refco + naked shorts

Discussion in 'Wall St. News' started by empee, Oct 16, 2005.

  1. empee

    empee

    This blog is talking about Refco's liabilities being mainly naked shorts:

    http://bobosrevenge.blogspot.com/2005/10/refco-or-why-i-learned-to-love-bomb.html

    specifically,

    There are a couple of noteworthy observations to make here. The first is that *supposedly* everyone involved in the IPO missed looking for special purpose entities used to hide contingent liabilities, now turning out to be mainly naked short sales.

    ---

    is this true? Maybe it is the end as we know it..
     
  2. Chagi

    Chagi

    Very interesting read.

    Makes you wonder - assuming that there are a number of companies that have had their stocks illegally shorted, and the entities behind it start to unwind their positions, we could see some very interesting price action in those stocks.

    One example is TASR. Fundamentally the stock has had very good reasons to be declining (specifically crappy quarters, going from positive growth to negative net income growth, etc.), but I've wondered a great deal about the chart over time. Usually stocks don't tend to smoothly go up or down over months on end in quite the manner that TASR's has...
     
  3. nkhoi

    nkhoi Moderator

    "I think that REFCO was taken public so that the investment bankers who were invested in REFCO, one way or another, either via equity, or relationships, or credit lines, could foist their bad bet off on the investing public. They laid it off on the rubes that bought the stock, and by the time the smoke cleared, they were whole and the investors were holding the bag.
    ..."
    a cynical view? perhap, time will tell.
     
  4. Choad

    Choad

  5. isn't that what IPO's are for? to cash out?
    if the stock goes up... okay... if it goes down, great job! you got out just in time.

    stocks are not investments, they're just pieces of paper you bot hoping someone else will buy it at a higher price at a later date. investment happens in early stages of the company. before companies have anything tangible. people call those early birds angel investors, and VC's. IPO is the chance for investors to cash out at a premium



     
  6. I'm Bob O'brien, Patrick Byrne, Jesus Christ, I make three minute eggs in two minutes, but I can't make you guys understand what has happened in the last few years that endangers us all. This much I guarantee you..... this is the just the beginning.

    Street Sleuth
    'Naked Shorting' Case Lurks in Refco's Past
    Probe Involves Firm's Role In Alleged Effort to Depress Stock of Software Concern
    By JOHN R. EMSHWILLER
    Staff Reporter of THE WALL STREET JOURNAL
    October 20, 2005; Page C3

    Refco Inc.'s high-profile meltdown has given more prominence to a controversy that has been simmering on the back burner of the stock market for several years.

    At issue is "naked shorting" of stocks, a technique that a number of small public companies claim that unscrupulous traders have used to reap illegal profits. The battle between the companies and traders has led to lawsuits and federal investigations. One such probe involves Refco's connection with the short selling of a small King of Prussia, Pa., software company called Sedona Corp.

    In a typical short sale, a trader borrows shares and sells them, hoping that the stock's price subsequently will drop so that the shares can be repurchased at a lower price and returned to the lender, with the difference pocketed as profit. In a naked short, a trader sells stock he hasn't borrowed -- in essence, selling something he doesn't have. He can accomplish this partly because stock doesn't have to be delivered until a number of days after the actual sale. While naked shorting is legal in certain circumstances, it is often a violation of securities law, particularly when done in a deliberate effort to drive down a company's stock price.

    Already, short selling of Sedona stock has produced still-pending criminal charges in New York federal court against the president of a small New York investment firm. The Securities and Exchange Commission also filed a civil-enforcement action against that same individual and his firm. The SEC described the 2003 case as an example of "manipulative short selling" that also involved unnamed broker-dealers.

    One of those brokers appears to be Refco: Earlier this year, Refco disclosed that the SEC had notified it of plans to file an enforcement action against the company's Refco Securities unit for securities-law violations in connection with the shorting of Sedona stock.

    Additionally, Refco said, the SEC has sought information about "other securities traded" through the broker by one of the entities involved in the alleged Sedona short-selling scheme. The SEC's interest in other stocks raises the question of whether Refco was more widely involved in improper short selling.

    Sedona attorneys have issued a subpoena to Refco in connection with a pending civil suit that Sedona has filed in New York federal court against a range of traders and brokers. And Sedona attorney Wes Christian says he has been looking at adding Refco as a defendant in the case, but says the broker's recent implosion could affect those plans.

    The Refco crisis came to light last week, when the New York brokerage concern said its chief executive, Philip Bennett, had hidden $430 million in debt that an investment firm he controlled owed to Refco. The announcement led to a collapse in investor confidence that forced Refco to file for bankruptcy protection and seek to sell part of the business. The revelation also sparked a federal investigation that has already produced a criminal securities-fraud charge against Mr. Bennett, who has been placed on indefinite leave by Refco. Through his attorney, Mr. Bennett has denied wrongdoing.

    Based on a recent SEC filing by Refco, the company's most direct connection to the Sedona short-selling probe appears to be through a former stock-trading client, a Panamanian corporation called Amro International SA. The filing said that SEC officials have sought information related to, among other things, two former Refco brokers who handled the account of Amro, which engaged in short sales of Sedona stock.

    In the filing, Refco said it was negotiating a settlement with the SEC that would likely include an injunction against future violations and "payment of a substantial civil penalty." It set aside $5 million for the potential settlement. The company said that its brokerage-unit chief, Santo Maggio, was also negotiating a settlement with the SEC regarding "certain supervisory matters raised in the investigation." Mr. Maggio also took a leave at the same time as Mr. Bennett. A Refco spokesman and an SEC spokesman declined to comment yesterday on the status of the Sedona case. Paul Shechtman, an attorney for Mr. Maggio, declined to comment.

    REFCO'S CRISIS

    Amro also was part of a 2003 Sedona-related enforcement action by the SEC against a New York investment firm called Rhino Advisors Inc. and its president, Thomas Badian. The SEC complaint, filed in New York federal court, described Rhino and Mr. Badian as "investment advisers" for Amro. Rhino and Mr. Badian used Amro's account at an unnamed U.S. broker-dealer to short hundreds of thousands of shares of Sedona stock in 2001 without having the securities to deliver, the complaint said. Such selling activity helped push down Sedona's share price by more than 45% in a few-week period, the SEC alleged. Perrie Weiner, an attorney for Amro, Rhino and Mr. Badian in the suit brought by Sedona, says his clients deny any wrongdoing in trading with Sedona stock, which now trades at about 14 cents on the OTC Bulletin Board.

    Without admitting or denying wrongdoing in the SEC action, Rhino and Mr. Badian consented to an injunction against violations of antifraud statutes of the federal securities laws. They also agreed to pay a $1 million civil settlement. Amro wasn't a defendant in the SEC suit.

    Also in 2003, the U.S. attorney's office in Manhattan filed a criminal conspiracy complaint against Mr. Badian in connection with short sales of Sedona stock. Mr. Badian's attorney, Steven Cohen, says that his client denies any wrongdoing in the still-pending criminal case. He adds that his client is currently living in Europe.


    NOW THE QUESTION YOU NEED TO ASK YOURSELVES IS THIS - WHO PAYS FOR THE BUYINS. YOU ALL KNOW THE HEDGIES DISAPPEAR RE: BAYOU, KL, WOOD RIVER, RHINO, ETC. THE ANSWER IS, THE FIRMS ARE ABOUT TO TAKE MASSIVE HITS AS THEY ARE FORCED TO BUY IN, AND THE DEBITS OVERWHELM EQUITY. DON'T SAY I DIDN'T WARN YOU. THOSE OF YOU WITH A BRAIN KNOW HOW TO PROFIT FROM THIS. YOU KNOW WHAT A BUY IN ON 100MM OF A PENNY STOCK IS, OR A BUY IN OF 5 TO 20MM OSTK IS. AND IT'S COMING.
     
  7. hey bob you might be right someday but you come across like a streetcorner preacher yelling at the crowd"jesus is coming,repent". then you threw in the conspiracy with the sec and congress working with the hedge funds and lost all credibility. maybe you need to polish your approach.
    what you cant seem to grasp is that if what you say is common knowledge other smart hedge funds would scheme to force the buyins now and it aint happening. look at the ostk volume. nobody seems interested.
     
  8. Choad

    Choad

    Yeah you've taken a lot of flack here, but I have to say, about everything you predicted re: naked SS investigations and suits are happening. Props to you. :)

    How much has it affected the markets and/or ruined companies and hurt investors? No idea. Will it ever be known?

    Would it be better if it was stopped? Yes, IMHO. I'd rather everybody follow the same rules. (I know, a simplistic and idealistic view of the markets...)

    C
     
  9. It is known. Though FOIA we are getting it, and it is massive. Also, people in the industry are turning on their own, as it apt to happen. Oh, it's happening.

    Just keep watching the papers. Every govt agency is involved. The only problem is the unwinding. Not enough money available. Will have to be some sort of global settlement. And yes, they are all involved. Rebates as high as 30% draw the vermin. Believe what you want, but if you look at my posts, it has all come true. The real help was Refco. One Senator said, you don't have to send for what I asked, Refco said it for you. A big help having that whorehouse capsize.
     
    #10     Oct 20, 2005