Update: Please check this post for Byrne’s and Bagley’s later comments.
Here’s Penson Financial Services Letter To SEC “Penson’s letter calling the video a hoax or worse.
Update (Tuesday, Oct 13)
The Penson letter (dated October 6) calls Taibbi an “apparent freelance blogger”. This strikes me as odd. They couldn’t be bothered to figure out his credentials first, before attacking him?
The video they reference first is the October 5 video on True Slant, where Taibbi now blogs.
They then cite this youtube video, dated October 1, as the source: http://www.youtube.com/watch?v=pKQdQ0T9IkE. It’s titled “Penson Approves Billion Share Naked Short” and the source is listed on Youtube as Naked Short Sales
Here’s the next version (dated October 2 ) cited in the letter, which has CITI as the stock being sold
http://www.youtube.com/watch?v=rXIZZOwaiCM&NR=1
It’s titled “thetrade” and the source is given as TrueSlant (Taibbi’s blog)
In the October 1 video, the company to whom the shares belong is anonymous, the timestamp in the locate prompt is 10:57:08 and there is an 8 preceding the multiple zeros (?)
In the October 2nd version, the anonymous company is now Citi, it’s a Level II trading station, and the time-stamp on the locate is 10:57:00 (it’s blurred so I could be mistaken) and there is no preceding number for the locate size. I notice everyone refers to the figure as tens of billions, but if there were 9 zeros that would be unitary billions. So perhaps, it is 10 zeros.
I’m sure I’ve missed a lot of stuff….or misunderstood. But trading platforms look very different, and I’m not familiar with this one. Professional traders who’ve used a lot of trading software might be able to make a better judgment.
Aha – maybe here’s why it didn’t look like an order entry in that screen, this blogger says its an entry of an audit trail point asking who the stock was borrowed from, how much, and when – to prevent naked short-selling.
I don’t think this entirely blows away Taibbi, as some think, though it does show haste and sloppiness.
The letter is signed by Penson’s Associate General Counsel, Tim Wise, and it’s addressed to the SEC
and FINRA.
Update (Tuesday, Oct 13)
The video is described at length on a lot of sites (Taibbi’s, Clusterstock, Megan McArdle).
I still can’t read the pop-up that’s supposed to show that the order was canceled
(Update: this is the second order, the one that’s irrelevant to the locate, according to Taibbi’s second post).
To make it clear, there are two orders shown on the video, as best as I understand it. The first one is for 100 shares for a short sale, which is rejected at first, because the shares are hard to locate (that’s at the start of the clip). This leads to a prompt that the trader fills out, supposedly asking for a locate of the shares, which is given in a multiple of billion (?) – I couldn’t catch all the zeros – 9 or 10, I think. This is the locate which Taibbi says is shady, since the company’s float is for 5.5 billion.
Then there is a trade (which Taibbi says is irrelevant), whose actual size on the top left of the screen goes from 100 to 1000 to 9000 – (that’s the second trade that has the pop-up) – that’s rejected.
I fail to understand why the tape wasn’t cut after the locate, if that was the main point.
Frankly, I can’t make out whether the video shows what Taibbi says it does or not, and I can’t read the (irrelevant) pop-up.
Taibbi does back-track, but rather unconvincingly, because the text of what he wrote at True Slant certainly implies that the sale (and not just the locate) was of multi-billion shares, even if that was not his wording. The video is titled that way too.
If the locate is the issue, why not title and cut the video that way?Here is Taibbi’s original post:
“To disguise the identity of the trader, I’ve blocked out the first number in the sequence. But you can see that the number is in the tens of billions of shares. Now, the float for BANK X that day was only five and a half billion, meaning there were only five and a half billion BANK X shares in circulation. Without disclosing the actual number, I can tell you that the customer asked for a locate of shares in an amount that was at least five times the number of BANK X shares actually in circulation. Such a locate, in other words, could not possibly be filled.
:17 At seventeen seconds, at the bottom, you see that the firm Penson has now approved the trade and” located” the multibillion amount of shares. The trade goes through.”
Here is Taibbi back-tracking:
“Business Insider writer John Carney here seems to have read my recent post on Penson and taken from that that I was reporting that someone had executed a short sale of tens of billions of shares in a company whose float was only five and a half billion. This would, indeed, be ridiculous. Except that is not at all what I reported.
What I published was a tape of a trader asking for a locate of tens of billions of shares. It is the size of the locate, and the speed with which it is approved that is the issue, not the trade. The actual trade, if Carney had bothered to read the text, was only for 100 shares.
Carney then goes on to claim in another post that the “system” worked because a second trade was rejected at :27 on the tape. But this is a second trade for a larger amount of shares that was rejected not because of the locate but because the trader in question had insufficient funds in his account to make the short sale. It has nothing to do with the locate and is completely irrelevant to the story.”
My Comment:
Well, maybe so. But even if Taibbi himself wasn’t confused about what the video showed, the clip and his original commentary were misleading. Possibly, when he was writing in haste, he forgot that the sale was only for 100 shares and misspoke. In that case, he can hardly blame anyone else for misreading.
I’ll dig around to find out what Penson’s trading platform looks like and whether a locate of that size and speed is possible or impossible. So far this post was the most informative.
So much for the dangers of insta-punditry….
ORIGINAL POST:
This is one of several versions of a video supposedly showing a short-sale through Penson that’s the source of the trouble. I’ll be back later to find other versions of the video. (Update: I still haven’t found any of these other versions. There’s supposed to be one with Citi as the stock located)To recap, Matt Taibbi says it shows naked shorting, John Carney (of Clusterstock) says it shows the system worked as it should, Penson denies (sort of) that the video is its.
For a more detailed recap, see this long, dismissive blog post by Megan McArdle at The Atlantic.
There’s a little pop-up box about 25-26 seconds into the tape that for the life of me I couldn’t quite read. If I find a way to do that, I’ll comment on the video, but otherwise, I’ll pass…
(Penson holds one of my very diminished IRA’s, so I’m all agog if it happens to be connected to the Mafia – in this case, the Genovese mafia….)
Here’s the money part from Deep Capture on Penson:
“This is rather important, because Deep Capture has reviewed evidence showing that little Penson Financial and one other relatively unknown firm were by far the biggest traders in financial stocks in the first nine months of last year, handling more than 80 percent of volume. To repeat, Penson Financial, a little firm in Dallas, Texas, and one other relatively small firm handled by far the biggest volume of trading in the stock of all those big banks that collapsed last year, leading to the worst financial crisis since the Great Depression. When it came to clearing trades in financial stocks, Penson was bigger than Goldman, bigger than Merrill, bigger than every major brokerage on Wall Street.
We do not know for certain that the trading through Penson was naked short-selling. We know only that naked short selling accounted for much of the overall trading last fall in companies like Lehman Brothers. And we know that a preponderance of the overall trading went through Penson. Perhaps Penson carefully weeded out the naked short-sellers, in which case it handled almost all of the trading in financial stocks except for naked short selling. But if Taibbi’s video is any indication, Penson was certainly willing to locate stock that did not exist.
If I have anything to add to Taibbi’s terrific reporting, it is this: Penson Financial’s vice president in charge of stock clearing (that is, the head of the division that appears to have located stock that did not exist) is a man named Christopher Sandel. From 1985 to 1995, Sandel was a top executive at Adler Coleman, best known for being the clearing firm to the Genovese Mafia.”
And this, also from Deep Capture:
“In the letter, Penson Financial, which was fined in 2006 for naked short selling, promises that it does not engage in naked short selling”
OK. Here are the basic points in Penson’s letter denying naked short selling (as recapped at Clusterstock):
* “”The purpose of this letter is to inform you of an apparent hoax and unsupported accusation of a violation of Regulation SHO by Penson.”
* “The purpose of this letter is to inform you that Taibbi’s post is based on false information.”
* “While we are uncertain whether Taibbi’s article is the result of a hoax or something more deliberate…”
* “”There was no locate at the time of the video”
My Comment:
Carney seems to find this convincing. I don’t.
Why does Penson call this an “apparent hoax,” instead of an outright hoax? Is that just caution?
What does the phrase “something more deliberate” mean, and why use it at all?
“At the time of video” is pure legalese. There could have been a locate at any other time, then?
I don’t know about the video – I couldn’t read the pop-up and there are different versions out there.
But this letter smells fishy…
Carney writes:
“For us the clincher is the fact that Penson wrote the letter to the SEC. If they were a guilty party, they would have to be absolutely insane to do this.”
My Comment:
Well, no. Not if the SEC is thoroughly in bed with companies like Penson. Then of course Penson wouldn’t mind the SEC being alerted.
This piece in Investment News adds that Taibbi was given the video last week and hasn’t responded to the Penson letter. Penson denies that the trading platform shown in the video is theirs, and they say there was no locate of that stock in their records.
In one version of the video, the stock located is Citigroup, Penson said (as of now, I haven’t found that video).
Now, here is Gary Weiss, responding to the comment on Penson’s mob ties, from his own past research on the subject. The plot certainly thickens:
“1. Adler Coleman cleared trades for a rotten brokerage named Hanover Sterling, and, as I reported a good 13 years ago in a Business Week cover story, The Mob on Wall Street, Hanover was connected to the Genovese crime family. But it’s nonsense to claim that Adler “cleared” for the Genoveses, and there’s no evidence tying Adler to the Mafia.
2. Sandel is not in charge of stock clearing at Penson. He left that position two years ago. See this press release.”