Expert Financial Analysis and Reporting

It is Time for Wall Street Wall Street Business Practices to Be Disrupted

The frenzy of news flow around the short squeeze on GameStop might be viewed as some kind of one off, weird trading situation precipitated by retail speculators. Old Wall Street hands are saying that it will pass, although they also suggest that maybe we should pass some regulations that limit retail speculation. They believe and hope that this will soon be forgotten and Wall Street will proceed with business as usual. I see it differently. I believe that this could be the catalyst for a disruption that could shake the foundations of how Wall Street does business. This is the first in what I plan to be a series of articles that shine a light on pervasive misconduct and even criminal activity in which Wall Street routinely screws Corporate and Main Street America. I think that the GameStop situation has the potential to be the catalyst that will shine a bright light on Wall Street. I hope that my research can brighten this light.

The internet has been the catalyst for disrupting innumerable older business models. The classic example is what Amazon has done to bricks and mortar retailers, but there is virtually no sector or business in the world economy that is not being threatened by entrepreneurs offering better solutions for customers. We are just at the beginning of a renaissance that will obsolete many older industries. I am excited to see how scenarios will play out for:

• Electic powered (particularly autonomous) versus those powered by internal combustion engines.
• Alternative energy sources versus fossil fuel
• Cell and gene therapy promising better treatments than historical drugs that are based on small molecules and, in some cases may result in cures rather than just treating symptoms of disease
• Fintechs that are challenging large financial institutions control over money and perhaps with cryptocurrency even challenging fiat currencies of nation states

I could keep going, but I think you get the idea. It is now Wall Street’s turn. Investing has been a game in which Wall Street makes the rules and as a self-regulating industry also enforces them. Wall Street in almost all of its activities has been rigged to benefit a small group of elite insiders at the expense of Companies and everyday Americans. There have been a few people- I number myself among them- who have cried out that criminal activity through manipulation of prices of stocks, bonds and other financial instruments is a common everyday business practice. I have called it the biggest criminal enterprise in the world. To date, my voice has been like a candle in the wind.

Manipulation of prices of financial instruments to the benefit of Wall Street firms and their employees has become so engrained that Wall Street participants don’t even recognize that many common everyday business practices are not just wrong, but criminal. There has always been suspicion that some hedge funds engage in shady practices, but what I see goes far beyond just a few hedge funds. It is rampant throughout the $3 trillion hedge fund community and shockingly prestigious investment banks work hand in hand with hedge funds to criminally manipulate prices of financial instruments to their benefit and at the expense of Corporate and Main Street America.

How I Became Aware of Wall Street Corruption

About nine years ago, I decided to develop a blog, SmithOnStocks.com. My business model was to focus primarily on small, emerging biopharma companies. Throughout a long career on Wall Street as an analyst that began in 1971, I had always believed that stock prices were determined by the fundamental business outlook of a company and macroeconomic forces. As I became more involved with these smaller companies, I was alarmed to find that there were other important and unexpected forces at work. Stock price movements quite frequently weren’t linked to fundamentals.

One has to expect significant volatility in small biopharma stocks engaged in high risk drug development. We all understand that disappointing news from a company can lead to a sharp price drop. However, I was perplexed that in many cases stocks would decline without significant news flow and to my utter consternation even after a positive announcement. Truly bad news could lead to utter devastation. I was also perplexed that articles published on social media platforms like Seeking Alpha could cause major pressure on a stock. Following such an article, there would be an impact on the stock price. Then in coming days there would be a steady day by day price erosion (illegal naked shorting at work) accompanied by an unending stream of contrived negative news flow. The obvious intent was to demoralize investors and make them question their investment in a company. Many of these articles carried the disclaimer that the authors were already short the stock. This fits the description of pump and dump. I must say that some of these articles showed very good understanding of a company, but all information would be spun negatively.

This led me to do some research in which I came to understand how illegal naked shorting allowed hedge funds to manipulate stock price levels. I was also frustrated to see how hedge funds had captured social media and mainstream financial media. The control was such that they could drown out the voice of a company and its investors if they fought back. Mainstream media glorifies hedge fund managers without any serious attempt to understand how certain hedge funds could achieve staggering returns year after year. I would say that this is not so hard if you can determine the price at which a stock trades. Yes, in many cases they do have such power.

Past Articles I Have Written Are Important Reference Material

These experiences led to my first article on illegal naked shorting that was published on June 16, 2015: Illegal Naked Short Selling Appears to Lie at the Heart of an Extensive Stock Manipulation Scheme.  My premise in this initial article was that only hedge funds were culpable. Subsequently, I came to realize that they were not acting alone. Some of the most prestigious Wall Street investment banks work hand in glove with hedge funds to manipulate stocks. Indeed it is the trading departments of these banks that actually execute illegal naked shorting that creates phantom shares. This led me to do some extensive research which resulted in ten articles on illegal naked shorting,  the first of which was published on March 27, 2019 and the last on July 24, 2019. It took over a year of intensive research to write these articles. I urge you to read them even though it might take several hours to do so. Without the basic understanding of Wall Street business practices that these articles describe, I don’t think you can determine if I am right in my charges against Wall Street or just some weird crank spinning conspiracy theories.

The way stocks are traded on Wall Street is very complex, but in essence every aspect of trading is controlled by large, elite investment banks. They have worked diligently to obscure business practices that are jaw dropping in their ability to manipulate and control stock prices to their benefit. The financial media until now has been completely blind to this and in many cases, they have been captured by the hedge funds. They routinely lionize hedge fund managers involved in corrupt and shady practices.

So what is my purpose? I am 76 years old and have accumulated sufficient economic resources to not have to work. I have no economic motive in what I am doing. I am driven by a sense of duty to do whatever small role I can to correct a malignant cancer of corrupt business practices that is Wall Street. I hope that I can educate investors and companies about the corruption on Wall Street so that they will join me. I believe that there are very few people who are aware of the issues and practices that I have written about. It is hard for me to imagine that if anyone takes the time to read my research and then do their own research to check out its correctness that they will come to the same conclusion as me. Wall Street must be disrupted and its corrupt practices brought to light and ended.

So this is my introduction. Stay tuned as there will be many articles to follow.