Oct. 8 (Bloomberg) -- And you wonder why the markets are nervous.
At 2:51 p.m. yesterday, the Securities and Exchange Commission unleashed a bombshell news release. The headline: ``SEC Charges Beverly Hills Firm and Principal for Illegal Short Selling.''
The big story? Here we are, in the worst financial crisis of almost everybody's lifetimes, and this is what qualifies as news down at the SEC.
Not just a short seller. An illegal short seller. From BEVERLY HILLS! Message: ``Yeah, baby! We got one!''
And who is this capo of 90210? The man upon whom we, the investing mob, should focus our anger, while Wall Street CEOs and SEC Chairman Christopher Cox get away?
According to the SEC, he is one Kenneth Rickel, principal of the renowned Lion Gate Capital Inc. And for all his efforts, this Rickel fellow allegedly made profits of $207,291.
That's right: $207,291. According to the SEC, ``Rickel made every trading decision and placed every one of the violative trades.'' For that, he got his own press release from the SEC, distributed to almost every financial-news reporter on the planet, tainting him on Google for life.
Public Enemy No. 1, right here. After all, if the government can't get someone who matters, it might as well as electronically string up someone who doesn't. Who can tell the difference? When the government is bailing out the world's banks for $700 billion, every penny helps, or so we're supposed to believe.
Making a Commitment
``The commission is committed to curbing the abuse of short selling,'' thundered Linda Thomsen, director of the SEC's almost-total-lack-of-enforcement division. ``Traders who attempt to hide their violations of the securities laws through sham transactions or other schemes will be held accountable.''
And there's more. Here's what Rosalind R. Tyson, director of the SEC's Los Angeles office, had to say in the same press release: Rickel and his firm ``engaged in serial violations of an important regulation designed to protect the integrity of the capital markets.'' It's enough to make you think he's the Jeffrey Dahmer of Wall Street.
Just what kind of short seller is our man Rickel? Not a naked short seller, like the kind Cox normally vilifies. And while the SEC may have called his civil violations ``illegal,'' it didn't accuse him of fraud.
According to the SEC's complaint, Rickel covered short sales on 14 companies with shares he bought through their public stock offerings. If he'd covered his bets with stock he bought on the open market, he would've been OK under the rules. In a short sale, an investor sells borrowed shares, hoping to buy them back at a lower price and pocket the difference as profit. (Naked shorts sell shares without borrowing them first.)
Vague Rule
``I'm surprised, given all the important issues of the day the SEC needs to handle, that they would bring a case in federal court over $200,000, on their estimate, for a technical trading violation of a rule that the SEC did away with because they felt it was too vague,'' Rickel's New York lawyer, Christopher Clark, told me.
Now see if you recognize any of the company names that were the targets of Rickel's trades: TC Pipelines LP, Minrad International Inc., IPC Holdings Ltd., Axsys Technologies Inc., Randgold Resources Inc., Fiberstars Inc., Pharmaxis Ltd., Lifetime Brands Inc., American Capital Strategies Ltd., Axesstel Inc., TGC Industries Inc., Brigham Exploration Co., Gasco Energy Inc. and Extra Storage Space Inc.
Meanwhile, as Bear Stearns Cos. and Lehman Brothers Holdings Inc. were unraveling, Cox and the SEC slept.
If the people running the SEC aren't going to resign, they should at least shut up. That way, we won't know just how much time they waste each day formulating over-the-top quotes for press releases about small-fry cases instead of doing their jobs.
Whoops, there goes another 500 points off the Dow. That's your vote of public confidence, right there.