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Article: Financial Finger-Pointing Turns to Regulators

Article - Media

Financial Finger-Pointing Turns to Regulators

Louise Story, Gretchen Morgenson

New York Times, 22 November 2011

In the whodunit of the financial crisis, Wall Street executives have pointed the blame at all kinds of parties — consumers who lied on their mortgage applications, investors who demanded access to risky mortgage bonds, and policy makers who kept interest rates low and failed to predict a housing market collapse.

But a new defense has been mounted by a bank executive: my regulator told me to do it.

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Filing: FINRA v UBS

Filing

FINRA v UBS

24 October 2011

As set forth below, the Firm failed to comply with certain requirements of Reg SHO, FINRA Rules, NASD Rules and federal securities laws during the period covering, in whole or in part, January 3, 2005 through March 2010, with several violations continuing through December 31, 2010 (the “Relevant Period”), The Firm’s violations existed for various periods of time throughout the Relevant Period and are summarized below.

PDF (26 pages): FINRA v UBS

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Article: Why I Respectfully Disagree With David Einhorn About Green Mountain Coffee Roasters

Article - Media

Why I Respectfully Disagree With David Einhorn About Green Mountain Coffee Roasters

Bill Maurer

SeekingAlpha, 19 October 2011

Shares of coffee giant Green Mountain (NASDAQ:GMCR) were slammed on Monday after hedge fund investor David Einhorn said that the stock should be shorted. I respectfully disagree with Mr. Einhorn and others that are against the stock.

Paywall Access to Full Article

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Article: SEC under Schapiro struggles to turn around amid political, financial head winds

Article - Media

SEC under Schapiro struggles to turn around amid political, financial head winds

David S. Hilzenrath

Washington Post, 7 October 2011

Mary L. Schapiro took over a discredited SEC in early 2009 and vowed to rebuild it.

She promised tougher enforcement — “war without quarter” on financial fraud. Modernized rules to keep up with Wall Street. And a new, more effective organization.

Her tenure at the federal agency responsible for protecting investors and policing markets offers a Washington lesson: Even when epic crises create a sense of urgency, it is tough to tighten the reins on powerful industries. Dramatic results can prove elusive.

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Article: How the Australian Ban on Short Selling During the GFC Affected Market Quality and Volatility

Article - Academic

How the Australian Ban on Short Selling During the GFC Affected Market Quality and Volatility

Thomas Henker, Julia Henker, Uwe Helmes

2012 Financial Markets & Corporate Governance Conference, 30 August 2011

We examine the effects of the short selling ban, imposed by Australian regulators in the wake of the global financial crisis, on trading of financial stocks. Unlike other developed markets, where regulators imposed short-selling restrictions for brief periods of time at the height of the financial crisis, the ban on short selling of financial stocks on the Australian Stock Exchange lasted eight months, including both the tumultuous end of 2008 and the calmer period up to May 2009.

PDF (55 pages): How the Australian Ban on Short Selling During the GFC Affected Market Quality and Volatility

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Release: Deer Consumer Products, Inc. Issues Warning Concerning Evidence of Illegal Short Selling of DEER Stock by “Alfred Little” and Others, to Seek Sanctions Against The Rosen Law Firm for Filing a Frivolous “Class Action” Complaint

Release

Deer Consumer Products, Inc. Issues Warning Concerning Evidence of Illegal Short Selling of DEER Stock by “Alfred Little” and Others, to Seek Sanctions Against The Rosen Law Firm for Filing a Frivolous “Class Action” Complaint

2 May 2011

Deer Consumer Products, Inc. (Nasdaq: DEER) (website: http://www.deerinc.com/), a leading provider of “DEER” branded consumer products to Chinese consumers and a leading vertically integrated manufacturer of small household and kitchen appliances for global customers, publicly announces today that the Company has received additional evidence of continuing illegal short selling in DEER stock.

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Article:Short Selling in a Financial Crisis: The Regulation of Short Sales in the United Kingdom and the United States

Article - Academic

Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States

Katherine McGavin

Northwestern Journal of International Law & Business, 15 December 2010

In a well-regulated market with minimal risk of abuse, the liquidity
and information efficiency benefits of short selling far outweigh its
potential harm. Contrary to the recent hostility short sellers face from
market regulators and the popular press,’ short sellers in aggregate are
neither market villains nor agents of destruction. While a small minority of
short sellers have exploited lax regulation and inattentive enforcement of
anti-abuse rules to manipulate stock prices and earn substantial fees, these
rare episodes suggest that the world’s major capital markets need better
enforcement of existing rules and not new rules per se. The failure of
market regulators to prevent abuse and manipulation of stock prices by short sellers and curb naked short selling reflects a failure of enforcement,
not bad underlying policy.

PDF  (41 pages): Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States

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Article: JP Morgan Covering Silver Short Position, Says NIA

Article - Media

JP Morgan Covering Silver Short Position, Says NIA

National Inflation Association, 14 December 2010

There were reports out today that JP Morgan has now admitted to having their massive naked short position in silver and is taking steps to reduce it. According to the Financial Times in London, “JPMorgan has quietly reduced a large position in the US silver futures market which had been at the centre of a controversy about its impact on global prices for the precious metal.” According to a person familiar with the matter, “The decision by JPMorgan was an attempt to deflect public criticism of the bank’s dealings in silver.” JP Morgan said in a statement, “It is absolutely incorrect to say or imply that the Nymex, CFTC or any other exchange or regulator has instructed or asked us to reduce our position.”

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Article: JP Morgan and the Massive Silver Short: The Greatest Story Ever Told

Article - Media

JP Morgan and the Massive Silver Short: The Greatest Story Ever Told

Kid Dynamite

SeekingAlpha, 10 December 2010

Let’s take a step back and start with some facts, and perhaps we can then figure out where the facts morphed into Internet Folklore Legend. First of all, JP Morgan is being investigated by the CFTC (Commodity Futures Trading Commission) for alleged manipulation of the silver market. Second, JP Morgan is a large player in the precious metals derivatives markets. Third, many experts in the field estimate that the outstanding open interest in silver futures is very large relative to the actual supply of physical silver in the world. Depending on estimates, the outstanding interest in paper silver (futures and options) may be larger than the outstanding existing physical silver stocks. Finally, the CFTC has been debating instituting position limits in precious metals contracts, and is still working on that issue.

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Fined: Goldman Sachs Fined by FINRA (November 2010)

Article - Media, Fined

Goldman Sachs to Pay $650,000 for Failing to Disclose Wells Notices

Nancy Condon, George Smaragdis

FINRA.org, 9 November 2010

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Goldman, Sachs & Co. $650,000 for failing to disclose that two of its registered representatives, including Fabrice Tourre, had received formal notices from the Securities and Exchange Commission (SEC) that they were the subjects of investigations. Tourre’s “Wells Notice” was issued in connection with the SEC’s investigation of an offering of a synthetic collateralized debt obligation (CDO) called ABACUS 2007-ACI (Abacus).

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Article: The skinny on the 2008 naked short-sale restrictions

Article - Academic

The skinny on the 2008 naked short-sale restrictions

Thomas J. Boulton, Marcus V. Braga-Alves

Journal of Financial Markets, 1 November 2010

On July 15, 2008, the US Securities and Exchange Commission announced temporary restrictions on naked short sales of the stocks of 19 financial firms. The restrictions offer a unique empirical setting to test Miller’s (1977) conjecture that short-sale constraints result in overpriced securities and low subsequent returns. Consistent with Miller’s overpricing hypothesis, we find evidence of a positive (negative) market reaction to the announcement (expiration) of the short-sale restrictions. Announcement returns are higher for firms that appear to be subject to more naked short selling in the days immediately preceding the announcement of the restrictions.

Paywall access to article.

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Article: Bank of America: Bondholders’ Naked Play for a “Do-Over” on Mortgages

Article - Media

Bank of America: Bondholders’ Naked Play for a “Do-Over” on Mortgages

Marion Maneker

CBS, 20 October 2010

Yesterday’s Bank of America (BAC) bond scare was an interesting reminder of just how much of a mess the foreclosure crisis really is. It may not be the same kind of swoon we experienced two years ago, but the vulnerabilities created by the shoddy mortgage origination and servicing industry will probably haunt the financial system for years to come — like war reparations.

It took a while for the financial world to sort out the meaning of the letter PIMCO, Blackstone and the New York Federal Reserve Bank sent to Bank of America yesterday asking that $47 billion in bonds be “put back” to the bank because of deficient servicing by Countrywide, the Bank of America subsidiary that originated the loans. The markets and the journalistic community can be forgiven for over-reacting.

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Article: Field of Schemes: David Einhorn’s latest short

Article - Media

Field of Schemes: David Einhorn’s latest short

Richard Smith

NakedCapitalism, 15 October 2010

Einhorn is the famous Lehman short of 2008; he got a lot of flak from Clueless Charlie Gasparino for that. I seem to remember our own Lehman bear, Yves, getting snarled at by Charlie G somewhere along the line, too. But of course, Einhorn, via his vehicle Greenlight Capital, had it right; as did Yves (something that those decrying the “Yellow Journalism” of recent NC posts on “foreclosuregate” would do well to consider).

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Article: Whistle. Then Worry and Wait.

Article - Media

Whistle. Then Worry and Wait.

Edward Wyatt

New York Times, 9 October 2010

Sitting in a Minneapolis mansion and listening to a charismatic investment manager describe a currency trading system that kept earning handsome returns year after year, Arthur F. Schlobohm IV was certain he had stumbled onto a Ponzi scheme.

A longtime trader who started running tickets on the floor of the New York Stock Exchange as a teenager, Mr. Schlobohm, known as Ty, knew that Minneapolis, his home for nine years, was too small a town for a $4.4 billion investment fund to have escaped his notice.

Read full article.

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