Re: 6/11/03 - FinancialWire.com: SEC Stuns Small Companies, Shareholders With DTC Rule
SEC Stuns Small Companies, Shareholders With DTC Rule
FinancialWire®
June 11, 2003. (FinancialWire) Almost 100 companies and tens of thousands of shareholders looking for relief from what appears to be a failed electronic settlement system have received a blow from an unexpected source – the U.S. Securities and Exchange Commission.
June 11, 2003. (FinancialWire) Almost 100 companies and tens of thousands of shareholders looking for relief from what appears to be a failed electronic settlement system have received a blow from an unexpected source – the U.S. Securities and Exchange Commission. Shareholders and directors of some of the most impacted and well known companies, such as Jag Media (OTCBB: JGMHA) and Sedona Corp. (OTCBB: SDNA) were quick to react with stunned disbelief.
In a ruling, the SEC has sided with the Depository Trust Co. in requiring that shareholders and not companies can decide when and if to hold their shares in electronic form or in paper certificates. The ruling came even as executives at even larger NASDAQ-listed companies, such as Dobson Communications Corp. (NASDAQ: DCEL) and Genzyme Corp. (NASDAQ: GENZ) were telling their own short seller horror stories at a meeting of the National Investor Relations Institute in Kissimmee, Florida.
Commenting on the fact that some small-cap companies had requested to exit DTC because of what they called naked or illegal short selling, the SEC said that those issues had nothing to do with DTC, according to a Dow Jones article by Carol Remond.
"DTC does not allow its participants to establish short positions resulting in the failure to deliver securities at settlement. While the Commission appreciates commenters' concerns about manipulative activity, those concerns must be addressed by other means," the SEC was quoted as saying. The SEC said it had received some 89 letters, many from shareholders concerned about electronic counterfeiting of securities.
The SEC was quoted as saying that a move by some publicly traded companies to require transfer only by certificate and to restrict ownership of the securities by a depository or financial intermediary "could result (in) many of the inefficiencies and risks sought to be avoided when Congress promulgated Section 17A of the (1934 Securities Exchange) Act."
The SEC noted that the “concerns associated with lost certificates was dramatically demonstrated during the September 11, 2001, tragedy when tens of thousand of certificates maintained in broker-dealers' vaults either were destroyed or were unavailable to transfer."
A director of Sedona Corp., whose manipulation by a now-fined hedge fund financier, Rhino Advisors, resulted in its loss of a NASDAQ listing, Mike Mulshine, stated that the SEC did his company no favor by levying and pocketing a fine two years after the damage was done, and isn’t doing anyone any favors with its latest ruling. “As to the SEC collecting $1 M from one of those alleged "bad guys,” I estimate their fine to be about 2.5 percent of what they allegedly scammed from just one company, and they allegedly did this same scam to more than 300 companies... They could have easily ripped off the US investor community for $12 billion or more, but who's counting?” Mulshine bemoaned.
A “Counterfeit Shareholder Rally” scheduled on Times Square the morning of June 23, and organized by Jag Media shareholder Dave Patch, now has a new target for its frustration – the SEC. Patch and his collaborators have already begun a campaign directly to the Congress, hoping for relief that the SEC failed to provide.
At the NIRI meeting, an executive with Dobson Communications, J. Warren Henry, talked about a short seller battle his company had in September, 2001. He quipped that the best way to keep short sellers away is to “operate in a good market, operate in a strong sector, never have any negative surprises and always meet expectations.” One of the company’s solutions, to persuade shareholders to hold shares in their own names is thwarted to some extent by the latest SEC rule, which prevents companies from taking such an action on behalf of its shareholders.
"I would like to see more companies fight the attack dogs, and I would like to see the SEC put pressure on them for market manipulation," said Henry even as the SEC was ruling in an opposite fashion.
Sally Curley, vice president of investor relations for Genzyme Corp, said that the NYSE is offering a new service to listed companies to get more timely information about short interest in a company’s stock, but she said that instead of being beneficial it will more likely "serve to drive us all crazy."
Even as the SEC was acting, another NASDAQ-listed company, Diamond International Group, Inc. (NASDAQ: DMND) was reversing its stock, changing its stock symbol from DMDI) and said it was “in process of being removed from the DTC system in an attempt to curtail ‘short’ selling. There is no word from the company as to how this ruling will impact its plan.
Meanwhile, one frustrated shareholder, Charles Light of Charlotte, NC, who calls himself one of the “nameless” scammed investors, whose losses in Pinnacle Business Management (OTC: PCBM) were compounded some 13 months ago when the SEC halted trading in the company and then let trading resume a week later without any explanation then or in the ensuing year, has appealed to New York State Attorney General Eliot Spitzer to bring relief to the small shareholders.
Spitzer made a sweep through the securities industry recently but has been quite since being all but asked by new SEC Chair William Donaldson to stay out of the SEC’s way.
Light, whose broker is Charles Schwab (NYSE: SCH), said that despite the company’s filings showing some 700 million shares outstanding, the company trades billions of shares every month. He said there was an apparent toxic funding but that other than that and the company’s filings, neither the company nor the SEC has ever said what has happened to his investment.
Light, manaing director of retail for a shopping center developer, who has proposed the disbandment of the SEC, with “an honest phoenix rising from its ashes,” said he received an acknowledgement from Spitzer but so far no substantive response. He said he had also contacted his congresswoman, Sue Myrick, and his senators, John Edwards and Elizabeth Dole.
Light said the naked shorting and the lack of response by the SEC “poses more of a grave danger to the average American than Saddam ever did.”
Some 87 public companies have been “taking actions to ensure the integrity of the market in (their) publicly traded securities and to combat suspected naked short selling activity in their shares. There are 100 public companies that have so far been touched by the growing national financial scandal.
Some thirteen on the list of 100, such as A.G. Edwards, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ: AMTD), Deutsche Bank AG (NYSE: DB), E*Trade Group, Inc. (NYSE: ET), FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (NYSE: GS), Knight Securities, LP (NASDAQ: NITE), Ladenburg Thalmann & Co., Inc. (AMEX: LHS), M. H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto-Dominion’s (NYSE: TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN), have been accused by one or more public companies as allegedly participating in short selling activities or abuses.
The remaining 87 companies have issued press releases or been named in press releases as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.
The complete list of those 87 companies include Advanced Viral Research Corp. (OTCBB: ADVR), AdZone Research, Inc. (OTCBB: ADZR), American Ammunition, Inc. (OTCBB: AAMI), ATSI Communications, Inc. (OTC: ATSC), Federal Agricultural Mortgage Corp. “Farmer Mac” (NYSE: AGM), Allied Capital (NYSE: ALD), American Motorcycle (OTC: AMCYV), American International Industries (OTCBB: AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), Auxer Group, Inc. (OTCBB: AXGI), Bluebook International (OTCBB: BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (OTCBB: BIFT), Biocurex (OTCBB: BOCX). Chattem, Inc. (NASDAQ: CHTT), Critical Home Care (OTCBB: CCLH), Composite Holdings (OTC: COHIA), Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (NASDAQ: DCEL), Eagle Tech Communications (OTC: EATC), Edgetech Services (OTCBB: EDGH);
Also, Endovasc Ltd. (OTCBB: EVSC), Enviro-Energy Corporation (OTCBB: ENGY), Environmental Products & Technologies (OTC: EPTC), eResearchTechnologies, Inc. (NASDAQ: ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (NYSE: FRE), FreeStar Technologies (OTCBB: FSRCE), Genesis Intermedia (OTC: GENI), GeneMax Corp. (OTCBB: GMXX), Global Path (OTCBB: GBPI), Group Management (OTCBB: GPMT), Hop-On (OTC: HPON), H-Quotient, Inc., (OTCBB: HQNT), Hyperdynamics Corp. (OTCBB: HYPD), International Biochem (OTCBB: IBCL), Intergold Corp. (OTCBB: IGCO), InternetStudios, Inc. (OTCBB: ISTO), ITIS Holdings (OTCBB: ITHH), Investco Corp. (OTCBB: IVCO), Jag Media Holdings (OTCBB: JGMHA), Lair Holdings (OTCBB: LAIR), Lifeline BioTechnologies Inc. (OTC: LBTT), Life Energy & Technology (OTCBB: LETH), MBIA (NYSE: MBI);
Also, MetaSource Group, Inc. (OTCBB: MTSR), Midastrade.com (OTC: MIDS), Make Your Move (OTCBB: MKMV), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (OTCBB: NPCT), Nutra Pharmaceutical (OTCBB: NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (OTC: NVGV), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (OTC: PYST), Petrogen Corp. (OTCBB: PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (OTCBB: PDVN), PrimeHoldings.com, Inc. (OTC: PRIM), Phlo Corporation (OTCBB: PHLC), Resourcing Solutions (OTC: RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (NASDAQ: SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (OTCBB: SDNA);
Also, Sionix Corp. (OTCBB: SINX), Starmax Technologies (OTC: SMXIF), Suncomm Technologies (OTC: STEH), Sports Resorts International (NASDAQ: SPRI), Technology Logistics (OTC: TLOS), Ten Stix, Inc. (OTCBB: TNTI), Tidelands Oil (OTCBB: TIDE), Titan Construction (OTC: TTCS), Trezac Corp. (OTCBB: TREZE), Universal Express, Inc. (OTCBB: USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Vista Continental Corporation, (OTCBB: VICC), Vtex Energy (OTCBB: VXENE) and Wizzard Software (OTCBB: WIZD).and WorldTradeShow.com (OTC: WTSW).
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