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Big Man in a Short World
Amid all the outcry about short selling and its abuses, one person is sure to benefit: Harvey Pitt, the former chairman of the Securities and Exchange Commission.
The securities lawyer is becoming the go-to expert on short-selling practices and regulations. Last month, he helped start a new online service, RegSHO.com, that says it will "allow traders to locate shares in illiquid, hard-to-borrow stocks, provide enhanced tools to assure short sale compliance and publish real-time availability of borrowed shares."
In a short sale, shares are borrowed and then sold in the expectation that the price of the shares will decline, giving the seller a profit when the shares are subsequently bought back at a lower price. "Naked" short selling, which is illegal, happens when shares are sold without first borrowing them. The S.E.C. recently put into effect new regulations to crack down on naked short selling.
Now Pitt, who was S.E.C chairman from 2001 to 2003 and is now chief executive of a Washington consulting firm, has yet another gig: deputy attorney general of Alabama.
The New York native is helping Alabama with an investigation in short-selling practices. In particular, he will assist with a case involving Colonial BancGroup of Montgomery, Alabama, which complained to the attorney general's office last month about possible manipulation of its shares.
"He's the best, and I wanted him on our team," Joe Borg, chairman of the Alabama Securities Commission, told the Press-Register of Mobile.
The former S.E.C. chairman will not be paid for his Alabama work, but "he'll be back and forth here on a regular basis," Borg told the newspaper.
Shares of Colonial slid by 79 percent from a January high to low of $3.36 in July. Three days later, the bank reported an unexpected loss of $9 million, as it increased its credit-loss reserve, but the stock has now climbed back to $6.30.
Floyd Norris of the New York Times notes on his blog that the shorts may have had reason to be skeptical.
The bank stated in its latest quarterly report that the market value of its portfolio of collateralized mortgage obligations has fallen by $240 million. "But the bank has kept a loss off its income statement by concluding that the decline is a temporary one," Norris says.






