Why The SEC Needs Investigation

[Policing Wall Street]

The Securities and Exchange Commission (SEC) has been investigating illegal short sales in stock and the manipulation of the media by short sellers.

Yet, the SEC itself needs careful investigation to expose how the SEC's own several transgressions led us into the mess on Wall Street. If the Barack Obama Administration launched a website to invite whistleblowers to submit information, including documentation about the SEC’s coverups, so much information would flow that the site would crash within a few hours.

Some background: A short seller is someone who sells stock of a publicly traded corporation without actually owning the shares of the publicly traded company. Short selling of a stock has become a topic of importance since the collapse of Bear Stearns in March 2008; the harbinger of the current financial debacle.

Currently, the SEC has asked for comments regarding the short sale of stock and has a deadline of June 29, 2009 for comments. Yet, had the SEC always been diligent in its work, much of the problems we face today on Wall Street might have been prevented.

My background includes being a trader on Wall Street many years ago as most readers of my column know. In 1999, I collaborated with a reporter named Gary Weiss, as a major source, for an article "Scandal on Wall Street," that appeared in the April issue of Business Week. Afterwards Weiss seemed blinded by the light. We later had a falling out over some not-factual reporting that he did; this is a topic for a different column.

While we were working on the 1999 article, in September 1998, we had frequent meetings in his office at Business Week. I was present on numerous occasions when Weiss received increasingly desperate sounding telephone call from a man named Manuel Asensio, a notorious short seller.

On several occasions when I was in Weiss’ office, he refused to answer the calls and I could hear Asensio screaming, "I need you to print that HEB article now."

He wanted Business Week to publish his stock prognostication concerning Hemispherx Biopharma (AMEX symbol: HEB). Asensio had taken an extremely large short position in HEB.

Weiss and I had discussed Asensio’s short position. I told Weiss that it could appear that he was assisting Asensio in driving down the price of HEB if the article about Asensio’s negative prognostications ran. Asensio wanted to profit enormously from a decline in the stock price of HEB. Weiss stated that he intended to quote Asensio as stating that HEB had a target value of $0.

At this time I had given Weiss information that Joseph Giamanco Sr., whose firm GHM was the specialist in HEB, was illegally trading the stock of HEB in the accounts of his friends, which he controlled. I also told Weiss that the specialist was manipulating the price of HEB. This was a serious violation of the Securities Exchange Act of 1934.

The article, "Why Hemispherx Could Take Sick," appeared in the September 28, 1998 issue of Business Week. This article quoted Asensio as stating that Hemispherx had a value of $0.

The problem was that Asensio did not sell HEB stock when Business Week published Weiss’ article. Asensio had already sold stock short; that is, stock that he did not own. Asensio bought back his short stock. Simply put Asensio had used Weiss’ article to cause the price of HEB to fall, so that he could purchase in excess of 100,000 shares that he had sold; and thus earn a profit on his short sales.

Beginning in 2006 there were many voices crying out that short sales involved fraud. Evidence began to be presented that media personalities had assisted short sellers by publishing their verbatim words. Thus, media found themselves assisting short sellers; instead of being neutral in disputes.

On January 18, 2006 I wrote to Christopher Cox, Chairman of the Securities and Exchange Commission, and the SEC Commissioners including Cynthia Glassman concerning Weiss’ Business Week article and how it assisted Asensio.

Julie Riewe, an SEC staff attorney, for investigation wrote to me that Glassman had referred my letter for investigation. On February 8, 2006 I provided more detail to Riewe in an eight page letter.

Riewe then called me and informed me that Chairman Cox and the Commissioners had voted not to investigate the charges contained in my letter. She said Cox had ordered that my letter be placed in my file. Additionally, Riewe told me that the numerous letters I had sent about Wall Street malfeasance had simply been placed in my file.

I could totally relate to the recent disclosure about how Harry Markopolos’s several attempts to have Bernard Madoff’s scam exposed years ago were frustrated the SEC’s inaction.

So how can anyone be surprised that the United States is in this catastrophic financial debacle, for which Wall Street shares huge responsibility.