Jack Anderson Alleges Naked Shorting Used by Terrorists, Money Launderers / FinancialWire®
November 25, 2003. (FinancialWire) Nationally syndicated columnist Jack Anderson has raised the bar on the debate over naked short selling to a new level by alleging that the practice has been used by terrorists and international money launderers while the U.S. Securities and Exchange Commission has been silent.
Anderson writes for the United Feature Syndicate, a unit of EW Scripps Co. (NYSE: SSP). The national scandal has embroiled some 119 companies, including at least 13 brokers, such as Olde / H&R Block (NYSE: HRB), and Charles Schwab (NYSE: SCH), Toronto-Dominion’s (NYSE: TD), TD Waterhouse Group.
Anderson said that despite the fact the SEC has introduced proposed Regulation SHO to deal with the issue, “the bad guys have gotten worse.”
The SEC is saying that naked short sellers “are manipulating the stock market,” notes Anderson, “and they are manipulating the stocks they select in a negative direction. Typically, they pick on smaller, underfinanced companies that rely upon their stock prices to raise capital.”
He stated that “it is increasingly being claimed in lawsuits and courts that naked short sellers include terrorists and other criminal elements, who use the method to launder money. It is perhaps this aspect of the activity that has alarmed the authorities. What is going to alarm them even more is the extent of the practice and the billions of dollars it has cost investors and companies.
"Naked Short Selling can have a number of negative effects on the market, particularly when the fails to deliver persist for an extended period of time and result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. Naked short sellers also enjoy greater leverage than if they were required to borrow securities and deliver within a reasonable time period and they may use this additional leverage to engage in trading activities that deliberately depress the prices of the security."
Anderson points out that in normal, legal short selling, “a stock is borrowed and sold in the hope that a stock price will decline. At some point the short seller buys the stock back, which is called covering, and delivers it back to the source that loaned it to him or her.”
But in naked short selling, Anderson explains that stock “is shorted – sold – but not borrowed, so no stock
is delivered to the purchaser – no physical stock, that is. What the purchaser receives is an electronic notification instead.”
Anderson said that the public has until January 5, 2004 to submit comments, and he encouraged people to “let the SEC know what they think about the criminal manipulation of our stock markets.
“This is a larger issue than they know,” he exclaimed, ominously.
Regulation SHO is the subject of a comment period at sec.gov .
Some thirteen on the list of 119 companies, A.G. Edwards, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ: AMTD), Deutsche Bank AG (NYSE: DB), E*Trade Group, Inc. (NYSE: ET), FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (NYSE: GS), Knight Securities, LP (NASDAQ: NITE), Ladenburg Thalmann & Co., Inc. (AMEX: LHS), M. H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto-Dominion’s (NYSE: TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN), have been accused by one or more public companies as allegedly participating in short selling activities or abuses, or of failing to settle trades.
During discussions about the proposed new rule, which would make it illegal for anyone to sell a company’s shares short without having first finding stock that can be delivered within two days, the Commissioners sharply disagreed with the staff that the accompanying new “rising bid” rule could not be applied equally to over-the-counter stocks.
The staff was insistent that OTC and OTCBB stocks do not have reliable consolidated prices, but the Commissioners, including Chairman William Donaldson, implored the staff to try harder, and suggested that public commentators “may help us find a solution.”
The proposed rule states that if a broker or an investor fails to deliver within two days after the settlement date, the account of that firm or individual will effectively be unable to short sell that stock for 90 days.
Critics already disagree with that, believing that it should be the brokers and dealers who “assist” the short selling process who should be banned from short selling if their firm is in violation.
Since the proposed rule will effect short selling outside the U.S. as well as within the borders, the biggest campground for manipulative traders, Canada, would be sharply curtailed.
Staff said that in 1999 when short selling was last examined, the SEC got over 2,000 comments. The upcoming 60-day comment period could see that record broken.
The SEC said that comments should be sent by hard copy or e-mail, but not by both methods. Comments sent by hard copy should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.
Comments also may be submitted electronically at the following E-mail address: rule-comments@sec.gov. All comment letters should refer to File No. S7-23-03. Comments submitted by e-mail should include the file number in the subject line. Comment letters received will be available for public inspection and copying in the Commission's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Electronically submitted comment letters will be posted on the Commission's Internet web site (http://www.sec.gov).
Observers have said that trades to not settle because broker-dealers do not effect buy-ins, as required by law, and that there is an unspoken understanding that any brokerage that tries to force a buy-in will be retaliated against.
Some 106 companies among the 119 named to date have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.
The complete list of those 106 companies include Advanced Viral Research Corp. (OTCBB: ADVR), AdZone Research, Inc. (OTCBB: ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (OTCBB: AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (OTC: ATSC), Federal Agricultural Mortgage / Farmer Mac (NYSE: AGM) Allied Capital (NYSE: ALD), American Motorcycle (OTC: AMCYV), American International Industries (OTCBB: AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), Bluebook International (OTCBB: BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (OTCBB: BIFT), Biocurex (OTCBB: BOCX). Broadleaf Capital Partners, Inc. (OTCBB: BDLF), Chattem, Inc. (NASDAQ: CHTT), Critical Home Care (OTCBB: CCLH), Composite Holdings (OTC: COHIA), CyberDigital, Inc. (OTCBB: CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (NASDAQ: DCEL), Eagle Tech Communications (OTC: EATC), Edgetech Services (OTCBB: EDGH);
Also, Endovasc Ltd. (OTCBB: EVSC), Enviro-Energy Corporation (OTCBB: ENGY), Environmental Products & Technologies (OTC: EPTC), EPIXTAR Corp. (OTCBB: EPXR), eResearchTechnologies, Inc. (NASDAQ: ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (NYSE: FRE), FreeStar Technologies (OTCBB: FSRCE), Geotec Thermal Generators, Inc. (OTCBB: GETC), Genesis Intermedia (OTC: GENI), GeneMax Corp. (OTCBB: GMXX), Global Explorations Inc (OTC: GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On (OTC: HPON), H-Quotient, Inc., (OTCBB: HQNT), Hyperdynamics Corp. (OTCBB: HYPD), International Biochem (OTCBB: IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (OTCBB: IBCS), InternetStudios, Inc. (OTCBB: ISTO), ITIS Holdings (OTCBB: ITHH), Investco Corp. (OTCBB: IVCO), Lair Holdings (OTC: LAIR), Lifeline BioTechnologies Inc. (OTC: LBTT), Life Energy & Technology (OTCBB: LETH), MBIA (NYSE: MBI);
Also, MegaMania Interactive (OTC: MNIA), MetaSource Group, Inc. (OTCBB: MTSR), Midastrade.com (OTC: MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (OTC: MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (OTCBB: NPCT), Nutra Pharmaceutical (OTCBB: NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (OTC: NVGV), Orbit E-Commerce, Inc. (OTCBB: OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (OTC: PYST), Petrogen Corp. (OTCBB: PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (OTCBB: PDVN), PrimeHoldings.com, Inc. (OTC: PRIM), Phlo Corporation (OTCBB: PHLC), Resourcing Solutions (OTC: RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (NASDAQ: SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (OTCBB: SDNA);
Also, Sionix Corp. (OTCBB: SINX), Sonoran Energy (OTCBB: SNRN), Starmax Technologies (OTC: SMXIF), Storage Suites America (OTC: SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (NASDAQ: SPRI), Technology Logistics (OTC: TLOS), Swiss Medica, Inc. (OTCBB: SWME), Ten Stix, Inc. (OTCBB: TNTI), Tidelands Oil (OTCBB: TIDE), Titan Construction (OTC: TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (OTCBB: USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (AMEX: VRA), Viragen International (OTCBB: VGNI), Vista Continental Corporation, (OTCBB: VICC), Viva International (OTCBB: VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (OTCBB: WIZD), WorldTradeShow.com (OTC: WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK). |
