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Investing 101 - Sep 9, 2004 - Printable Version
- Jag Media Case Dismissed by Judge, Citing Filing Deficiencies
by Dave Patch
Today the Securities Industry dodged another bullet that was aimed squarely at their present behavioral problems with trade settlement failures. For what appears to be a repeat pattern with the legal teams spearheaded by millionaire Texas Lawyer John O’Quinn, the Jag Media lawsuit against the securities industry over settlement abuses has been thrown out of court with all motions dismissed. Houston Judge Vanessa Gilmore, in what appears to be a scathing ruling, cited repeated deficiencies in the Attorney’s ability to file a complaint meeting the standards of law concluding her decision by stating “The extent of the deficiencies in the Third Amended Complaint is a strong indication that amendment would be futile”.
To make matters worse the ruling, filed on 9/3/04 became knowledge to the plaintiffs Wednesday 9/8 via a Dow Jones news reporter and not the famed lawyers. The lawyers, as early as Wednesday had still claimed they had heard no such ruling having taken place. The lawyers were – THE LAST TO KNOW.
According to Judge Gilmore, the Plaintiffs legal team had been given over a year, as well as the benefit of a 2003 Order to draft up a third and final filing that met the standards of laws and once again they failed. With that, the lawsuit, and the evidence at hand will not be used in a court of law to determine guilt or innocence. The victims in this case will remain victims for now. A technicality, actually poor filing, let the Industry walk away with their books still hidden from all to see.
So how bad did the O’Quinn team screw up?
In April, during a Stock Dividend issue by Jag Media e-mails were submitted by Industry members to the Company citing settlement failures. Some of these memos raise serious questions about the Industry practices:
From Canada – Home of the Naked Short:
“We require to know what we have to do to claim the new Ser II Class B Shares of Jag Media as of record date April 14, 2003 from brokers who owe us shares and who we owe shares due to outstanding trades. If these shares resulted from trades that can’t be settled how do we claim the new shares.” Canadian Deposit for Securities
“If we have short sale positions obviously we are not entitled to the Class B to be distributed, but I am concerned that we will be liable for this stock” Global Securities Corporation
And then from Homeland USA:
“How do we address brokers who owe us shares and vice versa?” Penson Financial Services
“Our DTC position does not include the shares we are owed by Spear Leeds. We need to issue shares for all of our customers.” Fidelity Investments
“National Financial Services and Canadian Dep Secs (CDS Ltd.) were failing to deliver us shares over the record dates for a total of 103,215 shares, 7900, and 95,315 respectively…..I have spoken to other firms and they are having the same problems that we are due to other firms also owing them shares”. AG Edwards
What makes these e-mails so compelling is not that it takes a snapshot in time that highlights a period where it appears everybody was having settlement problems in this stock. What makes these compelling is that these firms highlight their lack of understanding in how to even deal with unsettled trades. Brokers, Clearing Firms, and Depositories are all asking the same question – What do I do with my unsettled trades I owe or are owed me? How bad was the overall settlement problem we will never know? What we do know is that in 5 seemingly innocent e-mails 7 firms were mentioned with over 150 firms on record in this stock at the DTC. E-mails the securities regulators have and fail to act upon.
The SEC and NASD claim that the unsettled trade is the liability of the Industry firms because we shareholders have Journal Entry shares put into our accounts. Electronic IOU’s. The lawsuit claimed that the electronic IOU’s were simply added into the float and became part of the daily trading volume. The Industry was failing to settle trades amongst each other and that “Abusive Behavior” the SEC referenced in Regulation SHO was taking place here. The NASAA called it “Bear Raids”. The e-mails submitted seem to support the claims.
Let’s hope that the team created by famed trail attorney John O’Quinn can learn from this lesson and bring a case to court that creates the necessary discovery to put this issue globally to rest. We know that the Industry will never come clean until forced to do so. We know the SEC and NASD can not be counted on in our lifetime or our children’s. So with O’Quinn taking on all these cases for the injured investors, and it’s bigger than tobacco, he better put a team on the field that knows securities law. The financial stability of victimized investors and victimized companies rest in the hands of his team which is now batting 0.000.
In conclusion, the setback today with Judge Gilmore was an embarrassment to all the people who fight against the abuses taking place against the lower tier companies and the middle class investors who put their investments in these companies. What was lost was the investors right to have a day in a non-partial court system. TODAY! There is always tomorrow.
Let’s move on and move forward. The battle in this court was lost but the war rages on and there are more courts out there.
Editor's note: This article was written by Dave Patch at StockGate Today, and is reprinted by permission. It highlights the difficulties faced by attorneys dealing with this complex issue, and shows the need for widespread reform in the stock market. For additional information on StockGate, or to sign the petition calling for a congressional investigation into the scandal, visit www.investigatethesec.com . Check out our archives for other articles about the stock market scandal.
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