Matt Taibbi could barely contain his glee last (Tuesday) night when he posted this story over at his Rolling Stone Magazine blog (see immediately below). After giving it a read, it’s easy to understand why. (I was finishing up this post, and I checked over at Naked Capitalism, where Yves just posted a link to it, in which she states: “You have to read this. Pretty much proves the worst of what the public believes about Goldman.”)
Accidentally Released - and Incredibly Embarrassing - Documents Show How Goldman et al Engaged in 'Naked Short Selling'He continues, explaining that Goldman and Bank of America/Merrill Lynch have been in “a legal battle for some time – primarily with the retail giant Overstock.com, but also with Rolling Stone, the Economist, Bloomberg, and the New York Times. The banks have been fighting us to keep sealed certain documents that surfaced in the discovery process of an ultimately unsuccessful lawsuit filed by Overstock against the banks.”
Rolling Stone Magazine (blog)
May 15, 5:39 PM ET
It doesn’t happen often, but sometimes God smiles on us. Last week, he smiled on investigative reporters everywhere, when the lawyers for Goldman, Sachs slipped on one whopper of a legal banana peel, inadvertently delivering some of the bank’s darker secrets into the hands of the public…
Last week, in response to an Overstock.com motion to unseal certain documents, the banks’ lawyers, apparently accidentally, filed an unredacted version of Overstock’s motion as an exhibit in their declaration of opposition to that motion. In doing so, they inadvertently entered into the public record a sort of greatest-hits selection of the very material they’ve been fighting for years to keep sealed.Taibbi shares with us how he was unsuccessful in his attempt(s) to contact Goldman’s outside counsel on the matter, the Morgan Lewis firm, noting, “The bank has spent a fortune in legal fees trying to keep this material out of the public eye, and here one of their own lawyers goes and dumps it out on the street.”
…The lawsuit between Overstock and the banks concerned a phenomenon called naked short-selling, a kind of high-finance counterfeiting that, especially prior to the introduction of new regulations in 2008, short-sellers could use to artificially depress the value of the stocks they’ve bet against. The subject of naked short-selling is a) highly technical, and b) very controversial on Wall Street, with many pundits in the financial press for years treating the phenomenon as the stuff of myths and conspiracy theories…(Here’s a LINK to the Wiki page on “naked short-selling,” a/k/a “naked shorting.”)
From the Wiki…
Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "failure to deliver". The transaction generally remains open until the shares are acquired by the seller, or the seller's broker settles the trade.A quick read of the Wiki page, especially as one gets further into it, will demonstrate how inherently fraudulent -- to the point of it being nothing short of rampant, institutionalized fraud -- and incestuous these types of practices have become on Wall Street these days.
Short selling is used to anticipate a price fall, but exposes the seller to the risk of a price rise.
In 2008, the SEC banned what it called "abusive naked short selling" in the United States, as well as some other jurisdictions, as a method of driving down share prices. Failing to deliver shares is legal under certain circumstances, and naked short selling is not per se illegal. In the United States, naked short selling is covered by various SEC regulations which prohibit the practice.
Like so many stories relating to questionable and (if not) downright illegal practices on Wall Street (i.e.: insider trading and deliberately obfuscated market manipulation come to mind) that have surfaced of late, Wall Street--along with their minions in the MSM and even throughout the political blogosphere—has gone to great lengths in its attempts to discredit these memes, frequently referring to them as myths and fictional conspiracy theories. But, as anyone who’s even moderately familiar with realities on the Street will tell you, in real life just the opposite is true.
…Now, however, through the magic of this unredacted document, the public will be able to see for itself what the banks’ attitudes are not just toward the “mythical” practice of naked short selling (hint: they volubly confess to the activity, in writing), but toward regulations and laws in general.Bold type is diarist’s emphasis.
“Fuck the compliance area – procedures, schmecedures,” chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales…
Here’s a LINK to the full, unredacted motion. Taibbi advises us to pay “particular attention to pages 14-19.” (If you’re having trouble with this link, just click on the link to Taibbi’s original post, above.)
There’s a hell of a lot more substance to this story than the relatively small portion of it that I’ve conveyed in this post. It’s downright mind-boggling, IMHO. (I’ve left many of the more intriguing aspects of this story out of this post.) I strongly encourage you to give it a read.
It’ll be interesting to see how Treasury Secretary Tim Geithner’s former chief communications counsel, Jake Siewert, dances around this story in the MSM today and going forward, in his new role as chief spokesperson for Goldman Sachs.
I’m sure, despite this story being, perhaps and potentially, the most blatantly egregious documentation that’s ever been released on a matter of this type (certainly with regard to top, “too-big-to-jail” Wall Street firms), we’ll be hearing plenty of comments along the lines of the extended version of: “Nothing to see here. Move along…”
Wouldn’t it be refreshing if—just once--that wasn’t the case?
Well…one can dream, can’t they?
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