Category: Publications

Posted on

Article: SEC Focuses on Efforts by Hedge Fund Managers to Conceal Poor Performance

Article - Media, Publications

SEC Focuses on Efforts by Hedge Fund Managers to Conceal Poor Performance

Caryn Mazin Schechtman; Perrie M. Weiner,  02 November 2008

The SEC has charged a San Francisco investment adviser, MedCap Management and Research LLC (MMR), and its principal, Charles Toney, Jr., with falsely inflating the price of a thinly-traded portfolio security to enhance fund asset values at the end of a reporting period so that it could avoid reporting a 40 percent loss and stave off a rash of investor redemptions. This practice, which the SEC calls “portfolio pumping,” is alleged by the SEC to violate the antifraud provisions of the Investment Advisers Act of 1940. The charges were filed October 16.

MedCap Partners L.P. (MedCap), a fund managed by Toney and MMR, was plagued by poor performance and investor redemptions in 2006. According to the SEC, facing mounting losses in the third quarter of the year, Toney and MMR allegedly placed numerous buy orders during the last few days of the quarter in a thinly traded over-the-counter security heavily owned by MedCap through another MMR-controlled fund. The SEC alleges that this purchasing activity caused the portfolio security to quadruple and fraudulently increased MedCap’s value for the third quarter of 2006 by $29 million; both the stock price of the underlying security and MedCap’s value subsequently declined back to their previous levels. Continue reading “Article: SEC Focuses on Efforts by Hedge Fund Managers to Conceal Poor Performance”

Posted on

Article: Crisis of Convenience for Roiling SEC

Article - Media

Crisis of Convenience for Roiling SEC

David Patch

InvestigateTheSEC.com via Wayback, 30 October 2008

To say that support for the Securities and Exchange Commission is at an all time low would be an understatement. With Congressional Investigations into the agencies handling of critical investigations and recent reports out of the Office of Inspector General, investors are left guessing as to what exactly the agency is doing to police our markets. Heck, even a presidential candidate has suggested that the SEC Chairman should be fired and it was his party that hired him.

Access archived page.

Posted on

Article: Japan Cracks Down on Naked Short Selling

Article - Media

Japan Cracks Down on Naked Short Selling

Takashi Nakamichi, Ayai Tomisawa

The Wall Street Journal, 28 October 2008

Japan moved Tuesday imposed new restrictions on so-called “naked” short selling of stocks, stepping up its efforts to arrest the tumble in domestic share prices.

The Tokyo Stock Exchange has asked member brokers to stop accepting naked short-sell orders, TSE President Atsushi Saito told a news conference.

Read full article.

Posted on

Article: Sad Money: The Backlash Against Jim Cramer

Article - Media, Publications

Sad Money: The Backlash Against Jim Cramer

Brendan Collins, 24 Cctober 2008

“Mad Money” host Jim Cramer, that chrome-domed hero of trashy TV addicts and armchair-finance junkies alike, has fallen on hard times. He appeared on “The Today Show” on October 6th, imploring viewers: “Whatever money you may need for the next five years, please take it out of the stock market. Right now.” To say this statement fanned the flames of the Wall Street crisis is an understatement. A more apt analogy would be to say that Cramer dumped rocket fuel on a

Continue reading “Article: Sad Money: The Backlash Against Jim Cramer”

Posted on

Article: Deutsche Bank Sold Massive Amounts of Phantom Stock

Article - Media

Deutsche Bank Sold Massive Amounts of Phantom Stock

Mark Mitchell

DeepCapture, 14 October 2008

A couple of days before Lehman fell and all hell broke loose on Wall Street, Floyd Norris, the chief business correspondent of The New York Times, published a blog (headline: “Short Sale Conspiracies”) wherein he implied that I was mentally insane for suggesting that Deutsche Bank Securities had been caught selling “massive amounts of phantom stock.”

Read full article.

Posted on

Letter: Michael Kushner to Legislators

Letter

Michael Kushner to Legislators

Michael Kushner

11 October 2008

The economic problems we are facing have more than one cause. There is an elephant in the room and nobody is saying a word. The financial collapse that resulted in a 2.5 billion-dollar tax payer bail out is not only a result of greed and mismanagement in the sub -a prime mortgage lending market, but is a direct result of hedge funds forcing 16% of listed companies into bankruptcy this year through unregulated criminal naked shorting, shorting with insider information, and criminal programed trading.

PDF (16 pages): Michael Kushner to Legislators

Posted on

Article: Dick Fuld’s Vendetta Against Short-Sellers—and Goldman Sachs

Article - Media

Dick Fuld’s Vendetta Against Short-Sellers—and Goldman Sachs

Heidi N. Moore

Wall Street Journal, 7 October 2008

Fuld didn’t let up on his hatred for short-sellers–primarily David Einhorn–even after his company filed for bankruptcy last month, and he believed the shorts were part of a cabal driven by Goldman Sachs Group.

In April, Fuld reported back to general counsel Thomas Russo about a dinner with Treasury Secretary Hank Paulson that Lehman had a “huge brand with treasury,” which “loved our capital raise” and, in perhaps an oblique reference to short-sellers, that Treasury “want to kill the bad HFnds + heavily regulate the rest.”

Read full article.

Posted on

Article: Cox’s SEC Censors Report on Bear Stearns Collapse

Article - Media

Cox’s SEC Censors Report on Bear Stearns Collapse

Mark Pittman, Elliot Blair Smith, Jesse Westbrook

Bloomberg cited by RGM Communications via Wayback, 7 October 2008

U.S. Securities and Exchange Commission Chairman Christopher Cox’s regulators stood by as shrinking capital ratios and growing subprime holdings led to the collapse of Bear Stearns Cos., according to an unedited version of a study by the agency’s inspector general.

The report, by Inspector General H. David Kotz, was requested by Senator Charles Grassley to examine the role of regulators prior to the firm’s collapse in March. Before it was released to the public on Sept. 26, Kotz deleted 136 references, many detailing SEC memos, meetings or comments, at the request of the agency’s Division of Trading and Markets that oversees investment banks.

Access archived page.

Posted on

Article: SEC Gave “Preferential Treatment” to Wall Street CEO

Article - Media

SEC Gave “Preferential Treatment” to Wall Street CEO

Brian Ross, Rhonda Schwartz

abc News, 6 October 2008

The SEC gave “preferential treatment” to Wall Street executive John Mack during an insider trading investigation three years ago because Mack was about to become CEO of the Morgan Stanley investment banking firm, the SEC’s inspector general concluded in a report obtained by ABC News.

The report recommended disciplinary action against the SEC’s chief of enforcement, Linda Thomson, and said the firing of an SEC lawyer was “connected” to his persistent attempts to take Mack’s testimony. Read the report’s conclusion and recommendations here.

Read full article.

 

Posted on

Article: Fuld says Lehman victim of short sellers

Article - Media

Fuld says Lehman victim of short sellers

Stephanie Kirchgaessner and Greg Farrell

Financial Times, 2 October 2008

Dick Fuld, Lehman Brothers’ chief executive, broke his silence on the collapse of his bank by telling a congressional committee on Monday that he would go to his grave wondering why the US government opted to save AIG but allowed Lehman to fail.

Three weeks after the 158-year-old firm sought bankruptcy protection – the largest such filing in US history – Mr Fuld blamed Lehman’s collapse on a plague of naked short selling, and said in response to a question that he had no idea why US regulators would judge his company unworthy of a federal bail-out.

Read full article.

Posted on

Article: The Naked Short Selling That Toppled Wall Street

Article - Media

The Naked Short Selling That Toppled Wall Street

Mark Mitchell

DeepCapture, 2 October 2008

The Wall Street Journal stated in a lead editorial last week that the SEC was “reasonable” to “clamp down” on naked short selling. Well, that was progress of sorts, though one wonders how it could have taken all these years for the nation’s most important newspaper to suggest that it might be “reasonable” to put an end to criminal activity that has eviscerated hundreds of companies and destroyed countless lives.

And now that this criminal activity has been implicated in the Humpty Dumptying of our financial system, one grows wistful for the golden age of journalism when editorialists (people working for famous newspapers, not just cyber weirdos) would express a little outrage, demand that heads roll – muster something better than “reasonable” to describe the limpid “clamp down” of an SEC that bows in oily servitude to the very short-sellers who manhandled our markets.

Read full article.

Posted on

Article: Emails show journalist rigged Wikipedia’s naked shorts

Article - Media

Emails show journalist rigged Wikipedia’s naked shorts

Cade Metz

The Register, 1 October 2008

Two and a half years ago, Overstock.com CEO Patrick Byrne penned an editorial for The Wall Street Journal, warning that widespread stock manipulation schemes – including abusive naked short selling – were threatening the health of America’s financial markets. But it wasn’t published.

“An editor at The Journal asked me to write it, and I told him he wouldn’t be allowed to publish it,” Byrne says. “He insisted that only he controlled what was printed on the editorial page, so I wrote it. Then, after a few days, he got back to me and said ‘It appears I can’t run this or anything else you write.'”

Read full article.

Posted on

Article: The Business Ethics of Short Selling and Naked Short Selling

Article - Academic

The Business Ethics of Short Selling and Naked Short Selling

James J.  Angel, Douglas M. McCabe

Journal of Business Ethics, 30 September 2008

The controversy over short selling has continued unabated from the introduction of modern equity trading in Amsterdam in 1610 to the present day. Nevertheless, the business ethics literature has not really addressed short selling. Short sellers not only profit from the misery of others, they also create it through their selling activities. However, they also provide a socially useful service by making prices better reflect true values, protecting other investors from purchasing overpriced securities.

Paywall access to article.

Posted on

Web: Naked in Wonderland

Web

Naked in Wonderland

Patrick Byrne

Forbes via Wayback, 23 September 2008

Recent concerns about short-selling have culminated in a regulatory flurry of emergency orders and amendments. What should be of concern, however, is not short-selling per se: As its devotees frequently remind us, short-selling is a vital and legitimate market activity. What should be of concern are specific types of stock manipulation that cloak themselves within legitimate activities such as shorting, and which, in one way or another, rely upon loopholes in our nation’s system of stock settlement.

“Settlement” is the moment in a stock trade when the seller receives money and the buyer receives stock. Our settlement system has gaping loopholes that allow sellers to sell shares but fail to deliver them. In such cases, the system creates IOUs for shares, and lets those “stock IOUs” circulate in the expectation the seller will soon correct his error. This is harmless–as long as the IOUs are inadvertent, temporary and few.

Access archived page.

Posted on

Article: Calling Out the Culprits Who Caused the Crisis

Article - Media

Calling Out the Culprits Who Caused the Crisis

Eric D. Hovde

Washington Post via Wayback, 21 September 2008

Looking for someone to blame for the shambles in U.S. financial markets? As someone who owns both an investment bank and commercial banks, and also runs a hedge fund, I have sat front and center and watched as this mess unfolded. And in my view, there’s no need to look beyond Wall Street — and the halls of power in Washington. The former has created the nightmare by chasing obscene profits, and the latter have allowed it to spread by not practicing the oversight that is the federal government’s responsibility.

Access archived page.

THE DOLLAR HAS NO INTRINSIC VALUE : DO YOUR ASSETS?