Saturday, November 12, 2005

Mamas, Don't Let Your Babies Grow Up To Be Regulators..

From Yesterday's Headlines:

"Investors Top Priority for S.E.C., Chief Says


November 12, 2005
WASHINGTON, Nov. 11 (AP) - The chairman of the Securities and Exchange Commission told a Wall Street audience on Friday that the agency would be sympathetic to complaints about overly burdensome regulation but that it would continue to put investor protection first.

Christopher Cox, named by President Bush last spring as the government's top market regulator, said that under his tenure the S.E.C. would not reopen and contest every prior regulation. "

That's rich. "Continue to put investor protection first."

For those new to interpreting Beltway-speak, allow me to translate.

What that means is that the agency will continue to make public statements which make it seem interested in the plight of those who have been methodically screwed by Wall Street. It will continue to fail to enforce any rules or regulations that would diminish the ability of Wall Street to engage in the wholesale theft of America's savings. It will honor the illegal grandfathering of past failures to deliver and will continue to turn a blind eye to the looting of the capital markets represented by the REG SHO list. It will work hard to delist companies with huge numbers of FTD's, prioritizing the safekeeping of the ill-gotten gains of the perpetrators over the protection of investors and vicimized companies.

It will interfere when groups like the NASD pass rules with real teeth to them, instead directing them to cease and desist so that it can pass its own non-rules designed to allow the miscreants to rule the roost. It will target dangerous felons like Martha Stewart while ignoring the theft of hundreds of billions of dollars. It will act as a buffer between any lawmaker who wants to initiate meaningful change and the members of the Wall Street establishment who benefit from lawless predation. It will sneer at investors who are smart enough to realize that it isn't doing anything to protect them.

In short, it will behave precisely as it has for the last decade or two - like a corrupt, capricious bureaucracy co-opted by those it was intended to police.

As far as not re-opening or questioning past regulations, I believe that we can all now rest assured that the egregious violation of the public trust that is the Reg SHO grandfathering provision will be upheld until a court of law forces the SEC to recognize what most upright bipeds can, even from afar: that allowing an unknown number of unsettled trades to remain unsettled in perpetuity is in direct violation of Congress' easily understood directive in Rule 17A, which mandates that ALL trades must clear and settle promptly (note that unlike Animal Farm, we don't find any hastily penciled in language saying, "All except the last 10 year's worth of unsettled trades").

My capsule summary on this is that we can expect nothing except glib, vacuous rhetoric and total inaction from the SEC. In keeping with that organization's performance since the mid-eighties.

Any questions?


Anonymous Anonymous said...

The time has come to stop referring to the SEC as one entity and to start naming names.

If someone at the SEC is protecting the crooks, then they should be criminally liable.

Who made the decision to grandfather fails? How was the decision made? Was it a committee that voted? Who voted which way? What are the backgrounds of the people in the committee, if there was one? Can we get the minutes of that meeting under the freedom of information act?

What was the name of the person or persons that killed the NASD rule last year THAT WAS WORKING!!!!?

As we get the states involved, I think the time has come to name names.

2:38 PM  
Blogger rvac106 said...

I have one name to start with, and that's Chris Cox. I'm gonna send a copy of this column, with a header of, something like, 'Hey Chris, it looks like there are some out there who doubt you. Who think your words are just that, words. Who think that you are so bedazzled by those who chose you that you think the status quo is just fine for the common shareholder. Please be careful, the story of illegalities in the market place is getting traction. Please let us know if you're planning to address the comments brought up in this column, and please, don't use your words. Pretend we're all from Missouri, and show us. Please?'

Or, something like that....


4:17 PM  
Blogger bob obrien said...

I'm not sure how to go about finding out what you are asking. I'd be all ears if you have any ideas. I agree that if there was a decision that was made by one person to shut down the NASD rule which WAS working, I'd like to know that person's name. I'd imagine it will be of interest to whichever committee ultimately gets chartered with shifting through the ashes to ascertain what happened.

Want to bet that a certain new commissioner's hand was in this one? Given her stance that our concerns over Reg SHO triggering systematic bear raids in order to create liquidity was nothing more than crybabies upset because our stocks didn't go up, I'd put that name at the top of my list of suspects. Ditto for grandfathering.

Be that as it may, I believe that when the NASD rule was implemented in the first months of 2004, and stocks like NFI went from the $40's to the $70 range on what looked amazingly like covering, that was a small indicator of the level that the harmful FTD's had impacted those types of stocks. Now, given the length of time that NFI and OSTK have been on the SHO list, the only explanation for their continued presence is that nobody is enforcing any rules whatsoever. Why would they? There's no penalties of note. And the word is clearly out that you can naked short with impunity.

I'd like to know who is responsible for that. Like I said, I'm, all ears.

5:27 PM  
Blogger rvac106 said...

I just sent this to the Managing director, Corporate Communications, at the DTCC,, as well as, whose name is listed as the contact for 'clearance and settlement inquiries.'

Who else can I send this to, who won't bother to answer. I don't mind...

Dear Sir,

Perhaps you know the answer to the following question. If not, perhaps you can direct me and my fellows to the proper source. We are very anxious to know to whom we can direct further inquiries along these lines. We are very concerned about the perceived problem, but we don’t want to be ‘barking up the wrong tree,’ as it were. Please advise soonest. We will be asking all around the industry, and we thank you in advance for your kind cooperation in this matter.

Here, then, is the question:

Who made the decision to grandfather fails? How was the decision made? Was it a committee that voted? Who voted which way? What are the backgrounds of the people in the committee, if there was one? Can we get the minutes of that meeting under the freedom of information act?



6:20 PM  
Blogger bob obrien said...

Send it to Chris Cox, and every other SEC person whose email you can obtain at

Then post a list of them all here, so that we can follow up occasionally.

Note that Thompson of the DTCC never responded to the dozens if not hundreds of emails he got asking for clarification of the about the 80% of FTD's that aren't handled by the stock borrow program - the time honored tradition of stonewalling is alive and well on Wall Street and on the Beltway - often because the folks on the Beltway came from Wall Street. It is amazingly incestuous.

6:25 PM  
Anonymous Anonymous said...

The person most suredly responsible for regulation SHO is Annette Nazareth. Ms. Nazareth became director of the division of market regulation in March of 1999 and was part of the evaluation team that received over 300 comment letters pertaining to naked shorting abuses during teh open comment period for the 1999 Concept release on Short sale reforms. Nazareth directed her team in what to da and was Director of market reg at teh time SHO was released. her sidekick was James Brigagliano who has responded to all Congressman pertaining to requests on naked shorting.

These two can be reached at:

As for Chris Cox; he can be reached at; or

The SEC has a seperate Inspector generals Office that resides at the SEC but does not report to the SEC. The head of teh office is walter Stachnik and he is well aware of this issue. Well aware!

They can be reached at:

All correspondence to these individuals must have your state regulator on Distribution. Go to to get to your State contact.

If you want to fight back, these people need to hear your message as does your state regulator. We are told the State Regulators are hearing the message loud and clear. We simply need to keep up teh pressure.

6:47 PM  
Blogger SECFOInfo said...

Bob, A slush fund of fails for each firm was created with the grandfathering.

It's not going to be long before someone figures out fails below the threshold of every non-sho stock will never have to be closed out.

They play a game of chess moving the pieces around. Fail in one, cover in another.

reg SHO is a joke and I actually think the SEC got snookered. I really don't think they had a handle on the system at the NSCC when they wrote the rule.

7:20 PM  
Anonymous Anonymous said...

Okay, did my part and sent this along with CC's to other 'regulators'. Get motivated, take 10 minutes and craft your own...

Mr. Cox,

I read a quote from you that said something along the lines "the S.E.C. would not reopen and contest every prior regulation." I hope you are not referring to the extensive "failure to deliver promptly" problem that exists in the system.

Since you're new to this job, you have a little bit of time left to "play dumb" as if you didn't know what a huge problem the delay in getting trades to settle is.

Now is the time to act smart. The word is out. Many of us are coordinating through internet blogs. We're seeing 15% increase in number of registered users last month. Some of these folks may even work for you. Steady climb every week as each little piece of the truth is exposed. If you think you can keep the system from finding out you can't it is only a matter of time. Sure its possible it might even take 3 to 10 years after your tenure before you are subpoena'd to testify. How will you sleep at night knowing a time bomb is ticking until the next REFCO is exposed.

Grandfathering past fails to deliver nor explicitly requiring them to cover within a reasonable timeframe is ludicrous.

The futures market doesn't seem to have any of these problems, settling promptly each day. There's you're model.

Be a hero.

Sleep at night with a good conscience.

Settle the trades.

7:34 PM  
Anonymous Anonymous said...

Annette Nazareth

Who is she? What is her background? How could she benefit by screwing investors?

Why would she want to grandfather fails?

What is her motive for screwing us?

If we can talk about individuals that need to be arrested rather than an amorphous SEC, we will put more pressure on them.

I agree with anonymous.

Obviously, there was a meeting that led to the grandfathering.

Shouldn't we be able to get its minutes as per freedom of information?

That is a valuable piece of paper.

8:22 PM  
Blogger bob obrien said...

Annette is married to one of the Governors for the NY Federal Reserve - you know, one of the folks involved in the DTCC, and a de facto die hard member of the NY financial insiders.

Wonder what the reasoning will be to deny a FOIA for the minutes of the meeting where that fateful decision was made? You know it will be denied.

If you go back and review the public comments from that period, it quickly becomes obvious that there was abundant information from those who clearly possessed detailed knowledge of the fail to deliver problem, and understood the changes that needed to be made to eradicate the problems. The commission decided to ignore 100% of that feedback. It does beg the question as to why.

If I was part of a commission on how to solve this problem, it would take about an hour.

Settle all trades that are out of the T+13 time frame. All. Older fails would need to be bought in 5% per week, oldest first. Anyone violating the settlement rules would be fined 30% of the value of the trade, and be bought in. The market maker exemption would be severely tightened up, and a board convened to examine compliance. Offshore trades would be the ultimate responsibility of the correspondent onshore broker, who would be responsible for the fines. There would be no extension for market makers past T+13, regardless of the excuses tendered. Stocks on the SHO list would be removed from being eligible for short selling until they came off the list. The non-CNS clearing system would be abolished. Either clear through the formal channels or break the trade.

Then we could break for lunch.

The answers aren't hard. They would simply cost Wall Street much of their ill-gotten gains. Thus, the industry is fighting the obvious, simple solutions tooth and nail.

The SEC is co-opted and beholden to the industry. Nazareth is married to a member of the NY financial royalty. Everyone is working hard to make it look like the problems are complex, so that the industry doesn't have to disgorge the obscene profits being made from violating the law and counterfeiting billions of shares.

The solution is simple. Stop the counterfeiting, settle the trades.

When smart people pretend that easy solutions are impossible to comprehend, money's the matter. Always.

This is no exception.

9:33 PM  
Blogger Jer. 9:24 said...

Bob et al.:

I have two suggestions for all of us who are concerned with these matters. Here is the first, then after any relevant debate I will throw out the second.

(i) Don't waste too much time asking the SEC for help. They are simply not on the side of the investing public and lip service is all we are going to get from them, though I pray that Mr. Cox will prove me wrong on this.

Instead, let's join the (rumored) activity by the state securities regulators to put pressure on the NASD to clean house. I suggest we demand that the NASD re-submit its proposed changes to Rule 11830, which changes were pulled at the SEC's insistence in mid-2004 as the SEC was dawdling over Regulation SHO, telling the NASD that they (the SEC) would deal with the problem.

Here is the summary of that 2004 proposed rule change, from the NASD's web site:

"NASD has filed with the SEC a proposed rule change to replace Rule 3210 and Rule 11830 with a new rule requiring that clearing firms make delivery, or take affirmative steps to make delivery, within 10 business days after settlement date for all short sale transactions. In addition, clearing firms would be required to document and report certain information to NASD within one business day of their failure to meet the 10-day delivery requirement."

You can find the text of the proposed rule change at this address, which also confirms that it was actually submitted to the SEC, for those who don't remember or weren't involved with this issue back then:

Read it and see how the NASD had a plan to eliminate this problem, once and for all, with no excuses and no grandfathering of pre-2005 fraud. As I said, the SEC forced them to withdraw it, claiming that Regulation SHO would solve the problem.

I suggest we contact Mary Schapiro at; she is a Vice Chairman and President of NASD, and I believe an ethical person who wants to do the right thing. Also Stephanie DuMont, a Vice President and Associate General Counsel at Maybe try CEO and Chairman Robert R. Glauber at

NASD officials will be paraded before Congress when the meltdown occurs, and I believe they have a vested interest in keeping their industry from self-destructing.

In that regard, the NASD has submitted a rule change similar to the above, for non-reporting threshold securities, since these are not covered by Regulation SHO. IF approved, this may have the perverse effect of making the Pink Sheets a safer place to invest (I should say, to buy real securities instead of counterfeited ones) than NASDAQ. See this link:

Note that the NASD, unlike the industry-corrupted SEC, did not include a "grandfather clause" in its proposed rule change for non-reporting issuers. I think the NASD is prudently trying to distance itself from the SEC on the illegal shorting issue, and be able to say "don't blame us, we tried to fix it and the SEC would not let us."

(The NASD did, however, create a "threshold level" of fails, defined as the greater of 10,000 shares or $50,000 in market value based on the last trade during market hours on the relevant trading day. They also gave themselves the right to grant exemptions to the rule. So nothing is perfect.)

I say, why can't we have this Rule on all NASD regulated securities? Let's dump Regulation SHO, and use the NASD Rule instead.

And of course, while inquiring at the NASD, ask why they are not enforcing their requirements of honest and ethical conduct by their member firms? Why are they allowing clearing firms and brokers/market makers to violate Regulation SHO, as well as NASD's own settlement requirements? And when do they think they might begin to enforce them? Why does the NASD permit all the SEC grandfathered--but still illegal--fails?

By the way, I believe the Rule change that you guys referred to that "was working" was the change to Rule 3370. This rule change was requested by NASD in October 2001 (!!!) and finally approved by the SEC in November 2003, to become effective February 18, 2004.

This rule change closed down the Canadian and other offshore broker loophole (that basically allowed them to short without an "affirmative determination" that a borrow was available, as long as they were a "broker" -- didn't have to be an NASD member).

In February 2004, a lot of victim stocks started climbing in price, and a number that I watched began to fly--until about two days before the new rule was to go into effect, the NASD postponed implementation until April 2004, to allow member firms more time to "upgrade their systems" or some such nonsense.

Upon that announcement, every stock that I was watching fell back to pre-rule change levels and below, and immediately the Berlin-Bremen scam of listing companys on that mostly unregulated exchange began (the Berlin based market maker who listed all these victims, by the way, has been linked through cross ownership to Badian's old firm Ladenburg Thalmann).

Perhaps we should "cc" Sen. Shelby and a few SEC folks on correspondence with the NASD, just to let them know they are being bypassed, as well as Mr. Lambiase of Connecticut. Anyone have his email address?


Jeremiah 9:24

7:55 AM  
Anonymous Anonymous said...

Does anyone remember the BBX? Small companies spent a small fortune preparing for it - it was going to clean up the markets and replace the OTC. It was supposed to solve the shorting problem.

After waiting 18 months, it was suddenly eliminated without any reason shortly before it was supposed to go live.

Then the NASD rule - small companies waited patiently for the level playing field, only to have it snatched from them at the last minute.

Then the SRO rule, now the new OTC short reporting rule (US based shorts only) - the industry always has a solution that is just around the corner.

I say enough with it. Counterfeiting is illegal and if it is Nazareth and Brigagliano that sold us out for whatever personal benefit they received, then they should be called in front of the states to explain themselves.

Does anyone know how the lawsuits are coming? I've been hearing about these lawsuits since early 2001, but nothing ever seems to come of it.

I first started researching the naked short problem in 2000 and was amazed to see comments going back years before that where the SEC was promising that solutions for investors were "just around the corner".

If us investors refuse to put up with it, then there is no reason why we can't have immediate change. Couldn't we have the NASD rule reinstated in a few weeks, given it has already been implemented by industry? All it needs is SEC approval.

If the SEC refuses to give approval, maybe the states can require the rule to be implemented in their state. For example, NASD members in California are required by the California regulators to follow that NASD rule. Etc. for each state.

This could be implemented quickly in spite of the SEC attempts to slow down regulation.

The states don't need SEC approval to require NASD members to follow a code of conduct in their state.

If the populous three or four states implement rules quickly, then the SEC will be embarrassed into making it country wide.

10:22 AM  
Anonymous Anonymous said...

"The tragedy, of course, is the amount of time issuers spent in getting themselves ready for the new BBXchange."

"This is a crushing blow for many of the quality companies that were looking forward to moving from the OTCBB to the BBX"

Most investors aren't aware that the whole system is set up to make small company stocks go down in value.

If an insider buys even one share of stock, they aren't allowed to sell any of the rest of their position for six months. (Short swing rule).

They can only sell a maximum of 1% of the outstanding shares per quarter, so they are strongly disincented from investing in their own companies.

Why would the SEC come out with a rule to stop insiders from buying shares in their own companies?

If an insider deposits a share certificate, they have to file an "intent to sell" even if they have no intent to sell. If any shareholder lifts a rule 144 restriction, they file insider trading reports that say they are selling even if they aren't. The effect is to create a negative impression for the stock when the reality is those 144 investors would have been strong supporters. They invested at current prices and had their stock locked up for up to two years.

Market makers put relentless counterfeit downward pressure on all small companies, as they hope to push the price to $.001 where the percentage between bid and ask is huge.

It makes me wonder why anyone would want to bother with being a penny stock as it is so much cheaper and more effective to remain private.

The only positive thing I've seen for small companies is the potential elimination of Sarbanes-Oxley which created huge expense for small companies with little benefit for shareholders.

I think one of the reasons that is being eliminated is that many small companies contacted the SEC to ask how they should disclose counterfeiting under the new SOX rules as the companies didn't have any way to ascertain how much was occurring.

How do you answer the SOX question "Are you aware of any illegal market activities?" when the company is being naked shorted by the industry?

Everyone blames small companies for doing death spiral financings, but why are these financings even legal? Other countries require financings to be done in the context of the average trading price.

I am still bewildered that there are more NASDAQ and NYSE stocks on the SRO list than Pink Sheet and OTC. Something smells really fishy.

Everyone says the counterfeiting is for liquidity, but Canadian exchanges such as the TSX work fine without market makers or counterfeiting. Since everything is computerized, orders are filled first in, first out.

A number of TSX companies are no being listed on the pink sheets and OTC without their permission. The thieves can't stand the integrity of a computerized exchange, so they just list the stock on the pinks.

This whole Berlin thing is such a bloody joke. To me, it should be a diplomatic incident for a foreign country to list US stocks without our permission for the sole purpose of naked shorting US companies and employees.

10:40 AM  
Anonymous Anonymous said...

But is the NASD to be trusted? Seems to me that when the meltdown occurs they can point the finger at the SEC; they covered their ass.

Not sure the NASD rule to settle within ten days was sincere in the first place. I am not getting my hopes up.

4:02 PM  
Anonymous Anonymous said...

Bob, are you still working on a viral email?

7:18 AM  

Post a Comment

<< Home