Post by jannikki on Nov 18, 2005 20:07:41 GMT -4
Did the SEC Violate Constitutional Law by Grandfathering Fails – November 15, 2005
David Patch
Under the 5th Amendment of the US Constitution, the people shall not be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
Recently, in a controversial move the Securities and Exchange Commission created new law that effectively removed property from one shareholder in order to benefit yet another. According to the Securities and Exchange Commission, the ‘grandfather clause’ of Regulation SHO was implemented in order to address the potential volatility due to prompt mandatory settlement of open system fails that could occur in securities where large pre-existing fails existed.
For years the SEC has received complaints by Issuers and Investors over a practice whereby the seller of securities fails to make good on the delivery of goods sold [certified stock shares] within the time allotments for an executed trade. The buyer of these goods having fully paid in full for the right to ownership, and has received notification of ownership, yet delivery is not being made.
In a public proposal, the SEC identified that such a process of selling without settlement can be used as a vehicle to manipulate stock pricing through sell-side leverage. An imbalance between supply and demand is created.
Investor rights from certified stock ownership are the right to vote on corporate actions and the right to receive a stock dividend issued by that corporation if applicable. Investor Voting rights that are now being challenged to grow as the SEC and Congress review proxy voting to approve executive compensation packages, option grants, and members of the Board of Directors.
The SEC has repeatedly attempted to discredit those that have fought for a change to the process of selling what does not exist by stating that the problem being addressed is relatively small in nature.
Settlement failures in the markets are so small for example, the Depository Trust Clearing Corporation (DTCC) identifies unsettled trades as a floating $6 Billion liability in the DTCC records alone. The SEC further slighted critics when they created a special grandfather clause to this “small issue” because the SEC feared the financial repercussions should the unsettled trades become forced to settle promptly. Small problems should not have large ramifications you wouldn’t think.
Did the SEC have the right to grandfather settlement failures in order to control any possible market volatility? Who gave the SEC the legal authority to take possession of one’s property and disseminate it to another?
Since the SEC cannot control specific issuer trading in any of our markets, and lord knows we have seen tremendous volatility on the major exchanges over recent years, investors must question the SEC’s actions set forth in Regulation SHO.
Was the SEC trying to specifically control the trading in certain securities identified and thus take the private property of any and all rightful shareholders and use those shares for their own public use? In this case, the SEC trying to take shares owned by one and disseminates that share out as excess supply in the markets, without providing just compensation to that shareholder, in order to control any possible supply and demand imbalances. The real economic imbalance here is the excess supply created by the settlement failures.
Recently we witnessed tremendous volatility in our gas prices due to an imbalance of supply and demand. Congress recently discussed this issue with the major Oil Corporations but never did Congress step in and cease any rapid volatility in the oil prices in order to protect the public from financial strains. The Oil Corporations have a RIGHT to profit. Congress did not step in and limit the rising oil prices because it would be illegal to do so.
Congress has no authority to regulate oil prices and the SEC has no right to control stock trading prices.
Under the 5th Amendment the Government can take over property rights for public use but the governments cause must satisfy the public need. When stocks presumably owned by one investor are allowed to remain unsettled, the Government is effectively taking away that ownership, and all benefits thereof, of the shareholder whose account has identified that ownership. Thus, two actions must be satisfied to satisfy the Governments actions.
First, the Government must substantiate with cause how the public is benefiting from this action.
Recognize in this theory, Wall Street Institutions and the liability of the unsettled trade does not constitute general public. The general public must benefit from this taking of property and as the SEC has stated so often, the magnitude of the problem is considered negligent. The Institutions and their executives are the only real beneficiary of such action.
To take over the property rights of one investor for the financial protection of an Institution is a violation of 5th Amendment rights. More so when that action directly harms the investor whose property was taken and benefits a for-profit corporation.
Second, should the government plead their case and it be determined that there is a benefit to the general population; the government is responsible for providing just compensation for their actions.
As a shareholder who purchased a stock that was not delivered, the value of that purchase is diminished by the excess supply created by that non-delivery. The Governments actions have risked the financial profitability of those they have stripped the shares from to aid the financial institutions. The Government is responsible to compensate for those losses.
The purchase side of the executed trade had an expectation of delivery and the account statement identifies delivery as being made. Securities Laws under the Exchange Act of 1934 also demands that delivery, transfer of custody, is made promptly.
For the Government to take possession of these shares and provide them back to the seller for a collateral IOU, without compensating the originating shareholder for use of that share, is doing so against the 5Th Amendment rights to property. That is effectively what the SEC has done by incorporating a ‘grandfather clause’ into Regulation SHO allowing for unsettled trades to remain unsettled for an indefinite amount of time. This approval and or compensation terms is the right of that investor.
The SEC was trying to control the trading practices of select securities through the reverse loaning of shares owned by shareholders to counter-parties who sold what they did not possess. Those companies that the SEC is trying to control the prices of are the very companies in which Investors rights have been already taxed by the process of excessive settlement failures. An imbalance of supply and demand was created through the selling of excessive shares and yet now the SEC wants to allow those sellers opportunity to cover their sales under market conditions void of the requisite economic demand.
The SEC and the Division of Market Regulation Directed by Annette Nazareth in particular, has overstepped their legal boundaries to protect the crimes orchestrated by Wall Street Institutions. The SEC has decided that the financial strength of these organizations is in the best interest of the public and have thus willfully aided in the cover-up of the fraudulent activities. It is a federal Bailout by the SEC without Congressional Oversight and without Investor awareness.
The Investor is bailing out our major Institutional operations in order to maintain 8-figure salaries for these Wall Street executives. It is a political game of who can buy what politician and right now it is clear Wall Street can pretty much buy whomever they want. Wall Street is simply using our hard earned money to do so.
Think about it before you casually dismiss this issue.
Regulation SHO was “the most sweeping short selling reform in 60 years” as stated by the SEC and not a single congressional hearing transpired. Regulation SHO was presented as a vehicle to stop the abusive practices of naked shorting the SEC claims exist and yet for all practical purposes, less than a handful of cases have even been brought before a regulatory enforcement.
Does the SEC make sweeping reforms to a “non-issue” that results in less than a handful of cases and then have to “grandfather” the system fails in place prior to January 2005 in order to protect volatility?
Something stinks in DC. Maybe a few Per Se Constitutional Violation lawsuits against the SEC will wake up the slumbering Congressional Oversight Committees. It could start with each Investor who documented a comment letter to the SEC in 1999 and again in 2003 asking for a correction to this problem and was denied equal rights to protection.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005
David Patch
Under the 5th Amendment of the US Constitution, the people shall not be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
Recently, in a controversial move the Securities and Exchange Commission created new law that effectively removed property from one shareholder in order to benefit yet another. According to the Securities and Exchange Commission, the ‘grandfather clause’ of Regulation SHO was implemented in order to address the potential volatility due to prompt mandatory settlement of open system fails that could occur in securities where large pre-existing fails existed.
For years the SEC has received complaints by Issuers and Investors over a practice whereby the seller of securities fails to make good on the delivery of goods sold [certified stock shares] within the time allotments for an executed trade. The buyer of these goods having fully paid in full for the right to ownership, and has received notification of ownership, yet delivery is not being made.
In a public proposal, the SEC identified that such a process of selling without settlement can be used as a vehicle to manipulate stock pricing through sell-side leverage. An imbalance between supply and demand is created.
Investor rights from certified stock ownership are the right to vote on corporate actions and the right to receive a stock dividend issued by that corporation if applicable. Investor Voting rights that are now being challenged to grow as the SEC and Congress review proxy voting to approve executive compensation packages, option grants, and members of the Board of Directors.
The SEC has repeatedly attempted to discredit those that have fought for a change to the process of selling what does not exist by stating that the problem being addressed is relatively small in nature.
Settlement failures in the markets are so small for example, the Depository Trust Clearing Corporation (DTCC) identifies unsettled trades as a floating $6 Billion liability in the DTCC records alone. The SEC further slighted critics when they created a special grandfather clause to this “small issue” because the SEC feared the financial repercussions should the unsettled trades become forced to settle promptly. Small problems should not have large ramifications you wouldn’t think.
Did the SEC have the right to grandfather settlement failures in order to control any possible market volatility? Who gave the SEC the legal authority to take possession of one’s property and disseminate it to another?
Since the SEC cannot control specific issuer trading in any of our markets, and lord knows we have seen tremendous volatility on the major exchanges over recent years, investors must question the SEC’s actions set forth in Regulation SHO.
Was the SEC trying to specifically control the trading in certain securities identified and thus take the private property of any and all rightful shareholders and use those shares for their own public use? In this case, the SEC trying to take shares owned by one and disseminates that share out as excess supply in the markets, without providing just compensation to that shareholder, in order to control any possible supply and demand imbalances. The real economic imbalance here is the excess supply created by the settlement failures.
Recently we witnessed tremendous volatility in our gas prices due to an imbalance of supply and demand. Congress recently discussed this issue with the major Oil Corporations but never did Congress step in and cease any rapid volatility in the oil prices in order to protect the public from financial strains. The Oil Corporations have a RIGHT to profit. Congress did not step in and limit the rising oil prices because it would be illegal to do so.
Congress has no authority to regulate oil prices and the SEC has no right to control stock trading prices.
Under the 5th Amendment the Government can take over property rights for public use but the governments cause must satisfy the public need. When stocks presumably owned by one investor are allowed to remain unsettled, the Government is effectively taking away that ownership, and all benefits thereof, of the shareholder whose account has identified that ownership. Thus, two actions must be satisfied to satisfy the Governments actions.
First, the Government must substantiate with cause how the public is benefiting from this action.
Recognize in this theory, Wall Street Institutions and the liability of the unsettled trade does not constitute general public. The general public must benefit from this taking of property and as the SEC has stated so often, the magnitude of the problem is considered negligent. The Institutions and their executives are the only real beneficiary of such action.
To take over the property rights of one investor for the financial protection of an Institution is a violation of 5th Amendment rights. More so when that action directly harms the investor whose property was taken and benefits a for-profit corporation.
Second, should the government plead their case and it be determined that there is a benefit to the general population; the government is responsible for providing just compensation for their actions.
As a shareholder who purchased a stock that was not delivered, the value of that purchase is diminished by the excess supply created by that non-delivery. The Governments actions have risked the financial profitability of those they have stripped the shares from to aid the financial institutions. The Government is responsible to compensate for those losses.
The purchase side of the executed trade had an expectation of delivery and the account statement identifies delivery as being made. Securities Laws under the Exchange Act of 1934 also demands that delivery, transfer of custody, is made promptly.
For the Government to take possession of these shares and provide them back to the seller for a collateral IOU, without compensating the originating shareholder for use of that share, is doing so against the 5Th Amendment rights to property. That is effectively what the SEC has done by incorporating a ‘grandfather clause’ into Regulation SHO allowing for unsettled trades to remain unsettled for an indefinite amount of time. This approval and or compensation terms is the right of that investor.
The SEC was trying to control the trading practices of select securities through the reverse loaning of shares owned by shareholders to counter-parties who sold what they did not possess. Those companies that the SEC is trying to control the prices of are the very companies in which Investors rights have been already taxed by the process of excessive settlement failures. An imbalance of supply and demand was created through the selling of excessive shares and yet now the SEC wants to allow those sellers opportunity to cover their sales under market conditions void of the requisite economic demand.
The SEC and the Division of Market Regulation Directed by Annette Nazareth in particular, has overstepped their legal boundaries to protect the crimes orchestrated by Wall Street Institutions. The SEC has decided that the financial strength of these organizations is in the best interest of the public and have thus willfully aided in the cover-up of the fraudulent activities. It is a federal Bailout by the SEC without Congressional Oversight and without Investor awareness.
The Investor is bailing out our major Institutional operations in order to maintain 8-figure salaries for these Wall Street executives. It is a political game of who can buy what politician and right now it is clear Wall Street can pretty much buy whomever they want. Wall Street is simply using our hard earned money to do so.
Think about it before you casually dismiss this issue.
Regulation SHO was “the most sweeping short selling reform in 60 years” as stated by the SEC and not a single congressional hearing transpired. Regulation SHO was presented as a vehicle to stop the abusive practices of naked shorting the SEC claims exist and yet for all practical purposes, less than a handful of cases have even been brought before a regulatory enforcement.
Does the SEC make sweeping reforms to a “non-issue” that results in less than a handful of cases and then have to “grandfather” the system fails in place prior to January 2005 in order to protect volatility?
Something stinks in DC. Maybe a few Per Se Constitutional Violation lawsuits against the SEC will wake up the slumbering Congressional Oversight Committees. It could start with each Investor who documented a comment letter to the SEC in 1999 and again in 2003 asking for a correction to this problem and was denied equal rights to protection.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005