Testimony: Robert Shapiro’s Comments on Proposed Naked Short Selling Anti-Fraud Rule, 10b-21

Testimony

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

Article: The ‘Phantom Shares’ Menace

Article - Media

The ‘Phantom Shares’ Menace

John W. Welborn

Securities & Exchange,  24 April 2008

In 1985, the National Association of Securities Dealers (nasd) commissioned Irving M. Pollack, a securities law expert and former Securities and Exchange commissioner, to conduct a comprehensive review of short selling in nasdaq securities. The nasd sought to determine what, if any, additional short selling regulation was needed for the nasdaq market. The result was the now-famous “Pollack Study,” which described the short selling landscape of the day and made important recommendations regarding the disclosure, reporting, and settlement of short sales.

PDF (10 pages): The ‘Phantom Shares’ Menace

Testimony: Statement of Robert J. Shapiro The Economic Costs of Tolerating Equity “Failures to Deliver”

Testimony

Statement of Robert J. Shapiro: The Economic Costs of Tolerating Equity “Failures to Deliver”

Robert Shapiro

11 September 2007

I am Robert J. Shapiro. I am chairman of Sonecon, an economic advisory firm in Washington, D.C., and former U.S. Under Secretary of Commerce for Economic Affairs under President Clinton. I am also a Senior Policy Fellow at the Georgetown University Center for Business and Public Policy and a Senior Fellow of the Progressive Policy Institute. I have served previously as a fellow of Harvard University, the National Bureau of Economic Research, and the Brookings Institution.

PDF (3 pages): Statement of Robert J. Shapiro: The Economic Costs of Tolerating Equity “Failures to Deliver”

Article: Naked and Confused

Article - Media

Naked and Confused

Liz Moyer

Forbes, 12 February 2007

How a tiny software outfit fell victim to an illegal but unrestrained practice known as naked short-selling.

Most investors have never heard of Sedona (otcbb: SDNA.OB news people ) Corp., a piddling Pennsylvania outfit that sells customer relationship management software for small U.S. banks and credit unions. But to a rogue band of short-selling hedge fund managers, Sedona was prime meat.

Article: Naked Short Selling – How Exposed Are Investors?

Article - Academic

Naked Short Selling: How Exposed are Investors?

James W. Christian, Robert Shapiro, John-Paul Whalen

The Houston Law Review, 10 November 2006

Regulation SHO is a start, but in order to guarantee a fair market place, the SEC must close the loopholes in Regulation SHO and institute comprehensive reforms to the clearing and settlement system. Until the SEC makes these necessary reforms and addresses the DTCC’s mismanagement of the Stock Borrow Program, investors will continue to be exposed to the manipulative potential of naked short selling.

PDF (58 Pages):  HLR Naked Short Selling 2006-11-10

Testimony: Rule Number S7-12-06 Comments on Proposed Amendments to Regulation SHO

Testimony

Rule Number S7-12-06: Comments on Proposed Amendments to Regulation SHO

Robert Shapiro

14 September 2006

I am Robert J. Shapiro, chairman of Sonecon, LLC, an economic analysis and advisory firm in Washington, D.C. From 1998 to 2001, I was Under Secretary of Commerce for Economic Affairs. Prior to that, I was Vice President and co-founder of the Progressive Policy Institute and Vice President of the Progressive Foundation and continue to be a Senior Fellow of the Progressive Policy Institute. I also served as the principal economic advisor to Governor William J. Clinton in his 1991-1992 presidential campaign, senior economic advisor to Vice President Albert Gore, Jr. in his presidential campaign, Legislative Director and Economic Counsel for Senator Daniel Patrick Moynihan, and Associate Editor of U.S. News & World Report. I have been a fellow of Harvard University, the National Bureau of Economic Research, and the Brookings Institution. I hold a Ph.D. and M.A. from Harvard University, a M.Sc. from the London School of Economics and Political Science, and an A.B. from the University of Chicago.

PDF (16 pages): Rule Number S7-12-06: Comments on Proposed Amendments to Regulation SHO

Memorandum: Short Sales on the New York Stock Exchange: Their Share of All Trades and the Types of Companies Most Likely to be Sold Short

Memorandum

Short Sales on the New York Stock Exchange: Their Share of All Trades and the Types of Companies Most Likely to be Sold Short

Robert J. Shapiro

Sonecon, July 2006

We analyzed the extent and focus of short sales of New York Stock Exchange (NYSE) companies over a six-month period, February – July 2006.

    • More than one-fourth of all NYSE shares traded are sold short, or about 330 million shares out of 1.3 billion shares traded daily.
    • The proportion of shares traded that are sold short is inversely related to a company’s share price: Among NYSE companies selling for $20 or less per share, short sales account for about 30 percent of all shares traded, compared to about 23 percent of all shares traded in companies selling for $40 or more per share.
    • The proportion of shares traded that are sold short is inversely related to a company’s total market capitalization: Among NYSE companies with market caps of $3 billion or less, short sales account for more than 29 percent of all shares traded, compared to 23 percent of the shares traded in companies with market caps of over $10 billion.
    • The proportion of shares traded that are sold short varies by industry. Short sales account for nearly 29 percent of all shares traded in companies that produce discretionary consumer goods and services, including automobiles, appliances, textiles and apparel, hotels and restaurants – compared to less than 23 percent of all shares traded in companies in health care and consumer staples, including food, beverages, tobacco and household products.

PDF (3 pages): Short Sales on the New York Stock Exchange: Their Share of All Trades and the Types of Companies Most Likely to be Sold Short

Article: ‘Naked’ short selling is center of looming legal battle

Uncategorized

‘Naked’ short selling is center of looming legal battle

Companies on the defensive seize upon an aggressive form of shorting

Alistair Barr

MarketWatch, 14 June 2006

By one contentious estimate, it’s a big problem plaguing more than 10% of stocks on the New York Stock Exchange and Nasdaq. An NYSE probe into whether naked shorting was used to force down shares of Vonage Holdings Corp. VG, +3.53% lower during the Internet phone company’s May initial public offering has added fuel to the fire. See full story.

Continue reading “Article: ‘Naked’ short selling is center of looming legal battle”

Paper: 500 Million Shares of Stock Are Missing A Report on the Impact of Allowing Stock Sales to Go Undelivered for Long Periods

Paper

500 Million Shares of Stock Are Missing: A Report on the Impact of Allowing Stock Sales to Go Undelivered for Long Periods

Robert J. Shapiro

Sonecon, March 2006

It has been well established that every day, millions of shares of stock in U.S. companies that are sold go undelivered. In November 2004, an SEC visiting economist, Dr. Leslie Boni, reported that on any given day, there are some 120 million to 180 million shares of companies listed on the NYSE or NASDAQ and some 300 million to 420 million shares over-the-counter (OTC) or unlisted public companies – a average total of 510 million shares – that have been sold and gone undelivered for at least 3 days. Her conclusions came from official data of the DTCC, the organization that clears and settles all U.S. stock sales and purchases, and holds most of these assets in electronic form.

PDF (19 pages):  500 Million Shares of Stock Are Missing: A Report on the Impact of Allowing Stock Sales to Go Undelivered for Long Periods

Web: The Death of a Thousand Cuts

Web

The Death of a Thousand Cuts

Bud Burrell

Sanity Check via Wayback, 2 February 2006

During my undergraduate studies, I read of an historical method of execution known as the Death of a Thousand Cuts. I have come to see that as a metaphor for how guerrilla wars (like ours) are won and lost.

Whether any of us have fully realized it or not, we have been engaged by an insidious enemy whose sole desire was to steal what was not theirs from others they viewed as their inferiors, rather than earn it legitimately. When a person was executed by the infliction of a thousand small cuts, the pain was enormous, eventually killing the subject by shock and loss of blood, but very, very slowly.

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Paper: The Concentration of Undelivered Shares Among Threshold Securities: Prospects of Stock Manipulation Using Naked Short Sales

Paper

The Concentration of Undelivered Shares Among Threshold Securities:
Prospects of Stock Manipulation Using Naked Short Sales

Robert J.  Shapiro

Sonecon, 14 November 2005

American public companies and their shareholders face a significant threat. Last year, researchers determined that naked short sales – short sales in which the shares are credited to buyer, but the short seller fails to borrow and deliver those shares – occur on a large scale, often extending for months at a time. New data now suggest that these “failures to deliver” or “fails” are concentrated in a relative handful of companies. This raises the prospect of naked short sales being used to manipulate some companies’ stock prices. The enormous extent of naked shorting and its likely use in stock manipulation could threaten the integrity of our financial markets and international confidence in them.

PDF (13 pages): The Concentration of Undelivered Shares Among Threshold Securities: Prospects of Stock Manipulation Using Naked Short Sales

Paper: Boni Analysis of Failures-to-Deliver

Paper

Boni Analysis of Failures-to-Deliver

Robert Shapiro

Sonecon, November 2004

A new study documents that significant failures to promptly deliver shares sold short (“fails” or “failures”) are not, as many market participants assume, rare, brief and inadvertent, but rather pervasive, extended and deliberate. The analysis was done by Dr. Leslie Boni, recently a visiting financial economist at the SEC and now economics professor at the University of New Mexico. Boni’s data show that failures-to-deliver affect almost all public companies and usually last several weeks. On any day, there are 180 million-to-300 million shares involving more than 10 percent of public companies that have gone undelivered for at least two months. Failures of these dimensions can seriously distort the normal economic operations of U.S. equity markets.

PDF (2 pages): Boni Analysis of Failures-to-Deliver