Wednesday, March 01, 2006

The SEC -- Chasing After Good Guys or Bad Guys?

Charles Gasparino opines today in Newsweek on the journalist-subpoena controversy, and explains the rationale of the SEC thusly:
There is another issue here as well. As a financial journalist I've always approached my job as that of a watchdog. Usually, that puts us on parallel tracks with the people at the SEC whose job is also to root out crime and abuse and protect small investors from miscreants in the financial world. In their investigation of Overstock, the SEC's top officials apparently believed that journalists could play the same role as other witnesses in their investigations since journalists are known to consort with all sorts of people, even the people they are investigating.

Fair enough. But with whom are the subpoenaed journalists (Herb Greenberg, Carol Remond and Jim Cramer) "consorting"? "Malefactors"? Or stock analysts dedicated to rooting out overvalued and manipulated companies?

What's out of kilter here is that the SEC is investigating people who are indeed on the same side as the agency-- that is, on the occasions when it deigns to pursue stock fraud.

Meanwhile, the bad guys -- the stock touters promoting the fictitious "stock counterfeiting conspiracy" -- are the ones cheering on the feds.

This is not the first time that the anti-shorting crowd has screamed "stock manipulation" and tried to push the feds into engaging in a wild goose chase. A good example came in the mid-1990s, and involved a company called Solv-Ex that also blamed shorts for its crummy stock performance. The company's top officials pressed hard for SEC action.

In fact, as I reported in Business Week at the time, the Solv-Ex stock was being manipulated upward by Mob-linked stock scamsters. The company itself was never linked to any Mob-related activity.

In the end, Solv-Ex was subject to an SEC enforcement action. In 2004, an appellate court upheld a lower court's findings that Solv-Ex's two top officers "had made material misrepresentations and/or omissions in public statements and in filings with the SEC." No short-selling manipulation was ever found.

The SEC, and the media, need to keep in mind this history of anti-shorting hysteria -- and the sorry pedigree of the anti-shorting hysterics. Solv-Ex is just one of many examples of cruddy companies using shorts as scapegoats.

Meanwhile, Overstock CEO Patrick Byrne appeared on CNBC this morning to spin the subpoena thing in his usual dippy way. No, he had nothing to do with the investigation. No, he hasn't been spouting conspiracy theories. Really? Was it a figment of everyone's imagination when he said in August that a "Sith Lord" and other "malefactors" were conspiring to drive down the price of his company's stock?

Today Byrne's main purpose was to tout the conspiracy-nut website "Sanitycheck," run by Byrne's anonymous Internet hatchet man "Bob O'Brien," who the NY Post has identified as an ex-used medical equipment peddler named Phil Saunders.

Hopefully the SEC will investigate whatever links may exist between Byrne and Saunders/"O'Brien," who functions as a kind of de facto investor relations man for Byrne and other companies. Is it kosher for "O'Brien" to do so while carefully concealing his identity -- so that he can safely make vicious, slanderous attacks on journalists who threaten to write about Byrne? Note "O'Brien's" smear of Business Week writer Tim Mullaney and his vicious attacks -- which are continuing to this day -- on Greenberg.

Who's paying the freight for "O'Brien"? Time for the SEC to stop chasing its tail and hone in on this malicious, anonymous creep's activities.

In addition to touting "sanitycheck," Byrne also pushed a website that appears to be some kind of startup in the stock loan business. Judging from its website, which contains anti-naked-shorting propaganda, there seems to be a link between that firm and the "stock counterfeiting" cultists.

As the SABEW blog observed this morning, this is all good television. Still, I wonder how long CNBC should continue to give a forum for this loopy CEO and his crackpot theories and fave crackpot website and smears -- even if they are, as they were today, immediately answered by one of his targets.

UPDATE: Loren Steffy has a slightly different take on the foregoing in the Houston Chronicle. Steffy more or less says that Chris Cox is a spineless political hack, and calls for his resignation. "With journalists rallying to Greenberg's defense, he can look like a champion of free speech while heaping public humiliation on the enforcement division," he says.

I think this criticism is misdirected. The problem is not Cox caving in to pressure to more or less halt a stupid set of subpoenas. The problem is what appears to be, from all indications, a dumb SEC investigation.

The White Collar Crime Prof blog says that "Subpoenaing the press will not be haphazard at the SEC." I am not reassured.

Here's an update on Byrne and his proxies using Wikipedia to pursue his corporate goals and vendettas.

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Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

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