Jim Cramer on the Short-Selling Effect
Dealbook, 22 July 2008
James Cramer, the hedge fund manager turned “Mad Money” host, has proposed a solution to the raging controversy over short-selling. Unfortunately, it mostly involves the troubled financial sector getting its act together — and thus making itself immune to the “carpet bombs” that he says hedge funds have been raining down on vulnerable firms like Lehman Brothers.
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Public Statement by SEC Chairman:
Naked Short Selling Is One Problem a Slumping Market Shouldn’t Have
Chairman Christopher Cox
SEC.gov, 18 July 2008
The demise of IndyMac, coming on the heels of Bear Stearns’ desperate sale to JPMorgan Chase, is a sure sign of the fragility of today’s markets. What’s needed now, more than ever, is reliable information for investors and confidence that trading can be conducted without the illegal influence of manipulation.
Read full notice.
Cox: “Many people think naked short selling is already illegal, but that isn’t true….”
Sanity Check via Wayback, 17 July 2008
Remarkably, or perhaps not so remarkably, literally hours after issuing an emergency order requiring short sellers to actually borrow the stock they sell – but only in the large financial companies largely complicit in causing hundreds of billions of dollars of damage to the financial markets via naked short selling – several interesting things happened. If you read my last blog, you’ll see I saw it coming. Loopholes, poor craftsmanship, silliness, dishonesty, all baked into the SEC cake so that the proclamation has little real world effect.
Access archived page.
SEC to limit Fannie, Freddie short sales
CNN, 16 July 2008
The Securities and Exchange Commission has issued an emergency order to bolster investor protections against so-called ‘naked’ short selling of mortgage financiers Fannie Mae and Freddie Mac.
Read full article.
How “naked” short selling happens
Reuters, 16 July 2008
U.S. securities regulators issued an emergency rule on Tuesday to limit certain types of short selling in major financial firms, including Fannie Mae FNM.N and Freddie Mac FRE.N.
Read full article.
SEC Moves to Curb Short-Selling
Kara Scannell and Jenny Strasburg
The Wall Street Journal, 16 July 2008
The Securities and Exchange Commission took unprecedented action against short sellers on Tuesday, acting on a widespread concern that negative bets against bank and brokerage stocks might be exacerbating the financial sector’s woes.
In a dramatic emergency order, the SEC said it would immediately move to curb improper short selling in the stocks of struggling mortgage giants Fannie Mae and Freddie Mac, as well as those of 17 financial firms, including Goldman Sachs Group Inc., Lehman Brothers Holdings Inc.,…
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Naked Short Selling — Illegal but Hard to Prove
Gregg Greenberg, The Street, 16 July 2008
NEW YORK (TheStreet) — The Securities and Exchange Commission Chairman Christopher Cox on Tuesday said the regulator planned to crack down on naked short-selling of Fannie Mae (FNM) and Freddie Mac. Cox said in a testimony to the Senate Banking Committee on Tuesday that the agency will require short-sellers to borrow shares of the two government-sponsored mortgage giants and broker dealers including Lehman Brothers (LEH) , Goldman Sachs (GS) – Get Report, Merrill Lynch (MER) and Morgan Stanley (MS) – Get Report before selling them. The new restrictions are called for under a temporary emergency order that expires in 30 days.
For a refresher on why this is a big deal, here you go.
The traditional method for making money in the stock market is to “buy low and sell high.” But there is another way to profit called “shorting,” where the trick is to “sell high and buy low.” There are strict rules when it comes to shorting stocks, however. One way they are broken is via naked shorting.
Continue reading “Article: Naked Short Selling — Illegal but Hard to Prove”
SEC Discovers That Unbridled Naked Short Selling Might Actually Be, Er, Not So Good….
Sanity Check via Wayback, 15 July 2008
What we are seeing is the US markets relentlessly melting down, as even the bulge bracket firms, and the “too big to fail” entities, are victimized by unbridled, unconstrained naked short selling. Exactly as used to be the case in the 1920’s. Exactly in the manner that resulted in the SEC being formed, and the uptick rule (discarded just a few short months back as an anachronism), and requirements for timely clearing and delivery. All of which the SEC has basically ignored, very deliberately.
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SEC Enhances Investor Protections Against Naked Short Selling
15 July 2008
The Securities and Exchange Commission today issued an emergency order to enhance investor protections against “naked” short selling in the securities of Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks.
Read full release.
SAN FRANCISCO (MarketWatch) — The Securities and Exchange Commission said Tuesday that it will try to limit so-called “naked” short selling of shares in Fannie Mae, Freddie Mac and big brokerage firms.
The SEC will issue an emergency order stating that all short sales of shares in these companies will be subject to a “pre-borrow” requirement, said Christopher Cox, chairman of the SEC. This will last for 30 days, he said. The SEC is also planning more rule-making focused on short selling in the broader market, Cox said.
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Bud Burrell Comments on Amendments to Regulation SHO
SEC, 13 July 2008
“August 1973 I started on Wall Street in Block Trading for Bache. Worked in all Major firms through the years.Traveled all over the world.
From $6 Billion per day Fails to deliver is now Over $13 1/2 billion per day.
There is More Naked Short shares in the market than there is Outstanding Shares.
We have allowed our Clearing systems to be Gamed, to the point where they are able to manipulate markets.”
Read full testimony.
Bringing Down Bear Stearns
Vanity Fair, 30 June 2008
On Monday, March 10, the rumor started: Bear Stearns was having liquidity problems. In fact, the maverick investment bank had around $18 billion in cash reserves. But soon the speculation created its own reality, and the race was on to keep Bear’s crisis from ravaging Wall Street. With the blow-by-blow from insiders, Bryan Burrough follows the players—Bear’s stunned executives, trigger-happy reporters at CNBC, a nervous Fed, a shadowy group of short-sellers—in what some believe was the greatest financial scandal in history.
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Patrick Byrne Covers Up Ownership of ‘Deep Capture’ Smear Site
gary-weiss.com, 19 June 2008
A couple of months ago I described how Overstock.com’s terminally wacky CEO Patrick Byrne has thrown caution (and any lingering sanity) to the winds and was openly sponsoring attacks on journalists and other critics, on a smear site that he owned and was operated on Overstock servers, “Deep Capture.”
This was a change from Byrne’s previous tactic of claiming that smears and attacks were by people who just coincidentally happened to be his employees. The word for this is “astroturfing,” and it is a particularly sleazy method of concealing corporate (and sometimes government) involvement in dirty tricks campaigns.
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Lawsuit Filed Against Major Financial Institutions Alleging a Conspiracy to Engage in Illegal Naked Short Selling of TASER International Inc. and to Create, Loan and Sell Counterfeit Shares of TASER Stock
MarketWatch cited by RGB Communications via Wayback, May 28, 2008
Today the legal consortium of The O’Quinn Law Firm and Christian Smith & Jewell, both of Houston, Texas and Bondurant, Mixson & Elmore, LLP of Atlanta, Georgia filed a Complaint in the State Court of Fulton County, Georgia on behalf of certain shareholders of TASER International Inc. (“TASER”) against eight of the largest Wall Street firms, including Bank of America Securities LLC, Bear Stearns Securities Corp., Credit Suisse USA Inc., Deutsche Bank Securities, Inc., Goldman Sachs Group, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., Morgan Stanley & Co. Inc., UBS Securities LLC.
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File No. S7-08-08: Comments on Proposed Naked Short Selling Anti-Fraud Rule, 10b-21
Dr. Robert J. Shapiro
19 May 2008
I am Dr. Robert J. Shapiro, the chairman of Sonecon, LLC, an economic analysis and advisory firm in Washington, D.C. I am also currently a Senior Fellow of the Georgetown University School of Business, Director of the NDN Project on Globalization and a Fellow of the Progressive Policy Institute. From 1998 to 2001, I was the U.S. Under Secretary of Commerce for Economic Affairs. Prior to that, I was the Vice President and co-founder of the Progressive Policy Institute, Vice President of the Progressive Foundation, and Legislative Director and Economic Counsel for Senator Daniel Patrick Moynihan. I have advised numerous public officials, including President Bill Clinton, Prime Minister Tony Blair, Vice President Al Gore, and Senators Joseph Lieberman, Hillary Clinton, John Kerry and Evan Bayh, as well as many large U.S. and foreign corporations and financial institutions. I hold a Ph.D. and M.A. from Harvard University, as well as a M.Sc. from the London School of Economics and Political Science, and an A.B. from the University of Chicago. I also have been a fellow of Harvard University, the National Bureau of Economic Research, and the Brookings Institution, and I have conducted extensive research and analysis involving U.S. financial markets.
PDF (6 pages): File No. S7-08-08: Comments on Proposed Naked Short Selling Anti-Fraud Rule, 10b-21