Bob O'Brien on OSTK/SEC "Regs"

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bobosrevenge.blogspot.com/

The OSTK Affidavits - Nuclear Detonation in Hedgeland
I just got finished reading the October 1, 2005 edition of the PIPEs Report, and its summary and dissection of the infamous OSTK affidavits, which are apparently a big part of the evidence against Gradient Analytics and Rocker Partners.

Now, I may not know much about SEC regs or even fair business practices, but I do know that if the charges being leveled in the sworn testimony are true, that some very bad behavior has been going on for some time, and that the company has indeed been harmed, as have its shareholders, by a group that cynically manipulated research, as well as the press, for their own enrichment. Everything from Gradient running hedge funds that invested in the stocks that were being "researched" to enabling hedge fund clients to write their own research and publish it as Gradient's, to misrepresenting their staff as CPA's and CFA's when they were in reality college kids, to holding reports to allow the hedge funds to take short positions - what seem like, if true, an awful lot of 10(b)5 violations, not to mention good old racketeering, to this admitedly untutored opinion. So when do our brave regulators get on this and start doing their jobs? Or do they just pretend that the allegations haven't been made, and keep trying to find a way to hang Dr. Byrne for having the temerity to shine a light on the cockroaches? What's it going to take for them to do their GD jobs?

I particularly liked where Gradient is claimed to have given Herb's editor office space, paid for by that firm - and ostensibly while he was busy writing nasty reports that went on Gradient letterhead. Now, is that bad? I mean, if you have a financial journalist who is bashing the company relentlessly, who is known to be a friend of the biggest short in the company's stock, would it cross any lines to have his editor working out of Gradient's offices?

Help me out here.

I get this odd feeling that the reason the messengers have been shot by all of the financial pundits who are friendly with this group is because they know that there is no way to explain away the charges, no facile aphorisms which will trivialize the charges of frontrunning customized reports designed to negatively impact the company's stock, and slandering companies for profit, and all the rest. And there is always Herb's editor working out of Gradient's offices. Or Gradient ostensibly running money out of their offices while issuing "independent research". And the list goes on, and on, and on.

No wonder they want to make Byrne look like a kook and spend a lot of time on the Easter Bunny's favorite color.

Who would want to have to confront the charges in the affidavits? They are wildly damaging, obviously ethically over every line one can think of, and likely criminal (I don't know, not being an attorney, but they seem criminal to me - and if what they are accused of isn't against the law, my question is, why isn't it?).

So it will be interesting to see what the spin squad comes out with now that the affidavits are out there in the public domain, to see how they explain Herb's editor working out of Gradient's offices, to see how they rationalize frontrunning the reports, allowing the hedge fund to write the reports, etc. - whether that is all OK, and acceptable behavior - particularly from the WSJ, who seemed way more interested in the ex-employees and any dirty laundry they could dig up on them rather than on the actual charges. The WSJ and the Post both seem to be shocked that whistleblowers tend to be disgruntled ex-employees rather than the CEO's of the companies who have been up to no good. What a surprise. How unusual. I guess they never saw Norma Rae, or followed the Deep Throat thing, or paid attention to the mutual fund frontrunning scandal - you know, little things like that.

I just can't wait to see how long it takes the AG's of the relevant states to haul some asses into court and demand some explanations. But that is just me. Maybe enough money and power buys you immunity from the long arm of the law.

Again, I have no way of knowing if the charges in the sworn statements are true, but I do have to wonder that anyone would go out on a limb and go on the record making these allegations if they weren't.

So have at it, guys. I'm sure Jeff Matthews will have a smirking retort - although it is noteworthy that Herb, who is always game for snide snipes at Dr. Byrne, didn't comment when contacted by the PIPEs Report. Neither did his "editor". Suddenly the whole glib gang has lockjaw.

I guess the strategy now moves to the timeworn "deny everything, keep quiet, demand proof, and blame everyone else" strategy that has been the modus operandi of every perp ever accused of anything on Wall Street. They've had months to attack the messengers and claim that everyone connected with the case is a nut or a fraud, and that hasn't altered the contents of the affidavits nor the damage of the information contained therein, so one wonders what is next - you just know that the fabled countersuits will claim that all the perps are victims, innocent babes being tormented by the bad old lawyers and the demon company with the nutty CEO.

Let's see how that plays before a jury. I'm going to bet that a Marin jury can see through all the bombast to simple right and wrong.

It's pretty clear to me.

But then what do I know?


# posted by bob obrien @ 10:28 AM

[hermannmaier0]

WOW! Those affidavits must be a good read. Sounds incriminating. Tide is changing, and rip tide with undertow is being felt.

"I'm sure Jeff Matthews will have a smirking retort - although it is noteworthy that Herb, who is always game for snide snipes at Dr. Byrne, didn't comment when contacted by the PIPEs Report. Neither did his "editor". Suddenly the whole glib gang has lockjaw."

Its about time. Remember how much we small investors felt "unheard" a year ago regarding market manipulation and NSS? Now we watch and cheer as big bad guys are engaged, and taken down.

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Eyes on the Wise

This week's mini-maxi edition of Eyes on the Wise features yet more naked short intrigue, more politics as usual on Capitol Hill, and a couple of silly analyst tricks.

By Seth Jayson (TMF Bent)
September 30, 2005

Editor's note: This Commentary represents one writer's viewpoint and does not necessarily represent the opinion of The Motley Fool.

Where will the naked shorts strike next?
It's an article of faith among leading naked short conspiracy theorists, including Bob "Easter Bunny" "Not my real name" O'Brien, and Overstock.com (Nasdaq: OSTK) CEO Patrick Byrne, that a "bogus" SEC investigation is part of the grand plan and provides proof that the naked shorts are out to get you.

What do we make, then, of the current situation at Taser International (Nasdaq: TASR)? This week, it said the Securities and Exchange Commission had upgraded and formalized its investigation into the company, as well as expanding it to include possible leakage of insider information aimed at manipulating the company's stock price. Is this the "bogus" investigation that proves the paranoia is well-founded? Or is it "legitimate"? Wait, does a legitimate investigation prove or disprove the naked short conspiracy? From Taser's point of view, it appears to confirm it.

As you can guess, I was shocked -- shocked -- to see that the next thing out of CEO Rick Smith's playbook was to try his old Jedi mind trick. This time, he whipped out the naked short excuse, asking the SEC to fix that, too.

I've tried to give the Taser guys the benefit of the doubt. I really have. But this is beyond silly. Let me see if I get this straight. Insiders dump heavily last fall, selling $92 million worth of this stock just before major revenue whiffs and allegations of channel stuffing absolutely creamed it. At the same time, we got a glimpse at management's bad judgment in the person of board member Bernie Kerik, who was involved with all sorts of fly-by-night "security" companies. (To Taser's credit, it later sent Bernie packing.) Then Taser spends lavishly on a new HQ. Then revenues barely trickle in.

Yet naked shorting is the big problem?

I don't know about naked shorts, but you can see why legitimate shorters are doing anything they can to get their hands on these shares. Excuses generally don't flow well to the bottom line. And excuse-makers generally don't make their companies successful in the long run -- at least not for outside investors.

From the "Remind me to send Tom DeLay a fruit basket" file
Thank heaven for fresh meat. The hounds of journalism have moved on to the congressional scandal du jour. While his House counterpart found himself on the pointy end of a Texas felony indictment, Senate Majority Leader Bill Frist saw the investigation into his excellent timing of a sale of his stake in the family business, hospital outfit HCA (NYSE: HCA), go from bad to worse this week. The SEC's investigation went "formal," by which the SEC seems to mean "this is too much of a political hot potato for us to keep our lips stitched as usual." The formal status gives the SEC subpoena power, meaning it can ask for things like phone records, emails, and bank records.

Maybe they could also get some advice on how to set up a "blind trust" that lets you know what you own, choose when to sell it, and also keep stock in the family hospital biz, while simultaneously deciding the fate of health-care legislation, for years on end. That is, until you eventually decide that the long-term conflict of interest ought to be resolved. Right before the stock tanks.

A Frist spokeswoman reiterated that the senator will "obviously cooperate," which sounds too much like the defense offered by those Jerry Springer guests. You know, the ones who respond to criticism by shouting, "Hey, I take care of my kids!"

Sorry, Senator. No gold star for merely doing what you're supposed to do.

Hey, SEC? While you're at it, why don't you take another look at the past evidence of the Capitol Hill crowd's unbelievable stock timing? Oh, wait, you're run by a congressman now? Never mind, then. Nothing to see here.

More silly analyst tricks
Last week, I shared a tale of honor and offense, in which a Wall Street analyst took umbrage with my suggestion that his "outperform" rating -- or whatever goofy euphemism he used -- on Hoku Scientific might have had something to do with his company being one of the investment bankers that took that company public, not to mention making a market in the stock.

I'm preparing my inbox for more.

I just noticed that, earlier this month, the money-torching global satellite radio act that is WorldSpace (Nasdaq: WRSP) received a "buy" rating -- its first, as far as I've seen. What's that? You say that sounds unusual? Especially since WorldSpace loses lots of money? Especially since it owes a major chunk of any eventual EBITDA to people who've been accused of terrorist links? Especially since WorldSpace doesn't even offer a mobile, car-based service, the exact thing that's powering subscriptions -- if not profits -- at the stateside duopoly composed of XM Satellite Radio (Nasdaq: XMSR) and Sirius Satellite Radio (Nasdaq: SIRI)?

By now you should know the ending. The company that initiated coverage with a "buy" was none other than UBS, the firm that took WorldSpace public.

I know, I know. After the major Blodget/Grubman scandal that was eventually settled with the SEC, and all those millions in fines (UBS was one of the companies nailed, by the way), there are supposed to be "structural reforms," including "firewalls," "gatekeepers," "disclaimers," and other nifty-sounding business buzzwords to preclude conflicts of interest.

Horse hockey.

You should assume that this is a conflict of interest. If you want it more blunt, consider the words of a crusty colleague of mine, who groused, "If you think this recommendation is made in the interests of investors, then you're a [blank]." His last word rhymed with "boron."

From the "Be careful what you ask for" file
A PR operative from Bear Stearns recently wrote to suggest -- very politely, I must add -- that in discussing the recent flop at Movie Gallery (Nasdaq: MOVI), my colleague Nate Parmelee ought to have given Bear Stearns credit for the stock's drop. Specifically, Ms. PR wanted us to mention Bear Stearns' (whose name I will not shorten to BS, for obvious reasons) recent "underperform" rating as putting "downward pressure" on the stock.

Presumably, Ms. PR thinks that doing a little tapdance on Movie Gallery's grave will earn Bear Sterns a bit more street cred. And if you peruse the stories around the date of this rating, you can see that Ms. PR was apparently doing a good job of lining up the head-nodding, anything-for-a-quote business journalists out there.

But how prescient was Bear Stearns? You be the judge. The Bear Sterns rating was initiated on Sept. 27. Movie Gallery announced the day before, on the evening of the 26th, that it was suspending its dividend. That move sent shareholders streaming for the exits. You know what might have been useful? A Bear Stearns underperform before the spit hit the fan.

So, while the biz scribblers out there may have made Bear Sterns look like a market-moving heavyweight, it's really just late to the game. That's not so easy to do, but Bear Sterns did it the old-fashioned way: Paint a target around an arrow that's already stuck in the wall, and then sweet-talk the deadline-addled, story-hungry journalists out there into praising your marksmanship.

That's the way of the Wise. Keep your eyes peeled.

For related Fool commentary:

Repeek at last week's eyes on the wise.
Hey, Taser. We're all ears.


SETH is clueless!!! The pressure cooker is almost at it's flashpoint Seth!

becareful or you will be the real Fool!

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us.f602.mail.yahoo.com/ym/ShowLetter?MsgId=5542_958957_42386_1825_15325_0_7633_46852_4172156595&Idx=1&YY=80710&inc=25&order=down&sort=date&pos=0&view=a&head=b&box=Inbox

StockGate: Overstock Suit Against ‘King of Shorts’ Contains Explosive Affidavits
October 5, 2005 (FinancialWire) Published reports state that the affidavits in the suit brought by Overstock.com (NASDAQ: OSTK) against what some call the King of Shorts, John Rocker and Rocker Partners, and research firm Gradient Analytics are so hot it’s a good thing the defendants are shorts because they could sear their pants off. TheStreet.com (NASDAQ: TSCM) is also implicated.
Overstock has been on the Regulation SHO list, the government’s official list of illegal fails to deliver, for “only” 114 days, far less than 32 other companies. Martha Stewart Living Omnimedia (NYSE: MSO) and Krispy Kreme Doughnuts (NYSE: KKD), among others, have been on the list for 186 days. Legally, trades are supposed to settle within a few days time.
The affidavits, from former employees of Gradient, state that the research firm provided “hatchet jobs” on companies chosen by clients “coordinated to deliver maximum trading benefits to them.” The affidavits state that reporters for TheStreet.com “leaked” Gradient’s negative reports to the market ahead of their release. It notes that Rocker Partners is the largest shareholder in TheStreet.com and that Rocker is a contributing columnist. The affiants also say that former TheStreet.com columnist Herb Greenberg had an office at Gradient where he ghost-wrote research reports for Gradient clients such as Rocker.
The former employees, one of whom had been fired after raising questions about Gradient’s practices, said the firm stated its team of 18 to 20 analysts were comprised of CPAs and CFAs when none of them had advanced credentials, and were instead recent college graduates with business-related degrees.
They also note that the research firm’s executives, Donn Vickery and James Carr Bettis, also managed hedge funds and a mutual fund that traded in the securities of companies covered by the research side.
If so, this, among the other allegations, is a violation of the “Standards For Independent Research Providers” at www.firstresearchconsortium.com.
Former employee Demetrios Anifantis, in a sworn statement, said that Gradient would regularly generate “custom reports” for clients, after receiving specific instructions from the clients on whether it should be a “negative” or “positive” report.
Many of the reports were redistributed to PIPES traders and hedge funds by Sagient Research, which distributes the Placement Tracker database of PIPES transactions. Sagient reportedly said it has not distributed Gradient reports since August, 2004. Release dates on the reports were said to have been often delayed for three to five days while Rocker and other Gradient partners secured short positions. These allegations were contained in several affidavits.
The affidavits said that an associate editor working with Greenberg, now at Marketwatch.com, Brian Harris, worked for Gradient to draft research, and had an office in a Gradient office in Seattle. It was noted that TheStreet.com removed Harris’ name as an associate editor shortly after Overstock’s lawsuit was filed.
The affidavits contain numerous other explosive allegations.
In other naked short selling developments, the Depository Trust and Clearing Corp., reportedly itself under NASD scrutiny for its controversial stock lending program that some, including an 11 state state North American Securities Adminitrators Association task force headed by Connecticut’s chief securities officer, and former NASAA president, apparently believe facilitates the illegal naked shorting industry, has been very secretive about the status of shares for individual companies, stonewalling even companies’ efforts to determine their true ownerships and short positions.
Brokerage and clearing firms are apparently under intense NASD pressure to settle failed short trades in Regulation SHO threshold securities or have their clearance firms do it for them at possible substantive losses.
The NASD is in turn acting under political and regulatory pressure from the 11-state task force.
Lambiase had publicly asked the SEC to “fix” the DTCC “problem” as it was considering the adoption of Regulation SHO last year, but taking a page from numerous U.S. Senators, he and other state regulators have grown tired of waiting for Regulation SHO to do more than simply shine a magnification light on the massive fails-to-deliver problem.
DealFlow said NASD officials are concerned that stock loan programs are being used to settle failed short trades in Reg SHO threshold stocks, which must be closed out voluntarily or through forced buy-ins within 13 days. “The regulators are concerned that the stock loan are being used instead of market purchases to provide the shares needed for settlement, creating new transactions that will ultimately fail to settle as well.”
The state regulators, DealFlow said, have been “highly critical of the SEC's decision to ‘grandfather’ settlement failures resulting from naked short sales up to levels that trigger threshold status under Reg SHO.”
NAASA was particularly concerned about Regulation SHO, because it excluded the small cap market from any meaningful regulation. “NASAA said the proposal included replacing the so-called ‘tick test’ with a rule that would provide a uniform price test using the "consolidated best bid" as the reference point for permissible short sales. This, however, would not address problems relating to the naked short selling of smaller, less liquid securities, because , NASAA argued, the requirement of the consolidated best bids meant it could not be applied to securities that were not subject to real-time consolidated quotes. That included Nasdaq Small Cap, OTCBB, and Pink Sheet securities.
NASAA also questioned the wisdom of grandfathering settlement failures under the threshold level, asking why the SEC was willing to permit significant settlement failures at all.”
“While there are instances when settlement may be legitimately delayed, existing regulations provide for extensions for settlement. If the Commission continues to allow settlement failures, it may well facilitate the harm that the proposal is designed to remedy,” Lambiase warned the SEC.
According to DealFlow, Lambiase urged the SEC to reconsider its stance regarding the role of the stock borrow program operated by the Depository Trust Corp. (DTC). NASAA wrote that as a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The utility of the overall proposed rule would be severely impaired unless the Commission undertakes to implement such a prohibition."
Brent Baker, an attorney with Woodbury Kesler in Salt Lake City and counsel to naked shorting target and eight-month old threshold list company Overstock.com, previously spent 14 years at the SEC, including time in the Division of Enforcement, was quoted as saying he believes that the SEC tried, with Regulation SHO, to put "their finger in the dike" but failed.
“Three or four years ago naked short selling was being perpetrated by promoters in the micro cap world," he says. "they would publish 'exposes' on the Internet... and they would bring pressure on these little companies."
“However, short selling has changed,” noted DealFlow. He believes the SEC does not realize that abusive short selling practices have been adopted by others and are now built into business models of large, mainstream hedge funds.
Meanwhile, the NY Post has reported that traders in Nasdaq stocks are racing to beat a rumored regulatory deadline to close out their positions ­ or take huge losses as clearing firms do it for them.
“Naked short sales are trades executed without borrowing stock beforehand. Naked short sellers can overwhelm an orderly trading market, since unlike traditional short sellers, there is technically no limit to how much stock can be sold short illegally, noted the Post.
The Post also reported recently that the NASD and numerous state securities regulators, led by Ralph Lambiase of Connecticut's Division of Securities and Business Investments, have vowed to increase scrutiny of naked short sales.
“A buy-in is the worst possible development for a short-seller, since he has to accept any price given,” it stated.
It seems that everytime the DTCC, which is also the target of numerous lawsuits brought by failed companies and a scorching expose in Investment Dealers Digest, gets under pressure, it begins striking out blindly in all directions. FinancialWire can often determine when the heat has been turned up because it is among the media, also thought to have included Dateline NBC, that begins to receive threats from the organization.
In February, the DTCC interfered with FinancialWire’s distribution to Investors Business Daily, and in the past week it sought once more to interfere with another distribution, saying that FinancialWire receives monies for its editorial coverage of the naked short selling issue.
Marshal Shichtman, Esq., attorney for FinancialWire, has been in touch with Proskauer Rose, the outside counsel for the DTCC, warning it of slander, tortuous interference with FinancialWire’s business and because the DTCC is owned by two SROs, the NASD and the NYSE, of First Amendment violations.
Shichtman will be similarly warning the SROs and the directors of the DTCC of what he terms their risks associated with the ruthless, reckless and irresponsible actions of their clearance entity.
In a letter to constituent investor advocate Dave Patch, whose persistence in criticizing Federal regulators over the past several years for shareholder losses at the hands of illegal manipulators was at times a lone quest, often covered only by FinancialWire, Connecticut Division of Securities Director Ralph A. Lambiase, the immediate past president of the North American Securities Administrators Association outlined for the first time the efforts a “working group” of state regulators have been undertaking to assail abusive market practices that Lambiase said has been directly responsible for “an unmistakable loss of investor confidence by the arguably millions of investors who have lost their monies.”
It was an unusual move by Lambiase to outline the states’ enforcement plans in a letter to Patch, who has been vilified and scorned by many top regulators and institutions for his efforts, which includes the maintenance of a website, www.investigatethesec.com .
Lambiase said that his efforts, and efforts of others, such as Tanya Solov, Director of the Illinois Securities Department, Tanya Durkee, Deputy Commissioner, Vermont Department of Securities, and Rex A. Staples, General Counsel for NASAA, was stimulated by Patch, and an ever-growing group of concerned citizens who have “continued to champion the issue of reform in the naked short selling area for so long,” and added that it has been those grassroots efforts that constitute the “primary reason we are beginning to see reform of any sort.” Lambiase was clear in stating that it is “your determination and persistence in seeing that this wrong is righted is in part responsible for my interest, as well as that of other state regulators.”
Lambiase, whose initial letter to the U.S. Securities and Exchange Commission stated that the SEC needs to look at the role of the Depository Trust and Clearing Corp. in allowing these abuse practices to continue, said that it seems “clear that had the SRO’s and the SEC exercised greater diligence in enforcing pre-existing rules, Reg SHO would likely have been unnecessary.”
He said his working group has begun meeting with SRO’s and issuers alike, and that it will “continue to exert substantial effort to remedy the remaining abusive practices in naked short selling until we are confident at the state level that the companines in our communities and citizens that invest in them will no longer be the possible targets of abusive naked short sellers.”
It had been previously rumored that the reason the NASD has been issuing subpoenas to a dozen or more brokerages over their “fails to deliver” and their failures to enforce buy-ins is due to those regulating at the Federal level not wanting to be trumped again by a state investigation such as occurred in several Spitzer reform efforts.
Lambiase so far appears to be taking the posture that the state group is ready to step in if the Federal regulators do not, thus “inspiring” the current efforts rumored to be occurring at the Federal level.
To make the point, he told Patch in the letter obtained by FinancialWire that “there remains a substantial distance between REG SHO and the ultimate goal of including substantive protections for small business issuers.”
It is these small businesses in our communities, Lambiase pointed out, “who take entrepreneurial risks to grow their companies through listings on the OTCBB and Pink Sheets. These small businesses not only provide employment for the residents of their communities, but also offer the general public the opportunity to invest in local businesses with promising products or services.
“While it may be true that a number of small companies lack the financial depth to succeed, they are nonetheless entitled to succeed or fail by their own honest business decisions and not as a result of the corrupt acts of abusive short sellers.
In what some believe is another swipe at the secretive DTCC, he said that “without transparency, we cannot, as yet, precisely identify each small business that failed as a direct result of abusinve naked short selling nor quantify the exact number of jobs lost to our local economies when these companies are forced to close their doors.”
In what is an unmistakable prod to the SEC, Lambiase said that institution is “moving slowly forward as Reg SHO in its current state is studied and debated seemingly ad infinitum. While slight modifications to the existing Rule may result from such an approach, a far more threatening pattern of abuse is certain to continue unless wholesale reforms are made to remedy the concerns of the small business community.”
He said that even Congress, whose members have also called the SEC on the carpet for the slow progress associated with Reg SHO may in fact be missing the point that “abusive short selling poses a direct threat to the economic well being of small business and the entire community.”
The 11-state task force reportedly was in serious strategy sessions a few weeks ago.
The New York Post quoted one regulator as saying there is “an epidemic” of naked shorting. Regulation SHO has made that evident for the world to see. Numerous U.S. Senators have called the Regulation fully ineffective, and have repeatedly called upon the SEC Commissioners to get the practice under control.
The Post said that an SEC official confirmed to it “that no complaints have been brought in the nine months since Regulation SHO went into effect.”
It quoted one state securities regulator, Bill Reilly of Florida, as saying he expects the increased effort will result in more voluntary compliance from dealers, as well as enforcement activity.
That may or may not resolve the DTCC “problem.” Recently a stock transfer agent, Transfer Online Inc., had asked then-SEC Chair William Donaldson to put a stop to the control the Depository Trust & Clearing Corp. and Automatic Data Processing (NYSE: ADP) are fast gaining over the transfer business, and to demand DTCC transparency.
Excerpts from the letter, posted at www.faulkingtruth.com/Articles/LettersToEditor/1012.html , states: “Over the years as the amount of shares held at DTC has increased it has become more and more difficult to determine who owns the shares, who is trading them and if the trading is proper. This trend, and the resulting problems I will detail below, continues to increase because a minority of the total number of shareholders are reflected on the books and records of the corporation, most activity takes place behind the wall of ownership that is designated as Cede & Co. and neither the company nor the transfer agent has any access to the underlying information.
“Furthermore, DTC recently managed to put through a rule change (Release No. 34-50758A; File No.S7-24-04) that prohibits a transfer agent from representing any company who seeks to withdraw from the DTC system. This change effectively leaves companies with no voice or choice in the management of their stock and their ability to have any transparency as to what is actually taking place in the market in regard to their stock.
“I receive calls from companies seeking information as they watch millions of shares trade in a single day, who watch their share price decrease in value and who have no access to information regarding who is behind the trading of these shares, or if in fact the trades are at all legitimate. As the system now operates, most companies have a large percentage of shares on their books registered to Cede & Co.
“Given the importance of shareholder voting and communication one would assume that the same requirements placed on transfer agents as to accuracy and reporting would be placed on ADP and Cede & Co. as they usually hold or service the majority of the shares owned in any given company.
“I have found; however, that when presented with the tabulation reports from ADP the share totals they report sometimes exceed the total number of shares outstanding for the company. Let me restate this because it is a very important part of my concern about a system that is more and more headed in the direction of increased control by DTC. The shares presented by ADP, that are the shares voted by the brokers on behalf of the shareholders for whom they hold accounts, EXCEED when added to the shareholders of record the total number of shares outstanding.
“Where are these extra shares coming from? Why are there no controls on the number of shares held in the nominee name Cede & Co. vs. the ownership on the books and records of the brokers and why is the company not privy to any information unless it pays whatever fees it is told it must pay by the organizations that control the data?
“In fact, as the system is evolving, DTC is de facto becoming the largest transfer agent in the industry even though it is an organization formed by and working for the interests of the brokerage community. If, ultimately, the S.E.C. is in place to protect investors then this issue can not be ignored because in the end when the market is completely under the control of the brokers and the organizations that represent them then the market can neither be transparent nor fair.”
The DTCC actions in the StockGate mire are the most serious, if not notorious since the agent of two SROs, the New York Stock Exchange and NASD is also peopled by some 21 directors whose companies, such as Merrill Lynch & Co. (NYSE: MER), State Street Corporation (NYSE: STT) and Goldman Sachs (NYSE: GS), are unlikely to support the DTCC in its media censorship.
DTCC board members include Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); and Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney's Corporate Investment Bank (NYSE: C), Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).
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