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Investing 101 - Dec 30, 2004 - Printable Version
- Death of an Investment Class
by Dave Patch
Ever wonder what would happen if our distressed neighborhoods were never policed? How about if our local news team failed to report crimes in any location other than our upscale neighborhoods? Do you think the US would be the country we are today? What would happen when the criminal elements were forced to migrate into the next levels of our neighborhoods? Eventually where would it end? It would merely be a reflection of our beginning. We would be back to the days of the un-policed Wild West. In our securities markets, that is exactly what is taking place, and the affects are alarming. The Markets are becoming a place of the “Have and Have Not’s” whereby the “Have’s” prey at will on the “Have Not’s” as our Federal Govt. sits back and watches it happen in real time. The growing separation of wealth in our country is only paralleled by the equal separation of rights to a fair market. The media themselves have entered into this bias as most refuse to report on our markets lower class victims. It’s all about power and who pays the bills. Forgotten is that our markets have more lower and middle class investors than ever before. They too buy subscriptions to these publications trying to understand it all.
Today our Securities Industry has over 4000 publicly traded companies that trade on the Over the Counter Bulletin Board (OTCBB) and Pink Sheet quoting services. This number is only slightly smaller than the near 6000 that trade on our better-known markets. These companies have tens of millions of investors with most being the innocent victims to Wall Street’s greed and abuses. There are very few Institutions that will buy these smaller securities so the investors here are nearly all retail class investors. While Wall Street and the media like to snub their noses at these companies, Wall Street is certainly willing to take the money from those millions of investors who invest in these securities. It is easy picking. It is also financially lucrative.
These companies, penny stock and micro-cap stocks, are not your GE’s or IBM’s, they do not have the charisma of Microsoft or Google, but they are public companies nonetheless. At least were trying to be at one point in time although now some are nothing more than mere shells. Even like the big-board companies some are ethical and some are downright frauds. The investors in these small companies are your local grocery man, car dealer, and engineer. The nurse you go see and the homebuilder you contract are all investors. Sometimes even aides to Congressman and Congressman themselves are such investors as I have been recently informed. These Investors are real people and they are violated people. Our Nations people. These stocks being traded are at values less that $5.00/share and most at $1.00/share or less. But these are the affordable stocks to our working class. After all, how many Google shares can the local teacher really purchase?
Today, it is reported that 1000+ publicly traded companies are being violated by Wall Street’s failure to follow established laws. I am not the one admitting the rules were broken. According to one General Council on Wall Street it has been the regulators telling Wall Street behind closed doors about their failure to follow established laws. It is the cops on the beat handing out warnings instead of tickets time after time after time and then watches as the same driver speed off yet again.
Trades, all trades, are required by law to settle between a buyer and a seller whereby money is exchanged for certified shares issued by the company delivered. It is Securities Law passed down by Congress in the Securities Acts of 1933 and 1934. Instead, Wall Street has ignored settlement laws and flooded the market with non-pedigreed shares; counterfeit shares. Wall Street will take an investors money but delay receipt of delivery on that share. Instead the Investor will get an IOU, that looks identical to a real share, and that IOU will only be exchanged when it becomes cost beneficial to the Wall Street firms to do so. It is the Wall Street’s version of the 3-card Monty played on our cities street corner. The SEC has all but admitted to this fact and has watched the unprotected become violated.
Back to that list – the validation point.
In the list of 1000+ companies reportedly trading with excessive settlement problems there are 50 – 60 NYSE, 100 AMEX, and 100 NASDAQ Securities. These 250 securities represent maybe 3% of the number of publicly traded issuers in these markets. These are your assumed higher and middle tier companies in these markets. On the other hand, 800+ OTCBB and Pink Sheet securities trade with similar settlement abuses. These 800 companies are trading at much higher ratio’s of failure percentages to registered shares than the 250 larger securities as reported in a document written by a visiting scholar to the SEC. These 800 securities represent over 26% of the list eligible securities traded in these quoting services. More than 1 in 4 companies of these companies are having settlement problems.
The NYSE companies that are listed as troubled securities can be located at www.nyse.com/threshold
Understand in all this that settlement failures are not an abuse by the criminal elements. This is not a gang war in a depressed section of town where the criminal feeds off yet another criminal. This is a situation where the millionaires are the ones coming downtown to conduct the robberies and then going home to their mansions. It is Wall Street that fails to settle our trades not the issuers and not the lower and middle class investor who are putting up the cash to purchase these securities. It is Wall Street that carries our settlement failures on their books and it is a Wall Street run Self Regulatory Organization, (DTCC) which hides the evidence from the investing public. Ultimately, it is the small investor who is left with an empty account in a rigged marketplace. That is why it is allowed to happen. Power! Transfer of Money!
Our Nation continues to operate in this moral and ethical crisis.
Our class wars continue to grow as the wealthy want more than they will ever need at the expense of our working class who do need it. The recent corporate scandals demonstrate the length executives will go in committing a white-collar crime. The recent securities scandals also prove that the markets need investors or the markets will crash. As investors pulled out over recent dis-satisfactions, corporations lost market capitalization. The investors pulling out were not just the wealthy, it was all of us. Investor sentiment is already fragile and retail investors can no longer afford to be the financial pawns for the greedy. The economy needs us. We are the buyers to the American products.
Does anybody really think Morgan Stanley and Merrill Lynch would survive if every middle class investor pulled their money from the markets because they could not trust the system to protect them? Can our nation, and the markets, survive if our lower and middle class households dissolved into one of little economic value? Who will build our houses, design our latest technology, or protect our streets and teach our children? Do we really think this nation could survive off a select few wealthy white-collar executives and a house full of Politicians? If you do lets give it a try. Lets all quit and let these millionaires and politicians pay the taxes that support our lives. Lets put them all to work again.
Today I was informed by a reporter of a financial publication that the robberies taking place against millions of small investors was not a reportable story because of the pedigree of the companies being abused and manipulated. The editor is not interested in these stories as there is no big name fanfare that comes with such a story. Money buys subscriptions and you must report to the money. Instead the media would rather report the same story as 100 others media outlets if it involves people of power and money. Most being names only they would know. The reporter who stated this forgot that reporting is not just limited to the elite. The local TV news team still reports the killings in our distressed cities even though it is far from our safe neighborhoods. They have to because it provides us a view of how lucky we really are. Integrity!
Eight Hundred small business issuers, millions of investors, all being manipulated out of their investments and it is not a story to Wall Street reporters because the people abused have no political clout. These abused people do not exist but to pay takes and provide the manual labor so white-collar America can shine from their domiciles. Millions of taxpayers are being violated by a failed Regulatory agency their tax dollars pay to maintain.
Will the death of an Investing Class be acceptable to our economy? I do not hold such answers. I can only ask this – Have we done our homework to know before we kill them off? Our leaders have made some very big mistakes over time because of their inability to predict correctly future results. I suggest the present leadership ensure their analysis before they feed us all to the wolves on Wall Street.
Passing quote to all:
"You have to leave the city of your comfort and go into the wilderness of your intuition. What you'll discover will be wonderful. What you'll discover will be yourself."
- Alan Alda
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