http://www.sec-oig.gov/Reports/AuditsInspections/2009/450.pdf For those cramped for time, I submit the Cliff Notes Version: The SEC received a ton of complaints, and didnt' do anything about it. The End
memo to the Writer Sarah, Thanks for reporting on this issue. I hope you were as disgusted as I in the response taken by the SEC. I found their comments to be irresponsible and their apparent actions negligent. Consider: 1. The SEC claims that the OIG did not cite an empirical study on the impacts of naked short selling. What the SEC fails to address is that such a study would have to come from the SEC or an SRO who has full access to the trade data. A study into naked short selling involves trade tickets offering when and how a naked short was executed into the markets. Such information is proprietary and thus limited in access to the regulators. The fact that the Division of Enforcement likewise does not have a study that exonerates naked short selling and the impacts such has is just as peculiar. 2. The SEC has basically discarded most of the 5000 complaints filed with respect to naked short selling. They do so because there was no âsmoking gun analysisâ. The first question one must ask is what information does the SEC require and how does a retail investor obtain such information. With most trade data being proprietary and the Broker-Dealer to the DTCC refuse to disclose such information to both company and investor. Companies tried obtaining such information but the SEC closed down that opportunity in 2003 when they issued a rule preventing issuers from going to âcustody onlyâ trading. In fact, when one company did obtain such information the SEC not only failed to investigate the data but instead rationalized it away in a memo to Congress. Problem is, the reasons cited in the memo do not support the facts. James Brigagliano blamed fails occurring in 2003 to a corporate action that did not take place until 2004. http://investigatethesec.com/drupal-5.5/?q=node/123 3. Regarding the issues of #2 above, the SEC maintained a similar stance with the information provided in the Madoff ponzi scheme and they dismissed that as well. Clearly the SEC does not want to deal with complaints and maybe they should shut the complaint department down. 4. Finally, how does this memo coincide with the last 6 years of short sale reforms and public statements made by commission staff? The Division of Enforcement seems to have simply dismissed this as an issue and elected not to investigate it while members of the staff continued to call it abusive. What message does that send to the public? When the memo cited the SROâs as the real regulators of naked shorting they passed the buck with negligence. Offshore firms and hedge funds engage in these activities and the SROâs have responsibility for neither. They likewise do not have responsibility for clearing operations. Only the SEC holds responsibility over these entities. I would suggest you speak to cam Funkhouser at FINRA. He may offer insight on how the SEC is perceived on short sale enforcements. The ONLY case the SEC can claim they responded to is Sedona and why Sedona? Could it be that Sedona had a member of the Board who was a former director of the SEC. That person used his connections to get the case pursued after so many attempts previously had failed. That perseverance from the former Director revealed what would have otherwise never been uncovered. The SEC cared not until they were forced to care. I hope you cover more on this story as the story reveals a lot more about the SEC than simply an issue involving short selling. It addresses the Division of enforcement and the preconceptions that effectively aid the crooks in raiding our markets. David Patch
But why? That's the question. And that's where the indictments will point. This story is far from over. 160 million at AIG? Chump change. This is hundreds of billions, Trillions with damages. And we're worried about AIG.