Post by jcline on Feb 11, 2006 13:19:38 GMT -4
SEC teeters on Ethics Violation with recent Amicus Brief
Location: BlogsDave Patch's Blog
Posted by: dpatch 2/11/2006 8:09 AM
Did the SEC risk an ethics violation in order to protect the error of their ways?
Under US Federal Laws, executed by the Office of Government Ethics, it is a requirement that Federal Employees “act impartially and not give preferential treatment to any private organization or individual.” The recent Amicus brief (Located in the Library Section of this website: Nanopierce Amicus Brief) filed by the SEC to the Nevada Supreme Court now raises questions of such impartiality.
As Bob O’Brien clearly illustrated in his recent Blog regarding this brief, the SEC misrepresented the Congressional laws mandated to the Sec under the Exchange act of 1934. The Sec failed to identify the critical language that was counter to their position and only submitted for reference language that supported their actions.
I will now discuss the other aspects of securities law the SEC failed to identify as pertinent to this brief due to the damaging nature these laws have on the SEC’s position.
The SEC cites Uniform Commercial Code Section 8-501 as justification of “book entry settlement” and stock “entitlements”. The “entitlement” identified in Section 8-501 representing a “fail to deliver” as we have come to know it. Thus, the SEC contends that because Section 8-501 accepts such entitlement, the DTCC’s Stock Borrow Program and FTD’s are accepted under state law. As was seen by the SEC’s earlier misrepresentation of 17A so too did they misrepresent the total facts supported by Section 8 of the Uniform Commercial Codes.
Section 8-504 requires that the broker seek out settlement and maintain custody of all security entitlements (FTD’s) promptly. This is nearly identical to the language presented under Section 17A of the Exchange Act of 1934 and language the SEC neglected to present in their brief.. The requirements are for reasonable standards to be applied in addressing an entitlement (FTD).
Since securities law requires all trades to settle within 3 days, and based on a proposal (while not SEC approved) by the NASD, the NASD consider reasonable standards to be considered 10 days past the original trade settlement date. This could thus be a reasonable argument to a court using the NASD’s presentation of the laws as a “reasonable standard” The NASD being an “expert witness” so to speak.
The fact that the NASD had this proposal pulled simply because of the SEC’s demand that SHO be the singular law, it stands to ground that it was valid in its conceptual arguments.
Section 8-506 is with regards to the responsibilities of a securities intermediary (Broker Dealer, Clearing Firm, etc…) during a period of exercising rights of the “entitled” shareholder, the shareholder carrying a FTD book entry in their account.
A shareholder who has loaned out their shares has a different set of “rights” than one who purchased shares but simply never had settlement.
During a proxy period, a shareholder of an FTD is provided a proxy to vote exactly their percent ownership in the company’s positions. As I read 8-506 it requires the intermediary (buy-side BD) to take reasonable steps to insure that the exercising rights of that entitled shareholder are carried out (voted) as directed by the shareholder. To do so requires the reasonable standard of attempt to settle that trade and replace the shareholder entitlement with an actual share.
Part of this reasoning of accurate exercise of shareholder rights includes the refusal of proxy submittals to all non-shareholders (entitled shareholders) who gave up their voting rights. The SEC makes claims in this brief that lenders have given up these rights and yet with SHO and the enforcement activities of the SEC, the SEC is not enforcing this rule. Since Institutions are the primary lenders, they are provided unreasonable entitlement at the detriment to the shareholder with an FTD.
Section 8-507 finally identifies the requirements of a Broker Dealer (intermediary) to comply with the direction of the entitled shareholder.
While this is excused by the SEC as the simply execution of buy and sell orders, it also can be extended to such activities as transferring electronic shares to physical shares. As an entitled shareholder without cause or agreement, you have by law every right as the real shareholder. This includes the conversion to paper cert.
Under this law the intermediary is required to take reasonable steps to comply with all directives made by the entitled shareholder including the directive of share conversion. Earlier in the brief the SEC made it very clear that buy-ins can be put on notice to the DTCC by the buy side BD and the DTCC will initiate a buy-in and any premium created in the cost of settlement will be taken out of the sell side account. This is reasonable grounds. Simply waiting for the sell side BD to make good is not reasonable grounds to their responsible “entitled shareholder.”
As the SEC closed out their brief they stated; “If the alleged problem is systemic rather than arising from isolated unlawful conduct, the appropriate remedy is to amend the regulatory regime. The Commission has not been unaware of allegations similar to those made by plaintiffs.”
This again is factually inaccurate and considered biased. Recent cases brought to light include Knight Capital and 19 separate illegal cases of naked shorting, Guillaume Pollet and 10 separate illegal deals, Anthony Elgindy and 40 separate cases of naked shorting abuse, Rhino, Refco, FBR, Hilary Shane, John Mangan, and Scott Ryan as just the most recent. By the DTCC’s own records, $60 Million is listed (mark-to-market) as fails over 200 days. And, the infamous Bear Stearns Conference call where they admit regulators have been addressing this “systemic” problem for years.
Remember, Mutual Fund late trading was not systemic to the SEC until Ma. AG Bill Galvin took action.
All of these arguments, compared to the language and direction of the SEC’s brief as submitted, is on that fine line of an ethical violation. I wonder when SEC Attorney Mark Pennington signed this brief he realized the Commission was hanging hi out to dry. His claims in signing were;
“I hereby certify that I have read this brief amicus curiae, and to the best of my knowledge, information and belief, it is not frivolous or interposed for any improper purpose.”
I think we have proven that facts presented in the brief were in fact interposed for an improper purpose – to cover up fraud and negligence.
www.thesanitycheck.com/Blogs/DavePatchsBlog/tabid/66/EntryID/66/Default.aspx
Location: BlogsDave Patch's Blog
Posted by: dpatch 2/11/2006 8:09 AM
Did the SEC risk an ethics violation in order to protect the error of their ways?
Under US Federal Laws, executed by the Office of Government Ethics, it is a requirement that Federal Employees “act impartially and not give preferential treatment to any private organization or individual.” The recent Amicus brief (Located in the Library Section of this website: Nanopierce Amicus Brief) filed by the SEC to the Nevada Supreme Court now raises questions of such impartiality.
As Bob O’Brien clearly illustrated in his recent Blog regarding this brief, the SEC misrepresented the Congressional laws mandated to the Sec under the Exchange act of 1934. The Sec failed to identify the critical language that was counter to their position and only submitted for reference language that supported their actions.
I will now discuss the other aspects of securities law the SEC failed to identify as pertinent to this brief due to the damaging nature these laws have on the SEC’s position.
The SEC cites Uniform Commercial Code Section 8-501 as justification of “book entry settlement” and stock “entitlements”. The “entitlement” identified in Section 8-501 representing a “fail to deliver” as we have come to know it. Thus, the SEC contends that because Section 8-501 accepts such entitlement, the DTCC’s Stock Borrow Program and FTD’s are accepted under state law. As was seen by the SEC’s earlier misrepresentation of 17A so too did they misrepresent the total facts supported by Section 8 of the Uniform Commercial Codes.
Section 8-504 requires that the broker seek out settlement and maintain custody of all security entitlements (FTD’s) promptly. This is nearly identical to the language presented under Section 17A of the Exchange Act of 1934 and language the SEC neglected to present in their brief.. The requirements are for reasonable standards to be applied in addressing an entitlement (FTD).
Since securities law requires all trades to settle within 3 days, and based on a proposal (while not SEC approved) by the NASD, the NASD consider reasonable standards to be considered 10 days past the original trade settlement date. This could thus be a reasonable argument to a court using the NASD’s presentation of the laws as a “reasonable standard” The NASD being an “expert witness” so to speak.
The fact that the NASD had this proposal pulled simply because of the SEC’s demand that SHO be the singular law, it stands to ground that it was valid in its conceptual arguments.
Section 8-506 is with regards to the responsibilities of a securities intermediary (Broker Dealer, Clearing Firm, etc…) during a period of exercising rights of the “entitled” shareholder, the shareholder carrying a FTD book entry in their account.
A shareholder who has loaned out their shares has a different set of “rights” than one who purchased shares but simply never had settlement.
During a proxy period, a shareholder of an FTD is provided a proxy to vote exactly their percent ownership in the company’s positions. As I read 8-506 it requires the intermediary (buy-side BD) to take reasonable steps to insure that the exercising rights of that entitled shareholder are carried out (voted) as directed by the shareholder. To do so requires the reasonable standard of attempt to settle that trade and replace the shareholder entitlement with an actual share.
Part of this reasoning of accurate exercise of shareholder rights includes the refusal of proxy submittals to all non-shareholders (entitled shareholders) who gave up their voting rights. The SEC makes claims in this brief that lenders have given up these rights and yet with SHO and the enforcement activities of the SEC, the SEC is not enforcing this rule. Since Institutions are the primary lenders, they are provided unreasonable entitlement at the detriment to the shareholder with an FTD.
Section 8-507 finally identifies the requirements of a Broker Dealer (intermediary) to comply with the direction of the entitled shareholder.
While this is excused by the SEC as the simply execution of buy and sell orders, it also can be extended to such activities as transferring electronic shares to physical shares. As an entitled shareholder without cause or agreement, you have by law every right as the real shareholder. This includes the conversion to paper cert.
Under this law the intermediary is required to take reasonable steps to comply with all directives made by the entitled shareholder including the directive of share conversion. Earlier in the brief the SEC made it very clear that buy-ins can be put on notice to the DTCC by the buy side BD and the DTCC will initiate a buy-in and any premium created in the cost of settlement will be taken out of the sell side account. This is reasonable grounds. Simply waiting for the sell side BD to make good is not reasonable grounds to their responsible “entitled shareholder.”
As the SEC closed out their brief they stated; “If the alleged problem is systemic rather than arising from isolated unlawful conduct, the appropriate remedy is to amend the regulatory regime. The Commission has not been unaware of allegations similar to those made by plaintiffs.”
This again is factually inaccurate and considered biased. Recent cases brought to light include Knight Capital and 19 separate illegal cases of naked shorting, Guillaume Pollet and 10 separate illegal deals, Anthony Elgindy and 40 separate cases of naked shorting abuse, Rhino, Refco, FBR, Hilary Shane, John Mangan, and Scott Ryan as just the most recent. By the DTCC’s own records, $60 Million is listed (mark-to-market) as fails over 200 days. And, the infamous Bear Stearns Conference call where they admit regulators have been addressing this “systemic” problem for years.
Remember, Mutual Fund late trading was not systemic to the SEC until Ma. AG Bill Galvin took action.
All of these arguments, compared to the language and direction of the SEC’s brief as submitted, is on that fine line of an ethical violation. I wonder when SEC Attorney Mark Pennington signed this brief he realized the Commission was hanging hi out to dry. His claims in signing were;
“I hereby certify that I have read this brief amicus curiae, and to the best of my knowledge, information and belief, it is not frivolous or interposed for any improper purpose.”
I think we have proven that facts presented in the brief were in fact interposed for an improper purpose – to cover up fraud and negligence.
www.thesanitycheck.com/Blogs/DavePatchsBlog/tabid/66/EntryID/66/Default.aspx