Web: Arne Alsin’s Article on Fails-To-Deliver

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Arne Alsin’s Article on Fails-To-Deliver

Bud Burrell, Arne Alsin

RealMoney cited by Sanity Check via Wayback, 17 April 2006

There is a systemic problem in the equity market, but the magnitude of the problem is impossible to gauge because the parties involved refuse to answer a simple question: Why?

My mutual fund purchased five blocks of stock in Overstock (OSTK:Nasdaq) during the first quarter. There was a failure to deliver shares in four out of the five purchases, with delays for delivery lasting as long as three weeks. Nobody can tell me why shares were not delivered within the requisite three-day settlement period — the so-called T+3 requirement.

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Article: Short-Sellers Are Burned by Novastar

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Short-Sellers Are Burned by Novastar

Roddy Boyd

New York Post, 16 April 2006

One Midwestern financial company, long a target of short-sellers, has deployed an infrequently used tactic to inflict pain on its naysayers: Its management has put in place a strategy that consistently makes money.

The stock of Novastar Financial, a Kansas City, Mo.-based home-equity real estate investment trust, has been a battleground between long-term holders in love with its juicy dividends and short-sellers who suspect that the company has massive default risk with those loans.

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Web: The Golden Rule of Professional Shorting: Never Short a Company Without an Inside Rat

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The Golden Rule of Professional Shorting: Never Short a Company Without an Inside Rat

Bud  Burrell

Sanity Check via Wayback, 9 March  2006

There is one genuinely “Golden Rule” for professional short seller/raiders.

You never short a stock without an insider to leak manageable information to you. That insider might be an officer, director, control person, investor, analyst, inside legal counsel, outside legal counsel, or even a lowly disgruntled non-executive employee.

In working on some hundred plus companies directly since 1995, I have never once seen this rule broken. Many times the CEO’s of these companies have resisted this idea, but in NO INSTANCE have I seen even one exception to this rule when they were finally forced to look in on their own operations.

There is a process for looking for raider attacks on companies, but many are flawed strategically, because they are only looking out, and not in. I have been challenged by a number of clients on this, but when they would spend the money to use competent investigators, they always found the connection of an insider to the raiders. Moreover, they found the miscreant in ways admissable in Court, in phone records, emails, and more. This is not dissimilar to what Overstock’s investigator found outside the Company.

If you want a broadly known example, simply look at the Nabisco deal and KKR. The number three operating guy at RJR/Nabisco told them where all the bodies were buried, and ended up running the operations of the Company for them when they won the takeover battle.

Officers and Directors have a duty to insure that sensitive inside information about their company is not being leaked to anyone, unless it is someone doing so for ethical reasons. I have seen more than once the use of such informants by the SEC, NASD, and others. This is a more complex issue if discovered. No matter what, such a person must be quarantined until appropriate third party investigation can determine the foundation for such actions. Many times it is based on weak premises, but not always. You only have to look at Enron, Worldcomm, Global Crossing and more to see good outcomes from such behavior.

For your consideration.

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Article: Corporate reform dead; SEC chief should resign

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Corporate reform dead; SEC chief should resign

Loren Steffy

Houston Chronicle, 1 March 2006

Corporate governance reform is dead. Its last gasp was stifled by the subpoenas issued last month by the Securities and Exchange Commission against several news organizations and writers.

Last week, Marketwatch .com columnist Herb Greenberg and Dow Jones Newswires columnist Carol Remond acknowledged receiving the subpoenas, which involved stories about Internet retailer Overstock .com.

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Web: Stockgate Report – Investrend Article on Targeting of DTCC by NASAA members for Subpoenas

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Stockgate Report: Investrend Article on Targeting of DTCC by NASAA members for Subpoenas

Bud Burrell

FinancialWire cited by Sanity Check via Wayback, 14 February 2006

FinancialWire has learned from a highly-placed informed source that the Depository Trust and Clearing Corp. appears to be a target of an enforcement action by the multi-state task force formed by the North American Securities Administrators Association.

If so, this would explain a recent flurry of posts and press releases by the DTCC denying any complicity in the exploding national illegal manipulative trading scandal known as StockGate, embroiling Netflix (NASDAQ: NFLX), Overstock (NASDAQ: OSTK), Krispy Kreme Donuts (NYSE: KKD) and Martha Stewart OmniLiving (NYSE: MSO), as well as provide a measure of validation to rampant rumors that the clearing house, jointly owned by the NASD and the New York Stock Exchange has received subpoenas.

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Article: Overstock’s phantom menace

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Overstock’s phantom menace

Bethany McLean

CNN Money, 1 November 2005

Patrick Byrne, the 42-year-old CEO of online retail liquidator Overstock.com, is under growing pressure to deliver numbers that prove his business will make money.

Certainly the third-quarter results, announced on Friday, Oct. 28, did not help his cause. Once again Overstock.com (Research) lost far more than analysts were expecting.

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Article: Who’s Behind Naked Shorting?

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Who’s Behind Naked Shorting?

Karl Thiel

The Motley Fool, 30 March 2005

The subject of naked short selling has gained some momentum with the introduction of Reg SHO early this year and a rising tide of complaint from companies like Overstock.com (NASDAQ:OSTK) and others. But in addition to this general attention, 12 separate lawsuits have accused the DTCC itself of engineering naked short-selling schemes. Nine of these, according to Thompson, have been dismissed or withdrawn, while three are still pending.

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Article: The Naked Truth on Illegal Shorting

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The Naked Truth on Illegal Shorting

Karl Thiel

The Motley Fool cited  by RGM Communications via Wayback, 24 March 2005

It’s amazing how the word “naked” can liven up a discussion. Take naked short selling, for instance. The addition of this saucy little word turns the mundane act of borrowing and selling shares of stock in hopes of buying them back later at a lower price into a raging controversy fraught with conspiracy, secret identities, public recriminations, foreign intrigue, sports team owners, and now some of the top regulators in the land.

How can one word cause so much trouble? While legal short sellers must borrow the shares they sell, naked short sellers sell shares of stock they haven’t borrowed, have no intention of borrowing, and that may not even exist. Not surprisingly, this activity is illegal and has been since the Securities and Exchange Act of 1934. But for a number of reasons, regulators have overlooked it in the past.

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