Post by jcline on Dec 9, 2005 22:10:30 GMT -4
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Let the Proxy Battles Begin – SRO’s Fail to Enforce Proxy Rules – December 9, 2005
David Patch
In the November 30, 2005 Open Public Forum held by the North American Securities Administrators Association (NASAA) in Washington DC regarding stock manipulation associated with naked shorting, the issue of proxy voting took center stage for a brief moment. At issue was how the rights of shareholders were being protected during proxy voting periods when excessive fails were apparent in a particular security.
Speaking on behalf of the NYSE Anand Ramtahal, Vice President, Market Member of Firm Regulation stated “The New York Stock Exchange conducted a number of special exams during 2004, based on a survey we conducted regarding proxy process at a number of our member firms. And we did find a widespread problem regarding over-voting and that was essentially because through Dr. Trimbath’s comments, firms weren’t necessarily taking into consideration what we refer to as the short side of the stock record, so essentially voting the entire wrong side of the stock record without taking into consideration securities that might be out on loan and things like that.”
Mr. Ramatahal concluded his material with an affirmation that a committee was formulated by the NYSE to “look at our proxy rules and with the possibility of amending those in the future.”
Of particular note, there has not been a single NYSE enforcement action taken with respect to an NYSE member failing to meet the present regulations pertaining to Proxy voting. While problems were surfaced and recognized, the NYSE and the Industry balked on taking any action.
So what are the NYSE Rules?
Rule 450. Restriction on Giving of Proxies
No member organization shall give or authorize the giving of a proxy to vote stock registered in its name, or in the name of its nominee, except as required or permitted under the provisions of Rule 452 [¶2452], unless such member organization is the beneficial owner of such stock.
Rule 452. Giving Proxies by Member Organization
A member organization shall give or authorize the giving of a proxy for stock registered in its name, or in the name of its nominee, at the direction of the beneficial owner. If the stock is not in the control or possession of the member organization, satisfactory proof of the beneficial ownership as of the record date may be required.
And…
Rule 453. Proxy to Show Number of Shares
In all cases in which a proxy is given by a member organization the proxy shall state the actual number of shares of stock for which the proxy is given.
The term beneficial owner is a critical issue here.
The Definition of a Beneficial Owner is: A person who benefits from ownership of a security or mutual fund. Shares or title may be held by a bank or broker for safety and convenience or in “street name to expedite transactions, but the real owner is the beneficial owner.
But there can only be as many beneficial owner shares as there are shares registered by the company.
What Mr. Ramatahal eventually claimed takes place is that our Broker-Dealers are making proxy material distribution of 100% of all book-entry client share positions held on record to be voted. The firms will then tally results and allocate the appropriate ratio into the controlled positions held in custody by the firm. Again, while this process is a violation of every SEC, NYSE, and NASD proxy rule the Regulators have yet to take action against the fraud.
Clearly when a proxy package comes in the mail claiming voting rights, it is the understanding and expectation that the shareholder is voting exactly that number of shares and thus controls exactly that percentage of the total votes in the equation. If you own 10% of the shares you expect that you are voting 10% of the total votes to be taken. NYSE Rule 453 requires that transparency. To submit a package that is materially false and misleading is a 10b-5 Violation under the Exchange Act of 1934.
Why does this matter?
Beyond the basic issue of fraud, the readers must understand that the second largest revenue operation in many of these large firms comes from the Prime Brokerage Divisions. This is the division that handles the stock lending operations. Shares are being loaned out into the market to cover short sale executions and the institutions and preferred clients are receiving a “kickback” for the lending via an interest payment. The mom and pop investor will not see any revenue when their shares are being lent out but those holding the majority of shares, Institutions, Hedge Funds, wealthy clients, will. It is these same entities that control much of the proxy voting power.
It has historically been the Institution or Hedge Fund that want to create a proxy battle in a Corporation. While they take their intentions public and threaten a proxy war, these same Investors are already receiving interest on their stock ownership by giving up the long shares purchased to the stock lending pool. These Investors gave up their rights to a vote yet get to vote anyway.
For Companies like Global Crossings (NASDAQ: GLBC), the short interest in that stock peaked at over 130% of the available public float. With significant Institutional holders in the security these firms loaned out their shares for the stock lending “dividend” to the tune of an additional 130% of the shares trading into the public’s hands. By the process we are hearing described, all 230% of the trading shares were voted upon during a proxy period further diluting the value any small retail investor had in making a decision on their interests.
Also consider that the amount of the diluted vote is unknown to the investor and is purely a function of the ratio of client shares on the books to shares retained at the Depository Trust in the name of that firm. Your vote could be as high as 100% of your rightful shares to as low as 5 or 10% of your rightful positions depending on the firm’s lending practices [profit center].
Director of Securities for the State of Connecticut, and former President of the NASAA Ralph Lambiase reminded those in attendance at the Public Forum that Americans went to war for the principle right to vote. Apparently those that lost lives did not come from the caliper of greed that Wall Street Institutions behold.
For a copy of the written transcripts to the NASAA open public forum and an open discussion of how investor rights are being sacrificed please follow the link below.
www.ncans.net/files/NASAAtrans.pdf
You may also want to contact your State Regulator, Congressman, the Securities and Exchange Commission, and the US Postal Service and ask how these Wall Street firms can continue to distribute counterfeit proxies without any level of enforcement action being taken. The present regulatory stance that the average investor’s vote means little is a disgrace as it would be like asking people not to vote for a President or Elected Official because they are only one vote.
The SEC is presently conducting an open comment period on reforms to the Proxy Voting process. Use this opportunity to voice public opinion to this growing issue. Proposal 34 – 52926 www.sec.gov/rules/proposed.shtml. Ask for one share- one vote policies to be strictly enforced.
People fought and risked their lives for this right and this Federal Government [SEC] should not be so callous as to strip that right from the people because it was simply inconvenient for the member firms to comply with these laws.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005
An online newspaper reporting the issues of Securities Fraud
Let the Proxy Battles Begin – SRO’s Fail to Enforce Proxy Rules – December 9, 2005
David Patch
In the November 30, 2005 Open Public Forum held by the North American Securities Administrators Association (NASAA) in Washington DC regarding stock manipulation associated with naked shorting, the issue of proxy voting took center stage for a brief moment. At issue was how the rights of shareholders were being protected during proxy voting periods when excessive fails were apparent in a particular security.
Speaking on behalf of the NYSE Anand Ramtahal, Vice President, Market Member of Firm Regulation stated “The New York Stock Exchange conducted a number of special exams during 2004, based on a survey we conducted regarding proxy process at a number of our member firms. And we did find a widespread problem regarding over-voting and that was essentially because through Dr. Trimbath’s comments, firms weren’t necessarily taking into consideration what we refer to as the short side of the stock record, so essentially voting the entire wrong side of the stock record without taking into consideration securities that might be out on loan and things like that.”
Mr. Ramatahal concluded his material with an affirmation that a committee was formulated by the NYSE to “look at our proxy rules and with the possibility of amending those in the future.”
Of particular note, there has not been a single NYSE enforcement action taken with respect to an NYSE member failing to meet the present regulations pertaining to Proxy voting. While problems were surfaced and recognized, the NYSE and the Industry balked on taking any action.
So what are the NYSE Rules?
Rule 450. Restriction on Giving of Proxies
No member organization shall give or authorize the giving of a proxy to vote stock registered in its name, or in the name of its nominee, except as required or permitted under the provisions of Rule 452 [¶2452], unless such member organization is the beneficial owner of such stock.
Rule 452. Giving Proxies by Member Organization
A member organization shall give or authorize the giving of a proxy for stock registered in its name, or in the name of its nominee, at the direction of the beneficial owner. If the stock is not in the control or possession of the member organization, satisfactory proof of the beneficial ownership as of the record date may be required.
And…
Rule 453. Proxy to Show Number of Shares
In all cases in which a proxy is given by a member organization the proxy shall state the actual number of shares of stock for which the proxy is given.
The term beneficial owner is a critical issue here.
The Definition of a Beneficial Owner is: A person who benefits from ownership of a security or mutual fund. Shares or title may be held by a bank or broker for safety and convenience or in “street name to expedite transactions, but the real owner is the beneficial owner.
But there can only be as many beneficial owner shares as there are shares registered by the company.
What Mr. Ramatahal eventually claimed takes place is that our Broker-Dealers are making proxy material distribution of 100% of all book-entry client share positions held on record to be voted. The firms will then tally results and allocate the appropriate ratio into the controlled positions held in custody by the firm. Again, while this process is a violation of every SEC, NYSE, and NASD proxy rule the Regulators have yet to take action against the fraud.
Clearly when a proxy package comes in the mail claiming voting rights, it is the understanding and expectation that the shareholder is voting exactly that number of shares and thus controls exactly that percentage of the total votes in the equation. If you own 10% of the shares you expect that you are voting 10% of the total votes to be taken. NYSE Rule 453 requires that transparency. To submit a package that is materially false and misleading is a 10b-5 Violation under the Exchange Act of 1934.
Why does this matter?
Beyond the basic issue of fraud, the readers must understand that the second largest revenue operation in many of these large firms comes from the Prime Brokerage Divisions. This is the division that handles the stock lending operations. Shares are being loaned out into the market to cover short sale executions and the institutions and preferred clients are receiving a “kickback” for the lending via an interest payment. The mom and pop investor will not see any revenue when their shares are being lent out but those holding the majority of shares, Institutions, Hedge Funds, wealthy clients, will. It is these same entities that control much of the proxy voting power.
It has historically been the Institution or Hedge Fund that want to create a proxy battle in a Corporation. While they take their intentions public and threaten a proxy war, these same Investors are already receiving interest on their stock ownership by giving up the long shares purchased to the stock lending pool. These Investors gave up their rights to a vote yet get to vote anyway.
For Companies like Global Crossings (NASDAQ: GLBC), the short interest in that stock peaked at over 130% of the available public float. With significant Institutional holders in the security these firms loaned out their shares for the stock lending “dividend” to the tune of an additional 130% of the shares trading into the public’s hands. By the process we are hearing described, all 230% of the trading shares were voted upon during a proxy period further diluting the value any small retail investor had in making a decision on their interests.
Also consider that the amount of the diluted vote is unknown to the investor and is purely a function of the ratio of client shares on the books to shares retained at the Depository Trust in the name of that firm. Your vote could be as high as 100% of your rightful shares to as low as 5 or 10% of your rightful positions depending on the firm’s lending practices [profit center].
Director of Securities for the State of Connecticut, and former President of the NASAA Ralph Lambiase reminded those in attendance at the Public Forum that Americans went to war for the principle right to vote. Apparently those that lost lives did not come from the caliper of greed that Wall Street Institutions behold.
For a copy of the written transcripts to the NASAA open public forum and an open discussion of how investor rights are being sacrificed please follow the link below.
www.ncans.net/files/NASAAtrans.pdf
You may also want to contact your State Regulator, Congressman, the Securities and Exchange Commission, and the US Postal Service and ask how these Wall Street firms can continue to distribute counterfeit proxies without any level of enforcement action being taken. The present regulatory stance that the average investor’s vote means little is a disgrace as it would be like asking people not to vote for a President or Elected Official because they are only one vote.
The SEC is presently conducting an open comment period on reforms to the Proxy Voting process. Use this opportunity to voice public opinion to this growing issue. Proposal 34 – 52926 www.sec.gov/rules/proposed.shtml. Ask for one share- one vote policies to be strictly enforced.
People fought and risked their lives for this right and this Federal Government [SEC] should not be so callous as to strip that right from the people because it was simply inconvenient for the member firms to comply with these laws.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005