April 8, 2009
Ms. Mary L. Shapiro
Chairman
Securities Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
Subject: Citigroup, Bank of America
Re: Short Sellers
Dear Ms. Shapiro,
I am a current shareholder of Citigroup and former shareholder of Bank of America. I write you to express my outrage at the unbridled and unregulated ultra short hedge funds, who together with other short-sellers, have reeked havoc on the financial sector through manipulation of the price of such stocks as Citigroup and Bank of America.
I understand that Citigroup currently has in excess of 1-billion shares that are short. The massive selling of Citigroup shares by the ultra short hedge funds and other short-sellers has contributed significantly to the problems with banks maintaining their Tier II ratios for reason of the decline in value of stock prices.
I read a story in the Wall Street Journal that puts the blame for the uncontrolled use of “naked” short-selling squarely at the S.E.C. as a result of the failure of the S.E.C. to enforce the margin, capital and other requirements involved to legally engage in short selling of a company’s shares without owning the stock.
The S.E.C. has significant culpability in the losses shareholders of Citigroup and Bank of America suffered when their shares were pounded to ground zero a couple months back, which included Citigroup being sold for under $1/share, a price the financial conglomerate hasn’t seen since recorded time.
Now the S.E.C. is considering bringing back the up-tick rule, which I feel is insufficient to rectify the problems of these ultra short hedge funds manipulating prices of shares of Citigroup and other banking entities by selling their stock “naked,” never intending to borrow shares first as required, or fulfill the margin requirements for such transactions.
The penalty for unlawful “naked” selling of stock should carry criminal liability as well as civil liability for hedge funds and other short-sellers. I am requesting the S.E.C. to investigate the hedge funds and other short sellers of Citigroup and Bank of America stock to determine whether U.S. securities law was broken with respect to “naked” short selling. Where there’s smoke there’s usually a big fire.
Perhaps you can explain to me why anybody would sell Citigroup for under $1 a share except a short seller. These ultra short hedge funds I believe also spread many rumors about Citigroup and Bank of America being nationalized to panic existing shareholders into believing that the Treasury was in the process of seizing banks when no such action was being contemplated by the Treasury or the F.D.I.C. The S.E.C. should also investigate the ultra short hedge funds and other short-sellers to see if a conspiracy exited in violation of the RICO statute to manipulate the price of Citigroup, Bank of America and other financial entities.
If the Wall Street Journal story is true, and I believe it is, the S.E.C. was complicit in allowing unregulated ultra short hedge funds to engage in unbridled short-selling of the financial sector, including unlawful “naked” short-selling transactions, that has resulted in protracted losses of existing shareholders. As a result of Citigroup’s unreasonable decline, which I attribute to short-selling, the financial conglomerate has had to request preferred shareholders convert to common stock to boost Citigroup’s Tier II capital ratio.
“Naked” short-selling should be banned by appropriate legislation or S.E.C. rules. Criminal penalties should be imposed for ultra short hedge funds and other short-sellers who engaged in massive computerized “naked” short-selling of the financial sector at every turn to the point banks that are members of the S&P indexes are being forced off the indices. The decline of shares of such financial conglomerates as Citigroup and Bank of America have also resulted in major institutional investors divesting themselves of the stock, which may have been caused by the ultra short hedge funds activities.
There is no excuse for the S.E.C. to have allowed this insane situation to exist. I also recommend that your office contact Jim Cramer at CNBC for the reason Mr. Cramer has openly expressed his disdain for the ultra short hedge fund short-selling activities and blames this group for being behind the economic slide on Wall Street.
Sincerely
s/
Chuck Jones