'Swatting an Imaginary Fly'

There's a terrific editorial today in Barron's on the SEC's naked short selling publicity stunt, and it is the most powerful and well reasoned commentary I've seen yet on the subject. The title is "Swatting an Imaginary Fly," the "fly" being the phantom menace of naked short selling.

Editorial page editor Thomas G. Donlan writes:

. . . What isn't obvious from the news or from the historical record is whether the SEC understands its mission.

Does the SEC have its eye on the ball? Hardly. It is the agency that preserved and protected the shared incompetence of a few favored "nationally recognized" credit-rating agencies. It is the agency that watched while auditors became corporate consultants, selling the kind of services that audits should detect and report and eliminate, and even selling methods of hiding deleterious facts from auditors. It is an agency that attempts to regulate speech because it's easier than detecting and prosecuting fraud.

Rather than fixing any of the real problems with the agency and its mission, Cox and his fellow commissioners waved a newspaper and swatted the imaginary fly of naked short-selling. It made a big noise, but there's no dead bug.

This is a courageous stance, because opponents of naked short selling conspiracy theories -- which the SEC has explicitly not endorsed, not that it matters to kooks pushing that line-- are immediately subjected to a smear campaign. It is orchestrated by the free-spending trust fund baby, Overstock.com CEO Patrick Byrne, successor to the recently jailed fraudster Richard Altomare as head of the Baloney Brigade naked shorting conspiracists.

Byrne has said that the SEC's politically motivated pandering means that he has "won the intellectual argument" on naked short selling. But there hasn't been an intellectual argument. There has been a campaign of intimidation and personal attacks against critics of his poor management of his company and his naked shorting jihad.

A recent SEC filing shows how Byrne has pissed away the money-losing Overstock's scarce cash on behalf of his obsession, paying a high-priced lobbyist, Ken Salamon, to goad the SEC to pursue Byrne's imaginary demons. Overstock has wasted $680,000 on Salamon and other lobbyists and pos, according to OpenSecrets.org numbers quoted in the New York Post.

Despite all the bucks Byrne has thrown at this, and endorsements by anti-investor organizations like the Washington Legal Foundation and "consultants" paid to tout conspiracy theories, like former commerce secretary Robert Shapiro -- a "litigation consultant" in junk lawsuits against the DTCC -- not a single editorial commentary has favored the SEC action. The SEC, I suspect, is reacting less to Byrne's bucks than it is to SEC chairman Chris Cox's desire to find a scapegoat for his agency's poor performance.

I'm sure that Donlan and Barron's will be subjected to the usual attacks by Byrne's paid stooges, and their inboxes stuffed with harassing emails, because of this editorial.

The same goes for Elizabeth MacDonald, who wrote a smart analysis in her blog today on the Fox Business News website.

© 2008 Gary Weiss. All rights reserved.