NO MORE CANADIAN "NAKED SHORTS" for SHORT
SELLING BASHERS
Message 11551698
The above link was first published by Onigwecher and some
SSB's have questioned the authenticity of the Memo...
However, I recently posted an article, reportedly from
Street Wire by Brent Mudry, dated 22nd September, much
along the same lines...
FOLLOW MY TEN COMMANDMENTS, SAYS PETER
BROWN....
by Brent Mudry
In a strong hint that the wave of United States
prosecutions targeting OTC
Bulletin Board dealings of Vancouver brokerage firms is far
from cresting,
the head of the top Vancouver Stock Exchange member
firm recently sent a
stern and terse in-house memo to all his brokers. In a
two-page Sept. 2
memo, Peter Brown of Canaccord Capital warns that more
bad news may be
coming from regulators south of the border. "In the past
week we have fired
one investment adviser and suspended another for ignoring
our rules in
respect to dealing on the US. L Board market. ... Therefore,
your executive
committee thought it would be useful to reiterate our
concerns over trading
in a market which is fraught with problems," states Mr.
Brown.
Vancouver's best known broker notes that United States
Securities and
Exchange Commission is making a special study of
Vancouver firms dealing in
the barely-regulated bulletin board market, and the SEC's
probes have
proved fruitful. "The Board of Governors of the VSE has
been informed by
their president that there will be several more charges
against Canadian
registrants over the next several months as a result of L
board activity,"
states Mr. Brown.
The memo also confirms the SEC study is particularly
broad. "The British
Columbia Securities Commission, in co-operation with the
SEC, has gathered
all the L board trading records of several firms to examine
all the
activity being undertaken by B.C. registrants in this
market," says Mr.
Brown. The Canaccord chief also reveals that B.C.
brokerages are receiving
"multiple requests for trading information on L board
stocks" from the SEC.
As a reminder that Canaccord is not the only firm worried
about the long
arm of the SEC, Mr. Brown recounts the bulletin board
troubles of three
smaller rival Vancouver brokerages. The Canaccord head
states that Union
Securities has been named in a civil suit filed by the
SEC alleging stock
manipulation and fraud, two Pacific International
brokers have been
criminally charged in the U.S. for bulletin-board
dealings with an American
promoter, and Wolverton Securities has been "named as
a defendant" in a
U.S. indictment for allegedly operating accounts for
several U.S. and
offshore companies that engaged in illegal bulletin board
dealings and
money-laundering transactions.
The Union case probably refers to that firm's $320,000
(U.S.) consent
settlement last October with the SEC in ex-broker David
Gilbert's Members
Services affair with promoters Philip Sung and the late
Arthur Feher. The
P.I. case refers to the arrest of Dirk Rachfall and Michael
Patterson, who
made their first appearance in a Brooklyn courtroom last
week for their
alleged roles in a penny stock ring led by members of the
Colombo crime
family and the Russian mob in 1995. It is less clear whether
Mr. Brown is
strictly accurate regarding Wolverton, which was named as
an alleged
conduit, not a defendant, in the recent Stockplayer.com
case of ex-Stratton
Oakmont brokers led by Vincent Napolitano.
Mr. Brown has also unveiled a set of tightened rules to
minimize his firm's
regulatory and economic exposure in bulletin board deals,
and reminded his
brokers to be wary of contributing to any odd dealings of
U.S. clients and
offshore accounts. The Canaccord head reminds his
brokers of the importance
of the "know your client" rule. "It is imperative that you
know the
account, know how the client came by the securities and
have an
understanding whether or not Canaccord's dealings with
that client are
assisting promoters in circumventing U.S. regulations,"
he states.
Brokers are also ordered to "know the security," and
reminded the onus is
on them to know if the shares they are handling would be
deemed by Canadian
regulators to be part of an insider block. Canaccord's
interest here is not
purely altruistic. Mr. Brown notes that in many cases,
bulletin board
securities are issued to promoters for their services, and
"history has
shown" that transfer agents have cancelled such shares in a
number of cases
and charged back the brokers as much as three years later.
Canaccord claims
it will now only accept bulletin board securities that are
delivered in
through a recognized investment dealer.
Mr. Brown is also banning the transfer of funds or
securities by
non-resident clients to third parties. In addition,
Canaccord will
officially attribute no market value or loan value to any
bulletin board
issue held in client accounts. As for purchase orders, all
client accounts
must have sufficient cash and non-bulletin-board equity
before trade
execution. Canaccord will also only allow sales from house
long positions,
and ban shorting of bulletin board issues.
To keep a tight control on the reins, all bulletin board
trades must be
entered through Canaccord's order management system,
"other than exceptions
to be made by management." Canaccord will also officially
ban "directed
trades," rejecting instructions to direct a buy or sell order
to a specific
brokerage firm.
On the payment front, Canaccord claims it will only
accept payment for
bulletin board securities when the funds are wired into
the account in
advance, and no U.S. cheques will be accepted. In the
final of Mr. Brown's
Ten Commandments, the Canaccord head now decrees that
he will tolerate no
unusual dominance by his firm in any bulletin board deal. "If
our client's
trading appears to be the major dominant factor in the
trading of any
bulletin board issue we may well cease cease trading in that
security and
close the account," states Mr. Brown. The exact criteria for
this
subjective action is not specified.
"There are so many problems that have occurred with L
board trading that it
is incumbent on every salesman to take every precaution to
ensure that they
are meeting all the securities regulations in both the U.S.
and Canada. You
must thoroughly understand the business your clients are
asking you to
transact so that you do not find yourself an unwilling
participant in a
manipulative or law-breaking scheme," warns Mr. Brown. |
