Let's get straight to the point here: hedge funds are destroying America. By operating in complete secrecy, they have been able to "reward" their largely ultra-rich clientele by manipulating the stock market for decades through the use of naked short selling and stock counterfeiting, at the expense of the average investor. While millions of Americans have watched helplessly as they have been robbed blind for years and years, the rich continue to get richer.
Hedge funds are destroying America, and they're being aided and abetted by Wall Street, the major brokerage firms, the SEC, and Congress. And now that the SEC is finally trying to introduce even tepid regulations to this largely unregulated industry, they are looking for allies in the federal courts as well. In a lawsuit filed by Phillip Goldstein, a hedge fund adviser from Pleasantville, N.Y., Opportunity Partners, a hedge fund partnership; and its general partner, Kimball & Winthrop, federal appeals judges have already begun to side with the hedge fund industry in their battle to continue to operate in complete secrecy.
Let's begin by taking a look at the judges in the case:
Judge Randolph, appointed by President George H.W. Bush in 1990, is the same judge who ruled in July of this year that the EPA doesn't have any obligation to regulate carbon dioxide as an air pollutant under the Clean Air Act, siding instead with auto manufacturers. In fact, he has consistently ruled in favor of big business and big government over the rights of the average American. In 2001, he ruled in favor of Microsoft in their anti-trust case, and more recently, he ruled in favor of Dick Cheney in a case involving disclosure of secret documents concerning energy policy.
When it comes to protecting Americans against big business and big money interests, Judge Harry T. Edwards, appointed by President Jimmy Carter, hasn't done much better. He sided with AT&T; in their 1984 anti-trust case, with Microsoft in the appeal of their anti-trust case in 2001, and has consistently ruled against stronger government regulations when it comes to big business.
And George W. Bush appointee Thomas B. Griffith? He had never even been a judge on any level when he was appointed by Bush to the U.S. Court of Appeals in 2004. However, he did let his Washington DC law license expire in 1998, and then practiced law in the state of Utah for four years without even bothering to obtain a law license at all. Oops!
So those are the judges in whose hands the future of our country lies. Feel better now?
The hedge funds are maintaining that the SEC has no authority to regulate the hedge fund industry, and, as an article in the New York Times put it last Friday, "that only Congress, where the hedge fund business has more allies than the commission, may make the changes that the agency is planning to impose."
Allies in Congress? What happened to the posturing and gesturing of a few months ago by members of the Senate Banking Committee, who promised to take on the issue of stock market reform by addressing the massive scandal involving stock counterfeiting through naked short selling? Since Banking Committee Chairman Senator Richard Shelby (R-AL) killed a planned Banking Subcommittee hearing in September, there has been absolutely no action by Congress to protect the American investor.
Even if the SEC manages to enact their new regulations in February of 2006, all they will have succeeded in doing is closing one loophole, while opening several more. The new restrictions will require that any hedge fund with more than 14 American clients will have to register with the SEC and be subject to the same disclosure requirements that all other mutual funds have had to follow for the past 65 years.
Foreign hedge funds are already taking advantage of the loophole that exempts hedge funds with less than 15 American investors. In an article in the UK Times, it was disclosed that many foreign hedge funds are already considering "asking their American investors to leave" rather than have to disclose their trading practices.
American hedge funds are exploiting another loophole in the new regulations that exempts funds that prevent customers from redeeming their capital for two years or more. Many are considering simply extending their "lock-up period" period to avoid the new laws. It's a win/win situation - they can continue to operate outside of the law, and hold on to their clients money for longer at the same time.
Yet another loophole exempts hedge funds with under $25 million in assets, and since hedge fund owners can open as many separate funds as they want, they can cap each one at just under the magic $25 million mark. In fact, one hedge fund manager who was convicted of fraudulently manipulating the stock market had 2,500 separate offshore accounts, and another has over 600 separate offshore hedge funds.
And then there's the most glaring omission of all. As long as all foreign hedge funds are not regulated by the SEC, in other words, as long as they are not required to adhere to the same rules that American investors must follow, they will continue to be able to use our own fraudulent trading system against us. Money will continue to flow out of America and into Lord knows whose hands. The deadline to apply for registration is Thursday, December 15th. It will be interesting to see how many hedge funds register, and how many more have manipulated their way out of following the rules yet again.
Recent moves by the states, led by by the North American Securities Administrators Association, to begin their own investigations into naked short selling are a major step in the right direction, and could force Congress to finally address the problem, if only to avoid embarrassment. The states have already begun to assert themselves by holding a forum to discuss the issue on November 30th, where they addressed the issue of stock market fraud and naked short selling.
Instead of giving a blow-by-blow analysis of that forum, I'll reprint the commentary that I wrote after I sat and listened to the eight member panel discuss the fraud in the stock market that has been allowed to flourish unhindered for decades.
This was written on the evening of November 30th, in a hotel room in Washington DC:
Good evening from our corrupt capitol freedom lovers. I have mixed feelings about the NASAA forum on naked short selling today. It actually went better than I thought it would, but then I went in with pretty low expectations. Both sides were presented, and the "advocates for reform" on the panel presented their case well. And who were the advocates for reform? The financial experts, all of whom had facts, research, and reality on their side.
As for the SEC, they continued their tactics of deny, deny, deny, and make excuses, and when those don't work, make excuses for those excuses. It was politics as usual. While America burns, they continue to sing the same tired song.
And Congress? They, as usual, were nowhere to be found.
Did Ralph Lambiase, Connecticut Securities Director, nail the SEC as strongly as I would have liked him to? No, but I understand that he needed to stay somewhat impartial as a moderator. Lambiase did do a good job of bringing to the table the controversial issues of voters' rights for stockholders who have never received their shares, and the grandfathering in of all prior trade settlement failures by the SEC. However, the role of hedge funds in naked short selling was barely touched upon.
I applaud the actions of the NASAA, now we'll see if they follow up on it with real reform. The best thing that could happen would be the states forcing the SEC and Congress to deal with it on their own. Up to now, Congress has done absolutely nothing to address this financial tragedy, and we have to force them to accept responsibility for their gross negligence. On a side note, I know for a fact that word of this is filtering back to Congress, and hopefully, our advocates who are lobbying them will win some support from those on the hill (that's what we locals here in DC call it...."The Hill").
I did get to speak with several of the panelists after the forum, and was encouraged by their responses. On the other hand, when I introduced myself to the SEC’s James Brigagliano, he said simply, “Oh…..”, and turned around and walked off without saying another word. (Personal note to James: “I love you too.”)
Here’s something funny about J.B. His job description in today’s bios said that he “administers rules designed to prevent manipulative trading.” The facts presented in today’s forum alone should have been enough to get him fired as soon as he returns to his office. (Editor's note: no such luck, James is still with us two weeks later.)
In my opinion, the most encouraging comment of the day came after the forum, when I spoke with NASAA General Counsel Rex Staples, and asked him about the SEC and DTCC’s efforts to convince states to eliminate paper certificates altogether, which would effectively destroy investors’ only recourse to prove actual ownership of the stock shares that they have bought and paid for.
His response? “It’s not going to happen. The SEC and DTCC can lobby all they want to, but not one state has eliminated paper stock certificates, and no one will.
Keep fighting the good fight. In the end, right always prevails.
Doesn't it? Someone told me that somewhere, I hope it's true.
The issue of stock market manipulation and stock counterfeiting through naked short selling is one that affects every American, whether they own stocks or not. By destroying thousands of small businesses and allowing the ultra-rich to defraud investors and then move that money to dozens of offshore tax havens such as Bermuda, the Cayman Islands, and Belize - and out of our economy, the very foundation of our free enterprise system is in jeopardy. The hedge funds have "allies in Congress," while we have none. It will be interesting to see who will be the first in Congress to stand up for America in our battle against Big Money. As I said, there has been plenty of posturing and gesturing, but no real action whatsoever.
So much for "government by the people, for the people."
Editor's note: An updated version of our first article on the topic of stock counterfeiting, "Financial Terrorism in America,"originally published at The Faulking Truth on March 19, 2004, has been included in the prestigious Capco Journal of Financial Transformation, alongside articles by Nobel Peace Prize recipients, University Professors, and CEOs of major corporations. How the heck did that happen?
You can read that article here:
http://www.capco.com/journal.aspx?id=107
To read the transcript of NASAA's Forum on Naked Short Selling in it's entirety, go to:
http://www.ncans.net/files/NASAAtrans.pdf
For more information on Stockgate, go to:
http://www.investigatethesec.com/
Just for fun, I posted the lyrics to Randy Newman's song, "It's Money that Matters" on our website. Enjoy:
http://www.faulkingtruth.com/Articles/Words/1051.html
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Investing 101 Archives:
Financial Terrorism in America (Mark Faulk, Mar 19, 2004)
Pump and Dump or Short and Distort? (Mark Faulk, Apr 18, 2004)
Response From Berliner Freiverkehr and The Berlin-Bremen Stock Exchange (The Faulking Truth, Jun 3, 2004)
The Berlin Connection? SEC and NASD to Meet With German Brokerage Firm Tomorrow (Mark Faulk, Jun 3, 2004)
Is Dateline Losing Credibility Over StockGate Story Delays? (Mark Faulk, Jun 11, 2004)
Who's Looking Out For You? SEC Critics Seeking Investigation (Mark Faulk, Jun 27, 2004)
He Said, She Said: SEC, NASD At Odds Over Status of Proposal (Mark Faulk, Aug 5, 2004)
The Berlin Connection: 250 Companies Out (And Counting) (Mark Faulk, Aug 30, 2004)
Jag Media Case Dismissed by Judge, Citing Filing Deficiencies (Dave Patch, Sep 9, 2004)
A Twelve Step Program to Clean up the OTC Stock Market (Mark Faulk, Sep 14, 2004)
Is Time Running Short in StockGate Scandal? (Mark Faulk, Oct 5, 2004)
Dateline: The Waiting is the Hardest Part (Mark Faulk, Nov 16, 2004)
Death of an Investment Class (Dave Patch, Dec 30, 2004)
Elgindy Trial Illustrates Incompetence at the Federal Levels (Dave Patch, Jan 4, 2005)
The Year of the Investor (Mark Faulk, Jan 5, 2005)
Regulation SHO’s Threshold Lists Leave More Questions than Answers (Dave Patch, Jan 11, 2005)
Feeding the Stock Market Beast (Mark Faulk, Jan 11, 2005)
Economic Corruption US Style (Joel S. Hirschhorn, Feb 27, 2005)
Stockgate Goes to Congress (Mark Faulk, Mar 10, 2005)
The Old Shell Game (Bob O'Brien, Mar 25, 2005)
FINALLY! Dateline to Air Stockgate Segment April 10th (Mark Faulk, Mar 28, 2005)
Dateline Stockgate Update: POSTPONED YET AGAIN! (Mark Faulk, Apr 6, 2005)
Time to Boycott GE, Dateline, and NBC? (Mark Faulk, Apr 6, 2005)
Pink Sheets CEO Calls for Reform in OTC Stock Market (Mark Faulk, May 2, 2005)
National Counterfeit Conspiracy Days, June 6th and 7th! (Mark Faulk, May 15, 2005)
Ninety-Four Trade Days and Counting (Dave Patch, May 25, 2005)
Stockgate: Turning up the Heat (Mark Faulk, May 31, 2005)
Stockgate: Donaldson out......Cox in (Mark Faulk, Jun 2, 2005)
SEC's Donaldson out, Cox in: One Step Forward, Two Steps Back (Mark Faulk, Jun 13, 2005)
President Bush’s Social Security Agenda - Steal your Money the Easy Way (Dave Patch, Jun 17, 2005)
Global Links Corp: The Real Story (Mark Faulk, Jun 26, 2005)
Forget SEC "Regulations".... This is Good Old-Fashioned Fraud (Mark Faulk, Jul 13, 2005)
Common Cause Joins Fight to "Stop Corporate Takeover of the SEC" (Mark Faulk, Jul 22, 2005)
Dateline Stockgate: We're on, we're off, we're on, we're off.....WE'RE ON AGAIN: July 31st!!! (Mark Faulk, Jul 25, 2005)
Dateline to Air Stockgate Segment in 2-Hour Show, Sunday, July 31st (Mark Faulk, Jul 29, 2005)
From Dateline to Overstock....The Plot Thickens (Mark Faulk, Aug 16, 2005)
Congress Sells America Short (Mark Faulk, Sep 20, 2005)
Stockgate: The Big Picture (Mark Faulk, Oct 10, 2005)
Stockgate: Rallying the Troops (Mark Faulk, Oct 16, 2005)
The $10.5 Billion REFCO Smoking Gun? (Bob O'Brien, Oct 23, 2005)
We Definitely Aren't in Kansas Anymore - Fraud Wall Street Style (Bob O'Brien, Nov 3, 2005)
Start Spreading the News: Stockgate Goes Nationwide (Mark Faulk, Nov 8, 2005)
Stockgate: "Can We Talk?" (Mark Faulk, Nov 27, 2005)
It's Money That Matters (Mark Faulk, Dec 11, 2005)
Regulation SHO; Results Leave Questions More than Answers (Dave Patch, Dec 29, 2005)
Faulking Truth Editor to Write CMKX Story (The Faulking Truth, Jan 5, 2006)
It Takes an Army (Mark Faulk, Jan 11, 2006)
The Circle of Greed: The Only Bull in this Stock Market is a Cash Cow (Mark Faulk, Jan 17, 2006)
A Silent Lynch Mob - An Open Letter From Rod Young (Rodney Young, Feb 2, 2006)
The Circle of Greed: A Voice in the Wilderness (Mark Faulk, Feb 13, 2006)
The Circle of Greed: Who Wants to be a Congressman? (Mark Faulk, Feb 26, 2006)
Freedom of the Press? (Mark Faulk, Mar 12, 2006)
The Parallel Universe of the DTCC: “Bits and bytes in book-entry form.” (Mark Faulk, Mar 24, 2006)
Finally...the Truth About Patrick Byrne (An open letter to Colin Kelly, Jr.) (Mark Faulk, Apr 19, 2006)
Faulking Truth recommends abolishing the SEC (Mark Faulk, Apr 27, 2006)
The Circle of Greed: The Cloak of Invisibility (Mark Faulk, May 25, 2006)
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