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Chicago Quantitative Alliance Fall 2003 Conference The Mid-America Club Aon Center 200 East Randolph, 80th Floor Chicago Illinois September 17 – 18, 2003 The following is the prepared opening statement that Manuel P. Asensio gave on Wednesday September 17, 2003 at the Tenth Annual Conference of the Chicago Quantitative Alliance for the practitioner panel session titled "Perils of the Short Side." Owen Lamont the author of the academic paper titled "Go down fighting: Short sellers vs. firms" from the Yale University of Management was the other panelist. Earlier today we heard from economist Vernon L. Smith, a Harvard educated, Nobel Prize winner in Economics in 2002, who grew-up on a farm and went to a one-room schoolhouse and whose mother was a socialist. Now you will get to hear from a so-called "acknowledged short seller" whose father is a communist sympathizer. I came here as a refugee from a communist country and have benefited from this nation's democracy, free enterprise and capitalism. At the heart of this complex social structure are its capital markets. Capital markets set the price and the liquidity of securities. This directly and personally affects every worker and citizen in this country. Yet when I made it my job to provide free information for investors, information that in all cases dramatically adds information and that opposes the dominant consensus, which could only add to the efficiency and fairness of prices and liquidity, my firm and I were sued for over $1 billion in 5 states and 3 federal courts, we were unfairly and wrongfully sanctioned by conflict-ridden regulators and misrepresented by the New York Times and the Wall Street Journal. In the end the system worked. We won dismissals and two jury verdicts without paying a single dime to settle any lawsuits. The regulator who caused our sanctions was found to have been involved in stock fraud and was fined $1 million and barred from the securities industry for life by the Securities and Exchange Commission. The companies that sued us have all now been proven frauds and are in most cases defunct. Unfortunately, the ends do not justify the means. The result is an excellent example of the high cost of short selling that hurt the nation: regulatory and judicial biases acting to protect high-priced securities even when they cause extraordinary harm to the fairness and stability of wages, productivity and growth. These protective biases are used to prevent free speech and limit the returns available to short sellers, those who work toward the creation of fairer and more reasonable securities prices. How can we change this? There is a simple, doable solution. One that requires no new regulation. One that relies on de-regulation. One that would virtually eliminate the systematic flaws that created WorldCom and Dick Grasso. We propose the following to improve the freedom and fairness of U.S. capital markets: 1.) decentralize the SEC's Enforcement authority away from its politically-appointed, Washington, D.C. based Commissioners to the Chief Enforcement Officers at its local branches; 2.) eliminate the regulatory bias against investors who oppose Wall Street's unreasonable stock schemes (these include the up-tick restrictions, the stock borrowing requirement and the exclusion of short sellers from the protections granted to other investors under the anti-fraud provisions of securities laws); and 3.) establish listing requirements that prevent public companies from filing speech-based lawsuits against analysts or other public commentators who criticize its management or have opposing opinions concerning the value of its publicly traded securities. |
