The SEC's Impotence at Combating Fraud
Floyd Norris has a terrific column in the New York Times today on the naked shorting poster child Universal Express, and how its serial violations of the securities laws have not been effectively chased down by the SEC. Here is a link to a non-subscription version.
This is not a new story. I wrote about Universal Express and its CEO, Richard Altomare, in my book, and even then it was starting to show its age. As Floyd points out:
It's also an example of an increasingly disturbing trend, which is how companies that commit fraud use the naked short selling bogyman to shield their actions.
The case of Universal Express, a small company that loses money even faster than it issues news releases, is not very important on its own merits. But it shows how hard it can be for the SEC to halt what it views as a fraud. The agency filed suit against Universal in 2004, but the company is still funding itself by issuing billions of unregistered shares.
That was true to a limited extent during the 1990s, but has received even more mileage because of the corrosive influence -- and deep pockets -- of Overstock.com's CEO Patrick Byrne. Byrne's ability to squeeze political mileage out of a crackpot cause has made life easier for the likes of Altomare and Universal Express.
The SEC, as Floyd points out, has been adept at throwing lawsuits at Universal Express, and yet the company is still thumbing its nose at the SEC.
Floyd also touches on Universal Express's status as "victim" of nonexistent "naked shorting." Indeed, as I pointed out in Wall Street Versus America, the company is a pioneer at use of naked shorting as a distraction. In recent years it has become a hero of loony stock market conspiracy websites, especially the "sanitycheck" website run by former used medical equipment peddler Phil Saunders.
SEC chairman Christopher Cox, unfortunately, has encouraged crooked and inept CEOs by his recent statements, previously reported by Floyd, brown-nosing anti-naked-shorting nuts. Such comments don't mollify the kooks, and they undercut SEC actions against companies that use naked shorting as an excuse. Investors in companies like Universal Express are suffering because of his irresponsible political expediency.
Floyd's blog contains this gem:
Both [Universal Express CEO Richard] Altomare and [general counsel Chris] Gunderson think I am wrong to focus on the company’s conduct, because the only important issue is naked shorting. Mr. Gunderson said that practice had “destroyed 3,000 companies,” a number he raised to 4,000 after I asked for a list. He then mentioned only a few companies, among them Overstock.com, which has vigorously complained about naked shorting but has not been destroyed.Aha! The case of the missing 1,000 companies. Someone notify Scotland Yard!
The Baloney Brigade marches on.
© 2007 Gary Weiss. All rights reserved.
Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.