nice read
Salem Alikum
a nice story to read
http://new.quote.com/stocks/story.action?id=KAS068g9106
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News Story
SEC May Try to Clothe the Naked Shorts [delayed]
Friday March 09, 2007 14:20:14 EST
Ridgeland, MS, MAR 09, 2007 (EventX/Knobias.com via COMTEX News Network) --
In capitalistic America, it's really no wonder some of the schemes that unscrupulous investors will devise to make a quick buck. With Spam emailing activities coming under serious scrutiny, the plethora of these messages will undoubtedly decrease over the coming months as many that were responsible will be brought to justice. The cleaning up of the 'Wild West' ways of the Pink Sheets is under way with the fraudulent companies and investors being the first to walk the plank. The SEC's halting and investigation into 35 companies emailing activities is the first step. The investigation into the names and Spamming will continue for the next couple of months until the number of emails being sent starts to subside. The next phase in the cleansing of the Pink Sheets should be aimed at someone else besides the companies and investors. It should be directed at the market makers. These unscrupulous investment professionals participate in Naked Shorting. The illegal practice consists of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. However, some professional investors and hedge funds take advantage of loopholes in the rules to sell shares without making any attempt to borrow the stock.This action was regulated in October of 2003 when the SEC implemented a new rule to ban naked shorting in order to protect thinly traded names that were vulnerable to aggressive short-selling which would cause their price to fall. Critics of the new rule argued that if naked-shorting had not taken place during the micro-cap crime wave of the 1990s, such stocks would have climbed even higher before they crashed. Thus, the SEC's action to ban naked-shorting eliminated the only market force against over-hyped, or even fraudulent, small-cap and micro-cap stocks. But that time may be coming to an end. With the implementation of new ways of disseminating information, these market makers that were doing the market a service because of their proprietary information that rallying names were faux in the 90's are now doing it a disservice since they have just as much information on names as individual investors, especially in these smaller names. One company that is taking a proactive approach to the action is Universal Express Inc (USXP). The Company is a small logistics company involved in the delivery of packages and luggage for consumers, the unification of a private postal system, and transportation and equipment leasing options. The Company's CEO, Richard A. Altomare, is an avid (to say the least) opponent of naked short selling. The Company announced a press release noting a 30 minutes speech by Altomare about the thoughts and problems that are associated with naked shorting. The diatribe is available on the Company's website.Throughout the rambling, one can easily see the distain Altomare has for those participating in the activity and the SEC's apathetic view in enforcing it. He highlights ethical concerns from the SEC because they are compensated for every share that trades, whether it is real or fake. He also highlighted tax concerns since naked shorts that accumulate in a name that goes dark, through privatization or bankruptcy, the holder never has to cover and therefore never pays taxes on the gain. "Naked short selling has been derived and facilitated by the Internet. Our approach is very simple. We went to court with a jury of peers and we showed them that when we were attacked by naked short selling. Our stock was traded 50, 60, 70M shares in a month when we only had 5M outstanding," noted Altomare. On March 2, 2004, the Company also brought a suit against the SEC in Federal Court in Florida seeking damages from naked shorting of its shares and other matters. Thereafter, on March 23, 2004, the SEC brought an action in federal court in New York against certain officers of the Company. The New York Lower court ruled in favor of the SEC on Feb 27th of this year, but USXP noted that they would attempt to rectify the decision of the lower court. Whether that means they are appealing the decision is unclear.
In some of the closing remarks of the speech, Altomare said, "The way to clean up the naked short selling problem is to force our prime brokers and our executing brokers to follow the property laws of the Constitution of the United States." With the SEC's initial steps in cleaning the Pink Sheet space, naked shorting might be next on the agenda. The large number of names that have complained of the shorting activity include not only USXP, but also OSTK and many others. Regardless of these companies' operational activities, a mandatory covering by the SEC through regulation could cause a cover rally of mass proportions. In any event, the regulatory body's activities are definitely something to watch over the coming months.
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