GLKCE Naked Horror--oldie but goodie
https://www.forbes.com/2006/08/25/naked-short...63d128400b
Suspicious trading last year in shares of Global Links, a small Nevada real estate holding company, was far more intense than previously thought.
New data from the U.S. Securities and Exchange Commission reveals trade settlement fails in early February 2005 that were 27 times greater than the total number of shares Global Links had issued at the time. The data show suspicious trading in Global Links far earlier and to a far larger degree than any previously released by the SEC.
The data was obtained this week by a Freedom of Information Act request from David Patch, an outspoken critic of the SEC and an active participant in the drive for reform of market regulations and enforcement.
It was posted on anti-naked-short-selling blogs Thursday night, igniting a fresh round of calls for a special prosecutor to investigate claims of market manipulation by aggressive short-sellers. This comes as the SEC is working to close loopholes and otherwise strengthen its trading regulations.
An SEC spokesman had no comment on the data, which showed Global Links trade fails totaling 27.3 million shares on Feb. 4, coinciding with the first day that Feb. 1 trades should have settled. They were 23 million the next day and tapered off from there.
Data released to Patch earlier this month had shown trade fails of 10 million shares starting in mid-April, a time when 4 million shares of Global Links were issued and outstanding.
Questionable trading activity was not lost on Global Links Chief Executive Frank Dobrucki, who told shareholders in March 2005 that he believed there was fraud occurring. Without the reverse split and the events that came after it, "we may never have discovered how blatantly our stock was being abused."
Global Links owns a development in Arizona and office property in Las Vegas. Dobrucki says, "We have millions of dollars in real estate assets. We are not going to fall apart."
The broader issue is so-called naked short-selling. Normally, a trader looking to sell a stock short must borrow or at least identify a share to borrow before making the sale trade. But naked short-sellers don't borrow the shares, and manipulative naked short-sellers use the tactic to drive a stock into the ground.
Stock transactions are supposed to settle within three days, and if the shares fail to be delivered to the buyer, that failure is reported to the SEC and to the national stock markets, which keep track of repeated trade failures. Large and persistent failed trades in a stock can be a sign that something is amiss.
The Global Links matter came up briefly in a Senate Banking Committee hearing in March 2005, when Sen. Robert Bennett, R-Utah, told then SEC Chairman William Donaldson that his constituents, among them Internet retailer Overstock.com , had complained that a new regulation designed to curb abusive trading was not working.
That regulation, called Reg SHO, went into effect in January 2005 and was supposed to impose strict close-out requirements on stocks that showed consistent and frequent settlement failures over a specific period of time. But even the SEC has admitted that companies have remained on the SHO list for far longer than the rule was intended, an indication it has been less than effective.
Current SEC Chairman Christopher Cox acknowledged this practice in July when he put out for comment proposed amendments to Reg SHO. Large and persistent failures can be "indicative of manipulative short-selling," the SEC said. Well more than 120 public comment letters are now posted on the SEC Web site.
Reformers like Patch have demanded that regulators and market operators do their jobs of enforcing existing rules and have expressed exasperation about seemingly lax oversight. They point to a July enforcement action by the New York Stock Exchange's regulation division against four brokers, including Daiwa Securities, Goldman Sachs , Citigroup and Credit Suisse, for failing to have adequate Reg SHO Compliance in place.
"Regulation SHO is an important federal securities rule meant to protect the market and investors from short-sale abuses," said Susan L. Merrill, chief of enforcement, NYSE Regulation in a press release. "As these cases demonstrate, firms that fail to enact effective procedures and systems by the compliance date threaten to undermine the important policies served by this rule."
Despite the tough talk, the collective fines imposed were $1.25 million.
Other "large and persistent" failures have been reported in shares of Overstock.com, Netflix , Martha Stewart Omnimedia and Novastar Financial , all of which have been on Reg SHO lists practically since the beginning. Global Links calculates that it's been on the list for 556 days as of the end of last week.
Global Links was caught off guard by the events that transpired in February 2005 when it implemented a one-for-350 reverse split of its stock, the result of which would reduce its float from 350 million shares to 1.1 million.
The reverse split went into effect Feb. 1. In the first four days of trading, more than 143 million shares traded hands. This is despite the fact that the stock was trading under a new ticker and a new trade tracking number, and despite the fact that it had only 1.1 million shares issued. The Depository Trust & Clearing Corp., which handles the lion's share of U.S. stock settlement, had just 929,277 shares available for trading.
Global Links stock, which in theory should have risen, dropped to .08 cents from 10 cents within hours. "It became very clear that we had no control of the volume or price of our stock in anyway," said Global Links' Dobrucki, in a March 15, 2005, letter to shareholders. "Outside forces were now manipulating our stock."
Stockholders reported they could not obtain delivery of shares they had bought. One such individual, Robert Simpson, a Michigan businessman who had inadvertently purchased 100% of the common stock outstanding in February, has yet to receive any of the shares he purchased.
Some have said it is all a simple matter of broker error. Accounts showing 350,000 old shares of Global Links should have been adjusted by the broker to show 350 of the new shares, but some have said that didn't happen.
Pat Donahoo, the manager of marketing services for Global Links, said Friday, "The process of issuing the new symbol on Feb. 1, 2005, worked just as it should. If the brokers tried to trade the stock on the old symbol, they would not have been able to. It was no longer an active trading symbol."
Donahoo adds, "When we saw the trading taking place in February of 2005, all we could do is stand back and watch the parade march down the street in total disbelief."
https://www.forbes.com/2006/08/25/naked-short...63d128400b
Suspicious trading last year in shares of Global Links, a small Nevada real estate holding company, was far more intense than previously thought.
New data from the U.S. Securities and Exchange Commission reveals trade settlement fails in early February 2005 that were 27 times greater than the total number of shares Global Links had issued at the time. The data show suspicious trading in Global Links far earlier and to a far larger degree than any previously released by the SEC.
The data was obtained this week by a Freedom of Information Act request from David Patch, an outspoken critic of the SEC and an active participant in the drive for reform of market regulations and enforcement.
It was posted on anti-naked-short-selling blogs Thursday night, igniting a fresh round of calls for a special prosecutor to investigate claims of market manipulation by aggressive short-sellers. This comes as the SEC is working to close loopholes and otherwise strengthen its trading regulations.
An SEC spokesman had no comment on the data, which showed Global Links trade fails totaling 27.3 million shares on Feb. 4, coinciding with the first day that Feb. 1 trades should have settled. They were 23 million the next day and tapered off from there.
Data released to Patch earlier this month had shown trade fails of 10 million shares starting in mid-April, a time when 4 million shares of Global Links were issued and outstanding.
Questionable trading activity was not lost on Global Links Chief Executive Frank Dobrucki, who told shareholders in March 2005 that he believed there was fraud occurring. Without the reverse split and the events that came after it, "we may never have discovered how blatantly our stock was being abused."
Global Links owns a development in Arizona and office property in Las Vegas. Dobrucki says, "We have millions of dollars in real estate assets. We are not going to fall apart."
The broader issue is so-called naked short-selling. Normally, a trader looking to sell a stock short must borrow or at least identify a share to borrow before making the sale trade. But naked short-sellers don't borrow the shares, and manipulative naked short-sellers use the tactic to drive a stock into the ground.
Stock transactions are supposed to settle within three days, and if the shares fail to be delivered to the buyer, that failure is reported to the SEC and to the national stock markets, which keep track of repeated trade failures. Large and persistent failed trades in a stock can be a sign that something is amiss.
The Global Links matter came up briefly in a Senate Banking Committee hearing in March 2005, when Sen. Robert Bennett, R-Utah, told then SEC Chairman William Donaldson that his constituents, among them Internet retailer Overstock.com , had complained that a new regulation designed to curb abusive trading was not working.
That regulation, called Reg SHO, went into effect in January 2005 and was supposed to impose strict close-out requirements on stocks that showed consistent and frequent settlement failures over a specific period of time. But even the SEC has admitted that companies have remained on the SHO list for far longer than the rule was intended, an indication it has been less than effective.
Current SEC Chairman Christopher Cox acknowledged this practice in July when he put out for comment proposed amendments to Reg SHO. Large and persistent failures can be "indicative of manipulative short-selling," the SEC said. Well more than 120 public comment letters are now posted on the SEC Web site.
Reformers like Patch have demanded that regulators and market operators do their jobs of enforcing existing rules and have expressed exasperation about seemingly lax oversight. They point to a July enforcement action by the New York Stock Exchange's regulation division against four brokers, including Daiwa Securities, Goldman Sachs , Citigroup and Credit Suisse, for failing to have adequate Reg SHO Compliance in place.
"Regulation SHO is an important federal securities rule meant to protect the market and investors from short-sale abuses," said Susan L. Merrill, chief of enforcement, NYSE Regulation in a press release. "As these cases demonstrate, firms that fail to enact effective procedures and systems by the compliance date threaten to undermine the important policies served by this rule."
Despite the tough talk, the collective fines imposed were $1.25 million.
Other "large and persistent" failures have been reported in shares of Overstock.com, Netflix , Martha Stewart Omnimedia and Novastar Financial , all of which have been on Reg SHO lists practically since the beginning. Global Links calculates that it's been on the list for 556 days as of the end of last week.
Global Links was caught off guard by the events that transpired in February 2005 when it implemented a one-for-350 reverse split of its stock, the result of which would reduce its float from 350 million shares to 1.1 million.
The reverse split went into effect Feb. 1. In the first four days of trading, more than 143 million shares traded hands. This is despite the fact that the stock was trading under a new ticker and a new trade tracking number, and despite the fact that it had only 1.1 million shares issued. The Depository Trust & Clearing Corp., which handles the lion's share of U.S. stock settlement, had just 929,277 shares available for trading.
Global Links stock, which in theory should have risen, dropped to .08 cents from 10 cents within hours. "It became very clear that we had no control of the volume or price of our stock in anyway," said Global Links' Dobrucki, in a March 15, 2005, letter to shareholders. "Outside forces were now manipulating our stock."
Stockholders reported they could not obtain delivery of shares they had bought. One such individual, Robert Simpson, a Michigan businessman who had inadvertently purchased 100% of the common stock outstanding in February, has yet to receive any of the shares he purchased.
Some have said it is all a simple matter of broker error. Accounts showing 350,000 old shares of Global Links should have been adjusted by the broker to show 350 of the new shares, but some have said that didn't happen.
Pat Donahoo, the manager of marketing services for Global Links, said Friday, "The process of issuing the new symbol on Feb. 1, 2005, worked just as it should. If the brokers tried to trade the stock on the old symbol, they would not have been able to. It was no longer an active trading symbol."
Donahoo adds, "When we saw the trading taking place in February of 2005, all we could do is stand back and watch the parade march down the street in total disbelief."
1
