How To Fight Naked Short Selling:
http://investorprotectioncoalition.org/Corpdefenses.html
Defensive Actions For Companies And Share Holders
When naked short sellers strike and manipulate your stock price and attack your company, the most
important step is to decide to do something quickly and defend your interests - avoid doing nothing.
1. Stand up and Defend Your Reputation, Employees, Customers, Securities and Investors
It seems only too logical that when you are attacked, that you defend yourself. Unfortunately, the vast
majority of executives and their board of directors decide to do nothing. Perhaps it is because they do not
fully understand how the markets work and how the manipulators can do what they do - that's our hunch.
Most executives are honest hard working people and think that if they just run their business correctly, that
the financial results will speak for themselves and that the securities markets will respond accordingly.
Even the SEC and their staff don't seem to understand that by being complacent, they are allowing the
short sellers to run amok. Jim Cramer put it fairly well in this short article. Since the regulators won't help
you, you need to help yourself.
Those who have targeted you and attack your shares love a complacent attitude, because it makes it
easier for them to tear down their targets, without resistance and thus succeed in reaching their goal. It's
also true that these manipulators usually know far more about the securities markets than the executives
of the companies they are attacking. The manipulators also have the advantage in that they know what
they intend to do in advance, while the executives do not know what's coming.
The executives, because they usually do not fully understand these manipulation schemes in the
securities markets do not take the threat to their companies as seriously as they should. Not only can
rumors and false or misleading reports cause great damage to their reputations and increase the cost and
access to capital, but they can overwhelme buyers by manipulating and creating selling pressure with the
leverage that short sellers can bring to bear, especially via settlement failures.
Not only are the funds that are brought to bear in attacks usually very large, oftentimes even larger than
the market cap of the attacked issuers themselves, but they can get away with violating rules that are in
place to protect investors and issuers because they know certain important ones will not be enforced. Most
important are the violations to the settlement rules. By violating settlement rules and creating
settlement failures, the manipulators can force the price downward at will. Regulators simply will not
enforce these rules. That's just the way it is.
See the section in this Website as to the rules on the books that are not being enforced. The most
important thing to know is that the attackers can sell unlimited amounts of your securities without delivering
them or having them on hand, borrowed or located. While this is happening, there is almost nothing you
can do to stop it. But you can respond after the attacks have started.
It seems to us that those issuers that do nothing are almost always plowed under by the manipulators or
are oftentimes permanently damaged. Those that prominently stand up and at least try to do something
seem to have a better chance. The most vocal of the issuers under obvious attack, Overstock.com, has
been able to claw its way back and stabilize its share price. We suggest issuers that are under attack by
illegal short sellers, that is any issuers that are on the REG SHO threshold list or otherwise have evidence
that their shares are being manipulated by short sellers, learn from the past actions of other issuers who
have defended themselves and been through this already.
So what can issuers do? You can file a lawsuit and go straight to number #6 below, and also do one or
several of the following:
2. Publicly Expose The Price Manipulation
The best thing you can do as soon as possible, is to bring this out into the public light and publicly expose
and explain what is really happening. Otherwise the short sellers and their agents will frame the mystifying
market activity in a way that is beneficial to them and harmful to you. This is a battle for your survival,
make no mistake. Do not underestimate the resources, craftiness, patience and determination that will be
deployed against you. They will be considerable.
Bringing the battle out into the public light makes things more difficult for the illegal manipulators for
several reasons and forces them to expend more resources. And not only can you pacify customers,
employees and investors by dragging this out into the open, but you show you are aware of the issue and
are acting to protect them.
PR Release
A first response may be a simple PR that says that you have become aware that there are "fails to deliver"
and possibly "fails to receive" securities distorting the market in your securities harming you, your
employees and investors and that you will be looking into the matter and taking appropriate action to clear
out the market in your securities of these illegal and harmful securities.
Depending on how detailed you want your response to be, you can end it there or continue by stating that
you will do all possible to ensure that, in the market for your securities, the delivery of securities sold
occurs per the mandatory settlement date delivery requirement in the settlement cycle rule, 15c6-1 and
that you will do all possible to ensure that state corporate and state securities laws are not violated. You
can state that recent activity and data indicate that the market in your securities is being distorted and
manipulated by violating federal and/or state laws. Do not use the term T+3.
3. File Lawsuits Against Those Releasing False Reports
If there are any false reports being released about your company, which you think is deliberate and
harmful to you, do not hesitate to sue those responsible immediately. The sources can be analysts,
brokerage firms and TV or print journalists. Check with legal counsel on how to proceed. If you doubt that
journalists and analysts are in cahoots with illegal short sellers, please see the names named at
Deepcapture.com in the articles written there showing the hard proof and connections. Please also see
the Fairfax lawsuit, that reads more like a novel and also the Overstock lawsuit against an analyst firm
releasing false information in cahoots with a hedge fund - Rocker Partners.
4. File Complaints With Regulators
File official complaints with the SEC, FINRA, the CBOE (if options are traded on your security) and
whatever exchange SRO your shares trade on, signaling that the settlement date delivery
requirement in 15c6-1 is being violated in the market of your securities by someone and ask that the
violators be identified and punished and 15c6-1 be enforced. Don't take the explanation that REG SHO
regulates "fails", when 15c6-1 already makes them all illegal. Settlement failures are never legal. In
addition to violating rule 15c6-1, mention that as a consequence of violating the settlement rule 15c6-1,
the rules below are also being violated:
1. Section 9 of the Securities Exchange Act of 1934, prohibition on appearance of trades
2. SEC Rule 15c3-3, the customer protection rule
3. Section 17A of the 1934 SEA, accurate settlement and clearing
4. Section 6(b)(5) of the Securities Exchange Act of 1934, prohibition on discrimination against investors
and issuers
5. UCC 8-501 Securities Accounts
Keep riding these federal authorities as they'll delay and make false promises to you. Later it will be shown
that you exhausted your options through the authorities. If it takes longer than they promise to do and
finish an investigation or otherwise lie to you, call the Inspector General of the SEC, the Department of
Justice and your political representatives about possible illegal personal behaviour that is harming you and
the failures to enforce settlement laws, allowing the manipulation of securities.
You should also contact and file a complaint with your state securities regulator and NASAA, claiming that
state securities laws are being violated regarding the manipulation, delivery and misleading statements,
etc....regarding your securities. Cite the violation to UCC section 8-501 (see UCC analysis),
5. Demand Securities in Certificate Form
Skip this step and go to the next if you do not have confidence that the majority of your shareholders can
act in a concerted and coordinated fashion.
Do not even try to smoke out the illegal short sellers with things like paying out cash or non cash
dividends, trying to register all beneficial owners, etc.....why? Because those exercises, while interesting
and may yield some useful information, generally is a waste of resources and time.
One strategy that could be very effective is a so called certificate pull. That is if all or at least a large
percentage of investors in your security simultaneously demand that the securities you have issued and
that they have purchased through brokers be delivered to them in physical form by their brokers. This
should only be considered if you are confident that you can communicate with a very large percentage of
the share holders and that all are on the same page and that you can all act as one to the end.
This is mandatory, because there will be several steps that all will have to cooperate with to make this
strategy effective. All share holders will need to act as one. When it becomes obvious that the brokers can
not deliver the physical certificates in the numbers that they should to all share holders, a lawsuit in state
court needs to be filed by those not receiving physical certificates. The others who did receive physical
certificates would need to disclose to the plaintiffs the numbers of certificates they did receive, so an
aggregate tally can be kept and shown as proof. If your security is a pink sheet or otherwise a non NMS
security, proving wrongdoing is even easier as none of these types of securities are permitted to be lent
out per REG T of the FED. The short interest should be zero and there should not be any "fails to receive"
or "securities entitlements" reflecting unsettled securities or IOUs of any kind.
Plaintiffs
Those not receiving their securities in physical form
Defendants
The brokers of the above, who do not or can not deliver the securities in physical form
Cause of Action
The violation of state laws and the UCC that control the form of securities and that confer on all investors
the right to demand their securities in physical form. Brokers can not deny this right, even if
customer/brokerage account agreement explicitly say they are not entitled to physical certificates.
We suggest that the number of plaintiffs be less than class action size in order to allow the lawsuit to
remain in state court, as all class actions regarding securities are automatically moved to federal courts. A
lawsuit filed to compel delivery of physical certificates should be filed in conjunction with a second separate
lawsuit in state court that includes you the issuer as plaintiff alleging violations to state laws and seeking
damages. See below.
But you may want to consider and discuss with legal counsel if you want to include all damaged
shareholders in the lawsuits, making this a class action lawsuit after all. The disadvantage is that the
process is slower and gets heard in federal court, even if the causes of action are state laws. This decision
should be a strategic one.
6. Strongly Recommended Lawsuit in State Court
Any issuer or share holder groups can go directly to this step as a first action of defense and skip the
others above. Ultimately, this fourth and last step is mandatory if you really wish to wipe out the "fails" and
price manipulation from the market in your securities. It is very powerful and the legal trail has already
been blazed for you by others. Please feel free to email us to discuss, coordinate and assist you in any of
this.
What not to do
As background, it is important to understand, that suing the SEC and SROs is a waste of time, because
they have legal immunity to a great extent and that is not a promising path. However, state laws have just
as strong an effect on securities and in protecting investors and issuers as the federal laws and rules do.
The U.S. Congress explicitly left certain areas of securities regulation to the states. Since on the federal
level, the SEC and SROs are apparently deliberately not enforcing federal laws and rules and are coming
to the aid of defendants in federal lawsuits via testimony and Amicus Briefs, we should side step that arena
entirely and apply state laws to the violators.
What to do - sue the broker-dealers
Novastar share holders and Overstock.com the corporation, have blazed the trail already, creating
case law along the way by suing the prime brokers. All you really have to do is file a copy cat lawsuit in
California state court to get you to discovery. The Novastar shareholders filed their case first in 2006 and
Overstock.com followed a bit later with a basically identical lawsuit. Both have now been consolidated into
one as the nature, course of action and the defendants are identical in both cases. These lawsuits were
filed in California state court with California state laws as causes of action. A copy of the original filing can
be downloaded here: Novastar Shareholder filing
The Defendants moved the case to federal courts, but were not successful in keeping it there as the
federal court remanded the case back to the California state court : Case back to Ca State Court. The
defendants then petitioned the California Supreme court, which also ruled against them in denying to
review the case: Novastar Answer to Petition Request. The petition for review, that the defendants
requested, was denied by the California Supreme Court on 4/30/2008, paving the way for discovery to
begin, which is now ongoing. As of 4/17/2009 the claims under Code § 25400 have survived all challenges
by the defendants.
If the cases are filed in California, you can claim violations of the:
California Corporations Code § 25400, and (2) unfair business practices in violation of California Business
& Professions Code § 17200 and §17500.
In addition, you can claim violations to the California Blue Sky laws governing Delivery § 8301, those
governing securities accounts § 8501, obtaining and maintaining the contracted securities § 8504, false
statements § 25401 and those addressing manipulation § 25216
---
original post courtesy of olandug
http://investorprotectioncoalition.org/Corpdefenses.html
Defensive Actions For Companies And Share Holders
When naked short sellers strike and manipulate your stock price and attack your company, the most
important step is to decide to do something quickly and defend your interests - avoid doing nothing.
1. Stand up and Defend Your Reputation, Employees, Customers, Securities and Investors
It seems only too logical that when you are attacked, that you defend yourself. Unfortunately, the vast
majority of executives and their board of directors decide to do nothing. Perhaps it is because they do not
fully understand how the markets work and how the manipulators can do what they do - that's our hunch.
Most executives are honest hard working people and think that if they just run their business correctly, that
the financial results will speak for themselves and that the securities markets will respond accordingly.
Even the SEC and their staff don't seem to understand that by being complacent, they are allowing the
short sellers to run amok. Jim Cramer put it fairly well in this short article. Since the regulators won't help
you, you need to help yourself.
Those who have targeted you and attack your shares love a complacent attitude, because it makes it
easier for them to tear down their targets, without resistance and thus succeed in reaching their goal. It's
also true that these manipulators usually know far more about the securities markets than the executives
of the companies they are attacking. The manipulators also have the advantage in that they know what
they intend to do in advance, while the executives do not know what's coming.
The executives, because they usually do not fully understand these manipulation schemes in the
securities markets do not take the threat to their companies as seriously as they should. Not only can
rumors and false or misleading reports cause great damage to their reputations and increase the cost and
access to capital, but they can overwhelme buyers by manipulating and creating selling pressure with the
leverage that short sellers can bring to bear, especially via settlement failures.
Not only are the funds that are brought to bear in attacks usually very large, oftentimes even larger than
the market cap of the attacked issuers themselves, but they can get away with violating rules that are in
place to protect investors and issuers because they know certain important ones will not be enforced. Most
important are the violations to the settlement rules. By violating settlement rules and creating
settlement failures, the manipulators can force the price downward at will. Regulators simply will not
enforce these rules. That's just the way it is.
See the section in this Website as to the rules on the books that are not being enforced. The most
important thing to know is that the attackers can sell unlimited amounts of your securities without delivering
them or having them on hand, borrowed or located. While this is happening, there is almost nothing you
can do to stop it. But you can respond after the attacks have started.
It seems to us that those issuers that do nothing are almost always plowed under by the manipulators or
are oftentimes permanently damaged. Those that prominently stand up and at least try to do something
seem to have a better chance. The most vocal of the issuers under obvious attack, Overstock.com, has
been able to claw its way back and stabilize its share price. We suggest issuers that are under attack by
illegal short sellers, that is any issuers that are on the REG SHO threshold list or otherwise have evidence
that their shares are being manipulated by short sellers, learn from the past actions of other issuers who
have defended themselves and been through this already.
So what can issuers do? You can file a lawsuit and go straight to number #6 below, and also do one or
several of the following:
2. Publicly Expose The Price Manipulation
The best thing you can do as soon as possible, is to bring this out into the public light and publicly expose
and explain what is really happening. Otherwise the short sellers and their agents will frame the mystifying
market activity in a way that is beneficial to them and harmful to you. This is a battle for your survival,
make no mistake. Do not underestimate the resources, craftiness, patience and determination that will be
deployed against you. They will be considerable.
Bringing the battle out into the public light makes things more difficult for the illegal manipulators for
several reasons and forces them to expend more resources. And not only can you pacify customers,
employees and investors by dragging this out into the open, but you show you are aware of the issue and
are acting to protect them.
PR Release
A first response may be a simple PR that says that you have become aware that there are "fails to deliver"
and possibly "fails to receive" securities distorting the market in your securities harming you, your
employees and investors and that you will be looking into the matter and taking appropriate action to clear
out the market in your securities of these illegal and harmful securities.
Depending on how detailed you want your response to be, you can end it there or continue by stating that
you will do all possible to ensure that, in the market for your securities, the delivery of securities sold
occurs per the mandatory settlement date delivery requirement in the settlement cycle rule, 15c6-1 and
that you will do all possible to ensure that state corporate and state securities laws are not violated. You
can state that recent activity and data indicate that the market in your securities is being distorted and
manipulated by violating federal and/or state laws. Do not use the term T+3.
3. File Lawsuits Against Those Releasing False Reports
If there are any false reports being released about your company, which you think is deliberate and
harmful to you, do not hesitate to sue those responsible immediately. The sources can be analysts,
brokerage firms and TV or print journalists. Check with legal counsel on how to proceed. If you doubt that
journalists and analysts are in cahoots with illegal short sellers, please see the names named at
Deepcapture.com in the articles written there showing the hard proof and connections. Please also see
the Fairfax lawsuit, that reads more like a novel and also the Overstock lawsuit against an analyst firm
releasing false information in cahoots with a hedge fund - Rocker Partners.
4. File Complaints With Regulators
File official complaints with the SEC, FINRA, the CBOE (if options are traded on your security) and
whatever exchange SRO your shares trade on, signaling that the settlement date delivery
requirement in 15c6-1 is being violated in the market of your securities by someone and ask that the
violators be identified and punished and 15c6-1 be enforced. Don't take the explanation that REG SHO
regulates "fails", when 15c6-1 already makes them all illegal. Settlement failures are never legal. In
addition to violating rule 15c6-1, mention that as a consequence of violating the settlement rule 15c6-1,
the rules below are also being violated:
1. Section 9 of the Securities Exchange Act of 1934, prohibition on appearance of trades
2. SEC Rule 15c3-3, the customer protection rule
3. Section 17A of the 1934 SEA, accurate settlement and clearing
4. Section 6(b)(5) of the Securities Exchange Act of 1934, prohibition on discrimination against investors
and issuers
5. UCC 8-501 Securities Accounts
Keep riding these federal authorities as they'll delay and make false promises to you. Later it will be shown
that you exhausted your options through the authorities. If it takes longer than they promise to do and
finish an investigation or otherwise lie to you, call the Inspector General of the SEC, the Department of
Justice and your political representatives about possible illegal personal behaviour that is harming you and
the failures to enforce settlement laws, allowing the manipulation of securities.
You should also contact and file a complaint with your state securities regulator and NASAA, claiming that
state securities laws are being violated regarding the manipulation, delivery and misleading statements,
etc....regarding your securities. Cite the violation to UCC section 8-501 (see UCC analysis),
5. Demand Securities in Certificate Form
Skip this step and go to the next if you do not have confidence that the majority of your shareholders can
act in a concerted and coordinated fashion.
Do not even try to smoke out the illegal short sellers with things like paying out cash or non cash
dividends, trying to register all beneficial owners, etc.....why? Because those exercises, while interesting
and may yield some useful information, generally is a waste of resources and time.
One strategy that could be very effective is a so called certificate pull. That is if all or at least a large
percentage of investors in your security simultaneously demand that the securities you have issued and
that they have purchased through brokers be delivered to them in physical form by their brokers. This
should only be considered if you are confident that you can communicate with a very large percentage of
the share holders and that all are on the same page and that you can all act as one to the end.
This is mandatory, because there will be several steps that all will have to cooperate with to make this
strategy effective. All share holders will need to act as one. When it becomes obvious that the brokers can
not deliver the physical certificates in the numbers that they should to all share holders, a lawsuit in state
court needs to be filed by those not receiving physical certificates. The others who did receive physical
certificates would need to disclose to the plaintiffs the numbers of certificates they did receive, so an
aggregate tally can be kept and shown as proof. If your security is a pink sheet or otherwise a non NMS
security, proving wrongdoing is even easier as none of these types of securities are permitted to be lent
out per REG T of the FED. The short interest should be zero and there should not be any "fails to receive"
or "securities entitlements" reflecting unsettled securities or IOUs of any kind.
Plaintiffs
Those not receiving their securities in physical form
Defendants
The brokers of the above, who do not or can not deliver the securities in physical form
Cause of Action
The violation of state laws and the UCC that control the form of securities and that confer on all investors
the right to demand their securities in physical form. Brokers can not deny this right, even if
customer/brokerage account agreement explicitly say they are not entitled to physical certificates.
We suggest that the number of plaintiffs be less than class action size in order to allow the lawsuit to
remain in state court, as all class actions regarding securities are automatically moved to federal courts. A
lawsuit filed to compel delivery of physical certificates should be filed in conjunction with a second separate
lawsuit in state court that includes you the issuer as plaintiff alleging violations to state laws and seeking
damages. See below.
But you may want to consider and discuss with legal counsel if you want to include all damaged
shareholders in the lawsuits, making this a class action lawsuit after all. The disadvantage is that the
process is slower and gets heard in federal court, even if the causes of action are state laws. This decision
should be a strategic one.
6. Strongly Recommended Lawsuit in State Court
Any issuer or share holder groups can go directly to this step as a first action of defense and skip the
others above. Ultimately, this fourth and last step is mandatory if you really wish to wipe out the "fails" and
price manipulation from the market in your securities. It is very powerful and the legal trail has already
been blazed for you by others. Please feel free to email us to discuss, coordinate and assist you in any of
this.
What not to do
As background, it is important to understand, that suing the SEC and SROs is a waste of time, because
they have legal immunity to a great extent and that is not a promising path. However, state laws have just
as strong an effect on securities and in protecting investors and issuers as the federal laws and rules do.
The U.S. Congress explicitly left certain areas of securities regulation to the states. Since on the federal
level, the SEC and SROs are apparently deliberately not enforcing federal laws and rules and are coming
to the aid of defendants in federal lawsuits via testimony and Amicus Briefs, we should side step that arena
entirely and apply state laws to the violators.
What to do - sue the broker-dealers
Novastar share holders and Overstock.com the corporation, have blazed the trail already, creating
case law along the way by suing the prime brokers. All you really have to do is file a copy cat lawsuit in
California state court to get you to discovery. The Novastar shareholders filed their case first in 2006 and
Overstock.com followed a bit later with a basically identical lawsuit. Both have now been consolidated into
one as the nature, course of action and the defendants are identical in both cases. These lawsuits were
filed in California state court with California state laws as causes of action. A copy of the original filing can
be downloaded here: Novastar Shareholder filing
The Defendants moved the case to federal courts, but were not successful in keeping it there as the
federal court remanded the case back to the California state court : Case back to Ca State Court. The
defendants then petitioned the California Supreme court, which also ruled against them in denying to
review the case: Novastar Answer to Petition Request. The petition for review, that the defendants
requested, was denied by the California Supreme Court on 4/30/2008, paving the way for discovery to
begin, which is now ongoing. As of 4/17/2009 the claims under Code § 25400 have survived all challenges
by the defendants.
If the cases are filed in California, you can claim violations of the:
California Corporations Code § 25400, and (2) unfair business practices in violation of California Business
& Professions Code § 17200 and §17500.
In addition, you can claim violations to the California Blue Sky laws governing Delivery § 8301, those
governing securities accounts § 8501, obtaining and maintaining the contracted securities § 8504, false
statements § 25401 and those addressing manipulation § 25216
---
original post courtesy of olandug
