Naked Short Selling

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September 20, 2007
SEC Expected to Charge Brokerage Employees in Stock-Lending Fraud
The SEC is expected to file charges against current and former employees at several brokerage firms (including Janney Montgomery Scott, Morgan Stanley, and Van der Moolen) alleging abusive stock-lending practices. In addition, criminal charges may be filed. The investigation focused on whether the employees took kickbacks for arranging stock-lending agreements (in connection with short-selling). Janney Montgomery Scott settled charges with the NYSE over the summer. WSJ, Civil Charges Are Expected In Probe of Stock Lending.

September 20, 2007 in News Stories | Permalink
 
=WSJ:5 Ex-Workers At Brokerage Firms To Face Criminal Charges



By Paul Davies

Of THE WALL STREET JOURNAL





NEW YORK (Dow Jones)--Five former employees at several Wall Street brokerage

firms are expected to be face criminal charges in Brooklyn later Thursday in

connection with alleged abusive stock-lending practices, according to people

familiar with the matter.



Federal Bureau of Investigation agents arrested the five individuals early

Thursday morning. They are expected to be arraigned in federal court in

Brooklyn. The U.S. Attorney in the Eastern District of New York is expected to

charge the individuals in connection with alleged bribes and kickbacks stemming

from a stock-loan scheme, according to people familiar with the matter.



The Securities and Exchange Commission is expected to file civil charges as

well. The charges cap a years-long investigation into the alleged abusive

lending practices at Janney Montgomery Scott LLC, Morgan Stanley (MS), Van der

Moolen, and other financial institutions.



(This story and related background material will be available on The Wall

Street Journal Web site, WSJ.com.)



Charles A. Ross, a defense attorney for Andrew Caccioppoli, formerly of Janney

Montgomery, confirmed that his client was arrested Thursday morning and said he

plans to plead not guilty and fight the charges.



The $10 billion stock-lending business has operated largely unnoticed for

years. Its growth is associated with the increase in short selling, a trading

strategy that requires borrowing securities.



The investigation has centered on conduct involving mostly lower-level

employees across Wall Street and related to the use of "finders," or firms that

act as intermediaries and assist borrowers and lenders in locating stock to

borrow, these people said.



The types of alleged schemes that authorities are investigating vary. Under

one such alleged scheme, an individual at a brokerage would divert money to a

family member at a finder shop, a way to artificially inflate the cost of

borrowing. Under another alleged scheme, loans were being passed through several

firms or intermediaries without any purpose other than to drive up the cost of

borrowing the stock, these people said.



Some individuals have reached settlements with the SEC and have pleaded guilty

to criminal charges, these people said. In its settlement with the NYSE, Janney

Montgomery Scott agreed to pay $2.5 million to settle related charges over

allegations that it failed to supervise its stock-loan desk in connection with

improper stock-loan transactions.



-By Paul Davies, The Wall Street Journal; 212-416-4968





(END) Dow Jones Newswires



20-09-07 1522GMT



Copyright (c) 2007 Dow Jones & Company, Inc.
 
No. But I'm talking to a Value Manager who's some kinda pissed. He got into a situation, not on SHO, but he's researched it, and seen the fake selling. He told me he could do it off his platform. That's how these IPOS show up on SHO. He's not exactly sure how to fight it. But he understands it.

I understand high level politicians understand the SEC is a sham, and that they lied, and left these guys hanging. Let's see what develops from that.

I"m wondering, after reading all these comments this morning about the V shaped rally ...... Josh Galpin of Vodiagroup opined probably 18 months ago that the market would be ten percent higher w/o naked shorting. Is the covering here so massive, it's fueling a general rally? I mean, OSTK has no earnings, and it's setting up for another run. Tasr is finally getting some due. Look at HOKU, SPWR........ That success would lend itself to other sectors. Don't know. Thinking out loud. And remember, with X Clearing, the SHO list could be but a fraction of the problem.

Here's one: don't own it.

Hoku Scientific (HOKU)
HOKU is trading higher after it said that its subsidiary, Hoku Materials Inc., entered into an Engineering Services & Technology Transfer Agreement with Dynamic Engineering, Inc for Hoku Materials' polysilicon plant. Under the agreement Dynamic Engineering would provide design and engineering services and a technology license for Hoku Materials to build a trichlorosilane production and purification unit at its planned polysilicon production plant in Pocatello, Idaho. HOKU is a clean energy technologies company. HOKU is currently gaining .80 cents on the day putting it at $9.85. from Optionsmonster.com
 
Quote from nutmeg:

"Thus, we conclude that short selling in IPOs are neither as constrained as suggested by the literature nor the result of “naked” short sales."

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=981242
More...

If you sell, and you dn't own it, or have a locate, it's naked short selling. The man toldme, "I can sell whatever I want, whenever. That's how IPO's get on the sho list. " What study do you need? How does that happen? Only one way. How about VG? etc. etc. Simfa has lots of money. They can get somebody to prove Clapton really is God, if they choose.
 
Jim Cramer Blog
What Could Squeeze Shorts Next Week
By Jim Cramer
RealMoney.com Columnist
10/12/2007 2:36 PM EDT
URL: http://www.thestreet.com/p/rmoney/jimcramerblog/10384219.html

Next week could see some pretty violent short squeezes because beginning Monday, the SEC gets rid of the major exception to the rules it put through two years ago to stop naked short-selling.

I haven't read a word about this. But on Monday, if you are using one of several grandfathered exceptions that allowed you to stay naked short, including one that said basically if you were short it before you could stay that way and another that allowed you to hide behind options rules, you have to cover.

That means stocks that are or have been heavily shorted over and over, like a Taser (TASR) or an Overstock (OSTK) or some of these homebuilders, could see a big squeeze starting Monday.

I don't like to recommend ideas based on short-bashing. It is a sucker's game; lots of stocks are heavily shorted because they deserve to go down.

I think that you could see some wild moves and I wanted you to know why that could be the case and so you can game it accordingly.

TheStreet.com and James J. Cramer, its co-founder and major shareholder, were subpoenaed in February 2006 in connection with an SEC investigation into allegations by Overstock that a research firm, Gradient Analytics, engaged in a conspiracy with short-sellers (including Rocker Partners, which at the time owned a small stake in TheStreet.com, the publisher of this Web site) to manipulate Overstock's share price. The SEC agreed that it would not, at that time, seek to enforce the portions of the subpoenas issued to the company and other media firms, including Dow Jones, that concern communications between journalists and their sources.

At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.


" The SEC agreed that it would not, AT THAT TIME....." Stay tuned. Overstock's victory in California is raising some questions at very high levels.

BTW, this is valid for CMG, JSDA, FRPT, all of these. They've always had a stall tactic before, so use your head. If they're squeezed, you'll miss the bottom, but it should be no big deal. I noticed they all dipped when this article hit. Good luck.
 
Quote from flytiger:

Next week could see some pretty violent short squeezes because beginning Monday, the SEC gets rid of the major exception to the rules it put through two years ago to stop naked short-selling.
More...

But if the naked shorters are shorting illegally anyway, why would this new rule make them cover? Can't it just be ignored?
 
This same news went around with the introduction of REG SHO. Zip nada nothing. What happens with a short squeeze, people take profits, a new round of shorts appear, some win some lose.
 
They are setting up the public again. Pros are still shorting; We get a pop,. then they'll sit again till the Feds come. The only way they stop is you make them stop.
 
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