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Naked Short Selling
- Thread starter flytiger
- Start date
Five years, $85000 fine. Gee. Bet they'll never do that again. This is the crux of the problem. Insufficient punishment. Canaccord is a real bad guy, btw.
http://www.thestar.com/printArticle/233374
Canaccord fined over short sales TheStar.com - Business - Canaccord fined over short sales
Supervision inadequate, industry regulator rules
July 07, 2007
VANCOUVERâThe Investment Dealers Association of Canada has fined Canaccord Capital $85,000 for failing to adequately supervise an account and not restricting an unfair strategy called "naked short selling."
The industry regulator said yesterday Canaccord failed to "establish procedures which would enable it to detect whether the trading in the account was fair to other market participants or contrary to the public interest."
According to a negotiated settlement reviewed by a hearing panel June 29, the activity took place from November 2001 to November 2002 and involved two Toronto-based employees who dealt with options. They were responsible for managing the assets of Stonestreet LP, a hedge fund with an account at Canaccord, and, according to a statement of facts, were involved in "naked short selling," which involves short selling without first having borrowed the shares.
The seller then may be unable to deliver the shares to the buyer when due.
Stonestreet's trading strategy involved securing private placement deals in which it bought shares at a discount, then "sold short the issuer's underlying common stock by initiating `naked' short sales in the Stonestreet account," the agreement said.
"Stonestreet LP continued to short the underlying stock until the accumulated short position was approximately equal to the number of shares that Stonestreet LP would receive through the private placement. Eventually, the shares purchased in the private placement were used, either directly or indirectly, to close out the accumulated short positions. This trading strategy generated profits for Stonestreet LP on the difference between the short sale price and the discount price of the private placement."
The panel ruled the strategy was unfair since Stonestreet began the short sales with advance knowledge of the private placement.
The panel ruled Canaccord supervisors were aware of the unfair strategy but failed to restrict
http://www.thestar.com/printArticle/233374
Canaccord fined over short sales TheStar.com - Business - Canaccord fined over short sales
Supervision inadequate, industry regulator rules
July 07, 2007
VANCOUVERâThe Investment Dealers Association of Canada has fined Canaccord Capital $85,000 for failing to adequately supervise an account and not restricting an unfair strategy called "naked short selling."
The industry regulator said yesterday Canaccord failed to "establish procedures which would enable it to detect whether the trading in the account was fair to other market participants or contrary to the public interest."
According to a negotiated settlement reviewed by a hearing panel June 29, the activity took place from November 2001 to November 2002 and involved two Toronto-based employees who dealt with options. They were responsible for managing the assets of Stonestreet LP, a hedge fund with an account at Canaccord, and, according to a statement of facts, were involved in "naked short selling," which involves short selling without first having borrowed the shares.
The seller then may be unable to deliver the shares to the buyer when due.
Stonestreet's trading strategy involved securing private placement deals in which it bought shares at a discount, then "sold short the issuer's underlying common stock by initiating `naked' short sales in the Stonestreet account," the agreement said.
"Stonestreet LP continued to short the underlying stock until the accumulated short position was approximately equal to the number of shares that Stonestreet LP would receive through the private placement. Eventually, the shares purchased in the private placement were used, either directly or indirectly, to close out the accumulated short positions. This trading strategy generated profits for Stonestreet LP on the difference between the short sale price and the discount price of the private placement."
The panel ruled the strategy was unfair since Stonestreet began the short sales with advance knowledge of the private placement.
The panel ruled Canaccord supervisors were aware of the unfair strategy but failed to restrict
In the interest of equal time, I post the DTCC response to the WSJ article. I've been terribly misguided all this time. The say Naked shorting is a trading strategy. Silly me. Never mind.
http://www.dtcc.com/news/press/releases/2007/wsj_response.php
I think this one comes directly from the bullshit dept. Eat up boys. Plenty more where this came from.
http://www.dtcc.com/news/press/releases/2007/wsj_response.php
I think this one comes directly from the bullshit dept. Eat up boys. Plenty more where this came from.
Good post on the DTCC. Now what? You have to give the DTCC props for being forthright in answering the questions. Obviously it is your perogative to opine it is bullshit but what other responses are you going to get out of the DTCC? The case is closed as far as they are concerned. The naked short ball is not in their court.
True story. There was a documentary on tv one evening about a dam. Wish I could remember the name of the project. The dam was built and developed a leak then a crack, the engineer inspected the dam and said it was fine and could be repaired and no one was in danger. The dam broke within days, lives were lost and the engineer was held accountable. The engineer was mortified because he had put his reputation on line and felt responsible, the situation was tragic.
The feds stepped in and thereafter created the "bureaucracy". An agency where no one person would ever be held accountable for a decision.
Well it seems this is the situation we have here. No one bureaucracy is held accountable. I assume by design the "buck stops here" is a fable.
True story. There was a documentary on tv one evening about a dam. Wish I could remember the name of the project. The dam was built and developed a leak then a crack, the engineer inspected the dam and said it was fine and could be repaired and no one was in danger. The dam broke within days, lives were lost and the engineer was held accountable. The engineer was mortified because he had put his reputation on line and felt responsible, the situation was tragic.
The feds stepped in and thereafter created the "bureaucracy". An agency where no one person would ever be held accountable for a decision.
Well it seems this is the situation we have here. No one bureaucracy is held accountable. I assume by design the "buck stops here" is a fable.
"principles" and "stock lending" in the same sentence. Never seen that before.
Call to apply stock lending code
Financial Times
By Kate Burgess,Investment Correspondent
Published: July 10 2007 03:00 | Last updated: July 10 2007 03:00
An influential group of some of the world's leading shareholders has called upon regulators to require greater disclosure of stock lending and borrowing.
The International Corporate Governance Network, whose members include some of biggest pension funds and shareholder groups in the US, UK, Asia and Europe, says regulators should force funds to make detailed disclosures of sale and repurchase agreements of shares and other derivative-based positions.
The ICGN has drawn up a code of best practice on stock lending in all jurisdictions, urging investors, companies and supervisory authorities to support it.
It is the first time international shareholders have come together to agree a set of principles for stock lending. That is an activity which, combined with use of derivatives, has become increasingly prevalent as a way to allow hedge funds and other market participants to hedge positions, to go short by selling borrowed stock, or to cover short positions.
Investment groups and companies are increasingly concerned about lack of clarity in stock borrowing, by which investors "borrow" stock by means of a purchase and re-sale agreements, and other derivatives.
The ICGN's code has been drawn up amid intensifying pressure on international regulators, including the UK's Financial Services Authority, to consider disclosure of derivatives, such as contracts for difference.
Stock borrowing can enable investors to gain the rights to vote amounts of stock while having a small economic interest in theoutcome of the vote.
Big long-term investors lending out stock for short periods can find they have forfeited their voting rights at important company meetings. That may often be to the dismay of companies who discover their shareholder registers have suddenly changed out of allrecognition.
The ICGN said: "Companies should know who controls the votes at their general meetings . . . this transparency should benefit all market participants."
"Considering the availability of market instruments that separate economic ownership from control, the ICGN believes it has become desirable for companies and the broader market to be able to track significant divergence of voting power from declared economic ownership."
The ICGN said it was in the interests of responsible share ownership and stewardship that investors keep track of voting rights sothey can vote their shares responsibly.
Stock lending is evident in different ways in many markets.
For example, investors use sale and repurchase agreements to buy stock immediately before it goes ex-dividend, then strip the cash dividends before re-selling the shares back to the original investor.
The ICGN has called on companies to assist transparency by separating voting record dates from dividend record dates and publishing meeting agendas well in advance of record dates.
Stock borrowing isalso associated with a practice known as "empty voting", by which an investor minimises the economic exposure by buying derivatives to hedge a holding. The investor may cast votes at important meetings without regard for the long-term economic good of the company and other investors, perhaps forcing it to take decisions that benefit a bigger holding in the investors' portfolio.
Call to apply stock lending code
Financial Times
By Kate Burgess,Investment Correspondent
Published: July 10 2007 03:00 | Last updated: July 10 2007 03:00
An influential group of some of the world's leading shareholders has called upon regulators to require greater disclosure of stock lending and borrowing.
The International Corporate Governance Network, whose members include some of biggest pension funds and shareholder groups in the US, UK, Asia and Europe, says regulators should force funds to make detailed disclosures of sale and repurchase agreements of shares and other derivative-based positions.
The ICGN has drawn up a code of best practice on stock lending in all jurisdictions, urging investors, companies and supervisory authorities to support it.
It is the first time international shareholders have come together to agree a set of principles for stock lending. That is an activity which, combined with use of derivatives, has become increasingly prevalent as a way to allow hedge funds and other market participants to hedge positions, to go short by selling borrowed stock, or to cover short positions.
Investment groups and companies are increasingly concerned about lack of clarity in stock borrowing, by which investors "borrow" stock by means of a purchase and re-sale agreements, and other derivatives.
The ICGN's code has been drawn up amid intensifying pressure on international regulators, including the UK's Financial Services Authority, to consider disclosure of derivatives, such as contracts for difference.
Stock borrowing can enable investors to gain the rights to vote amounts of stock while having a small economic interest in theoutcome of the vote.
Big long-term investors lending out stock for short periods can find they have forfeited their voting rights at important company meetings. That may often be to the dismay of companies who discover their shareholder registers have suddenly changed out of allrecognition.
The ICGN said: "Companies should know who controls the votes at their general meetings . . . this transparency should benefit all market participants."
"Considering the availability of market instruments that separate economic ownership from control, the ICGN believes it has become desirable for companies and the broader market to be able to track significant divergence of voting power from declared economic ownership."
The ICGN said it was in the interests of responsible share ownership and stewardship that investors keep track of voting rights sothey can vote their shares responsibly.
Stock lending is evident in different ways in many markets.
For example, investors use sale and repurchase agreements to buy stock immediately before it goes ex-dividend, then strip the cash dividends before re-selling the shares back to the original investor.
The ICGN has called on companies to assist transparency by separating voting record dates from dividend record dates and publishing meeting agendas well in advance of record dates.
Stock borrowing isalso associated with a practice known as "empty voting", by which an investor minimises the economic exposure by buying derivatives to hedge a holding. The investor may cast votes at important meetings without regard for the long-term economic good of the company and other investors, perhaps forcing it to take decisions that benefit a bigger holding in the investors' portfolio.
>Joline Gutierrez Krueger: She obstructed justice, too - but only for love
>By Joline Gutierrez Krueger (Contact)
>Wednesday, July 11, 2007
>
> Far less infamous flotsam than I. Lewis "Scooter" Libby have been
>snared by the federal obstruction of justice trap, and in New Mexico a
>woman in love stands out among the rest.
>
>She was Lynn Wingate, an FBI special agent based in Albuquerque whose
>judgment was shaken by the pitter-patter of her heart - and, federal
>prosecutors initially argued, the cha-ching of profit.
>
>Unlike Libby, she did not have friends in high places, at least none who
>could commute her sentence or pardon her outright.
>
>Then again, she was not sentenced to prison as Libby had been, likely
>because she chose to plead guilty in June 2006 to the obstruction of
>justice charge rather than force a ridiculously long and expensive federal
>trial.
>
>"This is not a case where she was, in my view, attempting to hide anything
>or attempting to evade responsibility for anything she'd done," her
>attorney, Michael Schneider, said at her sentencing in New York, where the
>case was prosecuted.
>
>How refreshing.
>
>Wingate had been a 34-year-old FBI agent with a squeaky clean life when she
>became romantically involved with fellow FBI agent Jeffrey Royer, court
>documents say.
>
>Royer, prosecutors say, had a little side job, a lucrative insider-trading
>venture with Wall Street short seller Amr Elgindy.
>
>Royer's role in the scheme, according to court records, was to access the
>FBI's confidential law enforcement computer systems to search for
>information that Elgindy could use to determine which stocks to sell
>profitably short.
>
>That little side job earned them millions.
>
>All corruption comes to an end - unless it derives from the White House,
>apparently - and when Royer sensed his FBI buddies might be on to him, he
>enlisted the aid of girlfriend Wingate to keep tabs on the confidential
>databases lest his name or Elgindy's crop up as being targets of
>investigation.
>
>When she spotted their names, she made the call to Royer that would cost
>her everything.
>
>"She made that call because of that personal relationship," Schneider told
>the court. "Her intent was a hope Mr. Royer would realize that he was in a
>bad situation and come to his senses, stop chasing the almighty dollar,
>whatever he was doing."
>
>It was too late, of course.
>
>In January 2005, both men were convicted of racketeering, securities fraud
>and other charges connected to the scheme and shipped off to federal
>prison.
>
>Wingate was sentenced to three years of probation, a $2,500 fine and 550
>hours of community service. U.S. District Judge Raymond Dearie could have
>sentenced her to 10 years in prison but elected not to, saying Wingate's
>aberrant action was based on misguided love that had plunged her into
>"extraordinary tragedy."
>
>"The collateral consequences for her are enormous," Dearie said. "She
>suffered. I look at her and she continues to suffer. Based on what I know
>about her and what I've read about it, she will continue to suffer in an
>odd sort of way parallel to the other victims in the case who lost a lot of
>money."
>
>Royer and Elgindy will serve their sentences and go on to "do whatever," he
>continued. "But the victims, the financial victims, will continue to
>suffer, and I have a feeling so will you."
>
>And she did. She was fired from her $60,000 a year FBI career, lost her
>home, her self-respect, any chance of getting a date, at least for a while,
>after love and legal acumen went horribly astray.
>
>"It is not an overstatement to say her arrest or prosecution or conviction
>in this case has had dire financial consequences for her," Schneider said.
>"I mean, this is a woman 38 years old living with her parents working
>hourly jobs."
>
>Today, her home on Tompiro Drive Northwest belongs to someone else. She has
>begun her second year of probation. She is 39.
>
>A call to her mother, Elaine Wingate, in Oklawaha, Fla., provided little
>else.
>
>"She is living out of state," she said. "She is fine."
>
>Alas, Libby is, too.
>By Joline Gutierrez Krueger (Contact)
>Wednesday, July 11, 2007
>
> Far less infamous flotsam than I. Lewis "Scooter" Libby have been
>snared by the federal obstruction of justice trap, and in New Mexico a
>woman in love stands out among the rest.
>
>She was Lynn Wingate, an FBI special agent based in Albuquerque whose
>judgment was shaken by the pitter-patter of her heart - and, federal
>prosecutors initially argued, the cha-ching of profit.
>
>Unlike Libby, she did not have friends in high places, at least none who
>could commute her sentence or pardon her outright.
>
>Then again, she was not sentenced to prison as Libby had been, likely
>because she chose to plead guilty in June 2006 to the obstruction of
>justice charge rather than force a ridiculously long and expensive federal
>trial.
>
>"This is not a case where she was, in my view, attempting to hide anything
>or attempting to evade responsibility for anything she'd done," her
>attorney, Michael Schneider, said at her sentencing in New York, where the
>case was prosecuted.
>
>How refreshing.
>
>Wingate had been a 34-year-old FBI agent with a squeaky clean life when she
>became romantically involved with fellow FBI agent Jeffrey Royer, court
>documents say.
>
>Royer, prosecutors say, had a little side job, a lucrative insider-trading
>venture with Wall Street short seller Amr Elgindy.
>
>Royer's role in the scheme, according to court records, was to access the
>FBI's confidential law enforcement computer systems to search for
>information that Elgindy could use to determine which stocks to sell
>profitably short.
>
>That little side job earned them millions.
>
>All corruption comes to an end - unless it derives from the White House,
>apparently - and when Royer sensed his FBI buddies might be on to him, he
>enlisted the aid of girlfriend Wingate to keep tabs on the confidential
>databases lest his name or Elgindy's crop up as being targets of
>investigation.
>
>When she spotted their names, she made the call to Royer that would cost
>her everything.
>
>"She made that call because of that personal relationship," Schneider told
>the court. "Her intent was a hope Mr. Royer would realize that he was in a
>bad situation and come to his senses, stop chasing the almighty dollar,
>whatever he was doing."
>
>It was too late, of course.
>
>In January 2005, both men were convicted of racketeering, securities fraud
>and other charges connected to the scheme and shipped off to federal
>prison.
>
>Wingate was sentenced to three years of probation, a $2,500 fine and 550
>hours of community service. U.S. District Judge Raymond Dearie could have
>sentenced her to 10 years in prison but elected not to, saying Wingate's
>aberrant action was based on misguided love that had plunged her into
>"extraordinary tragedy."
>
>"The collateral consequences for her are enormous," Dearie said. "She
>suffered. I look at her and she continues to suffer. Based on what I know
>about her and what I've read about it, she will continue to suffer in an
>odd sort of way parallel to the other victims in the case who lost a lot of
>money."
>
>Royer and Elgindy will serve their sentences and go on to "do whatever," he
>continued. "But the victims, the financial victims, will continue to
>suffer, and I have a feeling so will you."
>
>And she did. She was fired from her $60,000 a year FBI career, lost her
>home, her self-respect, any chance of getting a date, at least for a while,
>after love and legal acumen went horribly astray.
>
>"It is not an overstatement to say her arrest or prosecution or conviction
>in this case has had dire financial consequences for her," Schneider said.
>"I mean, this is a woman 38 years old living with her parents working
>hourly jobs."
>
>Today, her home on Tompiro Drive Northwest belongs to someone else. She has
>begun her second year of probation. She is 39.
>
>A call to her mother, Elaine Wingate, in Oklawaha, Fla., provided little
>else.
>
>"She is living out of state," she said. "She is fine."
>
>Alas, Libby is, too.
Piper Jaffray Companies, the Minneapolis-based investment firm, was fined $150,000 in the New York Stock Exchange's seventh enforcement action involving short sales since new rules took effect in 2005.
The firm agreed to the fine without admitting or denying wrongdoing in the case, an NYSE disciplinary panel said on the exchange's website. Rob Litt, a spokesman for the company, said the firm had no comment.
The NYSE has levied at least $1.9 million in fines tied to so-called naked short sales, or bets that a stock will decline that are placed without properly arranging to buy the underlying securities.
Daiwa Securities Group Inc. and J.P. Morgan Chase & Co. were each fined $400,000 last year for violations of the regulations, which require brokerages to track sales of borrowed shares.
Piper Jaffray failed to comply with the rules from Jan. 3, 2005, to May 31, 2005, the NYSE said. The firm sold borrowed shares during the period without locating replacements, and in other cases failed to cover short sales in a timely manner, the NYSE said.
Piper has since updated its systems to prevent similar violations, the exchange said.
Shares of Piper Jaffray fell $1.08 to close at $53.92.
BLOOMBERG NEWS
The firm agreed to the fine without admitting or denying wrongdoing in the case, an NYSE disciplinary panel said on the exchange's website. Rob Litt, a spokesman for the company, said the firm had no comment.
The NYSE has levied at least $1.9 million in fines tied to so-called naked short sales, or bets that a stock will decline that are placed without properly arranging to buy the underlying securities.
Daiwa Securities Group Inc. and J.P. Morgan Chase & Co. were each fined $400,000 last year for violations of the regulations, which require brokerages to track sales of borrowed shares.
Piper Jaffray failed to comply with the rules from Jan. 3, 2005, to May 31, 2005, the NYSE said. The firm sold borrowed shares during the period without locating replacements, and in other cases failed to cover short sales in a timely manner, the NYSE said.
Piper has since updated its systems to prevent similar violations, the exchange said.
Shares of Piper Jaffray fell $1.08 to close at $53.92.
BLOOMBERG NEWS
I thought Gary Weiss said NSS didn't exist? Or Herb? What's the deal. Does it or doesn't it?
Actually, I'm glad he calls us the "baloney brigade'. Baloney isn't that bad. Now, if he called us the "Luncheon Loaf" Brigade, I'd be pissed.
Nobody';s buying "we have subprime under control". Nobody's buying, Hedge funds are good. Nobody's buying, "this guys is just a great trader." They know. Now, when Bershad tells us who is paying off, let's see how Main St. responds to Bush, and Wall st. What you see in hearings is NOT what is going on behind the scenes.
Shouldn't be much longer.
Actually, I'm glad he calls us the "baloney brigade'. Baloney isn't that bad. Now, if he called us the "Luncheon Loaf" Brigade, I'd be pissed.
Nobody';s buying "we have subprime under control". Nobody's buying, Hedge funds are good. Nobody's buying, "this guys is just a great trader." They know. Now, when Bershad tells us who is paying off, let's see how Main St. responds to Bush, and Wall st. What you see in hearings is NOT what is going on behind the scenes.
Shouldn't be much longer.
Congrats to everybody for keeping a thread of this length on topic for so long.