Monday, February 26, 2007

The Real Investor Pain Caused by Baloney

I sometimes refer to the anti-naked-shorting zealots as the Baloney Brigade, which is flip language prompted by the bizarre, sometimes unintentionally funny paranoid ravings of Baloney propagandists such as Phil Saunders (a/k/a "Bob O'Brien"), Patrick Byrne and so on.

But there's nothing funny about the pain these nightcrawlers cause to their shareholders (in the case of Byrne) or the people naive enough to buy in to their rhetoric (in the case of Saunders, Byrne and the rest).

Probably the best example of that can be found in the Investor Village message board for the naked shorting poster child NovaStar Financial, whose share price recently collapsed. NovaStar was a supposed naked-shorting victim and was mercilessly pumped by Saunders and by Mary Helburn, executive director of the National Coalition Against Naked Shorting.

Here's a sampling of the genuinely pathetic posts from some of the people who bought in to the NovaStar crock peddled by Saunders, Helburn and others. I just took these at random by word-searching "wife" and "401K." And I do mean sampling. There are dozens of others:

"The Worst Thing IS that

"I have to tell my wife that I blew our IRA because I listened to [Phil Saunders a/k/a] the Easter Bunny."

***

"I had borrowed a portion from a 401K plan & plugged it into NFI. It will hurt for a couple of years but will not be mortal....But it did take me a few days to break the news to my wife....She took it better than I expected."

***

"After being in NFI for over four years, it was a painful task to liquidate all my 21K shares on the opening today. I followed this stock closely, moved very slowly gradually building a substantial income stream for retirement. With that income stream now gone, I must find other means. Life will go on, but my less than extravigant lifestyle will be more modest. I realize that I was far to overweight in NFI all along, but the dividends kept comin, and I spent them.
Investing in NFI was entirely my doing. However, the NSS [naked short selling] and manipulation became very alarming as did management's lack of concern and the worst possible PR/IR. Oh well, shoulda, woulda, coulda. Can't look back anymore."

***
.... and then there's this NovaStar investor who was really pushed up against the wall:

"Was forced to sell out today--Schwab raised margin requirement to 50% and wouldn't budge.
Sold last of it; 4K @ 9 and 6K @ 8.50.
Paid off the margin loan.
Paid the only credit card balance I was running.
Have $22K left to pay taxes next year (probably will owe $28K--Argh).
I've paid the 2006 taxes already, and I'll send the IRS what I have left on 4/15 and be done with it.
No debt; SSI coming in, VA for medical plus Med part-B for extras.
Now it's a task of reducing cash out-flow to where it's not more than in-flow.
Going to be an exciting time--I've never had to live on a budget before.
First to go have to be the cows, our most heart-rending task--but they are expensive pets."

****

I don't feel massive amounts of sympathy for these investors. They were adults. But the charlatans who pumped this stock and harassed skeptics, and the message board operators who allowed them to do so, need to be held accountable for their actions.

© 2007 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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