A while ago I wrote, "We definitely aren't in Kansas anymore - can this get any weirder?"
It just did.
In quantum physics, there is an expression used when an experiment is successfully concluded, and all possible outcomes are eliminated, leaving only the 100% manifest event: "The waveform has collapsed."
The universe of possible outcomes is reduced to one, Heisenberg uncertainty is removed, and what you have, is "it". Sherlock Holmes used a similar logical line of reasoning - eliminate all the incorrect explanations, and what remains is, no matter how difficult to believe, the explanation.
What follows is the text of an email exchange between Dr. Patrick Byrne, President of OSTK, and his broker, whose identity Dr. Byrne has asked me to keep anonymous. Suffice it to say it is a big firm, that everyone takes very seriously. Dr. Byrne has also requested that I keep the names of the individuals out of it, as well as the offending selling broker. The actual firm names are meaningless - it is the content and the situation being described that is the shocker here.
Pay very close attention to the exchange. It is blood chilling, in that it spells out in no uncertain terms - actually in very mundane, ho hum, routine terms - that virtually all the "shares" trading in OSTK are frauds - there are no genuine shares being sold. The brokers admit as much, and yet every day hundreds of thousands of "shares" are sold - all presumably bogus.
Note that Byrne's broker is likely guilty and admitting to violations of 15(c)3, wherein they lied and told him initially that the trades had settled, when in fact no such thing had occurred. Also note that for all their pleasantries, they are reluctant to buy in the fraudulently traded shares, essentially shrugging their shoulders and saying that if they went out and tried to buy the offending selling broker in they would just get more fakes, as NO REAL SHARES ARE TRADING, thus they shouldn't even bother.
The truth is that they would have to keep buying shares until they didn't get fakes, which would drive the price up to where real holders of real shares want to sell, and there aren't any at this price. That is why they don't want to buy anyone in - they don't want to start a short squeeze, as it would decimate their hedge fund clients if the price went up $50 overnight - to a level where some folks might be interested in selling their real shares. Maybe. Or maybe not.
So it is better to violate Reg SHO and 15(c)3 and basically tell the President that hey, sorry we lied and told you the trades settled, they really didn't (in nicer language, of course, and it did shut him up for a while), and they won't settle anytime soon, as the only transactions that are being recorded are frauds issued by those that are trying to keep your price undervalued by whatever orders of magnitude they require to turn a profit.
So suck it up, rubes. If you aren't happy buying frauds, sorry, but that's all there is for sale.
Read it yourself. The only thing that has been changed are the names XXXX'd out, and the names of the individuals have been changed to Bob and Ted and such.
This is every bit as bad as I've been saying it is for the last year. Every bit. And left unchecked it will destroy the financial system - just a matter of when, and frankly it could be too late, if all the frauds in all the companies had to be covered - hence the grandfathering clause in Reg SHO.
Now read the email exchange. And be horrified.
Today I have been informed by Bob at XXXX, that the 50,000 shares of Ostk originally confirmed to have settled on Dec 5th and in the process of being converted from DTC shares to paper, have in actuality not settled and no shares have been received
(emphasis added) by XXXX
from SSSS (SSSS is selling broker, XXXX is buying broker). The $1.8mm for the purchase of the shares has been debited from your XXXX account, but XXXX has not distributed any money to SSSS and the funds are being held in a XXXX holding account. I am in contact with Bob on a daily basis and we will continue to push SSSS to deliver the shares.
Please let me know if you have any questions.
Subject: RE: Ostk purchase
Ted or Samson,
Can you confirm for me:
SSSS was the counterparty to this trade?
When the trade is done, what is the process by which the trade is "confirmed to have settled"?
Please describe this process normally works. No more than 50 words. For example:
The trade: "Ted talks to a broker on the SSSS side and agree on the deal, they each write a ticket with a trade number on it." Or... "Ted does the deal through a computer screen, which tells him that the counterparty was SSSS, and give him a trade number."
The confirmation: "Three days later the DTCC sends an electronic confirmation that 50,000 shares have been debited from SSSS's DTCC account and credited to XXXX'."
Or whatever the truth is. I just made those up, but it is what I imagine. Can you just write for me the correct sentences so i understand?
In answer to your questions below;
Yes we purchased the shares through SSSS.
I will try to explain the process as best I know and keep it short. I enter the trade when it comes in. My back office brokers pick up the trade and then call the "reps"/brokers that move the stock. In this instance they contacted SSSS. The SSSS broker then goes and tries to fill the order by breaking it down and going to the street. His back office accumulates the shares and then lets him know that the trade is now good. He then calls my back office broker to let them know the trade is good. Usually this would be an electronic confirmation. The selling broker then has three days to collect those shares from where ever he got them and deliver them to XXXX. So on the day of the trade or by the next morning we have a confirmation and a detailed report that the shares are good. That report is the same I provided to Sam (Your rep). When the stocks arrive at XXXX the money is then credited to the SSSS account and the transaction is complete.
I hope this helps or is the information that you need.
I have been thinking.
Doesn't this mean that SSSS sold these without having them?
If they sold it, then have to go out and "accumulate the shares"? That is, it was a short sale?
Was it identified as a short sale during the trade?
Can you buy them in?
It would seem that SSSS did not have the shares when they sold them to us. They are a market mover for overstock.com
and so are both placing sells and buys throughout the day. There is no way for us to tell how short they were at what time, I don't think the broker at SSSS even knows the total position of shares when they complete the trade. It never is disclosed as a short sale, all we see is a confirmation that they accepted the trade which means that typically they will deliver the shares in three days. My understanding is that traders and brokerage houses will often on securities borrow the shares if they come up short at the end of the day. Since Overstock is a "hot" stock they are finding it just about impossible to find shares to borrow or buy (emphasis added)
As far as your question about buying them in, yes we could buy them in in this situation. However, if we try I don't know that we will be successful. Talking with my traders they feel that we will run into the same problem, no one seems to have enough of the shares to deliver (emphasis added).
I have talked with SSSS again today and they are at the same position right now.
I assume you mean "market maker" and not "market mover"? (Freudian slip?)
Can you do me a favor and ask SSSS: "Whom did SSSS buy the short sold stock from?"
I talked with SSSS and they said that as far as where they get the shares they execute the buy for us knowing that typically for stocks they can get the shares with in the three days. With Overstock shares they were not able.
They have, as of the 13th, issued buy ins on all shares owed them and are pursuing those shares to complete our purchase.
Folks, a few things are glaringly obvious here.
The first is that the short sales aren't being differentiated as such, or the broker is lying about it. Second is that Reg SHO is being violated freely, and all the brokers are just shrugging their shoulders. Third is that while the buying broker is now saying that buy-ins are commencing as of the 13th, that is the same broker who also erroneously represented that the trade had settled - raising the question as to why the confirmed liar is to be believed now when he tells Patrick something else, possibly to placate him. Friday was the 16th. Were the trades settled?(NOTE: Byrne has asked me to withhold both the buying and selling brokers' names, simply because he has done business with them and always found the individuals at the firms to be decent and honorable, and thinks they are perhaps trapped in a debacle that they don't fully understand. We have a disagreement on this point - I've told him he is nuts not to be going after both of them with all guns blazing - multi-billion dollar suits for violation of 15(c)3, causing massive devaluation of asset value for shareholders due to the sale of unregistered securities, you name it. He is more of a gentleman than I am, I suppose - and taller, too.)
Also note that this is all apparently happening ex-clearing, in a direct transaction with another big Wall Street house, completely bypassing the DTCC - thus confirming that many of the fails never even show up as FTDs in the system - they are just niggling little annoyances between brokers, you know, delivering the actual shares for which everyone has been paid commissions, and which had downward effect on the share price. Oh, that. Also note that none of the direct questions Patrick asked were answered - the responses were, to put it mildly, lacking in information, and many times answered questions that weren't asked in place of the questions that were.
This is the President of OSTK who can't get his trades settled. Imagine what that means for every person buying shares over the last 6 months. There is no evidence that any of the shares being sold at this point exist. They are just transactions in the system, for which there are no shares - that admission alone is priceless.
Note that the excuses are along the lines of OSTK is a "hot" stock, thus no real shares are available. This is the second or third time that this type of exchange has happened over the last 4 months - on every one of Dr. Byrne's purchases, as well as his dad's. This is not isolated - it is the norm, and is being flagged by Dr. Byrne because he knows the questions to ask, and his broker knows that he knows what is really happening.
Wanna bet that you don't see anything in any financial publication about this exchange? There are no genuine share being traded, so solly, so we can't deliver yours, well, for the foreseeable future, at this point. But another half million fakes will be sold on Monday, and on Tuesday, and on Wednesday. Gotta "make a market", and heaven forbid if the price went up to reflect exactly ZERO AVAILABLE LEGITIMATE SHARES!!!
Patrick warned everyone about this a few months ago. He was roundly mocked. "No genuine shares? That's ludicrous - look at the volume!!!" And here we have one of the largest brokers in the country stating point-blank that is the case.
But that doesn't stop the processing of fake transactions every day, driving the price down, now does it? And nobody is doing anything about it. Not the SEC, with full access to this definitive admission of wrongdoing. Not Senator Shelby, not the Senate Banking Committee, not any of our public protectors. Nope, the hedge funds rule the roost, and Wall Street keeps on selling, even though there well may be 30-40 million fake and shorted shares now outstanding on a stock with a few million share float. They clearly believe that nobody is ever going to force them to deliver the shares - that is the only explanation for this behavior. They have now made the problem so big that they are "too big to fail." And they continue to violate the public trust, destroying shareholder value as a business plan, while those chartered with protecting investors smile and roll their eyes.
Here's my metaphor for what is occurring:
Imagine that there was only one drug company in the country - Megadrug - owned by the chain of pharmacies that are the monopoly drug outlets in the US. And now imagine that the drug company has discovered that instead of providing insulin to the pharmacies, it is far cheaper to ship a certain segment of them colored water - in areas where they think they can get away with it.
Sure, millions die every year as the bogus drug, which the patients pay their life savings for, fails to do its job - they die as surely as if someone held a gun to their head. But that's the lay of the land.
Most of the pharmacies suspect something is very, very wrong, but they have to sell something - the demand for insulin is high - and the profit margin is sweet, and they don't know for absolute sure exactly what is wrong - at least that is their stance.
It all commenced years ago, when the drug company started watering down real insulin just a few percent - to improve their profits during difficult times, and with nobody noticing anything wrong. Over the years, the few percent became a greater number, until one day whole shipments were going out with only colored water. The drug company predictably squashed any rumors of anything odd going on, and branded any activists that were suspicious of their game as insane - liars, heretics, cretins.
The regulator chartered with protecting the public health was flooded with complaints from folks who were dying slow and horrible deaths. The regulator inexplicably refused to test the insulin and share the results, and instead indicated that they were going to observe the issue to verify that there was even a problem (rather than just a bunch of whining, piddly diabetics looking for attention), and then come up with a game plan over a period of years. Meanwhile, Grandma and Grandpa died. By the millions.
Cynics pointed out that they would have died anyway. They were in poor health. Many could attribute their diabetes to poor diet - they were damaged goods with no willpower, thus less deserving of concern, sick in large part due to some character deficiency (although that was left unsaid, but implied). And the notion that anyone would sell colored water instead of insulin was preposterous. In private, the drug company moguls had decided that the millions that died every year represent an acceptable number - small enough a percentage of the total population of the planet that it seemed OK in the bigger scheme of things - you have to break some eggs to make an omelet, after all, no business was perfect, and so on.
Of course, simultaneously, the regulators and the pharmacies removed all testing apparatus for testing the veracity of insulin. Said that allowing folks to test the substance would give away critical competitive secrets. So everyone would just have to keep buying and taking the "insulin" and trust that it was going to do the job. And the old and infirm just kept dropping.
Eventually a few people found a clandestine way to test the stuff, and discovered it was 99% colored water. They were aghast, and raised hell. The press and the drug companies branded them as malcontents, and crazies, threatened them with legal action, had their friends in the media (which the drug company and the pharmacies owned a significant percentage of) write articles mocking the ludicrous allegations, while simultaneously arguing that the integrity of the drug delivery chain had never been better.
But there was the niggling problem of all the bodies.
Finally, it became so obvious that if you bought insulin in Alabama, or Georgia, or Arkansas you were buying a death sentence, that reluctant regulators had to run some tests, in secret...and the powers that be verified that in fact the drug company was shipping, and the pharmacies were selling, colored water, and it was killing people. Which wasn't completely surprising, as the drug company in the past had shipped bogus aspirin, and lied about the ingredients of numerous vitamins, and overcharged routinely, and price fixed - but never anything as blatant as this. And they had, after all, been fined .00001% of their profits from the other illegal activities (while never admitting guilt - you could be sued in civil court by damaged victims if you admitted guilt, so tut tut, there was none of that), so one would reasonably conclude that they had learned their lesson.
But apparently they hadn't, and now the entire drug distribution mechanism was so badly compromised that if the truth were known nobody would buy anything from the pharmacies, and they would be sued into the ground, forced to disgorge all their illegally generated profits - and the industry argued (via intermediaries) that wouldn't bring back Grandma, anyway, and wouldn't be for the greater good (whatever that was) - even as more truckloads of colored water rolled out to the pharmacies.
The problem was what to do? The drug company was the biggest campaign contributor to all parties. Many of the elected officials came from the drug company, or the pharmacy industry. The drug company employed thousands, and the pharmacies tens of thousands - all busy selling colored water.
Do you tell the population the truth? Shut the pharmacies and the drug company down, stop them from selling any more colored water, stop them from killing more people? Or keep letting them sell the colored water, and issue stern warnings, in the hopes that they will stop poisoning the people of the states they targeted as being acceptable to deliver ersatz insulin to? You know, over time, hope they would reintroduce real insulin, and stop the wholesale crime spree perpetrated against the heartland of the country?
That is the conundrum - do you tell people the truth and let the perpetrators take their lumps, and create a pharmacy structure that actually delivers real insulin (albeit at far lower profit than selling colored water), causing established power structures huge financial damage - power structures that frequently argue that they ARE the country, or at least what really matters in the country? Or do you keep allowing millions to die, while hoping against hope that those whose illegal profit expands with every day of water shipments will stop misbehaving?
Thus far the solution has been to conceal the problem and hope for the best - but that merely creates an ever larger problem, because now the drug company has become so emboldened that it is also shipping sugar pills instead of diuretics - so what if many of those with congestive heart failure expire? They would go anyway, just a matter of time, and the profit associated with the newest line of non-medicine is astronomical...
And from a practical standpoint, we don't want the idiots rioting over being sold colored water instead of insulin, or worse yet, refusing to buy any more, so maybe it is best to continue to sell the colored water, even though we know it kills. Because what is the alternative? Think of all the unemployed pharmacy employees if the word gets out. Think of the damage to the drug industry if it became known that it was defrauding its customers as a daily business strategy. Think of the damage it would do to our regulators and elected officials if it became known that they allowed the drug company to sell colored water, and refused to open investigations.
Why, that would be chaos.
Better to let Grandma go into a coma and drown as her lungs fill with water, shocked and frightened that the substance she was taking to prevent that, failed to do so. There is, after all, a lot of money at stake, and what's a few more years and a few more million grandmas? If you aren't sickened by the picture I just painted, you are out of your mind.
Sound nutty? Sound a little like Soylent Green?
That is the situation we are in, and the email is proof positive from the pharmacies that they are selling colored water, have been for some time, know it, and aren't going to stop - folks need their insulin, after all, and we don't want to start a riot, or have the drug company and all the pharmacies sued out of existence. So they let them keep selling colored water.
This has got to stop. The email exchange confirms that it is every bit as bad as I just described - the US financial system is a fraud, the brokers know it is a fraud, and if this is an indicator, if just the shares of OSTK were forced to cover, it would likely bankrupt the hedge funds that have ridden roughshod over the company, as well as the brokers who have acted as accomplices to overt fraud. And then the larger clearing brokers that are facilitating the hedge funds in perpetrating the fraud are at risk, as millions and millions of fraudulent trades have to be covered, all the time causing the price to rise, and a resultant domino effect in the other short positions this cartel is in, amplifying the fallout into the many billions.
Gotta sell that colored water. Insulin is a hot drug right now, and we just can't seem to get any, sorry to hear about Grandma and Grandpa - it happens, but they weren't feeling so good for a while now, so what can you say?
PJ O'Rourke had a wonderful line in one of his books - "What the F? What the F-ing F?"
I know the feeling.