Thursday, August 31, 2006

More Baloney Debunking

The Depository Trust and Clearing Corp. issued a statement today debunking the latest anti-shorting misinformation campaign. This one involves a crummy little penny stock called Global Links, which has been the subject of hysteria on various "stock counterfeiting" websites, and had gotten some media play.

The SEC, showing its usual yelllow streak on this issue, has cowered under its desk while the anti-shorting nuts spread drivel concerning this company. Their thesis is that this stock is the subject of an immense "naked shorting conspiracy." In fact, as the DTCC points out today, the total amount of "fails to deliver" involved $38,000 in stock, which "hardly constitutes the threat to the capital markets" that has been alleged.

The DTCC said:
The available information at this point seems to confirm what Global Links itself stated, this was "a simple error" - likely the result of information about the reverse split not having reached the marketplace- and did not involve naked short selling.

The statement noted that the complex array of stock-restructuring activity carried out by Global Links, which resulted in stocks failing to deliver, "is quite rare and unusual for mainstream securities. However, among sub-penny stocks, these activities may occur more often to try and artificially raise the stock’s price."

The naked shorting nuts will, of course, view this clear rebuttal as yet another link of a long chain of conspiracy, stretching from the boardrooms of the Fed to the Grassy Knoll.

The DTCC statement demonstrates how all this nonsense over "fails to deliver" has submerged real issues for investors. In this case it is a penny stock trying to push up its share price by a reverse split. Reverse splits are the investor issue here, not "fails to deliver" or wild naked shorting conspiracies, no matter how much smoke the naked shorting nuts keep blowing.

It's nice the DTCC has set the record straight. Time for the SEC to show some guts on this issue too.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Wednesday, August 30, 2006

The World's Oldest Investment

From Marketwatch: "The worlds of pornography and hedge funds combined this month when activist-investment firm Steel Partners proposed a management buyout of New Frontier Media Inc., an adult-entertainment company."

I shall exercise self-restraint and make no further comment.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Great Beach Reading

I guess this is "plug week" for me, as I have another suggestion for cultural enlightenment.

This one is a terrific beach read, as I can personally attest. The title is Masters of the Art: A Fighting Marine's Memoir of Vietnam, and it is a powerful and compelling combat memoir. You can pick up a copy on Amazon by clicking here.

Full disclosure: the author, Ron Winter, is an old colleague of mine from my first newspaper job, but I haven't seen him in over twenty years. Glad he's made good use of the intervening period.

Of course, I trust that all have already read another book I have occasionally mentioned......

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Tuesday, August 29, 2006

A Movie That's Well Worth Seeing

Just to wander off topic for a moment.....

There's a really outstanding movie I just saw that is, I think, well worth seeing. It is playing in New York on a very limited engagement.

The title is "Suicide Killers" and it is directed by the French documentary filmmaker Pierre Rehov. It provides a fascinating inside view of the psychology of suicide bombers.

Here's a press release describing the movie, and here's Rehov's website.

"Suicide Killers" is playing in New York till Aug. 31 at the big AMC multiplex at 42nd Street and Eighth Avenue.

See it.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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, August 28, 2006

Byrne's Dilemma: Dealing With Treason

After a blissful summer hiatus, Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne resumed posting his thoughts on an Internet message board last night.

Byrne immediately found himself tackling a grave dilemma: How does one deal with traitors to the Cause?

Seems that one message-board poster, though otherwise sympathetic to the Cause, had dared to question "stock counterfeiting" conspiracymeister "Bob O'Brien's" (nom de smear of used medical equipment salesman Phil Saunders). Saunders was yammering that a crummy little company called Global Links is the victim of "massive fraud" -- and not the shortcomings of its management. This skeptic suggested that the evidence of fraud was a little thin. She also noted the absence of actual victims. That was clearly the last straw.

"Basher!" the baloney-chompers cried on "O'Brien's" wacky board and elsewhere. ("Basher" is the "stock counterfeiting" cultists' term for "skeptic." One either drinks from the kool-aid basin or is the enemy -- there is no middle ground in the cult.)

Byrne counseled patience with the hated freethinker -- up to a point. Responding to complaints that the dissenter, "Selene," was actually a "basher" in disguise, Byrne said soothingly, "I have no reason not to believe Selene. Nothing in her story sounds implausible."

Byrne went on to note that his patience had limits: "if Selene is in fact a basher, but one who is trying a new approach of sounding reasonable, then I say it is a nice change, and we should not bang on her/him. (Until she starts jabbering nonsense, as she has on the Bunny's ["Bob O'Brien's" wacko "counterfeit stock"-conspiracy] board.)"

"Jabbering nonsense" means, in plain English, "questioning loony conspiracy theories promulgated by anonymous crackpots."

Got to watch that nonsense-jabbering! I am sure that Byrne will stay on patrol for that, as his money-losing company limps along. Stay tuned. I sure will -- so you don't have to.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Saturday, August 26, 2006

Nominations Are Being Accepted For Understatement of the Year

My nominee is this passage from a Floyd Norris column yesterday in The New York Times, discussing the latest legal strategems of Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne:

"Mr. Byrne is not especially comfortable with the idea that honest people can disagree."

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Wednesday, August 23, 2006

It's Official: Mark Cuban Finally Loses It

It's official. The constant barrage of brickbats over his ill-conceived Sharesleuth money-making scheme has gotten to be too much for the poor dear. Mark Cuban has finally "lost it." Now he's responding to my criticism of Sharesleuth not by saying anything of substance, but by spreading a lie -- that I edited his article in Wikipedia.

UPDATE: A few weeks after appearance of this item, Wikipedia CEO Jimbo Wales personally repudiated Cuban's lie. Ironically, the anonymous tip Cuban received had come from Judd Bagley, an executive of Overstock.com -- a company Cuban despises and has shorted. Since the subject is now moot, I've removed the rest of this item and placed it in the comments section.

Bagley later confessed to running Overstock.com's antisocialmedia.net smear site. See this subsequent post.


© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Tuesday, August 22, 2006

How the SEC Abets Stock Fraud

If you want a good example of how the Securities and Exchange Commission's misplaced priorities are screwing investors, I have the evidence blow.

It's in one of the several dozen comment letters that have come in to the agency on a proposed amendment to "Regulation SHO." That's the SEC's campaign to throw a bone to anti-shorting nutjobs.

In my book I describe how Reg. SHO is a thoroughly stupid bit of rulemaking. In neither this amendment nor previously does the SEC cite so much as one single shred of evidence that there is a "naked short selling" problem. Instead there are just a mass of meaningless, super-technical statistics, which are systematicaly distorted by the Baloney Brigade -- the better to advance its objective of diverting attention from real stock fraud.

A good example of how that diversion scheme works can be found in one of the comment letters, from a person who gave his name as Ron Melchior:


Dear SEC, I am an unsophisticated investor but am very concerned at naked short sales. I have tried to educate myself on how naked selling works and the ramifications to shareholders of companies being shorted. As far as I am concerned the system is being abused badly. . . My wife and I own several small companies we bought over several years ago and have recently been heavily naked shorted and we have lost over half our value. Naked shorting has hurt us badly and it needs to stop. The playing field needs to be level and fair for all investors big and small. I urge the SEC to do that job. Thank you.


Imagine that. This poor guy owned "several small companies" that have "lost over half" their value and who does he blame? Them. The "naked short sellers." Not the company, not its management -- and above all not his own poor judgment. Them.

Time for SEC chairman Christopher Cox to show some leadership on this issue. Time for the SEC to stop contributing to a mass-disinformation campaign, aimed at providing a ready-made scapegoat for the stock scamsters of America.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Brickbats Keep Falling on His Head....

...if I may continue borrowing from the old Burt Bacharach song...... but that doesn't mean Mark Cuban's eyes will soon be turning red. Crying's not for that guy. Neither is even the slightest sense of shame -- or a shred of intellectual honesty -- judging from his response to a well-reasoned critique of his Sharesleuth moneymaking scheme by blogger and journalism prof Jeff Jarvis.

Jarvis makes a series of good points, among them the following:


If Cuban had just started a new journalistic endeavor to show the way and shame the business press into reporting and investigating — not to mention to create jobs for reporters — he might have been welcomed with open arms. I’ll bet that there are plenty of ripped-off shareholders out there who’d have gladly contributed to make this a success. And advertisers would want to talk to an audience of smart investors. But by turning this into a personal and shady profit center, by trying to play the bad boy in this arena as he does in the basketball arena, he harmed his endeavor, his reputation, and even the nascent movement in independent journalism. Just so he could make a few bucks. Now that’s what I call dumb money.

Jarvis makes a bunch of comments like that, which penetrated Cuban's cement-covered ego and he responded. But he did so not by dealing with the merits of Jarvis's comments, but by personally attacking Jarvis and recounting how the latter has criticized the poor darling in the past.

I tell you, Cuban is acting more and more like the shameless corporate journalist-baiter Patrick Byrne every day.

Jarvis points out that Cuban is keynote speaker at the Online News Association annual meeting-- which is something akin to Jeffrey Dahmer being guest speaker at the Culinary Institute of America. What will be the topic of his speech? "How to Corrupt Financial Journalism for Fun and Profit"?

P.S. For those unfamiliar with it -- that Burt Bacharach song I alluded to at the top ("Raindrops Keep Fallin' on My Head") was from the 1969 movie Butch Cassidy and the Sundance Kid.

I sometimes think that Cuban views himself as a Butch Cassidy character -- a merry bandit with humor and integrity -- except that he omits the "humor and integrity" part.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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, August 21, 2006

'Shortchanging Financial Journalism'

That's the title of a really good analysis of Mark Cuban's "Sharesleuth" profiteering scheme by Ben Silverman, posted on the Yahoo financial website today.

I thought this was particularly insightful:

The person who should probably be most excited about the criticism being directed at Mark Cuban is Patrick Byrne, the chief executive officer of Overstock.com.

Cuban, by promoting Sharesleuth.com as a journalistic endeavor, has given Byrne more ammunition for his misguided war against the financial media. I imagine Byrne, if asked, could point to Sharesleuth.com as an example of how "miscreants" can wreak havoc on the public markets, and in doing so, throw the words "responsible journalism" out.

This is the perception versus reality problem. If Carey wants to continue to hold himself out as a journalist, it has a negative impact on other financial journalists, and opens doors for bullies like Byrne to try to squelch the media's ability to do its job. Carey and Cuban are essentially telling the public that Sharesleuth.com is operating under the same standards at The New York Times and Wall Street Journal, but no one I know at those newspapers is tipping off their publishers about potentially profitable stock trades.

The article can be found here.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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A Forbes Q&A Worth Reading

..... and not just because the answers were provided by me!

It's on Forbes.com this morning, and can be accessed by clicking here.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

Labels:

Friday, August 18, 2006

Naked Came the Hullabaloo

The latest naked shorting hullabaloo has to be the most bizarre I've seen -- a spate of postings on various Baloney Brigade websites touting a massive "stock counterfeiting" conspiracy involving an obscure OTC stock called Global Links.

The thesis is that "ten times" the number of shares outstanding in this dreadful little company were "counterfeited." The "evidence" is the usual hocus-pocus -- failed-delivery data that proves absolutely nothing and never does. In this case the data are distorted by more reverse splits than you could see at the gymastic competition in the 1960 Olympiad.

The Securities and Exchange Commission is being smeared right and left for a "cover up." My attitude is "serves 'em right."

Time and again the SEC has kowtowed to these loonies, and has failed to expose this fraudulent "market reform" movement for the fraud that it is. It's what is known in politics as an "astroturf" movement -- a phony "grass roots" campaign that actually carries water for excuse-seeking CEOs and pump-and-dump scam artists.

So the SEC is being slammed. Good. That is what I call "reaping what you sow."

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Silence of the Byrne


As a public service to our nation in time of war, I pledged to monitor the Internet ravings of
Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne -- so you don't have to.

I thereby threw my person, so to speak, between the public and this guy's verbal blatherings. It is the least I can do.

Well, as of 9:30 a.m. Eastern Daylight Savings Time, Byrne had been absent from his own blog since Aug. 4, and he only made one brief appearance on his fave stock message board since Aug. 8!

I wonder what is going on? Could he actually be .... oh, maybe trying to find out how to make Overstock profitable?

Naah.... can't be it. Not his style.

Oh, wait a second.... I know. He's on vacation from his jihad!

I'm sure he'll be hard at work very soon, pursuing the miscreant, bimbo and lapdog situation for his attentive audience of several dozen Internet followers. Nimrods, beware! Byrne will be back.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Tuesday, August 15, 2006

Are Journalists Oversensitive?

Are journalists oversensitive? Naah. Just hyper-over-totally-ridiculously-sensitive -- and I can prove it.

Take a look at this blog by Bruce B. Brugmann, founder, editor and publisher of the San Francisco Bay Guardian for the past four decades.

Seems the Guardian was not mentioned in passing in a controversial, puffy Business Week cover on Digg.com's Kevin Rose, which has gotten a lot of flack for overhyping Rose and using numbers that didn't add up. Seems BW did not say that the Guardian's offices were "grungy."

I repeat: the BW story did not say that the Guardian's offices were "grungy"!

No. What BW said was that its competitor's offices were grungy but it was really referring to the Guardian!

Think of it. The effrontery. The loss of status. Such a slight must be avenged, and Mr. Brugmann has been going ballistic over it in his blog.

I'll let Mr. Brugmann take it from here, in a letter that he sent to BW and posted on his blog:

First, you wrote that Digg.Com was situated “above the grungy offices of the SF Weekly in Potrero Hill.” This is incorrect: Digg.com is situated above the offices of the San Francisco Bay Guardian in the Guardian building, which we own. SF Weekly, our major competitor, has offices on the other side of Mission Bay. Second: our offices are not “grungy.”
You rightly corrected the first mistake in your online edition (not in your print edition). But you have refused, again and again, to honor my simple request for a retraction and explanation in your print and online editions of how your reporters and editors got their facts so wrong. Your reporters and editors did not visit the Guardian offices nor can they specify just what is so ”grungy” about the Guardian, our offices, and our building. In short, your correction has only made an “atrocious” mistake even more “atrocious,” the word used by.....


I'll interrupt this rant to point out that buried in the above is a halfway sort-of legitimate complaint, apart from confusing one paper for another.

If the authors of the article just assumed that the SF Weekly offices were "grungy," and had no basis for saying so, that is a big no-no.

But if the authors of the story had information that the offices were "grungy" -- even without having visited it -- then I don't see the problem.

However -- aha! We have a "gotcha" moment here. His letter continued:

.....your writer in her conversation with me. Why? What great journalistic principle is at stake in refusing to correct or remove the word “grungy” from your story?

So I posted on my Bruce blog at SFBG.com some candid snapshots of our building and our offices. [emphasis added] I invite your staff and your readers to go to my blog and judge for yourself. And I invite you to leave your splendorous offices in mid-town Manhattan and come to San Francisco. I will give you a personal tour of our “grungy offices” and serve you a Potrero Hill martini in my office.

(signed) Bruce B. Brugmann, founder, editor, printing the news and raising hell and spreading sunshine inside and outside San Francisco since l966.
The photographs posted by Mr. Brugmann do indeed indicate that the Guardian's offices are not grungy.

Of course, maybe there are grungy parts of the offices that were not photographed by Mr. Brugmann. Or perhaps they were grungy at the time the article was written.

This is a serious issue, far more important than Lebanon, the economy or even Mark Cuban. I intend to give it round-the-clock coverage. BW has a full-time, high-masthead "ethics editor" and this is a chance for him to earn his salary.

Meanwhile I am glad that Mr. Brugmann, after so many years on the job, is still spreading sunshine and proving that journalists are the most oversensitive people in the whole wide world world. Unless he is joking, and (gulp) I don't think he is.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Sunday, August 13, 2006

Ironic Quote of the Day

Today's Ironic Quote (of the "pot calling kettle black" variety) comes from Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne.

Byrne, the steward of a company that has never turned a profit and whose shares are at a 52-week low.... Byrne, the field marshal of a screwball campaign against an imaginary "stock counterfeiting" conspiracy -- yes, that Patrick Byrne was quoted in the Salt Lake Tribune as saying the following about the Securities Industry Association:

"Saying they care about investors is like Big Tobacco saying they care about smokers."

Yup, that's our investor advocate talking. Too bad he can't seem to advocate his way into, oh... maybe a single profitable quarter for Overstock.com.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Saturday, August 12, 2006

The Brickbats Continue

There's a terrific editorial in the Fort Worth Star-Telegram today, excoriating Mark Cuban's trading/reporting vehicle Sharesleuth.com. It drives home a point I've made a bunch of times, which is that -- hype to the contrary -- what he has created is not "journalism" but a run-of-the-mill stock tip sheet.

"Why is Mark Cuban so ... well, so Mark Cuban? Why is he so focused on Mark Cuban all the time? The latest example of this is really disappointing because it sullies what otherwise is a noble effort on his part," says the Star-Telegram.

Personally I'm not sure about the "noble" part, given his singleminded focus on making a buck and his contempt for business journalism, which he set forth in a condescending blog item. ("Business journalists should be thankful" for his slimy enterprise, says Cuban.)

Apparently Cuban is more than just another self-centered billionaire with an ethical tin ear. Securities Litigation Watch, written by an ex-SEC lawyer named Bruce Carton, yesterday suggested that Cuban may be twisting the insider trading rules more than it can bear. (Hat tip: Dealbreaker.com)

Cuban, he said, "has found the previously unexploited Achilles' Heel of the insider trading laws and fired an arrow deep into it." That is, "for first time, a legal form of what most people would consider 'insider trading' exists and can be replicated by anyone with (a) the resources to hire a skilled investigative journalist, (b) the ability to generate a readership on the Internet."

The piece goes on like that and notes that the aforementioned Achilles' Heel "is that the law does not flatly prohibit insider trading based on material, nonpublic information. Rather. . . it prohibits some such trading, but excuses other trading if there is no legal 'duty' under the circumstances not to trade."

Carton concludes that, if indeed Cuban can make money by this scheme, "the first company that makes its money from legal insider trading will have been created—with a business model that can be duplicated by anyone with similar resources and abilities. If this occurs, Congress and the SEC may need to give serious thought to whether it is time to refine the insider trading laws."

Carton has hit on yet another of the many disturbing aspects of Cuban's scheme, which is as troubling from a legal perspective as it is by making a mockery of real financial journalism.

I'm sure there will be more brickbats like these from journalists and the legal profession.

It's a shame that an ethical rich guy-- one with the public spirit Cuban lacks -- hasn't stepped into the breach and set up a genuine financial investigative reporting outlet to examine crummy stocks. But as a public service, not as a source of pocket money.

Of course, there is yet another alternative, which is that mainstream media outlets crank up their coverage of stock fraud.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Thursday, August 10, 2006

Winans on Cuban: 'At Least You Know He's Screwing You'

One of the dumbest things that Mark Cuban has said about his trading/reporting site Sharesleuth.com -- and he has said many, many dumb things on that subject -- is that he has a new "business model" at work here, one that us bozos in the "mainstream media," being unimaginative, have failed to grasp.

In fact, what Cuban is doing -- front-running his reporters' work -- is hardly a new idea. Every financial journalist and editor knows that you can make money by trading on nonpublic information. So Cuban is merely being more unscrupulous, not more innovative.

One ex-financial journalist who is familiar with the Cuban "business model" is a gent by the name of R. Foster Winans. That is, of course, the former Wall Street Journal reporter who was caught up in a famous insider trading scandal in the early 1980s. He traded in advance of the Journal's Heard on the Street column, got caught, and served a prison term. It was an illegal version of what I must emphasize is Cuban's perfectly legal scheme.

Winans has a website and an email address, so I dropped him a line to ask for his take on the Cuban situation. His response was interesting so (with his permission) I am duplicating it below:



My take on Cuban, off the cuff without doing much research, is that in a world of institutional thievery, hidden fees, undisclosed conflicts of interest, "legal" insider trading, engineered and misleading mutual fund returns, false and rigged analyst rankings, and all the other self-dealing behavior that is business-as-usual in the investment racket, Mark Cuban is by comparison a goddamned Mother Teresa. At least you know he's screwing you.
You know, I think that is a pretty ringing endorsement, and from a man who knows whereof he speaks.

That last line is a good one. A corporate slogan, perhaps?

Winans, by the way, has also answered the insincere rhetorical question that began Cuban's recent blog item: "Sharesleuth.com. Such a big controversy. The question is why?"

I think Cuban knows perfectly well "why," but for the record I will answer: Because he's doing something that is sleazy and unethical, and because it is the kind of thing that (when done without "transparency") has gotten journalists fired, their careers ruined, and put in prison.

Don't take my word for it. Ask R. Foster Winans.

UPDATE: Cuban tonight gave a new dimension to the word "clueless" in a blog item entitled "Business Journalists should be thankful."

This man should not be allowed within 500 feet of a newsroom, except to buy a newspaper. Here is what he says:

"You dont know it yet, but Chris Carey and Sharesleuth broke new ground that will result in a 'business journalists employment act'.

"Hedge Funds, Private investors, Mutual Funds employ analysts by the boatload. They get paid quite nicely. Those analysts spend their waking and probably a good portion of their dreaming moments trying to figure out ways to get an edge that can improve their returns.

"They hire or put on contract, experts, consultants, investigators, anyone who can help them outperform their peers.

"If Sharesleuth is successful, you can bet that any of the above with billions of dollars at stake will gladly hire the best and brightest business journalists they can find. Bigger the rolodex, the better. Old is the new young. Crusty is the new Yuppy. They will unleash those journalists to uncover stories that can give them an edge."

Yoo hoo! Mr. Cuban! Mutual funds et al have been hiring ex-journalists for years. And I mean openly hiring 'em -- I'm not referring to the naked shorting kooks' conspiracy theory that journos are "on the payroll" of hedge funds. One former colleague of mine at Business Week just got a job as chief flack for the mutual fund trade association. Other journos has been moving to the Street in various capacities since Zenger.

Also note the condescending premise, that there's nothing financial journalists would love more than going to work for the Street. Nothing wrong with that, of course, but it is hardly a universal career goal. I'd much rather see journalists encouraged to stay in journalism, to work in the public interest and not for the goal of making guys like Mark Cuban even richer.

But anyway, thanks again, Mark Cuban! You're really working hard to bring down the repute of business journalism, and to feed the naked shorting knuckleheads' conspiracy fantasies.

Cuban also proves by this item that, when it comes to the news business at least, he is either dangerously ignorant or without any ethical grounding whatsoever -- or both. I vote for "both."

UPDATE: In a thoughtful analysis, Loren Steffy of the Houston Chronicle compares Cuban to Michael Bloomberg, and not favorably:



Bloomberg learned early on that owning a news operation means setting aside personal agendas. To be credible, his news service might have to write tough stories about some of his biggest customers. Those customers might get angry and cancel their contracts for the financial data terminals that are his company's lifeblood. Bloomberg. . . asked only that his reporters be painstaking in their accuracy. Cuban has a different agenda. . .

Based on its first project, Sharesleuth is simply a tout sheet for short sellers. It exists primarily to make a billionaire basketball maven even richer. . . Cuban simply owns a Web site to flog his own investments. When announcing the venture, he used the headline 'why journalism matters.' If Sharesleuth is his answer, it's clear that what matters to Cuban has nothing to do with journalism."


He went on to opine that Sharesleuth "reads like a software manual" and lacks the basic journalistic requirement of "readability and credibility."

Steffy also quoted a law professor as saying that Cuban is trying to "manipulate the market." I'm not so sure about that, but this is precisely the kind of allegation that is going to dog Sharesleuth as long as Cuban uses it as a front-running vehicle.

There are many, many other problems with this scheme, legal and otherwise. One is this: What if Cuban shorts a target of his reporters, and then the reporters turn up information that is positive? Do they go with it? Downplay it at their boss's expense?

What if his reporters come up with a great scam story on a company that is ripping off investors right and left. But like a lot of such companies, it unfortunately can't be shorted. Does Sharesleuth ignore that company in favor of a less egregious stock that boss man can short?

Well, here's Cuban's answer to such concerns. As he put it in his blog item last night, "our obligation is not to the reader, it is to the trading activities of our owners." Or to put it more succinctly, "screw you." Hey, I think we have here another possible corporate slogan.

A further update: The brickbats continued over the weekend, and no doubt have only just begun. Distorting the purpose of financial journalism is just one of the problems posed by Sharesleuth.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Mark Cuban Responds!

Mark Cuban responded today to my criticism (here and here and etc.) of his trading-vehicle-reporting-website Sharesleuth. I think he was mad at me for reading him the riot act on CNBC yesterday (though, interestingly, he hid under his desk and declined to appear on air).

I read through his rambling, disjointed Patrick-Byrne-style rant a few times and still can't comprehend his point. He seems to be saying that "transparency" is the virtue of his website. I.e., he is upfront about using his site to front-run his reporters -- thereby profiteering in the same manner as sleazy penny stock newsletter publishers.

But after saying that he is transparent in his sleaziness, he takes a few shots at me and seems to say that I'm not transparent and that, in fact, nobody is transparent.

He also mischaracterizes the problem that I (and a lot of others) have with his scheme. He says I suggest that "what I am doing with Sharesleuth is not responsible journalism because I am trying to make a profit by trading on the information that we uncover.”

No, I am suggesting that was he is doing is not responsible journalism because he trades on his reporters' scoops before publication. As Andrew Sorkin pointed out in the New York Times Dealbook, that would be a hanging offense at any media outlet: "Having a direct financial stake in the articles published — especially investigative articles that tend to be negative — is about as basic an ethical violation as there can be, whether that stake is disclosed or not. "

He also.... now this is painful... accuses me of "pimping" my book. Good heavens! What an accusation. An author using a blog to promote a book! The scandal. He found me out. What a sharp guy. Definitely right up there with Cuban front-running his reporters.

Dealbook called Cuban's smoke-blowing re my blog "a labored attempt to equate his methods with the simple acts of advertising and promotion." I call it just plain goofy.

Think about it. If that trade in Xethanol works out for him, we'll be able to put a precise price tag on how much the reputation of financial journalism is worth, at least to one irresponsible billionaire: 10,000 shares times 12.65, or $126,500.

Lance Gay (a former longtime political reporter for Scripps-Howard), responded on Cuban's blog as follows:

"I'm not sure that I would have a problem with what you are doing if you made your investments upon publication where everyone would have a fair shot at the information you have gathered. But you acknowledge you bought short in May. Now through Sharesleuth, you appear to be trying to ensure you gain financially from the advance knowledge you obtained with an disparaging article.

"Journalism cannot work that way. We do not all have vested interests in what we write or choose to publish. I'm a rank innocent on the ethics of investing, and I don't have the necessary legal background to say whether or not what you are doing passes SEC security. But as a reporter I find what you have done is plain damn wrong."

Sorry, Lance. You're not talking in a language Cuban can understand.

XETHANOL REPONDS: In a response to the Sharesleuth article this afternoon, Xethanol, not surprisingly, used Cuban's trading against him:

"Xethanol questions the real purpose of this article, particularly in light of Mr. Cuban's professed intention to 'short the shares of this company.' Although we are not alleging that there has been any improper stock trading in this case, articles such as this provide fertile ground for such activities to occur."

I hate to say it, but I told you so.

Nope. Come to think of it, I don't hate to say that.

UPDATE: More from Mark Cuban and R. Foster Winans -- yup, that R. Foster Winans -- weighs in. Over at the Houston Chronicle, Loren Steffy is troubled by Sharesleuth even more than I am. He calls it a "tout sheet" to flog Cuban's short positions, and he quotes a law prof calling the enterprise "market manipulation."

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Wednesday, August 09, 2006

It's 52 Week Low. Do You Know Where Your CEO Is?

Overstock.com stock hit a 52-week low yesterday afternoon, and CEO/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne was not resting easy. He was hard at work last night -- posting on a stock message board.

Why? It's not because he's distracted or anything like that. It's not because he is more concerned with kooky conspiracy theories than running his company. No, it is because he is a man of the people. The Williams Jennings Bryan of corporate America!


"You know what I love about posting here, even though the miscreants always criticize me for coming to message boards? It is this: I meet with big-shot investors all the time. They often want to know detailed inside data, and it is always a struggle for me to balance wanting to give honest and full answers with my Reg FD obligations. Here, folks who don't run their own hedge funds get a chance to play on he same playing field that those guys do."

That's true. Isn't it ridiculous how "big shot investors" like to talk about dumb stuff like sales and cash flow? On stock message boards Byrne can feel right at home with people focused, as he is, on the miscreant, lapdog and bimbo situation.

Anyway, this rant was too much for one Overstock loyalist, who responded: "With all due respect, I sincerely hope you are not spending too much time here, worrying about who posts what. We all enjoy your posts, but wouldnt it be far more expedient to use the time to address your thoughts to those who might actually benefit the company? I may not speak for all, but the last I checked our stock is becoming a joke, and it is costing alot of people a lot of money on paper."

The heretic was promptly shouted down.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Tuesday, August 08, 2006

Mark Cuban's Excellent Trade

I've been wary of Mark Cuban's "investigative reporting"/short-selling effort Sharesleuth.com, because of his plan to trade in advance on the stuff gathered by his staff. Well, turns out I owe Cuban an apology. It wasn't a bonehead idea at all -- from the trading perspective, that is. I'd say it was brilliant.

Brilliant as a trade. Troubling as hell from a journalism perspective. In my book I skewer the media from pulling back from tough coverage. But Cuban's approach is precisely the wrong way to go about filling that gap.

The first article in Sharesleuth came out yesterday. It describes the shortcomings of a company called Xethanol. It's a good article, a Barron's-style piece mainly based on the public record. It's not especially nasty, but was serious enough to draw a shot across the bow from Xethanol managment.

But here's the interesting part, which is not Cuban's self-righteous disclosure of his short position at the end but this paragraph, in italics, tucked in the middle of the piece:


(Disclosure: Mark Cuban, the majority member of Sharesleuth.com LLC, sold short 10,000 shares of Xethanol’s stock at a time when the price was around $12.65. Cuban also has sold short about 25,000 shares of UTEK Corp.(UTK: AMEX), a Florida company that is a large Xethanol shareholder.)

Now that's a great trade when you look at the historical prices. In the month before the story came out, Xethanol (now priced at about $7) was trading at no higher than $9.90. In fact, you have to go all the way back to May 12th before you find the share price reaching the neighborhood of $12.65!

Sharesleuth was established on July 1, and it was first announced by Cuban in a post on his blog on May 31. This means that the target of the first story was already in the cross-hairs at the getgo, as was Cuban's position.

If that trade was placed on or before May 12, which seems pretty darn likely, it was wonderfully prescient. Share prices have been on the decline ever since then, and were hurt still further by the Sharesleuth article.

Cuban's "Afterword" at the bottom of the article indicates that he's expecting the stock to fall to zero ("My goal is to never have to cover.") Whether he's right or wrong, we do know this: for Mark Cuban this has been an excellent trade. And legal. Trading-while-shorting may be the last thing tough financial journalism needs, at a time it is under attack by Patrick Byrne and other conspiracy-mongers, but it is totally in compliance with the securities laws, if disclosed.

Makes you wonder how much of the rest of Cuban's short porfolio is under examination by Sharesleuth at this very moment.

This may be a pretty shoddy way of practicing "investigative journalism" -- a real blot on the profession, as a matter of fact -- but it certainly is going to make a billionaire richer. And as Cuban once put it, it is the "right" thing to do. Profitable too. The shares nosedised after the Sharesleuth piece.

POSTSCRIPT: Mark Cuban says: "I had zero position in the company till [Sharesleuth editor] chris [Carey] told me about it." See comments.

So let's see.... Cuban heard from Carey about this rotten stock Carey might want to write about. A responsible publisher or would-be publisher would say, "Gee what a great story idea -- go to it." Mark Cuban, being an innovative guy, says "Gee what a great story idea -- let's make my profiteering on your ideas part of the business model!"

Hey, what's the point of running a straight-up news operation when you can sacrifice basic journalism standards for a few bucks?

UPDATE 8/10: Last night I was interviewed by CNBC for an On the Money segment on the foregoing. One point I didn't make but should emphasize -- particularly since I've been cited by some message boards -- is that the Sharesleuth article itself was a good piece of work. I wouldn't touch Xethanol with a fifty-foot pole.

Also... Mark Cuban yells at me and I yell back at him!

And....R. Foster Winans -- yup, that R. Foster Winans -- weighs in.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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, August 07, 2006

Excerpt Available

For the tiny numbers of readers of this blog who haven't read Wall Street Versus America, an excerpt appears in the latest issue of the Across the Board, which is published by the Conference Board and is a very fancy mag. Don't bother clicking on the link, though. The website is an issue out of date.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

Labels:

Sunday, August 06, 2006

The (Recent) Wit and Wisdom of Patrick Byrne

Responding to overwhelming public demand (and so you don't have to), I have read through the recent, post-deletion writings of Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne, and excerpted some of the more cogent ones below:

On vengeance. "I'm not even winded, but my opponents have just gotten a small taste of what is in store for them. I plan on doing these guys slow. "


On humans eating dog food. "I agree that the metaphor I have used ('Somewhere in America there are Grandmas eating dogfood so some jerk on Wall Street can drive a Porsche') is a disgusting one to use. But there is method in my madness. I have seen my words lied about and distorted so frequently that I have realized the only way to defeat the bimbo journalists is to make my points in extremely earthy and punchy ways. "

On the Conspiracy. "As things play out in the next several months, my main interest is not in seeing justice served to the hedge fund blackguards (though that is nearly a foregone conclusion at this point), but in exposing the institutions which failed the public so miserably. Those are the SRO's and the regulators, of course, but also, much of the most respected business press. They are going to recognize that they went all in, too, when they cooperated in a cover-up."


On being mistaken for a 'tinfoil hat.' "If you are a nice, regular person, they will dismiss you as part of the lunatic fringe, someone who covers her hat in tin-foil to keep the police from reading her thoughts, etc. No one will pay any attention to your complaints. If you run a company, they will attack you, print articles lying about things you say, say that if you just ran a better business people would stop stealing from it, etc. "


On self-immolation. "The business press has done everything it could for the last year to paint me as a madman. In my defense, I claim, I went through all the normal channels to begin with, and got nowhere. So as I said in that Bloomberg article, I decided to pour kerosene on myself and set myself afire in the business press to make this an issue no one could ignore."

Note the recurrent theme here: Byrne, the CEO of a retailer that has consistently failed to deliver for its shareholders, sets himself up as a guardian of "shareholder interests." You have the love the sheer audacity of a spin campaign like this.

Rest assured that there is no need to actually visit Byrne's blog or stay up late to follow his fave message board (where he was still posting at 8:28 tonight) to keep up to speed on his latest thoughts.

I will personally monitor the dog food, miscreant, bimbo, conspiracy, self-immolation and unfair-press situation, and will post further excerpts as developments warrant.

Well, at least I will until a) he stops ranting on the Internet or b) I lose interest, whichever comes first. I trust "b" is the more likely scenario. I note that the media, which used to hang on every word emitting from his flapping jaws, has already begun to do what Byrne hates the most -- which is to ignore him.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Saturday, August 05, 2006

Byrne Resumes Saving America


Not a diversion from this.

Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne, having nuked his previous tirades on all things baloney, has resumed posting "grandma eating dogfood" rants on Overstock.com message boards.

You can read 'em here and here. Note the carefully thought-out topic title "Something Hinky This Way Comes," thereby proving that Byrne is refocusing his energies from tiresome subjects like Overstock's non-profitability, and is back to his No. 1 passion of pushing a crackpot cause.

Byrne says he is absolutely positively not trying to divert attention from the Niagara Falls of red ink (above) pouring from his company. You bet. The man is on a patriotic quest to save the world from a nonexistent menace!

POSTCRIPT: All you miscreants out there, take note: Excerpts from Byrne's recent Internet essays (and some have been real doozies) are posted here.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Friday, August 04, 2006

More Valley and Less Silicon, Please


Today's chirpy Business Week cover story on the "brat pack" of youthful techie entrepreneurs just cries out for some leavening amid all the puffery -- more valley and less silicon, I guess you could say.

Not that I mean to be critical of my alma mater, which clearly has hit on a winning formula, but here's the odd thing: the skepticism lacking in the story is actually right there at BW -- just not in or near the article.

In a BW Online blog, Rob Hof offers a dissenting voice: "As I've told Sarah [co-author of the story], I'm still a little uncertain how different things really are now in the Valley. For every brash entrepreneur who can afford to blow off VCs, there are 100 more who would give their left, uh, knee to get a few mil for their startups."

It would have been nice if these countervailing sentiments were reflected in the article, or as an accompanying "sidebar," and not stuck away in an online story comparatively few people will read.

POSTCRIPT: As was embarassingly splattered over the Romenesko website, blogger Scott Rosenberg eviscerated the story, questioning the $60 million cover number and calling the article "the same old dotcom-bubble piece dragged from the attic and retrofitted for today's Web." Techdirt also made some good points, and reader reaction was unfavorable.

Methinks that BW really needs to rethink its approach for both editorial and commercial reasons. The editorial reasons are obvious, the commercial reasons less so. While it may or may not be true that IBM pulled its ads from BW because of a negative story, I seriously doubt that a diet of puff pieces is going to send advertisers flocking to the magazine.

Article co-author Jessi Hempel dropped by in the comments section below.

(revised 8/6)

UPDATE: The fellow on the cover later denied he was worth $60 million, and also said -- contradicting the article -- that his company wasn't even breaking even.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Another Hedge Fund Casualty


Today comes word that a superbly managed hedge fund, run by a highly qualified person and with the homey and reassuring name of MotherRock L.P., has shut down after sustaining huge losses in the natural gas market. Now, this kind of thing happens so often that it is barely worth mentioning, but I thought I'd mention it anyway.

Why do such superb funds go belly up so very often? The reason is simple, dear friends. It is because hedge funds are designed with failure in mind.

In theory -- as indicated by the "hedge" in hedge funds -- these funds are supposed to hedge against losing a ton of money and going out of business. Some funds actually are hedged, but they are in the minority. So funds take large directional bets, the bets go sour, and they go out of business.

Why do they go out of business instead of staying on, and battling back? That's because most hedge funds are structured so that their managed can't pull down their massive incentive fees (commonly 20% of annual profits) until they make up previous losses. I don't know if MotherRock was structured this way, but that's a good possibility. These "high water mark" provisions are designed to protect investors, but in fact they do the opposite by giving managers an incentive to shut down their funds.

Anyway, I'm only guessing if that was the reason MotherRock shut down, and in any event is that it is not important. The important thing is that MotherRock investors got a really sweet, sincere apology from the boss man, former New York Mercantile Exchange President J. Robert "Bo" Collins. According to the Wall Street Journal, Collins said: "Let me say upfront that I regret MotherRock's terrible performance and its impact on your investments."

Wasn't that awfully decent of him! I mean, what more can investors in hedge funds expect anyway? It's like that line from A Thousand Clowns: "That's the most you should expect from life--a nice apology for all the things you won't get."

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Thursday, August 03, 2006

A Shot Across Sharesleuth's Bow

Sharesleuth, the Mark Cuban investigative-reporting-trading-vehicle, reports that the target of its first major story has fired what is known in the biz as a "shot across the bow." As often happens in situations such as this, the unnamed target fired off a nasty, threatening letter.

Targets of investigative stories are known to do that kind of thing, and all but the most timid editors will not be scared off by such tactics. What's not routine, however -- I can't recall ever getting a threat like this -- was the threat that Sharesleuth "could even face 'criminal liability' if any of the contents [of the story] are false or misleading."

I wonder if that may be a reference to the feature of Sharesleuth that has made a lot of people, myself included, uneasy -- that Cuban is going to trade on the info dug up by Sharesleuth pre-publication.

Cuban is under the delusion that full disclosure, by making it all legal, ties a neat bow around the whole thing. Fat chance. There are many problems with such a thoroughly skeevy and unethical arrangement, one of which is that it gives the targets of your stories a club they can use to beat you over head.

That may well be happening in this instance. Or maybe not. We shall see.

Sharesleuth also disclosed that it was "going to pay an independent fact checker to review our stories and ensure that the details are correct and the conclusions are neither false nor misleading." That's not a bad idea. Ditto for getting a lawyer to look over the story, preferably one who is up on his securities laws so that he can deal with this pre-publication trading stuff.

As you can see, pre-pub trading is a real Jim-dandy idea! A whole barrel of laughs, as I suspect Sharesleuth will soon be discovering if Cuban is foolish enough to actually do it.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Wednesday, August 02, 2006

Here's a 'Seeing Eye Dog' for the SEC

It was Chris Byron, I think, who once referred to the financial press as the "seeing eye dog" for the Securities and Exchange Commission and other clueless regulators. That's a wonderful, and true, image. The SEC pursues cases against stock fraud, but it also wastes large amounts of times on rulemaking exercises (such as pandering to naked-shorting crackpots) that are pointless and wrongheaded.

In the spirit of helping along these chronically inept bureaucrats, I offer up a website that a reader just referred to me, listing companies whose stocks are pushed via email spams. That's a glaring red flag for stock manipulation. Spams are running far ahead of last year's rate, according to one count.

Go to it, guys. This kind of thing can keep you busy while you look for that all-important post-SEC job in private industry.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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Tuesday, August 01, 2006

Byrne Nukes His Own Immortal Words

Some months ago I described Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne as the man who "could not shut the f--- up." Well, apparently he has decided to do so, at least on his own website.

Patrick Byrne has deleted a section on Overstock's website which he had formerly used in his patriotic pursuit of short-sellers and other hobgoblins. He had modestly called it "Deep Thoughts by Patrick Byrne."

So it seems that Deep Thoughts has been deep-sixed, and with it all of Byrne's posts expounding on the naked shorting menace, the "miscreant" situation, and other fave topics. If you search under his moniker "Hannibal," all you get are innocuous posts on the less patriotic subject called "Overstock.com." Imagine that. He actually talks about the company he is running!

He had previously talked about renaming "Deep Thoughts," but I don't see anything about deleting all of his fantastic, intelligent comments. I wonder why he did that? Gee. Who put that bee in his bonnet, I wonder?

Anyway, here is a link to its former incarnation, as preserved by Google Cache.

Update (8/3): As Dealbreaker points out today, Byrne has a blog of sorts at the Overstock site. But a search of its archives reveals none of the table-pounding on miscreants, the naked shorting menace, and other obsessions that has made Byrne the most fun-fun-fun! CEO since Charlie Chaplin ran his own studio.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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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