Post by jannikki on Nov 12, 2005 10:43:14 GMT -4
The “Whacko” Factor – May 16, 2005
David Patch
The US Constitution, Amendment I, provides the people of the United States the right to free speech and the right to petition the Government for a redress of grievances. It is not by coincidence that this is the first Amendment to the Constitution as it is the most important in setting a tone for our nation’s flagship of equality for all.
Today, thousands of tax paying citizens of the United States have taken this Amendment to heart and have petitioned Congress to redress the illegal actions undertaken by a Government Agency. The people claim that the Securities and Exchange Commission have denied an entire class of investor and issuer equal protection under the law and created short selling reforms that violate the Congressional mandates dictated under the Securities Act of 1934. The claims are simple. The SEC has, and continues to; allow some investors and companies to become manipulated in our markets.
In response to the thousands of taxpayers voicing their concerns over illegal shorting practices, Congress has elected to ignore the people citing the “whacko” factor. The Senate Banking Committee and the House Financial Services Committee, the SEC Oversight Committee’s, have refused to research the claims of the people because the people are generalized as “whacko’s”. Congress is discrediting the people of a differing opinion and voice not on merit but on an unsubstantiated perception. Congress perceives that people are not smart enough to think. To be heard, we must stand above reproach in a system full of ethical injustice.
While the members of Congress discredit the people without evidence, the people have discredited the SEC with merit. It was, after all, the SEC that failed to make note of the “Red Flags” of research abuses that resulted in a “slap on the wrist” Wall Street settlement of $1.4 Billion in fines. It was the SEC that arrogantly refused to listen to a Putnam whistleblower regarding late trading abuses in mutual funds that has subsequently resulted in hundreds of millions in fines against many Wall Street firms. And it was the SEC that missed the Insurance rigging most recently exposed by Eliot Spitzer.
So why Congress backs the SEC in this matter, in light of the blatant details of fraud and abuse is somewhat questionable.
What the whackos have to offer Congress is more substantive.
First and foremost are the SEC’s own public statements. When the SEC released regulation SHO for public comment in October 2003 they claimed, “At times, the amount of fails to deliver may be greater than the total public float.” The SEC then released the regulation in June 2004 with a “grandfathering” clause claiming, “The grandfathering provisions of Regulation SHO were adopted because the Commission was concerned about creating volatility where there were large pre-existing open positions.”
With the difference between release and implementation being 6-months [June 2004 – January 2005], there would be no legal rationalization to grandfather fails when provided 6-months to cover at the firms leisure. No legal rationalization but plenty of illegal. Securities Law requires settlement in 3-days so a 6-month a grace period is beyond even reasonable. It’s a freebie.
Then there is the history of Securities Enforcement. Most recent are:
In 2002 the NASD expelled John Fiero and Fiero Brothers Inc. for manipulation in illegal shorting. The Fiero Brothers reportedly shorted stock without settlement in an attempt to drive the valuations down. The impact of the illegal shorting resulted in stock clearing firm Adler Coleman to file for bankruptcy due to the inability to cover the massive quantities of failed trades created by the Fiero brothers.
February 2003 the SEC fined Rhino Advisors $1 Million for illegally shorting Sedona Corporation in 2001. The SEC had audiotapes in their possession featuring the Rhino Executives bribing US Brokers to collapse Sedona’s stock in a private placement deal. While the SEC limited their investigation into the single private placement transaction (PIPE), Rhino was involved in over 40 separate deals. Logic would conclude, and based on the publication of portions of the audio, this would not have been their first case of manipulation for the Rhino firm. You don’t just call up a broker to manipulate a stock; you have to create a partnership of trust.
December 2004 was yet another NASD enforcement action involving illegal shorting ahead of a PIPE deal. This time Hilary Shane was the accused in her illegal shorting of a 2001 CompuDyne financing deal. Shane shorted a total of 975 separate transactions without ever settling the trades. Also involved in this transaction was a respected player of Wall Street, Friedman, Billings, and Ramsey [FBR]. The co-CEO of FBR, Emanuel Friedman, resigned his position due to the allegations of fraud. Logic infers that CEO’s do not resign over “allegations” unless there is something else to the story.
April 2005 the US Attorney settled on a guilty plea with former SG Cowen and Co. Managing Director Guillaume Pollet for illegal trading in 10 separate PIPE deals that took place in 2001. Pollet’s illegal trading resulted in more than $4 Million in short sale profits for firm SG Cowen. The SEC had the SG Cowen evidence in 2001 and has yet to take any civil enforcement actions in the case.
Notice the pattern. The year 2001 appeared to be a time in the markets where it was standard practice by Wall Street to illegally short stocks for profit. Each one of the enforcement actions above was involving trading that took place in 2001. But these only represent the ones brought to enforcement. The only ones! What about all those ignored or missed?
In a lawsuit being brought by one small issuer against Wall Street, the evidence provided by the DTCC and the SEC, under court order, identifies similar illegal trading taking place against the issuer. The players involved are the managing directors and board members of Wall Street. The timeline for the fraud was 2000/2001. While the SEC had uncovered this evidence in their investigation, the SEC never sought any actions against the Wall Street members. Why not? The question is how many cases like this exist? How many times was the SEC willing to look the other way?
So with a pattern of abuse, a history of regulators delayed reaction to fraud, and evidence of the SEC failing to aggressively respond to cases of fraud, the “whacko’s” may have something after all. They challenge the integrity of the agency.
Now revealed are the comments of Wall Street giant Bear Stearns in a December 2004 conference call. The General Counsel of Bear Stearns, in the conference call with clients and members, had this to say about the SEC’s newly released Regulation SHO.
“To give you that brief introduction in Reg SHO, the history how we got to where we are today. For the past several years we have been hearing from many different regulators regarding their concerns about the increase in the level of fails that they are seeing. They believe, and they have stated on numerous occasions, that one of the primary causes of the high level of fails was that various participants in the short sale process, prime brokers, executing brokers, clients, were not following already established rules.”
Logically, taking December 2004 and subtracting “several years” from this date you remarkably wind up in the year 2001 or before. The same period in time that all this alleged illegal trading took place. Illegal trading that to date has never implicated Bear Stearns in an enforcement action. Is the problem thus isolated or “whacko crazy” systemic problems?
Does this call imply that the SEC knew about the illegal trading back in 2001 and ignored it?
This “whacko” reads the Bear Stearns call as an admission of a bigger problem. A bigger systemic problem that required the SEC to break a Congressional mandate [Section 17A of the Securities Act of 1934] requiring the prompt settlement of trades because of the “large pre-existing fails” they watched accumulate over these past years.
The SEC protected the industry to protect themselves.
With all this evidence, and a public display of “threshold securities” that have extensive fails, is it truly a “whacko factor” or Congressional denial of the obvious? Why is Congressional Oversight so willing to take the word of an organization [SEC] that has repeatedly been shown to be behind the eight ball in detecting and eliminating securities fraud?
The people, middle class tax payers, request full investigations into the illegal shorting, settlement failures, and SEC negligence. We do so as part of our Constitutional rights to free speech and equal protection under the law. For Congress to deny us these rights as “whacko’s”, without performing their responsible due diligence is negligence on their behalf.
A tid bit of the evidence we the people hold is written before you. This is merely a sampling of what Congress is willing to ignore for the considerations of campaign contributions. The fact that Congress can even consider a “whacko factor” in their daily duties is unspeakable when you consider the possibilities from the other side. One member of Senate Banking Committee even accepted being lied to by the SEC to cover this issue up. The “whacko’s” have the proof. Why take the risk?
I urge all to contact the Senate Banking Committee and House Financial Services Committee and urge nothing less than full public hearings on this matter. In the hearings, full transparency of the SEC and what the SEC holds as evidence must be disclosed. We all need to know and understand what exactly it was that the General Counsel of Bear Stearns was talking about when he stated that the regulators had been notifying them for years that they were not following established laws.
Ultimately the SEC must be put on trial. If the SEC, acting on behalf of the US Government, has sacrificed the small retail investor for the financial well being of the powerful Wall Street and Congressional campaign contributions they provide. We need to initiate criminal proceedings.
As a nation, we survive on equal rights for all. We cannot afford a rogue federal agency willing to sacrifice so many.
One thing about “whacko’s,” we are not willing to give up the way others do. We have a drive and a determination. We have a conscience about right and wrong. Come election time we can also put our conscience to work where the Wall Street contributions fall short, the voting booths.
The Whacko Factor!
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005
David Patch
The US Constitution, Amendment I, provides the people of the United States the right to free speech and the right to petition the Government for a redress of grievances. It is not by coincidence that this is the first Amendment to the Constitution as it is the most important in setting a tone for our nation’s flagship of equality for all.
Today, thousands of tax paying citizens of the United States have taken this Amendment to heart and have petitioned Congress to redress the illegal actions undertaken by a Government Agency. The people claim that the Securities and Exchange Commission have denied an entire class of investor and issuer equal protection under the law and created short selling reforms that violate the Congressional mandates dictated under the Securities Act of 1934. The claims are simple. The SEC has, and continues to; allow some investors and companies to become manipulated in our markets.
In response to the thousands of taxpayers voicing their concerns over illegal shorting practices, Congress has elected to ignore the people citing the “whacko” factor. The Senate Banking Committee and the House Financial Services Committee, the SEC Oversight Committee’s, have refused to research the claims of the people because the people are generalized as “whacko’s”. Congress is discrediting the people of a differing opinion and voice not on merit but on an unsubstantiated perception. Congress perceives that people are not smart enough to think. To be heard, we must stand above reproach in a system full of ethical injustice.
While the members of Congress discredit the people without evidence, the people have discredited the SEC with merit. It was, after all, the SEC that failed to make note of the “Red Flags” of research abuses that resulted in a “slap on the wrist” Wall Street settlement of $1.4 Billion in fines. It was the SEC that arrogantly refused to listen to a Putnam whistleblower regarding late trading abuses in mutual funds that has subsequently resulted in hundreds of millions in fines against many Wall Street firms. And it was the SEC that missed the Insurance rigging most recently exposed by Eliot Spitzer.
So why Congress backs the SEC in this matter, in light of the blatant details of fraud and abuse is somewhat questionable.
What the whackos have to offer Congress is more substantive.
First and foremost are the SEC’s own public statements. When the SEC released regulation SHO for public comment in October 2003 they claimed, “At times, the amount of fails to deliver may be greater than the total public float.” The SEC then released the regulation in June 2004 with a “grandfathering” clause claiming, “The grandfathering provisions of Regulation SHO were adopted because the Commission was concerned about creating volatility where there were large pre-existing open positions.”
With the difference between release and implementation being 6-months [June 2004 – January 2005], there would be no legal rationalization to grandfather fails when provided 6-months to cover at the firms leisure. No legal rationalization but plenty of illegal. Securities Law requires settlement in 3-days so a 6-month a grace period is beyond even reasonable. It’s a freebie.
Then there is the history of Securities Enforcement. Most recent are:
In 2002 the NASD expelled John Fiero and Fiero Brothers Inc. for manipulation in illegal shorting. The Fiero Brothers reportedly shorted stock without settlement in an attempt to drive the valuations down. The impact of the illegal shorting resulted in stock clearing firm Adler Coleman to file for bankruptcy due to the inability to cover the massive quantities of failed trades created by the Fiero brothers.
February 2003 the SEC fined Rhino Advisors $1 Million for illegally shorting Sedona Corporation in 2001. The SEC had audiotapes in their possession featuring the Rhino Executives bribing US Brokers to collapse Sedona’s stock in a private placement deal. While the SEC limited their investigation into the single private placement transaction (PIPE), Rhino was involved in over 40 separate deals. Logic would conclude, and based on the publication of portions of the audio, this would not have been their first case of manipulation for the Rhino firm. You don’t just call up a broker to manipulate a stock; you have to create a partnership of trust.
December 2004 was yet another NASD enforcement action involving illegal shorting ahead of a PIPE deal. This time Hilary Shane was the accused in her illegal shorting of a 2001 CompuDyne financing deal. Shane shorted a total of 975 separate transactions without ever settling the trades. Also involved in this transaction was a respected player of Wall Street, Friedman, Billings, and Ramsey [FBR]. The co-CEO of FBR, Emanuel Friedman, resigned his position due to the allegations of fraud. Logic infers that CEO’s do not resign over “allegations” unless there is something else to the story.
April 2005 the US Attorney settled on a guilty plea with former SG Cowen and Co. Managing Director Guillaume Pollet for illegal trading in 10 separate PIPE deals that took place in 2001. Pollet’s illegal trading resulted in more than $4 Million in short sale profits for firm SG Cowen. The SEC had the SG Cowen evidence in 2001 and has yet to take any civil enforcement actions in the case.
Notice the pattern. The year 2001 appeared to be a time in the markets where it was standard practice by Wall Street to illegally short stocks for profit. Each one of the enforcement actions above was involving trading that took place in 2001. But these only represent the ones brought to enforcement. The only ones! What about all those ignored or missed?
In a lawsuit being brought by one small issuer against Wall Street, the evidence provided by the DTCC and the SEC, under court order, identifies similar illegal trading taking place against the issuer. The players involved are the managing directors and board members of Wall Street. The timeline for the fraud was 2000/2001. While the SEC had uncovered this evidence in their investigation, the SEC never sought any actions against the Wall Street members. Why not? The question is how many cases like this exist? How many times was the SEC willing to look the other way?
So with a pattern of abuse, a history of regulators delayed reaction to fraud, and evidence of the SEC failing to aggressively respond to cases of fraud, the “whacko’s” may have something after all. They challenge the integrity of the agency.
Now revealed are the comments of Wall Street giant Bear Stearns in a December 2004 conference call. The General Counsel of Bear Stearns, in the conference call with clients and members, had this to say about the SEC’s newly released Regulation SHO.
“To give you that brief introduction in Reg SHO, the history how we got to where we are today. For the past several years we have been hearing from many different regulators regarding their concerns about the increase in the level of fails that they are seeing. They believe, and they have stated on numerous occasions, that one of the primary causes of the high level of fails was that various participants in the short sale process, prime brokers, executing brokers, clients, were not following already established rules.”
Logically, taking December 2004 and subtracting “several years” from this date you remarkably wind up in the year 2001 or before. The same period in time that all this alleged illegal trading took place. Illegal trading that to date has never implicated Bear Stearns in an enforcement action. Is the problem thus isolated or “whacko crazy” systemic problems?
Does this call imply that the SEC knew about the illegal trading back in 2001 and ignored it?
This “whacko” reads the Bear Stearns call as an admission of a bigger problem. A bigger systemic problem that required the SEC to break a Congressional mandate [Section 17A of the Securities Act of 1934] requiring the prompt settlement of trades because of the “large pre-existing fails” they watched accumulate over these past years.
The SEC protected the industry to protect themselves.
With all this evidence, and a public display of “threshold securities” that have extensive fails, is it truly a “whacko factor” or Congressional denial of the obvious? Why is Congressional Oversight so willing to take the word of an organization [SEC] that has repeatedly been shown to be behind the eight ball in detecting and eliminating securities fraud?
The people, middle class tax payers, request full investigations into the illegal shorting, settlement failures, and SEC negligence. We do so as part of our Constitutional rights to free speech and equal protection under the law. For Congress to deny us these rights as “whacko’s”, without performing their responsible due diligence is negligence on their behalf.
A tid bit of the evidence we the people hold is written before you. This is merely a sampling of what Congress is willing to ignore for the considerations of campaign contributions. The fact that Congress can even consider a “whacko factor” in their daily duties is unspeakable when you consider the possibilities from the other side. One member of Senate Banking Committee even accepted being lied to by the SEC to cover this issue up. The “whacko’s” have the proof. Why take the risk?
I urge all to contact the Senate Banking Committee and House Financial Services Committee and urge nothing less than full public hearings on this matter. In the hearings, full transparency of the SEC and what the SEC holds as evidence must be disclosed. We all need to know and understand what exactly it was that the General Counsel of Bear Stearns was talking about when he stated that the regulators had been notifying them for years that they were not following established laws.
Ultimately the SEC must be put on trial. If the SEC, acting on behalf of the US Government, has sacrificed the small retail investor for the financial well being of the powerful Wall Street and Congressional campaign contributions they provide. We need to initiate criminal proceedings.
As a nation, we survive on equal rights for all. We cannot afford a rogue federal agency willing to sacrifice so many.
One thing about “whacko’s,” we are not willing to give up the way others do. We have a drive and a determination. We have a conscience about right and wrong. Come election time we can also put our conscience to work where the Wall Street contributions fall short, the voting booths.
The Whacko Factor!
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005