Illegal Short Sellers May Face RICO Indictments

RICO, Racketeering Influenced Corruption Organizations Act, the law Rudy Guiliani used to bring down Michael Milken, and other Wall Street crooks, could be revisited in the SEC's struggle to clean up Wall Street's growing threat to the financial markets.

The SEC's crackdown against illegal naked short selling and rumor-mongering resulted in more than 50 hedge funds being slapped with subpoenas last week, according to the Wall Street Journal. Conspiracy theorist and CEO of Overstock.com (OSTK), Patrick Byrne, has embarked on a crusade to expose the nefarious hedge funds that practice illegal short selling. Byrne's web site, Deep Capture.com, has compiled a plethora of facts documenting, names, dates, times and videos of the players and their schemes.

Mark Mitchell, of DeepCapture.com, believes there exist a "hedge fund-orchestrated campaign to cover-up the crime of naked short selling." Depending on how deep the SEC probes, and what insidious facts they discover, we could see hedge fund managers, traders, and other employees facing scandalous, unprecedented charges under the infamous racketeering law, RICO. There is growing pressure for whistle-blowers to sound off or risk becoming the next scapegoat.

Clusterstock.com, reported, "the SEC is demanding both trading records and email correspondences" from subpoenaed firms. The inclusion of cell phone and text messaging records will undoubtedly be scrutinized. Concurrently, the NYSE Regulation Inc. is also investigating how some of its largest firms comply with false and misleading rumors that could undermine a stock's price. This is going to intensify.

Motley Fool, published an article on March 24, 2008, titled "The Naked Truth on Illegal Shorting," in which 100% of a company's shares were purchased by one individual, and were not available for shorting. Nevertheless, 60 million phantom shares were traded, according to owner. Subsequently, he filed a SEC 13-D compliant form.

Dick Fuld, CEO of Lehman Brothers (LEH), told market regulators that he has information that short-selling hedge funds colluded to bring down Bear Sterns (BSC). If Fulds's "information" is of evidentiary value, these hedge fund managers, and their cast of cohorts, could find themselves behind bars.

If the SEC diligently investigates the facts, we could see RICO indictments against illegal short sellers as early as Labor Day. Anyone charged under the RICO statue, even if they are found "not guilty," will become permanently damaged.

After observing the demise of Fannie Mae (FNM), and Freddie Mac (FRE) last week, it is expedient that the SEC move quickly to abolish the practice of naked short selling for all stocks. Short selling should only be allowed after the short seller has successfully borrowed the shares. The practice of selling shares that cannot be borrowed is a crime!

Discloser: No long or short positions in LEH, FNM or FRE.

Comments

[MarionPolk]

A 13-D is not a "complaint form". It is a form filed when a party owns over 5% of a company's stock. (In the Global Links case he owned 100% of the stock. I also filed a 13-D reporting my 15% ownership of the same stock, at the same time.

The SEC contacted me, but did nothing (as far as I know) with the information I provided.

2008 Jul 29 11:12 AM

[Randy Fay]

There's much talk by authorities, SEC, etc, but likely not a lot will be done. I really don't think short sellers are quaking in their boots. I would be surprised if the measures taken will have a serious effect.

2008 Jul 29 11:28 AM

[Blue Jester]

how long can blatant corruption and illegality continue to ruin our economy? how long can outright fraud be propagated on the american investor, and joe and jane doe lose their hard earned savings, and good businesses put into bankruptcy while the SEC and other regulatory agencies deny the problem or slap people on the wrists. the problem can be dealt with. either now, by arrests and investigations, and new laws to stop this CRIME, or later when our economy tanks because the SEC was asleep at the switch or in bed with the bad guys all along. the problem is this has been going on along time, and alot of people have made a lot of money, so there is pressure for it to continue; but it has to stop. fraud is fraud. counterfeiting is illegal. our country is becoming a laughing stock, and the dollar will fall if this problem is not corrected YESTERDAY.

and no one wants that... even the bad guys. enough is enough. if youre a bad guy, stop breaking the law. if youre a good guy, do your job and enforce the law. its that simple.

2008 Jul 29 01:17 PM

[User 234476]

There are people saying that someone will go down for these crimes. Maybe no, maybe yes; if that happens, history will repeat itself once again. Anyone who was around in the 80s that saw what happened to Boesky and Milken, knows the play book. Someone has to be chosen as a cautionary example. Based on that playbook, the guy whose going to be the chosen one, is going to have the reputation of being a real prick, a front-running thief, a guy people in the industry despise even though they do business with him. That way, they'll all say he had it coming. He has to be a big enough fish so that when he gets taken down, the splash will be heard wide and far. That's if the powers that be decide this is the time at this point in our history that someone has got to swing.

2008 Jul 29 10:05 PM

[Spider jones]

naked shorting is a big problem attacking many good co's. The Feds found oyuut with FRE and FNM and did not like it. What about the little guy in stocks. ? nobody gives a rats ass if we lose our ass fighting these bums on msg boards and trying to stay long. When talking heads constantly come to the defense of going after the tricksters , you know they are afraid that investigations may hit too close to home. The hedge witches of wallstreet have a come-up-ence overdue. I hope the SEC goes after naked shorters with all their power. But the SEC can do things immediatly to help like reinstill the uptick rule effective right NOW. and make it ILLEGAL punishable by fine and loss of their position for naked short selling..

2008 Jul 29 10:24 PM

[bostondude]

Patrick is to be congratulated for pursuing this so doggedly.
I wish I had give my son more support in this matter in early days.

Patrick's father, Jack

2008 Jul 30 04:17 PM

[Just Askin]

All I can say is, the U.S financial market is so corrupt, from the SEC on down, it is mindboggling. If my proverbial ship comes in on a particular stock I own that has been victimized by these naked shorting thieves, I'm outta here for good. But thank you, Patrick O'B, for keeping a light shined on these a-holes.

2008 Jul 30 08:35 PM

[montie wienecke]

Dear sir ;
I think David einhorn should anser about telling lies about ALD
Ald is the best Co. out there

2008 Jul 30 09:04 PM

[OKMONEY]

The whole problem of naked short selling could be easily solved by real time quotes of whether a sale was "long", or "short"; if we had such info we'd know what the score is and act accordingly. It would be automatic self regulating. No doubt too simple; must be a fatal flaw I don't see. I do see the ex-clearing trades as a potential problem but doesn't everything eventually flow through the DTCC?

2008 Jul 31 01:32 AM

[Leetchy]

Yeah, go after the "evil" hedge fund managers for bringing down a company instead of the institution for writing bad loans or the poor working class individual for borrowing against his means.

When a trader or fund manager places an order to short sell a company, which is a completely legal strategy, it's up to the brokerage or clearing firm to ensure they have the requisite number of shares to allow short selling that company. If the short sell order is filled, then I as a trader can only assume the brokerage or clearing firm did have the proper number of shares to cover the transaction.

If the brokerage (illegally) made the transaction without having the shares available for the short sale (just to make the commission) then how in the world is the trader or hedge fund manager supposed to know that?

IMO, the SEC should go after the brokerages and clearing firms, not the traders.

2008 Jul 31 11:28 AM

[lhugh]

So what about the pumpers who created this oversold market? Going after them too?

2008 Jul 31 12:10 PM

[Rubbberrider]

Have you guys ever heard of my boss Rufus Paul Harris? I don't really work for him but I call him boss because he is leading the fight against Naked Short Selling.

His firm is called Conversion Solutions. I hope boss is ok with me talking about his fight with NSS on this public website. We even have the SEC taking us down on fraud charges! Trying to keep boss from exposing naked short selling!

The feds even killed some of his horses with moldy hay (To keep him from exposing Naked short selling)

CSHD-4-LIFE!!!

2008 Aug 01 07:07 AM

[waterdrinker74]

Naked short selling should be outlawed for all stocks permanently. It is absurd a few banks and mortgage firms are being protected from the evil naked short sellers. Naked short sellers have been stealing "borrowing" shares from unsuspecting investors. These shares are passed around amongst the naked shorts and used by them to negatively manipulate legitimate businesses. It is very likely that some of the banks being protected from the shorts were some of the worst naked shorters over the last few years. Protecting a few of them, but not all stocks makes me sick!

The DTCC is run by criminals who enable large financial institutions to steal from average investors. The DTCC is able to do this because it is run by these same large financial institutions that are behaving in a criminal manner. The DTCC establishes their own rules and only have to answer to themselves. The SEC's refusal or lack of ability to regulate the DTCC is criminal.

Naked short shelling is criminal. Any 5 year old kid could tell you that borrowing something with no intent to return it and never returning it is stealing.

Why is it that the small investor has to play by the rules but the members of the DTCC are allowed to steal at will? Large financial institutions should be forced to borrow stock as any other investor who shorts a stock. If they can’t borrow the stock, then they should not make the trade. This is getting to be that only the huge hedge funds can decide who should win or who should lose. They should also have to take the risks that us little guys do when we invest.

The SEC is going through the motions and not making a real attempt to stop naked short selling. The Reg Show list is a joke! What is the point of putting the company that is being shorted on the list? The company or individual that is doing the shorting should be the ones on the list. When they fail to deliver, they should be forced to deliver or lose their ability to naked short a stock.

The small investor is starting to realize that the United States of America government is getting to be just as corrupt as a country like Russia. We are headed down the toilet unless this sort of corruption can be stopped.

Protecting a few select large financial institutions from naked short selling because the fed is directly loaning them money is criminal. All stocks should be protected from naked short selling.

2008 Aug 04 01:04 PM

[krbo3]

Fact: The SEC is going to do NOTHING!

Facts to back up the above fact:

1. Even through the SEC is 'supposedly' and independent agency,
they are a member of the President's Working Group on financial
Markets (I know this sounds like consparicy stuff, but please
bear with me). The Working Group is chaired by the Secretary of
the Treasury (Hank Paulson, aka uncle Hank) and includes the
Chairman of the SEC, the Chairman of the Federal Reserve
and the Chairman of the Commodity Futures Trading Commission.

a. Basically Uncle Hank here is the boss.

2. We all know Uncle Hank's relationship with Goldman Sachs.

3. Goldman Sachs seems to be weathering this current little
financial crisis a bit better than its compeditors. According to
the media consensus, they have hedged against this real
estate / mortgage meltdown. This brings up some interesting
questions:

a. Back last October when both Uncle Hank and Uncle Ben
were out saying that housing is bottoming, and that sub-
prime was 'contained', why was Goldman hedging?

b. When the hotties on CNBC and Fox Business News figured
out and were saying last October that giving homelss people
200K mortagaes was probably not a good idea...why was
the SEC or some regulating authority not looking into this?
At this point they could have easily done this!

c. When the ship found itself in the eye of this $#1T storm,
why was Bear Stearns allowd to fail BEFORE the rule on
naked short selling was instuited. Just before Bear Stearns
failed...why was Chris Cox (the SEC) defending thier
liquidity? The agency that is suppose to be regulating them?

d. I don't need to elaborate on the firms/banks getting this
special protection, and those that are not! Why is this not
being looked into?

The astute student now realizes that we're beyond the point of the SEC being able to do anything! We are now in the situation where these 4 frat boys listed in bullet item 1 above who created this mess, are now the wise intellectuals that are tasked with cleaning it up. If you believe any meaningful investigation or charges will come from the SEC, then I've got some mortage backed securities to sell you!

2008 Aug 05 12:43 AM

[TIGERSOFT william]

TigerSoft has been all over this story. Why are you only now finally waking up to it?

Well of course the SEC's fingerprints are all over the 2007-2008 Bear Market. Another Bush appointee protecting and enriching his buddies!
wHAT A SURPRISE. YOU REALLY THINK THE SEC WILL DO ANYTHING? THEY CAUSED THE BEAR RAID! AND THEY PERMITTED MORTGAGES TO BE MIS-MARKED AND RESOLD!

How come you aren't mentioning the SEC's abandonment of requiring short sales on upticks? That took place just two weeks before the top in the market last July?

1) By lifting the ban on short sales on down ticks they gve the "green light" to "Bear Raiders", the bane of the early 1930s until legislation banned short selling on down-ticks.

2) By not enforcing rules that require short sellers to borrow the stock they sell short, they have given Bear Raiders access to all the stock they want.

3) SEC Chairman Cox LIED on CNBC when he said naked short selling was not illegal. He has now chosen to enforce it selectively.

4) When 3 days ago, they banned naked short sales in key bank stocks, the reaction was immediate. Some bank stocks have risen more than 50% in the three days since,

5.) Look at the high volume in finance stocks just before the rally. The word got out in advance of the SEC action to ban naked short sales in certain finance stocks. Compare the volume with those that were not so favored

The SEC's life is the Hobbesian ideal: "Nasty, brutish and short"
One could add "crooked". Who polices them?

2008 Aug 09 06:49 AM

[DucPho]

"Mission Accomplished -- the Trillion Dollar Robbery" had many parts --Big Oil rigging the market for $4 gas; military/industrial complex getting no-bid contracts for useless toys to be destroyed in two unnecessary wars; no-bid contracts for medicare drugs; and here ...naked shorting by SEC-protected hedge funds. It has been an eight year crime wave. Bush and Cheney have been extremely effective as thieves, probably the most effective in history. Poor us.

2008 Aug 23 09:17 PM

[FNG]

It seems that this thread has become infested with some agenda orinted political types as we approach the general elections. Knock it off. Real discovery is needed, not just politically biased opinions that come across as nothing more than divisive venting. Any straight shooting attorney or truly objective investigative journalist (dying breeds unfortunately) would second, third, and fourth source some of the comments above to get at the truth. When it finally comes out expect blame and shame on both sides of the aisle, on Wall Street, and in corporate boardrooms. None of it, however deeply uncovered, will make taxpayers feel better about "hundreds of billions" of dollars in bailouts while average citizens are getting squeezed in a long sagging economy. Focus on FIXING THE SYSTEM to restore faith in it, and let the chips (and supoenas and indictments) fall where they may. Otherwise, I for one will not help capitalize another company as an investor. I -- all of us except the exceptionally greedy and corrupt among us -- get shorted by hedging gone wild, naked short selling, and other absolutely negative practices. Multiply the withholding of my meager investment wherewithal by likeminded longs everywhere and affected companies will rapidly feel the pain and start bringing real heat to bear on government to take needed decisive action--and not just a relatively token (albeit multibillion dollar, wrongfully taxpayer funded) response to shore up financial sector and banking industry. This, by the way sets a terrible example by rewarding poor performance. As a Sirius XM satellite radio company investor I am sickened by the way short selling has hurt the stock of a company with tremendous prospects post 2009 if its debt load gets handled. I contribute to see the company and my investment grow, not to see SIRI get unscrupulously bashed to a dollar stock by institutional short sellers and their affiliated pundits in the financial media. Flip over to the SiriusBuzz blog for an "ear full" on how the company is apparently being driven to its knees as it tries to get its legs as a recently merged entity. Sirius XM is just one of many, many examples of fine American companies outside of the investment banking circle that also should be shielded from malicious and covert shorting. As an American citizen, military retiree, and professional in my current field, I loathe what I see happening to our nation's financial system. So, stop the finger pointing and focus on real solutions. United We Stand ... or last one out turn off the lights.

2008 Sep 19 10:08 PM

[User 329613]

Patrick Byrne is not a conspiracy theorist - as the article states. He is a hero. The SEC is either crooked / corrupt to the core or incompetent. It's either one or the other or both.

End Naked Shorting now!

2009 Jan 01 11:34 PM

[deejaesnafu]

read again the word is COMPLIANT!


On 2008 Jul 29 11:12 AM MarionPolk wrote:

> A 13-D is not a "complaint form". It is a form filed when a party
> owns over 5% of a company's stock. (In the Global Links case he
> owned 100% of the stock. I also filed a 13-D reporting my 15% ownership
> of the same stock, at the same time.
>
> The SEC contacted me, but did nothing (as far as I know) with the
> information I provided.

2009 Aug 19 01:54 PM