Stockgate - Naked Shorting Scandal

» Kirk - Former SEC Guy Talks about Naked Short Problem

I am placing this post of Audio files here to assist in building general Awareness of the mechanics of the market. IMO very few people understand the everyday mechanics of our Markets and their systems. I have only listend to the second to the last file on the page; as of this posting, and believe there is enough pertinent dialog in that segment to warrant the entire post. Over the weekend I will have a chance to review the whole piece I'll take some notes and comment if anything stands out.
This post is from an IHUB poster who is through a particular stock caught up in the issue of naked shorting.
I've never heard of the stock and it has no bearing on anything else, its simply being used as a feature.

Remember this information is being archived here to facilitate the gross store of knowledge on this subject, right wrong or indifferent.

AUDIO DISCUSSION OF SHORTING, FORMER SEC REP, FORMER MARKETMAKER, INVESTIGATE THE SEC REP.

I recorded this yesterday for shareholders of all stocks, cmkx and anyone who trades pennies. It is probably some of the best 1 hour learning for advance and beginner investors you can find. It really uncovers the shorting problem today and how it effects shareholders. The last two files 1 & 2 is a discussion between investigate the sec and the former sec rep.
THIS IS GREAT STUFF AND U WILL BE HAPPY TO TAKE THE TIME OUT AND LISTEN.

Audio Recording from Sterlings Chat, Former SEC guy, Sterling,and former Marketmaker. They discuss the naked short problem cmkx.

http://www.ideadirect.com/cmkx/3.rm.ram

http://www.ideadirect.com/cmkx/4.rm.ram

Former SEC guy Audio Recording from Sterlings Chat

http://www.sterlingsclass.com/1.rm

http://www.sterlingsclass.com/2.rm

Attribution for this content goes to
Posted by: emunahstock
In reply to: None Date:7/2/2004 5:48:57 AM
Post #of 264744

-- posted by Kirk

» Kirk - Trading scheme puts squeeze on stockholders

Monday, July 05, 2004
BY SUSAN TODD
Star-Ledger Staff
http://www.nj.com/news/ledger/index.ssf?...

For three rattling days last month, Integrated BioPharma, a sleepy vitamin company in Hillside, had a mystery: Its stock price was plunging, while the number of shares trading whirled to levels six times the norm.

Jamie Levey, who handles the company's investor relations, fielded dozens of calls from curious and frantic shareholders. "Everyone was dismayed to have something like this happen without explanation. It was unnerving," she said.

As it turned out, Integrated BioPharma was the latest small company to be swept up in an alleged international manipulation scheme on one of Germany's obscure stock exchanges.

The scam, dubbed "StockGate" by the financial press, is the latest example of an illegal practice experts claim has cost investors hundreds of billions of dollars. And it's one more thing to rattle investors of risk-prone small-cap stocks.

The first hint Integrated BioPharma had been caught in the international intrigue came when executives were told company shares were being traded without their knowledge on the Berlin Stock Exchange.

"It was a horror certainly for the investors," said Sy Flug, a director at Integrated BioPharma and one of its largest shareholders.

In news releases over the past two months, hundreds of small U.S. companies have claimed to be victims of the scheme, attributing the unauthorized listing of their stocks on the Berlin exchange to naked short sellers, who illegally manipulate shares of thinly capitalized stocks to drive them lower so they profit.

Regular short selling of stocks, which is a bet the share price will fall, is perfectly legal. A short-seller borrows shares from a broker and sells them. Eventually, the seller must buy back the shares and return them to their owner. If their price falls on the open market, the short-seller profits.

In naked short selling, the seller never actually holds the shares and cannot deliver them. The illegal practice sometimes results in more shares being traded than are actually issued, and it can cause panic among legitimate investors once share prices start to fall.

Ordinarily, companies want their stock listed on an exchange in hopes of generating more interest in shares. But these listings may have been carried out only to satisfy naked short sellers.

"I am outraged at the listing on the Berlin Stock Exchange of our common stock and its impact," screamed a June 17 statement from Howard Ullman, chief executive of Florida-based China Direct Trading Corp.

Executives and securities experts believe Germany is the new venue for naked short sellers because the U.S. Securities and Exchange Commission now prohibits the practice. Officials at the Berlin Stock Exchange have denied the allegations, and no one has been charged with any crime.

For their part, U.S. companies said they have no proof of what is actually happening. But early last month, the SEC and National Association of Securities Dealers went to Berlin to investigate complaints.

"The SEC is not disputing that someone is manipulating the stocks," said John Nestor, a spokesman for the agency. "We just passed new rules to make that tougher."

But he said the practice of naked short selling is not concentrated in Berlin.

Flug, the director from Integrated BioPharma, said last week: "There's always a possibility there's something else going on, but from everything we know, there's not much doubt it's all tied to" naked short selling.

Seth Taube, a former SEC prosecutor and head of securities litigation at Baker Botts, a law firm in New York, said the interaction of modern technology and traditional securities practices has allowed naked short selling to flourish.

"Berlin is merely the latest source of naked short sellers," he said. "It's a place where stocks can get listed without permission. It becomes a perfect source for naked short selling activities."

Integrated BioPharma found that out the hard way.

The company, which employs 90 people, makes and markets nutritional supplements, including its own mail order brand of Vitamin Factory products. It also supplies pharmaceutical companies with paclitaxel, a vital ingredient in many cancer drugs. The company lost $1.24 million in the most recent quarter.

Its roller coaster ride began on June 22, when 41,300 shares changed hands on the American Stock Exchange, slightly above its daily average of 40,000 shares. Two days later, its trading reached avalanche-like proportions, with 264,600 shares trading -- more than six times the normal volume.

Meanwhile, its stock dropped $4.15, or 35 percent, to $8.50 a share. That represented a loss of $43.9 million in market value.

"We weren't sure what was going on," said Eric Friedman, Integrated BioPharma's chief financial officer.

One of his shareholders ultimately did.

Once Friedman was notified of a listing in Berlin by the shareholder, he contacted the American Stock Exchange, where the stock trades. After meetings with their own attorneys and conversations with the SEC, the company -- like dozens of others -- has demanded to be delisted in Berlin. Some of the first companies who made a similar demand were delisted.

A spokeswoman for the American Stock Exchange declined to comment, saying policy prohibits her from discussing regulatory investigations.

Petra Greif, a spokeswoman for the Berlin Stock Exchange, declined to comment, referring a call to a statement posted on the exchange's Web site.

In that statement, exchange officials said they examined the prices and trades of companies that had complained about possible illegal short selling.

"In some cases, the investigations revealed that stocks were either not yet introduced to trading on the Berlin Stock Exchange or that there was no trading activity at all during the relevant period," the statement said. "There is no conspiracy to circumvent short selling rules," the statement said.

Friedman, Integrated's chief financial officer, said he didn't know anything of the situation in Berlin before he got swept up in it.

"I'm not sure we'll ever know exactly who's involved," he said.

Things at the company have returned to normal. On Friday, for example, its stock gained a penny to $8.25. Just 26,100 shares were traded.

"We're not terribly concerned with the value coming back. We know it will come back," said Flug, the board member. "There's no question in our mind, we'll put this behind us."

Susan Todd can be reached at stodd@starledger.com or (973) 392-4125.

-- posted by Kirk

» setyoustraight - Re: Trading scheme puts squeeze on stockholders

You should take a close look at what's really driving this "Stockgate" story. The problem really has nothing to do with short sellers. The problem is you have a lot of dead-beat companies whose shares shouldn't be listed ANYWHERE trying to divert attention away from their short-comings by using short sellers as a scape goat.

The fact of the matter is that if you have a company with good management, a viable financial structure, and goods or services that are in demand that you can sell for a profit, there is nothing a group of short sellers can do to hold you down.

And Kirk, you of all people should know that.

-- posted by setyoustraight

» Kirk - Re: Re: Trading scheme puts squeeze on stockholders

The fact of the matter is that if you have a company with good management, a viable financial structure, and goods or services that are in demand that you can sell for a profit, there is nothing a group of short sellers can do to hold you down. And Kirk, you of all people should know that.

This may be true but there is an awful lot of smoke around this issue and this often means there is fire. For most companies, it is not an issue unless they go the route that allows those financing them to demand shares to make up for losses.

It seems to be the equivalent of a loan shark… once they can’t make a payment the “loan shark” can drive the price down by shorting and demanding the cheaper shares to cover the loan. This dilutes the stock thus lowering the value even more. It can be limited by the no short rules for penny stocks, but if there is a method to actually counterfeit shares to short far more than are in circulation, this is criminal. Positive feedback can kill the company this way.

Perhaps it is a good thing for marginal companies to fail quickly but nobody deserves to go out for a loan and then have the person giving you the loan actively try to force you to go under so they can get rich shorting your stock.

-- posted by Kirk

» SteveT - StockGate: Berlin Exchange Welches Again On Promise; Schwab Say

StockGate: Berlin Exchange Welches Again On Promise; Schwab Says Sayonara

Jul 15, 2004 (financialwire.net via COMTEX) -- (FinancialWire) Add Force Protection (FRCP) and Cyber Digital Inc. (CYBD) to what is now becoming a list of companies such as XRAYMEDIA (XRYM) that the Berlin-Bremin Stock Exchange has flatly turned down their demands for delisting, welching on a public promise made to FinancialWire that it would delist any company that requested it.

At the same time, Charles Schwab & Co. (SCH) is exiting the market-making business. It is one of several market makers that have been the subject of accusations and/or legal entanglements over naked shorting allegations and issues.

The company had said it is either the number one or number two market-maker in more than half of all of NASDAQ's (NDAQ) listed stocks.

Recently observers were surprised to find a comment letter submitted to the SEC by Mike Alexander, Senior VP of Charles Schwab, that admits outright that brokerages regularly ignore rules and regulations, saying it is not rules that need to be written; it is changes in behavior that is needed.

The comments were directed towards proposed changes in the U.S. settlement system, but could easily apply to other regulations as well.

"Improvements in the U.S. settlement system will only be truly achieved if and when regulations are rationalized to ensure that all market participants are held accountable for compliance. For example, the industry has struggled with the issue of institutional trade affirmation for quite some time now. While the benefits to the clearance and settlement system are self-evident, Buy-Side firms and Custodian banks have been resistant to make those changes that provide for same-day trade confirmation / affirmation and assurance of trade settlement," said Alexander.

"Schwab opposes the notion that securities intermediaries such as broker-dealers be required to police compliance," he stated. "The NYSE and other SROs have had trade affirmation rules on their books for some time. However, such rules have not been effective in changing the behavior

of Buy-Side firms or their custodians; nor do the rules provide assurance that the affirmed trade will settle.

"Recognition of this fact is evidence that changes to the settlement cycle not only require overhauling systems, but also changing behavior. We believe that only by holding all market

participants directly accountable for making required affirmations will the necessary changes to behavior," he stated at http://www.sec.gov/rules/concept/s71304/... .

In a June 23 release, the SEC stated it has put into place Rule 202(T), which establishes procedures to allow the Commission to temporarily suspend the operation of the current "tick" test in Rule 10a-1, and any short sale price test of any exchange or national securities association, for specified securities.

Through a separate order, the Commission will suspend, on a pilot basis for a period of one-year, the tick test provision of paragraph (a) of Rule 10a-1, and any short sale price test of any exchange or national securities association, for approximately one-third of stocks in the Russell 3000 index.

The order also will suspend, on a pilot basis for a period of one year, the tick test provision of paragraph (a) of Rule 10a-1 for short sales executed in any security included in the Russell 1000 index after 4:15 p.m. Eastern, and all other securities after the close of the consolidated tape, and until the open of the consolidated tape the next day.

The pilot will commence on January 3, 2005 to permit broker-dealers and self-regulatory organizations to make the necessary programming adjustments.

The Commission deferred consideration of the proposal to replace the current "tick" test of Rule 10a-1 with a new uniform bid test. The Commission could reconsider any further action on these proposals after the completion of the pilot.

Rule 203, which will incorporate current Rule 10a-2 and will create a uniform Commission rule requiring broker-dealers, prior to effecting short sales in all equity securities, to "locate" securities available for borrowing.

There will be limited exceptions from the locate requirement, including for short sales by registered market makers in connection with bona-fide market making.

Rule 203 also imposes additional requirements on designated "threshold securities." Rule 203 defines a threshold security to mean an equity security for which there is an aggregate fail to deliver position for five consecutive settlement days at a registered clearing agency of 10,000 shares or more and that is equal to at least 0.5% of the issue's total shares outstanding.

Where a clearing agency participant has a fail to deliver position in threshold securities that persists for ten consecutive days after settlement, the participant must take action to close out the position. Until the position is closed out, the participant, and any broker-dealer for which it clears transactions, may not effect further short sales in the particular threshold security without borrowing or entering into a bona fide arrangement to borrow the security.

Rule 203 will become effective 30 days after publication with a compliance date of January 3, 2005, to permit firms to make programming and procedural adjustments.

Rule 200, which among other things, will redesignate current Rule 3b-3 with some modifications to define ownership and aggregation of securities positions, and include a requirement to mark all sell orders in all equity securities. Rule 200 will become effective 30 days after publication.

The Commission also adopted amendments to Rule 105 of Regulation M to remove the current shelf offering exception, and issued interpretive guidance addressing sham transactions designed to evade the rule.

The amendment applies to short sales effected within five days prior to the pricing of a shelf offering. Such short sales may not be covered with offering securities purchased from an underwriter or other broker-dealer participating in the offering.

The Rule 105 amendments will be effective 30 days after publication in the Federal Register, and the interpretive guidance will be effective upon such publication.

Opponents of naked short selling were, however, quick to denounce the provision that allows market makers an exemption, and many market observers said that the SEC should provide a public list of companies that fall into the "threshold security" category.

"The SEC claims that the number of companies involved in this 'threshold security' category is 4% of all publicly traded companies. If in fact it is that small the process is certainly manageable," said the website InvestigatetheSEC.com at http://www.investigatethesec.com . "It is also the right of every issuer, in protecting their business and their investors to know the status of their stock trading."

Some were discussing whether the SEC can keep such information private under the Freedom of Information Act.

The marketplace is already upset over promises by the Berlin Stock Exchange, since broken, that it would delist any company upon request.

"Please understand that cessation of trading in the shares of XRAYMEDIA Inc. (XRYM) is not possible," the exchange told one such requester.

It's not just U.S. companies such as Whistler Investments (WHIS), Sonoran Energy (SNRN), Celsion Corporation (CLN), and eLinear Inc. (ELU) or Israeli companies that have had serious concerns about their unannounced and unathrorized listings on the Berlin-Bremen Stock Exchange.

Apparently, some 150 British companies are protesting the same fate.

A number of UK-listed companies have demanded a London Stock Exchange investigation after they found that their shares are being traded.

Meanwhile, Whistler, Sonoran and eLinear have announced they have successfully secured their delistings, and the U.S. Securities and Exchange Commission has rescheduled its open hearing to consider the adoption of amendments to Regulation Sho to July 15 at 9:30 a.m. The announcement is at http://www.sec.gov/news/digest/dig061504... .

According to the London Money Telegraph, "several companies believe the market for their shares has been distorted and that they have fallen in value after trading started on the Berlin-Bremen exchange.

"Some smaller companies, whose shares are lightly traded in London, fear the Berlin market has been used by speculators to short-sell their shares."

The Telegraph said the number of companies are thought to be as high as 150, including even "larger companies" such as Matalan (OTC: MATNF) and Halfords.

Mladen Ninkov, the chairman of Aim-listed Griffin Mining (OTC: GFNMF), was quoted as saying: "We were put on the Berlin market without our knowledge by a German broker and now we've got about 8m shares out in a short sale. It is horrifying - that is about 4 per cent of the company and it is forcing the price down."

A spokesman for the London Stock Exchange said: "If there is evidence of market abuse we would refer that on to the appropriate authorities."

Whistler said that according to its transfer agent records, "we have 5,504,680 shares held by DTC, but the ADP broker search indicates of 6,217,458 shares being reported by broker/dealers as being held on behalf of their customers, indicating a short position of more than 700,000 shares. A summary report can be viewed at http://www.whistlerinvestments.com/short... .

"We have therefore commenced work with DTC for a formal review of the reported excessive broker/dealer holdings of our stock so that we can conduct our corporate affairs properly in view of our planned stockholders meeting and other upcoming corporate matters. We again advise our stockholders make sure that they receive delivery of any shares that they purchase, and also that their stock is not being borrowed without authorization.

Holly Roseberry, President of Whistler Investments, states "We intend to get to the bottom of the excessive short position and bring stability back into the trading of our stock. We're happy to say that we have 5,133 stockholders and we expect all our stockholders to benefit from the shorters having to cover their short positions."

FinancialWire has reported on the disclosure that "Dateline," the investigatory TV program aired by General Electric's (GE) NBC unit, has purportedly been preparing a blockbuster expose of "Stockgate" (see separate story at http://www.financialwire.net).

It is not known if "Dateline" has uncovered continuing underworld connections to the scandal, but FinancialWire reported that Dateline may be pointing a large finger of conflict at the U.S. Securities and Exchange Commission itself, which reportedly receives a slice of every transaction fee as part of its budget. According to court filings supported by the O'Quinn/Christian legal network, almost $1 billion annually is received by the Depository Trust and Clearing Corp. for its "Stock Borrow Program," which the lawsuits claim is just a fancy name for counterfeiting, as the DTCC purportedly lends out many multiples of the actual certificates in the float. Apparently the SEC receives a transaction fee for each transaction facilitated by these loans of non-existent certificates, which could knock a hole in its budget should the revenues from the practice be halted.

The North American Securities Administrators Association, comprised of state and Canadian regulators, has pointedly told the SEC that either it must rethink its cozy DTCC relationship, or it hints, some of its more aggressive state practitioners (think Eliot Spitzer) may do the rethinking for the SEC.

Naked short selling is worrisome for hundreds of small U.S. companies, including those recently asking to be delisted from the Berlin Stock Exchange, such as Golden Phoenix Minerals, Inc. (GPXM), Nannaco, Inc. (NNCO), 5G Wireless Communications, Inc. (FGWC), CyberAds, Inc. (CYAD), Provectus Pharmaceuticals, Inc. (PVCT), House of Brussels Chocolates (HBSL), InforMedix, Inc. (IFMX), Tissera, Inc. (TSSR), Americana Publishing, Inc. (APBH), Celsion Corporation (CLN), ChampionLyte Holdings, Inc. (CPLY), Pickups Plus, Inc. (PUPS), China Wireless Communications Inc. (CWLC), CareDecision Corp. (CDED), Titan General Holdings, Inc. (TTGH), IPVoice Communications, Inc. (IPVO), Whistler Investments (WHIS), WARP Technology Holdings, Inc. (WRPT), BGR Corp. (OTCBB: BGRR), ICOA, Inc., (ICOA), DICUT, INC. (OTCBB: DCUTE), NHC Communications Inc. (NHC), Stratus Services Group, Inc. (OTCBB: SERV), Golden Phoenix Minerals, Inc. (GPXM).

Berliner Freiverkehr (Aktien) AG has been singled out as the broker and market maker that has been "listing" the companies. It is suspected that one broker, RA Angsar Limprecht, is involved in all if not most of the listings.

Small public companies are squeezed not only by hedge funds, naked short sellers, overseas listers such as the Berlin Stock Exchange, and the out-of-control "Stock Borrow Program" run by the governance-conflict-laden Depository Trust and Clearing Corporation, but to the amazement of the industry, as often and not by their own regulators.

A new staff recommendation by Annette Nazareth, director of the division of market regulation at the U.S. Securities and Exchange Commission to "outlaw" ownership of paper certificates at the same time the Depository Trust and Clearing Corporation is under intense scrutiny for alleged electronic counterfeiting has begun hitting the small public company markets, company executives, shareholders and manipulative short-selling opponents like the proverbial ton of bricks.

A Dow Jones (DJ) article by Judith Burns sparked the uproar, as the inextricably intertwined web of connections between the SEC and the DTC, which is sagging from the weight of conflicted governance by representatives from a rollcall of industry heavyweights, including NASD, which owns NASDAQ (NDAQ), the New York Stock Exchange, Goldman Sachs (GS) and Lehman Brothers (LEH), to name only a few.

The rule proposal would bar stock transfer agents from handling shares that carry any limitations on transfer. Control over stock certificates is one of the ways that small companies have combated illegal naked short sellers. Burns quoted Nazareth as saying that these companies' "self-help" efforts "aren't helping U.S. markets overall." Nazareth was quoted as saying restrictions on stocks are "a significant step backwards" in the "move from paper stock certificates to automated computerized trading."

Nazareth said that abusive "naked" short selling has been a problem "in some cases," but that is "best dealt with by a pending SEC proposal," presumably Regulation SHO.

SEC Commissioner William Donaldson purportedly publicly refused to answer any questions from the NASD about the timing of the Commission's consideration of the Regulation at a conference where he was simultaneously proposing early reforms of the mutual fund scandals. The Dow Jones said, however, that Robert Colby, SEC deputy market regulation division director, predicted the SEC will take that to a vote in early June.

The Dow Jones report noted that "naked short-selling occurs when sellers don't buy shares to replace those they borrowed, a manipulative practice that can drive a company's stock price sharply lower.

The stock certiticate plan has been put to a 30-day comment periodl Then the SEC would have to vote to adopt it. If adopted, Colby was quoted as saying that regulators might "sue firms that seek to impose restrictions on stock transfers."

The recent lawsuit filed by Nanopierce Technologies (NPCT) alleges that the Depository Trust and Clearing Corp. has a lot of reasons, almost one billion of them a year, to keep illegal naked short selling in operation. It was the shot across the bow by the legendary Houston law firms of Christian, Smith, Wukoson and Jewell, and OQuinn, Laminack and Pirtle, whose notches already include environmental targets, the breast implant industry and the tobacco industry, all brought to their knees.

In comments to the U.S. Securities and Exchange Commission, C. Austin Burrell, who is providing litigation support and research for the law firms, said that StockGate is more massive than anyone may have imagined. "Illegal Naked Short Selling has stripped hundreds of billions, if not TRILLIONS, of dollars from American investors," and have resulted in over 7,000 public companies having been "shorted out of existence over the past six years." Burrell said some experts believe as much as $1 trillion to $3 trillion has been lost to this practice.

He stated that the restrictions on short selling were deliberately put into the Securities Acts of 1933 and 1934 because of the first-hand evidence then available that the "sheer scale of the crashes was a direct result of intentional manipulation of US markets through abusive short selling by a massive conspiracy."

Burrell noted that the 65-lawyer team presided over by lead lawyers Wes Christian and John O'Quinn has uncovered more than 1,200 hedge fund and offshore accounts working through more than 150 broker-dealers and market makers in a joint cooperative effort to strip small and medium size public companies of their value.

Recently the NASD and U.S. Securities and Exchange Commission approved an interim naked short-selling band-aid, requiring U.S. brokers to make an "affirmative determination" that short-sellers, even foreign short-sellers, mostly Canadian, can find certificates to cover before processing the order.

Last year, many besieged public companies sought refuge from the manipulation by seeking to exit the DTC, but on July 15, 2003, the SEC stated "the issues surrounding naked short selling are not germane to the manner in which DTC operates as a depository registered as a clearing agency. Decisions to engage in such transactions are made by parties other than DTC. DTC does not allow its participants to establish short positions resulting from their failure to deliver securities at settlement. While the Commission appreciates commenters' concerns about manipulative activity, those concerns must be addressed by other means."

The Nanopierce lawsuit, said to be the first of many out of the box, emphatically suggests otherwise. According to lawyer Christian, et.al., the DTC is at the very heart of the problem, and has almost a billion dollars a year at stake in keeping the problem.

The Depository Trust Company (DTC) is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the SEC. The depository supposedly brings efficiency to the securities industry by retaining custody of some 2 million securities issues, effectively "dematerializing" most of them so that they exist only as electronic files rather than as countless pieces of paper. The depository also provides the services necessary for the maintenance of the securities it has in "custody."

According to the suit, the DTCC has an enormous pecuniary and conflicted interest in the entire short selling scandal through the huge income stream they were realizing from it every day. They have made literally billions of dollars lending individual real shares, in most cases over and over, getting a fee each time they made a journal entry in the "Stock Borrow Program."

The Stock Borrow Program was purportedly set up to facilitate expedited clearance of stock trades. Somewhere along the line, the DTCC became aware that if it could lend a single share an unlimited number of times, it could collect a fee each time, according to Burrell. "There are numerous cases of a single share being lent ten or many more times," giving rise to the complaint that the DTCC has been electronically counterfeiting just as was done via printed certificates before the Crash.

"Such re-hypothecation has in effect made the potential 'float' in a single company's shares virtually unlimited and the term 'float' meaningless. Shares could be electronically created/counterfeited/kited without a registration statement being filed, and without the underlying company having any knowledge such shares are being sold or even in existence." Burrell said the Christian/O'Quinn lawsuits will seek to show that the "counterfeiting/creation of unregistered shares is a specific violation of the Securities Act of 1933, barring the 'Sale of Unregistered Securities'."

While the Nanopierce lawsuit has been filed at the state level, another companion lawsuit just heading to the courts on behalf of Exotics.com (EXII) will be argued at the Federal level.

Nanopierce's suit in the 2nd Judicial District Court in Nevada, is Case No. CV04-01079, alleges that the DTC's "stock borrow program" was "purportedly created to address SHORT TERM delivery failures," but that the "end result of the program has been to create tens of millions of unissued and unregistered shares to be traded in the public market," and in some instances resulting in "two or more shareholders who purchase shares in separate transactions to own the same shares."

The complaint alleges that the DTC has a colossal disincentive to stop the "stock borrow" program, booking revenues from services of $425,416,000 and similarly, the NSCC deriving revenues of $293,133,000.

Further, the suit alleges that "open positions" resulting from this activity at the close of business on December 31, 2003, "approximated $3,025,467,000" due to NSCC, and $2,303,717,000 due by NSCC, and unsettled positions of $721,750,000 for securities borrowed through the NSCC's "Stock Borrow Program."

Nanopierce claims that DTCC and NSCC have joined in a "scheme" to "manipulate downward the price of the affected securities, thereby reducing the market value of the open fail to deliver positions." The suit also claims that the defendants have permitted sellers to maintain open fail to deliver positions of tens of millions of shares for periods of a year and even longer.

It quotes the National Association of Security Dealers as admitting that "concerns have been raised by members, issuers, investors and other interested parties about potentially abusive short selling activities occurring in the marketplace. In particular, naked short selling, or selling short without borrowing securities to make delivery, can result in long term failures to deliver, including aggregate failures to deliver that exceed the total float of a security. NASD believes such extended failures to deliver can have a negative effect on the market. Among other things, by not having to deliver securities, naked short sellers can take on larger short positions than would otherwise be permissible, which can facilitate manipulative activity."

Nanopierce claims that it had "relied on material misrepresentations and omissions by DTC and NSCC in trading its shares in the stock market "without knowledge of Defendants' fraud-on-the market through statements they made about the clearing and settlement services they provided." Further, it claims that the Defendants acted with "scienter" since they had a major financial financial motivation to falsely represent their services, which Nanopierce claims are also anticompetitive.

The largely unregulated DTC has become something of a defacto Czar presiding over the entire U.S. markets system, wielding more day-to-day influence and control than the SEC, the NASD and NASDAQ combined. And, as the SEC's July 15 ruling indicates, its monopoly over the electronic trading system appears even to be protected.

The Depository Trust and Clearing Corp.'s two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the NASDAQ (NDAQ) and the embattled American Stock Exchange! Regulators, regulate thyself?

In an era when corporate governance is the primary interest for the SEC and state regulators, the DTCC is hardly a role model. Its 21 directors represent a virtual litany of conflict:

They include Bradley Abelow, Managing Director, Goldman Sachs (GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (LEH); Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (C); Michael C. Bodson, Managing Director, Morgan Stanley (MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);

Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (JPM).

In their comments to the SEC regarding Regulation SHO in January, the 50 state regulators, through their association, the North American Association of Securities Administrators (NASAA) issued what many consider to be a strong warning that if the DTC is not dealt with in the final regulations, state regulators such as New York State Attorney General Eliot Spitzer may step to the plate.

In what many considered to have been explosive comments, Ralph Lambiase, NASAA president and Director of the Connecticut Division of Securities, warned "NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). As a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The ability of the overall proposed rule would be severely impared unless the Commission undertakes to implement such a prohibition."

As the Nanopierce lawsuit reveals, those were indeed strong words, meddling as it did, in a substantial revenues base for the DTCC.

Recently, leading market makers and brokers named in various lawsuits and other actions, including FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group, Bank of America's (BAC) Banc of America Securities LLC, Societe Generale's (SCGLF) SG Cowen Securities Corp. vFinance, Inc. (VFIN), Knight Trading Group, Inc. (NITE), A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), and ETrade Group, Inc. (ET), were forced to comply with new short-selling market regulations imposed by the NASD after the SEC had "sat on" the NASD request to plug material loopholes for almost 2-1/2 years.

"The new rules expand the scope of the affirmative determination requirements to include orders received from broker/dealers that are not members of NASD ("non-member broker/dealers").

The new rule is on the web at http://www.nasdr.com/2610_2004.asp#04-03

The rule itself, while welcomed by small companies and their shareholders in the U.S., nevertheless raised an outcry because the NASD's request to put it into effect had set on a shelf at the SEC since 2001.

The scandal has embroiled hundreds of companies and dozens of brokers and marketmakers, in a web of internaitional intrigue, manipulative short-selling and cross-border acctions and denials.

Comments on Regulation SHO ended January 5, and may be viewed at http://www.sec.gov/rules/proposed/s72303... .

Some 122 companies, including 13 brokers, such as FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group and vFinance, Inc. (VFIN). A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), Knight (NITE) and ETrade Group, Inc. (ET), have been embroiled for over a year in a raging controversy

The remaining 109 companies among the 122 named to date have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.

The complete list of those 108 companies include Advanced Viral Research Corp. (ADVR), AdZone Research, Inc. (ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (ATSC), Federal Agricultural Mortgage / Farmer Mac (AGM) Allied Capital (ALD), American Motorcycle (OTC: AMCYV), American International Industries (AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), ATSI Communications,Inc. (ATSC) Bluebook International (BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (BIFT), Biocurex (BOCX). Broadleaf Capital Partners, Inc. (BDLF), Chattem, Inc. (CHTT), Critical Home Care (CCLH), Composite Holdings (COHIA), CyberDigital, Inc. (CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (DCEL), Eagle Tech Communications (EATC), Edgetech Services (EDGH);

Also, Endovasc Ltd. (EVSC), Enviro-Energy Corporation (ENGY), Environmental Products & Technologies (OTC: EPTC), Environmental Solutions Worldwide, Inc. (ESWW), EPIXTAR Corp. (EPXR), eResearchTechnologies, Inc. (ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (FRE), FreeStar Technologies (OTCBB: FSRCE), Front Porch Digital,

Inc. (FPDI), Geotec Thermal Generators, Inc. (GETC), Genesis Intermedia (GENI), GeneMax Corp. (GMXX), Global Explorations Inc (GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On (HPON), H-Quotient, Inc., (HQNT), Hyperdynamics Corp. (HYPD), International Biochem (IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (IBCS), InternetStudios, Inc. (ISTO), ITIS Holdings (ITHH), Investco Corp. (IVCO), Lair Holdings (LAIR), Lifeline BioTechnologies Inc. (LBTT), Life Energy & Technology (LETH), MBIA (MBI);

Also, MegaMania Interactive (MNIA), MetaSource Group, Inc. (MTSR),Midastrade.com (MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (NPCT), Nutra Pharmaceutical (NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (NVGV), Orbit E-Commerce, Inc. (OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (PYST),Petrogen Corp. (PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (PDVN), PrimeHoldings.com, Inc. (PRIM), Phlo Corporation (PHLC), Resourcing Solutions (RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (SDNA);

Also, Sionix Corp. (SINX), Sonoran Energy (SNRN), Starmax Technologies (SMXIF), Storage Suites America (SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (SPRI), Technology Logistics (TLOS), Swiss Medica, Inc. (SWME), Ten Stix, Inc. (TNTI), Tidelands Oil (TIDE), Titan Construction (TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (VRA), Viragen International (VGNI), Vista Continental Corporation, (VICC), Viva International (VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (WIZD), WorldTradeShow.com (WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK).

Earlier in 2003, the SEC fined Rhino Advisors, Inc., $1 million for its representation of Amro International in the financing and manipulation of Sedona Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore haven, but was not named in the SEC settlement. Another 60 public companies may have been manipulated by the fined Rhino Advisors and its indicted principals, or its funding apparatus, Amro.

These include:

All American Food Group Inc (AAFGQ), Amanda Co Inc (AMNA), Antra Holdings (RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir Pharmaceuticals (AVN), Bionutrics Inc (BNRX), Brilliant Digital Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE), Butler National Corp (BUTL),Calypte Biomedical Corp (CYPT), Chemtrak Inc/DE (CMTR), Clicknsettle Com Inc (CLIK), Corporate Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (CLWB), Dental Medical Diagnostic Systems Inc (DMDS), Detour Media Group Inc (DTRM),

Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (DISS), International Inc (DYNX), Endovasc Ltd Inc (EVSC), Esynch Corp/CA (OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (FRBW), Greystone Digital Technology Inc (GSTN), Havana Republic Inc/FL (HVNR), Henley Healthcare Inc (HENL), Hollywood Media Corp (HOLL), Ibiz Technology Corp (IBZT), Diagnostic Systems Inc/FL (IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc (RDOC),

Also, Interferon Sciences Inc (IFSC), Interiors Inc (OTC: ITRNA), Laminaire Corp (THMZ), Medisys Technologies Inc (SCEP), Milestone Scientific Inc/NJ (MS), Nevada Manhattan Group Inc (NVMH), Innovations Inc (OTCBB: NTGE),Systems Group (OSYM), Pacific Systems Control Technology Inc (PFSY), Professional Transportation Group Ltd Inc (TRUC), Rnethealth Inc (RNTT),

Also, Sand Technology Inc (SNDT), Sedona Corp (SDNA), Silverado Foods Inc (SVFO), Stockgroup Information Systems (SWEB) Surgilight Inc (SRGL), Tasty Fries Inc (TFRY), Tech Laboratories Inc (TCHL), Teltran International Group Ltd (TLTG), Titan Motorcycle Co of America Inc (TMOTQ), Trans Energy Inc (TSRG), Motorcycle Co (UMCC), Universal Communication Systems Inc (UCSY), Medical Systems Inc (UMSI), Vianet Technologies Inc (VNTK),Viragen Inc (VRA), Webcatalyst Inc (WBCL), Worldwide Wireless Networks Inc (WWWNQ), and ZAP (ZAPZ).

Universal Express terminated its coverage in Investrend Research's unique and pioneering professional analyst program, which facilitates independent analysts to provide financial coverage for shareholders and investors in companies that otherwise would have little or no analyst following. Just prior to the termination, Investrend Research analyst Jeff Howlett had issued a "Speculative" rating on the company, a downgrade from the previous "Speculative Buy."

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-- posted by SteveT

» setyoustraight - Re: Re: Re: Trading scheme puts squeeze on stockholders

C'mon, Kirk. You know what a convertible is supposed to look like. And if you know what a convertible is supposed to look like then MANAGEMENT of a PUBLIC company should know what a convertible is supposed to look like.

A traditional convertible does NOT have a variable exchange price. Are we supposed to be so naive as to believe that these "loan shark" lenders tricked the managements of these companies? These managements weren't tricked into these death spiral deals. They went into these deals with their eyes open, knowing full well what was going to happen.

So why do they do it? Why do they do it, Kirk?

They do it to line their pockets. The shareholders have already been fleeced by the time these "death spiral" lenders have come to the table. Management's last act is to squeeze one last bit of cash out of these lenders in exchange for control of the company. By the time these lenders have come along, these companies are nothing more than shells anyway. Why perform an act as explicitly obnoxious to the shareholders as selling off the old shell to some new scamster when you can sign off on a death spiral pact and appear to be one of the "victims" as well?

-- posted by setyoustraight

» setyoustraight - Re: StockGate: Berlin Exchange Welches Again On Promise; Schwab

If I tried really hard, I don't think I could create a better list of companies deserving of corporate euthanasia than the 108 companies enumerated in this article.

-- posted by setyoustraight

» Kirk - DTCC Sued Again, $49M Suit Related To Elgindy; NASD Expels, Cens

StockGate: DTCC Sued Again, $49M Suit Related To Elgindy; NASD Expels, Censures

Jul 28, 2004 (financialwire.net via COMTEX) -- (FinancialWire) The Depository Trust and Clearing Corp. has been sued again, this time along with Anthony Elgindy, Schwab Capital Markets (SCH), Ameritrade Holding Corp. (AMTD), ETrade Group, Inc. (ET), and Bear Stearns (BSC), for a total of $49 million.

In other StockGate activities, the NASD has expelled Ryan & Company, LP (RYCO) of West Conshohoken, PA, for failure to cooperate in an ongoing investigation into whether Ryan and the firm engaged in a widespread scheme of impermissible short selling activity on behalf of three hedge fund clients, and Track Data Securities of Brooklyn has been censured and fined $15,000 for accepting customer short sale orders in certain securities and, for each order, "failing to

make/annotate an affirmative determination that the firm would receive delivery of the security on behalf of the customer or that the firm could borrow the security on behalf of the customer for delivery by settlement date."

The lawsuit, #04-CV-80403, Capece v. Elgindy, et al, was filed in the Southern District of Florida in West Palm Beach. The plaintiff is Louis R. Capece Jr., represented by Robert Charles Stone. It has been assigned to Judge Kenneth L. Ryskamp and is expected to be heard by a jury.

In addition to those named, defendants include THE ELGINDY SITES, ROBERT HANSEN ELGINDY, BRADLEY ABELOW, MICHAEL C. BODSON, JONATHAN E. BEYMAN, FRANK J. BISIGNANO, STEPHENS P. CASPER, JILL M. CONSIDINE, PAUL F. COSTELLO, DONALD F. DONAHUE, MARY M. FENOGLIO, GEORGE HRABOVSHY, RONALD J. KESSLER, CATHERINE KINNEY, PETER B. MADOFF, EILEEN K. MURRAY,.JAMES P. PALERMO, THOMAS J. PERNA, RONALD PURPORA, DOUGLAS SHULMAN, ROBERT H. SILVER, DENNIS J. DIRKS, THOMPSON M. SWAYNE;

Also, KNIGHT SECURITIES, LP, SCHWAB CAPITAL MARKETS, L.P., LEEDS AND KELLOG, M. H. MYERSON, MORGAN STANLEY, GLOBAL SECURITIES OF CANADA, E-TRADE, FIERO BROTHERS, TD-WATERHOUSE, JEFFERIES & COMPANY , INC., BEAR STEARNS & CO., INC., Holly Robin Skolnick, Eliot Pedrosa, David E. Koropp, FLORIDA DISCOUNT BROKERS, PACIFIC SECURITIES OF CANADA, FLEET TRADING, INSTINET CORP., GRUNTAL & COMPANY, ARCHIPELAGO LLC, ING BARINGS FURMAN SELZ, FIRST BERMUDA, DLJ, DATEK, SHERWOOD SECURITIES, and DREYFUS BROKERAGE SERVICES.

Charles Schwab & Co. recently said it is exiting the market-making business. It is one of several market makers that have been the subject of accusations and/or legal entanglements over naked shorting allegations and issues.

The company had said it is either the number one or number two market-maker in more than half of all of NASDAQ's (NDAQ) listed stocks.

Recently observers were surprised to find a comment letter submitted to the SEC by Mike Alexander, Senior VP of Charles Schwab, that admits outright that brokerages regularly ignore rules and regulations, saying it is not rules that need to be written; it is changes in behavior that is needed.

The comments were directed towards proposed changes in the U.S. settlement system, but could easily apply to other regulations as well.

"Improvements in the U.S. settlement system will only be truly achieved if and when regulations are rationalized to ensure that all market participants are held accountable for compliance. For example, the industry has struggled with the issue of institutional trade affirmation for quite some time now. While the benefits to the clearance and settlement system are self-evident, Buy-Side firms and Custodian banks have been resistant to make those changes that provide for same-day trade confirmation / affirmation and assurance of trade settlement," said Alexander.

"Schwab opposes the notion that securities intermediaries such as broker-dealers be required to police compliance," he stated. "The NYSE and other SROs have had trade affirmation rules on their books for some time. However, such rules have not been effective in changing the behavior

of Buy-Side firms or their custodians; nor do the rules provide assurance that the affirmed trade will settle.

"Recognition of this fact is evidence that changes to the settlement cycle not only require overhauling systems, but also changing behavior. We believe that only by holding all market

participants directly accountable for making required affirmations will the necessary changes to behavior," he stated at http://www.sec.gov/rules/concept/s71304/... .

In a June 23 release, the SEC stated it has put into place Rule 202(T), which establishes procedures to allow the Commission to temporarily suspend the operation of the current "tick" test in Rule 10a-1, and any short sale price test of any exchange or national securities association, for specified securities.

Through a separate order, the Commission will suspend, on a pilot basis for a period of one-year, the tick test provision of paragraph (a) of Rule 10a-1, and any short sale price test of any exchange or national securities association, for approximately one-third of stocks in the Russell 3000 index.

The order also will suspend, on a pilot basis for a period of one year, the tick test provision of paragraph (a) of Rule 10a-1 for short sales executed in any security included in the Russell 1000 index after 4:15 p.m. Eastern, and all other securities after the close of the consolidated tape, and until the open of the consolidated tape the next day.

The pilot will commence on January 3, 2005 to permit broker-dealers and self-regulatory organizations to make the necessary programming adjustments.

The Commission deferred consideration of the proposal to replace the current "tick" test of Rule 10a-1 with a new uniform bid test. The Commission could reconsider any further action on these proposals after the completion of the pilot.

Rule 203, which will incorporate current Rule 10a-2 and will create a uniform Commission rule requiring broker-dealers, prior to effecting short sales in all equity securities, to "locate" securities available for borrowing.

There will be limited exceptions from the locate requirement, including for short sales by registered market makers in connection with bona-fide market making.

Rule 203 also imposes additional requirements on designated "threshold securities." Rule 203 defines a threshold security to mean an equity security for which there is an aggregate fail to deliver position for five consecutive settlement days at a registered clearing agency of 10,000 shares or more and that is equal to at least 0.5% of the issue's total shares outstanding.

Where a clearing agency participant has a fail to deliver position in threshold securities that persists for ten consecutive days after settlement, the participant must take action to close out the position. Until the position is closed out, the participant, and any broker-dealer for which it clears transactions, may not effect further short sales in the particular threshold security without borrowing or entering into a bona fide arrangement to borrow the security.

Rule 203 will become effective 30 days after publication with a compliance date of January 3, 2005, to permit firms to make programming and procedural adjustments.

Rule 200, which among other things, will redesignate current Rule 3b-3 with some modifications to define ownership and aggregation of securities positions, and include a requirement to mark all sell orders in all equity securities. Rule 200 will become effective 30 days after publication.

The Commission also adopted amendments to Rule 105 of Regulation M to remove the current shelf offering exception, and issued interpretive guidance addressing sham transactions designed to evade the rule.

The amendment applies to short sales effected within five days prior to the pricing of a shelf offering. Such short sales may not be covered with offering securities purchased from an underwriter or other broker-dealer participating in the offering.

The Rule 105 amendments will be effective 30 days after publication in the Federal Register, and the interpretive guidance will be effective upon such publication.

Opponents of naked short selling were, however, quick to denounce the provision that allows market makers an exemption, and many market observers said that the SEC should provide a public list of companies that fall into the "threshold security" category.

"The SEC claims that the number of companies involved in this 'threshold security' category is 4% of all publicly traded companies. If in fact it is that small the process is certainly manageable," said the website InvestigatetheSEC.com at http://www.investigatethesec.com . "It is also the right of every issuer, in protecting their business and their investors to know the status of their stock trading."

Some were discussing whether the SEC can keep such information private under the Freedom of Information Act.

The marketplace is already upset over promises by the Berlin Stock Exchange, since broken, that it would delist any company upon request.

"Please understand that cessation of trading in the shares of XRAYMEDIA Inc. (XRYM) is not possible," the exchange told one such requester.

It's not just U.S. companies such as Whistler Investments (WHIS), Sonoran Energy (SNRN), Celsion Corporation (CLN), and eLinear Inc. (ELU) or Israeli companies that have had serious concerns about their unannounced and unathrorized listings on the Berlin-Bremen Stock Exchange.

Apparently, some 150 British companies are protesting the same fate.

A number of UK-listed companies have demanded a London Stock Exchange investigation after they found that their shares are being traded.

Meanwhile, Whistler, Sonoran and eLinear have announced they have successfully secured their delistings, and the U.S. Securities and Exchange Commission has rescheduled its open hearing to consider the adoption of amendments to Regulation Sho to July 28 at 9:30 a.m. The announcement is at http://www.sec.gov/news/digest/dig061504... .

According to the London Money Telegraph, "several companies believe the market for their shares has been distorted and that they have fallen in value after trading started on the Berlin-Bremen exchange.

"Some smaller companies, whose shares are lightly traded in London, fear the Berlin market has been used by speculators to short-sell their shares."

The Telegraph said the number of companies are thought to be as high as 150, including even "larger companies" such as Matalan (OTC: MATNF) and Halfords.

Mladen Ninkov, the chairman of Aim-listed Griffin Mining (OTC: GFNMF), was quoted as saying: "We were put on the Berlin market without our knowledge by a German broker and now we've got about 8m shares out in a short sale. It is horrifying - that is about 4 per cent of the company and it is forcing the price down."

A spokesman for the London Stock Exchange said: "If there is evidence of market abuse we would refer that on to the appropriate authorities."

Whistler said that according to its transfer agent records, "we have 5,504,680 shares held by DTC, but the ADP broker search indicates of 6,217,458 shares being reported by broker/dealers as being held on behalf of their customers, indicating a short position of more than 700,000 shares. A summary report can be viewed at http://www.whistlerinvestments.com/short... .

"We have therefore commenced work with DTC for a formal review of the reported excessive broker/dealer holdings of our stock so that we can conduct our corporate affairs properly in view of our planned stockholders meeting and other upcoming corporate matters. We again advise our stockholders make sure that they receive delivery of any shares that they purchase, and also that their stock is not being borrowed without authorization.

Holly Roseberry, President of Whistler Investments, states "We intend to get to the bottom of the excessive short position and bring stability back into the trading of our stock. We're happy to say that we have 5,133 stockholders and we expect all our stockholders to benefit from the shorters having to cover their short positions."

FinancialWire has reported on the disclosure that "Dateline," the investigatory TV program aired by General Electric's (GE) NBC unit, has purportedly been preparing a blockbuster expose of "Stockgate" (see separate story at http://www.financialwire.net).

It is not known if "Dateline" has uncovered continuing underworld connections to the scandal, but FinancialWire reported that Dateline may be pointing a large finger of conflict at the U.S. Securities and Exchange Commission itself, which reportedly receives a slice of every transaction fee as part of its budget. According to court filings supported by the O'Quinn/Christian legal network, almost $1 billion annually is received by the Depository Trust and Clearing Corp. for its "Stock Borrow Program," which the lawsuits claim is just a fancy name for counterfeiting, as the DTCC purportedly lends out many multiples of the actual certificates in the float. Apparently the SEC receives a transaction fee for each transaction facilitated by these loans of non-existent certificates, which could knock a hole in its budget should the revenues from the practice be halted.

The North American Securities Administrators Association, comprised of state and Canadian regulators, has pointedly told the SEC that either it must rethink its cozy DTCC relationship, or it hints, some of its more aggressive state practitioners (think Eliot Spitzer) may do the rethinking for the SEC.

Naked short selling is worrisome for hundreds of small U.S. companies, including those recently asking to be delisted from the Berlin Stock Exchange, such as Golden Phoenix Minerals, Inc. (GPXM), Nannaco, Inc. (NNCO), 5G Wireless Communications, Inc. (FGWC), CyberAds, Inc. (CYAD), Provectus Pharmaceuticals, Inc. (PVCT), House of Brussels Chocolates (HBSL), InforMedix, Inc. (IFMX), Tissera, Inc. (TSSR), Americana Publishing, Inc. (APBH), Celsion Corporation (CLN), ChampionLyte Holdings, Inc. (CPLY), Pickups Plus, Inc. (PUPS), China Wireless Communications Inc. (CWLC), CareDecision Corp. (CDED), Titan General Holdings, Inc. (TTGH), IPVoice Communications, Inc. (OTCBB: IPVO), Whistler Investments (WHIS), WARP Technology Holdings, Inc. (WRPT), BGR Corp. (OTCBB: BGRR), ICOA, Inc., (ICOA), DICUT, INC. (OTCBB: DCUTE), NHC Communications Inc. (NHC), Stratus Services Group, Inc. (OTCBB: SERV), Golden Phoenix Minerals, Inc. (GPXM).

Berliner Freiverkehr (Aktien) AG has been singled out as the broker and market maker that has been "listing" the companies. It is suspected that one broker, RA Angsar Limprecht, is involved in all if not most of the listings.

Small public companies are squeezed not only by hedge funds, naked short sellers, overseas listers such as the Berlin Stock Exchange, and the out-of-control "Stock Borrow Program" run by the governance-conflict-laden Depository Trust and Clearing Corporation, but to the amazement of the industry, as often and not by their own regulators.

A new staff recommendation by Annette Nazareth, director of the division of market regulation at the U.S. Securities and Exchange Commission to "outlaw" ownership of paper certificates at the same time the Depository Trust and Clearing Corporation is under intense scrutiny for alleged electronic counterfeiting has begun hitting the small public company markets, company executives, shareholders and manipulative short-selling opponents like the proverbial ton of bricks.

A Dow Jones (DJ) article by Judith Burns sparked the uproar, as the inextricably intertwined web of connections between the SEC and the DTC, which is sagging from the weight of conflicted governance by representatives from a rollcall of industry heavyweights, including NASD, which owns NASDAQ (NDAQ), the New York Stock Exchange, Goldman Sachs (GS) and Lehman Brothers (LEH), to name only a few.

The rule proposal would bar stock transfer agents from handling shares that carry any limitations on transfer. Control over stock certificates is one of the ways that small companies have combated illegal naked short sellers. Burns quoted Nazareth as saying that these companies' "self-help" efforts "aren't helping U.S. markets overall." Nazareth was quoted as saying restrictions on stocks are "a significant step backwards" in the "move from paper stock certificates to automated computerized trading."

Nazareth said that abusive "naked" short selling has been a problem "in some cases," but that is "best dealt with by a pending SEC proposal," presumably Regulation SHO.

SEC Commissioner William Donaldson purportedly publicly refused to answer any questions from the NASD about the timing of the Commission's consideration of the Regulation at a conference where he was simultaneously proposing early reforms of the mutual fund scandals. The Dow Jones said, however, that Robert Colby, SEC deputy market regulation division director, predicted the SEC will take that to a vote in early June.

The Dow Jones report noted that "naked short-selling occurs when sellers don't buy shares to replace those they borrowed, a manipulative practice that can drive a company's stock price sharply lower.

The stock certiticate plan has been put to a 30-day comment periodl Then the SEC would have to vote to adopt it. If adopted, Colby was quoted as saying that regulators might "sue firms that seek to impose restrictions on stock transfers."

The recent lawsuit filed by Nanopierce Technologies (NPCT) alleges that the Depository Trust and Clearing Corp. has a lot of reasons, almost one billion of them a year, to keep illegal naked short selling in operation. It was the shot across the bow by the legendary Houston law firms of Christian, Smith, Wukoson and Jewell, and OQuinn, Laminack and Pirtle, whose notches already include environmental targets, the breast implant industry and the tobacco industry, all brought to their knees.

In comments to the U.S. Securities and Exchange Commission, C. Austin Burrell, who is providing litigation support and research for the law firms, said that StockGate is more massive than anyone may have imagined. "Illegal Naked Short Selling has stripped hundreds of billions, if not TRILLIONS, of dollars from American investors," and have resulted in over 7,000 public companies having been "shorted out of existence over the past six years." Burrell said some experts believe as much as $1 trillion to $3 trillion has been lost to this practice.

He stated that the restrictions on short selling were deliberately put into the Securities Acts of 1933 and 1934 because of the first-hand evidence then available that the "sheer scale of the crashes was a direct result of intentional manipulation of US markets through abusive short selling by a massive conspiracy."

Burrell noted that the 65-lawyer team presided over by lead lawyers Wes Christian and John O'Quinn has uncovered more than 1,200 hedge fund and offshore accounts working through more than 150 broker-dealers and market makers in a joint cooperative effort to strip small and medium size public companies of their value.

Recently the NASD and U.S. Securities and Exchange Commission approved an interim naked short-selling band-aid, requiring U.S. brokers to make an "affirmative determination" that short-sellers, even foreign short-sellers, mostly Canadian, can find certificates to cover before processing the order.

Last year, many besieged public companies sought refuge from the manipulation by seeking to exit the DTC, but on July 28, 2003, the SEC stated "the issues surrounding naked short selling are not germane to the manner in which DTC operates as a depository registered as a clearing agency. Decisions to engage in such transactions are made by parties other than DTC. DTC does not allow its participants to establish short positions resulting from their failure to deliver securities at settlement. While the Commission appreciates commenters' concerns about manipulative activity, those concerns must be addressed by other means."

The Nanopierce lawsuit, said to be the first of many out of the box, emphatically suggests otherwise. According to lawyer Christian, et.al., the DTC is at the very heart of the problem, and has almost a billion dollars a year at stake in keeping the problem.

The Depository Trust Company (DTC) is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the SEC. The depository supposedly brings efficiency to the securities industry by retaining custody of some 2 million securities issues, effectively "dematerializing" most of them so that they exist only as electronic files rather than as countless pieces of paper. The depository also provides the services necessary for the maintenance of the securities it has in "custody."

According to the suit, the DTCC has an enormous pecuniary and conflicted interest in the entire short selling scandal through the huge income stream they were realizing from it every day. They have made literally billions of dollars lending individual real shares, in most cases over and over, getting a fee each time they made a journal entry in the "Stock Borrow Program."

The Stock Borrow Program was purportedly set up to facilitate expedited clearance of stock trades. Somewhere along the line, the DTCC became aware that if it could lend a single share an unlimited number of times, it could collect a fee each time, according to Burrell. "There are numerous cases of a single share being lent ten or many more times," giving rise to the complaint that the DTCC has been electronically counterfeiting just as was done via printed certificates before the Crash.

"Such re-hypothecation has in effect made the potential 'float' in a single company's shares virtually unlimited and the term 'float' meaningless. Shares could be electronically created/counterfeited/kited without a registration statement being filed, and without the underlying company having any knowledge such shares are being sold or even in existence." Burrell said the Christian/O'Quinn lawsuits will seek to show that the "counterfeiting/creation of unregistered shares is a specific violation of the Securities Act of 1933, barring the 'Sale of Unregistered Securities'."

While the Nanopierce lawsuit has been filed at the state level, another companion lawsuit just heading to the courts on behalf of Exotics.com (EXII) will be argued at the Federal level.

Nanopierce's suit in the 2nd Judicial District Court in Nevada, is Case No. CV04-01079, alleges that the DTC's "stock borrow program" was "purportedly created to address SHORT TERM delivery failures," but that the "end result of the program has been to create tens of millions of unissued and unregistered shares to be traded in the public market," and in some instances resulting in "two or more shareholders who purchase shares in separate transactions to own the same shares."

The complaint alleges that the DTC has a colossal disincentive to stop the "stock borrow" program, booking revenues from services of $425,416,000 and similarly, the NSCC deriving revenues of $293,133,000.

Further, the suit alleges that "open positions" resulting from this activity at the close of business on December 31, 2003, "approximated $3,025,467,000" due to NSCC, and $2,303,717,000 due by NSCC, and unsettled positions of $721,750,000 for securities borrowed through the NSCC's "Stock Borrow Program."

Nanopierce claims that DTCC and NSCC have joined in a "scheme" to "manipulate downward the price of the affected securities, thereby reducing the market value of the open fail to deliver positions." The suit also claims that the s have permitted sellers to maintain open fail to deliver positions of tens of millions of shares for periods of a year and even longer.

It quotes the National Association of Security Dealers as admitting that "concerns have been raised by members, issuers, investors and other interested parties about potentially abusive short selling activities occurring in the marketplace. In particular, naked short selling, or selling short without borrowing securities to make delivery, can result in long term failures to deliver, including aggregate failures to deliver that exceed the total float of a security. NASD believes such extended failures to deliver can have a negative effect on the market. Among other things, by not having to deliver securities, naked short sellers can take on larger short positions than would otherwise be permissible, which can facilitate manipulative activity."

Nanopierce claims that it had "relied on material misrepresentations and omissions by DTC and NSCC in trading its shares in the stock market "without knowledge of s' fraud-on-the market through statements they made about the clearing and settlement services they provided." Further, it claims that the s acted with "scienter" since they had a major financial financial motivation to falsely represent their services, which Nanopierce claims are also anticompetitive.

The largely unregulated DTC has become something of a defacto Czar presiding over the entire U.S. markets system, wielding more day-to-day influence and control than the SEC, the NASD and NASDAQ combined. And, as the SEC's July 28 ruling indicates, its monopoly over the electronic trading system appears even to be protected.

The Depository Trust and Clearing Corp.'s two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the NASDAQ (NDAQ) and the embattled American Stock Exchange! Regulators, regulate thyself?

In an era when corporate governance is the primary interest for the SEC and state regulators, the DTCC is hardly a role model. Its 21 directors represent a virtual litany of conflict:

They include Bradley Abelow, Managing Director, Goldman Sachs (GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (LEH); Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (C); Michael C. Bodson, Managing Director, Morgan Stanley (MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);

Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (JPM).

In their comments to the SEC regarding Regulation SHO in January, the 50 state regulators, through their association, the North American Association of Securities Administrators (NASAA) issued what many consider to be a strong warning that if the DTC is not dealt with in the final regulations, state regulators such as New York State Attorney General Eliot Spitzer may step to the plate.

In what many considered to have been explosive comments, Ralph Lambiase, NASAA president and Director of the Connecticut Division of Securities, warned "NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). As a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The ability of the overall proposed rule would be severely impared unless the Commission undertakes to implement such a prohibition."

As the Nanopierce lawsuit reveals, those were indeed strong words, meddling as it did, in a substantial revenues base for the DTCC.

Recently, leading market makers and brokers named in various lawsuits and other actions, including FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group, Bank of America's (BAC) Banc of America Securities LLC, Societe Generale's (SCGLF) SG Cowen Securities Corp. vFinance, Inc. (VFIN), Knight Trading Group, Inc. (NITE), A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), and ETrade Group, Inc. (ET), were forced to comply with new short-selling market regulations imposed by the NASD after the SEC had "sat on" the NASD request to plug material loopholes for almost 2-1/2 years.

"The new rules expand the scope of the affirmative determination requirements to include orders received from broker/dealers that are not members of NASD ("non-member broker/dealers").

The new rule is on the web at http://www.nasdr.com/2610_2004.asp#04-03

The rule itself, while welcomed by small companies and their shareholders in the U.S., nevertheless raised an outcry because the NASD's request to put it into effect had set on a shelf at the SEC since 2001.

The scandal has embroiled hundreds of companies and dozens of brokers and marketmakers, in a web of internaitional intrigue, manipulative short-selling and cross-border acctions and denials.

Comments on Regulation SHO ended January 5, and may be viewed at http://www.sec.gov/rules/proposed/s72303... .

Some 122 companies, including 13 brokers, such as FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group and vFinance, Inc. (VFIN). A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), Knight (NITE) and ETrade Group, Inc. (ET), have been embroiled for over a year in a raging controversy

The remaining 109 companies among the 122 named to date have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.

The complete list of those 108 companies include Advanced Viral Research Corp. (ADVR), AdZone Research, Inc. (ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (ATSC), Federal Agricultural Mortgage / Farmer Mac (AGM) Allied Capital (ALD), American Motorcycle (OTC: AMCYV), American International Industries (AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), ATSI Communications,Inc. (ATSC) Bluebook International (BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (BIFT), Biocurex (BOCX). Broadleaf Capital Partners, Inc. (BDLF), Chattem, Inc. (CHTT), Critical Home Care (CCLH), Composite Holdings (COHIA), CyberDigital, Inc. (CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (DCEL), Eagle Tech Communications (EATC), Edgetech Services (EDGH);

Also, Endovasc Ltd. (EVSC), Enviro-Energy Corporation (ENGY), Environmental Products & Technologies (OTC: EPTC), Environmental Solutions Worldwide, Inc. (ESWW), EPIXTAR Corp. (EPXR), eResearchTechnologies, Inc. (ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (FRE), FreeStar Technologies (OTCBB: FSRCE), Front Porch Digital,

Inc. (FPDI), Geotec Thermal Generators, Inc. (GETC), Genesis Intermedia (GENI), GeneMax Corp. (GMXX), Global Explorations Inc (GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On (HPON), H-Quotient, Inc., (HQNT), Hyperdynamics Corp. (HYPD), International Biochem (IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (IBCS), InternetStudios, Inc. (ISTO), ITIS Holdings (ITHH), Investco Corp. (IVCO), Lair Holdings (LAIR), Lifeline BioTechnologies Inc. (LBTT), Life Energy & Technology (LETH), MBIA (MBI);

Also, MegaMania Interactive (MNIA), MetaSource Group, Inc. (MTSR),Midastrade.com (MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (NPCT), Nutra Pharmaceutical (NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (NVGV), Orbit E-Commerce, Inc. (OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (PYST),Petrogen Corp. (PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (PDVN), PrimeHoldings.com, Inc. (PRIM), Phlo Corporation (PHLC), Resourcing Solutions (RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (SDNA);

Also, Sionix Corp. (SINX), Sonoran Energy (SNRN), Starmax Technologies (SMXIF), Storage Suites America (SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (SPRI), Technology Logistics (TLOS), Swiss Medica, Inc. (SWME), Ten Stix, Inc. (TNTI), Tidelands Oil (TIDE), Titan Construction (TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (VRA), Viragen International (VGNI), Vista Continental Corporation, (VICC), Viva International (VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (WIZD), WorldTradeShow.com (WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK).

Earlier in 2003, the SEC fined Rhino Advisors, Inc., $1 million for its representation of Amro International in the financing and manipulation of Sedona Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore haven, but was not named in the SEC settlement. Another 60 public companies may have been manipulated by the fined Rhino Advisors and its indicted principals, or its funding apparatus, Amro.

These include:

All American Food Group Inc (AAFGQ), Amanda Co Inc (AMNA), Antra Holdings (RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir Pharmaceuticals (AVN), Bionutrics Inc (BNRX), Brilliant Digital Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE), Butler National Corp (BUTL),Calypte Biomedical Corp (CYPT), Chemtrak Inc/DE (CMTR), Clicknsettle Com Inc (CLIK), Corporate Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (CLWB), Dental Medical Diagnostic Systems Inc (DMDS), Detour Media Group Inc (DTRM),

Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (DISS), International Inc (DYNX), Endovasc Ltd Inc (EVSC), Esynch Corp/CA (OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (FRBW), Greystone Digital Technology Inc (GSTN), Havana Republic Inc/FL (HVNR), Henley Healthcare Inc (HENL), Hollywood Media Corp (HOLL), Ibiz Technology Corp (IBZT), Diagnostic Systems Inc/FL (IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc (RDOC),

Also, Interferon Sciences Inc (IFSC), Interiors Inc (OTC: ITRNA), Laminaire Corp (THMZ), Medisys Technologies Inc (SCEP), Milestone Scientific Inc/NJ (MS), Nevada Manhattan Group Inc (NVMH), Innovations Inc (OTCBB: NTGE),Systems Group (OSYM), Pacific Systems Control Technology Inc (PFSY), Professional Transportation Group Ltd Inc (TRUC), Rnethealth Inc (RNTT),

Also, Sand Technology Inc (SNDT), Sedona Corp (SDNA), Silverado Foods Inc (SVFO), Stockgroup Information Systems (SWEB) Surgilight Inc (SRGL), Tasty Fries Inc (TFRY), Tech Laboratories Inc (TCHL), Teltran International Group Ltd (TLTG), Titan Motorcycle Co of America Inc (TMOTQ), Trans Energy Inc (TSRG), Motorcycle Co (UMCC), Universal Communication Systems Inc (UCSY), Medical Systems Inc (UMSI), Vianet Technologies Inc (VNTK),Viragen Inc (VRA), Webcatalyst Inc (WBCL), Worldwide Wireless Networks Inc (WWWNQ), and ZAP (ZAPZ).

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-- posted by Kirk

» Kirk - Dateline Confirms StockGate Segment

For the past eight months, The Faulking Truth has reported on the massive naked short selling scandal that has plagued the stock market for years. It has been called by many "the biggest financial scandal in the history of the world". During that time, dozens of lawsuits have been filed by both companies and stockholders who claim that their companies have been systematically destroyed by the practice of naked short selling. They claim that brokers, through their wholly owned clearing house system, the Depository Trust Corporation (DTCC), have effectively been creating counterfeit shares of stock through their "Stock Borrow Program", which allows brokers to "borrow" the same shares over and over again, artificially inflating the share count and driving the price of the stock down. They also claim that the governing body that has been entrusted with the task of protecting the individual investors, the self-proclaimed "Investor's Advocate", the SEC, has failed to protect investors, and has succumbed to pressure from the brokers who profit from the naked short selling scandal.

The major media has been slow to cover this scandal, and until now, except for a few random articles from publications such as The Wall Street Journal, Forbes Magazine, and Dow Jones Newswire, this story has been left to independent publications such as The Faulking Truth and Financialwire.net. On June 11, in a Faulking Truth exclusive, we reported that NBC's Dateline was planning a major expose on the stock market scandal, filming over 100 hours of interviews and footage while putting together a segment that our inside sources said would "blow the roof off of this scandal". Originally scheduled to air in January or early February, rescheduled for August, and then postponed yet again, many critics and bashers claimed the segment was shelved for good, especially after a case brought by JagMedia, and filed by an attorney in the Houston law firm of O’Quinn, Laminack, and Pirtle, was dismissed earlier this month by Houston Judge Vanessa Gilmore, citing "repeated filing deficiencies". It was fodder for the message boards and the numerous websites that have recently sprung up in an effort to negate the progress made by this publication and others who have continued to report on the scandal. Even those activists who have continually pushed for major stock market reform and a full congressional investigation into the SEC were disheartened by both the lawsuit dismissal and Dateline's refusal to air the segment or even confirm that they were still planning to air it.

Dateline Confirms StockGate Segment

It seems that both concerns are unfounded. One source close to the Dateline story told us this week that the segment would air "in the next two to three weeks", and that there is a "90% chance that it will air before the Presidential election on November 2nd." According to this source, who is heavily involved with the segment, "the Dateline story is imminent". Another source told us that while they would "be surprised if it aired before the election", that the segment was nearing completion.

I've been emailing and calling Dateline for months with no response (not even a courtesy "no comment"), so I decided to try a different approach. I emailed Sharon Hoffman, the producer who is in charge of the stock market scandal segment for Dateline, and phrased my question like this:

Sharon,
I have information that you are planning to air the segment on the stock market scandal "sometime in the next three weeks". My sources, which are extremely credible, have told me that they are "90% certain that it will air before the election on Nov. 2".

As always, I would love to have some kind of confirmation from you that this is accurate. In fact, let me phrase it this way: If you do not respond to this email, I will assume that my information is accurate and that you have no comment on the story I am writing.

Low and behold, Sharon Hoffman sent me this email a couple of hours later:

Mr. Faulk:

Thanks for your email. We are, in fact, still shooting interviews for the story, and it does not yet have a scheduled air date. I will definitely email you to alert you to the air date as soon as I know what it is, since I know you and your readers have a strong interest in the subject.

Regards,
Sharon Hoffman

In answer to my followup question about whether the segment will air before the election, Hoffman told me that "there is a chance we'll air before the election, but also a chance that we won't. I'll let you know when I know."

It's finally "official". The Dateline stock market scandal segment is still on, and our readers will know the scheduled air date as soon as we do. (Thanks, Sharon, we need all the help we can get.)

Lawsuits Still Being Filed

So, what about the JagMedia lawsuit dismissal, and the others still pending? In an article just released by www.financialwire.net , O'Quinn partner Tom Pirtle commented on the case. "'We are obviously disappointed with Judge Gilmore's ruling,' said Pirtle, a partner at O'Quinn, Laminack & Pirtle. 'While this is a setback, we firmly believe JAG Media and its stockholders have been victimized and damaged by the seemingly never ending daisy-chain of failed settlements in the company's stock. We have met with the Company to review Judge Gilmore's ruling and are currently working closely with the Company to determine the best strategy for re-initiating claims against responsible parties in light of the court's ruling,' added Pirtle."

However, according to Wes Christian of Christian, Smith, Wukoson and Jewell, who is partnering with O'Quinn in the lawsuits, the JagMedia case was filed independently by an associate attorney with O'Quinn, Laminack, and Pirtle, and not by O'Quinn himself, so the attorney didn't have access to the 100 person investigative and research team that O'Quinn and Christian have assembled to put together their cases. In fact, O'Quinn and Christian have a total of 20 cases currently pending, with five more scheduled to be filed in the next thirty days. According to our sources, they intend to eventually file a total of 50 to 100 lawsuits involving the naked shorting scandal. In one case, involving Nanopierce, they have won a favorable ruling to have the case tried in state court (instead of federal), and have received "favorable rulings and begun the deposition and discovery process" on another case.

While the O'Quinn/Christian cases have received the most publicity, many others have begun springing up around the country. One, filed by a majority stockholder with Trident Systems, Inc., is suing the DTCC, Knight Securities, ETrade, Morgan Stanley, Waterhouse, Bear Stearns, and Goldman Sachs, claiming that they utilized the "Stock Borrow Program" to defraud stockholders of that company. Another lawsuit has been filed by NanoSignal Corp. shareholder Gary Walters against the DTCC and Knight Securities, claiming that they "shorted 447 million shares of our stock", more than double the total outstanding shares, and have failed to deliver those shares.

States Getting Involved

We have also confirmed that several states have opened investigations into the naked short selling scandal, including Nevada , Washington, California, Florida, and Louisiana. In fact, Louisiana has filed a criminal subpoena against Paine Webber for failure to deliver shares of Nutek, a Las Vegas, Nevada holding company. According to our sources, several other states are considering similar investigations.

This is a story that just won't go away. Judging by the numerous lawsuits already filed, the steady stream still being filed, the state investigations just getting under way across the country, and the publicity certain to follow the Dateline story, this issue is picking up speed. It's just a matter of time before the real facts are revealed. For those who are involved in the massive fraud that's been perpetuated upon the stockholders of America, time is truly running "short".

As of 10/5/04, the Total Return for Kirk's Newsletter since 12/31/99 is 142%. Here are some more periods and comparative benchmarks:

 
              Kirk   S&P500  NASDAQ 
12/31/2002    +58%    +33%    +46%
12/31/2000    +26%     -9%    -21%
12/31/1998   +142%      0%    -11%

-- posted by Kirk

» Kirk - Reg SHO to Start Jan 3, 2005

Update on Reg SHO Its about time!

The following is from another board,where a person spoke to someone from the SEC in regard to the blatant MM shorting of some OTC stocks,and the proposed regulation SHO that is supposed to start on Jan.3rd,2005

The SEC Market Reformation…

The Securities and Exchange Commission (SEC) really has been on our
TEAM all along. For years we thought as investors that we were out
there all alone in the market because of years and years of many
people being on the losing end from stocks being manipulated.

I received a very important phone call from the SEC that was very
powerful. The info is so powerful that I deemed it would be selfish
for me to not share such with those in here since our goals have
always been to help each other as much as possible. What I am about
to share might be known by some, but I am sure that it is not
understood by most. This is concerning the true power and intentions
behind Regulation Sho. There is more that I have not heard discussed
by people and I think there are some things we are not seeing
correctly by normally seeing the SEC unsuccessful attempts so often
in the past.

What you are about to read are not my opinions. It is what I was
told by the SEC and was given permission to share this information
with you for a better understanding. I was told that they want our
feedback so they will want to know if it worked or not in fixing
what they knew was broke for years, but just recently discovered how
to resolve.

The pressure is on the Market Makers (MMs) to do what is right
because all eyes will be placed on them. There will be many key
Federal Authorities, Economists, Mathematicians, etc. that are
already lined up to be performing certain studies for historical
purposes. All the MMs have to do to not make matters worse is to do
what is right and fix what they had broken for years with any fully
reporting company that's a threshold security as soon as possible.
Let me explain a bit further to show you how this will work.

First understand that the SEC always wanted to help us shareholders,
but never knew how to do so. They had always received many
complaints, but never knew how they could trap the MMs to simply do
what was right. The shorting and naked shorting had gotten out of
hand as I will explain both.

The Naked Shorting
With the implementation of Regulation Sho, the MMs will be forced to
close out their open naked short position on all stocks that meet
the Regulation Sho requirements for coverage. They will have to do
this everyday by midnight beginning on 3 Jan 05.

This leads us to talk about the requirements as some are already
familiar. A stock must be fully reporting and considered a threshold
security. A threshold security is one where .5% of its outstanding
shares (OS) have been proven to have been naked shorted for 5
consecutive trading days and where the MMs have failed to close out
those positions for five consecutive trading days.

Example: If stock ABCD had 2,000,000 shares outstanding and was a
fully reporting company as of 3 Jan 05, the MMs would need to fail
to close out the open naked shorted position of .5% of 2,000,000
shares which would equate to 10,000 shares not being "completely"
covered for 5 consecutive trading days. This means that the MMs
would need to make sure they don't allow 5 consecutive days to
happen where they leave any balance remaining of the 10,000 naked
shorted shares as an open account of stock ABCD. They
must "completely" close all open accounts of naked shorted
positions.

For proper accountability of all of this to work, the SEC will have
to have a coordinated TEAM effort from key entities within the
market as authorities. The SEC, Depository Trust Company (DTC),
brokerage companies, all market exchanges, the fully reporting
companies, and their transfer agents will all be working together to
make sure all the proper coordination take place for Regulation Sho
to work.

Coordination will take place with the fully reporting company (and
their transfer agent if they have one) to make sure there is a full
accountability of what's their OS. The facts will be reflected in
the company's SEC filing which is why it is essential for them to be
a fully reporting company.

The DTC will be responsible for informing the SEC where the open
sales exist as in the amount of shares existing that have transacted
through them that they placed into our brokerage accounts. This was
a problem before because many relied on the DTC to give them more
than this information to help resolve this issue sooner.

This is where the brokerage companies come in along with the help
from the exchanges. The SEC will be further detailing and defining
their information of transacted shares from the DTC by having
revealed to them the guilty MM that have transacted the naked short
position from information received from the brokerage companies and
all of the market exchanges. This is proving to be something bigger
than what many of us had realized. Let me explain why.

All of this brings us back to something I discussed earlier. When
the supply of shares of a stock is zero, the supply is zero. It
doesn't matter how you get there, be it by a naked short position or
by the float being absorbed. This is where it all starts as a short
squeeze will now be formed and grows as demand to purchase shares
increase. This is where the misperception exists with Regulation
Sho. People think that a new naked short position has to be created
as of 3 Jan 05 in order for a stock to be eligible for protection
and rectification under Regulation Sho. This is not true. It's even
better. All naked short positions of the past will not go away and
must be dealt with. The clock begins ticking for covering on 3 Jan
05 for fully reporting companies. PERIOD!!! This means that any
stock that has been naked shorted will automatically start out in a
forced short squeeze mode that will only escalate the longer the MMs
wait to cover.

Any buying pressure will cause the increase of the naked shorted
position to grow to begin approaching the 5 day consecutive window
of not getting covered by the MMs. After the 5 days transpire where
the MMs have failed to deliver and close the open naked shorted
position, that stock in which they failed to deliver will be placed
on a Threshold Security List for the public to view. This is where
it starts to get awesome.

Example: Let's say stock ABCD, a fully reporting company, was
trading at .01 cent and had an OS of 1,000,000 shares. Let's say
that stock ABCD have been naked shorted by 1,000,000 shares over the
OS/float of 1,000,000 shares. Come 3 Jan 05 the MMs will not be
forced to "possibly" immediately cover the 1,000,000 naked shorted
shares. Here's the beauty of this and where the MMs are currently
mad at everyone about. Don't worry, they will make money, but in a
different way as we might talk about later.

With no buying pressure, they won't have to cover as soon as one
might have hoped as shares are sold exceeding the amount of shares
being bought for stock ABCD. Still, if they don't cover the "entire"
1,000,000 naked short position for 5 consecutive days, stock ABCD
will show up on the Threshold Security List for the public to view
on 10 Jan 05. After such, the MMs have 13 days to close out
the "entire" naked shorted position or face being suspended and/or
shut down from that security and other penalties to possibly put
that MM out of business. The end result will still be the supply
being zero and the stock would be forced to be traded correctly
based on supply and demand with an already dried up supply. This
means the creation of an instant short squeeze!

What I anticipate happening, and the SEC, is that in the above
example with stock ABCD, the MMs will need to get the 1,000,000
naked shorted shares out of circulation by increasing the bid to
entice shareholders to sell. The problem comes when they allow for
the buying to outweigh the selling due to increased demand for the
stock. As orders are placed to buy shares, they must be filled by
the MMs. This will worsen their problem when nobody is selling. As
the MMs make the mistake and allow for any stock to be placed on the
Threshold Security List, it will publicly reveal where the MMs are
already having a problem in covering. Us as shareholders will see
this list and contribute with forcing the short squeezes for every
stock on the list.

If they raised stock ABCD to .50 cents and there was more buying
than selling than no ground would have been gained by the MMs. They
only gain ground when there is more selling than buying that exists.

IMPORTANT: So where is the "Threshold Security List" that we all
will be looking for? This is how we all get a chance to help the MMs
reap what they sowed. Go to…

www.nasdaq.com

… to see the Threshold Security list beginning on 10 Jan 05 and
review it daily. Any stock that you see on that list "should"
immediately present a wonderful buying opportunity by being in an
instant short squeeze scenario. The MM guilty of the naked shorting
will have a hard time from not generating enough selling by enticing
the bid high enough for shareholders to sell to out weigh the buying
to allow for a covering to transpire.

Again, I do not believe that all MMs are bad and I am not posting
this to lead some type of crusade against the MMs. Remember, all we
ever wanted was for the MMs to trade the stocks we invest into
fairly as investor/traders in the market. Without the MMs, there
would not be a market and all the SEC is doing is making sure the
MMs create and maintain an orderly market, fairly. This Regulation
Sho is something that is long over due.

The Shorting
The shorting of stocks are referring to the Pilot Program that was
delayed to begin on 2 May 05 and will last for one year through 2
May 06. This is where they will be selecting 1,000 stocks to use for
an SEC experiment that they call the "Tick Test."

Example: Imagine stock ABCD trading at $10.00 per share. Let's say
you now decide to short stock ABCD at $10.00 per share by buying
through shorting 1,000 shares. You really just borrowed $10,000 to
short stock ABCD to buy 1,000 shares. Two days later, let's say
stock ABCD drops to trade at $8.00 per share. You now decide to
cover your short in stock ABCD and sell your 1,000 shares back to
the market to have them delivered at $8.00 per share for a total of
$8,000. You cover by paying back the 1,000 shares you borrowed, but
since the price dropped down to $8.00 per share, your cost for
paying back the 1,000 shares of stock ABCD will be $8,000. Since
it's mostly all about the share amount and not the dollar amount for
covering in the eyes of the MM, you would profit the $2,000
difference from using the proper timing for delivery of the 1,000
shares.

The SEC will be doing a study on 1,000 stocks while examining these
stocks to see how and why certain problems have existed throughout
the market with the delivery of the shorted positions. What they
have come to find out is that there is a problem that exists with
somebody shorting a stock as reflected above and never delivering
the funds to cover the shorted position whether the stock goes up or
down. They have come to find out that somewhere and somehow the
intentions to later deliver never existed. The Pilot program is
being designed to get to the bottom of this.

The opportunity that we have here with the rectification of the
naked shorting and shorting of stocks is something that will go down
in history for the better in fixing something that was broke for a
long time. The primary objective is to have an orderly and fair
market for those stocks that are legitimate and trying to actually
grow to trade fairly on its own merit of supply and demand
principles and not on manipulation of choice.

Bottom line, any stock falling under the protection umbrella of
Regulation Sho will automatically begin trading under a short
squeeze scenario due to its supply of shares immediately being zero.
How huge the short squeeze materializes is predicated upon how soon
or how long the MM that is guilty of naked shorting decides to take
for covering. Whenever the "demand for buying" exceeds the "demand
for selling" within that naked shorted security, the MM will have a
very difficult time in covering by the mandated time frames
allocated. Added buying pressure will only compound the dilemma for
the MM.

I am expecting Jan 05 to be the best month in the history of the
market for opportunities for prosperity because of Regulation Sho.
We are about to be part of a positive piece of history. I hope the
above info have helped many to see what is the importance of making
sure you are positioned and well planned for strategic moves to be
made in the market to capture the opportunity for prosperity. We all
must prepare and plan now if we can afford to do so. People don't
plan on failing, they fail to plan. May we all become prosperous!

-- posted by Kirk