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Manipulation, Not Error, Behind Market Plunge

May 17, 2010

The major media say the chaos on Wall Street the week of May 3rd was the result of a “trader error, possibly a typo,” as the Washington Post put it. Some reports claim the culprit was a “fat finger” on a computer somewhere that pressed the wrong key. But Zubi Diamond, author of the Wizards of Wall Street, says these claims are all lies. “What happened in the market on Thursday (May 6th) is a typical example of pure market manipulation” by unregulated hedge fund short sellers.

His book, whose subtitle refers to the scam that elected Barack Obama, warns that the same hedge fund short sellers were behind the financial crash of 2008 that paved the way for Obama’s election to the presidency.

Diamond says the historic market plunge on May 6th was “due to computerized hedge fund short selling because there is no protection for the invested capital in the equity markets. There is no uptick rule, no circuit breakers and no trading curbs. Our market is primed for manipulation.”

Diamond is referring to financial regulations, which have been repealed, designed to prevent market manipulation.

Diamond has been adamant in his view that the financial reform bill being pushed by Obama and liberal Democrats on Capitol Hill will do nothing to solve this problem and regulate the hedge fund short sellers.

“No one will come on TV to tell the truth,” he complained. Instead, he says representatives and apologists for the hedge fund short sellers, who operate as the Managed Funds Association (MFA), “go on TV and provide false explanation of what happened.”

Diamond says these false explanations include claims of trader error and computerized glitches.

An example of Horatio Alger’s legendary rise from rags to riches, Diamond came from Africa to the U.S. and became a successful businessman, stock market investor and trader. He has about 15 years of financial market experience and more than 23 years experience as an entrepreneur.

Diamond says that the repeal of the safeguard regulations, such as the uptick rule, circuit breakers and trading curbs, and the introduction of the short ETFs (Exchange traded funds), which began under Christopher Cox at the Securities and Exchange Commission, has given the members of the MFA tremendous power and influence. He says these individuals include George Soros, John Paulson, Jim Chanos, James Simon, and other hedge fund short sellers, including those who operate Quant Funds and engage in computerized trading.

“They have the ability to manipulate U.S. and some international markets,” he says. Indeed, Diamond maintains that the MFA has basically taken control of the U.S. stock market.

My March 4, column, “Who’s Behind the Financial Crisis?,” quoted Diamond as then warning  that  any asset class that is traded in the NYSE, CME, or EUREX exchanges “is susceptible to manipulation by the members of Managed Funds Association and their strategic partners.”

In a previous column for AIM, commenting on the so-called financial reform bill now before Congress, he explained, “The only financial reform needed today is to regulate and monitor the hedge funds and the hedge fund short sellers, some of them which are registered off-shore to avoid scrutiny. These global operators, with investors who remain mostly anonymous, must be compelled to register with the Securities and Exchange Commission (SEC), publicly disclose their positions in the markets, and maintain accounting and trading records for a period of 10 years so their activities can be monitored and scrutinized. Just like mutual funds, they must be prohibited from engaging in day trading activities.”

“What happened on Thursday happens to a select group of individual stocks on a daily basis as the hedge fund short sellers prey on common investors,” he asserted. “They are now expanding the manipulation to include the whole market. They can now crash the market, panic shareholders out of their stocks, buy to cover their short positions for hefty shorting profits, and then buy back in at the bottom to open long positions and then recover the whole market (indexes) to normal levels.”

These market manipulators, he notes, have the ability to drive prices down and then drive them back up, all within a 15 minute period. “How’s that for no-risk investing?” he says. “They make money through stock price volatility and market volatility. They manipulate stock prices through unrestricted short selling.”

Diamond said that one stock, Accenture, with the ticker symbol ACN, dropped from $44 dollars to .01 cent per share within 15 minutes, and recovered back to $41.00 dollars. Apple computer ticker symbol AAPL dropped 60 points in 15 minutes. It went from $258 down to $199 and then recovered to $248. All of this happened within a 15-minute period.

All of this is possible, he says, because there is no uptick rule, no circuit breaker and no trading curbs. All of these regulations were repealed, meaning that the risk and fear of investing have been transferred solely to the common investors “as the hedge fund short sellers operate with impunity looting the invested capital of American families,” he explains.

“What happened on Thursday will happen again,” he adds. “They are getting bolder every day. The hedge fund short sellers, who are members of Managed Funds Association, and their strategic partners at the different stock exchanges, are responsible for the scam that was perpetrated on Thursday.”

“The market plunged and recovered,” he says. “The carnage and destruction of investor’s capital was therefore concealed.”

“This is the evil of hedge fund short selling in an unregulated market,” he says.

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