https://theintercept.com/series/penny-stock-chronicles/
David Dayen, a persistent chronicler of how oligarchs exploit the financial system to enrich themselves at the expense of others, writes about Chris DiIorio, a stock analyst who for 10 years has obsessively investigated how exactly he came to lose $1 million on one penny stock. A remarkable story ensues.
It's a 7 part article, so I'll try to summarize as best I understand it:SAY YOU’RE A Swiss bank and you want to launder some money for high-net-worth clients.
Here’s one way: Start by placing large quantities of the funds into a brokerage account at the bank under the name of a shell corporation.
Then, conduct multiple financial transactions with the funds, confusing the true source of the money. Once the transactions “wash” the money, it can be spent out of the brokerage account as simply as writing a check or using a credit card.
A money launderer (allegedly UBS and their clients but which we'll call ML1) sets up a fraudulent shell corporation (shell 1) and issues billions of shares of penny stocks. Most of those get bought up by another shell corporation (2), who in turn sell those at a loss to a third shell corporation (3). The stock falls, and the 2nd shell corporation (B) takes a huge loss, but only on paper. Shell 1 announces that they are going bankrupt and merging with a 4th shell company (4) and so the stock id number that S1 was trading under no longer exists.
In reality, S3 never takes the shares from S2 and now can't because those shares no longer exist, and no stock trades hands. But the loss still exists on paper, and ML1 still reports a huge loss but he still hasn't actually lost any money, although the money has been shuffled around a lot of shell accounts. This "launders" the money, so a regulator or tax man can't tell where it came from.
So ML1 or their client reports huge losses that year, so they don't have to pay any taxes. The stocks will remain "pending" (actually “sold not yet purchased”) forever, since the transaction can never complete since the ID number doesn't exist anymore. Like a computer bug that freezes a program.
Where is the proof of this? Well, it's mostly a theory, but it's the only good explanation for several weird things that have been happening. For example:
So yeah, UBS and an American stock clearing house are probably laundering billions of dollars... again. I know, shocking news right? But I thought that the method that they were doing with was fascinating, and I thought you might too.And consider this: According to its own financial reports, Knight’s “sold not yet purchased” liability jumped from $385 million at the beginning of 2008 to $1.9 billion by mid-2011.
