Tuesday, December 20, 2005

Update! - Bob O'Brien - The Easter Bunny - Speaks, Live On CFRN

Note: Day 3 (Dec. 23) Interview should be up by 7:30 EST


I completed a series of interviews on CFRN today, and if you want to hear the Easter Bunny go off about everything from the SEC to the history of Wall Street to comparisons to the S&L crisis to an in-depth description of the clearing and settlement system to a breakdown of the Byrne email exchange to a blow by blow dissertation on the scope of the problems impacting our markets, this is for you. All 3 are located on the lower right hand side of the page. If you can get past the filters, mild distortion and the pitch shift that makes me sound like an angry d├ębutante, it is a fun and informative series. The high points:

1) Naked Short Selling - nothing more than sales transactions effected by the system for which no shares are delivered. Because Wall Street divorces clearing from settling, everyone gets paid upon the sale, and delivery is left as an afterthought, often winding up with no delivery.

2) Wall Street History - Cockroaches have abounded on the Street for time immemorial, stock manipulation pools are well documented, and today's manipulations are nothing more than those manipulations updated with modern technology.

3) The SEC - Chartered with "Restoring investor confidence in the system", but never chartered with ensuring there is a fair playing field, or for creating a good reason for the investor confidence. A paper tiger with no prosecution capacity. Worse than useless.

4) S&L Crisis - The current naked short selling crisis resembles the S&L crisis in that a relatively small group of crooks are stealing untold billions from the system, while Wall Street makes a fortune and the regulators/elected officials/press pretend there is no problem, and leaving Joe taxpayer to pick up the bill when it is all over.

5) The DTCC and ex-clearing - "Ex-Clearing" FTDs are likely orders of magnitude larger than the FTDs memorialized on the Reg SHO list, and pose the biggest challenge to the system. Because of the leverage involved, this could be the body blow the system cannot withstand. Ex-clearing is simply sales transactions for which delivery occurs outside of the DTCC system, on the honor system, between brokers.

6) Hedge Funds - Hedge funds are nothing more than unregulated, anonymous pools of money. 8000 in number, most are honest and legit, but a small percentage, maybe 2%, aren't. They represent most of the trading on Wall Street now, and the system is beholden to them for its profits.

7) Voting Rights - Wall Street has an elaborate system designed to trick investors into believing that they still own shares, rather than broker IOUs, and issues proxies to the IOU holders to keep them from asking questions. Legitimate shareholders are diluted, and investors are tricked.

8) NCANS.net - Created the Wall of Letters to document complaints to the system, is a place where concerned investors can rally and contribute to raising visibility.

9) Solutions - Shareholders' only protection from being defrauded is holding paper certificates. Investors need to write letters, support organizations like NCANS, and sue the brokers via class actions suits. Regulators need to make the system transparent, withhold money from sales until delivery is made, and create penalties with real financial teeth for failing to deliver.

The series was fun, and has amusing moments, as well as depressing commentary. The takeaway from show 3 is to compartmentalize the problem in such a way that it is bite-sized, and solvable. The shows aren't perfect by any stretch, but they give you some insights into the world of the bunny, and make a good starting point for discussion of the problem.

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.

Friday, December 16, 2005

Dr. Byrne's CFRN Radio Interview - Stunning - The 30 Million Share Scam

Dr. Patrick Byrne of OSTK did a one and a half hour interview on CFRN today, and it is one of the more powerful pieces I've heard him do.

He speaks frankly about the lawsuit, naked short selling, Wall Street, captured regulators, international crime syndicates, you name it.

He discusses the tactic of demonizing those critical of Wall Street, and the frustration of his adversaries at his lack of interest in their attacks.

Basically, he talks about everything anyone would want to know about the issues, and the size and scope of the problem - you name it, he covers it, coherently and convincingly. You can listen to it here, at CFRN. On that website there is also a series of radio interviews by Bud Burrell, who is extremely well versed on naked short selling and most every aspect of the situation, and an interview with Mark Faulk of the Faulking Truth, who has a great hour discussing the topic.

Go to the page, and the interviews are on the lower right hand side.

One of the comments Dr. Byrne made that stopped me cold was the calculation as to the number of fails at the DTCC. He indicates that his experts reviewed his NOBO and OBO sheets, and there are over 5 million naked short shares there, in addition to the 7 million legitimate short shares.

And then, bless his heart, he runs the calculation I would have run, and does it in precisely the way I would have - he discusses the DTCC's Larry Thompson's comment that 80% of the FTD's aren't accommodated by the Stock Borrow Program - and thus are likely "ex-clearing" fails. If that is the case, then that 5+ million FTD's at the DTCC is only 20% of the naked shorted shares, and OSTK has well over 30 million shares shorted, both legitimately, and illegally.

30 million.

How is that possible, for a company on the SHO list? How could the SEC condone that sort of flagrant, in your face, obvious and overt stock manipulation? I was literally speechless when I heard Byrne discuss it.

NOTE: I had a telephone discussion with Dr. Byrne today, asking about the math, and whether he actually believed that was possible - 30 million or more shares short in OSTK - and he said that the emotional part of his heart doesn't think it is possible, as that would indicate a system so far out of control that it literally would be complete lawlessness. He had a hard time comprehending how that could be so. Rationally, he felt that the reports said what the reports said, but he is hopeful that he has something wrong. He also indicated that guess was his own, and not his experts' opinions - that was based on his own pencil to paper analysis of his Nobo and Obo reports.

Think about what that means, and consider the level of impunity which the bad guys must feel protects them, to keep selling OSTK short, brazenly and illegally, in spite of the suicidal impact of going in that big on a stock with insiders owning most of it. And consider what covering just the OSTK short will do to the entire network of bad guys, including their brokers - 30 million shorted shares, and nobody is really selling. Unreal.

And then consider that nobody is defending the company against this obviously highly predatory, illegal, and damaging practice - and consider what that says about the system, the market, and our future as a legitimate economy. Consider that the press has spent all their time attacking Byrne as a kook - and consider that the DTCC and the SEC won't tell anyone how big the FTD problem is, including in OSTK - hey, I know, if this is all BS, give us the numbers and prove it. Oh, wait, that would cause volatility. I guess now we know how much volatility, given that covering OSTK would literally take it to $500 or more - 170 days to cover. Astonishing.

Listen to the interview. This is priceless, and should be required listening by the Senate Banking Committee - particularly Senator Shelby, on whose watch this is occurring, and who has the capacity to stop this crap dead whenever he wants to.

Makes you wonder what is more important than safeguarding the integrity of our market system, huh?

Tuesday, December 13, 2005

Another Proud SEC Moment - Defending the Crooks

Today, a federal appeals court rejected the NASD's challenge to the SEC, in the case of Anthony Elgindy.

Here is the quote from the news piece breaking the story:

"NASD in March 2000 accused Elgindy of manipulative short selling in Saf T Lok shares over several weeks in 1997. In May 2003, an NASD adjudication committee barred Elgindy from the securities business, banished Key West Securities from NASD, and fined him and the firm $51,000 each.

Elgindy and Key West appealed the NASD ruling to the SEC, which oversees the NASD. The SEC is a government agency and the NASD is a self-regulatory organization to which most U.S. brokerages must belong and obey as their regulator.

In March 2004, the SEC questioned the evidence in the Saf T Lok case and overturned most of the NASD's sanctions. The agency lifted both Elgindy's industry bar and Key West's expulsion from NASD, and reduced the fines to $1,000 each ."

So Egyptian national and two time convicted felon Anthony Elgindy is free to go right back to scamming companies and investors, after paying a grand. He is responsible for many many millions of destroyed value and ruined investors' savings, but tut tut, the SEC says, "hey, nobody's perfect...it happens, hmm 'kay?"

You are reading this correctly. The SEC overturned the NASD, which basically understood what a piece of fecal material Elgindy is and barred him from the business, and instead did the equivalent of swatting him with a Nerf bad and saying "you've been very bad, stop it, you bad man."

If anyone is incredulous as to what this says about the SEC, fear not. Apparently you can participate in overt stock manipulation using a network of hedge funds, be a two time convicted felon, have ties to money laundering and middle eastern arms dealers and whatnot, but suffer no ill effects from the SEC.

But there's more:

"In an unprecedented response, the NASD three months later appealed the SEC's actions to the court, arguing in September that its reputation is undermined when its attempts to regulate the Nasdaq Stock Market (NDAQ.O: Quote, Profile, Research) are challenged by the SEC.

The SEC replied that the adjudicatory process for disciplining brokers would be complicated if the NASD could get a court to overturn an SEC change to an NASD sanction."

This is self explanatory - if the NASD could force the SEC to not let bad guys off the hook, then the SEC's power base would be harmed, presumably reducing the number of crooks that would get hall passes from them - and we can't have that.

I would write more, but anything I write would be insufficient to express my disgust.

And meanwhile, OSTK, which really has virtually no legitimate shares trading, is down $2+ on over a half million shares so far today, on no news.

We have a wonderful system, folks. And people wonder why more and more folks are putting their money into Gold and Real Estate. At least when you walk into a casino, you understand that the lights and free drinks are a lie to soften the blow of losing your money. On Wall Street, apparently you can dispense with the niceties of rigging the games, and simply inform patrons that they lost while collecting their money. Much more straightforward, and the cops are there to make sure nobody robs the bad guys on their way out to the getaway car.

I am not making this up.

I wish I was.

Friday, December 09, 2005

Big News In OSTK vs. Gradient/Rocker Lawsuit

What would you say if your lawyer quit, after he had been telling everyone what a fine upstanding lad you were, and how you were as honest as the day is long, and how you were being victimized by a harsh society that didn't understand your motives nor actions?

That is sort of the question Gradient must be asking today.

I just got word that Gradient's attorneys, Wilmer, Cutler, Pickering, Hale & Dorr filed a motion with the court in Marin County, indicating that they were resigning as counsel for Gradient and the individuals within Gradient named as defendants in the Overstock lawsuit. You can view the motion here.

I have cautioned against jumping to conclusions in this case, and advised that we as a group should exercise Solomon-like restraint and wisdom in our interpretation of the details - let us know the facts as they become known, has been my policy. There have been those who would try the case in the media, and certainly there has been no shortage of slimy press who are quick to paint Dr. Byrne and OSTK with a negative brush, pre-judging the facts, and dismissing the serious allegations against the hedge fund and the research entity as nonsense. They have called Dr. Byrne every imaginable name. And they have even said nasty things about the Easter Bunny.

And then the lawyer quits.

I am not making this up.

So, if you are not an attorney, you probably have a host of questions. Like:

Is that bad?

I mean, your lawyer ups and quits (or is fired, but wanna bet that isn't the case?) without giving anyone in the press any notice - is that bad?

Because it looks kinda bad to me.

I can't really imagine a set of circumstances where that would be good. I mean, maybe he wants to spend more time on the sailboat, or the firm has decided that taking money to defend against "specious" allegations is dirty, or that they are above this sort of thing.

Some other questions are, well, why did they quit, assuming they did? Did they learn enough to decide that the case is indefensible? Did they find something out that they don't want to be a part of? That is hard for me to even imagine, knowing the attorneys I know - I mean how bad does it have to be to not take the 500 jings per hour to listen to the mewling whining of your client's "Ah din't do nuthin'" mantra? That's kind of what you do for a living, right? One of the board posters at Yahoo posited that they didn't get paid, but wouldn't you think that they would have taken this on contingency, as OSTK's attorneys did? I mean, these were the same lawyers that were issuing press releases about how Byrne can't read, and how they were going to sue everyone - wouldn't you think that if all these counter-suits were going to have a shot, that they would have taken it on the come? So I can't imagine that they quit because Gradient stiffed them - the money sounded like a sure thing from their press releases - I mean what attorney isn't going to take a sure thing?

Unless that was all hyperbole and posturing, and the counter-suits don't stand an ice cube's chance in hell.

Huh.

I'm sure there are innocent explanations for this, and would celebrate the might of the media machine that has been so relentless in attacking Dr. Byrne being applied to finding out why Gradient's attorneys just quit. If this happy holiday rodent's little furry paws can hammer out an op-ed in minutes, surely the Post or Motley Fool or the WSJ or Barron's or Fortune or any of the rest of these giants can get a straight answer to the question, "why did you guys quit?"

Roddy Boyd of the NY Post claims to have gotten an answer (in the comments section of this entry), namely that they quit over a conflict of interest between clients related to naked short selling - although what that conflict could be isn't clear, as the OSTK suit does not mention naked short selling anywhere (and Dr. Byrne has gone to great lengths to avoid saying that Gradient or Rocker are involved in naked short selling). So that explanation seems a trifle nonsensical - how could defending Gradient be about naked short selling, thus creating a conflict? Unless Mr. Boyd has some information that is non-public about the OSTK suit being about naked short selling, or the attorney has some information that leads him to believe that naked short selling is a real issue in the case, the whole explanation creates more questions than it answers - I find it illogical.

But that is the info we have at present. It is what it is.

Gradient's lawyers quit, and the only explanation advanced by someone purporting to have spoken to them is that it was over a conflict involving naked short selling.

Huh. Maybe the attorneys know more than we do. Who knows? They are nothing if not inscrutable, those lawyers are.

Stay tuned for yet more melodrama here in the next installment of, "As The Bunny Turns."

Idle Hands - My Comment Letter To The SEC

Dave Patch of Investigatethesec.com was talking about the new proposed rule for de-materializing proxies and having them distributed via the Internet, which I think is an excellent idea, and he made the observation that this represented an interesting opportunity to bring the voting fraud issue to the forefront of the discussion - namely, the fraud that occurs when FTDs, or shares loaned from margin accounts via the NSCC's stock borrow program, get their proxies to vote, just like real shares.

The NASAA meeting had a good exchange on the subject, and it was illuminating how uniform the understanding was on the mechanisms Wall Street has devised to accommodate "over-voting" - you gotta love how everything has a euphemism on the Street. Lying to shareholders about whether they have legitimate shares, or are merely the proud owners of chits, stops being lying and fraud, and instead becomes a niggling inconvenience, really a clerical nuisance, a paperwork issue like reconciling your checkbook - "over-voting."

I for one don't like to play the euphemism game when it comes to topics related to the theft of America's savings by Wall Street. I don't call mass murder "ethnic cleansing", I don't refer to theft as "re-distribution of wealth", and I don't call fraud and lying "over-voting."

Lying to customers as to what's in their accounts, and then sending out proxies as though they had real shares rather than chits, and tacitly representing to customers via the issuance of those proxies that their votes will count is fraud. It is an artifice to deceive. The truth would be to not send any of them proxies, and simply explain that they don't own shares, thus aren't entitled to any of the rights of a shareholder.

But that isn't what happens.

Instead, as we heard in the NASAA meeting, the industry has a myriad number of ways to deceive everyone, and violate the simple "one share, one vote" presumption that is a cornerstone of capitalism.

And that is outrageous.

The fact that the media ignores this breach of the public trust is both shocking, as well as entirely consistent with its behavior to date - "maybe if we don't talk about it, nobody will notice."

I'm not surprised, just disgusted.

Anyway, I decided to invest a little time into writing a comment letter to the SEC, highlighting my sentiment that it is absurd to worry about the mechanism used to distribute voting materials if the integrity of the voting process is a laughable farce.

That's just me.

I'm sure there's a million good reasons for shareholders to get the impression from their brokers that they have voting rights, when their votes will actually be stuck into the shredder, never to count for anything. I would love for Congress to tackle that logic in open session:

"Mr. Speaker, we, um, decided that we would let everyone into the voting booths because we want everyone to feel involved in the process. If some folks were denied their right to vote, they would become disenfranchised, and believe that they were being duped. That could result in a crisis in confidence in the system."

"Yes, but apparently you disconnect the levers from the voting mechanism whenever a black or brown-skinned person enters the booth, so they don't really get a vote, thus your generosity of spirit is really a hollow cheat, is it not? Aren't you really just lying to them to keep them from lynching you?"

"Well, actually, sometimes we leave the levers engaged, and merely deduct some of the "faux" votes from the "legitimate" votes - some areas do that when they are low on the manpower necessary to disconnect the levers every time. And some areas let everyone vote, and shred all the votes equally, and just vote the way that they know is the right way. So your view is inaccurate."

"Huh. How resourceful."

"Well, your honor, we are all about improving transactional efficiencies."

And so on.

Wednesday, December 07, 2005

Dr. Byrne Businessjive Audio and Transcript Now Available

The transcript for segment number two of Dr. Byrne's interview on Businessjive.com can be downloaded at http://www.ncans.net/news.htm on the news page. A great piece.

Tuesday, December 06, 2005

Three Card Monte with Fails - Wall Street's Version of "Do the Hustle!"

I received an intriguing slide-show today from a friend who enjoys doing statistical analysis on stocks - some people knit their dogs sweaters, others assemble model planes, this guy enjoys applying his acumen to the stock market.

The result of the slide-show, to cut to the chase, is that someone appears to be passing the fails between brokers or accounts every 13 trading days on the most visibly abused companies on the Reg SHO list, in order to avoid more violation of Reg SHO.

The slide-show can be viewed and downloaded here.

Huh.

I wonder how the SEC and the NASD and such could get hard evidence of market manipulation by someone deliberately moving large fail positions around on the most visible stocks on the Reg SHO list?

I mean, it's not like they could just do the simple pattern recognition-type search that this guy did, and within an hour have spotted an obvious manipulative trading technique.

Tut tut. No sirreee. There is far too much heavy-duty investigative talent doing important research and examination for it to be just that simple. Why, one would have to assume that they are sailing paper airplanes around the office, or tossing cards into hats or something, rather than doing the bare minimum that would constitute their job. And that can't be. Alternatively, they would have to be aware of it, and just not care that someone is obviously and deliberately violating the SHO rules, nay, flaunting them, in what looks suspiciously like an obvious pattern of deception designed to trick the system.

Why don't you send this link to them, along with this blog, and ask them for a formal explanation for what is occurring here? That should be a hoot. Maybe they will "study the problem" for a year or two before they figure out that they are being played by some hustlers doing the stock equivalent of three card Monte. Or maybe they know, and will launch their random vacuous phrase generator, or send out a wonk to stammer his way through some platitudes?

My hunch is that they will ignore it, as they have ignored everything else pertaining to egregious violations of the public trust by the market participants.

But it's always still fun to watch the gymnastics as they attempt to juggle lame excuses whilst preparing more facile bromides for consumption by a credulous and captive media.

I do so hope that they can find an award winning financial journalist to explain to us all how it isn't what it so obviously is.

That's almost my favorite part.

And if you haven't yet, check out Patrick Byrne's interview featuring the Easter Bunny at www.businessjive.com - I hear that it is the single most requested and downloaded event in that site's catalog.

Apparently the "pretend there's nothing happening and maybe they'll all forget about it" strategy of the bad guys isn't working. A lot, and I mean A LOT of folks are educating themselves as to the actual lay of the land.

And here's a wild thought. What if the number of fails, both FTD and ex-clearing, dwarfed the authorized number of shares for a company like OSTK or NFI, and there simply wasn't adequate liquidity in the offending hedge funds to extricate themselves from the positions without vaporizing? And what if the broker network supporting them knew it, and had become complicit in assisting in an obviously illegal manipulation strategy? And what if the SEC knew and understood, and fearful of vaporizing those participants, allowed the "piddly" retail investors to lose their savings so that the brokers could keep on keeping on?

Who would you sue first?

And if employees of a government agency act in an illegal manner to aid and abet felonious actions, are they then liable as individuals?

In that hypothetical scenario, would we get a NJ accented version of the Nuremberg trials, in which everyone claimed they were only following orders?

Which introduces another fun idea - given that the NYSE is about to become a "for profit" entity, are they not much more visible in the lawsuit cross-hairs for aiding and abetting illegal activity, "for profit?"

These are strange times we live in, no?

NASAA Transcript Now Up At NCANS.NET

On the News Page. A stunning read. www.ncans.net/news.htm - check it out.

Sunday, December 04, 2005

Of Mice and Men

It's really rather remarkable how complete the silence is from the media on the recent NASAA meeting.

Even more incredible is the total lack of acknowledgment from the rest of the media of the Time Magazine piece covering the naked short selling topic.

Now, you would think that we would have learned from the S&L crisis and the manner in which our regulators, lawmakers, politicos and press pretended absolute ignorance of the malfeasance, until it was so gargantuan and damaging that it literally destroyed the thrift industry in this country - especially the role that the media played.

For those that didn't pay much attention, from 1980 to about 1988, a network of bad guys raped the banking system with such aggression that it cost the taxpayers hundreds of billions of dollars. The contributing factors were deregulation of the thrift industry, loosening of rules barring the use of brokered deposits (an S&L could offer higher interest and the deposits would pour in, directed by brokers who oftentimes did so for fat fees, and side deal favors wherein a portion of the cash went to sweetheart deals never intended to return a dime) and changes in the rules that enabled S&L's to invest in whatever sort of debt they liked - essentially gambling with guaranteed deposits backed by the US government.

One network of names that featured in over a hundred S&L failures was coordinated by a guy named Beebe, a good old southern boy who had a mob affiliated Wall Street insider assisting, a few deposit brokers, and a host of politicians running cover for him. One central player, over a hundred blowups.

There were others, most infamously Keating of Lincoln Savings and Loan, who protested his innocence of wrongdoing even to the last moment as his bank went into the can, moving money out right up to the locking of the doors - and selling retail investors worthless bonds backed by the scam literally until the last days. Keating is noteworthy due to the sheer scale of the bilking, as well as the associates he enlisted to assist him in running interference with Congress and the regulators - Alan Greenspan was a big booster while he was a consultant for Lincoln, penning a now famous letter in which he denounced any regulatory attempts to stem the theft, assuring all that Lincoln and its brethren were beacons of modern capitalism's triumph, and honest and competent as the day is long.

David Rubin fought every effort to rein in the out of control thievery in the S&L industry for years, and actively conspired to tarnish the reputation of the only regulator that understood the growing crisis and was willing to do something about it - Ed Gray. The media painted him as a kook and a malcontent, an incompetent, a larcenous pilferer, every sort of negative you could imagine. Elected official after elected official tried to run interference with him to stymie his ability to regulate effectively - those stealing the many billions were generous and popular, and we have the best politicians money can buy. Once he was replaced, the new guy pretty much ignored the problems for several more years, costing the country many many more billions.

All the while the press acted like anyone that articulated the idea that the S&L's were out of control was a heretic or a buffoon - there was a nearly uniform blackout on any articles that called into question why mob-affiliated guys were running S&L's, entrusted with government backed deposits (if loans went belly up, hey, don't worry, they're insured with the full support of the US government).

Sound familiar?

Let's see. Media blackout on potentially catastrophic financial crisis obvious to anyone that really wants to spend a few hours reading.

Check.

Captive regulators doing nothing to stop bad guys, and often even helping them.

Check.

Elected officials turning blind eyes to obvious larceny in financial markets.

Check.

Anyone prominent that voices concern attacked and demonized by a media intent upon mocking them or denouncing them, in lockstep with the agenda du jour.

Check.

Why are we so surprised that the exact same scenario can play out in the stock market? Why, precisely, is that so crazy, besides that everyone on Wall Street, and Washington, and their media quislings, say so?

Put another way, how many times does an industry have to abuse our trust before we figure out that they are untrustworthy?

Hmmmm. Let's start with the S&L crisis. Anyone know where a lot of the money went that wound up being covered by the taxpayers - by us?

Wall Street.

Desperate or rogue S&L's were the number one customers for junk bonds, and Wall Street couldn't stuff enough down their throats, pocketing insane amounts of money in the process (junk bonds were considered debt, thus OK for "investment" with insured deposits by thrifts). How often did anyone hear about that? How hard did the media push on that?

Not at all.

Why, I wonder?

Next, we can play "pick your scandal" - mutual fund, analyst, specialist, hedge funds, class action attorneys, corporate fraudsters, accountants, you name it.

And yet, when confronted with the possibility that Wall Street is again picking our pockets, for the umpteenth time, as they have done consistently and regularly before, the response is akin to accusing Mother Theresa of being a hooker - "how dare you, that's out of the question!"

How many times do we have to be lied to before we figure it out?

The media blackout, other than the phone-it-in backhand from everyone's favorite industry apologist and hack Carol, has been complete - oh, wait, there was the 30-second piece on
PBS that was hard pressed to get any of the info right.

That's it.

The industry's best and brightest minds convene to damn the current naked short selling regulations and pronounce them abysmal, the SEC fumbles and makes lame excuses (my favorite being that they would be happy to investigate when evidence is presented of abusive naked short selling, while simultaneously claiming that it is important to keep that evidence secret), the problem is clearly articulated and described by heavy hitters, and what coverage does it get?

None.

Baseball players taking steroids is front page (gasp - what's next, rappers smoking endo? Get out of here...) news for weeks and weeks, but a crisis that destroys voting rights across the board, and that sounds suspiciously like institutionalized fraud in our equities markets? Not a word.

The deja vu is creepy. And the uniformity of the non-responses is damning.

Actually, the few responses are illuminating - shoot the messenger/ad hominem is big (if a company complains about naked short sellers they are likely a scam), as is denial of all available facts (none of the info "necessarily" means what it so clearly and obviously does), and the fallback of "there may be a problem, but it is small and we are closely monitoring it" hyperbole that is provably false, and which simultaneously argues that nobody can be told how large the problem actually is.

Basically, you get anything but the obvious: enforce the rules, and tell everyone how big the problem actually is.

And our financial press goes glibly on, churning out article after article, reassuring us that the smartest way to plan for retirement is to be in the markets, all the while pocketing advertising dollars from the very industry that is perpetrating the fraud. How surprising that there isn't much appetite in biting the feeding hand.

If this blog entry seems particularly annoyed at the press, it is for good reason. Wall Street owns substantial chunks of the major news syndicates, and it would appear that there is a reluctance to expose the industry that owns the papers and the stations. How cozy.

This is one of the reasons that the blogging thing is so vital in breaking this story and exposing the larceny and corruption - there isn't anyone else, really, that wants to touch it. Far too many are making far too much to be interested in killing their sugar daddies.

Time Magazine did a 3 page expose, and not a word from anyone. NASAA had a forum where the former president of the group, who was acting as moderator, at one point remarked that he couldn't believe the loss of voting rights hadn't been picked up by the press (clearly outraged at the loss of voting rights by owners of the shares) - and not a peep out of anyone.

A few NY reporters talk the talk as though they are intent upon breaking this, but so far nothing. Seems like NASAA agreeing that there's a big problem, Time Magazine running exposes, all of that can be bulldozed by the cone of silence the industry wields.

Astounding, and tragic in its implications. If "they" can get away with this, is there any limit to how badly the American public can be abused, while the media smiles and assures us all is well? Exactly how can we allow this to continue? How do we as a nation look at ourselves in the mirror, if a small segment of New York can rob the rest of the country with impunity, and buy the regulatory and media infrastructure, ensuring they continue to get away with it? What does that say for our future as a nation, if the most sociopathic profiteers and parasites can gorge on a country's savings, and none of the canaries in the mineshaft will make a sound? What future do we actually have, if this is the case? How do we prevent another crash, a la 1929, given that there are essentially no meaningful penalties for the sorts of bear raids that typified that period?

I listened to the NASAA meeting this weekend again with a slack jaw, marveling at the Orwellian bureaucrat-speak offered by the regulators from the SEC and NASD, and was appalled that these men represent our protectors. If these are the types assigned to guard the gates, how much worse could the barbarians look?

A Simple Thought Experiment

Imagine you worked for an insurance company. Then imagine that the police officials took your complaint about embezzlement from your company's vaults (billions missing from the coffers), and then responded that they would be happy to investigate once you provided them with evidence. You then correctly pointed out that they had video footage from their police-installed and operated cameras at your facility, that had the perpetrators dead to rights - and they responded that they couldn't comment on that, as it could cause problems for the insurance industry if depositors thought that their money was being pilfered on a massive scale by those chartered with its safekeeping.

You then responded that they had to have the perpetrators' actual misdeeds on tape, with clear shots of their faces, because of the angle of the cameras, and they informed you that they could neither confirm nor deny that, and asked you if you had any other evidence. When you responded that they already had the evidence that would put the perps away, they simply stared at you and declared that it was all in your head. You pointed out that there were billions missing, and they indicated that there could be innocent explanations, or you could have miscounted.

So you go pull the bank statements that show the billions shortfall, and they concede that there did appear to be a shortfall, and that they would study the situation to see if it continued. You again reiterate that if you could view the footage, it would show the perpetrators carrying out sacks of money in the dead of night - and they indicate that they couldn't allow you to view it, as it might give away some of the illegal tactics the embezzlers were using to gain entry to the vaults, and make off with the cash.

I kid you not - that is exactly what the SEC is saying. Exactly. It isn't a problem, oh, wait, it is, but it is a small one (in the universe of companies, your billions, when aggregated with all other companies is a small percentage of the NAV of the planet), or if it isn't that small, well, they would be happy to continue studying it for another unknown length of time, to determine how best to deal with it - oh, and did they mention that the crooks get to keep the money while the studies go on?

I listened to the conference again, and I share the moderator's "disappointment." And shame on the press for aiding and abetting.

This represents a truly ugly and demoralizing episode in our country's history. On the one hand we are told that Wall Street is a polished, dependable machine for investing - countless glossy ads and commercials depict trustworthy and concerned gray-haired father figures with up-rolled shirtsleeves working diligently to build your retirement, and enable a better existence. On the other hand we have clear, incontrovertible evidence that the facade is a cynical lie created by ad agencies, to put a patina of respectability on an industry that is facilitating the wholesale looting of your savings.

My blogs have a recurring theme. The theme is that we are supposedly a nation under the rule of law - that is what supposedly makes us superior to the less "civilized" nations that we castigate, and demean as beneath us. Those savages are inferior, and the proof is in their poverty, their lack of infrastructure, and their corruption. And yet when we test the engine of American financial superiority - our equities markets - we find a den of thieves policed by a deaf-and-blind, pathologically lying kleptomaniac. We find boundless avarice running unchecked, and regulators actively facilitating larceny undreamed of by history's most greedy and corrupt robber barons and privateers. We find a government-run mechanism jealously protecting the thieves, and assisting them in carrying their loot to the getaway car - hell, they even give it a wash and an oil change while the crooks are in the bank stealing your money.

And we have a media machine that smiles smugly at you from the screen or the page, and encourages you to put more of your money into the vaults, and parses strategies to maximize your returns - ignoring that the cash is going out the back door and into the getaway car.

It is a depressing picture I paint, but I challenge anyone to dispute the accuracy thereof. And that sickens me - we have teenagers dying in Iraq under the pretense of propagating our superior values, and yet we allow our citizen's voting rights to be stripped from them in a manner that the most die hard dictator would envy. We have an engine of unrivaled greed and corruption, fueled by hubris and invincibility, operated by our nation's brightest minds, for the sole purpose of redistributing the country's wealth from Main Street to Wall Street. And we have a government that lies to us in a manner that would make the most hardened Amsterdam streetwalker blush, all the while enjoining us to keep throwing our money into the black hole, all the better to steal it, you see.

This can't continue. It is out of control - that became evident during the NASAA meeting, when the SEC was rolling its eyes at the peons who dared to call it onto the carpet, dismissing the obvious affront to our intelligence with a regal wave of the institutional hand. Bah. You are nothing, and deserve what you get if you are stupid enough to speculate in the markets.

A friend that was at the meeting indicated that the SEC guy was handed the written questions from the audience, and after smirking his way through glancing at them, simply set them aside.

Am I the only one that was insulted by this performance, and remain chagrined at the uniformity of the press' non-coverage?

What's it going to take to get this blown wide open? How many more billions need to be stolen before we enforce the laws against theft?

What's it going to take?

Patrick Byrne Audio Interview

An Internet-based executive profile site has a marvelous two part interview with Dr. Patrick Byrne of OSTK just released, and it is also a must listen.

Of note is part two, where he discusses the naked short selling/Fraudulent Stock Trading problem in considerable detail, and provides illumination on his motives, and his inside knowledge of the workings of Wall Street.

Your's truly, the Easter Bunny, makes a rare audio appearance, mostly for seasoning, a dash of paprika on a dish which really requires none - Dr. Byrne is articulate, funny, smart, and completely self-aware. He also pulls no punches.

My voice is distorted and slowed to the point where I sound like Art Buchwald on Quaaludes after a 4 day drunk, but for the few that follow these things, here is another Easter Bunny sighting. I sort of think it gives the interview an inner-city rapping sensibility - think of me as one of the entourage yelling "yo, yo, tha's right" to punctuate the verbal stylings of Dr. Byrne - if there's demand, who knows, we may do a Valentine's album. Dr. B and MC-EB, phunky-phresh...and so on.

I would recommend listening to both parts, as it offers insight into a fascinating man, who is single-handedly taking on Wall Street, for all the right reasons.

And I remain the Easter Bunny for all the right reasons - to deliver chocolaty treats to good boys and girls the world over.

The website is http://www.businessjive.com/ and the interviews are the two new ones at the top left.

Thursday, December 01, 2005

The 1% (or so) Solution...And The Radio Interview That Spells it All Out

The following two links will download two radio broadcasts that are the most significant commentaries on the naked short selling situation to date. Here is the first - A must listen radio interview with industry consultant Bud Burrell - he describes the scope of the problem as multi-trillion dollar fraud - larger than all other American frauds combined. And here is today's show, which concludes this segment of interviews - every politician and lawmaker and regulator should listen carefully to this, and then consider how long they want to be part of the problem rather than the solution.

Bud is an old hand at this, and has forgotten more than most know about the system and the problem. This is an incredibly articulate, blow-by-blow description of how bad the problem is, how it has impacted the economy and our futures as citizens. I am enraged as I listen to this - the information is knowable, guys like Bud know it, and yet the mass of the media and Wall Street pretend that there is no problem - and a complicit media follows along.

Please listen to this - and distribute it to everyone that believes this is no big deal. It is damning.
Additionally, Bud will be back on the radio on Monday for a continuation of his information download - tune in.

Now to the Sanity Check portion of today's program.

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

1%.

One percent.

Sounds trivial. Nothing to speak of, really.

When the SEC's Brigagliano spoke about naked short selling at the NASAA conference on November 30, he tossed out the number 1% like billionaires toss out buck cab fare tips.

One percent of the daily stock transactions on the exchanges fail, every day.

Let's contrast that against the number the DTCC came out with in their interview.

$6 billion a day of fails - trades that don't clear - occur every day. Per Thompson of the DTCC.

Now, the DTCC says that is a rolling total including aged fails.

Fine. So how do we reconcile that with the SEC's statement that 99% of trades don't fail, leaving 1% which do? If that is accurate, then $4 billion per day (potentially - it could be smaller, as many of the fails are likely in low price stocks, thus in number of trades they could comprise the 1%, but not in dollars - but we don't really know, do we?) are the new fails, leaving $2 billion per day as old fails. Fine.

So what happens tomorrow, when another $4 billion (or $1 billion, or $600 million - you get to pick your number as the actual number is a secret) fail? And the day after that? How does it stay at $6 billion per day, inclusive of aged fails, if tons of new fails are added every day...does that mean that most clear within one day of failing? That seems odd, given that Professor Boni's paper indicated that the average FTD was 56 days.

Something doesn't add up. Either the DTCC is being less than straightforward with us, or the SEC is, but the numbers do not add up, any way I can make them.

Then again, I never was good at math. Still, ya gotta love the numbers.

Here's another fun number. I love fun numbers. You should too. Numbers are revealing.

How are those $6 billion dollars of failed trades distributed?

Are they showing up in GE and Microsoft and Intel and Dell? Nope. They are not. Why is a topic of a future Sanity Check, the short version being that those companies are too large to successfully manipulate.

Suffice it to say that they aren't.

Those fails are hitting 30, 40, maybe 100 companies. Maybe 200. But likely the largest distribution is in a few companies.

So suddenly the idea of 1% per day of fails takes on a bit more magnitude when contextualized. Let's say that fails represent more like 40% or 50% or 75% of the trades in the victimized companies - a bell curve wherein the peak is a sharp spike.

It doesn't sound so trivial now, does it? If 75% of the stock sold in OSTK on a given half million share day fail, that has a PROFOUND impact on the company's valuation.

Mr. Brigagliano seemed to love the 1% number, but didn't even like the idea of addressing the questions from the audience that would have shown the lie to the notion that this is a small affair. I don't blame him. When bureaucrats start trying to downplay the size of a problem by speaking in percentages rather than in hard dollars, hold on to your wallet. I'm sure that the percentage of soldiers killed in Iraq is minuscule compared to the population of the US, or even the total size of the military apparatus, but to every mother that loses a son the impact is real, and significant. But I digress - the point is that the FTD's are a huge annual number, per Brigagliano (1% per day of trades fail every day - hard to misinterpret that), and that those fails are distributed in a small number of stocks, representing a huge problem for those 50 or 100 companies. So one might well ask why it is acceptable for those companies to have a substantial amount of their trading fail, and buyers defrauded out of their cash, receiving nothing for their payment? Apparently the SEC will "study" that and get back to us. Maybe.

As to the NASAA conference and Brigagliano's performance, one has to feel a little sorry for the man, even though his pomposity and arrogance came through loud and clear. I mean, how would you like to have to explain to the American public that 10, 20, 50% of the stock sold in any company on the SHO list was fails, and that the best you could do is "study" this curious affair?

That's our SEC hard at work.

My message here is simple - the high concentration of the FTD's per day in just a handful of companies - the SEC is deliberately trying to make it seem trivial with some statistical sleight of hand, while simultaneously defending keeping the numbers secret.

They clearly think we, the American public, are dimmer than burned out refrigerator bulbs.

And the SEC is just too GD busy to actually do anything. Huh. They will study the impact of naked short sales and Reg SHO into the mummy stage, and ignore that every expert in the country says that keeping the system opaque is a huge problem for any faith in fair markets - hey, maybe another 2 or 3 years of studying it and they will be ready for an in-depth focus group, or maybe a tiger-team work group!

Meanwhile, the public gets screwed to the tune of approaching a trillion dollars of fraudulent trades per year - conservatively.

Hell, that's real money even by Beltway and Wall Street standards.

But nobody will do anything.

Sick yet? I could tell you the story of the SEC office that is paying double fair market rates for their first class office space, and yet hasn't filed a single enforcement action for this year. But I won't.

My favorite book from a few years ago chronicled stories of $400 Pentagon hammers and such. Believe me when I tell you that the SEC makes the Pentagon look like a coupon-clipping Granny.