This is going to get interesting. A return volley:
OTC Bulletin Board Companies Unite to Assert Issuers' Rights to Opt Out of DTC Share Transfer System and Protect Shareholders
Press Release Source: Investor Communications International, Inc.
Monday January 27, 9:04 am ET
Dow Jones Newswire Reporter Remond Misses the Point of Companies' Actions
BLAINE, Wash., Jan. 27 /PRNewswire/ -- The following is being issued by Investor Communications International, Inc.
In another installment from the flow of misinformation by Dow Jones Newswire's Carol S. Remond, the reporter has again confused investors and misled issuers about the status of the country's electronic transfer system. Operating from a shrouded source of information, Remond continues to file edicts produced apparently by an entity other than duly authorized and knowledgeable officials, about the status of the system.
Remond's newswire Friday, January 24, 2003 claims that actions of The Depository Trust & Clearing Corporation (DTCC) to move to a "paperless" electronic transfer system for securities has led to the DTC (a subsidiary of DTCC) refusing any exit by a public company seeking to remove stocks from the global electronic system in favor of the physical delivery of share certificates. Indeed, the DTC has no authority to establish such guidelines and could contravene Federal Depository rules in any attempt to block the withdrawal from its system.
According to a spokesman for the OTC Bulletin Board companies, "Our legal research indicates that DTC's reliance upon UCC Article 8 (law governing share transfers) is misplaced and provides insufficient legal authority to prevent a public company from removing its securities from the DTC system. The primary reason is that the DTC, as a branch of the Federal Reserve, is required to abide by Fed rules as a depository. One of the rules states that DTC cannot hold shares that bear any sort of restriction. Refusing to exit securities and continuing to hold them in the name of their nominee could potentially represent a violation of Federal Reserve rules, as well as perpetuating and possibly facilitating naked short selling."
There are numerous types of restrictions that an issuer can place on its securities. Some examples are "private offering not eligible for purchase by a US citizen", "shares subject to trading restrictions", "lock up agreements" and many others.
The misleading statements by Remond are nothing new. Her comments have been consistently inaccurate and inflammatory, precipitating numerous public responses by the companies she has attempted to implicate as operating outside of the system. Rather than address the underlying problem, Redmond twists facts regarding the withdrawal process and refers to the OTCBB companies as attempting to thwart "short selling", instead of "naked short selling" -- a very different and legally compelling distinction.
Short Selling is legal and routinely takes place. A short sale is a transaction where stock is pledged against stock to be sold. The seller makes the sale anticipating that the share price will decline so that a purchase or "buy-in" can be made later at a price below the sale to create a profit from the difference between the sale and purchase.
Naked Short Selling is not legal, according to US SEC rules. Naked short selling takes place where shares sold are never borrowed, never delivered by the seller, but nevertheless the seller collects money for the stock not delivered within the three days prescribed by NASD guidelines. The three-day settlement system run by the National Securities Clearing Corporation ("NSCC") does not ensure that shares that are sold in a transaction are ever delivered.
Case in point is Genemax (GMXX), which by the transfer agent's records, clearly establish total tradable shares of less than 400,000 -- with "fails to deliver" totaling in excess of a million shares. This means illegal short sellers -- primarily Canadian firms, often managing accounts of U.S. residents -- openly violate NASD and SEC guidelines requiring a short seller to obtain an "affirmative determination" before executing any short sale.
The actions of DTCC surround the move by a growing group of OTC Bulletin Board companies, led by GeneMax Corp. (OTC Bulletin Board: GMXX - News), that began exiting the system in 2002 in favor of Certificate Only holdings. Others joining the move to withdraw from the DTC include Ten Stix Inc. (OTC Bulletin Board: TNTI - News), Midas Trade (OTC Bulletin Board: MIDS - News), Hadro Resources (OTC Bulletin Board: HDRS - News), and Vega Atlantic Corporation (OTC Bulletin Board: VATL - News), among others. Other companies, including Intergold Corporation (OTC Bulletin Board: IGCO - News) have applied for or expressed their intent to withdraw. These companies are opting out of the DTC system to combat the Naked Short Selling abuses made possible by the electronic transfer system, which is flawed.
The primary reason that moving to a non-DTC eligible status works in curtailing the illegal activity of Naked Short Selling is the responsibility for the completion of the purchase transaction. A DTC eligible security clears through the NSCC (National Securities Clearing Corporation), which in turn is responsible for making sure that the seller of the shares electronically delivers the position to the buyer. In the case of a naked short sale, the NSCC does not require the seller to deliver the shares -- as is the case with the Canadian naked short sellers, who hide behind IDA Rule 100, which allows them to short shares without borrowing them first.
This electronic system, called CNS (continuous net settlement), simply does not require these Canadian and offshore firms to ever deliver the shares they illegally sell, earning the nickname among market participants, in a parody of the CNS system, as "Continuously Never Settle." This is how, in electronic form, companies like Jag Media Holdings (JGMHA) can have an estimated short position which purportedly exceeds the total outstanding by two or three times.
In physical form, the responsibility to complete the transaction (i.e. receive the shares that were purchased) falls to the purchasing broker, who, on settlement day, expects to receive the physical certificate. When this process begins, the broker can execute a "buy-in" -- buying shares from the market to complete the transaction for his customer -- who typically has no idea that the shares they paid for were never delivered.
The ongoing efforts to extol the virtues of the market makers and their clearing houses by a lapdog reporter is becoming the central focus uniting all OTC Bulletin Board companies to act against this misuse of the public trust.
According to the Transfer Agent handling the withdrawal from the DTC, Robert Stevens of Global Stock Transfer, "The overwhelming response to the concept of 'certificated trading' by public companies -- including NASDAQ stocks -- confirms that the concept is timely and correct. This clearing style is acceptable for not only OTC BB Companies but also NASDAQ small cap and NMS companies as well, provided they follow jurisdiction requirements."
In response to shortfalls of the system and focused attacks by the likes of Remond, an association has been formed by Investor Communications International (ICI) to bring the entire group of OTC Bulletin Board companies together as a common voice. The National Association Against Naked Short Selling was launched in January 2003 and has forwarded a registration and participation letter to all OTC BB companies. The letter explains that the group's mandate is to form a common interest against these illegal and unethical abuses, provide information to the Federal Authorities at all levels and begin a national scale public relations campaign for awareness amongst the responsible and independent leading media and investment industry contacts. The goal is to ensure enforcement of the existing legislation which would safeguard shareholders and the companies they invest in.
OTC Bulletin Board companies seeking to protect themselves against predatory trading and Naked Short Selling can take immediate action by registering with the National Association Against Naked Short Selling (www.nakedshortselling.com) at its website, sponsored by ICI. Companies can also find how to carry out the process of opting for Certificate Only trading by contacting ICI, toll free at 800-209-2260 or registering online at www.icihome.com.
SAFE HARBOR STATEMENT
THIS NEWS RELEASE MAY INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE UNITED STATES SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, WITH RESPECT TO ACHIEVING CORPORATE OBJECTIVES, DEVELOPING ADDITIONAL PROJECT INTERESTS, THE COMPANY'S ANALYSIS OF OPPORTUNITIES IN THE ACQUISITION AND DEVELOPMENT OF VARIOUS PROJECT INTERESTS AND CERTAIN OTHER MATTERS. THESE STATEMENTS ARE MADE UNDER THE "SAFE HARBOR" PROVISIONS OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN."
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Source: Investor Communications International, Inc.
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