Congratulations to everyone who worked on the Campaign against Tasers and Taser International, Inc. Your publicity of the many unwarranted taser death caused several financial giants to “short sell” the stock, whereby they made a profit when the stock fell. But something else happened. READ:
Taser International, Inc. sued Morgan Stanley, Goldman Sachs, Merrill Lynch, Deutsche Bank Securities, Credit Suisse, Banc of America Securities and three remnants of Bears Stearns for engaging "abusive naked short sales" of TASER stock that have devalued stock and created millions of shares of "counterfeit" or "phantom" shares. (TASER International v. Morgan Stanley, No. 2008-EV-004739-B)
The complaint, filed nearly a year ago by Bondurant, Mixson & Elmore partners John E. Floyd and Steven J. Rosenwasser and Houston's James W. Christian and John M. O'Quinn, accuses the companies of violating the Georgia Securities Act, the state's Racketeer Influenced and Corrupt Organizations Act and the Georgia Computer Systems Protection Act. A fourth count, added later, also alleges conversion.
The practice of short-selling is itself a long-standing and perfectly legal activity. A buyer who thinks a stock will lose value borrows some of that stock from a willing lender, sells it on the open market at the current price and then buys replacement shares and returns it to the lender. If the stock price has fallen, then the short-seller makes money on the transaction because he sold the borrowed stock for more than he paid for the replacement. If the price remains stable or rises, the short-seller loses money by having to pay more for the replacement than he received for selling the borrowed stock.
The short-sellers are generally hedge funds that borrow the shares either from their prime brokers -- the defendant companies -- or from a central clearinghouse established to hold and oversee such loans, the Depository Trust & Clearing Corp. (DTCC).
Under Securities and Exchange Commission rules, the seller of stock generally has three days to deliver the shares to a purchaser, or "settle," although in these days of computer transactions, no actual paper shares are transferred; rather, an electronic confirmation of the sale is sent to the purchaser
Short-selling is so much an integral part of Wall Street trading that people may tend to take the mechanism for granted. Like the Bernie Madoff Ponzi Scheme, a vacuum of phantom wealth is created in the short-selling process.
This is how the plaintiff, TASER International, describes the phantom of counterfeited stock created by the brokerages.
The suit includes figures purporting to show that, on a given day, the number of TASER shares the DTCC recorded as being held by the defendant companies could be vastly lower than the number the company itself claimed to control.
For instance, on May 22, Morgan Stanley claimed "beneficial ownership" of 11.7 million shares; the same day, DTCC records showed the company holding 2.6 million.
The so-called "phantom shares" also dramatically increased the number of TASER shares reportedly held by stockholders, the suit says.
“Objective shareholder voting data demonstrates that the defendants' unlawful selling of unregistered and unissued TASER shares flooded the market with counterfeit shares," it says. "For example, at the time of TASER's 2005 annual vote, TASER had approximately 61.1 million shares outstanding. Yet, approximately 82 million shares voted, an additional over-vote of approximately 20 million shares.”
UPDATE: Eddie Griffin (BASG) began watching TASER International (NASDAQ:TASR) stock at $5.01 per share. As of this writing, the price is $4.14.
The implication in the above cited case would suggest that TASER International, Inc. will not deliver on a short-sell of its stock. Security companies may cease trading the stock for fear of lawsuit.