Thursday, June 08, 2006

Ban Short Selling Now!

Yes, you read that right.

We should ban short selling.

Yes, yes, I'm serious.

Honest.

Yes, yes, yes, all of it. No more borrowing shares for short selling. No more hypothecation calculations or affirmative determinations or any other back office headaches. Let's just bring it all to an end, here and now.

Well, maybe not RIGHT now, but how about within the next year? Let's give the scammers what they want: a world where the short selling of common stocks doesn't exist, by, say, July 1, 2007.

So long as there is a sliver of truth to the allegations that scammers like Mark Faulk, "Bud" Burrell, David Patch, DeWayne Reeves, "Bob O'Brien", or the rest of these crooks engaged in this scam level against short sellers, the investment community will constantly be on the defensive.

So give the crooks what they want. Give them a world where there is no short selling of common stocks... no "naked short selling", no Stock Borrow Program, no hypothecation, no leasing, no lending. Get rid of all of it. If you want to sell a share of stock, you must deposit your certificate into an account and someone in the P&S department must verify that it is a genuine certificate, freely transferable to another party after being traded on a public exchange or over the counter, with proper endorsements to guarantee transfer. If you don't have a "genuine", "certificated" share in your account, then you can't sell. No exceptions. Not even for market makers. Every transaction in the shares of a company's common stock will result in an actual transfer of all ownership interests. There will be no more games with proxy rights and no more games with the tax status of certain, advantageous dividend plays. Your company declares a dividend, you get the dividend with no questions about the taxable status of the dividend that's been paid.

There are too many loose ends in the world of short selling of common stocks that, frankly, can't be properly remedied. There is no way to reconcile the voting rights of a company with a million shares outstanding if there are two million shares held long in various accounts against a million shares held short. The scammers cling to this small sliver of truth of voter dilution to advance their fraudulent cause. Take it away from them. If you own a hundred shares of a company with a million shares outstanding, you have a right to weighted vote of 0.01% of the company's voting shares. It is not right that your voting power should be diluted by short selling of any flavor.

Of course, if this recommendation alone were enacted, the scammers would clean up in the markets. People like Gary Valinoti, Urban Casavant, Robert Simpson, and Rodney Young would love nothing more than to be able to drill investors into the dirt without the hindrances of a bunch of short selling financiers who might recognize them for the crooks they happen to be.

I'm not saying that these crooks should be given free reign to rape investors with impunity. On the contrary, this proposal comes with a caveat.

For now is also the time to extend the single stock futures market to the OTCBB and the pink sheets... and to every other listed or over the counter common equity security with a CUSIP that does not currently have a series of futures listed on the CBOE. The decision to forbid short selling of common stocks in all circumstances should be accompanied with the MANDATORY listing and trading of single stock futures for every common stock with a CUSIP. In this day and age, it just can't be that difficult to add another digit to a CUSIP. It only needs to be a 0 or a 1, for even and odd years of delivery. Make it uniform, with December expirations. The third Friday of every December, one of the futures CUSIPs leaps forward two years. The current contracts get settled, with real shares of course. Any party to a futures contract that fails to deliver by Monday morning gets immediately bought in, debited for their buy in, with ultimate financial and administrative responsibility for resolving the delivery of shares behind the trade resting with their broker/dealer. This system should be put together and in place by June 1, 2007.

This should alleviate all of the objections that these scammers pretend to have about "naked short selling".

But it won't. Because the issue was never about "naked short selling". The issue has always been about diverting attention away from pitiful, or crooked, managements that run their shareholders' equity into the ground.

So go ahead, write your favorite scammer. Unmask these cretins. The email addresses of Faulk, Patch, "O'Brien", Reeves, and the rest of the crooks are easily found on line. Ask them what they think of getting rid of ALL short selling altogether and bringing a uniform futures exchange to these markets.

They won't like it one bit.

Because they know it would mean the end of their ability to rip off investors.

6 Comments:

Blogger SG said...

What a spin , call the folks who sell stock they don't own the abused and the ones that call them on it the scammers .

I propose an investors group go after these criminal one stock at a time with good honest old fashion long investing.

Lets get shorty ourselves.
opsuround@lycos.com

2:40 PM  
Blogger Jimmy B said...

The way to combat short selling of any kind, "naked" or "legitimate" is obviously in the market. Get your investors group together and find some companies whose shares you believe have been artificially depressed by "naked short selling". If you're right, you'll make out like a bandit.

But if you're wrong in your assessment of what a company is worth, don't blame the "naked short sellers" if you've ended up paying too much for garbage.

3:20 PM  
Anonymous Anonymous said...

Sure....steal my hard earned money, and finance your business, or your new car, or your new house. It's ok, the commom folk love being ripped off. It's the new 'American Way'.
Yeah right, when billions of shares are shorted, and someone is making 1.4 billion dollars a year, I think there is a problem.
And someone better fix it.
Or the 1929 crash will seem like child's play.
Gary Aguirre is the new 'American Hero'
Kudos to you!

10:44 AM  
Blogger Jimmy B said...

No one, at least no one who might be involved in "naked short selling" has stolen your hard-earned money. If you look carefully at some of the 10-Q's or the 10-K's where investors claim they've been harmed by "naked short sellers", you will frequently find management teams that have worked hard to drain their companies' resources.

Unfortunately, I have found there is a group of investors that seems to enjoy being ripped off. They will buy a stock based upon message traffic on an internet board, the glossy brochures prepared by a paid investment relations company, or the rosey press releases of the company itself.

But so, so few of them will ever bother to take the time to read a 10-Q or a 10-K.

Next time, if you ever do invest again, do some proper due diligence on a company before you invest your hard-earned money.

And, no, doing due diligence does not mean listening to these crooks who blame managerial ineptitude on "naked short sellers".

11:51 AM  
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12:59 PM  
Anonymous Anonymous said...

The idea and mathematical proofs that markets are more efficient when derivatives and shorts are allowed is marginal at best. But when the volume of shares underlying those techniques fluctuates due to naked short selling, the markets are not more efficient. In fact prices are diluted, and the market is fundamentally corrupt. Read up on derivatives, and look at the math, and the answer is black and white. No BS needed. Your ignorance of efficient markets proofs is obvious. The US stock market is corrupt due to this practice, and that is why long island real estate is doing well. Brokerage houses can naked short, drive the price down through dilution, never have had a penny invested, then when the dilution drives the price down (it always will 100%) then they sell their position and never had a penny invested. This is WRONG, and the US stock market is fraudulent because of it. It persists because the brokerage houses self regulate it. THen the 2008 crisi caused them to ask for limits on the practice so they wouldn't be hurt. How ironic. Crooks. AH

11:16 AM  

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