Sirius XM forums have been buzzing all weekend over a screenshot that has been posted to the Internet and uploaded to sites such as YouTube. Investors in Sirius XM have assembled together and have filed complaints en masse with nearly every news agency, market maker and regulatory body such as the Securities and Exchange Commission.

The video itself certainly raises questions, yet offers very little in the way of real answers. I have found what I would consider to be one plausible explanation. Investors look at the screen shot in question and automatically lay blame on the market maker itself. Yet an SEC enforcement action against Goldman Sachs in 2007 may offer an alternative explanation, which only the SEC can prove or disprove at this point. It is my sincere hope that they will look into the matter.

In March 2007, the SEC reported the following:

"The SEC Order and the NYSE's Decision allege that Goldman's customers carried out the illegal short-selling scheme by placing their orders to sell through the firm's REDI System© - Goldman's direct market access, automated trading system - and falsely marking the orders "long." Relying solely on the way its customers marked their orders, Goldman executed the transactions as long sales. In addition, because the customers had sold the securities short and did not have the securities at settlement date, Goldman delivered borrowed and proprietary securities to the brokers for the purchasers to settle the customers' purported "long" sales... "

I am by no means implicating Goldman Sachs in this case. The history and reliability of electronic trading systems are called into question here. The only mistake the Goldman Sachs client made was that they executed all of their trades through Goldman. Criminals like everyone else learn from their mistakes. We have witnessed in recent weeks similar questionable trades that have moved from market maker to market maker.

Reviewing the 2007 release again we learn:

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "Customers now have direct market access platforms such as REDI© and other automated
trading systems
, which enable brokers to execute larger volumes of trades more quickly and efficiently for their customers. However, as this case makes clear, direct access does not obviate a broker's own responsibilities under the Commission's short sale rules, and it certainly does not allow a broker to ignore apparent discrepancies indicating illegal trading by its customers."

Each week brings with it a new automated trading system that is called into question. Just one week ago, some were questioning NITE trading rather than ISEG. I would argue that the villain in this scenario is not a market maker at all but rather an individual or group of high powered investors or hedge funds that are using electronic trading systems to manipulate individual stocks; jumping from stock to stock and trading platform to trading platform. Like terrorists, they are striking quickly and moving often. SEC? Are you listening?

Position Long Sirius XM