Former SEC Boss Harvey Pitt Investigates Naked Shorting...

Remember When Naked Shorting Didn't Exist...??

Former SEC Boss Joins Alabama Probe

Former SEC boss joins Alabama probe... Harvey Pitt appointed deputy AG to investigate suspected financial crimes

Wednesday, August 20, 2008
By GEORGE TALBOT
Political Editor

Alabama is enlisting some high-powered help in its battle against financial crime.

Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission, was appointed Tuesday as a deputy attorney general for Alabama, enabling him to assist the state in its investigation of a controversial investment tactic known as naked short selling.

"He's the best, and I wanted him on our team," said Joe Borg, chairman of the Alabama Securities Commission.

Borg said he asked Attorney General Troy King to appoint Pitt to the unpaid position. Pitt will focus on a case involving Montgomery-based Colonial BancGroup, which has seen its shares plummet under pressure from investors who profit when stock prices fall.

These investors profit through a practice known as "short selling."

Borg's office is investigating whether some of those investors spread lies and malicious rumors in order to manipulate the stock price — a scheme often employed by "naked" short sellers, who illegally trade shares they do not own.

"There's nothing wrong with shorting a stock. But when you combine that with false information, you're breaking the law, and we're going to prosecute you for that," Borg said Tuesday.

Pitt, he said, "will be a great asset to Alabama, because he's one of the most knowledgeable people in the world when it comes to securities law. And he has a particular expertise on naked short selling, which is now a major target of the SEC. He knows how these guys work and how to stop them."

Pitt was appointed to lead the SEC in 2001, serving as chairman until his resignation in 2003. The government agency enforces federal securities laws and regulates the U.S. stock markets. Pitt currently serves as chief executive of Kalorama Partners LLC, a Washington, D.C.-based global strategic consulting firm, and will continue in that role, according to a news release.

"He'll be back and forth here on a regular basis," Borg said. He said the appointment as deputy attorney general is a legal formality that allows the state to share its investigative files with Pitt.

Colonial declined to comment Tuesday, citing the ongoing criminal investigation launched by Borg. The second-largest Alabama-based bank (trailing Birmingham-based Regions) saw its shares fall from $16.01 on Feb. 1 to $3.36 on July 14. Colonial took its concerns about short selling to Borg's office in late July. Since then, the stock has nearly doubled its value, closing Tuesday at $6.31.

Colonial has been stung by mortgage losses across its network of 340 branches in Alabama, Florida, Georgia, Nevada and Texas. The bank founded and chaired by prominent Auburn University trustee Robert E. "Bobby" Lowder ranks fourth in Alabama in terms of market share, and fifth in Mobile and Baldwin counties.

© 2008 Press-Register. All rights reserved.