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Commentary Too - Jun 23, 2006 - Printable Version
- “The world was too ridiculous to bother to live in.”
by Mark Faulk
For the title of this rambling commentary, I stole a quote from Faulking Truth writer Mike Bohling who stole it from the movie Little Big Man. It’s only fitting, since stealing seems to be the theme of the week. There are just too many things going on in the topsy-turvy world of stock market fraud in the past couple of weeks to know where to even begin, so instead I’ll just do a highlight reel, and link everyone back to the articles on each topic. Ready? To steal another famously overused quote, “Fasten your seatbelts, it’s going to be a bumpy ride.” Next Wednesday, on June 28, at 9:30 AM EST, the Senate Judiciary Committee will investigate stock market fraud in a full-committee hearing entitled “Hedge Funds and Independent Analysts: How Independent are Their Relationships?” Originally scheduled for June 20, and under the heading "Examining Short Selling Activities of Hedge Funds and Independent Analysts," it was reportedly pushed back because of the overwhelming number of requests from the media, who apparently, after ignoring the issue forever, are all over the story of naked short selling and stock market fraud. It’s almost as if someone gave everyone in the corporate media a collective signal saying “NOW we’re going to deal with stock market fraud, so it’s okay to start talking about it.”
While we’re waiting for fun to begin, let’s take a look at some of the events of the past few days. We’ll begin with the latest news, and work our way around the Circle of Greed.
Today, a federal court struck down a new SEC rule that finally….FINALLY….required hedge funds to register with the SEC, instead of operating outside the law, as they’ve been allowed to do for years. But that’s not the ridiculous part. The reason cited by the court? The SEC rule is “arbitrary” because it exempts funds with one hundred or fewer investors under one act, but requires registration for those with fifteen or more under another act. In other words, the loopholes that the SEC built into their rule that were designed to give hedge funds a way to skirt the law in the first place (wink, wink), were the very loopholes that the hedge funds exploited in court to get the rule thrown out altogether.
Sometimes, the world is too ridiculous to bother to live in.
Not coincidentally, it was reported today in the New York Times that the SEC is investigating one of the nations most prominent hedge funds, Pequot Capital Management, well, sort of. Officially, they’re under investigation, but of course, they’ve denied any wrongdoing, and no charges have been filed. But wait, that’s not the good part. While the SEC is supposedly investigating Pequot, Congress and the Office of Special Council is investigating allegations by a former attorney for the SEC, Gary J. Aguirre, who says that he was fired…while he was on vacation, and only eleven days after he was awarded a merit pay increase and praised by his supervisor for his work on the Pequot case.
So why was Aguirre fired? Because he wanted to question a former head of an investment bank in the Pequot investigation, whose trading had aroused so much suspicion among stock exchange officials that they referred cases involving Pequot to the SEC for further investigation 18 times. The New York Times article identified the investment bank head as John J. Mack, CEO of Morgan Stanley, who (again, not coincidentally) is a “a long-time acquaintance of Pequot's founder and a major fund-raiser for President Bush, and was chairman of Pequot briefly during June 2005; his family foundation has invested in Pequot funds, public records show.”
But wait, the Circle of Greed hasn’t quite been completed yet. To summarize so far: Congress is investigating the SEC over its investigation of a hedge fund whose former chairman and friend of the fund’s founder (and major Bush fund-raiser) is the CEO of Morgan Stanley, which prompted the firing of the SEC attorney handling the investigation…because he wanted to question the CEO of Morgan Stanley.
Whew. Ready for this? (Sorry, I don’t mean to keep asking that question, but this even makes my head hurt, and I thought I had seen it all in the past few years.) Guess who’s in charge of the investigation of the SEC for it’s investigation of Pequot, etc, etc, etc. The Senate Banking Committee, chaired by none other than Senator Richard Shelby (R-AL), who killed a scheduled Banking Committee investigation into naked short selling over a year ago.
A few more “news flashes” in fast forward, again, hold on tight:
-There are now more millionaires in the world then there are people living in New York City, and their total wealth is over double the entire US economic output. And where are more millionaires being created than anywhere else? The Middle East. And where are most these millionaires making their money? In the stock market. Enough said.
-Goldman Sachs, whose former chairman Henry Paulsen is slated to become Bush’s new Treasury Secretary, now ranks as the world’s largest hedge fund, with assets totaling over $21 billion.. They were also fined, along with Credit Suisse Bank, $1.4 million for charges stemming from “overvoting” in proxy votes.
-An estimated 665 new hedge funds have been established in the Cayman Islands in the first five months of 2006 alone, putting the offshore tax haven on track for a nother record year, and bringing the total to over 8,000 hedge funds on the Cayman Islands alone.
-In an incredible turnabout, billionaire Mark Cuban suddenly came out in opposition to naked short selling, after first denying its existence to me in a funfilled email exchange last year, that began with him calling me stupid, and then ended with him finally acknowledging the existence of naked short selling, but saying that “the total amount lost to naked shorting could be less than the cost to try to enforce the rules.” Now? He closes his latest blog with: “So mark me down as a short seller who thinks naked short selling is wrong.” Of course, this is the same guy who thinks that the entire NBA was rigged against his Dallas Mavericks. (Update: I just pulled that blog entry up and found that Cuban has sneaked in and added another rambling page to his comments. Apparently, the guy doesn’t know when to just shut up.) (Personal advice to Cuban: SHUT UP NOW.)
-A pleading, crying Anthony Elgindy was hauled off to jail after being sentenced to eleven years for defrauding investors of at least $12 million in illegal short selling schemes. He was led sobbing from the courtroom, begging “please let me go home to my boys.” There was no mention of the investors whose lives he ruined in his schemes, or of those who lost their homes because of his criminal acts.
Sorry, but that’s about all the news I can handle in one sitting. Once more, with feeling: sometimes, the world is too ridiculous to bother to live in.
So there you have it. While we wait for the Judiciary Committee to hopefully begin the slow painful process of returning our stock markets to an honest and fair system, the hedge funds and their billionaire clients have once more been unleashed to perpetuate their fraud on an America that has already been raped, pillaged, and plundered almost beyond repair. They’ve already cost our country trillions of dollars in investment losses, and crippled our economy by destroying companies that provide jobs and the tax money needed to build schools, roads, and to finance our military.
All hope is not lost, however. Advocates of stock market reform have made great strides in bringing the issue to the attention of the citizens of America, and they in turn have begun to rise up and demand action from our elected officials. On a state level, Connecticut and Illinois are said to be considering legislation similar to the recent law against naked short selling enacted by Utah. On July 3, the SEC will enact Rule 3210, which will apply the same short sale delivery requirements to OTC stocks that now exist for larger companies under Reg SHO. (I know what you’re thinking, but hey, it’s better than nothing.) And let’s hope that the Judiciary Committee hearing next week is just another in a continuing volley of shots fired in this battle for the heart and soul of our country.
On an optimistic note, the character played by Dustin Hoffman in Little Big Man, who uttered the words “The world was too ridiculous to bother to live in.” was 121 years old when he said it. So maybe it’s worth sticking around to see how all of this ridiculousness plays out. I know I one wouldn’t miss it for the world.
And that’s the Faulking Truth.
Go here for information on how to contact the members of the Senate Judiciary Committee and encourage them to fix the damn stock market now!!!
http://www.faulkingtruth.com/Articles/-EditorsCorner/1048.html
Court strikes down SEC hedge fund rule
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B23D06A36-3A45-472E-AB78-ECE0440C72FB%7D&siteid=google
S.E.C. Is Reported to Be Examining a Big Hedge Fund
http://topics.nytimes.com/top/news/business/columns/gretchenmorgenson/?inline=nyt-per
“Hedge Funds and Independent Analysts: How Independent are Their Relationships?”
http://judiciary.senate.gov/hearing.cfm?id=1972
Goldman Sachs ranks as world's biggest hedge fund
http://biz.yahoo.com/rb/060621/financial_fund_hedges.html?.v=1
Congress Sells America Short
http://www.faulkingtruth.com/Articles/Investing101/1038.html
Faulking Truth to Senator Shelby: PUT THE DAMN FIRE OUT!
http://www.faulkingtruth.com/Articles/BlogFest/1056.html
Mark Cuban's Blog
I feel so dirty…Naked Shorts
http://www.blogmaverick.com/entry/1234000230033533/
Mark Faulk is the Editor of The Faulking Truth, and the author of the upcoming book entitled "The Naked Truth: Counterfeiting the American Dream," due out in July, 2006. For more information on the book and on the stock market scandal, go to http://www.faulkingtruth.com , and to pre-order your copy, go to http://www.theownersgroupinc.com/cart/
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