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Aberrant RPG - Feds Weigh Tighter Rules for Nova Investors

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<font size="4">Feds Weigh Tighter Rules for Nova Investors</font>

by Robert Blackwood

N! Prime Staff Writer

WASHINGTON -- The federal agency that oversees the U.S. stock and bond markets is expected, at its monthly meeting today, to consider new restrictions intended to prevent novas from manipulating the markets.

The unprecedented action is being considered by the Securities and Exchange Commission in response to the market gyrations caused by the hiring in February of Timoteo J. Spolato, a Nova financial genius, as a fund manager by Fidelity investiments, Inc.

Since Spolato inaugurated the Fidelity Nova Fund I in April, it has experienced a share value growth more than 12 times the growth rate of the Standard & Poors 500 Market Index, and has already amassed a net market capitalization of $98 billion dollars.

Though the phenomenal growth of the Nova Fund has been ascribed to Spolato's use of prescient powers to predict shifts in stock values, SEC chairman Anthony Coulter Jr. said that without further investigation, the commission cannot rule out the possibility of market manipulation.

"Mr. Spolato's mere presence in the market causes an immense ripple effect," Coulter said. "Any stock he is even rumored to be investigating, much less buying, immediately sees a huge jump in price, because so many other large investors want to ride on the Nova Fund's coattails."

Coulter added that while Spolato was not personally suspected of stock manipulation, other investors could easily drive up or down a stock's value by planting rumors of Spolato's interest.

"We are not saying by any stretch of the imagination that Mr. Spolato, or any other Nova, can't be trusted to act responsibly and legally in the market," Coulter said.

The backlash of a Nova-driven trade, though unintentional, can be far-reaching.

The SEC's discussions come in the wake of the stunning three-day collapse of Borealis Technologies, a formerly 100-billion-dollar military technology firm. When word leaked out August 5 that Spolato's fund was short-selling Borealis, the stock -- which began trading that day at 46.125 points -- lost 23 percent of its value in the space of three hours, falling to 35, before market officials froze trading. When trading resumed the next day, the stock plummeted another 8.5 points to 26.5 in just under an hour, when trading was suspended again.

After trading closed for the day August 6, Project Utopia announced that it had informed Borealis that morning that its research was in violation of Utopian technology guidelines. The company declared its intention to file for bankruptcy protection the following day.

Though it is not clear what kind of regulations could prevent such devastating ripple effects, suggestions advocated by noted economists range from completely banning Nova investment in securities markets -- which could conflict with Novas' Zurich Accord protections -- to a board that would monitor Nova transactions and impose an automatic 24- to 72-hour "cooling off" trading freeze when prices fluctuate too much.

Most experts consulted, though, expect the SEC to suggest a restriction on Novas owning stock in companies they endorse, as well as a "double-blind" trading system that would allow individual Novas and Nova-administered funds to invest in the markets anonymously.

Some of those economists do not expect the SEC's action to have much effect, though.

"(A double-blind system) may prevent the coattail-effect Tony Coulter says he's worried about, but it won't do a thing about a Nova who actually intends to manipulate prices," said Harvard economics dean emeritus Rachel Sheinblum. "Most Novas already invest anonymously, anyway, through foundations, trusts, agents, or the like. And if that's the case, how will the SEC even know when one is taking advantage of a conflict of interest?"

Though he declined to be interviewed, Spolato released a statement that read, in part, "Every transaction that I have conducted, directed, authorized or otherwise been involved in during my tenure as manager of Fidelity Nova Fund I has been conducted in full compliance with all federal and international securities trading regulations. Any stock price fluctuations that occur following these transactions are as much due to normal market forces I have predicted, as they are to any bandwagon effect."

The Economics Ministry of the European Commonwealth has reportedly been considering similar regulations for the past year and a half, but no such action has been formally proposed.

The SEC is said to have contracted with the DeVries Agency to provide Nova security for the meeting, to prevent the possibility of a terrorist attack like the one that killed Tampa mayor Frederick Rupert on June 6.

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