Table Of Content

Naked, Short and Greedy Wall Street’s Failure to Deliver Dr. Susanne Trimbath First published January 2020 by Spiramus Press Ltd 102 Blandford Street London W1U 8AG Telephone +44 20 7224 0080 www.spiramus.com © Spiramus Press Ltd ISBN 9781910151341 Paperback 9781910151839 Digital All rights reserved. No part of this publication may be reproduced in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidental to some other use of this publication) without the prior written permission of the copyright owner except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1P 4LP. British Library Cataloguing-in-Publication Data. A catalogue record for this book is available from the British Library. The right of Susanne Trimbath to be identified as the author of this work has been asserted by her in accordance with the Copyright, Designs and Patents Act, 1988. Printed and bound in Great Britain by Grosvenor Group (Print Services) Ltd About the author Susanne Trimbath, Ph.D. is business instructor for Cochise College in southeastern Arizona. Dr. Trimbath started her training in finance and economics at the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC, a privately-run central clearing agency in the US. Dr. Trimbath served as Senior Advisor on a US Agency for International Development project to develop capital market infrastructure in Russia after the fall of communism. She was a consultant on similar projects in several other countries including Romania and Poland at a time when few people understood the details of post-trade processing in a centralized clearing environment. She was Senior Research Economist in capital markets at the Milken Institute (where Michael Milken serves as Chairman) before forming STP Advisory Services, LLC. Her Ph.D. in economics is from New York University’s Graduate School of Arts and Sciences. She taught economics and finance at New York University and University of Southern California (Marshall School of Business). Acknowledgements The impact of trade settlement failures in equity markets was first brought to my attention by Tom Montrone, Ray Riley, Carl Hagberg and members of the Securities Transfer Association, Inc. in 1993. Ten years later, I was made aware of the worsening impact on small businesses by Wes Christian, Carl Koerner and Bud Burrell. Finally, the impact on the investors who believe in and want to encourage those small businesses was driven home for me by Sandra Mohr. I am grateful to each of them for their encouragement in my endeavor to describe it here. The impact of trade settlement failures in bond markets was first brought to my attention by members of the Open Market Operations department at the Federal Reserve Bank of New York. I am grateful to the participants in the Credit Risk & Credit Derivatives session at the International Economics and Finance Association’s 6th NTU International Conference on Economics, Finance and Accounting, Financial Engineering and Financial Intermediation (Taipei May 2008). They not only provided encouragement and useful comments on my draft paper on trade settlement failures in US bond markets, but they also made me aware of the impact of fails and other issues in the market for credit default swaps that would play an important part in understanding the financial crisis that devastated global credit markets in 2008. Contents About the author Acknowledgements Contents Abbreviations PART I. OPENING Shareholder democracy in shambles Chapter 1. A Primer Terminology The triumvirate of trouble: shorts, loans and fails Economics of phantom shares Chapter 2. Start at the Beginning PART II. BACK TO WHERE I LEFT OFF Chapter 3. A Sidewalk Café in New York Chapter 4. Blind Men Describe an Elephant PART III. COMMITTING TO A CAUSE Chapter 5. Real Experts Meet Chapter 6. STA White Paper Chapter 7. Tax Consequences Bond trades Stock trades PART IV. SUCCESS SEEMS POSSIBLE Chapter 8. Regulation SHO Chapter 9. Criminal Cases Reveal Evidence Chapter 10. The Battle Goes Public A public forum in Washington DC PART V. ESCALATING COMMITMENTS Chapter 11. Byrne’s War Online interview for The Sanity Check Chapter 12. Publicity Ramps Up Media, mainstream and otherwise The FBI calls Chapter 13. Naked Short and Greedy – the Event Press release PART VI. ALL SEEMS LOST Chapter 14. Resistance from Wall Street Everyone knew by 2003 CFA-LA press release Chapter 15. Corporate Governance Fails at Overstock Chapter 16. Senate Inaction PART VII. WHEN THE MUSIC STOPS Chapter 17. Media Interest after the Financial Crisis Chapter 18. CMKM and the UnShareholders In the end… Examples of Messages from CMKM UnShareholders Military Canada Switzerland USA Chapter 19. Two Documentary Films Transcript of November 7, 2008 interview by producers and directors of The Wall Street Conspiracy (2012) Credit default swaps and mortgage bonds Beyond the US Phantom shareholders Ferreting out the data Economics = Accounting + Finance An explosion in FTDs How does that make you feel? Phantom votes CDS: phantom or real? Where is my perp-walk? America sneezed Why small companies are targeted Can it be fixed? PART VIII. THE TRAGEDY OF A DOWNER ENDING Chapter 20. GAO faults SEC and Other Revelations Chapter 21. Barker Minerals’ Unique Approach PART IX. UNRESOLVED REGULATORY CRISIS The latest numbers How do you solve a problem Epilogue References Appendix 1: Report for Barker Minerals, Review of Data and Documents, October 14, 2010 Clarification of terminology Prior research on settlement failures Background Purpose of study Settlement process Why settlement fails Analysis Identifying settlement failures Conclusions Suggestions for further analysis Appendix: Trading range as percentage of opening price Appendix: Excerpt of Broker Trading Activity Chart Appendix: Excerpt 2 of Broker Trading Activity Chart Appendix: One Clear Example – documentation suggestion Appendix: Glossary – presentation suggestions Appendix: Limitations and Disclaimers Appendix 2: Report for Barker Minerals ‒ Updated Review of Data and Documents (July 16, 2012) Executive summary Background and the 2010 report Introduction to 2012 report Update on recommendations Updated statistical analysis Barker minerals’ strategy Summary References APPENDIX 3: Manipulative Market Practices Derived from TMPG (2007) APPENDIX 4: Barker’s Event Analysis Index Endnotes