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Microcap & Penny Stocks : Naked Shorting-Hedge Fund & Market Maker manipulation?
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To: Hawkmoon who wrote (3670)8/3/2008 10:51:01 AM
From: Hawkmoon  Read Replies (1) of 5034
 
Copy of a letter I just sent to my broker's PR department. I suggest that other investors do the same with their brokers:

I am a Scottrade customer, and I wanted to voice my utter disgust at how Naked Short Selling (NSS) activity has impacted my investment activities. The stocks I've often invested in have often suddenly shown up on the Reg SHO list, which clearly indicates that failures to deliver reflect an assault on the established market based price discovery process.

I also wanted to share a letter to the SEC from the VP of Smith Barney in regard to the issue. I sincerely share his views that NSS are undermining the integrity of the equity markets. The fact that, somehow, broker/dealers (B/Ds) are loaning out shares for such activities means they are complicit in this activity. I can only presume that, as investors decrease their level of margin exposure on the long side, that B/Ds are forced into a position of maintain their margin interest income by loaning out their customer's shares to these NSS practitioners, even if those shares are not held in a margin account currently in "debit" status (using margin).

sec.gov

Since I have a margin account, but seldom use actual margined funds to purchase stock, if I discover that my shares are being loaned out for the purpose of facilitating Naked Short Selling activities, I will hold Scottrade personally responsible. My local branch of Scottrade contacted your margin department and they assured both he and I that your firm does not permit shares to be loaned out unless in a "debit" status. This is how it should be because it represents market based price discovery. Only margined stock from accounts currently in debit should be available for lending for the purpose of LEGITIMATE short selling. That's a proper purpose for short-selling.. I borrow money from you and you have the right to loan out my "liened" stock to short sellers. But anything beyond that constitutes the counterfeiting of a company's outstanding stock float that distorts the price discovery process in favor of Naked Shorts.

I hope that you can reassure me that Mr. Riley understands these issues (as Mr. Markoff of Smith Barney apparently does) and the threat that it poses to market integrity and the ability of companies to raise needed capital. I strongly urge you to bring this matter to Mr. Riley's attention and ask that he ALSO address the issue to regulatory entities before it results in further undermining of our capital markets.

It's time for ALL broker dealers to act on this pernicious cancer infecting our markets. Your customers are counting on you to stand up for our interests, and those of the country as a whole.
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