Post by kranker on Feb 4, 2006 14:36:54 GMT -4
StockGate: SEC Under Fire as ’Regulation SHO’ Comments End Today
Monday, January 05, 2004 12:44:18 AM ET Jan 5, 2004 (financialwire.net ) -- (FinancialWire) Today is "Red Letter Day" for anyone wishing to add his or her two-cents to the U.S. Security and Exchange Commission’s invitation to comment on "Regulation SHO," the agency’s effort to curb the manipulative trading abuses known as "StockGate" that have impacted nearly 200 public companies and untold thousands of individual shareholders in those companies. So far, the SEC has received over 280 electronic comments alone.
For brokerages identified as having been identified by complaintants as part of the problem, such as FleetBoston (FBF), Goldman, Sachs & Co. (GS), E*Trade Group, Inc. (ET), and A.G. Edwards, Inc. (AGE), detractors claim that most of the proposals deal only with their future actions rather than any restitution for shareholders previously victimized by "naked shorting" activities.
"The short selling rules are a scandal in the making, noted John J. Tollefsen, Esq., of www.tollefsenlaw.com, and a member of the FinancialWire Board of Editorial Advisors.
"Think of the current off-market trading in mutual funds furor. Although it has been going on for years, the SEC ignored this issue and now has a black eye after state regulators have made the public aware of it. Note how the press was used to inflame the public on this issue. The headlines blared that millions of small mutual fund investor dollars were lost without any SEC oversight," he said.
" Like the mutual fund industry, the SEC lets insiders profit with the short selling rules while the investing public loses million of dollars. If short selling is to continue, there should be no advantage for insiders," Tollefson concluded.
D. M. "Rusty" Moore, Jr., CEO of Rushmore Financial Group (OTCBB: RFGI), which markets a popular electronic trading system, said there should be "limits to shorting of illiquid and low volume stocks, where Market Makers can drive down the price of a stock and thereby manipulate the market. Also, as we all know, OTC MMs keep artificially wide spreads between the Bid and Ask by refusing to display "in between" orders as to both price and size. In addition to naked short selling, this needs to be outlawed!"
Perhaps the most succinct comment was made by Robert G. "Bob" Rader, of Capital West Securities, Inc., a prominent leader of the National Investment Bankers Association: "Naked shorts should be done away with. They should have to make 3 day delivery like everybody else."
Dr. Jim DeCosta, a prominent detractor who says the SEC has the power and authority necessary and is just not doing its job, told the Commissioners in his comments that if the agency is not going to exercise its powers, it should refer befuddled and aggrieved investors to an agency that will, such as the U.S. Department of Labor, which it said could address the "crimes being committed regarding shares in qualified retirement plans" under the 1974 ERISA Act.
He stated that the SEC has a responsibility to warn "prospective investors" that shares they purchase may have open positions in excess of Rule 11830 parameters about the "damaged goods nature of these U.S. corporations," especially as to the number of "counterfeit shares" associated with such companies, since that directly impacts a company’s stated book value..
DeCosta called naked shorting a criminal fraud, and said if the SEC is not going to provide investors with remedies, it should turn over its evidence to the states attorneys general as he says is required by law. He also said the SEC must inform the Office of Homeland Security of any money laundering that is "destined for terrorist activity," the subject of a recent article by columnist Jack Anderson.
He also stated that the SEC has a responsibility to alert auditors of victimized firms so they may refile corrected "shareholder equity" statements relative to the companies’ balance sheets, and that the Federal Accounting Standards Board should be required to provide guidance on how to account for "counterfeit electronic book entry" if the SEC continues to fail to "order the buy-in of these illegal entities."
DeCosta further charged that Transfer Agent filings are in error when naked shorting is allowed, and that both state statutes and Federal regulations will have to be adjusted to "accommodate" the counterfeit electronic book entries he said is now in existence. He noted that Federal RICO laws appear to be broken.
The commenter also suggested that the Internal Revenue Service must allow for tax write-offs to investors who are the victims of fraud, or may be holders of diluted assets.
DeCosta stated that the State of New York may have jurisdiction of the Depository Trust & Clearing Corporation due to its initial establishment as a New York Limited Purpose Trust Company under state banking laws, and that its "Addendum C" to its rules and regulations may be abused. He said a warning legend should be awarded to shares of companies where the shares in the market exceed the issued shares.
DeCosta said that regulators need to examine all Rule 13(d) and 16(a) filings over the last ten years, "to ascertain whether or not these ’affiliates’ really do own either 5 or 10% of a victim company’s shares since the rule doesn’t address whether the government is referring to the ownership of legitimate shares, counterfeit electronic book entries, or the arithmetical sum of the two. Any fines levied for 13 (d) or 16 (a) violations would obviously have to be reviewed and those fined would have to be contacted regarding their rights to appeal those fines."
Finally, DeCosta stated that Congress may need to rewrite the 1934 Securities Exchange Act if it is determined that the SEC’s allowance of "counterfeit electronic book entries" undermine the statute.
DeCosta quoted from a recent Dow Jones (DJ) Wall Street Journal article in which SEC Commissioner William Donaldson was asked, "Why did the SEC fail to spot almost every major financial scandal in recent years-from improper fund trading to research analysts’ conflicts of interest to favoritism in doling out coveted shares in initial public offerings?"
The Journal noted that " Earlier this year, SEC staffers and McKinsey and Co. Consultants produced a 270-page catalog of the agency’s weaknesses, commissioned by ex-chairman Harvey Pitt. The report, whose findings haven’t been publicly disclosed, depicts an overly cautious agency hampered by bureaucratic inefficiencies and problems in monitoring a fast-changing industry. Chief among the flaws is a ’reactive’ culture that often fails to identify danger ahead of time, leaving the agency to respond after others expose problems."
Donaldson was quoted as saying he wants examiners to be "more focused in on where the real problems are, as opposed to a checklist approach in playing ’gotcha’ with inspections."
By contrast, FinancialWire recently reported that the "London Stock Exchange has embarrassed the United States Securities and Exchange Commission and the NASD with its tough handling of naked short selling involving Room Service (London: RSV). Unlike the SEC and NASD, which have exacted relatively insignificant ’show fines,’ but in general have left most of those involved in the practice alone, the LSE has simply ordered market makers involved in the scandal to give investors who did not receive shares their money back."
U.S. Securities and Exchange Commission comments for Regulation SHO end today.
The SEC said that comments on Regulation SHO should be sent by hard copy or e-mail, but not by both methods, by January 5. Comments sent by hard copy should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.
Comments also may be submitted electronically at the following E-mail address: rule-comments@sec.gov. All comment letters should refer to File No. S7-23-03. Comments submitted by e-mail should include the file number in the subject line. Comment letters received will be available for public inspection and copying in the Commission’s Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Electronically submitted comment letters will be posted on the Commission’s Internet web site (http://www.sec.gov.
Observers have said that trades to not settle because broker-dealers do not effect buy-ins, as required by law, and that there is an unspoken understanding that any brokerage that tries to force a buy-in will be retaliated against.
Monday, January 05, 2004 12:44:18 AM ET Jan 5, 2004 (financialwire.net ) -- (FinancialWire) Today is "Red Letter Day" for anyone wishing to add his or her two-cents to the U.S. Security and Exchange Commission’s invitation to comment on "Regulation SHO," the agency’s effort to curb the manipulative trading abuses known as "StockGate" that have impacted nearly 200 public companies and untold thousands of individual shareholders in those companies. So far, the SEC has received over 280 electronic comments alone.
For brokerages identified as having been identified by complaintants as part of the problem, such as FleetBoston (FBF), Goldman, Sachs & Co. (GS), E*Trade Group, Inc. (ET), and A.G. Edwards, Inc. (AGE), detractors claim that most of the proposals deal only with their future actions rather than any restitution for shareholders previously victimized by "naked shorting" activities.
"The short selling rules are a scandal in the making, noted John J. Tollefsen, Esq., of www.tollefsenlaw.com, and a member of the FinancialWire Board of Editorial Advisors.
"Think of the current off-market trading in mutual funds furor. Although it has been going on for years, the SEC ignored this issue and now has a black eye after state regulators have made the public aware of it. Note how the press was used to inflame the public on this issue. The headlines blared that millions of small mutual fund investor dollars were lost without any SEC oversight," he said.
" Like the mutual fund industry, the SEC lets insiders profit with the short selling rules while the investing public loses million of dollars. If short selling is to continue, there should be no advantage for insiders," Tollefson concluded.
D. M. "Rusty" Moore, Jr., CEO of Rushmore Financial Group (OTCBB: RFGI), which markets a popular electronic trading system, said there should be "limits to shorting of illiquid and low volume stocks, where Market Makers can drive down the price of a stock and thereby manipulate the market. Also, as we all know, OTC MMs keep artificially wide spreads between the Bid and Ask by refusing to display "in between" orders as to both price and size. In addition to naked short selling, this needs to be outlawed!"
Perhaps the most succinct comment was made by Robert G. "Bob" Rader, of Capital West Securities, Inc., a prominent leader of the National Investment Bankers Association: "Naked shorts should be done away with. They should have to make 3 day delivery like everybody else."
Dr. Jim DeCosta, a prominent detractor who says the SEC has the power and authority necessary and is just not doing its job, told the Commissioners in his comments that if the agency is not going to exercise its powers, it should refer befuddled and aggrieved investors to an agency that will, such as the U.S. Department of Labor, which it said could address the "crimes being committed regarding shares in qualified retirement plans" under the 1974 ERISA Act.
He stated that the SEC has a responsibility to warn "prospective investors" that shares they purchase may have open positions in excess of Rule 11830 parameters about the "damaged goods nature of these U.S. corporations," especially as to the number of "counterfeit shares" associated with such companies, since that directly impacts a company’s stated book value..
DeCosta called naked shorting a criminal fraud, and said if the SEC is not going to provide investors with remedies, it should turn over its evidence to the states attorneys general as he says is required by law. He also said the SEC must inform the Office of Homeland Security of any money laundering that is "destined for terrorist activity," the subject of a recent article by columnist Jack Anderson.
He also stated that the SEC has a responsibility to alert auditors of victimized firms so they may refile corrected "shareholder equity" statements relative to the companies’ balance sheets, and that the Federal Accounting Standards Board should be required to provide guidance on how to account for "counterfeit electronic book entry" if the SEC continues to fail to "order the buy-in of these illegal entities."
DeCosta further charged that Transfer Agent filings are in error when naked shorting is allowed, and that both state statutes and Federal regulations will have to be adjusted to "accommodate" the counterfeit electronic book entries he said is now in existence. He noted that Federal RICO laws appear to be broken.
The commenter also suggested that the Internal Revenue Service must allow for tax write-offs to investors who are the victims of fraud, or may be holders of diluted assets.
DeCosta stated that the State of New York may have jurisdiction of the Depository Trust & Clearing Corporation due to its initial establishment as a New York Limited Purpose Trust Company under state banking laws, and that its "Addendum C" to its rules and regulations may be abused. He said a warning legend should be awarded to shares of companies where the shares in the market exceed the issued shares.
DeCosta said that regulators need to examine all Rule 13(d) and 16(a) filings over the last ten years, "to ascertain whether or not these ’affiliates’ really do own either 5 or 10% of a victim company’s shares since the rule doesn’t address whether the government is referring to the ownership of legitimate shares, counterfeit electronic book entries, or the arithmetical sum of the two. Any fines levied for 13 (d) or 16 (a) violations would obviously have to be reviewed and those fined would have to be contacted regarding their rights to appeal those fines."
Finally, DeCosta stated that Congress may need to rewrite the 1934 Securities Exchange Act if it is determined that the SEC’s allowance of "counterfeit electronic book entries" undermine the statute.
DeCosta quoted from a recent Dow Jones (DJ) Wall Street Journal article in which SEC Commissioner William Donaldson was asked, "Why did the SEC fail to spot almost every major financial scandal in recent years-from improper fund trading to research analysts’ conflicts of interest to favoritism in doling out coveted shares in initial public offerings?"
The Journal noted that " Earlier this year, SEC staffers and McKinsey and Co. Consultants produced a 270-page catalog of the agency’s weaknesses, commissioned by ex-chairman Harvey Pitt. The report, whose findings haven’t been publicly disclosed, depicts an overly cautious agency hampered by bureaucratic inefficiencies and problems in monitoring a fast-changing industry. Chief among the flaws is a ’reactive’ culture that often fails to identify danger ahead of time, leaving the agency to respond after others expose problems."
Donaldson was quoted as saying he wants examiners to be "more focused in on where the real problems are, as opposed to a checklist approach in playing ’gotcha’ with inspections."
By contrast, FinancialWire recently reported that the "London Stock Exchange has embarrassed the United States Securities and Exchange Commission and the NASD with its tough handling of naked short selling involving Room Service (London: RSV). Unlike the SEC and NASD, which have exacted relatively insignificant ’show fines,’ but in general have left most of those involved in the practice alone, the LSE has simply ordered market makers involved in the scandal to give investors who did not receive shares their money back."
U.S. Securities and Exchange Commission comments for Regulation SHO end today.
The SEC said that comments on Regulation SHO should be sent by hard copy or e-mail, but not by both methods, by January 5. Comments sent by hard copy should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.
Comments also may be submitted electronically at the following E-mail address: rule-comments@sec.gov. All comment letters should refer to File No. S7-23-03. Comments submitted by e-mail should include the file number in the subject line. Comment letters received will be available for public inspection and copying in the Commission’s Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Electronically submitted comment letters will be posted on the Commission’s Internet web site (http://www.sec.gov.
Observers have said that trades to not settle because broker-dealers do not effect buy-ins, as required by law, and that there is an unspoken understanding that any brokerage that tries to force a buy-in will be retaliated against.