Entries Tagged as 'Naked Short Selling'

NY Post: Re Biggest Fraud In History

The MSM has been silent on what has been happening with gold and silver price manipulation for 10 years, but the ice on the story may be breaking. Today the NY Post writes about whistleblower Andrew Maguire and the activities of JP Morgan:

The banks, which do the Federal Reserve’s bidding in the metals markets, have long been the government’s lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.

Recall, I’ve said many times that the FED is a cartel of large banks that don’t have our interests at heart. They work for more profit for the banks that own the FED. Here, they’ve been working with the U.S. government to keep interest rates low, by taking away our fire alarm that signals inflation and debasement of our currency.

“JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer,” Maguire said.

Maguire says “If you sell something you do not own, then that is fraud.”

Since, we are talking about trillions of dollars, it is the biggest fraud in history!

John Embry Says We Are Getting Close

John Embry is a real straight shooter and his take on Gold is woth watching more than once.

Sprott Asset Management’s chief investment strategist, John Embry, went on Business News Network in Canada this morning and, interviewed by Amanda Lang, discussed, among other things, the suppression of the gold price on the New York Commodities Exchange. Embry speculated that long contract holders may call for delivery of enough December contracts as to prompt a claim of force majeure when the exchange cannot delivery enough real metal. The interview with Embry begins at the 11-minute mark and continues for about 6 1/2 minutes at the BNN Internet site here:

http://watch.bnn.ca/tuesday/#clip104603

Revisit Naked Short Selling

The subject of Naked Short Selling has come up again. Here’s some background in my posts on the subject:


Proposed Changes to Act of 1934


Bloomberg: Naked Short Selling


It’s About Time!


Let’s Just Grandfather It!


Refco and Naked Shorting!


What is a Wells Notice?


The Problem of “fails to deliver”

As I explained at
Market Bugle, our government officials today prohibited the practice in shares of GSEs, Fannie Mae and Freddie Mac. That would mean it’s still ok, wink wink, in everything else!

Bloomberg: Naked Short Selling

I’ve posted about naked short selling a number of times, here, here, here and here.

Now Bloomberg in a three part series explains naked short selling and its consequences.

Rob Kirby On Naked Shorts

Rob Kirby has just posted an impressive story about incompetence in government as to its dealings with the “naked short” problem and the firms that are supposed to be self regulating instead seem to be self serving. And, it’s costing investors millions, maybe billions. Entitled Failure To Deliver Or “Deliverence”? Rob encourages us to view Darkside of the Looking Glass:

The narrative explains, with the aid of graphics, stock settlement mechanisms on the large exchanges. It clearly illustrates how some broker-dealers and their biggest clients – hedge funds and their financial backers can, and do “game” [commit FRAUD] the Depository Trust Clearing Corporation [DTCC]. The DTCC is supposed to act as a back office for Wall Street firms – electronically settling inter-dealer equity transactions.

It explains how a significant portion of the NYSE and NASDAQ’s combined daily trade of roughly 2.5 billion shares – does not settle properly. This means the alleged seller of stock takes the buyer’s money, but never delivers the shares they supposedly sold. Instead, they [or their broker dealer] send a “stock IOU” creating a Failure To Deliver, or FTD, to the buyer’s agent/broker.

Rob Kirby Naked Shorts Darkside of the Looking Glass Mover Mike

It’s About Time!

Remember Reg SHO?

The Securities and Exchange Commission, responding to criticism that it hasn’t done enough to curb naked short-selling, is expected to propose changes to a current rule that would reduce the number of open short positions in stocks.[…]

Today at an open meeting, the SEC is expected to vote to amend Reg SHO and eliminate the grandfather clause, which could benefit heavily shorted companies. Eliminating the grandfather clause would force brokers to buy in some positions on threshold-listed securities that were made before the companies made the list. The SEC is also weighing whether to change a provision that allows market makers to have naked short positions. If the changes to the rule are voted, as expected, they will go out for public comment for at least 30 days.

Reg SHO Mover Mike

$1 Trillion of Unconfirmed Trades

In Let’s Just Grandfather it!, I said

Bottom line: 1.5% of daily trading or $6 Billion daily is involved in naked shorting. The Feds called a meeting of the top 14 firms involved in derivatives, suspected of “unconfirmed trades”. Short sales after Jan 3rd, 2005 must be settled after 13 days or the firm is obligated to buy the shares in. Naked short sales prior to Jan 3rd are grandfathered, basically told to sin no more.

From JSMinset we learn that

Fourteen of the largest derivatives players are likely to report that they are on track to meet an end of April deadline in resolving half their trade confirmation problems when they meet for the second time with the New York Federal Reserve on Thursday.

So, if these 14 firms that met on Sept. 15, 2005, had FTDs prior to Jan 3rd, 2005, there is no requirement to deliver or close the transaction. After Jan 3rd, 2005, there is a 13 day requirement to deliver wheich was not being adhered to as of the meeting with the Fed oon Sept. 15, 2005. It is heartening to know that 30% were brought into compliance at the end of January and a total of 50% will meet the April deadline. That leaves 50% of of $6 Billion of daily naked shorting not yet in compliance. That could be as little as $1 Trillion of naked shorting that is not in compliance.

naked shorting FTDs Mover Mike

Let’s Just Grandfather It!

I didn’t know it then, but on August 25th, when I wrote about “naked shorting” and the problems of Fails to Deliver (FTDs), I would be revisiting the subject again in regards to Refco.

Regulation SHO was passed by the SEC and gave brokerage firms marching orders to eliminate FTDs after Jan 3rd and

“The SEC, wanting to avoid short-squeezes in dozens of stocks caused by the closing out of naked short positions, opted to ‘grandfather in’ any failed deliveries before Jan. 3.

Grandfathering Under Regulation SHO

The requirement to close-out fail to deliver positions in threshold securities that remain for 13 consecutive settlement days does not apply to positions that were established prior to the security becoming a threshold security. This is known as “grandfathering.” For example, open fail positions in securities that existed prior to the effective date of Regulation SHO on January 3, 2005 are not required to be closed out under Regulation SHO.

The grandfathering provisions of Regulation SHO were adopted because the Commission was concerned about creating volatility where there were large pre-existing open positions. The Commission will continue to monitor whether grandfathered open fail positions are being cleaned up under existing delivery and settlement guidelines or whether further action is warranted.

It is important to note that the “grandfathering” clause of the Regulation does not affect the Commission’s ability to prosecute violations of law that may involve such securities or violations that may have occurred before the adoption of Regulation SHO or that occurred before the security became a threshold security.

Bottom line: 1.5% of daily trading or $6 Billion daily is involved in naked shorting. The Feds called a meeting of the top 14 firms involved in derivatives, suspected of “unconfirmed trades”. Short sales after Jan 3rd, 2005 must be settled after 13 days or the firm is obligated to buy the shares in. Naked short sales prior to Jan 3rd are grandfathered, basically told to sin no more.

Now Time Magazine in an article titled Watch Out, They Bite! HOW HEDGE FUNDS TIED TO EMBATTLED BROKER REFCO USED “NAKED SHORT SELLING” TO PLUNDER SMALL COMPANIES By DANIEL KADLEC, quotes James Angel, associate professor of finance at Georgetown University.

He (Angel) says the rate of short selling has nearly doubled in the past five years, to 36% of all trades.

We already know that Refco was singled out by the SEC in the case of naked selling in Sedona.

February 2003 the SEC fined Rhino Advisors $1 Million for their participation in the manipulation of Sedona Corporation.
In the Rhino case, the SEC had obtained audio recordings of Rhino Executives bribing US Brokers to manipulate Sedona Corp. stock by selling with ‘unbridled levels of aggression.’ The Rhino Executives were later recorded congratulating the US Brokers on ‘collapsing’ the security. While the SEC has the audio recordings, they have not to date taken any actions against the Brokers bribed to manipulate the stock. The period of the recorded manipulation was 2001. The SEC has recently issued a Wells notice to Refco which acts as both a Brokerage House and Clearing Agent for firms like Rhino Advisors.

We also know that Refco set aside $5 million to cover the cost of settling allegations that some of its brokers acted improperly in arranging trades for an investor in a PIPEs (private investments in public equity) transaction.

The question is how big was the naked shorting at Refco?

Remember the old saying: He who sells what isn’t his’n, buys it back or goes to prison.I have a feeling when this all shakes out there will be a lot of money lost and a lot of new people in prison!

That’s the other shoe!

When will the SEC enforce Reg SHO and when will they clean up the problems prior to Jan 3rd. That stuff is toxic!

refco naked shorts sedona mover mike

What is Naked Shorting

The Washington Post defines “naked shorting“:

The focus of an ongoing SEC investigation into the securities unit of futures broker Refco.

Refco

What is a Wells Notice?

On August 25th I posted about The Problem of “fails to deliver”

From FreeRepublic via financialwire.net, StockGate: Is All Heck About To Break Loose? The NY Fed has called a special meeting for 14 companies who dominate the credit-derivatives market. The 14 companies include JPMorgan Chase & Co. (NYSE: JPM), Deutsche Bank AG (NYSE: DB), Goldman Sachs Group Inc., Morgan Stanley (NYSE: WMD) and Merrill Lynch & Co. (NYSE: MER). There have been allegations of illegal naked short selling, and regulators are smarting over allegations that they gave super hedge funds a free pass because regarding “fails to deliver” (FTD). Regulation SHO included a “grandfather clause” to fix the FTD problem, but the FTDs are so massive a problem that even with a six months notice it has not been cleaned up.

I just learned that on May 17th, Refco received a Wells Notice. STOCKGATE TODAY informs us that

A Wells Notice is notification issued by regulators to inform individuals and companies of completed investigations where infractions have been discovered.In 2001 Sedona Corporation stock was manipulated through an orchestrated scheme of illegal shorting [naked shorting]. In February of 2003 the SEC brought to conclusion an enforcement action against financier Rhino Advisors and Rhino Executive Thomas Badian for their orchestration of the manipulation. The $1 Million civil fine was only the tip of the proceedings against Rhino as the SEC handed over audiotapes whereby the Rhino Executives were reportedly recorded bribing US Brokers to collapse the stock of Sedona. Excerpts of the audiotapes were later used in December 2003 criminal arrest warrants issued against Thomas and Andreas Badian.

The second firm besides Rhino involved in this “naked shorting was Refco!

Over at The Street.com on Oct. 6th in SEC Looking at Hedge Funds in Stock Placements

The Securities and Exchange Commission is close to bringing enforcement actions against at least two hedge funds that have been active players in the $14 billion-a-year market for PIPEs, or private investments in public equity, people familiar with the inquiry say.Within the past few months, the SEC formally notified one of the hedge funds that it is facing potential regulatory action by sending it a so-called Wells Notice. The other hedge fund has yet to receive a Wells Notice, but regulators are close to taking that next step, sources say.

[…]

The probe is focusing on allegations of stock manipulation by hedge funds, which tend to be the biggest investors in these shadowy stock sales, and allegations of wrongdoing by the Wall Street firms that round up buyers. PIPEs are popular with hedge funds because the buyers usually get to buy shares at a steep discount to the current market price.

Critics contend the ability of a hedge fund to purchase discounted stock makes the PIPEs market ripe for abuse by disreputable short-sellers, traders who place market bets that a stock will decline in price.

As I understand it, Hedge funds can may bets that a stock will go down by shorting the stock. You and I would have to be able to borrow the stock in order to short it. What the SEC is concerned about is shorting “naked”, not borrowing the shares. When delivery is due, the hedgies can’t deliver, it is considered a “fail” an FTD, but there is no enforcement of the rules to deliver.

Regulators pursued a potential enforcement action against Friedman Billings Ramsey (FBR), an investment banker that lined up hedge funds to invest in the PIPEs. This summer, Knight Capital (NITE) disclosed that its Deephaven Asset Management Group could face potential regulatory action over its trading in a series of PIPE deals from June 1999 through March 2004. And, Refco, meanwhile, set aside $5 million to cover the cost of settling allegations that some of its brokers acted improperly in arranging trades for an investor in a PIPE transaction.

There are over 8000 hedge funds. I hear there aren’t 8000 good portfolio managers. The spreads are so thin that you have to use a lot of leverage to make the spreads work for you. And, the competition is fierce. We had 20 year bull market that has created a lot of exccesses. Those excesses are in the process of being purged from the system. Look for powerful money interests to fight hammer and claw to keep all of this under the rug through deals and manipulation. You can manipulate markets for awhile, but you can not fight the trend.

fails to deliver Refco Wells Notice hedge funds

Who is 990N?

See also: A Recap of the Week’s Events at Refco

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