Post by jannikki on Nov 9, 2005 18:49:42 GMT -4
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Cal-Maine Egged by Wall Street Regulators – November 9, 2005
David Patch
In the Proposed Draft of Regulation SHO the Securities and Exchange Commission stated:
“Naked short selling can have a number of negative effects on the market, particularly when the fails to deliver persist for an extended period of time and result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. At times, the amount of fails to deliver may be greater than the total public float.”
We now know exactly what they meant and one of the companies referred to with excessive and damaging fails.
As early as September of last year Cal-Maine (NASDAQ: CALM) was listed as having near 100% of the public float in a short position. With approx 20 Million shares outstanding and near 10 million in the public float Cal-Maine was listed as one of the most shorted companies in the market (percentage wise).
Due to the excessive short position Cal-Maine qualified for short sale restrictions under NASD Rule 11830. Cal-Maine had greater than 0.5% of the shares outstanding in a settlement failure status. Cal-Maine, in September 2004, was also terminating a convertible debenture contract.
As time passed, there appeared no incentive to close out the settlement failures in the trading of Cal-Maine stock with the fails hovering around 8.5 Million shares from October through December 2004. The stock itself seemed to be rising however as the $10 - $11.00 stock in September had climbed to over $13.00/share in December.
Then the implementation of Regulation SHO took place. In January 2005 the difference in the market was simple, NASD Rule 11830 became Regulation SHO and the non-public listing of excessively oversold securities became publicly listed. Cal-Maine became one of hundreds of Companies listed on the first ‘threshold security’ listing on January 7, 2005.
Cal-Maine would remain on the Regulation SHO ‘threshold security’ list until September 26, 2005 where for the first time since January 7, 2005 Cal-Maine did not make the publication. It was almost a full year that Cal-Maine had qualified for excessive settlement failures if you add in the time it was under NASD Rule 11830.
It is the trading chart of Cal-Maine that demonstrates the issues with Regulation SHO and the efforts of the Securities and Exchange Commission to cover up past fraudulent acts. In the table below, pay close attention to the reported short positions over the past 9 months and how the trading volumes and stock valuations reacted.
Public Float is approximately 10 Million Shares.
Date
Price
Avg. Daily Monthly Volume (shares)
Reported Shorts (Millions)
3-Jan-2005
$11.99
448,078
8.4
8-Feb-2005
$10.40
328,621
7.3
8-Mar-2005
$9.69
299,886
6.7
12-Apr-2005
$7.97
229,395
4.7
10-May-2005
$6.69
194,290
2.9
7-Jun-2005
$5.78
215,109
2.5
7-Jul-2005
$5.85
127,990
1.8
8-Aug-2005
$6.10
158,054
1.7
8-Sep-2005
$6.45
101,847
1.4
8-Oct-2005
$6.61
76,828
1.1
Now it does not take much by way of assumption to come to the conclusion that Cal-Maine had a reported fail to settle of approximately 7 Million shares or 70% of the reported public float.
In January the stock was reporting a short position of 8.5 Million shares. Under Regulation SHO, the minimum qualification of fails in the system must exceed 120,000 shares calculation from 0.5% of the shares outstanding.
By September the reported short position had been reduced down to 1.4 Million shares and the reported fails remained above 120,000 shares. But by the time October reporting came by the short position had been reduced to 1.1 Million shares and Cal-Maine no longer qualified for the Regulation SHO ‘threshold security’ list. Somewhere in the cleansing of 300,000 shorts the stock finally dipped below 120,000 fails.
Most significant is the response of the stock attributed to the trading volumes and short coverings. During the early phase of short coverings, the volumes were heavy and the Institutions ‘working’ of the stock clearly afforded a luxury of closing out a short position for profit. But by the end, Cal-Maine’s volume fizzled and the short coverings created a slight improvement in the stocks performance. The early month volumes appear to be volumes to raid people out of the stock.
Between August and October 600,000 shorts were covered under combined total trading volume that was below the single month of January. Between August and October the stock climbed from $6.10 to $6.60. For the month of January to February the stock traded down from $11.99 to $10.40 while covering 900,000 short positions.
It is not just the fact that Cal-Maine had nearly 70% of the public float sold illegally into the market but that the SEC allowed those illegal shares to be close-out conveniently at a profit to those that created those illegal shares. Not only was SHO not working, the Institutions were using the grandfather clause to ‘work’ the market and investors out of their positions.
Now that the fails no longer need to be closed out, the stock’s trading volume is at near 4 year lows averaging only 60,000 shares daily since coming off the Regulation SHO ‘threshold security’ list.
Under this analysis, would it not make rational sense that those who executed these excessive fails dating back nearly a year did so as part of a scheme to manipulate the market in Cal-Maine? Millions of shares sold into the market to unsuspecting investors at prices ranging from $12/share to near $14.00/share were covered at less than $10.00/share with the last coverings taking place at $6.00 or less. Again the SEC agrees to some extent or they never would have stated in the October 2003 Regulation SHO Proposal:
“More significantly, naked short sellers enjoy greater leverage than if they were required to borrow securities and deliver within a reasonable time period, and they may use this additional leverage to engage in trading activities that deliberately depress the price of a security.”
So why is it the SEC has allowed the investors in this small egg farm to suffer? Why has the SEC simply watched the manipulation continue?
In a memo by the Division of Market Regulation on April 11, 2005 regarding key aspects of Regulation SHO the SEC addressed the issue of the ‘grandfather’ clause of the new regulation. In response to concerns that the ‘grandfather’ clause would pardon all past fraudulent acts, the SEC responded by stating:
“It is important to note that the "grandfathering" clause of the Regulation does not affect the Commission's ability to prosecute violations of law that may involve such securities or violations that may have occurred before the adoption of Regulation SHO or that occurred before the security became a threshold security.”
So I ask, why hasn’t any actions been taken with respect to the excessive fails in Cal-Maine and the Market Participants intent on working the fails out of the market through a concerted effort to raid investors out of the stock?
Cal-Maine and the issues surrounding the trading patterns have been reported to both the NASD and SEC for many months and to date no actions have been taken. Tens of Millions in investor losses will forever be gone due to a lack of support by the regulators. The Market Participants willfully worked the stock for self-preservation at the detriment to the investing public and the regulators waited until the damage is over.
In today’s Bloomberg a story was reported regarding the financial windfalls for the Wall Street institutions. Wall Street Revenues exceeded $24 Billion to date and a profitable 4th quarter is expected. To compensate for such a lucrative year bonuses will be aplenty with some reports identifying bonuses could be as high as seven times annual salary.
How much of that revenue was achieved off the small and innocent companies like Cal-Maine and their investors? Who knows but you can sure go ask SEC Commissioner Annette Nazareth, her staff’s Regulation SHO ‘grandfather’ clause simply created an early ‘Santa’ clause for many Wall Street fraudsters.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005
www.investigatethesec.com/DP20051109.htm
An online newspaper reporting the issues of Securities Fraud
Cal-Maine Egged by Wall Street Regulators – November 9, 2005
David Patch
In the Proposed Draft of Regulation SHO the Securities and Exchange Commission stated:
“Naked short selling can have a number of negative effects on the market, particularly when the fails to deliver persist for an extended period of time and result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. At times, the amount of fails to deliver may be greater than the total public float.”
We now know exactly what they meant and one of the companies referred to with excessive and damaging fails.
As early as September of last year Cal-Maine (NASDAQ: CALM) was listed as having near 100% of the public float in a short position. With approx 20 Million shares outstanding and near 10 million in the public float Cal-Maine was listed as one of the most shorted companies in the market (percentage wise).
Due to the excessive short position Cal-Maine qualified for short sale restrictions under NASD Rule 11830. Cal-Maine had greater than 0.5% of the shares outstanding in a settlement failure status. Cal-Maine, in September 2004, was also terminating a convertible debenture contract.
As time passed, there appeared no incentive to close out the settlement failures in the trading of Cal-Maine stock with the fails hovering around 8.5 Million shares from October through December 2004. The stock itself seemed to be rising however as the $10 - $11.00 stock in September had climbed to over $13.00/share in December.
Then the implementation of Regulation SHO took place. In January 2005 the difference in the market was simple, NASD Rule 11830 became Regulation SHO and the non-public listing of excessively oversold securities became publicly listed. Cal-Maine became one of hundreds of Companies listed on the first ‘threshold security’ listing on January 7, 2005.
Cal-Maine would remain on the Regulation SHO ‘threshold security’ list until September 26, 2005 where for the first time since January 7, 2005 Cal-Maine did not make the publication. It was almost a full year that Cal-Maine had qualified for excessive settlement failures if you add in the time it was under NASD Rule 11830.
It is the trading chart of Cal-Maine that demonstrates the issues with Regulation SHO and the efforts of the Securities and Exchange Commission to cover up past fraudulent acts. In the table below, pay close attention to the reported short positions over the past 9 months and how the trading volumes and stock valuations reacted.
Public Float is approximately 10 Million Shares.
Date
Price
Avg. Daily Monthly Volume (shares)
Reported Shorts (Millions)
3-Jan-2005
$11.99
448,078
8.4
8-Feb-2005
$10.40
328,621
7.3
8-Mar-2005
$9.69
299,886
6.7
12-Apr-2005
$7.97
229,395
4.7
10-May-2005
$6.69
194,290
2.9
7-Jun-2005
$5.78
215,109
2.5
7-Jul-2005
$5.85
127,990
1.8
8-Aug-2005
$6.10
158,054
1.7
8-Sep-2005
$6.45
101,847
1.4
8-Oct-2005
$6.61
76,828
1.1
Now it does not take much by way of assumption to come to the conclusion that Cal-Maine had a reported fail to settle of approximately 7 Million shares or 70% of the reported public float.
In January the stock was reporting a short position of 8.5 Million shares. Under Regulation SHO, the minimum qualification of fails in the system must exceed 120,000 shares calculation from 0.5% of the shares outstanding.
By September the reported short position had been reduced down to 1.4 Million shares and the reported fails remained above 120,000 shares. But by the time October reporting came by the short position had been reduced to 1.1 Million shares and Cal-Maine no longer qualified for the Regulation SHO ‘threshold security’ list. Somewhere in the cleansing of 300,000 shorts the stock finally dipped below 120,000 fails.
Most significant is the response of the stock attributed to the trading volumes and short coverings. During the early phase of short coverings, the volumes were heavy and the Institutions ‘working’ of the stock clearly afforded a luxury of closing out a short position for profit. But by the end, Cal-Maine’s volume fizzled and the short coverings created a slight improvement in the stocks performance. The early month volumes appear to be volumes to raid people out of the stock.
Between August and October 600,000 shorts were covered under combined total trading volume that was below the single month of January. Between August and October the stock climbed from $6.10 to $6.60. For the month of January to February the stock traded down from $11.99 to $10.40 while covering 900,000 short positions.
It is not just the fact that Cal-Maine had nearly 70% of the public float sold illegally into the market but that the SEC allowed those illegal shares to be close-out conveniently at a profit to those that created those illegal shares. Not only was SHO not working, the Institutions were using the grandfather clause to ‘work’ the market and investors out of their positions.
Now that the fails no longer need to be closed out, the stock’s trading volume is at near 4 year lows averaging only 60,000 shares daily since coming off the Regulation SHO ‘threshold security’ list.
Under this analysis, would it not make rational sense that those who executed these excessive fails dating back nearly a year did so as part of a scheme to manipulate the market in Cal-Maine? Millions of shares sold into the market to unsuspecting investors at prices ranging from $12/share to near $14.00/share were covered at less than $10.00/share with the last coverings taking place at $6.00 or less. Again the SEC agrees to some extent or they never would have stated in the October 2003 Regulation SHO Proposal:
“More significantly, naked short sellers enjoy greater leverage than if they were required to borrow securities and deliver within a reasonable time period, and they may use this additional leverage to engage in trading activities that deliberately depress the price of a security.”
So why is it the SEC has allowed the investors in this small egg farm to suffer? Why has the SEC simply watched the manipulation continue?
In a memo by the Division of Market Regulation on April 11, 2005 regarding key aspects of Regulation SHO the SEC addressed the issue of the ‘grandfather’ clause of the new regulation. In response to concerns that the ‘grandfather’ clause would pardon all past fraudulent acts, the SEC responded by stating:
“It is important to note that the "grandfathering" clause of the Regulation does not affect the Commission's ability to prosecute violations of law that may involve such securities or violations that may have occurred before the adoption of Regulation SHO or that occurred before the security became a threshold security.”
So I ask, why hasn’t any actions been taken with respect to the excessive fails in Cal-Maine and the Market Participants intent on working the fails out of the market through a concerted effort to raid investors out of the stock?
Cal-Maine and the issues surrounding the trading patterns have been reported to both the NASD and SEC for many months and to date no actions have been taken. Tens of Millions in investor losses will forever be gone due to a lack of support by the regulators. The Market Participants willfully worked the stock for self-preservation at the detriment to the investing public and the regulators waited until the damage is over.
In today’s Bloomberg a story was reported regarding the financial windfalls for the Wall Street institutions. Wall Street Revenues exceeded $24 Billion to date and a profitable 4th quarter is expected. To compensate for such a lucrative year bonuses will be aplenty with some reports identifying bonuses could be as high as seven times annual salary.
How much of that revenue was achieved off the small and innocent companies like Cal-Maine and their investors? Who knows but you can sure go ask SEC Commissioner Annette Nazareth, her staff’s Regulation SHO ‘grandfather’ clause simply created an early ‘Santa’ clause for many Wall Street fraudsters.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005
www.investigatethesec.com/DP20051109.htm