Here is a new site for intelligent comments about this very controversial topic, which has significant criminal implications.
Anyone reading this needs to read USC Title 18, Section 514, regarding the criminal investigative authority over counterfeiting of commercial securities being under the aegis of the US Secret Service, now part of Homeland Security. Ergo, the word counterfeiting in the title of this blog.
This site is open to opposing opinions, and welcomes them based on presentation and analysis of facts. Personal attacks are not appropriate or tolerated.
Let us hear from everyone who is up on this topic, and knows the laws.
As a base element in everyone's knowledge base, I encourage everyone to visit the Web Site of Dave Patch.
It is www.investigatethesec.com.
I encourage you to read the many articles and links on this site. No interested party has done more to get this cause in front of the professional community, including officials of the SEC, the NASD, the DTCC, the Congress including the Senate Banking Committee, and the House Committee on Financial Services, along with many victim shareholders.
Subject: SEC Probes Firms That Gather Data on Who Owns What Shares
Tracking Stocks SEC Probes Firms That Gather
Its Question: Have They Paid Custodian Banks' Staffers To Give Up Information? Free Steaks and Game Tickets By SUSAN PULLIAM Staff Reporter of THE WALL STREET JOURNAL December 8, 2004; Page A1
(See Corrections & Amplifications item below.)
A back-office clerk at CIBC Mellon Trust Co. was filling in for a colleague this summer when she got an unusual e-mail. The sender wanted data about which of the big investors the company dealt with owned a particular stock -- information the clerk knew was supposed to be top secret.
The employee refused to provide the data. An internal probe concluded that the clerk she was filling in for had for years been giving out data on stockholdings, according to people close to the situation. They say the probe found that in return, this clerk got baseball and hockey tickets and cash payments of $50 to $100 per tip. The people add that a separate internal probe found that four employees of Mellon Financial Corp. had received Pittsburgh Pirates tickets, $50 American Express gift certificates and boxes of steaks for such data.
The incident offers a window into a secret Wall Street world of gathering and selling real-time data about big investors' stock trading. This information, which is generally confidential, is so valuable that a whole industry has sprung up around finding it out. Businesses known as stock-surveillance firms gather trading data as best they can and market it to corporations that are curious about who is buying and selling their shares.
Because small bits of trading data can be gleaned through legitimate sources, the business model is perfectly legal. But there's the potential for stock-surveillance firms to veer off the legal track if they use improper means to find out who is buying or selling what. There's also the potential for illegal insider trading if the information falls into the hands of investors who use it in their trading.
Now the Securities and Exchange Commission is investigating the stock- surveillance business, sending out subpoenas to several data firms, according to people close to the situation. Among issues the SEC is looking into: Whether, at banks that act as custodians of stock during the trading process, some back-office workers systematically received gratuities for leaking data. The SEC also wants to know whether any trading data may have been turned over to investors and led to insider trading.
SEC enforcement chief Stephen Cutler said, "As a general matter, we are interested in whether confidential portfolio information has been leaked at any point along the chain." A person close to the situation said the SEC probe focuses on possible data leaks as far back as 2000.
The CIBC Mellon Trust case helped spur the SEC's enforcement division to action, people familiar with the matter say. The trust, based in Toronto, is a joint venture of Canadian Imperial Bank of Commerce and Pittsburgh's Mellon Financial. A spokeswoman for CIBC Mellon said it has taken steps to correct the problem uncovered by the joint venture's internal investigation. A spokesman for Mellon Financial said that regulators were notified quickly after the problem emerged, adding that Mellon "regrets the unauthorized disclosure of custodial information" and was "very proactive" in informing clients. A spokesman for CIBC said it doesn't carry out custodial activities in the U.S. but declined to comment further.
The joint-venture employee who the probe concluded had been giving out data for years was Yvonne Williams, say people close to the situation. She was fired in July after the venture's internal investigation. Ms. Williams couldn't be reached for comment. Three of the four Mellon Financial employees cited in a Mellon probe also have been dismissed. No employees have been charged with anything.
Among firms subpoenaed in the SEC's investigation, say people familiar with the matter, is Thomson Financial, a unit of Thomson Corp. of Toronto. Thomson Financial's Capital Markets Intelligence unit is one of the largest stock-surveillance firms. The unit told its employees this week that one CMI executive had left after an internal probe found business practices conflicting with its code of conduct, say people close to the situation. They add that at least two other employees are expected to depart.
Thomson wouldn't comment on the probe but said it has taken steps to correct problems. "We take any allegation of impropriety or wrongdoing seriously and will not tolerate any such behavior," said a spokesman. He added that Thomson provides the trading data it gathers only to its corporate clients and their agents.
Also receiving subpoenas, according to people familiar with the SEC probe, are Ilios Partners; the Georgeson Shareholder Communications Inc. unit of Computershare Ltd.; and Miller Tabak & Co., an institutional trading firm that has a unit called Strategic Stock Surveillance.
Corporations pay fees to stock-surveillance firms in order to know who is buying and selling their shares. They have various motives for wanting to know, such as to gauge the effectiveness of their investor- relations efforts and, in rare cases, to find out if a potential hostile bidder is accumulating their shares.
Some stock traders covet information about big investors' buying and selling for a different reason: It gives a sense of which way a stock is likely to move. For just that reason, those big investors like to keep their moves secret.
When a mutual-fund family has a large chunk of stock it wants to buy or sell, it often does the trading in pieces over several days. A key reason is to disguise its intentions, so others can't jump in and buy or sell the stock first -- driving up the fund's cost of buying or reducing what it gets from selling. But if a trader knew a big fund had begun buying, he could assume there was more buying to come, and that the stock would tend to rise.
"If speculators know in real time what you were doing they can jump aboard and piggyback you or work against you," says Samuel Hayes, a Harvard Business School professor. If a mutual fund's performance suffered as a result, among those hurt would be fund shareholders, he adds. Mutual funds typically disclose changes in their holdings only four times a year, after the end of each quarter.
The business of ferreting out data about big investors' holdings has its roots in takeover battles. There, warring camps want to know the identities of shareholders so they can appeal to them for their votes. The camps hire proxy-solicitation firms, whose job includes identifying shareholders and lobbying them.
The business shifted when hostile takeovers started to wane in the early 1990s. Some proxy-solicitation firms began building a business in stock surveillance, hoping to make customers of corporations that simply want to know who their shareholders are.
Stock-surveillance firms developed an ability to tap into the arcane processing world that exists behind the scenes as investors buy and sell.
For instance, when a pension or mutual fund buys shares, it places the order with a broker, who goes to a stock marketplace to have the order matched with a seller. After the order is filled, the fund sends instructions to the broker about where to deliver the shares and which "custodian bank" will make payment for them. The fund also sends instructions to that custodian bank, telling it to receive the shares and pay the broker.
Both the broker and the custodian bank send instructions about the trade to the Depository Trust & Clearing, or "the DTC." It is part of a private organization set up in the 1970s to formally process and make final the trades -- steps known as "settlement" and "clearing," respectively -- for the bulk of the U.S. stock trading.
The DTC formally moves ownership of the shares to the buyer and sends payment for the trade through one of the Federal Reserve banks. This is the final step in a process that can take up to three days to complete.
Stock-surveillance firms rely partly on their access to reports from the DTC. This access is legitimate, explains Larry Thompson, senior deputy counsel of DTCC, holding company for the DTC. That's because SEC rules require the DTC to provide, at a company's request, daily reports of where its shares are held in custody once settlement is completed. And with a company's permission, the DTC can also turn over such reports to "agents" -- such as proxy solicitors and stock- surveillance firms.
Mr. Thompson says that the DTC lists give only the total number of a company's shares held at each custodian bank. They don't provide data about specific investors' holdings or other sensitive trading information.
But stock-surveillance firms combine these DTC listings with their own database of information about where big investors keep their shares -- such as what banks they use as custodians. Sometimes, these two bits of data -- combined with regulatory filings and information about the investment strategies of mutual funds -- are enough to get to the bottom of who is buying or selling shares, says Kevin Marcus, head of the part of Thomson that includes Capital Markets Intelligence.
"It is to some extent a process of deduction," he says.
Since DTC listings don't provide the up-to-the-minute information that some corporations want about who is buying and selling their shares, stock-surveillance firms turn to various market contacts to try to provide this. Among them are stock-exchange "specialists" -- the traders on the New York Stock Exchange floor whose job is to match buy orders with sell orders. Employees of stock-surveillance firms say they sometimes even turn to employees at the mutual funds themselves in hopes of getting such information.
And they sometimes ask employees at the custodian banks -- a particular focus of the SEC probe. These employees are continually receiving up-to-the-minute information from mutual funds, pension funds and other institutional investors about what they're buying and selling.
Companies use stock-surveillance services for a variety of legitimate business purposes. Ralph Poltermann, treasurer of AptarGroup Inc., a maker of packages such as flip-tops for ketchup bottles, says his company hired Thomson to help it track trading in its own shares after meetings with investors.
For instance, AptarGroup met with big investors at a Credit Suisse First Boston conference in San Francisco on Sept. 28. Within a week, Mr. Poltermann says, an analyst at Thomson told him that at least one of those big investors was trading in AptarGroup shares. "It's magic to me," Mr. Poltermann says. "They have insights and contacts we don't have."
Big investors, on the other hand, are annoyed that a business has sprung up to try to find out about their trading. John Wheeler, head trader at the American Century mutual-fund family, recalls having an eerie feeling a few years back when he was told that Sprint Corp.'s chief executive had called his firm. American Century had bought Sprint shares just the day before. But William Esrey, then Sprint's CEO, already had called to thank the fund family for its purchase.
"Appreciate your support," Mr. Wheeler recalls Mr. Esrey telling an American Century executive. Mr. Esrey says through a Sprint spokesman that he doesn't recall the conversation but that it wasn't unusual for him to make such a call to investors.
The trade hadn't even "settled" yet. The fund hadn't paid for the Sprint stock. So normally only American Century, its broker, custodian bank and others in the custody chain would have known who was buying the shares. Sprint, it turned out, had legitimately gotten its information from Thomson's stock-surveillance unit, a Sprint spokesman says.
Many large companies use such services, getting daily updates and glossy monthly and quarterly summaries about activity in their shares. Dow Jones & Co., publisher of The Wall Street Journal, once used stock-surveillance services but no longer does. Thomson says its CMI unit has about 800 corporate clients, which pay $40,000 to $60,000 a year each for the service. The stock-surveillance unit had about $33 million in revenue last year, a tiny sliver of Thomson Corp.'s $7.44 billion revenue.
Andrew Brooks, head trader at mutual-fund giant T. Rowe Price, says his trading desk often receives mysterious calls asking about changes in its holdings. Often, he says, the callers say they are "just checking your ownership on behalf of the company." He says callers typically hang up when pressed for more information on why they're calling.
Mr. Brooks and a few other mutual-fund managers, including American Century officials, discussed their concerns about trading leaks 18 months ago with Lori Richards, head of the SEC's office of compliance and inspection, after she contacted them.
In the case of CIBC Mellon Trust, the joint venture notified regulators of the incident involving Ms. Williams, the back-office clerk, this summer. Officials of the trust learned of the problem after Ms. Williams's fill-in told a supervisor of a surveillance firm's request for data, say people close to the matter.
Ms. Williams's knowledge of stockholdings was broad. It wasn't limited to the names of shareholders who had permitted the custodian bank to release data about their holdings -- so-called Non-Objecting Beneficial Owners, or "nobos." Her knowledge would have included all shareholders of companies.
Mellon Financial scoured e-mails, faxes and phone records to find out whether others might have accepted payments for data. It determined that the leaks had occurred in the area of the bank that handles communications with shareholders on matters like stock splits and dividends, the people familiar with the matter say. They say Mellon concluded that four employees had provided data about specific stockholdings of big investors, including Fidelity Investments. A spokeswoman for Fidelity says it has "always been concerned about disclosure of this information outside of required regulatory filings."
The Mellon employees had access to a full list of investors for each stock. The bank's probe concluded, according to people close to the situation, that they released data about the holdings of shareholders who hadn't given the custodian bank such permission. In return, it concluded, they got sports tickets, steaks and gift certificates. Mellon Financial and its joint venture with CIBC notified hundreds of customers of the problem this summer through calls and e-mails.
Write to Susan Pulliam at susan.pulliam@w...
Corrections & Amplifications:
CIBC Mellon Global Securities Services Co. is a custodial-services joint venture of Mellon Financial and Canadian Imperial Bank of Commerce. This article incorrectly referred to the custodian service as CIBC Mellon Trust Co.
Rampant Insider Selling Raises Red Flags - AP Reports Major Corporate Execs, Including Some From the Homebuilding Industry Are Dumping Stocks - Serious Predictor of a Coming Crash - Special Commentary by Michael C. Ruppert
[In 2000 and 2002, as the US financial markets tanked, investors lost trillions of dollars in equity as stock prices plunged and investment portfolios - many connected to pension funds - lost trillions of dollars in value. What was documented in both cases was that senior executives at many of the twenty or more companies involved (WorldCom, Enron, Adelphia, Merck, Global Crossing, to name a few) had engaged in a tactic called "pump and dump" just before the stock prices collapsed. Stock prices are pumped up by the executives and key insiders who then sell at the peak before everyone else gets reamed.
In a pump and dump operation, those who can influence stock prices issue glowing reports which cause investors to put their hard-earned dollars into a stock right before it collapses. This is a wealth transfer from poor or middle class folks to the absurdly wealthy. Immediately prior to the stock's collapse, the guys on top cash out and then the price plummets. The bad guys have the cash and the little investors and pension funds have nearly worthless or severely devalued paper.
This AP story is especially alarming for a number of reasons.
In light of FTW's recent (third-ever) economic alert, a number of very credible warnings from financial experts and the continuing intentional devaluation of the dollar, this is especially ominous. It is made more so by the fact that one of the nation's leading homebuilders is dumping stock hand over fist. This does not bode well for the housing bubble.
A critical distinction needs to be made however. Insider trading and insider selling are two different things.
Insider trading is a criminal activity in which a person with advance knowledge, acquired through inside involvement with economic or business events, violates his or her fiduciary and/or legal obligations for the sake of personal profit. This is what happened before 9/11 on markets from Hong Kong, to Tokyo, to Chicago, to New York, London and Berlin. This is what Martha Stewart was sent to jail for. As described in Crossing The Rubicon, right after 9/11 the SEC issued (then quickly suppressed) a list of 38 companies where it suspected that persons with inside knowledge of the attacks knew that the stock of these companies would be adversely affected by the attacks. They thereby made undisclosed billions in profit after betting that the share prices would fall.
Insider selling is a relatively tightly-policed area of stock trading where those employed at senior levels of publicly traded companies start divesting themselves of stock they own in their own companies. Insider trading is always a criminal activity. Insider selling may or may not be, which is why the SEC watches and reports on it fairly closely. Disclosure of insider selling is required by law and executives who sell stock in their own companies are required to report it for the benefit of shareholders and other investors. It is these required reports which prompted this AP wire story.
Given the fact that this pattern was evident just before each of the last two major financial slumps, this is a very ominous warning indeed. The Wall Street executives dumping their stocks are still trying to get small investors and pension funds to buy in when they know that a crash is coming. FTW strongly recommends to its subscribers that they take a look at any 401(k) plans or pension funds to which they belong and consider making immediate shifts out of stocks and into precious metals. For those lucky enough to have such assets, a consensus is emerging that now is a good time to have at least half of one's portfolio in precious metals.
We cannot make these warnings any clearer. - MCR]
Rampant Insider Selling Raises Red Flags
By Rachel Beck Associated Press Dec. 14, 2004
NEW YORK - Talk about a double standard. While corporate leaders tout the benefits of investors owning their stocks, many executives seem to be running for the doors themselves.
Selling of shares by insiders - which includes executives and other top officers and directors at a company - has been rampant in recent months, with sales rising to their highest level in more than four years in November.
While no one can pinpoint an exact reason for that run-up, the implication is troubling since big insider selling is often considered bearish for the overall market as well as for individual stocks.
Of course, not all insider selling should be construed as a bad sign. Some stock sales may just be routine or may be executives wanting to free up money to cover personal expenses or to help pay the taxes on shares they buy after exercising options. And in some sectors, namely technology, stock compensation is often the bulk of executive pay, so they sell their stock for income.
In addition, November has historically been a busy time for insider selling. That's because it comes after most companies have reported their third-quarter earnings and restrictions for selling have been lifted. In addition, some executives sell in November for tax purposes.
Still, insider-trading trackers at Thomson Financial say the recent selling bonanza is "particularly noteworthy."
Some $6.6 billion in insider stock sales took place last month, the highest level since the $7.7 billion in sales tallied in August 2000, according to Thomson. Contrast that with the $144 million worth of stock that was bought by insiders last month.
The most selling came from in the financial sector, where executives sold $882 million of their own stock in November, and health care companies, whose insiders sold $734 million worth of shares. Selling in both sectors was double the five-year monthly average, according to Thomson.
On a company-specific basis, consider what has gone on at networking company Avocent Corp., where company statements seem to contradict insiders' actions. On Nov. 1, the company announced a buyback plan for up to two million shares and said in a news released that the purchase of the stock "represents a solid investment for our shareholders."
Apparently, the company's insiders seemed to have ignored that memo. In the month following the announcement, they sold 578,565 shares out of an aggregate of 645,756 insider shares sold during the last 12 months, according to Vickers Weekly Insider, a newsletter that tracks trading by company executives.
There was no buying during that time period.
To be fair, much of the selling came as executives exercised their stock options, not surprising given that its shares have climbed 30 percent in the last two months reaching their highest level since last winter. In addition, the company's officers were blocked from making stock transactions from December 2003 through April of this year because of Avocent's acquisition of OSA Technologies Inc., according to vice president and chief accounting officer Edward Blankenship.
Yet, as Vickers editor David Coleman points out: "If they thought the stock would continue to climb, wouldn't it be in their interest to hold on to it rather than immediately get out?"
Looking beyond companies where executives say one thing but do something else, Coleman points to other warning signs that investors should use to gauge potentially negative signs associated with insider selling. He suggests looking out for insiders who have sold their stock at times that don't coincide with when they exercise options, or those who sell above and beyond the amount that they have exercised.
Sometimes, though, investors refuse to heed such warnings.
Take, for instance, the surge in shares of homebuilder NVR Inc., which has seen its stock jump from just over $432 a share at the start of the year to now trade about $730 apiece. That rise has come despite expectations for a slowdown in the housing market as interest rates begin to climb.
Also troublesome with that giant stock run-up is that NVR's insiders have been bailing out of the stock big time. They have sold more than $220 million in shares this year alone.
Among those selling: NVR CEO Dwight Schar, who hasn't purchased any stock since June 2002, only exercised just over 83,000 shares this year and has sold about 265,000 shares at a market value of about $155 million, according to Thomson. The company declined to comment on its insider selling, said NVR spokesman Dan Malzahn.
At least so far, NVR's investors have ignored the insiders' moves, and haven't been hurt by that decision. Whether that luck continues will surely be tested in the months ahead.
--- Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck@ap.org
Like many who have come to the Naked Shorting Manipulation Issue, I had a major problem at first of simply not believing the industry and its regulatory agencies would allow fraud of such enormous scale to have been perpetrated. I finally got over this problem, but it was incredibly difficult, in no small part because I had viewed the SEC to be almost sacrosanct. This was the second big hurdle I had to overcome, and it was damned difficult. I have known, indeed, been friends with a number of former senior SEC personnel, executives, and counsel of impeccable personal credentials and integrity. Today, they are uniformly appalled by the SEC's failures, incompetence, arrogance, bias and in many cases, suspicions of far worse, the appearance of corruption and wholesale conflicts of interest. The old SEC we knew had one mission: To protect the individual investor at all costs. That mission has been lost in a morass of institutional and political issues created by the financial revolution seeded by ERISA in 1974.
When I first came to the industry, it was to work as an administrator for the Block Trading Desk at Bache and Company. I was, to my good fortune, given additional responsibilities for administration of Over-The-Counter Trading, Options Trading, and Corporate Bonds. Within a short time, I was doing that work on the side and executing orders for regional accounts. Later, I would be responsible for block trading coverage of 13 Southeastern States for White, Weld, eventually leading me to listed options marketing to institutions, trading options and related equities for institutional options accounts, handling options and cash arbitrage account trading, and eventually selling clearing and execution services internationally. This last job would lead me to start my own company and to sell its concept to a major Wall Street firm, where I started and ran a broker-dealer and registered investment advisor for them. In that job, I would use extensive computer, math and accounting skills in a number of special assignments that included building the first AI expert system emulation for trading mortgage-backed securities, on the first SUN LAN on Wall Street.
Throughout this career path, my first love was development stage companies, beginning with a proposal to buy the first European and Middle Eastern franchise for revolutionary exercise equipment in 1975, to the first application of holography for Computer Aided Design, and many more transactions along the way. In twenty-nine years, I have had the opportunity to work on an enormous range of projects in more than 30 separate domains. Through the steps along the way, I worked on major trading system initiatives for Wall Street, on clearing systems for international stock exchanges and the first entirely electronic exchanges, on stock indexes for major publications globally, on every form of imaginable intellectual property, ultimately sitting on the Boards of four public and three private companies, all in their early stages of development.
The real point of all this is that I had been there, seen it and done it, or at least I thought so until I ran into this shorting scandal. When I first encountered this, I had to go back into my technical charts to find a parallel, and it was the 1929 Crash. I remembered the stories from some of the old timers I met when I first came to Wall Street, who lived through that period. One of those stories related to the magnifier effect on the Crash caused by criminals and professional stock manipulators SELLING AND SHORTING "WATERED" STOCK to take advantage of what they considered excessive valuations. Well, the 2000 Crash was a bigger one than 1929 on a percentage basis. The central contributing factor to the scope of this 2000 Crash was the illegal sale of unregistered securities, via the mechanism of using holes in the DTCC system that permitted naked shorting by non-US persons and entities, broker-dealers, market makers, hedge funds domestic and international claiming the arbitrage exemption and more. In essence, this became obvious to professionals in 1998 through 2000. The bad guys found a way to electronically counterfeit stock never registered by, known to, or issued by the real underlying company. And investors never knew the difference.
I had the experience of living through a volatile and typically short-lived dot.com, and what I saw was that real investors never sold their stock. So where did this stock that was sold come from? I was able to analyze where the selling had come from, to whose benefit. The answer was ugly. DTCC was re-hypothecating a single share over and over again, collecting a fee from the Stock Borrow program in the process. Hedge funds, and others globally, jumped on the dying body of American securities markets in droves. In July, 2000, before I had a really had a hard handle on the scope of this fraud, I warned a CEO of a Major Stock Exchange that DTCC was dirty on the shorting, not knowing at the time he was on the Board of that entity. Counterfeit/kited shares were being created wholesale by naked shorting, with DTCC taking it to the bank on both sides.
Any trader with experience will tell you that the market is ultimately a zero sum process. That means in layman terms that for every dollar lost, there is a dollar made somewhere else. If American retirement accounts lost 50% of their value, that value went into someone else's pocket. The ultimate canard (cover-up lie) is that these accounts had "Paper Losses", like they weren' t real. This is absolute horse manure, a pure form of political BS, designed to give politicians and bureaucrats cover for malfeasance, incompetence and in more than a few cases, venality. So where did this money go?
In an ill-conceived move to "globalize" US securities markets, the NASD, the NYSE, the AMEX, and others offered open access to US markets to persons and entities (such as offshore hedge funds, etc) who had no imperative to comply with US Securities Laws. The result was as if our market was a budding elm tree hit by a billion locusts, who stripped the life out of those segments of the markets that didn't know they had a problem, that didn't know how to protect themselves, and that got no help from their own US Regulators, including the SEC, the NASD and the DTCC.
At the bottom of this crash, some $17 Trillion dollars were gone from US investments' market caps, and this didn't include the sector hit the hardest, the small public company stocks. Over 5000 companies in this segment were bankrupted, more if you use the more aggressive estimates of 7500 plus.
Some of these companies had officers and directors who would not go quietly into the night, but chose instead to fight. It has been ugly. There have been thousands of outright lies by those who were supposed to protect us, instances of criminals warned by regulators to avoid arrest, of bribes paid to other regulators to look the other way, ad infinitum, ad nausea. Now, with everything crashing in on them, these same parties who absolutely denied the existence of any naked shorting problem are reversing their positions ever so slowly, so as to protect those who stole so much.
And what has been the attitude displayed towards those who made these problems public? They have been systematically attacked for speaking out, harassed, denied financing, had their lives threatened repeatedly, been sued by the Government and worse. Their only defense has been an active plaintiff's bar who have championed these parties out of funds coming from their own pockets. One very bright observer of Naked Shorting has labeled this "Reverse Regulator Syndrome".
This week, the SEC put out the most insulting and morally offensive proposed rule yet, one that would bar companies from putting restrictions on their stocks that would impair their effortless transfer, in an honest effort to protect themselves from professional thieves. Annette Nazareth of the SEC's Market Regulation Unit said that actions taken by companies to protect themselves in this manner from criminal predators were improperly impairing a more important goal of getting to paperless, electronic, straight through settlement. Her position is the "Stalin" analog: "To make an omelet, you have to break a few eggs."
But instead of shooting Ukrainian Kulak farmers to create Farming Co-ops, she says we have to let many small companies be killed off for the greater good of automated securities markets. This Socialist clap-trap run amok, treason to its core in our American system.
When the American people become fully aware of the sheer chutzpah of fraud on this scale, and who the beneficiaries are, God help them. The ACLU won't be able to save them. Some cumulative number NORTH of $4 TRILLION DOLLARS is GONE. If the thieves don't cough it up, they should be hunted for profit and sport.
BEWARE THE MOB. This old Roman saying has real relevance here. The scum here need to have it screamed at them: YOU AREN'T GOING TO GET AWAY WITH THIS.
To paraphrase an old movie line about prison, I remember the words: "It is an insane bunch of people, in an insane place, with insane rules, behaving insanely. SO IT HAS ITS OWN KIND OF LOGIC." I remember once hearing about the necessity for a lawyer to be able to put himself in a "Moral Vacuum", so he could represent guilty clients. The lawyers representing these bad guys have gone from a "Moral Vacuum" to a "Moral Black Hole", whose immorality is so strong, nothing can escape. Their lawyers can be treated no differently than the criminal scum they represent. Scum seeks its own level. And these types work well with insanely amoral structures.
Enough philosophizing. WE HAVE TO GET ANGRY, AND STAY THAT WAY. WE MUST ESCALATE THE RHETORIC, AND BURY LIARS WITH THEIR OWN CONTRADICTORY STATEMENTS. Mark my words, THIS IS GOING TO GET UGLY. Too much has been stolen by too many.
I had hoped the system would right itself of its own accord, but I am now 90/10 this isn't going to happen. America is the loser.
Subject: What is the Real Agenda of Our Regulators?
Friends,
I have wondered what the real objective of our regulators and Government officials is in today's world. They must have some scheme as to what it is they want the capital formation structure of the United States to look like, and how they want it to mesh with the rest of the Financial and Political World.
I can posit one possible scenario of what the objectives of our Institutional authorities is, but it is relatively terrifying in its implications.
A clear bias has been demonstrated to the favor of professional merchant bankers over traditional merchant bankers, to electronic brokers over traditional broker-dealers, to the neutering of traditional fundamental research to the favor of settlement interests, and to the support of major structured finance to any kind of speculative investment.
I have said before that if a Microsoft, Cisco, etc., were to be created today, they would never be allowed to succeed, nor would any principal be allowed to accrue the great wealth of the entrepreneurs of that generation.
Reactionary forces in major companies have always feared the creation of a technology that would put them out of business. I could recite literally dozens of stories of major companies that blew it when new trends emerged, including Xerox, IBM, et al. Today, the very companies who created enormous new markets out of thin air (digital switches, personal computers, et al) now fear the next technology that could potentially make them the next generations' Xerox, IBM, etc, including Apple, Microsoft, Cisco, etc.
It is clear that the Government wants more stability, even if it is at the price of lost opportunities, which few bureaucrats care about anyway since they are paid by Government scale. The technical revolution that created the financial behemoth that is the Modern United States has always come from small companies working with admittedly limited resources, run by entrepreneurs willing to risk it all. Today, virtually none of the Companies that could create the next Microsoft or Apple would have a snowball's chance in hell of being successful.
Where our Regulators seem determined to lead the US is to a European style "Financials First" system of integrated banks and brokerages, who feed internal and external merchant banking and arbitrage activities that have none of the risk profiles of entrepreneurial investments. They seem to be compelled to take this path, even if they have to restrict the rights of the individual investor so as to be violated wholesale, and to attack title to property so as to be made dramatically less meaningful.
So what has such a structure done for Europe? England, France and Germany are economic wastelands. The national bank of one of these countries, made wildly successful from the deposits of its citizens, is now redlining its own country, adopting an attitude that the Bank's assets are its first, and that they must seek the best risk adjusted returns without consideration of the interests of their depositors. Unemployment is at all time highs throughout Europe. There is no small company capital formation process of any significance, and not one of these countries has managed to produce so much as a single Apple, Microsoft, Cisco, etc. Before they lend money to a small technology start-up, they would rather sell arms and munitions country to country, and their own countries be damned.
Is that what American's want done with their deposits? The State Bank of France is an unfiled bankruptcy. Deutsche Bank's international headquarters is in London. Britain has no major bank of any credibility, unless HSBC is called British, and British unemployment is over 40%, half of it permanent and hard core. Germany is on the verge of an economic meltdown thanks to its socialism. Russia is 100 years from a real capitalistic democracy, about the same time it took the US to sort this system out. German unemployment is over 50% in real terms. It admits to 25% unemployment, but that is only of workers who are protected under their socialist system. The real number is double that, because like the US, anyone unemployed more than one year falls off the statistic. Also, but not like the US, 65% of all German workers are independent contractors, not covered by socialist benefit programs. I am informed by reliable sources that as many as half of these workers are without employment. You do the math on real unemployment in Germany.
Technical start-ups in England, France and Germany? You could count the ones of significance on two hands. This is particularly stunning when you consider the brilliance of Germans at an engineering level. That brilliance has been more directed at process engineering of plants for production of WMD's than consumer technology. Siemens, one the technology lights of Europe, is another unfiled bankruptcy, being carried by Socialist policies.
Our representatives and regulators must be told in no uncertain terms that this is not what Americans want for their future.
We have been given every possible signal of the direction and intent of our Government. Simply begin with the orchestrated 2000 Bear Raid/Crash, to the current shorting scandal. Look at the Mandarins of Venture Capital and Law. The arrogance is literally stifling.
It is time for Americans to WAKE THE HELL UP, JACK. If you can't see what is going on, then I suggest you get off your collective asses and go see what exactly is going on in the rest of the world.
It was only five or six years ago that Bank America and Nation's Bank agreed to a $350 Billion penalty to be exacted in the form of new loans, for red-lining its own customers all over the country. What kind of event causes US Banks, led by our Federal Reserve to stop lending to us, and choose to lend to businesses in China, India and Bangladesh over US Companies because they have better labor costs? We are really there now. Where is real seed investment? Who the hell thinks the Venture Capital Community really makes seed investments of any significance? Draper Fisher, Jurvetson brags on their web site that they fund about 15 transactions out of some 12,000 sent to them every year.
Does anyone really believe that there were only 15 deals worthy of funding in such a set? Worse, does anyone believe that the 15 selected will have any higher success rate than other start-ups (which few of the 15 truly are)? We need tens of thousands of start-ups every year if we are to maintain any sort of standing in the emerging economic and technical world. We should be happy if only two-thirds fail. Similar failure rates made this country what it is. It is the Babe Ruth analogy. He was the home run King, and the strike out King at the same time. Our capital formation structures must be highly diversified, and able to support every ounce of creativity this Country is capable of mustering. As we shut down and limit such creative process by limiting access to necessary capital, we signal the end of our democracy and our capitalist system.
We are so close to such a scenario of severely limited opportunities that it is tough to imagine. The problem is that if everyone waits until it happens, they will have a Humpty-Dumpty scenario, a system so broken the pieces can't all be put back together again resembling the real thing.
does regulation SHO mean the end of naked shorting? I guess we will soon see. The first forced buyins of threshold securities are due to start January 28th. Right now, everyone seems to be waiting. Volume is up substantially on the threshold-listed group, but so far there seems to be little in the way of pre-covering pps appreciation going on. we'll see . In the mean time let's keep an eye on things. I have the compiled and sorted threshold lists posted daily on my site. There is also naked-shorting related news links and forum. please visit my site at www.thresholdstocks.com
Cherokee, I'd like to know what you consider controversial with respect to naked shorting of a stock.
It's illegal. Nothing controversial about that!
what's conroversial, is when people in power positions, able to revoke trading status of companies is presented with proof of naked shorting, and SHE (the goo judge brenda) does nothing.
As a member of the justice system, she is required to at least send the suspicion to a higher investigative authority for them to conduct further investigations into the allegations.
She didn't in the case of CMKX's hearing. She chose to rule the naked short evidence as out of scope of the hearing, and then promptly forget the evidence of naked shorting that was provided.
Like I said, nothing congtroversial about the issue...it's illegal. The controversey is in how it's being handled by the SUC Enforcement Division.
IMO, it appears the SUC is in bed with the market makers and the hedge funds - who make their money counterfeiting shares and robbing the investing public blind.
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Personally, I've always found offshore hedge funds to be very intriguing, and interesting, but not always very informative. So I did some research and started my own webpage to help people get started with offshore hedge funds.
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Nice blog :)......Interesting post on Naked Shorting. Personally, I've always been fascintated with offshore hedge funds, so I created a website not long ago called just that - offshore hedge funds.
It'd be great if you were to drop by for a few seconds - have a look around, check out a few of the informative links I've got there.
Nice blog :)......Interesting post on Naked Shorting. Personally, I've always been fascintated with w t offshore, so I created a website not long ago called just that - w t offshore.
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33 Comments:
I have to comment in a naked and short way?.. ok! Done! ;)
Taro, thanks for your input, very intuitive...
Here is a new site for intelligent comments about this very controversial topic, which has significant criminal implications.
Anyone reading this needs to read USC Title 18, Section 514, regarding the criminal investigative authority over counterfeiting of commercial securities being under the aegis of the US Secret Service, now part of Homeland Security. Ergo, the word counterfeiting in the title of this blog.
This site is open to opposing opinions, and welcomes them based on presentation and analysis of facts. Personal attacks are not appropriate or tolerated.
Let us hear from everyone who is up on this topic, and knows the laws.
Well said Cherokee...
As a base element in everyone's knowledge base, I encourage everyone to visit the Web Site of Dave Patch.
It is www.investigatethesec.com.
I encourage you to read the many articles and links on this site. No interested party has done more to get this cause in front of the professional community, including officials of the SEC, the NASD, the DTCC, the Congress including the Senate Banking Committee, and the House Committee on Financial Services, along with many victim shareholders.
Subject: SEC Probes Firms That Gather Data on Who
Owns What Shares
Tracking Stocks
SEC Probes Firms That Gather
Its Question: Have They Paid
Custodian Banks' Staffers
To Give Up Information?
Free Steaks and Game Tickets
By SUSAN PULLIAM
Staff Reporter of THE WALL STREET JOURNAL
December 8, 2004; Page A1
(See Corrections & Amplifications item below.)
A back-office clerk at CIBC Mellon Trust Co. was
filling in for a
colleague this summer when she got an unusual e-mail.
The sender
wanted data about which of the big investors the
company dealt with
owned a particular stock -- information the clerk knew
was supposed
to be top secret.
The employee refused to provide the data. An internal
probe concluded
that the clerk she was filling in for had for years
been giving out
data on stockholdings, according to people close to
the situation.
They say the probe found that in return, this clerk
got baseball and
hockey tickets and cash payments of $50 to $100 per
tip. The people
add that a separate internal probe found that four
employees of
Mellon Financial Corp. had received Pittsburgh Pirates
tickets, $50
American Express gift certificates and boxes of steaks
for such data.
The incident offers a window into a secret Wall Street
world of
gathering and selling real-time data about big
investors' stock
trading. This information, which is generally
confidential, is so
valuable that a whole industry has sprung up around
finding it out.
Businesses known as stock-surveillance firms gather
trading data as
best they can and market it to corporations that are
curious about
who is buying and selling their shares.
Because small bits of trading data can be gleaned
through legitimate
sources, the business model is perfectly legal. But
there's the
potential for stock-surveillance firms to veer off the
legal track if
they use improper means to find out who is buying or
selling what.
There's also the potential for illegal insider trading
if the
information falls into the hands of investors who use
it in their
trading.
Now the Securities and Exchange Commission is
investigating the stock-
surveillance business, sending out subpoenas to
several data firms,
according to people close to the situation. Among
issues the SEC is
looking into: Whether, at banks that act as custodians
of stock
during the trading process, some back-office workers
systematically
received gratuities for leaking data. The SEC also
wants to know
whether any trading data may have been turned over to
investors and
led to insider trading.
SEC enforcement chief Stephen Cutler said, "As a
general matter, we
are interested in whether confidential portfolio
information has been
leaked at any point along the chain." A person close
to the situation
said the SEC probe focuses on possible data leaks as
far back as 2000.
The CIBC Mellon Trust case helped spur the SEC's
enforcement division
to action, people familiar with the matter say. The
trust, based in
Toronto, is a joint venture of Canadian Imperial Bank
of Commerce and
Pittsburgh's Mellon Financial. A spokeswoman for CIBC
Mellon said it
has taken steps to correct the problem uncovered by
the joint
venture's internal investigation. A spokesman for
Mellon Financial
said that regulators were notified quickly after the
problem emerged,
adding that Mellon "regrets the unauthorized
disclosure of custodial
information" and was "very proactive" in informing
clients. A
spokesman for CIBC said it doesn't carry out custodial
activities in
the U.S. but declined to comment further.
The joint-venture employee who the probe concluded had
been giving
out data for years was Yvonne Williams, say people
close to the
situation. She was fired in July after the venture's
internal
investigation. Ms. Williams couldn't be reached for
comment. Three of
the four Mellon Financial employees cited in a Mellon
probe also have
been dismissed. No employees have been charged with
anything.
Among firms subpoenaed in the SEC's investigation, say
people
familiar with the matter, is Thomson Financial, a unit
of Thomson
Corp. of Toronto. Thomson Financial's Capital Markets
Intelligence
unit is one of the largest stock-surveillance firms.
The unit told
its employees this week that one CMI executive had
left after an
internal probe found business practices conflicting
with its code of
conduct, say people close to the situation. They add
that at least
two other employees are expected to depart.
Thomson wouldn't comment on the probe but said it has
taken steps to
correct problems. "We take any allegation of
impropriety or
wrongdoing seriously and will not tolerate any such
behavior," said a
spokesman. He added that Thomson provides the trading
data it gathers
only to its corporate clients and their agents.
Also receiving subpoenas, according to people familiar
with the SEC
probe, are Ilios Partners; the Georgeson Shareholder
Communications
Inc. unit of Computershare Ltd.; and Miller Tabak &
Co., an
institutional trading firm that has a unit called
Strategic Stock
Surveillance.
Corporations pay fees to stock-surveillance firms in
order to know
who is buying and selling their shares. They have
various motives for
wanting to know, such as to gauge the effectiveness of
their investor-
relations efforts and, in rare cases, to find out if a
potential
hostile bidder is accumulating their shares.
Some stock traders covet information about big
investors' buying and
selling for a different reason: It gives a sense of
which way a stock
is likely to move. For just that reason, those big
investors like to
keep their moves secret.
When a mutual-fund family has a large chunk of stock
it wants to buy
or sell, it often does the trading in pieces over
several days. A key
reason is to disguise its intentions, so others can't
jump in and buy
or sell the stock first -- driving up the fund's cost
of buying or
reducing what it gets from selling. But if a trader
knew a big fund
had begun buying, he could assume there was more
buying to come, and
that the stock would tend to rise.
"If speculators know in real time what you were doing
they can jump
aboard and piggyback you or work against you," says
Samuel Hayes, a
Harvard Business School professor. If a mutual fund's
performance
suffered as a result, among those hurt would be fund
shareholders, he
adds. Mutual funds typically disclose changes in their
holdings only
four times a year, after the end of each quarter.
The business of ferreting out data about big
investors' holdings has
its roots in takeover battles. There, warring camps
want to know the
identities of shareholders so they can appeal to them
for their
votes. The camps hire proxy-solicitation firms, whose
job includes
identifying shareholders and lobbying them.
The business shifted when hostile takeovers started to
wane in the
early 1990s. Some proxy-solicitation firms began
building a business
in stock surveillance, hoping to make customers of
corporations that
simply want to know who their shareholders are.
Stock-surveillance firms developed an ability to tap
into the arcane
processing world that exists behind the scenes as
investors buy and
sell.
For instance, when a pension or mutual fund buys
shares, it places
the order with a broker, who goes to a stock
marketplace to have the
order matched with a seller. After the order is
filled, the fund
sends instructions to the broker about where to
deliver the shares
and which "custodian bank" will make payment for them.
The fund also
sends instructions to that custodian bank, telling it
to receive the
shares and pay the broker.
Both the broker and the custodian bank send
instructions about the
trade to the Depository Trust & Clearing, or "the
DTC." It is part of
a private organization set up in the 1970s to formally
process and
make final the trades -- steps known as "settlement"
and "clearing,"
respectively -- for the bulk of the U.S. stock
trading.
The DTC formally moves ownership of the shares to the
buyer and sends
payment for the trade through one of the Federal
Reserve banks. This
is the final step in a process that can take up to
three days to
complete.
Stock-surveillance firms rely partly on their access
to reports from
the DTC. This access is legitimate, explains Larry
Thompson, senior
deputy counsel of DTCC, holding company for the DTC.
That's because
SEC rules require the DTC to provide, at a company's
request, daily
reports of where its shares are held in custody once
settlement is
completed. And with a company's permission, the DTC
can also turn
over such reports to "agents" -- such as proxy
solicitors and stock-
surveillance firms.
Mr. Thompson says that the DTC lists give only the
total number of a
company's shares held at each custodian bank. They
don't provide data
about specific investors' holdings or other sensitive
trading
information.
But stock-surveillance firms combine these DTC
listings with their
own database of information about where big investors
keep their
shares -- such as what banks they use as custodians.
Sometimes, these
two bits of data -- combined with regulatory filings
and information
about the investment strategies of mutual funds -- are
enough to get
to the bottom of who is buying or selling shares, says
Kevin Marcus,
head of the part of Thomson that includes Capital
Markets
Intelligence.
"It is to some extent a process of deduction," he
says.
Since DTC listings don't provide the up-to-the-minute
information
that some corporations want about who is buying and
selling their
shares, stock-surveillance firms turn to various
market contacts to
try to provide this. Among them are stock-exchange
"specialists" --
the traders on the New York Stock Exchange floor whose
job is to
match buy orders with sell orders. Employees of
stock-surveillance
firms say they sometimes even turn to employees at the
mutual funds
themselves in hopes of getting such information.
And they sometimes ask employees at the custodian
banks -- a
particular focus of the SEC probe. These employees are
continually
receiving up-to-the-minute information from mutual
funds, pension
funds and other institutional investors about what
they're buying and
selling.
Companies use stock-surveillance services for a
variety of legitimate
business purposes. Ralph Poltermann, treasurer of
AptarGroup Inc., a
maker of packages such as flip-tops for ketchup
bottles, says his
company hired Thomson to help it track trading in its
own shares
after meetings with investors.
For instance, AptarGroup met with big investors at a
Credit Suisse
First Boston conference in San Francisco on Sept. 28.
Within a week,
Mr. Poltermann says, an analyst at Thomson told him
that at least one
of those big investors was trading in AptarGroup
shares. "It's magic
to me," Mr. Poltermann says. "They have insights and
contacts we
don't have."
Big investors, on the other hand, are annoyed that a
business has
sprung up to try to find out about their trading. John
Wheeler, head
trader at the American Century mutual-fund family,
recalls having an
eerie feeling a few years back when he was told that
Sprint Corp.'s
chief executive had called his firm. American Century
had bought
Sprint shares just the day before. But William Esrey,
then Sprint's
CEO, already had called to thank the fund family for
its purchase.
"Appreciate your support," Mr. Wheeler recalls Mr.
Esrey telling an
American Century executive. Mr. Esrey says through a
Sprint spokesman
that he doesn't recall the conversation but that it
wasn't unusual
for him to make such a call to investors.
The trade hadn't even "settled" yet. The fund hadn't
paid for the
Sprint stock. So normally only American Century, its
broker,
custodian bank and others in the custody chain would
have known who
was buying the shares. Sprint, it turned out, had
legitimately gotten
its information from Thomson's stock-surveillance
unit, a Sprint
spokesman says.
Many large companies use such services, getting daily
updates and
glossy monthly and quarterly summaries about activity
in their
shares. Dow Jones & Co., publisher of The Wall Street
Journal, once
used stock-surveillance services but no longer does.
Thomson says its
CMI unit has about 800 corporate clients, which pay
$40,000 to
$60,000 a year each for the service. The
stock-surveillance unit had
about $33 million in revenue last year, a tiny sliver
of Thomson
Corp.'s $7.44 billion revenue.
Andrew Brooks, head trader at mutual-fund giant T.
Rowe Price, says
his trading desk often receives mysterious calls
asking about changes
in its holdings. Often, he says, the callers say they
are "just
checking your ownership on behalf of the company." He
says callers
typically hang up when pressed for more information on
why they're
calling.
Mr. Brooks and a few other mutual-fund managers,
including American
Century officials, discussed their concerns about
trading leaks 18
months ago with Lori Richards, head of the SEC's
office of compliance
and inspection, after she contacted them.
In the case of CIBC Mellon Trust, the joint venture
notified
regulators of the incident involving Ms. Williams, the
back-office
clerk, this summer. Officials of the trust learned of
the problem
after Ms. Williams's fill-in told a supervisor of a
surveillance
firm's request for data, say people close to the
matter.
Ms. Williams's knowledge of stockholdings was broad.
It wasn't
limited to the names of shareholders who had permitted
the custodian
bank to release data about their holdings -- so-called
Non-Objecting
Beneficial Owners, or "nobos." Her knowledge would
have included all
shareholders of companies.
Mellon Financial scoured e-mails, faxes and phone
records to find out
whether others might have accepted payments for data.
It determined
that the leaks had occurred in the area of the bank
that handles
communications with shareholders on matters like stock
splits and
dividends, the people familiar with the matter say.
They say Mellon
concluded that four employees had provided data about
specific
stockholdings of big investors, including Fidelity
Investments. A
spokeswoman for Fidelity says it has "always been
concerned about
disclosure of this information outside of required
regulatory
filings."
The Mellon employees had access to a full list of
investors for each
stock. The bank's probe concluded, according to people
close to the
situation, that they released data about the holdings
of shareholders
who hadn't given the custodian bank such permission.
In return, it
concluded, they got sports tickets, steaks and gift
certificates.
Mellon Financial and its joint venture with CIBC
notified hundreds of
customers of the problem this summer through calls and
e-mails.
Write to Susan Pulliam at susan.pulliam@w...
Corrections & Amplifications:
CIBC Mellon Global Securities Services Co. is a
custodial-services
joint venture of Mellon Financial and Canadian
Imperial Bank of
Commerce. This article incorrectly referred to the
custodian service
as CIBC Mellon Trust Co.
http://tinyurl.com/4ellz
Rampant Insider Selling Raises Red Flags - AP Reports Major Corporate Execs, Including Some From the Homebuilding Industry Are Dumping Stocks - Serious Predictor of a Coming Crash - Special Commentary by Michael C. Ruppert
[In 2000 and 2002, as the US financial markets tanked, investors lost trillions of dollars in equity as stock prices plunged and investment portfolios - many connected to pension funds - lost trillions of dollars in value. What was documented in both cases was that senior executives at many of the twenty or more companies involved (WorldCom, Enron, Adelphia, Merck, Global Crossing, to name a few) had engaged in a tactic called "pump and dump" just before the stock prices collapsed. Stock prices are pumped up by the executives and key insiders who then sell at the peak before everyone else gets reamed.
In a pump and dump operation, those who can influence stock prices issue glowing reports which cause investors to put their hard-earned dollars into a stock right before it collapses. This is a wealth transfer from poor or middle class folks to the absurdly wealthy. Immediately prior to the stock's collapse, the guys on top cash out and then the price plummets. The bad guys have the cash and the little investors and pension funds have nearly worthless or severely devalued paper.
This AP story is especially alarming for a number of reasons.
In light of FTW's recent (third-ever) economic alert, a number of very credible warnings from financial experts and the continuing intentional devaluation of the dollar, this is especially ominous. It is made more so by the fact that one of the nation's leading homebuilders is dumping stock hand over fist. This does not bode well for the housing bubble.
A critical distinction needs to be made however. Insider trading and insider selling are two different things.
Insider trading is a criminal activity in which a person with advance knowledge, acquired through inside involvement with economic or business events, violates his or her fiduciary and/or legal obligations for the sake of personal profit. This is what happened before 9/11 on markets from Hong Kong, to Tokyo, to Chicago, to New York, London and Berlin. This is what Martha Stewart was sent to jail for. As described in Crossing The Rubicon, right after 9/11 the SEC issued (then quickly suppressed) a list of 38 companies where it suspected that persons with inside knowledge of the attacks knew that the stock of these companies would be adversely affected by the attacks. They thereby made undisclosed billions in profit after betting that the share prices would fall.
Insider selling is a relatively tightly-policed area of stock trading where those employed at senior levels of publicly traded companies start divesting themselves of stock they own in their own companies. Insider trading is always a criminal activity. Insider selling may or may not be, which is why the SEC watches and reports on it fairly closely. Disclosure of insider selling is required by law and executives who sell stock in their own companies are required to report it for the benefit of shareholders and other investors. It is these required reports which prompted this AP wire story.
Given the fact that this pattern was evident just before each of the last two major financial slumps, this is a very ominous warning indeed. The Wall Street executives dumping their stocks are still trying to get small investors and pension funds to buy in when they know that a crash is coming. FTW strongly recommends to its subscribers that they take a look at any 401(k) plans or pension funds to which they belong and consider making immediate shifts out of stocks and into precious metals. For those lucky enough to have such assets, a consensus is emerging that now is a good time to have at least half of one's portfolio in precious metals.
We cannot make these warnings any clearer. - MCR]
Rampant Insider Selling Raises Red Flags
By Rachel Beck
Associated Press
Dec. 14, 2004
NEW YORK - Talk about a double standard. While corporate leaders tout the benefits of investors owning their stocks, many executives seem to be running for the doors themselves.
Selling of shares by insiders - which includes executives and other top officers and directors at a company - has been rampant in recent months, with sales rising to their highest level in more than four years in November.
While no one can pinpoint an exact reason for that run-up, the implication is troubling since big insider selling is often considered bearish for the overall market as well as for individual stocks.
Of course, not all insider selling should be construed as a bad sign. Some stock sales may just be routine or may be executives wanting to free up money to cover personal expenses or to help pay the taxes on shares they buy after exercising options. And in some sectors, namely technology, stock compensation is often the bulk of executive pay, so they sell their stock for income.
In addition, November has historically been a busy time for insider selling. That's because it comes after most companies have reported their third-quarter earnings and restrictions for selling have been lifted. In addition, some executives sell in November for tax purposes.
Still, insider-trading trackers at Thomson Financial say the recent selling bonanza is "particularly noteworthy."
Some $6.6 billion in insider stock sales took place last month, the highest level since the $7.7 billion in sales tallied in August 2000, according to Thomson. Contrast that with the $144 million worth of stock that was bought by insiders last month.
The most selling came from in the financial sector, where executives sold $882 million of their own stock in November, and health care companies, whose insiders sold $734 million worth of shares. Selling in both sectors was double the five-year monthly average, according to Thomson.
On a company-specific basis, consider what has gone on at networking company Avocent Corp., where company statements seem to contradict insiders' actions. On Nov. 1, the company announced a buyback plan for up to two million shares and said in a news released that the purchase of the stock "represents a solid investment for our shareholders."
Apparently, the company's insiders seemed to have ignored that memo. In the month following the announcement, they sold 578,565 shares out of an aggregate of 645,756 insider shares sold during the last 12 months, according to Vickers Weekly Insider, a newsletter that tracks trading by company executives.
There was no buying during that time period.
To be fair, much of the selling came as executives exercised their stock options, not surprising given that its shares have climbed 30 percent in the last two months reaching their highest level since last winter. In addition, the company's officers were blocked from making stock transactions from December 2003 through April of this year because of Avocent's acquisition of OSA Technologies Inc., according to vice president and chief accounting officer Edward Blankenship.
Yet, as Vickers editor David Coleman points out: "If they thought the stock would continue to climb, wouldn't it be in their interest to hold on to it rather than immediately get out?"
Looking beyond companies where executives say one thing but do something else, Coleman points to other warning signs that investors should use to gauge potentially negative signs associated with insider selling. He suggests looking out for insiders who have sold their stock at times that don't coincide with when they exercise options, or those who sell above and beyond the amount that they have exercised.
Sometimes, though, investors refuse to heed such warnings.
Take, for instance, the surge in shares of homebuilder NVR Inc., which has seen its stock jump from just over $432 a share at the start of the year to now trade about $730 apiece. That rise has come despite expectations for a slowdown in the housing market as interest rates begin to climb.
Also troublesome with that giant stock run-up is that NVR's insiders have been bailing out of the stock big time. They have sold more than $220 million in shares this year alone.
Among those selling: NVR CEO Dwight Schar, who hasn't purchased any stock since June 2002, only exercised just over 83,000 shares this year and has sold about 265,000 shares at a market value of about $155 million, according to Thomson. The company declined to comment on its insider selling, said NVR spokesman Dan Malzahn.
At least so far, NVR's investors have ignored the insiders' moves, and haven't been hurt by that decision. Whether that luck continues will surely be tested in the months ahead.
---
Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck@ap.org
FROM email:
Your name:
TO email:
An Open Letter on the Shorting Scandal:
Like many who have come to the Naked Shorting Manipulation Issue, I had a major problem at first of simply not believing the industry and its regulatory agencies would allow fraud of such enormous scale to have been perpetrated. I finally got over this problem, but it was incredibly difficult, in no small part because I had viewed the SEC to be almost sacrosanct. This was the second big hurdle I had to overcome, and it was damned difficult. I have known, indeed, been friends with a number of former senior SEC personnel, executives, and counsel of impeccable personal credentials and integrity. Today, they are uniformly appalled by the SEC's failures, incompetence, arrogance, bias and in many cases, suspicions of far worse, the appearance of corruption and wholesale conflicts of interest. The old SEC we knew had one mission: To protect the individual investor at all costs. That mission has been lost in a morass of institutional and political issues created by the financial revolution seeded by ERISA in 1974.
When I first came to the industry, it was to work as an administrator for the Block Trading Desk at Bache and Company. I was, to my good fortune, given additional responsibilities for administration of Over-The-Counter Trading, Options Trading, and Corporate Bonds. Within a short time, I was doing that work on the side and executing orders for regional accounts. Later, I would be responsible for block trading coverage of 13 Southeastern States for White, Weld, eventually leading me to listed options marketing to institutions, trading options and related equities for institutional options accounts, handling options and cash arbitrage account trading, and eventually selling clearing and execution services internationally. This last job would lead me to start my own company and to sell its concept to a major Wall Street firm, where I started and ran a broker-dealer and registered investment advisor for them. In that job, I would use extensive computer, math and accounting skills in a number of special assignments that included building the first AI expert system emulation for trading mortgage-backed securities, on the first SUN LAN on Wall Street.
Throughout this career path, my first love was development stage companies, beginning with a proposal to buy the first European and Middle Eastern franchise for revolutionary exercise equipment in 1975, to the first application of holography for Computer Aided Design, and many more transactions along the way. In twenty-nine years, I have had the opportunity to work on an enormous range of projects in more than 30 separate domains. Through the steps along the way, I worked on major trading system initiatives for Wall Street, on clearing systems for international stock exchanges and the first entirely electronic exchanges, on stock indexes for major publications globally, on every form of imaginable intellectual property, ultimately sitting on the Boards of four public and three private companies, all in their early stages of development.
The real point of all this is that I had been there, seen it and done it, or at least I thought so until I ran into this shorting scandal. When I first encountered this, I had to go back into my technical charts to find a parallel, and it was the 1929 Crash. I remembered the stories from some of the old timers I met when I first came to Wall Street, who lived through that period. One of those stories related to the magnifier effect on the Crash caused by criminals and professional stock manipulators SELLING AND SHORTING "WATERED" STOCK to take advantage of what they considered excessive valuations. Well, the 2000 Crash was a bigger one than 1929 on a percentage basis. The central contributing factor to the scope of this 2000 Crash was the illegal sale of unregistered securities, via the mechanism of using holes in the DTCC system that permitted naked shorting by non-US persons and entities, broker-dealers, market makers, hedge funds domestic and international claiming the arbitrage exemption and more. In essence, this became obvious to professionals in 1998 through 2000. The bad guys found a way to electronically counterfeit stock never registered by, known to, or issued by the real underlying company. And investors never knew the difference.
I had the experience of living through a volatile and typically short-lived dot.com, and what I saw was that real investors never sold their stock. So where did this stock that was sold come from? I was able to analyze where the selling had come from, to whose benefit. The answer was ugly. DTCC was re-hypothecating a single share over and over again, collecting a fee from the Stock Borrow program in the process. Hedge funds, and others globally, jumped on the dying body of American securities markets in droves. In July, 2000, before I had a really had a hard handle on the scope of this fraud, I warned a CEO of a Major Stock Exchange that DTCC was dirty on the shorting, not knowing at the time he was on the Board of that entity. Counterfeit/kited shares were being created wholesale by naked shorting, with DTCC taking it to the bank on both sides.
Any trader with experience will tell you that the market is ultimately a zero sum process. That means in layman terms that for every dollar lost, there is a dollar made somewhere else. If American retirement accounts lost 50% of their value, that value went into someone else's pocket. The ultimate canard (cover-up lie) is that these accounts had "Paper Losses", like they weren' t real. This is absolute horse manure, a pure form of political BS, designed to give politicians and bureaucrats cover for malfeasance, incompetence and in more than a few cases, venality. So where did this money go?
In an ill-conceived move to "globalize" US securities markets, the NASD, the NYSE, the AMEX, and others offered open access to US markets to persons and entities (such as offshore hedge funds, etc) who had no imperative to comply with US Securities Laws. The result was as if our market was a budding elm tree hit by a billion locusts, who stripped the life out of those segments of the markets that didn't know they had a problem, that didn't know how to protect themselves, and that got no help from their own US Regulators, including the SEC, the NASD and the DTCC.
At the bottom of this crash, some $17 Trillion dollars were gone from US investments' market caps, and this didn't include the sector hit the hardest, the small public company stocks. Over 5000 companies in this segment were bankrupted, more if you use the more aggressive estimates of 7500 plus.
Some of these companies had officers and directors who would not go quietly into the night, but chose instead to fight. It has been ugly. There have been thousands of outright lies by those who were supposed to protect us, instances of criminals warned by regulators to avoid arrest, of bribes paid to other regulators to look the other way, ad infinitum, ad nausea. Now, with everything crashing in on them, these same parties who absolutely denied the existence of any naked shorting problem are reversing their positions ever so slowly, so as to protect those who stole so much.
And what has been the attitude displayed towards those who made these problems public? They have been systematically attacked for speaking out, harassed, denied financing, had their lives threatened repeatedly, been sued by the Government and worse. Their only defense has been an active plaintiff's bar who have championed these parties out of funds coming from their own pockets. One very bright observer of Naked Shorting has labeled this "Reverse Regulator Syndrome".
This week, the SEC put out the most insulting and morally offensive proposed rule yet, one that would bar companies from putting restrictions on their stocks that would impair their effortless transfer, in an honest effort to protect themselves from professional thieves. Annette Nazareth of the SEC's Market Regulation Unit said that actions taken by companies to protect themselves in this manner from criminal predators were improperly impairing a more important goal of getting to paperless, electronic, straight through settlement. Her position is the "Stalin" analog: "To make an omelet, you have to break a few eggs."
But instead of shooting Ukrainian Kulak farmers to create Farming Co-ops, she says we have to let many small companies be killed off for the greater good of automated securities markets. This Socialist clap-trap run amok, treason to its core in our American system.
When the American people become fully aware of the sheer chutzpah of fraud on this scale, and who the beneficiaries are, God help them. The ACLU won't be able to save them. Some cumulative number NORTH of $4 TRILLION DOLLARS is GONE. If the thieves don't cough it up, they should be hunted for profit and sport.
BEWARE THE MOB. This old Roman saying has real relevance here. The scum here need to have it screamed at them: YOU AREN'T GOING TO GET AWAY WITH THIS.
To paraphrase an old movie line about prison, I remember the words: "It is an insane bunch of people, in an insane place, with insane rules, behaving insanely. SO IT HAS ITS OWN KIND OF LOGIC." I remember once hearing about the necessity for a lawyer to be able to put himself in a "Moral Vacuum", so he could represent guilty clients. The lawyers representing these bad guys have gone from a "Moral Vacuum" to a "Moral Black Hole", whose immorality is so strong, nothing can escape. Their lawyers can be treated no differently than the criminal scum they represent. Scum seeks its own level. And these types work well with insanely amoral structures.
Enough philosophizing. WE HAVE TO GET ANGRY, AND STAY THAT WAY. WE MUST ESCALATE THE RHETORIC, AND BURY LIARS WITH THEIR OWN CONTRADICTORY STATEMENTS. Mark my words, THIS IS GOING TO GET UGLY. Too much has been stolen by too many.
I had hoped the system would right itself of its own accord, but I am now 90/10 this isn't going to happen. America is the loser.
Subject: What is the Real Agenda of Our Regulators?
Friends,
I have wondered what the real objective of our regulators and Government officials is in today's world. They must have some scheme as to what it is they want the capital formation structure of the United States to look like, and how they want it to mesh with the rest of the Financial and Political World.
I can posit one possible scenario of what the objectives of our Institutional authorities is, but it is relatively terrifying in its implications.
A clear bias has been demonstrated to the favor of professional merchant bankers over traditional merchant bankers, to electronic brokers over traditional broker-dealers, to the neutering of traditional fundamental research to the favor of settlement interests, and to the support of major structured finance to any kind of speculative investment.
I have said before that if a Microsoft, Cisco, etc., were to be created today, they would never be allowed to succeed, nor would any principal be allowed to accrue the great wealth of the entrepreneurs of that generation.
Reactionary forces in major companies have always feared the creation of a technology that would put them out of business. I could recite literally dozens of stories of major companies that blew it when new trends emerged, including Xerox, IBM, et al. Today, the very companies who created enormous new markets out of thin air (digital switches, personal computers, et al) now fear the next technology that could potentially make them the next generations' Xerox, IBM, etc, including Apple, Microsoft, Cisco, etc.
It is clear that the Government wants more stability, even if it is at the price of lost opportunities, which few bureaucrats care about anyway since they are paid by Government scale. The technical revolution that created the financial behemoth that is the Modern United States has always come from small companies working with admittedly limited resources, run by entrepreneurs willing to risk it all. Today, virtually none of the Companies that could create the next Microsoft or Apple would have a snowball's chance in hell of being successful.
Where our Regulators seem determined to lead the US is to a European style "Financials First" system of integrated banks and brokerages, who feed internal and external merchant banking and arbitrage activities that have none of the risk profiles of entrepreneurial investments. They seem to be compelled to take this path, even if they have to restrict the rights of the individual investor so as to be violated wholesale, and to attack title to property so as to be made dramatically less meaningful.
So what has such a structure done for Europe? England, France and Germany are economic wastelands. The national bank of one of these countries, made wildly successful from the deposits of its citizens, is now redlining its own country, adopting an attitude that the Bank's assets are its first, and that they must seek the best risk adjusted returns without consideration of the interests of their depositors. Unemployment is at all time highs throughout Europe. There is no small company capital formation process of any significance, and not one of these countries has managed to produce so much as a single Apple, Microsoft, Cisco, etc. Before they lend money to a small technology start-up, they would rather sell arms and munitions country to country, and their own countries be damned.
Is that what American's want done with their deposits? The State Bank of France is an unfiled bankruptcy. Deutsche Bank's international headquarters is in London. Britain has no major bank of any credibility, unless HSBC is called British, and British unemployment is over 40%, half of it permanent and hard core. Germany is on the verge of an economic meltdown thanks to its socialism. Russia is 100 years from a real capitalistic democracy, about the same time it took the US to sort this system out. German unemployment is over 50% in real terms. It admits to 25% unemployment, but that is only of workers who are protected under their socialist system. The real number is double that, because like the US, anyone unemployed more than one year falls off the statistic. Also, but not like the US, 65% of all German workers are independent contractors, not covered by socialist benefit programs. I am informed by reliable sources that as many as half of these workers are without employment. You do the math on real unemployment in Germany.
Technical start-ups in England, France and Germany? You could count the ones of significance on two hands. This is particularly stunning when you consider the brilliance of Germans at an engineering level. That brilliance has been more directed at process engineering of plants for production of WMD's than consumer technology. Siemens, one the technology lights of Europe, is another unfiled bankruptcy, being carried by Socialist policies.
Our representatives and regulators must be told in no uncertain terms that this is not what Americans want for their future.
We have been given every possible signal of the direction and intent of our Government. Simply begin with the orchestrated 2000 Bear Raid/Crash, to the current shorting scandal. Look at the Mandarins of Venture Capital and Law. The arrogance is literally stifling.
It is time for Americans to WAKE THE HELL UP, JACK. If you can't see what is going on, then I suggest you get off your collective asses and go see what exactly is going on in the rest of the world.
It was only five or six years ago that Bank America and Nation's Bank agreed to a $350 Billion penalty to be exacted in the form of new loans, for red-lining its own customers all over the country. What kind of event causes US Banks, led by our Federal Reserve to stop lending to us, and choose to lend to businesses in China, India and Bangladesh over US Companies because they have better labor costs? We are really there now. Where is real seed investment? Who the hell thinks the Venture Capital Community really makes seed investments of any significance? Draper Fisher, Jurvetson brags on their web site that they fund about 15 transactions out of some 12,000 sent to them every year.
Does anyone really believe that there were only 15 deals worthy of funding in such a set? Worse, does anyone believe that the 15 selected will have any higher success rate than other start-ups (which few of the 15 truly are)? We need tens of thousands of start-ups every year if we are to maintain any sort of standing in the emerging economic and technical world. We should be happy if only two-thirds fail. Similar failure rates made this country what it is. It is the Babe Ruth analogy. He was the home run King, and the strike out King at the same time. Our capital formation structures must be highly diversified, and able to support every ounce of creativity this Country is capable of mustering. As we shut down and limit such creative process by limiting access to necessary capital, we signal the end of our democracy and our capitalist system.
We are so close to such a scenario of severely limited opportunities that it is tough to imagine. The problem is that if everyone waits until it happens, they will have a Humpty-Dumpty scenario, a system so broken the pieces can't all be put back together again resembling the real thing.
How can ELBO be 140% short and NOT be on the threshold list? something isn't adding up imo
does regulation SHO mean the end of naked shorting?
I guess we will soon see. The first forced buyins
of threshold securities are due to start January 28th.
Right now, everyone seems to be waiting.
Volume is up substantially on the threshold-listed group, but so far there seems to be little in the way of pre-covering pps appreciation going on.
we'll see . In the mean time let's keep an eye on things. I have the compiled and sorted threshold lists posted daily on my site. There is also naked-shorting related news links and forum.
please visit my site at www.thresholdstocks.com
Cherokee, I'd like to know what you consider controversial with respect to naked shorting of a stock.
It's illegal. Nothing controversial about that!
what's conroversial, is when people in power positions, able to revoke trading status of companies is presented with proof of naked shorting, and SHE (the goo judge brenda) does nothing.
As a member of the justice system, she is required to at least send the suspicion to a higher investigative authority for them to conduct further investigations into the allegations.
She didn't in the case of CMKX's hearing. She chose to rule the naked short evidence as out of scope of the hearing, and then promptly forget the evidence of naked shorting that was provided.
Like I said, nothing congtroversial about the issue...it's illegal. The controversey is in how it's being handled by the SUC Enforcement Division.
IMO, it appears the SUC is in bed with the market makers and the hedge funds - who make their money counterfeiting shares and robbing the investing public blind.
john
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If offshore hedge funds also piques your interest, come by when you've got a few seconds - check out the different resources listed. I'm sure you'll find it very interesting.
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