Tuesday, October 11, 2005

A Hole In My Head...

What if the US market system was so badly broken, so wildly compromised, that the very basic premise of an auction system was shown to be a hollow farce, an artifice designed to lure investors into a system wherein wholesale larceny, counterfeiting, fraud, collusion, corruption at a scale so pervasive that it jeopardizes the entire premise of the markets, was the reality and the norm, not some delusional construct of a cerebrum badly compromised by paranoia?

What if the worst case scenario, wherein the participants in their ex-clearing system created unknown levels of counterfeit shares which traded in the system and were treated as genuine, was not only reality, but was in fact the norm?

What if the participants had decided that instead of buying shares in the market to settle trades, they would just represent to buyers on their statements that they had gotten their shares, without ever bothering with the costly hassle of actually buying the shares? Doesn't that sound like a neat way to generate untold billions without any cost of goods sold, without any product cost at all?

What if, when caught doing it, they simply pointed at the other broker and said "it's his fault for not delivering", instead of buying in the failed trade, as mandated by the rules?

And what if the vast majority, possibly 100% of some of the trading in Reg SHO stocks, was nothing more than these bogus trades being conducted in order to damage the companies and the shareholders?

And what if, on the rare occasion that someone with enough clout to conduct a conclusive test did so, these "what if's" were demonstrated as unassailable fact? That trades didn't even settle electronically until the brokerage system was GD good and ready, and had made millions by not performing its most essential and basic function, and had allowed these "cyber-counterfeits" to depress the value of the underlying stock to the point where the shares could be bought for $10 less than the buyer paid for them? And what if the only reason that they had even done that, and bothered with settling the trades at all, was because the buyers were the owners of a billion dollar market cap company who were visibly involved in questioning the system's capability of performing at a basic level?

And what if the entire scheme was nothing more than an elaborate ponzi scheme wherein ever more fake shares have to be sold in order to buy shares to deliver at ever more depressed prices? Sound fanciful? Crazy? Impossible in today's modern world of Six Sigma nanosecond trading capability?

Wrong. It is apparently the accurate description of the norm.

Folks, I'll make this very simple. The reason that stocks like OSTK and NFI and many of the rest of the Reg SHO list stocks are selling for fractions of what they should be is because a literally unlimited number of bogus shares are being created and sold, with undiminished levels of aggression, by predators who financially benefit from the stocks going down.

And the entire market system, from the clearing system that keeps all information secret from the public, to the regulators who fail the most basic test of their congressional mandate in 17A (SETTLE THE TRADES PROMPTLY) and are uninterested in meeting this simple requirement for a fair market, to the brokers who financially benefit by treating failed trades as genuine transactions, to the hedge funds that use this capability to sell unlimited numbers of shares and manipulate stocks accordingly, all actively participate in what can only be described as a fraud against investors of such mammoth proportions that it defies credible description.

And that is now the tame version.

The test of any theory is how well it predicts future events. If the Fail To Deliver (FTD) problem was just a matter of a few rogue hedge funds gaming a loophole in the system, and of a regulator who was simply too overloaded to clamp down on what was a minor problem, then it would predict that when tested, there might be a small glitch in a few deliveries, but that within a reasonable time frame the system would function as expected and the trades would settle.

If the FTD problem was a widespread systemic problem where few if any shares of Reg SHO list stocks trading in the system are genuine, and where the system understood that, and perpetrated a massive fraud requiring secrecy, opacity of actual deliveries, and active collusion by its participants, one could predict that when tested, even by someone known to be testing it, it would be forced to defraud the buyer in plain view - blatantly, without remorse nor excuse, and with impunity - the latter is a prediction from the piece of the theory that says that the regulators are either compromised and thus in on it, or so fearful of destroying the financial system that they are rendered toothless (no other explanation satisfies the "with impunity" prediction).

That is what happened with Dr. Byrne and his father, who purchased roughly a quarter million shares of OSTK in the market two months ago in a series of extremely visible transactions, and were unable to even get the electronic shares delivered for two months.

Two months.

During which time the stock price was run down by almost $10, presumably by the same selling pressure generated by the sale of the same "non-shares" as were sold to the Byrnes.

Non-shares.

Day after day after day of non-shares being sold, with limitless availability, a steady stream of counterfeit transactions treated by the system as genuine sales for the purposes of generating commissions, and for affecting the price on the auction market.

And none of the buying brokers doing their fiduciary and legal duty of protecting their customers by buying in the FTDs - rather, simply perpetrating the fraud for profit, secure in the knowledge that most investors will never check to verify delivery, nor have the means to test the delivery claims of the brokers when presented as genuine and believable.

Oh, and did I mention that Dr. Byrne finally got his 25K shares, but that his father STILL hasn't gotten his 200K delivered? Today, as we speak, over 60 days later, no shares, and no forced buy in. So what did Jack Byrne pay for when the money was debited out of his account? Why did the sale go through, and yet no shares get delivered to this very day, on a billion dollar market cap company? And what kind of treatment do you think small individual shareholders receive if billionaire insiders are sold non-shares and then told to pound sand on the legally mandated delivery thereof? I'll tell you what kind of treatment: they get defrauded as a standard daily business practice by an industry out of control.

Think this is the wild, crazy version of the theory? So did I, for many months. But as I researched my book, Symphony of Greed, about the markets and the current state of the union, I noticed something odd. Every time I tested the tame version and used it as an explanation for past events, and to predict future events, it failed, or at best was incomplete. Every time I used the wild version, it accurately predicted what would happen, and completely explained past events.

Now, I'm not saying that there aren't innocent explanations for most conspiracy-driven controversies, but I will say that there doesn't appear to be any for this particular controversy.

Again, we have a total failure by the participants to perform their most basic part of the transaction, we have a company whose value has been materially harmed by that knowing and willful failure (the buying broker could have just bought in the selling broker's position at any point, as mandated by Reg SHO and by Congress in 17A - in fact, the treatment of the two month failure to deliver as some act of nature wherein the buyer's broker is powerless to do anything but hope for delivery, or berate the selling broker, is hogwash - the buyer's broker could have and should have bought the seller in after T+3 days, and chose not to, for unknown reasons), we have proof positive of a major NASDAQ company receiving the same treatment as a penny stock whose shares have zero liquidity, and we have a complete failure by any regulator to take action, define the size of the problem, and put a stop to the abuse.

The truly astounding part about all of this is that in the penny stock world and OTCBB world the failure to deliver shares for months is not unheard of, but the conceit was that it couldn't or didn't happen in the "real", legitimate, big cap market.

Tell Jack Byrne that as he waits for his shares that he paid $10 more for than they are worth today, and the sale of which presumably was a sham, as are all of the shares being sold to drive the price down . Why not? Who's going to do anything about it? Who is going to stop it? Does anyone think this is atypical? It isn't. It is simply confimation of our most dark and ugly suspicions.

I couldn't make this up. We will likely see no coverage of it in the media. Regulators will likely ignore it or explain it away. Senate banking committees, chartered with overseeing the system, will pretend that this doesn't represent a crisis that impacts the credibility of the entire US market system.

The question is will we stand for that anymore, given this definitive proof?

And if this isn't enough hard evidence of a major systemic problem, what precisely would qualify?

I would propose that you do the following things: Send a copy of this article to Ralph Lambiaste in Connecticut, who is heading up the state task force exploring this issue. Send a copy to the Senate banking committee, to both Bennett, and to Shelby, who has shelved any examination of this settlement problem. And send a copy to every financial reporter you can think of. And send a copy to the SEC, just for giggles - not because they will do anything about it.

If the CEO of a major company can't get his electronic shares delivered (NOT the paper certificates, just the electronic ticks that can be exchanged in nanoseconds - a feature of the improvement known as de-materialization, wherein paper certificates are eliminated and we are all supposed to trust the system to verify that we are receiving genuine shares) for two months, how can anyone buy any stock on any exchange with any confidence that they aren't simply being swindled?

The answer is you can't. And that makes for a genuine, systemic crisis in confidence in the US market system - a justified crisis given the failure at every level of the system to do its basic job, of exchanging money for genuine shares in a timely manner.

And it further raises the very real questions, "how do I know that any of the shares I am buying aren't frauds? How do I know my broker isn't lying to me when he represents my account as possessing shares? How do I know that the entire trading and valuation in the market of the company I own a piece of isn't a fiction determined by manipulators who can peg the price to whatever they feel like on any given day, and thus what is the point of investing in the markets at all? If large NYSE and NASDAQ companies can be counterfeited to the point where none of the shares bought on a given day are genuine nor delivered in anything approaching a binding reasonable non-fraudulent contract, how can I invest in the market? And how have the regulators chartered with protecting me let it get this bad, and why aren't they doing anything about it?"

So regulators, what now? What is the next move? Do you continue to allow NFI, and OSTK, and all the rest of the Reg SHO list stocks to be driven down by 30, 40, 50+% using non-shares? Do you continue to ignore what can only be described as massive stock manipulation? Do you continue to pretend that overt fraud isn't exactly what it appears to be?

Read this with alarm, and concern, and great care, and consider the implications. This is not a minor event. This is the smoking gun everyone has claimed doesn't exist, when they make the statement that "no company is really harmed by naked shorting if it is viable and legitimate".

Wrong. The value of OSTK has been eviscerated by the practice, as has NFI and a host of others, and we have proof of massive failures on the very first test of the system. And the participants are in on it. And no amount of hand waving and facile tonics will alter that conclusion.

So now the question is, "what are you going to do about it?"

Here is the exchange from the Motley Fool board, from Dr. Patrick Byrne:

---------------------

"Here is something odd for those following this story: Back on August 8th I bought some 25,000 shares (I think the filing ended up showing 50,000 shares because I bought the rest that day or the day before). Oddly, I could not get delivery of them for weeks and weeks. I am not talking about, "paper certificates". I am talking about simply seeing the trade clear. All along, my broker was saying that Morgan Stanley could not deliver on their side of the transaction. I will now relay an email between myself and my Broker Dealer (whom I will call, "BD") that occurred when it finally cleared, after weeks of unhappy phone calls.

=============================================================== September 29 9:11 AM
Good Morning Patrick: The 25,000 shares of OSTK originally transacted for on August 8th, came in during the night and we have initiated the process of converting to paper. Settlement is taking place today. Please call with any questions or concerns, and have a wonderful day! XXXXXX

==================================================
1:47 PM
Dear XXXXX, I would like to hear from you or someone on your trading desk what exactly is the meaning of, "The 25,000 shares of OSTK originally transacted for on August 8th, came in during the night". What does "come in" mean (since they clearly are not mailed pieces of paper)? How did they manage to keep from "coming in" for 50 days? From whom did they come in? Respectfully, Patrick

=============================================================
2:15 PM
Patrick: To the best of my knowledge it means that the incoming shares appear in the electronic system (SEI) which displays the stock trade transactions via PC, and this evidently takes place , like bank processing, as an overnight transaction. The August 8th date is the date I have recorded in my notes as the date of your second purchase of shares of OSTK, the date ZZZZZZZ entered into the transaction with Morgan Stanley to purchase the 25,000 shares. I am going to ask some of our professionals from the trade area to respond, and hopefully give you a better explanation of how the shares move to BD from another brokerage house. As to the 50 days the shares did not come in, the only answer we have obtained from the Morgan Stanley people when we repeatedly pressured them is this: "you have to understand that this is an extremely hot stock". Obviously not an answer that makes any sense; but an answer that was repeated time and time again as we made calls to the management at Morgan Stanley. I will forward additional information to you as soon as I am able to obtain it from the BDBDBD group. Thank you!

================================================================== Now Fools, I don't know about you, but I find this pretty weird. Let them post more photos of me with UFO's flying out of my head, but something seems messed up in a system that allows this. (By the way, Morgan Stanley lawyers, when you read this you are going to get ticked off and want to fire off a letter threatening to sue me. Better check with your stock loan desk first to see if you want discovery. Go ahead: make my day.)

Here is the punch line: my Pop bought 200,000 shares right at the end of August. He still has not gotten delivery. Again, I am not speaking of certs. I speak simply of the settlement of the trade. His broker is saying that the other brokerage house is unable to settle the transaction. Any guesses as to who that brokerage house is? I'll give you three guesses. It is one of the big ones.

Does this strike anyone else here as odd? I mean, I can understand the fellow Tiddman who was writing, more or less, "Byrne, just focus on the business." Ironically, I am entirely from the value school and agree that in almost any circumstance one should just focus on the business. But given that simple stock purchases seem to be cracking the system, and given that I believe we have somewhere between 5 and 20 million electronically counterfeited shares in the market, and given that I suspect there is some relation between these two facts, and given that I think this situation may well be endemic in the market, I think at some point I am supposed to do something about it. Well, someone is, anyway.

I could be wrong, though: when it takes 50 days to get 25,000 shares of stock to clear, Lord knows I'm not in Kansas anymore.

Respect, Patrick

39 Comments:

Anonymous Anonymous said...

Bob,

What I don't understand is: If there are an unlimited amount of fake shares able to be shorted, why would the stock ever go up a dollar or two?

10:20 AM  
Blogger rvac106 said...

So, now, we have GM and Delphi. Part of the spinoff deal was that GM would be compelled to cover a lot of the benefits that were promised to employees of Delphi. $11 billion worth. Could drive GM into bankruptcy. Now, I hear that GM is one of David Rocker's short plays. All the more reason to send all of this conspiracy information, not to financial writers, but to the people who are in charge of the Union Pension Plans, not only for GM, but for Delta, and Northwest airlines too.

If we need to get Joe Sixpack involved in order to get the elected government officials lined up with us, I think showing the blue collar workers that they too are being victimized by unregulated failed short selling would be an excellent idea, whose time has surely come.

RVAC

10:22 AM  
Blogger bob obrien said...

Anonymous,

There is a cost to carrying the margin for the hedge funds on the fake shares, thus there is a limit to the number of fake shares they can carry at any given time.

But as to your question, I think the short answer is that nothing ever goes down forever (unless it is NFI and OSTK over the last few weeks since the real short attacks started) - as well as the reality that volatility is necessary to make money. The question is really when someone like Patrick does a check of the system, and the larceny is revealed, is it isolated or is it systemic. I am now convinced that it is systemic. What probably happens is that the broker never even has a contra party on the trade - they just book the sale, use their trading department to drive down the price of the stock over the next few weeks or months (if you aren't worried about observing the law, who cares how long it takes?), and then accumulate the shares at a discount over however long it takes to generate a fat profit for the trading desk. And then blame someone else.

If there really is a contra party on the sale side, that party's broker just plays the same game -stall, drive the price down, accumulate, and then deliver whenever.

The truly shocking thing is that on a Reg SHO list stock this isn't supposed to happen at all, much less on hundreds of thousands of shares bought by insiders.

That tells me that when joe sixpack buys shares he is getting worse treatment, not better.

So is it possible that not a single share of OSTK or NFI trading today is a genuine article? You bet.

Just ask Patrick.

Again, the question is now that the evidence confirms that our worst fears are based in reality, what will our regulators do about it?

And will we see numerous outraged articles demanding formal inquiries into this by the media?

Wanna bet it is ignored?

12:01 PM  
Blogger mfairview said...

This comment has been removed by a blog administrator.

12:12 PM  
Blogger Bingolabs said...

Note....
The problem with the REG SHO threshold ist is not a failure to enforce, but a is with the rules themselves.

REG SHO specifically exempts options market makers from needing to borrow stock. Option market makers are stay naked short forever without risk of having their positions closed. Anyone interested in Naked Shorting can just buy a deep in the money put (i.e. a put to sell OSTK at $70/share). The market maker who sell the put will then short OSTK stock to hedge their position. The Failure to deliver in cases of OSTK are likely because of the large number of option market makers short the stock (due to the larger number of puts that have been bought).

Hence, the problem with REG SHO is not enforcement but the rule itself.

Good Luck,

Bingo

12:59 PM  
Blogger Tommy said...

Something is out of the ordinary with Morgan Stanley being the contra-party to Byre's buying broker. There can only be 2 explanations :

1. The FTRs specify a specific broker obligated to deliver
2. Byrne's broker "bought" the shares not from the NSCC, but directly from Morgan Stanley, using an ex-clearing system (non- NSCC).

2:31 PM  
Blogger Tommy said...

Byrne's broker was smart in not posting even the electronic shares into the accounts, because if they had done so, as the normally do to us smaller folk, Byrne's broker would have been committing fraud and could have been exposed if Byrne suddenly did an ACAT transfer of his entire account to another broker - Byrne's broker would have been forced to deliver those shares ASAP.

On another note, it seems as of Morgan Stanley already received the money for the shares, otherwise, why doesn't Byrne's broker just buy the shares on the market? Who is holding on to Byrne's money?

2:38 PM  
Blogger SECFOInfo said...

Bob,

Great post.

Have you ever considered that you could help the cause by not being anonymous? In many respects your anonymousness only adds to the disinformation and fantasy being spread about a very serious issue.

It may be time to stand up and be counted (if you want). Byrne has a face, rocker has a face, matthews has a face but you don't.

At this point in the NSS debate I ask why? You're only presenting your thoughts and reciting previously written news with your take on it. What's the fear? If you come out you could certainly get some interviews and do the cause some public good by generating a media pulse (isn't that important?).

I have to admit I am perplexed by the steadfast anonymous stance. It could be distracting the cause. You are railing journalists however how does a jounalist cite you as a source for information contained on the website?

Keep the faith, the truth will come out. Facts always win in the end.

2:59 PM  
Blogger bob obrien said...

It is odd that so many seem hung up on who I am or am not. I guess I need to understand why the messenger is so important to the message, given that you have the equivalent of a guy calling 911 and saying "hey, there's a rape going on across the street, I can see it and hear it, get over here now!"

Could you imagine of the cops responded "not so fast, there. Who are you? What is your background? We will need to do a complete check of every aspect of your life in order to verify your CV, and now that you are a public figure by virtue of your electing not to be anonymous, you are fair game for a host of other invasions of your privacy."

That probably wouldn't go over very well.

That, and the clear connection between many of the bad guys and organized crime - it is there in every one of the cases I've looked at for Symphony of Greed, and to pretend that it isn't is silly. Crooks tend to gravitate to profitable crookery. And many crooks would not be all that polite in silencing a major source of irritation and exposure for them.

If I am correct we are talking hundreds of billions being stolen via fraud from the US investing public by parties unknown.

Maybe you are comfortable with the idea that for that kind of juice your car would never blow up. I'm not.

Accidents happen. People get hit walking across the street.

I like my odds better staying invisible.

Unless you want to be Bob O'Brien and take the bullet if you are wrong that there is no danger, you can't understand the choice. People I respect have advised me to stay anonymous. That seems like good advice. Too many bad guys seem to be spending too much time speculating over my identity for my liking.

But the situation in the market still pisses me off, and I can't stay quiet about what I now completely understand is a financial theft of unimaginable proportion. So I balance the risk of continuing to be vocal against the reward of seeing justice done and those less capable of defending themselves better protected.

4:30 PM  
Blogger SECFOInfo said...

just asked a question. No need for the defensiveness. Maybe if I put the question in differently:

How come dave Patch hasn't been taken out, or Newman at crosscurrents, or faulkingtruth or Shapiro or Kevin west or anyone else who speaks out against NSS. Why are you at so much risk but not them? or do you believe they are at risk too? What makes your work different and more dangerous?

5:31 PM  
Blogger bob obrien said...

Let's just say that I have my fingers in a lot of pies, and many of those are not good for the bad guys.

The Easter Bunny is an industrious rodent.

Industry is not always regarded with benevolence by those whose interests are adversarial.

I have profound respect for all the names you mentioned, but if you think about it, consider all the press and articles and full page ads and letters and such and knew all the info, you'd understand that some might consider a world sans easter bunny a better place.

I don't do protests with a dozen people. I do letters to the President in the capital's biggest pub. The scale is different, thus the visibility, the effectiveness, and the risk. That does not in any way denigrate the others' efforts - I was fortunate enough to be able to attract enough resources to take the issue to a different level - and that alarms some, makes them wish I'd just disappear.

But let's get back on point. I would prefer to ask simple questions like why can't Byrne, who was mocked and hit in the head with a board when he came out and basically said there are no real shares to sell, get more than 10% of the shares he and his dad bought over two months ago? Why isn't that front page news? Everyone said he was an asshole and crazy and such when he told the world "hey, there ain't no shares to sell", and yet when he and his dad go out and do the buy to prove the point, and TWO MONTHS LATER only 10% of the shares purchased have been located, nobody is saying a thing.

Isn't that odd?

Isn't that a trifle disturbing?

Isn't that an awful lot like he was 100% correct, and that most if not every share that has been sold over the last two months is a fake, and that the entire machine is working in concert to bury his stock price because he has had the temerity to take these A-holes on and call it like it actually is?

Over two months. 25K out of 250K shares have shown up. The rest are MIA.

Who's crazy now?

Where are the hundreds and hundreds of message board posts over that? Where is Cuban calling for an investigation on his blog? Where are the WSJ articles going WTF is going on here? Where is Matthews saying this is an outrage? Where's the SEC? The State task force? The state AG of Utah? Spitzer?

Nah. Let's talk about why I won't put on a kevlar vest with a bullseye on it and give everyone my drivers license number.

Much better topic.

8:45 PM  
Anonymous Anonymous said...

Apparently you are close to the Byrneses.
Just a question though, if Byrne senior did not recieve the shares he paid for, especially after waiting two months, then the transaction never happened, and he should demand his money back.

9:29 PM  
Anonymous Mark Faulk said...

Bob, Nice piece. It's good to see that we're both on the same page here. I know that you use OSTK and Byrne as a microcosm of the real problem, and I sincerely hope that he is our hammer in this issue. As for your identity, someone slipped up and told me your real name a while back. You're right, it doesn't matter (and I'll never tell). In all honesty, I'm in the line of fire here, and the deeper I dig, the uglier the picture becomes. One thing is for certain, this is bigger than Rocker, Overstock, or naked short selling. The closer I get to the "real" sources, the more nervous I get. Sometimes I wish I was anonymous...but I'm far too vain for that.

By the way, if you're ever in the Midwest....I'd love to buy you a beer. I feel as if we've become partners in this crusade. Keep it coming, friend, I'm right there with you.

9:29 PM  
Anonymous Anonymous said...

You are obviously close to the Brynses.
Just a thought, if Bryne Senior did not get his shares especially after waiting two months, he should demand a full refund, ie: the sale was never consumated.

9:37 PM  
Blogger Tommy said...

"...,the date ZZZZZZZ entered into the transaction with Morgan Stanley to purchase the 25,000 shares."

Why in hell would Byrne's broker go and call Morgan Stanley to purchase shares, instead of buying them through the open market with the NSCC as contrparty?

Brokers are making themselves the targets of civil lawsuits with this behavior.

I intuit, that trading of this type, away from the DTCC altogether, goes on much more in securities that are on the REG SHO list.

That way the brokers can entirely bypass the REG SHO rules altogether and keep selling naked shares and posting them into customer accounts.

Byrne's broker at least was afraid to post non existing shares into their accounts - I assume because of who they are and because the Byrne's have been visible arguing against this type of thing.

Any other customer would just have been told everything settled and had their accounts credited with the electronic shares (naked shares) - in the exact same scenario.

In addition, nobody would have put pressure on Morgan Stanley either to deliver either.

As bad as it was with the Byrne's, they were treated much better, open and honestly, than any other smaller customer would have been treated. The Byrne's example is the best case scenario.

The smaller guys are just lied to 100%.

This is a problem created on the broker level.

What we as investors need to do, is find ourselves a broker that will agree to never lend out shares in any account, margin or not, always buy through the NSCC and always promptly request a buy-in of FTRs.

If we find one that'll agree to such a master agreement, we should all, en-mass - move our accounts there.

10:00 PM  
Blogger canceled111111 said...

re: Jack should give up and get his money back.

Funny, that was Matthews' entire repsonse to the issue besides that it was "bizarre" (that's his other word besides "What?"). He's a very insigthful fellow.

Of course there's no mention of what should be done to fix the FTD, just that those who are being scammed should give up.

Sounds like Seth Jayson's column the other week, lol.

10:05 PM  
Blogger bob obrien said...

This comment has been removed by a blog administrator.

11:07 PM  
Blogger bob obrien said...

Mark, if you dig far enough you get to the same source. And as you are learning, it is an ugly well from which this water springs - the dirtiest and most violently directed money that knows no national boundaries nor checks and balances, and which is now part of the mainstream of the financial markets.

When this breaks wide open it will make Drexel seem like school kids cheating at jacks.

I'll take you up on the beer at some point, but I may drink more than one.

It happens.

As to the "why don't you get your money back" solution, I think that poster missed the point. Byrne entered into a contract to purchase something, as advertised, which was approximately 200K shares of legitimate OSTK shares with voting rights. A contra party (in this case the broker directly rather than the NSCC) agreed to take his money in exchange for those shares (and collected commissions all around), and further those transactions' purported supply affected the price - if legitimate shares had been sought and found to buy for all the shares sold but not delivered over the last few months, judging by the Byrnes' experience, the stock price would be up $10 from their purchase price rather than down $10. That is the whole point of using non-shares as a manipulative device to depress stock price by artificially creating supply where none actually exists.

So all the folks that lost money on their options were materially harmed by this fraud. Byrne's company has been hurt by this fraud, and his shareholders have been hurt by this fraud. The integrity of the markets is now seriously in question, and in my opinion in profound jeopardy, due to this fraud being pandemic.

The facile and naive bromide "just get your money back" is like saying "just glue your arm back on" after it has been mangled beyond all recognition by a thresher. It is deliberately disingenuous, and seeks to trivialize the damage to the company, shareholders and system that it causes. I find it patently insulting in the extreme.

Either the markets are basically sound or they aren't. If they aren't, and the Byrnes' experience is an accurate reflection of how it actually works (which I am in total agreement with Tommy on, BTW) then criminal fraud is being perpetrated against every shareholder in America by a system so bloated with its own sense of omnipotence that virtually any fraud of any magnitude is acceptable.

REFCO is breaking news, and demonstrates that as I hypothesized in numerous postings and some editorials, special purpose entities a la Enron are being used to conceal the massive contingent liability of the failed shares, and provide the quisling accounting firms with deniability for their overlooking the tens if not hundreds of billions of dollars of fails in the ex-clearing system. Off balance sheet hiding of half a billion dollars of contingent liabilities is a peek at how it works, IMO. A drop in a far bigger bucket.

Black boxes containing innumerable fails, marked to market at $400-something million in REFCO's case - but what is the liability when those futures contracts and shares actually have to be covered? The first hundred shares of Sedona will sell for fifteen cents, the second hundred for thirty, the next for a dollar....

This gets worse, not better, from here. We are just now starting to get a whiff of a stink that a few of us have met up with too frequently, and the Byrnes' experience will ultimately, IMO, be the catalyst that starts the deserved run on the stock bank. When the public loses confidence that their money is actually at the bank, the run on the bank is inevitable, as the depositors/shareholders realize that their passbooks are nothing more than fictions depicting hypothesized assets which were never deposited in their name in the first place.

An acquaintance of mine likens it to timeshares, wherein one unit is good for 52 weeks. The problem is that our system has allowed that unit to be sold for 800 weeks, relying on the conceit that most wont ever use their week. But it is a fraud, and when everyone catches on and understands that they are being systematically cheated, there will be a run on the bank, and the brokers and hedge funds will find themselves faced with an interestingly impossible dillema: How do you provide your customers with the 10 million shares you've allowed to be sold, and pocketed the dollars for, when only 200K genuine shares exist. It is a problem that the system thusfar has bluffed away by simply selling more shares. "How can there be no shares when this trades 500K shares per day?" Good question. Where's Byrne's shares?

Where are yours? You think you know, but that is because your broker gave you a passbook assuring you there are shares there.

What happens when you realize that he is a habitual liar? What happens when everyone realizes it at once? That is the nightmare that the SEC has been trying to pretend will never happen, and that Wall Street thinks it is smart enough to trick the nation into overlooking.

Not this time.

Billionaires can't get their shares after months, after telling the world that there aren't any genuine shares to be sold to anyone, after being mocked and laughed at by the flotsam of the financial press and associated lapdog blog-filth. How many shareholders are going to believe their brokerage statements now?

I read a post sent to me from the NFI board where someone suggested transferring accounts to another broker, thereby forcing the old broker to buy in the shares owed.

That seems like an excellent idea. I applaud it. If this is systemic, and if, as I believe, the ex-clearing problem as personified by the Byrnes' experience is nothing more than a giant institutional fraud machine, then something has to be done, or our capital markets are a farce and will ultimately go to ruin.

A small strip of New York cannot be allowed to defraud a nation out of countless billions simply because we have left them as custodians of the keys to the cash register. But that is what it looks like is happening.

And I haven't read anything anywhere that would lead me to believe that take isn't true and accurate.

The solution is not to give up and try, hope, to get your money back. The solution is to go down to the bank and get your shares, or transfer them to another broker who won't buy off on someone else's fraudulent IOU.

It's late and I'm tired. My soapbox is worn, and my patience worn further. I appreciate the kind words, and believe that this is a fight that has to be fought, or the barbarians are already through the gates and our version of modern prosperity is doomed. We cannot allow that to happen.

There is no more time to bluff one's way out of this mess. The OSTK case will serve as proof positive that nobody can believe that the "shares" they buy are actually ever delivered, especially on SHO list stocks.

That is why the DTCC and the SEC are keeping the FTD's a secret. If we knew for certain what was happening there would be a run on the bank. And my feeling is that the ex-clearing problem is orders of magnitude larger than the FTD mess. The Byrnes' situation bears that out. How many would be undelivered if they had single handedly bought a million of the shares sold in early August? Two million? Five million? Is there any reason to believe that the ratios wouldn't be as bad or worse on non-delivery? Guess what.

Everyone that bought shares got the same non-shares as the Byrnes, but lack the clout to know about it. That's the ugly reality that one arrives at. And the same is likely the case for NFI, and TASR, and NAVR, and a host of others that are similarly victimized by the same system. Pull up a three month chart (I saw that on the boards as well) and note the amazing coincidental pattern across all those divergent sectors.

And they are all shorted by the same cartel, and all on the SHO list.

Figure it out.

This time is indeed very, very different. It has to be. There's a lot in the balance.

Sleep well.

11:19 PM  
Blogger canceled111111 said...

Why can't there be even one newspaper, Salt Lake comes to mind being the home state paper for this situation, that will take this story up? The Byrnes's FTD's as a poster child for a FUBAR market?

Surely there is some young aspiring Woodward or Bernstein type that isn't saving the best for a book (no offense, bob!) that can start a series of articles with AP access (kind of like Carol's DJ soapbox, which gets AP wire wildfire press in papers all across America).

Blogs are great and all, but this virus needs to hop from the aviary to the big cities to get some reaction....

11:25 PM  
Anonymous Anonymous said...

Re wanting money back, your points are well taken. But my angle unsaid was, in the meantime the shares have moved against him. Would it not be sweet justice to turn the tables on the truant brokers, and in the process saving a few million. Nothing stops him from then from going after more shares and with the same money.
And, if that is doable, puts pressure on the (next) broker to ante up this time.
Two months is a ridiculous time to wait for a stock sale to be consumated.

4:47 AM  
Blogger SECFOInfo said...

Bob, the SEC can not release individual security FTD information for a reason. Their not permitted by confidentiality rules established well in advance of this debate.

First of all it's a moving target that changes everyday and second, not all FTD's are illegal in any given day. It's a conundrum.

Should there be some nvestigations and prosecutions, yes. But that doesn't change the difficulty in releasing the company specific FTD info.

I think the promotion of a fact based campaign with less opinions will help resolve this destructive practice. The Byrne problems in receiving their purchased shares is a FACT and a damaging one at that.

In my opinion Patrick should have taken the proof to a captive journalist or another news outlet instead of posting the news on TMF. You keep railing on the media for not responding however how the hell are they going to verify Hanibal's identity with privacy laws.

Facts will win this battle! Instead of focusing on what you can't get from the SEC focus on what you can. Opinions and whining will only result in lower prices for the targeted companies. What is OSTK or TASR or NFI's performance since you started this website?

Change only occurs when the investing public becomes outraged, demands answers and something be done to fix the problem. Not just disgruntled OSTK,TASR,NFI's.... shareholders.

There are facts to support that more broad based endeavor. A coherent strategy to get the facts out would be a good next step.

5:08 AM  
Blogger canceled111111 said...

"how the hell are they going to verify Hanibal's identity "

Easy. His posts would have been deleted on TMF if he wasn't Byrne. TMF moderators, and a couple of their own, have engaged Hannibal100 on the board.

Byrne posts on TMF on the board, any reporter with an email to any TMF'er can easily confirm that it's Byrne.

5:59 AM  
Blogger canceled111111 said...

"Opinions and whining will only result in lower prices for the targeted companies. What is OSTK or TASR or NFI's performance since you started this website?"

You sound like a halfassed informed reporter come lately.

All this whining by Byrne, Helburn, et al, have led to what many believe to be a major lawsuit (major discovery that is, relatively minor in its initial complaint) that has already set off a bombshell that has been ferociously ignored by a captive press that's more than sympathetic to the defendants.

Do you even know about the Gradient affidavits yet? TMF wrote a very balanced and objective piece recently. The only one I've read on it since this has come out. Persons implicated have so far been flippantly diverting the issue while dancing as fast as they can.

The current state of this nations' mainstream financial press coverage is an embarassment.

6:07 AM  
Blogger SECFOInfo said...

Yeah, you're right. That's how identity and document verification works. Silly me.

6:09 AM  
Blogger canceled111111 said...

Email Pat Byrne at patrick@overstock.com and ask him.

Due diligence isn't very difficult when you try.

Knowing more about what you mock also helps.

6:13 AM  
Blogger SECFOInfo said...

you wonder why people "in general" and non (ostk, nfi...) shareholders can't get a grasp of the situation. Your attack exemplifies it.

I never said Byrne or Mary were whining. If anybody has a right to whine they do. They're shareholders. I was talking specifically about Bob's SEC info reference. my point was get what you can not what you can't and make hay.

i am not a reporter and I'll guarantee you my contributions to getting facts are far greater than your spewing of name calling and half cocked BS.

When a person makes a suggestion on these boards. Don't always attack.

I am not a reporter, but what if I was. Do you think your attack would help that reporter gain any knowledge? I don't think so.

6:23 AM  
Blogger canceled111111 said...

I think my "spewing" of pat's email address would help that reporter confirm his question about whether that is really Patrick posting on TMF.

Good day, sir.

6:29 AM  
Blogger SECFOInfo said...

Byrne is a busy CEO, he gets around to facts and emails when he can.

He has guts and I like it. I am not even a shareholder and want to help him out.

Keep in mind, small companies with converts are manipulated everyday. It's not just stocks with FTD's. OSTK has both problems working against it.

Big problems take coherent strategies to resolve. NOT ATTACKS.

6:33 AM  
Anonymous Anonymous said...

From personal communication I know for a fact that Patrick Byrne has forwarded this information on FTRs to at least one mainstream journalist and that s/he is pondering using it in the near future for an article. Hope it will appear soon and shake things up,

6:33 AM  
Blogger canceled111111 said...

I didn't "attack". Get a grip.

6:33 AM  
Blogger SECFOInfo said...

i believe you called me a "half-assed reporter come lately". That's helpful. "Attack" the messenger not the message.

6:47 AM  
Anonymous Anonymous said...

sir, your research efforts, your detective work connecting the dots are truly heroic...in such a shameful time, a shameful system.
yes i will share your forebodings with our reps in power. but, i am inclined to think they mite be part of the problem cuz they depend on continuity of this present system. after all, it elected/appointed them.
i think we also have to shine a lite outside our system...internationly.
since the rest of us are not "in on it" what do we have to lose.
this could be a way to say we must take back our resources from warmongering and restore a frayed system of representative govt.
we, the people, are taking over...as it should be. our leaders made mistakes diverting resources, time, personnel trying to engineer other nations. now we must go home. we cannot be a role mode for democratic/free market ideals til we make our own systems fair & transparent.
being "leader of the free world" is a free photo op for the power/controllers... it has just burdened the tax payers.
now its time to become just 1 nation again w. systems that work for its people.

10:11 AM  
Blogger SECFOInfo said...

One retraction:

Byrne did the right thing going on TMF. I said I thought he should have handled it differently. I took a second look and think it was a very smart move for numerous reasons. JMHO

A new outlet, very smart indeed. Not DOA. It will have legs and should.

You da man.

10:29 AM  
Blogger bob obrien said...

Guys, I don't want to start deleting posts, so let's try to keep it civil.

As to what can and cannot be gotten, I don't see any logic to keeping the total number of fails on a given stock secret. It doesn't violate anyone's privacy to understand the number of phantom shares in the system per issue. It also doesn't seem unreasonable to demand that now that we have very hard and solid proof that 100% of the trading in OSTK, if we extrapolate Byrnes' experience, is naked at this point.

Does that seem like a silly number? Do the math. They bought a substantial chunk of the shares on a few days. None settled within the legally mandated time. Thus all were naked. Do we have any data point to suggest that any of the other trades were "luckier?" I maintain there is nothing that would suggest that any of the trades are legitimate or genuine, and abundant data to suggest that they are bogus.

Does anyone see a problem where we are bickering over the best way to approach this, when all data suggests that we have an out of control, renegade trading system literally printing shares out of thin air, in virtually limitless numbers? Where is the protection for the investor in all this "privacy concerns" discussion? Where does Grandma who now is eating Alpo benefit from a centi-millionaire hedge fund manager having his illegal trading strategy kept from public scrutiny? Please. I'm sickened.

If we can be run into the poor house by a trading system that prints shares in the back room and waters the issued float with them, how can we have even the slightest modicum of confidence in the system? Is there any reason to believe that the other stocks mentioned, NFI and TASR and NAVR, are not also 100% naked shorted daily, with the system buying the shares shaken loose from the margin calls and panic selling that this unbridled aggressive predatory selling brings about? If there is reason to believe that is in error given what we now know about the Byrnes' experience, precisely what is that reason?

I would suggest that we have a market spinning badly out of control, that our regulators are either crooked or incompetent (the SEC, I mean), and that the average investor is being defrauded daily by the participants and the hedge funds that are now their biggest traders, along with their in-house desks (which work against the interests of the shareholders who are the participants' customers).

Everyone seems very focused on whether I am a charlatan, or Byrne is a wacko, but the part that keeps getting omitted is that there is a very deliberate and studied effort underway to ignore the data at all costs - and the data is damning from any angle.

I maintain that is because the system itself has too much to lose to allow anything even resembling an honest assessment of the machine, thus it fights with the conviction of a cornered rat any attempt to get even cursory transparency. Things are secret because if they weren't there would be a wholesale run on the stock bank until things change.

I am full of opinions. Many of them are contradictory and convoluted, but a few are straightforward.

I think a system that can bilk retirees our of their savings with impunity is bad.

I think that a system that requires that it be allowed to operate with opacity is bad.

I think that if something is fraud anywhere else, it should be called fraud on Wall Street too.

I think that if investors can be screwed out of their money by a system that invents limitless currency for itself while pretending that it is sacrosanct, that is bad, and that those who financially benefit from it should be whipped, F-cked, and driven from the land, to borrow one of my favorite phrases.

We don't need rocket science to reach the conclusion that if 250K shares of OSTK can go undelivered for months, something is very badly broken and fraud is being perpetrated. It isn't a stretch to comprehend that isn't what Congress mandated when it said that the necessary condition for fair markets is that trades clear and settle promptly (in rule 17A). Trades aren't settling at all, and the regulators are doing nothing, and shareholders are being robbed.

Simple.

And that is wrong.

As to whether John Byrne should view this as an opportunity to profit from a lower price, again, that misses the point. HE WOULDN'T HAVE TO DEAL WITH A LOWER PRICE IF 100% OF THE SHARES BEING SOLD WEREN'T FRAUDS!!!!!!

Now, that seems obvious to me.

And yet to some it seems like the contortions required to avoid stating the obvious border upon the absurd.

The price is down because an unknown number (presumably close to 100% of all shares trading based upon the Byrne experience) of bogus shares are being generated and traded every day, obviously more than there is demand for, thus the drop in price. And the system treats those frauds, those little lies, as genuine, for the purposes of paying itself commissions, and setting a price on the auction market, and for representing to its customers whether it did its job or not.

That is fraud.

This downward spiraling price can be seen across all 4 companies, regardless of sector or fundamentals. It is not a macro issue - it is a Reg SHO list manipulated stock issue.

Why does everyone shoot messengers and avert their gaze when the obvious answer is that this is classic stock manipulation? Why the pretensions?

What more evidence is required, for God's sake? The man hasn't gotten his GD shares for over 2 months, and he is the billionaire father of the CEO!!! How much worse does this have to get before the defenders of the bad guys are too embarrassed to float their straw man arguments anymore?

I feel like I'm having a discussion with Holocaust denial folks or flat earthers or something whenever I go down this rabbit hole.

Again, for simplicity: The frigging billionaire father of the CEO, who is being lobbied to be the chairman of the board, can't get shares he paid for over two months ago of a major, visible, NASDAQ traded stock that is on the SHO list and is supposed to have all trades settled in a few days.

What more needs to be explained?

Sorry for the rant, but this makes me crazy. As it should any right thinking person, IMO. Hence my infuriation at the laisser faire attitude of those so morally compromised that virtually any act is acceptable as long as there is profit in it for them.

11:50 AM  
Blogger canceled111111 said...

This comment has been removed by a blog administrator.

9:33 PM  
Anonymous Anonymous said...

Thanks for the good work.

The problem is testable, and this experiment shows our stock market is being fraudulently manipulated.

This is bigger than the S&L crisis, and far more damaging.

But how does this problem get solved? Very few people are aware, and this blog doesn't change that.

What person out there with some power and without vested interests could actually demand some corrective action before this problem builds to such immensity that it has catastrophic results?

Elliot Spitzer is buddies with these guys...

The current administration certainly isn't going to fix this on its own... Similarly, Democrats are also either too co-opted, too scared, or too incompetent to take this one up.

Mainstream media is also co-opted, and besides, this isn't something that can be explained in 30 seconds or less...

That leaves business leaders. Bill Gates? George Soros?

Laugh at me, I know. I think sometimes a few individuals with integrity in the right place can make a huge difference. Bob, you're doing a great job, and you may be a big part of the catalyst, but this problem needs to recruit some new people, whom the media and SEC cannot ignore nor make fun of.

2:48 PM  
Blogger bob obrien said...

I'm working on it.

3:27 PM  
Anonymous Anonymous said...

NY Times article on Revco fiasco yesterday says the lev. buyout firms are building up warchest funds. I wonder if the ultimate purpose isn't to bring to the public markets exactly this type of FTD off-loading. They're hoping to maintain SEC sponsorship all the way.

http://www.nytimes.com/2005/10/24/business/24fund.html

10:25 AM  
Blogger mhelburn said...

A senior Wall Street executive who attended a meeting where Refco was pitched said that the biggest concern was that it cleared transactions for many small customers in the United States and overseas whose practices might pose a risk to Wall Street firms.

2:59 AM  

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