Skip to main content

For updates and guidance related to COVID-19 / Coronavirus, click here.

Stephen T Lee Comment On Regulatory Notice 21-19

Stephen T Lee
Equistar Wealth Management Inc.

As a RIA for over 20 yrs I have seen my fair share of shorting and have done it with some equities in special cases for aggressive clients. I am a small independent RIA that uses a combination of ETFs and individual stocks in the management of my clients funds. I can tell you flat out that the system of clearing and reporting short sales is completely broken. This is especially true with small, mid, and micro cap stocks. I have owned my firm for 10 yrs and will now no longer buy or hold any small cap stocks.....and instead just buy the index. Hedge funds and Market makers using a variety of techniques to skirt the reg sho rules and real time settlement and reporting is needed in a major way. This systematic abuse with naked short selling, synesthetic shorts using swaps, amongst the madoff exemption is costly retail investors billions of dollars every year. Funds like Citadel and Point 72 short 100's of small caps month end, quarter end, and run programs to actively "cap" and "steer" the stock in the direction they want to go. It has happened to at least 20 stocks that I have owned over the years that were in the development stage and such activities either prevented them from raising capital or caused bankruptcy. I am not against shorting a company at all but we shares are lent out 10 times over and the reported short interest is grossly underestimated it is terrible for smaller investors. I suppose if you are 100 billion dollar hedge fund this is only way to create alpha....illegally and regulators like the SEC, FINRA have done nothing to prevent it or stop it. new fines are needed for misreporting shorts as longs or under reporting. It is yet another reason why companies no longer go public unless they are making money or over 2 billion market caps. It is time for Regulators to get their head out of their [REDACTED] and fixed the DTCC clearing system because it is rigged against the small players. One stock I currently own is massive being manipulated and the reported short is much larger : symbol DMRC. Call me if you want more info....the evidence is over whelming. fix the clearing and lending of shares by the large banks and primes. Regards, Steve