top-down shorting strategy (Excerpts from B Burrell 2/28/08)

Definition

An investment strategy (Cartel) which targets the most “threatening” sectors (PMs) or industries (gold, silver.) to invest in (short, naked short), and then searches for the best companies (explorers/developers/miners) within those PM sectors or industries. This investing strategy begins with an Administrative Gov. Entity along with its Corporate Arm/s and tenticles looking at the overall economic picture and then narrowing it down to sectors, industries and companies that are expected to perform well. Analysis of the “interventional shorting ” fundamentals of a given security is the final step.

Over 80 years ago counterfeit stock was being produced duplicating real stock certificates. These certificates could then be loaned to short sellers to create a required "borrow" to secure the margined short, especially useful when stocks were tightly held. The manual back offices of the brokerage firms never knew the difference, and they never saw what hit their companies until it was too late. They were never registered by the true underlying company.

Fast forward to the late seventies. Only two firms allowed the creation of synthetic securities from registered securities assemblages, specifically for Down and Outs, a form of synthetic put made up of a short of the stock, and the short of the call, a variant of the old Reverse Conversion arbitrage from options. One firm would do it for client hedge funds, while the other firm told its clients it didn't do them, so their clients would not compete with their house trading accounts’ activities in this space. The letter ruling of 1993 dropped the word "Borrow" from the short seller's lexicon, and substituted word "Locate". This same letter ruling created exemptions from even this rule for three kinds of traders: Market Makers, Arbitrageurs, and Hedged Accounts (read funds).

As the market makers realized what they had been given, they levied an economic assault matching the coordinated attacks the equal of any in the history of modern warfare. They determined how to drag the clearing business in by giving them a piece of the action on their shorting, and invented numerous ways to use offshore brokers and jurisdictions to leverage their power.

This was done so dramatically, that for a 7 to10 year period, it would be said that 80% of NASD member firm profits came from shorting, particularly the development stage small public companies of the OTC Bulletin Board, nearly annihilated in six years. By the end of that period, they were attacking any company with an alpha, or "excess return". This included stocks on the NASDAQ NMS, the AMEX (leading to its ultimate acquisition), and even the NYSE. Acting on concert in large syndicates (remember the word "Conspiracy" above?!), NO company could stand up to them in any attempt to maintain orderly markets.

In the late 1990's and early 2000’s, market makers at broker-dealers had a 10 day fail rule, which mandated a charge to their net capital for any fail over 10 days. They would roll their positions within the system by kiting trades known by several names, including whip calls, and rolls. Reg SHO changed that effectively to 13 days. Re-enter rolls/whip calls, but now, not put through the clearing system, but rather done directly broker to broker in what is called Ex-Clearing.

Shorts and their related counterfeit longs would sit in Ex-clearing, invisible and unreported anywhere. Taking things a step further, the short players would take to intentionally miss-marking tickets to reflect short sales as actually "Long Sales" when they weren't, and no one was the wiser. Well, not exactly no one.

Everyone needs to realize that calling naked shorting anything other than counterfeiting, albeit by virtual electronic journal entries rather than a printing process, is simply WRONG. It is the intent of the perpetrators to delude the longs into thinking that they have bought real shares from a real seller, when in fact, the longs only know this when they themselves are dirty, such as when a manipulator wants the counterfeit proxies attached to the counterfeit longs to manipulate actions at a target company.

One well known company would call for a Proxy vote at their annual board meeting. They had a legally outstanding number of shares according to their stock record book of 60 Million shares. How many proxies showed up? 80 MILLION. I am shocked, SHOCKED, that such a thing could happen in America. Counterfeit proxies are the most serious corporate governance issue coming out of this scandal, a concern to every major corporate counsel in this country and overseas.

This is the longest piece I have ever posted. It re-covers many points in my previous writings. The SEC recently declared that the naked shorting selling of securities was NOT the sale of an unregistered security, in a completely illogical and self serving regulatory statement designed to feed key vested interests with their hands in the guts of the SEC.

Illegal naked short selling is MOST CERTAINLY not only the sale of an unregistered security, it is by intent and practical impact the COUNTERFEITING OF COMMERCIAL SECURITIES BY SYNDICATES. What the SEC says as a bureaucracy is meaningless to true honesty. It is very interesting that in making this declaration, the SEC specifically did NOT exempt such players from insider trading rules, particularly where they had previous knowledge of a pending PIPE deal.

After a scathing set of Euromoney articles in April and June, 2005, the UK and EU went to a mandatory three (3) day settlement on all their exchanges, effectively stopping their shorting scandals mirroring those here. They gave no grace period. It was hard, but their markets are now much cleaner than here. It is no accident that London has now trumped New York as the leading IPO environment.