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THE MASSIVE STOCK FRAUD NAMED "NAKED SHORT SELLING"
Online petition against naked shorting - Time To Investigate The Sec | Everything you ever wanted to know about naked short stock trading, but were afraid to ask. | National Coalition Against Naked Short Selling - Failing to Deliver | Market Reform Movement | Counterfeitamerica | The Faulking Truth |
 
Firm sues 11 banks over "naked short" selling fees
Wed Apr 12, 2006 - By Jonathan Stempel - NEW YORK (Reuters)
A firm on Wednesday filed an antitrust lawsuit against 11 major U.S. broker-dealers, accusing them of colluding over six years to collect unearned fees as a result of a "naked short selling" practice.In its complaint filed with the Manhattan federal court, Electronic Trading Group LLC accused the defendants of improperly charging fees by failing to borrow or deliver stock needed to back short sales, essentially resulting in "phantom" transactions. The plaintiff seeks triple damages, and the lawsuit seeks class-action status. Defendants include the broker-dealer units of Bank of America Corp. <BAC.N>, Bank of New York Co. <BK.N>, Bear Stearns Cos. <BSC.N>, Citigroup Inc. <C.N>, Credit Suisse Group Inc. <CSGN.VX>, Deutsche Bank AG <DBKGn.DE>, Goldman Sachs Group Inc. <GS.N>, Lehman Brothers Holdings Inc. <LEH.N>, Merrill Lynch & Co. <MER.N>, Morgan Stanley <MS.N> and UBS AG <UBSN.VX>. Short-selling involves a bet that a company's stock will fall. Typically, an investor sells borrowed stock, and hopes to buy it back at a lower price to replenish the lender. In a naked short sale, the investor sells stock that has not yet been borrowed. Naked short selling is usually illegal, in part because the stock supposedly underlying the transaction may never be borrowed or may not exist. It can be permitted to promote market stability. The 32-page complaint claims the broker-dealers charged the plaintiff and others for the cost of securities lending, when in fact the broker-dealers did not "cover" short sales, failed to disclose this, and nevertheless charged inflated fees. "Defendants dominate the market for prime brokerage services to short sellers and tolerate among themselves chronic failures to deliver by which clients are charged for 'borrowing' when in fact no borrowing actually takes place," the complaint said. "Plaintiffs and class members were charged fees, commissions and/or interest for nothing."The plaintiffs, according to the complaint, "were being used as pawns in defendants' naked short selling scheme to their detriment." Citigroup spokeswoman Christina Pretto said the lawsuit is without merit. Bank of America spokeswoman Shirley Norton, Credit Suisse spokeswoman Victoria Harmon, Lehman spokeswoman Kerrie Cohen and Merrill spokesman Mark Herr declined to comment. The other banks and the plaintiff's lawyer did not immediately return phone calls.

Bring On the Bears
By RICHARD SAUER - Arlington, Va. | 10/06/2006 - NY Times
SHORT sellers occupy a position in the stock market like that of predators in nature: necessary but unloved. Corporations, which like to see their stock always rising, despise these traders, who borrow shares and sell them in the expectation that the price will fall soon and they’ll make a profit. There are signs, however, that these vilified traders might be coming into a measure of respect for the critical balance they provide in a market frequently dominated by the puffery of companies and sell-side analysts. The short sellers’ skeptical scrutiny of companies they feel are overpriced has led them to uncover many of the major financial frauds of recent years. Yet they continue to be burdened by a regulatory scrutiny of their own actions that springs more from rumors than fact. In the 1930’s, short selling was hobbled by restrictions intended to prevent the “bear raids” many thought then (but few think now) underlay the market collapse of 1929. These included the “uptick rule,” which prohibits short sales when the price of a stock is in decline.
 
In an unusual (and laudable) effort to measure whether a long-lived regulation actually works, the Securities and Exchange Commission recently completed a pilot program to suspend the uptick rule for a third of the stocks on the Russell 3000 index and compare their performance to stocks still subject to the rule. At a meeting of prominent economists held by the commission last month, consensus held that price restrictions on short selling were a regulatory anachronism of no benefit to the market. Stocks freed from the uptick rule had shown no greater vulnerability to momentum selling than the control group. A few panelists, in fact, uttered the heresy that bear raids are now so uncommon that they no longer need be of concern to regulators.
 
No such view was expressed, however, regarding the flip side of the bear raid: the “pump and dump,” a scheme in which someone promotes a worthless stock he owns, then sells it as gullible investors fall for the promotion. Panelists noted that these schemes remain commonplace, particularly among small-cap stocks, with fax and spam e-mail messages joining more traditional methods to tout toxic stocks. They also suggested that the first line of defense against such schemes has not been the S.E.C., which acts slowly when it acts at all, but rather the much disdained short seller. By putting their money where their mouths are, short sellers are the only market participants with an incentive to deflate bubbles and inject pessimistic information into the market. As an enforcement lawyer at the S.E.C., I received from short sellers early warnings on certain companies that led to the capture and return to investors of hundreds of millions of dollars taken by stock frauds. Such information came from no other source — certainly not from institutional stock analysts, whose failures of objectivity were made notorious by the Attorney General Eliot Spitzer of New York. Representing short-biased hedge funds as a part of my practice as a private lawyer, I continued to be impressed by their ability to spot stock frauds in the early stages.
 
But if short sellers are friends to the S.E.C., the commission has been no friend to short sellers. The agency has saddled short sellers with trading restrictions and has looked the other way when companies have taken potentially illegal actions to silence short sellers’ criticism. One of the tools of the pump-and-dump scheme is the “short squeeze,” in which companies contrive to goose their share prices or restrict the supply of stock that can be lent out for shorting, thereby increasing the cost of maintaining a short position. The S.E.C. and the courts have recognized that such activities can constitute market manipulation. Yet the S.E.C. has shown so little interest in remedying such abuses that companies blatantly promote actions explicitly intended to force the wholesale covering of short positions. Average investors are also taken for a ride when a company’s share price spikes as a result of a short squeeze.
 
In addition, the S.E.C. staff has been willing, indeed eager, to pursue investigations against short sellers based on complaints from companies that the shorts have said mean things about them. One recent case made national news: the S.E.C. staff sent subpoenas to financial journalists suspected of using short sellers as sources for their articles — as if that were somehow improper. These investigations seem never to lead to enforcement actions against established funds, suggesting that shorting a stock and then spreading false rumors about the company is not a common investment strategy.
 
The number of short-biased funds is in decline. Those still operating are less likely than before to bring contrarian information about companies to the attention of regulators and the press, in part because of the S.E.C.’s stance toward a group that should actually merit its gratitude, and also because of the recent trend among troubled companies to sue those who have the temerity to short their stock. This is not to propose a program of affirmative action for short-sellers, or to deny the possibility that misconduct can occur. But the S.E.C. can and should take a more balanced approach toward the only actors in the marketplace who share its interest in exposing financial fraud.
 
It can begin by jettisoning the antiquated uptick rule. It should view with greater skepticism companies that attribute their woes to conspiracies by short sellers. It should take appropriate enforcement action against companies that retaliate against critics through defamation campaigns and manipulative short squeezes. Finally, Congress should provide the S.E.C. with discretion to pay bounties, similar to those available in insider trading cases, for tips resulting in successful financial fraud cases. This would give some degree of recognition to those contrarians who help keep the market honest by flagging problems concealed by companies — and missed by institutional analysts.
Richard Sauer, a former administrator in the Securities and Exchange Commission’s enforcement division, joined the management at a short-biased hedge fund this week.
2006
 
(03/01) Who Is Going To Sort This Out?" ... or 8 million + shares that don't exist??
(02/22) Dark side of the looking glass, Corruption and Destruction in our Capital Markets (4 videos)
(02/16) The Circle of Greed: The Only Bull in this Stock Market is a Cash Cow | (or go to orginal)
(01/31) Manipulation and markets
2005
(12/09) StockGate: Is The Naked Short Sales Bubble Now Big Enough To Threaten Wall Street?
(12/05) Another Proud SEC Moment - Defending the Crooks - excellent blog !!
(11/12) Massive money laundering with U.S.- Canadian penny stocks,the 'anti-naked short selling' ..... and VIDEO
(11/04) Nakered Short Selling or Fraud Wall Street Style
(08/25) stockgate: the selling of trillion$ of $hares that do not exist!! (2 important articles, scroll down)