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Former DTCC Board Member "Settlement Failures are Endemic" – February 23, 2006David Patch
Today, State Senators for the State of NJ held Public Hearings on the nomination of Bradley Abelow for State Treasurer. Abelow carries on his resume such titles as executive for the Wall Street institution Goldman Sachs and most recently Board of Director for the Depository Trust Clearing Corporation (DTCC).
While many topics of discuss surrounded the nomination process none were more electrifying and confusing than the questions raised by state Senators and citizens over the DTCC’s involvement in aiding naked shorting abuses. Mr. Abelow’s responses were electrifying and disheartening at the same time.
Senator: “Did you know that there was such a thing as naked short selling happening?”
Bradley Abelow: “Most people that work in the securities industry, particularly from the operational side are well aware that naked short selling does occur. Were aware of it from a compliance perspective because within an institution like Goldman Sachs you are trying to make sure not doing it and that it is not being done there. As it relates to fails to deliver a significant portion of my responsibility when I was responsible for operations was to insure timely transactions of settlements.”
Did I hear this wrong? A member of the Board of Directors for the DTCC is now stating, under oath, that most people who work in the operational side of the Industry are well aware of a problem the industry has publicly denied even exists? How bad is it then? A member of the Board to a company who puts out a special section on their website dedicated to denying the existence of naked shorting abuses through settlement failures.
Bradley Abelow: (Re Settlement Fails) “No one likes them, no one wants to have them, but they occur as a matter of course with great regularity”
Bradley Abelow: “Issues of fails to deliver of securities is endemic, it occurs as a matter of course, and that my experience is is that everyone at the DTCC and at its participant firms work diligently to clean them up”
Now again this comes from a former member of the Board of Directors for the DTCC who was personally named in lawsuits and whom had access to the same level of detail the DTCC recently published and then swiftly removed from their website.
According to the DTCC, trades that have a normal settlement of 3 business days have accumulated an aggregate in fails to deliver that equates to a minimum of $ 6 Billion in aged and new fails daily. The DTCC’s analysis of this data identified that 10% of the FTD are aged for greater than 30 trade days, 6 calendar weeks, and 15 are aged for greater than 200 trade days or 40 calendar weeks. The analysis is now removed.
While this was the DTCC’s analysis that is no longer published, data obtained under the freedom of Information Act (FOIA) and analyzed for a period in November 2005 dispute these figures illustrating a representative 20% of FTD’s being aged for greater than 30 days. This is hardly diligent work to settle trades. Twenty percent ($1.2 Billion) have failed for greater than 10 times the normal settlement process. And this is acceptable!
With little shame, Abelow tried to deflect the issue by bringing into the discussion the exemplary efforts of the DTCC to work through the 9/11 tragedy and to continue settling trades while the remainder of the stock market was closed. It was an embarrassing dialogue that paralleled a similar dialogue I held with DTCC Director of Communications Stuart Goldstein shortly after 9/11. Mr. Goldstein also brought out the efforts of the DTCC people during this tragedy as justification for the fraud aided by their blind negligence and told me to seek out qualified people to discuss this issue since I had it all wrong. According to Goldstein naked shorting was a myth.
Not according to Abelow. Mr. Abelow claims everybody knows about it and its “endemic.”
Do they teach them this as part of a public training course? To understand the ignorance of these responses, the activities Mr. Goldstein and now Mr. Abelow are speaking of were taking place from a significant distance from the “war zone.” There was no danger to these employees and like the rest of us; they simply had a job to do. Should we all take a similar bow, years later, for attending work on that disastrous day as it appears the DTCC executives want to use it as their get out of jail free pass to other pending issues?
Mr. Abelow was further challenged on his actions as a Board Member, what actions the board took to understand this issue, and what if any efforts they took to eradicate the settlement failures associated with illegal shorting.
Mr. Abelow, instead of giving a hint under oath about what may or may not have taken place, even at the 10,000 foot level, choose to plead privilege and discuss the need to speak to counsel first. That is right, Mr. Abelow, who has admitted they all know about naked shorting, suddenly claims privilege and refers to counsel.
Not being the consummate writer, I could never do justice to the comments of Mr. Abelow as it pertained to his knowledge and the industries knowledge of this abuse. I will refer you to the actual audio transcripts of the lengthy hearing and allow yourself the opportunity to listen for yourself.
The February 23, 2006 audio archive can be located at;
www.njleg.state.nj.us/media/archive_audio2.asp?KEY=SJU&SESSION=2006The segments of interest would be the beginning of the session in which interested parties stated their concerns. The Senate questioning of Mr. Abelow then re-addressed this issue in the 1:23:00 period of the session.
As you listen to Mr. Abelow simply consider;
Hilary Shane, Guillaume Pollet, Scott Ryan, John Mangan, Anthony Elgindy, Emanuel Friedman, Friedman, Billings & Ramsey, Refco Securities, Rhino Advisors, and TradeStation have either completed regulatory enforcement actions or are in negotiations for regulatory actions regarding illegal short selling activities. In the TradeStation notice, the company claims are that the illegal short sales in question were “authorized and arranged” by Bear Stearns.
Here is what Bear Stearns General Counsel stated in a December 2004 conference call regarding the new regulations to stamp out abusive short selling and excessive settlement failures:
"To give you that brief introduction in Reg SHO, the history (of) how we got to where we are today. For the past few 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."
The enforcement cases provided, and the comments made by the General Counsel of Bear Stearn, clearly refute Mr. Abelow’s understanding about how hard the industry works to settle trades. If it is financially advantageous to not settle trades, they will not!
As we are repeatedly reminded, the industry only works diligently to one goal and that is profitability that lends to rewording and inflated compensation packages.
This year’s bonus total for Wall Street was over $21 Billion with Goldman Sachs handing out an average of $500,000 to their employees. Abelow worked for Goldman Sachs.
The only question any of us can have after we have listened to this audio is – “where is the integrity and ethics of our nation going”? How such people can put personal greed above the safety of or nation and our people. Mr. Abelow and the DTCC have the power to clean up this financial crisis but instead play a political game that can only jeopardize our future generations.
To the people of New Jersey, you now have a new state treasurer. Question is, how many New Jersey companies were destroyed, and investors crippled, by the activities of a Wall Street Mr. Abelow overlooked the operations of?
For more on this issue please visit the Host site at
www.investigatethesec.com .
Copyright 2006
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