Post by jannikki on Nov 12, 2005 10:23:58 GMT -4
Regulatory Neglect and Failed Congressional Oversight, Who wins? – December 16,, 2004
By Dave Patch
Have you ever wondered how far your Federal Government will go to hide a story? Did we really think that Watergate was the last time our Government would be involved in inter-agency cover-ups? Guess again.
For over a decade, but most pronounced over the past five years, the Securities and Exchange Commission, Congress, and Wall Street have been blistered with complaints from investors and issuers alike about Wall Street’s dirty secret – settlement failure abuses and stock manipulation. Over these years the fraud became recognized in the industry under the label “Naked Shorting” with the SEC now using this standard logo in their regulatory proposals.
Recently, Wall Street reformer and Senate Banking Committee Leader Senator Paul Sarbanes addressed a memo to SEC Chairman William Donaldson seeking answers to constituent concerns over Naked Shorting abuses. The letter, originating in July of 2004, “expressed concerns about naked short selling of securities, specifically, in Jag Media Holdings, Inc. according to the SEC.
The response to these concerns provided little by way of answers and raised more questions about the inner workings of the SEC. The response questioned the SEC’s integrity as it raised added questions of a cover-up.
Relating to Jag Media Holding, Inc. and naked shorting the SEC had this to say:
“We note that the delivery failures cited by Ms. Cohen in attachments to her letter do not appear to be a result of naked short selling abuses but rather from action by the issuer, Jag Media Holdings, Inc. Issuers, like Jag Media Holdings, Inc. that impose transfer restrictions (sometimes referred to as “custody-only trading”) have caused numerous clearance and settlement problems. These issuers refuse to recognize positions registered in street name and held by a securities depository (e.g., The Depository Trust Company) and refuse to transfer (or allow their transfer agent to transfer) stock to the name of an entity that the issuer believes is not the ultimate beneficial holder.”
This memo, signed by Assistant Director of the Division of Market Regulation, James Brigagliano was sent to Senator Sarbanes September 15, 2004. Asst. Direcor Brigagliano works for director Annette Nazareth of the Division of Market Regulation.
The problem with this passage is that it is factually wrong. Not theoretically but factually. The delivery failure attachments referenced were dated April 2003 and the corporate action by the company to move to “custody-only trading” was June of 2004. The two events are totally unrelated and thus the issue on naked shorting and settlement failures remains unanswered. Why Mr. Brigagliano did not have his staff investigate the settlement failures of 2003 as requested by Senator Sarbanes is concerning. Instead the SEC chose to attack the issuer for unrelated issues and painted a tainted picture of that issuer to Senator Sarbanes. SEC was conducting Retaliatory abuse!
In contacting Senator Sarbanes Office on this factual error the Senator’s Office has been unwilling to comment. The Senators staff council has been provided the evidence to refute the SEC’s allegations and have provided no-comment to the evidence. The e-mail attachments they themselves submitted and the date of the issuer corporate action as approved by the NASDAQ. Senator Sarbanes office will not address being misled nor will they address the initial concern of naked shorting abuses on Jag Media Holding, Inc. regarding the documented settlement failures.
What we do know is that beyond this memo, Congressman Barney Frank and Congressman Richard Baker have also received similar SEC dismissals pertaining to “naked shorting” concerns. It seems that, as a minimum, Congressman Frank and Senator Sarbanes have been willing to accept the deceit out of the agency they oversee. Congressman Frank has recently dismissed his willingness to oversee the SEC of this matter, regardless of fact, citing a busy work schedule.
Senator Sarbanes oversees the SEC as part of the Senate Banking Committee and Congressman Frank is the Minority Leader of the House Financial Services Committee.
To only compound the issue, a report has recently surfaced out of a Professor from the University of New Mexico that casts a shadow over the SEC’s integrity in enforcing securities violations regarding trade settlements..
Professor Leslie Boni, acting as a visiting economic scholar at the SEC, conducted an in-depth analysis on the settlement issues within the Industry. Her findings, in the hands of the SEC at the time of the SEC responses to Congress, painted a picture of what she tagged “Strategic Failures” by the Industry. Her working document, titled “Strategic Failures in the US Equity Markets” can be located through an Internet search.
Professor Boni’s report identified that 80% of issuers trading on the NYSE, NASDAQ, and AMEX had persistent failures that exceeded the 3-day settlement requirement and 56% of micro-caps had persistent failures that exceeded the same 3-day settlement requirement. The mean time to settle for the major markets was 13 days for those 80% of issuers and the mean time to settle for the micro-caps was an astounding 54 days. For some, the settlement delays are far worse with one Jag Media Holding, Inc. shareholder waiting one year for her shares to settle. It was only after the National Association of Securities Dealers (NASD) stepped in to “assist” the broker to close out the failure that final settlement took place. Jag Media Holdings, Inc. being the issuer referenced in the deceptive SEC memo to Senator Sarbanes.
Professor Boni claims that in many cases these failures were “Strategic” in nature as the fails were persistent, awaiting an economical opportunity to close out the trade. The SEC ignored Rule 15c6-1 and the Professor provided them evidence of their failures. The SEC failed to recognize this evidence in their responses to the Congressman.
So why, with evidence in hand did the SEC provide misleading information to members of Congress responsible for their oversight? Better still, why after these members have been presented evidence of those misleading remarks have they allowed them to stand uncontested?
Our Federal Government attacked Martha Stewart, and spent our tax dollars in doing so, prosecuting her for her mis-information provided in an investigation of insider trading. Ms. Stewart is now serving a jail sentence. When an agency within our government takes a similar tact, those who oversee them appear to ignore the failure in judgment to protect – Whom?
Professor Boni, a financial economic scholar, opened the door for a Congressional Investigation into the SEC’s negligence in the fraud now dubbed “Naked Shorting”. The SEC’s misleading memos to members of Congressional Oversight only accentuated the need. Why then are Congressmen like Barney Frank and Paul Sarbanes so willing to accept misleading information to quiet the storm? Did they not learn from past mistakes?
For those worrying about financial security and our economy, don’t. While the SEC is misleading Congress and covering up fraud, Congress is working hard on addressing steroids in baseball. After all, the medical safety of our Nation’s pastime millionaires is far more important than economic issues. It is only the financial stability of the US retail investor and future US technologies that is at stake. Our economy and our financial markets are in well enough shape to deal with such future exposures.
It’s all about the priorities.
By Dave Patch
Have you ever wondered how far your Federal Government will go to hide a story? Did we really think that Watergate was the last time our Government would be involved in inter-agency cover-ups? Guess again.
For over a decade, but most pronounced over the past five years, the Securities and Exchange Commission, Congress, and Wall Street have been blistered with complaints from investors and issuers alike about Wall Street’s dirty secret – settlement failure abuses and stock manipulation. Over these years the fraud became recognized in the industry under the label “Naked Shorting” with the SEC now using this standard logo in their regulatory proposals.
Recently, Wall Street reformer and Senate Banking Committee Leader Senator Paul Sarbanes addressed a memo to SEC Chairman William Donaldson seeking answers to constituent concerns over Naked Shorting abuses. The letter, originating in July of 2004, “expressed concerns about naked short selling of securities, specifically, in Jag Media Holdings, Inc. according to the SEC.
The response to these concerns provided little by way of answers and raised more questions about the inner workings of the SEC. The response questioned the SEC’s integrity as it raised added questions of a cover-up.
Relating to Jag Media Holding, Inc. and naked shorting the SEC had this to say:
“We note that the delivery failures cited by Ms. Cohen in attachments to her letter do not appear to be a result of naked short selling abuses but rather from action by the issuer, Jag Media Holdings, Inc. Issuers, like Jag Media Holdings, Inc. that impose transfer restrictions (sometimes referred to as “custody-only trading”) have caused numerous clearance and settlement problems. These issuers refuse to recognize positions registered in street name and held by a securities depository (e.g., The Depository Trust Company) and refuse to transfer (or allow their transfer agent to transfer) stock to the name of an entity that the issuer believes is not the ultimate beneficial holder.”
This memo, signed by Assistant Director of the Division of Market Regulation, James Brigagliano was sent to Senator Sarbanes September 15, 2004. Asst. Direcor Brigagliano works for director Annette Nazareth of the Division of Market Regulation.
The problem with this passage is that it is factually wrong. Not theoretically but factually. The delivery failure attachments referenced were dated April 2003 and the corporate action by the company to move to “custody-only trading” was June of 2004. The two events are totally unrelated and thus the issue on naked shorting and settlement failures remains unanswered. Why Mr. Brigagliano did not have his staff investigate the settlement failures of 2003 as requested by Senator Sarbanes is concerning. Instead the SEC chose to attack the issuer for unrelated issues and painted a tainted picture of that issuer to Senator Sarbanes. SEC was conducting Retaliatory abuse!
In contacting Senator Sarbanes Office on this factual error the Senator’s Office has been unwilling to comment. The Senators staff council has been provided the evidence to refute the SEC’s allegations and have provided no-comment to the evidence. The e-mail attachments they themselves submitted and the date of the issuer corporate action as approved by the NASDAQ. Senator Sarbanes office will not address being misled nor will they address the initial concern of naked shorting abuses on Jag Media Holding, Inc. regarding the documented settlement failures.
What we do know is that beyond this memo, Congressman Barney Frank and Congressman Richard Baker have also received similar SEC dismissals pertaining to “naked shorting” concerns. It seems that, as a minimum, Congressman Frank and Senator Sarbanes have been willing to accept the deceit out of the agency they oversee. Congressman Frank has recently dismissed his willingness to oversee the SEC of this matter, regardless of fact, citing a busy work schedule.
Senator Sarbanes oversees the SEC as part of the Senate Banking Committee and Congressman Frank is the Minority Leader of the House Financial Services Committee.
To only compound the issue, a report has recently surfaced out of a Professor from the University of New Mexico that casts a shadow over the SEC’s integrity in enforcing securities violations regarding trade settlements..
Professor Leslie Boni, acting as a visiting economic scholar at the SEC, conducted an in-depth analysis on the settlement issues within the Industry. Her findings, in the hands of the SEC at the time of the SEC responses to Congress, painted a picture of what she tagged “Strategic Failures” by the Industry. Her working document, titled “Strategic Failures in the US Equity Markets” can be located through an Internet search.
Professor Boni’s report identified that 80% of issuers trading on the NYSE, NASDAQ, and AMEX had persistent failures that exceeded the 3-day settlement requirement and 56% of micro-caps had persistent failures that exceeded the same 3-day settlement requirement. The mean time to settle for the major markets was 13 days for those 80% of issuers and the mean time to settle for the micro-caps was an astounding 54 days. For some, the settlement delays are far worse with one Jag Media Holding, Inc. shareholder waiting one year for her shares to settle. It was only after the National Association of Securities Dealers (NASD) stepped in to “assist” the broker to close out the failure that final settlement took place. Jag Media Holdings, Inc. being the issuer referenced in the deceptive SEC memo to Senator Sarbanes.
Professor Boni claims that in many cases these failures were “Strategic” in nature as the fails were persistent, awaiting an economical opportunity to close out the trade. The SEC ignored Rule 15c6-1 and the Professor provided them evidence of their failures. The SEC failed to recognize this evidence in their responses to the Congressman.
So why, with evidence in hand did the SEC provide misleading information to members of Congress responsible for their oversight? Better still, why after these members have been presented evidence of those misleading remarks have they allowed them to stand uncontested?
Our Federal Government attacked Martha Stewart, and spent our tax dollars in doing so, prosecuting her for her mis-information provided in an investigation of insider trading. Ms. Stewart is now serving a jail sentence. When an agency within our government takes a similar tact, those who oversee them appear to ignore the failure in judgment to protect – Whom?
Professor Boni, a financial economic scholar, opened the door for a Congressional Investigation into the SEC’s negligence in the fraud now dubbed “Naked Shorting”. The SEC’s misleading memos to members of Congressional Oversight only accentuated the need. Why then are Congressmen like Barney Frank and Paul Sarbanes so willing to accept misleading information to quiet the storm? Did they not learn from past mistakes?
For those worrying about financial security and our economy, don’t. While the SEC is misleading Congress and covering up fraud, Congress is working hard on addressing steroids in baseball. After all, the medical safety of our Nation’s pastime millionaires is far more important than economic issues. It is only the financial stability of the US retail investor and future US technologies that is at stake. Our economy and our financial markets are in well enough shape to deal with such future exposures.
It’s all about the priorities.