In The Commission Of A Felony...
Any attorneys out there, feel free to chime in on this - I'm not a lawyer, and don't even play one on TV.
And I also don't support nor disagree with this theory - I just want to test it for logical and legal consistency before I introduce it into the Naked Short Selling Primer as a possible explanation for this inexplicable grandfathering.
So here it goes:
The far more ominous logical explanation is that the SEC grandfathered not out of concern for the system, but rather to limit its own liability under the law - that after years of permitting felony short selling/securities fraud manipulation, the SEC ultimately came to realize that it had committed collateral crimes, and could be held accountable - as accessories to the felonies. This explanation posits that in passing Regulation SHO, the SEC wasn’t just grandfathering the previous illegal short selling to protect the short sellers, but rather it was, much more importantly, protecting the SEC itself. And it focused the ire of the victims on the rule violators who financially benefited, rather than upon the regulator that had permitted the felonious activity for years.
The legal argument would go like this (simplified): The felony committed and suborned in this situation is USC 18, Title 514, the commission of counterfeiting of a commercial security, a Class B Federal Felony. By permitting this felony to be an endemic part of the modern market system, and by knowingly failing to enforce rules designed to prevent counterfeiting of a commercial security, the SEC aided and abetted those who have done so, subjecting it to risk of civil and criminal redress. The allowance of a large float of FTD's to be part of the markets is a de facto enabling of counterfeiting (wherein the bogus IOU/Markers are represented as and have the effect of legitimate stock shares, on the auction price of the security as well as on the long term size of the float), and thus creates an accessory risk for the Commission. Arguments have been advanced that, as in the Elgindy case, naked short selling was used for money laundering for Middle Eastern arms dealers, thus constituting treason during a time of war (according to the Patriot Act), a Class A Felony - that the Commission was ignorant of the outcome of its permitting the counterfeiting does not absolve it of the legal jeopardy arising from that outcome, any more than the driver of a getaway car in a bank robbery is absolved of the murder of a teller during the robbery - even though he was ignorant of the ultimate crime committed.
Now, again, I'm not an attorney. But does this hold any water? Would the SEC, and more interestingly, specific individuals within the SEC responsible for these actions, be immune from prosecution and civil action resulting from acting as accessories to countless felonies, if this is correct?
Help me out here. Just because Wall Street doesn't use the word fraud to describe fraud, preferring more tame euphemisms, doesn't make the commission of fraud any less fraudulent. So using that theory, just because Wall Street doesn't use the term counterfeiting to describe the creation of markers represented to investors as genuine shares, essentially bogus facsimiles with none of the attendant rights of genuine shares, doesn't mean that they aren't counterfeits.
Wouldn't that be up to a jury to decide? And if this legal theory is correct, wouldn't the SEC's role in enabling and then perpetuating that action also be the province of a jury's deliberations?
Is this guy full of it, or is there merit to this line of reasoning? Appreciate any comments from knowledgeable sources - the usual trolling and flaming will be deleted, so spare us that - but any reasoned debate would be appreciated.