Mary Schapiro, chairperson of the the SEC, wants to collect critical data on derivatives transactions to pursue market abuses.

Schapiro said that regulators need the data to construct an audit trail to find out who is doing insider trading and market manipulation. The U.S. Senate is investigating the derivatives markets but is up against a brick wall because it cannot pin down who it is that actually pulled the trigger on the trades. So they are relying on the SEC to provide this data. Schapiro said that the SEC is having difficulty identifying derivative investors and the size of their trades.

Here's a bit of juicy news. According to the Wall Street Journal (subscription required), The Federal Trade Commission (FTC) plans to crack down on market manipulators. They have decided to levy fines up to $1 million dollars per violation a day. The rule covers both physicals and futures.

The crackdown involves mainly the oil traders. Specifically, the language reads as follows: It bans oil market players from issuing "false public announcements of planned pricing or output decisions, false statistical or data reporting, and wash sales intended to disguise the actual liquidity of a market or the price of a particular product." The rules would also prohibit "material omissions from a statement that, although true, is misleading under the circumstances."

The old expression is "He who lives by the sword, shall die by the sword." To paraphrase, he who lives by his (big) mouth, shall die by his (big) mouth. A fate that might also await me if I'm not careful. Cramer bragged about his unaudited, never proven 24% annual return when he managed a hedge fund for 13 years. I have questioned this on many occasions for many reasons.

Nevertheless, James Cramer has put his credibility on the line and it has disappearerd recently when he bragged (or came clean, which ever you prefer) that he had manipulated information in the press with surgical precision and timing to create shorting opportunities and other advantaged trades. He tried to backtrack and un-ring the bell and he failed miserably as noted by Zac Bissonnette in "It wasn't me" says Cramer.

There is an old expression I keep learning anew: It's the first law of holes -- if you're in one stop digging. I must have used this before in one of my posts somewhere but it is worth repeating. And if Attorney General Alberto Gonzales does not see this post I hope one of his friends points it out to him. He too seems to be digging deeper when it comes to his forthrightness relative to his role in the politically motivated firing of federal attorneys.

Amid growing concern about market manipulation by investors (hedge funds are most often cited), investors and businesses must now focus on proxy season and ways to prevent the effects of market manipulation from carrying over there. There is concern that funds will be able to sway elections by voting shares they don't own, or have to hedge to minimize their economic stake in the outcome.

For example, if a fund owned 100,000 shares of a company but had purchased put options, the actual exposure might be far less than the 100,000 shares would indicate. Yet they would still be able to vote those shares. This is of tremendous concern as a corporate governance issue, because it could be that many corporations will now be run by two groups: management with little stake in the company, and hedge funds with little stake in the company.

Gordon Gekko would not be pleased.