Moez Kassam & Anson Funds: The Big Secret

Moez Kassam & Anson Funds: The Big Secret

How Anson Funds Skirts Naked Shorting Rules with Help from Big Banks, Brokers and European Regulators.

Part I: Moez Kassam and Anson Funds: A Tale of Corruption, Greed, and Failure
Part II: Moez Kassam & Anson Funds Part II: Rotten To The Core
Part III: Moez Kassam & Anson Funds: Panic as DOJ Widens Investigation
Part IV: Selling Everyone Out

Three dirty little words have helped destroy the Canadian Capital Markets: “Direct Market Access”, (DMA) or the “pipes”, as it is known in banking circles.

Anyone can trade through these “pipes”, and banks and brokers are not held responsible for their clients’ activities in these pipes. Banks have no idea what is going through them. They can guess who the players are that are trading, but they can’t actually see what is going on.

Prior to the advent of DMA, the business used to be that a client already has some sort of relationship established with a bank or a broker that gave them access to trading fills and new issues. It was a people business, more or less. With DMA, anyone from anywhere can jump in and manipulate markets and no one can easily see what they are doing.

Direct Market Access goes through the major banks and brokers, such as CIBC, TD Bank, RBC, National, Canaccord, etc…

How does it work?

Lets say, someone is using CIBC direct market access and wants to bounce a trade from Germany through Ireland into the TD pipe to trade a Canadian equity …

That’s pretty easy to do. TD Bank has stated in the past that wherever the trade is implemented, they have the onus to make sure that the client has the borrow and that it’s marked properly. In the words, TD bears none of the responsibility whatsoever.

Anson Funds’ BIG Secret – Trading North American Equities through European brokers

Lets go back to 2013, when Anson Funds discovered the major loophole in the European markets that would enable it to sell Naked short American and Canadian equities through Europe. (This information has been given to us by a broker that used to work very closely with Anson.)

In Europe, there have very strong short selling rules. For European companies, naked shorts are prohibited. Any short position over 0.1% has to be disclosed to the regulator, publicly.

If your primary exchange is foreign to Europe, those rules are completely exempted. This loophole allows you to naked short. You don’t have to disclose your short positions, and you are exempt from rules in relation to fails-to-deliver penalties.
 

What this means is that there are no regulations in Europe about trading foreign securities. You do not need to have the stock to sell because no-one is checking. European regulators are not holding this information or even investigating failing North American trades.

It may be difficult for many market observers to believe this level of regulatory inefficiency; however, it is easy enough to prove.

The Europeans did have a buy-in rule for failing trades, but they failed to enforce it. Even if it had been enforced, U.S. and Canadian companies would still be exempted.

Literature from the ESMA (European Securities and Market Authority) explains why this exemption exists for U.S. and Canadian companies, and the rationale is quite shocking. The ESMA didn’t want to duplicate paperwork for people trading these North American securities because they believed the SEC or FINRA was monitoring everything. FINRA and the SEC, however, say they are not monitoring anything at all. The trades in Europe are not even on the consolidated tape.

For FINRA’s part, the agency has what is called the consolidated audit trail; however, that does not pick up anything that is going on in Europe. The SEC only monitors fails-to-deliver from the NSCC, which only started operating in Europe at the tail end of last year.

For Canada, the same exemptions apply. Additionally, the Canadian regulators are understaffed and under financed and have no hope of keeping on top of foreign market transactions in Canadian equities.

How Anson and others trade in Europe

First of all – it is very easy to do.

Anyone can pay 750 euros to what is called a “specialist” in Frankfurt. This specialist will apply for you, get your application passed and get you into the cash market.
The next step is to get someone called a “designated sponsor” (this is also very easy to do) – they will sponsor you with liquidity. And once you get those liquidity requirements you can get up onto the electronic exchange. Once you are up and running in Germany, for instance, you are good to go. You have the ability to create liquidity and sell stock.

So, lets say you are Anson Funds and you want to sell 500,000 shares of Aphria that you don’t own. This trade is implemented in Germany, it then bounces to the dark pools in Ireland before entering the above-mentioned pipe. It can be any bank or broker in Germany and it just depends on what tolling agreement they have with whichever banks. If you want to trade a Canadian security you can trade it with any bank in the world that has access to the pipes. They may even have to go through another bank that has access to the pipe.

You can sell the stock because there is no naked short enforcement and no one is even checking. This counterfeit electronic stock is very difficult to track as a lot of the players are working together and it’s possible to settle outside the clearance system. No one will ever see it and no one has the ability to track it.

It is that simple.

Continuing with the above example of Aphria. During the November/December period when Nate Anderson, Andrew Left and Quintessential attacked the stock, there was a huge amount of activity coming out of various accounts in Europe, especially Germany.

TIP FOR REGULATORS: Look offshore for Anson’s Aphria trades. There is evidence in the U.S. and Canada, but we have been advised that a large amount of their trading was offshore. As mentioned above Germany is a good place to start.

We have been in touch with a number of people involved in the Gamestop squeeze, as well, and they were the first to spot this suspicious activity coming out of Europe.

This group requested that the German regulator and the German central bank provide them with the failed-to-deliver data for Gamestop over a period of 3 years. The authorities refused—precisely because the do not have the data.

According to the German regulator, the only failed-to-deliver data they keep track of is the top 10 participants; in other words, only the top 10 brokers that are failing to deliver the most. The regulator then reaches out to these 10 brokers that are failing and tries to work with them to resolve the fails. The German regulator confirmed that they did not know if any particular company was being targeted.

The regulators were asked why there was an absence of safety mechanisms, why they are only looking at aggregated data and not individual companies, and what they are actually doing to protect individual companies from naked shorting and counterfeit shares. The regulators have not responded to these questions.

This is a major problem facing all Canadian and U.S. equities, and something hedge funds such as Anson Funds have been using to attack companies and make huge profits, while hiding their nefarious activities from the regulators.

Lots of these stocks also trade on liquidnet, owned by TPICAP Group https://tpicap.com/tpicap/ . This is the biggest intrabroker network, where brokers trade among each other, which is “ex-clearing”. (Off exchange where the trades are not being fed into the consolidated tape.) Because of this, it is impossible to have any level of transparency.

This is a key reason why the Canadian and U.S regulators find it almost impossible to police the abuses going on in the markets.

All of the major funds are in Europe and have applied for the naked shorting exemptions. These exemptions are a license to print money and escape the scrutiny of the U.S./Canadian regulators.

The Biggest Financial Scandal you have never heard about:

Take a look at the below image which will help the non-believers understand the scale of this problem.
Please remember this is JUST ONE of the clearing houses in Europe of which there are many!

Over $27.5 trillion in failing trades in Europe in 2022. Remember how difficult it is to short European stocks. A high % of this is North American companies. WHY IS THIS NOT FRONT PAGE NEWS? Investors and pension funds are being robbed on a daily basis and there is nothing stopping the endless pillaging of North American markets by our own funds.

Anson Funds offshore accounts

Anson has managed to stay one step ahead of the Canadian regulators (but not U.S., who we believe are already looking into this) because a lot of the counterfeiting isn’t actually done through its fund. Instead, Anson is doing this through hundreds of offshore accounts, which they then trade through these various, untraceable offshore agencies. (This information was provided by a former broker of Anson at a major Canadian bank).

Anson may even legally take a short position within the main fund in Canada, but then will use these other accounts to drive the price down. The point is to keep putting pressure on the stock and eventually scare all buyers out of the trade. None of this can be traced by the regulators who don’t even know where to look.

However, Anson fingerprints will be over everything and the best place to look is where the company is listed, via an audit of the stock, working backwards.

This scheme has been incredibly lucrative for Anson, which has achieved returns that a fund following its published strategy should not have been able to achieve. Regulators will need to go through their books carefully and find out how many offshore accounts the fund controls. And how they actually achieved the returns they are claiming the fund has over the past 8 years.

Anson Funds alone has had a huge negative impact on the Canadian capital markets. Not only has it destroyed tens of billions of dollars in investor money, but it has destroyed countless companies over the last decade.

The problem Regulators face


Regulators have a very hard time following and proving this because the illegality goes through multiple jurisdictions. Further muddying the waters is the existence of dark pools, off-exchange trades, and intra-broker deals. How can a regulator track all of this? With no transparency hedge, funds like Anson can get away with almost anything and can present clean books to the regulators in their jurisdiction.

It won’t last forever, though. Regulators are now aware and have slowly awakened to the game being played against them. In the U.S. they  are hiring an international /lawyer to liaise with foreign regulators to prevent regulatory arbitrage USAJOBS – Job Announcement

This is a move in the right direction but the bad actors are sophisticated and have been doing this for years. Regulators are playing catchup and need to get into gear fast.