If it was worth more, a borrower could pay off the loan and get the stock back, roll over the loan into a larger one or ask the stock be sold and take profits.
The investigation found that stock loan traders at large brokerage firms conspired with stock finders to funnel millions of dollars in fraudulent fees to the finders or relatives of the finders in exchange for kickbacks, also often involving family members.
Also, the NYSE said, Daiwa's stock loan desk didn't document compliance with the stock locate requirements.
McCombs, however, contends the PrISM and stock loan deals were separate and that he didn't sell any stock, for tax purposes, in 2002.
Part of the problem, according to those who are fighting for stricter short-selling rules, is that brokerages and their stock loan desks aid in naked short-selling by looking the other way or by purposefully misrepresenting the availability of stock to borrow, reaping fees for services they haven't actually provided.
In October the company launched a stock option loan program for employees who need cash to exercise their stock options.
Still, stock loan is a business that is ripe for abuse, at least according to investigators.
Traders use stock loan desks to access securities to buy or to borrow to sell short.
In the second, Johnson allegedly paid kickbacks to a trader at JPMorgan Chase for stock loan trades.
As has been the case all year, loan prices tracked stock prices on a slightly delayed basis.
FORBES: Leveraged loans return 1.16% in July, trailing other asset clases; 5.75% YTD
Does your brokerage pass along to you any of the profits it gets from its stock loan department?
The Securities and Exchange Commission also has filed civil charges against 38 individuals, including 17 current or former stock loan traders.
In the first, Demizio allegedly directed Morgan Stanley stock loan business to Johnson and one other person for kickbacks paid to his family members.
In another indictment, Joseph Lando, the former stock loan manager at Janney Montgomery, is alleged to have gotten kickbacks in exchange for giving favorable business to Van der Moolen.
While Ultimate did own a large illiquid stake in GENI, most of these shares were tied up in the stock loan chain which Native Nations was demanding be unwound.
The stock loan data provides a lagging indicator of what the smart money is doing, but one of its chief values is the window it provides into selling trends.
FORBES: Buying Patterns In Stocks Suggest Rebound Dead Ahead
The borrowers could be hedge funds, who either are trying to short a stock or scrambling to cover a stock loan that has been called in, or they could be investment houses that need an underlying instrument for a derivatives contract.
On Thursday, the U.S. attorney for the Eastern District announced the arrest of a former stock loan supervisor from Morgan Stanley and two former managers from Janney Montgomery and one other person on a variety of charges, including securities and wire fraud, money laundering and bribery.
Foti's exhaustive list of demands for documents include all of UBS' electronic and paper communications files relating to Sedona stock, its trading records, monthly stock inventories, stock loan documentation, information regarding commission payments, customer account records and research done in house related to Sedona.
The London Stock Exchange, which has 19.4% of its shares on loan, saw the borrowings of its stock ease slightly by 0.65% in the past month, as of June 2.
FORBES: Buying Patterns In Stocks Suggest Rebound Dead Ahead
One popular real-estate strategy, according to Anthony D'Andrea, UBS's head of securities-based lending: Use a stock-based loan to make an all cash bid for a property, then refinance into a traditional mortgage once the deal is closed.
So companies are still wrestling with how to handle old loans and whether the "cashless exercise" of executive stock grants is an illegal loan.
Malaysia and Korea wrecked their economies by allowing banks to increase loan portfolios even as the banks' own stock market values were sinking.
Many senators voted for the bill because of last-minute additions forcing airlines not to shut down business in small communities and a provision to allow the government to receive airline stock options as collateral for the loan guarantees.
The idea is to offer a place where Spanish- and Portuguese-speaking denizens of the Net -- 10 million and counting -- can comparison-shop for a mortgage, a car loan or insurance, as well as check stock quots and financial news.
The partial nationalisation will be a controversial operation, because it will lead to huge losses for many thousands of Spanish investors, who bought shares in Bankia and provided it with loan capital when it was listed on the stock market last year.
The meetings were already met with some skepticism on Capitol Hill, where lawmakers have been pushing the SEC to get more aggressive in reining in short-selling, in which a trader borrows shares to sell, hoping to profit from a lower stock price when closing out the loan.
Unlike a stock or bond, for which you loan money to an entity with the expectation of earning a return for the risk you took, buying commodities is like buying physical assets.
But as mortgage defaults rise, the new Congress and several state legislatures are contemplating enactments that would require mortgage brokers and lenders to make sure a loan is "suitable" for a borrower--just as stock brokers have to make sure an investment is suitable for a client.
The stock gives the lender a potential for larger upside on the loan if it does well.
FORBES: SharesPost Launches Lending For Startup Stock Options
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