Wednesday, April 06, 2005

Taking The Gloves Off

Well, the Dateline story has been shelved, at least for now. You will note that I stayed away from the tossing of hats in the air on that one when we were assured that it would run. The reason is simple - I am not convinced that NBC or any network will have an interest in running a story that blows this wide open. The money is too big. The interests are too big. And it would run counter to my experience with human nature to see someone like NBC step up to the plate. So if and when it runs I will celebrate, however I'm not holding my breath. Nope. I've been busy. Thinking. Pondering. Cogitating.

The time has come to bring out the heavy artillery. The SEC has proven to be at best a paper tiger, and at worst complicit in aiding and abetting the fleecing of American companies and investors. Certainly, one can’t argue that they have taken no meaningful steps to enforcing their own rules and regulations. They acknowledge as much in the Euromoney article, where the arrogance and disdain displayed borders on contemptuous.

So, I was sitting around last night wondering what to do when the regulators aren’t doing their job – how do you get justice?

Answer: You take the ball away from them. You eliminate them from the loop. You render them trivial, or non-essential, to the justice process.

How do we do that? The answer is breathtakingly simple.

We take the process and we move it to the state level, as Elliot Spitzer did with the mutual funds.

In each state, there is an Attorney General and a head of the Department of Commerce or a Secretary of State, who oversees the state securities board. These entities can be used to remove the blocking that the SEC effectively mounts to any sort of effective action. They can file subpoenas and secure the information on the fails from the DTCC/NSCC – the DTCC/NSCC can’t just say no to a criminal investigation subpoena, and the DTCC/NSCC does business in every state, via the presence of their SMART software, which is used every day at the brokers in every state, and which is the property of the DTCC/NSCC, per the license agreement. So nexus and jurisdiction are easy to establish, and one doesn’t even require knowledge of who the perpetrator is – the data will tell the state that, as well as offer other vital data requisite to doing the diligence in a reasonable investigation. And it won’t be securities abuses, necessarily – it will be fraud, and racketeering - simple, easy stuff that doesn’t require or involve the Federal mechanism.

There is a certain level of art to the deal, and it is not a good idea to go rushing in blindly, using individual action and making demands. The state regulators are not required to pursue every criminal complaint filed, and one has to craft the case and articulate the merits of the complaint with a certain finesse, a sensitivity, if you will. And some states are going to be more receptive to moving on this than others. But some will move, and once they move, the game is over – the Federal mechanism that has been used to construct a wall of denial and lack of enforcement simply is not in place to run interference at the state level.

I will be working very hard over the next few weeks to think through the best mechanism to bring the states into the mix, and eliminate the requirement for any Federal involvement – it worked in Massachusetts in the Putnam fund case, wherein the Secretary of State filed subpoenas and within hours the SEC suddenly was there with their subpoenas. It works with Spitzer. And it will work here.

We will not be denied due process and justice by a regulatory arm that has unilaterally confused its mandate with running interference for the bad guys. It is unacceptable, and the data from the NSCC, once it is obtained at the state level, can easily become part of the public record. The SEC may feel that protecting the trading secrets of the hedge funds and brokers that are violating the law and manipulating our stocks is a good idea, but my sense is that the states won’t see it that way. And once the data is part of the public record, their ability to block us from knowing it is over.

The SEC just became an ineffective shield for the bad guys. They are rendered immaterial.

And it’s about frigging time. This just makes it official.

Stay tuned.


Blogger manyyrstogo said...

It seems like timing will be an issue. If we filed in several states at one time the SEC would be split. The communication line would fall apart.

5:29 PM  
Blogger Jer. 9:24 said...

I have been told that several states' attorneys general (including your own, Bob) are indeed looking at this matter; I have also heard that Louisiana has served criminal subpoenas on one or more brokerage firms involved in manipulating a resident company's securities. The last poster is correct, the idea should be to prepare a cogent and well doucmented case then identify shareholder and corporate victims in each subject state. Deliver the information to every applicable state attorney general (and any other that might be helpful) then provide the various attorneys general with the names of the others who are (we hope) examining the matter. If three or four of them start talking, it could get exciting quickly. I would bet the North American Ass'n of Securities Administrators and each 'target' state's securities administrator would enjoy being copied on the information provided.

5:47 PM  
Blogger bob obrien said...

I have some thoughts that I'm not quite ready to discuss in a public forum - but there are ways to coordinate these things.

I agree that the complaint would have to be well crafted.

Give me a week or two.

The one thing that the SEC hates and fears more than anything is the States getting involved. It makes them look bad, and they can't be bought off. And there are quite a few State guys that are excited by Spitzer's progress and now understand that taking on a case like this could be a winner, as well as a revenue generator.

Everyone needs a hobby.

6:21 PM  
Blogger particleswaves said...

"Bob"...thanks again for all that you are doing to right this wrong. A post (promptly deleted by a mod with a two-by-four up his ass) on Board 32 advanced a most interesting idea revolving around making a citizen's arrest of one or more guys working for the DTC. The press would have a field day.

6:48 PM  
Blogger Not A Federalist said...

It makes you wonder what is the purpose of a federal government and federal laws. By and large federal law and institutions are used to evade prosecution at the state level. In almost every case where regulation is/was required, the affected parties have rushed to have a federal statute/reg established in order to avoid being held accountable at the state level. Seems we may have a federal government which has become a criminal enterprise in and of itself.

7:44 PM  
Blogger said...

Leave the Gloves on BOB!

and put horse shoes in them so when you knock them out they stay down!

Good luck!

8:46 PM  
Blogger tbs_theman said...

I mentioned this before. The North Carolina Attorney General should (in theory) be very interested. KKD is huge in North Carolina, and many people will lose a large portion of their retirement accounts if naked shorting successfully bankrupts the company.

9:40 PM  
Blogger bob obrien said...



10:31 PM  
Blogger teachericjp said...

Thanks for all that you're doing DDD. You have already done more for this cause than I would have dreamed. Now, with all you continue to do, I'm finally beginning to truly believe YOU will be the deciding factor. Our students just might be reading about you in our history books in the future. Lately, I've been feeling down about our country and all the corruption that keeps rising to the surface. Hopefully, some day soon, I'll be able to be proud, once again, that my name shows up in our country's name: amERICa

11:37 PM  
Blogger rvac106 said...

A New York Court ordered the DTCC to produce trading records for EATC shares. This was announced on Friday, March 4, 2005. It is now April 6th, and we've seen no activity indicating that the DTCC is even considering answering this court order. Not to say that it won't happen, but, it may turn out to be another long and drawn out affair. On the other hand, it is another thumb screw, tightening, tightening, tightening......

1:13 AM  
Blogger stoneag said...

I've wondered why there has been no news on naked shorting on Squwak Box and the rest of the CNBC lineup. If I understand this correctly, NBC owns Dateline. NBC owns CNBC. GE owns both. So GE has an interest in seeing Stockgate taken off the air.

When I see something like this happen I automatically look for reasons. In the absence of information from GE I am free to invent my owh reasons. GE as a company is a serial acquirer. They have picked up some great technology (for instance CAT scanning) by buying at discount prices - the stock price of the company they acquire is under pressure. Since I am free to invent my own reasons for GE actions, maybe GE has benefitted from naked shorting. That would make it counter productive for them to air the Dateline show. Of course GE's actions could be far more benign. But they chose not to fill in the information gap ...

6:16 AM  
Blogger bob obrien said...

I think it is simpler than that. Follow the money. You have a financial scandal of potentially catastrophic magnitude, wherein the perpetrators are a who's who of Wall Street, and you have Dateline, in New York, and GE, one of the biggest money players out there.

What a shocking surprise that they would be more aligned with the interests of big money than with truth. This is really reminding me a lot of Watergate, wherein the entire establishment attempted to cover up a deception so large that it defied appreciation upon first blush. A few guys made the difference. It is unknown which few guys will make the difference here. But some will.

I think the way we move the boat forward is we all pull on the oar to the best of our abilities. I am of the opinion that everything happens for a reason. The fight finds you.

So here we are, in the Colosseum, facing our adversary, who is swinging a net over his head and has a decidedly malevolent gleam to his gaze.

Some things are perennial.

8:00 AM  
Blogger woodshedder said...

Bob, I will help you anyway I can. Please let me know how I can help. Stop the insanity!

11:23 PM  

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