Another Naked Shorting Poster Child Succumbs

Another anti-naked-shorting poster child flamed out today.

It's called NovaStar Financial, and it's a doggy subprime lender that is a favorite stock of an ex-used-medical-equipment peddler named Phil Saunders. The stock is down 29% in aftermarket trading, after word of a disastrous fourth quarter. (It opened the following day down 41% in massive trading.) NovaStar said it expects to "recognize little if any taxable income" through the year 2011.

Gee, that's not what Phil Saunders had been saying! He was saying that this was a great company and that its shares had been hurt not by bad financials, but "stock counterfeiting."

Now, you may ask, "Why would anyone in his right mind care what some crackpot named Saunders thinks about a stock?" Well, believe it or not, lots of dimwitted small investors actually listened to this goofball -- because they think he is the "Easter Bunny."

Yup. According to the New York Post, Saunders is "Bob O'Brien," a/k/a "the Easter Bunny," the anonymous creep who is the leading propagandist of the anti-naked-shorting movement. Saunders runs the "sanitycheck.com" anti-naked shorting website, and also calls himself "manager" of the National Coaltion Against Naked Shortselling astroturf group.

Another Saunders favorite and naked shorting fantasy "victim," Overstock.com, has collapsed since Saunders starting talking up the company and serving as de facto investor relations man for its wack-a-doo CEO, Patrick Byrne.The site is linked on the Overstock.com website under the Orwellian "market reform" label.


Saunders pumped NovaStar mercilessly on message boards (spewing incoherent drivel like this), and operates a stock-pumping website called nfi-info.net, filled with the usual "stock counterfeiting" baloney alongside brainless touting of NovaStar and childish attacks on NovaStar critics (above). Some typical nfi-net misinformation can be found here. Saunders registers nfi-net through a shell company in an offshore domain server under his phony name. A lot of effort to thwart scrutiny, wouldn't you say?

Like its NFI-pumping sister site, Sanitycheck is a collection of incoherent rants and smears of NovaStar/Overstock critics, interspersed with the expertise of "experts" such as a dentist who babbles about "fails to deliver" when not filling cavities, and Mary Helburn, "executive director" of NCANS. She's the one who says that naked shorting, not crooked management, was the real problem at Enron. She's also a militant NovaStar- and Overstock-cheeerleader. (A typical pumper post from two weeks ago.)

Saunders was Overstock's primary smear-disseminator (one of many examples posted here) until that function was taken in-house by Judd Bagley, who runs Overstock's antisocialmedia.net corporate smear site. But Saunders has sat with Byrne in at least one meeting with the media, and his links to Byrne, Overstock and NovaStar need to be probed by regulators.

His smear-and-stalk tactics also deserve scrutiny. As Herb Greenberg recounts, in 2005 Saunders "went so far as to post the address and names of the wife and son of one prominent short-seller of NovaStar in a message board post, with the tag line, 'This is coming up on game over-time. Figure it out. Your playbook is known.' In another post he wrote, 'Anyone know Herb's wife's name, and his middle initial?'" He used similar tactics against Byrne's critics and members of the media, myself included.

Don't make the mistake of dismissing Saunders as just another Internet crackpot. The Motley Fool's Seth Jayson recently observed:

Senators have always been easily duped by people of his ilk regarding short selling. It's happened over and over again throughout our market's history. There are even examples of so-called short "victims" who've testified in front of this august body, who've then been implicated in the very frauds they were trying to cover up by whining about short sellers to their congressmen.

Still, nothing changes, when dangerous blowhards like Bobo get backing from certain multi-millionaires, and gather enough ears, our elected officials drop the steak knives and wine glasses, venture out of the Capital Grill for a few minutes, and blow smoke about how lousy the SEC is.

It's hard to feel sorry for people who lose money after listening to idiots like Saunders, Helburn and their ilk. Any non-institutionalized adult who would stuff his retirement account with this crap -- as per one sob story on a message board -- causing his retirement savings to decline 50%, is deserving of contempt, not sympathy.

The anti-naked shorting whack jobs, reacting to the decimation of their stock picks, are now telling the faithful that they should pull out of the "corrupt" U.S. markets. Again, anyone who follows the advice of these con men and psychos deserves every penny of losses that result.

I guess the good news is that hits on sanitycheck's whack-site have dribbled off to nothing in recent weeks, according to Alexa. The other good news is that Saunders has a ton of money invested in this ca-ca.

Perhaps he can redeploy his life savings into baloney futures?

UPDATE: Several days later, the New York Post had a great piece by Roddy Boyd describing how countless small investors were suckered into this stock via Saunders and other touts on the Investor Village message board.

© 2007 Gary Weiss. All rights reserved.

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