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From: Bill Breslin
Gentlemen: Congratulations on yesterdays meeting dealing with the current short selling problems. I am primarily concerned about illegal naked short selling especially as it is practiced by so called market maker brokerage firms most of whom are domiciled in Jersey City, NJ. For the past 60 days I have followed the trading in the common stock of Lifeline Biotechnologies (LBTT) and it is very clear that the market makers are working in concert to keep driving the price of this stock down. I have attached correspondence from the company to the brokers, the SEC, NASD, and selected State Attorney Generals which outline the damage that illegal naked short selling has done to this company’s stock. The present situation with the rules governing short selling reminds me of the advocates of more gun-control laws while the existing laws if enforced would solve most of the problems. Accordingly I have the following recommendations to solve the naked short selling problems:
The continuation of naked short selling at the bottom end of the market where emerging growth companies must go to raise their capital will destroy this segment if it is not corrected. The companies that have been most seriously damaged by this illegal activity are now banding for the purpose of creating class size legal action against the perpetrators of this crime. The loses involved are astronomical and when the scandal breaks it will dwarf everything that has happened to the market in the last few years. This is a grand opportunity for the number one governing agency to take the lead and fix the problem. Those of you working on the problem will be the heroes of the decade when it comes to fixing up the problems of Wall Street.
Thank you, William J. Breslin C. P.A. Enclosures: correspondence
DRAFT September 30, 2003 Lawrence J. McEntee, Supervising Investigator
Dear Mr. McEntee: Attached is the complaint form you sent to Mr. William J. Breslin, who is engaged by Lifeline Biotechnologies to assist the Company in its ongoing battle with a group of brokerage firms who are guilty of executing "Naked Short Sales" of our Company's common stock on the OTC (PINK SHEETS) market. Our Company has identified twelve separate brokerage firms that we believe are guilty of illegal naked short selling, that is the selling of stock not owned and that is never covered with a corresponding borrowing of the stock sold. We have identified seven of these firms as domiciled in New Jersey, as follows:
We have tracked the trading activity in our stock for some time and have observed a pattern of collusive trading by the above listed firms which supports our contention that these firms are illegally driving the price of our stock to protect their illegal short positions. We are actively instructing our stockholders to take physical possession of their securities and they are unable to do so because these firms, all of whom claim to be market markers in our stock, refuse to turnover the shares. We have been active over the past year in working with other companies that have been attacked by "Naked Short Selling" and are exploring initiating a class action law suit against these firms to recover the millions of dollars our shareholders have lost to these thieves. To enable you to better understand the magnitude of the "Naked Short Selling" problem we have attached copies of the following correspondence and and press releases:
We are available to assist with your investigation in any way we can and believe that time is of the essence in dealing with this problem. Sinccerely,
August 28, 2003 Mr. Eliot Spitzer, Attorney General of the State of New York
Dear Mr. Spritzer Attached is a copy of a letter I have sent to twelve major brokerage firms which the management and Board of Directors of our company believe have allowed the practice of illegal Naked Short Sales in our company's publicly traded common stock. The letters point out that we estimate our company alone has suffered over $100 million in losses in shareholder value due to this illegal practice. Additionally, we are aware of approximately 100 companies who have suffered similar losses and projections are that the total losses suffered by these company's shareholders in the last two years are in the billions of dollars. This is not a small or a local problem. Nor is it limited to OTC companies. There are NASDAQ and stock exchange companies that have also been hurt. The perpetrators are allowed to hide within their firms behind the DTC'S electronic trading system executing short sales and never having to cover their short positions. We have heard of estimates where some companies have 50% of their float represented by unsettled short sales. Shareholders are being told, by brokerage firms that they cannot take physical custody of their shares for a plethora of lame excuses. The continuation of this illegal activity once more threatens to undermine any remaining confidence in the American financial markets. The SEC, NASD and local authorities where such activities take place have significant responsibility in maintaining orderly financial markets and cannot allow naked short selling to continue unabated. On June 19th of this year the Canadian Government sent the R.C.M.P.'S commercial crime section into 13 brokerage firms in the Toronto area to stop this and other illegal activity. It is now time for the SEC, NASD and local authorities to take drastic action to stop naked short selling. We also believe, since much of this goes on in New York City that the intervention of your office would have a major impact in bringing these activities to an end. Our company together with others and thousands of shareholders are in the process of creating the class to take the necessary legal civil action against these firms. The SEC and NASD and local authorities need to step up and take the necessary criminal actions against them as well. Please acknowledge receipt of this letter by return mail advising us of the actions you plan to take. Very truly yours, William H. Reeves, Ph. D., President and Founder CC: Senators Orrin Hatch and Trent Lott, Senate Finance Committee
Enc. Copy of letter to brokerage firms
August 22, 2003 Robert Glauber, Chairman & CEO
Dear Mr. Glauber: Attached is a copy of a letter I have sent to twelve major brokerage firms which the management and Board of Directors of our company believe have allowed the practice of illegal Naked Short Sales in our company's publicly traded common stock. The letters point out that we estimate our company alone has suffered over $100 million in losses in shareholder value due to this illegal practice. Additionally, we are aware of approximately 100 companies who have suffered similar losses and projections are that the total losses suffered by these company's shareholders in the last two years are in the billions of dollars. This is not a small or a local problem. Nor is it limited to OTC companies. There are NASDAQ and stock exchange companies that have also been hurt. The perpetrators are allowed to hide within their firms behind the DTC'S electronic trading system executing short sales and never having to cover their short positions. We have heard of estimates where some companies have 50% of their float represented by unsettled short sales. Shareholders are being told, by brokerage firms that they cannot take physical custody of their shares for a plethora of lame excuses. The continuation of this illegal activity once more threatens to undermine any remaining confidence in the American financial markets. The SEC has significant responsibility in maintaining orderly financial markets and cannot allow naked short selling to continue unabated. On June 19th of this year the Canadian Government sent the R.C.M.P.'S commercial crime section into 13 brokerage firms in the Toronto area to stop this and other illegal activity. It is now time for the NASD to take drastic action to stop naked short selling. Our company together with others and thousands of shareholders are in the process of creating the class to take the necessary legal civil action against these firms. The SEC and NASD need to step up and take the necessary criminal actions against them as well. Please acknowledge receipt of this letter by return mail advising us of the actions you plan to take. Very truly yours, William H. Reeves, Ph. D., President and Founder CC: Senators Orrin Hatch and Trent Lott, Senate Finance Committee
August 22, 2003 William H. Donaldson, Chairman
Dear Mr. Donaldson: Attached is a copy of a letter I have sent to twelve major brokerage firms which the management and Board of Directors of our company believe have allowed the practice of illegal Naked Short Sales in our company's publicly traded common stock. The letters point out that we estimate our company alone has suffered over $100 million in losses in shareholder value due to this illegal practice. Additionally, we are aware of approximately 100 companies who have suffered similar losses and projections are that the total losses suffered by these company's shareholders in the last two years are in the billions of dollars. This is not a small or a local problem. Nor is it limited to OTC companies. There are NASDAQ and stock exchange companies that have also been hurt. The perpetrators are allowed to hide within their firms behind the DTC'S electronic trading system executing short sales and never having to cover their short positions. We have heard of estimates where some companies have 50% of their float represented by unsettled short sales. Shareholders are being told, by brokerage firms that they cannot take physical custody of their shares for a plethora of lame excuses. The continuation of this illegal activity once more threatens to undermine any remaining confidence in the American financial markets. The SEC has significant responsibility in maintaining orderly financial markets and cannot allow naked short selling to continue unabated. On June 19th of this year the Canadian Government sent the R.C.M.P.'S commercial crime section into 13 brokerage firms in the Toronto area to stop this and other illegal activity. It is now time for the SEC to take drastic action to stop naked short selling. Our company together with others and thousands of shareholders are in the process of creating the class to take the necessary legal civil action against these firms. The SEC and NASD need to step up and take the necessary criminal actions against them as well. Please acknowledge receipt of this letter by return mail advising us of the actions you plan to take. Very truly yours, William H. Reeves, Ph. D., President and Founder CC: Senators Orrin Hatch and Trent Lott, Senate Finance Committee
August 22, 2003 Chairman of the Board
Dear Mr Chairman: Lifeline Biotechnologies, Inc., is an emerging growth company with Corporate headquarters in Reno, Nevada and Research and Clinical offices in Ft. Lauderdale, Florida. Lifeline is a publicly traded company (OTC Pink Sheets: LBTT) and has used the exemptions allowed under Rule 504 of Regulation D of the Securities Act of 1933 to raise equity capital to fund its operations to date. Rule 504 provides an extremely economical strategy for companies like ours to achieve the benefits of public company status without having to overcome the high cost hurdles of full reporting companies. However this is not without its own set of obstacles which, as you will see, is what this letter is all about This company is a perfect example of American capitalism at work for the benefit of mankind (more specifically in our case womankind) using the significant opportunities available through this fund raising technique to raise public equity capital to accomplish its objectives. This funding has allowed the company to focus its primary research in the development of detection enhancing technologies for the early detection of the lethal female cancers that affect the breast and ovaries. The company has substantially completed the research and development stage of three major products in this area and is currently preparing for Phase III clinical trials required for US FDA protocol to put them into the market. The results of this research have proven extremely effective in the early detection of breast and ovarian cancers. Our clinical tests have proven that our technologies will save the lives of many woman who would otherwise die because the cancers in them were not found earlier enough. Lifeline is at that juncture where it is ready to go to the next level for a major fund raise to roll out the initial marketing phase of its plan. With sales projections in the hundreds of millions within a few short years the company will need to raise, between $5- $8 million initially and another $30 to $50 million within a year or two to roll out its full program. However, before we can get there we have to overcome the following obstacle. In spite of its significant successes in the last few years the company has been unable to turn these into value for its shareholders in terms of increased share value. This is primarily because of the unsavory and illegal "Naked Sshort Selling" activities that are being allowed to continue in the OTC-Pink Sheets, OTC/BB and to lesser extents in NASDAC and the major stock exchange markets. "Naked Short Sales" where the sellers of short positions are allowed to complete their transaction without covering the short position are in violation of SEC and NASD rules and regulations. This practice cannot exist without the cooperation of the brokerage firms where these illegal transactions are being executed. These notorious "Naked Shorts" have had a major negative impact on the financial well-being of our company. Over the last two years our stock has traded more volume than almost all of the Corporate 500 issues. Our little Pink Sheets stock was the trading volume leader on twelve separate days during the last year. I wish I could tell you this is because so many investors wanted our stock. But, unfortunately I cannot because on the numerous days that our stock traded more shares than any other company on any of the US markets it was the short sellers who were doing the trading. No other company we have ever seen has traded 100's of millions of shares per day bringing the price down to $.0001 per share. We have had to issue millions of shares of stock to raise the meager amounts of equity capital that have kept this company afloat. This is directly attributed to the on-going negative impact the illegal short sellers have been able apply to keep our share value down. By conservative estimates, which we believe are easily substantiated our shareholders have lost over $100 million in stock value in the last two years. Our Board of Directors, our management and our legal counsel are committed to obtaining restitution for these losses and more importantly putting an end to these insidious illegal transactions by all the means at our disposal. In our opinion, your firm and a number of other major firms have allowed this carnage in our stock to continue in violation of numerous state and federal laws. We insist that you take steps immediately to insure that every short sale of Lifeline Stock is properly covered in accordance with all state and federal statutes. We are aggressively pursuing with counsel and many other companies, their officers, directors and shareholders the formation of a class of companies that have been financially damaged by these illegal short selling activities. The class will bring the necessary legal actions to stop these illegal "Naked Short Selling" activities and to obtain financial restitution for the damages brokerage firms and the others have done to our companies, our officers, our directors and to our collective stockholders. Please acknowledge receipt of this letter by return mail together with your commitment to prevent the illegal short selling activity in our stock by your firm. Very truly yours, James D. Holmes, CPA, MBA, Chairman of the Board, CEO, Director CC: Senators Orrin Hatch and Trent Lott, Senate Finance Committee
This letter was sent to the following:
October 16, 2003 William H. Donaldson, Chairman
Dear Mr. Donaldson: You recently received a letter from a Mr. William H. Reeves, Ph.D., President and Founder of Lifeline Biotechnologies, Inc. an emerging growth company dedicated to developing medical solutions to some of the greatest challenges facing the medical community today. I have attached a copy of his letter together with the attachments thereto (letters sent by Lifeline to twelve separate brokerage firms that make a market in their common stock trading on the Pink Sheets) as well as a copy of the response from your office. Lifeline is a perfect example of American entrepreneurial capitalism at work for the benefit of mankind. The company uses the exemptions allowed under Rule 504 to economically raise equity capital to find major medical solutions, create jobs and generally fund economic growth. Lifeline is the kind of company that will provide answers to significant medical problems assuming it has the financial stability to carry out its mission and that is what all this correspondence is about. Lifeline's common stock has been under attack by short sellers for the last three years who have badgered the stock unmercifully driving the price down to fractions of a penny in spite of continuing announcements by the company that it is achieving its goals and exhibiting many instances of success. Lifeline is only one of over 100 companies that are under serious attack by short selling. Attached to this letter are several news and press releases that address the magnitude of the problem of "Naked Short Selling". The letter sent by Lifeline to the brokerage firms that perpetuate this activity clearly spells out the magnitude of the losses this one company's stock has suffered. The projections for all the companies involved implies that there are losses here that exceed by many times the carnage of Enron, WorldCom, Tyco, etc. In spite of this, no one in any position of responsibility, whether it be your organization, the NASD, the attorney generals of NY and NJ or the DTC, seems willing to tackle this problem. In fact recent actions by the SEC, siding with the DTC over paper certificate transfers and recently the Denver office advising one complaining company to prove that there were "Naked Short Sales" in their stock (proof that can only come from the records of the brokerage firms). On September 29, 2003 your office responded to the letter from Mr. Reeves and it was a classical bureaucratic response that never acknowledged that there are in fact massive manipulative schemes being perpetuated every day in hundreds of stocks that are causing billions of dollars in losses to unsuspecting investors. However, I did see that on September 25th the Commission announced plans to review short selling rules and regulations including looking into short selling of smaller company's stock. It is time for your office to get personally involved with this problem. It is bigger than all the front page headlines we have all read about over the past few years. You can rest assured that if action isn't taken quickly by your office then the new headlines will be about the class action lawsuits that the victim companies are even now working on putting together. This will be a scandal to make the others look like child's play and is not something President Bush and the Republicans need at this time as we approach the presidential election. Mr. Donaldson please get the solution to this problem to the top of your stack. If you don't then I believe you will have more flack from this issue in the near future than anything else that is on your plate. Sincerely, William J. Breslin, CPA Cc; President George W. Bush, The Whitehouse
Enc. William H. Reeves letter of August 22, 2003 to Mr. Donaldson
WILLIAM J. Breslin, CPA
September 16, 2003 Dear editor: The next major Wall Street Scandal will surpass everything to date in terms of the dollar loses suffered by innocent investors. Enron, WorldCom and Tyco will all be small change in terms of dollar losses suffered by investors in small over the counter and pink sheet stocks as a result of illegal "short selling" activity that is allowed to go on in both large and small brokerage firms. This area of the market does not get the attention of highly visible State Attorney Generals or the Securities and Exchange Commission for a variety of reasons. However, this will change very soon because the carnage in losses by investors in these small emerging companies is growing geometrically and the demand for a solution will drive those who have been seriously injured to take whatever steps are necessary to get restitution. The illegal active is "Naked Short Selling", not to be confused with a legitimate "Short Sales" where an investor sells shares he does not own but borrows them from another investor (usually his brokerage firm) with a promise to return them later after he buys them back at price below his sales price. The short seller makes a profit when the stock goes down. Naked short selling occurs when the short seller doesn't have the stock to sell and does not borrow the stock but records an electronic sale of the shares he doesn't own or possess and never covers his short position by borrowing the stock. His objective is that the stock price never gets back to what he sold it at and he never has to buy it back. You ask how can this happen? Don't you physically have to have the shares to sell them? The answer is no because in our electronic trading system we longer physically take possession of the shares we own through a brokerage firm because the purchase and sale of thereof are recorded electronically but no stock certificates ever move. An entry is made that investor A at brokerage firm X sold 100 shares of Investment, Inc to investor B at brokerage firm Y. At the time of the sale brokerage firm X is also required to make an entry that investor A borrowed 100 shares of Investment, Inc. to sell short. In a Naked Short Sale the second part of the transaction is never executed and in most cases the brokerage firm does not have the stock in its portfolio to lend thereby creating a fictitious short sale that drives the price of the security down. I am aware of over 100 companies whose stocks have fallen victim to this illegal activity and the accumulated losses in shareholder value is in the billions of dollars. One "Pink Sheet" Company with which I am familiar can demonstrate that "Naked Short Selling" of its commons stock has stolen millions of dollars from its market capitalization. Since most of the companies affected are small and undercapitalized and individually lack the capacity to stop these illegal sales of their securities they are now banding together and forming a class that will give them the clout they need to attack those who are attacking them. This class could be as large as 100 companies representing tens of thousands of investors who have sustained losses that some have estimated could be in the magnitude of hundreds of billions of dollars. The guilty firms have been identified and the companies are taking steps to track and measure the losses in their respective stocks. With this data in hand if the appropriate State and Federal agencies do no take the steps necessary to stop this illegal activity then the class will act though it attorneys to take civil action directly against the perpetrators. Sincerely, William J. Breslin, C. P.A. |