Saturday, December 17, 2005

Lying, Cheating and Stealing Redux - More Fraud, Wall Street Style...

A while ago I wrote, "We definitely aren't in Kansas anymore - can this get any weirder?"

It just did.

In quantum physics, there is an expression used when an experiment is successfully concluded, and all possible outcomes are eliminated, leaving only the 100% manifest event: "The waveform has collapsed."

The universe of possible outcomes is reduced to one, Heisenberg uncertainty is removed, and what you have, is "it". Sherlock Holmes used a similar logical line of reasoning - eliminate all the incorrect explanations, and what remains is, no matter how difficult to believe, the explanation.

What follows is the text of an email exchange between Dr. Patrick Byrne, President of OSTK, and his broker, whose identity Dr. Byrne has asked me to keep anonymous. Suffice it to say it is a big firm, that everyone takes very seriously. Dr. Byrne has also requested that I keep the names of the individuals out of it, as well as the offending selling broker. The actual firm names are meaningless - it is the content and the situation being described that is the shocker here.

Pay very close attention to the exchange. It is blood chilling, in that it spells out in no uncertain terms - actually in very mundane, ho hum, routine terms - that virtually all the "shares" trading in OSTK are frauds - there are no genuine shares being sold. The brokers admit as much, and yet every day hundreds of thousands of "shares" are sold - all presumably bogus.

Note that Byrne's broker is likely guilty and admitting to violations of 15(c)3, wherein they lied and told him initially that the trades had settled, when in fact no such thing had occurred. Also note that for all their pleasantries, they are reluctant to buy in the fraudulently traded shares, essentially shrugging their shoulders and saying that if they went out and tried to buy the offending selling broker in they would just get more fakes, as NO REAL SHARES ARE TRADING, thus they shouldn't even bother.

The truth is that they would have to keep buying shares until they didn't get fakes, which would drive the price up to where real holders of real shares want to sell, and there aren't any at this price. That is why they don't want to buy anyone in - they don't want to start a short squeeze, as it would decimate their hedge fund clients if the price went up $50 overnight - to a level where some folks might be interested in selling their real shares. Maybe. Or maybe not.

So it is better to violate Reg SHO and 15(c)3 and basically tell the President that hey, sorry we lied and told you the trades settled, they really didn't (in nicer language, of course, and it did shut him up for a while), and they won't settle anytime soon, as the only transactions that are being recorded are frauds issued by those that are trying to keep your price undervalued by whatever orders of magnitude they require to turn a profit.

So suck it up, rubes. If you aren't happy buying frauds, sorry, but that's all there is for sale.

Read it yourself. The only thing that has been changed are the names XXXX'd out, and the names of the individuals have been changed to Bob and Ted and such.

This is every bit as bad as I've been saying it is for the last year. Every bit. And left unchecked it will destroy the financial system - just a matter of when, and frankly it could be too late, if all the frauds in all the companies had to be covered - hence the grandfathering clause in Reg SHO.

Now read the email exchange. And be horrified.

-----------------------
Patrick,

Today I have been informed by Bob at XXXX, that the 50,000 shares of Ostk originally confirmed to have settled on Dec 5th and in the process of being converted from DTC shares to paper, have in actuality not settled and no shares have been received (emphasis added) by XXXX from SSSS (SSSS is selling broker, XXXX is buying broker). The $1.8mm for the purchase of the shares has been debited from your XXXX account, but XXXX has not distributed any money to SSSS and the funds are being held in a XXXX holding account. I am in contact with Bob on a daily basis and we will continue to push SSSS to deliver the shares.

Please let me know if you have any questions.

Thanks, Ted

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

Subject: RE: Ostk purchase

Thanks.

Ted or Samson,

Can you confirm for me:

SSSS was the counterparty to this trade?

When the trade is done, what is the process by which the trade is "confirmed to have settled"?

Please describe this process normally works. No more than 50 words. For example:

The trade: "Ted talks to a broker on the SSSS side and agree on the deal, they each write a ticket with a trade number on it." Or... "Ted does the deal through a computer screen, which tells him that the counterparty was SSSS, and give him a trade number."

The confirmation: "Three days later the DTCC sends an electronic confirmation that 50,000 shares have been debited from SSSS's DTCC account and credited to XXXX'."

Or whatever the truth is. I just made those up, but it is what I imagine. Can you just write for me the correct sentences so i understand?

Patrick

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

Patrick,

In answer to your questions below;

Yes we purchased the shares through SSSS.

I will try to explain the process as best I know and keep it short. I enter the trade when it comes in. My back office brokers pick up the trade and then call the "reps"/brokers that move the stock. In this instance they contacted SSSS. The SSSS broker then goes and tries to fill the order by breaking it down and going to the street. His back office accumulates the shares and then lets him know that the trade is now good. He then calls my back office broker to let them know the trade is good. Usually this would be an electronic confirmation. The selling broker then has three days to collect those shares from where ever he got them and deliver them to XXXX. So on the day of the trade or by the next morning we have a confirmation and a detailed report that the shares are good. That report is the same I provided to Sam (Your rep). When the stocks arrive at XXXX the money is then credited to the SSSS account and the transaction is complete.

I hope this helps or is the information that you need.

Ted
-----------------

Ted,

I have been thinking.

Doesn't this mean that SSSS sold these without having them?

If they sold it, then have to go out and "accumulate the shares"? That is, it was a short sale?

Was it identified as a short sale during the trade?

Can you buy them in?

Patrick

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

Patrick,


It would seem that SSSS did not have the shares when they sold them to us. They are a market mover for overstock.com and so are both placing sells and buys throughout the day. There is no way for us to tell how short they were at what time, I don't think the broker at SSSS even knows the total position of shares when they complete the trade. It never is disclosed as a short sale, all we see is a confirmation that they accepted the trade which means that typically they will deliver the shares in three days. My understanding is that traders and brokerage houses will often on securities borrow the shares if they come up short at the end of the day. Since Overstock is a "hot" stock they are finding it just about impossible to find shares to borrow or buy (emphasis added).

As far as your question about buying them in, yes we could buy them in in this situation. However, if we try I don't know that we will be successful. Talking with my traders they feel that we will run into the same problem, no one seems to have enough of the shares to deliver (emphasis added).

I have talked with SSSS again today and they are at the same position right now.

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

Thanks Ted.

I assume you mean "market maker" and not "market mover"? (Freudian slip?)

Can you do me a favor and ask SSSS: "Whom did SSSS buy the short sold stock from?"

Patrick
-----------------
Patrick,

I talked with SSSS and they said that as far as where they get the shares they execute the buy for us knowing that typically for stocks they can get the shares with in the three days. With Overstock shares they were not able.

They have, as of the 13th, issued buy ins on all shares owed them and are pursuing those shares to complete our purchase.

Ted

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

Folks, a few things are glaringly obvious here.

The first is that the short sales aren't being differentiated as such, or the broker is lying about it. Second is that Reg SHO is being violated freely, and all the brokers are just shrugging their shoulders. Third is that while the buying broker is now saying that buy-ins are commencing as of the 13th, that is the same broker who also erroneously represented that the trade had settled - raising the question as to why the confirmed liar is to be believed now when he tells Patrick something else, possibly to placate him. Friday was the 16th. Were the trades settled?

(NOTE: Byrne has asked me to withhold both the buying and selling brokers' names, simply because he has done business with them and always found the individuals at the firms to be decent and honorable, and thinks they are perhaps trapped in a debacle that they don't fully understand. We have a disagreement on this point - I've told him he is nuts not to be going after both of them with all guns blazing - multi-billion dollar suits for violation of 15(c)3, causing massive devaluation of asset value for shareholders due to the sale of unregistered securities, you name it. He is more of a gentleman than I am, I suppose - and taller, too.)

Also note that this is all apparently happening ex-clearing, in a direct transaction with another big Wall Street house, completely bypassing the DTCC - thus confirming that many of the fails never even show up as FTDs in the system - they are just niggling little annoyances between brokers, you know, delivering the actual shares for which everyone has been paid commissions, and which had downward effect on the share price. Oh, that. Also note that none of the direct questions Patrick asked were answered - the responses were, to put it mildly, lacking in information, and many times answered questions that weren't asked in place of the questions that were.

This is the President of OSTK who can't get his trades settled. Imagine what that means for every person buying shares over the last 6 months. There is no evidence that any of the shares being sold at this point exist. They are just transactions in the system, for which there are no shares - that admission alone is priceless.

Note that the excuses are along the lines of OSTK is a "hot" stock, thus no real shares are available. This is the second or third time that this type of exchange has happened over the last 4 months - on every one of Dr. Byrne's purchases, as well as his dad's. This is not isolated - it is the norm, and is being flagged by Dr. Byrne because he knows the questions to ask, and his broker knows that he knows what is really happening.

Wanna bet that you don't see anything in any financial publication about this exchange? There are no genuine share being traded, so solly, so we can't deliver yours, well, for the foreseeable future, at this point. But another half million fakes will be sold on Monday, and on Tuesday, and on Wednesday. Gotta "make a market", and heaven forbid if the price went up to reflect exactly ZERO AVAILABLE LEGITIMATE SHARES!!!

Patrick warned everyone about this a few months ago. He was roundly mocked. "No genuine shares? That's ludicrous - look at the volume!!!" And here we have one of the largest brokers in the country stating point-blank that is the case.

But that doesn't stop the processing of fake transactions every day, driving the price down, now does it? And nobody is doing anything about it. Not the SEC, with full access to this definitive admission of wrongdoing. Not Senator Shelby, not the Senate Banking Committee, not any of our public protectors. Nope, the hedge funds rule the roost, and Wall Street keeps on selling, even though there well may be 30-40 million fake and shorted shares now outstanding on a stock with a few million share float. They clearly believe that nobody is ever going to force them to deliver the shares - that is the only explanation for this behavior. They have now made the problem so big that they are "too big to fail." And they continue to violate the public trust, destroying shareholder value as a business plan, while those chartered with protecting investors smile and roll their eyes.

Here's my metaphor for what is occurring:

Imagine that there was only one drug company in the country - Megadrug - owned by the chain of pharmacies that are the monopoly drug outlets in the US. And now imagine that the drug company has discovered that instead of providing insulin to the pharmacies, it is far cheaper to ship a certain segment of them colored water - in areas where they think they can get away with it.

Sure, millions die every year as the bogus drug, which the patients pay their life savings for, fails to do its job - they die as surely as if someone held a gun to their head. But that's the lay of the land.

Most of the pharmacies suspect something is very, very wrong, but they have to sell something - the demand for insulin is high - and the profit margin is sweet, and they don't know for absolute sure exactly what is wrong - at least that is their stance.

It all commenced years ago, when the drug company started watering down real insulin just a few percent - to improve their profits during difficult times, and with nobody noticing anything wrong. Over the years, the few percent became a greater number, until one day whole shipments were going out with only colored water. The drug company predictably squashed any rumors of anything odd going on, and branded any activists that were suspicious of their game as insane - liars, heretics, cretins.

The regulator chartered with protecting the public health was flooded with complaints from folks who were dying slow and horrible deaths. The regulator inexplicably refused to test the insulin and share the results, and instead indicated that they were going to observe the issue to verify that there was even a problem (rather than just a bunch of whining, piddly diabetics looking for attention), and then come up with a game plan over a period of years. Meanwhile, Grandma and Grandpa died. By the millions.

Cynics pointed out that they would have died anyway. They were in poor health. Many could attribute their diabetes to poor diet - they were damaged goods with no willpower, thus less deserving of concern, sick in large part due to some character deficiency (although that was left unsaid, but implied). And the notion that anyone would sell colored water instead of insulin was preposterous. In private, the drug company moguls had decided that the millions that died every year represent an acceptable number - small enough a percentage of the total population of the planet that it seemed OK in the bigger scheme of things - you have to break some eggs to make an omelet, after all, no business was perfect, and so on.

Of course, simultaneously, the regulators and the pharmacies removed all testing apparatus for testing the veracity of insulin. Said that allowing folks to test the substance would give away critical competitive secrets. So everyone would just have to keep buying and taking the "insulin" and trust that it was going to do the job. And the old and infirm just kept dropping.

Eventually a few people found a clandestine way to test the stuff, and discovered it was 99% colored water. They were aghast, and raised hell. The press and the drug companies branded them as malcontents, and crazies, threatened them with legal action, had their friends in the media (which the drug company and the pharmacies owned a significant percentage of) write articles mocking the ludicrous allegations, while simultaneously arguing that the integrity of the drug delivery chain had never been better.

But there was the niggling problem of all the bodies.

Finally, it became so obvious that if you bought insulin in Alabama, or Georgia, or Arkansas you were buying a death sentence, that reluctant regulators had to run some tests, in secret...and the powers that be verified that in fact the drug company was shipping, and the pharmacies were selling, colored water, and it was killing people. Which wasn't completely surprising, as the drug company in the past had shipped bogus aspirin, and lied about the ingredients of numerous vitamins, and overcharged routinely, and price fixed - but never anything as blatant as this. And they had, after all, been fined .00001% of their profits from the other illegal activities (while never admitting guilt - you could be sued in civil court by damaged victims if you admitted guilt, so tut tut, there was none of that), so one would reasonably conclude that they had learned their lesson.

But apparently they hadn't, and now the entire drug distribution mechanism was so badly compromised that if the truth were known nobody would buy anything from the pharmacies, and they would be sued into the ground, forced to disgorge all their illegally generated profits - and the industry argued (via intermediaries) that wouldn't bring back Grandma, anyway, and wouldn't be for the greater good (whatever that was) - even as more truckloads of colored water rolled out to the pharmacies.

The problem was what to do? The drug company was the biggest campaign contributor to all parties. Many of the elected officials came from the drug company, or the pharmacy industry. The drug company employed thousands, and the pharmacies tens of thousands - all busy selling colored water.

Do you tell the population the truth? Shut the pharmacies and the drug company down, stop them from selling any more colored water, stop them from killing more people? Or keep letting them sell the colored water, and issue stern warnings, in the hopes that they will stop poisoning the people of the states they targeted as being acceptable to deliver ersatz insulin to? You know, over time, hope they would reintroduce real insulin, and stop the wholesale crime spree perpetrated against the heartland of the country?

That is the conundrum - do you tell people the truth and let the perpetrators take their lumps, and create a pharmacy structure that actually delivers real insulin (albeit at far lower profit than selling colored water), causing established power structures huge financial damage - power structures that frequently argue that they ARE the country, or at least what really matters in the country? Or do you keep allowing millions to die, while hoping against hope that those whose illegal profit expands with every day of water shipments will stop misbehaving?

Thus far the solution has been to conceal the problem and hope for the best - but that merely creates an ever larger problem, because now the drug company has become so emboldened that it is also shipping sugar pills instead of diuretics - so what if many of those with congestive heart failure expire? They would go anyway, just a matter of time, and the profit associated with the newest line of non-medicine is astronomical...

And from a practical standpoint, we don't want the idiots rioting over being sold colored water instead of insulin, or worse yet, refusing to buy any more, so maybe it is best to continue to sell the colored water, even though we know it kills. Because what is the alternative? Think of all the unemployed pharmacy employees if the word gets out. Think of the damage to the drug industry if it became known that it was defrauding its customers as a daily business strategy. Think of the damage it would do to our regulators and elected officials if it became known that they allowed the drug company to sell colored water, and refused to open investigations.

Why, that would be chaos.

Better to let Grandma go into a coma and drown as her lungs fill with water, shocked and frightened that the substance she was taking to prevent that, failed to do so. There is, after all, a lot of money at stake, and what's a few more years and a few more million grandmas? If you aren't sickened by the picture I just painted, you are out of your mind.

Sound nutty? Sound a little like Soylent Green?

That is the situation we are in, and the email is proof positive from the pharmacies that they are selling colored water, have been for some time, know it, and aren't going to stop - folks need their insulin, after all, and we don't want to start a riot, or have the drug company and all the pharmacies sued out of existence. So they let them keep selling colored water.

This has got to stop. The email exchange confirms that it is every bit as bad as I just described - the US financial system is a fraud, the brokers know it is a fraud, and if this is an indicator, if just the shares of OSTK were forced to cover, it would likely bankrupt the hedge funds that have ridden roughshod over the company, as well as the brokers who have acted as accomplices to overt fraud. And then the larger clearing brokers that are facilitating the hedge funds in perpetrating the fraud are at risk, as millions and millions of fraudulent trades have to be covered, all the time causing the price to rise, and a resultant domino effect in the other short positions this cartel is in, amplifying the fallout into the many billions.

Gotta sell that colored water. Insulin is a hot drug right now, and we just can't seem to get any, sorry to hear about Grandma and Grandpa - it happens, but they weren't feeling so good for a while now, so what can you say?

PJ O'Rourke had a wonderful line in one of his books - "What the F? What the F-ing F?"

I know the feeling.

114 Comments:

Blogger rvac106 said...

Trading should be halted on OSTK at once. Who could arrange to have that done? What entity could Patrick alert that could get the situation under control. It's getting so obvious that the dimmest among us get the picture. There are no shares available at this price. What price are there shares available at? That would be another good question. The viability of the company to make money is not in question here. This is a completely separate topic. Who would be interested? If not, then why not? To have survived cancer, then succumb to diabetes due to bad insulin? I need to throw up.

12:16 AM  
Anonymous Anonymous said...

I think its been widely reported in the media that the broker is Morgan Stanley

1:57 AM  
Blogger mfairview said...

Hey Bob, you might replace XXXX/SSSS with [Mega Brokerage] or [John Trader] or [Marcy Seller], it may read a little easier.

An unbelievable read.

2:59 AM  
Anonymous Anonymous said...

I've been following the whole matter from Europe and at this point it seems to me that the only thing that would unwind things even if in a traumatic way is for OSTK's owners (those with real paper certificates in hand)to:

1.take the company private immediately.
2.watch the ensuing apocalypsis from the sidelines: resignations, endless lawsuits, suicides...
3. come back if and when the market protagonists take necessary steps to stop this farce.

This definitely needs a major catalyst to trigger a chain reaction other than bob's, dave's, mark's, craig's, pat's and others' courageaous dedication and time consuming though limited range soap boxing

In absence of this I cannot come to any conclusion other than Patrick and those who advice him still think there is a "softer" less traumatic way to solve this?

As Bob said, Patrick has got everything in hands to go after them on a full disclosure, straight, expeditive and lethal mode. And I'm a bit frustrated at this mitigated stance although I realize that no one has done more to give this issue at least some visibility. My credit and admiration for this.

3:41 AM  
Anonymous Anonymous said...

Sounds like the time for short selling the brokers may be drawing near.

5:50 AM  
Anonymous Anonymous said...

The excuse that short-selling keeps the price of a stock in check no longer works. The excessive short-selling on OSTK has only created buying opportunities for people and the price has not suffered according to plan.

Owners want their bit of blood and will let the stock go up multiple times before selling. All of the shares that were shorted between 70 and 30 should be available from real owners in a fair market, but this will not be the case. As the price goes up, the short-sellers will continue to sell to contain the price...unless regulation is started. The brokers involved have too much to lose both in money and reputation.

The trading on OSTK has shown mini-squeezes in the last few months. They know that if this baby gets away, it will be death.

6:42 AM  
Blogger mwillwilly2003 said...

I became literally queasy and semi-ill after reading this latest installment. I hope Byrne sues the bastards, and does so quickly. In that way we might get the whole sordid issue out into the open--assuming, of course, that the judge hearing the case weren't gotten to and made to see the absolute national necessity of ruling against OSTK (in other words, of subverting justice). Every pension fund in the country ought to be all over this, rattling the bars and raising hell. That doesn't seem to be happening--which I find incredible. Truth really is stranger than fiction.

7:14 AM  
Anonymous Anonymous said...

I, too, had a sinking feeling as I read this, as very likely the OSTK shares in my IRA account that I purchased this month are phony, and it's highly cumbersome to request certs and then arrange for a special trusteeship for IRAs.

Surely the AARP should be concerned with this issue?

8:09 AM  
Blogger bob obrien said...

Dave Patch pointed out correctly that this highlights how the market makers abuse their exemption to game the stocks for their, and their hedge fund clients' advantage.

I quote:

"I believe that this feature of Regulation SHO has been the one that is being completely ignored by the regulators [restrictive trading in a security]. This case will bring proof and should be submitted to Cam Funkhouser requesting an immediate investigation into the selling [originating and MM]. The request should be made asking for the MM to immediately be dropped from market making in OSTK until they can submit verification of all open fails they are responsible for being closed.

One of the aspects of this that continues to be ignored is that when these firms are faced with buy-ins, they will work the stock to do so for profit. They generate volume and they generate selling pressure and each drives investors out of a stock so as to acquire additional shares necessary to meet the settlement requirements on open fails. I believe the trading in Cal-Maine is the most visual example of such activity. If this Market Maker is left to trade using market making exemptions that is what will happen here."

Smart guy, Dave is...

8:29 AM  
Anonymous Anonymous said...

All this going on just when our elected officials decided that it would be a good idea to privatize social security for stock market investment. I'm sure everyone reading this blog can just imagine how the thieves are just salivating at this prospect. Considering that it is far easier to try to get stock certificates in a taxable account then even attempting it in an IRA or 401k. This would play right into their hands since the shares would, in most cases, stay with the brokers and have no availability in the form of physical shares. Very nice, very nice indeed.

8:39 AM  
Anonymous Anonymous said...

What game is Patrick playing? How can he not see that the brokers have zero interest in cleaning up their own mess? It is true that some of the individuals may be honorable men caught up in a system they don't understand: that happens. It's ugly and awful that such people should suffer for the bad deeds of others. But what about the thousands of people who own fake OSTK stock? How can he continue to let them play a sucker's game when he can put a stop to it right now? I really like the idea of taking the stock private. He can always take it public again later. It's been done before. IMHO, Dr. Byrne needs to stock asking others to do what he can do himself: pull the plug. When others see what happens when OSTK goes private, the shit will really hit the fan.

9:57 AM  
Anonymous Anonymous said...

The issue goes far beyond OSTK and thus it is a more noble gesture to capture the evidence and put forth an effort to correct it for all issues and investors.

Yea, Patrick could easily move OSTK to a private company and save this one small piece of the puzzle. What about the other companies and investors. Investors in OSTK may in fact be violated elsewhere and to correct OSTK will not help them in their other investments.

This is not about Overstock but about a global issue. what you see here is the efforts of one CEO to capture what others are unwilling to do regardless of the fact that many CEO's have this same problem.

My gratitude to Patrick for what he is doing for all of our futures and our investments.

10:26 AM  
Anonymous Patrick Byrne said...

Hi all. This is Patrick.

First, I want to congratulate Bob on what I feel is his best and most decisive blog ever. Maybe I see it that way just because it features me! But I don't think so.

I sense in it, and in the comments here, the same sinking feeling that overcomes me. Like Bob, I feel we have reached the point that either something is done, or... we all just go hunker down with boxes of beans and rice and wait for the nuclear winter. Because if the system and the authorities do not respond to this, then ours is a lost cause. No amount of further blogging and complaining will do any good.

Many of you raise the fair point that I am taking it easy on the BD's found in this correspondence. Maybe I am. Some of that comes from my general non-confrontational style (believe it or not), and the fact that I have a long history with both of these firms, and the buying BD is part of a bank that has been good to me for the 16 years of my business career. And my inclination is to change the system while hurting as few individuals as possible.

Well, that is not entirely true: there are some individuals who deserve to be hurt, and I will make it my business to hurt, but those people are far, far removed from the folks with whom I was corresponding in these emails (and for that matter, well beyond the people named in our lawsuit).

I think that at this point we all ought to remember that we are in the position of a few folks yelling "Fire!" in a crowded movie theater. That is an OK thing to do, if there really is a fire. I regret that it took me about three months longer to get this issue than it should have, because I was so afraid of yelling "Fire!" and causing a stampede, if there were not really a fire. I kept racking my brain, night after night, for some explanation other than this one: there really is a fire. I came up with nothing. And this email exchange is just one more glimpse of the fire (but a particularly solid glimpse).

At last, team, we do have folks moving towards the exits. Some of you know what I am talking about, some of you don't. I promise you that it is true, though.

So now that there are enough people smelling smoke and moving towrds the exits, it is tempting to want to pile on. We finally have people listening. But at this point, I no longer worry that we are going to get peope moving. I worry that there is going to be a massive logjam at the exit, and everyone is going to burn to death. None of us want this just so people will late say, "Those guys were right about the danger of the fire!" We don't want to be right THAT much.

So don't think I am going soft. I just want to exodus not to turn into a catastrophic route that is far worse than it need be.

O'brien and I were talking last night. We both reached the same conclusion: it may be too late. I wonder if there is any way out of this now. It feels like there is at least one more OSTK (NFI), and there are about another 30 near-OSTK's, and then another 100 or so national market stocks, and then hundreds of Sedona's....

Maybe we are wrong. Maybe the system has dimensions of resiliency that we don't understand. I don't know. But I do know that there are good things that are going to happen soon, and we ought to see how much good they do before we pile on with more (say, with lawsuits against these BD's).

Maybe I am going soft. Or maybe I am just scared now, as O'brien is. My motto in business is, "If you're not going to kick a man when he's down, when ARE you going to kick him?" But that does not apply to our country.

Or maybe I am wrong, and I should swing away right now. I just don't know.

I am reminded of the Buddhist monks who set themselves ablaze to protest the government of South Vietnam. In one way or another, we have all done that this last year. For some, it has been longer than that. We have all lost something from our involvement in this cause. (I hear that one of the things the miscreants say around Wall Street about me is tha, "Proof of Byrne's dementia is found in the fact that he is apparently incapable of being embarrassed." They have engineered an entire campaign, replete with photos of flying saucers coming out of my head, and I haven't backed off.) So while many of you got here first, and have devoted a lot more than I have, and lost a lot more, I will point out that I have chosen to set myself ablaze right on television. Hell, I even called a press conference to do it. So don't worry too much that I am going weak in the knees on this. It won't happen. For the first time I am less worried about being wrong than about the consequence of the fact that you folks have turned out to be right.

I am going to keep jabbing at this issue, working the cuts. I don't want them to stop bleeding. But for the first time in my life, I would rather win on points than score the KO.

You will see what I mean shortly.

Merry Christmas to friend and foe alike,

Patrick

12:15 PM  
Anonymous Anonymous said...

The question that has been asked before, "why don't you ask for your money back if you're not getting what you paid for?"

With the answer "because I want what I paid for"

IS THE KEY to break this open.

IF the broker is willing to give you back the money, for shares that you bought but didn't receive, then you have the brokers by the short and curlies.

Let's say you bought 1000 shares of OSTK at $40. And asked for the certificates. If you can't get them you can sue the broker. But you give the broker the out. Just give me my money back, and we'll call it even. But since the price is now $36.76, ask for your $40,000 because that is what you paid for something you didn't get.

IF (and it's a big IF) the broker agrees to avoid the suit. You just blew them up. Next time just short some in the money puts, get put the stock, try to get certs, and repeat.

I don't know why Byrne doesn't just sue his broker. Or since he is one of the wealthier, and presumably well connected, people in UT, just get the attorney general to go after them. It's just simply grand larceny. And the attorney general could make millions for his state, ala Spitzer, and/or launch themselves into the political stratosphere and high office, like many others in the past.

12:53 PM  
Blogger Wicked World said...

Dear Patrick,

I've read every word you've written and have watched & listened to every word publicly spoken by you since the begining of the year. So, in addition to this fine Blog and also those of opposing viewpoints, as a layman on this issue I feel adequately informed.

Now I would love to hog this space with much thought sharing with you but I won't be that selfish and would just embarass myself anyhow. So I'll keep it short.

1) Thank You (and Bob) sincerely for the fine Wall St. education. My gut tells me I could not have bought this for any amount of money nor many years experience. The vocabulary lessons alone have been a joy and I've made space next to my PC for my old Merriam-Webster.

2) We live in a wicked world. But every now and then things line up just right (for a brief moment in time) for someone in a unique position to ____. You're that person. I get the feeling that you've been that person before on other matters. And you do not need *me* to tell you this as I'm certain you would know a lot better than I, but this go-round looks like one of those "for all the marbles" kinds of things.

Now while you chose SW as a backdrop for describing the miscreants' script/system I think Tolkien's LOTR is yours. Frodo was the only one capable of bearing the ring across so,so many well-crafted pitfalls to get to where it needed to be destroyed. But he had to get ugly a few times along the way. And at the very end when he had a weak moment he could NOT afford to pull any punches in order to succeed.

Win, lose, or draw I'm proud to be a shareholder.

1:22 PM  
Blogger ikarus47 said...

Anonymous: Spitzer has received many letters by me and others on this matter, not a hint of action. Spitzer's initial campaigns were financed by hedge fund friends, he will not expose them by bringing this issue up! So much for the AG.

Patrick, I am eternally greatful that you have taken on this fraud in a vocal way, I would have done the same. I also agree with you, that you are walking a very fine line here. A full disclosure of the problem nationwide could lead to a catastrophic meltdown; and I am extremely worried that that is where we are heading.....

I have visions of the US being blasted back into developing country status by this fiasko.

Ikarus47

PS Patrick,

Along the lines of privatization: How about an open challenge/ offer to buy OSTK shares at a healthy premium to the current PPS, let's say $45 or 50, under one condition: paper certs only! Do a limited test and keep updating us publicly if your offer is getting filled, and a what rate. You could PROVE that no OSTK shares are circulating if it takes more than a day to fill....
And you would be circumventing the whole stock trading mechanism in the process.

Ikarus

1:39 PM  
Blogger bob obrien said...

I would celebrate Patrick taking the company private, but why on earth would he want to shortchange exisitng shareholders by buying at such a substantial discount to true value as $50 a share? I mean, I understand from a pure economics standpoint, i.e. that it would be the steal of the century, but wouldn't that help all the illegal shorts by capping their downside at $50?

I'll bet they would love that deal.

That's just me.

1:51 PM  
Anonymous Anonymous said...

Patrick,

Ask a lawyer two questions:

Who is responsible for enforcing the Securities Act of 1933 and Securities Exchange Act of 1934?

What is a "Writ of Mandamus"?

Oh, smile when they answer.

2:21 PM  
Anonymous Patrick Byrne said...

Dear Wicked World:

"We live in a wicked world. But every now and then things line up just right (for a brief moment in time) for someone in a unique position to ____. You're that person. I get the feeling that you've been that person before on other matters. And you do not need *me* to tell you this as I'm certain you would know a lot better than I, but this go-round looks like one of those "for all the marbles" kinds of things."

Nice thoughts. Yes, I do think this is fo all the marbles, too. Maybe.

I have in fact been in situations where I felt that the was a chance to give the world one sharp rap, and see it split in a different way than it ever had before. This time, I am afraid of giving it a rap and seeing it shatter.

But don't worry, I am pretty confident that I am rapping it hard enough this time. I just want to see what happens this week before we go any further.

And to the last anonymous poster: I know full well what a Writ of Mandamus is. Great minds think alike. I figured that something like that had to exist, and looked it up and found it months ago. Just another arrow in the quiver.

Best to all,

Patrick

PS I just have to bring this up: compare this discussion to the stale crap on Mathews' blog. this is something they can never duplicate. It rather restores my faith in humans that there are places where reason can triumph.

3:17 PM  
Anonymous Anonymous said...

In reference to my earlier post:

I agree Spitzer, as a friend and investor of Cramer's, is wholly captured by the kleptocracy. In fact, most of his actions against Wall St. were not much more than extortion for publicity for his run for govonor.

After following the naked short story since 03, it seems the FTD's are a very real and dangerous problem. If, which it seems, is as big of a problem as O'Brian and Byrne feel it is, then there is a very real chance of not being able to close out the N. Short positions without causing a panic on the street. Along with serious damage to the markets and the economy.

Ideally, the SEC, would quietly force one fund at a time to close out their FTD's, and let the brokers cover as the funds go broke. Unfortunately, the HF's are run by much hubris and not likely to listen.

It would be better if the FTD loophole was closed without panic. We shareholders of the Reg SHO co's would not get a short squeeze, but just getting the system fixed would allow a rise to fair value. A general market panic would bring years of hardship to folks world wide. Better to avoid that if at all possible. But the system does need to be fixed at the end, the longer the wait, the bigger the bust.

3:18 PM  
Blogger Jer. 9:24 said...

What a thrill to see Dr. Byrne participate in this blog! I suppose one should not be surprised that he reads it, as OSTK and its (and his) actions are often the subject hereof, but it is great to see him--you, if you are reading, Patrick--participate.

I have loosely followed the story of the hedge fund manager who has sued the SEC over its attempt to require registration of hedge funds that fit certain criteria, claiming that the SEC does not have the Congressional authority to do it. I understand the judge in the case was quite skeptical of the SEC's viewpoint, though I don't think a final ruling has been given.

Bob, and Dr. Byrne if you are reading this, what are your thoughts on filing a lawsuit against the SEC to challenge the legality of its "grandfathering" of the delivery failures that took place before the effective date of Regulation SHO?

Considering the federal securities laws and the stated congressional intent for even creating an SEC(investor protection), and with Brigagliano's publicly stated reason for this "grandfathering" in mind (to prevent volatility where there are excessive fails--see the April 2005, Euromoney article, for a good quote from the SEC), I believe it can be shown that the SEC has violated its congressional mandate by creating a policy of selective enforcement of the securities laws, for the specific and stated benefit of those who have abused the clearing and settlement system and to the detriment of the investing public, who have been defrauded in various ways by these unchecked practices of the industry.

A proper plaintiff would be a company that was listed on the first Reg. SHO threshold list and has remained on it for an extended period of time, e.g., OSTK.

It would be alleged (it should be easy to prove) that the claimant had substantial settlement failures prior to Reg. SHO's implementation (discovery from DTCC and NASD--and the SEC--might be fun on that issue), and that the company and its shareholders have been damaged by the SEC's selective enforcement--indeed its refusal to enforce laws that existed prior to Reg. SHO's implementation (no ex post facto issues, in other words).

I am thinking also that one could sue the SEC and allege that they are improperly refusing--for purposes of protecting the industry to the detriment of the investing public--to enforce their new Regulation SHO, causing harm to the plaintiff (OSTK and its shareholders) by not requiring those who are shorting OSTK to follow the existing securities laws, nor the requirements of Reg. SHO. No need to run through these requirements now, but the gist is that if the law were being enforced, NO company would remain on the threshold list for more than a few days.

If a hedge fund manager has the guts to sue the SEC because he doesn't want to register with them under their new hedge fund registration regulation, why should not a victim--a legitimate, viable corporation that is forced to rely upon the SEC to regulate the trading of its securities--of manipulative trading and criminal stock counterfeiting sue the SEC for blatant refusal to enforce its own rules?

If nothing else, it would be fascinating to hear the SEC attempt to explain how it is in fact enforcing Regulation SHO, even though the existence of the plaintiff corporation on the threshold list indicates that the SEC is not.

If the SEC "grandfathered" existing fails to prevent upside volatility (no need for the crooks to repay any portion of what they have stolen, at least according to the powers that be at SEC), are they also not enforcing Regulation SHO for the same reason? I think we know the answer to that already.

3:31 PM  
Anonymous Anonymous said...

Put simply Patrick (..and Bob of course.).

I have never written a fan letter before, and I'm not sure that this will qualify but:

Thank you for restoring my hope in my fellow man.

You could have easily sat back and enjoyed your wealth quietly, but have you have gone to bat for all of us without tremendous means who are simply working hard everyday to climb our way up to the American dream.

You have been more than generous with your time, intelligence, and life.

All the best to you.

You are cut from the same fabric that made this country great once, and I believe that force is at work (in you and others here) to help it become so again.

Sincerely... Thank you.

3:38 PM  
Blogger Jer. 9:24 said...

Well crap, all that tirade about suing the SEC and someone mentions a "writ of mandamus." Brilliant and so relatively simple.

3:51 PM  
Blogger n-tres-ted said...

Patrick,

Thanks sincerely to you, and particularly to Bob, for doing so much to educate us about this problem and to try to find a "least catastrophic" solution. I am encouraged by your remarks, especially regarding waiting to see what happens within the next week (or something in the near future) that may lead towards an orderly resolution of this disturbing and illegal condition in the financial markets.

I will just add a brief remark about the proposals that a company could solve the problem by simply going private. I seriously doubt it; it would drown the company in a morass of litigation as every party who has bought shares (legitimately, they think, through their brokers) would come forward with claims of partial ownership. No, going private is no substitute for full enforcement of the securities laws.

Best wishes to each of you, and Merry Christ

4:36 PM  
Blogger bob obrien said...

Actually, closing out the Fraudulent Stock Trades in the existing SHO companies would probably badly damage a number of large brokers, and cause an implosion of up to a hundred hedge funds - but that wouldn't be the end of the world - not when one brokerage alone has $11 billion to distribute as bonuses just this year.

No, the reason this is still continuing is because the brokers believe that they will be able to get away with it virtually indefinitely, and that nobody will ever force them to observe the rule of law - they are a law unto themselves by virtue of their monopoly, the DTCC, and their size and place in the financial markets.

I say let the system return a hundred or so billion to the investors that it was stolen from with the necessary volatility that arises from market imbalances - and should investors make money rather than the lawbreakers, well guess what? I'm OK with that.

The problem is that the SEC is shielding the industry from the consequences of its own larceny, and that NEVER ends well.

Now, you want to talk systemic meltdown, throw the grandfathered Fraudulent Stock Trades in and you have more shares than there is likely liquidity in the system. I think that is why the SEC grandfathered; better to let the "important" players - the hedge funds and the large brokers (Wall Street, for short) - keep the stolen money, rather than force them to disgorge the profits and collapse the system. It is a simple question of might making right there, in my opinion. And that is why the SEC cannot allow anyone to know how many Fraudulent Stock Trades were grandfathered - just the understanding of the size of the problem they allowed to happen on their watch would make them dangerously liable for aiding and abetting criminal fraud and stock manipulation. And they can't afford that.

I look at this and I question the delicate social contract we have with our government. We exchange huge chunks of our income for protection - from terrorists, from hurricanes, from criminals, from other nations, and from predators in the market. When we see the contract broken at the level this looks as though has taken place, the contract has no value. And that is a recipe for disaster.

This is not a good time for those of us who can think clearly and follow the thread to its possible conclusions.

I'm just hopeful that we can turn the boat around before it runs aground.

4:39 PM  
Blogger mfairview said...

Let's discuss solutions. If the desire is to prevent a total systemic failure (though admittedly, the "I told you factor" is devilishly appealing here), what can possibly be done to resolve the current predicament?

How can this be extricated cleanly?

5:38 PM  
Blogger rtway1 said...

I still am of the persuasion to let the scum bucket media turn this thing around in our favor. If you could convince a Geraldo Rivers or someone of that tenacity to see the name they could make for themselves by doing an expose the walls would start showing cracks.

5:39 PM  
Blogger rtway1 said...

I think efforts should be made to use the media at their own game. If you could convince a Geraldo Rivera or someone with that tenacity to see how they could hit a home run with a story like this, they would be on it in a New York minute unless New York buys them off, and hey that is possible.
Rtway1

5:43 PM  
Anonymous Anonymous said...

Many of us thought Roddy Boyd might be that reporter, but he's turned out to be just like Jesse Carol & Herb, although even more devious as the latter folks didn't even bother to pretend they would present facts from the other side of the story.

6:02 PM  
Anonymous Anonymous said...

This comment has been removed by a blog administrator.

7:37 PM  
Blogger bob obrien said...

mfairview:

Here's my suggestions.

1) Enforce the laws cleanly and evenly across all segments of the market. Selective enforcement hasn't worked - it got us to this point.

2) Immediately disclose the FTD level in all SHO level stocks, so that we know what we are dealing with. The notion that we should coddle criminals to safeguard the system is repellent. If the system requires criminals to be able to prey freely on investors, we need a new system.

3) Require a 10% per week buy in of all FTDs, and eliminate the market maker exception for those stocks. Here's a hint: if they are on the SHO list, they have already had all the liquidity injected that they could ever want or need - now it is time to start raising the price until there is legitimate selling - the current price is a result of ongoing artificial selling, which has to stop.

4) Hold Congressional hearings on how to revamp the SEC so that this never happens again. Unless, as I suspect is the case, the SEC's role is not to protect investors, but rather to convince them that it is safe to play in the markets. In which case, scrap this proposal.

5) Overturn the Grandfather provision in 500 days, and let it be known that any FTDs grandfathered will immediately come due at that time.

6) Sue the brokers, one by one, for violating 15(c)3, as well as their fiduciary obligation to shareholders to act in their best interests. Let them see how a jury of twelve ordinary folks feel about their actions.

7) Impose immediate large financial penalties for violating Reg SHO.

8) Require disclosure of ex-clearing FTDs, and legislate those arrangements under the purview of the SEC.

What would happen is that the largest houses on Wall Street might lose two or three years worth of bonus money - call it a hundred billion or so. But they will still be in business. 100 or so hedge funds that stole another 300 or more billion will be forced to disgorge those illegally generated profits, and will implode. Fine.

At the end of it all, another 500+ billion or more will have to be returned to investors through buy-ins, or by doing work-outs with management to do secondaries at high prices, thereby creating a financial disincentive to this ever, ever happening again.

Financial Armageddon? No. A huge blow to the crooks that run much of Wall Street now? Yes.

Crime shouldn't pay. Or you will have a nation of criminals. If the system requires that crime, even when exposed, pays, then I want out of the system, as it isn't worth saving. It is a criminal enterprise being run for the benefit of criminals, to the detriment of investors, and that isn't what I want a part of.

Clear?

8:53 PM  
Blogger evl said...

Bob, funny timing on the drug company metaphor:

Customs Agents Seize Counterfeit Tamiflu

Sunday December 18, 8:11 pm ET

By Brian Skoloff, Associated Press Writer

Agents Seize 1st Known Shipments Into U.S. of Counterfeit Tamiflu, Drug Stockpiled for Bird Flu

SAN FRANCISCO (AP) -- Customs agents have intercepted more than 50 shipments of counterfeit Tamiflu, the antiviral drug being stockpiled in anticipation of a bird flu pandemic, marking the first such seizures in the U.S., authorities said Sunday.

ADVERTISEMENT
The first package was intercepted Nov. 26 at an air mail facility near San Francisco International Airport, said Roxanne Hercules, a spokeswoman for U.S. Customs and Border Protection.

Since then, agents have seized 51 separate packages, each containing up to 50 counterfeit capsules labeled generic Tamiflu.

The fake drugs had none of Tamiflu's active ingredients, and officials were running tests to determine what the capsules did contain. Initial tests indicated some vitamin C in the capsules, said David Elder, director of the Food and Drug Administration Office of Enforcement.

Information on the packages was written in Chinese, but it is unclear where the drugs originated, Elder said.

They were sent by Asian suppliers to individuals who placed orders over the Internet, Hercules said. She said none of the shipments intercepted so far was bound for doctors or hospitals.

Agents became suspicious because Tamiflu is produced by Swiss pharmaceutical manufacturer Roche, and there is no generic version available.

"What we're trying to do is alert the American public that they shouldn't be buying this product because we may never be able to track down the manufacturers," Elder said Sunday. "We've anticipated the likelihood of counterfeits from the very beginning. People are trying to profit on the heightened concerns of the American public."

The H5N1 strain of the bird flu virus has ravaged poultry stocks in Asia and killed at least 71 people since 2003. Tamiflu is one of two drugs found to be effective against it.

Fears of a bird flu pandemic have increased as the virus has spread into poultry in Europe. While bird flu has not yet appeared in the United States, or been found to transmit from person to person, officials worry it could mutate and, because humans have no immunity to it, become contagious globally.

President Bush has requested $7.1 billion in emergency flu preparedness funds.

Roche declined to comment Sunday. Its Web site says the company "does not advocate the purchase of Tamiflu via the Internet. Patients should always gain a diagnosis from a health care professional before buying Tamiflu and ensure they obtain it from a reliable source."

The FDA will seek criminal charges if it finds any U.S. businesses were involved in the fake drug shipments, Elder said.

CDC information on bird flu: http://www.cdc.gov/flu/avian/

9:05 PM  
Anonymous Anonymous said...

Thanks Bob & Patrick !

12:55 AM  
Blogger mfairview said...

Bob,

While I agree that criminals should pay, don't you believe a "run on the banks" situation would arise in the hedgefunds? Not that I believe that this is morally bad (I can't believe I'm playing devils advocate here), but what are the economic effects? If you subscribe to the republican views of incentives to the wealthy and jobs will come approach, will that necessarily reverse trend? Even the notion of a 10% buy-in would cause a lot of hedgies to get whacked and whacked quickly before a dime is paid (who would want to have their $$$ in a known losing proposition).

Agree about the transparency, am tired of the "strategic" approach. If the gates open here, they will open wide as the public outcry will be immense. I doubt they will be able to shuttle the expectation on a very large $$$ problem.

The other problemmatic issue will be the huge amount of lawsuits and the destruction of confidence in the sytem. For the latter, I *suspect* money will just go to work elsewhere (bonds, real estate, cd's, savings, etc.). I think there are a lot of implications but agree that doing nothing will further advance the problem.

2:56 AM  
Anonymous Anonymous said...

mfairview,

There is so much money tied up in Hedge Funds that it would not have as big an impact as you think to have a run on the bank. The clients in these funds are the ultra rich and could use a little redistribution back into teh US Economy. As for the banks, any Institution that can afford to pay a CEO $30 - $40 million annually and take large 9 figure fines without blinking can afford to make restitution to those they cheated for so long.

3:34 AM  
Blogger hrpni said...

Imagine Widgets were selling in a fair supply and demand market for a 100 bucks. Imagine that there were customers for 1,000,000 widgets a month. Imagine that SECBay, Inc. went on Ebay and offered 1 billion widgets for 10 bucks apiece. The price of widgets would collapse! But what would happen if SECBay never had the widgets. What if SECBay accepted money in their PayPal account paying for widgets that they had no ability or intention to ship. Regulators from coast to coast would be screaming bloody murder. The FTC would sue, AG's would indict and SECBay would be put out of business, their ill gotten gains seized, and their executives jailed. The moral of this little tale: If your going to sell what isn't yours sell shares not widgets.

4:12 AM  
Blogger mfairview said...

Anon,

I don't suspect we know how much it will cost. Bob mentions several hundred billions; I believe that number is tame. Buffet has mentioned derivatives in terms of trillions. I suspect the number is closer to Buffet's.

While there may be a lot of money in hf's, the wealthy tend to be much more active and vocal about their currency. They have much more pull and would not want anyone determining their "need to redistribute their wealth". Personally, I'd like to test the resilency of the system but I doubt any political party or president will want to be the one that presides over this fiasco. As it were, the existing administration seems to have their hands full already. Honestly, I wouldn't be surprised to see some national security exemption being thrown up if this escalates to it's potential. Nothing is more important to this country then it's economic strength.

4:29 AM  
Anonymous Anonymous said...

>Nothing is more important to
>this country then it's
>economic strength.

Doesn't it mean that someone in SEC and Congress and the White House is committing treason by allowing this FTD issue to grow to present level? The fact that they have messed so many things already is not an excuse.

5:31 AM  
Blogger mfairview said...

Guys, don't get me wrong. I believe crimes have been committed and for that, they should be punished. Just wondering how it can be done as to minimize pain for the bystanders given the integral relationships that exists.

Consider if you found out you have cancer in your arm. Do you remove it entirely or do you attack it with chems and chemo. Given that we all exists in this business, not understanding an outcome of an action can cause a lot of unintentional results.

6:25 AM  
Anonymous Anonymous said...

mfairview,

The problem you identify is a real one but, it is not a problem we can accept.

For many years these Institutions have violated our trust in order to re-direct our savings into the pockets of the wealthy in this nation. All efforts to nip this in the butt before it escalated to where it is were ignored. It now is where it is. To provide a soft landing for the criminals will only be accepting those actions taken.

As a country we are seeing changes that are not in the best interests of our future. Our Govt. wants to privatize SS and they have advertised that people are not saving enough money to retire. Our Govt. expects us to fuel the markets yet these markets only steal our meager wealth and re-distribute it to people that have far more than necessary. We thus need to take it back and do so in a manner that hurts. Only then will real change come of it.

Any pain that happens today will be pain that creates a better world for future generations to come.

6:50 AM  
Blogger bob obrien said...

mfairview:

The problem is simple, at its essence. Are we a nation under the rule of law, or are some pigs created more equal than others.

There is only one possible answer to this.

The reason the hedge funds will implode is because they are the worst criminals engaged in the wholesale looting of investor savings. Simple.

If they weren't, they wouldn't implode. Simple.

If it gives a jar to the economy for the money that was stolen via illegal methods to be partially returned, I think the short answer is that is what happens when you allow criminals to run free - the solution carries pain. There is a penalty. The notion of solutions with no consequence is uniquely american. Have sex with no condom, get pregnant or catch something. Drive with no seatbelt, go through the windshield when in an accident. Allow the mob to extort all the businesses in your neighborhood, be prepared for a lot of unemployed thugs when they are shut down.

Actions have consequences.

Allowing the larger brokers on wall street to rip off investors for their hedge fund customers for years has consequences. One of those consequences is that people like me, who lost millions due to illegal manipulation, don't have a lot of sympathy for the notion that those that stole my money should get a hall pass. That money is still gone, and nobody is discussing how to soften my blow. Why should we cry over Lehman or Bear having to disgorge billions they stole?

I agree that the derivative issue is frightening.

So is the prospect of living in a society that is a de facto kleptocracy, where might makes right, and the law is for the poor and the weak - there is no law for the rich and powerful.

You can have that society.

This will prove to be one of the critical tests for our nation, I believe, sort of where you are at a party as a teenager and someone offers you your first hit of crack.

The decision you make at that point will likely define the rest of your life.

I didn't say that doing something worthwhile would be cheap or easy.

It is simply necessary, in order to have a world worth living in.

End of sermon.

7:20 AM  
Blogger mfairview said...

So in cutting off our arm, how do we protect the rest of the body? Move it out of the market and into another vehicle? Most people will not understand that given that their pensions and 401k "mysteriously" goes into some black box every month. A few people (as a percentage) will get their money out, maybe put it into CD's and real estate but the rest will be slaughtered IMO. Perhaps the jump in gold is indicative that something has already begun.

I really believe you guys are looking just to hit the bad guys but using an elephant gun and not overly concerned with bystanders. However, I believe it can snowball really quickly. I think this is Patrick's dilemma as well.

Anyways, enough with the justifications and let's return focus to real solutions. Bob, will address your comments specifically at another time when I'm not so pressed for time. Encourage others to put forward their concrete ideas as well.

7:30 AM  
Anonymous Anonymous said...

It strikes me that the "take private" option that would work best for OSTK is for Mr. Byrne to acquire an amount of shares (on the open market) equal to 1,000 less than the total outstanding shares in OSTK. Then announce the "take private" price of $1,000 per share. The total cost to OSTK would be $1 million. On the other hand, everyone who owns "fake" shares will get a windfall, and everyone who sold "fake" shares will be screwed. If there are 20 million "fake" shares, that will be a total bill of $20 billion. Ouch, that would cut into a lot of bonuses in Connecticut.

7:41 AM  
Blogger n-tres-ted said...

Bob,

If on-shore hedge funds are the principal parties who have naked shorted, then perhaps the money will be there for the brokers to do the buy-ins. But I would guess those who have received funds released by brokers before delivery of shares have found a means to get the funds off-shore and beyond the reach of the law. I hope I'm wrong, but if the problem is nearly as large as you have posited, I doubt the money will be there to "pay up."

7:56 AM  
Blogger bob obrien said...

I agree that most of the funds have gone offshore.

Bummer.

So bye bye Bear and Morgan. Bye bye.

Hello Newco brokerage.

If the brokers haven't set aside adequate collateral to cover the illegal ex-clearing and DTCC level Fraudulent Stock Trades, because they decided to give the criminals the money, guess what?

That carries a consequence.

The notion that our country and financial system are so fragile that they can't withstand a good spring cleaning of the worst of the garbage is ludicrous. We ousted a president. We sure as hell can lose some crooks on Wall Street, regardless of how powerful and rich they are - hey, I know, maybe they wouldn't be so rich and so powerful if they weren't allowed to violate the law with impunity for decades!!!

Engineering a soft landing for criminals sends everyone the message that if you are a large enough criminal, you will get off light.

Boo hooing over the hits the financial system will take (read rich powerful special interests on Wall Street) falls on deaf ears in my neighborhood. If 100 hedge funds that are run out of new york and are domiciled in Barbados or BVI take down most of the larger clearing brokers and the DTCC, guess what? That is the consequence for creating a system that rewards criminals for criminal conduct.

I'm not saying cut off your arm. I prefer the example of the neighbor's kid, who is rich, who has a history of violence, but is bought off or afforded special consideration due to his pedigree.

Let it continue and he becomes a sociopath menace. Sometimes the only way to solve a problem is with a tough solution. We tried the Reg SHO, softer gentler approach, and it got us nothing. NOTHING. In fact, it emboldened the criminals.

You want the bad dog to let go of your leg? Hit it with a brick. Maybe you would like to talk it down, or shame it off your leg, or entice it to not bite you by offering treats, but the dog is a vicious biter, made so by the owners and you.

Sometimes the brick is the only recourse.

Or you lose the leg, and he next goes for the throat.

8:14 AM  
Blogger n-tres-ted said...

Bob,

My objective is not leniency for the malfeasors. It is to measure and mitigate the backwash that threatens to harm the victims (target companies and their shareholders) even more. Specifically, for example, what happens to the shareholders of OSTK, including PB and his father, when their shares of stock in the company have to be reconciled with the shares of the company that have been bought by other honest and innocent shareholders who have bought shares in the market and paid good money for them? Is the answer really that it depends entirely upon who gets paper certificates first, and everyone else is out of luck? My guess is the courts would take quite a few years to sort that out, and the process would not be good for the markets or the share prices of publicly traded companies.

If the problem is somewhat limited, it can be contained and resolved without great impact on the markets. If it is a gigantic problem, so large that it has intimidated the regulators, then the impact is hard to forecast.

9:20 AM  
Anonymous Anonymous said...

Patrick was on CNBC at 6am eastern
time. He told his story. They were polite but seemed .somewhat uninterested. They finished the interview with "we'll probably be hearing more about this" and went to a commercial. When they returned they discussed other things but didn't mention Patrick again. (that I saw).

9:33 AM  
Blogger bob obrien said...

Nterested. How's this:

Whoever sold the fake shares short will have 100% of their customer accounts drained as their illegal profits are disgorged.

Then the brokers that facilitated the larceny will have to cover the rest with their many billions of profits (note that one has $11 billion in profits this year alone to be distributed as bonuses).

If that runs dry, then the DTCC can start forking over the cash to cover the frauds.

And so on.

Why is it a more desirable outcome for investors to have to pay for the larceny than those that committed the crimes and facilitated it?

The fear of massive fallout really is more accurately categorized as fear that about 100 fat cats on Wall Street lose it all.

I agree that if all the Fraudulent Stock Transactions in history had to be covered that there would be a crisis of epic proportions, but if it is limited to the SHO list, guess what? A bunch of bad guys go belly up and lose it all. Boo hoo.

As to all the concern over Joe sixpack losing big because the theft of America's savings is stopped, I have a feeling that the current solution, of allowing more of his savings to be stolen "for the good of god and country", wouldn't sit well if he understood it.

I couldn't give a rat's ass whether the market goes to 500 for the next 20 years. If that is what happens once investors understand the extent of the fraud that is perpetrated, then that is the consequence of perpetrating that size fraud on America. Wall Street has a depression for several generations, as they did in the 40's to the 60's, because everyone understands they are crooks.

Why is that so terrible?

Land values and commodities go up, Wall Street is brutalized in the manner that it brutalized us.

Why is it acceptable to decimate my savings, but unacceptable to decimate wall street's?

They had their chance. For the last year, with Reg SHO. Instead of cleaning it up, we have no uptick rules as a gimme by Annette Nazareth, a little experiment that benefits nobody but the shorts, and situations like OSTK, where the number of naked shorts SINCE THE BEGINNING OF THE YEAR has likely blossomed to tens of millions, and there are no genuine shares trading.

I've had an assful of this mealy mouthed, hand wringing anguish over poor Wall Street, and how their illegal, larcenous fraud should be condoned, or the air should be let out of the baloon slowly, for the good of all.

Since when did rampant fraud become something we should jealously protect?

WTF is going on here? I share Patrick's apprehention over the ultimate consequence of this fraud. But I also don't believe that it can be allowed to continue. At all. Starting now.

Settle the trades, as the law says you should. And let the chips fall where they may.

Fear over what happens if the thieves can't cover their frauds is no excuse for letting them get away with it.

Enforce the law. Settle the trades. Simple.

9:44 AM  
Anonymous Anonymous said...

Although I think that there probably will be some hedge funds blowing up and taking some broker/dealers with it, you also need to look at the positives about cleaning up the system. Presently money has been harder and harder to get for small companies since the crash the markets had. If you take money out of the hedge fund industry, then that money may actually be invested in places that might have a positive effect on the economy again rather than given to those who wish to ciphon money from the economy.

Another positive that would occur is if prices shot up on the stocks that are presently under attack on the SHO list, the profits from those stock moves would be taxable and help in paying down some of our countries debt (assuming that things don't deteriorate so badly that a huge bailout is necessary). In the case of the hedge funds profiting from this sell down of American companies, no taxes have been collected.

In either respect, the longer it goes the worse the ramifications will be. So from my perspective, the sooner the better regardless of the negatives.

9:44 AM  
Blogger n-tres-ted said...

I couldn't give a rat's ass whether the market goes to 500 for the next 20 years. If that is what happens once investors understand the extent of the fraud that is perpetrated, then that is the consequence of perpetrating that size fraud on America. Wall Street has a depression for several generations, as they did in the 40's to the 60's, because everyone understands they are crooks.

Why is that so terrible?


In a nutshell, about 60 million Americans have invested a major portion of net worth in the stock markets. Guess who takes the major brunt of a drop to 500 for 20 years. Usually, when scandal hits the financial world, the wrongdoers head for bankruptcy court and the pain is spread over all the innocents who had nothing to do with it.

If you think I am arguing that nothing should be done, you are 180 degrees mistaken. To the contrary, I am elated to hear from PB that positive actions are coming, perhaps as soon as this week or the next. That is better news than I have seen in a long time on this concern. I hope he is right, as I believe he has been well-considered so far in his combination of tempered actions and reasonable discretion.

10:11 AM  
Anonymous Anonymous said...

Power Lunch with Bill Griffeth just had Herb GreenBerg from MarketWatch on. They trashed Patrick and suggested he might be losing his job with OverStock.

10:11 AM  
Anonymous pervilis nosthumus said...

Bobo, I agree that our (US) crooks should pay the consequences. I have no problem with any or all US brokers imploding and everyone on wall street loosing their maybachs and going to prison for a very long time. The part that bugs me is what the previous poster alluded to regarding the offshore funds. Most likely noone will care if they blow up including the investors in those funds. Vladimir in Belarus and Khaled in UAE have already received their distributions from Laszlo the Hungarian fund mgr in Cayman. And Laszlo? He's nowhere to be found. Those guys will pay no penalty except perhaps in some kharmic way.

This will cost every US taxpayer, there is no way that I know of to make us all whole but, so be it, this has to fixed.

10:14 AM  
Blogger bob obrien said...

Nterested:

You misunderstand. The lion's share of the population has already been defrauded out of their savings - they just don't know it yet. I think what you are saying is that the crash, if there is one, will hurt them in some way that they already aren't hurt in.

But let's test that.

Why would the market kill Joe average because hedge fund A blows up? Let's think about what happens. Let's say that that fund is short NFI, OSTK, TASR, KKD, NAVR, HANS, PPD, and a few others. Fist, those go through the roof from covering. Is that bad? Why? How is Joe Average hurt?

Then once that fund blows up, the broker has to eat maybe 10-20 billion to cover all the positions.

Will that crush Joe average?

Maybe a bunch of the other funds also blow up in the network of bad guys, quickly replaced by other bad guys.

Will that crush Joe Average?

The industry decries all the larceny, insists that this is an opportunity to put it all behind us, and create a better, more transparent market.

Will that crush Joe Average?

No, most of this is duplicitous self interest trying to convince everyone that if several hundred rich guys on Wall Street eat it, than the country is doomed.

Hogwash.

11:46 AM  
Blogger bob obrien said...

Pervillous:

Gasp. You mean there should be a penalty in the real world for aiding and abetting international fraudsters?

Huh.

Maybe that will dis-incentivize aiding and abetting international felons?

Just a thought.

And you are spot on, IMO.

11:48 AM  
Blogger bob obrien said...

Watching today's trading in OSTK, I couldn't help but think how many of the 500K or so sales transactions today are frauds, wherein no shares will ever be delivered.

Pretty much all of them, is my bet.

Nice system we have here. Bravo. Hat's off.

12:15 PM  
Anonymous Anonymous said...

Actually Bob,

I would put money on the firm who owes Patrick the shares being the dominant seller in todays market.

Under SHO, the market maker gives up the book effective tomorrow if Patrick does not have his shares. The regulators do not knock on the door and tell them to give it up - it is the honor system so they may or may not comply with the law.

So today, being the last day, if I were a market maker I would sell naked all sorts of shares in order to purchase 50,000 good ones below what I sold them for back in November. Once I deliver the 50,000 shares to Patrick, I am free to re-enter the market and work some more magic to cover the fails I just created.

Today's trading was a perfect example of 'working investors out' of these stocks in order to cover profitably.

1:29 PM  
Blogger mfairview said...

Bob,

"Engineering a soft landing for the criminals" is a mischaracterization of what I said. I could careless what happens to the criminals. "Engineering a soft landing as to do the least amount of harm to the bystanders" is more my aim. I realize they both go hand in hand but my intent, if it's not obvious, is to succeed on the latter. Also, saying that having the market drop to 500 is ok is wreckless. An event such as this will cause a lot of pain to regular joes (read: not wealthy). Patrick's "yelling fire" analogy is spot on. It would be better to say "please evacuate the building on account of a water main leak" if you can get away with it.

I reread your suggestion and agree with most of it. I would also add, let's go ahead and make an example of one of the criminals to let them know it's no longer a joke. The fact that nothing has been done with RegSHO is beyond tragedy.

3:19 PM  
Blogger mfairview said...

its_strange: As I know you read this blog, what are your thoughts of Jeff Matthews deleting the poster (and your subsequent comments) who asked for his comment on the Byrne/Broker email?

3:25 PM  
Blogger bob obrien said...

mfairview:

Sorry, in the heat of the moment I mischaracterized your intent. My point is not that I hope the market drops to 500, nor that I want people to get hurt, but rather that it wouldn't bother me a bit if the lion's share of the population figured out that Wall
Street is crooked as anything we've ever seen, and decided to leave the markets to the crooks.

I bear nobody ill will, certainly not the honest Joe. My point is that they have already been worked over by the system - they think they own stock, and what they own is an IOU with a broker who may soon be insolvent. It's like being exposed to radioactivity - they are already terminal, but just don't know it.

If anyone has any suggestions that would fix this without killing the average Joe, I'm all ears.

3:43 PM  
Blogger mfairview said...

As I think about it some, yelling "fire" isn't necessarily the problem. It's the escape route. That is, if there was a viable alternative (say another exchange), many might make the jump and leave the building to burn (and those attached to it). Anyone interested in contemplating the model exchange?

4:05 PM  
Blogger bob obrien said...

The problem is not the exchange. It is that whatever exchange you are on, the brokers won't play unless they can rig it to their advantage. Simple. There are several business plans I know of to do alternative exchanges - but good luck getting anyone to support you on one. And then there is also the problem of trading on the ECNs or the foreign exchanges, and manipulating prices that way.

No. The problem is the entire system, and the SEC not enforcing the law. It really is that simple.

Close the loopholes, enforce the law, and everything would be fine. That hasn't happened, and frankly is unlikely to.

4:12 PM  
Blogger mfairview said...

Bob, check out alexadex.com for a goof. In actuality, having a broker is in effect the issue. That job needs to be as mechanical/objective as possible and who better to do that then a machine. Someone wants to sell and someone wants to buy. A price is agreed upon and the exchange is made. It really should be that simple. The fact that it's not contributes to the problem. I realize this is a bit of a lark but as an honest question, what has more of a chance to succeed? Changing the current system or starting a new one? :-)

4:53 PM  
Blogger ikarus47 said...

Bob, Patrick

I did not suggest an OSTK buyout at 50 . I would just play a game with the brokers and prove a point:
Offer to buy 50K or 100K shares of OSTK at a premium of say $5... Only condition: Paper certificates only! Accept certs via your lawyer, NOT! your broker, and sit and wait. Two possibilities:

A) If in 3 days your "order" is filled with actual certs, you are happy, you received what your broker could, or would not get you. Result: you prove your broker is not living up to his obligation (you already know this)

B) If in 3 days your (ex-market) "order" is not filled it is PROOF that there are no real shares to be had. If certs could be had anyone could make a quick buck by selling you certs for $40, and buying them back in the market at $35. Result: You prove one more way what is so obvious now: there are no legit shares to be had. Even better, do it with a friendly journalist watching.

Also, if you manage to buy a significant number of shares "ex-market", it would prove in a small way that brokers are not required! You will have completely circumvented the brokers, MM, DTCC......think of the scare to the system.

In no way would I suggest going private at 50$. I want to see the crooks bleed and suffer as much as anyone, jail AND complete forfeiture of assets, nothing less.

And I love this discussion about creating an alternative market, I have some ideas in that direction....I'll send you an E-mail.

Andreas.

7:13 PM  
Blogger n-tres-ted said...

No, most of this is duplicitous self interest trying to convince everyone that if several hundred rich guys on Wall Street eat it, than the country is doomed.

Bob,

Not a single one of the scenarios you review as possibly harmful to Joe Average is what concerns me (or, I suspect, PB). Nor do the several hundred fat cats on Wall Street you mention concern me.

The problems I see involve quite a lot more pain for Joe Average and for the victim companies. I hope that does not come to pass, and I'm not really interested in putting any more about it online. So I'm going to do as PB is doing and watch what happens in the next couple of weeks. I tried to find something on Lambiase's Power Lunch last Friday, but have received no response. Best wishes in your radio appearance tomorrow.

8:05 PM  
Blogger bob obrien said...

Nterested:

Why are you reluctant to discuss what you fear online? Is it so bad that you are fearful that even putting the words out there will cause a panic?

Are you talking the multi-trillion dollar meltdown in the derivative market that could happen if this is systemic? The complete loss of faith in the system that would be the justifiable end result of discovering that your regulators and your financial system have been cheating everyone for years? A complete withdrawal by many from the market as it is a rigged sham?

I can actually invesnt a lot of doomsday scenarios - they just aren't that likely, IMO. Things are never as bad or as good as they could be. So I don't see a complete meltdown nor a complete adeherence to the status quo.

In the isn't that a kick in the pants department, I just saw the news release that said that the Dutch megabank ABN Amro was fined $80 million by the US for money laundering for Iran and Lybia - something like $3-$4 billion. This after the Bank of NY was found money laundering for the Russian Mob a few years ago to the tune of may billions.

Thank goodness we now have hedge funds where the source of the funds are anonymous, and any currency can be run through brokerages and margin departments. So much simpler than those messy wire transfer forgeries. Just create and propogate completely anonymous entities that answer to nobody, situate them is offshore climes where bank secrecy laws will make prosecution impossible, and voila!!! No more sloppy Iran/Contra silliness - much cleaner laundering and fund transfer.

Does anyone see how badly wrong this all is? I mean, really see it? Our largest Fed banks (NY and Miami) are known money launderers, one of the 6 largest in the world (ABN AMRO) is running money for terroris regimes, and the SEC has 1500 employees to oversee the markets and keep us safe from the bad man?

AMRO was also instrumental in the Rhino Advisors naked short selling scandal.

Small world. Composed, it would seem, of us, and a whole lot of very rich, very powerful, "them".

9:08 PM  
Anonymous Anonymous said...

I've got a sick feeling in my stomach. The manipulation is blatantly obvious - documented in PB's email exchange with broker. Yet the tone seems to be that it's hopeless.

I'm not a legal man, and certainly don't understand the issues like many posting on this blog, but it seems like there has to be something we can do to bring about some change. This is way to blatantly obvious. The broker is admitting that the 500k that trades per day is phoney. Is there really nothing we can do?

9:26 PM  
Anonymous Anonymous said...

To add on to my previous post. I'm in the same camp as Bob. For one I'm not convinced that it would collapse the system, all though it's definately plausible. But still, at least I could sleep better. It makes my blood boil thinking of the corruption being allowed. I could care less if big brokers and hedge funds collapsed - they deserve it if you ask me. Even if it had far reaching ripple effects throughout America to mom and pop, it's still better than the alternative - to let the crooks continue to loot the system.

9:34 PM  
Anonymous financial-circus said...

Here is what OSTK can do to put these crooks out of business. Offer $250.00 a share to take the company private. If all of the institutions and Patrick's family and friends are willing to go private than they will only have to pony up a few million to own the rest of the company since there are only a few legitimate shares left outstanding. The beauty of this is all of the naked shorts have to put up the $250.00 per share for all of the shorted shares; legal or naked! GAME OVER!

9:36 PM  
Blogger ikarus47 said...

Financial Circus, you are assuming that the insiders and institutions have certificates in hand as proof of their share ownership. This may not be the case; a lot of "real" shares/ certs may be in retail owner's hands, .... just look at PB's attempt to get certificates for the shares (fake ones of course) he tried to buy from the broker.
IK

10:29 PM  
Anonymous financial_circus said...

Ikarus---Does not matter. Patrick has indicated that he and friends and friendly institutions already own almost all of the outstanding shares! When you short a stock you are responsible for all dividends, splits, buyouts, etc. They can offer to pay whatever they want per share for the company. Since they already own all or most of the issued shares they will have to pay only a small amount of the total offer because they already own most of it. Real shares or fake it does not matter. When you short a stock you are responsible for that sale no matter what the consequences. Taking a company private ends all of the fraud. Heck they could offer a $10000.00 a share, pay nothing out of pocket and end naked shorting forever! I am sure they would have to endure a court battle but I can see the shorts now arguing in court that Patrick wants to pay TOO MUCH to buy the company. JUSTICE IS COMING!

10:55 PM  
Anonymous Anonymous said...

Is there anything that could stop you from buying 101% of the shares outstanding and then offer $1000/share as a takeover bid? You already own all the shares plus a few. If the shorts can manipulate the stock down like they have and in some cases put companies out of business, why can't they be brought under fire with their own game? Besides, the 1% that you would be selling back to them would be kind of a fee for the financing the company was denied or made more expensive by their actions of depressing the stock in the first place.

Just a thought although I'm guessing this would be considered racketeering, but considering that is what is happening to you anyway it doesn't seem to be anything the regulators or courts care about.

4:06 AM  
Blogger mfairview said...

So let me throw out some ideas for this New EXchange (NEX):

1) The NEX is an entity that runs a trading system (NEXUS).

2) The NEX is a not for profit (no 140M payout packages) entity. In fact, any profits it receives should be redistributed to all participants of the NEX quarterly.

3) The barrier to entry in NEX should be minimal (e.g. 9.95/yr for unlimited particpation-- cost to cover maintenace of NEX/NEXUS or if costs can be absorbed through another channel then participation should be free). Participation requires registration in the NEX.

4) NEXUS is a trading system operated by the NEX that is aware of all outstanding shares of any given security in the NEX exchange.

5) NEXUS can receive a request for a sell or a buy of a security at a specific or at a market price. If a match in a sell and a buy price exist, an exchange (of security for credit) is made between buyer and seller on a first come first served basis.

6) NEXUS queues all buy/sell requests until it a) an exchange is executed b) cancelled by requestor.

thoughts?

4:44 AM  
Blogger n-tres-ted said...

Bob,

I suppose since so man doomsday scenarios have been posed already, my describing one or two more pitfalls won't put us over the edge. Let's begin by acknowledging that in every naked short sale there is, most likely, an innocent buyer. That buyer pays a price he believes to be appropriate for entirely valid shares. If he thought the shares were fake or non-existent, he most likely would pay much less or wouldn't buy them at all. That concern is now afflicting OSTK shares in at least two important respects, I think.

First, there may be five to ten times as many fake shares as valid shares, all held by innocent, honest owners. Is is really just a matter of who gets paper certificates first, and everyone else has no claim. I doubt it. Courts would take a long time to resolve it, and a company can languish and die without new capital in that circumstance.

Second, if an investor knows that a company has five to ten times as many counterfeit shares trading than real ones, is he likely to invest? I think he is less likely to invest than if he can be confident that every share he buys is real. Does he really want to take a gamble that he can buy shares, then win the footrace to get paper certificates, then win in court when others come forward with a billion shares claimed when only 100 million shares are authorized and outstanding? I doubt it.

Put these things together and you have PB's and OSTK's present dilemma. Are the naked shorts likely to be required to buy in and cover before existing shareholders decide they had better cash out and be rid of the risk? Who buys their shares if everyone becomes aware of so many counterfeit shares? I have to admit that OSTK's business plan has looked attractive to me, but I have not invested for that very reason. As PB says, if a shout of "fire" runs too many shareholders towards the door, whether in OSTK alone or in many stocks at once, those running for the door are going to be hurt a lot more than they have been so far, because they will receive only a firesale price.

One more thing. The fair and proper functioning of the markets is very important to economic growth and increasing the standard of living for Americans and others around the world. You are very much correct that a cancer of the nature you have publicized is a great danger to the markets and ought to be excised at the earliest possible date. Like PB, I hope the surgery can be done with as little collateral damage to Joe Average as possible. In fact, I would love for the naked shorts to have to cover every share at market. Still waiting and watching.

8:08 AM  
Blogger bob obrien said...

Nterested:

I think that the notion that it only happens on stocks like OSTK or NFI is badly flawed. It used to only happen on stocks in the penny region. It has moved up the food chain. The risk you describe, when there are hundreds of billions of ill-gotten gains searching for the next prey, is a systemic risk now, for all but the largest companies.

That is part of the lie - that it is only a few companies that can be affected. If Bud Burrel is correct in his take, much of the NASDAQ crashing was accentuated by the practice, just as in the 1929 crash, creating an emboldened form of predator wholly unfazed by weak-knee'd regulators.

Companies like OSTK are being systematically run into the ground as a trading strategy, by Wall Street. It really wouldn't matter what Patrick did or didn't say - that is the other part of the lie - that somehow fighting back makes it worse. It doesn't. The blade of the guillotine slices down whether the victim squirms or not.

We are confronted with a systemic risk the likes of which we haven't seen since the 1920's and 1930's.

It has taken 5 generations or so to completely forget the lessons of that era.

Most of the investing population wants to believe that they can still make money if they only avoid the targeted stocks, or sectors. They want to believe that the market will build their retirements for them, and that Wall Street won't steal it from them. That is a lie. It will. It always has. That is what the machine does - it is a redistribution machine run by those that want what the rest of the country still has - the remaining savings.

My personal theory is that is also why the housing boom is so onerous to all the pundits - it takes money out of the market and creates an asset class that can't be gamed by these predators.

This is a multi-national, multi-racial issue. It isn't the Jews, or the Arabs, or the Italian mafia, or the Russian mob, or the Israeli mob, or the Irish, or the Chinese, or the European bankers - being an uber-financial criminal cuts across all of these petty distinctions and boundaries. The one common thread is boundless, unbridled greed and a complete sociopathy. That is not the province of any one group or nation.

By allowing our market to invite in the most predatory of the parasites, we have found a great leveler. Now the population can be preyed upon in a much more pure sense than the old days, where geographical or racial lines delineated who could screw who. Not it is pure class warfare, in a sense, wherein the retail investor from wherever is the natural prey of the big money operating through the hedge funds, and facilitated via Wall Street.

I have studied enough of Wall Street's history to understand that it has always been like this, to a certain extent, but frankly the sheer size and scope of the issue over the last 5 years is awe-inspiring to me. I have never seen anything like the impunity with which the bad guys operate, since the Roaring Twenties - and that didn't end well.

I'm going to do a series of radio appearances, starting today, because I believe that the written word is only so good in disseminating this perspective. The world is visceral, and people like to hear a voice explaining things in simple, clear terms for them. The time has come to explain what is happening so that ordinary folks can get their heads around it.

I started writing my book, Symphony of Greed, because I recognized that nowhere had the whole thing been capsule summarized. I'm now almost done. This is not difficult to understand, but it is highly disturbing, as it should be. By discussing things in a fireside chat format I hope to contribute to a dawning awareness that will stop this in its tracks.

Knowledge if ultimately power.

A lot of time and money has been invested in keeping people in the dark. That has to be countered.

OSTK isn't selling off because people are scared of buying fakes. It is selling off because the bad guys require some liquidity to cover fails this week, and there is nobody to stop them from tanking the stock to create some panic selling.

That is wrong, and morally offensive to me.

End of sermonette.

9:14 AM  
Blogger n-tres-ted said...

Bob,

By and large, I disagree with the view that the markets are a "machine" designed to strip money from unsuspecting victims. Quite a lot has been invested in making the markets transparent and fair. That doesn't mean the system is invulnerable to intrusion by racketeers, as appears may be the case here.

Yesterday, I understood you to be saying that the problem was sufficiently limited that the evildoers could be required to pay up on the Reg SHO companies and that would be that. Such an outlook is much different from the view that the entire market system is rotten and operated only to fleece investors.

I hope the problem is limited to some racketeers who have infiltrated a number of investment firms and research firms, and that they can be rooted out and brought to justice. The markets can then move on with performing their important role of providing capital to producers and gains to investors.

9:35 AM  
Anonymous Anonymous said...

How do you make a $1 billion off a $200 million company?

Sell 5 times the outstanding shares short and run them out of business (taken from the hedge fund handbook).

9:48 AM  
Blogger bob obrien said...

Nterested:

It is both. It is limited to a relatively small number of racketeers, and it is also systemic in that the system is designed to fleece investors.

Until recently, the fleecing was confined to the pros. Larceny went to frontrunning mutual funds, selling junk bonds, allowing specialists to frontrun, having analysts lie about everything to everyone, investment bankers allowing hedge funds to fleece retail via IPO sweetheart deals, etc. It was fairly tightly controlled, one could say.

Recently, the money has gotten too big. Too much money is looking for too few ways to make a better return. Much of the selling on the exchanges nowadays is short selling, not organic selling reflecting supply and demand. This has created an imbalance, and the problem is that Wall Street has allowed its own larcenous nature to trump good sense - the parasites now outnumber the healthy hosts. That is bad for both the parasites, and the hosts. It is also unsustainable.

Wall Street has invested nothing in increasing transparency. That is a sham. It has invested a lot in appearing to be transparent.

Short interest is reported once a month, two weeks out of date. We have the technology to report hourly. We don't. We have the number of FTDs. We know it. It is available. We don't report it.

We report exactly nothing that would impact the bad guys' ability to screw retail investors. Nothing.

That is by design. The current situation is what occurs if you open the door to rampant larceny, and have regulators who are asleep at the wheel (the most charitable explanation).

Wall Street has ALWAYS been about screwing retail. Always. That is the correct interpretation of its history - it is actually quite unequivocable. The carefully burnished facade that it presents is nothing new - I'll talk about that today during the chat. People are ignorant of history. That is dangerous. I was. I'm not anymore.

Knowledge is power. Always has been.

9:56 AM  
Anonymous Anonymous said...

I am completely offended by your analogy of Dr. Byrne's stock settlement problem and the inherit effect a pharmacy that produces insulin and the outcome it would have on a diabetic. I am very familiar with Patrick and I worked very closely with him at Overstock. I am also a diabetic that is dependent on insulin for survival and I work with the American Diabetes Association. I am appalled that you would be so callous as to identify a potential regulatory issue and use as you called it the “metaphor” of a pharmacy selling insulin and the effects it has on a diabetic. I know Dr. Byrne would not appreciate you associating his name with a disease that is one of the leading causes of death and a product that gives a diabetic the opportunity of life. I know personally, he values life (including diabetics) and would not endorse such a blog.

10:30 AM  
Blogger bob obrien said...

Anonymous:

Well of course you work with him. And of course you understand how disturbed he would be with the metaphor.

You are apparently so familiar with his views that you neglected to read his endorsement of the blog back about 60 comments ago.

Nice try.

Try the outrage over anti-Semitism Shtick over at Jeff's blog - the whole feigned outrage thing plays better there, apparently, where credulous acceptance of the absurd is the order of the day.

"I am a member of the American Grandmothers for _______, and I find your perspective on ________ deeply troubling."

Nice.

Nobody is buying it, nor your inability to differentiate between a metaphor and reality, but I appreciate the effort expended, as transparently specious as the statement is.

10:54 AM  
Anonymous Anonymous said...

Bob,
I do not wish to debate your intent. I find it highly offensive. I will however forward your blog to Stan Panasewicz with the ADA and who is the director of investor relations at JNJ. I am sure he would be interested in your perspective since JNJ is in the process of purchasing Animas Corporation (an insulin delivery company.)
I will also forward this blog to Duane Brown, Chief Legal Counsel for the ADA.

11:22 AM  
Anonymous Anonymous said...

Cut the BS. A someone who works with disabled all the time the analogy is not offensive: individuals with disabilities actually have brains and don't like to be used by so-called spokespeople. KEEP THEM OUT OF IT. And don't pull that ADA stuff. There is no one the ADA. Outside of the courts and DOJ, there is no ADA enforcement agency. You may be with the EEOC or the Office of Civil Rights, but there aint no one who is legal counsul for the ADA. (I kinda wish there was, but that is a different matter).

As for the notion that the stock Market is not out to rip people, read some history. Yes, it's true that rules are made--time and time again after the public has been fleeced. The what happens? The crooks find a new way to do and the cycle begins again. I admire Bob and Pat but20 years from now it will be a new set of crooks and and new Bob and Pat.

11:51 AM  
Anonymous Anonymous said...

Fantastic talk on CFRN Bob.

You're book will no doubt be an amazing read.

http://cfrn.net/investigates/

11:58 AM  
Blogger bob obrien said...

Thanks. Apparently the filters make me sound like one of the chipmunks on the live feed.

I was shooting more for bunny than chipmunk, but everyone's a critic.

I also tend to talk fast, and apparently when I am passionate about a topic I accelerate. I'll have to work on that.

I'm a writer, not a talker...

FWIW, I don't write that fast.

OK, maybe I do.

I was wearing a bunny suit the entire time. Did it show?

Thanks for the compliment, you are too kind. I'll see if they can adjust the EQ down so that I sound appropriately somber on the replay.

12:19 PM  
Anonymous Anonymous said...

The bunny suit was a success!

The vocal filters on the other hand were a little high pitched, but if they help to keep you out of harm's way then we'll just have to deal.

Looking forward to tomorrows talk on the topics of hedge funds, and voting rights....

12:42 PM  
Anonymous Anonymous said...

Although I agree conceptually with whats been said, if you have the proof, PUBLISH IT. The endless whispers in the wind, the world will end at 9PM stuff is old - y'all remind me of the goldbugs. Nobody really cares.

GM, which dwarfs OSTK, in jobs, sales equity, bonds , you name it, is pushed to new multi-year lows and the world stil keeps ticking. get a grip - if you can prove your case, do so. If not, admit it and move on.

This is getting old.

2:03 PM  
Anonymous Anonymous said...

anonymous,

Did you skip over the email exchnge between P. Byrne and his broker? You gotta be kidding me. were you being serious when you said; "if you have proof publish it" ? Read the blog!

3:23 PM  
Blogger bob obrien said...

That's pretty funny.

Other than the written admission by Byrne's broker, and the continued presence on the SHO list for almost a solid year, if you have proof, publish it.

Hey, I know, why don't you do a FOIA and see if you can get the government agency that has all the proof to disgorge it?

They won't.

Wanna know why?

Because they don't want to give away the trading secrets of the participants - secrets like how many millions of shares per stock are sold as fraudulent stock trades, with no delivery.

They don't want any proof. They have said as much.

When things like the Byrne broker email make it into the light it is a blow to Wall Street - you see the curtain lifted for a second, and get the idea that there are no genuine shares available, and that everyone is breaking the rules willy nilly.

Got any proof? Very very amusing.

Sort of like saying "other than that, Mrs. Kennedy, how was the car ride?"

Thanks for the chuckles.

4:07 PM  
Anonymous Anonymous said...

I've got the solution to catapult our cause. We need the equivilant of the million man march in Washington. That would get some press coverage. Don't laugh. I'm serious. It's gotten to that point.

4:39 PM  
Anonymous Anonymous said...

http://www.freerepublic.com/focus/news/1470721/posts?page=39

5:38 PM  
Anonymous Anonymous said...

My very clear point, is that instead of secret exchanges between unknown brokers with unverifiable claims of something being bought and not delivered, simply scan and post the buy tickets, the debits to accounts and broker names, trade times etc for everyone to see. Until you do that, most folks will simply see this as another attempt to ramp the price of a stock to benefit the wealthy.

You lose credibility when everything is ecret, because ,"I dont want to hurt this one broker"..etc

If Wall St and Main St can survive GM's problems, whatever "proof" you have of the world conspirng against OSTK, I'm sure the Sun will rise tomorrow if you have the proof to substantiate your claim.

8:23 AM  
Blogger bob obrien said...

It's a deal. We will post the buy tickets and the broker names when the DTCC posts the level of FTDs for OSTK.

Because as you correctly point out, secrecy only is there to hide the criminals.

FWIW, I wanted to do what you suggest. Byrne is a kindler, gentler approach. And they are his trades.

9:10 AM  
Anonymous Anonymous said...

Instead of all this big talk, why dont you and the folks here go buy 100 shares each and demand delivery? Get some first hand experience?

It would give you credibility and a horse in the race.

10:26 AM  
Blogger bob obrien said...

Because Byrne buying 50K here and 100K there isn't proof enough, we should give the brokers our money too and hope we get better treatment than the billionaires?

12:44 PM  
Anonymous Anonymous said...

You dont have a horse in the race, you're not at risk. Until you're at risk, you're not credible and that makes this blog pretty much worthless. It seems to me that until y'all stand up and get counted (even goldbugs own gold), you're simply a tool for OSTK.

Why wont you join the fight? Words are cheap. To me, until you go buy some shares and CAN'T get delivery, you're working for Byrne. Working to get the shares he owns higher, making him richer.

Remember when Ross Perot asked us to send him $20 to finnce his presidential campaign? How silly was that?

How silly is it that OSTK cheerleaders have nothing at risk? Oh right, you have a blog.

1:27 PM  
Blogger bob obrien said...

Huh. Nice tack. So instead of using the tools we have - Reg SHO list, documented case after case of fails - we are somehow not up to your standards until we have to get into a legal battle with our brokers.

Uh.

I suppose using that logic that anyone trying to battle rape or murder needs to be raped or killed, or have a relative raped or killed, otherwise they are simply tools of some nefarious and suspect anti-rape/murder group.

Thank you for your valuable input. You have clearly come equipped to discuss these issues rationally.

Doesn't Jeff require more attaboys? Don't let us keep you...

3:47 PM  
Anonymous Anonymous said...

The rational person asks why would someone who has nothing at risk, spend so much time and effort pursuing a story that the mainstream media, the financial media and even crusading prosecutors have passed on? Unless of course your income is derived from making someone wealthier?

Especially when the protagonist wont show any documents publicly for examination and relies on unverifiable facts, comments and inuendos to make his argument. And then says he cant reveal the documents because he doesnt want to harm/annoy/upset the broker, and his favorite broker/dealer?

You also lose credibility when you compare financial transactions to violent acts. But then again, I'm someone who lost money on OSTK, has a horse in the race and watches OSTK every day. But what do I know? I dont have a blog.

4:35 AM  
Blogger bob obrien said...

Tell you what.

Are you saying that Patrick is a liar? If you are, say it.

"Patrick is a liar, he's doing it to get wealthier."

See? Wasn't so hard.

Problem with that is that many know who his broker is, and should the SEC request it he will have to make those emails available to them in unsanitized form. So for him to come on here and validate the exchange as real would create tremendous liability for himself if they were not genuine.

And yet he did.

This is not difficult, OK? Stop with the innuendo and say what you mean. And stop attacking the messenger rather than addressing the message. His broker can't get him shares. For the second or third time in as many months.

Address that, not your valuable sentiments over whether I have passed your high ethical bar for representing the truth to readers.

If I haven't, then stop reading. But knock off the ad hominem. If you have something on point about the topic, super. If your message consists of "I think you should do X to satisfy my arbitrary feelings as to what would make me trust you", then save it, and say you don't trust me, or Dr. Byrne, or anyone else.

And then apply that same rigid logic to the DTCC and SEC refusing to divulge any info at all about the subject.

7:27 AM  
Anonymous Anonymous said...

I'm not commenting on anyone's sincerity or abilities or truthfullness. When you or anyone wont substantiate the facts, when you claim to have them, is silly. Its a half-truth. And if you're dealing in half-truths, how is that different than what the DTC does?

Your credibility would skyrocket wiht me and many others if you bought 100 shares and tried to get delivery. Then post the written exchanges.

What have you got to lose?

9:49 AM  
Blogger bob obrien said...

Well, let's see. First, I would have to reveal my identity to do so. No thanks. But let's say I did it without revealing my ID, we wouldn't know for 6 weeks. At which point the only thing we would know is that I had the same experience as the president of the company and his father and his brother.

How would that provide illumination?

I have seen the un-altered email exchange, along with others that are even more damaging but have agreed to keep private. They are genuine. At this point you are either saying that Byrne and the former Chairman of Geico and his other son are all lying, or they are telling the truth. One or the other. If you believe that they are liars, fine, you are entitled to your opinion, no matter how deeply flawed it may be. If not, repeating the experiment won't offer any additional visibility, and will merely tie up my money and time.

Either believe it or don't. If you think I lack credibility, perhaps you can explain why Byrne lacks credibility, as that is what you are essentially saying.

I won't ask you to continue sharing your view, as I think I understand it. There is a cognitive disconnect. We disagree as to the importance of doing what you say. Noted.

Now, can we get back on topic? I don't want to clog this with back and forth over your views on my credibility. I am the Easter Bunny.

I deliver chocolate treats to all the good children of the earth.

You realize you are questioning the integrity of the Easter Bunny?

The irony is huge...

10:50 AM  
Anonymous Anonymous said...

I'm not questioning anyone's integrity. But your argument has a fatal flaw - if you buy some OSTK, you show faith in ostk, and the system. By saying you dont dare buy it, as it ties up your dough, you simply say you doubt OSTK's viability, their strategy and their expected results.

C'mon, how much could you possibly lose doing this?

12:46 PM  
Blogger bob obrien said...

I have never really opined that folks should buy OSTK as I have faith in them. I really don't know much about them. Maybe they are the next GOOG, maybe they are terrible. Dunno.I have faith in Patrick's integrity - if you are trying to get me to endorse a particular company, I endorse NFI, as I have done appropriate due dilligence there. Not on OSTK.

Good luck with your invesing.

1:19 PM  
Anonymous Anonymous said...

Nahh, I'm not getting dismissed by you because you cant argue with someone who has OSTk shares and understands the issue of naked short-selling.

First, you're not anonymous. If someone feels this blog is un-truthful and sues you, they can depose Byrne, who will be forced to ID you by a judge as you claim to know him and exchange emails.

Secondly, its beyond stunning and jaw-dropping that you state you've never done due diligience on OSTK!

So, whats the purpose of all this if the main champion, the radio talk show personality, ADMITS HE HASNT DONE DUE DILIGENCE ON OSTK?

You dont own shares, wont buy some, havent done due diligence and yet claim the upper hand in this?

You're not very credible, are you? Do you get paid by Mr Byrne to champion their cause?

How about some answers now.

1:51 PM  
Blogger bob obrien said...

This comment has been removed by a blog administrator.

3:37 PM  
Blogger bob obrien said...

Here's your two minutes, and then you start getting deleted.

I don't claim to be an expert on OSTK - I claim expertise in stock manipulation. It doesn't really matter to me much what the interstitial online-discount niche's viability is over the short term, nor do I much care whether his numbers are $325 million or $425 million this quarter. Because the issue I am discussing has nothing to do with business fundamentals.

Let me make it simple: Every business has the right to the protection of the law. Every one. You don't have to be an expert on their business model to understand that.

OSTK is being manipulated. That has nothing to do with the number of toasters they sell, or how they sell them.

Following along so far? Good.

I understand you desperately want to take a conversation about illegal stock manipulation and try to convert it into a discussion about business fundamentals. That is Jeff Mathews' gig, not mine. I prefer to stay on topic. I am discussing illegal stock manipulation. I am not writing books about online retailers. I am not discussing their prospects or cost structures.

Get it?

You want to discuss a topic that is not being discussed.

I will try to stay civil, but I'm afraid your tone is degrading rather quickly, and the ad hominem is getting thick. You accuse me of being paid by Byrne, much as the short bashers used to accuse me of being paid by NFI.

Same tactic.

I know a lot about NFI. Not a whole lot about OSTK. Don't have to. Don't have to know about electric charges or physiology to see manipulation in TASR, nor do I have to own their stock. Those aren't related to stock manipulation. IT ISN'T GERMAINE TO THE TOPIC BEING DISCUSSED.

I find it amusing that you believe that someone can sue over what they feel is less than truthful on a blog. That is quite funny - thanks for the rib-tickler. Imagine someone disagreeing with the free speech of someone else, as expressed on a website - huh, maybe I should hide under the bed from the attorneys? And your notion that Byrne knows me beyond my noms de plume is also fun - why would you believe that, pray tell?

I am not compensated by Byrne, BTW - and frankly the insulting tone will land you in delete land if you keep it up. Your choice. Now do you have something productive to add, or are you going to continue with the personal attacks? Because if you do, buh bye.

5:27 PM  
Anonymous Anonymous said...

Due diligence is an important question. A good example is ITWO - nobody believed they were on the comeback trail until they posted blow-out earning this summer and the stock closed at 13 or so and opened in the AM at 20/21. Thats a short squeeze, right? It has subsequently rolled back to 14.

Now, with all the pools of capital flowing around, how come nobody has engineered a short squeeze on OSTK? Thats my question really, and thats why due diligence is important.

7:15 AM  
Blogger bob obrien said...

What was the last short squeeze you can name?

I haven't seen one for years.

The reason is that all the larger players understand that if you go up against the syndicates that are short these players, you are not only going against the hedge funds, but against the full weight of their brokers, who are the largest players on Wall Street - and you don't have enough money to win against them. Nobody does. Add their capability to print transactions at will, and you have an unbeatable structure, until the regulators do their jobs.

7:47 AM  
Anonymous Anonymous said...

Overstock.com: Just got heads up from reader that OSTK's CEO will be on Bloomberg TV this hour (35.35 +0.52) -Update-

Checking out the Bloomberg TV schedule, we see him listed for 11:35-11:50 ET. He will be discussing "Online Holiday Retail Sales"

8:13 AM  
Anonymous Anonymous said...

I mentioned a short squeeze in ITWO. Did you miss that?

In the hopes of gaining more insight into your premise on OSTK, if in six months OSTK fell off the SHO list and OSTK's share price declined further, would you take that as more market manipulation or that the shorts bought in their naked shorts? Or that the longs simply gave up and moved on?

6:07 AM  
Blogger bob obrien said...

I didn't miss it. Did you miss my broadcast series, wherein I discuss at great length the ex-clearing system, and its ability to generate a virtually limitless number of fails which don't appear on the Reg SHO list?

NFI dropped off for 13 days, then jumped right back on. They simply moved the fails to ex-clearing, and then started failing in the system again. We saw day after day of large blocks changing hands, and then poof, suddenly they were off the list. The only thing that proved was that if you own the system, you can game it.

How about this. Publicize the number of fails today. Or at least answer the FOIA request from 6 months ago demanding data that is now completely stale.

What is your theory as to why the SEC won't tell us the level of fails in OSTK or NFI from six months or a year ago? Why would that even matter to today's trading - as preventing volatility is their avowed excuse? Do you really believe that we need these elaborate experiments, or that they are desirable? How about just giving us the facts? Why is that so wildly impossible to even imagine?

1:23 PM  
Anonymous Anonymous said...

I agree with you that the FTd & SHO are very, very weird.

If its for real, I dont understand why a massive short squeeze isnt under way.

Another short squeeze was engineered maybe 2 years ago by MSTR, It worked well for them, maybe you need to do some more diligent work.

1:34 PM  
Blogger bob obrien said...

I explain why in my 3rd interview. Wall Street is now the partner of the large hedge funds - and they can't allow them to fail - the leverage is too dangerous. So the large brokers will simply meet any demand with more sales transactions - and if you try to go in and run the table as a friendly long hedge fund, you will be taking on the Wall Street establishment - and nobody wants to do that. First reason is because as an institution you need to play ball with the powers that be, and second is that because you understand how things work you understand that any attempt will be squashed, and then you will become personnae non grata.

There have been no short squeezes of note recently, certainly not the sort that cause the more powerful hedge funds to implode. You haven't seen even ONE of the SHO list companies significantly run up - doesn't that seem a little odd? Not even one? In point of fact, you saw many experience massive bear raids in the first quarter or two of 2005 - essentially creating liquidity for covering fails by running the price DOWN in order to cause margin calls and panic selling.

This is no longer a few hedge funds are caught underwater. This is now the brokers and their largest customers working over targeted companies, as nobody is going to stop them.

And they are correct so far.

Nobody has.

1:59 PM  
Anonymous Anonymous said...

Can you please provide specific company names and what dates these so-called "bear raids" occurred?

Thanks

8:26 AM  
Blogger bob obrien said...

Go to Dave Patch's Investigatethesec.com and read his article about Reg SHO companies and the precipitous drops in value they experienced in the first 3-4 months of this year. I think it was published around April or May of this year.

It lists the companies, their volume concentrations, their percentage drops, and their days on the SHO list.

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