Tuesday, August 19, 2008

More Glowing Reviews for the SEC's Naked Shorting Publicity Stunt

The praise is coming in thick and strong for the SEC's naked shorting publicity stunt. Not.

The Economist : "The SEC’s action was not only pointless; it may have had a perverse impact. ,. . The SEC has promised a post mortem of its experiment. At this stage the conclusion looks pretty clear: the regulator picked the wrong target."

Dow Jones News Service: "An emergency order that temporarily restricted short sales in the shares of Fannie Mae (FNM), Freddie Mac (FRE) and 17 other financial companies raised borrowing costs significantly and increased volatility in the stock-loan market, a new study concluded." This is in addition to a study by a European economist released the other day.

The response to the near-unanimous thumbs-down judgment has been flailing from conspiracy theorists, embodied by the wailing at the Patrick Byrne-financed Deep Capture website. There, the oddball journalist-turned-shill Mark Mitchell recently launched a vicious attack on Carol Remond, an award-winning investigative reporter and scam-buster. Remond hasn't written much about naked shorting, but she's been critical of Byrne and has exposed scams, which put her in the sights of this washed-up ex-CJR editor.

Last but not least, in the realm of comic relief, comes word that Harvey Pitt, the worst SEC chairman in recent history, is trying to cash in on the naked shorting hysteria with something called RegSHO.com. Pitt has teamed up with a former boiler room employee named Tom Ronk, who was banned from the securities industry in 1999 for not paying a 50K fine. (Here's a link to his FINRA record.)

Pitt was so horrible as SEC chairman, so downright tin-eared and clueless, that even the most far-right Republicans despised him. Time magazine opined at the time: "Pitt is running out of admirers in Washington, with the possible exception of folks at the Mine Safety and Health Administration. He's the only one in the Capital who gets into deeper holes than they do."

I'd say that Ronk and Pitt make for a terrific fit. Hey, that even rhymes!

© 2008 Gary Weiss. All rights reserved.

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Monday, August 18, 2008

Did the Utah Attorney General Succumb to a Payoff?

White-collar crime fighter Sam Antar knows crookedness from the inside, as a reformed crook himself who masterminded the Crazy Eddie stock fraud. Sam now goes around the country at his own expense to lecture law enforcement agencies, and he had the misfortune of including in his itinerary the Attorney General of Utah, long a happy hunting ground for crooks of all stripes.

I say "misfortune" because of the episode detailed by Sam in his blog here. As a Salt Lake Tribune blog put it, Sam is contending that "Utah Attorney General Mark Shurtleff is little more than an attack dog for Overstock.com's Patrick Byrne."

Yup, my favorite corporate crime poster child has an ally in the Utah attorney general, fueled by an interestingly-timed campaign contribution. Byrne, who likes to portray himself as a champion of the little guy, is the biggest campaign contributor in Utah. He likes to bully the locals, often to disastrous effect -- as when he went berserk at a meeting with Utah pols.

Seems that Byrne doesn't have to throw a tantrum to get Shurtleff's attention. Five thousand bucks will do nicely. Tracy Coenen spells out the incriminating details.

Actually Sam is doing more than throwing around allegations, since his story is backed up by what appears to be taped telephone conversations with suitably shamed members of the Utah AG's office.

Shurtleff is running for reelection in an overwhelmingly Republican state, but this is a Democratic-leaning year, and it will be interesting to see if the people of Utah react to the foul odor emanating from their highest state law enforcement officer.

© 2008 Gary Weiss. All rights reserved.

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Friday, August 15, 2008

Writing the Issue Yourself

The latest issue of my alma mater, Business Week -- a double issue, no less -- was written in collaboration with readers, as noted by Talking Biz News, linking to BW.

The title is "Trouble at the Office," so I went over to BW's website and examined the only piece really relevant to a home-worker like myself: "Home-Office Romance" by the satirist Andy Borowitz.

Deprived of the usual opportunities for employee-on-employee passion, the home-based worker may start looking for love in all the wrong places. And therein lies the ugly truth: When you're your own boss, you have no one to sexually harass but yourself.
I am a fan of Borowitz, but to be frank I just didn't think it was very funny.

The other articles were written by readers, and they read like abbreviated versions of the fare you can get in any self-help book.

In my day (said Weiss, sounding like an old fart), an idea like this would have been ridiculed, and rightly so. But I guess something has to be done to raise lagging ad revenues.

Sorry, but I don't think that patronizing attempts to curry favor with readers is the way to go if BW is to retrieve its fallen ad revenue, much less regain its former prominence. Readers look to BW for insight, news and analysis, and stuff they can't read anywhere else. This kind of thing can be had by surfing the net. where you can find "reader participation" all over the place, most of it dreck.

I hate to be so harsh, and I'd be delighted to be proven wrong.

© 2008 Gary Weiss. All rights reserved.

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The SEC's Naked Shorting Order Hurt Bank Stocks

Yup, to no great surprise (not to me, anyway), a study of the SEC's naked shorting publicity stunt has found that it actually hurt trading in the 19 bank stocks it was supposed to help.

A link to the study can be found here, and was conducted by a professor at a business school in Lausanne, Switzerland. Thomas Kirchner comments that the study "shows that by some measures, it even had a detrimental effect on the market of the very stocks that the SEC sought to protect."

No surprise here, because the SEC issued the order (as it admits) not because of actual naked shorting, but as a "preventive" measure. In other words, because it had nothing better to do, and was seeking to divert attention from its lousy performance in handling the credit crunch.

Bris’ study shows that as is often the case when the government gets involved in the markets, the law of unintended consequences took over. Market quality declined in the 19 stocks, which Bris shows through a number of metrics.
Also, Kirchner points out:

  • The performance of the stocks on the list has been worse than that of comparable firms, but not because of short selling. Weekly short selling activity has little effect on weekly returns. “After controlling for short sales, the performance of [these] stocks is still worse than for comparable firms.” The group underperformed its peers by 10 percent.
  • Shorting activity before the SEC emergency order was highest for firms that were issuing convertible bonds. The implication is that much shorting is done by convertible bond arbitrage funds rather than vicious short sellers who try to destroy companies.
If the SEC was a responsible regulator, and not weak-kneed and politically driven, the emergency order would never have been issued in the first place. So don't expect the SEC to do anything in response to actual data showing what a bad idea it was.

© 2008 Gary Weiss. All rights reserved.

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Wednesday, August 13, 2008

Naked Shorting Publicity Stunt Expires; the World Yawns

The SEC's naked shorting publicity stunt expired yesterday, and market observers are kind of scratching their heads in bewilderment at what a joke it has been.

In the New York Times, Floyd Norris observes:

In announcing the S.E.C. action on July 15, the commission chairman, Christopher Cox, said it was needed to protect investors and banks. “Today’s commission action aims to stop unlawful manipulation through naked short selling that threatens the stability of financial institutions,” he said.

But there is no evidence that there had been a lot of naked shorting in those stocks. The exchanges publish lists of stocks in which there were large numbers of failures to deliver shares at settlement, a situation that can be caused by naked short selling or by a number of other factors.
In other words, it was a cure for which there was no disease, as Barron's has also pointed out. Bloomberg observed that the emergency rule "has failed to raise the share prices any higher than they were the day Bear Stearns Cos. collapsed." Which is shame because.... well, because, that's why. It is unpatriotic, as well as downright mean, for stock prices to go down. Prices of everything (except oil) are supposed to go up.

Still, you have to admit that this publicity stunt has had its advantages. Among other things, we are treated to the spectacle of the odious Harvey Pitt waxing rhapsodic about naked shorting on the public airwaves. Does he really think that picking up on this discredited cause will make people forget what an awful job he did during his brief, miserable tenure as the most anti-investor SEC chairman in recent history?

© 2008 Gary Weiss. All rights reserved.

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The Challenges for Citigroup and Vikram Pandit

My latest Portfolio article examines the challenges facing Citigroup and its somewhat beleaguered CEO, Vikram Pandit. The issue is online today and goes on the stands this week.

Felix Salmon, an independent voice on all things market-related, concurs.

© 2008 Gary Weiss. All rights reserved.

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Sunday, August 10, 2008

The Credit Card Mess

Here's a link to my article in today's issue of Parade magazine, "Don't Get Clobbered By Credit Cards!"

© 2008 Gary Weiss. All rights reserved.

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Thursday, August 07, 2008

More on the SEC Witch Hunt Fallout

Nicholas Yulico writes in TheStreet.com about a topic first discussed by CJR's Audit column a few weeks ago -- how the SEC's frenzy to track down rumors about brokerages has cut off the free flow of negative information between analysts and journalists.

The problem is not short-sellers, it's the perception of short-sellers. They are viewed by common folk and unscrupulous public company CEOs as the monsters hiding under the bed. Their fangs are wicked and sharp, and all they care about is profiting off other people's pain, or so the foolish theory goes.

In reality, any reasonable person would agree that short-sellers perform an essential service, since they add to the efficiency of the stock market.

As a journalist, being able to tap into these investors' minds is a luxury that the average retail investor doesn't have. Instead, many retail investors are forced to listen to the endlessly bullish forecasts offered by public company CEOs and the sell-side analysts who brown-nose with them.


This is good news for CEOs who have something to hide, but terrible for the public's right to know.

© 2008 Gary Weiss. All rights reserved.

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Wednesday, August 06, 2008

Overstock.com's No. 1 Risk Factor: Patrick Byrne


A duly disclosed risk factor: telegenic CEO Patrick Byrne

One of the remarkable things about Corporate America's one-man lunatic fringe, Overstock.com CEO Patrick Byrne, is how this company's deaf-dumb-and-blind board of directors allows Byrne to make a fool of himself practically every day by shirking his job and spewing his stock market conspiracy theories. Pretty much everyone knows how much damage it has done to the company's reputation and credibility.

Michelle Leder, who writes the respected Footnoted.org website, points out today that Overstock.com actually disclosed that very danger -- that Byrne's nutty spewing can hurt the company -- in the 16-page "risk factors" disclosure in its latest 10-Q.

This rather obvious risk is, of course, clouded in the usual corporate-speak:
Additionally, Dr. Patrick Byrne and the company have fostered and supported a national debate concerning illegal trading practices called “naked short selling” and have advocated regulatory changes and enforcement action designed to end these practices. The profile of the company and Dr. Byrne, and their positions on issues associated with the debate, may make the company and Dr. Byrne the target of criticism and derision in the financial markets and associated media, and this may prove to have an adverse effect on the company’s stock price.
Translation: Patrick Byrne is screwing his shareholders by neglecting his duties and ranting and raving about stock market conspiracy theories.

What's interesting is that the board of directors, rather than disclosing this rather obvious fact, doesn't kick him out on his keister--which is what any corporate board would do that did not make a mockery of corporate governance. So instead we have the daily spectacle of an out-of-control CEO living on message boards, editing Wikipedia day and night, while his hand-picked board snores in the distance.

Even his father, former GEICO CEO John J. Byrne, realizes that sonny boy is a liability. He told the AP the other day that " I would rather him spend his time on getting things right with the company, not on that jihad."

Byrne made much the same comments when he was chairman of Overstock -- and then, rather than live up to his responsibilities as chairman, he cravenly quit rather than push the issue. The younger Byrne responded by implying publicly that his father might be getting a bit senile. What a dear man he is.

So Byrne has raved on, truly the gift that keeps on giving. Still, things like this makes you wonder: wouldn't the world be a better, more honest, less slimy place if John Byrne cut off junior's allowance?

© 2008 Gary Weiss. All rights reserved.

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Tuesday, August 05, 2008

Junior Gotti Busted -- Again


Junior Gotti in happier days

Junior Gotti, the now-middle-aged child star of the Gambino family, has been arrested yet again, this time in Tampa, on murder-conspiracy charges. Junior has been arrested and tried several other times, as noted in the New York Times article linked, but nothing has really stuck so far.

Here's the indictment. What's interesting to me is how the list of charges against Junior are scummy, low-level, violent and crude -- a far cry from the sophisticated scams, and the high-level union and Las Vegas skimming, that used to dominate Mafia law enforcement until a few years ago. What we have here are street-level offenses like shaking down drug dealers, home-invasion robberies and the usual murders.

Not a whiff of securities fraud either. Junior was charged with that only once, and he beat the rap. The Gambino family was very heavily into pump-and-dump schemes back in the 1990s, and were behind several of the small "chop houses" in lower Manhattan. No more. Now they're back to stickups and you don't even see the kind of sophisticated tax scams the Russian mob is noted for. (Speaking of which, it's been quite a while since we've heard of any prosecutions in t hat area, and they're certainly not going anywhere.)

The mob is certainly not gone and will be around forever, but they sure are getting grungy, almost pathetic.

© 2008 Gary Weiss. All rights reserved.

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Monday, August 04, 2008

Get Out Your Cameras

I'm told that the SEC will be having a photo opportunity at 12:45 today for its newly confirmed members, sitting alongside their esteemed chairman Chris Cox.

I wonder if limp soba noodles will be handed out to the commissioners at this Media Event, which they can use in the future to lash securities offenders snared in their net.

The photo shoot will take place against a backdrop of a revolving door, to symbolize how the SEC is a fine training ground for lawyers representing tomorrow's generation of white collar thieves.

Seeing eye dogs will be provided for the media in attendance, in compliance with Christopher Byron's description of the media as "seeing eye dogs" for our deaf-dumb-and-blind regulators.

© 2008 Gary Weiss. All rights reserved.

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Naked Shorting Crusaders Busted By SEC

The SEC last week took action against a pair of stock promoters named Brent Pierce and Grant Atkins, accusing them of securities fraud by selling unregistered stock.

What makes this obscure SEC action interesting, as Carol Remond points out in Dow Jones News Service (article unavailable on the Internet), is that these two charlatans are author of an even greater fraud: the naked shorting con game now being promoted by the ancestral wealth of Overstock.com CEO Patrick Byrne.

Says Carol:
Back in 2002, Atkins and Pierce were associated with Investor Communications International Inc., a Blaine , Wash. , promotional firm that was a large investor in a budding pharmaceutical company named GeneMax Corp.
As I reported in Business Week way back in 2003, ICI was the home of an astroturf group called the National Assn. Against Naked Short-Selling, which organized a mass mail-bomb campaign in favor of Regulation SHO in 2002. Spurred by this nonexistent "public pressure," the SEC proceeded to waste significant resources chasing down a problem that does not exist--surely the most lamentable waste of SEC resources in its history.

NAANS was succeeded in 2004 by the Byrne-funded National Coalition Against Naked Shorting, and since has become a kind of one-man lunatic fringe controlled by the nutjob Overstock.com CEO personally.

Carol goes on to point out how other past leaders of the anti-shorting Baloney Brigade, notably Richard Altomare of Universal Express, have been serial fraudsters. She concludes:

All fine examples of companies and insiders complaining of naked short selling whom Chairman Cox might want to consider before extending his restrictive short-selling order to other securities.
Cox indeed is thoroughly aware of the fraudulent nature of the anti-shorting jihad, as he himself noted publicly at a congressional hearing in the late 1980s. But the SEC's priority is not to protect investors, but self preservation -- to protect the reputation of an agency that did an abysmal job in handling the credit crisis and its impact on Wall Street banks. So don't expect that Cox or his minions will pay any attention.

© 2008 Gary Weiss. All rights reserved.

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