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Dr. John L. Faessel is a seasoned and respected Wall Street professional with industry-wide recognition for expertise in market strategy and analysis. He is widely recognized for his insights in public companies. For over 20-years Dr. Faessel’s ON THE MARKET reports have been widely distributed... More
  • Attn: Mark Zuckerberg - Illegal Naked Shorting Is Killing Your Share Price ― Wake Up! 0 comments
    Aug 21, 2012 9:25 AM | about stocks: BAC, GS, JPM, FB

    Dr. John L. Faessel

    Attn: Mark Zuckerberg

    Some Wall Street gangsters are in the process of destroying your public company, stealing the wealth off of it through an illegal practice called naked short selling. (A Google search of "naked short" yields 190,000,000 results.)

    Before I begin my appeal to you, Mr. Zuckerberg, let me begin by saying that I believe that the legal shorting of stocks is OK. I'm all for it and use the practice myself at times.

    In a legal short sale, traders borrow stock before they sell it. In illegal naked short sales, traders do not borrow shares before selling them. They simply sell shares that they do not have. They are in essence counterfeiting stock. They are flooding the markets with phantom shares-phony supply that drives down prices.

    In this case, they are driving down Facebook's share price.

    This practice has been exposed by (among others) a Bloomberg News article and an excellent and informative documentary titled Phantom Shares, an Economist magazine article, and the magazine story of Matt Taibbi, Rolling Stone's highly respected financial journalist. In every case, these media outlets described naked short selling as being the equivalent of counterfeiting stock. Moreover, they have all stressed that the creation of this "phantom stock" has done massive damage to share prices and has often destroyed the companies that were targeted.

    Mr. Zuckerberg, Facebook has been and is being targeted. More than that, "your" company has become the premier "target de jour," and you need to do something to protect both your company and your investors. To date Facebook shares have been cut in half since the IPO and the market-cap is down $40 billion in 90 days.

    I highly recommend that you contact Patrick Byrne, CEO of internet retailer Overstock.com Inc. (OSTK). His company was attacked by naked short sellers and since then he has become an expert on this illegal practice. He has filed one lawsuit (which was settled before going to trial) against a short seller who was using other tactics to drive down OSTK's share price, and has filed another lawsuit against prime brokers who were facilitating naked short selling for their clients. Discovery in the lawsuit against the prime brokers yielded documentary evidence (cited in stories by Rolling Stone, Bloomberg Newswires, and others) that the brokers were "failing to deliver" stock because it had been naked shorted. That is to say, the traders did not borrow stock and in fact did not have stock before they sold it. They "failed to deliver" the stock because they were selling counterfeited phantom shares.

    Not only will a few moments' conversation with Mr. Byrne educate you about the practice of naked short selling and help you to understand the damage that it has done to your company and many others as well; once you become familiar with the practice, you might be motivated to do a great service by helping to inform the wider public about this problem. No one has a better platform than you for getting an important message to the public.

    Given the full-scale onslaught by Wall Street against Facebook (NASDAQ:FB), it is essential that you come to understand this crime and become a leader in the fight to stop it. You have built a fabulously successful company and you need to do what you can to protect it. In addition, you have established yourself as a leader-and your leadership is needed to help others who are being hurt by this crime.

    Once you become familiar with the problem, I think you will understand the need to educate regulators at the SEC who have failed to prevent the crime. You will also learn that other important organizations, such as the DTCC, have facilitated the criminal practice. Both the SEC and the DTTC have, to some extent, allowed themselves to become beholden to outfits like Goldman Sachs Group Inc. (GS), Bank of America (BAC), and JP Morgan (JPM), which profit extensively from naked short selling and spend large sums on lobbying efforts that have had some success in convincing regulators to look the other way.

    Central to this theme is that the DTCC-the quasi-regulator responsible for ensuring that stock sold short is not phantom stock, and that the stock does not "fail to deliver"-is owned by the banks and brokers that are doing the naked short selling.

    See this DTCC page that makes clear that the rules are for the benefit of the broker-dealers, not for the benefit of the investing public.

    It is not just companies that are affected by naked short selling. The investing public-average Americans-have lost billions to this practice. As average Americans have begun to learn more about the crime, some have begun to call on officials in Washington to address the problem, but their voices alone are not enough. Many victims have yet to be sufficiently educated about the problem to effectively speak out.

    I have been writing about the unlawful practice of naked short selling for over 10 years and I have watched it needlessly destroy many companies and harm countless investors. The more companies that fight back, the better-and FaceBook could / should be the new poster child for the fight against this prohibited, dishonest, and illegal practice.

    To date, the penalties dished out by the courts and regulatory bodies have been token hand slaps. They are what I like to call "Fines for Crimes." And the legal teams from the major investment banks are formidable and they can string out litigation for decades. Indeed, this is precisely what they have done.

    When traders on Wall Street plunder, they do not use a gun. It is easy for people to understand a mugger with a gun, but the crimes of Wall Street are more difficult to understand and they are often perpetrated without attracting the attention that they deserve. Too many investors do not even realize that they have been robbed, their investments wiped out. This is especially true in cases of naked shorting.

    Although media outlets like the Economist, Bloomberg, and Rolling Stone have brought attention to the problem of naked short selling, generally the media has not done enough. However, a documentary film on the subject has now been made. Here's a short clip.

    There are many who know that Facebook has been targeted by naked short selling, and that is in part why some well known investors such as Mark Cuban have abandoned their interest in your company. A growing number of investors believe you can't fight the big boys on Wall Street. But they are wrong. You have the platform to fight back, and you can make a big difference.

    As I noted, I have been in this slog for a long time, and many others have been waging the battle as well. But for the naked short sellers it has been business as usual, and the regulators whose job is to protect investors have let us down.

    Now it is your company-Facebook-that is under attack. It is your investors who are getting hurt. But this time is different in one respect. Facebook is considered by many people to be not just a company, but a new American icon. The people who use Facebook consider themselves to be part of it. They are an enormous community of 995 million active users, and if they were to know that Facebook were under this illegal and destructive attack, maybe they would voice their objections, and perhaps their collective voice would be heard. This is an opportunity like never before to spread the word.

    But even your voice alone would make a big difference. Because you are the face of Facebook, you are in a unique position to help tackle a problem that has caused immense damage to companies, the markets, investors, and the American economy.

    It is with considerable hope that I (on behalf of thousands of others) now ask you to stand up and fight.

    Contributing to an already bad technical situation, on Thursday Facebook freed up 271 million of its shares, as a 'lockup expired for early investors adding 60% the number of shares that could be traded adding to concerns that have weighed on the stock since the company's initial public offering. The FB shares sold off 6% and closed at new lows of $19.87. On Friday it closed down another 4.13% at $19.05 hugely down from its IPO opening price of $42.05. Wall Street's naked shorts considers this to be a free shot-a chance to steal; they yell "Fire!," and like a machine gun they shoot out sell tickets in an avalanche to overwhelm the natural buyers. That's right; they steal by driving the price of the stock down and cover on the sale of these shares as the longs throw in the towel. While this "bear raid" is an old practice, now with computer driven sell programs it's like swimming against the torrent of Niagara Falls.

    Left unchecked, Wall Street will continue the practice of the naked short attack and drive the stock as far down as possible to make the sellers sell at lowest possible price. They will do all they can to create panic in the market; indeed, obviously the well-crafted panic has already set in. Moreover, the shorts will plant negative stories about Facebook in the financial media, throwing more gasoline on the fire and driving the stock still lower. As I'm sure you know, some are even calling for your removal as CEO.

    So to Mr. Zuckerburg-and to all your young co-workers, and to all the investors who believe in Facebook-a grand welcome to the very tawdry world of Wall Street. You can continue to stand by and watch this happen over and over again, or you can play a major, even decisive role in stopping this singularly brazen heist.

    Mr. Zuckerburg, it is your call.

    One more lick: Is it any wonder that the investment public is abandoning the stock market? As the New York Times recently reported: "Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group."

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: BAC, GS, JPM, FB
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