Post by jannikki on Nov 12, 2005 10:14:42 GMT -4
A fine line between mistakes, misleading, and outright lying – October 27, 2004
Dave Patch
When members of Congress ask the SEC to provide answers regarding securities fraud are they provided with accurate responses? How are the answers vetted for accuracy? Recently the SEC was put to task and the answers members of Congress received may enlighten you.
In August 2004, Maryland Senator Paul Sarbanes, acting on behalf of a concerned constituent, went to Chairman Donaldson and asked for explanations pertaining to naked shorting abuses on several stocks. In the package provided to the SEC by Senator Sarbanes was documented evidence to support the alleged claims of abuse (e-mails from Broker-Dealers addressing settlement failures, actual trade data, etc…). The SEC, in response, appeared to have glossed over the documents and made up stories to support their agenda. An example:
In April of 2003, while Jag Media Holdings, Inc. was trading electronically through the Depository Trust System and “Street-Name” stock transfers they received numerous e-mails from Broker-Dealers, Clearing Firms, and Canadian Depository identifying settlement issues. These failures were preventing these firms from making appropriate stock dividend distributions during the April 2003 Jag Media corporate action. These e-mails were provided as part of the Senators request for response from the SEC. In June 2004 Jag Media Holdings exited the Depository Trust and proceeded into “custody-only” trading to protect from the continued abuses resulting from 2002 and 2003 corporate actions.
The SEC’s James Brigagliano, Asst. Director of Market Regulations stated in the reply to Senator Sarbanes that the 2004 corporate action by Jag Media was the cause for the 2003 identified settlement failures. He stated “the delivery failures cited…do not appear to be a result of naked short selling but rather from action taken by the issuer, Jag Media Holdings, Inc.. Issuers, like Jag media Holdings, Inc., that impose transfer restrictions (sometimes known as “custody-only” trading) have caused numerous clearance and settlement problems.” He blamed the company for a corporate action that had not yet happened at the time of the failures as rationalization for the failures. Ultimately Mr. Brigagliano showed that little real research was conducted into the concern raised by the Senator and tried to pass off misinformation to deflect the issue. The lack of thoroughness of his investigation is quite clear.
In a second complaint, Mr. Brigagliano stated an SEC enforcement action against the Management of Pinnacle Business as the cause for the stock trading problems in this company. Mr. Brigagliano identified that Pinnacle Business had gone from an outstanding share base of 675 Million shares to 2 Billion shares over the course of a year and that the dilution was the cause for the stock price declines. He highlighted his argument with irrelevant statements about the SEC’s enforcement actions against the Companies management for their misleading statements and failing to file on the stock issuances. What Mr. Brigagliano and the SEC were provided by the Senator, however, was a single day time-and-trade report for 10/21/03 that demonstrated that over 150 Billion shares had traded in one day with nearly half the trades being cancelled. All shares traded at the same price of $.0001/share. The result for the day was 40 times the number of shares issued by the company being traded in single day. Once again the SEC blames the company for a dilution of 2.9X over a year timeframe and highlights it with an SEC action against the management but never questions how the entire O/S can trade 40X in a single trading day, at the same price, without addressing the liquidity and dilution that was created by the Industry. Mr. Brigagliano appears to have misled the Senator into thinking it was a management issue without addressing the specific data provided. Who sold 80 Billion shares and did they EVER settle?
Finally, Mr. Brigagliano highlighted the success the SEC has had in addressing the naked shorting problem. He referenced the SEC enforcement action against Rhino Advisors and he referenced the SEC’s recently released Regulation SHO.
While the SEC did, in February 2004 apply a $1 million fine against Rhino Advisors for stock manipulation left out was the fact that some $500 Million in Market capitalization was lost due to that manipulation and that, to this date, the stock settlement problems have never been addressed. Mr. Brigagliano also failed to disclose that while the SEC did fine Rhino, the SEC never took any action against the accomplices to the crime for which the SEC has audio tape recordings of. The fraud perpetrated by Rhino required a network of people, some being members of the industry, and the SEC has never taken any enforcement against those accomplices.
Regarding the SEC proposed short sale Rule SHO, it is far short of adequate. Mr. Brigagliano misleads the Senator into believing “’SHO also creates a mandatory delivery requirement for short sales of threshold securities”. This is not true. Regulation SHO restricts short sales of threshold securities and requires the firms to “take action to close out the fail to deliver that has remained for thirteen consecutive settlement days by purchasing securities of like kind and quantity.”
While it may be semantics, mandatory close-out is the effort of initiating a guaranteed buy-in at whatever cost to close out the transaction. That is not what Regulation SHO is implying. Today Broker-Dealers and clearing firms are supposed to initiate buy-ins to settle failed trades. They do not always do so. Even when they do, those supporting the Offer in the market (Market Makers or Specialists) will state that they do not have guaranteed delivery shares available AT THAT PRICE and thus the buy-in is rejected. Market Makers are either creating liquidity in a naked short or the offer is represented by a short seller. SHO did not remove the Market Maker or Specialist exemptions.
A failed buy-in attempt is acceptable action under the SEC’s new rules. Buy-ins that are rejected is considered “taking action”. The SEC NEVER defines a specific timeframe for those mandatory close-outs to take place and some within Securities Regulation claim it can still be a year or greater under present SHO terminology. The SEC, who admitted that 4% of all publicly traded companies presently trade above the abuse threshold, doesn’t even provide a timeline in which these presently abused companies must be sanitized of the abuse.
Yes there is a fine line between mistakes, misleading, and outright lying. When I called and spoke to Herb Brooks of the SEC’s Division of Market Regulation about this document Herb did not want to discuss the errors in the document submitted to the Senator claiming there are none. The document was carefully vetted by many within the agency including council. Instead Mr. Brooks wanted to go on record as stating “The Division would never lie or mislead Congress, the Senator, or the Investing public and it is outrageous that I would think otherwise”. This is the same SEC that told the Putnam whistleblower to pound sand and that has missed far too many opportunities stop fraud before the victim list is nearly everybody. Mr. Brooks, for the record, claims that unlike the SEC 95% of what I say IS false and misleading but could not provide such details as I have here to support those claims.
Well Mr. Brooks, documents do not lie and the document submitted by Mr. Brigagliano to Senator Sarbanes is certainly in question about its accuracy. It would appear Mr. Brigagliano would rather point the finger at the companies and their investors instead of really investing some time and energy into answering the specific questions the Senator requested answers to.
Why did seven Wall Street members submit e-mails to Jag Media about settlement failures on their stock in April 2003? If moving to custody-only in June 2004 cause’s settlement issues, what is the explanation for the failures when the stock was trading electronically?
How were some 80 Billion shares of Pinnacle Business Management traded in a single day at $.0001 when the company only had 2 Billion shares outstanding according to Mr. Brigagliano? When the SEC pulled the registration on Pinnacle Business what exactly was the NSCC data on settlement failures?
What about the $500 Million in Market Capitalization losses that shareholders of Sedona suffered in the Rhino Advisors abuse and what about Rhino’s network of co-conspirators? If the SEC is doing a bang up job why are the investors still the victims?
Finally, if SHO is such a cure all, how long does the SEC allow for those 4% publicly traded companies above the settlement failure threshold to remain above that level? If there is a mandatory close-out of the trades, how long does the SEC give for the close-out to happen?
These are the questions that Senator Sarbanes wanted answers to. He did not want conjecture and misleading statements. When a Senator, especially a Senator in the SEC oversight committee, asks for an explanation about fraud and abuse it deserves clear and precise answers. We are all still waiting.
Could I be wrong? Sure. But the SEC must come out with the evidence to prove me wrong. The e-mails and the time-and-trade data is my real evidence. The SEC is expecting us victims to believe that no-action is proof of no-problem but history proves otherwise. The SEC MUST come clean with the facts and the data and must do it publicly.
Dave Patch
When members of Congress ask the SEC to provide answers regarding securities fraud are they provided with accurate responses? How are the answers vetted for accuracy? Recently the SEC was put to task and the answers members of Congress received may enlighten you.
In August 2004, Maryland Senator Paul Sarbanes, acting on behalf of a concerned constituent, went to Chairman Donaldson and asked for explanations pertaining to naked shorting abuses on several stocks. In the package provided to the SEC by Senator Sarbanes was documented evidence to support the alleged claims of abuse (e-mails from Broker-Dealers addressing settlement failures, actual trade data, etc…). The SEC, in response, appeared to have glossed over the documents and made up stories to support their agenda. An example:
In April of 2003, while Jag Media Holdings, Inc. was trading electronically through the Depository Trust System and “Street-Name” stock transfers they received numerous e-mails from Broker-Dealers, Clearing Firms, and Canadian Depository identifying settlement issues. These failures were preventing these firms from making appropriate stock dividend distributions during the April 2003 Jag Media corporate action. These e-mails were provided as part of the Senators request for response from the SEC. In June 2004 Jag Media Holdings exited the Depository Trust and proceeded into “custody-only” trading to protect from the continued abuses resulting from 2002 and 2003 corporate actions.
The SEC’s James Brigagliano, Asst. Director of Market Regulations stated in the reply to Senator Sarbanes that the 2004 corporate action by Jag Media was the cause for the 2003 identified settlement failures. He stated “the delivery failures cited…do not appear to be a result of naked short selling but rather from action taken by the issuer, Jag Media Holdings, Inc.. Issuers, like Jag media Holdings, Inc., that impose transfer restrictions (sometimes known as “custody-only” trading) have caused numerous clearance and settlement problems.” He blamed the company for a corporate action that had not yet happened at the time of the failures as rationalization for the failures. Ultimately Mr. Brigagliano showed that little real research was conducted into the concern raised by the Senator and tried to pass off misinformation to deflect the issue. The lack of thoroughness of his investigation is quite clear.
In a second complaint, Mr. Brigagliano stated an SEC enforcement action against the Management of Pinnacle Business as the cause for the stock trading problems in this company. Mr. Brigagliano identified that Pinnacle Business had gone from an outstanding share base of 675 Million shares to 2 Billion shares over the course of a year and that the dilution was the cause for the stock price declines. He highlighted his argument with irrelevant statements about the SEC’s enforcement actions against the Companies management for their misleading statements and failing to file on the stock issuances. What Mr. Brigagliano and the SEC were provided by the Senator, however, was a single day time-and-trade report for 10/21/03 that demonstrated that over 150 Billion shares had traded in one day with nearly half the trades being cancelled. All shares traded at the same price of $.0001/share. The result for the day was 40 times the number of shares issued by the company being traded in single day. Once again the SEC blames the company for a dilution of 2.9X over a year timeframe and highlights it with an SEC action against the management but never questions how the entire O/S can trade 40X in a single trading day, at the same price, without addressing the liquidity and dilution that was created by the Industry. Mr. Brigagliano appears to have misled the Senator into thinking it was a management issue without addressing the specific data provided. Who sold 80 Billion shares and did they EVER settle?
Finally, Mr. Brigagliano highlighted the success the SEC has had in addressing the naked shorting problem. He referenced the SEC enforcement action against Rhino Advisors and he referenced the SEC’s recently released Regulation SHO.
While the SEC did, in February 2004 apply a $1 million fine against Rhino Advisors for stock manipulation left out was the fact that some $500 Million in Market capitalization was lost due to that manipulation and that, to this date, the stock settlement problems have never been addressed. Mr. Brigagliano also failed to disclose that while the SEC did fine Rhino, the SEC never took any action against the accomplices to the crime for which the SEC has audio tape recordings of. The fraud perpetrated by Rhino required a network of people, some being members of the industry, and the SEC has never taken any enforcement against those accomplices.
Regarding the SEC proposed short sale Rule SHO, it is far short of adequate. Mr. Brigagliano misleads the Senator into believing “’SHO also creates a mandatory delivery requirement for short sales of threshold securities”. This is not true. Regulation SHO restricts short sales of threshold securities and requires the firms to “take action to close out the fail to deliver that has remained for thirteen consecutive settlement days by purchasing securities of like kind and quantity.”
While it may be semantics, mandatory close-out is the effort of initiating a guaranteed buy-in at whatever cost to close out the transaction. That is not what Regulation SHO is implying. Today Broker-Dealers and clearing firms are supposed to initiate buy-ins to settle failed trades. They do not always do so. Even when they do, those supporting the Offer in the market (Market Makers or Specialists) will state that they do not have guaranteed delivery shares available AT THAT PRICE and thus the buy-in is rejected. Market Makers are either creating liquidity in a naked short or the offer is represented by a short seller. SHO did not remove the Market Maker or Specialist exemptions.
A failed buy-in attempt is acceptable action under the SEC’s new rules. Buy-ins that are rejected is considered “taking action”. The SEC NEVER defines a specific timeframe for those mandatory close-outs to take place and some within Securities Regulation claim it can still be a year or greater under present SHO terminology. The SEC, who admitted that 4% of all publicly traded companies presently trade above the abuse threshold, doesn’t even provide a timeline in which these presently abused companies must be sanitized of the abuse.
Yes there is a fine line between mistakes, misleading, and outright lying. When I called and spoke to Herb Brooks of the SEC’s Division of Market Regulation about this document Herb did not want to discuss the errors in the document submitted to the Senator claiming there are none. The document was carefully vetted by many within the agency including council. Instead Mr. Brooks wanted to go on record as stating “The Division would never lie or mislead Congress, the Senator, or the Investing public and it is outrageous that I would think otherwise”. This is the same SEC that told the Putnam whistleblower to pound sand and that has missed far too many opportunities stop fraud before the victim list is nearly everybody. Mr. Brooks, for the record, claims that unlike the SEC 95% of what I say IS false and misleading but could not provide such details as I have here to support those claims.
Well Mr. Brooks, documents do not lie and the document submitted by Mr. Brigagliano to Senator Sarbanes is certainly in question about its accuracy. It would appear Mr. Brigagliano would rather point the finger at the companies and their investors instead of really investing some time and energy into answering the specific questions the Senator requested answers to.
Why did seven Wall Street members submit e-mails to Jag Media about settlement failures on their stock in April 2003? If moving to custody-only in June 2004 cause’s settlement issues, what is the explanation for the failures when the stock was trading electronically?
How were some 80 Billion shares of Pinnacle Business Management traded in a single day at $.0001 when the company only had 2 Billion shares outstanding according to Mr. Brigagliano? When the SEC pulled the registration on Pinnacle Business what exactly was the NSCC data on settlement failures?
What about the $500 Million in Market Capitalization losses that shareholders of Sedona suffered in the Rhino Advisors abuse and what about Rhino’s network of co-conspirators? If the SEC is doing a bang up job why are the investors still the victims?
Finally, if SHO is such a cure all, how long does the SEC allow for those 4% publicly traded companies above the settlement failure threshold to remain above that level? If there is a mandatory close-out of the trades, how long does the SEC give for the close-out to happen?
These are the questions that Senator Sarbanes wanted answers to. He did not want conjecture and misleading statements. When a Senator, especially a Senator in the SEC oversight committee, asks for an explanation about fraud and abuse it deserves clear and precise answers. We are all still waiting.
Could I be wrong? Sure. But the SEC must come out with the evidence to prove me wrong. The e-mails and the time-and-trade data is my real evidence. The SEC is expecting us victims to believe that no-action is proof of no-problem but history proves otherwise. The SEC MUST come clean with the facts and the data and must do it publicly.