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An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds

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Posted by:   bobo 6/2/2007 2:31 AM

If you don't do anything else this month, you need to go watch this special on how rigged the so-called "free" markets are.

It's clear, concise, amusing in a wry, quirky way...and terribly sad, as it shows that it is simple to explain all this in a comprehensible manner, and yet it isn't by the supposedly fair US media. Commentator Max Keiser does a remarkable job in describing how completely ugly this is, and arrives at the same conclusion I did - playing in a rigged game is a fool's errand.

part 1
http://www.youtube.com/watch?v=8z66kmPRl5Y

part 2
http://www.youtube.com/watch?v=_3H6uEyR66M

This wasn't created by anyone connected with the US system, but rather by the evil, nasty, just plain bad, Al Jazeera network, who we all know, and are told by our keepers, drinks Christian baby blood while plotting the end of freedom, apple pie, puppies, and Grandma.

Watching it should cause a sick tickling feeling in your stomach, as you realize that the network that is often denigrated by the US mainstream was capable of creating what I believe is the benchmark for explaining the structural problems in the market, and the hypocrisy of the US media in pretending that all is well.

It isn't. At all. Watch this series. Recommend it to everyone. Regardless of your sentiments about Al Jazeera, consider the message, not the source. Defenders of Wall Street corruption will no doubt argue that this is all anti-capitalism propaganda by those who hate the west. No doubt they will do so while ignoring the merits of the facts cited and the plain-language conclusions one must draw from knowing the facts. They will rail that this is the evil work of anti-Western forces intent upon the destruction of all we hold dear - exactly as the Soviet machine argued that free exchange of information and ideas was anti-Soviet propaganda.

Folks, I'm one of those guys that wants to know the truth about how things are, even if it isn't pretty. I'd rather know reality, than some pabulum designed to make me feel good. What does it say about the US media when this has to be created and run on an alternative platform, rather than a mainstream one? What does it say about the other information we are receiving? Think it through.

And then reconsider your other assumptions.

Anyone else feeling a little nauseated?

Go watch it. Digg this blog entry. Favorite this video. It is really a remarkable piece, and anyone that watches it will immediately understand how badly awry things have gone.
Copyright ©2007 Bob O'Brien
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Comments (64)
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By bbhindyou on 6/2/2007 9:36 AM
The emperor is naked.
Everyone can see it.
The world laughs because the subjects of the emperor think he is so finely dressed.
The emperor is naked.
The subject's have paid a unbelivably large tailor bill and the emperor is naked.
THIS MUST STOP!
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By oldfeller on 6/2/2007 9:37 AM
Someone asked where I heard about the failure of the Oklahoma bill. It came across my news streamer in an article by our friend Carol. But don`t bother searching yahoo news, you won`t find it there. If you google the exact phrase "DJ Oklahoma Bill Taking Aim At Short Selling Fails" you can find it on some foriegn websites.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/6/2007 2:37 PM
Hey, I'm not even from Oklahoma but here is what I sent to Senators Crain, Johnson, Paddack and Representative Adkins.
----------------------
Dear Senator - I view SB979 as perhaps THE pivital Oklahoma legislation that can cause a stop to the widespread fraud on us the retail investor. I was shocked and very dissappointed that it did not pass during this legislative session. Would you please tell me what the status of that bill is ? Will it come up for vote again in the next legislative session ? Was this bill delayed in order that some kind of "deal" could be made with the SEC ? Such seems to be the case. I am confused as to why a bill of such monumental importance could be simply delayed and not brought to completion during the past session without a concerted effort to delay it. I spoke with Irving Faught, Oklahoma Securities Commission Administrator, and he told me that it did not pass and he had no idea why. How can this be that the Administrator of the Securities Commission has such little interest in a bill of such monumental importance when his job is to protect the retail investor and this bill is designed to do exactly that ? I am confused and saddened by this. Perhaps you can help me understand it better.

Respectfully

Capt. Dale XXXXX
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By Fraud Canada style. on 6/6/2007 2:37 PM
Tuesday, June 5, 2007 7:14 pm
To ombudsman@rbc.com ,
Cc
Bcc
Subject Securities fraud.
Hello,

My name is ********* and I have been trying to find an answer to my issue.
I purchased a stock through Royal Bank direct investing and feel somehow I have been wronged.

I have been dealing with all levels at RBC and I believe they think this issue is over. I believe I have been wronged.

I purchased a stock on the Pink Sheet stock market. I asked for certificates and after months of reminders recieved some of my certificates. The reason I asked for certificates is the rumour of massive counterfiet share sales. So I believed the only way for me to know I hold real shares is to hold real shares(certificates).

The company(QBID) hired private investigators to investigate NSS (Naked Short Selling) and counterfieting amongst other claims so this claim is backed with the companies news release. This is not just rumour this is backed by public claims.

It is my right as a shareholder and because of the claims I used this right to obtain what is rightfully mine. Share certificates.

Months later I wanted to place the certificates back into the system. I was informed there was a policy change. I stated I was not informed of this change and because it happened within this two month window I believe I should have the right to place my shares back into the system. I was informed I could not on many levels. I asked every department to investigate the reason WHY.

I have tried to place these shares into several other companies BMO, TD Waterhouse, E*trade, Charles and Swab and none of them will take my REAL SHARES you gave to me.

Why? I asked that question to every company including the R.B. they say the exchanges (Pink and OTCBB) are fraudlent and shady, I even have this in writing. I believe if you accept money from investors you are a player in these 'fraudlent and shady' exchanges and you are not only aiding in the 'fraud' you are profiting, complicit so to speak.

So here I am with worthless shares I can not place into any account I know of.I could not even sell for a tax loss. You have locked me out of any trading opportunities. There is talk of mergers, a change of transfer agents and hundreds of millions of dollars to start off this new company. This company is trading hundreds of millions of shares almost daily.

I feel the Royal Bank has blocked me from selling, is aiding in the counterfieting of shares and complicit in a massive securities fraud. They have taken the rights of shareholders away and blocked the only protection investors have against phantom shares.

I would like to place my shares back into the system so I do not miss a large run. I think you can understand that. I have talked with several lawyers and securities experts. The fact that RBC gave me certificates and will not accept them baffles them. Do they believe the certificates they recieved to give me are counterfiet?

I also have other shares held within RBC Direct Investing and I asked for them to be certed. Months passed and some reminders by me were greeted with comments such as "they are on the way" etc.

I was informed they could not be certed after about two months. If you took my money, and I asked for shares (what you are selling) you never delivered, are these not counterfiet? They represent the real thing but you could not get the real thing. This is the exact reason I asked for certs. How many phantom shares exist on this stock alone? Changing the supply and demand by selling shares that CAN NOT BE CERTED.

You understand my reason for pulling certificates. Now I feel I have been locked out. The shares I do own within the trading account you can not get real shares for and the possiblity of massive counterfieting still exists right in your bank.

I am very frustrated with this. Just let me put my shares back.

I feel I must go public with this and have Bcc'd several groups in the investment community that really do care about the little investor.

Please, I ask of you to place my real shares back into the system BEFORE any runs or changes happen within the market related to this QBID.

Frustrated as heck:
Re: Naked Short Selling, letter to Ok. securities commission By captdale on 6/6/2007 2:38 PM
June 5, 2007

Mr. Irving Faught
Administrator
OKLAHOMA DEPARTMENT OF SECURITIES
Suite 860, First National Center
120 N. Robinson,
Oklahoma City, OK 73102

xxxxxxx
xxxxxxx
xxxxxxx, Hi.
xxxxx

Re: Telephone conversation this date

Dear Mr. Faught,

Thank you for speaking with me this morning concerning the Oklahoma Senate Bill 979 which addresses the issue of illegal Naked Short Selling of stock in the State of Oklahoma.

I am concerned about the statement you made to me that , and I quote you “the bill did not pass and I have no idea why”. Mr. Faught, the Oklahoma Department of Securities primary mission as stated on their web page is to protect the investor public against fraud in the stock market. The Senate Bill 979 addressing provable fraudulent stock manipulation is perhaps THE most important piece of legislation specifically addressing this fraud, to be undertaken by the Oklahoma State Legislature in many many years. As Administrator of the Securities Committee I find it hard to believe that you would appear to have so little interest in this bill as to “have no idea why “ it did not pass the Senate. Mr. Faught, I am alarmed by your statement and very concerned about the level of protection the Oklahoma Department of Securities is giving to the citizens of Oklahoma. Perhaps you can explain to me why you would so casually seem to cast these concerns aside.

Respectfully

Capt. Dale XXXXX
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/6/2007 2:41 PM
Bobo - my letter to Senator Pamela Gorman whose committee held up the Arizona bill.
-------------
Dear Senator Gorman - I understant that SB1217 addressing the fraudulent practice of Naked Short Selling in the State of Arizona was delayed in your FIIR committee to the extent that it never came up for final vote. I understand that the reason for the delaying tactic was that you felt it was a "duplication of Government" and lobbyed against it. Senator this bill is perhaps one of the most important bills to be introduced in the Arizona Legislature that directly addresses proven fraud against citizens of Arizona. To say that it is not needed as it is a duplication of Government is at the least disengenious when the primary reason it was introduced in the first place is that the Federal Government is not protecting the citizens of the State of Arizona by taking timely actioin to curtail this fraud which has been going on for much too long and shows no signs of slowing up. This is not conjecture as you very well know. You Senator have a duty and responsibility as an elected official to protect the citizens of Arizona. I am concerned and saddened by your apparent lack of effort in that regard. Perhaps you can explain your actions and help me understand them better.

Respectfully
Capt. Dale XXXXXX
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By torrevista2 on 6/6/2007 2:48 PM
Well, what can you say? This is a total abomination. Is there no end in sight? Occasionally we see a bit of news such as the New Jersey bucket shop today. One tiny little drop in a very large bucket of crud.
Congratulations Max, very well done indeed. I'm just about to watch the other 2 films. Scary stuff. Thanks for having the guts to stand up to these guys and hit 'em where it hurts.
Cheers,
Tor.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By bbhindyou on 6/7/2007 10:29 AM
WOOHOO!!!
Get em' captdale!
Let me know if there is anything I can do to help!
I'm not from Oklahoma but I would love to review any documentation you can get on the present form of the bill.
I intend to look over the bill's exemptions on fails to try to see who benifits.
No doubt the money is in play to make the exemptions as hidden as possible while still leaving room for the market manipulators drive a truck through.
Follow who proposes the exemptions then find out how they benifited by proposing i
This will lead to the money behind the manipulation one way or the other.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By Sean on 6/7/2007 10:32 AM
Bobo, I like this letter!!

Some Right-on-Target Pre-Crash Comments:

June 5, 2007

Massive Securities Fraud and SEC criminal violations of the Securities Processing Provisions of the 1975 Amendments to the Securities and Exchange Acts.

Hon. Henry Waxman, Chairman Committee on Oversight & Government Reform via fax 202.225.4099
Committee on Oversight and Government Reform via fax 202.225.4784
Barney Frank, Chairman, House Financial Services 202.225.0182
Congressman Ron Paul 202.226.6653
Senator Robert Bennett via fax 202.228.1168
Senator Orrin Hatch via fax 202.224.6331
Senator Patrick Leahy, Chairman Senate Judiciary Committee via fax 202.224.9516
Senate Banking Committee via fax 202.224.5137
Senator Arlen Specter, Ranking Member, Senate Judiciary Committee via fax 202.224.9516
Senator Charles E. Grassley, Senate Finance via fax 202.224.6020

Re: SEC in flagrant violation of the Securities Processing Provisions of the 1975 Amendments to the Securities and Exchange Acts.

Gentlemen:

IN REFERENCE TO THE ABOVE AMENDMENTS, the SEC appears to have engaged in treason against the people of the United States. The actions of the SEC could be construed as a financial act of war against other countries whose investors invest in the US Capital Markets.

NONETHELESS, AT A MINIMUM, the SEC is liable for negligence and at most organized crime charges could be argued. The SEC has demonstrated an abysmal failure to oversee the clearing and settlement systems for stocks and options.

THE SCALE OF ABUSE IS UNPRECEDENTED in scope. The financial damages caused directly or indirectly by the SEC’s failure to follow the law, whether by inaction or complete awareness, are astonishing. The SEC facilitated theft, which by some estimates amount to trillions of dollars. Trillions of dollars stolen from investors throughout the world via the SEC's failure to supervise settlement and clearing of securities traded in the US national market system.

THE SEC IS IN VIOLATION, has been in violation and remains in violation of the Securities Processing Provisions of the 1975 Amendments. This is evidenced, not only by the illegal felony grandfather clause, but is evidenced by the SHO list of fails, where some fails persist beyond any reasonable time frame-- some as many as 180 days without proper delivery and some are likely decades old.

IN FACT, THE SHO list should not exist if trades clear and settle in accordance with the Securities Processing Provisions of the 1975 Amendments.

UNDER SECTION 17A, the SEC was given authority to facilitate establishment of a National System for prompt and accurate clearance and settlement in securities.

A KEY COMPONENT OF SEC supervision of the securities clearance settlement system is its AUTHORITY to REGULATE clearing agencies.

THE SEC HAS EXPOSED ITSELF TO trillions in punitive effects, in my opinion, for this egregious, horrific, criminal act, demonstrated by its abysmal failure to carry out the mandates of the Securities Processing Provisions of the 1975 Amendments to the Securities and Exchange Acts.

IT IS ALSO TIME TO ELIMINATE ONCE and for all, the equally illegal felony grandfather clause that the SEC claims is being eliminated for the past year.

YOU MEN OVERSEE THE running of one heck of a scam of a securities market, in my opinion. I have to shake my head. The entire government needs to be replaced. You have even allowed the executive branch to merge with the Judiciary branch.

THE ENTIRE US NATIONAL MARKET SYSTEM IS CORRUPTED, and by all accounts you have managed to kill the Constitution of the United States by not carrying out your public duties. You serve at the pleasure of the people. You do not serve at the pleasure of the Business Roundtable.

Sincerely.....

cc: Cox, Nazareth, American Association of Justice [Enron dept] and the Washington Post


Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By Sound on 6/7/2007 10:40 AM
Thanks Max. Keep up the good work!!!!!
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By stacyh on 6/7/2007 10:46 AM
Funny you should mention Refco. Here is Max's hedge fund rap song about Refco:

http://www.karmabanque.com/temp/MAX_KEISER_CHIEFS.mp3
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By MissRobbins on 6/7/2007 10:47 AM
Overstock just hired Joseph Tabacco Jr. as a Independent director. He is from the same firm that sued Novastar. This same firm sued Taser.

Unreal!!

Investor Sues NovaStar Financial Inc. For Stock Fraud, Berman DeValerio Pease Tabacco Burt & Pucillo Announces

KANSAS CITY, Mo., April 16, 2004 (PRIMEZONE) -- An investor sued NovaStar Financial Inc. (NYSE:NFI) today, claiming the mortgage lender and four top officers misled the public about the company's business operations.


Berman DeValerio Pease Tabacco Burt & Pucillo (www.bermanesq.com) filed the class action in the U.S. District Court for the Western District of Missouri. The lawsuit seeks damages for violations of federal securities laws on behalf of all investors who bought NovaStar common stock from October 29, 2003, through and including April 12, 2004 (the "Class Period").

Berman DeValerio has represented investors in class actions since 1982. To receive a copy of the complaint, you may contact the court, call the firm at (800) 516-9926 or go to http://www.bermanesq.com/pdf/NovaStar-Cplt.pdf.

The lawsuit claims that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, including U.S. Securities and Exchange Commission (SEC) Rule 10b-5.

The complaint names as defendants the company; Lance W. Anderson, who served as president and chief operating officer; Michael L. Bamburg, who served as senior vice president and chief investment officer; Scott Hartman, who served as chairman of the board and chief executive officer; and Rodney E. Schwatken, who served as vice president, secretary, treasurer, and controller.

According to the complaint, NovaStar fostered an aggressive-growth culture throughout the Class Period. NovaStar touted its rapid growth in earnings, production, and its securities portfolio and highlighted the increasing number of NovaStar-affiliated branch offices. In 2003, the company reported that it had doubled the number of branch offices in operation and that its earnings had more than doubled in 2003 to $112 million.

Significantly, NovaStar's stock price has nearly quadrupled in the past year, rising from $18.35 per share on April 11, 2003, to a Class Period high of $70.32 on March 23, 2004.

In reality, the complaint says, NovaStar falsely inflated the number of offices it operates. Moreover, the company grew so large, so quickly, that it failed to maintain regulatory compliance with its operations. In fact, many of NovaStar's branch offices were operating illegally during the Class Period.

On April 12, 2004, The Wall Street Journal published an article highlighting the risks of owning the company's stock and faulting NovaStar for failing to comply with state licensing rules. The article revealed to the investing public for the first time that the company had falsely inflated the number of branch offices in operation and that many of those branch offices were operating illegally.

On the heels of this news, the stock price plummeted on extremely high volume, closing at $37.50 per share, down $16.68 per share or 31% from the previous day's close.

If you purchased NovaStar Financial Inc. common stock from October 29, 2003, through and including April 12, 2004, you may wish to contact the following attorneys at Berman DeValerio Pease Tabacco Burt & Pucillo to discuss your rights and interests.



Deborah Gale Evans, Esq.
Michael T. Matraia, Esq.
One Liberty Square
Boston, MA 02109
(800) 516-9926
law@bermanesq.com

If you wish to apply to be lead plaintiff in this action, a motion on your behalf must be filed with the court no later than June 14, 2004. You may contact the attorneys at Berman DeValerio to discuss your rights regarding the appointment of lead plaintiff and your interest in the class action, or you may submit information online at http://www.bermanesq.com/Securities/Signup1.asp?caseid=506. Please note, you may also retain counsel of your choice and need not take any action at this time to be a class member.

Berman DeValerio Pease Tabacco Burt & Pucillo prosecutes class actions nationwide on behalf of institutions and individuals, chiefly victims of securities fraud, antitrust law violations, and consumer fraud. The firm consists of 34 attorneys in Boston, San Francisco and West Palm Beach, Florida.

CONTACT: Berman DeValerio Pease Tabacco Burt & Pucillo
Deborah Gale Evans, Esq.
(800) 516-9926
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/7/2007 10:33 AM
Bobo - This is long but well worth the read or at least getting some exposure to it so i will post it in its entirity with a link on the bottom.
---------------------------
The SEC's Setbacks in Litigation
C. Evan Stewart
New York Law Journal
June 6, 2007

One of the most fought over quotes from football is: "Winning isn't everything. It's the only thing."[FOOTNOTE 1] By its recent track record in the litigation arena, the U.S. Securities and Exchange Commission has not been in very good compliance with that maxim. This article will review some of the SEC's litigation setbacks, and attempt to draw a few lessons for those who might be contemplating litigating matters with the proverbial 800-pound gorilla.

A TARDY COMMISSION

On Feb. 20, 2007, Southern District of New York Judge Richard Conway Casey dismissed the SEC's civil case against two former Citigroup executives (SEC v. Jones & Daidone, 05 Civ. 7044 (SDNY)). According to the commission, Thomas W. Jones and Lewis E. Daidone aided and abetted Citigroup Asset Management's (CAM) 1999 violations of the Investment Advisors Act by failing to disclose CAM's self-dealing (to the detriment of various funds that CAM was advising). In August 2005, the SEC sued Jones and Daidone, seeking an injunction, disgorgement, and civil penalties.

The defendants moved for summary judgment, and Judge Casey granted the motion in its entirety. In reaching that decision, the judge looked at each of the sanctions sought by the commission. As to the civil penalties sought, the analysis was pretty straightforward -- since judicial precedent had clearly established that SEC enforcement actions seeking to impose a penalty are subject to the federal catch-all five-year limitations period,[FOOTNOTE 2] that relief was time-barred. The SEC had tried to counter that analysis by contending that defendants had "self-concealed" their fraud and thus the statute should be tolled; as Casey noted, however, there was no evidence of any such "self-concealment."[FOOTNOTE 3]

With respect to the injunctive relief sought, the judge focused on the issue of whether such relief constituted a penalty or was a remedial measure. Because the SEC was seeking a permanent injunction (which carries with it significant and serious "collateral consequences"), and because the SEC could not demonstrate that the defendants were likely to engage in future misconduct of a similar ilk (the customary standard to justify injunctive relief), Casey ruled that the "requested relief [could] only be characterized as a penalty." And, as such, that part of the case was also time-barred.[FOOTNOTE 4]

Turning to the SEC's request for disgorgement of the defendants' compensation during the period of the alleged fraud, Casey found that such relief would be remedial in nature because it is designed to enhance investor protection (by deterring fraud) rather than ensuring investor restitution.[FOOTNOTE 5] That being said, however, the judge ruled as a matter of law that the SEC had failed to demonstrate what (if any) compensation was causally linked to the alleged fraudulent activity. So disgorgement was barred as well.

And if not bringing cases in a timely fashion was not problem enough,[FOOTNOTE 6] the SEC was recently dinged by Senior U.S. District Judge Peter Dorsey in SEC v. Packetport.com, Inc. (No. 3:05 CV 1747 (D. Conn.)) for failure to prosecute a $9 million enforcement action aimed at an alleged "pump and dump" scheme. Six years after both the activities in question occurred and the SEC had launched its investigation (in December 1999), and significantly after the five-year "penalties" statute of limitations had run, the commission filed a civil action in November 2005.

Clearly unimpressed by the slow pace of the SEC before it came to his courtroom, Judge Dorsey was significantly more frustrated by the commission's lack of ardor in prosecuting the case it ultimately did bring for injunctive relief and disgorgement (the SEC chalked up most of the delays to internal personnel matters). And notwithstanding that not all of the usual factors for a Rule 41(b) dismissal were present,[FOOTNOTE 7] the judge saw no likelihood of things speeding up, said he had had enough, and non-suited the government.[FOOTNOTE 8]

A CHALLENGED COMMISSION

Prosecutors and regulators are extremely fond of using parallel proceedings (i.e., criminal and civil) to whipsaw targets of their displeasure.[FOOTNOTE 9] But the SEC has learned there are limits to this hardball tactic.

In U.S. v. Stringer,[FOOTNOTE 10] U.S. District Judge Ancer Haggerty, of Oregon, found (i) that the Justice Department essentially used the SEC to conduct, sub rosa, its criminal investigation of certain targets/defendants, (ii) that the Justice Department and SEC regularly met, communicated, and shared information regarding their joint efforts vis-à-vis the defendants, (iii) that the Justice Department held back the public existence of its parallel criminal investigation so that the defendants would be interfacing with the SEC without knowledge of possible criminal prosecution, and (iv) that the SEC effectively misled the defendants about its joint efforts with the Justice Department.

Upon the government's bringing of the criminal indictments, all of the foregoing was laid out before the district court. Judge Haggerty found that the defendants' due process rights had been violated by governmental misconduct "so grossly shocking and so outrageous as to violate the universal sense of justice." As such, the defendants' motions to dismiss the indictments were granted.

On appeal to the 9th U.S. Circuit Court of Appeals, the commission has defended the propriety of its actions in an amicus curiae brief. The essence of the SEC's brief is that (a) its cooperation with the Justice Department was fully in accord with commission policy, and (b) if Judge Haggerty's decision were to stand it would significantly deter future enforcement efforts. Stay tuned for the 9th Circuit's decision.[FOOTNOTE 11]

PROVING SCIENTER

Alleging fraud is very different from proving fraud. We, of course, have seen numerous cases where public companies -- which cannot afford to go to the mattresses -- have settled fraud cases with the commission without "admitting or denying" fraud. We have also seen other cases where individuals -- whose careers have been ruined by the investigation itself, but who have the resources to defend themselves[FOOTNOTE 12] -- have put the commission to the test of proving fraud by admissible evidence. In these latter cases, the results have often been somewhat different.

An excellent example of one of those "different" results is the market timing case the commission brought against Paul Flynn, an ex-managing director at Canadian Imperial Bank of Commerce (CIBC). Prior to the well-publicized splash by then New York Attorney General Eliot Spitzer in September 2003,[FOOTNOTE 13] not only had there never been any cases brought to punish market timing, it was in fact well known that the market timing of mutual funds was a regularly used arbitrage strategy by certain traders, and that certain mutual funds (notwithstanding ambiguous prospectus language) encouraged or (at a minimum) tolerated a certain amount of timing. Furthermore, and even after market timing cases started to be filed, the SEC publicly acknowledged that market timing is not illegal.[FOOTNOTE 14]

With that as background, Flynn decided to roll the dice before Administrative Law Judge Robert Mahoney. The SEC had charged that Flynn had aided and abetted securities fraud by certain hedge funds, a trust company (STC) (which principally existed to invest retirement assets), and others. On Aug. 2, 2006, Mahoney found, after trial, that the hedge funds and STC had engaged in deceptive practices to avoid detection of their market timing activities, and that said practices violated the antifraud provisions of the federal securities laws.

But as to Flynn, Mahoney determined that he had not aided and abetted fraud because there was no evidence that he knew that STC's or the hedge funds' conduct was fraudulent or improper. In fact, the record evidence was clear that (i) everyone at Flynn's firm (CIBC) was aware of the market timing activity, and (ii) no one at CIBC had objected to the market timing or thought it was illegal.[FOOTNOTE 15] Accordingly, Flynn was found not to have acted with scienter.[FOOTNOTE 16]

A DIFFICULT CIRCUIT

In relatively short order, the SEC has found that taking appeals to the U.S. Court of Appeals for the D.C. Circuit is not a day in the park. First, came the circuit's two rebukes (in 2004, and later in 2006) to the commission's "reform" rules regarding mutual funds' corporate governance.[FOOTNOTE 17] Also in 2006 came Goldstein v. SEC,[FOOTNOTE 18] in which the court struck down the commission's attempt to regulate the hedge fund industry.

On March 30, 2007, the D.C. Circuit did it again to the SEC, this time rejecting the commission's 2005 rulemaking in which it exempted fee-based brokerage accounts from coverage by the Investment Advisers Act. While not as devastating (or as widely impacting) a defeat as the prior three, in the words of a former SEC chairman:


This is a case that the SEC should have won, and I believe that its problem is that it has really injured itself in the eyes of the D.C. Circuit by virtue of the way it handled the mutual-fund rulemaking case twice and the hedge fund rulemaking. The SEC is going to have to regain the trust of the D.C. Circuit.[FOOTNOTE 19]

CONCLUSION

Many federal agencies have a tradition of husbanding their litigation resources and only litigating when they are pretty darn sure of winning; that would not seem to be the mantra of the SEC.[FOOTNOTE 20] Why that is so is anyone's guess.

None of the foregoing litigation setbacks, however, should embolden prospective litigants into thinking that kicking sand in the SEC's face is a good career move. Indeed, regulated and/or public companies should continue to view litigating against the 800-pound gorilla with fear and trepidation. What the setbacks do seem to indicate is that, in the post-Enron, steroid-flexing by prosecutors and regulators era, there have been some significant examples of governmental overreaching; pushing back have been Article III and administrative law judges, who have proven (once again) the importance of an independent judiciary.[FOOTNOTE 21]

For individuals with nothing to lose (and sufficient resources to fight), what these (and other) cases show is that SEC civil cases are relatively fair fights where the courts have not ceded to the SEC home court advantage, but instead have required that the commission prove cases (especially those requiring scienter) by record evidence. This surely is a healthy development, and will hopefully lead to more prosecutorial restraint and fewer litigated cases. Of course, predicting enforcement trends is problematic by definition, and how the SEC will interpret mandates in the future is unknowable. At a minimum, however (at the very least), the commission now knows before going into court it will not always be a slam dunk.

C. Evan Stewart is a partner at Zuckerman Spaeder, adjunct law professor at Brooklyn Law School and Fordham Law School, and visiting professor at Cornell University.

:::::FOOTNOTES:::::

FN1 See S. Overman, "'Winning Isn't Everything. It's the Only Thing': The Origin, Attributions and Influence of a Famous Football Quote," The Journal of Football Studies 77 (1999). Richard Nixon's college football coach (Wallace "Chief" Newman) had an equally famous corollary, frequently telling his players: "Show me a good loser, and I'll show you a loser." R. Nixon, "RN: The Memoirs of Richard Nixon" 20 (New York 1978). The converse of the foregoing philosophy is how to deal with adversity. When John F. Kennedy took responsibility for the 1961 Bay of Pigs fiasco, he said: "There's an old saying that victory has a hundred fathers and defeat is an orphan." That was actually a reworking of something Mussolini's son-in-law, Count Ciano, wrote during World War II: "victory finds a hundred fathers but defeat is an orphan."

FN2 See Johnson v. SEC, 87 F.3d 484 (D.C. Cir. 1996). See C. Stewart, "Securities Industry Trends: Up, Down or Sideways?" New York Law Journal (Aug. 28, 1997).

FN3 Judge Casey ruled that to meet this standard there must be evidence that the defendants took some action in the course of committing the wrong that was designed to mask the cause of action and that the misrepresentations or omissions were otherwise unknowable.

FN4 The SEC has often misfired in seeking injunctive relief because of the failure to demonstrate likely future wrongdoing -- even where there have been findings of contemporaneous securities violations. See, e.g., SEC v. National Student Marketing Corp., 457 F.Supp. 682 (D.D.C. 1978); SEC v. Park Florida Associates, Ltd., 54 SEC Docket 1222-747 (M.D. Fla. April 19, 1993); SEC v. Brethen, U.S. District LEXIS 20665 (S.D. Ohio Oct. 15, 1992); SEC v. Ingram, 694 F.Supp. 1437 (C.D. Cal. 1988).

The SEC recently ran into another judicial setback in the injunction sphere when the 11th U.S. Circuit Court of Appeals stated in dicta that broad "obey-the-law" injunctions of the type routinely sought by the SEC "are unenforceable." SEC v. Smyth, 420 F.3d 1225, 1232 (11th Cir. 2005). Whether subsequent courts will feel compelled (or influenced) to follow the Smyth dicta remains to be seen. See SEC v. Converge Global, Inc., 2006 WL 907567 (S.D. Fla. 2006).

FN5 See SEC v. Cavanagh, 445 F.3d 105 (2d Cir. 2006).

FN6 The SEC has experienced similar dismissals on statute of limitations grounds at the hands of administrative law judges. See, e.g., In re Dana, 64 SEC Docket 720 (April 14, 1997); In re Arnold, East & Paynes, 64 SEC Docket 333 (March 19, 1997).

FN7 Under the standards of the 2nd Circuit, there are five factors by which to evaluate failure to prosecute: (1) it has caused significant delay; (2) plaintiff was warned of the consequences of further delay; (3) prejudice to defendant of further delay; (4) balancing court congestion with the plaintiff's day-in-court rights; and (5) whether lesser sanctions were more appropriate. See US ex rel. Drake v. Norden Sys., Inc., 375 F.3d 248, 254 (2d Cir. 2004); Judge Dorsey found that factors (1), (3), and (5) weighed for dismissal, while factors (2) and (4) did not.

FN8 Professor Barbara Black (Cincinnati College of Law) pronounced that it was a "stretch" to say that any of the factors supported dismissal. At the same time, she thought that the judge seemed "intent on sending a message to the SEC -- where persons' careers are at stake, you must move expeditiously. Given that the SEC had missed the five year statute of limitations for civil penalties and that equitable relief is solely within the discretion of the court, it might not be a bad result." M. Coyle, "SEC delays sink enforcement action," National Law Journal (April 2, 2007). Query whether, based upon the reasoning of Judge Casey in Jones & Daidone, the SEC's claim for injunctive relief should have been ruled to be time-barred as well.

FN9 See, e.g., In re Application of Justin F. Ficken, SEC Admin. Proc. File No. 3-12143, Release No. 34-54699 (Nov. 3, 2006); In re Application of Frank P. Quattrone, SEC Admin. Proc. File No. 3-11786, Release No. 39-53547 (March 24, 2006). See also D.L. Cromwell Investments, Inc. v. NASDR, 132 F.Supp.2d 248 (S.D.N.Y. 2001).

FN10 408 F.Supp.2d 1083 (D. Or. 2006).

FN11 As this trend was accelerating a decade ago, even Justice Department and SEC officials were cognizant that they were moving into uncharted waters. See R. Witmer, "Decisions to Criminalize Securities Cases Involve 'Host of Factors,' DOJ Lawyer Says," BNA Securities Regulation & Law Report 627-28 (April 24, 1998) (remarks of R. Figel and W. McLucas).

FN12 The issue of the government's possible due process violations in interfering with companies' obligations to advance fees has been crystallized by Judge Lewis A. Kaplan's decision in United States v. Stein, 435 F.Supp.2d 330 (S.D.N.Y. 2006). My views of this very troubling practice by the government are set forth in "'Carnacking' the Future," New York Law Journal (Feb. 15, 2007) and "When the Government Comes Knocking," New York Law Journal (March 15, 2005). See also D. Hechler, "Legal Fees: Spitzer Demands Restrictions on Payments in Some Cases," New York Law Journal (Nov. 9, 2006).

FN13 As a matter of full disclosure, the author was counsel to Theodore C. Sihpol III, the first person ever arrested and criminally charged in the history of the United States for the alleged crime of late trading mutual funds. Sihpol was acquitted on 29 criminal counts, and the jury deadlocked (for acquittal) 11-1 on the remaining four counts (which were subsequently dropped).

FN14 See "Disclosure Regarding Market Timing and Selective Disclosure of Portfolio Holdings," Securities Act Release No. 8343, 2003 SEC LEXIS 2937, at *13 (Dec. 11, 2003).

FN15 This wide-ranging group at CIBC included legal and compliance officials.

FN16 See also "Court Dismisses SEC Fraud Charges Against Three Former Putnam Officials," BNA Securities Regulation & Law Report 390-92 (March 12, 2007) (SEC v. Durgarian, Civ. Action No. 05-12618-NMG (D. Mass.)) Other cases have reached disparate results. Compare U.S. v. Druffner, 353 F.Supp.2d 141 (D. Mass. 2005). (court denied motion to dismiss, finding SEC had pled actionable fraud based upon alleged deceptive acts to mask market timing) with US v. Finnerty, 05 Cr. 393 (DC) (S.D.N.Y. 2/21/07) (NYSE specialist ruled not guilty, after trial, because alleged victims of fraud were not deceived by defendant's allegedly fraudulent conduct).

FN17 These rebukes (and analysis thereof) are set forth in greater detail in my prior article, "The Wrong Track to Reforming Corporate Governance," New York Law Journal (Oct. 10, 2006). Even as the court has attempted to allow the SEC latitude to fix this mess of the agency's own doing, the commission continues to have difficulties in achieving consensus. See S. Hughes, "Market-Fund Rule Prompts Records Tiff," Wall Street Journal C11 (April 3, 2007); S. Anand, "SEC Remains Divided on Fund-Board Rule," Wall Street Journal C13 (March 16, 2007).

FN18 2006 WL 1715 766 (D.C. Cir. June 23, 2006). This decision and its ramifications are also described in greater detail in "The Wrong Track" (see supra note 17).

FN19 See K. Scannell, "Court Throws Out SEC Rule Protecting Certain Accounts," Wall Street Journal A6 (March 31, 2007) (comments of H. Pitt).

FN20 This is not, in fact, a recent phenomenon. See C. Stewart, "Courts Undercut SEC's Litigation Advantage," New York Law Journal (Oct. 8, 1998).

FN21 See C. Stewart, "The Post-Enron Pendulum: Is It Swinging Back (And in What Direction)?" American Banker (June 24, 2005). Another area where the SEC's aggressive litigation posture is getting increasing judicial push-back is in what constitutes actionable primary liability under §10b, consistent with the U.S. Supreme Court's Central Bank decision. See SEC v. Lucent Tech., Inc., 363 F.Supp.2d 708 (D. N.J. 2005). Most recently, the 5th U.S. Circuit Court of Appeals rejected the SEC's standard in overturning Judge Melinda Harmon's primary liability determination in the Enron case. See "Fifth Circuit Revenue Class Certification in Enron Shareholder Action Against Banks," BNA Securities Regulation & Law Report 458 (March 26, 2007).

---------------------------------
heres the link http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1181034327751
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:08 PM
bbhindyou - here is a link to the complete SB979

http://by124w.bay124.mail.live.com/mail/ReadMessageLight.aspx?Aux=20%2c0%2c633166883764330000&FolderID=00000000-0000-0000-0000-000000000001&InboxSortAscending=False&InboxSortBy=Date&ReadMessageId=71c81670-dc6d-4d72-99ea-856a666fe77f&n=421042871
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:09 PM
Bobo - this is classic. I just love it. Go at it boys.
---------------
It's hedge fund versus hedge fund in the war over the subprime market

The tables have turned. Hedge funds have long been accused of manipulating the prices of subprime mortgage lenders, shorting the stocks heavily to help accelerate a downturn for companies in the industry. Now that the initial meltdown has occurred, a split vote on the recovery leaves hedge funds scrambling to keep market momentum. Key evidence of this comes from Roddy Boyd's recent piece on Paulson & Co.'s charges that Bear Stearns is keep subprime borrowers afloat to buttress the sagging ABX index and to prevent paying out on credit default swaps.

HEDGE FUND "BEARISH" ON SUBPRIME RELIEF
June 5, 2007 -- A big hedge fund on one whopper of a winning streak is picking a bitter fight with Bear Stearns over whether renegotiating loans for homeowners struggling with subprime mortgages is fair play.

Paulson & Co., an $11 billion hedge fund, has written regulators over concerns that Bear and other investment banks may be engaged "in market manipulation" when the banks' mortgage-issuance units modify loans so that homeowners can avoid foreclosure.

The Madison Avenue-based Paulson is ready to do major battle.

It penned letters to the Federal Reserve and Commodity Futures Trading Commission and hired former SEC Chairman Harvey Pitt to provide legal advice, according to The Financial Times.

The letters make no bones about the threat to the value of Paulson's trades from what it called "uneconomic transactions." Also signing at least one letter were representatives from hedge funds Hayman Capital Partners and Elliott Associates.

At issue is the motivation behind efforts by Bear's EMC Mortgage unit to renegotiate subprime home loans, and whether it's solely to prevent homeowners from losing their houses, or, as Paulson's general partner John Paulson told The Post, simply "to artificially inflate the value of derivative securities."

Paulson said that he strongly supported loan modification when valid, but that some of these "second chances" appear to be just "market manipulation" from Bear.

Tom Marano, Bear Stearns' mortgage chief, declined to comment.

Long one of the largest mortgage players on Wall Street, Bear has been vocal about efforts by its so-called "Mod Squad" to adjust the interest rate or duration of home loans for troubled borrowers.

For Paulson, this is no mere academic debate. His funds have a multibillion-dollar bet on the decline of the subprime mortgage market, using trading strategies.

The first involves short-selling the ABX index, a key subprime mortgage market benchmark that tanked in February and March as mortgage defaults skyrocketed, earning Paulson and other funds billions of dollars in profits.

Another Paulson strategy involved using credit default swaps, complex securities that act as an insurance policy against a drop in the value of subprime securities.

Paulson bought about $1 billion worth of this "insurance" as bonds, backed by subprime mortgages, declined in value, and he locked in a home run, collecting an amount roughly equal to those declines.

But the alleged $1 billion in paper profits that Paulson's fund has made is being jeopardized as the ABX index has begun to march upward, rallying to 83 from a low of 73 in February.

More ominously, dozens of other hedge funds have shorted billions of dollars worth of ABX index derivatives and bought credit default swaps. Should there be an unexpected upward move in the ABX index, dozens of hedge funds would seek to cover their shorts, likely forcing prices sharply higher.

Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:11 PM
Hey bbhindyou - I'm starting to believe that a way to do this is to start addressing the state securities divisions. There was a suit initiated by Oregon a few years back against the major brokerages where the brokerages "without admitting ---" had to pay substantial amounts to Oregon and other states. One of the clauses in the settlement was that they had to pay money into a fund to provide "investor education" in each of the states. I contacted a number of states and inquired about how that was going and got the typical run around. But - I have noticed that many states have a stock market "investor education" department. It would be one means of getting more exposure to insist that Naked short selling and Failure to deliver were topics of that education. Also the NASD holds "investor education" public meetings in various states. Hawaii is one of them. Another point of interest is that when stock market fraud is perpetrated on a "senior citizen" over the age of 60 there are additional fines imposed. Bottom line in those states that have a market "investor education" program, NSS and FTD MUST be part of that education. Exposure, exposure, exposure.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By ted on 6/11/2007 7:12 PM
Quick, let us cover our massive failure to deliver position.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/06/cnmorgan106.xml

"Morgan Stanley has advised clients to slash exposure to the stock market after its three key warning indicators began flashing a "Full House" sell signal for the first time since the dotcom bust.
Teun Draaisma, chief of European equities strategist for the US investment bank, said the triple warning was a "very powerful" signal that had been triggered just five times since 1980."
SEC open meeting 6/13 By tmg on 6/11/2007 7:12 PM
Looks like the SEC wants to "re-propose" amendments to the options market maker exception. I don't like the sound of that.

http://sec.gov/news/openmeetings/2007/ssamtg061207.htm
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:14 PM
Bobo - here is a copy of the letter I sent to the Hawaii Department of Commerce and Consumer Affairs after the Investor Education Branch told me they had nothing addressing the issue of Naked Short Selling.
------------------------
Dear Ms. Kong Lee - I assure you I am very well educated concerning the issue of Naked Short Selling. As a retired Senior Citizen I have lost a considerable amount of my life savings due in large part to this fraudulent activity going unchecked. I was unable to protect my investments as I was uneducated concerning the issues of Naked Short Selling, Regulation SHO, the SEC grandfathering of Failures to Deliver , the Market Maker Naked Short Selling Exemption and the specific company data from the DTCC concerning the level of failures to deliver for that company and the length of time they had been on the Regulation SHO list. Indeed, I had no idea such a thing even existed. Had I known of these things I could have protected my investments. My concern is that the mission statement of the Hawaii Department of Commerce and Consumer Affairs states in part "to protect investors against fraud and abuse" is not being followed to the extent that need be. The Investor Education Program branch of the Department of Commerce and Consumer Affairs has a duty and responsibility to advise the retail investor concerning this fraud so that the investor can protect themselves. Why is the IEP not doing this? Why is this nowhere to be found in the educational material and not on the agenda to be presented ? That would have allowed me to protect myself against this fraud. Why do I have to come to you AFTER I have been robbed for you to tell me that the IEP has NOTHING on their investor education agenda to address this ? This is a recognized national problem to the extent that five States (Utah, Arizona, Oklahoma, Texas and Virginia) to date have introduced bills into their respected legislature to address this fraudulent abuse. There have been a number of Congressional Banking Committee hearings, of which Senator Akaka is a ranking member, addressing the issue of Naked Short Selling as it is a real, proven threat to the retail investor. The issues of Naked Short Selling, Regulation SHO and its grandfather clause, the DTCC list of Failures to deliver and the Market Maker exemption should all be a part of the IEP investor education program. I am seriously concerned about this not being so and would encourage you to take steps to correct this obvious oversight.

Respectfully
Capt. Dale XXXXX
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By InTheKnow on 6/11/2007 7:14 PM
Money is power. Wednesday is the day Grandfather goes on a permanent vacation!

Power to the Jagh shareholders!
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By wed on 6/11/2007 7:15 PM
Next Wed. is D Day:

The subject matter of the Open Meeting scheduled for Wednesday, June 13, 2007 at 10:00 a.m. will be:
1. The Commission will consider whether to adopt amendments to the grandfather provision of Rule 203 of Regulation SHO and the market decline limitation of Rule 200(e)(3).
2. The Commission will consider whether to re-propose amendments to the options market maker exception to the close-out requirement of Regulation SHO and the marking requirements of Rule 200(g) of Regulation SHO.
3. The Commission will consider whether to adopt amendments to the short sale price test of Rule 10a-1. In addition, the Commission will consider whether to adopt an amendment to the "short exempt" marking requirement of Regulation SHO.
4. The Commission will consider whether to adopt amendments to Rule 105 of Regulation M that would further safeguard the integrity of the capital raising process and protect issuers from manipulative activity that can reduce issuers' offering proceeds and dilute security holder value.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By gregcable2002 on 6/8/2007 10:30 AM
The government is to big and controlled by lobbyist and big companies,We the people is now Were the people,past tense,big money controls everything.It's sad when even at the local level we are getting screwed and ignored when we complain.Try going to any local newspaper with any of this and see if they investigate,then print the truth,won't happen,sad thing is there is no place left on earth to go where big brother won't follow.So whats a person to do? We do the right thing even if we have to pay with our very lives,DO THE RIGHT THING NO MATTER WHAT IT COST.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:16 PM
Bobo - I am flabergasted. I don't know how to respond to this. I, I , I mean........... I got a reply from the state consumer affairs investor education department on why NSS/FTD, Reg SHO, Grandfather clause, MM exemption, DTCC lists etc. was not included in their investor education package. Their reply was that their understanding was that Naked Short Selling and etc. was a NATIONAL problem and not a STATE problem. HUH ? WTF. I will respond to their reply but for the life of me I can not understand where they could come up with that viewpoint.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By oldfeller on 6/11/2007 7:17 PM
We might never get the mainstream media to alert the general population to the blatant theft of billions of $ while the regulators look the other way but.... well, we`ll always have Paris.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:19 PM
Bobo - here's my letter to Senator Pamela Gorman.
---------------
Good Morning Senator Gorman - The SB1217 which addressed the issue of Naked Short Selling is in my opinion one of the most important bills to be considered by the Arizona Legislature in a very long time. It addresses protection of the Arizona investor public from known fraudulent activity. One of the reasons for submitting this bill in the first place was that our Federal Government is being lax in enforcement of laws prohibiting this activity. This is not conjecture Senator but proven fact as you well know. You Senator and indeed our entire State Government has a duty and responsibility to protect the investor from market fraud when the Federal Government can not or is not willing to in a timely fashion. It is my understanding that this bill was held up in your FIIR committee and delayed to the point it was not heard and finalized during the last session. I understand that the reason for this delaying tactic was that you personally felt the bill was a duplication of government and therefore purposely delayed and actively lobbyed against it. If this is so I am seriously saddened and concerned about the apparent lack of protection that is being given to the citizens of the State of Arizona. Perhaps you can help me understand how my concerns are not warranted.

Respectfully
Capt. XXXXXX
*** Hello! Wake Up and Smell the Coffee *** By InTheKnow on 6/11/2007 7:18 PM
CNBC MARKET GAME SCAMSTERS SKIRTED LAW
By JANET WHITMAN
June 9, 2007 -- With a $1 million prize up for grabs, contestants in CNBC's online stock-picking contest came up with an array of illicit schemes to scam the game, the financial news TV network said yesterday.

CNBC, which launched a probe two weeks ago amid player complaints of rampant cheating, acknowledged that some scamsters may have broken the law to rack up huge gains as they bet on stocks with play money.

The General Electric-owned network is looking into whether one or more players came up with a computer program that could bypass the contest's security measures, potentially allowing stock trades to be illegally backdated.

A number of players also figured out a way to cheat the contest by changing trades after the market closed at 4 p.m. to take advantage of price run-ups. They could put in the trade after hours, but still lock in the much cheaper closing price.

CNBC said it has tapped two information security consultants to investigate the computer programming scams.

At least one player also may have illegally manipulated the market to boost the price of stocks bet on in the individual's portfolio. An independent securities expert is looking into the matter, CNBC said.

The 10-week contest ended May 25. CNBC was supposed to declare a winner - the player with the most valuable portfolio - by July 8.

"It is more important to ensure the individual awarded the Grand Prize is in compliance with the rules," CNBC said in a statement yesterday.

Irate players have been firing off complaints about the contest on Internet chat rooms for weeks, with many angry that CNBC didn't deal with the suspicious trading sooner.

"If someone trades once and makes 20 percent in a day that's definitely possible," said Jeff Graber, a Top 20 player who complained to CNBC about the cheating more than a week before the network took action, told The Post. "But when they do it day after day it becomes statistically impossible. We're talking 5 billion to one odds."

The game has been a boon for traffic on CNBC's recently relaunched Web site.

"The contest is really the site's centerpiece," said one industry insider. "Now you wonder if they can go to that well again. It's definitely a p.r. hit for them."

Many other financial Web sites offer contests to let visitors try out their stock-picking savvy.

TheStreet.com, for example, is about to introduce "Beat the Street 2.0!," with $100,000 in prize money. The contest site said it's shut down for "maintenance."

A Street.com spokeswoman couldn't immediately say whether it was related to concerns about potential scamsters.

janet.whitman@nypost.com
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:20 PM
Bobo - here is an interesting bit of trivia. I spoke now with three of the States Investor Education representatives concerning why NSS/FTD etc. is not part of their investor education packet. I have gotten virtually the exact same "party line" response from all of them. What they are saying is they do not include that as it is not within their "jurisdiction" to do so. They view the problem as one on a "national" level and there are appropriate branches of Federal Government to deal with that on a "national" level and they are not it. They did however say they would consider including a FAQ in their literature on the subject of NSS. They said if the problem was one where a local "state" securities dealer was involved in the fraud then of course the state securities enforcement branch would be interested in looking into it on a case by case basis. I reminded them that in order to purchase a stock I had to make that purchase via a local state registered dealer. I.E. - bottom line, they can not and/or are reluctant to see the connection between the NSS issue and the States responsibility to address it. They do state however that the NASAA is addressing that on a National level. Interesting. The most definitive explanation of their viewpoint was provided by Ms. Elexan (sp) representing the Arizona Investor Education branch. (602-542-0428) but I got the same from Oklahoma and Hawaii.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 7:21 PM
Bobo - I have read the entire Part III of the SEC 17 CFR parts 240, 241, and 242 Short Sales; Final Rule and Notice concerning Regulation SHO. Amazingly enough, I think I have a pretty good understanding of it. It seems to me that adequate rules seem to be in place if they were only enforced. It seems to me that the fraud could not happen and could not continue if the Broker Dealers did not facilitate it and if they were held accountable. Am I missing something here ? Is it really as simple as that ?
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 10:12 PM
Hi Ted - you posted the link to : "Morgan Stanley has advised clients to slash exposure to the stock market after ..........

I read the article but can't decide if they are referring to the English Stock Market or the U.S. Stock Market or both. Any take on that ?
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/11/2007 11:59 PM
bobo - I just don't know where to ask these questions except here so here goes
-----------
In Dr. Trimbachs third interview she said - XXXXX (A company on Reg SHO list for an extended period of time with large FTD position) has problems that go beyond Naked Short Sellers. If the problem were just short sellers,( here I assume she is referring to legal short sellers) then the dilution of share value and shareholder rights could be corrected when the shorts are covered and the market price moved toward the real value of the firm. But when (I think she means naked short sales and ) fails are added to the picture, then the shorts (legal or naked or both ?) have no incentive to cover. The trade is allowed to remain unsettled indefinitely; there is no margin call because there is no loan.
--------------------
Am I reading that right ?
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By bobo on 6/12/2007 7:45 AM
Capt: You are reading that right.

I'm also afraid that any hope of the SEC doing anything at all that protects investors, or impinges on Wall Street's ability to fleece investors with obviously, provably abusive exemptions like the market maker exemption, is a false hope. They have had years and years to consider these issues, and the best they can come up with is a sophomoric stalling tactic to delay having to comply with the 34 code. They are going to put out the market maker exemption for more comment? Please. What complete transparent hogwash. These people should be drawn and quartered.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/12/2007 2:38 PM
One more for our side. Get em NASAA.
--------------------------
NASAA files an amicus brief in the United States Supreme Court in the Stoneridge appeal, in support of an investor's right to sue those who have participated in securities fraud through deceptive conduct, not just through misrepresentations and omissions, under Section 10(b) of the Securities Exchange Act of 1934. For details, please see:http://www.nasaa.org/issues___answers/enforcement___legal_activity/968.cfm
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By SEC = farce on 6/12/2007 3:25 PM
How many of Cox's grandchildren is the mob holding captive? He deserves to be impeached, but then they would just deliver a new clown to run the circus.
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By captdale on 6/12/2007 3:51 PM
Hey bbhindyou - I'm starting to believe that a way to do this is to start addressing the state securities divisions.
--------------------------
Well - Did that and that didn't work either. Geeeeez
Re: An Absolutely Amazing and Definitive Video Special On Market Manipulation, Naked Short Selling, Hedge Funds By bbhindyou on 6/13/2007 5:34 AM
Dale I can't get any part of the link you posted to work.
I need the actual proposed bill that Oklahoma WAS going to pass then I can begin to search for loopholes and exemptions on the reporting of fails.
Whoever gets the biggist and best loophole as to reporting of failures to deliver then gets investigated to see who paid for the exemption and the trail should lead us to who was paid to put said exemption in place.
Thats when we the people come in .