BREAKING NEWS: Naked Short Sellers Run Wild on Wall Street
Naked Short Sellers Run Wild on Wall Street. Financial regulators like FINRA’s Jeffrey Bloom are protecting the American public, right? Bullshit. Regulators like Bloom are part of the problem, and the problem starts with naked short sellers. These are traders who create boatloads of fictitious shares in victim companies and then dump them on the market as if they were real. Because this floods the market with a supply of shares, a sharp decline in the real market value of the stock results. Price is a result of supply and demand, and naked short sellers are essentially printing tons of money that doesn’t really exist.
How could they get away with something like this? They have the assistance from government regulators who should be protecting American companies and investors, but who have largely allowed this recurrent behavior to go unchecked.
Even though “naked” short selling is against the law, no one seems to really do anything about it. The SEC and Depository Trust & Clearing Corporation (DTCC) are tasked with catching these guys, though seem to only have done so effectively on one recent occasion. Clearing firms, e.g., Merrill Lynch, Goldman Sachs, JP Morgan, Citibank, et al, are supposed to comply with these laws, but of course they don’t, and when these “worthies” condone or participate in this kind of supposedly illegal transaction, it is easy for ruthless gangster traders to make millions of dollars at the expense of the investor victims’ stock value.
COVERED SHORT SELLING IS LEGAL, THIEVES DO IT NAKED
The Legal (“Clothed”) Short Sale — An investor sells shares which he does not own and delivers borrowed shares three days later. To close out the transaction, the investor later buys shares in the market and delivers them to the stock lender.
The Illegal (“Naked”) Short Sale — A malicious profiteer sells an unlimited number of shares which he does not own, and that do not validly exist. He does not bother to borrow or deliver any shares at all to the buying broker. This creates something called a “fail” or “fail to deliver” at the buying broker. What allows the “fail” to spiral out of control is that the buying broker unlawfully fails to buy in the missing shares and lets the “fail” continue indefinitely.
The naked short seller, with cooperation from the buying clearing broker, DTCC and the SEC, can actually sell more shares than even exist! As per the law of supply and demand, this obliterates the price of the company’s stock and viciously destroys the bank accounts of honest investors.
JON CARNES USES NAKED SHORTS TO DESTROY A COMPANY; SEC AND FINRA SWOON
The famed naked short-seller and conman “Fatty Boy” Jon Carnes led a naked short-sale attack against Deer Consumer Products [Nasdaq: DEER] on March 21, 2011 when the volume exploded from an average of 300,000 shares to 4,016,400! The share price plunged from $11 to $0.05 (-99.55%), exacerbated by false accusations supplied by Carnes and his cronies to the Nasdaq Stock Market and the SEC. Investors lost $367,740,000 in-market value! How could any one man’s actions be so effective? Easy: Carnes had the mainstream media and regulators under his spell.
REGULATORS AND MEDIA COLLUDE IN THE NUDE
Deer Consumer Products was not the only company who was targeted, however. Short-seller attacks on Overstock.com led to a multitude of lawsuits, allegations that Goldman Sachs and Merrill Lynch had unlawfully participated in naked short selling and the creation of Deepcapture.com, founded by Overstock’s CEO Patrick Byrne. Deep Capture is an investigative journalism site focused on unmasking and embarrassing perpetrators of naked short-selling skullduggery.
Deepcapture.com presents a compelling argument that there is collusion among short sellers, market makers, analysts, clearing agents/stock loan, media network talking heads, business writers, etc., whose concerted efforts are meant to target companies for a systematic destruction of its public equity.
For years, so-called financial writers, hedge-fund goons and SEC staff members, have scoffed at Deep Capture’s allegations and heaped scorn on Mr. Byrne, claiming that naked short selling does not exist.
NAKED SHORT SELLERS HAVE BEEN RUNNING WILD
Recently, strong evidence has surfaced indicating that naked short selling may be a widespread and normal practice, unchecked by regulators or clearing firms. A CEO letter to shareholders of TNI BioTech quotes an e-mail from the head of clearing of a major brokerage firm. This clearing executive complained that it would not be possible to deliver shares even with a month’s notice. In bland, complacent tones, the e-mail confirms the normal practice of long-term serial “fails,” permitting other clearing firms to violate the SEC rule that shares must be delivered with three days after a trade, thus facilitating naked short selling.
The e-mail to the holders of TNI Biotech stated in no uncertain terms that a major issue exists with respect to naked short selling, and its effect on confidence in the markets. The e-mail asked: “If a DTCC Participant presents to your transfer agent a list for an amount of shares that exceeds their DTCC record date position, what will you do? If for example, the transfer agent goes back to the DTCC Participant and asks where are the remaining shares, the DTCC Participant’s likely response will be they are owed to them by another DTCC Participant who has failed to deliver by the record date. Therefore, the client bought the shares for settlement through the record date and is a legitimate and rightful record date holder, but the client’s broker-dealer or custodian does not have the shares in their DTCC account because the Seller of the shares have failed to make delivery by record date. Fails are [a] common occurrence in our industry …”
Frighteningly, the e-mail continued to state that “… it may be very problematic to say who has the shares in their DTCC account because the shares are owed to them by let’s say Merrill Lynch, Merrill may be owed the shares by UBS who are owed the shares by JP Morgan and so on and so on. You don’t know how far down the rabbit hole goes.” Essentially, it is impossible to determine who actually possesses the millions of dollars in shares being traded. Down the rabbit hole indeed.
What the investing public thus has on its hands is a grotesque system by which a single ruthless con man like “Fatty Boy” Jon Carnes can utterly destroy millions upon millions of dollars in company equity!
The regulators and the media are in bed with the big investment banks, and the media is in the pocket of the goons who continue to use naked short selling to perpetrate the greatest fraud of our time. Regulators spend the majority of their time strangling little fish while letting the major players get away with corporate murder.
Or does this all make sense? The top brass at the investment banks and regulatory office are constantly switching sides through a very well lubricated revolving door. The public should be asking whose side they are really on and demanding greater enforcement action against banks and conmen who use the naked short sale to kill or exploit other participants in our marketplace.