Wall Street Regulators Prove Their Worthlessness Again

Pam Martens writes about the illegal practice of wash sales, which is essentially one entity being on both sides of a trade and manipulating (e.g., pumping up) prices with trades to itself.  This practice allows entities, such as Citigroup, to artificially inflate stock prices (or prices of derivatives or other trading vehicles) by creating fake demand using algorithms run on different in-house trading desks.

In effect, the prior rules prohibiting wash sales have been obliterated and are no longer enforced as originally intended to prevent market rigging. The intentional, re-designed definitions create a “loophole” larger than the rules themselves and permit trading desks belonging to the same entity to trade with each other. 

 

Bart Chilton, Former CFTC Commissioner, Speaks Out on “Voluminous” Amount of Wash Sales, March 18, 2013

Wall Street’s Regulators Sell Out on Illegal Wash Sales

By Pam Martens

Wash sales – one of the most virulent forms of stock manipulation that bankrupted banks and corporate conglomerates in the Great Depression and intensified the stock market crash of 1929 to 1932 – has reached scandalous proportions in today’s markets. The response from regulators? Gut the rules that make it a crime.

On March 18 of last year, Bart Chilton, then a Commissioner at the Commodity Futures Trading Commission (CFTC), stunned CNBC viewers with the announcement that wash sales were rampant in the futures markets. Speaking to Squawk Box host, Joe Kernen, Chilton stated:

“Well these wash sales, Joe, people know they’re illegal; they’re not allowed. A wash sale is when somebody trades with themselves. But what we’ve discovered is that they are going on at this large, voluminous level. I mean, to me, a shocking level. And they’re impacting what people see as volume. So this is an area that we’re going to review to ensure that markets are operating efficiently and effectively. Who knows what sort of impact they’re having. And it raises a host of policy questions that we have out there, because this stuff just shouldn’t be allowed.”