|cont:The complaint alleges that the DTC has a colossal disincentive to stop the "stock borrow" program, booking revenues from services of $425,416,000 and similarly, the NSCC deriving revenues of $293,133,000. |
Further, the suit alleges that "open positions" resulting from this activity at the close of business on December 31, 2003, "approximated $3,025,467,000" due to NSCC, and $2,303,717,000 due by NSCC, and unsettled positions of $721,750,000 for securities borrowed through the NSCC's "Stock Borrow Program."
Nanopierce claims that DTCC and NSCC have joined in a "scheme" to "manipulate downward the price of the affected securities, thereby reducing the market value of the open fail to deliver positions." The suit also claims that the defendants have permitted sellers to maintain open fail to deliver positions of tens of millions of shares for periods of a year and even longer.
It quotes the National Association of Security Dealers as admitting that "concerns have been raised by members, issuers, investors and other interested parties about potentially abusive short selling activities occurring in the marketplace. In particular, naked short selling, or selling short without borrowing securities to make delivery, can result in long term failures to deliver, including aggregate failures to deliver that exceed the total float of a security. NASD believes such extended failures to deliver can have a negative effect on the market. Among other things, by not having to deliver securities, naked short sellers can take on larger short positions than would otherwise be permissible, which can facilitate manipulative activity."
Nanopierce claims that it had "relied on material misrepresentations and omissions by DTC and NSCC in trading its shares in the stock market "without knowledge of Defendants' fraud-on-the market through statements they made about the clearing and settlement services they provided." Further, it claims that the Defendants acted with "scienter" since they had a major financial financial motivation to falsely represent their services, which Nanopierce claims are also anticompetitive.
The largely unregulated DTC has become something of a defacto Czar presiding over the entire U.S. markets system, wielding more day-to-day influence and control than the SEC, the NASD and NASDAQ combined. And, as the SEC's July 8 ruling indicates, its monopoly over the electronic trading system appears even to be protected.
The Depository Trust and Clearing Corp.'s two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the NASDAQ (NDAQ) and the embattled American Stock Exchange! Regulators, regulate thyself?
In an era when corporate governance is the primary interest for the SEC and state regulators, the DTCC is hardly a role model. Its 21 directors represent a virtual litany of conflict:
They include Bradley Abelow, Managing Director, Goldman Sachs (GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (LEH); Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (C); Michael C. Bodson, Managing Director, Morgan Stanley (MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (JPM).
In their comments to the SEC regarding Regulation SHO in January, the 50 state regulators, through their association, the North American Association of Securities Administrators (NASAA) issued what many consider to be a strong warning that if the DTC is not dealt with in the final regulations, state regulators such as New York State Attorney General Eliot Spitzer may step to the plate.
In what many considered to have been explosive comments, Ralph Lambiase, NASAA president and Director of the Connecticut Division of Securities, warned "NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). As a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The ability of the overall proposed rule would be severely impared unless the Commission undertakes to implement such a prohibition."
As the Nanopierce lawsuit reveals, those were indeed strong words, meddling as it did, in a substantial revenues base for the DTCC.
Recently, leading market makers and brokers named in various lawsuits and other actions, including FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group and vFinance, Inc. (VFIN). A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), and ETrade Group, Inc. (ET), were forced to comply with new short-selling market regulations imposed by the NASD after the SEC had "sat on" the NASD request to plug material loopholes for almost 2-1/2 years.
"The new rules expand the scope of the affirmative determination requirements to include orders received from broker/dealers that are not members of NASD ("non-member broker/dealers").
The new rule is on the web at nasdr.com
The rule itself, while welcomed by small companies and their shareholders in the U.S., nevertheless raised an outcry because the NASD's request to put it into effect had set on a shelf at the SEC since 2001.
The scandal has embroiled hundreds of companies and dozens of brokers and marketmakers, in a web of internaitional intrigue, manipulative short-selling and cross-border acctions and denials.
Comments on Regulation SHO ended January 5, and may be viewed at sec.gov .
Some 122 companies, including 13 brokers, such as FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (GS), H. Myerson & Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (HRB), Charles Schwab (SCH), Toronto-Dominion's (TD), TD Waterhouse Group and vFinance, Inc. (VFIN). A.G. Edwards, Inc. (AGE), Ameritrade Holding Corp. (AMTD), Deutsche Bank AG (DB), and ETrade Group, Inc. (ET), have been embroiled for over a year in a raging controversy
The remaining 109 companies among the 122 named to date have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.
The complete list of those 108 companies include Advanced Viral Research Corp. (ADVR), AdZone Research, Inc. (ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (ATSC), Federal Agricultural Mortgage / Farmer Mac (AGM) Allied Capital (ALD), American Motorcycle (OTC: AMCYV), American International Industries (AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), ATSI Communications,Inc. (ATSC) Bluebook International (BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (BIFT), Biocurex (BOCX). Broadleaf Capital Partners, Inc. (BDLF), Chattem, Inc. (CHTT), Critical Home Care (CCLH), Composite Holdings (COHIA), CyberDigital, Inc. (CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (DCEL), Eagle Tech Communications (EATC), Edgetech Services (EDGH);
Also, Endovasc Ltd. (EVSC), Enviro-Energy Corporation (ENGY), Environmental Products & Technologies (OTC: EPTC), Environmental Solutions Worldwide, Inc. (ESWW), EPIXTAR Corp. (EPXR), eResearchTechnologies, Inc. (ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (FRE), FreeStar Technologies (OTCBB: FSRCE), Front Porch Digital,
Inc. (FPDI), Geotec Thermal Generators, Inc. (GETC), Genesis Intermedia (GENI), GeneMax Corp. (GMXX), Global Explorations Inc (GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On (HPON), H-Quotient, Inc., (HQNT), Hyperdynamics Corp. (HYPD), International Biochem (IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (IBCS), InternetStudios, Inc. (ISTO), ITIS Holdings (ITHH), Investco Corp. (IVCO), Lair Holdings (LAIR), Lifeline BioTechnologies Inc. (LBTT), Life Energy & Technology (LETH), MBIA (MBI);
Also, MegaMania Interactive (MNIA), MetaSource Group, Inc. (MTSR),Midastrade.com (MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (NPCT), Nutra Pharmaceutical (NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (NVGV), Orbit E-Commerce, Inc. (OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (PYST),Petrogen Corp. (PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (PDVN), PrimeHoldings.com, Inc. (PRIM), Phlo Corporation (PHLC), Resourcing Solutions (RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (SDNA);
Also, Sionix Corp. (SINX), Sonoran Energy (SNRN), Starmax Technologies (SMXIF), Storage Suites America (SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (SPRI), Technology Logistics (TLOS), Swiss Medica, Inc. (SWME), Ten Stix, Inc. (TNTI), Tidelands Oil (TIDE), Titan Construction (TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (VRA), Viragen International (VGNI), Vista Continental Corporation, (VICC), Viva International (VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (WIZD), WorldTradeShow.com (WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK).
Earlier in 2003, the SEC fined Rhino Advisors, Inc., $1 million for its representation of Amro International in the financing and manipulation of Sedona Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore haven, but was not named in the SEC settlement. Another 60 public companies may have been manipulated by the fined Rhino Advisors and its indicted principals, or its funding apparatus, Amro.
All American Food Group Inc (AAFGQ), Amanda Co Inc (AMNA), Antra Holdings (RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir Pharmaceuticals (AVN), Bionutrics Inc (BNRX), Brilliant Digital Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE), Butler National Corp (BUTL),Calypte Biomedical Corp (CYPT), Chemtrak Inc/DE (CMTR), Clicknsettle Com Inc (CLIK), Corporate Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (CLWB), Dental Medical Diagnostic Systems Inc (DMDS), Detour Media Group Inc (DTRM),
Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (DISS), International Inc (DYNX), Endovasc Ltd Inc (EVSC), Esynch Corp/CA (OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (FRBW), Greystone Digital Technology Inc (GSTN), Havana Republic Inc/FL (HVNR), Henley Healthcare Inc (HENL), Hollywood Media Corp (HOLL), Ibiz Technology Corp (IBZT), Diagnostic Systems Inc/FL (IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc (RDOC),
Also, Interferon Sciences Inc (IFSC), Interiors Inc (OTC: ITRNA), Laminaire Corp (THMZ), Medisys Technologies Inc (SCEP), Milestone Scientific Inc/NJ (MS), Nevada Manhattan Group Inc (NVMH), Innovations Inc (OTCBB: NTGE),Systems Group (OSYM), Pacific Systems Control Technology Inc (PFSY), Professional Transportation Group Ltd Inc (TRUC), Rnethealth Inc (RNTT),
Also, Sand Technology Inc (SNDT), Sedona Corp (SDNA), Silverado Foods Inc (SVFO), Stockgroup Information Systems (SWEB) Surgilight Inc (SRGL), Tasty Fries Inc (TFRY), Tech Laboratories Inc (TCHL), Teltran International Group Ltd (TLTG), Titan Motorcycle Co of America Inc (TMOTQ), Trans Energy Inc (TSRG), Motorcycle Co (UMCC), Universal Communication Systems Inc (UCSY), Medical Systems Inc (UMSI), Vianet Technologies Inc (VNTK),Viragen Inc (VRA), Webcatalyst Inc (WBCL), Worldwide Wireless Networks Inc (WWWNQ), and ZAP (ZAPZ).
Universal Express terminated its coverage in Investrend Research's unique and pioneering professional analyst program, which facilitates independent analysts to provide financial coverage for shareholders and investors in companies that otherwise would have little or no analyst following. Just prior to the termination, Investrend Research analyst Jeff Howlett had issued a "Speculative" rating on the company, a downgrade from the previous "Speculative Buy."
The Investrend Research program is the largest in the world and includes a number of safeguards to reduce or eliminate conflict. These systems, including media coverage and endorsements, may be accessed at investrendresearch.com
Investrend Research subscribes to the "Standards for Independent Research Providers" at firstresearchconsortium.com, and adheres to the Guidelines for independent providers jointly endorsed by the National Investor Relations Institute (http://www.niri.org) and the Association for Investment Management and Research (http://www.aimr.org).
The Dow Jones Newswires has stated that independent research has been growing in credibility over the past 18 months, specifically citing Investrend Research, and the New York Times has reported a survey by Charles Schwab & Co. reveals an astonishing 78 percent of active stockholders now "value research from independent firms over analysis by Wall Street firms with financial ties to the companies they are rating." A survey at Investopedia reveals that 74.7% of investors say that "legitimate fee-based research is objective and useful," and 70.9% say that a company that enrolls for "legitimate fee-based research is making a positive statement about its investment potential."
Enrollment fees for Institutional coverage were $23,400 per annum, and the fees were paid by the company for two years. There are never any fees associated with FinancialWire, which independently covers a wide range of corporate news, including but not limited to those that are or have been enrolled in Investrend's platforms.
Complete information about any company enrolled in an Investrend shareholder empowerment platform, including those of its affiliates and independent analysts and webcasters, including disclosures and disclaimers, is available at the company's InvestorPower page at investrend.com , and on each report and press release, and investors are advised to read those disclosures carefully before trading in the equities of any enrolled company.
For up-to-the-minute news, features and links click on financialwire.net
FinancialWire is an independent, proprietary news service of Investrend Information, a division of Investrend Communications, Inc. It is not a press release service and receives no compensation for its news or opinions. Other divisions of Investrend, however, provide shareholder empowerment platforms such as forums, independent research and webcasting. For more information or to receive the FirstAlert daily summary of news, commentary, research reports, webcasts, events and conference calls, click on investrend.com
The FinancialWire NewsFeed is now available in multiple formats to your site or desktop, free. Click on: investrend.com
(C) 2004 financialwire.net, Inc. All rights reserved.
© 1997-2004 MarketWatch.com, Inc.