March 19, 2009
I am prompted to seek help in correcting the monumental wrongs in our stock markets by the recent and incredible denial of the existence of Naked Short Selling, and its detrimental effects on America's investors and companies, by the SEC Enforcement Division in response to suggestions made in a report by its own Office of the Inspector General. The OIG had suggested that the SEC implement measures to respond more effectively to investor complaints about the practice of Naked Short Selling (Audit Report No. 450, regarding Practices Related to Naked Short Sale Complaints and Referrals).
Here is a quote taken from the SEC Enforcement Division's response: "In recent months, a small but vocal cadre of advocates has emerged decrying the practice and suggesting that it has damaging market effects. But there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of "naked" short selling. The Commission has repeatedly stressed the fact that the practice can provide needed market liquidity in certain circumstances. For instance, market makers sometimes engage in legitimate "naked" short selling when there is high buying demand in a security. 155 Still others view the threat posed by "naked" short selling as wildly exaggerated, and point to instances in which allegations of abusive "naked" short selling were used to cover up other management malfeasance, like the dumping on the market of large blocks of unregistered shares. We have recently alleged such behavior in the widely-discussed CMKM Diamonds litigation. Other fraud defendants have also attempted to portray depressed stock prices as the work of clandestine short sellers."
I confess to be one of this "small but vocal cadre of advocates" who are against the predatory practice of naked short selling. However, I would stress instead that this cadre is anything but small. An estimated 40,000 to 60,000 investors in CMKM Diamonds (symbol: CMKX) have been waiting for almost four years since the SEC revoked the company's trading rights to find out how many naked shorts actually exist in CMKM Diamonds. And we join hundreds of thousands of other investors of companies that were similarly naked shorted into the ground. And these unfortunate investors have now been joined by millions of ordinary Americans who have been literally shocked by the Ponzi schemes of Bernard Madoff and others, and the totally unbelievable story of how the SEC turned a blind eye to the recurring and concise complaints that were made by Harry Markopolis concerning Mr. Madoff's systematic fleecing of his investors.
In fact, I fully expect the number of this "small" cadre to continue growing until the SEC lives up to its mandate to "protect the investor" rather than continually falling into step with the criminals who are presently manipulating our stock markets, and who have brought the entire world economy to its knees. The SEC Enforcement Division has recently lost several of its top tier of management due to the remarkable incompetence that they exhibited during their tenure. And Ms. Mary Schapiro, who has been appointed as the new chairwoman of the disgraced agency, has announced a comprehensive review of internal procedures for evaluating complaints. I would respectfully suggest that the SEC housecleaning activities begin by evaluating the people in the SEC Enforcement Division who concocted this entirely inappropriate and ill-advised response to the suggestions made by their Inspector General.
I would also like to suggest that the SEC live up to its mandate to protect the investor by halting its long-held practice of hiding information. A number of depositions were taken of the people who were involved in CMKM Diamonds management during the period when an estimated 6.3 trillion naked short sales took place. In spite of the fact that these depositions are now four years old or older, the SEC has blocked all attempts by CMKX shareholders to obtain them through the Freedom of Information Act. In my opinion, this is typical of the SEC's practice of keeping investors -- and the American public -- in the dark while helping the Wall Street manipulators extract their profits from our pockets. This would seem to counter the expressed intent of President Obama to bring greater transparency to government. I would imagine that the president would consider four years to be long enough for investors to wait for the information they need to understand the most basic things about an investment that they made on an American stock exchange. CMKX investors do not even know how many CMKX shares were actually sold in the market. The SEC has stated that 622 billion "unregistered" shares were sold. However, they fail to answer the question of whether these 622 billion shares are part of the company's reported 800 billion Authorized Shares, or whether they are separate from the Authorized Shares. It is almost impossible to fathom that investors in the American stock market cannot even find this most basic of information through the Freedom of Information Act, despite the act having such a noble sounding name. There is obviously no freedom of information for America's investors. We are firmly under the control of the SEC Enforcement Division, and information is a privilege that the division simply does not hand out. Their reasons for concealing this and other basic information about CMKM Diamonds are highly suspect, to say the least, and conjure up visions of another Bernard Madoff catastrophe in the making -- one that may possibly make the Madoff travesty pale by comparison.
As a proud member of this small but vocal cadre of market reform advocates, however, I would like to put the SEC on notice that we will eventually prevail in our attempts to gain the secrets that the SEC is concealing. We will appeal the SEC's decision to hide this information all the way to the Supreme Court if necessary. And we will continue to inform our friends, colleagues, congress representatives, media representatives, and anybody who will listen, about the SEC's obvious and embarrassing incompetence. We do this in the hope that someday America will have a stock market in which investors can once again place their trust, and a regulatory framework that does more than pay lip service to the idea of protecting investors.
In closing, I include an article that appeared in Bloomberg today, which seems once again to indicate that the SEC in general, and the SEC Enforcement Division in particular, remain blind to the problem of naked short selling, and that the possibility of thousands of new "Madoffs" waiting around the corner is frighteningly real.
Respectfully,
CMKX Shareholder and Proud Member of the Small but Vocal Cadre of Advocates
-----Article from Bloomberg (March 19, 2009)-----
Naked Short Sales Hint Fraud in Bringing Down Lehman
By Gary Matsumoto
http://www.bloomberg.com/apps/news?pid=20601109sid=aB1jlqmFOTCArefer=home