Monday, April 30, 2007

A Naked Shorting Victim -- Or Massive Fraud?

In Wall Street Versus America and in this blog (see this post) I described the sad tale of CMKM Diamonds, a penny stock nightmare that -- as is the fashion nowadays among bad companies -- was blaming its woes on "naked short selling."

A vocal minority of the company's 60,000 shareholders were so deluded that they demonstrated in New York and Washington and wrote nutty letters to the SEC and media, all lamenting this nonexistent problem.

It seems that CMKM was more of a nightmare than I had dreamed. In fact, it may even be one of the biggest corporate scandals of recent history.

As alleged in a startling lawsuit filed last week by CMKM's new management team, this small diamond company's shareholders may be victims of systematic fraud, with tens of millions of dollars allegedly looted by its former management. Among other things, the suit claims as follows:

During the last several years, CMKM has sold over $200 million in corporate stock to the public, but as of this writing, only $558 remains in the corporate bank accounts. Rather than use the funds raised through equity sales for the benefit of the corporation, [former CEO] Urban Casavant and his cohorts have funneled the money into their own personal bank accounts and trusts for their personal use, all at the expense of the corporation.
Corporate assets were allegedly used to buy real estate, including a $3.5 million Las Vegas home for Cassavant, and to settle the latter's gambling debts. Millions more are missing, the suit says.

A copy of this jaw-dropping suit can be found here.

If these allegations are borne out, CMKM Diamonds is right up there with the massive frauds of the Enron era. $200 million stolen? And mind you, the word "looted" is CMKM's, not mine.

It is also an example of the real damage that can be caused by stock market conspiracy theorists. Management and its allies had done an excellent job of diverting shareholder attention -- or at least the attention of a sizable number of shareholders -- from the real culprits.

As I have pointed out previously, the same "blame the shorts" technique is being employed by Overstock.com, to shift blame from its shortcomings and to intimidate critics.

The question now is not whether investors will learn from CMKM -- memories are short, so that's not happening -- but whether the SEC will do so.

Will the SEC stop caving in to political pressure, particularly from the Utah congressional delegation, and recognize that naked shorting is a smokescreen for bad companies? Will it stop wasting resources on this issue?

© 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, gary-weiss.com.

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Wednesday, April 25, 2007

Is Overstock.com's Quarterly Delusion 'Materially Misleading'?


Another Overstock conference call grapples with reality

The quarterly conference calls of the Overstock.com red ink machine always have a surreal quality to them, even when Patrick Byrne isn't ranting about the Sith Lord or the Israeli Mafia. But today's Byrne gab-fest -- which coated the company's latest atrocious financials with a coast of shellac -- was even weirder than most.

Byrne had the gall to issue a press release saying "Our business is dramatically improving," and to make similar comments during the call. "Bold words from a man who runs an online retailer that burned $58 million in cash on rev enues of $158 million," observed the Motley Fool.

This latest performance makes me wonder whether Byrne is pushing against the dividing line between spin and what the feds might call being "materially misleading."

I don't know. Maybe it is perfectly OK for CEOs to duck between the raindrops and unload a crock on the public every quarter. If it is legal, it shouldn't be. Remember that what Byrne says is actually believed by some people, amazing at that may seem.

It didn't help that the analysts asking questions were timid even by sell-side analyst standards. When Byrne let slip that he was calling in from Washington, DC, no one had the brains (or guts) to ask, "You sell toasters out of Salt Lake City. What are you doing in Washington?"

Byrne's spin was so grotesquely off the mark that he caught the attention of one of the nation's leading forensic accountants, Tracy Coenen. "It seems that the executives of online retailer of Overtsock.com may want invest in a good dictionary," she observed.

Tracy went on to say:
Their definition of “improving” certainly must be a lot different from mine. Why? The company is doing horribly:
  • Revenue for the quarter was down 11%
  • Operating losses for the quarter were $17.7 million
  • Operating losses were $3.5 million more than last year
  • Net losses for the quarter were $21.4 million
  • Net losses were $5.5 million more than last year

Who in their right mind believes that such numbers represent an improvement in the business???


Tracy is widely respected by regulators. Hopefully her words will be taken to heart by the SEC, which is conducting an investigation "on" Overstock.com, according to Overstock's SEC filings. (The rest of the word would call that an investigation of Overstock.com, but remember what Tracy said about the "dictionary.")

Another Overstock-watcher with a large federal following, reformed felon Sam Antar, has raised some sharp questions about Overstock's recent filings. I have no doubt his views are, as usual, being studied carefully by the SEC.

When the SEC reads Tracy's and Sam's comments, they should keep this question in mind: When does spin stop being spin, and start becoming "materially misleading"?

© 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, gary-weiss.com.

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Tuesday, April 24, 2007

You Read it Here First


The Wall Street Journal today picked up on the SEC economists study that I noted the other day, as has AOL's often quite savvy Blogging Stocks blog.

The study deals specifically with naked shorting in the IPO market, but its conclusions go far beyond that.

The study eviscerates the fraudulent theories advanced by stock market conspiracy theorists such as Phil Saunders, a former used medical equipment salesman and self-styled "market expert" who posts crackpot rants under the pseudonym "Bob O'Brien," and is notorious for his touting of the disastrous subprime lender Novastar. Saunders had claimed time and again that Novastar was a victim of these same mythical "stock counterfeiters" and "naked shorts," and anyone who believed him was soaked.

This same moron is still shamelessly pummeling away at the imaginary naked shorting demon. His "sanitycheck" blog, heavily promoted by Overstock.com CEO Patrick Byrne, contains analysis by "experts" such as a dentist who writes market treatises when not filling cavities. Its comments section reads as if it were written by Cho Seung-Hui.

Saunders and the inept CEOs he represents contend that shares decline not because of management incompetence, but because of something called "fails to deliver" securities. Those are supposedly equivalent to evil, rapacious"naked short-selling."

If the "fails to deliver" leg of their mythology is sawed off, the whole snake oil routine collapses.

The odor you smell is fresh sawdust.

As noted in the Journal story, "delivery failures exceeded short sales for a large portion of the IPOs, which the economists said 'casts doubt on the notion that the level of fails to deliver are caused by naked short selling.'"

Blogging Stocks's Zac Bissonnette observed:

The naked short selling issue looks like a red herring to me, tossed around by CEOs whose stocks are underperforming because management has established a track record of OPUD -- Over-promise, under-deliver. In the case of OSTK, the only fail-to-deliver investors need to worry about is Patrick Byrne's failure to deliver profits.
Hear, hear.

© 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, gary-weiss.com.

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Monday, April 23, 2007

Patrick Byrne Trips Over His Big Mouth


Patrick Byrne, the repulsively fascinating CEO of the Overstock.com red-ink machine, was doing a mean pirouette last night on an Internet message board -- and wound up digging a deeper than usual hole for himself and his company.

Seems that way back in March 2006, Byrne said the following in a posting on the Motley Fool Overstock.com message board:
PPS Big story breaking next 24 hours. Stay tuned.
The post can be found here (subscription required).

Now, I am not a securities lawyer by any means, but in this era of Regulation Fair Disclosure and an SEC that is sometimes hypersensitive on disclosure issues, Byrne's blatant stock-pumping might be a little.... well.... problematic, wouldn't you say?

Particularly since there was indeed some activity within the "next 24 hours" -- an idiotically bullish article by investor Arnie Alsin.

The Alsin article caused the stock to explode. The shares, which traded at 22.85 on March 10, climbed 12% to 25.55 on March 13, and another 25% to 28.50 on March 14l, on massive (for Overstock) volume of more than 2 million shares each day. Nice! Until you consider that Alsin was dead wrong. The shares have since skittered down to 17 1/2 and have traded at a lot lower than that.

Confronted with this blast from the past over the weekend on the Investor Village Overstock message board, (perhaps inspired by this Motley Fool article by Seth Jayson) Byrne tap danced and curtsied -- and came forth with the following:


"Odd that you don't quote from that one"? You might find it even odder that Byrne did not "quote from that one."

Or at least it would be odd -- if that post actually exists. As best as I can tell, it does not.

Seth Jayson of the Motley Fool (Byrne's bloviation venue in the Spring of 2006), observed as follows:
Where, I wonder, is this face- (or neck-) saving "disclosure," as to what Patrick was talking about. I haven't seen a single clarification from Hannibal100 in any of the posts made under that user name on this board subsequent to the original "big news" post -- and I just read every single one of them
Further proof that the "clarification post" dwells only in Byrne's vivid imagination can be found in a June 2006 post on another Motley Fool board from a Byrne supporter. One user had pointed to the "big news" comment, and the Byrne defender responded, "Nonsense. I forwarded your post to Dr. Byrne. He replied that the big news he was referring had not happened yet. "

Now that I believe.

What makes this frantic damage control kind of silly is that Byrne could have saved himself the trouble.

I doubt that it matters to the SEC, which is investigating Overstock (or, as Overstock's 10-K put it, conducting an investigation "on" Overstock) whether this "clarification" really exists on some message board in Outer Mongolia. Call it a little more than a hunch.

Although Byrne, remarkably, referred to Internet message boards as the kind of public disclosure forums contemplated by Regulation FD, that's a questionable proposition at best -- if for no other reason that Byrne rarely identifies himself as CEO of Overstock, and keeps his "profile" private.

But there are other reasons, and plenty of them. The most obvious is that the IV Overstock message board is anything but a fair, open discussion forum. Investors asking sharp questions of Byrne and the company have been repeatedly harassed on the IV message board, attacked as "paid bashers" and worse, by Byrne and "social media director" Judd Bagley.

Byrne and his lapdogs appear to have the ear of IV management. One critic of Byrne, Sam Antar, was kicked off the board for antagonizing Byrne and his minions. It would not surprise me if Byrne's latest nemesis, "Tamoshanter," is bounced for irritating Byrne. That was evident in another Byrne rant last night, in which he spoke of the need to "strip" message boards of "cloggers" -- Byrnespeak for "getting rid of people who criticize Patrick Byrne or ask him tough questions." Veiled threats like that, aimed at silencing critics, are typical Byrne/Bagley fare on the IV message board.

I also have more than a little hunch that when the dust clears, and Overstock is a foul memory, all these Regulation FD concerns will be small potatoes.

Still, I think that watching a CEO and company melt down is fascinating. So I'll be keeping an eye on him. Next up: a conference call on Wednesday announcing the volume of red ink gushing from the Overstock P&L.

© 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, gary-weiss.com.

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Have Biz Journalists Sold Out to Corporate America?

One of my favorite publications, Corporate Crime Reporter, raises that issue in an article today. (Hat tip: Talking Biz News).

CCR is upset, and rightly so, by news that the Philadelphia Inquirer is letting a bank sponsor a front-page business news column.

I guess this must be part of the "new business model" of journalism that Mark Cuban was talking about when he created a website that supports itself by trading in advance of his reporter's work.

His idea was just dumb. This one is far more insidious. CCR observed:

It will be "100 percent based on our news judgment and prerogatives," [the Inquirer's editor] said.

We eagerly await critical reporting from the Inquirer on redlining in Philadelphia.

On the downside of mergers in the banking industry.

On enforcement actions brought against the company or its subsidiaries.

On how big corporations flex their civic muscle by buying naming rights to a new ballpark. It’s not the Philadelphia Phillies ballpark – it’s Citizens Bank Park.

On how bank credit card companies rip off consumers with outrageous fees.

On how bank ATM’s rip off consumers with out-of-network fees.

We won’t hold our breath.
Is CCR being unduly cynical? I don't think so.

© 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, gary-weiss.com.

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'The Audit' Needs to Confront its Past

Mark Mitchell

A reader brings to my attention a refreshing but incomplete article in CJR Daily's Audit section, by its new editor/writer Dean Starkman. The article, "Dang, That's Good," praises the Wall Street Journal for its Pulitzer Prize-winning series of articles on options backdating.

He is right -- it was a great series. But Dean makes no mention of the Audit's attacks on the options backdating coverage, including the Journal's, at the time they were published. A reader raised that point over the weekend, in a comment here and at the Audit.

The article and the comment can be found here.

Dean says as follows:

The series was smart, effective, original, and took institutional, as well as individual, courage. And while Pulitzers are only one measure of the health of a paper, work at this level must be recognized. Otherwise, why have The Audit?
He's right. At the time the Audit--under its eccentric pro-corporate editor Mark Mitchell-- was whacking the Journal for its options backdating coverage, "why have the Audit?" crossed my mind.

Reading the above, you'd never know that the Audit was actually a major voice against the options backdating coverage when it really mattered--when the Journal was sticking its neck out by publishing those stories. It is a low-risk proposition to praise a series that just got a Pulitzer, and gratuitous (and fairly meaningless) to pile on with 20-20 hindsight after the champagne has flowed.

The Audit's two articles on the backdating coverage (here and here) were notable in that they were not the slightest bit well-informed. I was sympathetic with the Audit's view the options coverage was overblown, yet the articles seemed naive and ill-informed in the extreme.

I chastised the Audit for its options coverage-coverage (see here and here), as did University of California economics professor Brad DeLong and blogger Daniel Gross.

The headline of the first Audit piece was "Where's the thief? The 'Options Scandal' Is a Dud." Note the scare quotes. The second piece lamented the "increasingly hysterical coverage of a supposed 'scandal.'"

Among other things, the Audit criticized the Journal for including a graphic showing companies being investigated by the SEC. It made the goofy comment that being probed by the SEC "no more makes you guilty of corporate malfeasance than having your block patrolled by a beat cop makes you guilty of kicking the tar out of your neighbor." No one said it did, but a federal probe is a significant red flag and is not analogous to "having your block patrolled by a beat cop."

The Audit never acknowledged that its coverage was the dud, and not the "supposed 'scandal.'"

There's nothing wrong with being off-base now and then. But this was not an isolated event. The Audit, under its former editor Mitchell, made a series of embarrassing goofs on a number of subjects. (See articles tagged "CJR Daily" in this blog.)

(After this item appeared, Mitchell later became a PR factotum for Overstock.com CEO Patrick Byrne, tasked with attacking journalists critical of Byrne. See this subsequent item.)

It's great that Dean is apparently turning over a new leaf. But I think he would do well to grapple with the site's past misjudgments, rather than acting as if they didn't exist. He could have started with a forthright mea culpa, or at least acknowledged the elephant in the room -- which is the the Audit's past poor coverage of this issue and others.

And as I've previously pointed out, Dean would show he is moving in the right direction by removing links to stock market conspiracy websites, which personally attack journalists and
were a fixation of former editor Mitchell.

© 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, gary-weiss.com.

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Saturday, April 21, 2007

The High Cost of Kool Aid


The poster children of the naked shorting con men are dropping like flies. The latest is a pissant little delisted stock called CMKM Diamonds.

This "company," which has no assets to speak of, is the subject of grotesque speculation that somehow massive "naked short selling" has destroyed an otherwise delightful little diamond company, and that shareholders are owed immense damages "someday." Not by the people who ran the company -- management is always blameless in naked shorting mythology -- but by the dark forces that have driven down its shares.

It is a textbook example of how naked shorting con men have deluded desperate microcap stock shareholders. A few CMKM shareholders bought in to these wacko conspiracy theories and conducted demonstrations on Times Square and in lower Manhattan. They've authored Internet rants and SEC comment letters that read as if they were written by Cho Seung-Hui, and generally made asses of themselves.

The SEC seems to feel that the problem at CMKM is with management, not real or imaginary short-sellers. It halted trading in the company two years ago, and has launched an investigation of the company. The latter was disclosed by a Wells Notice that has come as a surprise to the company's new management, since apparently the old CEO just plumb forgot to tell 'em. I kid you not.

A press release yesterday says that

As of March 29th 2007, the Company had 3 pending lawsuits, a Wells Notice from the SEC that was supposed to have been answered by March 9, 2007 (of which current management was totally unaware, until an official at the SEC contacted them on 4-10-07), and ongoing investigations by at least four government agencies. In addition there is documentation showing the forfeiture of all claims and mineral rights, no corporate records for the past 4 1/2 years of business and taxes that have never been filed. The only tangible asset is a 45 million share certificate of Entourage Mining stock.
Amazingly, some investors are still wasting time and energy expecting this dead dog to arise from its grave. To its credit, there is nothing in the latest missive from management that pushes the discredited "naked shorting" baloney.

But the naked shorting con men are continuing to promote the idea that CMKM is a victim of nefarious forces, and not its former management. Overstock.com CEO Patrick Byrne is the folk hero of these loons, and his loony presentation on the imaginary "stock counterfeiting" conspiracy is a mainstay of the naked shorting con men.

Byrne's latest rant on the subject, a childish press release designed to divert attention from the company's quarterly red-ink announcement, was discussed in this blog yesterday.

The Baloney Brigade marches on, but its fraudulent character is becoming increasingly obvious. SEC Chairman Christopher Cox should stop pandering to these idiots and direct his staff to move on to more pressing issues.

© 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, gary-weiss.com.

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Friday, April 20, 2007

SEC Economists Debunk 'Fails to Deliver' Baloney

A devastating study, released today, knocks out the underpinnings of anti-naked-short selling hysteria -- the myth that "failure to deliver" securities is evidence of evil traders seeking to run down the price of worthy stocks.

This myth has been advanced by executives of red-ink machines-- such as Overstock.com CEO Patrick Byrne in a press release today -- in an effort to divert attention from their own incompetence. Members of Congress, some state legislatures, a smattering of state regulators and some in the media have lapped up this baloney. The SEC itself has spent far too much time and energy on this subject.

The terms "failure to deliver" and "naked short selling" are used interchangeably by anti-naked-shorting crackpots, in their effort to divert regulatory attention from real issues. A "fail" simply means that the shares required to settle the transaction have not been transferred from one brokerage to another. That can happen for a host of reasons. Whether a transaction has "failed" or not has no effect whatsoever on buyers or sellers of shares.

This highly technical aspect of the securities business has been turned into a conspiracy theory, and promoted on the Internet by CEOs of small companies and shills ranging from illiterate psychos to the U.S. Chamber of Commerce. It was recently the subject of a stunningly moronic segment on Bloomberg TV.

The SEC economists' study -- not conducted officially for the commission, but distributed to the media today by the SEC -- "documents the use of short selling in IPO’s and provides evidence of the relation between short-selling and failures to deliver." It was posted today on the Social Science Research Network. The full text can be downloaded from the SSRN site.

"Despite finding that settlement failures ('failures to deliver') occur regularly in IPOs, our results do not support the conjecture that naked short selling is to blame. In fact, we show that failures to deliver are uncorrelated with short selling [emphasis added] and for many IPOs, the level of failures to deliver exceed the level of short selling," the economists say in their abstract of the study.

"Uncorrelated" means "they ain't got nothing to do with each other." Remember that whenever you read a polemic on "fails to deliver" by one of the advocates of this cause. It's really amazing how much regulatory attention has been devoted to this nonissue.

I'll quote here from an SEC summary of the study:

The study finds that short selling is prevalent in IPOs and on average, more than 7% of the shares offered are sold short on the first day that the IPO trades. The study also documents that failures to deliver are common in IPOs. Failures to deliver in IPOs amount to more than 4% of shares offered, on average, and 36% of IPOs qualify for the Regulation SHO threshold list on the first day possible. In a number of cases, failures to deliver significantly exceed the amount of short selling.

However, the study finds no evidence that the magnitude of failures to deliver is correlated with amount of short selling in IPOs. Moreover, the factors associated with the amount of short selling in IPOs are not the same as the factors associated with the level of failures to deliver. The results of the study suggest that short sellers are more active in IPOs with price increases on the first day of trading. In contrast, failures to deliver are more prevalent in offers that either have no price change or a decline in value on the first trading day.

Additional empirical tests on failures to deliver indicate that IPOs in which the underwriter is more likely to be engaging in price support tend to have higher failures to deliver. This result, coupled with the observation that many IPOs have greater failures to deliver than short sales, suggests that failures to deliver may not be a good measure of naked short selling.
The study makes clear that its findings are not just restricted to IPOs:

The results presented in this paper also inform a public debate surrounding the role of short selling and fails to deliver in price formation. We find no evidence that short selling is related to either fails to deliver or to the inclusion of an IPO on the threshold list. More specifically, we present clear evidence questioning the use of fails to deliver to measure naked short selling, even outside the context of an IPO.
A recent study by Canadian regulators had similarly debunked the "fails to deliver" hysteria.

None of this, of course, will put a stop to the Baloney Brigade, which is fueled by the money and PR machinery of Byrne and the penny stock crowd, and the volunteer efforts of retired medical equipment salesmen and off-duty dentists. But hopefully the SEC will stop pandering to anti-shorting crackpots long enough to behave rationally on this issue. For a change.

However, I do expect that the authors of the study will be a target of the usual threats, intimidation and smears that come from contradicting the anti-naked-shorting crackpots.

© 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, gary-weiss.com.

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Tuesday, April 17, 2007

Connosseurs of Fraud -- Take Note

Two excellent blogs have come to my attention recently. They are essential reading for anyone wanting to really understand how companies work and why they go belly up.

One is Lee Distad's Professional Opinion, by one of the sharpest business bloggers there is, and the other is the FraudFiles Blog, by ace forensic accountant Tracy Coenen.

It just so happens that they both have items on Sam Antar's analysis of the Overstock.com-Patrick Byrne meltdown.

Here is a link to the item in Lee's blog and here is Tracy's view of the subject.

Lee observes as follows:
I really have only paid tangential attention to this whole bizarre and sordid tale of corporate malfeasance. And frankly, I don't have the stamina to bring you all up to speed. However, Sam "The Human Pitbull" Antar has sunk his jaws into this story, and like any good crusader/pitbull cross, he won't let go.
Tracy's take on the mess:
Sam [outlines] what Patrick Byrne has said about his knowledge and involvement with [Overstock's antisocialmedia.net corporate smear site] after the fact, versus what was posted on various sites at the time questions first came up about ASM. It appears Byrne was less than truthful.
The last statement may seem understated, but coming from Tracy it speaks volumes. It means that the SEC's probers are probably thinking along much the same lines.

© 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, gary-weiss.com.

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Another Defeat for Baloney


A gawdawful little company called Universal Express has taken on a leading role in the "stock counterfeiting conspiracy" movement, which seeks to deflect investor attention to a nonexistent problem from -- well, from the defects of gawdawful little companies like Universal Express.

This company's CEO Richard Altomare has become the town crier of the anti-shoring Baloney Brigade, issuing hysterical press releases such as a recent one calling this nonexistent problem a "trillion dollar tax scam."

A federal judge is fed up with all this malarkey. As reported recently in the South Flordia Business Journal:

An order by New York Federal District Court Judge Gerard Lynch, filed on April 2, calls for a penalty of $21.9 million against the Boca Raton-based company, $3.1 million against CEO Richard Altomare and $794,711 against corporate counsel Chris Gunderson. Lynch had previously ruled that they violated securities trading laws by selling unregistered shares of Universal Express and issuing misleading press releases to inflate the value of those securities.
The judge's ruling, brought in a suit by the SEC, also "prohibits Altomare from acting as an officer or director of a public company and permanently bars Altomare and Gunderson from participating in an offering of penny stocks," said the newspaper.

A more fitting punishment, I think, would be a requirement that Altomare eat the kind of stale baloney he's been pushing for the past few years.

The same goes for the state regulators, legislators and journalists who buy in to the naked shorting con game.

© 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, gary-weiss.com.

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Monday, April 16, 2007

Tracking the Deceptions of Overstock.com CEO Patrick Byrne


Overstock.com CEO Patrick Byrne is often viewed as a comical figure -- throwing tantrums, acting like a clown on national television (left), and spinning loony conspiracy theories to excuse his incompetence. But as New York Times columnist Joseph Nocera has eloquently pointed out, it's a mistake to view Byrne as a mere buffoon. He is also a menace, and his company is under investigation by the SEC.

An excellent blog post today by reformed felon Sam Antar points out the extent to which Byrne has put himself in jeopardy, just by opening his big mouth.

I am increasingly convinced that Byrne will be the only CEO in history to get himself in hot water with the Securities and Exchange Commission by posting on message boards.

Sam tracks Byrne's deceptive and contradictory remarks in the Investor Village message board, where he posts under the pseudonym "Hannibal" and only rarely signs his posts. Sam compares Byrne's slippery posts with those of Overstock.com's resident stalker Judd Bagley, who runs Overstock's antisocialmedia.net corporate smear site. He concludes that Byrne and Bagley made deceptive public statements to conceal Byrne's role in creation of the antisocialmedia smear site.

That's problematic for a host of reasons, including the fact that antisocialmeda was run anonymously for some months, until Bagley was outed as its operator by the New York Post. That gives all involved -- including Overstock -- possible exposure under the federal anticyberstalking law, a risk factor nowhere disclosed in the company's SEC filings.

As if to again demonstrate Overstock's contempt for the most elementary corporate ethics, Bagley spun a wild conspiracy theory on the antisocialmedia smear site yesterday, encompassing the Depository Trust and Clearing Corp., myself and a person named Joseph Petrofsky.

As the O-Smear blog points out, such fairy tales seek to mislead investors by accusing Overstock's real and imagined critics of being in league with DTCC, which is at the center of "stock counterfeiting" conspiracy theories.

So how does a potential investor evaluate the true state of Overstock.com? Largely by the representations of management. Is it materially significant if Overstock is being criticized as the result of some covert DTCC operation (implying critics are dishonest) or the criticism is honest?

I think it is "materially significant...and the SEC knows that I think it's materially significant...and they know where to find me.
And me as well.

Ironic, isn't it, the kind of trouble Patrick Byrne is getting himself into, just to placate a small number of "tinfoil hat" conspiracy theorists -- many of whom don't even own the stock?

UPDATE: Not only is Byrne's bloviating exposing himself to legal liability, but it is being used as ammunition by his opponents in his recent absurd junk lawsuit against Wall Street firms.

In legal papers filed recently seeking dismissal of the suit, lawyers for one of the defendants, Merrill Lynch, observed that the suit is part of a "continuing campaign by Overstock and its CEO to blame the poor performance of its stock on anything other than its own inadequacies." The brief prominently sites Overstock's "public relations assault against critics."

Later in the day, Bagley placed a misleading disclaimer on the smear site -- obviously at the behest of Overstock's lawyers -- in a desperate, belated attempt to put some daylight between his corporate smear site and Overstock.

Imagine the derision that would rightly come from Byrne and his supporters, if an employee from Rocker Partners started an anonymous smear site aimed at Byrne. Yet Byrne, in his arrogance, expects people to swallow this pap.

A good analysis of the doubletalk, which contradicts (as usual) previous statements by Byrne, can be found here.

© 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, gary-weiss.com.

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Saturday, April 14, 2007

Canada Repudiates Baloney


Canadian market authorities issued a report on Friday, authored by Canada's Market Regulation Services, describing the extent of Canada's "fails to deliver" problem -- the subject of hysteria by the crackpot Baloney Brigade anti-short-selling movement and its corporate sponsors.

The conclusion: fails are a de minimus issue, and are only rarely a result of the "naked short-selling" bugaboo.

Here's an article on the study in a Canadian business newspaper. It has otherwise received no coverage of which I am aware, and was brought to my attention by a reader.

The study found no evidence of excessive or prolonged “fails” on Canadian marketplaces. Only 0.27% of trades by study participants failed to settle. The predominant cause of failed trades was administrative delay or error accounting for almost 51% of “fails”; less than 6% of fails resulting from the sale of a security involved short sales; fails involving short sales are projected to account for only 0.07% of total short sales; the more “junior” the marketplace in terms of the type of security traded, the higher the incidence of failed trades; special settlement trades experienced a significantly higher rate of failure; and, approximately 88% of failed trades settled within five days after the “expected” settlement date, with 98% settling within 15 days after the “expected” settlement date.
The shame is that Canadian officials were forced to divert time from pursuit of real stock fraud in chasing down this non-issue.

It's even more unfortunate that the U.S. Securities and Exchange Commission continues to waste valuable resources in pursuit of this mirage. The current SEC chairman and commissioners are even more craven on this issue than their predecessors.

This report has been met with stunned silence from the Baloney Brigade's wack-a-doo websites and the blame-shifting corporate hacks who fund this fraudulent campaign.

I am sure that they'll be cranking out the usual conspiracy theories, spin, lies, distortions, and personal attacks on the study's authors -- all to perpetuate this flagrant waste of regulatory resources.

© 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, gary-weiss.com.

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Thursday, April 12, 2007

Good Riddance, Punk

Financial writers have a special reason to rejoice at the firing of the racist, foul-mouthed idiot Don Imus.

Apart from his record of rampant racism, it mustn't be forgotten that he personally attacked Wall Street Journal reporter Robert Frank in 2005 for the sin of doing his job.

As CBS pointed out at the time:

When the Wall Street Journal ran a story that raised questions about the operation of the radio icon's New Mexico ranch for sick children, Imus took his beef to the 3.25 million weekly listeners of his show, "Imus in the Morning."

Imus devoted more than half of his 4 1/2 hour program on Thursday to a denunciation of the story, which he called a "hatchet job." The author fared no better. Imus described veteran Journal finance reporter Robert Frank as "a dishonest punk."
It's not about political correctness. It's about an arrogant SOB who should have been fired years ago.

So what more can I say except "Good riddance, punk."

© 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, gary-weiss.com.

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Interesting Connections in a Boiler Room Case

In my book I discussed at length the dismaying manipulation surrounding a stock called Eagletech Communications. Eagletech was a straightforward "chop stock" scheme, with brokers paid in cash to push the stock, in which organized crime figures played a decisive role.

I say "surrounding" because the "manipulatees" included the media. NBC News's Dateline program ran a disgraceful segment portraying this dogpile stock -- its registration was revoked for not filing required SEC reports -- as, you guessed it, a "victim of naked short selling." That despite the total absence of any mention of naked shorting in the voluminous legal proceedings surrounding the company.

So it's easy to dismiss out of hand a recent lawsuit filed by the company, being circulated by loony "stock counterfeiting" conspiracy sites, as just more grandstanding by Eagletech's CEO Rodney Young. Which is precisely what it is. The suit claims that a mammoth conspiracy of Wall Street firms destroyed his company, thereby shifting the blame from Young and the company.

Though this suit stinks to high heaven, there's some testimony cited in it that is intriguing, and which bring to mind the late 1990s case of A.R. Baron, a boiler room whose customer ripoffs were known to its clearing broker, Bear Stearns & Co.

In this case, what's at issue is Salomon Smith Barney, one of whose employees, an executive vice president named John Dorocki, was involved in a round of financing fir the company through a firm called Trinity Technology Management. TTM, the suit claims, was "composed of SSB managing directors." There's no evidence presented in the suit that SSB management knew about any of this -- in contrast to Bear Stearns-AR Baron -- but it is still raises eyebrows.

In a deposition quoted in the suit, a stock promoter who masterminded the scheme, John Serubo, testified as follows:

Q. In your conversations with Mr. Dorocki, was Mr. Dorocki made aware of the mob affiliation in connections to [the boiler room that pushed the stockk,] Bryn Mawr?
A. Yes
Q. Was Mr. Dorocki aware of mob connections or mob affiliations in the Wall Street and money business?
A. Yes.
In the next few questions, Serubo claims Dorocki dropped some mob names in a conversation they had. Then comes this exchange:
Q. Did Mr. Dorocki state that he did business with them through SSB [Salomon Smith Barney]?
A. He didn't say that.
Q. At least as much as you know of?
A. As much as I know of, yeah. I mean it's common practice that we were, you know, a pump and dump shop,
Q. And surely Dorocki knew that?
A. Yes, he did.
Q. Well, thell me if you knew how he knew that.
A. Well, Harry Leopold told me that he gold Dorocki about our felony - my felony conviction. I always make it aware. Also, Harry Leopold told me that Robert Dobbs had told Dorocki he wanted to do the deal with Salomon Smith Barney to get away from the Bryn Mawr firm because Bryn Mawr was a tainted firm.
And Dorocki and I had conversation about, you know, my New York guys pumping the stock. You know, he thought it was absolutely wonderful how, you know, we could get a stock to trade for almost a 12-month period, you know, at a market cap of 180 million dollars when the company had a million dollars net worth.
Q. So Dorocki as an executive vice president of Salomon Brothers had no problem whatsoever dealing with mob people in his business?
A. No. He had no problem dealing with - I can only tellyou from my perspective he had no problem dealing with our firm or our deal.
The suit also makes some interesting allegations against Schroder & Co., which was the clearing firm for the Bryn Mawr.

A lot of junk lawsuits have been filed by small companies seeking to shift blame for their own failings and negligence. This suit is clearly one such suit. But despite the suit's absurd overreaching and conspiracy-mongering, its allegations of involvement by people from large firms should not be tossed casually aside.

They deserve further investigation and media attention -- but not the kind that Young and the conspiracy theorists are craving.

Reading through the suit (available from a wackadoo website here) makes me wonder about Rodney Young. He seems to have escaped this whole mess without so much as a rap on the knuckles, and it does not seem right. That anomaly deserves at least as much attention as anything else.

© 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, gary-weiss.com.

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Stock Fraud of the Day (Salt Lake City Edition)

To do my part to fight the media-neglected epidemic of securities fraud, I'll be regularly posting items from the daily avalanche of stock fraud enforcement actions. I'll continue until the end of time or until I lose interest, whichever comes first.

Today's comes from the national headquarters of stock fraud, which is of course Salt Lake City, Utah. The SEC litigation release can be found here. The lead defendants are Novus Technologies, LLC, Ralph W. Thompson, Jr., Duane C. Johnson, RCH2, LLC, and Robert Casey Hall.

In this case, the fraud involved not public company shares but something that's even better-- promissory notes and joint venture agreements.

The complaint alleges the defendants have obtained investments of at least $4.8 million from the fraudulent unregistered sale of short-term promissory notes and joint venture agreements from at least 50 investors. It is alleged that Novus and RCH2 have made offers and sales through: the Internet, referrals from current investors and sales presentations at a Salt Lake City shopping mall. Both Novus and RCH2 allegedly have sold six month promissory notes providing for returns to investors of between 3% and 5% per month.

The complaint further alleges that Novus and RCH2 have been telling investors this opportunity is "too good NOT to be true." Novus and RCH2 allegedly claim they invest client funds in hard money lending, real estate, S&P 500 options, foreign currency futures and stocks. Novus and RCH2 also allegedly represent to investors that 80% of investor funds are placed in low risk investments such as real estate with only 20% of the funds invested in high risk investments such as currency futures. Investors are also allegedly told the funds are 100% safe because they are pooled in a large interest-bearing account. It is further alleged that Novus and RCH2 have told investors their funds are backed by liquid assets or real estate and sufficient funds are maintained to cover six months worth of interest and principal.
In fact, the SEC says, all this was fibbing.

One interesting aspect of these allegations, not mentioned in the litigation release but noted in the complaint, is that one of the defendants was a "Small Business Relationships Manager" at JP Morgan Chase. He quit after an internal investigation by the firm, which had discovered what was going on and caused the whole thing to unravel.

Also interesting is that the feds acted with uncommon swiftness, as did Chase, as this alleged scheme commenced in August 2006 and was shut down just three months later, according to the complaint.

These are all just allegations, I should point out. None of the defendants has been found liable for any of this stuff.

© 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, gary-weiss.com.

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Unions and newspeople

I belonged to the employee union at Dow Jones when I worked at Barron's back in the eighties, and I came away with a negative feeling about newsroom unions.

The Dow Jones union was weak and ineffective back then, in part because it was not affiliated with the AFL-CIO, and partly because it had a radical leadership that was out of touch with the members.

So I've been impressed by what I've been reading about the Dow Jones union recently. In an item today, the SABEW blog reports that the union is holding its own in tough negotiations with Dow Jones management. The union now has much of what it lacked in the 1980s -- AFL-CIO affiliation and the support and active participation of newsroom employees.

I used to feel that Business Week was better off without a union -- particularly a weak one like the old "independent" Dow Jones union. But I am not sure if that is still so, in light of the layoffs of the past couple of years.

The latest layoffs removed experienced, talented journalists, including its highly-reputed labor editor, Aaron Bernstein, and Bill Symonds of the Boston bureau. People like Aaron and Bill would never have been laid off under union seniority rules.

A union could have tried to bring some sanity to staff reductions, and pointed to anomalies such as the swelling of top-masthead positions.

Still, I've heard of no move afoot to bring a union to Business Week. That's not surprising, because journalists (this one included) are notoriously incompetent when it comes to protecting their own self-interests. In this instance, since good people have been put to the axe, the readers have suffered right along with them.

© 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, gary-weiss.com.

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Wednesday, April 11, 2007

Is the Media Ignoring Pump and Dump?

I was critical of the Securities and Exchange Commission in my book (and in other venues), but I must admit that the SEC has been busy lately against pump-and-dump stock operators.

Just today, the SEC announced administrative action against a Florida brokerage, in a boiler room scheme involving offshore accounts. This case is interesting for several reasons, including the use of the Patriot Act to snare stock-related money laundering.

This and other cases, which you can see in regional newspapers almost every day, leads me to believe that pump and dump scams are alive and well.

Yet I have not seen much in the way of press coverage of this trend. Incidentally, if it is not a trend, if for the first time in history pump-and-dump has been wiped out -- and I don't believe that for a moment -- that's also a story.

At times like this I think about Mark Cuban's bloviating about his Sharesleuth website, which he claimed was a new "business model" that could be used to hone in on stock fraud. By "business model" he means flushing journalism ethics down the toilet, by trading in advance on Sharesleuth's stock picks.

In practice, Sharesleuth has been a major dud, focusing on just two related stocks since it was established last July. Sure, there are dozens if not hundreds of crappy stocks out there, but Sharesleuth must be selective in its approach, picking them not on merit but on "shortability."

The vast majority of stocks involved in pump-and-dumps are difficult if not impossible to short-sell. So are many stocks that are not outright frauds, but simply doggie. The slim pickings generated by Sharesleuth demonstrate the shortcomings of this approach.

Since Cuban's venture is crapping out, I guess that leaves the job of policing microcap stocks to the financial media, and-- with some notable exceptions -- lately we've not been doing a very good job.

© 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, gary-weiss.com.

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Tuesday, April 10, 2007

The Latest in the Case of Solengo vs. Sanity


A hedge fund genius caught in mid-whine

I'm surprised the press isn't having a field day with the bizarre, grotesque effort by Solengo Capital -- successor to the infamous Amaranth Advisors hedge fund -- to keep its "confidential" marketing brochure off the web by suing Dealbreaker.com.

What makes the media's neglect of this story especially curious is that the most interesting stuff is in court filings easily accessible via the web.

This story is newsworthy not just because of its First Amendment implications, but because Solengo's chief honcho is world-class money-loser Brian Hunter, who played the Captain Smith role in the Amaranth Titanic story. As FINAlternatives points out, Hunter "holds the distinction of being the only person in hedge fund history to single-handedly lose more than $6 billion dollars."

Hunter is also a first-class whiner, in addition to being a towering figure in red-ink-land.

In an affidavit filed with the court, Hunter says that "my colleagues and I are attempting to grow [Solengo] into a multibillion-dollar commodity investment vehicle." (I can already hear the murmurings of "God forbid".....)

Standing in the way of this worthy endeavor is the evil, nasty, awful Dealbreaker! "Given the sensitive nature of the information contained in the Document, as well as the fact that Solengo is still in the very early stages of development, I believe that the continued, unauthorized dissemination of the Document by DealBreaker will cause severe damages that would be difficult if not impossible to quantify."

If the above is true, publishing that marketing brochure is even more terrific than I had thought. What a service to the dumb institutional investors of the world! You really have to be a knucklehead, after all, to put your money in a fund run by a guy with that kind of track record

And I don't just mean the Amaranth disaster. This lawsuit is yet another example of sheer stupidity. By filing this suit, Solengo has drawn more attention to its super-secret marketing brochure.

However, I will say -- and tinhorn dictators the world over should give Hunter a high-five for this -- his efforts to squelch the brochure itself seem to have met with some success. The website to which I linked in this post, which had a link to the infamous brochure, has vanished, as has the link in this earlier post.

Dealbreaker itself has stopped talking about Solengo entirely, no doubt on advice of attorneys. It also agreed to a tempoary injunction stopping it from printing the brochure while the case is pending. The court is now weighing a Solengo request for a restraining order.

This cone of silence is temporary, of course, as is the absence of the brochure from the web. Money can't buy happiness, or a respite from the bad publicity Solengo richly deserves, but it can buy a nice chunk of Internet censorship for at least a short while.

UPDATE: The link with the brochure is back up.

Speaking of junk lawsuits, the mother of all frivolous, vexatious, nonsensical lawsuits that stomp on the First Amendment -- Overstock.com's "shut the f--- up" suit against Gradient Analytics -- was being heard by a California appellate court today.

© 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, gary-weiss.com.

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Monday, April 09, 2007

Overstock.com's Wiki-Spamming Adventures


IP address 65.116.113.10 (Overstock.com to you) hard at work

Overstock.com is obsessed with Wikipedia. This blog and O-Smear have described how Overstock's resident stalker, former Republican dirty trickster Judd Bagley, has systematically vandalized Wikipedia. Among other things, he has threatened a Wiki administrator and turned the Overstock.com article into a press release. CEO Patrick Byrne has contributed to an anti-Wikipedia website and and fixated on a Wiki administrator in Overstock's antisocialmedia.net corporate smear site.

That turns out to have been just the appetizer. The terrific O-Smear blog has found that Patrick Byrne's red-ink machine has been spamming articles unrelated to his company, in violation of Wiki rules and Lord knows what else. The blog also found that even before Bagley arrived on the scene, Overstock was trying persistently, despite opposition from Wiki editors, to trace the Internet addresses of Wikipedia users.

The spying is expected -- hey, this is a company that has a cyberstalker on the payroll, after all. But the spamming is a new and potentially damaging revelation, because it was done anonymously (albeit traceably), without Overstock disclosing that it slipping in free ads for itself.

Here is an excerpt from the OSmear blog:

Even more ironic is the subtle SPAM by Overstock in these edits.

skibreckenridgecolorado.net
skiparkcityutah.net
skivailcolorado.net
skitellurideco.com
skicrestedbuttecolorado.net

I say subtle because these URLs are registered fairly ambiguously, but if you ping the domains and get the IP addresses of the servers, you get the following IPs:

65.61.187.30
65.61.187.34
65.61.187.32
65.61.187.25
65.61.187.24

These IP addresses are assigned to Ski West.

Ski West RSPC-59512-1114552345 (NET-65-61-187-0-1)
65.61.187.0 - 65.61.187.63
Ski West is (or was at the time) owned by Overstock.com, now called OTravel.
As you can see by clicking on the five links at the beginning of this excerpt, Overstock spammed articles on Vail, Breckenridge and other Colorado ski resorts. The company persisted in spamming Wikipedia, and drew a warning from a Wikipedia administrator.

Overstock's failed efforts to promote its ill-fated Ski West business -- a disaster that it is now selling -- may be one reason why Byrne is so single-mindedly obsessed with Wikipedia, and why a Wiki-wannabe, "OMuse," was selected as Bagley's make-work cover story.


I think these latest disclosures raise some interesting legal and ethical questions, including whether a company can write its own article on Wikipedia and insert "spam" ads into Wikipedia articles, without proper disclosure under SEC rules.

The main issue is an ethical one. And as usual with Overstock.com, corporate ethics are a non-issue. I sometimes wonder if words like "ethics" and "ethical behavior" are ripped out of the company's Webster dictionaries.

Let's hope that the Securities and Exchange Commission takes its responsibilities more seriously than Byrne and his lapdog board of directors.

UPDATE: O-Smear followed-up with this post. Of particular interest is a Bagley Wikipedia edit last Aug. 31 in which he spammed a link to a phony blog operated by Provo Labs. The"blog" was set up for the purpose of harvesting IP addresses. Bagley spammed this link after he supposedly severed his ties with Provo Labs.

Scipio notes that the blog link "points to a .php file which is a scripting language which would allow for more sophisticated processing than a more standard HTML file. In other words, there is little doubt this blog was created for the sole purpose of tracking people who clicked on it and should remove any doubt as to who was behind it."

© 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, gary-weiss.com.

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Saturday, April 07, 2007

The Forbidden Solengo Brochure Arises



As a result of Solengo Capital's junk lawsuit and cease-and-desist campaign against Dealbreaker and bloggers -- still largely ignored by the media -- the infamous marketing brochure has disappeared from the web. Until now.

A civic-minded reader has posted a link to the brochure on a website.

Be sure to download it before these hedge fund bullies go on their next lawsuit rampage.

The people behind Solengo are the same ones who drove the Amaranth Advisors hedge fund into the ground. It is tempting to say, "They may not do a very good job at managing money, but they sure do an excellent job of pushing around bloggers."

Far preferable is this thought: "They may not do a very good job of managing money, and hopefully investors aren't so dumb as to give them another chance." Let's keep our fingers crossed. Meanwhile, be sure to download that brochure!

© 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, gary-weiss.com.

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Wednesday, April 04, 2007

Hear Ye! Hear Ye! The Junk Lawsuit is Here!


Thanks to the Naked Shorts blog, a copy of the lawsuit against Dealbreaker.com, duly filed at the U.S. District Court in New York, is available for perusal by those with strong stomachs.

The suit speaks for itself, but my favorite line was this:

28. Defendants acted in bad faith by posting a Document that was clearly designated as confidential and which, therefore, they must have known they did not have authority to post.


Translation: "How dare they publish what we don't want them to publish!"

The legal geniuses behind this hyperarrogant drivel are at the firm of Kobre & Kim LLC.

Greg Newton's take on this idiocy can be found here.

Greg observes as follows:

So how does said notorious putative hedge fund go into court and allege, inter alia

31. Continued disclosure will cause irreparable harm to Solengo…by (1) placing it at a competitive disadvantage by allowing potential competitors blah blah blah; (2) revealing prospective trading strategy to other market players; and (3) discouraging prospective investors through raising confidentiality concerns.

apparently with a straight face? (1) and (2) don’t pass any kind of smell test – indeed, (2) is an especially challenging twist on the truth, given that the brochure contains no information about trading strategy, per se – while ‘confidentiality concerns’ should be well down the list of issues addressed by Solengo’s putative “investors.”
This masterpiece of junk litigation (fortunately not stamped "confidential") can be can be found here.

The brochure itself is here. (Hat tip: FT Alphaville blog.)

I'm still disappointed by the relative lack of media coverage being given to this hedge fund thuggery.

© 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, gary-weiss.com.

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Sam Antar on Overstock.com and Patrick Byrne

Sam Antar, mastermind of the Crazy Eddie's stock swindle, is one of the nation's leading experts on stock fraud and accounting shenanigans. He donates his time to working with law enforcement and securities regulators in preventing future Enrons.

So his latest blog post, describing Overstock.com's smear and stalking campaign against its critics, carries particular weight and is must-reading for anyone following this slo-mo train wreck.

The title is "Don't Mess with Overstock.com CEO Patrick Byrne," and it begins as follows:

As a criminal I knew ugly and vile behavior up close because I practiced it with a cold, dark, and heartless soul. I knew all too well how to use your humanity as a weakness to be exploited. I knew all too well how to win you over with honey. Also, when honey did not work I knew how to instill fear in you through intimidation.

Today, we have a war being conducted by Patrick Byrne (CEO of Overstock.com) against almost anyone who does not fit into his agenda of deflecting from the poor performance of Overstock.com. If you mess with Patrick Byrne, watch out, his anger seems to know no bounds.

As a convicted felon I understand Patrick Byrne’s war of intimidation, smears, and deflection from the personal experience of my own vile criminal actions. Below, I outline some of Patrick Byrne’s actions and some of those persons who work in concert with either him or Judd Bagley (Director of Social Media at Overstock.com).


When the Overstock disaster is finally a vile memory, this courageous piece will stand out as seminal, a worthy follow-up to Joe Nocera's column in the New York Times last month, and Susan Antilla's excellent smack-down of the nauseating Bagley in Bloomberg.

Antilla and Nocera were both crudely smeared for their reporting by Byrne's hatchet men and surrogates, and I am sure that Sam will be next. (Confidential to Judd Bagley: "psst! I hear Sam's a convicted felon!")

© 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, gary-weiss.com.

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Tuesday, April 03, 2007

It's Official: Solengo is a Suer

Solengo Capital has made good on its threat and filed a lawsuit against Dealbreaker for posting its "confidential" offering brochure on the website. Here's a Reuters article on this latest exploit in hedge fund arrogance and junk litigation.

What I find interesting about this lawsuit is how it piles hubris upon hubris. The very fact that Solengo exists is a travesty, as it is essentially a rebirth of the collapsed Amaranth fund. If investors had half a brain, there would be no market for this Wall Street version of a recycled ham sandwich.

That's one thing hedge funds have never lacked -- arrogance. They may not beat the indexes, but they know how to hire lawyers to browbeat journalists. As Chris Faille pointed out in a comment in this blog:

The Dealbreaker/injunction business is an example of the chronic political tone-deafness of the alternative-investment industry in the US.

The industry ought to be trying to get out the message, "we're only as secretive as we have to be. Reg D and other legal considerations require us to play things close to the vest, and of course for every industry there are concerns with proprietary information, but we can be as transparent as these constraints allow."

That isn't its message. Its actual message too often is more like "get outa my face, mutti focker."

What is worse, it tries to use the legal system to help it keep reasonable inquiries and inquirers "outa my face."
Let's pray that investors convey the same message to Solengo.

© 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, gary-weiss.com.

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Shareholders and Newspapers Don't Mix

I have no idea if Sam Zell will be a "good" owner of the Tribune Company. CJR Daily ran a lengthy article by its new editor, who seems to know Zell, and couldn't figure it out either. The only clearly "good" aspect is that the Tribune Company will no longer be publicly held. Hallelujah!

Public ownership has been an unmitigated disaster for newspapers, for the simple reason that much of what newspapers do has no clear investment rationale. Indeed, much of it -- such as foreign bureaus and investigative reporting--is antithetical to profitability.

Jim Cramer pointed out yesterday, referring to newspapers, that "These are diminishing assets. They don't need to exist. Younger people rarely read them." Precisely, my dear Watson. Viewed from a shareholder perspective, the newspaper business has no reason to exist.

That is why the shareholder perspective needs to be eliminated from the newspaper business. The shareholders, not the newspapers, are the ones that should disappear.

A free press has a purpose in society. Shareholders, bless their souls, deserve to make money in a wholesome environment (as I've advocated for twenty-some years) but should stay the heck out of the news business.

Columbia Journalism Review put the case against public ownership mildly in a recent editorial:

Public ownership of newspapers no longer makes the kind of sense it made when the industry was rapidly shedding labor costs thanks to new technology, and when the money that stockholders poured in was invested partly in editorial. Today newspapers need owners with the patience and the guts to ride through this valley of transition, with its attendant economic uncertainty, and find the next high ground, which will probably have something to do with the Internet.
I'd say it never made sense.

This is not to say that newspapers don't benefit from infusions of capital and fresh ownership at the top.

The Hartford Courant is undoubtedly a better paper now than it was when I worked there in the 1970s, before it came under Times Mirror (now Tribune Company) ownership. But the same cannot be said for smaller papers in Connecticut like the Norwich Bulletin, which were decimated after being bought by the Gannett chain.

In southeastern Connecticut, the New London Day remains the best paper in the region--largely, I think, because it is owned by people who don't have to answer to shareholders.

© 2007 Gary Weiss. All rights reserved.

Digg this!


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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, gary-weiss.com.

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Monday, April 02, 2007

Overstock.com Finds a 10-Year-Old


Overstock.com's resident stalker Judd Bagley has found the ten-year-old he needed to identify his latest victim, who dared to criticize his SEC-investigated company and its inept boss, Patrick Byrne.

The latest human being to be attacked by this nightcrawler on Overstock's antisocialmedia.net corporate smear site, is -- surprise surprise -- Yolanda Holtzee, a Washington money manager who is one of the top amateur stock sleuths in the country.

I say "surprise surprise" because Holtzee is so "secretive" that she was the subject of a page-one article in the Wall Street Journal last April.

That article is only available for subscribers, but here is a link to a reprint in the Seattle Times. It describes her exploits in tackling corporate shareholder-rapists like Krispy Kreme.

Holtzee, a self-styled Internet investigator in sweat pants, focuses on exposing out-of-bounds behavior and catching bad guys. And after pointing regulators in the right direction more than once, Holtzee has achieved two things every gadfly craves: attention from those she targets — and action.

"I think people take her seriously because she has good instincts and actually produces cases," says former senior SEC official Ari Gabinet, now with the Vanguard Group, the fund-management giant. "If I could have hired her, we would have had an endless stream of cases."

Holtzee swaps notes with regulators, including the enforcement chiefs at both the SEC and another Wall Street regulator, the National Association of Securities Dealers, according to people familiar with the matter.

The SEC and NASD review her e-mails. Earlier this year, when Mary Schapiro was appointed to head the NASD, the Wall Street self-regulatory group gave Holtzee an early heads-up, according to people familiar with the matter. She has been called by the SEC to testify in Washington, D.C.

So it's understandable that Bagley and Byrne are terrified of her. It's also not surprising that Bagley would engage in this cyberstalking not just on his company's official smear site, antisocialmedia, but also on the Investor Village Overstock message board. The latter has become a regular venue for brainless stock-pumping, psychotic rants and Bagley's cyberstalking, with critics subjected to harassment and banning by IV's administrators.

In previous items I've described how IV has censored critics of Overstock, while letting Bagley and Byrne use their website to make vicious personal attacks and stalk critics like Holtzee. It has gone so far as to sic its lawyers on Overstock critic Sam Antar, after the latter complained about being barred from the site.

A new and slimy dimension in the IV saga was brought to my attention by a reader. He notes that IV has apparently promoted its site by spams on both the competing Yahoo message boards and elsewhere.

Note the comments by "cool site" on this Evel Knevel message board, with IP addresses traceable to Vietnam, Brazil, Israel, Ukraine, Germany and New Jersey. Of course, it's possible that this isn't a spam and that IV just happens to have devoted fans saying the same thing on four continents.

And then we have, oh.... maybe fifty dozen or so more spams just from "cool site." Lord (and Ralph Kidd) only knows if IV has other devoted "fans."

Then we have these message board postings on Yahoo, and these
and these
and these
and these
and these
and these

I guess you don't have to be the CEO of a money losing, SEC-investigated company or his paid hatchet man to adore Investor Village.

UPDATE: To make the whole thing even more nauseating, Bagley apparently implanted spyware in his IV post. Creeps will be creeps, I guess. Only one thing is sure -- Bagley will not face repercussions from IV for this latest atrocity.

© 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, gary-weiss.com.

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