Post by jannikki on Aug 7, 2007 18:38:59 GMT -4
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Pequot Capital's Washing Machine - August 7, 2007
Dave Patch
Imagine being a high rolling Hedge Fund whose clients expect a high rate of return year over year. You have the political and industry contacts and you need to make profit. What do you do?
Looking closely into the joint Senate Committee investigation into the firing of former SEC attorney Gary Aguirre and his claims of political abuses within the SEC, you commit securities fraud under the auspices that nobody within the regulatory enforcement arena will do anything about it.
How true that is.
In a devastating 711 page report out of the Joint Committee's of Senate Judiciary and Senate Financial Services titled 'The Firing of an SEC Attorney and the Investigation of Pequot Capital Management' the SEC is being accused of the improper termination of a federal employee, nepotism, and the cover-up of securities fraud. Beneficiary of such irresponsibility would be the wealthy managers and investors of Pequot Capital and Morgan Stanley CEO John Mack.
As much of the financial press placed their emphasis on the subtleties and less polarizing issues of the report I feel it is necessary to exploit the darkest moments in this Senate investigation.
Buried in the middle of the document, in Exhibit 7, is the evidence of securities fraud as blatant as a smoking gun in the hands of a murderer. A scheme to manipulate the pricing of securities in direct violation to Section 9 of the Exchange Act of 1934 - Verbatim!
In the records released to congress by the SEC was a memo in which an SEC attorney has logged the admission of trade information provided by Pequot in which Pequot had schemed to manipulate the price of securities through wash trades between accounts.
A wash trade is defined as a trade in which the buyer and seller are essentially the same person holding accounts in different firms and where the trading is intended to present a false market in the stock to generate a reflection in price changes and trade volumes.
According to an SEC document contained in the Pequot Investigation file SEC Attorney Tom Conroy outlined three different scenarios of trading he detected out of Pequot Capital.
"Trade Blotters received from Pequot pursuant to subpoena suggest that the vast majority of these trades involve no change in beneficial ownership. We believe that in the first two scenarios above (Wash Sales) the trades are designed to benefit Pequot by artificially inflating the volume and/or price and thus inflating the value of shares received by Pequot in the offering. In the third scenario, staff noted substantial selling, short selling and then buying and/or covering at substantially lower prices. In scenarios one and two, after the execution of the wash sale, we found instances where they would then short there long position."
A classic pump and dump orchestrated by Pequot Capital and in full view of the SEC.
The Securities Act of 1934, Section 9 states that it is unlawful "to effect any transaction in such security which involves no change in the beneficial ownership thereof." And yet the records obtained and in the files of the SEC indicate that the Pequot trades executed involve "no trades in beneficial ownership."
Important to understand here is that the case file created by SEC Attorney Tom Conroy is closed. There is no enforcement action against Pequot.
In an ongoing SEC investigation the details of such investigation are not made available to the public or the members of Congress. The SEC uses the shield of "on-going" investigation to protect the proprietary nature of work product. Therefore, the SEC has closed this case without a finding despite the evidence of illegal wash trading in direct violation of federal securities laws. It can't get any more blatant.
With the Congressional investigation implicating high-ranking SEC Officials including Director of Securities Linda Thomsen in the efforts to cover up the fraud, the magnitude of this revelation is inexplicable. Why did the SEC walk away from an enforcement action regarding a well-connected hedge fund and, how many others have they likewise walked away from despite the evidence to convict?
Worse, the impartial Office of Inspector General under the tutelage of Walter Stachnik also walked away from any accounts of wrongdoing by the SEC despite the evidence that pointed elsewhere. The Senate Committee's concluding that the OIG was negligent in their dealings in this matter, captured by the agency they had oversight of.
Truth be told, nothing is isolated on Wall Street and with 18 NYSE referrals against Pequot Capital in recent years the likelihood that the evidence obtained was not isolated but instead standard operating procedure is highly probable. It is also highly probable that the SEC staff reduced the scope of the Pequot investigation down from 18 incidents to 2 to specifically minimize the opportunities for uncovering a systemic issue. Eighteen robberies suddenly became two with sixteen possible victims left unaccounted for by the regulatory police.
The Pequot Capital washing machine was most likely fully functional and the SEC simply walked away from the illegal waste being dumped into our markets. It is all part of the secret handshakes between highly connected Wall Street personalities and the SEC staff. Secret handshakes that represent the best money can buy.
The investing public deserves answers and deserves action.
Based on the evidence provided, heads should roll at the SEC and a cultural change should be immediate. Any Chairman, Commissioner, or staff member not willing to embrace the cultural change immediately should be terminated immediately for cause.
Finally, federal laws should be changed that allow for members of the SEC to be held personally and criminally responsible for failing to take action where fraud is clearly evident. We can no longer have nor trust an agency where politics has set aside the rights of public investors or public issuers. Protecting criminals is not an option that can be exempt from criminal prosecution as similarly as a corrupt cop can be prosecuted.
The investing public must take back our markets and our economy. It starts with forcing the Pequot's' and their co-conspirators in these markets to shut down their criminal actions. If the SEC is too incompetent and captured to do it lets find an unbiased regulatory body that will.
For a link to the complete 711 page report please click here: www.finance.senate.gov/sitepages/leg/LEG%202007/36960.pdf
On a side note: Has anybody noticed the miraculous and harmful volatility in the markets now that these geniuses at the SEC removed the tick test rule. The worst volatility in decades and it takes place in the first month after the tick test is eliminated permanently. Coincidence? Don't bet on it. The SEC is in the pockets of these wealthy short selling pools with every regulatory change favoring the abusive short sale activities.
For more on this issue please visit the Host site at www.investigatethesec.com
Copyright 2007 (posted with permission)
An online newspaper reporting the issues of Securities Fraud
Pequot Capital's Washing Machine - August 7, 2007
Dave Patch
Imagine being a high rolling Hedge Fund whose clients expect a high rate of return year over year. You have the political and industry contacts and you need to make profit. What do you do?
Looking closely into the joint Senate Committee investigation into the firing of former SEC attorney Gary Aguirre and his claims of political abuses within the SEC, you commit securities fraud under the auspices that nobody within the regulatory enforcement arena will do anything about it.
How true that is.
In a devastating 711 page report out of the Joint Committee's of Senate Judiciary and Senate Financial Services titled 'The Firing of an SEC Attorney and the Investigation of Pequot Capital Management' the SEC is being accused of the improper termination of a federal employee, nepotism, and the cover-up of securities fraud. Beneficiary of such irresponsibility would be the wealthy managers and investors of Pequot Capital and Morgan Stanley CEO John Mack.
As much of the financial press placed their emphasis on the subtleties and less polarizing issues of the report I feel it is necessary to exploit the darkest moments in this Senate investigation.
Buried in the middle of the document, in Exhibit 7, is the evidence of securities fraud as blatant as a smoking gun in the hands of a murderer. A scheme to manipulate the pricing of securities in direct violation to Section 9 of the Exchange Act of 1934 - Verbatim!
In the records released to congress by the SEC was a memo in which an SEC attorney has logged the admission of trade information provided by Pequot in which Pequot had schemed to manipulate the price of securities through wash trades between accounts.
A wash trade is defined as a trade in which the buyer and seller are essentially the same person holding accounts in different firms and where the trading is intended to present a false market in the stock to generate a reflection in price changes and trade volumes.
According to an SEC document contained in the Pequot Investigation file SEC Attorney Tom Conroy outlined three different scenarios of trading he detected out of Pequot Capital.
"Trade Blotters received from Pequot pursuant to subpoena suggest that the vast majority of these trades involve no change in beneficial ownership. We believe that in the first two scenarios above (Wash Sales) the trades are designed to benefit Pequot by artificially inflating the volume and/or price and thus inflating the value of shares received by Pequot in the offering. In the third scenario, staff noted substantial selling, short selling and then buying and/or covering at substantially lower prices. In scenarios one and two, after the execution of the wash sale, we found instances where they would then short there long position."
A classic pump and dump orchestrated by Pequot Capital and in full view of the SEC.
The Securities Act of 1934, Section 9 states that it is unlawful "to effect any transaction in such security which involves no change in the beneficial ownership thereof." And yet the records obtained and in the files of the SEC indicate that the Pequot trades executed involve "no trades in beneficial ownership."
Important to understand here is that the case file created by SEC Attorney Tom Conroy is closed. There is no enforcement action against Pequot.
In an ongoing SEC investigation the details of such investigation are not made available to the public or the members of Congress. The SEC uses the shield of "on-going" investigation to protect the proprietary nature of work product. Therefore, the SEC has closed this case without a finding despite the evidence of illegal wash trading in direct violation of federal securities laws. It can't get any more blatant.
With the Congressional investigation implicating high-ranking SEC Officials including Director of Securities Linda Thomsen in the efforts to cover up the fraud, the magnitude of this revelation is inexplicable. Why did the SEC walk away from an enforcement action regarding a well-connected hedge fund and, how many others have they likewise walked away from despite the evidence to convict?
Worse, the impartial Office of Inspector General under the tutelage of Walter Stachnik also walked away from any accounts of wrongdoing by the SEC despite the evidence that pointed elsewhere. The Senate Committee's concluding that the OIG was negligent in their dealings in this matter, captured by the agency they had oversight of.
Truth be told, nothing is isolated on Wall Street and with 18 NYSE referrals against Pequot Capital in recent years the likelihood that the evidence obtained was not isolated but instead standard operating procedure is highly probable. It is also highly probable that the SEC staff reduced the scope of the Pequot investigation down from 18 incidents to 2 to specifically minimize the opportunities for uncovering a systemic issue. Eighteen robberies suddenly became two with sixteen possible victims left unaccounted for by the regulatory police.
The Pequot Capital washing machine was most likely fully functional and the SEC simply walked away from the illegal waste being dumped into our markets. It is all part of the secret handshakes between highly connected Wall Street personalities and the SEC staff. Secret handshakes that represent the best money can buy.
The investing public deserves answers and deserves action.
Based on the evidence provided, heads should roll at the SEC and a cultural change should be immediate. Any Chairman, Commissioner, or staff member not willing to embrace the cultural change immediately should be terminated immediately for cause.
Finally, federal laws should be changed that allow for members of the SEC to be held personally and criminally responsible for failing to take action where fraud is clearly evident. We can no longer have nor trust an agency where politics has set aside the rights of public investors or public issuers. Protecting criminals is not an option that can be exempt from criminal prosecution as similarly as a corrupt cop can be prosecuted.
The investing public must take back our markets and our economy. It starts with forcing the Pequot's' and their co-conspirators in these markets to shut down their criminal actions. If the SEC is too incompetent and captured to do it lets find an unbiased regulatory body that will.
For a link to the complete 711 page report please click here: www.finance.senate.gov/sitepages/leg/LEG%202007/36960.pdf
On a side note: Has anybody noticed the miraculous and harmful volatility in the markets now that these geniuses at the SEC removed the tick test rule. The worst volatility in decades and it takes place in the first month after the tick test is eliminated permanently. Coincidence? Don't bet on it. The SEC is in the pockets of these wealthy short selling pools with every regulatory change favoring the abusive short sale activities.
For more on this issue please visit the Host site at www.investigatethesec.com
Copyright 2007 (posted with permission)