In the aftermath of the 1929 to 1932 stock market crash, and the ensuring Great Depression, the Democratic administration of Franklin Delano Roosevelt and Congress created the Securities and Exchange Commission, and the U.S. Banking act of 1933, commonly known as the Glass-Steagal Act.
The regulatory power of the SEC, along with the structural reforms of Glass-Steagal , kept the United States from experiencing anymore substantial financial meltdowns until the 1980s, when the Republican administration of Ronald Reagan began systematically deregulating the entire financial sector.
Wall street gained immense power and wealth from the securitization of America's ballooning debts. They used that wealth and power to continually lobby legislators for greater deregulation, and won it, even under the Democratic administration of William Jefferson Clinton.
SEC Rule 10a-1, commonly known as the short sale uptick rule, went into effect in 1938, and was eliminated in 2007. The SEC defined and summarized Rule 10a-1: " ..... Short sales were not permitted on minus ticks or zero-minus ticks"
This article will explore how the deregulation of the short selling uptick rule is aiding stock market manipulation, which is still a criminal violation. Specifically, I will focus on the recent dramatic declines in the shares of Advanced Micro Devices
Stock Market Manipulation
Market manipulation is still prohibited in the United States under Section 9(a)2 of the Securities and Exchange Act of 1934.
Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market, and create artificial, false, or misleading appearances with respect to the price of, or market for, a security, commodity, or currency.
How aggressive short selling aids in creating artificial, false, and misleading appearances
When a stock declines dramatically, investors can become alarmed, and start looking for reasons.
Wall Street manipulators can cause a dramatic decline in an individual stock by aggressively shorting a stock on minus ticks. The uptick rule was instituted by the SEC in 1938, to prevent against this type of market manipulation.
Unfortunately, now that the uptick rule has been deregulated out of existence, Wall Street manipulators have been returning to one of their old tactics for fleecing investors.
As the cost of a stock transaction has become de minimis, many investors feel they should trade more actively and use commodity tactics, such as stock loss orders, to prevent large losses.
Wall street manipulators use the stock loss orders to their advantage, by deliberately manipulating a stock down, so that those orders become market sells. The manipulators can then take quick profits by filling the market sell orders, thereby covering their shorts. Then, the stock manipulators can again start a new round of aggressive short selling, to further artificially depress the stock price, and set off a new round of stock loss orders.
Part of the SEC rule against market manipulation deal with Pools
Pools are defined as: "Agreements among a group of traders to delegate authority to a single manager to trade in a specific stock for a specific period of time, and then to share in the resulting profits or losses."
Traders at large and powerful sell side firms, such as Goldman Sachs, and their best clients, multi-billion $$ hedge funds, do not require formal agreements to conspire to manipulate a stock. Traders can use difficult to trace "throw away" mobile phones to communicate during one of their manipulations.
Is Goldman Just a Big Hedge Fund?
The above was the title of an article in the Wall Street Journal, written by Stephen Grocer.
The article has some excerpts from a PBS NEWSHOUR tonight show.
The most interesting quote is from Nomi Prins, a former Goldman Sachs trading strategist, who at the time was a fellow at Demos, a progressive think tank.
Nomi Prins: "the classical investment banking function is a very small portion of their revenues. I think it's about 10% or so. So if he's doing God's work he's only doing it at 10% capacity."
Narrator Paul Solman: "Most of the rest, says Prins, is so-called "proprietary" trading, for the firm's own profit, rather than its clients'.
Nomi Prins: "They're a trading house. They can talk about being an investment bank and doing God's work and helping raise financing for companies and all of that, but in the scheme of things they do very little of that."
The reason I am focusing on Goldman Sachs, is because they have been the most vocal sell side firm that has been strongly advising clients to short the stock of AMD.
It is well known that at least one of the recent significant and precipitous declines in AMD's shares was caused by Goldman Sachs. I consider Goldman Sachs to be the "ringleader" in the recent stock manipulation of AMD.
Misleading statement by the media and Wall street analysts about AMD
The Wall Street consensus for AMD's Q3 earnings was 2 cents, while the consensus for Q4 sales was $1.49 billion, prior to actual announcement from AMD. AMD earned 4 cents from operations, and guided to sales of $1.53 billion for Q4.
Yet early the next morning CNBC commentator Jim Cramer, and former Goldman Sachs broker, referred to AMD s earnings as a big miss on TV. Clearly, AMD's earnings nor its guidance was a miss.
What was impressive about the AMD report was that despite the PC division sales being less than expected, the new businesses at AMD more than compensated, with total sales and earnings beating consensus expectations.
Cabal of AMD short sellers with large incentive to manipulate AMD shares
Anybody who understands Wall Street knows that the spreading of false information is a tactic employed by those who engage in stock manipulation, from the earliest days.
With Wall Street short over 100 million shares before the AMD earnings report, there was a large incentive to "paint" the tape, and spread false information, to drive AMD shares down.
If global investors were given the impression that AMD's quarterly report and guidance was positive, short sellers could have suffered significant losses in the ensuing trading sessions.
What would have happened if the media reported the truth, without aggressive short selling?
What if the headline was: "AMD revenues up 26%, beats consensus earnings expectations, from surging new business sales" ?
What if the criminals on Wall Street had been kept at bay, by the old short sale uptick rule, so they could not beat down AMD shares in the thin aftermarket hours trading on Thursday?
While the SEC and the Dept. of Justice are busy collecting $13 billion from the criminals at J.P. Morgan, Goldman Sachs and their hedge fund brethren are still busy manipulating security prices, so they can book trading profits.
Anybody who has read extensively about Wall Street, especially how the biggest firms deliberately misled the world concerning the subprime mortgages they peddled as AAA, fully understands that lying and manipulation have become the status quo.
Unfortunately, Wall Street traders are taught only to focus on very short term profits, and not on the consequences of their actions for the long term.
The US financial markets are the lifeblood of our capital system. The US capital markets allows a couple guys in a garage to turn their hard work into an Intel (NASDAQ:INTC), Hewlett-Packard (NYSE:HPQ), Apple (NASDAQ:AAPL) , Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), etc., etc.,
If we dismantle the laws that keep Wall Street criminals from turning US financial markets into a charade, then we will all continue to suffer the consequences.
While the short term manipulation of AMD's share price will not harm the hard working employees of AMD, who are focused on creating long term shareholder value, it does help destroy the faith of investors in our system.
Market manipulation does not help the capital formation process.
Market manipulation aids criminals, and hurts the American system.
I wrote this article with the hope that some regulator, legislator, or concerned citizen will speak up, the next time the rich and powerful on Wall Street decry financial regulation.
I wrote this article to call out all those dishonest, greedy, and corrupt people who are aiding and abetting the criminals on Wall Street. You know who you are... and so do I.
Last but not least, I wrote this article for AMD's long term shareholders, and hard working employees.
Disclosure: I am long AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.