SEC and Other Investigations of Illegal Trading

Investors Win Money From Jack Grubman

Top 111. Apr 21, 2004 12:07 AM

» Jen_ - Investors Win Money From Jack Grubman

.
this article from 4/16/04 WSJ was requested by Steve....

By LYNN COWAN
DOW JONES NEWSWIRES
April 16, 2004; Page C4

WASHINGTON – Investors for the first time have won arbitration awards directly against Jack Grubman, the former Citigroup Inc. telecommunications analyst.

In two cases decided by National Association of Securities Dealers arbitrators last month and made public this week, people who lost money investing in WorldCom Inc. stock based on Mr. Grubman's research were able to secure awards against both Citigroup and its former star analyst.

The amounts -- $23,000 and $205,000 -- are less than 1% of the $33 million severance package Mr. Grubman received from Citigroup after he settled regulatory probes last year into the integrity of his research.

Whether Mr. Grubman will even have to pay the relatively minor awards is also unknown. Under his severance agreement with Citigroup, the firm has agreed to pay "without limitation" all his legal costs. A Citigroup spokeswoman refused to comment on who will actually pay the award; Mr. Grubman's attorney wasn't immediately available for comment.

"I'll be surprised if we don't get a check for the entire amount from Citigroup," said Michael Lynch, an attorney at Orlando, Fla.-based Hooper & Weiss, which was co-counsel on the $23,000 award.

In the larger $205,000 award, 78-year-old New York City resident Norman Ember claimed that Mr. Grubman's flawed research led him to invest in WorldCom in August 2000. He alleged negligence and fraud on the part of Citigroup and Mr. Grubman.

Although attorneys consider client inexperience and lower income two factors that can help in winning an arbitration, Mr. Ember was a longtime investor, not a naive newcomer, said his attorney, Thomas J. Fleming with Olshan Grundman Frome Rosenzweig & Wolosky. He was also quite wealthy: Mr. Ember's late wife, Susan, was president of Brooks Fashions, a 769-store women's clothing chain, and the couple spent their winters in Palm Beach, Fla.

Mr. Ember, also a former apparel-industry executive, was considered a large enough client that his broker allowed him to listen to Mr. Grubman's morning calls to Citigroup's brokerage force, said Mr. Fleming.

In the $23,000 award, 62-year-old Salt Springs, Fla., resident Douglas F. Bishop won his case, even though he didn't claim to have exclusively relied on MR. Grubman's research in making his investment. Instead, attorneys at Hooper & Weiss and co-counsel Douglas Glicken of Orlando argued that Citigroup's research on WorldCom was inherently conflicted by its investment-banking ties to the company, a fact that should have been disclosed to investors like Mr. Bishop.

Mr. Bishop's case is one of five cases Hooper & Weiss and affiliated attorneys have won against Citigroup on WorldCom research claims, and their first to include an award specifically against Mr. Grubman. Mr. Grubman's share of the award and attorneys fees, $7,000, was calculated at 25% of the total.

Hooper & Weiss, best known for class-action litigation against the makers of diet drugs and breast implants, filed a total of 71 WorldCom-related cases against Citigroup in March 2003, and has won five out of 15 cases decided so far. The firm says it has hundreds more cases waiting in the wings.

Mr. Grubman and Citigroup settled state and federal regulatory probes into the firm's research practices last year. Mr. Grubman paid $15 million and was barred from the securities industry for life as part of his settlement; Citigroup paid $400 million toward the $1.4 billion industrywide settlement brokered between Wall Street and regulators.

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....Jen

-- posted by Jen_

Calpers Targets
Directors Who Neglect Holders

Top 112. Apr 21, 2004 12:31 AM

» Jen_ - Calpers Targets Directors Who Neglect Holders

.
and one more requested article from Steve from 4/16/04 WSJ...

By AARON LUCCHETTI and JOANN S. LUBLIN
Staff Reporters of THE WALL STREET JOURNAL
April 16, 2004; Page C1

The nation's biggest public pension fund is escalating its campaign for better corporate governance, targeting directors it says don't act in the best interests of shareholders at 2,700 companies -- almost all of the U.S. corporations in its portfolio.

By withholding support for the re-election of certain directors on the boards of about 90% of its American companies, the California Public Employees' Retirement System, known as Calpers, is returning to its activist roots. Yesterday, the fund said it is targeting directors at Apple Computer Inc., including co-founder Steve Jobs and former U.S. Vice President Al Gore, as well as nine directors at Lockheed Martin Corp. This week, Calpers said it wouldn't vote to re-elect investment guru Warren Buffett to the Coca-Cola Co. board or Citigroup Inc. Chairman Sanford Weill to his own board. Other prominent directors soon will join the list.

The massive campaign stems from the pension fund's quiet decision last year to begin flexing its muscles again after a long hiatus during the stock-market boom of the 1990s. In the early 1990s, the fund complained about excessive executive pay, but the effort failed and pay soared.

Now Calpers believes accounting scandals at WorldCom Inc. (now MCI), Enron Corp. and Adelphia Communications Corp., among others, will give its campaign added weight. It is focusing on whether directors are doing enough to look out for shareholders, especially in how they select the accounting firms that audit their companies' books. Most of the directors targeted by Calpers this year approved of accounting firms serving as auditor when they also did consulting work for a company, an arrangement Calpers says could encourage auditing firms to approve questionable accounting.

"There is nothing more important to us than ensuring that the audit is done right," says Christy Wood, a senior investment officer at Calpers. "If we have no faith in the numbers, it's only a matter of time before we get more Adelphias and Enrons."

Ms. Wood disclosed the scope of the fund's campaign in an interview yesterday. Last April, the pension fund sent letters to companies putting them on notice that it would withhold votes from such directors, but the decision came so late in the proxy season that Calpers voted against directors at only about half the number of companies it is targeting this year.

The "vote no" campaign comes as the Securities and Exchange Commission considers a new rule to make it easier for large shareholders to nominate their own directors. Under the proposal, a 35% vote to withhold approval of a director would trigger a process to give a large investor -- or group of shareholders -- the right to put a director candidate on a company's proxy. If approved in its current form, the proposal would cover this season's elections.

"Governance is no longer considered political foolishness," says Sarah Teslik, executive director of the Council of Institutional Investors, a Washington group that represents more than 130 pension funds with more than $3 trillion of assets, including Calpers.

In today's environment, Calpers has "a much better shot at influencing companies than they did five years ago," Ms. Teslik says. Calpers says it is already hearing from many companies that it has targeted.

The campaign is being fueled partly by the political ambitions of Phil Angelides, California's state treasurer and a Calpers board member, who is considering running for governor of California in 2006.

Mr. Angelides, who was among the first public officials to call for the resignation last year of former New York Stock Exchange Chairman Dick Grasso, "has made no secret of the fact that he wanted to beef up" Calpers's corporate-governance program, says Patrick McGurn, a senior vice president of Institutional Investor Services, a proxy-advisory firm in Rockville, Md. "That has unleashed a lot of it."

Mr. Angelides says his main goal is representing California employees and retirees who have $166 billion invested through Calpers. As for his future, he says, "Good policy is most times good politics."

It remains to be seen how effective the campaign will be. Some other big public pension funds support Calpers's opinions but won't necessarily vote the same way.

TIAA-CREF, the retirement system for higher-education employees, and the New York State Common Retirement Fund, for example, agree with Calpers's position on auditors but are stopping short of withholding votes from all directors where there is a potential auditing conflict.

Alan Hevesi, the New York State comptroller who oversees the New York fund, says companies shouldn't be paying large consulting fees to their accounting firms but adds that he wouldn't automatically vote against directors who serve on audit committees of boards where it happens. "You want the freedom to factor in" specific nuances of each company's situation, he says.

Calpers's Ms. Wood says the effort will take time, adding that she would be satisfied if half of the companies in which Calpers owns shares changed their practices over the next two years.

Auditor independence isn't the only issue. Calpers is withholding support for Apple's entire board because it has "failed to implement a shareholder-approved proposal on options accounting," the fund says on its Web site. At Citigroup, the fund is withholding its vote for Mr. Weill because it argues he should be "held accountable" for costs incurred by the company to settle civil investigations of improper practices while Mr. Weill was chief executive.

Some big business groups take a different view of Calpers's activism. Withholding votes from directors at 2,700 companies "is absolutely overkill. It's wasting shareholders' money because companies have to fight these things," contends John Castellani, president of the Business Roundtable, a Washington group that represents major companies' chief executive officers.

"I'm struck with the absurdity of what they're doing," he says, citing Calpers's decision to withhold support for Mr. Buffett's re-election to the Coca-Cola board. "There's no one who would not say he's independent." Calpers withheld support from six members of Coke's audit committee, including Mr. Buffett, because it authorized the company's auditor to perform "nonaudit services."

Mr. Castellani suspects Calpers's burst of activism is intended to put pressure on the SEC to adopt the rule allowing greater shareholder democracy, which his group opposes.

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finally we're seeing a little poetic justice - eh Steve?....Jen

-- posted by Jen_

http://www.reuters.com/newsArticle.jhtml...

Top 113. Apr 22, 2004 2:53 PM

» SteveT - SEC Charges Former Musicland Shareholder, Others

SEC Charges Former Musicland Shareholder, Others
Thu Apr 22, 2004 02:26 PM ET

WASHINGTON (Reuters) - U.S. regulators filed insider trading charges on Thursday against a former major shareholder of Musicland Stores Corp. which was acquired by Best Buy Co. Inc. in 2001.

Alfred Teo, 57, of Kinnelon, New Jersey, was also accused of illegally buying and selling shares of C-Cube Microsystems, a maker of chips for digital set-top boxes and DVDs which was a potential acquisition for Cirrus Logic .

The U.S. Securities and Exchange Commission filed a civil complaint against Teo, chairman of several private companies that produce plastic bags, and ten of Teo's relatives, friends and colleagues who participated in the trades.

The SEC charged that Teo had learned of the Best Buy offer for Musicland ahead of the Dec. 7, 2000, public announcement through his position as Musicland's largest shareholder.

Teo traded 45,000 Musicland shares and made $185,275 in profits and he tipped off eight people, one of whom then tipped off another person. The group made a combined profit of more than $1.1 million, the SEC said.

The SEC also charged that Teo, a director of Cirrus, which was considering buying C-Cube, made $180,012 from trading 35,000 C-Cube shares and tipped another person who saw profits of $115,155.

C-Cube was eventually bought by LSI Logic Corp.

Teo is chairman and chief executive of the Sigma Plastics Group, which he started in 1979, according to the most recent proxy statement by Navarre Corp., whose board Teo has sat on since May 1998. He is also the chairman and CEO of Alpha Technology Inc.

Teo's attorney, Jay Strum, declined to comment on the SEC complaint.

-- posted by SteveT

http://www.marketwatch.com/news/yhoo/sto...

Top 114. Jun 3, 2004 2:49 PM

» SteveT - Symbol Tech settles fraud charges

Symbol Tech settles fraud charges
Company agrees to pay $138 million over accounting
By Michael Paige, CBS.MarketWatch.com
Last Update: 4:42 PM ET June 3, 2004

LOS ANGELES (CBS.MW) -- Symbol Technologies said Thursday it agreed to settle federal accounting fraud charges and a class-action lawsuit by paying $135 million and contributing an additional $3 million to a consumer fraud fund.

The company (SBL: news, chart, profile) announced it will pay a $37 million cash fine to the Securities and Exchange Commission, as well as $98 million in cash and stock to settle a separate class-action lawsuit. It will also contribute $3 million to the U.S. Postal Inspection Service Consumer Fraud Fund.

Symbol -- a maker of bar-code scanners and other mobile information systems, based in Holtsville, N.Y. -- said no criminal complaint will be filed.

According to the SEC's allegations, the company and 11 former executives ran fraudulent schemes from at least 1998 until early last year that artificially inflated sales by more than $230 million and puffed up pretax earnings by more than $530 million.

"The scope and magnitude of the fraud at Symbol Technologies warrant the imposition of significant penalties" against both the company and individual wrongdoers, said Stephen Cutler, director of the SEC's enforcement unit.

Late last year, Symbol restated five years worth of results and disclosed that an internal probe had found widespread accounting irregularities. See related story.

Symbol agreed to pay the civil penalty without admitting or denying the allegations. It also agreed to appoint an independent auditor to review its accounting and other corporate governance measures.

The entire fine will be distributed to injured investors, according to regulators.

Symbol shares jumped 5 percent to close higher by 72 cents at $15.43.

Under the settlement agreement of the private suit -- which still needs court approval -- Symbol will pay $96.25 million in stock and $1.75 million in cash. It has the option to raise the cash portion of the payment by $6 million.

The company has set aside $142 million to cover the settlements, executives said in a conference call.

Jerome Swartz, Symbol's co-founder and former chairman, will also pay the company $7.2 million in cash and give up $2.9 million in stock options. He'll add $4 million in cash to the settlement of the shareholder suit.

Last July, Swartz handed over about two years of pay and stock options.

Regulators' claims against former CEO Tomo Razmilovic and the other executives are still pending.

Razmilovic and his former colleagues "fostered a 'numbers-driven' corporate culture obsessed with meeting Wall Street estimates," according to the SEC complaint.

Separately, criminal indictments were unsealed by federal prosecutors in New York against the former CEO and seven other former senior employees, including Symbol's former chief financial officer and its former general counsel.

If convicted, the former executives could face stiff prison sentences and hefty fines. The indictment also seeks to retrieve millions of dollars from the defendants and the forfeiture of real estate worth several million dollars.

The settlement marks a major step toward normalcy at the company, said Imperial Capital analyst Kevin Starke. Investors are now likely to focus on Symbol's fundamentals once again, he said.

"We continue to like the stock and would be buyers, especially on weakness," Starke added.

Investors will likely react positively to the news, agreed Morgan Stanley analyst Arindam Basu.

However, Basu doesn't expect Symbol to post much sales growth this year. In rating the shares "equal-weight," the Morgan Stanley analyst believes 2004 will continue to be a year of rebuilding for Symbol.

Michael Paige is a reporter for CBS MarketWatch in Los Angeles.

-- posted by SteveT

Top 115. Jun 14, 2004 7:12 AM

» Kirk - Naked Short Selling "Stockgate" - Update

.
From http://www.investrend.com/articles/artic...
(free reg.)

June 8, 2004. (FinancialWire) The U.S. market scandal involving thousands of shareholders, hundreds of companies, and dozens of brokerages, including FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (NYSE: GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), and Olde / H&R Block (NYSE: HRB), and tagged by FinancialWire as “STOCKGATE,” is fast reeling out of control, as article after article has surfaced about various aspects of the manipulation.

As more and more companies ask to be “delisted” from the Berlin Stock Exchange, NASD has reportedly held talks with officials of the exchange, who reportedly denied that their exchange has been used as a vehicle to circumvent U.S. law requiring brokers to assure themselves of affirmative determinations before allowing short sales.

The controversy has even birthed mini-scams aimed at public companies. For example, Friedland Capital has even offered to provide a “delisting” service to companies either listed or in queue to be listed in Berlin, failing to point out that Berlin has offered to withdraw any company’s listing whose executives merely ask.

At the same time that the questionable “Stock Borrow Program” of the Depository Trust and Clearing Corp. has emerged in lawsuits, and DTCC has announced its interest in the London market, the London markets are being rumored as the next stop after Berlin where short-sellers may take advantage of the arbitrage exemptions associated with naked shorting.

All this comes as the U.S. Securities and Exchange Commission is gearing up for tomorrow’s public hearing to consider amendments to Regulation SHO, the effort to curtail the manipulative trading abuses that has plagued hundreds of small public companies and hundreds of thousands of their shareholders.

Open meetings of the Commission are usually webcast.

The meeting announcement has been published at http://www.sec.gov/news/digest/dig060204... .

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. (OTCBB: GPXM), Nannaco, Inc. (OTCBB: NNCO), 5G Wireless Communications, Inc. (OTCBB:FGWC), CyberAds, Inc. (OTCBB :CYAD), Provectus Pharmaceuticals, Inc. (OTCBB: PVCT), House of Brussels Chocolates (OTCBB: HBSL), InforMedix, Inc. (OTCBB: IFMX), Tissera, Inc. (OTCBB: TSSR), Americana Publishing, Inc. (OTCBB: APBH), Celsion Corporation (AMEX: CLN), ChampionLyte Holdings, Inc. (OTCBB: CPLY), Pickups Plus, Inc. (OTCBB:PUPS), China Wireless Communications Inc. (OTC BB: CWLC), CareDecision Corp. (OTCBB: CDED), Titan General Holdings, Inc. (OTCBB: TTGH), IPVoice Communications, Inc. (OTCBB: IPVO), Whistler Investments (OTCBB: WHIS), WARP Technology Holdings, Inc. (OTC BB: WRPT), BGR Corp. (OTCBB: BGRR), ICOA, Inc., (OTCBB: ICOA), DICUT, INC. (OTCBB: DCUTE), NHC Communications Inc. (TSX: NHC; OTCBB: NHCMF), Stratus Services Group, Inc. (OTCBB: SERV), Golden Phoenix Minerals, Inc. (OTCBB: 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 (NYSE: 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 (OTCBB: NDAQ), the New York Stock Exchange, Goldman Sachs (NYSE: GS) and Lehman Brothers (NYSE: 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 (OTCBB: 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 June 8, 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 (OTC: 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 June 8 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 (OTCBB: 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 (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C); Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: 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 (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: 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 (NYSE: STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: 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 (NYSE: 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. (NYSE: GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto-Dominion’s (NYSE: TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN). A.G. Edwards, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ: AMTD), Deutsche Bank AG (NYSE: DB), and ETrade Group, Inc. (NYSE: 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. (NYSE: GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto-Dominion’s (NYSE: TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN). A.G. Edwards, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ: AMTD), Deutsche Bank AG (NYSE: DB), and ETrade Group, Inc. (NYSE: 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.

-- posted by Kirk

http://www.chron.com/cs/CDA/ssistory.mpl...

Top 116. Jul 7, 2004 1:24 PM

» SteveT - New Enron indictment believed to target man at top: Ken Lay

New Enron indictment believed to target man at top: Ken Lay

July 7, 2004, 3:21PM
By MARY FLOOD and TOM FOWLER
Copyright 2004 Houston Chronicle

The Enron grand jury delivered a sealed indictment in court today, and lawyers close to the case believe it contains charges against ex-Chairman Ken Lay and that he will likely surrender Thursday.

The foreman of the specially-called grand jury told U.S. Magistrate Judge Mary Milloy that at least 16 members were present and at least 12 voted for the indictment.

Presenting the indictment with the foreman were Enron Task Force prosecutors John Hueston and John Hemann, who are working on the Lay investigation and have taken witnesses before the grand jury in the last few months.

Prosecutors have quizzed grand jury about Lay's receipt of warnings of financial trouble and fraud at the company within weeks of then-CEO Jeff Skilling's August 2001 departure; Lay's encouraging public statements to investors and analysts after Skilling quit; and his attempt to find an alternative to substantially writing down the "goodwill" price paid for assets.

Lay is likely to be charged with some type of fraud, possibly similar to the charges against Skilling and former Chief Accounting Officer Rick Causey.

They are charged with insider trading, securities fraud, wire fraud, conspiracy and lying on Enron financial statements. They are generally accused of manipulating earnings reports to hide Enron's failures from the investing public while reaping lucrative salaries, bonuses and other benefits.

Lay's defense attorney, Mike Ramsey, has insisted Lay is innocent and will not be indicted.

Several of the lawyers representing witnesses in the case speculate that rather than indict Lay separately, prosecutors will add Lay to the case against Skilling and Causey, meaning the three would be tried together.

The Enron grand jury was impaneled in March 2002 and prior to today had indicted 23 people on charges relating to the collapse on Enron. Those previously indicted by this group include bankers and 16 former Enron executives. Others have been charged and waived indictment.

-- posted by SteveT

Top 117. Jul 16, 2004 9:45 AM

» Kirk - Justice is a joke in this country

.
Corruption is the SEC letting the real crooks off inside Citibank where they make the shareholders pay a huge fine so the crooks avoid jail.

Martha's crime is worth $30K in fines and 5 months in jail.

yet

Citibank had a $4.2B earnings hit to pay fines for WCOM and Enron lies yet nobody did any time!

Pathetic....

-- posted by Kirk

Top 118. Jul 16, 2004 9:47 AM

» setyoustraight - Re: Justice is a joke in this country

In response to message posted by Kirk:

I didn't realize Scott Sullivan and Bernie Ebbers were on Citigroup's payroll.

-- posted by setyoustraight

http://biz.yahoo.com/bw/040715/155295_1....

Top 119. Jul 16, 2004 10:04 AM

» Kirk - Re: Re: Justice is a joke in this country

In response to message posted by setyoustraight:

You must have missed the press release from Citigroup.

"Second quarter results were significantly reduced by the WorldCom settlement and associated reserve increase"

and

"Results included a $4.95 billion after-tax charge, or $0.95 per share for the WorldCom class action settlement and increased litigation reserves related to 2003 regulatory settlements."

I read somewhere that the reserves were for C's part in the Enron disaster.

BTW, do you think they paid $4B in shareholder money if they were innocent?

Perhaps you believe the investment banking arm or C was not helping Enron move risk off the books?

-- posted by Kirk