Although I disagree with some of the language, here is more.
from another board;
Yet another interesting read:
By: koiman6
22 Apr 2005, 09:47 AM EDT
Msg. 199575 of 199579
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I have decided to focus on other business right now so instead of trying to sell this article to a newspaper or magazine I am releasing it for free distribution. Please feel free to disseminate as widely as possible. Koiman6.
Anyone wishing to contact me may do so at treasurehunter4 at yahoo dot com
“Does the SEC Sanction Stock Counterfeiting???”
This disturbing question surrounds an illegal stock market activity, long tolerated by the SEC called “naked short-selling”. It is the literal equivalent of stock counterfeiting. This practice amounts to theft of investor’s money by the selling of non-existent stock, diluting legitimately issued shares. It is the job of the SEC to prevent this sort of white-collar crime. Apparently the SEC has a differing view on this matter and appears to be in violation of the very mandate that empowers them to regulate the stock market in order to protect the investing public.
Many investors are greatly disturbed by the declaration the SEC makes in a document posted on the SEC website on April 11, 2005. In section 2 of this document on this webpage, www.sec.gov/spotlight/keyregshoissues.htm , we find this statement by the SEC: “Naked short-selling is not necessarily a violation of the federal securities laws or the Commission's rules.“ This outrageous statement flagrantly contravenes securities law and indeed the principle mandate of the SEC, which is the protection of the private investor.
So what exactly do we mean by ‘naked short-selling’ and is this practice truly a threat to the investors in the stock market?.
In simple terms, “naked short-selling” or “failure to deliver” is the de facto counterfeiting of stock and sale of these “phantom shares” into the market. Here’s how it works… In a legal short-sell, shares are borrowed, the shares are then sold with the hope that the price will drop. When the price drops, the short-seller buys the same number of shares from the market and returns them to the entity from which they were borrowed. The short seller keeps the difference in price as profit. If the price rises and the short-seller is compelled to buy at a higher price then they lose money. A risky but legal game. Legal, that is, unless the short seller never borrowed the shares in the first place. This is naked short-selling, i.e. illegal counterfeiting of stock in that the shares were never borrowed in the first place for delivery to the buyer. The shares are created out of thin air, sold into the market and thus dilute the number of legitimate shares already existing.
“Naked short-selling” is synonymous with the term “stock counterfeiting” and that more honest term will be used interchangeably from this point on. It is the literal equivalent of printing money, walking down to the store and spending it. Now if a private citizen were to do that they would quickly land in jail and rightfully so since counterfeiting artificially devalues the legitimate money already in circulation. Likewise, your investment dollars become devalued by stock counterfeiting.
This is why many investors are puzzled by the seemingly conflicting statements and actions of the SEC in regards to naked short-selling. The conclusion reached during an SEC meeting that took place on October 21’st of 2003, was that naked short-selling is “Manipulative, Abusive and Problematic”. Now, a year and a half later the SEC says it is “not necessarily illegal”?
The conditions under which the SEC attempts to grant legitimacy to the crime of stock counterfeiting are suspect at best. Again to quote from the April 11, 2005 SEC document, “…in certain circumstances, naked short selling contributes to market liquidity. For example, broker-dealers that make a market in a security generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers.” This is absurd. What purpose is served by creating a mechanism by which Market Makers can churn shares back and forth between themselves in a market with NO buyers or sellers?
At this point, one must ask the question, “What in blazes is going on here?” How, one wonders, can the SEC allow such practices to continue and how is it that the SEC issues seemingly contradictory statements in regards to a practice designed to steal money from the American public? Well hang on because it goes from bad to worse…
Again, we return to the quote from the SEC… “Naked short selling is not necessarily a violation of the federal securities laws or the Commission's rules.“ I wonder then about Title 18, Chapter 25, section 473 of the US Criminal Code where the subject of “dealing in counterfeit obligations or securities” is fully addressed? Does the SEC not have an obligation to promote adherence to the laws set forth under this code? Indeed they do and it is found in the very mandate that created the SEC in the first place. This would be The Securities and Exchange Act of 1934, Section 17A, Paragraph 2. This is the congressional mandate the SEC is not fulfilling:
“2) The Commission is directed, therefore, having due regard for the public interest, the protection of investors, the safeguarding of securities and funds, and maintenance of fair competition among brokers and dealers, clearing agencies, and transfer agents, to use its authority under this title--
i. to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of transactions in securities…” (emphasis added)
Clearly something is deeply and troublingly wrong with our system of trading stocks. We have, by congressional mandate, an organization whose job it is to oversee the market and insure fair trading practices and this organization, the SEC, has dropped the ball. More to the point, the SEC seems to be blatantly aiding and abetting profoundly criminal activity. However, the SEC is not the only organization at fault here. The Depository Trust Clearing Corporation (DTCC) has its hand in the cookie jar too. The DTCC is the private organization responsible for clearing nearly all stock transactions that occur in this country. It is a quasi-governmental organization, a member of the U.S. Federal Reserve System, and is actually privately owned and operated by some of the most powerful individuals from within the financial and banking industry. The biographical data on the DTCC website is somewhat chilling as one is left with the sense that the foxes are indeed guarding the henhouse…and we are the hens.
One case involving problems with the DTCC, and there are many, is that of Eagletech Communications, Inc. (ticker symbol EATC). Recently, Rodney E. Young, the CEO of Eagletech wrote an open letter to the general counsel of the DTCC in which he states, “on March 4, 2005 Eagletech Communications, Inc.’s Attorneys announced the ruling of the Supreme Court of the State of New York, wherein the DTCC was compelled to produce the Company’s trading records.
Today, more than one month later, the records have not been forthcoming as ordered by the court”. The complete letter may be found on the company website at www.eagletech1.com/prn04052005.html In brief, Eagletech stock has suffered greatly at the hands of naked short-sellers whose illegal activities have been aided and abetted by the “stock-borrow program” offered by the DTCC, according to Mr. Young.
The DTCC “stock-borrow program” is one of those good intentions that has predictably paved the road to Hell and it appears to be a major contributor to this fetid cesspool of illegalities. To quote from the DTCC website…this is how it works: “The Stock Borrow Program allows participants to lend NSCC available stocks and fixed income securities from their account at The Depository Trust Company (DTC), to cover temporary shortfalls in NSCC's Continuous Net Settlement (CNS) System.” In other words, the DTCC funnels phantom stocks from thin air into the market place in hopes that these shares will be balanced by the influx of trades being settled, acting as a buffer for the volatile stock markets. Sounds good on paper but it obviously has added to the problem of persistent delivery failures, which equate to the counterfeiting of shares any way you look at it. Perhaps that is why the DTCC continues to defy a judicial order in regards to delivering the trade records of Eagletech Communications.
The scope of this brief article is not sufficient to fully explain the complexities of the DTCC’s involvement in this naked short-selling scandal some refer to as “Stockgate”. For an in-depth discussion please refer to the following article at www.investors.com/breakingnews.asp?journalid=22565366&brk=1 A brief quote from this article is disturbing to say the least, “The recent lawsuit filed by Nanopierce Technologies (NPCT) alleges that the Depository Trust and Clearing Corp. has a lot of reasons, almost one billion of them a year, to keep illegal naked short selling in operation. It was the shot across the bow by the legendary Houston law firms of Christian, Smith, Wukoson and Jewell, and OQuinn, Laminack and Pirtle, whose notches already include environmental targets, the breast implant industry and the tobacco industry, all brought to their knees.
In comments to the U.S. Securities and Exchange Commission, C. Austin Burrell, who is providing litigation support and research for the law firms, said that StockGate is more massive than anyone may have imagined. "Illegal Naked Short Selling has stripped hundreds of billions, if not TRILLIONS, of dollars from American investors," and have resulted in over 7,000 public companies having been "shorted out of existence over the past six years." Burrell said some experts believe as much as $1 trillion to $3 trillion has been lost to this practice”. End quote.
There are some who will downplay the negative effect that naked short-selling / failures to deliver/ stock counterfeiting has on the market. Their principal argument is that when stock counterfeiting does occur, it happens mainly with “penny stocks” trading on the Over the Counter Bulletin Board (OTCBB) and the much beleaguered Pinksheets (OTC’s) where many companies massively dilute their own stock with fresh shares just to survive. This begs the question though, “Would these small, struggling companies be compelled to dilute their stock nearly so much if their stock price per share were not being driven to the ground by the criminal activity of stock counterfeiting?”
Indeed the cases before the courts right now that illustrate just how bad this problem really is and how hundreds of struggling companies and their many thousands of shareholders are being adversely affected. “Adversely affected” is not worded strongly enough. Investors are being robbed blind by the criminals who operate within the market system AND from beyond our shores and direct jurisdiction through hedge funds and other trading entities. And where do these ill-gotten monies go? Organized crime? Terrorist organizations?
Has the SEC made any attempt to address the issue of stock counterfeiting? Well yes and no. In late 2004, early 2005 Regulation SHO was put into effect ostensibly to shine the light of scrutiny and enforcement upon the issue of naked short-selling / stock counterfeiting / settlement failure (choose your euphemism). However, the SEC forgave or “grandfathered” all “settlement failures” prior to the implementation of the SHO regulations. Even so, hundreds of companies, large and small appeared on the list 13 days after the clock started ticking. (the arbitrary time allotted by the SEC to settle trades) Many have remained there to the dismay of investors. SHO has been a dismal failure. The new regulations have apparently been ignored both by the crooks and the enforcement division of the SEC. Out of the hundreds of companies who have made the list there has not been a single action taken, as far as can be determined, against any of the parties involved in the willful and illegal shorting of these stocks. For an in depth discussion on the details of SHO and failures thereof please refer to this link: www.investigatethesec.com/DP120205.htm
Investors are worried and are asking many important questions such as, “Why does the SEC allow the fraud of stock counterfeiting via naked short-selling to continue?” “Do I wish to continue to invest my hard earned dollars in a market rife with corruption from the top down, corruption that is far too complex to be easily understood?”
The SEC is supposedly the protector of the investing public. Who is protecting us from the SEC?
These at least are questions that many of us ask daily and for many of us it is why we hesitate to throw good money after bad by continuing to invest our honestly earned monies in a system that is apparently designed to steal from us. Hundreds of BILLIONS of dollars have been stolen from us, and the companies for which we work. Yet, every day, day after day, the theft continues. What are we to do? We are left with few alternatives.
Fix the problem, SEC, or we take our investment dollars elsewhere.
References and websites of interest:
www.faulkingtruth.com
www.investigatethesec.com
www.sec.gov/spotlight/keyregshoissues.htm
www.dtcc.com/ProductsAndServices/clearing/stock.html
www.investors.com/breakingnews.asp?journalid=22565366&brk=1 |
