Wednesday, November 30, 2005

The NASAA Conference - My Take

(NOTE: This morning, everyone's favorite hedge fund friendly/SEC apologist "journalist" Carol Remond wrote the expected 800 words of dreck we expect from her, and which was accurately predicted here. In the piece, which isn't worth sullying these pages with, she simultaneously ignores the 1.95 hours of input from the panel, and simply repeats the SEC's and NASD's "all is well" message. She spends half the piece slamming Jag Media and Universal Express, whose sum total of participation involved sitting and quietly watching the proceedings from the audience, and ignores that a former DTCC official point blank admitted that the only defense against "phantom shares" was paper certificates. She also ignores that not a single person on the panel denied that the issue was of huge import for voting and corporate governance reasons, and must have stepped out for a Gitane when the SEC and NASD were admitting that there is overvoting in most, if not all, stocks on the big board. Hey, who's got the time to mention that sort of thing when they can devote 350 words to who was in the audience?

Carol is a real piece of work - anyone that has an interest is seeing what a one-sided slam piece reads like should listen to the audio of the panel, and then contrast that with her fictionalized account. I've said in the past that Carol could convert the story of the mayor of a small town who pulls an infant from a frozen lake and administers mouth to mouth/CPR and some brandy while waiting for the paramedics, and make it read "Agitated Mayor seen in suspicious child fondling situation, alcohol on breath". It's an altogether not-rare (unfortunately) "talent" she demonstrates unique familiarity with.

So the barrage of revisionist history and spin articles commences (actually she started before the conference with another article in which she cobbled together a "story" in which she attempted to make it seem as though there was no NASAA concern over naked short selling - also rather clumsy, IMO). There are no new ideas.)


I listened with interest to the NASAA Naked Short Selling conference/proceedings today, moderated by Ralph Lambiase, which sought to discuss, define and probe the naked short selling crisis affecting our markets. Before I offer my summary, let me state that it was gratifying to hear that the perspective that guys like Dave Patch, and Dr. Byrne, and I have - namely that this is a real, ongoing, pervasive problem in our markets, and that the regulators are asleep at the switch, or compromised, or both - validated as reality by a panel of the foremost authorities on the subject.

I hope that wasn't lost on our fine media, who seem all too ready to buy into, and parrot, the line that we are all nutty as Christmas fruitcakes.

Turns out we aren't - we simply apprehend the problem accurately, and there is an entire industry intent upon creating smokescreens, to cloud that understanding. It was pretty clear as the conference went on that Ralph Lambiase also has more than an inkling as to what is going on, and I can't help but think that this conference was groundbreaking, as the same folks that went after the analyst scandal (the NASAA) held it - there was likely a reason for that. We shall see as events develop what that reason was.

First, bravo to Ralph for introducing a sense of humor to the event, and for asking the tough questions. Here are my takeaways:

1) The federal and SRO regulators all say that they are aggressively investigating, pursuing, monitoring and regulating, and that they are upholding the rules as best they can. Richard Shapiro summed up the obvious fallacy in this position best: "Uh, OK. But where's the enforcement?" He noted that we hear all the rhetoric from these guys, but the critical data is kept secret, and there is no actual evidence that any of them are doing anything. One of the other panelists noted "there is no such thing as an innocent fail" - and I agree. There isn't. And all of these guys know it, self-serving monologues about the intensity of their efforts notwhithstanding.

Of note was that after much of the mandatory and expected bluster and sanctimonious filibustering about how hard the SEC and NASD are working, and how concerned they are about protecting investors, etc., the statement that there has been "not one reprimand or sanction or enforcement action for violation of SHO," received a shocked silence from the regulators, and from the audience - it was so clear an affront that the entire room was speechless.

2) My position on the FTD/FST (Fraudulent Stock Trades) issue was echoed by all of the academics: We need to know what the fails are in order to trust the system. We need transparency, and the reason that the DTCC tenders to us for not providing transparency is that they have passed a rule against being honest about it, and disclosing the numbers. The fail to deliver problem is of unknown size by design (not because the information is unknowable), and the consensus was that this state of affairs is deplorable - investors deserve to know how large the fraudulent stock trade problem is, by company, and in the aggregate for the market.

Huh. You mean fair markets require transparency? What a novel concept. Who knew...

3) Voting rights are destroyed by FTDs, and the process by which shareholders have lost their "one share, one vote" rights is a disgrace.

4) The agreement was that the reason that the DTCC and the SEC don't tell anyone what the size of the FTD problem is is because there would be a collapse in faith in the markets if we knew the level of crookery that was endemic to the system. This was a key observation - all of the facile excuses about the protection of trading secrets is baloney at the end of the day - protecting illegal trading secrets never rang true, and the real reason is obvious to anyone with a brain: If the SEC and the DTCC admitted how large the actual numbers are, there would be cries for their heads, and lawsuits for years, and a complete and utter loss of confidence in the system. "How could Wall Street and the SEC do this to us?" is the question they are trying to avoid.

5) The SEC's position was that they welcomed comments about SHO, and would carefully consider any they received during their next review. Presumably they would carefully discuss those comments in the same way that they did in 2004 (when abundant cautions were sounded by everyone from the NASD and NASAA to economists to ordinary citizens), and then disregard them, as they did the first time around. This was talking-head bureaucratese of the first order, IMO, and nobody was fooled.

6) A legitimately shorted share, borrowed and then delivered to the new buyer, can then be relent to another short seller by the new buyer's broker - there is no limit. Contrary to all the rhetoric from my many critics, that take on this was verified as correct. One more for the Bunny.

7) The SEC's Brigagliano said that 4% of the listed companies were SHO list candidates under the grandfathering. He wouldn't or couldn't answer the question as to how many shares were grandfathered. Nobody asked the obvious question - what was the total dollars that 4% of listed companies represented, for which no deliveries had been made, or ever would? The responses as to grandfathering were jumbled, and I'm still a bit unclear as to what the 4% meant, but the SEC did concede that it was to placate the market - read "let Wall Street off the hook and let them keep investors' money"; money we had exchanged for shares we never received. Again, not to belabor this point, but there was no coherent good reason for allowing Wall Street to keep the money we were defrauded out of, other than to protect Wall Street's interests.

8) The panel seems to get it. They were clear that the lack of transparency was the largest problem, and that secrecy benefited nobody but the manipulators. The SEC made hollow-sounding assurances of regulatory enforcement, which were handily dealt with by Shapiro's cutting statements, and Lambiase's simple, "I was under the impression that there had only been 3 actions over the last 10 years." No rebuttal was articulated. At one point, the discussion seemed, to put it politely, a wee bit strained.

9) The same, tired, "grandfathering doesn't provide amnesty from enforcement actions" dross we have heard for a year now from the SEC - nobody said it did, Jimbo - was trotted out to do service here. Jim, babe, pay attention: what we've been saying is that it does give those that sold and never delivered anything a vacation from having to cover those fraudulently transacted, non-delivered trades, and allows the short sellers to keep the profits derived from illegally driving companies into the dirt - that was grudgingly conceded by the regulators. After much dancing around, they admitted as much. That's why you don't see the DTCC or the SEC doing these discussions in open forums - it's hard to argue against the obvious truth when it is presented by knowledgeable folks who you can't snow.

Important point: the SEC conceded that short sellers get access to the proceeds from sales where they never delivered the shares, as long as they can drive the stock price low enough - obviously encouraging everyone on the bad guy side to do so in a big way, if you are going to do it at all. Not surprisingly, the DTCC was invited to have a representative on the panel, but declined. Smart move.

10) FTD'ing destroys any sense of legitimacy of voting rights associated with shares. Every equity examined in one study had overage of votes/shares. Every one. This makes a mockery of common law ownership, the right to vote, and any semblance of honest dealings W/R/T property rights. Ralph was flabbergasted over the voting rights abuse - his statement was, "we've fought wars to protect the right to vote". Correct. We have. But we can't get Wall Street to stop abusing the American public. Ironic, no? Every day more Americans die in Iraq to supposedly protect the freedom and sanctity of voting rights, but we can't get it here, at home. He was stumped as to why no media has picked this up. So am I.

11) There was much discussion over the tax implications of leaving short positions open in perpetuity, which ignores that if the shorting occurred from offshore accounts any profits are tax exempt - offshore investors don't pay capital gains tax.

12) There was also discussion about the foreign exchange listings - in which the regulators dutifully addressed their own straw man contention that naked short selling was being conducted there, and happily ignored that nobody was making that claim - it's an arbitrage game, stupid. That lame spin on it was over in February, when we figured out that the game was to claim to be a foreign market maker, or that you were holding shares in a foreign account, or that you were hedging your position "over there." No naked short selling required on the actual exchanges.

13.) Some discussion about ex-clearing shenanigans took place, but unfortunately the one big one - wherein brokers not only lend each other shares, but enter IOUs into their back office ledgers instead of demanding delivery, or buying in the fail - wasn't. That is no surprise. Anyone that thinks the $6 billion per day of FTDs is a big deal - one panelist made the deadpan comment, "$6 billion a day, and pretty soon you are talking real money" - should run some mental numbers as to what the ex-clearing situation is like if I am correct on my take on the size of that problem. Especially in light of the newly confirmed accuracy of the information I've been disseminating thusfar about FTDs - my foreboding about ex-clearing might merit more than a shrug given that I have been dead on about the rest of this. Dunno.

14) The ECN's are hotbeds of short selling, as well as naked short selling - they are anonymous, and they don't have all the annoying rules that the mainstream exchanges do, thus they have seen a large increase as the venues of choice for this practice - which echoes the observations I've made during large short attacks on NFI and OSTK, namely that the selling ALWAYS comes out of the ECN's, in waves. Now we have academics on record describing why.

15) Owning paper shares, or using the Direct Withdrawal Custodian program is the only way to be assured that you actually own real shares, and aren't being conned by Wall Street. Period.

16) There is no mechanism for CEOs to know what their FTD levels are, even though it is an essential factor in company valuation and corporate integrity - and the DTC and the SEC aren't telling, well, just 'cause. That is also a disgrace, and should convince anyone who is unsure of how bad this is that it is as bad as the worst critics have made it out to be. Again, nobody from the SEC could explain why it was a good idea to keep the information from the CEOs - there were simply assurances that all input would be considered. Ha.

Here are my takeaways: Everything you've read here and on NCANS is solidly based in fact - it was all confirmed by the panel. The system doesn't punish those who use naked short selling as a manipulative practice; an endless supply of legitimate shorts can be created by the system via re-loaning stock from margin accounts; naked shorts are a huge problem concentrated in a relatively small number of stocks; there is no plausible reason that the FTD info shouldn't be public; the SEC and NASD and NYSE, for all their bluster, have no real impact on the problem (there was, as always, much discussion of "studying the matter further" and being "receptive to input", with the best line going to the NASD guy who pointed out that they are taking a "Giulliani approach of ticketing small infractions" - citing a meaninglessly small total number of dollars - $750K - they've levied to date); there are no meaningful penalties for FTD'ing like crazy; there are huge inequities in the reporting system which favor short sellers and market manipulators; and everyone of any substance in the business knows all of this. All of it. And nobody is doing anything - it is all being "studied" and "considered" while America's Main Street goes broke.

Surprised that the NASAA panel confirmed virtually every statement made here and at, that has been dismissed as silliness by the quisling media and the hedge fund apologists?

You shouldn't be.

I agree with Patrick Byrne, who said that when we look back at this we are going to say, "all the evidence was there, all along, and a few guys spelled it out in impossible-to-misunderstand language, and the regulators, and the government, stood by and did nothing, feigning innocence and ignorance."

One last comment: The SEC guy predictably tried to underscore what a small problem this is, purposefully ignoring the observation that the FTDs were concentrated in a very small number of companies. Just pretended he didn't hear it. Also sort of blah blah blah'd over the direct question Ralph framed over how companies could exist on the Reg SHO list for a year if any of the rules were being enforced - he committed to being willing to study it more, which by now should be well understood for SEC-speak for, "do nothing."

Ralph Lambiase deserves tremendous credit for being willing to tackle this. I have no doubt that he will be personally attacked sooner rather than later, and the panel's statements distorted, mocked, or ignored. That's how this system protects itself.

The positive is that now the problem has been validated by as august a body of academics and specialists as one could desire - it isn't all in my head, and yes, you should be worried.

The solutions for what should be done were best framed by Professor Finnerty: Tell us the size of the problem, and force settlement in a reasonable time. This isn't rocket science.

The more coherent summary is:

A) Improve the efficiency of the stock lending market.
B) Instill regulations mandating actual borrows be made before stock is sold short.
C) Don't let the short sellers have access to the cash untl the share is delivered.
D) Report short positions and FTD info, daily.
E) Eliminate the grandfathering.

And here's the short version:

Settle the trades. Tell us what's going on. And don't lie to us.

Bravo panel, and bravo Ralph Lambiase, my new favorite for regulator/lawmaker of the decade. In the 80's it was a tie between Giulliani and Ed Gray, in the 90's Giulliani had it locked, and for the millennium, we have Ralph Lambiase - Spitzer is all show, no substance, and pretends to be ignorant of what was shown today to be a pervasive fraudulent practice embraced by Wall Street.

For my money, Lambiase had it cold.

And shame on the SEC, and on Wall Street, for selling us down the river and allowing the rule of law to be a mockery outside of Main Street. What we heard today from our protectors was a hollow farce, and I hope that as Mr. Lambiase alluded to in his closing comments, that change will be a comming.


Blogger SECFOInfo said...

While a good intentioned affair I din't hear anything new. Eveyone agrees but nothing is being done. That's just wonderful.

The SEC jackoff's use of the word "piddly" to describe an average investors account sums up the whole thing. Small investors are irrelevant to Briggliatano's SEC.

Oh and if you want info "go sue the DTCC". That was another humdinger.

PS. Your 4% observation is a misread of his statement by the way. He was talking about 4% of stocks are threshold stocks. He made sure he clarified it because my ears perked up too.

2:05 PM  
Blogger Tommy said...

We know have confirmed the problems. We now need to get on with solutions. I hope NCANS adopts an official solutions platform.

Also it has come to my attention that brokers are indeed violating 15c3-3 - the investor protection rule of all things. Schwab and OptionsXpress.

This I think is important because as naked shorting increases the illegal share supply, violating this rule also introduces additional illegal shares into the market by lending out shares that should not be lent out.

Violation of 15c3-3 is a case of illegaly lending shares and so contributing to a fall in the price, not to mention the inaccurate account statements to customers that have to publish in order to cover up the violation.

We need a public list of rules violators so that customers and oter market investors and participants know who the bad guys are.

Matter of fact, with enough rule violations, market participants should have their SEC registractions revoked and put out to pasture.

This works in most industries. How far does a violator have to go to be revoked the right to participate?

2:31 PM  
Anonymous Anonymous said...

You spoke of a probable character attack on Ralph Lambiase. Google his name and you will find that Tony Ryals is already at it. Not surprising in itself, but what is surprising is that it dominates the top hits on Google. Tony has been a busy boy with his James Dale Davidson story. One wonders if Tony is a freelance nut case or one of the conspirators.

3:23 PM  
Anonymous SteveG said...

I am confused about point 6) in the blog entry - "A legitimately shorted share, borrowed and then delivered to the new buyer, can then be relent to another short seller by the new buyer's broker - there is no limit. Contrary to all the rhetoric from my many critics, that take was verified as correct."

Nobody in the conference seemed to be framing this as a problem, just a statement of how the system works. I was under the (naive, apparently) assumption that each share sold short must be borrowed against a real share. But now we've learned that a single share can be shorted and bought an unlimited number of times.

Is the really the way it is supposed to work? Hell, who needs naked shorting, seems this practice alone allow short sellers to artificially create unlimited selling pressure on a stock, and artificially inflate the float to multiples of the real number.

Here's a question - let's say a share is sold short and results in an FTD. Now can the buyer's broker still relend this share to another short seller?

3:54 PM  
Blogger SECFOInfo said...

One other favorite from the SEC or NASD guy. "we put up a rule, please comment on it".

Why? All the SEC does is incorporate the Industry whines in the rules and disregard "piddly" shareholder comments. What's the point?

That guy should be a politician, not a regulator. He has lost sight of what the SEC is supposed to do. Too many lobbying dollars blinding the way. "Piddly" shareholders are who you are supposed to be protecting you clown.

3:59 PM  
Blogger bob obrien said...

No. Because the share never was delivered, thus there is no share to relend again.

It is actually worse than you imagine - not only can a share be lent out again and again and again, legally, in the manner described in the forum, but additionally any fails that are taken ex-clearing can never be delivered, and as long as the buyer's broker is willing to tolerate holding IOUs instead of shares (and of course, not informing his customer of the non-delivery) then there is no limit to the number of ex-clearing FTD's that can be created.

The most alarming part for me is how the talking heads keep trying to characterize the problems as "small" and "trivial" and yet in the same breath have to defend the secrecy of the actual number due to concerns that it will cause widespread volatility. It sort of reminded me of the push me-pull you from Dr. Doolittle.

It's both small and trivial, and yet too large to tell anyone about.

Only on Wall Street can defending criminal manipulation be couched in such amusing terms.

Was it just me, or did the flop sweat, coupled with indignation from the SEC that anyone would DARE ask these questions, make it that much the better?

I'd personally love to see how studiously this is ignored by the media - the bashers on the message boards are already trivializing it to the best of their abilities.

Wonder how long it will be before someone sues to find out the size of the FTD's in a company they have lost money holding?

And I wonder who, specifically, at the SEC, authorized grandfathering?

What was his/her name?

So now what? Will there be a Congressional hearing to try to get to the bottom of this, or will it be more "pretend it never happened" stuff from the media and our government?

4:07 PM  
Blogger smokyjoe said...

Lambiase' last comment said it. In response to sue the sec he retorted Duck & Dive then, we're coming!...

4:47 PM  
Blogger Wicked World said...

I'm chiming in to say simply that at this point I have mixed emotions. I'm excited and angry. I could ramble at length but will only say that to hear the authorities, gatekeepers & keymasters so matter-of-factly discuss all this BS without any one of them taking much issue with what was being proffered just floors me.

I don't see how one could now try to occupy some kind of middle ground on this issue. Not when what was posited met so little resistance from the regulators.

If I were UNconvinced of all the hullabaloo I would be quite dismayed that the "authorities" didn't shoot down at least half of that put forth.

Naked shorters are Rat Bastards whose comeuppance I pray for.

Bob, I'm sorry to drag your good blog in to the gutter. Keep on keepin' on!

5:43 PM  
Anonymous Anonymous said...

Bob. Up until today I was convinced that you were on the money about the problem but thought it was all a temptest in a teapot. Not any more. The SEC's own attitude is the most damning bit of evidence out there that this is a big problem. You are reminded of push-me pull-me; I am reminded of the dog that didn't bark. The SEC should be barking all over this; that's their job. But no, they want someone else to sue the DTCC. That tells me the dog is scared. The only good reason for it to be scared is because it knows this is a big problem and it doesn't want to take the heat for pulling the rug out from under the bad guys.

5:48 PM  
Blogger mfairview said...

SteveG, I've been scratching my head over this one also. Where is the line drawn between a naked short share and a short share that gets relent a bazillion times to be reshorted again. I still submit that the middle-man (e.g. the 21B pie that Goldman is feasting on this xmas) has all the incentive in the world to keep doing this and charging 5-30% commission on the short meanwhile making a cool 7% off margin on the guy who's share is being used. I can't wait til they insert the law that says we must all stand there and say "Yes sir, may I please have another."

6:10 PM  
Blogger SECFOInfo said...

This comment from the NASD boy takes the cake. "We have given out 750K in fines."

Is this idiot kidding or is he just an arrogant snit insulting us. Naked shorting has put over 60 Billion in the pockets of Wall St over the last ten years and this jackass is patting himself on the back over 750k.

If anyone needed a reason to start buying into the concept that there is a real problem with our regulators. Look no further than the audiotape of today's conference.
Pathetic, absolutely pathetic.

7:02 PM  
Blogger bob obrien said...

If anyone has a link to the audio of the event, please email it to me at

Wicked: Yeah, as I've been researching the non-fiction book I have been flabbergasted by the level of deceit and crookery that is a routine part of the market. As you heard on the audio, the SEC and NASD and NYSE are rather blasé about it all - "Yeah, you can lend shares in an endless daisy chain, but that's legal" and "well, we can't tell you how big the problem is because, well, everyone would lose faith in the integrity of the markets (yawn)" and "we are closely monitoring investors being robbed of their life savings, and maybe after a few more years we will move from monitoring to forming a focus group, which will discuss it for several years (another yawn)". Now do you begin to see the outrage that has been building in me for the last several years, as I pieced this together in horror? I first couldn't believe it - thought I had it wrong - then as I delved deeper, I warmed up to the concept that whole chunks of the market could be a co-opted fraud mechanism being assisted by the regulators in doing its larcenous re-distribution of wealth trick.

Then as I explored the history of Wall Street, I learned that this was nothing new - it had been like that for a long time, but had gotten particularly bad in the Roaring Twenties, and for the last ten years or so.

When the Depression hit, folks pretty much avoided the markets until the 1960's. The lessons learned stayed with several generations, and it was only recently that the industry got a facelift and became the trusted uncle helping build retirements, rather than the conniving schemer cheating anyone that would come near.

You got a whiff of the real lay of the land today. I've known it for a while, as has Patch, and Patrick (he's a quick read), and a core of other folks who are incensed that our futures, and our kids' futures, are being stolen by a thin sliver of Manhattan, aided by a regulatory mechanism whose crest should read "Laisser Faire."

8:05 PM  
Anonymous Financial_circus said...

Great day(almost)! Amazing that we can gather all of the so-called "experts" and throw out a whole bunch of noise but the solution is simple. Three day settlements! Just like Mom and Pop when they buy a stock with their hard earned money! We are being manipulated by the massive material that is being spread but it is just that simple. I like the AG from Conn. He gets it! Noticed how he made it clear that his opinions are his only and not the group's? He is going to make Spitzer come out looking like he is on the take! Since Spitzer did his deals with the crooks for money instead of jail and full restitution for shareholders. This guy will make a name for himself. Imagine-a regulator who is willing to come out against grandfathering the crooks. WOW! I continue to send emails to my Senators about this and they continue to ignore this. I also continue to send our head of Senate Banking and he(Senator Shelby) continues to ignore the emails. I did get a response from one of my Senators campaign headquarters concerned that my emails were NOT reaching my Senator after I emailed them and her( my senator's)largest contributor but the Senator herself has not yet responded. Amazing is it not?

8:06 PM  
Blogger mfairview said...

SEC's Prezioso Will Step Down As General Counsel

December 1, 2005

WASHINGTON -- Giovanni Prezioso, general counsel of the Securities and Exchange Commission, said he plans to leave the agency in January, handing SEC Chairman Christopher Cox yet another vacancy to fill.

The departure of Mr. Prezioso, who has served as general counsel to three SEC chairmen since 2002, also leaves some uncertainty about who will lead the SEC's defense of its mutual-fund-governance rule. The U.S. Chamber of Commerce has sued the SEC over the rule, which requires that mutual-fund company boards have independent chairmen. Oral arguments in the case are set for Jan. 6 before the U.S. Court of Appeals for the D.C. Circuit. SEC officials said it remains unclear whether Mr. Prezioso will argue the SEC's side

8:23 PM  
Blogger n-tres-ted said...

Nightly Business Report on PBS had a pretty good coverage of the conference in its evening report. They treated it as a serious matter and had comments from a couple of the panelists Robert Shapiro, who gave a good statement about the size and gravity of the problem. But NBR hosts didn't seem to really understand the problem, so let it pass without further comment.

9:38 PM  
Blogger mfairview said...

So the really scary thing about all this is that they [SEC] are really in a position to do what they want w/o any recourse. I am unsure what can really be done at this point save starting our own exchange given that our comments continue to fall on deaf ears. We are told to save for retirement and that the market is the best place to be in the long run to account for inflation and such, yet the game is rigged and there is nothing we can do about it. Perhaps we could wrestle up a few programmers and start a Napster type app that just does stock trades. Perhaps even the thought of us wanting to do something like that will bring about the attention this issue demands. The internet is the great equalizer IMO.

10:10 PM  
Blogger rvac106 said...

Hey D, listened to it as long as I could before getting back to work. Would love to hear the parts that I missed.

Do us a favor. Write the story. As a newspaper article. You've already got the headline:

Main Street America Goes Broke.


State Agencies Investigate Fraud.

I know how you like to write, but, you've got to keep it brutally short. 2-3 points, 4 max. Choose carefully. End it with a short aside re: Byrne's inability to get their own shares.

Offer it for free to the papers. All of 'em. Tell 'em Mary wrote it. Then, when they decline, run it as an 'advertisement' from NCANS. Think you'll have any trouble raising funds for that bad dude? Not likely.

Ralph'll prolly contribute.

10:46 PM  
Blogger SECFOInfo said...

The number of high level departures at the SEC is alarming.

I have a feeling a looming disaster has them fleeing. Everyone of them is privy to the most sensitive information. They just do not want to be on board when the shite hits the fan. Bad for the resume. Bad for the career. It is very similar to a corporation that is falling apart.

Go to the SEC website (, click on press releases over the past year and read how many TOP people are hitting the high road.

5:13 AM  
Anonymous Anonymous said...

Refco Judge Denies US Attorney Bid On Records

Federal bankruptcy Judge Robert Drain struck down bids by U.S. prosecutors to delay a request by Refco Inc.’s (RFXCQ) unsecured creditors to subpoena records related to the company’s collapse.

Judge Drain said the committee could go ahead and demand documents relating to the hidden losses that triggered the company’s meltdown last month, and to Refco’s $583 million initial public offering in August.

The committee is demanding records from Phillip Bennett, Refco’s former boss, and other former executives, as well as buyout shop Thomas Lee Partners, which took the company public, and company accountants Grant Thornton LLP.

Bennett was indicted this month on charges of conspiracy, securities fraud, wire fraud and making false filings with the Securities and Exchange Commission, and underwriters of Refco’s IPO have received subpoenas from regulators looking into the brokerage firm’s collapse.

5:24 AM  
Blogger mfairview said...

New post from Patrick


Hi Tiddman,

Thank you for your comments. As always, I find them thoughtful.

I am wondering which bothers you more, the mere fact that there exists naked shorting at all (i.e. moral outrage), or concern for the OSTK business or its shareholders.

I suspect it is the former.

Good call. You are correct. I am overwhelmingly driven by what you call "moral outrage," but what I would call, "concern for my fellow citizens." The fact that it happened to OSTK does not really add anything to my willingness to fight this fight, and fact, sometimes I think it would have been easier if OSTK were not involved, simply so I could take the gloves off without worrying that people would see it as selfishly motivated.

The Seabiscuit story is a good one, but off point. There, he was letting his anger direct him. That is a false analogy. Look: I help old ladies across streets, I give away everything I make (more or less) I make in order to build schools in the developing world, educate poor kids in America, try to change our educational system, and promote research into peace and ethical leadership. I get in bar fights to protect strangers. I have arrested thugs and held them until the police arrived. I took OSTK public using a Dutch auction when I had my choice of two bulge bracket firms when I was warned that by doing so I would be a pariah on Wall Street forever, because I felt someone had to crack the system. And in this case, I believe that oceans of capital have been drained out of the American economy by tapeworms who are indifferent to the fact that they are destroying companies and jobs by their games. It has nothing to do with Overstock, and I have made that point repeatedly from the start. One can say, "Don't you have a fiduciary duty not to get in fights that might hurt Overstock, Byrne?" And I reply: No, I have duties as a citizen that preempt my duties to Overstock. As a matter of fact I do not view them as orthogonal, but if I did I would still favor my obligations as a citizen. I have never been anything but clear on that with investors.

Well more than three, but, in my opinion, not enough to make a difference in the trading of the stock.

Well, that may be. Or..... it may not be. When I have to choose between explanations that may or may not be good ones, I look for data or some way to verify a claim. I do know that there is a simple way to test your claim. In fact, there are a number of simple ways we could get to the bottom of this:

The SEC could force people to settle the trades, and see if it was “enough to make a difference.” Oops, the SEC won't do that.

The DTCC could release information regarding the size of these FTD's. Oops, they won't do that either.

We could ask that the originators of the FTD's conform to the toothless provisions of Reg SHO, and at least clean up their past misdeeds. Ooops, they SEC grandfathered all their pre-2005 FTD's.

We could try to understand why the SEC did so by going to their website and look for some explanation that supports the view that it is not a serious problem. There, do they say that the FTD's are "not enough to make a difference in the trading of the stock[s]"? Oops, they say they had to grandfather FTD's in stocks like OSTK because they feared creating massive "volatility" if they didn't.

We could seek some understanding as to why the SEC has taken the positions they have outside of the obvious one (that they are captured by the hedge funds). Oops, they say that they cannot give information out on the size of the FTD's because that would reveal the “proprietary trading strategies” (which happen to be illegal) of the hedge funds originating these FTD's. Double oops: they add that such information might allow someone to trade against the folks who are (illegally) originating FTD's as part of their “proprietary trading strategies” and that this would be “improper.”

At some point, does enough of this start stacking up to make you question your assertion that it is “not enough to make a difference in the trading of the stock”? My guess is that if it were all as innocent as you assert it is, some of these tests might break differently. But what do I know.

So you want to model this as just some jockey ticked off because he got nudged.

Good luck with that.



2:26 PM  
Anonymous Anonymous said...


You have a link for this:

"Refco Judge Denies US Attorney Bid On Records

Federal bankruptcy Judge Robert Drain struck down bids by U.S. prosecutors to delay a request by Refco Inc.’s (RFXCQ) unsecured creditors to subpoena records related to the company’s collapse."

This is unbelievable! If I read this correctly, the US Attorney prosecuting the case against Refco is trying to protect Refco's records from the unsecured creditors who are losing/lost big with the Refco collapse.

What's up with that? If as surmised, these are underwater naked short transactions from failed hedge funds, the records they're trying to conceal are evidence of criminal securities actions/trading. The prosecuting attorney protecting the people they're prosecuting from other charges?

Seems that Bob's right that this is a massive systemic issue.

-- aldigit01

3:46 PM  
Blogger piddly_sum said...

Got it from DJ last night, saw a more complete version when I went to look for it:

=DJ Refco Judge Denies US Attorney Bid On Records >RFXCQ

By Marietta Cauchi

NEW YORK (Dow Jones)--Federal bankruptcy Judge Robert Drain Wednesday struck down bids by U.S. prosecutors to delay a request by Refco Inc.'s (RFXCQ) unsecured creditors to subpoena records related to the company's collapse.

Judge Drain said the committee could go ahead and demand documents relating to the hidden losses that triggered the company's meltdown last month, and to Refco's $583 million initial public offering in August.

The committee is demanding records from Phillip Bennett, Refco's former boss, and other former executives, as well as buyout shop Thomas Lee Partners, which took the company public, and company accountants Grant Thornton LLP.

Bennett was indicted this month on charges of conspiracy, securities fraud, wire fraud and making false filings with the Securities and Exchange Commission, and underwriters of Refco's IPO have received subpoenas from regulators looking into the brokerage firm's collapse.

David Kennedy, for the U.S. Attorney's Office, said the request was premature and would hurt the government's investigation.

"The request is a fishing expedition by the creditors' committee in particularly dark waters and it will interfere with a grand jury investigation that is still in its infancy," he said.

He said the committee's request should be delayed three months to allow the prosecutors to complete their investigation. The committee was demanding the documents within 20 days.

Judge Drain, who is overseeing the Chapter 11 proceedings, accepted that the committee needed the documents to move forward and noted that the committee would comply with confidentiality restrictions.

The judge said that the records should be turned over within 30 days from Wednesday and that only a small team of about five lawyers at the offices of Milbank Tweed Hadley & McCloy LLP, attorneys for the committee, should be allowed to see the documents.

The U.S. prosecutor was concerned that the documents requested by the committee would lead to distribution of information on subjects of the grand jury investigation.

-By Marietta Cauchi, Dow Jones Newswires; 201-938-2129

(END) Dow Jones Newswires

November 30, 2005 13:14 ET (18:14 GMT)

When I was looking I also came across this blurb (haven't tracked down the full article):


SEC is conducting extensive examinations to monitor brokerage firms' compliance with a new short-selling rule. "While there may be instances of abusive short selling, 99% of all trades in dollar value settle on time without incident," SEC official says.

Now how does that saying go, 1% every day and pretty soon you are talking about real money...

4:56 PM  
Anonymous AndyD said...

Re: 99%..

That's horiffic!

Imagine if Wal Mart took money from 1% of it's customers, then security escorted them out of the door without their shopping! The store would be shut down before the end of the day.

Imaging if Amazon failed to deliver 1% of it's orders, but kept the cash and denied any problem! Perhaps they would last a month before getting sued out of existance.

Even on eBay, a trader who 'forgot' to post 1% of items would quickly lose a lot of cash through negative feedback.

So are we to be reassured that the SEC has declared itself to be happy with lower standards than an eBay trader?

1:51 AM  
Anonymous Anonymous said...

Here's Carol.


1:22 PM  
Anonymous kredieten said...

Hi Blogger! Ik ben op zoek naar kredieten Zou Afab echt zo goed zijn als iedereen beweert? Of kan ik beter zoiets als Geldshop proberen?

Groetjes Albert

4:54 AM  

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