Tuesday, February 28, 2006

Journalists are ......



.... that's right. The "p" word.

Where is outrage among journalism organizations about the Securities and Exchange Commission's subpoena-fest?

There hasn't been any, and I have a sneaking suspicion the reason is a character flaw that afflicts the news business.

Journalists are not always vigilant -- if I were crude I would use the "p" word -- when it comes to protecting their interests, or speaking out against common threats. That's why newspaper unions are so weak, by the way. I recall that vividly from my own days at Dow Jones years ago, when I was briefly involved with the employee union. (The villain back then, by the way, was the guy I just praised in my last item.)

In this case, the threat is posed by a misdirected SEC and a slander-happy CEO, and the object of their stampede is tough financial journalism. Louis Victor, in a post excerpted in the SABEW blog, observed today that


Jim Cramer, Herb Greenberg and Carol S. Remond should come out fine from this but what does this mean for financial reporting, are financial journalist going to be restricted from giving their opinions or insights that are an asset to the investment community?
Lets hope not because the insight that is given from journalists have exposed some of the biggest scandals in the financial industry history, like Enron, Worldcom and Health South.

True. So why the silence? Sorry, but the only reason I can think of begins with the letter "p."

UPDATE: Jesse Eisinger gets it right in the Wall Street Journal this morning:


By seeming to side with Overstock when it started seeking information about its complaints against the shorts, the SEC chills its best sources and hinders the market from doing its job. It was the shorts who lost money in Overstock for months and months -- until most investors realized they were right.


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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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Monday, February 27, 2006

Did I Just Imagine It.....

... or did Patrick Byrne, chief executive officer of Overstock.com, just call Herb Greenberg a "crooked reporter" on Kudlow & Co.?

You know, at times like this, I wish that I had different parents.

Why did I choose so poorly? If my dad had been CEO of GEICO, and not a project engineer at the New York City Transit Authority, I too would have enough money to go on CNBC and besmirch the character of an honest reporter, knowing he couldn't hire a lawyer to sue me for slander -- knowing that, even if he did, I could withstand the legal fees.

Oh well. Maybe in my next life I'll do a better job and pick richer parents.

To be exact, Byrne ranted in a telephone hookup to Kudlow & Co., "I'm talking about a crooked research firm hooking up with a crooked reporter." So, to be more precise, he smeared a reputable research firm -- Gradient Analytics -- and a reputable reporter.

Except for the SEC's apparently Byrne-inspired investigation, none of this is really new. Though the tactics employed by Byrne are considerably more execrable than in the past, this is not the first time that companies have sought to tar reporters and analysts for doing their job.

In the late 1970s and early 1980s, one of my former bosses, Alan Abelson of Barron's, was regularly smeared for having -- to use one expression that was applied -- a "symbiotic" relationship with short-sellers. He was even sued once by disgruntling shareholder seeking to shift blame for a bad investment. Over time the allegations was proven to be a lot of hooey, and the suit was tossed out.

Even so, I'll bet there are still some people around who remember the smears against Abelson and don't remember that they were proven false. That is what worries me about the latest smear campaign.

(Updated Feb. 28.)

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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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More on 'Never Mind'

Securities and Exchange Commission chairman Christopher Cox today elaborated on the "never mind" that his people gave to the media on Friday when asked about the Greenberg-Remond subpoenas. He issued a statement this morning, saying as follows:
"The issuance of a subpoena to a journalist which seeks to compel production of his or her notes and records of conversations with sources is highly unusual. Until the appearance of media reports this weekend, neither the Chairman of the SEC, the General Counsel, the Office of Public Affairs, nor any Commissioner was apprised of or consulted in connection with a decision to take such an extraordinary step. The sensitive issues that such a subpoena raises are of sufficient importance that they should, and will be, considered and decided by the Commission before this matter proceeds further."

Reassuring, isn't it? Cox and -- well, it seems pretty much everyone else at the SEC, including the spokesman's office -- weren't aware of two journalists being subpoenaed until.... reading about it this weekend?

Gee. The top spokesman for the SEC, John Nester, told the New York Times on Friday: "Under longstanding practice, the S.E.C. generally subpoenas journalists only when it is absolutely necessary and after careful thought and consideration."

I have to admit, I am having a bit of trouble understanding how nobody in authority, not even the spokesman's office, knew what was going on until the weekend when the SEC's top spokesman was saying things like that on Friday.

Anyway, I guess things will sort themselves out eventually. Meanwhile, as long as Chairman Cox and everybody else are reconsidering the subpoenas, maybe they'll want to rethink the investigation that gave rise to the subpoenas.

The investigation was apparently prompted by Overstock Inc.'s CEO Patrick Byrne, whose naked-shorting and "Sith Lord" conspiracy theories are a subject of derision throughout the civilized world. Byrne seems to have known that some kind of trouble was on its way on Feb. 7 -- before the subpoenas became public knowledge -- as Chris Byron pointed out in the New York Post today.

Might be a good idea for the SEC to give "careful thought and consideration" to dropping that wild goose chase. Might also be a good idea to figure out how it was sent on said wild goose chase by this particular conspiracy-theorist-CEO. Might also be a good idea for the SEC to turn its attention to a more pressing problem facing the markets -- a fraudulent naked shorting conspiracy cult that is diverting attention from real stock fraud.

I write about the naked shorting loons, and their surprisingly effective "Baloney Blitzkrieg," in my forthcoming book Wall Street Versus America. WSVA is hitting the book stores on April 6. Now, I could go on and on about the book, but I won't! I'll limit the shameless commercialism to this tiny little link to Amazon.com and this even more tasteful link to my website.

PREVIOUSLY: The SEC's Keystone Kops in action.

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Sunday, February 26, 2006

The Smear Du Jour

I hope that Joe Nocera's column yesterday, and the publicity surrounding the SEC's subpoena of two journalists, represents a tipping point in press coverage of the naked-shorting cultists and their campaign to promote a non-scandal. The reason you don't read about them is fairly simple -- critics are silenced, and smeared, in the best McCarthyite tradition.

A good example emerged late yesterday on the website maintained by "Bob O'Brien," the Internet hatchet man of the anti-shorting con men. "O'Brien," the non de smear of an ex-used medical equipment salesman named Phil Saunders, is the Cowardly Lion of the cult, roaring lies and smears while cowering behind a phony name. Yesterday his smear was that Herb Greenberg of Marketwatch "shut down" his RealityCheck newsletter after being served with an SEC subpoena.

"O'Brien" piled more dreck on top of that, asserting that Greenberg backdated a story mentioning the "shutdown" to precede the Feb. 7 date of the subpoenas.

This smear promptly spread over Internet message boards like stinkweed -- and it was a blatant lie. The newsletter wasn't "shut down," but made free of charge. Subscribers were notified of the changeover as early as the afternoon of Feb. 1 -- 2:30 p.m., to be precise. That's six days before the date of the subpoena. So says the email announcement, which is sitting in my inbox right now.

What you're seeing here is a standard tactic of the anti-naked-shorting cultists, who offer up a smear du jour, along with the usual paranoid conspiracy pap, on Internet websites whose ownership is hidden as carefully as "O'Brien's" identity.

Time for the media, and regulators, to stop being cowed by these creeps.

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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.

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Saturday, February 25, 2006

The SEC's Keystone Kops in Action


SEC Enforcement gets another CEO's conspiracy tip

I had a hard time thinking of an appropriate metaphor today. Is the Securities and Exchange Commission engaged in a Joe McCarthy-style witch hunt by serving subpoenas on two Dow Jones reporters -- and then saying "never mind" after getting calls from journalists? Or is it functioning more along the lines of the Keystone Kops, comically chasing after the wrong quarry?

I decided on the latter -- the "never mind" bit was the deciding factor -- but am omitting "comically" because there's nothing funny about it.

As I detail in Wall Street Versus America, the SEC and other regulators have regularly taken actions that are late, weak, and, as in this instance, just totally stupid. Thus the SEC twisted itself into a pretzel to get naked-shorting conspiracy cultists off its back by enacting something called "Regulation SHO." Yet, simultaneously, the SEC's Keystone Kops acknowledged that the "stock counterfeiting scandal" pushed by these con men did not exist. (Note answer to Question 7.1 in this SEC document.)

So today we have the SEC, in full flower of stupidity, chasing down the private vendettas of Overstock Inc.'s CEO, Patrick Byrne, whose principal problem is that his company just isn't a very good investment. Who is to blame? Well, I don't have to tell you, it certainly isn't him! Why, he is just the CEO of the company. Not his fault. It's them! The conspiracy! Joe Nocera's column today in the New York Times is the definitive article on this one-ring corporate circus. It's impossible to mock or parody Byrne, because he does such a great job himself.

Enter the SEC. Instead of consigning his rants and conspiracy theories and private vendettas against shorts and the press into the round file, it launches an investigation. In other words, the pinnacle of our self-regulatory system did precisely what it did with the naked shorting conspiracy nuts.

Don't get me wrong -- this is serious business. Herb Greenberg of Marketwatch, one of the subpoena recipients, is correct in saying that the SEC's action will have a chilling effect on financial journalism. He and Carol Remond of Dow Jones News Service, the other subpoenaed reporter, are two of the toughest financial reporters around. They and others have paid the price for good work by being regularly smeared by Byrne and his lowlife sidekick, an Internet loon who goes by the phony name "Bob O'Brien." The latter, outed by the NY Post as an ex-used medical equipment salesman named Phil Saunders, is the naked shorting cult's Cowardly Lion, roaring against real and imagined enemies while carefully guarding his identity to avoid being held accountable for his constant barrage of lies and smears.

"O'Brien" said this morning, in a typically psychopathic Internet post, that he was "shaking with laughter" after reading the devastating Nocera piece, which ripped him and Byrne to shreds. Later in the day, "O'Brien" published a rambling, hysterical rant from Byrne, lashing out at his villains and obsessions in his usual fashion. Typical line: "Now as far as Nocera's piece goes, it is about as dopey as he sounded when he called."

The SEC might want to wander over to the conspiracy-cult's websites and take a hard look at the kind of characters with whom it has crawled under the sheets.

Not that the SEC would ever do such a thing, of course. Don't forget, we're dealing with an agency that provides a light-hearted, Mack Sennett touch to our regulatory process. Why am I not "shaking with laughter"?

UPDATE: Christopher Cox, the SEC chairman, ate crow on Monday. In the words of Greg Newton, veteran financial journalist, the SEC staff is "out of control."

For more on this weird controversy see earlier posts in this blog, including:

"Naked shorting" cultists smear a BW reporter. (Feb. 21)

The short-selling hysteria continues. (Feb. 24)

The smear du jour -- this time a lie about Herb Greenberg. (Feb. 26)

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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.

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Friday, February 24, 2006

The Short Selling Hysteria Continues

Readers of New Jersey's largest newspaper, the Star-Ledger, read today that the scourge of naked short-selling has descended on Wall Street. Word of that came from a man in a position to know -- New Jersey's next state treasurer, Bradley Abelow, at his confirmation hearing before the state senate Judiciary Committee in Trenton.

Abelow is a former board member of the Depository Trust and Clearing Corp., and as anyone who has followed the issue -- at least from the perspective of the anti-naked-shorting conspiracy cult -- can tell you, the DTCC is up to its eyeballs in that horribleness. Abelow confirmed it thusly, according to the newspaper:


Abelow acknowledged the problem of "naked short selling" is "endemic." He said he personally never engaged in the abusive practice and, as an executive and a director of the corporation, took extensive precautions to try to minimize it.
Terrible isn't it? According to the dictionary, "endemic" means "prevalent in or peculiar to a particular locality, region, or people" -- the locality or region in this case being "Wall Street."

The only problem is that Abelow didn't say that. As a matter of fact, according to the archived audio feed of the hearing, he said the exact opposite: "The issue of fails to deliver of securities are endemic and occur as a matter of course and that my experience is that everyone at the DTCC and its participant firms work diligently to clean them up."

As Abelow had patiently explained to the committee, "fails" occur for a whole bunch of reasons. They are routine. Happen as a "matter of course." Nothing. Sometimes, he explained, FTDs happen because the transaction is off by a penny. It's something that anyone who knows a blessed thing about the subject, including the regulators, have explained again and again and again.

Now, I don't mean to beat up on the Star-Ledger, which is a damn good paper that regularly takes awards away from the big guys in New York. If I had covered the hearing for a daily paper and if I hadn't been writing about this stupid "naked shorting" issue for the past ten years, I probably would have gotten confused about the subject myself. What was particularly confusing to the uninitiated was that Abelow was preceeded by four "witnesses" who spewed sheer baloney on the subject without contradiction.

See, what you have here is not really a regulatory issue but a kind of hysteria, cynically promoted by stock promoters and CEOs of cruddy companies seeking to take the heat off their own lousy performance. The stock-clearing system is complicated, and they've exploited the complexities of the system to conjur up a "scandal" out of nothing, to divert attention from real investor issues such as the unfair arbitration system and real stock fraud.

DTCC has the thankless task of overseeing the stock-loan system that is at the center of the naked shorting non-scandal, so it has been regularly a subject of screwball lawsuits that have been monotonously tossed out of court. The stalking continued in Trenton yesterday, with Abelow hounded by the aforementioned four witnesses, and by some particularly brainless questioning by one state senator. "Have you ever, for your own account, engaged in naked short selling?" a legislator named Gerald Cardinale asked the dumbfounded Abelow.

One of the "witnesses" who came to serve up baloney was Gary L. Valinoti, former CEO of a sad, blameless company called Jag Media Holdings that he claimed was an innocent victim of naked short-selling. Valinoti forgot to mention that he too is a victim -- of SEC charges that he engaged in "unregistered sales and transfers of securities of [Jag Media Holdings] in violation of Section 5 of the Securities Act of 1933." He settled the charges last September without confirming or denying the allegations.

None of the press coverage mentioned Valinoti's little run-in with the SEC, while providing a forum for the idiotic nonsense spewed at the hearing by the naked-shorting cultists.

Meanwhile, in another example of short-selling hysteria, a tough and smart reporter who would not have been bulldozed had he covered the hearing -- Herb Greenberg of Marketwatch -- reported this morning that he was slapped with an SEC subpoena that's been served upon him as part of an investigation of Gradient Analytics.

Herb says "the subpoena seeks 'all' unpublished 'communications,' including emails and phone records, between me and people and organizations I've quoted -- and at least one I've never quoted -- regarding five stocks. Never mind that I have never written about one of those companies. And never mind that the other four (yes, including Overstock) deserved every word I wrote -- and then some." He and Dow Jones (which owns Marketwatch) are, of course, fighting it.

That's how nutty things have become. Think about it. An innocent guy who used to be a paper-pusher on Wall Street gets grilled over a non-scandal, and a tough reporter who is the bane of cruddy companies gets an SEC subpoena.

If that isn't hysteria, I don't know what is.

UPDATES:

SEC Chairman Elaborates on "Never Mind." (Feb. 27)

The SEC's Keystone Kops in action. (Feb. 25)

Naked shorting cultists smear Greenberg. (Feb. 26)

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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.

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Thursday, February 23, 2006

A Broken System

There's a good article in the New York Times about the stacked-deck securities arbitration system. The inherent unfairness of the system, which denies brokerage customers their Constitutional right to the courts, is the focus of the first chapter of Wall Street Versus America. The chapter is available on my website, here.

According to the Times piece, a big WorldCom shareholder, having lost a $900 million securities arbitration against Citigroup, is asking a federal court to overturn the decision on the grounds that the arbitrator had an undisclosed conflict of interest. If true, that would be contrary to NASD rules.

However, I think the issue here is much broader. Even when the rules are followed to the letter, investors are deprived of a truly neutral forum in which to adjudicate their complaints. The courts, with all their failings, provide such a forum.

The investor in this Citi case has a very high hurdle to surmount if he is to win his case. That's because arbitration is designed to provide finality. That's fine in situations in which people voluntarily consent to arbitration. But you have no choice if you are a brokerage customer. It's part of the standard language of brokerage agreements.

The Times piece quotes a lawyer as saying that "arbitration was a cost-effective way of resolving disputes, but only if the disclosure system could be trusted."

Well, if it's so great, why not make it voluntary? Investors should have that choice, and regulators should require brokerages to give them that choice. Make no mistake about it: that won't happen if the public doesn't demand it. Right now, the only "public pressure" that comes their way is from a small handful of cultlike fanatics on the phony "naked shorting" issue.

It would be great to see the same kind of pressure exerted by real investors on a real issue. Mandatory arbitration is one such issue. Unfortunately, there are no murkily-funded pressure groups or email spams or letter-writing campaigns -- such as sustain the naked-shorting cultiests -- devoted to fighting mandatory securities arbitration. So the injustice of the system continues every day, ignored by the industry's putative watchdogs.

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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.

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Wednesday, February 22, 2006

Give the New York Ports Back to the Mob?

So says Deanne Stillman in the Huffington Post, in jest I suppose. But who says the mob ever left?

Actually the New York crime families, after effectively destroying the waterfront during the 1950s and 1960s, never really left the few slivers of waterfront industry still remaining in the New York area. Or at least that's what prosecutors say, in all kinds of indictments and lawsuits in recent years.

Note, for example, this civil racketeering suit filed by the U.S. Attorney in Brooklyn last July. Apart from the usual recitation of nastiness, it includes a rundown of the recent history of mob involvement in the waterfront. Yup. Still there.

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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.

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Tuesday, February 21, 2006

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.

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Monday, February 20, 2006

Department of Strange Bedfellows

I'm on a State Department mailing list for consular notices. (I signed up for them just before a trip to India in 2002, so State could send an email to my empty apartment if war were to break out between India and Pakistan.) Today I received a consular notice, not from Delhi but the U.S. consulate in Cairo!

Here's what it says. This is the sum total of the email. Note that it reads like a spam, which is just what it is:

From: consularcairo@state.gov
To:
Sent: Monday, February 20, 2006 2:21 AM
Subject: Muhammad: Legacy of a Prophet ( Free book + DVD )

A lively, thorough, and revealing portrait of Muhammad - taking viewers to the world of 7th century Arabia to examine the life and history of the man whom Muslims consider to be the last prophet ...
To order your FREE DVD,
please visit: http://www.cair-net.org/Muhammad/default.asp

Seems that CAIR, the Council on American-Islamic Relations, has begun an "educational campaign" prompted by the Danish cartoon flap, and our government is spamming people throughout the world to promote it! Isn't that nice?

Here's an anti-CAIR website to get a whole lot of reasons why maybe it isn't so nice.

Odd, isn't it? As I noted yesterday, a consular officer in India recently gave a distinguished Indian scientist the third degree and denied him a visa. Meanwhile, over in Cairo, another consulate is promoting a DVD from an controversial U.S. Islamic group that is widely condemned for its stance on terror. Something's wrong with this picture.

Sunday, February 19, 2006

Survey: Microcap Investors Aren't Fools

CMKM Diamonds is one of the drearier poster children of the anti-naked-shorting campaign -- and that's saying a lot, believe me. Since Internet stock message boards tend to be dominated by naked-shorting cultists who want to screw investors -- in much the same way as African-American Usenet boards are dominated by skinheads who hate blacks -- I was surprised to see the initial results of a poll conducted by one CMKM message board.

The question, posed on Feb. 15, was "What do you REALLY BELIEVE about this whole "NSS" [naked short-selling] issue?" The early returns, though unscientific of course, are interesting: so far 32 votes, 59.2%, agreed with "NSS is the standard SCAM EXCUSE to fool idiots." 10 votes, or 18.5%, agreed with "CMKX maybe NSS'd, but failure NOT due to any NSS." Just 7 votes, 12.9%, agreed with "NSS is EXACTLY the reason CMKX FAILED." Last, and least, 5 votes, 9.2%, agreed with the wacky "CMKX failed on PURPOSE to catch NSS'ers." Board regulars expressed surprise.

This, mind you, from an Internet board that has entire sections devoted to promoting the naked-shorting paranoia, replete with form letters to the media. Now, I assume that the Baloney Brigade will pull its usual multiple-ID shuffle and fix those numbers fast. Still, what we have here shows that investors are not as gullible, or willing to seek out scapegoats, as they are assumed to be by the cynical con men of the Baloney Brigade. Unfortunately, these snake-oil salesmen are loud, well-funded and, as night follows the day, getting regulators' attention.

UPDATE: After I initially posted this item, the leader of the anti-shorting "forces" on the Internet (mostly his own multiple identities), a paranoid crank named Phil Saunders who uses the pseudonym "Bob O'Brien," responded by posting an obscene verse dedicated to myself and Herb Greenberg of Marketwatch.com. A message on his website explains his habit of cyberstalking myself and other journalists: seems he's a failed wannabe writer. He modestly compares himself to "Grisham and Demille."

I think this sadly undiscovered genius would do a greater service for his patrons in the stock-fraud community by avoiding bathroom-wall "poetry," which merely demonstrates yet again why the head of the anti-naked-shorting coalition uses a phony name. Better stick to the fiction that he publishes on his website.

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Learning to Recognize Your Friends

This is a bit off-topic for me -- assuming anything in a blog can be off-topic -- but I was distressed to a learn of an embarrassing bit of bureaucratic stupidity by U.S. officials in India recently. (Hat tip: Ram Narayanan, U.S.-India Friendshp.net). I'm surprised this story hasn't gotten even a little attention in this country.

Seems that our counselor officials in India need to brush up on their high school chemistry. And maybe also their common sense.

Just a few weeks ago, one of India's leading scientists, Goverdhan Mehta, was invited to this country to speak at the University of Florida at Gainesville and the American Chemical Society. So he applied for a visa in Chennai, and the nightmare began.

I should point out that Mehta is one of the top scientists in India, and has been in this country many times. He is former director of the Indian Institute of Science, and is one of the world's leading organic chemists. According to the Indian Express, he is "a member of Prime Minister Manmohan Singh's Scientific Advisory Committee, has been to the US 20 times, the most recent being May 2005 when he delivered a lecture at the National Academy of Sciences in Washington, DC."

So you'd think a routine request for an entry visa would fly right through. But it didn't. The Express story goes on:

On February 9, Mehta appeared for the visa interview. He said he was "repeatedly humiliated" by the consular officer who accused him of "hiding things," suggesting that Mehta's work related to chemical warfare and bioterrorism. . . Mehta said he told US officials that all his academic research was in the public domain and related to "new molecular entities" and "by no stretch of imagination (could be) related to hemical cwarfare."

No visa.

Well, there was immediately a big media furor in India. Newspapers that are usually have only nice things to say about this country were slamming American "arrogance." Consular officials in India promptly backtracked, saying Mehta was welcome to re-apply, which unsurprisingly he is not going to do. I don't blame him.

A spokesman for the US Embassy in New Delhi said it was a "pretty standard affair to ask for more information." Yeah, that's what worries me.

Hey, I'm all in favor of strict border security. I'm a hard-line guy on that kind of thing. If Mehta really is involved in "chemical warfare" or whatever, I don't him in this country. But please. Don't say an eminent Indian scientist got a humiliating interrogation from a junior factotum because it is S.O.P. -- a "pretty standard affair."

It seems to me our consular officials in India should be able to tell the difference between an leading Indian research chemist and an AQ Khan. If they can't, they should be stamping passports in Swaziland.

Ram Narayanan, who alerted me to this nonsense, entitled his email, "Do US bureaucrats specialize in making enemies out of friends?" He's not just referring to the scientific community. According to the Pew Global Attitudes Survey last year, 71% of Indians -- more than any other country surveyed, including Canada, for Pete's sake -- held a favorable view of the United States.

President Bush is visiting India next month to cement that relationship. Seems that some of our consular officials need to get with the program.

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Thursday, February 16, 2006

THE SCAMSTER'S BEST FRIEND: I've been spending so much time chronicling the hijinks of the naked-shorting conspiracy nuts that I've been neglecting the real thing. You know, actual, honest-to-gosh stock fraud, with real crimes and real victims and real perpertators.

A federal court jury in Manhatan today gave us a sharp reminder of the real thing, by convicting the former president of a New York company called Impath, Richard P. Adelson, on multiple counts of securities fraud. He faces up to 85 years in prison when he is sentenced on May 30.

Now, there was nothing really unusual about the Impath fraud. It was a straight-up, off-the-shelf case of accounting shenanigans, stock manipulation and lies. Impath proclaimed itself to the world as a fast-growing health care company, with double-digit growth in earnings and revenues that turned out to be smoke and mirrors. Everything began to unravel in July 2003. In just a couple of months the stock was down 88 percent, costing shareholders more than $260 million.

Now, if a stock today were to decline 88 percent, I don't have to tell you who'd gets blamed. Naked short-sellers, of course! Sure, the paranoid cranks of the Baloney Brigade were around in 2003, but were far less aggressive and brazen than they are today.

An Impath today would have the con men and charlatans of the Baloney Brigade in its corner, firing away. Sure, they're irrational. So what? They succeed in their primary function: to waste the time of everyone concerned and above all to divert attention from the real thing.

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Sunday, February 12, 2006

NEWS FROM THE WORLD OF BALONEY: Sorry. Fraudulent investor-protection movements are a guilty pleasure of mine, like chocolate. I just can't resist writing about them! They are funny. Dangerous too, as well as irresponsible, and a little sick. The problem is that these paranoid crackpots influence regulatory policy, and that has to stop.

I'm going to make this item a kind of ongoing diary or "open item," so that all the latest news from the loony anti-naked-shorting movement can be posted in one place. That way this blog isn't totally overwhelmed by baloney. All your baloney in one sandwich.

After all, the anti-shorting scam artists are just one of twenty-one chapters of Wall Street Versus America. They represent just one of the ways the Street has its hand in your pocket -- in this instance by making it easier to rip you off in microcaps -- but there are far more important issues discussed in the book, such as the ghastly arbitration system and fee-happy funds. My general take on this issue is summed up in this post and a few others, most of which have the word "baloney" in the title.

I'll still post major tidings as separate items, but lesser "turns of the screw" I'll post here.

So, on with the Baloney Diaries! These items are in chronological order, with the most recent at the bottom. So you can bookmark the URL for this item (http://garyweiss.blogspot.com/2006/02/news-from-world-of-baloney-sorry.html) and check back periodically:

Feb. 12: The Baloney Brigade's "Sanity Check" website (as in "check your sanity at the door") posted over the weekend what it described as an "encyclopedic analysis" of the Securities and Exchange Commission's legal brief refuting all of the naked shorting lobby's phony "stock counterfeiting" claims.

The author was gravely introduced by Phil Saunders a/k/a "Bob O'Brien," the bravely pseudonymous proprietor of the site, as "Dr. Jim DeCosta." The good doctor describes himself in SEC comment letters as "Dr. Jim DeCosta and Associates, Consultants to Victim Corporations."

"Bob," an ex-peddler of used medical equipment according to the NY Post, didn't disclose exactly what kind of PhD or whatever that this esteemed gent has, so I looked up the phone number. According to Google, this expert in naked short-selling and consultant to victim corporations is James DeCosta, DMD, of the Tualatin Family Dental Clinic in Tualatin, Oregon.

Glad the Baloney Brigade has such a sturdy "consultant" for its "victims"! I'll bet they have good teeth too.

Feb. 13: Last night, Baloney Brigadier "O'Brien" clogged Internet message boards with posts promising an "explosive" revelation. Turned out to be a rumor about somebody serving a subpoena on someone else. I won't repeat the rumor, it being obvious baloney whipped up to divert attention from the beating being endured by stocks he's been touting.

I have a better idea for "O'Brien" to lure suckers to his website: cut rate dental insurance! He seems to be staffed up for it.

Feb. 14: When the "subpoena bombshell" fell flat, "O'Brien" went back to his "sources" and came up with another "scoop" -- that the SEC was investigating Rocker Partners. He didn't disclose his "source," which makes sense because it was The Street.com, which mentioned the probe a few days ago because Rocker owns a chunk of the company (see tail end of this story). To be precise, it said, "the matter is being investigated." SEC investigations are often prompted by long-short battles, with the result usually being either nothing or sanctions on the long side. The Baloney Brigade marches on.

Feb. 15: File this under "I'm not making this up" (with apologies to the blog by that name). The bravely pseudonymous head of the anti-naked shorting coalition, a paranoid crackpot named "Bob O'Brien," wants the world to confirm unsubstantiated reports and rumors that he irresponsibly posted on his website in recent days. I'm not kidding. He issued a "challenge" to that effect today:


If I do not hear from anyone by close of business today, as I haven't heard from anyone for the last 48 hours, I, and everyone else, will assume that the above 4 statements are correct and true, and will henceforth state them as fact.
Well, I guess that makes sense. Post a lot of smears on the Internet before you have gotten your facts straight, and then -- instead of getting the thing nailed down tight and asking for comment from the affected parties -- issue a "challenge" for your victims to contradict you. And these people influence regulatory policy and have gotten the attention of state regulators? NASAA, come to your senses, for Pete's sake.

Feb. 15 (later). The "Sanity Check" blog published a rambling, patently phony story about a threat supposedly conveyed to a "journalist" who was "investigating" naked shorting by "three men in Armani suits, slicked back hair, Ferragamo shoes." You know, sort of like a bad detective novel. This totally unbelievable cock-and-bull story is supposed to excuse the anonymity of "O'Brien," the leader of this crackpot movement, who hides behind a phony name while spewing paranoid conspiracy theories and smears. The "journalist" is anonymous, natch.

OK, I'll pretend for a moment that this story is not the phony that it obviously is. What is a journalist's duty in such a situation? It takes all of thirty seconds to come up with the answer -- to call the police or the FBI! Report the threat. Hell, I would. In fact, when it's happened to me, I have. So would any real, as opposed to imaginary, journalist.

What's sad is that some good people will believe this trash, no matter what, because they need someone or something to blame for their bad investment decisions.

Feb. 16. Rejoicing across the world of baloney today, as the subpoena rumor mentioned earlier -- Depository Trust & Clearing Corp. being asked for trading records by regulators in Connecticut and Utah -- is confirmed by the New York Post. What this means is that not one but two state regulators are devoting valuable resources to investigating a nonexistent scandal. It's a sad day for investors, who are ripped off by real scamsters while the regulators chase after imaginary ones.

A good example of the real thing was discussed in the Mark Cuban blog yesterday, in an item entitled "Naked Shorting -- the Real Bad Guys." Note the reference to C. Austin "Bud" Burrell, whose little "pink sheet" company is reportedly being pushed to overseas investors by a boiler room. Unfortunately, victims of real stock swindles have yet to organize. Victims of imaginary naked-shorting conspiracies, on the other hand, are not only organized but have clout, and the waste of resources reported today proves it.

Feb. 17. The rejoicing was premature. The Depository Trust and Clearing Corp. says today that the Connecticut subpoena was served several months ago, "related to an investigation the Conn. Banking Dept. is conducting of third parties." (Whatever that means.) Still, assuming "naked shorting" is the reason for this probing, the bottom line is that two state regulators are wasting their time with the Wall Street version of the flat-earth movement.

The taxpayers of these states have ample reason to be annoyed, and to ask why their investor watchdogs are chasing after baloney when there are real investor scams to stamp out.

Feb. 19: Investors in one naked shorting "victim," a cruddy mining company, aren't lapping up the "stock counterfeiting" con game. I think this entry is significant enough it deserves an item of its own, so I moved it here.

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THE METROPOLITICAL PATRICK BYRNE: I see that the CEO of Overstock Inc., Patrick Byrne, got heat last week from some bloggers for describing a suit he is pursuing against short-sellers as "my jihad." This is fairly mild, as verbal clumsiness goes, but it got me to thinking about his politics. What other "jihads" does Byrne endorse?

After all, my only personal experience with jihads is this one, which happened down the street from me a few years ago. It was unpleasant, but I'm willing to keep an open mind on the subject. Maybe there are some good "jihads" out there that Byrne can suggest (in addition to, of course, his screwy feuds with Bolshie newspapers like the New York Post and his advocacy of the constantly discredited, goofy naked shorting crusade.)

To find out Byrne's position in the great political divide, I turned to a database called Newsmeat that compiles campaign contributions. Seems that Byrne has given us some clues as to his political leanings. And it is quite a picture! He is clearly a man for our times.

If you lean a bit to port you'll be glad to know that Byrne is firmly in the Democratic camp. Just this past November, Byrne gave $5,000 to the Campaign for America's Future.

This group is very much in the "progressive" camp. "We are challenging the big money corporate agenda by encouraging Americans to speak up — to discuss and debate a new vision of an economy and a future that works for all of us," says its website. CAF is critical of the Bush administration, with articles and action campaigns such as "Bush Running on Empty Promises."

The picture gets a whole lot less "progressive" if you go back in time even a little bit. Byrne gave $2,000 to conservative Utah Republican senator (and short-selling foe) Robert Bennett. True, Bennett is from his home state. But what about the $2,500 contribution Byrne made to the anti-John Kerry "Swift Boat Vets and POWs for Truth" on Aug 20, 2004? Or the $25,0000 he gave to the Democratic Senatorial Campaign Committee in 2003 and the $10,000 he gave to the Republican National Committee in 1996? Was there a lot of party-switching among senators during those seven years?

When Byrne's generosity with the anti-Kerry forces was first noted by Carol Remond in a Dow Jones News Service story, she said that this indicated a move to the right. Not really, Carol. Seems that what we have here is a new kind of political guy, a metropolitical whose real politics are... well, I don't know, but who is comfortable in both the "progressive" and the "hard-right-anti-Kerry" camp.

I admire Byrne's ability to change political affiliation so often, and so dramatically. Maybe he'll come to his senses on the naked shorting issue as well. Come on, Patrick. Flip-flop on this one too! It will do your reputation a lot of good, believe you me.

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Thursday, February 09, 2006

MISSING WORD: The Securities and Exchange Commission has weighed in with an amicus brief that further demolishes the insane arguments raised by the naked shorting conspiracy nuts. You can download a copy here.

The brief was filed in one of the several ridiculous suits that have been brought against the Depository Trust and Clearing Corp., which processes trades and is considered the Darth Vader of naked shorting by the flat-earth theorists. This suit was lodged by an innocent little company whose sole problem is not bad sales or bad earnings but naked short-sellers!

The poor dears generously shared the SEC brief with the anti-shorting website called "Sanity Check" (as in "check your sanity before entering.") The brief "raises a host of troubling questions," says the bravely pseudonymous "Bob O'Brien," who runs the site and hides behind a phony name in the best boiler-room tradition.

Yes, troubling questions. One of them is, "Does anyone actually believe these con men?"

Anyway, the Baloney Brigade is upset about the brief, with one "Sanity Check" "blogger" saying the SEC violated some "ethical" rule by daring to side with the DTCC.

Oh, the missing word in the brief: baloney. Why do legal briefs have to beat around the bush? Can't they just simply say, "This is baloney"? Is that against a legal rule or something?

P.S. Yes, as a commenter pointed out, writing about the naked shorting conspiracy nuts is indeed like writing about astrology or palmisty. However, astrologers and palm-readers don't influence regulatory policy, as the naked-shorting lobby has done.

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Wednesday, February 08, 2006

THE GRASSO CIRCUS IS COMING TO TOWN: I see from the Wall Street Journal today that the Grasso Circus Train is approaching the station: "Having sparred for 20 months, New York state's attorney general, Eliot Spitzer, and former New York Stock Exchange chief Dick Grasso say they are ready to take their legal fight over Mr. Grasso's Big Board compensation to court."

I expect that the Grasso Circus will be one of the hottest-selling tickets in town. The only problem is that, like most circuses, the Grasso Circus is just that -- a show. An expensive, politically motivated entertainment.

If he wins, who benefits? The Journal reports today that "Mr. Spitzer has alleged that Mr. Grasso's $188 million compensation package was excessive under New York's not-for-profit law and that Mr. Grasso should return much of the money to the NYSE."

So Spitzer is essentially functioning as a kind of government-paid attorney for the millionaire retirees and securities firms that are the owners of the NYSE. I hope he loses. Grasso was paid fairly, and I can prove it! In fact, I did prove it. However, you'll have to read about it in April.....

UPDATE: Bloomberg says the trial may be moved until after next year -- after the gubernatorial elections. Good news for Grasso -- and for Spitzer, who was not pursuing a slam dunk case after all. I'll bet the case is dropped.

So, if the case is delayed, Spitzer gets the publicity without the chance of losing a high-profile case before the elections. Grasso probably gets off the hook entirely, as he deserves. The man earned the money, as I say.

A win-win situation! Unfortunately, the judge hearing the case is a killjoy who believes in an outmoded concept called "speedy justice." Come on, judge! Get with the program.

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Monday, February 06, 2006

THE BALONEY CHRONICLES (Continued): The latest news from the fraudulent-market-reform-movement front is a posting on a Baloney Brigade website. Extra! Extra! Trading data from the Securities and Exchange Commission shows massive "fraud"! Massive "naked short-selling"! Not.

"I would say that when 78% of the trading on any given day is fraud, where investor money is taken, and then no product is delivered, that is a big problem - one might say a catastrophic problem," panted the site.

This "scoop" was published over the weekend on the "Sanity Check" website -- a suitably Orwellian misnaming here, by the way, given that this site is dedicated to the propagation of insanely misleading drivel. The author of this item was the leading spokesperson for the naked-shorting crusade, a person who goes by the pseudonym of "Bob O'Brien." "O'Brien," outed by the NY Post as an ex-used medical equipment peddler named Phil Saunders, wants to remain courageously anonymous so that he can publish dreck like this without ruining his real-life reputation. Also, anonymity helps promote a standard of discourse more common to the nuttier Usenet newsgroups than a supposed "market-reform" Internet organ.

As before, the baloney merchants are trying to peddle their trumped-up non-scandal by citing figures for "fails to deliver," which they falsely represent as synonymous with "naked shorting" or, as they put it, "stock counterfeiting."

A "fail" could happen because of a whole bunch of things aside from naked shorting (the much ballyhooed, largely mythological practice of short-selling stocks without borrowing 'em first). That's been pointed out a bunch of times -- here, for instance, and here. It's Trading 101, but it's tough to penetrate the skulls of conspiracy theorists, not to mention the stock promoters who know perfectly well this is baloney. They push this line to send regulators, and everybody else, on a wild goose chase and to divert attention from the real reasons stocks decline (stuff they don't like to talk about, such as maybe investors aren't buying the shares).

A "fail" doesn't even mean that the investor doesn't get the stock. The brokerage still has an obligation to deliver the shares to the investor, and the broker responsible for the "fail" still has an obligation to deliver the stock.

As usual, the Baloney Brigade's arguments collapse on even the most cursory examination. The shares of the stock in question (Overstock Inc.) actually rose a bit on the day in question (Aug. 1, 2005). This was pointed out by one brave person, and "O'Brien" responded that if the stock hadn't been so horribly shorted it might have really taken off.

If you go to the so-called "Sanity" site, by the way, be sure to check out "Bob"'s latest courageous, hiding-behind-phony-name attack on an AP reporter who dared to write a mildly skeptical article on Overstock CEO Patrick Byrne and his naked-shorting claims. It is, according to "O'Brien," it's all a conspiracy (one that, as he has indicated a whole bunch of times, is fueled by a massive corruption scandal). Says "O'Brien," "these are all so eerily similar, it's almost as though someone pulled the trigger on getting a bunch of crony writers to generate pieces that would declare that there is no problem."

I guess so. The "trigger" in this case being common sense.

The charlatans of the Baloney Brigade want you to think that the media is doing you a disservice by not swallowing their baloney. They're half right. Yes, the media is doing you a disservice, but for a whole lot of other reasons that I describe in my book.

A WELL-DESERVED RECOGNITION: The weird antics of Patrick Byrne, anti-shorting crusader and Overstock Inc. chief executive officer, made the 101 Dumbest Moments in Business list posted at Business 2.0.

UPDATE (2/7): "O'Brien's" "smoking gun" met with such widespread derision that he went back, took another look and said that oh, shucks, maybe the figures don't show masssive "naked short-selling" after all.

But even after eating crow like this, "O'Brien" was all bluster and baloney, as he thundered behind his phony name: "The SEC and the DTCC are allowing fraud on a massive scale - the only question now is how massive."

The Baloney Brigade marches on.

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