Wednesday, November 02, 2005

We Definitely Aren't in Kansas Anymore - Fraud Wall Street Style

Folks, it couldn't get any weirder.

I was talking with our friend Dr. Byrne, and he told me a story that defies imagination. I honestly thought he was pulling my leg - had one of those double take moments, where you have to shake your head to confirm you're awake. Before I tell you the gist of this, let me send out a little tidbit to any regulators reading this - I urge you to contact Dr. Byrne for corroboration. I couldn't make this up if I tried - nobody would believe it.

First, there is the matter of Jack Byrne's 200K share purchase of OSTK, which is now closing in on 90 days since the order was executed.

Jack got 130K "registered in his name" with his broker (who knows what that means - I mean, who really knows what any of the arcane terminology really signifies at day's end?) recently, but he hasn't received the other 70K shares, and his broker is telling him they've been unsuccessful in getting the shares from JP Morgan (the seller's broker - and arguably the most venerated name on Wall Street), and that there is no ETA for their delivery.

That is seventy THOUSAND shares bought and paid for almost a quarter year ago, undelivered. And Byrne's broker hasn't bought in the offending seller. Just hasn't.

Before we continue, stop and reflect upon this set of circumstances - the Chairman of the Board of the company can't get $2.5 million worth of stock that he bought and paid for - and yet there is relentless selling pressure day after day. For months the stock price has been pummeled, and yet for months the buyer's broker can't get the product that was sold.

To add insult to injury, apparently Dr. Byrne's brother bought 50K shares almost a month ago, and he hasn't gotten his shares delivered either. So it isn't just dad. The performance of the system has been tested multiple times, and nobody can get any shares delivered to make good on the buys - but that hasn't stopped the brokers from relentlessly continuing to sell that which doesn't exist.

Aren't there laws against that? 17A? SHO? 10(b)5 - participating in a stock price manipulation scheme (by selling bogus shares to depress the price)?

You bet there are. It's just that so much money is being made by all the bad guys and their brokers, that nobody cares what the law says.

So much for Reg SHO.

So much for fair markets.

So much for the SEC.

So much for clamping down on criminal stock manipulation.

But as if that wasn't sufficiently outrageous so as to cause every major financial publication in the country to run full page, indignant articles on the collapse of the market system, here's where it goes off the reservation and into the twilight zone.

Jack Byrne apparently has inquired about buying another large slug of OSTK stock, as he presumably feels it is incredibly undervalued, and he wants to own more of it.

And he is the new Chairman of the Board. They tend to do that, those wealthy, successful COB's - buy stock in the companies they are stewarding (lest anyone think this is inside info, he hasn't to my knowledge placed any orders, nor filed any forms - but if Dr. Byrne is to be believed, his dad has made inquiries which his broker knows are as serious as a heart attack).

His broker informed him that he could buy the "shares", but only if he didn't request delivery. The broker - one of the largest in the nation - told him that "the order would not likely be filled if he insisted on delivery, BECAUSE NO BROKER WOULD SELL THEM ON THAT BASIS!!!!"

I am not making this up. Those were the words - you are reading this correctly. The brokers will only sell the COB of the company stock if they don't have to deliver what they took his money for - what they sold - presumably because they understand that every share being traded is bogus, and undeliverable, and nobody wants to feel Jack Byrne's heat.

If you are a retail buyer, they will be happy to lie to you and cheat you, but nobody wants to tackle heavyweight informed buyers with cash - because they know that every sale is a sham sale, and won't be delivered.

They know it.

They understand it.

They are clear on it. They are booking transactions designed to methodically reduce the price of the company's stock, accepting cash in return for the transactions, but have no ability nor interest in delivering the product being paid for.

It's called fraud, Wall Street style.

Sheer unbridled stock manipulation and fraud, overt, with no attempt at concealment.

(NOTE: We are not even talking about getting paper certificates here, just confirmation of delivery of the goods that were paid for, which is the most basic part of the brokerage contract and the contract between buyer and seller - and which contract, by the system's efficiently breaching thereof, renders the entire market system a sham - unreliable, larcenous, operated for the enrichment of the participants and their hedge fund customers at the expense of the companies and shareholders via obvious and wholesale fraud - in full view of lawmakers, regulators, elected officials, prosecutors, class action attorneys, and the international investing community - in other words as bad or worse as the environment that led up to the 1929 Crash and the subsequent creation of the SEC.)

So what else needs to be said? The broker in question knows that he is participating in a massive scam to run down the share price of the company (known to you and me as stock manipulation) - everyone in the industry apparently knows, and nobody wants any part of being made the test case by a guy with juice. Because they know there is no defense for their actions. And it isn't worth it.

Unless you are Joe investor, in which case you can be screwed at will, with nobody to stop the participants from doing so.

Does anyone have any questions? Nobody will accept a legitimate buy order from someone with big money and a desire to actually get what they paid for, on a large, NASDAQ traded stock, which is on the Reg SHO Threshold list of securities that MUST get shares delivered within a few trading days. Except nobody wants to accept an order for weight, because it is common knowledge that there aren't any shares. And nobody is doing anything about it, nobody is enforcing any regulations, and the brokers keep cranking out the IOUs on behalf of their hedge fund customers - only now only to people unable to call in the IOU, and force the brokers to make good on them.

Every day hundreds of thousands of "shares" are sold, surpassing demand and depressing the price. But only to rubes that don't know any better, or who don't have the juice to enforce delivery.

What can be said at this point? Exactly how bad and how blatant does this have to get before Congress calls hearings and appoints a special prosecutor? Or is it simply now the prevailing business wisdom in Washington and Wall Street that overt market manipulation and fraud are what you get if you are stupid enough to put a dime in the market?

How blatant does it have to be, when the COB can't get anyone to sell him shares unless he promises to accept bogus chits instead of shares, even as the price of the stock declines?

Are we seeing any articles in the Wall Street Journal on this?

Is Bethany writing about this? Seth? Floyd? Even Herb?

How about Alpert? Is Barron's deaf and dumb when it comes to provable fraud and collusion on a massive scale?

Where is Forbes? Where is the New York Times? The Washington Post?

The GD Chairman can't get delivery on almost half the shares he bought almost a quarter year ago, and now nobody wants to accept a buy order if they have to deliver anything.

Because who wants to actually have to deliver what clearly can't be delivered? THERE AREN'T ANY REAL SHARES TRADING. And the system knows it.

This sickens me. It really does. I can't conceive of words ugly and base enough to describe how low and foul this is - folks are losing their retirements, and the industry knows they are defrauding the investing public, and nobody wants to say a word, or do their frigging jobs and put a stop to it.

So how bad does it have to get?

How bad?

How much worse can it get? At what point should we discard the conceit that we are living in a nation of laws, where the rule of law protects the individual, when Wall Street can break into your house, steal your wallet, and laugh at you when you call the cops?

I'd say we are at that point now. The law is not being enforced, the system is disintegrating on its first very public test by those with the resources to demand that it perform, and there is not a single regulator, agency, elected official, or lawmaker willing to stop the fraud.

This is a farce.

And I hang my head in shame that I was ever stupid enough to put one dime, much less one million, into the market. It is institutionalized fraud and theft, nothing more, and is as mean, base and crooked as anything I've ever witnessed in the most corrupt backwater banana republic.

And nobody is willing to do a thing about it.

What is left to say?

30 Comments:

Blogger rvac106 said...

Astounding! Who should we tell, now that we know we're the only ones listening? They're still doing it. Right in front of our eyes. Who can we tell, now? Who hasn't heard about this?

We can't get anybody to hear what we're saying about this topic. So much power and corruption situated at the top, along with control of the media by the same 6 top unregulated owners, with 80% of the airwaves bought and paid for. Everybody's fingers intertwined in the soup. Start with the money, trickle down thru the media, into the hands of the 'captive regulators.' It's almost perfect. We've got to stop them. Where should we start?

Arrghhhhh!

RVAC

9:05 PM  
Blogger bob obrien said...

I share your frustration.

When you have an egregious violation of this magnitude, and yet dead silence from Shelby, and the Senate Banking Committee, and every other elected oficial chartered with even pretending to give a shit as to whether a thin strip of Manhattan rips off the rest of the country, it is cause to stop and explore property values in Buenos Aires or Venezuela - I mean, how much more corrupt and foul can it honestly get?

This makes the S&L boondoggle seem like mice nuts. And the system is so busy running interference for the bad guys it is throwing our free markets and our retirements under the bus.

How much longer before the money departs the system?

How much longer before there is a run on the stock bank?

Every shareholder of OSTK should demand paper shares. Period. This will get ugly soon, and you don't want to own an IOU from a broker being sued by thousands of other defrauded IOU holders.

In case you haven't figured it out from REFCO, where they have now taken protected client accounts and simply erroneously called them creditors, the crooks on the Street are so emboldened by their complete control over the system that they are brazen in their flaunting of the law.

I would send an email to Ron Insana at CNBC for starters and encourage him to get Byrne on for half an hour to discuss this. I'd write the Washington Post. I'd write Shelby and Bennet and Hatch, and demand an answer to how this can happen, and continue to happen.

We are either a nation under the rule of law, or we are lawless, and our contract with our government is void. The ability to tax is based upon the presumption that there is a quid pro quo, and that we are receiving fair value in exchange - in this case, the social contract is that we are being protected.

If that is violated to this extent, all bets are off. This truly sickens me. It is monumental, and obvious, and is being ignored by everyone in the mainstream press, under a stranglehold. The cone of silence does not allow the sheep to hear the cries of the lambs in the slaughterhouse pens. The system requires your money. It cannot allow you to understand what is being done, daily, with abundant proof at hand.

To say that I am disgusted and outraged is the understatement of the year.

I am sickened.

9:25 PM  
Blogger Chxtlrfifkt Smith said...

We need to begin my writing and calling our local legislators instead of bothering with the clowns at the SEC who continue to ignore, thus ecourge, the problem. Document everything you have then write a concise cover page and send off a few copies to representatives and senators (preferred). Most of them will actually answer you. One or two may decide to take up the cause. Who knows. I'ts worth a try. This is some of my future retirement income the maggots of Wall Street are messing with. It's time to play hardball.

9:36 PM  
Anonymous Anonymous said...

Why can't Jack sue the Broker?
If he buys and they don't deliver?

10:12 PM  
Anonymous Anonymous said...

Hey, lets see how much sicker we can get...

What if this delayed delivery problem is _not_ limited to just securities on REG SHO list?

How does a retail investor know whether he actually got what he paid for or just the hope of delivery? Never mind whether or not the stock is on the REG SHO?

http://www.unitedmedia.com/comics/dilbert/archive/dilbert-20051016.html

If I see a "settlement date" on my order does that mean I got delivery or is the whole thing just a farce?

I'm beginning to wonder if "Settlement Arbitrage" (whereby my broker opposes my trade until 'settlement' or I give up and sell) is a much bigger problem potentially applying to _all_ stocks, not just those on the threshold list. Possible? I hope not.

I also understand that when I buy a stock from a margin account, my shares are likely made available to borrow to short sellers. Since the broker gets some type of premium for loaning out the shares, its in the brokers best interest to allow my trade to work against me. How screwed up is that?

Do you still plan to post some info on how commodities/futures are cleared and settled contrasted to stocks?

There's no way Patrick would make this up simply because statements of this magnitude would put him away for a long long time if they could be proven false. Of course if he's sued by Morgan, Morgan risks discovery. Huh, no lawsuit.

Disgusting.

10:23 PM  
Anonymous Anonymous said...

Bob,

This is insane, but I don't doubt that this rampant fraud is happening. I'm sure Byrne is already talking to Senator Orrin Hatch--why can't Hatch get anything moving? He's another heavyweight in the Senate?

10:28 PM  
Blogger Tommy said...

The ont thing I don't understand is why Byrne's broker wants to buy from another broker, rather than from the NSCC. This has puzzled me even from the first Byrne transaction, where he was told that the OSTK shares were bought directly from Morgan Stanley.

If Byrne weren't out to prove a point, he should demand that his unsettled part of the trade be cancelled and all his money for that part be returned, since OSTK is now trading lower and demand that his broker resubmit and by from the NSCC.

Byrne's broker is also the one playing games here.

Time for my Fraud Rinse transaction.

11:11 PM  
Anonymous Anonymous said...

Sure its fishy and all, but wouldnt the ultimate offense for Bryne and OSTK shareholders be if OSTK would just start delivering some positive numbers?

Think about the float, and how few "real" shares are out there. The stock is very underowned, because there is no trust in the business model or that it can produce sustainable cashflows.

The last quarter is an example. If they have a kickbutt q4, they will make $25million in operating cashflow for the year. Slap a generous 15 EV multiple on this and you have a target EV of $375 million which with the current balance sheet would be a share price in the high teens.

Im not trying to troll here. Perhaps without all the counterfeit shares OSTK would have a 100x EV/Cashflow multiple (stranger things have happened). Im just saying that the value proposition for OSTK shares here is weak, and thats the 1st problem. Somehow, the scope of the "fraud" and "deception" just dosnt seem that crazy considering by most sane metrics OSTK still commands a hugely generous valuation.

just my .02

11:52 PM  
Blogger mfairview said...

Anonymous, let's assume the stock was $1 and the company was still losing money. How does that effect the ability to get shares delivered? Perhaps the Byrnes believe they are close to profitability and want to buy on the cheap now before the run-up. However, if they can't get their shares then why would they want to pay with real money (perhaps the 'market' will take an IOU).

3:16 AM  
Anonymous Anonymous said...

I absolutley agree there is a problem with someone not being able to get physical share delivery. A big problem, and I dont understand all they dynamics of how this has come to be. It certainly must stop.

However, I think there are 2 issues - most people seem less concerned with the lack of physical shares than they do with the idea that the conterfeit shares are diluting the value of their holdings. I am simply saying I dont buy this.

The share delivery problem is still a huge problem.

4:33 AM  
Blogger SECFOInfo said...

Great sanity check. It represents a small piece of the pie. Every single ceo in a Reg SHO security should do the same thing and DEMAND delivery.

This problem has to be illustrated to be systemic, not just an OSTK affair.

When all is said and done I believe the industry will be on a hotplate. The peices of the puzzle are coming together.

keep up the fine work.

4:42 AM  
Blogger bob obrien said...

Anonymous:

The desire to attempt to blame a rampant criminal fraud on operating numbers is laughable. Take it somewhere else. OSTK's performance has no more to do with the criminal fraud surrounding it than a woman's dating history has to do with being brutally gang raped by escaped prisoners on her way home from work.

I know your agenda is to pretend that somehow she was asking for it.

Please don't insult our collective intelligence anymore. NFI has had stellar financial results and has been increasing their earnings for 3 years, and we have seen huge takedowns on the most positive imaginable results. When you are breaking the law at every turn, results don't matter. It's just that simple.

Which part of that do you find confusing? Because you seem to get lost there.

Again - if you are willing to sell an unlimited number of chits to depress the price, and if the system allows you to do so without stopping you, and if you further are never required to deliver, you can pretty much always sell demand plus more, resulting in declining price. The only limitation is your ability to collateralize your position, which might be given much elasticity if the IB is up to its neck in your fails - everyone has a common interest in holding the victim down while the gang has its way.

The GD COB can't get his shares after a quarter year, his son can't, and the brokers are telling him they won't accept a buy order because nobody has any intentions of delivering. And as I just inserted into the main body of the blog - this isn't even certs, just confirmation of delivery.

Please don't waste my time with sophomoric attempts to turn this into a valuation discussion.

Tommy - I suspect that the DTCC has put out the word that all trades have to happen ex-clearing on OSTK now, as they want to limit their exposure - that's the only logical explanation for the broker to broker issues - they are all ex-clearing. So forget about the NSCC and intermediation of the trade and contra parties - that evaporates once it is non-CNS.

Anonymous 2: I'll work on getting some more info on commodity clearing. If you have any, post it. I am not a central depository of all things market related, and the research load on much of this is staggering. It takes time.

Anonymous 3:

Byrne can sue, and I suspect that will ultimately happen, but what does that solve? You are now in a protracted court battle which can span years, grappling with a firm that prints its own money, trying to get delivery of your shares - the property you bought and paid for. The fact that the firm is willing to do battle in court rather than just buy in the bad guys speaks volumes. And what about everyone else who is getting screwed? Is the facile answer everyone should spend fortunes suing their brokers to get the bare minimum of the transaction effected? Do you think every OSTK customer should be required to mount court battles to get what they paid for? If so, why? What are the regulators there for? Our elected officials? The 1934 act? The rule of law? Our prosecutors, the DOJ, and on and on?

To all:

Let's see if any newspaper picks this up. It is huge news. Topical. Vital to the interests and integrity of the markets. Byrne is available for comment. We are discussing hard proof of the US financial system lacking the rudimentary integrity to not defraud every purchaser of stock.

Ya think that is a story?

Bethany harped on my identity for several paragraphs - ya think the collapse of the contract that is the US equities market is a bigger story than Who's Bob?

The ONLY publication that has covered any aspect of this with any objectivity at all is Euromoney - and it isn't published in the US. That is telling.

7:47 AM  
Blogger bob obrien said...

In a bit of irony which is not lost on me, REFCO just appeared on the REG SHO list, per Buyins.net.

This is out of control.

7:58 AM  
Anonymous Anonymous said...

If I had to guess who is behind this fraudelent activity, I would have to speculate Mafia, but which one?

8:51 AM  
Blogger bob obrien said...

Take your pick. My fiction novel on the subject, The Hedge, speculates that it is all of the above - everything from clandestine government agencies funding their black ops via hedge funds, to funding regimes that are difficult to do so overtly using matched trades and manipulation in thinly traded stocks, to laundering drug money, to arms deals for terrorists.

And that is supposed to be a fiction novel.

Eh heh. Nervous laughter here. It was fiction when I wrote it, let me put it that way.

Now it is reading like the front page of the NY Times.

Does that make me really smart, or really stupid? I feel like the girl in the Pelican Brief, only not as hot or female.

Let's hope the worst of the novel remains fiction.

9:34 AM  
Anonymous Anonymous said...

The solution is simple - he should sue his own brokerage. They took his money 90 days ago and most likely sent him a confirmation slip.

It isn't his problem how they get the shares.

He should also go to his state securities regulator to have his brokerage investigated for stock fraud (confirming a trade that never occurred).

10:31 AM  
Blogger Wicked World said...

The part where Jack (especially) can't get what he paid for has been the clincher for me all along.

What'll happen when Patrick goes on TV and announces that he'll buy every genuine share from all legitimate holders and that he's having to make such a public appeal because the brokers have no more to sell him since they're sold out???

Hell, maybe Patrick will end up in the brokerage business too.

Can't wait 'til the brokers let up screwin' the little guy and go back to fukin' over each other more exclusively just like the old days.

Some of my favorite Wall St. stories from history involve individuals cornering BigShots in an equity, currency, or market. Love it!

Looks like the right people have their finger on the button labeled MaximumPain.

BTW, I'm guilty of not getting my shares in paper. Can't wait to see what the Bull can pulll out of its ass.

10:33 AM  
Blogger bob obrien said...

Anonymous.

Yes, the solution is simple. Jack Byrne, the COB of OSTK, should sue his broker over a systemic problem of non-delivery. And so should his son. And so should anyone else buying today, or tomorrow, or the next day.

Everyone should have to spend a ton of money to keep the system from defrauding them, rather than the regulators doing their jobs and enforcing the law.

I think I understand. Every buyer of OSTK should sue their broker, and every buyer of NFI, and NAVR, and TASR, and every other security this is going on in - essentially acting as an ad hoc regulator for themselves, and spending millions to do so.

Thank you for your helpful suggestion.

Who should they sue for not accepting any orders requiring actual delivery? What is the simple solution for that? How much should individuals be required to spend to get the system to do its bare minimum job and not defraud them?

Awaiting your simple answer. Thank you for your time.

10:47 AM  
Anonymous taos said...

Time for another NCANS ad in the Washington Post? I'd contribute towards it, and I suspect there are many others fed up with this mess who would join in as well.

10:52 AM  
Blogger bob obrien said...

That is being contemplated.

I'll let everyone know.

10:57 AM  
Anonymous Anonymous said...

Bob, I just read your comments about why they shouldn't sue and I agree, but in the past, lawsuits have forced the buying brokerage to buy in the selling brokerage.

You never mention who the buying brokerage is, but in my mind, they are just as guilty, if not more, than the selling brokerage.

I can understand why the media presstitutes won't cover this, but I have trouble understanding why there isn't more outrage from the average investor on the street.

Other stories get picked up on the internet. This one doesn't, for some reason.

10:59 AM  
Anonymous Anonymous said...

What are the rules for starting a coop, investor owned stock market?

Then ripped off companies and investors could opt out of the corrupt stock markets.

Imagine the ads for our new internet stock market:

"When you buy through us, we give you something in return for your money".

"When you buy from us, we don't try to drive the price of your investment down."

Something along these lines would make a good parody spot.

11:03 AM  
Blogger bob obrien said...

The system is expending a lot of time and money keeping this quiet, IMO, and has deliberately created a system which seems complex, in order to confuse the average investor and diminish their interest in following the story.

Simple stories get covered more easily than complex ones.

This is the largest and most important financial scandal to impact our generation, bar none. It will have far reaching implications for many years to come, and the contingent liability could run to national debt-sized numbers or larger if I am even halfway close to correct about the scope.

The studied silence is awe inspiring.

Not a peep out of the media, and Byrne is available to chat with whoever wants to.

Not a peep.

Wild. Tells you just how big it must be.

11:06 AM  
Blogger bob obrien said...

When some companies tried pulling out of the DTCC system so that they could eliminate the rampant naked short selling of their stocks which was facilitated by dematerialization (elimination of paper certificates) the SEC and DTCC sprang into action and made it illegal to do so.

I'm not making this up.

They couldn't afford to have those companies expose the level of corruption endemic in the system.

The SEC would simply make it illegal to have that sort of an exchange, or ban the brokers from participating - not that any would, as they are all in this to one extent or another, and understand that they need to stick together.

11:09 AM  
Anonymous Anonymous said...

The story doesn't seem that complicated.

You may think you are buying shares, but a lot of times you are buying IOU's from people that never honor the IOU. The extra supply of IOU's depresses the share price.

My fear is that they will bring along a 1929 crash so they can cover all the shorts before we can force them to make delivery.

The powers that are doing this are capable of crashing the market. All they have to do is raise interest rates and money will come out of stocks and housing and into bank accounts.

Just in time for the new bankruptcy laws passed last month, suddenly businesses are laying off workers just as they can't pay their mortgages.

11:43 AM  
Blogger teachericjp said...

It might be expensive, but i wonder how much more exposure you can get by placing some infomercials on television and by placing ads on the radio.

9:50 PM  
Blogger mfairview said...

Spectacularly more unbelievable is how the senate is in an uproar about Abercrombie's new line of t-shirts then the shenanigans going on in the market. Way to go!

http://www.14wfie.com/Global/story.asp?S=4067918&nav=3w6o

2:14 AM  
Anonymous Anonymous said...

The real concern here is still with regulatory oversight.

Under the guidelines of SHO, no BD or Market Maker can continue to sell a stock they cannot guarantee delivery on if they have a fail in a threshold security once a company is listed as a threshold security.

For Morgan Stanley, JP Morgan, or whomever, with an open fail in teh system they should have been restricted from selling any future stock since they could not deliver on the existing issues. I wonder if that in fact happened.

How about Market makers? Did any lose the book as a MM since nothing being offered on the stock was guaranteed delivery.

This all comes down to rudimentary law. The laws must be enforced and based on trade volumes and delays, it appears that they are still being ignored.

9:02 AM  
Anonymous Anonymous said...

The NASD Proposal that the SEC threw out because they did not want to enforce the "at any cost" clause.

http://www.nasd.com/web/groups/rules_regs/documents/rule_filing/nasdw_000039.pdf

"Although the proposed rule change provides that a clearing firm may not be in violation of
the rule if it has taken “affirmative steps” to make delivery, NASD expects that a failure to deliver
the shares within the 10-day period will only be acceptable in very limited cases. For example, the
fact that a buy-in for guaranteed delivery is available only at a price above the current market
price for a security or that a member can borrow securities only at a “negative rate” (interest paid
on cash collateral for securities that are borrowed to effect delivery) would not be considered
acceptable bases for non-delivery by the 10th day."

9:16 AM  
Blogger bob obrien said...

That was the rule that was implemented in early 2004, when NFI went from the high $40's to the high $60's - right before the rule was put on hiatus due to the SEC's ostensibly coming up with a "better" rule in SHO, in April.

April is when NFI was run down to $28.

Funny, that.

When the rule was being implemented, many of what we now know as SHO stocks ascended in value.

Coincidence that when you enforce the law, the manipulations stop as the artificial supply dries up?

Nah, can't be.

Maybe Congress can take another year to "observe" how SHO is working as investors lose their retirements and stocks sit on the threshold list for almost a year.

9:27 AM  

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