October 19, 2005 (FinancialWire) In an unprecedented and overwhelming denunciation of the U.S. Securities and Exchange Commission handling of the events leading to the first of what may be many illegal naked short selling scandals, more than 90% of those voting in The Investrend Poll at investrendinformation.com) say the SEC should be “hugely blamed” for the Refco (NYSE: RFX) essentially putting the SEC’s regulatory team in the same category as FEMA in its response to Hurricane Katrina.
While Goldman Sachs (NYSE: GS) and Credit Suisse First Boston (NYSE: CSR), the firm’s IPO underwriters are being asked by the SEC to help bail it out of an embarrassing fiasco, the News Corp.’s (NYSE: NWS) New York Post is in fact comparing the SEC’s slowness to regulate hedge funds and the surrounding breaking levees, such as the stock market’s exposure to illegal naked short selling, to FEMA’s disorganization in protecting citizens.
Last Friday, long-time regulatory advocate Dave Patch, appearing on CNBC, asked bluntly, “How did Refco (NYSE: RFX) get through the regulatory vetting process when not only there were hidden liabilities but also the company’s key executives were under investigation for their roles in manipulatory short sales?”
Echoed the Post: “Why the SEC ever allowed Refco to go public in the first place is a mystery, considering the company has a long and thoroughly documented history of run-ins with the law — including sweetheart investment deals for Hillary Cliinton in the 1970s, apparent money-laundering for a branch of the infamous Bank For Credit and Commerce International in the 1980s, and an SEC probe into illegal short-selling tied to Refco four years ago.”
It is believed the monies at the heart of the Refco scandal are in fact unsettled funds related to the illegal naked short selling, and many have theorized that there may be untold billions of dollars in other financial institutions and hedge funds in the same leaking lifeboat.
The Post said no new laws are needed. Enforcement is needed.
When SEC Commissioner Annette Nazareth, the former head of SEC market regulation, was asked about the SEC’s lax attitude towards the Refco’s and its peers, she told the New York Times that it was much ado about nothing, and that the uproar was only from people who “want their stock to go up.”
One can only theorize that it is this attitude that has resulted in the complete collapse of public confidence in the SEC, as was the collapse of public confidence in FEMA.
Patch’s interview is at vmsdigital.com
His site, investigatethesec.com , has long held that the SEC has scrambled to protect illegal manipulators for fear that the lawbreaking had gone on so long and that it is so huge that it threatens the nation’s financial underpinnings. On CNBC, Patch again asked why the SEC can sit by and watch scores of companies listed on the Regulation SHO threshold list for almost a year, signifying that they are in continuous default of settlements required by the law.
He also asked why the SEC would try to “grandfather” the millions of settlement failures that preceded Regulation SHO, which went into effect in January. The “grandfathering” still hasn’t been court-tested as to whether it may be a kind of “pardon” that only a President may issue.
The SEC and the Depository Trust and Clearing Corp. continue to stonewall any attempt to require transparency in the marketplace as to the extent of fails to deliver, which some see as just a euphanism for “counterfeit shares.”
This scandal comes hard on the heels of allegations of misdeeds by Gradient Analytics and employees of TheStreet.com (NASDAQ: TSCM), in conspiracy with David Rocker and Rocker Partners in manipulating the stock of Overstock.com (NASDAQ: OSTK) and others comes another explosive case, this time against Refco Inc. (NYSE: RFX), one of the primary alleged miscreants in destroying Sedona Corp. (OTCBB: SDNA), once a Nasdaq-listed company.
Not since the Enron and Worldcom scandals has the financial markets been under such growing suspicion, except this time the cancer is not just in a treatable part of the body. This time it has spread through the lymph nodes and appears to be present in every vital organ as scores of companies seem permanently entrenched in the threshold lists maintained by Nasdaq and the NYSE, signifying over three-quarters of a year of the existence of counterfeit shares and unsettled trades.
Overstock CEO Patrick Byrnes, for instance, has released transcripts of discussions between himself and Morgan Stanley (NYSE: MWD) over shares that he could not get delivery on, and says his father has still not gotten delivery on 200,000 shares that he bought.
Byrne said that he believes between 5 million and 20 million counterfeit shares are currently in the marketplace, presumably on the major exchanges alone.
He has also added libel to the list of legal charges against Rocker and Gradient and others.
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