by ilene - December 3rd, 2009 7:20 pm
Courtesy of Mark Mitchell at Deep Capture
The Office of the Inspector General of the Securities and Exchange Commission not long ago submitted a semi-annual report to Congress. There are two items in the report of interest to those of us who have argued that the SEC has turned a blind eye towards, or even assisted, unscrupulous hedge funds that make their fortunes destroying public companies for profit.
The first item reads as follow:
“The OIG has opened an investigation into complaints from an investor alleging that the SEC failed to investigate instances of market manipulation and other misconduct in connection with the review, and eventual non-approval, of a developmental drug. The investor also has alleged that the SEC failed to investigate a recent bear raid on the stock of the company that developed the drug, causing a severe plunge in the stock price. The OIG has reviewed several hundred pages of documents, including numerous emails and attachments provided by the complainant. The OIG expects to complete its investigation and issue a report of investigation in the next reporting period.”
I have confirmed that this is a reference to the bear raid on Dendreon, described in considerable detail by Deep Capture. There is plenty of evidence — including, perhaps, those documents and emails referred to by the OIG — pointing to miscreancy in this case. Indeed, it is one of the more despicable cases of market manipulation on record – and many cancer patients were deprived of potentially life-extending treatment as a result. We look forward to reading the OIG’s report – it should be a doozy.
The second item of interest in the OIG report is this:
“The OIG continued its investigation of an allegation that SEC staff engaged in retaliation against a company after it publicly complained about naked short selling in the company’s stock. During this reporting period, the OIG took the sworn testimony of the staff attorney who worked on the matter and reviewed numerous relevant documents. The OIG has completed its investigative work and plans to issue its report of investigation prior to the end of the next semiannual reporting period.”
It has long been a contention of Deep Capture that the SEC has not just ignored allegations of
…
Tags: David Kotz, Deep Capture, Dendrion, Mark Mitchell, Office of the Inspector General, SEC
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by ilene - November 18th, 2009 4:57 pm
Courtesy of Mark Mitchell at Deep Capture
Although much attention has been directed at the contribution made by credit default swaps to the financial crisis, most discussion has focused on the companies, such as American International Group (AIG), that posted big losses because they sold these instruments without sufficient due diligence.
Another line of inquiry has not been pursued, however, though it is of equal, and perhaps greater, significance. That line of inquiry concerns the way in which the prices of credit default swaps effect the perceived value of all forms of debt — corporate bonds, commercial mortgages, home mortgages, and collateralized debt obligations — and as a result, the ability of hedge funds manipulators to use credit default swaps in bear raids on public companies.
If short sellers can manipulate the price of credit default swaps, they can disrupt those companies whose debt is insured by the credit default swaps whose prices are manipulated. The game plan runs as follows: find a company that relies on a layer of debt that is both permanent, and which rolls over frequently (most financial firms fit this description). Short sell that company’s stock. Then manipulate the price of the CDS upwards, preferably into a spike, as you spread the news of the skyrocketing CDS price (perhaps with the cooperation of compliant journalists at, say, CNBC).
Because the CDS is, in essence, an insurance policy on the debt of the company, the spiking CDS pricing will cause the company’s lenders to panic and cut off access to credit. As this happens, the company’s stock will nosedive, thereby cutting off access to equity capital. Thus suddenly deprived of credit and equity, the firm collapses, and the hedge fund collects on its short bets.
Moreover, credit default swap prices are the primary inputs for important indices (such as the CMBX and the ABX) measuring the movement of the overall market for commercial and home mortgages. In the months leading up to the financial crisis of 2008, short sellers pointed to these indices in order to argue that investment banks – most notably Bear Stearns and Lehman Brothers – had overvalued the mortgage debt and property on their books. Meanwhile, several hedge funds made billions in profits betting that those indexes would drop.
It should therefore be a…
Tags: AIG, American International Group, Bear Stearns, Credit Default Swaps, Cuomo, David Einhorn, GS, Henry Hu, JPM, Lehman Brothers, Mark Mitchell, Market manipulation, Markit Group, Securities and Exchange Commission, short seller, short-selling
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.
