Get in front of a national TV audience on Bloomberg, CNBC and other networks and make accusations.
Put out a press release saying the company is doing wrong and action should be taken against it.
Get the word out to as many people as possible that the SEC is going to take action. Watch out !
Push to get a story on Dateline and 60 Minutes about the wrong doing going on.
Short Seller Tactics ?
Nope. Overstock tactics. It certainly seems that every tactic that Patrick Byrne is railing against, he
hascopied and made his own.
In the meantime, his Naked Short story is falling apart.
Where were the Naked Shorts when the price of OSTK was running up the last few weeks ? If they could push it down,
couldnt they prevent the run up ? Nope. They couldnt. It took an analyst at Pacific
Growth to at least temporarily halt the push higher.
But thats not really the hard core proof that Naked Shortsin OSTK are nonsense. The proof comes in trying to
short the stock .
When the stock ran up, as someone who is short 20k shares, I wasnt upset, I was thrilled. It ran up on an article
written bysomeone who thought Overstock is in the closeout business. (it cracks me up when their liquidation
items never seem to liquidate and are usually in stock and deliver in 1 to 4 days.). I thought it would be a great
chance for me to short more.
I called my broker. He found some stock to short. 25k shares. But there was a catch. The vig or rebate as its
called , was 25pct. Which meant i had to pay 25pct per year on the amount i have shorted. Now as much as I know OSTK
will crateras an operating business, I dont know when it will happen. So 25pct was too rich for my
blood.
How does this apply to Naked Shorting ? Simple economics my dear Watson.
If Naked Shorting was truly as prevalent as mr Byrne would like us to think, it would provide competition to the
time honored way of shorting stock, by going “clothed”. Borrowing the stock before you shorted it. This competition
to short the stock would drive down the cost to short. AT least some percentage of shorters would take the less
expensive naked route, reducing the demand to short OSTK by borrowing it, and therefore reducing the rebate
percentage. It hasnt happened.
Look at another stock which jumped on the Naked Short bandwagon many months ago only to see its stock crater for a
number of reasons. Imergent Inc. (IIG). I covered my
IIGposition that I was previously short. When I saw it run back up again to 9, and now to more than
11.50, I did what I am trained to do. Call my broker all giddy, ask him to locate stock and short it. He did. I did.
But in this case, the vig was less than 10pct.
I guess the Naked Shorts that crushedIIG got bored with it and decided not to Naked Short the stock anymore.
Othewise, how could it go back up ? .
They must have also gotten bored with NFI. the very
first poster child for Naked Shorting. The stock price was about 32 dollars in April of 2003. It was
about the same price in April of 04. It was 36 dollars in April of 05and its 32.84 as I write this today. Damn.
The impact those Naked Shorters have. They are just KILLING all those long term holders of NFI. And the NFI’ers
have managed to collect dividends that entire time. In fact, I havent heard a single story of an NFI’er not being
able to collect a dividend. Has anyone ?
Thats important. Because when you short a stock that pays a dividend, you are responsible for the dividend
payment. Could it be that other than not borrowing the stock first, that Naked Shorters are fine, upstanding citizens
who pay the dividends they owe ? Must be right ? Otherwise the NFI crazies actually would have something to chortle
about.
But here is what I dont get about the Naked Shorts. They dont borrow the stock. They just sell as many shares of
what mr. Byrne calls counterfeith shares as they want to an unsuspecting public. There is no record of the
transactions anywhere other than a simple sell ticketBecause all the miscreants are in on the game, no one has
to deliver the shares to the buyer. So they sit on the Reg Sho list for ever and no one cares. As a result, the Naked
Shorts have no reason, and no intention of covering the stock. Right ?
So why wouldnt the Naked Shorts want the stock to go as high as possible ? What nakedite wouldnt rather short OSTK
at 75 dollars than at 32 dollars or less ?
And then there is the Al Capone factor. Where is the IRS in all of this ? All those naked shorters have to be
piling up cash somewhere, dont they ? The SEC might not care about Naked Shorts, but is there any doubt the IRS does
?
Or maybe its just not as big a problem as mr Byrne wants us all to believe. AS he says in this
forbes
article, “Case in point, says Byrne, is his own company. In a statement last week, he said the DTCC reported
8,970,394 Overstock.com shares on deposit, while Nasdaq reported short interest in Overstock.com of 9,578,481 shares
for the same week. That means the total number of shares sold short exceeded the actual number of shares available,
suggesting that some shares have been sold “naked.” There is no publicly available data on trades that failed to be
delivered.”
All this over 600k shares ? Thats less than 1 days trading volume in OSTK. And given that there are 3 days
to deliverthe stock, the impact could be even smaller than that.
All of which leads to the logical conclusion. The Real Story.
Bravo for Mr Byrne.Here is what I think is going on.
He doesnt think he can sell any of his OSTK stock. For whatever reason. Probably because he knows that it will be
perceived as a weakness, lack of belief in the company, all the hits that come from the CEO selling stock in their
company. But he needs to make money and his holdings are his biggest asset. So whats a guy to do to get paid
?
He creates a diversion to hide the poor operating results of his company. He talks all this nonsense about
miscreants , naked shorts ,etc. He knows that any short worth a damn is going to do everything possible to short the
stock. That guys like me are going to short as much as posisble and even write about it. As will theHerb
Greenbergs, etc of the world. Combine all of this with the reality of OSTKs piss poor results and its an easy
sell.
He buys more stock. More importantly, hehas friends buy. He asks them, and other funds and large owners he
knows to not loan the stock out to shorts. Lets take on the miscreants he tells them. All the while trumping up the
diversion, knowing the bizareness of it all will draw more and more attention to the short side, while he is
simultaneously reducing the float available to shorts.
the more demand to short exceeds the number of shares available to be lent out to be shorted, the higher the
rebate percentage goes. Its basic supply and demand. High demand to short the stock, low supply for the
shorters. The shorters pay more as a vig to borrow the stock. As of last week it was up to 25pct . Maybe he believes
he can push it higher, although thats the highest number I have ever heard of.
Then he takes the millions of shares he owns, which are currently priced at 32 dollars plus, and lends them out.
At 25pct rebate, thats good money. Real good money, annually.
Then he prays. He prays he can turn the company around. He knows that if he can report 1 and maybe even
2good operating quarters, he then can ask for the stock he lent out and was getting paid 25 pct on, to be
returned.Good operating results combined withbuy ins on the stock he lent out would create the mother of
all stock squeezes. The stock would go up. He could sell stock and laugh all the way to the bank. Of course the hard,
if not impossible part of this scheme is that he has to report positive operating results. If he does, he wins.
If he doesnt. Well he has collected a pretty penny as the companyhehas and will runinto the ground,
goes down the tubes and the stock prices goes away. And the people who for reasons unknown to anyone,
believed in him ? They get crushed.
Im guessing of course. But its a far more plausible story than his Sith Overlord nonsense.
Run a company into the ground. Takethe approache that you believe the bad guy short sellers take, and
use it to make 25 pct on what , 90mm dollars or more worth of stock holdings ?
Thats getting paid.
Bravo mr Byrne
What is advertised for sale, and what is bought, in the stock market, is stock – not an IOU with none of the rights of a legitimate share, which give the share its value.
Comment by claude -
James:
Do try to follow along. MREITS – all MREITS – by the structure of their business models, require regular raises of additional capital, usually via secondaries.
If the price of the stock is 130% depressed then the company has to issue 130% more shares to raise the same dollars. That materially impacts the company’s operations.
So your point, like so many of your others, is provably false.
Additionally, naked short selling is illegal, in all but limited instances.
The FOIA data shows in a compelling manner that NFI has been the victim of a high level of naked short selling for years, unchecked by regulators, and resulting in a chronic depression in the share price.
There are other possible explanations – divine retribution, many worlds hypothesis, etc. – but the most obvious is that someone is actively manipulating the stock, and that FTDs are a big part of the manipulation. All one has to do is look at the data to test and support that hypothesis.
I understand that your agenda is to argue that breaking the law in a sustained basis by engaging in massive FTDing is not bad.
It gets pretty hard to argue with a straight face when you are talking numbers like 12.5% of the outstanding shares.
That you continue tells me that you must financially benefit from the practice in some way. That is really how it always lines up – those financially benefiting from the practice are for it, those being harmed are against it. For it are hedge funds, participants, Wall Street journalists, co-opted politicians. Against it are companies, investors, regulators.
I would suggest that you consider the following: A share is a parcel of rights. Among those is the right to vote, the right to a dividend (and the preferential tax treatment thereof), and a slice of the company’s equity.
Comment by claude -
James,
Are you really as daft as you appear?
I suggest you read the SEC Background comments to Regulation SHO as well as the comments made by Commissioner Atkins just recently (Feb 16, March 3). “Bear Raids due to abusive shorting” are issues the SEC should and can resolve.
Naked shorting is closer to options trading than equity trading as it is a futures sale and not an equity sale. Thus, the buyer should be paying Options prices and not Full Equity Value. But that was not the order they placed.
Naked Shorting is the sale of something that does not yet exist. It is illegal outside of bona-fide market making and certain Hedging strategies. Both have controls. For some ass like you to naked short would be illegal – READ the laws.
Mark, No threat. I suspect the Feds are coming, count on it. Who gets caught in their trap remains to be seen.
Comment by Dave Patch -
1.) you say that if there really were so many people naked shorting it, that it would reduce the number of people trying to short it legaly (i.e. borrowing it) and that would bring the rebate rate down. Well, just because there may be people naked shorting it doesn’t mean there aren’t thousands of guys calling every day for a regular locate on the stock, and whenever shares come available they get sucked up very quickly thereby keeping upward pressure on the rates.
2.) you said, “So why wouldnt the Naked Shorts want the stock to go as high as possible ? What nakedite wouldnt rather short OSTK at 75 dollars than at 32 dollars or less ?” — well if i’m short the stock, and i’ve done it illegally, why in the hell would i want the stock to double? i mean yeah i’d love to short it higher, but I’d rather it just tank right away so I can unwind this trade before i go to jail.
3.) you talk about how this problem isn’t as big as Byrne makes it seem.. that the short interest is 9.578mm compared to 8.97mm on deposit at DTC. and then, “All this over 600k shares ? Thats less than 1 days trading volume in OSTK. And given that there are 3 days to deliver the stock, the impact could be even smaller than that.” — this is really dumb. it doesn’t matter that it’s only 600k shares over the # on deposit.. even if it was 1 share over.. even if it was 0 shares over and the short interest was EXAXCTLY the # of shares available.. well that means that EVERY time a long holder decides to sell his stock, a short may need to cover (cause that borrow may go away when the long sells).. that’s a bid deal.
4.) and finally, the idea that Byrne has got some kind of master plan to secretly lend out his stock so he can make 25% on the borrow… well first of all the holder doesn’t get all that.. i’m sure the broker doing the lending eats up a large chunck of that. plus, the guy is crazy, not stupid.. he wouldn’t lend out his shares to make it easier to short the stock.. if he lent them out, there WOULDN’T BE a short squeeze
Comment by MD -
Hmm, makes an honest man wonder how deep into this issue you are involved. I mean, why else would a man with your money and position be wasting the time and fighting the people you regard as a joke when they haven’t come after you or your company? Have the guts to answer this post please Mr. Cuban.
Comment by HndtoHnd -
JB,
I’m not sure why you keep deflecting my comments towards naked short selling when I keep saying I am less familiar with that aspect of the story.
It sounds to me like you are running away from the things I am familiar with like the use of the media to manipulate stocks, it’s impact on companies and shareholders, the business acumen of Patrick Byrne, and the integrety of Patrick Byrne.
The commentary and criticisms of Patrick extend far beyond the naked shorting issue. He may or may not be correct on that single issue while still being correct about everything else.
Comment by W.C. -
Patchie Poo,
Nothing gets counterfeited in a “naked short sale”. I know that pretending that “naked short selling” or FTD’s represent counterfeited shares has been a useful tool for you scammers, but the two issues are entirely unrelated.
A share of common stock represents a pro rata claim on assets and income of a corporation. The short party to a “naked short sale” assumes a contingent liability based upon the underlying value represented by that share of stock. The mere existence of any “naked short” position plays no role in determining what the pro rata claim of a share of common stock might be. Only management and shareholders can change that determination by their deciding if or when to increase their number of shares outstanding. But the “naked short seller” is an outsider with no ability to affect a corporation’s fundamental structure or operations.
Now, if you WANT to talk about something “ridiculous”, perhaps we can start with a couple of your scams… like, Medinah Minerals maybe? Or how about Jag Media?
Comment by James Brownfield -
James,
Does this principle follow equally to all markets where something that does not exist is sold? Is counterfeiting money acceptable as it adds to the unfettered access to the market of cash. Your comments are the most baseless and rediculous I have ever heard.
“The principles of supply and demand are based upon free, open, and unfettered access to the markets. Furthermore, the role of any market is solely to serve as a price discovery mechanism. The principles of supply and demand serve as a framework to get information from ALL participants into the marketplace. And like it or not, “naked short sellers” are market participants, just like everyone else.”
The fact is, there is NO PROBLEM with a market based on the simple principle that all sellers deliver to a buyer. If that seller wants to sell, go out and borrow it to sell. If there is none to borrow, sorry – NO SALE. To think that that seller has a right to the market anyway, and thus can counterfeit a sale for the sake of a sale is ludicrious. You really do make your team look stupid.
By your statements, I want to go see the trash team – Dallas Mavericks but can’t get a ticket. You sell me one and Cuban here has to honor that ticket as real at the gate even though there is no seat and he makes no money on teh sale. Think Mark would honor it? Not an F-ing chance because then HE would be losing revenue off a fake ticket.
Comment by Dave Patch -
BooBoo,
There could be an FTD that is ten times the size of Novastar’s total outstanding and it would still play no role in what takes place with their operations. I know you hate what’s happened to their share price. None of us particularly likes it when the rest of the players in the markets disagree with our assessment of what a stock is really worth. But, that is part of everyone’s plight in the market. We are all susceptible to the views and actions of everyone else.
And, unfortunately for you, that includes the views and actions of “naked short sellers”. We, too, are participants in the markets. Our activities are not fraudulent nor are they illegal.
Now think about all the time and energy that you have expended on this issue and polluting the Novastar message boards. Just imagine if you have committed some of this time and energy to contacting private fund managers with the presentation you just gave here of Novastar’s fundamentals. You wouldn’t have to convince very many of these people that Novastar was artificially depressed to get the results you seek. They’re only a billion dollar company right now. A medium size private equity fund could take them out tomorrow.
But none has done so, nor are you likely to see anyone step up to make such an attempt. They would take one look at your numbers and break into hysterics. Start with your statement that Novastar’s “effective” yield is a 130% discount to “peer average yield”.
If it were a 130% discount, it would be a negative number. THAT math fuck-up alone would earn you a spot next to Darren Saunders in the aluminum can deposit queue. Furthermore, any fund manager would recognize the key problem Novastar faces with their cash situation. They are constantly in a state of needing to distribute more cash to shareholders than they “earn”. They could liquidate some of their positions to raise cash.
But that would wreck those wonderful “earnings” they keep generating, wouldn’t it? That should tell you something very important about what’s really taking place at Novastar.
You demand that the investment community continue to make capital accessible at prices that satisfy YOU to fund these distributions. That’s simply not the way our markets work. Reconcile yourself to the fact that everyone in the markets, including the “naked short sellers”, play a role in determining what capital is available to enterprises and at what prices.
Welcome to the real financial world, BooBoo.
Comment by James Brownfield -
tommytoyz,
If you make poor investment decisions, it is inevitable that your investment portfolio will decline in equity. But you’re alleging that “naked short selling” is responsible for harming Novastar. Yet there is no evidence of this damage at the corporate level, which is where it should be readily evident if this harm were taking place.
You and BooBoo don’t like it that the investment community values Novastar at a level that is lower than you think it ought to be valued. Welcome to the investment community, tommytoyz. If it’s really as undervalued as you THINK it is, then perhaps you should stop wasting time whining about “naked short selling” and start finding some deep pockets to help you take Novastar private. Imagine how Novastar investors would fare if you could find some parties to help you unlock this value that you imagine exists in Novastar shares.
Of course, that no such party has expressed an interest to date in building a substantial Novastar position speaks volumes about what kind of value is really tied up in those shares.
Comment by James Brownfield -
The reason I ask the question about the HTB/ETB list is because it is generated by the same folks setting the 25%. Can you tell us which broker has shares located and available to short for retail clients such as yourself?
From Final Rule- Short Sale
In its comment letter, the SIA noted that in developing “Easy to Borrow” lists, broker-dealer stock loan desks use information from a number of sources, including institutional lenders that have sophisticated systems for estimating borrow supply. Broker-dealer stock loan desks also consider the availability of inventory at their own firms and potential availability from other broker-dealers that act as conduit lenders. Much of this information is available through electronic feeds and is updated frequently. See letter from SIA.
Comment by SECFOINFO -
Mr. Cuban,
You said above “you called your broker and he located 25K to short.”
What Broker is this? OSTK is on every Hard to Borrow list in the Industry due to Regulation SHO. I’d like to know which broker is able to locate actual shares around the list to satisfy the locate requirement for threshold securities.
Thanks you.
Comment by SECFOINFO -
James B: The yield curve has affected all lenders equally from a perception point. NFI is trading at about a 98% discount to peer yields. And yet it has not cut its dividend, earnings increased duiring the most difficult year the industry has seen in a while, and it has carried forward $209 million into 2006 that must be paid to shareholders. That is an effective yield of 23%. Making it a 130% discount to peer average yield. As it has been for the last two years.
Cramer darling NLY, on the other hand, has slashed its dividend by 0ver 80% during the same period, and has abysmal earnings, and yet is trading at around a 4% yield.
Sorry, your argument that it is the macro, or the company’s fault, just doesn’t wash. It is a manipulation, which should there be a court case, will be proven by the trading records.
Did you miss Tommy’s posting of the FTD numbers? Yes? No?
Here’s a tip. If you are going to claim that it is ghosts that make the puppets dance, dont let them see the strings.
You are pitching an agenda rather than arguing from reason. That is why you are unreasonable – you aren’t arguing logically.
Your position, like Mark’s, simply ignores the mountain of facts that are inconvenient to it.
That is a shame.
For all the name calling directed at me, there hasn’t been much ability to show my facts as flawed.
And to whoever was bitching about my Federal Reserve comment from a while ago – I understand that debt instruments issued by the government are paid interest. I was speaking about the interest owed to the Fed for borrowing the money that they print and then lend to us. Do you know of any other first world country where the central bank and money presses are owned by private parties, and where the government pays those parties to print their money?
Name one modern country that does so.
You can’t.
But that is a tangent.
Try dealing with 12.5% of NFI total outstanding stock being fraudulent stock trades that didn’t settle.
That is reality.
Deal with it. Your specious claim that it wouldn’t affect the stock price, especially if it was done in such a way as to maximally impact downdrafts, is sheer cretinism. You don’t strike me as an idiot either. So why are all these bright guys pretending that they can’t read 10K’s or Q’s, or FOIA requests?
I’m about done here. It is more than obvious that you can’t change the mind or reason with someone who isn’t interested in reason or logic. The events of the next few months will show, as the FOIA requests have, that the entire conceit you are predicating your line of reasoning on is, and always has been, specious.
Comment by bobo -
The NFI buttboys love to cry about how their poor stock went from $63 to $30 but they fail to mention how it went from $9 to $63 first!!!
Isn’t it possible that the stock got way ahead of itself and never should have been that high? Or in your bizarre world do stocks have an inalienable right to just keep going up every day?
Want a guarantee, go buy a CD and watch the X-Files you conspiracy nutjobs.
Comment by Bigkat -
James Bromwfield :
Apparently I didn’t get through to you.
When an investor buys a share and it goes down by 34% in 7 months, the investor loses equity in his portfolio in his brokerage account. Is this really so hard to understand? I think everyone else undrestands what I’m saying. I can’t state it any clearer than that.
Your statement that the yield curve is the reason for the price delcine and not naked short selling is wild speculation with no data to back it up. Figures.
The performance of the share price of other mortgage companies contradicts your “guess”.
LEND is one of the biggest, and it went from 38.85 to 38.05 in this time frame – where’s the fear?
Comment by tommytoyz -
tommytoyz,
Actually, if you would read the 10-K and 10-Q’ss that Novastar has issued, it would appear that Novastar’s equity has increased in value. Furthermore, your dividend has not been affected at all by any short positions, “naked” or otherwise. Novastar declares a dividend based upon the number of shares outstanding. That figure is unaffected by short selling of any kind.
Unfortunately, the REIT rules have put Novastar in a tough situation. Novastar has to pay dividends on income that isn’t REALLY income. Novastar COULD alleviate this situation by liquidating some of the positions that have put them in this situation, but then they’d take a hit to their income statement which they obviously want to avoid.
Imagine if General Motors had to recognize $30,000 in income every time they rolled one of their subcompacts off of an assembly line. It would be great for their income statement, if that were the way they had to manage their books. But a drag if they would have to then distribute 90% of their profit to their shareholders to avoid corporate income taxation. Their only alternative, and the approach that Novastar seems to have adopted, is to keep those $30,000 subcompacts in inventory and to keep borrowing or selling stock to make distributions.
Sooner or later, the music stops.
Comment by James Brownfield -
Yeah, BooBoo, there are lots of reasons for Novastar’s share price to decline the way it has. First and foremost among them is the current shape of the yield curve. You can be proud of how they’ve endured this cycle so far, but the cycle is not over. The reality is that the Fed’s tendency is not to relent with their cycle of rate hikes until something breaks.
Guess what the most likely sector to break this time will be. (This time, it’s not telecoms.)
I know you don’t understand the Federal Reserve, which was evident in your interview with the good Pastor DeWayne Reeves. (BooBoo stated during that interview that all of the interest on the U.S. debt was paid to the Federal Reserve. I guess everyone who buys T-Bills, Notes, and Bonds, does it out of the kindness of their souls.) As for Novastar, if you build your house in the Johnstown plain, you can’t expect to get top dollar if you’re trying to sell during the rainy season.
Comment by James Brownfield -
James Brownfield :
I guess the price decline of NFI from $66.05 to $43.91 during the same time frame because naked short selling diluted the supply of NFI securities by 12.5% within 7 months is just nothing then. Investors equity doesn’t count?
We are told outstanding shares are about 25 Million at the time, but unbeknown to anyone but the naked short sellers, shares held in investor accounts is really 12.5% or over 3 million shares higher by November 2004 than anyone knows.
This additional supply will dilute and impact any price. Add 12.5% supply of anything and the price will go down. Though I get the feeling you’re about to claim that this isn’t so and the cause was something else. What ever you offer up, make sure it’s verifiable and not just a “guess”.
Yes NFI has paid out dividends, but the equity value declined in these 7 months by 34% because of this naked short selling dilution, while earnings and dividends continued to rise strongly.
29-Dec-04 $ 2.65 Dividend
4-Nov-04 $ 1.40 Dividend
9-Aug-04 $ 1.35 Dividend
10-May-04 $ 1.35 Dividend
26-Dec-03 $ 1.25 Dividend
Investors are the victims of naked short sellers.
Comment by tommytoyz -
Mark: Point by point.
“So bobo, riddle me this. How do you know the FTDs were shorts and not longs ? You seem to assume that every FTD is a naked short. its not.”
Naked short is a euphemism for a sale transaction that results in an undelivered share. Whether the sale is coded short, long, or anything else, is entirely immaterial to the end effect. The desired goal from the manipulator is to create sales transactions (with their negative impact on the share price due to the creation of supply where none exists) and then fail to deliver the shares. I think the term fraudulent transaction is better than naked short sale. Perhaps if you thought of it that way some of the semantic confusion would dissipate.
“And how do you know , if it was FTD shorts, it wasnt the people that NFI was borrowing from or selling their loans to, using it as a hedge?”
Do you understand how NFI makes its money? They securitize loans. There is no sensical way to hedge anything by selling common shares and then not delivering them.
“Has anyone read the loan documents ? COuld it be that NFI is enabling shares to be borrowed, asking not to take delivery?”
Again, there is no basis for believing this is possible, much less true – it would have to be disclosed. That, and it has exactly zero to do with selling MBS.
“I dont know NFI as well as the others, but some would say they dont like the quality of their earnings arent so good, and that they are borrowing to pay out “earnings”. Which could acccount for the stock price not following the number they are reporting as earnings.”
Mark. For 4 years this tired saw has been the refrain of the shorts. They have been given proctology exams by everyone from their auditors, to an army of shorts looking for even the flimsiest foothold to cry foul. No go. Their earnings are as solid as the best in the business, their bonds are snapped up faster than anyone’s, and their earnings have doubled while their share price has remained flat. The earnings quality canard is silly. It might have held water in the first 6 months of the short offensive, but it is just silly after 4 years.
“So there are plenty of reasons for the stock price to decline as much as it has.”
No there aren’t. And we both know it.
You posit possibilities, without assigning probabilities. It is possible that their earnings are all a lie. It is possible that God has singled them out for some special punishment. But what is likely from the FOIA data, the string of negative articles, the class action, the huge short position, and the Gradient/Rocker/Greenberg trifecta, is that they are the target of a syndicate that is gaming them, and has been for years.
Comment by bobo -
W.C.,
Then perhaps, if you’re going to hitch your horse to “Dr.” Byrne’s cart, you should read just a little bit about Overstock.
Download their 10-K and some of their recent 10-Q’s. Read them. See what’s going on at Overstock. Then, perhaps, you’ll come to understand why Mr. Cuban and this “anonymous” internet poster get the giggles every time Whacky Patty starts on one of his “naked short selling” tirades.
Oh, and I’m still waiting to see you definitively name a company that you think has been impaired by “naked short selling”. You seem to be unsure about Novastar. As has been pointed out, no one has kept Novastar shareholders from getting their dividends. No one has stopped Novastar from raising capital. Hard for me to imagine anyone trying to make a serious argument that Novastar has been impaired by “naked short selling”.
No other names? Not gonna lay an “Eagletech” or “CMKM Diamonds” or “Jag Media” on us? Give Patchie Poo a ring. Maybe he and Russ Godwin can come up with a name or two. Surely Lester “The Putz” Price might have a candidate you can spring on us. Or you could email C. Austin “Butthead” Burrell. That guy’s an encyclopedic reference for companies supposed victimized by “naked short sellers”.
Just don’t ask him too many questions about his current scam. He gets a little touchy about it.
Comment by James Brownfield -
Hi Mark-
You are mostly right about all this.
Just a few corrections. Many of the shares Paddy owns are restricted shares and can’t be lent according to the man himself. I suppose he could loan the 50k shares he bought recently, but then he can’t vote those at the AGM. All moot, as he has the shares pledged versus a bank loan so that he could pay 2005 income taxes (according to him at the JP Morgan presentation.) So that scenario is unfortunately out.
It’s personal with him now, not monetary. He wants to slay the dragon that O’Brien implanted in his skull. If it only turns out to be excessive legal shorting swamping an imperfect clearing system, well, that just won’t do now will it? Hard to be a hero in that drama.
You are spot on about the 25% rebate pointing to very little if any naked shorting.
And yes, he still needs plenty of meds. Don’t count on it.
Go Mavs –
Mahalo
Comment by Mahalo -
Stocks that are repositories of high amounts of short interest will, on average, underperform the broader market. (See this study– http://papers.ssrn.com/sol3/papers.cfm?abstract_id=525623) If people are inclined to pay such a “vig” to go short OSTK, it’s probably a good information signal.
Comment by JohnD -
Mark, we’ve been down this road before with Byrne and Bobo. In a 2/7/06 Overstock conference call, Byrne bragged that an FOIA request “revealed” that 144 of 150 of the trades he executed in August 2005 were FTDs. Bobo trumpeted this as the “smoking gun.” As it turns out, these trades were marked as long, not short. What to do? Simple. Just proclaim that “97% incorrectly coded as long”. To quote Jeff Matthews, I’m not making this up (see: http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/63/Default.aspx). Between me and you, my theory is that the Sith Lord has a guy on the inside armed with a gallon of whiteout.
Comment by Jeff Mitchell -
Mark, you need some lesson in FTDs :
Failure to deliver are shares sold and not delivered. It makes no difference what you call the seller. Is this so hard to understand?
With that understood (hopefully)….I can assure you that the information on NFI FTDs I posted above comes from the DTCC, NYSE and CSRP. I can assure you this because I am the individual that requested the information from the SEC, talked to the SEC numerous times and formulated the request of the data from the SEC.
Your scenarios smack of seeing what sticks against the wall. Well Mark, nothing in your post above sticks.
Selling
1. NFI has no authority to allow anyone to run trades through the NSCC and then fail to deliver the shares to the NSCC.
2. Even if through some planetary alignment NFI had this authority, the NFI 10K would make mention of this, as NFI would be the “buyer” of it’s own shares that were failed to be delivered to it.
3. Even if 1 and 2 above were aligned with your theory, the NSCC passes on the FTDs randomly to buyers, and not to any one specific buyer, so NFI could no be assured it would be receiving the FTDs of the failing seller.
Lending
4. If NFI did lend out shares on hand in your example- shares it doesn’t have on hand to lend in the first place by the way – lending them out would not produce any FTDs at the DTCC at all.
5. Any type of off clearing agency arrangement that you seem to be alluding to is called ex-clearing and the FTDs there also exist, on top of the figures provided above from the DTCC. The problem is even bigger than the DTCC numbers show as the DTCC figures do not include the ex-clearing FTDs.
ANd yes, NFI disclosed in it’s bond prospectus what the terms of the sales are. All you have to do is read them Mark. No stock lending is a part of the security contained in the sale of the mortgages.
I hope you see that what you wrote above can not possibly be true.
Comment by tommytoyz -
JB,
I didn’t say NFI wasn’t victimized by naked short selling or biased articles from members of the media with an agenda. Maybe it was. I said I wasn’t referring to it when I was talking about my own experiences with knowingly misleading articles about companies that damaged them and raised their cost of capital.
I haven’t referred to naked shorting much at all other than to say I am less familar with the subject.
What I am familar with is manipluation via the media and Patrick Byrne’s reputation with Warren Buffett. No offense intended, but I’ll take the opinion of a 20 year long business partner whose integrety is unquestioned (Mr. Buffett) over the opinion of an anonymous internet poster or Mr. Cuban.
Comment by W.C. -
So bobo, riddle me this.
how do you know the FTDs were shorts and not longs ? You seem to assume that every FTD is a naked short. its not.
And how do you know , if it was FTD shorts, it wasnt the people that NFI was borrowing from or selling their loans to, using it as a hedge?
Has anyone read the loan documents ? COuld it be that NFI is enabling shares to be borrowed, asking not to take delivery ?
I dont know NFI as well as the others, but some would say they dont like the quality of their earnings arent so good, and that they are borrowing to pay out “earnings”. Which could acccount for the stock price not following the number they are reporting as earnings
So there are plenty of reasons for the stock price to decline as much as it has.
And Dave Patch. Im still waiting to hear details on your threat.
Comment by Mark Cuban -
Mr. Cuban,
I too am curious of your decision to short iig at this level. The fundamentals are solid and the company is still undervalued at $12. Will you continue to short on the way up? Do you have a set price where you decide to cut your losses, or do you just ride it out, hoping the company fails down the road? I’ve looked at iig from all sides and cannot find the flaws that you seem to have found.
I look forward to reading your reply.
D Andrulat
Comment by D Andrulat -
W.C.,
If Novastar is not one of the companies that you think has been victimized by “naked short selling”, perhaps you can name one that has?
Comment by James Brownfield -
Cube –
1. You say you shorted IIG again when it rose. Did you do any research to determine the cause of the rise or is the company just an easy going to zero short in your opinion? If I remember correctly, you originally shorted because the company sold a crappy product to people that didn’t need it and wouldn’t give refunds. The Texas AG settled. I take it that’s not enough for you?
2. I’m assuming that was you with the 25K and 30+K block @ 12 today. Why be so obvious?
Comment by JAS -
tommytoyz,
NFI is not one of the companies I was referring to when I spoke about companies being forced to raise capital at higher costs. However, just to be clear, book value is often not a very good indication of intrinsic value. Just because the book value would rise does not mean the IV isn’t being differently.
If a company is worth $20 and it’s book value is $10, raising capital at $11 increases the book value per share but reduces the more important IV per share.
Comment by W.C. -
Below is link to a recent indymedia article-post by me about ex SEC Commissioner and Stanford University law professor Joseph Grundfest and his comments and justifications for subpoenas to business journalists.One penny stock Stanford University profited from the pump and dump of,i.e.-James Dale Davidson’s and attorney John M O’Quinn’s Endovasc,used the fraudulent ‘naked shorting’ claim to divert attention from Mr.Davidson’s and his Agora Inc.’s pump and dump of Endovasc shares.
So Mr.Grundfest’s own university benefitted from a fraudulent ‘naked short selling’ claim to cover up an illegal pump and dump Davidson and attorney O’Quinn were involved with.Is Mr. Grundfest trying to cover up for Stanford and its researchers ,Heeschen and Cooke or could it be that Patrick Byrne and his billionaire daddy are simply in good standing with Mr.Grundfest as opposed to those evil journalists he would deign to give the time of day to ? It must be remembered Patrick Byrne’s own attorney Brent Baker was also the SEC attorney who never even charged Davidson much less O’Quinn FOR USING THE NAKED SHORT SELLING CLAIM TO COVER UP STOCK PUMP AND DUMP FRAUD. And why was Mr.Grundfest less than forthcoming with a judge in the case of his and Stanford University’s involvement with Larry Ellison’s Oracle or did I misread about that incident ?
Below the,’Endovasc,Texas Joseph Grundfest,Stanford Law,defends Journalistic McCarthyism stock scam’,link is a quote from Bobo I don’t understand.Why does he insinuate some NFI or OSTK shares or shareholders may be unaccounted for in ‘Malaysia’ or Canada or the Carribean’ and ‘may not be reporting everything, but rather just netting’ ? I guess he refers to both NFI and OSTK shares ? And how are NFI and OSTK shares sold particularly from ‘Malaysia’ ?
Endovasc,Texas Joseph Grundfest,Stanford Law,defends Journalistic McCarthyism stock scam
http://houston.indymedia.org/news/2006/03/48364.php
This is just an isolated data point. You have to compare it to the legit short interest, and that gives you another data point. But the real way to tell is to compare the OBO and NOBO and ADP and DTC sheets, and see how many millions of share entitlements are out there that have no shares to support them – and even that is a bit flawed, because Malaysia and Canada and the Caribbean may not be reporting everything, but rather just netting. In fact, many of the clearing agencies could be netting, skewing the numbers to appear radically lower than they are.
Bobo the bunny wabbit
Comment by Tony Ryals -
Mr Cuban – Would you care to comment on IIG’s recent financial statements, which seem to imply that, by just about every measure (revenue, operating, cashflow, balance sheet, whatever), the company is absolutely flying? Good luck with your short position. You’ll need it. Ed
Comment by edpars -
W.C.,
Unfortunately, the current regulatory environment ensures that you will never get to see the real extent of “naked short selling” taking place. Most of it is done privately, where there are no disclosure requirements. Whether you support it or not, it is going to continue to take place. However, you might want to ask yourself, wouldn’t it be better, from public policy perspective, to have more transparency with this activity?
There is an exclusion principle at work here. If you hinder the activities of “naked short sellers”, they are going to take their work private and you get no disclosures… no transparency. Or, you permit it, and do your best to pursue policies that will lead to more information being released about “naked short selling” activities.
Comment by James Brownfield -
tommytoyz,
The Street thinks Novastar was overvalued.
They are probably right.
Now these Melvin’s would have you believe that the “naked short sellers” have victimized Novastar by hindering their access to the capital markets and making any secondary they tried to do more dilutive.
Yet, if Novastar did a $100 million secondary today, at the closing price, their book value would actually RISE by nearly 7.5%.
And, finally, Novastar isn’t really that big of a company. They’ve got a market cap in the $1 billion range. If their shares were REALLY artificially depressed, you’d see a sharp hedge fund manager or two taking a position and then filing Form 3’s. Odd, isn’t it, that don’t hear that dog barking.
Comment by James Brownfield -
JB,
I have less of an opinion on the naked shorting aspect of this because it’s obviously a very complex subject. I haven’t studied it to the same extent as some of the forms of manipulation I have discussed.
I would have no problem with naked shorting “in theory” as long as it is done legally and those that do short naked are exposed to the same potential losses as those that borrow and short. It is also essential that anyone that is long as a result of a naked short be able to settle that trade in a timely fashion and receive stock certificates if he/she desires them. If those conditions can’t be met as a part of this, I would be against it.
Comment by W.C. -
The Failure to Deliver data for NFI, which became public yesterday, going back to April 01 2004, shows that right around that time, naked short selling in NFI began taking off.
NFI went from 45k failure to deliver shares on April 01 2004 to over 3 million undelivered shares by November 05 2004. The Price went from $66.05 to $43.91 in that time frame. A victimless crime? naked short selling not a problem and not really happening?
Here’s the data for the period in question (failure to deliver each settlement day, per the SEC):
20040402 69,658
20040405 50,792
20040406 70,431
20040407 125,069
20040408 39,567
20040412 71,698
20040413 42,841
20040414 45,182
20040415 135,266
20040416 130,346
20040419 54,555
20040420 41,318
20040421 58,365
20040422 55,665
20040423 70,537
20040426 30,210
20040427 69,815
20040428 81,297
20040429 123,184
20040430 209,285
20040503 91,030
20040504 133,510
20040505 168,616
20040506 205,955
20040507 362,432
20040510 668,417
20040511 836,065
20040512 973,042
20040513 924,721
20040514 894,406
20040517 803,226
20040518 673,413
20040519 474,790
20040520 403,249
20040521 379,303
20040524 370,958
20040525 452,528
20040526 641,398
20040527 541,535
20040528 630,516
20040601 644,893
20040602 714,324
20040603 796,851
20040604 845,450
20040607 852,432
20040608 829,642
20040609 835,213
20040610 902,911
20040611 972,085
20040614 999,188
20040615 1,022,193
20040616 999,247
20040617 1,038,353
20040618 964,888
20040621 955,254
20040622 932,998
20040623 843,287
20040624 851,288
20040625 890,219
20040628 891,805
20040629 917,493
20040630 977,929
20040701 930,063
20040702 902,398
20040706 967,587
20040707 977,528
20040708 991,550
20040709 1,133,898
20040712 1,272,567
20040713 1,239,456
20040714 1,361,900
20040715 1,400,592
20040716 1,403,189
20040719 1,391,914
20040720 1,353,883
20040721 1,193,094
20040722 1,093,450
20040723 1,061,704
20040726 1,073,757
20040727 1,180,605
20040728 1,306,663
20040729 1,248,366
20040730 1,298,280
20040802 1,293,585
20040803 1,282,665
20040804 1,226,105
20040805 1,486,647
20040806 1,446,636
20040809 1,446,636
20040810 1,552,241
20040811 1,644,695
20040812 1,595,485
20040813 1,576,489
20040816 1,551,355
20040817 1,475,930
20040818 1,451,580
20040819 1,406,221
20040820 1,406,301
20040823 1,473,759
20040824 1,528,592
20040825 1,792,835
20040826 1,789,649
20040827 1,830,225
20040830 1,824,857
20040831 1,842,322
20040901 1,799,646
20040902 1,805,372
20040903 1,800,526
20040907 1,981,084
20040908 1,956,356
20040909 1,955,751
20040910 1,822,581
20040913 1,843,148
20040914 1,799,582
20040915 1,798,053
20040916 1,763,213
20040917 1,815,571
20040920 1,857,450
20040921 1,864,354
20040922 1,608,830
20040923 1,607,931
20040924 1,579,196
20040927 1,840,557
20040928 1,778,473
20040929 1,771,646
20040930 1,796,241
20041001 1,847,611
20041004 1,939,484
20041005 1,987,188
20041006 2,084,419
20041007 2,135,635
20041008 2,155,075
20041012 2,168,216
20041013 2,151,987
20041014 2,202,990
20041015 2,190,760
20041018 2,212,717
20041019 2,310,750
20041020 2,400,144
20041021 2,392,318
20041022 2,699,603
20041025 2,876,051
20041026 2,752,003
20041027 2,779,673
20041028 2,675,722
20041029 2,690,597
20041101 2,635,238
20041102 2,783,966
20041103 2,783,966
20041104 2,783,966
20041105 3,143,671
Comment by tommytoyz -
The Failure to Deliver data for NFI, which became public yesterday, going back to April 01 2004, shows that right around that time, naked short selling in NFI began taking off.
NFI went from 45k failure to deliver shares on April 01 2004 to over 3 million undelivered shares by November 05 2004. The Price went from $66.05 to $43.91 in that time frame. A victimless crime? naked short selling not a problem and not really happening?
Here’s the data for the period in question (failure to deliver each settlement day, per the SEC):
20040402 69,658
20040405 50,792
20040406 70,431
20040407 125,069
20040408 39,567
20040412 71,698
20040413 42,841
20040414 45,182
20040415 135,266
20040416 130,346
20040419 54,555
20040420 41,318
20040421 58,365
20040422 55,665
20040423 70,537
20040426 30,210
20040427 69,815
20040428 81,297
20040429 123,184
20040430 209,285
20040503 91,030
20040504 133,510
20040505 168,616
20040506 205,955
20040507 362,432
20040510 668,417
20040511 836,065
20040512 973,042
20040513 924,721
20040514 894,406
20040517 803,226
20040518 673,413
20040519 474,790
20040520 403,249
20040521 379,303
20040524 370,958
20040525 452,528
20040526 641,398
20040527 541,535
20040528 630,516
20040601 644,893
20040602 714,324
20040603 796,851
20040604 845,450
20040607 852,432
20040608 829,642
20040609 835,213
20040610 902,911
20040611 972,085
20040614 999,188
20040615 1,022,193
20040616 999,247
20040617 1,038,353
20040618 964,888
20040621 955,254
20040622 932,998
20040623 843,287
20040624 851,288
20040625 890,219
20040628 891,805
20040629 917,493
20040630 977,929
20040701 930,063
20040702 902,398
20040706 967,587
20040707 977,528
20040708 991,550
20040709 1,133,898
20040712 1,272,567
20040713 1,239,456
20040714 1,361,900
20040715 1,400,592
20040716 1,403,189
20040719 1,391,914
20040720 1,353,883
20040721 1,193,094
20040722 1,093,450
20040723 1,061,704
20040726 1,073,757
20040727 1,180,605
20040728 1,306,663
20040729 1,248,366
20040730 1,298,280
20040802 1,293,585
20040803 1,282,665
20040804 1,226,105
20040805 1,486,647
20040806 1,446,636
20040809 1,446,636
20040810 1,552,241
20040811 1,644,695
20040812 1,595,485
20040813 1,576,489
20040816 1,551,355
20040817 1,475,930
20040818 1,451,580
20040819 1,406,221
20040820 1,406,301
20040823 1,473,759
20040824 1,528,592
20040825 1,792,835
20040826 1,789,649
20040827 1,830,225
20040830 1,824,857
20040831 1,842,322
20040901 1,799,646
20040902 1,805,372
20040903 1,800,526
20040907 1,981,084
20040908 1,956,356
20040909 1,955,751
20040910 1,822,581
20040913 1,843,148
20040914 1,799,582
20040915 1,798,053
20040916 1,763,213
20040917 1,815,571
20040920 1,857,450
20040921 1,864,354
20040922 1,608,830
20040923 1,607,931
20040924 1,579,196
20040927 1,840,557
20040928 1,778,473
20040929 1,771,646
20040930 1,796,241
20041001 1,847,611
20041004 1,939,484
20041005 1,987,188
20041006 2,084,419
20041007 2,135,635
20041008 2,155,075
20041012 2,168,216
20041013 2,151,987
20041014 2,202,990
20041015 2,190,760
20041018 2,212,717
20041019 2,310,750
20041020 2,400,144
20041021 2,392,318
20041022 2,699,603
20041025 2,876,051
20041026 2,752,003
20041027 2,779,673
20041028 2,675,722
20041029 2,690,597
20041101 2,635,238
20041102 2,783,966
20041103 2,783,966
20041104 2,783,966
20041105 3,143,671
Comment by tommytoyz -
My view has little to do with naked shorting.
It is entirely based on the premise that our system and country would operate best if capital was allocated as efficiently as possible. To the extent that manipulation of any sort using false, spun, misleading reports/articles or illegal trading techniques plays a part in making things less efficient IMO it is a terrible idea.
When the things being done to profit at the expense of others are against the law, those involved should be put in jail.
I personally am 100% convinced that certain members of the media knowingly engage in reporting that is biased, spun etc… in order to advance the agenda of sources that already have a position.
I feel that way depsite never having owned a single share of OSTK or having ever looked at its financials.
The reason I believe that is because I have owned other companies that been through the sort of attack I am describing where the irrefutable facts were presented to those involved and they refused to change their story. The marketplace eventually vidicated my point of view, but not before damaging the reputation of the company and it’s cost of capital for some time. It just so happens that some of those being accused by Patrick are some of the same people I had the experience with. That leaves little doubt in my mind what is going in and I hope Patrick proves it in court.
On OSTK, naked shorting and the rest of Patrick’s theories etc… I have no opinion.
IMHO, however, his integrety should not be attacked even if it turns out he is wrong about some things.
Comment by W.C. -
W.C.,
“Naked short selling” is an important element in efficiently allocating capital in our financial markets.
You don’t think that we just leave the capital raise from “naked short selling” lying around in a savings account drawing 0.25% interest, do you? “Naked short sellers” seek to divert capital away from poorly performing enterprises and engaging it with enterprises that are capable of generating superior returns on capital.
Not all “naked short sellers” are correct in their assessments of which enterprises will outperform and which ones will lag, but here again, the effect is to more efficiently allocate capital. Successful “naked short sellers” are rewarded with more capital to allocate through their investment strategies. Those “naked short sellers” who erroneously short companies then have less capital with which to work.
As for Byrne, he is the one who has made the decision to chase windmills. That does speak to his integrity. He is a whackjob.
Comment by James Brownfield -
My view has little to do with naked shorting.
It is entirely based on the premise that our system and country would operate best if capital was allocated as efficiently as possible. To the extent that manipulation of any sort using false, spun, misleading reports/articles or illegal trading techniques plays a part in making things less efficient IMO it is a terrible idea.
When the things being done to profit at the expense of others are against the law, those involved should be put in jail.
I personally am 100% convinced that certain members of the media knowingly engage in reporting that is biased, spun etc… in order to advance the agenda of sources that already have a position.
I feel that way depsite never having owned a single share of OSTK or having ever looked at its financials.
The reason I believe that is because I have owned other companies that been through the sort of attack I am describing where the irrefutable facts were presented to those involved and they refused to change their story. The marketplace eventually vidicated my point of view, but not before damaging the reputation of the company and it’s cost of capital for some time. It just so happens that some of those being accused by Patrick are some of the same people I had the experience with. That leaves little doubt in my mind what is going in and I hope Patrick proves it in court.
On OSTK, naked shorting and the rest of Patrick’s theories etc… I have no opinion.
IMHO, however, his integrety should not be attacked even if it turns out he is wrong about some things.
Comment by W.C. -
JB,
What you are saying is correct, but if a stock is manipulated up/down with innaccurate and spun reports and that maipulation runs counter to the underlying reality, it can lead to a very favorably/poorly priced secondary which actually changes the IV. That is not a very efficient way for capital to be allocated.
Many companies do not have a choice of exactly when to raise capital because their business requires a steady stream of it. Changing the cost of that capital damages them and not raising it may damage them even more.
It is one thing to say that markets are not always efficient and companies need to cope and plan around things like this. It is another for companies with capital needs to be targetted and manipluated with false and biased reports to create short squeezes or massive dilution.
Comment by W.C. -
JB,
What you are saying is correct, but if a stock is manipulated up/down with innaccurate and spun reports and that maipulation runs counter to the underlying reality, it can lead to a very favorably/poorly priced secondary which actually changes the IV. That is not a very efficient way for capital to be allocated.
Many companies do not have a choice of exactly when to raise capital because their business requires a steady stream of it. Changing the cost of that capital damages them and not raising it may damage them even more.
It is one thing to say that markets are not always efficient and companies need to cope and plan around things like this. It is another for companies with capital needs to be targetted and manipluated with false and biased reports to create short squeezes or massive dilution.
Comment by W.C. -
W.C.,
You are still behaving as if you believe access to an unlimited amount of new capital, at prices that only management gets to deem “appropriate”, is a corporate entitlement. If that’s where you happen to fall in this particular debate, then I can understand your objection to “naked short selling”.
Fortunately, most people in the real financial world do not see ongoing access to the capital markets as a corporate entitlement.
Comment by James Brownfield -
JB,
What you are saying is correct, but if a stock is manipulated up/down with innaccurate and spun reports and that maipulation runs counter to the underlying reality, it can lead to a very favorably/poorly priced secondary which actually changes the IV. That is not a very efficient way for capital to be allocated.
Many companies do not have a choice of exactly when to raise capital because their business requires a steady stream of it. Changing the cost of that capital damages them and not raising it may damage them even more.
It is one thing to say that markets are not always efficient and companies need to cope and plan around things like this. It is another for companies with capital needs to be targetted and manipluated with false and biased reports to create short squeezes or massive dilution.
Comment by W.C. -
Patchie Poo,
“Naked short selling” does not violate the principles of supply and demand. On the contrary, “naked short selling” bolsters the principles of supply and demand.
The principles of supply and demand are based upon free, open, and unfettered access to the markets. Furthermore, the role of any market is solely to serve as a price discovery mechanism. The principles of supply and demand serve as a framework to get information from ALL participants into the marketplace. And like it or not, “naked short sellers” are market participants, just like everyone else.
Comment by James Brownfield -
Mark, you are just so logical.
First, if the laws were being followed, the FTD’s would be sucking up the borrows as quickly as they become available.
Second, when more than 100% of the electronic float is shorted, and the law that requires a recall on a loaned share prior to the loanee selling long, how do you explain a continually increasing short position and excessive FTD’s. Logic would stipulate that any trade volume would automatically create a recall and thus 2 buys for every 1 sell.
Third. Naked shorts are excessive supply that violates the principles of supply and demand. The SEC, in Reg SHO claimed that naked shorts provided added leveage used to manipulate the price of a security down. That is their analysis stupid not mine. So…Is naked shorting good – NO!
Finally, Commissioner Atkins, in a public speech identified that “Bear Raids due to abusive short selling” existed in the markets and was not being properly addressed. he stated it on February 16 and on March 3. Now with the genius you think you are, want to explain that away?
Comment by Dave Patch -
I should add one other thing.
The reason stopping short term manipulation is so important is that many companies need to use public markets to raise capital to grow and support their businesses. Well timed manipulation in either direction can change the cost of capital and either increase or reduce the related dilution/interest costs.
A well timed bullish manipulation of a heavily shorted company destined for the scrap heap can cause a squeeze that will allow that company to raise cheap cash, raise it’s intrinsic value and help support the agenda of the manipulators instead of those that were intellectually correct about the status of the company.
The same same thing can happen in reverse when a solid company that needs fresh capital to support growth can be manipulated into paying a much higher cost and much great dilution which in turn supports the agenda of those manipulating the price down.
It is no accident that most of the companies targetted for manipulation by short sellers have capital raising requirements or are financial companies whose busines model requires strong faith in their results.
Comment by W.C. -
W.C.,
Our capital markets are not a charity ward. Corporate managers, like any other participants in the market, get to make the same choices as everyone else. If they like the prices their shares are fetching on the open market and they want to do a secondary, then that’s a choice they’re entitled to make. But they don’t get to dictate terms for their secondaries to the market. Like all other market participants, they have to be content with their role as price-takers.
Comment by James Brownfield -
I think I can help you with at least one example:
NFI
We now have the actual level of naked shorted shares from 2004 to 2006, posted at http://www.TheSanityCheck.com – in my last few blogs.
The data is from the SEC, acquired under a FOIA request.
First, a little background. You flippantly remark that the stock price has stayed flat for the last few years, so what is the big deal? Well, Mark, for starters, their earnings have about doubled since April of 04. That is when we first have data.
So we have a company that has consistently posted higher earnings, doubling them from 03 to 05, and yet the stock price is the same. Does that strike anyone as odd?
Let’s turn to the FOIA data next. We see in October of 04, that the number of fails had grown from not very many to 12.5% of all issued shares. That doesn’t include the legitimate short interest, which that month was 11.3 million shares (around 25 million outstanding) – meaning that more than 50% of all outstanding shares had been shorted legitimately, or failed (3.143 million fails that month).
Mark, do you think 12.5% of the total outstanding shares being undelivered, i.e. frauds, is significant and impactful?
Those are shares for which investor money was taken, and yet no shares were delivered. Well over $100 million that month, in only one stock. Of fake, undelivered shares, where sales transactions were processed, and money was taken, and yet no share were delivered. And the sales had the same depressive impact as though they were genuine.
Do you honestly want to take the position that is no big deal?
If 12.5% of Dell’s computers weren’t shipped, or OSTK took money and failed to deliver 12.5% of the time, preferring to wait weeks or months for the price of the ordered product to drop, and yet using the money to generate interest, would that be OK with you? Would you write a blog about how it was no big deal to take orders and money for something time sensitive, that the law said had to be delivered within 3 days, and yet which they found they could make an additional 20% on by just breaking the law for a couple or 3 months – would that be contemptible, or savvy business, in your mind? You know, no big deal.
How about we take 12.5% of your net worth and redistribute it to me, and we can chitty chat about how it is no big deal? No? No takers?
We see the price rise as the fails decrease, and then bam, big spike back up and the shares drop through the floor again. What a coincidence.
Same pattern in 05 – at one point, while you and I were arguing and you were taking the position that fails weren’t a significant problem, over 5% of the company’s shares were FTD.
Here’s my issue with you. You are smart, and you understand the markets, and yet you claim things that are false – the FOIA proves that, unless you are taking the position that 5-12.5% of a companies shares, essentially counterfeited, is no big deal. You continue to advance the notion that if a company just delivers good results the shorts will be hosed – Mark, NFI has increased earnings by about a factor of 4 since the shorts got into this, and paid out an additional $15+ per share in dividends, and the stock is below where it was when earnings were 50% of what they are. So your contention, when tested, is provably false, or at least badly flawed.
Let’s review the contentions: 1) There is no significant naked short selling problem. Huh. But there is. And the FOIA numbers prove it. 2) Just perform, and the stock price will come up. Wrong. Again, NFI proves it. So does CALM. So do a host of others.
Additionally, you seem to not be clear on the way some NSS works. Try this: Big clearing broker is willing to do a locate, versus an actual borrow, for you, and charge you 25% for the priviledge. You say OK, and then the broker just desks the trade, never borrowing, and simply selling it from trading desk a to b. You are now being charged 25% for the broker to desk the trade. Option B, the broker fails in the market, and waits for the price to go down further (he knows it is likely to as a number of big hedge funds are working it over). That is what happened to Byrne when he bought 150K shares and it took over 2 months to settle. Those are FTDs – or maybe they aren’t, or rather don’t show up on the list. Why? Because the broker did an ex-clearing arrangement, where he agrees with the buying broker to go direct between the two houses, bypassing the system – and if it takes a few months to settle, hey, we’re all friends. Again, you are still paying 25%, so why wouldn’t he?
And that doesn’t count the myriad number of other ways you could achieve the same thing. Try calling around in Canada, or Malaysia – if you are a significant hedge fund, you can naked short through those venues literally to your heart’s content. Or go read the “Experts Speak Out” section of TheSanityCheck.com, where Dr. Trimbath provides two simple, easy steps to launder money and use the same pool of dollars to move blocks and depress the price, always trading between related parties, so the same dollars and shares are endlessly recycled.
Or if you like, I can get you the web address of a company that will process your trades and allow you to drive the price through the floor using the ECNs, and then allow you to cancel most of the trades after the trading day is done – for a small vig.
Mark, again, this is a complex issue. One thing that everyone understands is that over the last 20 years, Wall Street has demonstrated that every sort of imaginably crookery is not only condoned, but actively pursued.
When you have the former head of the NYSE taking the 5th for fear of incriminating himself when asked about abusive and illegal trading, you have a big problem. When you have everything from exactly the sort of organized network of abuse exposed in the Drexel/Milken/Boesky days, to the literally dozens of examples of various and sundry Wall Street larcenies since then, how can you take your position with a straight face?
That you take the position that none of these data points matter, or exist, is troubling, and inexplicable using benign reasoning.
Comment by bobo -
I should add one other thing.
The reason stopping short term manipulation is so important is that many companies need to use public markets to raise capital to grow and support their businesses. Well timed manipulation in either direction can change the cost of capital and either increase or reduce the related dilution/interest costs.
A well timed bullish manipulation of a heavily shorted company destined for the scrap heap can cause a squeeze that will allow that company to raise cheap cash, raise it’s intrinsic value and help support the agenda of the manipulators instead of those that were intellectually correct about the status of the company.
The same same thing can happen in reverse when a solid company that needs fresh capital to support growth can be manipulated into paying a much higher cost and much great dilution which in turn supports the agenda of those manipulating the price down.
It is no accident that most of the companies targetted for manipulation by short sellers have capital raising requirements or are financial companies whose busines model requires strong faith in their results.
Comment by W.C. -
No doubt (OSTK) & (IIG) are extremely volatile stocks. But are naked shorts truly responsible for the price volatility? Both stocks have fairly small floats <13M shares. In my experience, most low float stocks trade like roller coaster rides. Wouldn't any decent increase in supply or demand be enough to cause the big price swings?
Jim Parham ~ Yuba City, CA
Comment by BlogMason -
W.C.,
Don Quixote REALLY believed the windmills were giants, too.
Didn’t make him any less the whackjob.
Comment by James Brownfield -
Patchie Poo,
If there weren’t the contrivances built into the system with this new Reg SHO farce, you wouldn’t see that kind of volatility.
Comment by James Brownfield -
I’ve been a shareholder of Berkshire Hathaway for a long time. I’ve been reading Warren Buffett’s praise of John and Patrick Byrne for much of that time. I find it highly unlikely that Patrick would engage in the type of behavior you are suggesting. That goes double because until recently, his father was also associated with the company.
It is certainly possible that Patrick has made an error in business judgement at OSTK (I have no opinion on that) and may even misunderstand some of the details of naked shorting.
However, that has nothing to do with his integrety in this matter. I am totally convinced he believes in OSTK and that he believes he is doing a public service by bringing these issues about short selling, stock manipulation, and journalists/analysts and short sellers to light.
I am equally confident he is correct in at least the matter of some of the journalists. I personally have owned other companies that were under constant well timed attack by some of the same people he has mentioned. Differences of opinion are no problem. Neither is using short sellers as a source of information.
However, if a journalist refuses to adjust their commentary even when provided with irrefutable facts about why they are wrong, something is amiss. If the same short players often mentioned are also always short the stock, only a fool wouldn’t see what was going on.
They can all hide behind the grey curtain of journalistic privilege, but the smell permiates the entire financial world and Patrick is right on at least that much.
Comment by W.C. -
This is to Dave Patch.The comedy of what you guys write is why I continue to post on this subject. Its fun .
Lets take what Dave had to say:
The fact that you COULD get 25K shares to short in OSTK should have been the first clue that something is wrong. The stock has more than 100% of the float held as a short position, more than 100% of all shares that exist at the DTCC as a short position, and has excessive fails in the system – hence being on Reg SHO for the past year.
>>>Dave, people buy and sell this stock every day. Thats why there is volume on the volume charts. I guess its people realizing they got suckered into owningthis long, and shorts deciding to buy their stock to cover, bt either way, stock comes available to be shorted. The unfortunate thing for me is that every one with half a brain realizes what a dog this copmany is with current management and the competition to short the stock has pushed the vig ever higher
Dave Patch says:
Did it ever occur to you to wonder why you could locate shares and yet excessive fails exist? Why did the fail not locate and settle? Could it be that the short sale went through but the premium was too rich so it was ignored leaving those same shares to be used over and over again as a locate but not a borrow?
>>>Do you really believe this stuff ? The sale was ignored. Do people read this from you an actually think its true ?
Dave Patch says:
As for IIG, the reason it rebounded so high could easily be explained by the excessive level of FTD’s in the system. Too many shorts will create excessive supply and drive prices below normalized levels and…when those shorts eventually do have to cover the excessive demand drives stock prices higher than otherwise should be the value. If you understand the concept of supply and demand you would understand that this is not good for the markets. The excess drives volatility that creates damages at both ends.
>>>> So what you are saying is that nakeds do have to cover. that if longs just wait out short term fluctuations in stock price that the stock price will normalize relative to the value the general market assigns to it ?
Meaning the naked shorts have the same impact as a borrowed short, which over the long term amounts to zero ? The value is truly assigned by the demand for the stock ? Is that what you ae saying ? The nakeds have no impact ?
You might also be saying that the DTCC system works because IIG and other stocks have come off of the Reg Sho list. The only companies that havent appear to be the ones where management might play games with stock it owns, releasing and not releasing stock to be shorted. Could that be why OSTK has stayed on the Sho list while all these other naked short “victims” of victimless crimes dont ?
Dave Patch says:
Now you are probably happy your IIG was profitable for you. The fact that others may have lost because of the excess that raided the price to lower lows is not your concern. You only want to make your money regardless of what it means to the general population. A real hero!
>>>So you dont believe anyone truly believed in this stock and held on ? Or that they really, really believed in this stock and bought more when it was done and took advantage of the opportunity ? Or that maybe you have come to realize that this naked short nonsense is just that
For a smart guy you are really pretty stupid. Watch your back – the Feds are coming.
>>> Watch my back the Feds are coming ? For what ?? Are you threatening me with something ?
Or are you just another gutless wonder like your friend Phil Saunders. If you have something to say, show some balls and say it. Dont write some veiled threats like you know something. Show what a big man you are and tell everyone what you know that the Feds are doing.
Comment by Mark Cuban -
Mark, Too bad you understanding of facts are missing.
The fact that you COULD get 25K shares to short in OSTK should have been the first clue that something is wrong. The stock has more than 100% of the float held as a short position, more than 100% of all shares that exist at the DTCC as a short position, and has excessive fails in the system – hence being on Reg SHO for the past year.
Did it ever occur to you to wonder why you could locate shares and yet excessive fails exist? Why did the fail not locate and settle? Could it be that the short sale went through but the premium was too rich so it was ignored leaving those same shares to be used over and over again as a locate but not a borrow?
As for IIG, the reason it rebounded so high could easily be explained by the excessive level of FTD’s in the system. Too many shorts will create excessive supply and drive prices below normalized levels and…when those shorts eventually do have to cover the excessive demand drives stock prices higher than otherwise should be the value. If you understand the concept of supply and demand you would understand that this is not good for the markets. The excess drives volatility that creates damages at both ends.
Now you are probably happy your IIG was profitable for you. The fact that others may have lost because of the excess that raided the price to lower lows is not your concern. You only want to make your money regardless of what it means to the general population. A real hero!
For a smart guy you are really pretty stupid. Watch your back – the Feds are coming.
Comment by Dave Patch -
It’s all in the fundamentals, ryanm. If you can hold the fort during a short squeeze, but the fundamentals are rotten, you’ll make money every time. It’s really no different than being long a stock with strong fundamentals that the rest of the investment community hasn’t discovered. Brace yourself to weather those short-term sell-offs and you’ll come out ahead in the long run.
Comment by James Brownfield -
The hypocrisy of Mark’s CYA policy: get all of your cronies to believe what you do. Hopefully they will jump on the bandwagon of shorting without knowing what’s really going on (just drinking the cool-aid). When in the back of your head you know that there is a possible short squeeze on the horizon and that you might have to come up with those 20k in shorts. For being so sure on your position 20k seems like a very week play.
Bravo Mr. Cuban
Comment by ryanm -
Good timing on the IIG short. Talk about a volatile chart. The stock is currently overbought and facing an area of resistance. A technical downturn looks very probable. How many shares did you short?
Jim Parham ~ Yuba City, CA
Comment by BlogMason -
good!
Comment by imdb -
The desired goal from the manipulator is to create sales transactions (with their negative impact on the share price due to the creation of supply where none exists) and then fail to deliver the shares. I think the term fraudulent transaction is better than naked short sale. Perhaps if you thought of it that way some of the semantic confusion would dissipate.
Comment by runescape money -
In its complaint filed with the Manhattan federal court, Electronic Trading Group LLC accused the defendants of improperly charging fees by failing to borrow or deliver stock needed to back short sales, essentially resulting in “phantom” transactions. The plaintiff seeks triple damages, and the lawsuit seeks class-action status.
Comment by wow powerleveling -
If my some miracle of God, Hedgestreet.com goes public, short it with every last penny.
Comment by Eddie -
And now there’s this from a recent press release by,’Circle Group Holdings’ Chairman and CEO Gregory J. Halpern,announcing he just hired famed trail attorney John M O’Quinn ! I thought this recent naked short claim you can see below and by link to the new press release from Circle Group Holdings was ‘de ja vu’ so I looked at James Dale Davidson’s and Agora Inc.’s 2004 ‘Vantage Point’ about Circle Group Holdings and ‘naked shorting’.This as you can see below from Davidson and Vantage Point,that can also be found in complete version on earlier blogmaverick ‘naked shorting’ threads,is what James Davidson had to say as late as 2004 re Circle Group Holdings and
‘naked short selling’.:
‘The worst nightmare of naked short sellers is that the companies they attack should survive and actually succeed. When that happens, as recently occurred in the case of Circle Group Holdings Inc. (CXN: AMEX),….
– James Davidson
Circle Group Holdings’ Chairman and CEO Gregory J. Halpern, who at 18 was an international judo champion, commented: “We’ve come to fight and we believe that by joining forces with John O’Quinn, his team of lawyers and A- list experts, we will prevail. We couldn’t have found better partners in this mission to protect shareholder value. Any wrongdoers will be taken to the mat.”
http://biz.yahoo.com/prnews/060417/cgm013.html?.v=41
Circle Group Holdings Announced Today That It Has Hired Legendary Attorney John O’Quinn to Investigate Possible Manipulation in CXN Stock
Monday April 17, 9:05 am ET
MUNDELEIN, Ill., April 17 /PRNewswire-FirstCall/ — Circle Group Holdings (Amex: CXN – News), announced today that Attorney John O’Quinn and his legal consortium have been retained as legal counsel of Circle Group Holdings, Inc, makers of Z-Trim®, a revolutionary zero calorie fat replacement ingredient, to perform due diligence to determine if their stock has been manipulated by illegal naked short selling or if anyone has committed fraud by virtue of other stock manipulation methods detrimental to the Company and its shareholders. Mr. O’Quinn is best known for his enormous settlements against manufacturers of cigarettes, breast implants and diet drugs.
From 2004 Agora Inc.,’Vantage Point’ article by James Dale Davidson re ‘naked shorting’,
‘electronic counterfeitting’,Circle Group Holdings,etc.:
The Electronic Counterfeiter”s Worst Nightmare:
Circle Group Holdings Rallies 30,000%
The worst nightmare of naked short sellers is that the companies they attack should survive and actually succeed. When that happens, as recently occurred in the case of Circle Group Holdings Inc. (CXN: AMEX), the counterfeiters are obliged to enter the market and buy the duly authorized shares of the capital stock of the company they have sold. CXN rose by nearly 30,000%, from 3 cents to almost $9, as naked short sellers were obliged to buy and deliver shares they counterfeited prior to CXN”s move to the AMEX.
When you think of what happened in the case of Circle Group Holdings, you can see why the malicious charges leveled against me by anonymous smear-mongers on Web sites are ridiculous. If their assertions that I was orchestrating naked short selling were correct, I would hardly have become one of the leading critics of the practice. Nor would I continue to champion the causes of the companies I had “sent under” by allegedly selling wave after wave of electronically counterfeited stock.
And as the example of CXN demonstrates, the damage done to the share prices of companies targeted for destruction by electronic counterfeiters is also a measure of their upside potential – for everyone but the counterfeiters.
Comment by Tony Ryals -
Oh no,now this is a scandal.Patrick Byrne’s own brother runs a hedge fund out of Bermuda
that lost poor Mr.Buffett some bucks.Why can’t Patrick at least get his own brother to realise how evil he is,(although hopefully better at it in the future),and change his hedge fund ways ?
Warren Buffett may lose $34 million on Bermuda fund
Bermuda-based Value Capital LP, a $570 million hedge fund backed by billionaire investor Warren Buffett, may report an annual loss for the first time in seven years after making a bad bet on US interest rates.
The miscalculation cost Buffett’s Berkshire Hathaway Inc. $34 million before taxes in the first nine months of 2005, according to a November 4 filing with the US Securities and Exchange Commission. Omaha, Nebraska-based Berkshire Hathaway had $3.4 billion in net income over the same period.
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20051123/BUSINESS/111230103
Comment by Tony Ryals -
NOW COMES THIS oldie but goodie from David Patch and his investigatethesec.com on the conspiracy to keep Adnan Khashoggi et.al.’s Genesisintermedia down on the ‘sho’ list.
Why is it on the ‘sho’ list in the first place ? Why is Iran-Contra ‘heroe’ Adnan Khashoggi who was behind that as well as so many scams and rip offs and whose Barrick Gold was given up to $10 billion of U.S. gold
by ‘Poppy’ Bush for ten thousand dollars not in jail ! ? I can’t say.But apparently David Patch and Booboo O’Brien claim ‘naked shorting’
victim status for Genesisintermedia and Adnan Khashoggi as well ?
David Patch re GenesisIntermedia :
Then there is the other similar type issuer who is on the SHO list who either should not be on there due to accurate filing status or, who stopped trading some time ago. Here again I reference GenesisIntermedia (GENI). GENI has been listed as a SHO qualifier for excessive fails for a period of 105 consecutive trade days. Yet, in those 105 trade days, not a single share in the company has traded. At this rate, GENI will be asked to pay rent to the NASDAQ for the space it is occupying on their website.
– David Patch
Today, the NASDAQ’s threshold security list even continues to display one company that has not traded in a year, GenesisIntermedia (GENI). GENI being involved in one of the worst collapses of a Wall Street Clearing firm in the history of Wall Street, Minnesota based MJK Clearing. The cause of the collapse, the massive over-loaning of shares in GenesisIntermedia in a fraud orchestrated by company insiders and a former Iran-Contra Arms dealer named Adnan Khashoggi. Excessive loaning of shares to cover a failed trade is part of the root issue to shorting abuses. The same share can be loaned out to several different people diluting the stock while settlement failures accrue.
How does the SEC plan to get GENI off the Regulation SHO threshold list if they [SEC] has grandfathered the fails from mandatory closeout and the stock has stopped trading? The owners of those fails certainly have no intention of trying to find a seller to buy in the fail when they stock doesn’t trade. Instead the SEC will most notably take action to revoke the registration of the company. The SEC will claim that it is protecting the investors in doing so and that the fails are irrelevant to the picture. Irrelevant because somebody bought a share years ago that never existed in the first place. Where is that clients Broker?
– David Patch
SEC.GOV RE KASHOGGI
http://www.sec.gov/litigation/complaints/2006/comp19655.pdf
Interesting case below of failed attempt by the SEC to convict apparent television stock talk personality,Courtney D.Smith,of promoting
GenesisIndymedia on business talk stations for
a pay off.
SEC v Courtney D. Smith
http://www.sec.gov/litigation/litreleases/lr19064.htm
Comment by Tony Ryals -
Patchie Poo,
There is no dilution taking place when an FTD occurs. Nor is there any dilution taking place when I engage in naked short selling. If these companies and their managements are making decisions to dump stock at current market prices, then the only culprits you can blame for the dilution that takes place are these companies’ managements.
As for the fee recapture strategy that these funds are trying to pursue, it’s an interesting strategy. But I suspect they will have as much success against the broker/dealers that Jag Media had with its four attempts to shake down the investment community.
Comment by James Brownfield -
James,
If a Hedge Fund pays a fee for a borrow and the borrow never happens despite being told it did – is that a naked short?
Now, if there is substantial levels of this taking place on focused companies would that dilution impact prices? Remember, every company that discusses issuing more shares makes claim that the dilution will impact stock price. As a matter of fact, you use that in every arguement you make. So, does dilution impact stock price?
What I am amused is that the short sellers made money in the short sale, they are just pissed they lost margin in paying fees for services not rendered. Prior to this issue escalating that fee was passed off as a bribe. Now the Hedge Funds are distancing themselves from the FTD’s in order to protect themselves from the implosion.
BTW..did you read the WSJ today – More NASD/NASD enforcement of naked shorting abuses pending.
Comment by Dave Patch -
Patchie Poo,
This gives you scammers a nice diversion, doesn’t it? You and your ilk have repeatedly insisted that “naked short selling” harms companies and harms investors, despite a mountain of evidence to the contrary. Now this petty little, fee-oriented lawsuit gets filed and you interpret it as confirmation that all of your rants about “naked short selling” have some basis in reality.
You, Patch, Faulk, and all the other fags will undoubtedly make a lot of noise over this hedge fund plaintiffed lawsuit. And as always, you all will have missed the point. The lawsuit is about fees, and nothing more, has nothing to do with the legality of naked short selling itself, and asserts nothing about the damages anyone might incur from the activity of “naked short selling”.
But by all means have fun using it as a tool to tout your next pump and dump.
Comment by James Brownfield -
Now if Mark was smart he would see what the issue is all about. It appears the hedge funds are not pleased that teh firms have tapped into their profits by ccharging borrow fees without actually borrowing. Same as a long shareholder paying a commission for not getting a trade settled.
Firm sues 11 banks over “naked” short-selling fees By Jonathan Stempel
Wed Apr 12, 7:46 PM ET
A firm on Wednesday filed an antitrust lawsuit against 11 major U.S. broker-dealers, accusing them of colluding over six years to collect unearned fees as a result of a “naked short selling” practice.
In its complaint filed with the Manhattan federal court, Electronic Trading Group LLC accused the defendants of improperly charging fees by failing to borrow or deliver stock needed to back short sales, essentially resulting in “phantom” transactions. The plaintiff seeks triple damages, and the lawsuit seeks class-action status.
Defendants include the broker-dealer units of Bank of America Corp. (NYSE:BAC – news), Bank of New York Co. (NYSE:BK – news), Bear Stearns Cos. (NYSE:BSC – news), Citigroup Inc. (NYSE:C – news), Credit Suisse Group Inc. (CSGN.VX), Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc. (NYSE:GS – news), Lehman Brothers Holdings Inc. (NYSE:LEH – news), Merrill Lynch & Co. (NYSE:MER – news), Morgan Stanley (NYSE:MS – news) and UBS AG (UBSN.VX).
Short-selling involves a bet that a company’s stock will fall. Typically, an investor sells borrowed stock, and hopes to buy it back at a lower price to replenish the lender.
In a naked short sale, the investor sells stock that has not yet been borrowed. Naked short selling is usually illegal, in part because the stock supposedly underlying the transaction may never be borrowed or may not exist. It can be permitted to promote market stability.
The 32-page complaint claims the broker-dealers charged the plaintiff and others for the cost of securities lending, when in fact the broker-dealers did not “cover” short sales, failed to disclose this, and nevertheless charged inflated fees.
“Defendants dominate the market for prime brokerage services to short sellers and tolerate among themselves chronic failures to deliver by which clients are charged for ‘borrowing’ when in fact no borrowing actually takes place,” the complaint said. “Plaintiffs and class members were charged fees, commissions and/or interest for nothing.”
The plaintiffs, according to the complaint, “were being used as pawns in defendants’ naked short selling scheme to their detriment.”
Citigroup spokeswoman Christina Pretto said the lawsuit is without merit. Bank of America spokeswoman Shirley Norton, Credit Suisse spokeswoman Victoria Harmon, Lehman spokeswoman Kerrie Cohen and Merrill spokesman Mark Herr declined to comment. The other banks and the plaintiff’s lawyer did not immediately return phone calls.
Comment by Dave Patch -
In fact Mr.Paul Atkins hints he will pretend otherwise to aid his ex colleague Brent Baker et.al. of the ‘you’re being naked shorted’ penny stock ‘psyops’ campaign.
Comment by Compo -
A sane journalist chimes in from the WSJ with facts on the matter:
http://online.wsj.com/article/SB114480254610823574.html?mod=hpp_us_at_glance_columnists
Comment by Nick B -
So David Patch,do you agree with your buddy Gary Valinoti that JAGH is worth $300 per share as he estimates his company’s shares are worth.Based upon what,Mr.Patch !? Earnings ?
Even his ‘dividend’ was only more worthless shares even more worthless than the first and he blames the brokers instead of himself.He blames Valentine instead of himself but who made a deal with Valentine to rip off JAGH investors in the first place if not Gary Valinoti who sold them out to Valentine et.al. for Mr.Gary Valinoti’s and your economic gain as well Mr.Patch.
Is it you or one of your many aliases that also touts ‘300 million naked shorts’ on ragingbull’s ‘jagh’ message board every day for years ? What do you think of a CEO such as Gary Valinoti,whose ‘company’ does nothing and produces nothing,using the internet to speculate and tout upon the estimated value($300 per share !)for his own company,David Patch ? Is that legal ?And his estimate has 0 to do with the company’s earnings,which don’t exist,only on the supposed ‘naked short’ value of its shares !! Yet he touts more scams on the side through ‘jagnotes’ tout site. But this must be for personal gain because I rarely see jag notes mentioned by Valinoti and JAGH in terms of earnings but it sure touts with false rumors of a Charles Schwab ‘buy out’ or NFI being bought by Warren Buffett, etc. ! But using the internet to speculate upon his ‘company’s’ estimated value($300 per share !)David Patch ? His estimate also has 0 to do with the company’s earning only on the supposed ‘naked short’ value of its shares !!
How long can your fraud go on ?
So in many ways David Patch you are linked to ‘Bermuda Short’ Mr. Patch and are a part of that offshore ‘share-money laundering’ corruption ? Also why is that Canadian penny stock site RGM a sponser of your investigatethesec.com ? And why are you, or Patrick Byrne or James Dale Davidson for that
matter,able to influence and corrupt our Congeress with your lies and frauds ?
From Patrick Byrne’s et.al.’s ‘thesanitycheck’
dot com ‘anti-naked shrt’ scam website :
http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/20/Default.aspx
Re: Why I Stopped Using My Brain, or How I Learned To Stop Worrying And Love Wall Street By gary valinoti on 1/15/2006
Gary Valinoti, this is me Sinking Fund it was a Forbes story
I told everyone who our COUNTERFEITER WAS and he was arrested by FBI……
Now what do we do with ALL these extra stockholders? They have no rights Like the right to VOTE or the right to DIVIDENDS
So we issue a special Dividend, one with no CUSIP (means it cannot be handle by the DTC only physical) Read and watch what happens everyone knows SEC,NASD,BROKERS
This is a link from the NASD UPC site (informs back offices on Wall St how to handle special
settlement issues) again they all know, Read it Twice you must show us your REAL CERT and we will give you a DIVIDEND, just like musical chairs
http://www.nasd.com/web/groups/rules_regs/documents/upc_notice/nasdw_001980.pdf
……………………………..
The STOCK settlement system is BROKEN and Crooks have looted this country by selling stock they never will deliver. Now who will have to pay the BILL if forced settlement is enforced by SEC? Jag’s stock in MY eyes has 300Million naked Shorted with a public float of 40 Million. The stock will go to $300 plus on a short squeeze, And myself and our stockholders all KNOW and wont stop fighting. BUY IN the unsettled TRADE, not GRANDFATHER FRAUD.
– Gary Valinoti
Comment by Tony Ryals -
Gosh, Patchie Poo, you’re certainly one to talk about being off your meds, especially after all the theatrics you staged over Jag Media.
Are ya still holding onto a pile of Jag Media stock, Patchie Poo?
I sure hope so. You deserve what’s coming.
Comment by James Brownfield -
Tony,
Off your meds again I see. The owrld acccording to tony with all teh conspiracy theories centered around James Dale Davidson. Question is; Is that guy a real person? Davidson seems to be involved in everything under teh sun according to you. Actually at one time I was Davidson, then O’Brien, then Mickey Mouse.
Get back on the meds looney.
Comment by Dave Patch -
Well Patch if ‘naked shorting’ were a problem you’d go down in history as one who confused the issue by touting penny pump and dump scams that you and James Dale Davidson,attorney John M O’Quinn et.al.then fraudulently blamed on ‘naked shorting’ to cover your tracks even though the SEC knew and still knows and could bring your scammy websites to an end overnight but don’t.Why ?
You never complain about Reg S and how that defrauds Americans,naive or not,to the advantage of thieves(some Americans) who won’t even pay taxes on what they stole from America through onshore and offshore accounts they use for penny stock pump and dump.Why ? And all those scams claim being victims of ‘naked shorting’ as well such as Stanford University and thus Joseph Grundfest’s and James Dale Davidson’s old Endovasc pump and dump.
David Patch why do you aid Gary Valinoti and his JAGH scam who blamed his own dumping of unregistered shares on ‘naked shorting’ and who was himself involved in the ‘Bermuda Shorts’ scam ? Patchie how much did you make off the old Genemax pump and dump with James Dale Davidson,Brent Pierce,Grant Atkins,et.al. that you also blamed on ‘naked shorting’ ?
Comment by Tony Ryals -
Cuban spins the Goldman Sachs elitist billionaire mantra . You know how those people are brilliant insiders .. the rest of us are schmucks with no brains . Leave em alone . Their just attacking a cancer survivors company for short term gain cuz they need the money.
Comment by Ron D -
Hey Mark,
CNBC/WSJ reporter Charlie Gasparino reported this morning that the Hedge Funds are now about to file a major class action lawsuit against Wall Street for naked shorting. His statements include “This is an issue that is not about just Patrick Byrne and Overstock but about a market issue”.
What say you now? What will your excuse be when the investing pools of the wealthy now take on the abuses? I guess when the rich and powerful speak it carries a higher weight than when individual people speak out on abuses. Something about different standards for different classes of people.
Comment by Dave Patch -
Did anyone take note that this is the one year anniversary of the famed NCANS $100,000 + open letter to W Bush et.al. in the Washington Post ? And the Post has not done ONE article since that time about the mysterious organization that paid for that ad in their paper that Patrick Byrne claimed was sponsored by ‘mom and pop’ investors until he acknowledged he paid for most of it himself ?
A copy of that letter is here.Hey David Patch and Booboo O’Brien,why no one year anniversary celebration ? Huh ?
http://news.com.com/5208-1024-0.html?forumID=1&threadID=8049&messageID=71882&start=-1
Comment by Tony Ryals -
Patchie Poo,
Badian didn’t really do anything to Sedona. He cheated the investment community at large by engaging in trading activity with information that no one else had. And he did violate his agreement no to short the shares. But he was not a cause of what happened to Sedona.
Sedona’s management could easily have put Badian in his place. All they needed to do was to take the capital that was entrusted to them and to effectively allocate it in such a way where the enterprise they ran would generate earnings for its shareholders. Badian and Pond would not have stood a chance in continuing to put a ceiling on Sedona’s shares if Sedona’s management were truly interested in running a viable, profitable company. Just imagine how the spring of 2001 might have been if Sedona’s management didn’t squander the last $4 million they had in shareholder equity.
But Sedona was never built to be a profitable entity. It was built to rape shareholders. And the guys behind the wheel were in the executive suite, just like the guys from Jag Media, Eagletech, and every other disaster where managements burned their shareholders and then pointed the finger at “naked short sellers”. That they can engage a twerp like you to help cover their tracks simple adds insult to injury. (Tell Lester and Russ that I said, “Hi.”)
Over $60 million has been exhausted by Sedona management. “Naked short sellers” didn’t prevent Sedona from raising tons of capital and “naked short sellers” didn’t force management to waste most of the capital they raised on obscene levels of general and administrative expenditures. The real cowardice we’re seeing right now is with those parties, like you, Faulk, “O’Brien”, Reeves, Burrell, and the rest, who would continue to divert attention from what is clearly and obviously a pattern of managerial misconduct.
Unfortunately for you crooks, the 10-Q’s and the 10-K’s don’t lie. And the irony of it is that those SEC filings get prepared and filed by the very crooks who are raping the shareholders.
Comment by James Brownfield -
James, I guess by your comments and Marks approval that it is okay to do what teh SEC claims Badian, Pond Securities, and the Industry did to Sedona. Your cowardice impresses me.
Do you beat up on old ladies, steal from the handicapped, and rape the little girls too? What part of manipulation and fraud do you not understand? What part of “sell with unbridled levels of aggression” (illegally) do you not understand?
I am actually impressed that cuban thinks the same way you do. It shows how the degenerate of our society think. “As long I win, who cares about the rest of society”. Hopefully you have no children to carry on with your genes.
Comment by Dave Patch -
Patchie Poo,
Are you suggesting that it was “naked short selling” that caused Sedona’s management to blow through all but $10,000 of their remaining common equity during the first quarter of 2001?
Comment by James Brownfield -
The issue of naked shorting and the abuse it causes is never better explained than with the SEC Civil complaint filed this week.
http://www.sec.gov/litigation/complaints/2006/comp19639.pdf
The language in the transcripts shows the malice intent to drive Sedona out of Business. The language and brazeness also provides insight on how this well oiled machine, operating on all cylinders worked.
Anybody that thinks this is an isolated event is absolutely insane. The recent regulatory activities show how widespread this is/was as no two common parties to a regulatory action come up.
Now Mark and his Hedge Fund croonies can say that this doesn’t exist, but deny this document and deny the transcripts. Personally, as I see it this line by Spinner “Want to short something illegally for twelve months? You got my number.” Says it all. Want to sell short illegally for a year.
Comment by Dave Patch -
Tony,
You are bat !@#$ crazy. Perhaps a class on composition could do you well. You might even sound more eloquent than the ranting bum I passed by today– although I doubt it.
Claude
Comment by delhiny -
I wrote the following about Robert Shapiro,the DTCC,attorney O’Quinn,James Dale Davidson etc. after the DTCC published its recent press release stating Robert Shapiro ‘is full of it’,approximately.But also the DTCC stated
that the SEC sided with them against Robert Shapiro’s and attorney John M O’Quinn’s ‘naked
short selling’ claims.In fact it has been because of the SEC’s refusal to stop the false naked shorting claims over the internet by a few well connected penny stock con artists,and in the case of ex SEC attorney Brent Baker outright complicity in the scam,that it has grown to the proportions it has.
The SEC has never acknowledged the fact that the ‘naked shorting’ claim is being made on a broad scale by fraudulent pump and dump promoters who are often most guilty of dumping shares faster than the SEC can or does audit those shares.In fact Mr.Paul Atkins hints he will pretend otherwise to aid his ex colleague Brent Baker et.al. of the ‘you’re being naked shorted’ penny stock ‘psyops’ campaign.Paul Atkins claims ‘naked short selling’ is a serious problem but makes no mention of the more serious fraud occuring right now in its name and that is illegal pump and dump scams that stretch as far away as Dubai and as close as the Beltway where money laundering may be involved with U.S. penny stocks !
Is Mr.Atkins concerned about this ? He has no further to look than http://www.belladorgroup.com on his computer search.They have used undeclared numbers of Endovasc and possibly Applied Micro Devices shares around Asia and the UAE I believe and their U.S. attorney in Arizona, Mr.Ron Logan,awaits Mr.Atkins queries, such as why did attorney Logan fraudulently claim Endovasc was ‘naked shorted’when Bellador Group’s Mr.Taylor and Endovasc’s Dwight Cantrell and Robert Johnson seem to have allowed untold number of Endovasc shares(the deal is unreported in Endovasc SEC filings) to be dumped around ? IF THE SEC DOES NOT EVEN AUDIT THESE SHARES HOW CAN THE SEC PREVENT THEIR USE IN MONEY LAUNDERING ? MY GUESS IS THEY CAN’T AND WOULD HAVE TO ADMIT THAT IF A BOILER ROOM OR BELLADOR GROUP WANTED TO THEY COULD LAUNDER MONEY WITH ENDOVASC OR OTHER U.S. SECURITY ALL BECAUSE THE SEC REFUSES TO AUDIT AND ALLOWS IF NOT ENCOURAGES THEM TO DEAL OFFSHORE IN U.S. PENNY STOCKS AND ‘SECURITIES’.
Until SEC officials can put Bellador Group in their vocabulary,as they are occasionally in SEC filings, and Dubai and UAE and Kuala Lumpur,etc. and unaudited U.S.shares they deal in and possible money laundering that could occurThese are the kinds of entities that benefit from ‘naked short’ claims in the first place,people who also are in need of laundering dirty money through penny stock transactions.If the SEC refuses to audit shares then it is probably aiding money laundering.
If Endovasc that has made a fraudulent claim of being a victim of ‘naked short selling’ were the only U.S. stock potentially being used for illegal pump and dump and boiler room ops in the UAE etc. that in my opinion would be too much.As I have said before SRA International appears to have been recommended by Mr.Taylor and his Bellador Group to his clients in Dubai and elsewhere in the past.
This is a CIA In-Q-Tel investment but one that also gives the CIA and thus the President a ‘daily briefing’ ! Why is a Dubai boiler room promoting its shares !? Even more bizzare
is the fact that SRA International is the well paid ‘IT’ for the SEC,GAO,and so many more U.S. and military-internet complex deals as well as the creator of Mantas anti-money laundering software..
When I ‘invested’ in a Stanford patent I had no intention of losing my money to a boiler room in Dubai in which money laundering with U.S. shares appears to be involved and false claims of ‘naked shorted’ would be used and accepted by the SEC in the cover up.But that’s what happened.For all I know I have aided terrorism thanks to my government and the SEC. If the SEC thinks it is doing some kind of ‘patriotic’ duty in allowing money laundering with U.S. penny shares in Dubai, etc.,while the guilty parties scream ‘naked shorting’ as a distraction I think they are terribly misguided.
In fact many families of 9/11 and Americans killed and wounded in Iraq and Afghanistan and their families would curse this treasonous behavior of SEC or U.S. government officials and employees as well.And it does not stop money laundering by anyone one in Dubai,UAE.In fact the SEC’s or CIA’s or DOJ’s or FBI’s attitude encourages money laundering in Dubai,etc.,at present,with U.S. ‘securities’.
Clinton connected Robert Shapiro,James Dale Davidson,attorney John M O’Quinn stock scam
http://thunderbay.indymedia.org/news/2006/03/22806.php
Comment by Tony Ryals -
Those who keep saying that all naked short selling is legal don’t know the law.
All naked short selling is not legal.
All naked short selling used for other than market making purposes is illegal.
All naked shorting without explicit SEC approval for 30 days, on REG SHO securities, is also illegal.
It’s the law of the land per SEC rules.
Comment by tommytoyz -
This may explain why Patrick’s father (Jack) has trouble getting “fills” from his Morgan Stanley (MS) broker:
http://www.hereisthecity.com
Apparently the IT Group spends all day long shredding e-mails, sending each other love notes, and/or requesting season tickets to the Yankees’ home games.
No wonder their (MS’) on-line trading platform, ClientServe, is messed up so often. The IT Group, which is responsible for maintaining it, spends their time doing other things.
Has anyone mentioned this to Patrick’s father, Jack or his broker?
Comment by Commission Paul Atkins/Roel Campos Fan -
Hi Mark,
The following blog entry has some communication between Patrick and his brokers.
http://dardashti.blogspot.com/2005/10/message-from-dr-patrick-byrne-of.html
I’m not sure about the authenticity of the messages but it looks like there have been a lot of shares that have been failed to deliver and the duration they have been so also seems longer than expected to be not considered naked.
Comment by Senthilnathan N.S. -
James,
You’re right about one thing, the issue is simply about the Failures to Deliver (FTD’s).
The solution is just as simple. Settle the trades (deliver to the rightful owner the property they paid for), put the law-breakers behind bars, and fix the system. Then we common folk can get back to growing our personal wealth with integrity, dignity, and grace.
For those that have come by your own personal gain legitimately, congratulations and enjoy. For those that have not, may the next lesson you learn begin with “You have the right to remain silent.”
Comment by smuopr8r -
Wow! Well, Looks to me like sooner than later, naked shorter may feel a squeeze from regulators. If we learned anything from the last cause of the stock market bubble and downfall is to manage the market by applying preventive measures. I feel the time has come to prevent naked shorter from abusing the market place, if at all possible. How could the average middle class person ever feel like wanting to get involved with all this side actions and scams going on? Just reading this article, however real, makes me think twice about ever wanting to invest in anything in this market!
Comment by Mitchell -
Anon
You’ve got it. Everything except the 10-20% swings at the bottom-end of the short that enables the hedgefund to buy back the original short without inciting a short squeeze. The example I like is:
ABCD is $50 per share. Fund A sells 3 million shares short to the market, for an average price of $45 per share, grossing $135 million. Then Fund A repeatedly sells 100 shares short to its cohort Fund B without borrowing the shares for delivery, letting the DTC automatically send Fund B the shares after 13 days from their “fungible mass.” Fund A hands the money back to Fund B, Fund B hands the borrowed shares over to Fund A, and Fund A hands the shares back to the DTC, covering their obligation of automatically borrowing them. Lather, rinse, and repeat until the price is $8 per share. Fund A then uses the $135 million to buy back the original short (and all of the bogus trades with Fund B) back over some time, with an average price of $11 per share, paying $33 million for the original short, and another $10 million for the media machine bad mouthing ABCD company at just the right time, netting $82 million for the effort. Wish I’d thought of it first, but I didn’t, this simple example is documented in an interview of a former employee of the DTC at theSanityCheck.com.
Comment by smuopr8r -
smuopr8r,
No, SMU, we’re not going to deliver. At least, not until we’re good and ready.
We can naked short Overstock, on our terms, legally, for as long as we want. Your focus on this minor annoyance, however, is misguided. You should be asking yourself why so many people like me are willing to commit our precious capital to a position that only generates profits when Overstock’s share price declines.
We’re not really caught up in the petty bickerings of a “Bob O’Brien” or a cretin like David Patch, though we do find their outbursts entertaining. We’ve done our homework, very carefully read the 10-K’s and 10-Q’s, and completely understand what kind of a company Overstock is. We do the same for any other short candidate that catches our attention.
The populist angle is all so sentimental. You’re right. Decent hedge fund managers don’t have to sweat the cash for next month’s groceries or buying gasoline for the Buick. Some of us spend absurd amounts of money on extravagances that are bound to irritate middle Americans… especially those middle American’s who invest their hard-earned money without doing any research whatsoever.
But whether I have a helicopter pad on my roof or a fleet of rare, Italian sports cars in my garage isn’t really the issue. The issue is always about understanding the fundamentals of investment management. Sooner or later, you may come to understand this.
I sincerely hope the lesson doesn’t come to you at great expense.
Comment by James Brownfield -
Your comment about Grizz and Clipps bang on. Current system ridiculous. But Grizz and Clipps can only take playing for the 6th spot so far, Lakers heating up (6 of 7)and within reach, they’ll keep Grizz and Clipps a bit more honest down the stretch.
Comment by Grant Kvalheim -
I’ve been following this story as a shareholder of another target company. Here’s how I think the game is being worked:
At the core are the main players, who decide on targets that they are going to run up and dump, or ‘short and distort’. No difference to them, but downward stock price motion is easier to engineer and pays off faster. Their tools include actual research they do, paying insiders for dirt (or they just get it from former employees in exchange for a nice dinner and a sympathetic ear), substantial legal short sales, “strategic” Failed-To-Deliver sales (AKA naked short selling — although most likely marked as long sales when entered as orders), and large options trades like reverse conversions. In the ring to execute the game are a couple of ‘independent research’ outfits, a few ‘sympathetic’ reporters, a class action law firm or two, some mid-level SEC staffers willing to listen and ask questions with authority of the Agency, and “flexible” prime brokers that can add their market-maker proprietary trading desks to the momentum when it makes sense to them. It’s Jesse Livermore updated for the electronic age.
When the main players have set up a target, they help the research guy draft a report to distribute to the second circle of players. Those players pay $25K to $50K per year for some reasonably written biased reports that provide cover for their coordinated trading. They can overwhelm the general market’s buying or selling with their levered capital in any but the largest cap active stocks. The hundred or two hundred subscribers don’t even have to talk to each other — they just have to act at the same time when they receive the report.
The next circle is the smaller hedgies and individuals, who pay the reporters’ employers $250 to $2K a year for special subscription news services that often quote the research and/or (anonymously) the original main guys themselves with some snappy sound bytes that are, more often than not, really scary sounding. This last circle has learned over time that they can jump quickly and make some fast money following the “news”. These players jumping in let the second circle get out with a profit. They take their profit here because they don’t know whether the main players have decided to use the full set of tools at their disposal; only the original crew knows what they will do with any given situation.
The final act is for the reporters to distribute the story to the general public together with as much headline-value “news” about the target as possible, which helps the $2K per year subscribers get out with their day-trade profits, and generates enough volume and mom-and-pop selling for the main players to get out of their original position at maximum profits. If the original short position is really large, or if the play so far doesn’t give the desired profit, the next slavo is fired. Class action lawyers file lawsuits against the company. The SEC staffers initiate informal inquiries, possibly based on the ‘dirt’ that came from insiders or former employees. The main players make sure the reporters are kept up to date on these developments so they can ‘break the story’ of the informal inquiries, the lawsuits, any old licensing issuers, lies on executive resumes, or whatever else it might take to create an atmosphere of fear and sense in the investing public that there is a lot of bad stuff going on at the target company. Reporters payoff is simple — they get to break stories and sell a premium service, allowing them to easily rise in their profession and pay, without even having to work very hard at it. Rinse and repeat as needed.
It’s very much analogous to Milken’s setup. He, his brother and a small handful of others committed to invest in each new deal less reallowance and concessions, plus privately issued deep discount warrants, even before the highly confident letter was issued. Next came the circle with the likes of Executive Life and Beverly Hills Savings, who got in on the offer level, possibly with discounts as well. Next the resale onward to smaller institutions and those larger institutions that didn’t ‘play ball’ on every deal. Finally the public.
The SEC subpoenas were issued knowing all the sources and the topics, with specific names of the counterparties talking to the reporters (five of them), and specific topics (five stocks). The SEC enforcement staff is simply filling in the time line in the web so they can present the whole repeated pattern of criminal manipulation to the prosecutors. There is *nothing* in this that threatens freedom of the press, unless you think the press should be free to commit felonies at will. They are not asking for *all* notes, or *all* communication, just the specific ones that they already know exist, in order to establish the pattern and timing of the criminal activity. The civil lawsuits are just keeping the SEC convinced it needs to do its job.
Comment by anon -
James,
It’s good to have people like you participating in our markets.
It’s what keeps us on our toes.
It’s simple. Deliver the millions of shares that continue to fail to delivery. Period. How can that spun, questioned, rationalized or misunderstood? The DTC admitted directly to the CEO of Overstock.com that it has on record more shares short than there are shares available to trade. Repeat: more shares short that there are shares released by the company to trade. 7% more. How can that be spun, questioned, rationalized, or misunderstood?
Answer: It can’t. But why bother admitting that, when all you really have to do is question the credibility of the communicator…that’s too easy, just introduce the plausible doubt, works every time. Well, it used to work every time. Lately, it hasn’t worked on the producers of 60 minutes…or for the Lead Prosecutor for the State of Connecticut…or half of the journalists on CNBC’s Squalk Box…or me. And every minute that goes by another light bulb goes on for another batch of the millions just like me that will eventually force the market reform needed to ensure all trades settle in three days or revert (yes, commissions included! ), the criminal hedgefund managers robbing the American public blind to build skating rinks in the back yard are put in jail, and the integrity of the world’s most free market is restored.
Comment by smuopr8r -
Mark,
It’s not easy to be green, huh?
Comment by kissing ass -
Naked shorting exists.
Naked shorting does not exist.
The truth? Nobody knows the truth. Not a single person. Nothing can be proven definitively. Not one thing.
These ideas we claim as facts or truths could be more accurately described as supposed facts or generally accepted theories. Science, mathematics, everything is theory. Think about that.
So what does any of this have to do with the topic of naked shorting? Does naked shorting exist or does it not? Perhaps the TRUTH of the matter is whatever you choose to believe. In other words, maybe each of us experience our own subjective version of reality (within the consensus reality) based on our individual beliefs. If you believe naked shorting exists, perhaps it literally does exist in your experience. If someone else believes otherwise, that version of reality might manifest for them (literally) and be equally valid and true.
Naked shorting exists.
Naked shorting does not exist.
Jim Parham ~ Yuba City, CA
Comment by BlogMason -
So now Bozo O’Brien defines a naked short as,’Naked short is a euphemism for a sale transaction that results in an undelivered share.’Guess they’ll have to create a new website for that one or perhaps half a dozen.
And what do you call your pump and dump scams that unleash millions of worthless shares on the market,’anti-naked short selling’ ?
And the self righteous self dealer David Patch offers his ‘words of wisdom’ – NOT.WHEN HAS DAVE PATCH EVER LAMENTED HIS PAL GARY VALINOTI DUMPING ALL THOSE UNREGISTERED SHARES AND CALLING THEM ‘NAKED SHORTS’ ? And what caused most damage to the Jag Media Holdings bag holders,’naked shorts’ or the very real shares insiders to the JAGH scam dumped ? Huh,Mr.Patch
and Bozo O’Brien ?
And Paul Atkins may be part of the ‘you’re being naked shorted’ fraud as well just as ex SEC Brent Baker was and is.He has made very incriminating claim that ‘naked shorting’ is a big problem.Nevere one mention of those who use the claim for fraud to divert attention from illegal pumps and dumps as is the majority of cases.Somehow he just didn’t notice.
So now Bozo O’Brien defines a naked short as,’Naked short is a euphemism for a sale transaction that results in an undelivered share.’Guess they’ll have to cvreate a new website for that one or perhaps half a dozen.
And the self righteous self dealer David Patch offers his ‘words of wisdom’ – NOT.WHEN HAS DAVE PATCH EVER LAMENTED HIS PAL GARY VALINOTI DUMPING ALL THOSE UNREGISTERED SHARES AND CALLING THEM ‘NAKED SHORTS’ ? And what caused most damage to the Jag Media Holdings bag holders,’naked shorts’ or the very real shares insiders to the JAGH scam dumped ? Huh,Mr.Patch
and Bozo O’Brien ?
And SEC’s Paul Atkins may be part of the
‘you’re being naked shorted’ fraud as well just as ex SEC Brent Baker was and is.He has made very incriminating claim that ‘naked shorting’ is a big problem and hinted that ‘bashers’ or ‘cyber smear’meaning those who generally tell the truth about a stock are the problem.And John Reed Stark seems to me to be the most responsible for bringing forth and hosting David Patch,James Dale Davidson, PatrickByrne,ncans.net,thesanitycheck,CFRN,
dailyreckoning or Agora Inc.,buyins.net, investigethesec,AND THE YAHOO RAGINGBULL TOUTERS and all the fraudulent penny stock and ‘naked shorting’ websites to begin with.It’s all happened under his internet reign of ‘securities’ terror.
What I personally don’t understand is why Bellador Group of Dubai,UAE and Kuala Lumpur, Malaysia is given carte blanche to dump U.S. penny shares around the world including shares of Stanford and James Dale Davidson’s old Endovasc pump and dump and why the SEC does nothing about it ? Did they ever hear about 9/11 and the Bush administration’s vow to fight money laundering ? Then why does the SEC provide unaudited U.S.penny stock shares to the likes of James Dale Davidson,Bellador Group
et.al. to run pump and dumps and probable money laundering with unaudited U.S. penny stocks in Dubai,UAE and Nicosia and Kuala Lumpur,etc. post 9/11 ? I don’t get it.
Hey Bozo why’d you remove my posts from your scam message board ? Are you really James Dale Guckert and is SEC’s Cox going to bring you in for impersonating a journalist ? Is your board still popular in Kuwait,Dubai,and UAE or Saudi Arabia as it has been rumored to be ?
John Reed Stark UAE,SEC,Georgetown University Stock fraud Academic fraud Cyber fraud
http://colorado.indymedia.org/newswire/display/12746/index.php
Comment by Tony Ryals -
smuopr8r,
It’s nice to have people like you participating in our markets.
It’s where we get our Alpha.
Comment by James Brownfield -
James,
Sure, I honestly do feel sorry for people who thought NFI was a safe investment and got burned by the short-selling, but I put that bit about retiree’s investments in my last post as bait, and you took it hook, line, and sinker! Again with the “If people don’t know what they’re doing, they shouldn’t be investing” angle. Pathetic!
The FOIA data could be about OSTK, or DAL, or any of the stocks currently on the Reg SHO list for all I care. It is what it is, and there’s no refuting it to those who know what it is: the over 3 million shares that were not delivered (“Failed-to-deliver” (FTDs)) to the rightful owners from the sellers in the settlement of trade transactions by the end of 2004. It’s a clear indication that the system is broken and must be fixed for the market to legitmately represent the true market value of a stock. You can’t and won’t admit you understand that because you’re nothing but a short-shill fish looking for the next worm to eat…thanks for taking the bait, and good luck with the spin-doctoring.
Settle the trades, fix the system, and bring transparency to the market.
Mark, take your own advice. Close out your short in OSTK, get on the right side of this thing, and focus on legitimate business and philanthropic efforts. You don’t need to be running with the law-breaking wolf pack.
Comment by smuopr8r -
Messrs. Cuban, Patch, Saunders, et al:
First of all, let me start out saying I do not speak for the Commission and any/all comments are my personal opinion.
Permit me to thank you all for not using 4 letter words which don’t trade on the NDAQ. That YHOO board for OSTK is a mess. The last time I heard so many 4 letter words which don’t trade on the NDAQ was in boot camp.
You will be pleased to note that the NASD will have a new rule in place this summer with respect to reporting short positions in penny stocks. I am told 2 of you 3 like to invest in that sector:
http://www.nasd.com
Thanks very much for reading Commissioners’ speeches. Tune in daily at your leisure:
http://www.sec.gov
FD: My name’s not John Nestor.
Comment by Commission Paul Atkins/Roel Campos Fan -
smuopr8r,
I, too, feel very sorry for the elderly MREIT investors who thought the “income” real-estate investment would be safer than some risky “growth” portfolio investment. It’s never fun seeing people make investment mistakes. But we can at least try to show people how to avoid making them in the future.
Their misunderstanding of the risks involved in an MREIT doesn’t make that risk go away and it certainly doesn’t have anything to do with “naked short selling”. Blaming “naked short selling” for their mistakes is not going to fix the mistake they’ve already made, and it’s not going to help the next batch of investors avoid the same mistake.
And furthermore, no one is well-served by a senior securities regulator who doesn’t know the first thing about investment analysis.
Comment by James Brownfield -
Puleeez. The name calling is simply pathetic. Bob and Tommy post the actual Freedom of Information Act (thank you Congress for that legislation) data clearly illustrating the abusive 3 million share failed-to-deliver condition of NFI during 2004, and all you can say is “Oh, dat’s jus too bad for da poor widdle stock holders who can’t stand to see the pwice go down.” Yes, we individual investors have to live with poor investiment decisions, true that. But so should the hedgefund managers who short a stock for which the price goes up! But they don’t, and we all know it now. Instead, they break the law. They collude to sell shares for which there are none to borrow, to flood the market with counterfeit sales transactions and bring the price down, and pay-off hacks in the media to say bad things about the stock for them, all so that they can build a hockey rink in their back yard. I feel very sorry for the elderly MREIT investors who thought the “income” real-estate investment would be safer than some risky “growth” portfolio investment. For their sakes, the FTD’s should be stopped, the hedgefunds forced to buy back in and settle the trades, and then, just maybe, they old folks living off of a portfolio of income generating companies can have another day’s reason for happiness. Maybe this whole issue is just simply above your heads. Or maybe you just aren’t willing to admit you’re on the wrong side of something. Or maybe, just maybe, your trading decisions are just as bad as the hedgefund whose short is losing money and your just as pathetic in you manner of supporting their position as they are in breaking the law to turn their bad trade around. Doesn’t matter, none of this does. Your baseless retorts won’t hold-up jack in court or with prosecutors now starting to bring this issue and the abusive hedgefunds to justice. Good luck with your “first right of denial/slam the credibility of the whistle-blowers” campaign, you’re gonna need it. Mark, on a personal note, I know people who think it’s “fun” to play Devil’s advocate with emotional issues without really understanding much of what they are talking about. They invariably end up having to lie to cover their ignorance, and are the loneliest people I know.
Comment by smuopr8r -
“What you do with your broker, frankly, is between you and your broker. My stance has been, and remains, that “naked short selling” has been used by scammers like Patch and BooBoo and plenty of others to divert attention away from fundamentals. Now, Novastar and Overstock may not look like the scams in which Patch has gotten himself entangled, but what remains perfectly clear to anyone who can find and read a 10-K or a 10-Q is that neither of these companies have been impaired by “naked short selling”.”
But their stockholders have. Regardless of it’s effects, an illegal activity is still illegal. Naked short selling does occur in Novastar, and it is illegal. That is a matter of fact. Whether it has hurt the company per se is a matter of opinion which I don’t care to discuss with you.
Comment by claude -
No facts? Go find the transcript from the November 30th NASAA forum.
Those quotes came DIRECTLY from Ralphie Boy.
Comment by James Brownfield -
claude,
What you do with your broker, frankly, is between you and your broker. My stance has been, and remains, that “naked short selling” has been used by scammers like Patch and BooBoo and plenty of others to divert attention away from fundamentals. Now, Novastar and Overstock may not look like the scams in which Patch has gotten himself entangled, but what remains perfectly clear to anyone who can find and read a 10-K or a 10-Q is that neither of these companies have been impaired by “naked short selling”.
If it is really so important for you to get certificates for your Novastar shares, I can probably find someone who will get them for you. Let me know if this is really an issue for you.
If you’re going to invest in MREITs, then you need to be taking into consideration that their ongoing capital raising needs present a risk to you as an investor. In fact, I believe that very risk is disclosed in their 10-K. However, a decision NOT to raise more capital is always a choice that Novastar, or any other MREIT, has a right to make. They do have other alternatives.
But if they continue to raise more capital with share issuances, then it says something quite interesting about the attractiveness of their alternatives.
Comment by James Brownfield -
Oh– that was a great link. A blog with 3 posts, that has no facts what-so-ever.
Comment by claude -
James,
Are you claiming that the transaction i make between my broker to buy shares of a public company is a private transaction? I should have no expectation that I’m getting actual shares despite those being the terms of our agreement?
I agree with your second point WRT fundamental right. However for MREITs it is difficult to simply wait until terms become more favorable since they are a business in constant need of capital. NFI has luckily not had to frequently raise more capital since the stock price has tanked by holding on to their earned income as long as legally possible.
Claude(I’m not bobo– just posted that last one for him)
Comment by claude -
Patchy Poo,
Actually, the pricing in a lot of “naked short sales” move in the opposite direction… away from an “options” pricing model. Most options have a time-based premium built into them. The tendency with a private, “naked short sale” is for the transaction to be done at a discount.
Comment by James Brownfield -
BooBoo/claude,
You’ve got to stop drinking the Kool-Aid. “Naked short selling” is not illegal. You can’t do it, or at least you can’t do it consistently, through our current broker/dealer regime, but it is possible, and legal, to engage in “naked short selling” in private transactions.
Furthermore, there is, to my way of thinking, no fundamental right to raise additional capital, at prices that you or company management deems “acceptable”, in our financial markets. You and your company’s management simply get to decide whether the current terms being offered to you in the public markets are acceptable. If they’re acceptable to all parties involved, then do your secondary and move on. If they’renot acceptable, then don’t issue more paper. The decision is a simple one to make.
We have seen what kind of politicians and regulators have been ensnared in your scam. Wonder why Senator Bennett hasn’t breathed another word about Global Links?
Wonder how Ralph Lambiase is doing?
Oh yes…
http://nakedshortlie.blogspot.com/
(Oh, and ANY positive number, discounted by 130%, give you a negative number. Even Darren probably knows that.)
Comment by James Brownfield -
To put it into the most basic terms, so you and your ilk don’t get all fuzzy headed and confused, imagine you paid $20K for a Fancy watch as a gift for your dad. He opens the box on his birthday, and instead of a watch, there is an IOU from the jeweler indicating that he owes you a Fancy watch. Outraged, you take it back to him, and he says that it is equivalent to a Fancy watch, really, as he is good for it at some undetermined time in the future, and that it is readily sell-able, just like a real Fancy watch is.
Fine. You want to sell it back to him, and get your $20K back. Ahhh, he says, but Fancy watches are not selling for $20K anymore, as there is a huge glut of them in the market. Now they are selling for $12K, and that is all he can give you.
How can that be, you ask – that was a limited edition , and they only made 2000 of them.
Well, he responds, the price has plummeted because 30K of them have been sold. So now they are worth $12K.
James, you are either brain dead (doubtful) or are trying to advance an apologist agenda that argues that an illegal manipulative trading practice isn’t really hurting anyone (likely). Why you would argue this is up for grabs. My example is exactly what is happening in the equity markets, and the sort of FTDs that we have seen with NFI are both hugely damaging, and illegal. You might want to consider this analysis of the FTDs and the conclusion reached: http://www.cxoadvisory.com/blog/
So, to recap: FTDs are illegal except for limited bona-fide market making. The NFI FTDs are not bona-fide market making, as evidenced by their duration and steady climb (see study above). Thus, they are an artifact of a deliberate manipulation. Stock manipulation is illegal. Arguing that stock manipulation is good, as it allows the gods of the market (whoever you deem superior) to rectify absurd valuations (as defined by you) is a puerile and absurd position – like saying murder is OK for vigilantes as they can “tell” who “deserves” it.
I would suggest if this is the best your reasoning can do, that you are in the deep end of the pool without a floaty, and would do well listening more, and spouting inanities less.
Respectfully,
AKA Bobo
Comment by claude -
When money is exchanged by a buyer to a seller for a share of stock, to deliver something wholly lacking 100% of the rights the buyer purchased, is fraud. That is what it is called when you take money for item A, and then fail to deliver it, replacing the item with an IOU.
Comment by claude -