The 'Naked Shorting' Cult Smear Campaign

In Wall Street Versus America I lament the sorry state of financial journalism. I think the media are far too soft on the Street and particularly the bad guys -- the ones with their hands in your pocket, whether they are fee-happy, secretive hedge funds or the ubiquitous small-cap fraudsters. Unfortunately the bad guys have a way of fighting back against the few tough financial reporters. And I mean fighting dirty.

We're seeing that in the smear tactics employed by the anti-naked-shorting conspiracy theorists. Even though their "stock counterfeiting" yarns are widely dismissed as paranoid rubbish -- obviously aimed at diverting regulators from real stock fraud -- their gutter-level attacks on the media and other enemies (notably the Depository Trust and Clearing Corp.) have been effective. These guys have clout.

Here's what I mean: At a forum on the subject last November, a top NASD official named Cam Funkhouser described how he went with a team to the Berlin Stock Exchange in response to "hysteria" over supposed naked-shorting there. Their findings: it wasn't happening. Imagine that. They went overseas not to investigate, say, offshore boiler rooms -- or some other actual problem that afflicts investors -- but to chase down a lot of "hysteria."

Regulators do a crummy enough job fighting stock fraud as it is. They shouldn't be chasing their tails over the Wall Street version of the flat-earth theory. Unfortunately, they are vulnerable to political and "public"pressure -- in this case, concerted pressure from a small handful of dedicated, well-financed fanatics.

One leading target of the naked shorting loons is Tim Mullaney of Business Week. Tim hasn't written about naked shorting. His crime is that he planned to do a piece on Overstock Inc., whose CEO, Patrick Byrne, is a godlike figure among these crazies because he has adopted their cause. Some of Tim's questions upset Byrne, and the smear machinery swung into motion, with the obvious intent of getting BW to lay off.

Enter "Bob O'Brien," the pseudonym (according to the NY Post) of a creep named Phil Saunders who runs anti-naked shorting cult websites. Cringing behind a phony name to stave off process servers, "O'Brien" has repeatedly smeared Tim on the Internet, using a tactic straight out of Joe McCarthy. He learned that Tim once worked at the Baltimore Sun, so he twisted that into a smear to give the impression that Tim left the Sun under a cloud. "Ask Tim why he left Baltimore," O'Brien has asked repeatedly in Internet postings.

I did. Tim's response: He left the Sun to take a university position at a 40% raise.

Time for regulators to turn their backs on these crazies, and stop wasting their limited resources running off to places like Berlin to investigate a scandal that doesn't exist. If anything in that realm deserves to be investigated, it's the naked shorting conspiracy cult. Who are its backers? Why is it so enamored of certain stocks that it pushes on various "independent" websites and message boards? These questions deserve answers.

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Wall Street Versus America: The Rampant Greed and Dishonesty That Imperil Your Investments will be published by Penguin USA on April 6.

Click here for its Amazon.com listing and here for my web site.