By Lucy Komisar
Sept 27, 2021
Former hedge fund CEO Marc Cohodes discusses in this one-hour interview:
- Overstock’s charges that Cohodes and associates faked reports to drive down the price of Overstock they were shorting,
- Overstock’s case against Goldman Sachs that it (and Merrill Lynch) used naked shorting to drive down its price,
- Cohodes’ testimony in that case about Goldman creating shares out of options trades, and
- Why he thinks the Citadel empire should be broken up.
- Also see the infamous confession by Jim Cramer about how he fed lies to financial reporters to move share prices.
Here is the video on Youtube. On Rumble. And as a podcast.
Here are links to key documents and citations.
Charges in Overstock legal case against Rocker, Gradient, Cohodes
Filed Oct 12, 2005 Case No, CV053693, Marin County, California. https://www.thekomisarscoop.com/wp-content/uploads/2021/09/Overstock-2005.11.12-OSTK1-First-Amended-Complaint.pdf
Plaintiff Overstock.com (“Overstock”) alleges that Defendants have orchestrated a wide-scale predatory campaign of knowingly distributing false, and covertly biased, written reports about Overstock in order to disparage Overstock and enrich themselves.
Not only was the content of these reports not the result of objective analysis, but the Defendant stock analysts worked together with the Defendant hedge funds, without disclosing the unscrupulous collaboration. Defendant hedge funds conspired in creating these defamatory reports because they stood to gain huge financial benefit from the inevitable harm to Overstock.
As intended, Defendants’ actions caused substantial harm to Overstock, in the form of decreased market capitalization, tarnished reputation and unwarranted disruption of its relationships with its customers, investors and vendors. Overstock’s loss was Defendants’ gain – Defendants reaped substantial illegal profits from their attack on Overstock.
…
Far from being what Gradient represented to be objective and independent analyses, these reports were previewed, edited, and controlled by at least the Rocker Defendants, Rocker, and Cohodes, Indeed, upon information and belief, Vickrey routinely provided Gradient’s reports on Overstock to the Rocker Defendants, Rocker and Cohodes, prior to publication,
From their Marin County office, Cohodes, Rocker Partners and Rocker Management routinely made requests to Gradient to alter the reports….Cohodes, Rocker Partners and Rocker Management routinely edited Defendant Gradient’s reports to insert specific negative input and false information.
Overstock legal case against Goldman and the other big banks/prime dealers.
Marc Cohodes comments in his Overstock case deposition on market makers using option conversion trades to create fake shares.
Deposition of Marc Cohodes Nov 18, 2011
Questions BY MR. SOMMER (lawyer for Overstock):
Q. Could you tell me what your understanding of a conversion trade is?
A. Roughly because I’m — I haven’t practiced this business in a while. You know, a firm or a market maker would synthetically create a short position by doing option trades in it, buying the stock, selling a call or buying a put or this, that and the other. And by buying the stock, they could create a borrow off an option trade. It would leave them essentially market neutral, but it would create long stock to them so they could lend out the shares.
Q. Did you ever talk to anyone at Goldman about conversion trades?
A. I’m sure. I don’t specifically recall who, what, when, why or where, but I’m sure I did.
Q. Do you recall anyone at Goldman generally informing you that Goldman was acquiring stock through conversion trades to lend out?
MR. FLOREN: Vague and ambiguous.
THE WITNESS: No, not specifically, no.
BY MR. SOMMER:
Q. Do you remember talking to Mr. Conley about conversion trades?
A. Quite possibly, sure.
Q. But you don’t recall anything specific?
A. Specific over —
Q. Let me ask it generally. Did he ever suggest to you that he could get you hard-to-borrow stock by doing conversion trades?
A. Not that I recall in those specific
words, no.
Q. Do you recall something more generally on that topic?
A. I really don’t as to specifics for this matter.
MR. SOMMER: Exhibit 7.
(Deposition Exhibit 7
marked for identification.)
THE WITNESS: So you found these emails without me. I knew you would.
The full Cohodes deposition.
Definitions
Name = the stock, ie the name of the stock.
Call options are financial contracts that give the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset or instrument at a specified (“strike”) price within a specific time period. The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price.
Put options are financial contracts that give the buyer the right, but not the obligation, to sell–or sell short–a specified amount of an underlying asset at a pre-determined (“strike”) price within a specified time period. The buyer profits when the underlying asset decreases in price.
Market Maker Exception aka the Madoff Exception was invented by Bernie Madoff to allow his hedge fund to naked short stocks in which he “made a market,” ie accepted all offers to buy and sell. A change in 2008 allowed market makers to short without borrowing shares, but did not exempt them from the duty to settle shorts. They are not allowed to fail. But they evade this rule by rolling over trades. The SEC appears not to notice. See this: https://www.sec.gov/divisions/marketreg/tmcompliance/rule203b3-secg.htm
Amendment to Eliminate the Options Market Maker Exception in Exchange Act Rule 203(b)(3) of Regulation SHO
The Securities and Exchange Commission (“Commission”), to further reduce fails to deliver in certain equity securities eliminated the “options market maker” exception to Regulation SHO’s close-out requirements under Exchange Act Rule 203(b)(3).
Prior to this amendment, Regulation SHO contained an exception to the rule’s close-out requirement under Rule 203(b)(3)(iii) that excepted from the close-out requirement fails to deliver resulting from short sales by registered options market makers effected to establish or maintain a hedge on certain options positions. The Commission amended Regulation SHO to eliminate the options market maker exception to the rule’s close-out requirement.
Some good points in article above. Organized crime (market makers/big brokers?…) manipulation of stocks is so brazen thru shorting/hiding trades in dark pools (DOW down 500 on 28 Sep morning)…. Why is “Madoff exception” (identified in article above) to allow market makers to naked short stocks still allowed? When SEC won’t take corrective action to stop Madoff corruptive practices to steal money from retail investors – isn’t it an indictment of SEC for being an accessory to the crime…
[LK: Madoff exception was partially eliminated, market makers can short without borrowing but they have to cover the trades. Except they roll them over!]
Hopefully, exposure of the problem will help get corrective action someday. Sen Warren is calling out some of the corruption today at hearings.
I sent comments below to Fed on 23 Sep (reply listed at bottom – Fed denied ability to stop short selling in stocks. However the Fed could recommend stopping the manipulation). I sent some comments earlier to 3 senators on Senate Finance Committee and to SEC.
Reference Number: 202100138604
Request Fed take action to ban all stock short sales. They have been attributed to causing the 1929 and 2008 stock market crashes and are likely cause for 1,000 point Dow drop on 19 Jul and over 900 point at 1 point on 20 Sep (no real reason for drops those days other than manipulation). There is no justification to allow market makers/brokerages to sell short fake/unowned shares. Selling fake dollars is a crime. Selling fake real estate is a crime. Why is selling fake stock shares (shorting/naked shorting/algo wash sales…) not a crime? It seems strange that a bank robber steals $10,000 and gets 10 years in jail if caught. However a market maker/broker can steal billions and gets no jail time and gets to keep 95% of the billions stolen???
There is very blatant stock manipulation by market makers/big brokers/hedge funds to steal retail investors money thru naked shorting/short selling/algo wash sales to drive down stocks (Boeing is listed in yahoo finance as one of 13 most shorted stocks). For example, Boeing stock has dropped over $35 billion from 15 Mar 2021 yearly highs to COB 21 Sep. The stock has been tanked/shorted heavily even on very good news days, such as biggest plane sale in 10 years to United – stock up $4 early, but ended down 4 points at close.
Shorting is often tied to option expiration and manipulated for market makers benefit.
ShortVolumes.com site listed 4 to 8 million shares traded daily with 48.7% shorted over recent 20 days. Aug 17 listed 8.1 million shares traded with 3.9 million shares shorted and Boeing stock dropped $6.84. Yahoo Finance listed 10.9 million Boeing shares traded daily. The hiding of trades in dark pools needs to be banned as it allows market makers to front run trades and hide trades from retail investors and from investigators.
I hope you can initiate corrective action as short manipulation has been openly brazen for some time. I’ve submitted similar comments recently to 3 Senators on Finance Comm., and to SEC. However Wall Street financial lobbyists have “owned” Senate and SEC for some time, so expect it to take some time to overcome the corruption… Shorting was addressed after 1929 and 2008 crashes, but banks/brokerages have too much money and bought back approval for the shorting scam looting retail investors to continue again. I read recent comments online that Fed would address corruption (as well as inhouse Fed trading) –
hope Fed actually means it this time?
Reply from Fed Reserve on 27 Sep 2021:
Thank you for your recent correspondence to the Federal Reserve Board. Please know that the Federal Reserve does not have the authority to prohibit short selling in the stock market.
Again, we thank you for writing.
Sincerely,
Board Staff
I added reply from SEC (4 Oct 21) below to my earlier submission to them – related to article and comments above. (I deleted the name of the SEC lawyer responding…)
Dear Mr. Olson:
Thank you for contacting the U.S. Securities and Exchange Commission (SEC).
We appreciate you informing us of your concerns regarding Boeing Co (NYSE: BA). The SEC’s Office of Investor Education and Advocacy processes many comments from individual investors and others. We keep records of the correspondence we receive in a searchable database that SEC staff may make use of in inspections, examinations, and investigations. In addition, some of the correspondence we receive is referred to other SEC offices and divisions for their review. If they have any questions or wish to respond directly to your comments, they will contact you.
Once again, thank you for communicating your views.
Sincerely,
(I deleted the name listed)
Attorney
Office of Investor Education and Advocacy
U.S. Securities and Exchange Commission
(800) 732-0330
http://www.sec.gov
http://www.investor.gov
http://www.twitter.com/SEC_Investor_Ed
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File Attachment:
Correspondent Name: Mr. Daryl Olson
Create Date: 2021-09-14 14:46:14
Origin: Web
File #: HO::~01168489~::HO
Description:
SEC fails to enforce securities law. Needed actions: 1. Ban short selling stock by everyone – including by market makers (often huge shorts at open and close). 2. Enforce laws against market manipulation used in “wash sales” thru algo trading. 2. Ban dark pools (hiding trades from retail investors, which allows market makers/big brokers to front run trades). 3. Crack down on brokerages/media manipulating “news” by repeating, making up, or hiding stories, as well as using a “front man” to direct stock prices up or down. (One media site “reporter” seems to do weekly hit pieces on Boeing while ignoring positive news.) Ban payments for order flows (used to steal money by not offering best price to retail investors). Enforce actions against blatant stock option expiration price manipulation thru algos, shorting, etc….
Marc and Lucy,I’ve been following you both for a very long time and just LOVE the content and LOVE. Lakeport and Solari Paul!