That is an incredible work. It should be entitled "The Emporer has no Clothes."
With this type of dissertation, I am happy to conclude that the spotlight on this scam is not going out. No number of cowardly and worm-like defenders of this scheme will be able to silence the critics.
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The SEC's Amicus Brief, and an Open Discussion/Analysis by Dr. DeCosta
Location: BlogsBob O'Brien's Sanity Check Blog
Posted by: bobo 2/11/2006 11:58 AM
All this talk about the Nanopierce SEC Amicus brief woke the sleeping giant. Apparently I touched a nerve. After dozens of emails commenting on the brief, expressing shock and awe at what appears to be an SEC-driven attempt to exclude the DTCC from any semblance of due process, I asked Dr. DeCosta for his take on just how far out of whack naked short positions can really get, and also to comment on SEC Amicus briefs in NSS cases that he’s studied. Here is his reply - it should be required reading for every person concerned with this issue in the country - I'd advise sending a link to every elected official you know, as well as every person you think might have interest in how the system actually works:
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“How far out of whack? You tell me! Here’s a typical scenario:
“Buyer Bob” buys $100,000 worth of “ACME” on 1/10/05. He buys it in his margin account. He puts up $50,000 and his b/d puts up $50,000. Sure enough, the delivery fails on T+3, and is bailed out by a Stock Borrow Program (SBP) “Pseudo-borrow”, which is an illegitimate “borrow” made from a self-replenishing source that the DTCC publicly admits they refuse to monitor for the legality of its contents. Bob’s b/d gets an electronic book entry in his DTCC “Shares” account IMPLYING that “Shares” were delivered to his account. Bob’s b/d immediately places these “book entries” back into the “Lending pool” of shares run by the SBP, in order to convert Bob’s “book entry” delivery into cold hard cash belonging now to Bob’s b/d - because “CEDE & Co.”, the nominee of the DTCC, is the “legal owner” of all shares held in street name and Bob’s b/d is a “Participant” of the DTCC.
The anonymously held and impossible to identify “book entry” that bailed out the failed delivery involved in Bob’s purchase has now been placed right back into the lending pool from whence it just came, as if the shares never left in the first place. This “book entry” can then bail out yet another failed delivery tomorrow. Let’s assume that ACME is a typical development-stage micro-cap issuer with very few shares held in margin accounts (because its nonmarginable) and is in the midst of a naked short selling attack (or “Bear raid”) and that this particular parcel of shares is very much in demand. Let’s further assume that this particular unidentifiable parcel of shares is “recycled” 10 times in the above-mentioned fashion. Due to the nature of the SBP, this 1 parcel of “shares” has now bailed out and allowed to “Clear” 10 separate naked short sales. The money taken from all 10 of these investors has gone to their own b/d, to collateralize this generous loaning of the shares that their client purchased.
Now let’s go back in time to 1/10/05, the day that “Buyer Bob” made his purchase. Just what did “Buyer Bob’s” firm really get delivery of? Perhaps it was the 15th “recycling” of ACME paper certificate #1234567. This 1 paper certificate has now been allowed to procreate 25 electronic book entries (counting the initial 15 and then our subsequent 10), 24 of which have no genuine paper certificate to justify their existence. This one parcel of paper-certificated shares has resulted in 25 DTCC participant b/ds being able to convert their clients’ purchases into cash for use by their own b/d.
Three policies make this possible. First, the DTCC mandates that the contents of the “Lending pool” remain anonymous. Why? Ostensibly because it is more efficient to do it that way, and it really does save a lot of work on share ownership matters. Policy #2 is to refuse to monitor for the legality of the shares donated into the lending pool. Imagine the temptation of an abusive DTCC participant to convert the shares/book entries held by all of its clients in Type 1 cash accounts and qualified retirement plans, into cold hard cash for the b/d to earn interest off of and to count towards his net capital reserves. Recall that the DTCC puts all of their participants on the “honor system” in this regard. Policy #3 is to allow recently delivered “Book entries”, like the 25 in the example above, whether they have a paper-certificated share anywhere to justify their existence or not, to be immediately replaced into the lending pool from whence they just came.
I highly encourage the studying of the Amicus briefs filed by the SEC, whenever the DTCC gets sued for facilitating the naked short selling crimes of its abusive participants. There is a wealth of information in these that allows the student of NSS a view of the mindset of the SEC and the DTCC. The SEC lawyers will predictably say, “Your Honor, we at the SEC did indeed approve the SBP in 1981.” When the issue of the 24 investors in the example above arises, the reply by the SEC and DTCC lawyers is predictable. “Those 24 book entries, your Honor, are admittedly not “shares” but in reality are what are known as share “Entitlements,” as allowed to be presented on a monthly brokerage statement by UCC Article 8.”
As discussed in Chapter 14 of my first book, an “Entitlement” holder (also sometimes referred to as a “Beneficial owner”) may fill out an “Entitlement order” at his b/d’s firm and demand the physical delivery of his ACME certificate. The SEC lawyers will admit that “Entitlements” do not indicate legal “Ownership”. By law the “legal owner” of that one parcel of shares is “CEDE & Co.” which “Owns” it FBO the b/d of buyer #25. That leaves us with 1 legal “owner” and 24 “Entitlement holders”. Now if all ACME shareholders simultaneously filed “Entitlement orders” via their b/ds mandating the delivery of their share certificates, the DTCC would predictably refuse to execute the necessary “buy-ins” and cite a rule in their book of rules and regulations that states that the DTCC need not do any buy-ins that might be “Disruptive” to the markets. In essence, the DTCC has its own little “Grandfather clause” similar to the SEC’s “Grandfather clause” utilized, by necessity, in Reg SHO.
The DTCC will make the case that all of that investor money paid by the 25 investors should stay in the pockets of their DTCC participant b/ds that loaned out their own clients’ shares (after taking a commission and becoming an “agent” owing a fiduciary duty of care to their client).
The Moral of the story is that these book entries without corresponding paper-certificated shares aren’t genuine “Entitlements” – from the get-go. You can’t have a legitimate system predicated on “Entitlements” when the creator and administrator of the “Entitlements” – the DTC, NSCC and its participant/owners - has dozens of “undisclosed conflicts of interest” with the “Entitlement holder”, and has rules and regulations that undermine the ability to exercise the “Entitlement” itself. TRUE “ENTITLEMENTS” ARE UNFETTERED, BY DEFINITION.
Following our discussion, here are some snippets from the recent “Amicus” brief filed by the SEC during a naked short selling case brought against the DTCC (my comments are in capital letters and in parentheses):
1) “Section 17A of the Exchange Act charges the Commission with overseeing the national clearance and settlement system in accordance with the public interest and the protection of investors”.
(FOCUS IN ON “IN ACCORDANCE WITH THE PUBLIC INTEREST AND PROTECTION OF INVESTORS”)
2) “The Stock Borrow Program is designed to improve the efficiency of the continuous net settlement system by increasing the likelihood that purchasers will receive their securities on settlement date.” (emphasis mine)
(THIS IS CLEVER BECAUSE, AS YOU REMEMBER FROM CHAPTER 43, AN “ENTITLEMENT” MIGHT JUST BE ABLE TO BE CONSTRUED AS A“SECURITY”. MEANWHILE THE INVESTORS SHELLING OUT THEIR FUNDS THINK THAT THEY’RE GETTING “SHARES,” NOT IOUs OR “ENTITLEMENTS” THAT MAY OR MAY NOT BE “EXERCISABLE” AT A CERTAIN TIME.
LATER ON IN POINT #13 THE SEC ATTORNEYS WILL CLAIM: “Third and finally, neither the continuous net settlement system nor the stock borrow program creates artificial securities.” WELL, THEN WHAT THE HECK ARE THESE "SECURITIES" THAT THE PURCHASERS HAVE A "GREATER LIKELIHOOD OF RECEIVING" DUE TO THE SPB? THE REALITY IS THAT THEY START OUR AS "SHARES" AND LATER BECOME "ENTITLEMENTS" AFTER BEING REPLACED IN A LENDING POOL AND LOANED OUT, TO ALLOW A DIFFERENT NAKED SHORT SELLER'S SELL ORDER TO "CLEAR." IN OTHER WORDS, YESTERDAY'S "GOOD FORM DELIVERY" GETS UNDONE TO ALLOW TODAY'S FAILED DELIVERY TO "CLEAR." DO THE DTCC PARTICIPANTS HAVE TO SURRENDER
YESTERDAY'S COMMISSIONS AS PART OF THE "UNDOING" OF THE TRADE? OF COURSE NOT!)
3) “The Commission has approved the Stock Borrow Program as being in compliance with the Requirements of the Exchange Act”
(THIS IS LITERALLY TRUE. IN 1981 THE SEC APPROVED THE CONCEPT OF A STOCK BORROW PROGRAM BEING USED TO BAIL OUT DELIVERY FAILURES THAT COULDN’T QUITE BE DELIVERED BY SETTLEMENT DATE, FOR A “LEGITIMATE” REASON ONLY. (IMPLICATION: SHORT TERM DELAYS LIKE LOST CERTS, ETC.) THE CONCEPT THAT THE SBP WAS EVER IN COMPLIANCE WITH THE ’34 EXCHANGE ACT IS TOTALLY ABSURD, AS WILL BE SHOWN SHORTLY.)
4) “As the regulator charged by Congress with ensuring that the national clearance and settlement system functions efficiently, in the public interest and for the protection of investors, the Commission has a strong and direct interest in seeing that the threats created by plaintiffs’ lawsuit are ended by the affirmance of the district court’s dismissal.”
(THIS CASE WAS BEING HELD IN AN APPELLATE COURT. NOTE THE CLEAR MANDATE FOR THE ROLE THAT THE SEC IS TO PLAY. THE SEC IS STATING, IN ESSENCE, THAT IT IS IN THE PUBLIC INTEREST AND IN THE INTEREST OF INVESTOR PROTECTION TO ALLOW THOSE THAT UNDENIABLY SOLD BOGUS “SHARES” TO UNKNOWING INVESTORS, AFTER PERHAPS YEARS OF REFUSING TO COVER THESE NAKED SHORT SALES, TO BE ALLOWED TO KEEP THE PROCEEDS OF THESE SALES - AND THAT THE DTCC IS NOT RESPONSIBLE FOR ANY DESIGN FLAWS IN THE SBP, BECAUSE THE SEC DID INDEED SIGN OFF ON THE CONCEPT IN 1981. INTERESTING CONCEPT, BUT NOT AT ALL CONSISTENT WITH #5 BELOW!)
5) “Registered clearing agencies are self-regulatory organizations (SROs) under the Exchange Act. Section 3(a)(26), 15 U.S.C. 78c(a)(26).”
(NO DOUBT ABOUT IT, AN “RCA” IS AN SRO “IN CHARGE OF REGULATING THE BUSINESS CONDUCT OF ITS MEMBERS”.)
6) “The Commission also has plenary rulemaking authority with respect to clearing agency conduct. No registered clearing agency may engage in any activity as a clearing agency “in contravention of such rules and regulations * * * as the Commission may prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of” the Exchange Act. Section 17A(d)(1), 15 U.S.C. 78q-1(d)(1).”
(“PLENARY” RULEMAKING AUTHORITY HAS BEEN PROVEN TO BE WORTHLESS IF NONE OF THE REGULATORS AND SROs ENFORCE THE RULES! BOTH THE DTCC AND SEC ARE RESPONSIBLE FOR THE CONDUCT OF ABUSIVE DTCC PARTICIPANTS.)
7) “A (DTCC) member that has failed to receive securities has two options: it may either maintain that position and wait for delivery to be made to it as securities are delivered to NSCC, or it may file a Notice of Intention to Buy-in with NSCC.”
(RECALL THE EVANS, GECZY, MUSTO AND REED RESEARCH(2003) ILLUSTRATING THAT EVEN “MANDATED” BUY-INS ARE ONLY DONE 1/8TH OF 1% OF THE TIME THEY ARE “MANDATED”. IMAGINE THE COMPLIANCE RATE ON “VOLUNTARY” BUY-INS. KNOWING THAT UNADDRESSED DELIVERY FAILURES CAUSE DILUTIONAL DAMAGE TO THE CORPORATION THAT THEIR CLIENT INVESTED IN, HOW LONG CAN THE PURCHASING B/D SIT ON HIS HANDS AND “WAIT” WITHOUT BREACHING HIS FIDUCIARY DUTY OF CARE, OWED BY ACTING AS AN “AGENT” BEING PAID A COMMISSION - i.e. CULPABILITY OF THE BUYING B/D? DIDN’T SECTION 17A MANDATE “THE PROMPT AND ACCURATE CLEARANCE AND SETTLEMENT OF TRANSACTIONS, INCLUDING THE TRANSFERRENCE OF OWNERSHIP”? HOW DOES BEING ALLOWED TO “WAIT” FIT INTO THIS FEDERAL LAW - THE 1934 SECURITIES EXCHANGE ACT, MANDATING THE PROMPT CLEARANCE AND SETTLEMENT. I THOUGHT THE SEC LAWYERS STATED ABOVE THAT THE SBP WAS CONSISTENT WITH THE ’34 ACT.)
8) "The fact that a broker-dealer that is an NSCC member fails to receive securities that it purchased on behalf of a retail customer does not mean that the customer’s purchase is not completed until the member’s failure to receive is cured. Under Article 8 of the Uniform Commercial Code, a securities broker- dealer may credit a customer’s account with a security even though that security has not yet been delivered to the broker-dealer’s account by NSCC. In that event, the customer receives what is defined under the Uniform Commercial Code as a “securities entitlement,” which requires the broker-dealer to treat the person for-- whom the account is maintained as entitled to exercise the rights that comprise the security. See UCC Sections 8-104, 8-501.”
(SO THE “PURCHASE” IS ALLOWED TO BE “COMPLETED” EVEN WITHOUT “GOOD FORM DELIVERY”. LEGALLY THIS TRADE HAS NOT “SETTLED” BECAUSE THAT NECESSITATES “GOOD FORM DELIVERY”. THE NEW BUYER IS NOW ENTITLED TO THIS “PACKAGE OF RIGHTS” WE CALL A “SHARE”. BY INFERENCE WE MUST DEDUCE THAT THE LENDING B/D AND ONE OF ITS “LONG” CLIENTS (AN ACME SHAREHOLDER) LOST THIS “PACKAGE OF RIGHTS” - BUT UNFORTUNATELY THE LENDING POOL IS RUN IN AN ANONYMOUS FASHION, AND ALL THE DTCC KNOWS IS THE IDENTITY OF THE B/D THAT MADE THESE SHARES AVAILABLE FOR LOAN - AND THEIR DTCC SHARE ACCOUNT IS INDEED DEBITED.
LET’S ASSUME THIS LOAN RESULTED IN B/D “A” HAVING 10 MILLION SHARES IN ITS DTCC PARTICIPANT “SHARES” ACCOUNT (“SETTLEMENT ACCOUNT”) AND LET’S SAY THEY HAVE DONATED A TOTAL AMOUNT OF 12 MILLION SHARES TO THE LENDING POOL AND HAVE RECEIVED NONE BACK YET, BUT ARE STILL “WAITING”. ON THEIR MONTH-END STATEMENTS THEY WILL “IMPLY” TO THEIR CLIENTS THAT THEY “OWN” 22 MILLION SHARES IN TOTAL. SINCE THE B/D REALLY DOES HAVE 10 MILLION LEGITIMATE AND PAPER-CERTIFICATED SHARES IN ITS ACCOUNT, THEN IF A CLIENT SELLS 1 MILLION SHARES IT CAN EASILY COVER THE DELIVERY OF SHARES. THIS CLIENT HAS BEEN ARTIFICIALLY IDENTIFIED AS HAVING HELD 1 MILLION OF THE 10 MILLION “REAL” SHARES.
TO ILLUSTRATE JUST HOW CORRUPT A SYSTEM IS THAT ALLOWS “ENTITLEMENTS”, ASTRONOMIC NUMBERS OF UNADDRESSED DELIVERY FAILURES, INORDINATELY LONG “WAITING PERIODS”, IOUs OWED TO THE NSCC THAT THEY CLAIM TO BE “POWERLESS” IN DEMANDING THE PAYMENT OF, ETC., LET’S ASSUME ACME DISTRIBUTES A CASH DIVIDEND OF 10-CENTS PER SHARE. LET’S ASSUME THAT ACME HAS 100 MILLION SHARES “OUTSTANDING” AND ALL ARE HELD IN STREET NAME. LET’S ALSO ASSUME THAT THERE ARE 60 MILLION “UNADDRESSED DELIVERY FAILURES” OR “ENTITLEMENTS” WITHIN THE SYSTEM AT THE DTCC.
RECALL FROM MY EARLIER CHAPTERS THE DISCUSSION OF THE NEW JAGTTRA LEGISLATION WHICH INCLUDED THE FAVORABLE TAX TREATMENT OF CASH DIVIDENDS. THE IRS SAID THAT THIS FAVORABLE TAX TREATMENT WILL ONLY BE GRANTED TO THE OWNERS OF LEGITIMATE SHARES, AND NOT TO ANY “ENTITLEMENT” HOLDERS WHOSE SHARES HAVE BEEN LOANED OUT. NOW, HOW IN THE WORLD IS THE DTCC GOING TO ALLOCATE THE FAVORABLE TAX TREATMENT FOR 100 MILLION SHARES TO THE PURCHASERS OF 160 MILLION SHARES?
PEOPLE WHOSE SHARES ARE HELD IN MARGIN ACCOUNTS ARE EXPECTING BOTH THE DIVIDENDS AND THE FAVORABLE TAX TREATMENT. HOW DOES THE DTCC OR THE LENDING B/D DETERMINE WHICH MARGIN ACCOUNT SHAREHOLDERS’ SHARES WERE LOANED OUT ON THE DIVIDEND DISTRIBUTION DATE, WHEN THE LENDING POOL IS HELD IN AN ANONYMOUS FORMAT? DO YOU PRORATE THIS FAVORABLE TAX TREATMENT TO ALL MARGIN ACCOUNT SHAREHOLDERS? HOW ABOUT ALL OF THE “ENTITLEMENTS” OUT THERE WHERE THE PURCHASING B/D DECIDED “to wait for delivery to be made to it as securities are delivered to NSCC” INSTEAD OF MANDATING A BUY-IN? WILL THE DTCC AND/OR PURCHASING B/D POLL ALL SHAREHOLDERS AND INQUIRE AS TO WHAT MARGINAL TAX BRACKET THEIR CLIENTS ARE IN, AND CUT A CHECK FOR THE DIFFERENCE BETWEEN FAVORABLE TAX TREATMENT AND “NOT SO” FAVORABLE TAX TREATMENT? YEAH RIGHT! THE GIST OF THIS IS THAT A SYSTEM BASED ON “ENTITLEMENTS” THAT ARE NOT TIED TO THE ACTUAL “SETTLEMENT” OF THE TRADE (WHICH NECESSITATES “GOOD FORM DELIVERY”) IS TOTALLY ABSURD AND IS BEGGING TO BE ABUSED.)
9) “Under the applicable Rules, the program (the SBP) is automated and operates without the exercise of discretion by NSCC.”
(TRANSLATION: IT’S NOT OUR FAULT AT THE DTCC OR SEC THAT THE SBP REROUTES INVESTORS’ FUNDS INTO THE POCKETS OF ABUSIVE DTCC PARTICIPANTS. THE SEC PUT GASOLINE INTO THIS STEAMROLLER IN 1981 AND LET IT LOOSE TO MOW DOWN U.S. MICRO CAP CORPORATIONS AND THERE’S NOTHING WE CAN DO ABOUT IT. IT’S AUTOMATED, SILLY, IT’S NOT OUR FAULT AT THE SEC OR DTCC - TALK TO THE “AUTOMATERS”!)
10) “First, a receiving member that has failed to receive securities can obtain those securities through a buy-in that does not involve the stock borrow program at all.”
(HERE COME 3 REASONS WHY THE DEFENDANTS IN THIS CASE ARE FULL OF IT. THIS STATEMENT IS MISLEADING IN THAT DTCC PARTICIPANTS ARE EXPRESSLY FORBIDDEN FROM BUYING IN OTHER DTCC PARTICIPANTS WITHOUT GOING TO THE NSCC TO INTERMEDIATE. NSCC POLICY X-1 THEN ALLOWS THE NSCC TO TAKE YET ANOTHER RUN THROUGH THE SBP TO KEEP THE FAILED DELIVERY ALIVE AND WELL, BUT HIDDEN UNDER A DIFFERENT “SHELL”. THIS IS THE ANALOGUE TO ILLEGAL “MATCHED TRADES” OR “CROSSES” WHEREIN NAKED SHORT SELLERS WILL HIDE THEIR FAILED DELIVERIES WITH A CO-CONSPIRATOR ACROSS THE STREET UNTIL THE HEAT IS OFF. AS STATED EARLIER, IF BUY-INS MANDATED BY LAW ONLY HAPPEN IN 1/8TH OF 1% OF THE SITUATIONS WHERE THE LAW MANDATES THEM, THEN WHY INTENTIONALLY OBFUSCATE THIS ISSUE DURING A LEGAL PROCEDURE.
I GOT A KICK OUT OF THE SEC LAWYERS “CHERRY-PICKING” UCC ARTICLE 8’S ALLOWANCE FOR SECURITIES “ENTITLEMENTS”.
BOB, HERE’S AN EXCERPT FROM BOOK #2’S CHAPTER 25, WHICH FOCUSES ON ARTICLE 8 . IT’S FUNNY HOW THE SEC LAWYERS “ACCIDENTALLY” FORGOT TO PROPERLY “FRAME” THE CONCEPT OF SECURITIES “ENTITLEMENTS” AND THE MEASURES NEEDED TO CIRCUMVENT ABUSES OF THE CONCEPT:
“SOME PRECEPTS OF UCC ARTICLE 8 WITH SPECIAL SIGNIFICANCE TO NAKED SHORT SELLING BY ABUSIVE DTCC PARTICIPANTS AND THEIR CO-CONSPIRATORS
8-504 “DUTY OF SECURITIES INTERMEDIARY TO MAINTAIN FINANCIAL ASSET”
(a) A “Securities intermediary” shall promptly obtain and thereafter maintain a “Financial asset” in a quantity corresponding to the aggregate of all security “entitlements” (“rights and property interest”) it has established in favor of its “Entitlement holders” with respect to that financial asset.
(b) Except to the extent otherwise agreed to by its “Entitlement holder”, (SIDENOTE: AN INVESTOR THAT SIGNED A MARGIN AGREEMENT) a securities intermediary may not grant any security interest in a “Financial asset” it is obligated to maintain pursuant to subsection (a).
(NOTE: OBVIOUSLY THE DTCC’s SBP FALLS FLAT ON ITS FACE IN COMPLYING WITH THS LAW, SINCE EVEN THIS AMICUS BRIEF AGREES THAT THE PACKAGE OF RIGHTS KNOWN AS A “SHARE” DID INDEED GET TRANSFERRED FROM THE LENDING B/D TO THE NEW BUYER OF SHARES IN A TRADE INVOLVING A FAILED DELIVERY BEING BAILED OUT BY THE SBP. POINT # 17 BELOW QUOTES THE SEC LAWYERS STATING: “Once a member’s securities are used for delivery to another member, the lending member no longer has ownership rights in those securities, which means that it cannot sell or re-lend them until such time as the securities are returned to its DTC account.” RECALL HOW SECTION 17A MANDATED THIS TRANSFERRENCE OF “OWNERSHIP”. BUT IT GETS TRICKY HERE IN THAT A CASE COULD BE MADE BY THE DTCC THAT ON ITS “SPR” LISTS IT SAYS THAT IT OWNS 100 MILLION SHARES OF ACME, NOT THE 160 MILLION THAT ITS PARTICIPANTS ARE IMPLYING THAT THEY ARE HOLDING FBO THEIR CLIENTS, THE SHAREHOLDERS OF ACME. I’M SURE THE DTCC WOULD CLAIM THAT IT HAS INDEED “OBTAINED AND ARE MAINTAINING” 100 MILLION SHARES OF ACME AND IF THEIR PARTICIPANTS ARE IMPLYING THE OWNING OF MORE THAN THAT, THEN THAT’S THEIR PROBLEM. THE COUNTER TO THAT ARGUMENT IS THAT IF THE DTCC ALLOWS RECEIVING B/DS TO SIT AROUND AND “WAIT” FOR THE “EVENTUAL” DELIVERY OF THEIR SHARES, THEN THEY CERTAINLY HAVEN’T “OBTAINED” NOR ARE THEY “MAINTAINING” THESE SHARES/ENTITLEMENTS.)
Some thoughts: The DTCC does have a SBP that allows the counterfeiting of shares for “Legitimate” delivery failures. Rule 11830 and the new Reg SHO limit this to 10,000 shares AND 0.5% of the shares legally outstanding – thus they are off the hook for compliance with 8-504 on this limited number of excepted shares. But how about those unaddressed delivery failures exceeding this amount? Notice that 8-504 states that this securities intermediary must “obtain and thereafter maintain this financial asset” in certain quantities. Does the DTCC think that these “Entitlements” are “Financial Assets” that they’ve “obtained and maintained” quite nicely? Let’s examine the definition of a “Financial Asset”, which is defined as a “Security”, which is further defined as an “obligation of an issuer” – the “issuer” in this context being ACME Corporation. ACME Corporation in no way, shape or form is obligated to provide voting rights, dividend rights, preemptive rights, etc. to the holders of the ACME’s 60 million “Entitlements.”
The spirit of 8-504 states that “Buyer Bob” and “Lender Larry”, two securities “Entitlement holders”, should not be receiving a monthly brokerage statement implying that they are both “Entitlement holders” to the same 1 million-share parcel of Acme shares. This is the definition of an “Adverse claim” in the making. If the DTCC is granting the “Entitlement to sell” to the purchasers of 160 million shares then it better have “Obtained” and be “Maintaining” 160 million “real” shares or “packages of rights” in certificated form in its vaults.
When ACME issues a 100% share dividend, 8-504 states that the DTCC, being the “securities intermediary”, is supposed to “obtain and maintain” this “Financial Asset” for those on whose behalf it is acting. This would preclude that the DTCC currently does with share dividend distributions, which is to get 100 million shares from ACME’s transfer agent, and then give the 60 million holders of bogus shares an “Entitlement” to a dividend share.
In doing so, they allow their DTCC participants to mislead ACME shareholders, by implying that the transfer agent actually sent a certificate for 160 million shares to the DTCC. Note that in the share dividend distribution process there is no “Addendum C” or Stock Borrow Program to run interference. ACME is issuing free shares to its shareholders, and the securities intermediaries are supposed to deliver real shares, not “Entitlements”, to the investors for whom they are acting as legal custodian of their shares. This raises the very valid question as to what kind of legal custodian would hand out fake dividend shares? That is what those entitlements are.
Now to section (b) of the above, repeated for ease of reference:
(b) Except to the extent otherwise agreed to by its “Entitlement holder”, (SIDENOTE: AN INVESTOR THAT SIGNED A MARGIN AGREEMENT) a securities intermediary may not grant any security interest in a “Financial asset” it is obligated to maintain pursuant to subsection (a).
In our example, “Lender Larry’s” firm has given permission to the NSCC to grant a “Security Interest” in that parcel of shares to “Buyer Bob’s firm. The problem is that “Lender Larry” has not been contacted and told that he has lost his security interest with its right to vote, receive dividends, etc. Again, notice the tremendous undermining effect that counterfeit shares have on all bases of law. Note also that any lending pool shares donated out of cash and retirement accounts are grossly in noncompliance with 8-504, which would indeed apply, since the DTCC has no rule allowing these shares to be loaned out – but as per NSCC policy, the DTCC participants are put on the “honor system” as to what they place into the lending pool.
8-505 “DUTY OF SECURITIES INTERMEDIARY WITH RESPECT TO PAYMENTS AND DISTRIBUTIONS”
(a) A securities intermediary shall take action to obtain a payment or distribution made by the issuer of a financial asset. A securities intermediary satisfies the duty if: (1) the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or (2) in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards to attempt to obtain the payment or distribution.
Note the word DUTY again, as owed by the “securities intermediary” to the “entitlement holder”. How might the DTCC “exercise due care in accordance with reasonable commercial standards” if a clearing firm borrowed 10 million shares of Acme via the SBP, did not pay back the debt within a reasonable amount of time, and Acme declared a 100% share dividend? Would it be to allow the debtor to set up yet another D sub account reflecting the debt of yet another 10 million shares of Acme and stick it right next to the other unpaid debt? Would not the “Reasonable commercial standard” of the DTCC wearing this “creditor” hat, as well as about a dozen others, be to demand the payment of the original unpaid debt before further credit is extended? Would this not circumvent the creation of yet more “Security entitlements” out of thin air with no certificated shares to justify them, especially with their being a “Duty” owed? Would this not also prevent the DTCC participants from sending out monthly brokerage statements MISREPRESENTING to the “entitlement holders” that all of the dividend shares safely landed from the Transfer Agent’s office? Next, the question becomes, does the DTCC have a rule on their books that supersedes this aspect of 8-504? This law basically instructs the DTCC to go out and collect the dividend. The dividend that was distributed by the issuer was for “Real” shares, not for the rights to IOUs that the creditor will claim to be “Powerless” to demand the payment of.)
8-506 “DUTY OF SECURITIES INTERMEDIARY TO EXERCISE RIGHTS AS DIRECTED BY ENTITLEMENT HOLDER.”
A securities intermediary shall exercise rights with respect to a “Financial asset” if directed to do so by an “Entitlement holder”.
One of the rights in the “package of rights” attached to legitimate shares is the right to demand delivery of the share certificate and to become the “Registered/legal/nominal” shareholder of record. In the ACME example, how could the DTCC, if demanded to do so, provide all of the purchasers of the 160 million legitimate and counterfeit “Shares/pseudo-shares” with their share certificates when only 100 million legitimate certificated shares exist? Would they not either have to fail this duty, or order the immediate buy-in of 60 million shares? (Consider the Nutek/Datascension case involving 26 shareholders demanding the delivery of their share certificates and being refused now for over 2 years.) In the ACME example, the DTCC has put themselves into a position where they CAN’T obey this law should those shares be demanded for delivery. Why not? Because of their “Powerlessness”, and any market “Disruption” that might occur should they do it.
The fact that nobody has put them into that position is a moot point. If the departure of those issuers a couple of years ago from the DTCC had been allowed, and had induced major short squeezes, then every issuer on the planet would have done the same. This is why the DTCC had a meltdown when this handful of issuers attempted this. That’s when the “prompt clearance of transactions” aspect of their “17A” card was forced to be played. It’s funny they didn’t mention the other 6 mandates of 17A (prompt “settlement”, accurate “settlement”,…). The DTCC probably realizes now how their abusive participants’ greed has increased the levels of systemic risk for all American citizens. The NSCC has been essentially given a choice. They can come clean, cut their losses and eliminate this systemic risk for all of us or they can continue to steal investor funds, dig yet a deeper hole and create systemic risk levels beyond comprehension, hoping that the pain from the eventual bailout will be borne by all U.S. citizens.
8-507 “DUTY OF SECURITIES INTERMEDIARY TO COMPLY WITH ENTTITLEMENT ORDER
Again, the Nutek/Datascension case comes to mind. If an investor presents an “entitlement order” to his b/d, i.e. a request for delivery of his certificates, and the b/d as the primary “entitlement holder” forwards the request on to the DTCC, then theoretically the DTCC has a “duty” to act on it. The definition of “entitlement holder” is the weak link here since the participant of the DTCC is the “person identified in the records of the securities intermediary”. Thus he’s the primary “entitlement holder” and the beneficial owner or “Ultimate entitlement holder” is further down the line.
One might draw some parallels between UCC 8-111 and Section 19 C of the ’34 Exchange Act. Both of them serve to bestow the DTCC and its internal rules and regulations with a certain “Sacred Cow” status. What is it about this “Registered Clearing Agency” that deserves such special treatment? When you overlap this with the incestuous ownership structure of the DTCC, an SRO, including among its owners the NYSE, another SRO, the NASD, yet another SRO, and its 11,000 participating b/ds and banks, then you have all the makings for “Wall Street’s” own little personal “Fiefdom”. From the abusive participants’ points of view the key would be to get as many self-serving policies, rules, and regulations incorporated into the DTCC’s book of rules and regulations, and then the “Sacred Cow” status do the rest.)”
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BACK TO THE AMICUS BRIEF
11) Second, NSCC does not have the authority to require buy-ins. As noted, its role in the stock borrow program is automated and non-discretionary -- the only entity authorized by the rules to require a buy-in is the receiving member. If a long position remains open for an extended period of time, that is because the receiving member has not initiated a buy-in, presumably because that member is willing to rely on the fact that it will eventually be allocated securities pursuant to NSCC’s procedures.”
(AGAIN WE SEE THE SEC STATING THAT THE DTCC’S ROLE IS “NON-DISCRETIONARY” AND THAT THE SBP IS “AUTOMATED”. ANY ARCHAIC FAILED DELIVERY IS PRESUMED TO INVOLVE A RECEIVING B/D THAT IS WILLING TO SIT ON HIS HANDS DESPITE HIS DUTY AND “RELY ON THE FACT THAT IT WILL EVENTUALLY BE ALLOCATED SECURITIES”. WELL ISN’T THAT SPECIAL! HOPEFULLY “EVENTUALLY” WILL OCCUR BEFORE THE ARTIFICIAL DILUTION BANKRUPTS THE U.S. CORPORATION. FOLKS, THIS IS CONTAINED IN THE SEC’S OFFICIAL AMICUS BRIEF IN THE NANOPIERCE NSS CASE. I COULDN’T MAKE UP THIS TYPE OF MALARKEY IF I TRIED.)
12) “Furthermore, NSCC has no mechanism for determining whether particular fails to deliver have occurred because of illegal naked short selling or for some legitimate reason. Nor are there any standards or rules that would guide its discretion in deciding whether to make a buy-in, if it were to undertake do so.”
(WHATEVER!)
13) “Third and finally, neither the continuous net settlement system nor the stock borrow program creates artificial securities. The number of securities issued and outstanding is determined by the security issuer and is reflected in the issuer’s records of registered ownership; nothing that happens in the course of clearing and settling trades, including any action taken by NSCC, can change that number.
(RECALL FROM SNIPPET #1 “The Stock Borrow Program is designed to improve the efficiency of the continuous net settlement system by increasing the likelihood that purchasers will receive their securities on settlement date.” WELL WHICH IS IT? ARE THESE “ENTITLEMENTS” SECURITIES, OR NOT? IF THEY’RE “SECURITIES” THEN THEY’RE CERTAINLY NOT AUTHENTIC BECAUSE THEY HAVE NO PAPER-CERTIFICATE ANYWHERE TO JUSTIFY THEIR EXISTENCE. IF THEY’RE NOT AUTHENTIC THEN I GUESS THEY’RE “ARTIFICIAL”. YOU THINK THIS IS BAD, JUST THINK OF TENS OF MILLIONS OF U.S. INVESTORS THAT STILL THINK THEY BOUGHT LEGITIMATE “SHARES” WITH A PACKAGE OF RIGHTS ATTACHED!)
14) “As explained above, the continuous net settlement system is essentially an accounting system that records delivery and receive obligations among NSCC members. These obligations do not reflect ownership positions. Ownership positions, as opposed to the deliver and receive obligations recorded by NSCC, are reflected on the records of DTC.”
(IN A SENSE THIS ENTIRE TRILLION DOLLAR “FRAUD ON THE MARKET” CAN BE BASED UPON THE FACT THAT INVESTORS DON’T KNOW THE DIFFERENCE BETWEEN “OWNERSHIP POSITIONS” AND “DELIVER AND RECEIVE OBLIGATIONS” - AND THAT’S EXACTLY WHAT ABUSIVE DTCC PARTICIPANTS COUNT ON TO LEVERAGE THEIR SUPERIOR KNOWLEDGE OF, ACCESS TO, AND VISIBILITY OF THE SYSTEM FOR CLEARING AND SETTLING TRADES (their superior “KAV” factor). NOTE THAT THESE “OWNERSHIP POSITIONS” ARE REFLECTED ON THE DTCC’S “SPR” LISTS THAT THEY SELL MAINLY TO ISSUERS THAT HAVE SUSPECTED IMPROPRIETARIES IN THE TRADING OF THEIR SHARES. THESE WILL TELL MANAGEMENT THAT B/D “A” HAS AN OWNERSHIP POSITION OF 10 MILLION ACME SHARES ON “X” DATE, AND WILL LEAVE MANAGEMENT WITH THE MISAPPREHENTION THAT ALL IS FINE AND DANDY IN REGARDS TO ANY BOOK ENTRY “COUNTERFEITING” ISSUES IN THEIR STOCK. IT WILL NOT RELEASE THE INFORMATION THAT THE ISSUER IS REALLY LOOKING FOR, i.e., THAT B/D “A” IS SITTING ON 12 MILLION UNADDRESSED DELIVERY FAILURES AND IS “IMPLYING” TO ITS CLIENTS THAT IT IS HOLDING 22 MILLION SHARES IN A “LONG” POSITION.
SO WHY DO THE MONTHLY BROKERAGE STATEMENTS ARRIVING FROM DTCC PARTICIPANT B/DS IMPLY THAT YOU REALLY “OWN” THAT WHICH YOU PURCHASED? WHY DON’T THEY LEVEL WITH THE INVESTING PUBLIC AND TELL THEM THAT THEY BOUGHT A MUCH LESSER PERCENTAGE “OWNERSHIP” OF A MUCH MORE DAMAGED CORPORATION THAN WAS “ADVERTISED,” AND THAT THE AMOUNT OF DAMAGE SUSTAINED CAN’T BE RELEASED TO THE INVESTING PUBLIC BECAUSE IT IS “PRIVILEGED” AND “PROPRIETARY” INFORMATION. IF WE’RE ESSENTIALLY BUYING A “PIG IN A POKE,” THEN JUST TELL US SO THAT WE CAN GO INVEST IN THE REAL ESTATE MARKET. ALL MOST INVESTORS ARE AFTER IS A COMFORTABLE RETIREMENT.)
15) “The fact that securities settle through the continuous net settlement system, or that they are deposited at DTC, does not increase the number of the issuer’s shares.”
(THIS IS SEMANTICALLY CORRECT IN A “MISREPRESENTATIVE” SORT OF WAY. THESE “ENTITLEMENTS” ARE NOT SHARES WITH AN ATTACHED “PACKAGE OF RIGHTS” BUT THEY DO ADD ARITHMETICALLY TO THE SUPPLY OF READILY SELLABLE “SHARES/ENTITLEMENTS” THAT REPRESENT THE “SUPPLY” FACTOR IN THE DEMAND AND SUPPLY INTERACTIONS THAT DETERMINE SHARE PRICE. THEY ADD DIRECTLY TO THE “READILY SELLABLE SHARE “FLOAT” OF SECURITIES. THE SEC’s REFUSAL TO ACKNOWLEDGE THIS FACT BY GRANDFATHERING IN PREEXISTING DELIVERY FAILURES VIA REG SHO TELLS US THAT THEY’RE NOT UP TO THE TASK - ADDRESSING THESE ARCHAIC DELIVERY FAILURES ONCE AND FOR ALL, TO END THE DAY TO DAY DAMAGES ACCRUING IN VICTIMIZED ISSUERS BEARING THESE BURDENS (AS IF THEY’RE GOING TO BE ANY EASIER TO DEAL WITH NEXT YEAR WHEN THEY’RE THAT MUCH LARGER).)
16) “While the number of securities outstanding does not change becaus of the clearance and settlement system, the aggregate number of positions reflected in customer accounts at broker-dealers may in fact be greater than the number of securities issued and outstanding. This is due in part to the fact that, as noted above, broker-dealers may credit customer accounts with securities entitlements in anticipation of delivery of the security to the broker-dealer.”
(NOW CAN YOU SEE WHY NAKED SHORT SELLING IS PANDEMIC AND THE LEVEL OF PREEXISTING ARCHAIC DELIVERY FAILURES WAS UNADDRESSABLE. A DTCC PARTICIPANT THAT DIDN’T RUN UP ASTRONOMIC NAKED SHORT POSITIONS AGAINST EVERY ISSUER IN SIGHT WOULD BE CRAZY NOT TO, WHEN YOU HAVE THE DTCC AND SEC RUNNING INTERFERENCE LIKE THIS. ALLOWING “ broker-dealers to credit customer accounts with securities “entitlements” in “anticipation” of delivery of the security to the broker-dealer” IS AN ENGRAVED INVITATION FOR FRAUD. “I DON’T NEED TO COVER MY 100 DAY OLD DELIVERY FAILURES, I’M STILL “ANTICIPATING” DELIVERY”.
17) “Once a member’s securities are used for delivery to another member, the lending member no longer has ownership rights in those securities, which means that it cannot sell or re-lend them until such time as the securities are returned to its DTC account.”
(WHEN WAS THE LAST TIME YOU WERE TOLD THAT YOU COULDN’T SELL THAT WHICH WAS REPRESENTED ON YOUR MONTHLY BROKERAGE STATEMENT AS BEING PURCHASED BY YOU? ALL THE LENDING B/D HAS TO DO IS TO SELL THESE “BOOK ENTRIES”, FAIL DELIVERY, AND GET BAILED OUT BY THE SBP. TELLING AN INVESTOR THAT HE COULDN’T SELL THE “SHARES/ENTITLEMENTS” HE PURCHASED AND ARE REFERENCED ON HIS MONTHLY STATEMENT AS BEING “HELD LONG” SOMEWHERE FOR HIM, WOULD GIVE AWAY THE WHOLE FRAUD.)
18) “When securities are not available to be loaned through the stock borrow program, the buyer is required to either wait for delivery or initiate a buy-in. Neither waiting nor buying-in increases the number of issued and outstanding securities. All that the stock borrow program does is shift the consequences of the failure to deliver from a buyer that has not affirmatively indicated a willingness to wait for delivery of its securities to a lender that has indicated that it is willing to wait. This shift cannot possibly increase the number of securities issued, any more than the buyer’s decision to either wait or initiate a buy-in can do so. Therefore, plaintiffs’ assertion that the stock borrow program creates securities is incorrect.”
(WHEN THE LENDING POOL IS EMPTY THE BUYING B/D CAN EITHER “WAIT” OR INITIATE A BUY-IN. RULE 15C6-1, HOWEVER, FORBIDS THIS EXTENDING OF “SETTLEMENT DATE”. THE EVANS, GECZY, MUSTO AND REED STUDY (2003) SHOWED US THAT ONLY 1/8TH OF 1% OF EVEN “MANDATED” BUY-INS ARE EVER EXECUTED! OBVIOUSLY EVERYBODY CHOOSES THE “WAIT” OPTION. WHY THEN IS T+3 REFERRED TO AS “SETTLEMENT DATE”? HOW CAN A BUYING B/D CHOOSE THE OPTION OF “WAITING” IF HE OWES A DUTY OF CARE TO HIS UNKNOWING CLIENT, WHO IS OBLIVIOUS TO ALL OF THESE SHENANNIGANS?
THE CHOICE OF “WAITING” CREATES AN “ENTITLEMENT” THAT INCREASES THE SUPPLY OF READILY SELLABLE “SHARES/ENTITLEMENTS” THAT WEIGHS DOWN ON THE SHARE PRICE OF THAT WHICH WAS JUST PURCHASED. IN OTHER WORDS, A B/D CHOOSING THE “WAIT” OPTION DAMAGES THE INVESTMENT OF HIS CLIENT AND ALL OTHER INVESTORS IN THAT STOCK. USUALLY INVESTORS DESIRE THE BUYING OF SHARES OF AN ISSUER THAT THEY HAD INVESTED IN. WITH THE DESIGN OF THE SBP INVESTORS WOULDN’T WANT MORE BUYERS APPEARING ON THE SCENE BECAUSE THEY WOULD ACTUALLY BE DAMAGING THEIR INVESTMENT INSTEAD OF FORCING THE SHARE PRICE UPWARDS. IN REPLY TO THE 2ND LINE OF THE SEC ATTORNEYS’ CONTENTIONS CITED ABOVE ON THIS POINT #18, CHOOSING THE “WAITING” OPTION DOES INDEED INCREASE THE NUMBER OF OUTSTANDING SECURITIES IF YOU CONSIDER THESE WONDERFUL “ENTITLEMENTS” A “SECURITY”. IF YOU DON’T CONSIDER THEM A “SECURITY” THEN THE SBP IS CORRUPT FROM THE GROUND UP! THAT “SHIFTING OF CONSEQUENCES” LINE UP ABOVE DESERVES NO REPLY.)
19) “The Commission has approved the Stock Borrow Program as being in compliance with the Requirements of the Exchange Act.”
(GIVE ME AN HOUR AND I’LL CITE YOU AT LEAST 40 POINTS OF CONTENTION BETWEEN THE SBP AND THE ’34 EXCHANGE ACT, WHICH BY THE WAY FORBIDS “UNDISCLOSED CONFLICTS OF INTEREST”. GIVE ME A FULL DAY AND I’LL GIVE YOU 400. SINCE ITS INCEPTION IN 1981, THE SBP HAS “EVOLVED” INTO THE INFRASTRUCTURE SUPPORTING WHAT’S PROBABLY THE LARGEST AND MOST DAMAGING SEC SANCTIONED FRAUD ON THE MARKET IN HISTORY. I THINK IT’S TIME THE SEC REVISITED ITS “2 THUMBS UP” RATING OF THE CURRENT VERSION OF THE DTCC’S SBP.)
20) “SRO rules that are approved by the Commission preempt conflicting state law. Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119, 1128 (9th Cir. 2005), citing Merrill Lynch, Pierce, Fenner & Smith v. Ware, 414 U.S. 117, 127 (1973)”.
(THUS THE GOAL OF THE ABUSIVE DTCC PARTICIPANTS IS TO GET AS MUCH LARCENOUS MALARKEY INCORPORATED INTO THE COMBINED 800-PAGE RULES AND REGULATIONS OF THE DTC AND NSCC AS IS POSSIBLE.)
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MY SUMMARY OF THE AMICUS BRIEF
1) THE AUTHORS OF THE BRIEF ARE THE SEC ATTORNEYS COMMISSIONED TO PROVIDE “INVESTOR PROTECTION AND MARKET INTEGRITY”. THESE ARE THE “GOOD GUYS” LOOKING OUT FOR OUR WELFARE! WHY THE HECK ARE THE GOOD GUYS IN BED WITH THE BAD GUYS?
2) THIS RUSHING TO THE AID OF THE DTCC BY THE SEC IS REMINISCENT OF THE TIME WHEN A DOZEN OR SO VICTIMIZED ISSUERS TRIED TO BAIL OUT OF THE DTCC AND THE SEC CAME TO THE RESCUE AND SAID NO, YOU CAN’T LEAVE (AND GO TO A “CERTIFICATE ONLY” BASIS FOR TRANSFERRING STOCK OWNERSHIP) BECAUSE IT WOULDN’T BE CONSISTENT WITH SECTION 17 A’S MANDATE FOR “PROMPT CLEARANCE OF TRADES”. THOSE NASTY TRANSFER AGENTS CAN’T CLEAR TRADES NEARLY AS FAST AS WE DO.
3) WHAT WOULD HAVE HAPPENED IF THOSE DOZEN OR SO ISSUERS WOULD HAVE SUCCESSFULLY “ESCAPED”? EVERY ONE OF THEIR SHAREHOLDERS WOULD HAVE MARCHED DOWN TO THEIR DTCC PARTICIPANT B/D AND DEMANDED THEIR CERTIFICATED SHARES BECAUSE YOU WOULD NEED YOUR PAPER CERTIFICATE IN ORDER TO SELL YOUR SHARES. IMAGINE THE OPEN MARKET BUY-INS AND THE RESULTANT “SHORT SQUEEZE”.
4) WHAT WOULD HAPPEN IF THE COMPANY THAT FILED THIS CASE AGAINST THE DTCC IS AWARDED HUNDREDS OF MILLIONS OF DOLLARS IN DAMAGES? EVERY VICTIMIZED ISSUER ON THE PLANET WOULD FOLLOW SUIT. AND THE ISSUER WOULD PROBABLY USE THE MONEY TO BUY BACK ITS OWN SHARES AND START THE MOTHER OF ALL SHORT SQUEEZES.
5) WHEN ELSE HAS THE SEC COME TO THE RESCUE OF THE DTCC AS IN THE ABOVE 2 INSTANCES? HOW ABOUT WHEN THEY GRANDFATHERED IN ALL OF THOSE PREEXISTING DELIVERY FAILURES AS PART OF REG SHO? WHEW, THAT WAS A CLOSE ONE!
6) HOW DO THE SEC LAWYERS THAT PREPARED THIS BRIEF RATIONALIZE NOT WARNING A PROSPECTIVE INVESTOR THAT THE COMPANY HE IS ABOUT TO INVEST IN HAS SO MANY OF THESE WONDERFUL “ENTITLEMENTS” AT THE DTCC THAT THE ISSUER HAS BEEN EFFECTIVELY PREORDAINED TO AN EARLY DEATH VIA DILUTION? OH THAT’S RIGHT, THE TRUTH IS “PRIVILEGED INFORMATION THAT MIGHT REVEAL PROPRIETARY TRADING STRATEGIES”. (LIKE SELLING NONEXISTENT SHARES ALL DAY LONG.)
7) HOW CAN THE SEC AND DTCC POSSIBLY JUSTIFY ALLOWING THE ABUSIVE DTCC PARTICIPANTS THAT SOLD NONEXISTENT ENTITIES TO INVESTORS, AND REFUSE TO BUY THEM BACK AFTER INORDINATE AMOUNTS OF “WAITING”, THE TIME TO KEEP THIS STOLEN MONEY, INSTEAD OF DEPLOYING IT BACK INTO THE MARKET TO BUY BACK THAT WHICH THEY ALREADY SOLD?
8) HOW MANY TIMES DID YOU SEE THE SEC MANTRA OF “INVESTOR PROTECTION AND MARKET INTEGRITY” MENTIONED IN THE LEGAL BRIEF?
9) I HOPE THAT I DIDN’T WRECK THE DAY OF THE MARKET INTEGRITY PROPONENTS READING THE BRIEF. IT’S VERY DEPRESSING TO SEE THE SECURITIES COPS RUN TO THE AID OF THE ABUSIVE DTCC PARTICIPANTS AND SPIN A YARN THAT TOTALLY ANNIHILATES THE CONCEPTS OF INVESTOR PROTECTION AND MARKET INTEGRITY THAT THEY HAVE TAKEN AN OATH TO MAKE THEIR MAIN GOAL. IT’S ONE THING TO BE A LAZY REGULATOR AND SIT ON YOUR HANDS AND DO NOTHING, BUT IT’S QUITE ANOTHER TO CONSTANTLY COME TO THE AID OF THE CROOKS STEALING THE INVESTORS’ MONEY, EVERY TIME THE CROOKS ARE IN A PINCH. IF NOTHING ELSE IT DID SERVE AS AN EXCELLENT LEARNING OPPORTUNITY TO TEACH INVESTORS JUST WHAT THEY’RE UP AGAINST. IT ALSO SHOULD PUT TO REST ANY CLAIMS THAT NAKED SHORT SELLING DOESN’T EXIST. AN UNETHICAL DTCC PARTICIPANT WOULD BE CRAZY NOT TO TAKE ADVANTAGE OF THIS SEC-LEAD INTERFERENCE, AND LEVERAGE THE ADVANTAGES THEY HAVE IN THE MARKETS OVER CLIENTS WITH TRILLIONS OF DOLLARS OUT ON THE TABLE.
SOME QUESTIONS THAT ARISE –
1) How can the SEC “grandfather” in an “Entitlement”?
2) In the 14 question “Self-interview” by the DTCC, they contend that their participants can plead that they “CANNOT” perform the mandated buy-ins. This would take them off the hook, because Reg SHO, for some insane reason, contained the phraseology that if a b/d “CANNOT” do these “Mandated buy-ins (which makes no sense if they’re “Mandated”) then they at least have to behave themselves from this day forward.
If a DTCC participant can claim that he “CANNOT” do a mandated buy-in then, by definition, this never was an “Entitlement” in the first place.
The management team and Board of Directors of an issuer would obviously be interested in knowing how many of these “Entitlements” there are in their corporation. If they, or a prospective investor, approach the DTCC, they will be denied access to this very material information because of its top secret nature - and the DTCC or SEC wouldn’t want to reveal any “Proprietary trading methodologies”.
To put this in context, let’s go back to Dr. Leslie Boni’s research done behind the scenes at the DTCC. She found the AVERAGE age of a failed delivery at the DTCC to be a preposterous 56 days in length. Addendum C to the rules and regulations of the NSCC set up the SBP to allow to “Clear” ONLY trades involving failed deliveries of a “legitimate” nature that couldn’t quite make it by then what was the T+5 settlement date. In the ACME example above, Dr. Boni’s research only looked at the age of the failed delivery occurring when buyer #25’s purchase order necessitated buyer #24’s “shares” to allow the trade to “clear”. If you extrapolate back through the “pedigree” of ACME certificate #1234567 (which sits in a DTCC vault) then you tell me how old that failed delivery might really be. Is the portrayal of 25 investors thinking that they own the same parcel of shares excessive? Probably, unless we’re talking about a micro cap security with very few shares held in margin accounts that is in the 6th year of its “Bear raid” - then who knows?
The above deals only with the SBP, which addresses 20% of failed deliveries at the DTCC. The policies here are totally unconscionable once you actually understand them, and for the SEC attorneys to continue to sanction what the SBP has evolved into is beyond explanation - especially in the midst of a lawsuit brought due to their regulatory neglect in the first place.
As a parting cheery thought, the much more sinister and damaging handling of failed deliveries is via the “Ex-clearing” process, which involves a different calculus altogether.
thesanitycheck.com |
