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Microcap & Penny Stocks : Rocky Mountain Int'l (OTC:RMIL former OTC:OVIS) -- Ignore unavailable to you. Want to Upgrade?

To: Candle stick who wrote (10805)	10/31/1997 2:12:00 PM
From: Riley G	Respond to of 55532

New York Times: October 30, 1997 search.nytimes.com SEC Schedules Meeting as Small-Stock Fraud Soars By LESLIE EATON NEW YORK -- Federal regulators are turning up the heat on some of Wall Street's biggest firms in an effort to prevent some small brokerage operations from defrauding investors who trade in the stocks of tiny companies. Arthur Levitt Jr., the chairman of the Securities and Exchange Commission, has called a meeting for Monday morning in New York with various regulators and at least half a dozen big firms that process the trades of thousands of smaller outfits, according to a letter given to The New York Times by a Wall Street executive. In his letter summoning the firms to a meeting, Levitt wrote that "minimizing abuses in the market for low-priced, or microcap, securities is one of my highest priorities." State and federal regulators report that fraud in small stocks is soaring, costing investors billions of dollars. Much of the fraud, regulators say, occurs at small brokerage firms that could not stay in business without a clearing firm. Clearing brokers process and guarantee the trades of small firms, maintain their customers' accounts and in some cases lend the firms money. One issue the commission is examining, Levitt wrote, is "ways in which clearing brokers can be more responsive to red flags they receive about misconduct" at their client firms. Because customers receive their statements from clearing firms, they often complain to the clearing firms about problems like unauthorized trading. Commission officials declined to comment on the letter. The firms invited to the meeting include the largest firms that clear for others: Bear Stearns; Donaldson, Lufkin & Jenrette, whose clearing operation is its Pershing division; and Fidelity Investments' National Financial Services Corp. Officials of these firms either declined to comment late Wednesday or could not be reached for comment. The arcane world of clearing has become controversial because of the activities of several small brokerage firms that, regulators contend, defrauded investors of millions of dollars. A grand jury in Manhattan is investigating the demise of a firm, called A.R. Baron, that had a long history of regulatory run-ins and customer complaints. Among the issues being investigated are the links between executives of Baron and Bear Stearns, and whether Bear Stearns took unusual steps that allowed A.R. Baron to stay in business. Bear Stearns has denied any wrongdoing. In a filing earlier this month with the SEC, the firm said that "various regulatory and governmental agencies" were investigating some of its clients in addition to Baron. Last month, the New York Stock Exchange voted to require clearing firms to monitor the trading at their client firms and to pass along to regulators any complaints they receive. James Cayne, the president of Bear Stearns, responded that such requirements would expose his firm to too much legal liability and would cause it to cut back or abandon the clearing business. While clearing is a very profitable business for big firms, it is not without risk. Fidelity's National Financial unit is on the hook for $9 million in trades that were done through one of its clients, a firm called Saperston Financial of Buffalo. Saperston collapsed after a customer refused to pay for 2 million shares of a Vancouver company called H&R Enterprises. On Oct. 8, National Financial filed lawsuits in Florida and British Columbia against a bevy of firms and individuals that it said were involved in defrauding Saperston, according to court filings. Canadian and U.S. regulators are investigating H&R, whose stock they suspect was manipulated. The shares, which traded in the United States on Nasdaq's electronic bulletin board, zoomed from just pennies a share in July to almost $7 in September before collapsing to less than 50 cents.

To: Candle stick who wrote (10805)	10/31/1997 2:15:00 PM
From: Typhoon	Read Replies (2) \| Respond to of 55532

Trading wouldn't be halted in order to let MMs off the hook who have sold what they didn't own. The MMs will, however, be required to balance any short positions, and this can only be done by buying back shares. Whatever goes on between the MMs and the shorters, well, that's their little problem to deal with. If the shorters declare bankruptcy or leave the country, the MMs are still responsible for balancing out. There is no easy out. Anyone who short sells a stock must be prepared for the consequences. This is why shorting is so dangerous - if you're long in a stock, the worst that can happen is you lose your investment. If you're short, you can do much worse than lose your investment - there is no limit to the stock price, and you can end up coughing up a ridiculous amount of money. Of course, this is all obvious, but worth repeating.