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2008-03-19 -Lurid Crime Tales-

Legal Insider Trading In Three Easy Steps

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Posted by 3dc 2008-03-19 02:20|| || Front Page|| [5 views ] Top

#1 The SEC has long worked off the theory that only the big players in the market matter, because they are "too big to fail".

But the policy goes far beyond that, to the point of the big players being "too big to not succeed".

That is, guaranteed above-market profits, justified that this will forestall any possibility of "natural" recession, ever.

The way to do this is to create wildly unbalanced and even illegal techniques available only to the big players, at the expense of both small cap corporations favored by smaller investors, and against the smaller investors themselves.

This only happened after the stock market was "opened up" to smaller investors after many years of being available to only the wealthy.

The action against small corporations which severely stifles innovation and growth capitalism is done with what is called "naked short selling" by "market makers". Essentially permitting the highly illegal practice of trading in stocks that you don't own.

This was enabled by an SEC policy change that stocks no longer had to be issued on paper, but could be retained solely on computer. No paper meant no proof.

While this is legal on a very limited basis, in that such trades must theoretically be justified with actual stock purchases in 14 days, in practice, brokers will trade many times the quantity of issued stock, shuffling it between themselves in 13 day intervals and destroying its value. Any rise in stock price is met by selling more fake stock, driving the price back down.

Eventually, when the stock price is driven down to a tiny fraction of a penny, with the issuing company bankrupt, then vast amounts of the fake stock are written off as worthless, even though destroying their issuer made several brokers millions of dollars.

It can be noted that even bankrupt small caps still have significant stock trades at 13 day intervals until they close all operations.

The SEC is adamant that such naked short selling does not exist, and officially investigates any small cap that complains that its float is two or three times greater than its issued stock. Even a suggestion of an SEC investigation quickly destroys any remaining value of that company's stock and bankrupts it.

However, in the long term, permitting profiteering and the destruction of hundreds of otherwise viable small cap corporations, and wiping out their investors investments, destroys innovation and technological advancement, leaving the US with a limited number of very large corporations acting as inefficient oligopolies.

Posted by Anonymoose 2008-03-19 10:09|| 2008-03-19 10:09|| Front Page Top

#2 Sounds like a serious amount of corruption Anonymoose.

Posted by Sock Puppet of Doom 2008-03-19 11:20|| 2008-03-19 11:20|| Front Page Top

#3 Naked short selling is illegal (except under certain conditions for market makers), but falls into the gap between electronic and paper systems and proving it is a problem. I don't know how much it occurs but the fact people aren't getting sued leads me to think its not a big problem.

Wikipedia on the subject

Posted by phil_b 2008-03-19 11:39|| 2008-03-19 11:39|| Front Page Top

#4 There are a lot of hidden problems in the Wiki, mostly the use of straw man arguments by regulators to show that NSS is not happening. For example, an investigation into IPOs, looking for NSS didn't find any.

However, IPO NSS was never at issue. Such manipulation would be too easy to prove.

NSS would generally not be done except to 1) small caps, that 2) were stable growth, and 3) had little insider stock ownership compared to float, and were 4) undervalued. Such stocks had to meet the minimum requirements for major exchange listing, before they would be open to market maker manipulation.

This meant that a lot of small investors would notice them as good investments, and purchase them based on share price growth, not dividends.

The market makers first efforts would be to push them off the listing into the "pink sheets" by lowering share price to below the minimum and keeping it there for 90 days. Once delisted, the exchange no longer scrutinizes trades.

And that's when the real killing would begin. The imaginary stock is batted back and forth between traders at 13 day intervals, selling to any sucker who wants it. When there are finally no new buyers, then they drive the price to zero.

Posted by Anonymoose 2008-03-19 12:29|| 2008-03-19 12:29|| Front Page Top

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