Post by sandi66 on Dec 16, 2008 12:17:53 GMT -5
www.stopmarketmanipulation.org/Broadcast.aspx
Luncheon To Discuss The Problem Of Naked Short Selling In The Financial Markets - December 9, 2008
PANELIST BIOGRAPHIES
James J. Angel is Associate Professor of Finance at the McDonough School of Business at Georgetown University. Professor Angel is a financial expert whose research focuses on the operation of financial markets in the United States and other countries. For the year 1999-2000 Professor Angel was the Visiting Academic Fellow at the NASD, where he participated in several studies of The Nasdaq Stock Market, Inc. He currently serves on the OTCBB Advisory Board, and he has served as Chair of the Nasdaq Economic Advisory Board. After graduating from the California Institute of Technology, Dr. Angel began his career as a Rate Engineer at Pacific Gas and Electric Company. Following an MBA from Harvard Business School, he worked developing equity risk models at BARRA, Inc. “Dr. Jim” earned a Ph.D. in finance from the University of California at Berkeley, and then joined the faculty of Georgetown in 1991. Professor Angel has published in numerous prestigious academic journals, including the Journal of Finance and the Journal of Financial Economics. Professor Angel has also served as a consultant to broker-dealers, stock markets, and law firms.
Roel C. Campos is the partner in charge of Cooley Godward Kronish’s Washington, DC office. He is a member of the Litigation Department and joined the firm in 2007. Mr. Campos’ practice consists of advising corporate management teams and boards of directors with respect to enforcement, internal investigations, prosecutions, securities and international regulation, and corporate governance. Mr. Campos is a highly sought after orator and regularly serves as lead speaker for prestigious legal and business conferences around the globe. Mr. Campos was recently named to President-elect Barack Obama’s economic advisory board. He is one of the 17 members of the transition board that met with the President-elect on Nov. 7 in Chicago, and he will continue to be involved in advising Mr. Obama in addressing the U.S. economic situation. Prior to joining Cooley, Mr. Campos was a Commissioner of the Securities and Exchange Commission. He was sworn in as a Commissioner of the SEC on August 22, 2002. On June 2, 2005, he was nominated by President George W. Bush for a second term, and was confirmed by the United States Senate on July 29, 2005. Mr. Campos served for four years as the Commission’s liaison to the international regulatory community. During his time at the SEC, Commissioner Campos became one of the best known regulators in the world. As the Vice Chair of the Technical Committee of the International Organization of Securities Commissioners, he developed productive relationships with securities regulators in Europe, Asia, Australia, and Latin America. Mr. Campos also facilitated the development of international auditing and accounting standards through his work as Chair of the Monitoring Group, which oversees the setting of International Standards of Audit. Mr. Campos earned his J.D. from Harvard Law School in 1979, his M.B.A. from UCLA in 1972, and in 1971 earned his B.S. from the U.S. Air Force Academy.
Jonathan E. Johnson III is the President of Overstock.com, and former General Counsel. Johnson joined Overstock.com in 2002 as the Company's General Counsel and has also served as it Senior Vice President, Corporate Affairs and Legal. Prior to joining Overstock.com, Jonathan was with TenFold Corporation in various positions, including
General Counsel, Executive Vice President and Chief Financial Officer. Before that, Mr. Johnson practiced law in the Los Angeles offices of the New York-based law firm of Milbank, Tweed, Hadley & McCloy and the San Francisco-based law firm of Graham & James. His practice focused on mergers and acquisitions, securities offerings, international transactions and general corporate work. Jonathan was a judicial clerk at the Utah Court of Appeals and the Utah Supreme Court for Justice Leonard H. Russon. Mr. Johnson received a Bachelor's degree in Japanese from Brigham Young University, studied for a year at Osaka University of Foreign Studies in Japan, and received his law degree from the J. Reuben Clark, Jr. Law School at Brigham Young University.
Harvey L. Pitt is the Chief Executive Officer of the global business consulting firm, Kalorama Partners, LLC.
Prior to founding Kalorama Partners, Mr. Pitt was appointed by President George W. Bush to serve as the twenty-sixth Chairman of the United States Securities and Exchange Commission. In that role, from 2001 until 2003, Mr. Pitt was responsible, among other things, for overseeing the SEC’s response to the market disruptions resulting from the terrorist attacks of 9/11, for creating the SEC’s “real time enforcement” program, and for leading the Commission’s adoption of dozens of rules in response to the corporate and accounting crises generated by the excesses of the 1990s.
For nearly a quarter of a century before becoming the Commission’s Chairman, Mr. Pitt was a senior corporate partner in the international law firm, Fried, Frank, Harris, Shriver & Jacobson. He also was a founding trustee and the first President of the SEC Historical Society, and participated in a wide variety of bar and continuing legal education activities to further public consideration of significant corporate and securities law issues. Mr. Pitt has served as an Adjunct Professor of Law at The Yale Law School (2007-2008), Georgetown University Law Center (1975-84), George Washington University Law School (1974-82) and the University of Pennsylvania School of Law (1983-84).
Former Chairman Pitt served previously with the SEC, from 1968 until 1978, including three years as the Commission's General Counsel (1975-78).
Former Chairman Pitt received a J.D. degree from St. John's University School of Law (1968), and his B.A. from the City University of New York (Brooklyn College) (1965). He was awarded an honorary LL.D. by St. John's University School of Law in June 2002, and was given the Brooklyn College President’s Medal of Distinction in 2003.
Alex J. Pollock is a resident fellow at the American Enterprise Institute, focusing on financial policy issues, including government-sponsored enterprises, retirement finance, housing finance, corporate governance, accounting standards, and the issues raised by the Sarbanes-Oxley Act.
Previously Mr. Pollock spent thirty-five years in banking, including twelve years as president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004, while also writing numerous articles on financial systems and management. He is a director of Allied Capital Corporation, the Chicago Mercantile Exchange, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.
Mr. Pollock received a Bachelor's degree from Williams College, a Master’s degree in philosophy from the University of Chicago, and a Master’s in Public Affairs from Princeton University.
Dr. Robert J. Shapiro is the co-founder and chairman of Sonecon, LLC, a private firm that provides advice and analysis on market conditions and economic policy to senior executives and officials of U.S. and foreign businesses, governments and non-profit organizations.
Dr. Shapiro has advised, among others, U.S. President Bill Clinton and British Prime Minister Tony Blair; private firms such as MCI, Inc., New York Life Insurance Co., AT&T, Google, Gilead Sciences, SLM Corporation, Nordstjernan of Sweden, and Fujitsu of Japan; and non-profit organizations including the American Public Transportation Association, the Education Finance Council, and the U.S. Chamber of Commerce.
From 1997 to 2001, Dr. Shapiro was U.S. Under Secretary of Commerce for Economic Affairs. In that position, he directed economic policy for the Commerce Department and oversaw the Nation’s major statistical agencies, including the Census Bureau while it planned and carried out the 2000 decennial census.
He is also a Senior Fellow of the Progressive Policy Institute, a board member of the Ax:son-Johnson Foundation in Sweden and the Center for International Political Economy in New York, a director of NDN's Globalization Initiative.
Dr. Shapiro holds a Ph.D. from Harvard University, a M.Sc. from the London School of Economics and Political Science, and an A.B. from the University of Chicago. He has been a Fellow of Harvard University, the Brookings Institution, and the National Bureau of Economic Research, and is widely published in both scholarly and popular journals.
Rex A. Staples is General Counsel for the North American Securities Administrator’s Association, Inc. (“NASAA”), where he represents the securities administrators in the 50 states, the District of Columbia, Canada, Mexico, Puerto Rico, and the U.S. Virgin Islands.
Prior to joining NASAA, he held the position of Branch Chief, Broker-Dealer / Investment Adviser Enforcement and Examinations at the Washington State Securities Division where he served as lead counsel in the investigation of U.S. Bancorp Piper Jaffray, Inc. and co-lead counsel in the investigation of Citigroup Global Markets in the global research analyst matters. He was also a participant in the development of the structural reforms adopted by the firms.
He has authored and submitted amicus curiae briefs to the United States Supreme Court and to various Courts of Appeals on behalf of NASAA and its members. He is the author of a number of position papers and analyses requested by Congress and domestic and foreign regulatory and law enforcement agencies regarding specific trading and market issues as well as general regulatory structure and policy matters. He is a frequent national lecturer on a variety of regulatory and compliance topics, and internationally on topics specific to Hedge Funds.
John Tabacco, Jr., is the founder and Chief Executive of Locatestock.com, as well as the founder of LendEX. He launched Locatestock in 2005, and after several years of development, Mr. Tabacco launched LendEX in 2008.
Mr. Tabacco is recognized as one of the predominant experts in Securities Lending and is a pioneer in providing electronic securities lending solutions. Mr. Tabacco has been an invited expert by the U.S. House of Representatives Finance and Banking Committees and the Senate Judiciary and Banking Committees in their fact finding examinations of naked short sales and its manipulative effects on the U.S. capital markets. Additionally, Mr. Tabacco is the host of The Daily High 5 Report on WABC Radio, and is also a regular Securities Lending and short sale contributor on CNBC, FOX News and FOX Business News.
Mr. Tabacco received a B.S. degree in finance from St. John’s University (1989).
www.stopmarketmanipulation.org/Documents/2008-12-08%20--%20Biographies%20of%20CAMM%20Luncheon%20Participants.pdf
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9) The Deep Capture Campaign
Jonathan Swift prophesied, “When a true genius appears in the world, you may know him by this sign, that the dunces are all in a confederacy against him.” The question is, Will the US turn into Britain circa 1961? Or are there enough cracks in the system that the dawn can break through? As Dirty Harry put it, “Well to tell you the truth, in all this excitement I’ve kinda lost track myself.”
Carol Remond Tells a Joke She Doesn’t Get
December 15th, 2008 by Patrick Byrne
Before publishing the following piece critiquing Carol Remond’s recent article on Copper River, I contacted Carol for comment. Unlike Joe Nocera and Floyd Norris (both of the New York Times), who have at least had the integrity to defend (however haplessly) their work, Carol refused any on-the-record comment on this subject. Thus she joins that tradition of journalistic worthies which includes Bethany McLean, Herb Greenberg, and Roddy Boyd, who refuse to defend or even discuss errors in their work. They can critique, but not engage, opine, but not defend: the sophomores of intellectual discourse.
Last week DowJones reporter and hedge fund shill extraordinaire Carol Remond wrote a story, “Hedge Fund Copper River to Liquidate“, about the implosion of her hedge fund patron, Copper River (née Rocker Partners). Following a course charted by no lesser luminary than Roddy Boyd (cf. “Roddy Boyd Works It Likes He’s Paying the Rent“), Carol devotes the article to shameless apologetics that would make a congressman blush. Quelle surprise.
I am not a bayonette-the-wounded kind of guy (indeed, to investors in Copper River I send my condolences). But buried within Carol’s article is a critical admission that will be of interest both to readers of DeepCapture.com, and to those investors ill-starred enough to have stayed with Copper River/Rocker Partners through to its ugly and ignominious end. Carol states:
“Copper River held large short positions in some illiquid stocks when the Securities and Exchange Commission tightened the rules governing short selling…. By doing away with an exemption that was the backbone of a trading strategy that allowed funds to short stocks through the options market, the SEC effectively restricted their ability to maintain these positions.”
The strategy that was curtailed by the SEC’s decision to do away with the “exemption” that existed in the options market was the strategy of naked shorting via rolling failed positions through the options market maker exception to Regulation SHO. Ms. Remond appears not to understand the SEC’s view of this strategy. A fine paper by noted young economist John Welborn fleshed this out over a year ago (”Married Puts, Reverse Conversions and Abuse of the Options Market Maker Exception on the Chicago Stock Exchange”) . In it, he explained the requirement to locate stock, the exception to that requirement which Reg SHO makes for market makers, and the SEC’s view of the misuse of that exception. I will quote from John’s paper at length:
“THE OPTIONS MARKET MAKER EXCEPTION
“An FTD is commonly the result of a naked short sale (or a naked long sale) that does not settle, i.e. the shares sold short (or long) are never delivered to the buyer. In general, naked shorting is illegal. As the SEC’s Chairman Chris Cox said on July 12, 2006, “Selling short without having stock available for delivery, and intentionally failing to deliver stock within the standard three-day settlement period, is market manipulation that is clearly violative of the federal securities laws.”1 There are, however, a few of mechanisms through which naked short sales can be legally executed. One such mechanism is the “options market maker exception.”
“Current SEC rules state that a short seller, acting via a broker-dealer, need only ‘locate’ (as opposed to borrow) the stock prior to a short sale. Regulation SHO requires:
‘…A broker-dealer, prior to effecting a short sale in any equity security, to “locate” securities available for borrowing… Specifically, the rule prohibits a broker-dealer from accepting a short sale order in any equity security from another person, or effecting a short sale order for the broker-dealer’s own account unless the broker-dealer has (1) borrowed the security, or entered into an arrangement to borrow the security, or (2) has reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due. The locate must be made and documented prior to effecting a short sale, regardless of whether the seller’s short position may be closed out by purchasing securities the same day.’2 (Emphasis added.)
“In theory, stock markets are made more efficient by intermediaries who ‘make markets’ in order to smooth price and volume fluctuations.3 A market maker acts as a temporary counterparty that poses as buyer or seller in order to facilitate market liquidity. Ideally, market makers’ positions last minutes or hours; generally, positions are closed out at the end of each day. Large prime brokers make markets in both equities and options. Some broker-dealers, like Goldman Sachs and Merrill Lynch, clear and execute trades for options market makers…
“In the process of making markets, which requires hedging positions, market makers theoretically may need to sell stock they temporarily do not have. For this reason, Regulation SHO allowed market makers, ‘…[an] exception from the uniform “locate” requirement, as Rule 203(b)(2)(iii), for short sales executed by market makers, as defined in Section 3(a)(38) of the Exchange Act, including specialists and options market makers, but only in connection with bonafide market making activities (emphasis added).’4 Note that:
‘Bona-fide market making does not include activity that is related to speculative selling strategies or investment purposes of the broker-dealer and is disproportionate to the usual market making patterns or practices of the broker-dealer in that security. In addition, where a market maker posts continually at or near the best offer, but does not also post at or near the best bid, the market maker’s activities would not generally qualify as bona-fide market making for purposes of the exception. Further, bona-fide market making does not include transactions whereby a market maker enters into an arrangement with another broker-dealer or customer in an attempt to use the market maker’s exception for the purpose of avoiding compliance with Rule 203(b)(1) by the other broker-dealer or customer. 5 (Emphasis added.)’
“1 Christopher Cox, Chairman, SEC, “Opening Statements at the Commission Open Meeting,” July 12, 2006.
“2 SEC, Final Rule: Short Sales, Release No. 34-50103, Rule 203 - “Locate and Delivery Requirements for Short Sales,” July 28, 2004.
“3 Some view the market maker as an anachronism left over from the days when stock traded in 1/8th increments and paper certificates actually changed hands. Now, in the electronic age, stock trades in decimals and paper stock has been separated from the electronic claims of ownership on that stock (a process known as “dematerialization”).
“4 SEC Rule 203.
“5 Ibid, Section 1b, “Exceptions from the Locate Requirement: Bona-fide Market Making.”
Thus, Carol is explicitly stating, no doubt unwittingly, that the “backbone of a trading strategy” employed by David Rocker and Rocker Partners/Copper River was, in fact, unlawful abuse of an exception which the SEC has specifically deemed out-of-bounds.
Sloppy work, Carol: recommend you send for new instructions.
Posted in 9) The Deep Capture Campaign |
13 Responses
Inept
Says:
December 15th, 2008 at 3:01 pm
No worries…SEC doesn’t seriously prosecute anyone for market manipulation, even when there is abundant evidence such as the trail Copper River has undoubtedly left behind.
Now if only Christopher Cox were subject to prosecution…
clearthinker
Says:
December 15th, 2008 at 3:06 pm
You know, I think the debate over the SEC’s incompetence re: Maddof is entertaining, but what I want to know is:
WEHERE IS THE MONEY….
If it’s no longer in the USA, let’s go get it…NOW
How can Maddof be free on bail for something of this magnitude UNLESS, he cut a deal…and IF he cut one, should not he have had to TELL where the MONEY IS???
Enough games….Where The F is the money???
solomon740
Says:
December 15th, 2008 at 3:08 pm
Apparently illegal trading strategies are of no interest to the SEC. Just like Madoff’s violation of trading rules in 2006 that were identified but not pursued by the SEC for whatever reason.
I suggest we all contact oig@sec.gov to complain about lax enforcement of securities laws. The SEC Inspector General needs to do something.
Karma
Says:
December 15th, 2008 at 3:27 pm
This idea has been floated a few times. If implemented on mass, I think it would bring the system to its knees and bankrupt the bad guys.
1. Investor group acquires an extremely profitable private company.
2. Investor group buys 100% of the outstanding shares of a heavily shorted issuer. It doesn’t matter if the business was a scam or not. What you are looking for is a shell where there are lots of unsettled fails. A CMKX type company would be perfect. It could be a delisted company - just get it to qualify with the new business and relist it, but don’t roll it back. All those fails and obligations for the fails are still outstanding. They don’t go away just because it was delisted. As long as the company isn’t delinquent with the state, it can be relisted.
3. Issue one share to purchase the private company. It doesn’t matter how many shares you issue as you own 100% of the shell and 100% of the private company.
4. Start paying cash dividends. The counterfeiters have to match every dividend, dolllar for dollar. Let’s say the fails were hundred times the outstanding because it was cellar boxed at .001.
Then for every dollar the company pays out in dividend, the counterfeiters have to pay out $100. It becomes a cash machine. The stock would likely rise as they desperately try to cover, but don’t sell them any real shares. They can’t get out of the position and have no choice to keep paying the $100 until they go bankrupt.
The money they are paying out goes out to the people that they gave IOU’s to, not the investor group, so there is no issue with manipulation. It’s only karma to make them pay dividends to the people they owe real shares to. In reality, the investors group might only be able to buy 99% to stay compliant with rules about floats, etc., but the basic idea is the same.
Rinse and repeat with other shells and other private companies.
Sam
Says:
December 15th, 2008 at 3:35 pm
No surprise. What would you have expected Charlie McCarthy to have said about Edgar Bergen’s hedge fund going under?
Only difference here was I don’t think Copper River’s manipulative hand was up this puppet’s back. Think it was about a foot lower.
MightyUnderdog
Says:
December 15th, 2008 at 3:47 pm
A little off topic, but I believe you got some dap on CNBC today in regards to the Aguirre case, Dr. Byrne. No names were mentioned, but plenty of innuendo, on that bastion of journalistic integrity.
kevin
Says:
December 15th, 2008 at 4:15 pm
I don’t understand, for the life of me how $2.29 trillion out of $10.3 trillion in government debt can fail to deliver. How can I buy what I think is super safe, AAA debt, even taking a negative interest rate and receive an IOU instead?
Why don’t these guys get arrested for counterfeiting? Has anyone contacted the secret service?
www.investmentnews.com/apps/pbcs.dll/article?AID=/20081019/REG/310209975
The credit crisis is causing a growing number of delivery failures with Treasury securities.
The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).
The outstanding U.S. public debt is $10.3 trillion.
“Current [fail] levels are at historic levels,” said Rob Toomey, managing director of the Securities Industry and Financial Markets Association’s funding and government and agency securities divisions. “There’s been significant flight to quality” with the market turmoil, he said.
With the strong demand for Treasury securities, “some of the entities that bought Treasuries are not making them available in the [repurchase] market, which is the traditional way to get them,” Mr. Toomey said.
Unlike some past bouts with high failure rates that involved particular bond issues, the current high fails involve all types of maturities, he said.
This month, New York- and Washington-based SIFMA came out with a set of best practices to reduce failed deliveries.
This year, the New York Fed revised its own Treasury market trading guidelines. Its guidelines, originally released last year, warned that short-sellers “should make deliveries in good faith.”
THE WHISTLEBLOWER
Says:
December 15th, 2008 at 4:55 pm
Is Madoff a whistleblower?
John Allen
Says:
December 15th, 2008 at 5:11 pm
I don’t even think you can call whatever it is that they do “intellectual discourse”.
Herb
Says:
December 15th, 2008 at 7:20 pm
Kevin, it’s absurd and evokes images of brokers taking fake t bills in exchange for fake shares. What this country really needs is a new $10,000 note, which is what the Franklin would be worth if it had kept up with inflation. A 5 cent soda counter luncheon (burger, fries, ‘coke’) yesterday cost me $6 at some place called McDonald’s.
yt,
Herb Wells
Sean
Says:
December 15th, 2008 at 7:22 pm
Cramer Does Patrick. Too, too funny…………..
www.cnbc.com/id/15840232?video=966337239&play=1
From Investorsvillage!! You’ve got to see this.
tommytoyz
Says:
December 15th, 2008 at 7:56 pm
Let’s be clear about REG SHO having a loophole that allows naked short selling:
1. It is a true statement, REG SHO does authorize naked short selling. However,
2. Only within the settlement cycle, which is generally inside 3 days.
Fails outside the settlement cycle (rule 15c6-1) are not authorized by anything in REG SHO by anyone and thus all fails are illegal.
So we should be clear as a bell and differentiate between
1. Legal naked short selling, withing the settlement cycle
2. Illegal naked short selling, outside and beyond the settlement cycle
3. Fails to Deliver, always illegal
buzz kill
Says:
December 15th, 2008 at 8:35 pm
If you’re going to steal, steal a lot.
www.deepcapture.com/carol-remond-tells-a-joke-about-copper-river-that-she-doesnt-get/
Luncheon To Discuss The Problem Of Naked Short Selling In The Financial Markets - December 9, 2008
PANELIST BIOGRAPHIES
James J. Angel is Associate Professor of Finance at the McDonough School of Business at Georgetown University. Professor Angel is a financial expert whose research focuses on the operation of financial markets in the United States and other countries. For the year 1999-2000 Professor Angel was the Visiting Academic Fellow at the NASD, where he participated in several studies of The Nasdaq Stock Market, Inc. He currently serves on the OTCBB Advisory Board, and he has served as Chair of the Nasdaq Economic Advisory Board. After graduating from the California Institute of Technology, Dr. Angel began his career as a Rate Engineer at Pacific Gas and Electric Company. Following an MBA from Harvard Business School, he worked developing equity risk models at BARRA, Inc. “Dr. Jim” earned a Ph.D. in finance from the University of California at Berkeley, and then joined the faculty of Georgetown in 1991. Professor Angel has published in numerous prestigious academic journals, including the Journal of Finance and the Journal of Financial Economics. Professor Angel has also served as a consultant to broker-dealers, stock markets, and law firms.
Roel C. Campos is the partner in charge of Cooley Godward Kronish’s Washington, DC office. He is a member of the Litigation Department and joined the firm in 2007. Mr. Campos’ practice consists of advising corporate management teams and boards of directors with respect to enforcement, internal investigations, prosecutions, securities and international regulation, and corporate governance. Mr. Campos is a highly sought after orator and regularly serves as lead speaker for prestigious legal and business conferences around the globe. Mr. Campos was recently named to President-elect Barack Obama’s economic advisory board. He is one of the 17 members of the transition board that met with the President-elect on Nov. 7 in Chicago, and he will continue to be involved in advising Mr. Obama in addressing the U.S. economic situation. Prior to joining Cooley, Mr. Campos was a Commissioner of the Securities and Exchange Commission. He was sworn in as a Commissioner of the SEC on August 22, 2002. On June 2, 2005, he was nominated by President George W. Bush for a second term, and was confirmed by the United States Senate on July 29, 2005. Mr. Campos served for four years as the Commission’s liaison to the international regulatory community. During his time at the SEC, Commissioner Campos became one of the best known regulators in the world. As the Vice Chair of the Technical Committee of the International Organization of Securities Commissioners, he developed productive relationships with securities regulators in Europe, Asia, Australia, and Latin America. Mr. Campos also facilitated the development of international auditing and accounting standards through his work as Chair of the Monitoring Group, which oversees the setting of International Standards of Audit. Mr. Campos earned his J.D. from Harvard Law School in 1979, his M.B.A. from UCLA in 1972, and in 1971 earned his B.S. from the U.S. Air Force Academy.
Jonathan E. Johnson III is the President of Overstock.com, and former General Counsel. Johnson joined Overstock.com in 2002 as the Company's General Counsel and has also served as it Senior Vice President, Corporate Affairs and Legal. Prior to joining Overstock.com, Jonathan was with TenFold Corporation in various positions, including
General Counsel, Executive Vice President and Chief Financial Officer. Before that, Mr. Johnson practiced law in the Los Angeles offices of the New York-based law firm of Milbank, Tweed, Hadley & McCloy and the San Francisco-based law firm of Graham & James. His practice focused on mergers and acquisitions, securities offerings, international transactions and general corporate work. Jonathan was a judicial clerk at the Utah Court of Appeals and the Utah Supreme Court for Justice Leonard H. Russon. Mr. Johnson received a Bachelor's degree in Japanese from Brigham Young University, studied for a year at Osaka University of Foreign Studies in Japan, and received his law degree from the J. Reuben Clark, Jr. Law School at Brigham Young University.
Harvey L. Pitt is the Chief Executive Officer of the global business consulting firm, Kalorama Partners, LLC.
Prior to founding Kalorama Partners, Mr. Pitt was appointed by President George W. Bush to serve as the twenty-sixth Chairman of the United States Securities and Exchange Commission. In that role, from 2001 until 2003, Mr. Pitt was responsible, among other things, for overseeing the SEC’s response to the market disruptions resulting from the terrorist attacks of 9/11, for creating the SEC’s “real time enforcement” program, and for leading the Commission’s adoption of dozens of rules in response to the corporate and accounting crises generated by the excesses of the 1990s.
For nearly a quarter of a century before becoming the Commission’s Chairman, Mr. Pitt was a senior corporate partner in the international law firm, Fried, Frank, Harris, Shriver & Jacobson. He also was a founding trustee and the first President of the SEC Historical Society, and participated in a wide variety of bar and continuing legal education activities to further public consideration of significant corporate and securities law issues. Mr. Pitt has served as an Adjunct Professor of Law at The Yale Law School (2007-2008), Georgetown University Law Center (1975-84), George Washington University Law School (1974-82) and the University of Pennsylvania School of Law (1983-84).
Former Chairman Pitt served previously with the SEC, from 1968 until 1978, including three years as the Commission's General Counsel (1975-78).
Former Chairman Pitt received a J.D. degree from St. John's University School of Law (1968), and his B.A. from the City University of New York (Brooklyn College) (1965). He was awarded an honorary LL.D. by St. John's University School of Law in June 2002, and was given the Brooklyn College President’s Medal of Distinction in 2003.
Alex J. Pollock is a resident fellow at the American Enterprise Institute, focusing on financial policy issues, including government-sponsored enterprises, retirement finance, housing finance, corporate governance, accounting standards, and the issues raised by the Sarbanes-Oxley Act.
Previously Mr. Pollock spent thirty-five years in banking, including twelve years as president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004, while also writing numerous articles on financial systems and management. He is a director of Allied Capital Corporation, the Chicago Mercantile Exchange, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.
Mr. Pollock received a Bachelor's degree from Williams College, a Master’s degree in philosophy from the University of Chicago, and a Master’s in Public Affairs from Princeton University.
Dr. Robert J. Shapiro is the co-founder and chairman of Sonecon, LLC, a private firm that provides advice and analysis on market conditions and economic policy to senior executives and officials of U.S. and foreign businesses, governments and non-profit organizations.
Dr. Shapiro has advised, among others, U.S. President Bill Clinton and British Prime Minister Tony Blair; private firms such as MCI, Inc., New York Life Insurance Co., AT&T, Google, Gilead Sciences, SLM Corporation, Nordstjernan of Sweden, and Fujitsu of Japan; and non-profit organizations including the American Public Transportation Association, the Education Finance Council, and the U.S. Chamber of Commerce.
From 1997 to 2001, Dr. Shapiro was U.S. Under Secretary of Commerce for Economic Affairs. In that position, he directed economic policy for the Commerce Department and oversaw the Nation’s major statistical agencies, including the Census Bureau while it planned and carried out the 2000 decennial census.
He is also a Senior Fellow of the Progressive Policy Institute, a board member of the Ax:son-Johnson Foundation in Sweden and the Center for International Political Economy in New York, a director of NDN's Globalization Initiative.
Dr. Shapiro holds a Ph.D. from Harvard University, a M.Sc. from the London School of Economics and Political Science, and an A.B. from the University of Chicago. He has been a Fellow of Harvard University, the Brookings Institution, and the National Bureau of Economic Research, and is widely published in both scholarly and popular journals.
Rex A. Staples is General Counsel for the North American Securities Administrator’s Association, Inc. (“NASAA”), where he represents the securities administrators in the 50 states, the District of Columbia, Canada, Mexico, Puerto Rico, and the U.S. Virgin Islands.
Prior to joining NASAA, he held the position of Branch Chief, Broker-Dealer / Investment Adviser Enforcement and Examinations at the Washington State Securities Division where he served as lead counsel in the investigation of U.S. Bancorp Piper Jaffray, Inc. and co-lead counsel in the investigation of Citigroup Global Markets in the global research analyst matters. He was also a participant in the development of the structural reforms adopted by the firms.
He has authored and submitted amicus curiae briefs to the United States Supreme Court and to various Courts of Appeals on behalf of NASAA and its members. He is the author of a number of position papers and analyses requested by Congress and domestic and foreign regulatory and law enforcement agencies regarding specific trading and market issues as well as general regulatory structure and policy matters. He is a frequent national lecturer on a variety of regulatory and compliance topics, and internationally on topics specific to Hedge Funds.
John Tabacco, Jr., is the founder and Chief Executive of Locatestock.com, as well as the founder of LendEX. He launched Locatestock in 2005, and after several years of development, Mr. Tabacco launched LendEX in 2008.
Mr. Tabacco is recognized as one of the predominant experts in Securities Lending and is a pioneer in providing electronic securities lending solutions. Mr. Tabacco has been an invited expert by the U.S. House of Representatives Finance and Banking Committees and the Senate Judiciary and Banking Committees in their fact finding examinations of naked short sales and its manipulative effects on the U.S. capital markets. Additionally, Mr. Tabacco is the host of The Daily High 5 Report on WABC Radio, and is also a regular Securities Lending and short sale contributor on CNBC, FOX News and FOX Business News.
Mr. Tabacco received a B.S. degree in finance from St. John’s University (1989).
www.stopmarketmanipulation.org/Documents/2008-12-08%20--%20Biographies%20of%20CAMM%20Luncheon%20Participants.pdf
-----------------------------
9) The Deep Capture Campaign
Jonathan Swift prophesied, “When a true genius appears in the world, you may know him by this sign, that the dunces are all in a confederacy against him.” The question is, Will the US turn into Britain circa 1961? Or are there enough cracks in the system that the dawn can break through? As Dirty Harry put it, “Well to tell you the truth, in all this excitement I’ve kinda lost track myself.”
Carol Remond Tells a Joke She Doesn’t Get
December 15th, 2008 by Patrick Byrne
Before publishing the following piece critiquing Carol Remond’s recent article on Copper River, I contacted Carol for comment. Unlike Joe Nocera and Floyd Norris (both of the New York Times), who have at least had the integrity to defend (however haplessly) their work, Carol refused any on-the-record comment on this subject. Thus she joins that tradition of journalistic worthies which includes Bethany McLean, Herb Greenberg, and Roddy Boyd, who refuse to defend or even discuss errors in their work. They can critique, but not engage, opine, but not defend: the sophomores of intellectual discourse.
Last week DowJones reporter and hedge fund shill extraordinaire Carol Remond wrote a story, “Hedge Fund Copper River to Liquidate“, about the implosion of her hedge fund patron, Copper River (née Rocker Partners). Following a course charted by no lesser luminary than Roddy Boyd (cf. “Roddy Boyd Works It Likes He’s Paying the Rent“), Carol devotes the article to shameless apologetics that would make a congressman blush. Quelle surprise.
I am not a bayonette-the-wounded kind of guy (indeed, to investors in Copper River I send my condolences). But buried within Carol’s article is a critical admission that will be of interest both to readers of DeepCapture.com, and to those investors ill-starred enough to have stayed with Copper River/Rocker Partners through to its ugly and ignominious end. Carol states:
“Copper River held large short positions in some illiquid stocks when the Securities and Exchange Commission tightened the rules governing short selling…. By doing away with an exemption that was the backbone of a trading strategy that allowed funds to short stocks through the options market, the SEC effectively restricted their ability to maintain these positions.”
The strategy that was curtailed by the SEC’s decision to do away with the “exemption” that existed in the options market was the strategy of naked shorting via rolling failed positions through the options market maker exception to Regulation SHO. Ms. Remond appears not to understand the SEC’s view of this strategy. A fine paper by noted young economist John Welborn fleshed this out over a year ago (”Married Puts, Reverse Conversions and Abuse of the Options Market Maker Exception on the Chicago Stock Exchange”) . In it, he explained the requirement to locate stock, the exception to that requirement which Reg SHO makes for market makers, and the SEC’s view of the misuse of that exception. I will quote from John’s paper at length:
“THE OPTIONS MARKET MAKER EXCEPTION
“An FTD is commonly the result of a naked short sale (or a naked long sale) that does not settle, i.e. the shares sold short (or long) are never delivered to the buyer. In general, naked shorting is illegal. As the SEC’s Chairman Chris Cox said on July 12, 2006, “Selling short without having stock available for delivery, and intentionally failing to deliver stock within the standard three-day settlement period, is market manipulation that is clearly violative of the federal securities laws.”1 There are, however, a few of mechanisms through which naked short sales can be legally executed. One such mechanism is the “options market maker exception.”
“Current SEC rules state that a short seller, acting via a broker-dealer, need only ‘locate’ (as opposed to borrow) the stock prior to a short sale. Regulation SHO requires:
‘…A broker-dealer, prior to effecting a short sale in any equity security, to “locate” securities available for borrowing… Specifically, the rule prohibits a broker-dealer from accepting a short sale order in any equity security from another person, or effecting a short sale order for the broker-dealer’s own account unless the broker-dealer has (1) borrowed the security, or entered into an arrangement to borrow the security, or (2) has reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due. The locate must be made and documented prior to effecting a short sale, regardless of whether the seller’s short position may be closed out by purchasing securities the same day.’2 (Emphasis added.)
“In theory, stock markets are made more efficient by intermediaries who ‘make markets’ in order to smooth price and volume fluctuations.3 A market maker acts as a temporary counterparty that poses as buyer or seller in order to facilitate market liquidity. Ideally, market makers’ positions last minutes or hours; generally, positions are closed out at the end of each day. Large prime brokers make markets in both equities and options. Some broker-dealers, like Goldman Sachs and Merrill Lynch, clear and execute trades for options market makers…
“In the process of making markets, which requires hedging positions, market makers theoretically may need to sell stock they temporarily do not have. For this reason, Regulation SHO allowed market makers, ‘…[an] exception from the uniform “locate” requirement, as Rule 203(b)(2)(iii), for short sales executed by market makers, as defined in Section 3(a)(38) of the Exchange Act, including specialists and options market makers, but only in connection with bonafide market making activities (emphasis added).’4 Note that:
‘Bona-fide market making does not include activity that is related to speculative selling strategies or investment purposes of the broker-dealer and is disproportionate to the usual market making patterns or practices of the broker-dealer in that security. In addition, where a market maker posts continually at or near the best offer, but does not also post at or near the best bid, the market maker’s activities would not generally qualify as bona-fide market making for purposes of the exception. Further, bona-fide market making does not include transactions whereby a market maker enters into an arrangement with another broker-dealer or customer in an attempt to use the market maker’s exception for the purpose of avoiding compliance with Rule 203(b)(1) by the other broker-dealer or customer. 5 (Emphasis added.)’
“1 Christopher Cox, Chairman, SEC, “Opening Statements at the Commission Open Meeting,” July 12, 2006.
“2 SEC, Final Rule: Short Sales, Release No. 34-50103, Rule 203 - “Locate and Delivery Requirements for Short Sales,” July 28, 2004.
“3 Some view the market maker as an anachronism left over from the days when stock traded in 1/8th increments and paper certificates actually changed hands. Now, in the electronic age, stock trades in decimals and paper stock has been separated from the electronic claims of ownership on that stock (a process known as “dematerialization”).
“4 SEC Rule 203.
“5 Ibid, Section 1b, “Exceptions from the Locate Requirement: Bona-fide Market Making.”
Thus, Carol is explicitly stating, no doubt unwittingly, that the “backbone of a trading strategy” employed by David Rocker and Rocker Partners/Copper River was, in fact, unlawful abuse of an exception which the SEC has specifically deemed out-of-bounds.
Sloppy work, Carol: recommend you send for new instructions.
Posted in 9) The Deep Capture Campaign |
13 Responses
Inept
Says:
December 15th, 2008 at 3:01 pm
No worries…SEC doesn’t seriously prosecute anyone for market manipulation, even when there is abundant evidence such as the trail Copper River has undoubtedly left behind.
Now if only Christopher Cox were subject to prosecution…
clearthinker
Says:
December 15th, 2008 at 3:06 pm
You know, I think the debate over the SEC’s incompetence re: Maddof is entertaining, but what I want to know is:
WEHERE IS THE MONEY….
If it’s no longer in the USA, let’s go get it…NOW
How can Maddof be free on bail for something of this magnitude UNLESS, he cut a deal…and IF he cut one, should not he have had to TELL where the MONEY IS???
Enough games….Where The F is the money???
solomon740
Says:
December 15th, 2008 at 3:08 pm
Apparently illegal trading strategies are of no interest to the SEC. Just like Madoff’s violation of trading rules in 2006 that were identified but not pursued by the SEC for whatever reason.
I suggest we all contact oig@sec.gov to complain about lax enforcement of securities laws. The SEC Inspector General needs to do something.
Karma
Says:
December 15th, 2008 at 3:27 pm
This idea has been floated a few times. If implemented on mass, I think it would bring the system to its knees and bankrupt the bad guys.
1. Investor group acquires an extremely profitable private company.
2. Investor group buys 100% of the outstanding shares of a heavily shorted issuer. It doesn’t matter if the business was a scam or not. What you are looking for is a shell where there are lots of unsettled fails. A CMKX type company would be perfect. It could be a delisted company - just get it to qualify with the new business and relist it, but don’t roll it back. All those fails and obligations for the fails are still outstanding. They don’t go away just because it was delisted. As long as the company isn’t delinquent with the state, it can be relisted.
3. Issue one share to purchase the private company. It doesn’t matter how many shares you issue as you own 100% of the shell and 100% of the private company.
4. Start paying cash dividends. The counterfeiters have to match every dividend, dolllar for dollar. Let’s say the fails were hundred times the outstanding because it was cellar boxed at .001.
Then for every dollar the company pays out in dividend, the counterfeiters have to pay out $100. It becomes a cash machine. The stock would likely rise as they desperately try to cover, but don’t sell them any real shares. They can’t get out of the position and have no choice to keep paying the $100 until they go bankrupt.
The money they are paying out goes out to the people that they gave IOU’s to, not the investor group, so there is no issue with manipulation. It’s only karma to make them pay dividends to the people they owe real shares to. In reality, the investors group might only be able to buy 99% to stay compliant with rules about floats, etc., but the basic idea is the same.
Rinse and repeat with other shells and other private companies.
Sam
Says:
December 15th, 2008 at 3:35 pm
No surprise. What would you have expected Charlie McCarthy to have said about Edgar Bergen’s hedge fund going under?
Only difference here was I don’t think Copper River’s manipulative hand was up this puppet’s back. Think it was about a foot lower.
MightyUnderdog
Says:
December 15th, 2008 at 3:47 pm
A little off topic, but I believe you got some dap on CNBC today in regards to the Aguirre case, Dr. Byrne. No names were mentioned, but plenty of innuendo, on that bastion of journalistic integrity.
kevin
Says:
December 15th, 2008 at 4:15 pm
I don’t understand, for the life of me how $2.29 trillion out of $10.3 trillion in government debt can fail to deliver. How can I buy what I think is super safe, AAA debt, even taking a negative interest rate and receive an IOU instead?
Why don’t these guys get arrested for counterfeiting? Has anyone contacted the secret service?
www.investmentnews.com/apps/pbcs.dll/article?AID=/20081019/REG/310209975
The credit crisis is causing a growing number of delivery failures with Treasury securities.
The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).
The outstanding U.S. public debt is $10.3 trillion.
“Current [fail] levels are at historic levels,” said Rob Toomey, managing director of the Securities Industry and Financial Markets Association’s funding and government and agency securities divisions. “There’s been significant flight to quality” with the market turmoil, he said.
With the strong demand for Treasury securities, “some of the entities that bought Treasuries are not making them available in the [repurchase] market, which is the traditional way to get them,” Mr. Toomey said.
Unlike some past bouts with high failure rates that involved particular bond issues, the current high fails involve all types of maturities, he said.
This month, New York- and Washington-based SIFMA came out with a set of best practices to reduce failed deliveries.
This year, the New York Fed revised its own Treasury market trading guidelines. Its guidelines, originally released last year, warned that short-sellers “should make deliveries in good faith.”
THE WHISTLEBLOWER
Says:
December 15th, 2008 at 4:55 pm
Is Madoff a whistleblower?
John Allen
Says:
December 15th, 2008 at 5:11 pm
I don’t even think you can call whatever it is that they do “intellectual discourse”.
Herb
Says:
December 15th, 2008 at 7:20 pm
Kevin, it’s absurd and evokes images of brokers taking fake t bills in exchange for fake shares. What this country really needs is a new $10,000 note, which is what the Franklin would be worth if it had kept up with inflation. A 5 cent soda counter luncheon (burger, fries, ‘coke’) yesterday cost me $6 at some place called McDonald’s.
yt,
Herb Wells
Sean
Says:
December 15th, 2008 at 7:22 pm
Cramer Does Patrick. Too, too funny…………..
www.cnbc.com/id/15840232?video=966337239&play=1
From Investorsvillage!! You’ve got to see this.
tommytoyz
Says:
December 15th, 2008 at 7:56 pm
Let’s be clear about REG SHO having a loophole that allows naked short selling:
1. It is a true statement, REG SHO does authorize naked short selling. However,
2. Only within the settlement cycle, which is generally inside 3 days.
Fails outside the settlement cycle (rule 15c6-1) are not authorized by anything in REG SHO by anyone and thus all fails are illegal.
So we should be clear as a bell and differentiate between
1. Legal naked short selling, withing the settlement cycle
2. Illegal naked short selling, outside and beyond the settlement cycle
3. Fails to Deliver, always illegal
buzz kill
Says:
December 15th, 2008 at 8:35 pm
If you’re going to steal, steal a lot.
www.deepcapture.com/carol-remond-tells-a-joke-about-copper-river-that-she-doesnt-get/