgan ; maar als zij niet kunnen voldoen aan hun verplichtingen krijgen ze gewoon geld van de Fed wegens too big to fail. Het probleem van de beurshandel in het algemeen is dat het expres v??l te ondoorzichtig wordt gemaakt door allerhand financiele vehicles zodat Jan met de pet er altijd zal instinken.

Reactie door Gerrit - 13 juli 2010 om 15:35

Als je het over aandelen hebt zou ik niet weten hoe ik een aandeel moet verkopen dat ik niet in bezit heb. Is dit te doen met instrumenten zoals Keytrade, binckbank, interactive brokers, etc… Niet dat ik ermij zou aan wagen.
Je zegt diehenen die naked shorten hebben er dus alle belang bij berichten de wereld in te strooien dat niet met waarheid strookt, maar dat is eigenlijk strafbaar. Als ik als Jan met de pet morgen een aandeel verkoop dat ik niet in bezit heb, of laat het ons nog legaal houden, ik koop morgen gewoon een aandeel van bedrijf x, dan mag ik nadien zoveel mogelijk berichten de wereld insturen als ik wil om de voor mij de koers gewenste richting te laten uitgaan, wie gaat mij geloven????
Daarentegen als ik een GEWETEN belangrijke medewerker ben van bedrijf x en ik stuur ontrouwheidsgewijze berichten de wereld in om de koers een welbepaalde richting te laten uitgaan dan zit ik de volgende dag toch in de bak zeker…
Als uw berichtje doelt op eegc, ik heb geen boodschap aan al die bashersberichten, ik zou begot ook niet weten wie die bashers zijn, afin ik wil zeggen Z, heractlicus, pox doctor, wat maakt mij het uit wat die nu op ihub of yahoo te verkondigen hebben…
Dus ja een beetje meer uitleg mag wel nog wat gegeven worden wat naked shorted betreft. Jan met de pet, who cares, belangrijke typ, die pakken ze de dag nadien wel op…

Reactie door Gerrit - 13 juli 2010 om 15:39

JPmorgan is een bedrijf?? Maar wat met short selling voor jan met de pet! Ik bedoel om nog even op eegc terug te komen, al die berichtjes dat daar rondgestrooid worden ivm dat zijn shortsellers mogen we wel met een korreltje zout nemen zeker?

Reactie door J.Hommeles - 13 juli 2010 om 16:06

Als je alles in verband met Eegc met ’n kilo zout neemt ben je wel op de goede weg ;-). Verder zijn de gevallen die worden opgepakt voor beursfraude eerder uiterst zeldzaam. Maak je daar vooral g??n illusies over.

Reactie door J.Hommeles - 13 juli 2010 om 16:10

Die vos met z’n zakken geld is prachtig getekend en doet me denken aan ’n gebrilde coureur uit de jaren stillekes 😉

Reactie door J.Hommeles - 13 juli 2010 om 16:42

Gerrit : dat naked shorten wordt m.i. all??n beoefend door echt grote partijen dus Eegc is dan ruled out. Ook ik zou me er nooit aan wagen en denkelijk zou ook mijn bank en broker niet met mij “meegaan”.

Reactie door J.Hommeles - 13 juli 2010 om 16:52

Ina, JPM, de grootste naked shortselling bank is niet all??n too big to fail ; je kunt die bank beschouwen als de huisbank van de Fed.

Reactie door Vincent - 13 juli 2010 om 18:52

Short gaan op zich is voor particulieren perfect mogelijk via turbo’s (verhandeld op Euronext Amsterdam), CFD’s, futures, opties, …

Reactie door Vincent - 13 juli 2010 om 18:54

Wat velen niet weten: pensioenfondsen lenen hun aandelen vaak uit aan andere financi?le instellingen die deze dan op hun beurt gebruiken om SHORT te gaan … Is dat dan niet “in je eigen been schieten” ?

Reactie door J.Hommeles - 14 juli 2010 om 17:25

Idd ; maar je bent wel afhankelijk van die fondsen ! En hoe kun je dat weten ! Je kunt dus stellen dat je in eigen zak schijt zonder ’t te weten 😉

Reactie door J.Hommeles - 14 juli 2010 om 17:35

Shortgaan via turbo’s ? Prima maar dan ga ik liever eens naar de Sinksenfoor 😉

Reactie door Geert Muylaert - 15 juli 2010 om 17:07

Counterfeiting Stock

Illegal naked shorting and stock manipulation are two of Wall Street’s deep,
dark secrets. These practices have been around for decades and have resulted in
trillions of dollars being fleeced from the American public by Wall Street. In
the process, many emerging companies have been put out of business. This report
will explain the magnitude of this problem, how it happens, why it has been
covered up and how short sellers attack a company. It will also show how all of
the participants; the short hedge funds, the prime brokers and the Depository
Trust Clearing Corp. (DTCC) ? make unconscionable profits while the fleecing
of the small American investor continues unabated.

Why is This Important? This problem affects the investing public. Whether
invested directly in the stock market or in mutual funds, IRAs, retirement or
pension plans that hold stock ? it touches the majority of Americans.

The participants in this fraud, which, when fully exposed, will make Enron look
like child’s play, have been very successful in maintaining a veil of secrecy
and impenetrability. Congress and the SEC have unknowingly (?) helped keep the
closet door closed. The public rarely knows when its pocket is being picked as
unexplained drops in stock price get chalked up to ?market forces? when they
are often market manipulations.

The stocks most frequently targeted are those of emerging companies who went to
the stock market to raise start?up capital. Small business brings the vast
majority of innovative new ideas and products to market and creates the
majority of new jobs in the United States. Over 1000 of these emerging
companies have been put into bankruptcy or had their stock driven to pennies by
predatory short sellers.

It is important to understand that selling a stock short is not an investment
in American enterprise. A short seller makes money when the stock price goes
down and that money comes solely from investors who have purchased the
company’s stock. A successful short manipulation takes money from investment in
American enterprise and diverts it to feed Wall Street’s insatiable greed ? the
company that was attacked is worse off and the investing public has lost money.
Frequently this profit is diverted to off?shore tax havens and no taxes are
paid. This national disgrace is a parasite on the greatest capital market in
the world.

A Glossary of Illogical Terms ? The securities industry has its own jargon,
laws and practices that may require explaining. Most of these concepts are the
creation of the industry, and, while they are promoted as practices that ensure
an orderly market, they are also exploited as manipulative tools. This glossary
is limited to naked short abuse, or counterfeiting stock as it is more
correctly referred to.

1. Broker Dealer or Prime Broker ? The big stockbrokers who clear their own
transactions, which is to say they move transacted shares between their
customers directly, or with the DTC. Small brokers will clear through a
clearing house ? also known as a broker’s broker.
2. Hedge Funds ? Hedge funds are really unregulated investment pools for rich
investors. They have grown exponentially in the past decade and now number over
10,000 and manage over one trillion dollars. They don’t register with the SEC,
are virtually unregulated and frequently foreign domiciled, yet they are
allowed to be market makers with access to all of the naked shorting loopholes.
Frequently they operate secretively and collusively. The prime brokers cater to
the hedge funds and allegedly receive eight to ten billion dollars annually in
fees and charges relating to stock lend to the short hedge funds.
3. Market Maker ? A broker, broker dealer or hedge fund who makes a market in
a stock. In order to be a market maker, they must always have shares available
to buy and sell. Market makers get certain sweeping exemptions from SEC rules
involving naked shorting.
4. Short Seller ? An individual, hedge fund, broker or institution who sells
stock short. The group of short sellers is referred to as ?the shorts.?
5. The Securities and Exchange Commission ? The SEC is the federal enforcement
agency that oversees the securities markets. The top?level management is a
five?person Board of Governors who are Presidential appointees. Three of the
governors are usually from the securities industry, including the chairman. The
SEC adopted Regulation SHO in January 2005 in an attempt to curb naked short
abuse.
6. Depository Trust Clearing Corp ? Usually known as the DTCC, this privately
held company is owned by the prime brokers and it clears, transacts and holds
most stock in this country. It has four subsidiaries, which include the DTC and
the NCSS. The operation of this company is described in detail later.
7. Short Sale ? Selling a stock short is a way to make a profit while the
stock price declines. For example: If investor S wishes to sell short, he
borrows a share from the account of investor L. Investor S immediately sells
that share on the open market, so investor S now has the cash from the sale in
his account, and investor L has an IOU for the share from investor S. When the
stock price drops, investor S takes some of the money from his account and buys
a share, called ?covering?, which he returns to investor L’s account. Investor
S books a profit and investor L has his share back.

This relatively simple process is perfectly legal ? so far. The investor
lending the share most likely doesn’t even know the share left his account,
since it is all electronic and occurs at the prime broker or DTC level. If
shares are in a margin account, they may be loaned to a short without the
consent or knowledge of the account owner. If the shares are in a cash account,
IRA account or are restricted shares they are not supposed to be borrowed
unless there is express consent by the account owner.
8. Disclosed Short ? When the share has been borrowed or a suitable share has
been located that can be borrowed, it is a disclosed short. Shorts are either
naked or disclosed, but, in reality, some disclosed shorts are really naked
shorts as a result of fraudulent stock borrowing.
9. Naked Short ? This is an invention of the securities industry that is a
license to create counterfeit shares. In the context of this document, a share
created that has the effect of increasing the number of shares that are in the
market place beyond the number issued by the company, is considered
counterfeit. This is not a legal conclusion, since some shares we consider
counterfeit are legal based upon today’s rules. The alleged justification for
naked shorting is to insure an orderly and smooth market, but all too often it
is used to create a virtually unlimited supply of counterfeit shares, which
leads to widespread stock manipulation ? the lynchpin of this massive fraud.

Returning to our example, everything is the same except the part about
borrowing the share from someone else’s account: There is no borrowed share ?
instead a new one is created by either the broker dealer or the DTC. Without a
borrowed share behind the short sale, a naked short is really a counterfeit
share.
10. Fails?to?Deliver ? The process of creating shares via naked shorting
creates an obvious imbalance in the market as the sell side is artificially
increased with naked short shares or more accurately, counterfeit shares. Time
limits are imposed that dictate how long the sold share can be naked. For a
stock market investor or trader, that time limit is three days. According to
SEC rules, if the broker dealer has not located a share to borrow, they are
supposed to take cash in the short account and purchase a share in the open
market. This is called a ?buy?in,? and it is supposed to maintain the total
number of shares in the market place equal to the number of shares the company
has issued.

Market makers have special exemptions from the rules: they are allowed to carry
a naked short for up to twenty?one trading days before they have to borrow a
share. When the share is not borrowed in the allotted time and a buy?in does
not occur, and they rarely do, the naked short becomes a fail?to?deliver (of
the borrowed share).
11. Options ? The stock market also has separate, but related markets that
sell options to purchase shares (a ?call?) and options to sell shares (a
?put?). This report is only going to deal with calls; they are an integral part
of short manipulations. A call works as follows: Assume investor L has a share
in his account that is worth $25. He may sell an option to purchase that share
to a third party. That option will be at a specific price, say $30, and expires
at a specific future date. Investor L will get some cash from selling this
option. If at the expiration date, the market value of the stock is below $30
(the ?strike price?), the option expires as worthless and investor L keeps the
option payment. This is called ?out of the money.? If the market value of the
stock is above the strike price, then the buyer of the option ?calls? the
stock. Assume the stock has risen to $40. The option buyer tenders $30 to
investor L and demands delivery of the share, which he may keep or immediately
sell for a $10 profit.
12. Naked call ? The same as above except that investor L, who sells the call,
has no shares in his account. In other words, he is selling an option on
something he does not own. The SEC allows this. SEC rules also allow the seller
of a naked short to treat the purchase of a naked call as a borrowed share,
thereby keeping their naked short off the SEC’s fails?to?deliver list.

How The System Transacts Stocks ? This explanation has been greatly simplified
in the interest of brevity.

1. Customers ? These can be individuals, institutions, hedge funds and prime
broker’s house accounts.
2. Prime Brokers ? They both transact and clear stocks for their customers.
Examples of prime brokers include Goldman Sachs; Merrill Lynch; Citigroup;
Morgan Stanley; Bear Stearns, etc.
3. The DTCC ? This is the holding company that owns four companies that clear
and keep track of all stock transactions. This is where brokerage accounts are
actually lodged. The DTC division clears over a billion shares daily. The DTCC
is owned by the prime brokers, and, as a closely held private enterprise, it is
impenetrable. It actively and aggressively fights all efforts to obtain
information regarding naked shorting, with or without a subpoena.

Stocks clear as follows:
If customer A?1 purchases ten shares of XYZ Corp and Customer A?2 sells ten
shares, then the shares are transferred electronically, all within prime broker
A. Record of the transaction is sent to the DTC. Likewise, if Investor A?1
shorts ten shares of XYZ Corp and Investor A?2 has ten shares in a margin
account, prime broker A borrows the shares from account A?2 and for a fee lends
them to A?1.
If Customer A?1 sells shares to Customer B?2, in order to get the shares to B?2
and the money to A?1, the transaction gets completed in the DTC. The same
occurs for shares that are borrowed on a short sale between prime brokers.
As a practical matter, what happens is prime broker A, at the end of the day,
totals all of his shares of XYZ owned and all of the XYZ shares bought and
sold, and clears the difference through the DTC. In theory, at the end of each
day when all of the prime brokers have put their net positions in XYZ stock
through the system, they should all cancel out and the number of shares in the
DTC should equal the number of shares that XYZ has sold into the market. This
almost never happens, because of the DTC stock borrow program which is
discussed later.

Who are the Participants in the Fraud? The participants subscribe to the theory
that it is much easier to make money tearing companies down than making money
building them up, and they fall into two general categories: 1) They
participate in the process of producing the counterfeit shares that are the
currency of the fraud and/or 2) they actively short and tear companies down.
The counterfeiting of shares is done by participating prime brokers or the DTC,
which is owned by the prime brokers. A number of lawsuits that involve naked
shorting have named about ten of the prime brokers as defendants, including
Goldman Sachs, Bear Stearns, Citigroup, Merrill Lynch; UBS; Morgan Stanley and
others. The DTCC has also been named in a number of lawsuits that allege stock
counterfeiting.

The identity of the shorts is somewhat elusive as the shorts obscure their true
identity by hiding behind the prime brokers and/or hiding behind layers of
offshore domiciled shell corporations. Frequently the money is laundered
through banks in a number of tax haven countries before it finally reaches its
ultimate beneficiary in New York, New Jersey, San Francisco, etc. Some of the
hedge fund managers who are notorious shorters, such as David Rocker and Marc
Cohodes, are very public about their shorting, although they frequently utilize
offshore holding companies to avoid taxes and scrutiny.
Most of the prime brokers have multiple offshore subsidiaries or captive
companies that actively participate in shorting. The prime brokers also front
the shorting of some pretty notorious investors. According to court documents
or sworn testimony, if one follows one of the short money trails at Solomon,
Smith Barney, it leads to an account owned by the Gambino crime family in New
York. A similar exercise with other prime brokers, who cannot be named at this
time, leads to the Russian mafia, the Cali drug cartel, other New York crime
families and the Hell’s Angels.
One short hedge fund that was particularly destructive was a shell company
domiciled in Bermuda. Subpoenas revealed the Bermuda company was wholly owned
by another shell company that was domiciled in another tax haven country. This
process was five layers deep, and at the end of the subterfuge was a very well
known American insurance company that cannot be disclosed because of
court?ordered sealing of testimony.
Most of the large securities firms, insurance companies and multi?national
companies have layers of offshore captives that avoid taxes, engage in
activities that the company would not want to be publicly associated with, like
stock manipulation; avoid U.S. regulatory and legal scrutiny; and become the
closet for deals gone sour, like Enron.

The Creation of Counterfeit Shares ? There are a variety of names that the
securities industry has dreamed up that are euphemisms for counterfeit shares.
Don’t be fooled : Unless the short seller has actually borrowed a real share
from the account of a long investor, the short sale is counterfeit. It doesn’t
matter what you call it and it may become non?counterfeit if a share is later
borrowed, but until then, there are more shares in the system than the company
has sold.

The magnitude of the counterfeiting is hundreds of millions of shares every
day, and it may be in the billions. The real answer is locked within the prime
brokers and the DTC. Incidentally, counterfeiting of securities is as illegal
as counterfeiting currency, but because it is all done electronically, has
other identifiers and industry rules and practices, i.e. naked shorts,
fails?to?deliver, SHO exempt, etc. the industry and the regulators pretend it
isn’t counterfeiting. Also, because of the regulations that govern the
securities, certain counterfeiting falls within the letter of the rules. The
rules, by design, are fraught with loopholes and decidedly short on allowing
companies and investors access to information about manipulations of their
stock.
The creation of counterfeit shares falls into three general categories. Each
category has a plethora of devices that are used to create counterfeit shares.
1. Fails?to?Deliver ? If a short seller cannot borrow a share and deliver that
share to the person who purchased the (short) share within the three days
allowed for settlement of the trade, it becomes a fail?to?deliver and hence a
counterfeit share; however the share is transacted by the exchanges and the DTC
as if it were real. Regulation SHO, implemented in January 2005 by the SEC, was
supposed to end wholesale fails?to?deliver, but all it really did was cause the
industry to exploit other loopholes, of which there are plenty (see 2 and 3
below).

Since forced buy?ins rarely occur, the other consequences of having a
fail?to?deliver are inconsequential, so it is frequently ignored. Enough
fails?to?deliver in a given stock will get that stock on the SHO list, (the
SEC’s list of stocks that have excessive fails?to?deliver) ? which should (but
rarely does) see increased enforcement. Penalties amount to a slap on the
wrist, so large fails?to?deliver positions for victim companies have remained
for months and years.
A major loophole that was intentionally left in Reg SHO was the grandfathering
in of all pre?SHO naked shorting. This rule is akin to telling bank robbers,
?If you make it to the front door of the bank before the cops arrive, the theft
is okay.?
Only the DTC knows for certain how many short shares are perpetual
fails?to?deliver, but it is most likely in the billions. In 1998, REFCO, a
large short hedge fund, filed bankruptcy and was unable to meet margin calls on
their naked short shares. Under this scenario, the broker dealers are the next
line of financial responsibility. The number of shares that allegedly should
have been bought in was 400,000,000, but that probably never happened. The DTC
? owned by the broker dealers ? just buried 400,000,000 counterfeit shares in
their system, where they allegedly remain ? grandfathered into ?legitimacy? by
the SEC. Because they are grandfathered into ?legitimacy?, the SEC, DTC and
prime brokers pretend they are no longer fails?to?deliver, even though the
victim companies have permanently suffered a 400 million share dilution in
their stock.
Three months prior to SHO, the aggregate fails?to?deliver on the NASDAQ and the
NYSE averaged about 150 million shares a day. Three months after SHO it dropped
by about 20 million, as counterfeit shares found new hiding places (see 2 and 3
below). It is noteworthy that aggregate fails?to?deliver are the only indices
of counterfeit shares that the DTC and the prime brokers report to the SEC. The
bulk of the counterfeiting remains undisclosed, so don’t be deceived when the
SEC and the industry minimize the fails?to?deliver information. It is akin to
the lookout on the Titanic reporting an ice cube ahead.
2. Ex?clearing counterfeiting ? The second tier of counterfeiting occurs at
the broker dealer level. This is called ex?clearing. Multiple tricks are
utilized for the purpose of disguising naked shorts that are fails?to?deliver
as disclosed shorts, which means that a share has been borrowed. They also make
naked shorts ?invisible? to the system so they don’t become fails?to?deliver,
which is the only thing the SEC tracks.

Some of the tricks are as follows:
* Stock sales are either a long sale or a short sale. When a stock is
transacted the broker checks the appropriate box. By mismarking the trading
ticket ?checking the long box when it is actually a short sale the short never
shows up, unless they get caught, which doesn’t happen often. The position
usually gets reconciled when the short covers.
* Settlement of stock transactions is supposed to occur within three days, at
which time a naked short should become a fail?to?deliver, however the SEC
routinely and automatically grants a number of extensions before the naked
short gets reported as a fail?to?deliver. Most of the short hedge funds and
broker dealers have multiple entities, many offshore, so they sell large naked
short positions from entity to entity. Position rolls, as they are called, are
frequently done broker to broker, or hedge fund to hedge fund, in block trades
that never appear on an exchange. Each movement resets the time clock for the
naked position becoming a fail?to?deliver and is a means of quickly getting a
company off of the SHO threshold list.
* The prime brokers may do a buy?in of a naked short position. If they tell
the short hedge fund that we are going to buy?in at 3:59 EST on Friday, the
hedge fund naked shorts into their own buy?in (or has a co?conspirator do it)
and rolls their position, hence circumventing Reg SHO.
* Most of the large broker dealers operate internationally, so when regulators
come in (they almost always ?call ahead?) or compliance people come in (ditto),
large naked positions are moved out of the country and returned at a later
date.
* The stock lend is enormously profitable for the broker dealers who charge
the short sellers large fees for the ?borrowed? shares, whether they are real
or counterfeit. When shares are loaned to a short, they are supposed to remain
with the short until he covers his position by purchasing real shares. The
broker dealers do one?day lends, which enables the short to identify to the SEC
the account that shares were borrowed from. As soon as the report is sent in,
the shares are returned to the broker dealer to be loaned to the next short.
This allows eight to ten shorts to borrow the same shares, resetting the
SHO?fail?to?deliver clock each time, which makes all of the counterfeit shares
look like legitimate shares. The broker dealers charge each short for the stock
lend.
* Margin account buyers, because of loopholes in the rules, inadvertently aid
the shorts. If short A sells a naked short he has three days to deliver a
borrowed share. If the counterfeit share is purchased in a margin account, it
is immediately put into the stock lend and, for a fee, is available as a
borrowed share to the short who counterfeited it in the first place. This
process is perpetually fluid with multiple parties, but it serves to create
more counterfeit shares and is an example of how a counterfeit share gets
?laundered? into a legitimate borrowed share.
* Margin account agreements give the broker dealers the right to lend those
shares without notifying the account owner. Shares held in cash accounts, IRA
accounts and any restricted shares are not supposed to be loaned without
express consent from the account owner. Broker dealers have been known to
change cash accounts to margin accounts without telling the owner, take shares
from IRA accounts, take shares from cash accounts and lend restricted shares.
One of the prime brokers recently took a million shares from cash accounts of
the company’s founding investors without telling the owners or the stockbroker
who represented ownership. The shares were put into the stock lend, which got
the company off the SHO threshold list, and opened the door for more
manipulative shorting.
This is a sample of tactics used. For a company that is under attack, the
counterfeit shares that exist at this ex?clearing tier can be ten or twenty
times the number of fails?to?deliver, which is the only category tracked and
policed by the SEC.
3. Continuous Net Settlement ? The third tier of counterfeiting occurs at the
DTC level. The Depository Trust and Clearing Corporation (DTCC) is a holding
company owned by the major broker dealers, and has four subsidiaries. The
subsidiaries that are of interest are the Depository Trust Company (DTC) and
the National Securities Clearing Corporation (NSCC). The DTC has an account for
each broker dealer, which is further broken down to each customer of that
broker dealer. These accounts are electronic entries. Ninety seven percent of
the actual stock certificates are in the vault at the DTC with the DTC
nominee’s name on them. The NSCC processes transactions, provides the broker
dealers with a central clearing source, and operates the stock borrow program.

When a broker dealer processes the sale of a short share, the broker dealer has
three days to deliver a borrowed share to the purchaser and the purchaser has
three days to deliver the money. In the old days, if the buyer did not receive
his shares by settlement day, three days after the trade, he took his money
back and undid the transaction. When the stock borrow program and electronic
transfers were put in place in 1981, this all changed. At that point the NSCC
guaranteed the performance of the buyers and sellers and would settle the
transaction even though the seller was now a fail?to?deliver on the shares he
sold. The buyer has a counterfeit share in his account, but the NSCC transacts
it as if it were real.
At the end of each day, if a broker dealer has sold more shares of a given
stock than he has in his account with the DTC, he borrows shares from the NSCC,
who borrows them from the broker dealers who have a surplus of shares. So far
it sounds like the whole system is in balance, and for any given stock the net
number of shares in the DTC is equal to the number of shares issued by the
company.
The short seller who has sold naked ? he had no borrowed shares ? can cure his
fail?to?deliver position and avoid the required forced buy?in by borrowing the
share through the NSCC stock borrow program.

Here is the hocus pocus that creates millions of counterfeit shares.
When a broker dealer has a net surplus of shares of any given company in his
account with the DTC, only the net amount is deducted from his surplus position
and put in the stock borrow program. However the broker dealer does not take a
like number of shares from his customer’s individual accounts. The net surplus
position is loaned to a second broker dealer to cover his net deficit position.

Let’s say a customer at the second broker dealer purchased shares from a naked
short seller ? counterfeit shares. His broker dealer ?delivers? those shares to
his account from the shares borrowed from the DTC. The lending broker dealer
did not take the shares from any specific customers’ account, but the borrowing
broker dealer put the borrowed shares in specific customer’s accounts. Now the
customer at the second prime broker has ?real? shares in his account. The
problem is it’s the same ?real? shares that are in the customer’s account at
the first prime broker.
The customer account at the second prime broker now has a ?real? share, which
the prime broker can lend to a short who makes a short sale and delivers that
share to a third party. Now there are three investors with the same counterfeit
shares in their accounts.
Because the DTC stock borrow program, and the debits and credits that go back
and forth between the broker dealers, only deals with the net difference, it
never gets reconciled to the actual number of shares issued by the company. As
long as the broker dealers don’t repay the total stock borrowed and only settle
their net differences, they can ?grow? a company’s issued stock.

This process is called Continuous Net Settlement (CNS) and it hides billions of
counterfeit shares that never make it to the Reg. SHO radar screen, as the
shares ?borrowed? from the DTC are treated as a legitimate borrowed shares.
For companies that are under attack, the counterfeit shares that are created by
the CNS program are thought to be ten or twenty times the disclosed
fails?to?deliver, and the true CNS totals are only obtained by successfully
serving the DTC with a subpoena. The SEC doesn’t even get this information. The
actual process is more complex and arcane than this, but the end result is
accurately depicted.
Ex?clearing and CNS counterfeiting are used to create an enormous reserve of
counterfeit shares. The industry refers to these as ?strategic
fails?to?deliver.? Most people would refer to these as a stockpile of
counterfeit shares that can be used for market manipulation. One emerging
company for which we have been able to get or make reasonable estimates of the
total short interest, the disclosed short interest, the available stock lend
and the fails?to?deliver, has fifty ?buried? counterfeit shares for every
fail?to?deliver share, which is the only thing that the SEC tracks,
consequently the SEC has not acted on shareholder complaints that the stock is
being manipulated.

The Anatomy of a Short Attack ? Abusive shorting are not random acts of a
renegade hedge funds, but rather a coordinated business plan that is carried
out by a collusive consortium of hedge funds and prime brokers, with help from
their friends at the DTC and major clearinghouses. Potential target companies
are identified, analyzed and prioritized. The attack is planned to its most
minute detail.
The plan consists of taking a large short position, then crushing the stock
price, and, if possible, putting the company into bankruptcy. Bankrupting the
company is a short homerun because they never have to buy real shares to cover
and they don’t pay taxes on the ill-gotten gain.
When it is time to drive the stock price down, a blitzkrieg is unleashed
against the company by a cabal of short hedge funds and prime brokers. The
playbook is very similar from attack to attack, and the participating prime
brokers and lead shorts are fairly consistent as well.
Typical tactics include the following:
1. Flooding the offer side of the board ? Ultimately the price of a stock is
found at the balance point where supply (offer) and demand (bid) for the shares
find equilibrium. This equation happens every day for every stock traded. On
days when more people want to buy than want to sell, the price goes up, and,
conversely, when shares offered for sale exceed the demand, the price goes
down.

The shorts manipulate the laws of supply and demand by flooding the offer side
with counterfeit shares. They will do what has been called a short down ladder.
It works as follows: Short A will sell a counterfeit share at $10. Short B will
purchase that counterfeit share covering a previously open position. Short B
will then offer a short (counterfeit) share at $9. Short A will hit that offer,
or short B will come down and hit Short A’s $9 bid. Short A buys the share for
$9, covering his open $10 short and booking a $1 profit.
By repeating this process the shorts can put the stock price in a downward
spiral. If there happens to be significant long buying, then the shorts draw
from their reserve of ?strategic fails-to-deliver? and flood the market with an
avalanche of counterfeit shares that overwhelm the buy side demand. Attack days
routinely see eighty percent or more of the shares offered for sale as
counterfeit. Company news days are frequently attack days since the news will
?mask? the extraordinary high volume. It doesn’t matter whether it is good news
or bad news.
Flooding the market with shares requires foot soldiers to swamp the market with
counterfeit shares. An off-shore hedge fund devised a remarkably effective
incentive program to motivate the traders at certain broker dealers. Each
trader was given a debit card to a bank account that only he could access. The
trader’s performance was tallied, and, based upon the number of shares moved
and the other ?success? parameters, the hedge fund would wire money into the
bank account daily. At the end of each day, the traders went to an ATM and drew
out their bribe. Instant gratification.

Global Links Corporation is an example of how wholesale counterfeiting of
shares will decimate a company’s stock price. Global Links is a company that
provides computer services to the real estate industry. By early 2005, their
stock price had dropped to a fraction of a cent. At that point, an investor,
Robert Simpson, purchased 100%+ of Global Links’ 1,158,064 issued and
outstanding shares. He immediately took delivery of his shares and filed the
appropriate forms with the SEC, disclosing he owned all of the company’s stock.
His total investment was $5205. The share price was $.00434. The day after he
acquired all of the company’s shares, the volume on the over-the-counter market
was 37 million shares. The following day saw 22 million shares change hands ?
all without Simpson trading a single share. It is possible that the SEC has
been conducting a secret investigation, but that would be difficult without the
company’s involvement. It is more likely the SEC has not done anything about
this fraud.
Massive counterfeiting can drive the stock price down in a matter of hours on
extremely high volume. This is called ?crashing? the stock and a successful
?crash? is a one-day drop of twenty-percent or a thirty-five percent drop in a
week. In order to make the crash ?stick? or make it more effective, it is done
concurrently with all or most of the following:
2. Media assault ? The shorts, in order to realize their profit, must
ultimately purchase real shares at a price much cheaper than what they shorted
at. These real shares come from the investing public who panics and sells into
the manipulation. Panic is induced with assistance from the financial media.

The shorts have ?friendly? reporters with the Dow Jones News Agency, the Wall
Street Journal, Barrons, the New York Times, Gannett Publications (USA Today
and the Arizona Republic), CNBC and others. The common thread: A number of the
?friendly? reporters worked for The Street.com, an Internet advisory service
that hedge-fund managers David Rocker and Jim Cramer owned. This alumni
association supported the short attack by producing slanted, libelous, innuendo
laden stories that disparaged the company, as it was being crashed.
One of the more outrageous stories was a front-page story in USA Today during a
short crash of TASER’s stock price in June 2005. The story was almost a full
page and the reporter concluded that TASER’s electrical jolt was the same as an
electric chair ? proof positive that TASERs did indeed kill innocent people. To
reach that conclusion the reporter over estimated the TASER’s amperage by a
factor of one million times. This ?mistake? was made despite a detailed
technical briefing by TASER to seven USA Today editors two weeks prior to the
story. The explanation ?Due to a mathematical error? appeared three days later
? after the damage was done to the stock price.
Jim Cramer, in a video-taped interview with The Street.com, best described the
media function:

When (shorting) … The hedge fund mode is to not do anything remotely
truthful, because the truth is so against your view, (so the hedge funds)
create a new ‘truth’ that is development of the fiction… you hit the
brokerage houses with a series of orders (a short down ladder that pushes the
price down), then we go to the press. You have a vicious cycle down ? it’s a
pretty good game.
This interview, which is more like a confession, was never supposed to get on
the air, however, it somehow ended up on YouTube. Cramer and The Street.com
have made repeated efforts, with some success, to get it taken off of YouTube.
3. Analyst Reports ? Some alleged independent analysts were actually paid by
the shorts to write slanted negative ratings reports. The reports, which were
represented as being independent, were ghost written by the shorts and
disseminated to coincide with a short attack. There is congressional testimony
in the matter of Gradiant Analytic and Rocker Partners that expands upon this.
These libelous reports would then become a story in the aforementioned
?friendly? media. All were designed to panic small investors into selling their
stock into the manipulation.
4. Planting moles in target companies ? The shorts plant ?moles? inside target
companies. The moles can be as high as directors or as low as janitors. They
steal confidential information, which is fed to the shorts who may feed it to
the friendly media. The information may not be true, may be out of context, or
the stolen documents may be altered. Things that are supposed to be
confidential, like SEC preliminary inquiries, end up as front-page news with
the short-friendly media.
5. Frivolous SEC investigations ? The shorts ?leak? tips to the SEC about
?corporate malfeasance? by the target company. The SEC, which can take months
processing Freedom of Information Act requests, swoops in as the supposed
?confidential inquiry? is leaked to the short media.

The plethora of corporate rules means the SEC may ultimately find minor
transgressions or there may be no findings. Occasionally they do uncover an
Enron, but the initial leak can be counted on to drive the stock price down by
twenty-five percent. The announcement of no or little findings comes months
later, but by then the damage that has been done to the stock price is
irreversible. The San Francisco office of the SEC appears to be particularly
close to the short community.
6. Class Action lawsuits ? Based upon leaked stories of SEC investigations or
other media exposes, a handful of law firms immediately file class-action
shareholder suits. Milberg Weiss, before they were disbanded as a result of a
Justice Department investigation, could be counted on to file a class-action
suit against a company that was under short attack. Allegations of accounting
improprieties that were made in the complaint would be reported as being the
truth by the short friendly media, again causing panic among small investors.
7. Interfering with target company’s customers, financings, etc. ? If the
shorts became aware of clients, customers or financings that the target company
was working on, they would call and tell lies or otherwise attempt to persuade
the customer to abandon the transaction. Allegedly the shorts have gone so far
as to bribe public officials to dissuade them from using a company’s product.
8. Pulling margin from long customers ? The clearinghouses and broker dealers
who finance margin accounts will suddenly pull all long margin availability,
citing very transparent reasons for the abrupt change in lending policy. This
causes a flood of margin selling, which further drives the stock price down and
gets the shorts the cheap long shares that they need to cover.
9. Paid bashers ? The shorts will hire paid bashers who ?invade? the message
boards of the company. The bashers disguise themselves as legitimate investors
and try to persuade or panic small investors into selling into the
manipulation.

This is not every dirty trick that the shorts use when they are crashing the
stock. Almost every victim company experiences most or all of these tactics.

How Pervasive Is This? ? At any given point in time more than 100 emerging
companies are under attack as described above. This is not to be confused with
the day-to-day shorting that occurs in virtually every stock, which is
purportedly about thirty percent of the daily volume.
The success rate for short attacks is over ninety percent – a success being
defined as putting the company into bankruptcy or driving the stock price to
pennies. It is estimated that 1000 small companies have been put out of
business by the shorts. Admittedly, not every small company deserves to
succeed, but they do deserve a level playing field.
The secrecy that surrounds the shorts, the prime brokers, the DTC and the
regulatory agencies makes it impossible to accurately estimate how much money
has been stolen from the investing public by these predators, but the total is
measured in billions of dollars. The problem is also international in scope.

Who Profits from this Illicit Activity? ? The short answer is everyone who
participates. Specifically:
1. The shorts ? They win over ninety percent of the time. Their return on
investment is enormous because they don’t put any capital up when they sell
short ? they get cash from the sale delivered to their account. As long as the
stock price remains under their short sale price, it is all profit on no
investment.
2. The prime brokers ? The shorts need the prime brokers to aid in
counterfeiting shares, which is the cornerstone of the fraud. Not only do the
prime brokers get sales commissions and interest on margin accounts, they
charge the shorts ?interest? on borrowed shares. This can be as high as five
percent per week. The prime brokers allegedly make eight to ten billion dollars
a year from their short stock lend program. The prime brokers also actively
short the victim companies, making large trading profits.
3. The DTC ? A significant amount of the counterfeiting occurs at the DTC
level. They charge the shorts ?interest? on borrowed shares, whether it is a
legitimate stock borrow or counterfeit shares, as is the case in a vast
majority of shares of a company under attack. The amount of profit that the DTC
receives is unknown because it is a private company owned by the prime brokers

The Cover Up ? The securities industry, certain ?respected? members of
corporate America who like the profits from illegal shorting, certain criminal
elements and our federal government do not want the public to become aware of
this problem.
The reason for the cover up is money.
Everyone, including our elected officials, gets lots of money. Consequently
there is an active campaign to keep a lid on information. The denial about
these illegal practices comes from the industry, the DTC, the SEC and certain
members of Congress. They are always delivered in blanket generalities. If
indeed there is no problem, as they claim, then why don’t they show us the
evidence instead of actively and aggressively fighting or deflecting every
attempt at obtaining information that is easily accessible for them and
impossible for companies and investors? Accusers are counter attacked as being
sour-grapes losers, lunatics or opportunistic lawyers trying to unjustly enrich
themselves. Death threats are not an unheard of occurrence, although it doesn’t
appear that anyone has been ?whacked? so far.
The securities industry counters with a campaign of misinformation. For
example, they proudly pointed out that only one percent of the dollar volume of
listed shares are fails-to-deliver. What they don’t mention:
* that the fails-to-deliver are concentrated in companies being attacked
* for companies under attack, for every disclosed fail-to-deliver there maybe
ten to forty times that number of undisclosed counterfeit shares
* companies under attack have seen their stock price depressed to a small
fraction of the price of an average share, therefore the fails-to-deliver as a
percentage of number of shares is considerably higher than as a percentage of
dollar volume

* the examples cited are limited to listed companies, but much of the abuse
occurs in the over the counter market, regional exchanges and on unregulated
foreign exchanges that allow naked shorting of American companies, who are not
even aware they are traded on the foreign exchanges.

Why does this continue to happen? It is no accident that the most pervasive
financial fraud in the history of this country continues unabated. The
securities industry advances its agenda on multiple fronts:
1. The truth about counterfeiting remains locked away with the perpetrators of
the fraud. The prime brokers, hedge funds, the SEC and the DTC are shrouded in
secrecy. They actively and aggressively resist requests for the truth, be it
with a subpoena or otherwise. Congressional subpoenas are treated with almost
as much disdain as civil subpoenas.
2. The body of securities law at the federal level is so stacked in favor of
the industry that it is almost impossible to successfully sue for securities
fraud in federal court.

For example, in a normal fraud case, a complaint can be filed based upon
?information and belief? that a fraud has been committed. The court then allows
the plaintiff to subpoena evidence and depose witnesses, including the
defendants. From this discovery, the plaintiff then attempts to prove his case.

Federal securities fraud cases can’t be filed based upon ?information and
belief?; you must have evidence first in order to not have the complaint
immediately dismissed for failure to state a cause of action. This information
is not available from the defendants (see above) without subpoenas, but you
can’t issue a subpoena because the case gets dismissed before discovery is
opened.

This is only one example of the terrible inequities that exist in federal
securities law.
3. The SEC is supposed to protect the investing public from Wall Street
predators. While the vast majority of SEC staffers are underpaid, overworked,
honest civil servants, the top echelons of the SEC frequently end up in
high-paying Wall Street jobs. The five-person Board of Governors, who oversee
the SEC, is dominated by the industry. The governors are presidential
appointees and the industry usually fills three slots, frequently including the
chairmanship.
4. For those rare occasions when the SEC prosecutes an industry insider, the
cases almost never go to a judgment or a criminal conviction. The securities
company settles for a fine and no finding of guilt. The fine, which may seem
like a large sum, is insignificant in the context of an industry that earned 35
billion dollars in 2006. Fines, settlements and legal expenses are just a cost
of doing business for Wall Street.
5. The root cause of the impossibly skewed federal laws and the
ineffectiveness of the SEC and other regulatory bodies rests squarely with our
elected officials. The securities industry contributes heavily to both parties
at the presidential and congressional levels. As long as the public is passive
about securities reform, our elected officials are happy to take the money,
which at the federal level was 65 million dollars in 2006.

The Democrats swept into power with a promise of ethics reform. Their majority
in congress allowed Christopher Dodd (D-CT) to ascend to the chairmanship of
the Senate Banking Committee, which regulates the securities industry. His
largest single contributor ($175,400) in the first quarter of 2007 was
(employees of) SAC Capital, a very aggressive short hedge fund. Are we
surprised that Dodd has opposed additional regulation of hedge funds. They are
virtually unregulated.
6. Some states have their own securities laws and their own enforcement arm.
Certain states including Connecticut, Illinois, Utah, Louisiana and others,
have begun active enforcement of their own laws. The state laws are not nearly
as pro industry as federal laws and plaintiffs are having success.

To thwart this, the industry with the support of the SEC, is attempting to have
the federal court system and federal agencies, be the sole venue for securities
matters. The SEC is working hand in hand with the industry to advance this
theory of federal preemption, which would put all securities matters under
federal law, all litigation in federal courts, and all enforcement with the
SEC.
The following are recent examples of how the SEC is advancing the industry
agenda:
* The San Francisco office of the SEC issued subpoenas to various short
friendly media outlets after congressional hearings about David Rocker and
Gradient Analytic. This investigation into the media involvement with the
shorts was ended by the chairman of the SEC, Christopher Cox, who withdrew the
subpoenas, apparently concluding that the First Amendment right to free speech
protected participants in an alleged stock manipulation. Jim Cramer ripped up
his subpoena on his television show, thumbing his nose at the SEC.
* In early 2007, the SEC completely exonerated Gradient, citing Gradient’s
First Amendment rights.
* The Nevada Supreme court heard a case captioned Nanopierce vs. DTCC.
Nanopierce is an emerging company that was attacked by the shorts and subjected
to massive counterfeiting of their stock by the DTCC. This state court case is
close to opening discovery against the DTCC, so the industry is attempting to
kill the lawsuit by arguing it should be in federal court ? where it will be
DOA. The SEC showed up as a friend of the defendant DTCC, and filed a brief in
support of the DTCC efforts to remove the case to the federal court system.
* Both houses of the Utah legislature passed a bill that required daily
disclosure of fails-to-deliver, including identifying specific companies and
the specific broker dealer positions in that company. The bill also outlawed
naked shorting of companies domiciled in Utah. The industry threatened
litigation based upon federal preemption and backed the state down. The bill
was not signed into law.
* A bill was introduced to the Arizona legislature that required disclosure
similar to the Utah bill, but without the illegal naked shorting provision.
This is the same information that the DTC confidentially provides to the SEC.
Certain prime broker’s lobbying effort allegedly managed to get the bill killed
in committee. The industries efforts to curtail state authority, is an effort
to draw all securities matters under the federal umbrella, where small
investors don’t have a chance of obtaining justice.
* In February 2007 the SEC determined that the hedge fund industry did not
require any additional regulation ? they are virtually unregulated. This may be
the height of arrogance.

Sources ? Information used was obtained from public records; the SEC; the
Leslie Boni Report to the SEC on shorting; evidence and testimony in court
proceedings; conversations with attorneys who are involved in securities
litigation; former SEC employees; conversations with management of victim
companies; and first hand experience as investors in companies that have
suffered short attacks. This web site is sponsored by Citizens for Securities
Reform.

What to Do? ? Many of our elected officials at the federal and state level do
not understand most of what is contained in this paper. They must come to
understand this fraud, and, more importantly, understand that their
constituents are angry.

Reactie door Meneer de schoolmeester - 15 juli 2010 om 18:43

Dat is nogal een boterham !

Geef uw reactie





CFD TRADING




+



INTERNET PRIVACY






GRATIS PRODUCTEN






Menu

Recente artikels

Recente reacties

Zoeken

Archief

Tags