A Lack of Transparency is an important component of the short infrastructure. This serves a number of purposes: 1) The inability of victim companies, investors and the media to get information about manipulative trading and massive counterfeiting keeps the illegal practices out of the spotlight, thus avoiding a public uproar and resultant political and regulatory backlash. 2) Civil litigation in virtually every other area of fraud can be filed based upon information and belief. In an information and belief lawsuit, the allegations are assumed to be true and discovery is granted, which then results in evidence that proves or disproves the allegations. In a federal securities suit, the evidence must be in hand before the suit is filed. The lack of transparency by the SEC, DTC, the exchanges and the broker dealers insures that the plaintiff does not have access to the evidence necessary to sustain a complaint, or know the identity of the manipulators who would be the defendants. Thus the veil of secrecy continues and the illegal activities continue under a grant of de facto immunity as lawsuits are quashed before they get off the ground.

The SEC, DTC, the broker dealers and the courts have adopted a policy that proprietary trading strategy is a protected secret. This posture by the enforcement agencies essentially ensures that manipulative trading activity and the disclosure of the identity of those doing it never sees the light of day. The contention that trades done in years past are akin to the secret formula for Coke is absurd. It really is an excuse for engaging in a cover-up of sometimes illegal and manipulative activity that is facilitated by a veil of secrecy that is tolerated by the SEC, and frequently advanced by the courts.

The DTC and SEC categorically obfuscate the real magnitude of the counterfeiting; the lack of progress from Reg SHO, and by design, misleads Congress and the public. Some believe that the number of counterfeit shares in circulation exceeds a trillion. The SEC, which only reports aggregate fails-to-deliver, would like the public to believe the fails are about 300 million shares. Information, when it is finally pried from the DTC, never enables the reader to make a concise, accurate appraisal of the amount of shares that have been counterfeited.

Larry Thomson, general counsel of the DTC, is the master of obstruction and misinformation. Typical of the DTC's misleading or non-responsive statements are: the invention of different classifications of “fails” to make it appear that Reg SHO is working; the statistics cited frequently are the NYSE; the victims are most frequently listed on regional exchanges or over-the-counter, the magnitude of counterfeit shares is always expressed as a dollar volume, never the number of shares (many of the victim companies have greatly reduced share values as a result of the shorting), or as a percentage of the dollar value of all instruments, including debt, traded on the NYSE.

Pages could be filled with examples of misleading and partial disclosures by the DTC, which is done with the tacit approval of the SEC, who is charged with regulating the DTC. The true hypocrisy is that the requested information is readily available to the DTC; They are required by law to have it on record and readily available. They chose, however, to keep it secret, for obvious reasons and because they can.

The following is a list of information that a victim company can obtain from the SEC or DTC without a subpoena:

  1. Aggregate fails-to-deliver. The SEC compiles, on a daily basis, a list of the number of fails-to-deliver that exist for a given company. Getting this from the SEC usually requires that a Freedom of Information Act (FOIA) request be submitted. The SEC has been dilatory, at best, when processing this information. They have, however, recently started making this more available, but in reality it is a relatively valueless indicator of the total magnitude of the counterfeiting.
  2. The DTC publishes a weekly report that is company specific. It shows the number of long shares that each broker dealer has in his account with the DTC. The ending daily balance and the weekly change are tabulated. This is available to the company, but not investors who are not in the securities industry.

The following is a partial list of the information that is not available to the company or its investors without a subpoena:

  1. The DTC and the SEC invented another classification for the failure to deliver real shares by the settlement date. It is called an “open position,” and by inventing this new, unreported and not “illegal” classification, they have reduced the number of reported fail-to-deliver shares. An open position is a trade that has gone beyond T+3 and not had a share delivered. Positions may remain “open” until the other broker demands delivery. If the brokers are operating collusively, the demand is not made.
  2. This would be similar to law enforcement declaring that murders with knives and clubs no longer fall in the reported category of homicides, hence the reported homicide rate dropped significantly. Opens are not tracked and reported as an indicator of short sales that have no real shares behind them.

  3. The aggregate amount of naked short shares is not reported anywhere, by anybody.
  4. The aggregate counterfeit shares that are ex-clearing (in accounts of the broker dealers, but not in the DTC) are not investigated or tabulated by the SEC, hence there is no disclosure.
  5. Investors are not able to obtain evidence that shares have not been pulled from their accounts and put into the stock lend or if locate(s) have been sold by the broker against shares in their account.
  6. The identity of those who are counterfeiting shares is not disclosed anywhere.
  7. The identity of who is short in a company is not disclosed, which is the opposite of the disclosure requirement for long investors who hold large positions in companies.
  8. The percentage of sells that were disclosed short on a daily basis may be reported, but it is not always available. What isn't reported is the daily naked short, the daily mismarked tickets, the amount of the disclosed short that is backed up with naked options, and the options that have served as borrowed shares and have expired and not been replaced or bought in.

This obstruction of disclosure is not accidental. The DTC does it because they are protecting its owners (the broker dealers) from public criticism, regulatory action, and, most importantly, civil litigation. The DTC's zealousness and arrogance in fighting any and all attempts to obtain disclosure, be it with subpoena, public disclosure or regulatory requirement, is well documented. To date they have been quite successful.

The obstructionist posture of the SEC is less explainable than the DTC, and is every bit as effective. The Securities Act of 1933, which remains the cornerstone body of securities law in the United States, is clear. The Act uses the phrase “protecting investors” 186 times. It is also clear that selling unregistered (counterfeit) securities is illegal, as is stock manipulation and that the SEC is the federal agency charged with enforcement.

What the SEC has done is cast a blind eye to transgressions within the securities industry; promulgated rules (sometimes illegally) that create an infrastructure of loop holes and secrecy that the securities industry can navigate with little difficulty and little fear of prosecution; perpetuate and actively fight efforts for additional disclosure that would open the door for civil litigation; and, with the lobbying assistance and political contributions of the securities industry, attempted to consolidate jurisdiction at the federal level and consolidate enforcement power with the SEC.

The exchanges make virtually no disclosures regarding the activities of their member brokers. Listed companies do not get any information about the identity and amounts of counterfeiting that is going on. Complaints by investors or companies are investigated by the self-regulating exchanges in secrecy. The most flagrant manipulations are frequently whitewashed, and the participants are almost never prosecuted or reprimanded.

The reward for complaining companies is to have the exchange reduce the already sketchy level of disclosure. The reward for complaining investors is a scathing how- dare-you personal attack, followed by stonewalling and non-acknowledgement of follow- up complaints.