Very interesting article from another board on the problems of brokerage shorting.
Panic at the DTC due to lawsuit
The Transfer Agent of Medinah Minerals Inc. filed an “Adverse Claim” lawsuit against the
DTC(depository trust corporation)http://www.dtcc.com/ last week.
He had to do this because he was caught in a pickle between a company insisting on the
names and shareholdings of all individual beneficial owners, and the DTC that didn’t want
the world to know the shareholdings of the 6,000 shareholders that they were acting as
custodian for.
Our contact at the DTC confirmed that on Monday 4/2/01, the DTC threw in the towel, and
ordered the 124 brokerage firms that own Medinah to contact the company headquarters
and provide them with the name, address, and accurate shareholdings of each and every
one of their shareholders that they hold shares for.
The ball is now in the court of the 124 brokerage firms.
The much sought after exchange of an omnibus certificate of 60 million shares of
Medinah Mining, for an omnibus certificate of 59 million shares of Medinah Minerals,
which would basically allow this house of cards the illegal short sellers have built to dodge
another bullet, will not occur.
This committee has waited 4 long years for this to happen.
We can now communicate with all of the 7,100 shareholders of Medinah for the very first
time, if the brokerage firms comply. We will have 100% visibility of the phantom shares,
and the sellers thereof will be forced into the open market to buy these shares back on
behalf of their rightful owners, who have been diligently seeking their delivery for months
and months, but to no avail.
Our committee’s legal consultants inform us that this is an absolute first in the history of
the DTC.
Wow! After 4 long years of death threats, market manipulation, being stalled and lied to
by brokerage firms, being dragged through the mud by Internet bashers, being accused
of lying, distorting the truth, etc. it’s finally over.
So just how big is this legal victory, and what are its immediate consequences?
The best way to address this is to put your feet into the shoes of a market maker that has
just shorted 50 million shares of Medinah over the last 4 years. Being a “bona fide”
market maker he has been allowed to sell as many “phantom”(naked) shares of Medinah
as he could get away with, and believe us when we tell you that there aren’t any cops on
the beat.
All of those buy orders over the years that he sold phantom shares into now have to be
placed under a microscope and accounted for, due to the recent litigation victory.
The 124 different brokerage firms that currently own Medinah have been ordered to go
through their records and review how many of those purchases actually were followed up
with good delivery.
Brokerage firms don’t worry at all about good delivery until situations like this arise.
Things are so chaotic on Wall Street and the commissions are currently so cheap that it
is cost prohibitive to follow up each of the billions of trades done by various firms to
determine if good delivery has been made.
There are literally billions of IOU’s floating around in cyberspace that are rarely audited.
If some market maker failed good delivery, then there is plenty of time later to see which
one did it, and how many shares he failed to deliver. The all-telling paper trail is always
there.
Based on the presumption that half of our brokerage firms are “dirty” in regards to this
illegal short selling campaign, and that half are “clean”, what we foresee happening in the
next couple of days is that the 62 different “clean” houses will go through their trading
records and determine how many shares they should have in their account at the DTC,
based on 100% good delivery by
the respective market makers, and compare this number to how many shares they in fact
have in their account there.
The difference between these two numbers will then represent how many shares were not
properly delivered by the market maker after their purchase.
The brokerage firm will then go into the open market, and buy that amount of shares
under a guaranteed delivery notation, and promptly hand the bill to the various market
makers guilty of not making good delivery.
The fun part is that the trading desk at the brokerage firm doesn’t particularly care how
much he has to pay for the shares because he’s not going to pay the bill, besides it will
be nice to get these pesky Medinah shareholders off of our backs bugging us for delivery
of certificates. He does, however, have to buy real shares out of the back pocket of one
of us with a registered cert there, which is a lot more expensive than just buying in the
open market, and getting shares shorted to you. The broker then hands the recently
purchased share cert to the shareholder who was demanding delivery of his cert. Brokers
can no longer use the excuse of a “chill” or “freeze” at the DTC.
Thus the immediate effect at a “clean” brokerage firm pertains to dirty market makers that
didn’t make good delivery being bought in via the open market. One has to remember
that the only people that have a cert in their hands right now are the 70 or 80 million that
have had their registered Medinah Mining certs processed by the Transfer Agent. How
many of these want to get rid of these
certs a couple of days before a big fat dividend is earned is the other side of the equation
that must be evaluated. All 60 million shares available at the DTC will come from these
“clean” brokerage firms.
Now what will happen to the “dirty” brokerage firms that knowingly filled all of those
purchase orders over the last 4 years with phantom shares? They will have to approach
the 1,500 or so of us that hold the “real” registered certs. Let’s say that the date by now is
April 20 or so. The problem again arises as to who among them wants to sell their shares
right before the big dividend day.
But to complicate matters, the State District Attorney’s office is now in high gear with a
gun at the head of the “dirty” brokerage firms insisting that they hand a registered cert to
the shareholder that filed charges within the next 72 hours.
To further complicate matters, the “dirty” brokerage firm doesn’t want to cross that May 1
dividend record date for that would increase his short position by another 20%. So
basically, you have a situation from April 20-30, wherein a zillion shares are trying to be
bought because of dividends, deadlines, pressure from District Attorneys, and the risk
disappearing because of the recent
litigation victory, at the same time that nobody wants to sell any shares.
What would really be scary to ponder is what would happen if the good guys put together
a 50-100 million share buying campaign driven by all of these favorable overlapping
circumstances. Just think of 50-100 million shares of buying all going after those
dividends which would have to be covered by the short sellers, and paid to all buy orders
that settled by and started the registration process by April the 30th.
What other sequel can we anticipate? Any shares loaned out by the DTC or the lending
department of a brokerage firm, will of course, have to be surrendered, exposing some
investors especially from offshore. All of those “desked” buy orders over the years that
never did show up as trading volume on any given day, will of course be exposed. Any
shares hypothecated against loans or towards net capital reserves of a broker/dealer will
of course be pulled also. All of those bogus electronic transfers that
were done will have to be negated, since all shares are being delivered to the home of
the registered shareholder.
Please remember also, DO NOT return your registered certs back to a broker until the
day you want to sell some shares. Our second bogus cert showed up last Thursday. It
was for 500,000 shares. Our first one was for 870,000 shares. Our third one came in the
form of a bogus convertible preferred share for a very, very, very
large amount of shares. Be on the look out for dozens of other ones. Any share not
mailed out from the Transfer Agent in Salt Lake City should be carefully scrutinized.
Our auditing firm has informed management that they are filing litigation against those
forces that spent two years doing everything in their power to thwart the successful
completion of our financials. They are doing
this independent of Medinah.
The 20% dividend process might bear further scrutiny. The beauty here is really
threefold:1) The company itself doesn’t have to pay the dividend for a year, yet the
shorters short the dividend have to pay it immediately upon demand. There aren’t many
ways to cover Rule 144 shares if the company is not willing to help them. 2)Most
commonly, the perpetrators of the “bear raid” are forced
to cover the dividend immediately with free trading shares, thereby adding a little bonus
to the shareholder. 3)The 20% dividend on the record date of May 1 also sets up a time
barrier that the shorts don’t want to breach, for any short position not covered by May the
1st becomes 20% larger, because shorts are liable to cover any dividends awarded to a
shareholder during the time he is
short.4)This then puts the short sellers into the unenviable position of having to cover his
short position in the April 20-30 time frame, when a ton of opportunists are also buying for
the free dividend, which also just so happens to overlap with the timeframe when all of the
shares are in a registered format, and in the back pocket of loyal shareholders who have
no intention of selling and
losing their free 20% dividend. Thus we can dictate when the “bad guys” have to cover.
Then if you accidentally throw in some pressure from the regulatory officials, the civil
litigation, and the State District Attorneys, you come up with a severe supply and demand
imbalance.
There is still the possibility that some brokerage firms will fall asleep at the wheel, and
sleep right through the May 1 deadline. We must pre-suppose that all of the firms will do
this and we must have the State District Attorneys ready to strike right around April the
10th. All of us with shares in the “pipeline” of registration must do this without exception.
Also make sure your brokerage firm has
undone all electronic transfers. Also don’t fall victim to a broker trying to convince you that
you don’t need to take delivery of your registered cert.
This is the oldest trick in the book wherein a broker convinces you that all you need to do
is to tell him when you want to sell, and he will credit your account with the proper amount
of money in a mark to market fashion, based on where the market is trading on that day.
What we want your broker to do, however, is to aggressively chase the market upwards
while buying in your certs. Make
him do this with the same fervor he showed while shorting you your shares in the first
place.
KK |
