February 12, 2005

Reg SHO Threshold Securities get Listed in Open Governance site

In another win for open governance, Nasdaq Trader has listed all the stocks that it found has breached the "failed to deliver" limits of the SEC. How embarrassing! Which is the exact point - just how many of the trades that are floating around out there are for real? And how close to the mark is the massive Stockgate allegation that DTCC - the repository - was engaged in lending out shares that didn't exist, while pocketing a cool billion $$ a year for its trouble?

(No URL for this story, but it seems to have come from FinancialWire)

Stockgate: NASDAQ NM Threshold Securities Listed But Hundreds 'Missing In

(financialwire.net via COMTEX) -- February 7, 2005 (FinancialWire) Nanogen
(NGEN), Netease.com (NTES), Overstock.com (OSTK) and On Track Innovations
(OTIV) are among some 67 NASDAQ National Market companies identified on a
recent NASDAQ "Threshold Security List" mandated by U.S. Securities and
Exchange Commission Regulation SHO.

The list, at http://www.nasdaqtrader.com/aspx/regsho.aspx , purportedly
lists all those companies, for which over a period of five consecutive
settlement days, there are aggregate "fails to deliver" at a registered
clearing agency of 10,000 shares or more, and the levels of fails is equal
to at least 1/2 of 1% of the issuer's total shares outstanding. The site
has recently begun listing additional securities under separate
spreadsheets, further confusing the true numbers.

The list, which is the latest in the ever-widening Stockgate scandal, has
created some controversy, with hundreds of stock symbols disappearing
since the initial posting in mid-January, 2005, and with many detractors
claiming the list is barely the tip of the iceberg, missing hundreds of
companies that have been subjected to alleged naked short selling, as well
as not consistent with a paper, "Strategic Delivery Failures in U.S.
Equity Markets" published under the aegis of the SEC.

The referenced working paper by University of New Mexico Professor Leslie
Boni was initiated while the author was visiting financial economist at
the SEC.

She termed the "failures to deliver," which litigants have called
"counterfeiting," as being "pervasive."

The professor said that a whopping 42% of listed stocks at the New York
Stock Exchange, NASDAQ and AMEX, and 47% of unlisted stocks in the OTCBB
and Pink Sheets had persistent fails of 5 days or more with 4% being above
the SEC's threshold limits for failures.

The economist pointed to a study conducted by Evans, Geczy, Musto, and
Reed in 2003 that provided evidence that while the SRO's have buy-in
requirements, such buy-ins almost never occur. She noted that an audit of
one market maker showed that all or a portion of shares in 69,063
transactions during 1998-1999 were "fails to deliver."

"The market maker was bought-in on only 86 of these positions," she stated.

Yet NASDAQ (NDAQ) was recently listing only 123 companies on the NASDAQ,
OTCBB and Pink Sheets, which together comprise the overwhelming bulk of
public companies traded in the U.S. The list changes to some degree each

The original list had identified 520 securities, including the stocks of
57 recent PIPE issuers, according to The PIPES Report, in an article
headlined "SHO What?." That list had 379 traded on the NASDAQ, Bulletin
Board and Pink Sheet markets, 68 on the AMEX and 73 traded on the NYSE.

The report quoted Merrill Lynch (MER) global equity trading specialist
Mary Ann Bartels of suggesting "increased volatility" and "extended
rallies" in small and mid cap stocks could result, Rhodes Analytics
highlighted 33 NYSE and 63 NASDAQ "dangerous shorts" which analyst Bill
Rhodes believed are "vulnerable to squeezes which could last through the
middle of February, when the initial phase of Reg SHO-mandated buy-ins of
threshold stocks are expected to peak?"

But a funny thing happened. The 379 NASDAQ threshold stocks included only
24 bulletin board stocks, along with 56 NASDAQ-traded stocks and a
whopping 254 Pink Sheet quoted stocks, which the Dow Jones (DJ) Newswires
was quoted as saying happened to be "every fully-reporting company traded
on the Pink Sheets."

Professor Boni's report showed that "during three random market days
inlate 2003 and early 2004 that almost 60% of the stocks on the Bulletin
Board and Pink Sheets had persistent settlement failures," according to
The PIPES Report. "Among the 1,790 OTCBB and Pink Sheet stocks with
failures, the average level of delivery failures equaled 1.56% of
outstanding shares ' almost three times the level that would trigger
threshold status under Regulation SHO."

In a December 13 conference call, Richard Bernstein, Bear Stearns' (NYSE
BSC) senior managing director of operations, told the firm's brokers that
almost 800 OTCBB and Pink Sheet securities would exceed threshold levels.

Although every single reporting Pink Sheet stock was listed, the list
included less than 1% of the 3,200 Bulletin Board companies. And several
de-registered companies with no trading activity were also inexplicably

I don't really think the list is complete," Jeffrey Meyerson, vice
president at Crown Financial was quoted as saying. "I don't think they got
everything done in time for the deadline."

For an explanation, an SEC spokesperson told The PIPES Report to check
with NASDAQ, and NASDAQ pushed off queries to the NASD, who just didn't

An even bigger surprise than the lack of suspect companies on the list,
however, was the sudden disappearance of 270 stocks in one day, including
all but one on the Pink Sheets and all but nine now on the OTCBB, which,
according to The PIPES Report, suggests "that a settlement crisis several
years in the making, affecting the most under-regulated and least
compliant sector of the public equity markets, had been resolved in less
than a week without executing a single mandatory buy-in."

General Electric's (GE) NBC Dateline, which is purportedly preparing a
major expose of the Depository Trust and Clearing Corp., and the alleged
almost $1 billion in "borrowed" ' some say counterfeited" ' certificates
that have reportedly been lent out above the legal issued shares by
hundreds of companies, and the Christian, Smith, Wukoson and Jewell, and
OQuinn, Laminack and Pirtle legal challenges being filed for dozens of
such companies, is also reportedly looking into the threshold securities
that can only be described as "missing in action."

In an appearance now archived on StreetSignals
(http://www.streetsignals.com), Christian/O'Quinn legal expert C. Austin
(Bud) Burrell, said that the firms have filed some 15 actions, including
key formative lawsuits for Sedona Corp. (SDNA), NanoPierce Technologies
(NPCT), Datascension Inc. (DSEN), Eagle Tech Communications (EATC) and
Hyperdynamics (HYPD).

Burrell said the lawsuits allege a vast conspiracy to manipulate all
stocks, and "provide substantive proof of manipulation." He said that the
suits allege 7,500 companies have been bankrupted since November, 2000, by
illegal naked shortselling and conspiratorial manipulations, resulting in
a loss of $17 trillion in market cap, "greater than all the losses in the
1929 market crash."

He said that shares are electronically counterfeited by the stock borrow
program which the Depository Trust and Clearing Corp., owned by the New
York Stock Exchange and the NASD, acquired in its purchase of National
Stock Clearance, and then misused its "stock borrow program" to create,
through its "nominal ownership provisions," a no-limit "and illegal"
hypothecation system that results in revenues of almost $1 billion

He said naked short sales were outlawed by Sections 5 and 6 of the 33
Securities Act, due to their contribution to the '29 Wall Street Crash,
which was followed by ten years of depression.

Burrell told the StreetSignals audience that the DTC "nominally owns $22
trillion in stocks and bonds." He said it even lends out certificates
acquired via ERISA and retirement accounts that are "not eligible" for
such lending, and is a violation of Federal Reserve margin rules.

He said the failures of oversight by the SEC and the Congress in this
matter are massive, and continue to contribute to overseas money
laundering, organized crime, and financing of terrorism.

The threshold list as present constituted is both "unexplained and
unexplainable," added Burrell. He alleged that "the SEC instructed the
NASD to remove Pink Sheet stocks from the list," and criticized them for
their lack of transparency or explanation.

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Posted by iang at February 12, 2005 10:29 AM | TrackBack
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