cdu likelyup soon in senate inquiry into asic, page-197

Hi Buddy


CuDeco Management have written to ASIC re the kinds of manipulation that is occurring with the CuDeco share price due to the Hedge Funds.

I read an interesting article and I repeat extracts from it for you here so that you can get a better understanding of where I am coming from concerning my CDU holding:-

"Unrestrained financial exploitations have been one of the great causes of our present tragic condition." -- President Franklin D. Roosevelt, 1933

Why did gold and silver stocks just get hammered, at a time when commodities are considered a safe haven against widespread global uncertainty?

The answer could be that the sector has been the target of massive short selling. For some popular precious metal stocks, close to half the trades might have been "phantom" sales by short sellers who did not actually own the stock.

A bear raid is the practice of targeting a stock or other asset for take-down, either for quick profits or for corporate takeover. Today the target is commodities, but tomorrow it could be something else. Lehman Brothers who went bankrupt in September 2008, was brought down by a massive bear raid on 9-11 of that year, when its stock price dropped by 41 percent. Such an event could have occurred with CuDeco on the 18th August, 2010. Many CDU shareholders were fortunate to survive.

The stock market has been plagued by these speculative attacks ever since the four-year industry-wide bear raid called the Great Depression, when the Dow Jones Industrial Average was reduced to 10 percent of its former value. Whenever the market decline slowed, speculators would step in to sell millions of dollars worth of stock they did not own but had ostensibly borrowed just for purposes of sale, using the device known as the short sale. When done on a large enough scale, short selling can force prices down, allowing assets to be picked up very cheaply.

Another Great Depression is the short seller's dream, as it is a business that is all about making money, regardless of the damage done to real companies contributing real goods and services to the economy.

Here is how the short-selling game is played: stock prices are set by traders whose job is to match buyers with sellers. Short sellers willing to sell at any price are matched with the low-ball buy orders. When sell orders overwhelm buy orders, the price drops. The short sellers then buy the shares back at the lower price and pocket the difference. Today, speculators have to drop the price only enough to trigger the automatic stop loss orders and margin calls of the big mutual funds and hedge funds. A cascade of sell orders follows, and the price plummets.

The shorters "borrow" shares from the unwitting true shareholders. When a brokerage firm opens an account for a new customer, it is usually a "margin" account -- one that allows the investor to buy stock on margin, or by borrowing against the investor's stock. This is done although most investors never use the margin feature and are unaware they have it. The brokers do it because they can "rent" the stock in a margin account for a substantial fee -- sometimes as much as 30 percent interest for a stock in short supply. The real shareholders get none of this profit. Worse, they can be seriously harmed by the practice. Their shares are being used to bet against their own interests.

There is another problem with short selling: the short seller is allowed to vote the shares at shareholder meetings. To avoid having to reveal what is going on, stock brokers send proxies to the "real" owners as well; but that means there are duplicate proxies floating around. Hedge funds may engage in short selling just to vote on particular issues in which they are interested, such as hostile corporate takeovers. Since many shareholders don't send in their proxies, interested short sellers can swing the vote in a direction that hurts the interests of the real shareholders.

The US Securities Act of 1933 regulated short selling by imposing an "uptick" rule, which required a stock's price to be higher than its previous sale price before a short sale could be made; and by forbidding "naked" short selling -- selling stocks short without either owning or borrowing them. But the uptick rule was repealed in July 2007; and an exception created in 2005 turned the rule against "naked" short selling into a sham. The practice was allowed by "market makers" -- those brokers agreeing to stand ready to buy and sell a particular stock at a publicly quoted price. The catch is that market makers actually do most of the buying and selling of stock today. Market making is one of those lucrative pursuits of the giant Wall Street banks.

One of the more egregious examples of naked short selling was relayed in a story run on Financial Wire in 2005. A man named R..... S...... purchased all of the outstanding stock of a small company called G..... Links Corporation, totaling a little over one million shares. He put all of this stock in his bottom drawer, then watched as 60 million of the company's shares traded hands over the next two days. Every outstanding share changed hands nearly 60 times in those two days, although they were safely tucked away in his bottom drawer. The incident substantiated allegations that a staggering number of "phantom" shares are being traded around by brokers in naked short sales. Short sellers are expected to cover by buying back the stock and returning it to the pool, but S......'s 60 million shares were obviously never bought back, since they were never on the market.

Any alleged advantages from the liquidity afforded by short selling are offset by the serious harm this sleight of hand can do to companies or assets targeted for take-down in bear raids. With the power to engage in naked short sales, market makers have the market wired for demolition at their whim. CuDeco Management would undoubtedly know of this and need to be readyt for such an attack on the company.

What can be done to halt this destructive practice? Ideally, the Regulator should step in with some rules; but from my experience with ASIC the Regulator seems to favour the brokers. Lawsuits can have an effect, but they take money and time, of which I have precious little left.

I need to rely on the Senate Inquiry into ASIC to see if justice can prevail in the end. Retail investors have ben hit bad enough. It is time for fair play in the stock market and ASIC must assume the responsibility to do this. Urgent reform is necessary by the Regulator.


cheers,

Max