Tag: SEC

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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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Filing: SEC v Tonino Labella, et al.

Filing

SEC v Tonino Labella, et al.

United States District Court for the District of New Jersey, 15 February 2005

This securities law enforcement action concerns a fraudulent scheme that Labella and Serubo orchestrated to sell more than $16.8 million of unregistered Eagletech Communications, Inc. (“Eagletech”) and Select Media Communications, Inc. (“Select Media”) stock through unregistered offerings to the investing public.

PDF (26 pages: SEC v Tonino Labella, et al.

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Article: U.S. Stock Market Commentary by Samex Capital

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U.S. Stock Market Commentary by Samex Capital

Samex Capital via RGM Communications via Wayback, 7 February 2005

It seems the U.S. Chamber of Commerce’s Institute For Legal Reform has publicly stated their petition of William Donaldson, the chairman of the SEC, asking for an investigation into whether short sellers and the law firm of Milberg Weiss (“MW”) had engaged in securities fraud. MW represented a class action suit led by an investment company that was also shorting the stock of the company targeted by the class action. MW is best known for their role in pursuing class action suits against publicly traded companies.

PDF (2 pages): U.S. Stock Market Commentary by Samex Capital

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Article: Shame on the SEC

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Shame on the SEC

Christopher Byron

New York Post cited by RGM Communications via Wayback, 10 January 2005

Investors with money in the large and well- capitalized companies of the Dow Jones industrial average certainly felt blue last week, as the first five trading days of the new year brought a 180-point, or 2 percent, drop on well-placed fears that the Federal Reserve intends to keep raising interest rates until the economy stalls out.

But to any of the growing legions of investors lucky, nervy, or foolish enough to have been slumming instead last week in the investing world’s seediest dive of them all – the penny stock market – Wall Street definitely looked pretty in pink.

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Letter: Robert Shapiro to SEC on Regulation SHO

Letter

Robert Shapiro to SEC on Regulation SHO

Robert Shapiro

31 August 2004

I am Robert J. Shapiro, chairman of Sonecon, LLC, an economic advisory firm in Washington, D.C., and a long-time observer and analyst of U.S. and global financial markets. I served as Under Secretary of Commerce for Economic Affairs from 1998 to 2001, Vice President and co-founder of the Progressive Policy Institute from 1989 to 1998, and principal economic advisor to Governor William J. Clinton in the 1992 presidential campaign. I hold a Ph.D. from Harvard University and have been a Fellow of the National Bureau of Economic Research, the Brookings Institution, and Harvard University. I want to convey my serious concerns about the impact of the final version of Regulation SHO regarding short sales, as issued by the Securities and Exchange Commission (SEC) on July 30, 2004 1 , on the fairness and transparency of our equity markets.

PDF (4 pages): Letter to SEC on Reg SHO – Robert Shapiro – August 31 2004

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Article: Future-Priced Convertible Securities & The Outlook For “Death Spiral” Securities-Fraud Litigation

Academic

Future-Priced Convertible Securities & The Outlook For
“Death Spiral” Securities-Fraud Litigation

Zachary T. Knepper

bepress Legal Series, 29 August 2004

In recent years, many companies in the United States have issued so-called “Future-Priced Convertible Securities.” These companies tend to be small, thinly-traded, and (most importantly) desperate for cash, and look to the Future-Priced Convertible Security as a necessary means of financing to keep their businesses operating. FuturePriced Convertible Securities are thus credited by some with providing an important form of financing in the marketplace.1 Yet these securities are also a source of controversy. Many companies have wound up regretting issuing these instruments, after watching their stock values tumble and their market capitalizations dry-up subsequent to issuing these securities. Issuers have even started to sue.

PDF (71 pages): Future-Priced Convertible Securities & The Outlook For
“Death Spiral” Securities-Fraud Litigation

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Article: Who’s Looking Out For You? SEC Critics Seeking Investigation

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Who’s Looking Out For You?: SEC Critics Seeking Investigation

Mark Faulk

FaulkingTruth cited by RGM Communications via Wayback,  27 June 2004

The mission statement of the SEC is clearly worded and easy to understand: “The primary mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities market.”

Last Wednesday, they adopted new rules concerning short-selling that accomplished neither goal. Instead, they passed a watered-down version of their earlier proposed regulation SHO, a version that did absolutely nothing to “protect investors and maintain the integrity of the securities market”. And unlike their mission statement, the new rules are neither clearly worded nor easy to understand. In fact, the only clear message was the “subliminal” one that the SEC sent to investors, which was, simply stated: “We don’t care”.

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Letter: Pink Sheets LLC Letter to SEC Regarding Proposed New Regulation SHO

Letter

Pink Sheets LLC Letter to SEC Regarding Proposed New Regulation SHO

9 June 2004

Pink Sheets LLC (“Pink Sheets”) provides the following comments on
proposed new Regulation SHO under the Securities Exchange Act of 1934
(the “Exchange Act”), which would replace Rules 3b-3, 10a-1, and 10a-2.
Pink Sheets is the leading provider of pricing and financial information for the
over-the-counter (OTC) securities markets and, among other things, operates
an Internet-based, real-time quotation service for OTC equities and bonds for
market makers and other broker-dealers registered under the Exchange Act.

PDF (5 pages): Pink Sheets Short Sale Comment

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Article: DTCC Chief Spokesperson Denies Existence of Lawsuit

Article - Media

DTCC Chief Spokesperson Denies Existence of Lawsuit

Financial Wire cited by RGM Communications via Wayback, 11 May 2004

FinancialWire received a confidential email between a reporter and Stuart Z. Goldstein, Managing Director of Corporate Communications for the Depository Trust and Clearing Corp. in which Goldstein was represented as denying that a lawsuit filed by Nanopierce Technologies (OTCBB: NPCT) exists.

The chief spokesperson for the DTCC, whose board of directors represent a who’s who of financial entities, including Lehman Brothers (NYSE: LEH), Citigroup / Solomon Smith Barney’s Corporate Investment Bank (NYSE: C), and Morgan Stanley (NYSE: MWD), was quoted as stating that the “lawsuit” did not exist and was simply “charges being leveled by internet crackpots.”

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Paper: Without a Trace: The Importance of Information in Markets

Paper

Without a Trace: The Importance of Information in Markets

Susanne Trimbath

Milken Institute Working Paper, January  2004

Economists and practitioners alike would agree that information plays an important role in capital markets. But the practical job of gathering, organizing and disseminating information in markets is too often left to chance. This paper dramatizes the difficulties that can occur when that happens by using the high yield market as an example. The transition from rapid expansion in the 1980s to stable growth in the 1990s was not without its informational road-bumps. The main point of the paper is to emphasize the importance of the informational role being played by industry organizations such as the Loan Syndication and Trading Association (LSTA) in the U.S.

PDF (14 pages): Without a Trace: The Importance of Information in Markets

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Article: Don’t Force The Shorts To Get Dressed

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Don’t Force The Shorts To Get Dressed

Gary Weiss

Business Week cited by RGM Communications via Wayback, 8 December 2003

At a time when the stock market is in a state of chronic schizophrenia, with a year’s worth of gains being chipped away, one corner of the market has withstood the recent travails far better than any other: small-cap stocks. The Russell 2000 Index of such stocks is up 37% so far this year — double the gain in the Standard & Poor’s 500-stock index.

And in October, trading volume in the very smallest stocks, which are listed on the OTC Bulletin Board, climbed 400% over a year ago. Good news — but only up to a point. Regulators have long warned that such stocks are notoriously prone to manipulation and hype.

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Notice: The Depository Trust Company Rulemaking Order Granting Approval of a Proposed Rule Change Concerning Requests for Withdrawal of Certificates by Issuers

Notice

The Depository Trust Company Rulemaking Order Granting Approval of a Proposed Rule Change Concerning Requests for Withdrawal of Certificates by Issuers

Securities and Exchange Commission, 4 June 2003

On February 3, 2003, The Depository Trust Company filed with the Securities and Exchange Commission (“Commission”) and on February 11, 2003, amended proposed rule change SR-DTC-2003-02 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”).1 Notice of the proposal was published in the Federal Register on February 22, 2003.2 Eighty-nine comment letters were received.3 For the reasons discussed below, the Commission is granting approval of the proposed rule change.

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Article: Offshore Banking: The Secret Threat to America (Dissent Magazine)

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Offshore Banking: The Secret Threat to America

Lucy Komisar

Dissent Magazine, Spring 2003

In November 1932, deputy Fabien Albertin took the floor of the National Assembly in Paris to denounce tax evasion by eminent French personalities-politicians, judges, industrialists, church dignitaries, and directors of newspapers-who were hiding their money in Switzerland.

“The minister of finance knows very well that for ten years, the concern of all his predecessors has been to track down this fraud . . . ” he declared. “However, till now, the information one has gotten has been extremely vague. When documents arrive, they are formless notebooks in which holders of accounts are represented only as numbers. Employees of the banks don’t know the names of account holders. These names are known only to the director of the bank, who the clients forbid to correspond with them, so anxious are they to preserve anonymity.”

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Article: SEC’s IPO probe expands to include Morgan Stanley

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SEC’s IPO probe expands to include Morgan Stanley

Investment Executive, 26 February 2003

“The Securities and Exchange Commission, expanding a probe into alleged IPO abuses, has signaled to Morgan Stanley that it may file civil charges alleging the securities firm doled out shares to investors based partly on their commitments to buy additional stock after trading began, people familiar with the matter say,” writes Randall Smith in today’s Wall Street Journal.

“The SEC staff has informally indicated to Morgan Stanley that it plans to send a so-called Wells notice notifying the firm of the planned charges, the people said. The development suggests the SEC’s investigation into such “laddering” of stock sold in initial public offerings could be heating up. The probe is one of the last major regulatory crackdowns on Wall Street excesses that characterized the 1990s stock-market bubble.”

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