A bear raid is a type of stock market strategy, where a trader
(or group of traders) attempts
to force down the price of a stock
to cover a short position. This can be done by spreading negative
rumors about the target
firm, which puts downward pressure on the share price. This may be a form of
securities
fraud. Alternatively, traders could take on large short positions themselves, with the
large
volume of selling causing the price to fall, making the strategy self perpetuating.
SEC ALLOWS MUTUAL FUNDS AND HEDGE FUNDS
TO
SELL SHORT WITHOUT BORROWING ANY STOCK FIRST
"How
bad is the problem? Listen to this story: On Feb. 3, a man named Robert Simpson
filed a
Schedule 13-D with the SEC describing his purchase of 1,158,209 shares of Global
Links
Corp.
(OTCBB: GLKCE), "constituting 100 percent of the issued and outstanding common
stock
of the Issuer." As described in a story that ran on FinancialWire on March 4, Simpson
stuck
every single share of the company in his sock drawer -- and then watched as 60 million
shares
traded hands over the next two days. In other words, every single outstanding share
of
the company somehow changed hands nearly 60 times in the course of two days, despite the
fact
that the company's entire float was located in Simpson's sock drawer. In fact, even as
recently
as last Friday, 930,872 shares of Global Links still traded hands. If Simpson's claim
that
he owns all shares is accurate, that is a staggering number of phantom shares being traded
around
by naked short sellers." (Read more at
http://www.fool.com/investing/high-growth/2005/03/24/the-naked-truth-on-illegal-shorting.aspx
)
Insiders
are allowed by the present SEC policies to sell short a small company mercilessly.
Chairman
Cox has Done away witht he need to borow any stock to go short. All traders have to
do
is to "locate" shares to borrow, not actually borrow them. When a short
sale is undertaken,
broker-dealers
like Merrill Lynch are, under the law, supposed to take appropriate steps to settle
out
the trade in three days. This should mean buying back shares that were not really
borrowed.
Instead
the brokerages make only book entries now. The result is that many a smaller
company's stocks
has
been sold short nakedly with dire effect on the company, its shareholders and employees.
The
SEC
does not care. It is more concerned with protecting the borkerages. Investor
confidence will
take
a long time to restore. Particularly negligent is James Brigagliano. He
heads the SEC committee
that
makes recommendations regarding short saling abuse. The
SEC is headed entirely by Republicans who
are
opposed to regulation, no matter the cost to shareholders.. (Source. ) See also.
"When the trade fails settlement it is the Goldman
Sachs, the Lehman’s, the
Merrill
Lynch’s, the Morgan Stanley’s, and all the other prime
brokerage houses who
hold
these fails on their books indefinitely. Each colludes with each other
to dismiss the
settlement
responsibilities associated with the contract to settle they agreed upon. The
3-day
settlement periods are ignored for trade commissions, liquidity, and the rights
to
future business from those who sold what did not exist".
The
SEC enacted a new Regulation "SHO" in January 2005 regarding naked short
selling. .[Source]
Regulation
SHO also created the "Threshold Security List," which reported any stock where
more than
0.5%
of a company's total outstanding shares failed delivery for five consecutive days. A
number of
companies
have appeared on the list, including Krispy Kreme, Martha Stewart Omnimedia and
Delta Airlines. The Motley Fool, an investment website, observes
that "when a stock appears on this
list,
it is like a red flag waving, stating 'something is wrong here!'"[3]
On its Regulation SHO website ("Does
Naked
Shorting Drive Prices Down?" section), the SEC cites the prevalence of false claims
of naked short
selling
in Pump and Dump fraud. The SEC downplays naked shorting as a factor
in declining stock prices,
stating
that stock values ideally should be determined by "the quality of the company
itself," "supply and
demand"
of the company's shares, and the company's ability to generate positive income.
NASDAQ Regulation SHO
Threshold List.
Selective Enforement for the Elite's Stocks
There is a list of companies that the SEC
will now police naked short selling. This is the WHOs
WHO
list of the Wall Street elite. Small wonder the SEC is considered merely an agent of
these
companies!
BNP
Paribas Securities Corp
Bank
of America Corp - of course.
Barclays
PLC
Citigroup
Inc
Credit
Suisse Group
Daiwa
Securities Group Inc
Deutsche
Bank Group AG
Allianz
SE
Goldman Sachs Group Inc - naturally.
Royal
Bank ADS
HSBC
Holdings Plc ADS
JPMorgan
Chase & Co
Lehman
Brothers Holdings Inc
Merrill
Lynch & Co Inc
Mizuho
Financial Group Inc
Morgan Stanley
UBS
AG
Freddie
Mac
Fannie
Mae
"Who Is Missing? Where is Washington Mutual (WM)? Wachovia
(WB)?
Were
they tossed to the dogs? What about Corus Bank (CORS), Bank United (BKUNA),
National
City Corporation (NCC)? It is beyond all belief that naked short selling
is affecting
Goldman
Sachs (GS) more than Washington Mutual, Wachovia, Corus Bank, Bank United,
and
National City Corporation. One only needs consider all facts above to figure out
what is
going
on. " (Source: http://www.marketoracle.co.uk/Article5505.html
)
The Uptick rule is a former financial
regulations rule, relating to the trading of securities in the
United States. The rule was eliminated by the U.S. Securities and Exchange Commission
(SEC),
effective July 6, 2007.
Within a year after the elimination of the uptick rule a
large number of small and medium size companies experienced declines of even 95% in share
value. Many small companies suffered unexplainable and unusually large declines. A 15%
stock fall taking place in a matter of few minutes and in absence of news was something
usual. Some companies were falling by double digits the same day they were releasing
record earnings beyond all analyst expectations. The stock declines were so severe that
Warren Buffet said was "not seen since 1929".
In the year following the elimination of the rule, for
the ensemble of companies under 18B in market capitalization, 83% declined and 27% lost
more than 50% of their market value . It can be argued that the consequences of the uptick rule's
elimination are difficult to measure since shortly after the elimination of the rule the
financial markets faced the sub-prime crisis. Some have blamed the worsening economy, the
credit crisis and higher energy costs as a cause of the worsening stock markets. Others
have blamed the elimination of the uptick rule.
Data seems to indicate that the lack of uptick rule could
be the cause of the extreme stock price decline of small and medium size companies. A
decline due to the credit or mortgage crises should have affected the financial sector
more significantly. Nevertheless, the decline took effect very homogeneously across all
economy sectors. Most important, the homogeneity was observed only for companies with
small trading volumes (easier targets of orchestrated bear raids). In contrast, within the
set of large companies over 18B in market capitalization (250 in total) only 10 companies
lost more than 50% of their stock value and all were financial institutions. Same
reasoning rules out the increase of oil price as an important factor in stock decline of
small caps. Besides, the oil price increase affected all the economies worldwide but
declines of 50% to 90% in stock prices were observed only in the United States.
On July 3, 2008 Wachtell, Lipton, Rosen & Katz, an adviser on mergers and
acquisitions, said short-selling was at record levels and ask the SEC to take urgent
action and reinstate the 70-year-old "uptick rule".[2]
On the March 20, 2008 episode of Mad Money, Jim Cramer launched
his campaign to reinstate the Uptick Rule. Citing the wild swings of the market since its
elimination, Cramer said that the SEC eliminated the rule during a bull
market, when liquidity was not a problem. Cramer believes that, without the Uptick
Rule in place, short sellers are devaluing perfectly solid stocks. As a former hedge fund
manager, Cramer admitted to making millions short selling with the Uptick Rule in place.
Without an impediment such as the Uptick Rule to slow down the pace of short sellers,
Cramer believes it puts the market at risk for the very problems he believes led to the Great
Depression.
Complaint letters have been submitted to the SEC for their decision of eliminating the
uptick rule. Examples of complain letters that can be found at the SEC website are:
April 27, 2008
In 2007, the SEC eliminated the "Uptick Rule" stating that there is
sufficient liquidity in the market place to make an "Orderly" market without the
rule. I find it incredible that, at that very time, a huge "Liquidity" crisis
was developing before the eyes of the SEC. Why was it important for the SEC to make the
change at that particular time? Were there hordes of investors pleading with the SEC to
eliminate the "Uptick Rule? I think not. On the other hand: Did the SEC buckle under
to pressure from the hedge funds to eliminate the "Uptick Rule" so they could
cover some of their losses in the impending liquidity crisis and down market which
followed July 2007? I think, probably so. The elimination of the "Uptick Rule"
has cost me many thousands of my retirement dollars. One only need look at the 33% short
interest in SCRX, a strong, viable, profitable company to witness "FRAUD" in
action.
July 9, 2008
It is well past time you dealt with infractions of the fails to deliver rules. This
practice, in far too many cases, seriously dilutes stockholders to the advantage of short
sellers seeking easy gain. I am disappointed in the SEC. It has done far too little to
protect the integrity of our markets. Abolishing the "Uptick Rule" last July was
a particularly damaging decision, one which has left the market and thus small and large
investors alike at serious risk from fear and short sellers capitalizing on the panic
trade. Please correct your mistakes. Reinstitute the "Uptick Rule". Punish
serial naked shorters, and clean up the threshold securities list. There shouldn't be a
single company on that list, and it is to your discredit that so many remain there for
such long periods. Sincerely, Steven O'Hara
June 6, 2008
Dear Commissioners, Please reinstate the 'Uptick Rule' to make it more difficult to
short stocks relentlessly. the small investor, retirees and many other buy and hold
investors lose tremendous amounts of money due to the practice of greedy shorters
attacking a particular stock. These professional shorters know all too well that a rapidly
falling stock price creates panic which causes more selling which in turn makes them
richer and the unsophisticated small investor poorer. Your commission is to prevent
corruption in the marketplace and by reinstating the 'Uptick Rule' you will be doing just
that. Respectfully, A disabled retiree.
April 6, 2008
What brilliant argument or whos influence, convinced law makers to repeal the uptick
rule which has served to mitigate extreme volatility and protect us from market crashes
since it was created after the lessons learned from the forensic reconstruction of the
factors leading to the crash of 29. Since the uptick rule was repealed market volatility
has increased drastically leading to both the fed and the treasury having to take extreme
measures to stabilize the market. Let us learn from our mistakes and reinstate the uptick.
rule. (except form Michael E Kushner, letter)
( http://en.wikipedia.org/wiki/Bear_raid
)
More to be added here about
modern day "Bear Raiders" this
weekend.
See also - http://www.tigersoftware.com/TigerBlogs/July-16-2008/index.html
http://findarticles.com/p/articles/mi_qn4158/is_20050610/ai_n14663414
http://www.efinancialnews.com/homepage/content/2449156285/restricted
http://business.timesonline.co.uk/tol/business/columnists/article4133443.ece
http://www.economist.com/displaystory.cfm?story_id=11591349
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