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StockGate: SEC Leaves OTCBB Corporate, Investor Community
StockGate: SEC Leaves OTCBB Corporate, Investor Community Aghast,Outraged
Feb 2, 2004 (financialwire.net via COMTEX) -- (FinancialWire) What's a little ''loophole'' between friends? If it's between the U.S. Securities and Exchange Commission and the National Association of Security Dealers, it is a jaw-dropping, mouth-gaping one for many small public companies and their investors.
The scandal known as StockGate has embroiled hundreds of companies and dozens of brokers and marketmakers, including M. H. Myerson & Co., Inc. (NASDAQ:MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), and Ameritrade Holding Corp. (NASDAQ:AMTD) in a web of internaitional intrigue, manipulative short-selling and cross-border accusations and denials.
The issue seemed to be coming to a head as comments closed January 5 on an SEC staff proposal to ban many forms of naked short selling through proposed Regulation SHO.
But nothing has rocked the over-the-counter bulletin board world like the recent revelation that SEC had ''sat'' on a request by the NASD to close the major international loophole involving manipulation by Canadian and other overseas traders and brokers for over two years, since November, 2001, in fact.
The NASD had been the brunt of equal parts of the outrage from burned small investors, many suggesting the NASD was protecting its membership from potential losses if naked short selling shut down; but now it turns out to have been at least partly undeserving, as the SEC did nothing about a key reform proposed by the NASD itself.
During that period, the SEC brought actions against several manipulators and the industry outcry was raised to a roar. The NASD, recognizing the problem, offered one key solution. Yet, through it all, the SEC sat, telling investors at one point to ''seek other solutions'' to the problem. All the while, small investors were losing millions and millions of dollars, and small companies were losing market cap, the ability to borrow and any opportunity which the public markets supposedly provided them, to grow.
''Now that they have admitted the problem, how do they fix what they did?'' asked Gary Valinoti, CEO of Jag Media Holdings (OTCBB: JGMHA), which has filed suit against dozens of market makers for alleged improprieties in the trading of the company's stock.
''It's a sad statement to the politicization of the SEC that in recent cases they are spending their efforts and resources pushing out the fiefdom of the SEC rather than protecting the small investors. Sadly enough, the whole industry works that way. Small broker dealers aren't allowed to grow to be big broker dealers because of industry regulations and procedures promigulated by boards dominated by the largest financial houses,'' said Marshal Shichtman, Esq., an attorney notable for his successful negotiations to remove two public companies from the Depository Trust and Clearing Corp., which has been accused by many of failing to settle electronic trades.
The SEC had denied that the DTC system is broken, and part of the problem, but the North American Association of Securities Administrators, whose membership consists of all of the states, Mexico, Puerto Rico and Canada, including the high profile attorneys general of New York and Massachusetts, recently pointedly told the SEC that it should take another look at its attitude towards the DTC.
''NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). 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 ability of the overall proposed rule would be severely impaired unless the Commission undertakes to implement such a prohibition,'' stated Ralph Lambiase, NAASA president and Director of the Connecticut Division of Securities.
Shichtman said reforms should include the appointment of a Commissioner who is actually from the small investor community, ''a genuine seat at the table.''
Scott W. Hatfield, CPA, who audits numerous small public companies, suggested that the SEC may have a conflict of interest since it is ''partially self-funded,'' receiving an SEC fee charged to the customer for every trade. He pointed out that if manipulative short selling is shut down, this could impact the SEC's revenue.
He also said that the ''SEC makes an on-site audit of all broker-dealers on an annual basis at an unannounced time. Unfortunately, being creatures of habit, it seems that the SEC comes to the broker's office within a 2-week window each year. It's pretty easy to bring the records up to speed if you know when the Commission is showing up.''
Hatfield: ''Back in 1929-1934, the United States was an agricultural based economy on the edge of shifting to an industrial/manufacturing economy. In 2004, the United States is a financial instrument based economy with significant decreases in the contributions to the GDP from the agricultural and manufacturing segments. As such, why hasn't Congress taken the facilities and financial resources of the Department of Agriculture and the Securities and Exchange Commission and swapped them to better reflect the contributions to the U.S. economy?''
''We closed a loophole,'' Steve Luparello, executive vice president of Market Regulation at NASD, was quoted as saying, regarding the decision to require its members to stringently enforce the ''affirmative determination'' rule.
''Until now, non-NASD members, like specialists, option markets and foreign brokers, weren't covered under the affirmative determination rule. That means that non-NASD members didn't have to represent to the NASD broker through which they conducted a short sale order that they would be able to deliver the stock by settlement date,'' noted Carol Redmond, writing for Dow Jones.
The amended rule will dramatically affect short sales through non-U.S. brokers, particularly Canadian brokers that have taken advantage of the loophole to abuse hundreds of small U.S. public companies, mostly trading on the Over-the-Counter Bulletin Board administered by NASDAQ and their shareholders.
While the new rule doesn't require anything of Canadian brokers, U.S. brokers are now required to assure themselves that Canadian brokers will be able to settle within three days.
Luparello was quoted as telling Dow Jones that ''a non-member's previous failures to deliver should be a
good indication of whether or not it will in fact be able to complete the transaction by the settlement date,'' effectively clamping down on the worst abusers.
The rule will become effective February 20. It is on the web at www.nasdr.com/2610_2004.asp#04-03
Comments on Regulation SHO ended January 5, and may be viewed at www.sec.gov/rules/proposed/s72303.shtml .
Some 121 companies, including 13 brokers, such as FleetBoston (NYSE: FBF), Goldman, Sachs & Co. (NYSE: GS), H. Myerson & Co., Inc. (NASDAQ:MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto-Dominion's (NYSE: TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN). A.G. Edwards at, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ:AMTD), Deutsche Bank AG (NYSE: DB), and E*Trade Group, Inc. (NYSE: ET), have been embroiled for over a year in a raging controversy
The remaining 108 companies among the 121 named to date have issued press releases or been named in the media as having been victimized, or as taking various actions, either alone or in concert with other companies, to oppose manipulative trading in the form of illegal naked short selling. The actions have ranged from lawsuits to withdrawals and threatened withdrawals from the electronic trading system managed by the Depository Trust & Clearing Corp., to withdrawals from toxic financings, to the issuance of dividends or name changes designed to squeeze manipulators, to joining associations or networks or to contacting regulatory authorities to provide documentation of abuses or otherwise complain.
The complete list of those 108 companies include Advanced Viral Research Corp. (OTCBB: ADVR), AdZone Research, Inc. (OTCBB: ADZR), Amazon Natural Treasures (OTC: ANTD), America's Senior Financial Services (OTCBB: AMSE), American Ammunition, Inc. (OTCBB: AAMI), AngelCiti Entertainment (OTCBB: AGLC), ATSI Communications, Inc. (OTC: ATSC), Federal Agricultural Mortgage / Farmer Mac (NYSE: AGM) Allied Capital (NYSE: ALD), American Motorcycle (OTC: AMCYV), American International Industries (OTCBB: AMIN), Ameri-Dream (OTC: AMDR), Adirondack Pure Springs Mt. Water Co. (OTCBB: APSW), ATSI Communications, Inc. (OTC: ATSC) Bluebook International (OTCBB: BBIC), Blue Industries (OTCBB: BLIIV), Bentley Communications (OTCBB: BTLY), BIFS Technologies Corporation (OTCBB: BIFT), Biocurex (OTCBB: BOCX). Broadleaf Capital Partners, Inc. (OTCBB: BDLF), Chattem, Inc. (NASDAQ:CHTT), Critical Home Care (OTCBB: CCLH), Composite Holdings (OTC: COHIA), CyberDigital, Inc. (OTCBB: CYBD). Diamond International Group (OTCBB: DMND), Dobson Communications Corp. (NASDAQ CEL), Eagle Tech Communications (OTC: EATC), Edgetech Services (OTCBB: EDGH);
Also, Endovasc Ltd. (OTCBB: EVSC), Enviro-Energy Corporation (OTCBB: ENGY), Environmental Products & Technologies (OTC: EPTC), Environmental Solutions Worldwide, Inc. (OTCBB: ESWW), EPIXTAR Corp. (OTCBB: EPXR), eResearchTechnologies, Inc. (NASDAQ:ERES), Flight Safety Technologies (OTCBB: FLST), Freddie Mac (NYSE: FRE), FreeStar Technologies (OTCBB: FSRCE), Geotec Thermal Generators, Inc. (OTCBB: GETC), Genesis Intermedia (OTC: GENI), GeneMax Corp. (OTCBB: GMXX), Global Explorations Inc (OTC: GXXL), Global Path (OTCBB: GBPI), GloTech Industries, Inc. (OTCBB: GTHI), Green Dolphin Systems (OTCBB: GLDS), Group Management (OTCBB: GPMT), Hop-On (OTC: HPON), H-Quotient, Inc., (OTCBB: HQNT), Hyperdynamics Corp. (OTCBB: HYPD), International Biochem (OTCBB: IBCL), Intergold Corp. (OTCBB: IGCO), International Broadcasting Corporation (OTCBB: IBCS), InternetStudios, Inc. (OTCBB: ISTO), ITIS Holdings (OTCBB: ITHH), Investco Corp. (OTCBB: IVCO), Lair Holdings (OTC: LAIR), Lifeline BioTechnologies Inc. (OTC: LBTT), Life Energy & Technology (OTCBB: LETH), MBIA (NYSE: MBI);
Also, MegaMania Interactive (OTC: MNIA), MetaSource Group, Inc. (OTCBB: MTSR), Midastrade.com (OTC: MIDS), Make Your Move (OTCBB: MKMV), Medinah Minerals (OTC: MDMN), MSM Jewelry Corp. (OTC: MSMC), Nanopierce Technologies, Inc. (OTCBB: NPCT), Nutra Pharmaceutical (OTCBB: NPHC), Nutek (OTCBB: NUTK), Navigator Ventures (OTC: NVGV), Orbit E-Commerce, Inc. (OTCBB: OECI), Pitts & Spitts (OTC: PSPP), Sales OnLine Direct (OTCBB: PAID), Pacel Corp. (OTCBB: PACC), PayStar Corporation (OTC: PYST), Petrogen Corp. (OTCBB: PTGC), Pinnacle Business Management (OTC: PCBM), Premier Development & Investment, Inc. (OTCBB: PDVN), PrimeHoldings.com, Inc. (OTC: PRIM), Phlo Corporation (OTCBB: PHLC), Resourcing Solutions (OTC: RESG), Reed Holdings (OTC: RDHC), Rocky Mountain Energy Corp. (OTCBB: RMECE), RTIN Holdings (OTCBB: RTNHE), Saflink Corp. (NASDAQ:SFLK), Safe Travel Care (OTCBB: SFTVV), Sedona Corp. (OTCBB: SDNA);
Also, Sionix Corp. (OTCBB: SINX), Sonoran Energy (OTCBB: SNRN), Starmax Technologies (OTC: SMXIF), Storage Suites America (OTC: SSUA), Suncomm Technologies (OTC: STEH), Sports Resorts International (NASDAQ:SPRI), Technology Logistics (OTC: TLOS), Swiss Medica, Inc. (OTCBB: SWME), Ten Stix, Inc. (OTCBB: TNTI), Tidelands Oil (OTCBB: TIDE), Titan Construction (OTC: TTCS), Trezac Corp. (OTCBB: TRZAV), Universal Express, Inc. (OTCBB: USXP), Valesc Holdings, Inc. (OTCBB: VLSHV), Vega Atlantic (OTCBB: VGAC), Viragen (AMEX: VRA), Viragen International (OTCBB: VGNI), Vista Continental Corporation, (OTCBB: VICC), Viva International (OTCBB: VIVI), Vtex Energy (OTCBB: VXENE) and Wizzard Software (OTCBB: WIZD), WorldTradeShow.com (OTC: WTSW) and Y3K Secure Enterprise Software, Inc. (OTCBB: YTHK).
Earlier in 2003, the SEC fined Rhino Advisors, Inc., $1 million for its representation of Amro International in the financing and manipulation of Sedona Corp. Amro, also known as AMRO, was registered in Panama, a secretive offshore haven, but was not named in the SEC settlement. Another 60 public companies may have been manipulated by the fined Rhino Advisors and its indicted principals, or its funding apparatus, Amro.
These include:
All American Food Group Inc (OTC: AAFGQ), Amanda Co Inc (OTC: AMNA), Antra Holdings (OTC: RECD), Aquis Communications Group Inc (OTCBB: AQUIS), Avanir Pharmaceuticals (AMEX: AVN), Bionutrics Inc (OTC: BNRX), Brilliant Digital Entertainment Inc (AMEX: BDE), Bravo! Foods International Corp. (OTCBB: BRVOE), Butler National Corp (NASDAQ: BUTL), Calypte Biomedical Corp (OTCBB: CYPT), Chemtrak Inc/DE (OTC: CMTR), Clicknsettle Com Inc (OTCBB: CLIK), Corporate Vision Inc (OTC: CVIA), Crown Laboratories Inc/DE (OTC: CLWB), Dental Medical Diagnostic Systems Inc (OTC: DMDS), Detour Media Group Inc (OTC: DTRM),
Also, Digital Privacy Inc/DE (OTC: DGPV), Senior Services Inc (OTC: DISS), International Inc (OTC: DYNX), Endovasc Ltd Inc (OTCBB: EVSC), Esynch Corp/CA (OTCBB: ESYN), Focus Enhancements Inc (NASDAQ: FSCE), Frederick Brewing Co (OTC: FRBW), Greystone Digital Technology Inc (OTC: GSTN), Havana Republic Inc/FL (OTCBB: HVNR), Henley Healthcare Inc (OTC: HENL), Hollywood Media Corp (NASDAQ: HOLL), Ibiz Technology Corp (OTCBB: IBZT), Diagnostic Systems Inc/FL (OTCBB: IMDS), Imaging Technologies (OTCBB: IMTO), Integrated Surgical Systems Inc (OTCBB: RDOC),
Also, Interferon Sciences Inc (OTC: IFSC), Interiors Inc (OTC: ITRNA), Laminaire Corp (OTC: THMZ), Medisys Technologies Inc (OTC: SCEP), Milestone Scientific Inc/NJ (AMEX: MS), Nevada Manhattan Group Inc (OTC: NVMH), Innovations Inc (OTCBB: NTGE), Systems Group (OTC: OSYM), Pacific Systems Control Technology Inc (OTCBB: PFSY), Professional Transportation Group Ltd Inc (OTC: TRUC), Rnethealth Inc (OTC: RNTT),
Also, Sand Technology Inc (NASDAQ: SNDT), Sedona Corp (OTCBB: SDNA), Silverado Foods Inc (OTC: SVFO), Stockgroup Information Systems (OTCBB: SWEB) Surgilight Inc (OTC: SRGL), Tasty Fries Inc (OTCBB: TFRY), Tech Laboratories Inc (OTCBB: TCHL), Teltran International Group Ltd (OTC: TLTG), Titan Motorcycle Co of America Inc (OTC: TMOTQ), Trans Energy Inc (OTCBB: TSRG), Motorcycle Co (OTC: UMCC), Universal Communication Systems Inc (OTCBB: UCSY), Medical Systems Inc (OTC: UMSI), Vianet Technologies Inc (OTC: VNTK),Viragen Inc (AMEX: VRA), Webcatalyst Inc (OTC: WBCL), Worldwide Wireless Networks Inc (OTCBB: WWWNQ), and ZAP (OTCBB: ZAPZ).
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