Patrick Byrne, in Early-Morning Rampage, Makes Another Mess

This is getting monotonous.

I don't call him "my Marley" for nothing. Overstock.com's wacky CEO Patrick Byrne went on a rampage in the wee hours this morning, overturning tables, chewing carpets--and, while he was at it, destroying any pretense of separation between Overstock.com and his personal smear site, Deep Capture.

Seems that Byrne received an email from white collar crime-fighter Sam Antar, whose analysis of Overstock's accounting recently caused the SEC to reopen an investigation of the company. He had made a polite request to appear on Byrne's upcoming third quarter conference call. His email read as follows:

Patrick:

I recently learned that Overstock.com scheduled its Q3 2009 conference call for November 3, 2009. If you agree, I would like to participate in that call like other analysts and ask questions about Overstock.com’s financial disclosures. Please let me know by Monday if you will let me participate in the conference call.

Sam

That will never do. After all, Byrne was expecting his usual audience of quietly terrified brokerage house analysts, asking softball questions and ignoring the elephant in the room--that Overstock has systematically cooked the books.

So Byrne immediately went berserk on his Deep Capture smear site, posting Sam's email and a sneering, Jew-baiting response denying the request, saying that Sam could only ask four questions of up to 25 words, sent in advance via email.

This happened shortly before dawn Utah time. That assumes Byrne actually is in Utah, where he makes believe he runs the company, and not in New York, preparing to march in the Halloween Parade, perhaps disguised as a law-abiding corporate executive.

Byrne has every reason to be terrified of Sam, and to go off his nut whenever he hears from him. After all, if it wasn't for Sam, he wouldn't be under a newly reopened SEC investigation.

But evidently Byrne forgot that he has repeatedly argued that Deep Capture has "nothing to do with Overstock," even though he founded it, funds it, it focuses on trashing the company's critics, and it runs on Overstock's Internet servers. Sam's email had nothing to do with Byrne's pet "naked short selling" cause.

Byrne also forgot that he makes it a practice to open the conference call to persons unaffiliated with brokerage houses when it serves his purposes, notably when he allowed a character named Phil Saunders, a/k/a "Bob O'Brien," to participate in a January 2005 conference call.

If the SEC is serious in its current investigation--which has yet to be demonstrated--it won't shrug off this latest episode as merely another example of a crazy CEO not acting his age.

© 2009 Gary Weiss. All rights reserved.

Bernie Madoff Speaks! (and lies) While Arthur Levitt's Memory Fails Him

Notes of Bernie Madoff's interview with the SEC inspector general were released yesterday, and they make fascinating reading--as long as you keep in mind that Madoff was lying through his teeth, primarily to protect people.

Here's the SEC exhibits page, and here (PDF) is the record of Madoff's interview.

You can be sure that Madoff was lying because of this:

When questioned as to whether he was concerned about Frank DiPascali giving testimony, Madoff answered,"No, he didn't know anything was wrong, either."

In fact, DiPascali, who was Madoff's number two man, has already pleaded guilty, and at the time of his plea in August he said as follows:

“I knew I was participating in a fraudulent scheme,” DiPascali told U.S. District Judge Richard Sullivan. “I knew everything I did was wrong, and it was criminal, and I did it knowingly and willfully. I accept complete responsibility for what I did. I apologize to every victim and to my family and the government. I am very, very, very sorry.”

This is the clearest example I can find of Madoff lying to government officials during the period following his arrest.

However, I'm less dubious about Madoff's statements about how tight he was with former SEC officials and commissioners. Madoff said the following about the super-hyped ex-SEC chairman Arthur Levitt:

Madoff stated that he knew Levitt at Amex, before he was at the SEC, and stated that he knew Levitt "very well." Madoff stated that he went to lunch with Levitt once, to complain to Levitt that he "had to do something about intemet stocks." Madoff stated that Levitt subsequently "went on t.v. and gave a warning about it."

In his interview, Levitt tried hard to convey the impression that he didn't know Madoff from a hole in the ground, though his response was... well, let's call it a "lawyer's response." His memory has failed him when it comes to Madoff, poor dear, preventing him from giving an unequivocal answer:

Mr. Levitt stated that he met Bernard Madoff on an infrequent basis while he was Chairman of the SEC, mostly at seminars or outside functions. He approximated that he saw Mr. Madoff once a year while he was the Chairman of the SEC. He did not recall having lunch with Mr. Madoff and did not believe he ever met with Mr. Madoff alone. Mr. Levitt stated he did not have a personal friendship with Mr. Madoff, had never socialized with him, and did not know his family, other than having met Bernard Madoffs brother.

Note what I've put in boldface italics. He approximated, he did not recall, he did not believe.That's my Artie! The Investor's Champion, to quote a puff piece that I'm ashamed to say once appeared in my alma mater, BusinessWeek.

Yes indeed, you can rest assured that Artie Levitt was no pal of Bernie Madoff (that being an approximation and belief to the best of his recollection).

© 2009 Gary Weiss. All rights reserved.

If Zelnick Had Bought BusinessWeek

It's still unclear how many former BusinessWeek editors will be hired by Bloomberg L.P., but one thing is increasingly clear: it could have been a hell of a lot worse. Peter Kafka describes the nightmare scenario: a purchase by private equity bloodhounds ZelnickMedia that would have been only marginally better than a simple shutdown of the magazine.

This is how one-sided the Zelnick offer would have been: McGraw-Hill would have wound up paying Zelnick to take BW off its hands. In return, BW would have been ripped limb from limb, and the entire staff would have been laid off.

Kafka reports that the sale would have entailed:

• Wind down BusinessWeek’s print business “as profitably as possible”–the company would have to honor existing subscriptions and could still sell ads in the magazine. But the focus would be on building up BusinessWeek’s Web site, which has a decent-sized footprint, though not a huge one.

• Dump almost all of the company’s newsgathering staff and outsource most of that work to Thomson Reuters (TRI).
• Employ a small handful of editorial employees–perhaps 20, down from the 200-plus who are there now. Some of them would run a Huffington Post-style aggregation site that produces no original content, and some more expensive hires would produce a smattering of high-quality reporting and writing designed to burnish/sustain the BusinessWeek brand. “Just to give it uniqueness and sizzle,” my source tells me.
• Dump most of the existing business side, as well, but overhaul and bulk up the sales force.

These are known as "bullet points" in the business. And how. Bullets as in firing squad, with BW--and McGraw-Hill's reputation, being the blindfolded prisoner. It would have been an enormous humiliation for Terry McGraw.

Fortunately, the cavalry stepped in, in the form of Bloomberg. Compared to other media shutdowns, then, BW's sale turned out to be far better than expected.

That still doesn't let M-H's management, and the magazine's, off the hook for a redesign that failed to keep the magazine alive and was a major departure from the magazine's traditions.

Kafka reports that BW president Keith Fox is stepping down, as expected, but somewhat surprisingly is staying with the company. Fox's departing memo says, "I am humbled by BusinessWeek’s 80-year history." He sure ought to be.

© 2009 Gary Weiss. All rights reserved.

My Marley Growls at the SEC

My Marley, Overstock.com's wacky CEO Patrick Byrne, has made a mess again. Oh my! Seems that he's peed all over the legs of the SEC, again.

White collar crime-fighter Sam Antar points out in his blog that Byrne has chosen to tough it out with the SEC, which just relaunched an investigation of the company.

Sam reports:

Earlier today, Overstock.com filed a registration statement in connection with its 2005 Equity Incentive Plan. CEO Patrick M. Byrne, CFO Steven J. Chesnut, audit committee members Allison H. Abraham, Clay Corbus, and Joseph J. Tabacco Jr. all signed off on Overstock.com's SEC filing. In addition, PricewaterhouseCoopers (PWC), Overstock.com's former auditors, consented to the company using flawed financial reports in its SEC filing.

The problem is that none of Byrne's financial statements have been in accordance with Generally Accepted Accounting Principles. Byrne created a "cookie jar reserve" in order to manipulate the numbers, thereby inflating the share price.

There he goes again, making a mess. It's not the first time, and it won't be the last. Ruff! Ruff! Down boy.

© 2009 Gary Weiss. All rights reserved.

How Did Fox Business News Wind Up With Patrick Byrne as an 'SEC Expert'?

William Wolfrum's blog picks up the amazing story of how Fox Business News embarrassed itself badly the other day, by using the twice-investigated SEC target, Overstock.com CEO Patrick Byrne, as an "expert on".... the SEC! (HT: Talking Biz News)

I observed the other day that the wacky Byrne is "my Marley"--a source of never-ending amusement. But I didn't count on the budding Fox biz network to use Byrne as a straight man. While he is a tempting guest for Fox, given his far-right politics, you'd think that Fox bookers would do a bit of checking. Or is that an unrealistic expectation?

A gent I know who is far more acquainted with these cable networks points out that FBN may not have known that Byrne was himself the target of his second SEC investigation--even though it has been widely reported, most recently by Crain's New York Business. Crain's even described how the probe was prompted by whistleblower ex-con Sam Antar.

Still, you'd think that Byrne would have had the courtesy to spare his guests embarassment (assuming they didn't know) by volunteering that information. But if so, he might have found himself actually asked about the probe, as he once was by a Fox host.

Bill Wolfrum concludes that "when FBN can’t bring themselves to mention a massive conflict-of-interest from one of their guests - who happens to be a long-time Republican - there’s really no need to treat FBN like a real business network." I'd only reach that conclusion if they put Byrne on the air knowing full well that he was the target of an SEC investigation, and didn't ask him about it.

© 2009 Gary Weiss. All rights reserved.

First Casualty of the BusinessWeek Sale

That was fast. Steve Adler's resignation from BusinessWeek was announced late yesterday, and according to Keith Kelly it is likely to be followed by others. Kelly makes it seem as if the staff is in chaos, with one other top editor likely to go and the status of another unclear.

Bloomberg has a reputation for being no-nonsense in such matters--in contrast to McGraw-Hill, which kept the magazine's top masthead in stasis even as it drowned in red ink. Still, I was expecting a bit more of a transition period.

In the current issue, Adler has an editor's memo in which he ends by saying "We look forward to continuing to serve you—and continuing to make ourselves indispensable." Seems his use of the word "we" was premature.

Folio reports ominously: "Bloomberg is not expected to ask all, if any, BusinessWeek employees to stay on following the acquisition."

If there are to be massive layoffs, I imagine it's only fair for the top editors to go first. It's a tragedy, and one gets the sense that it didn't have to be this way.

Initially I thought Adler was taking BW in the right direction. His selection for the magazine seemed to be a surprisingly good choice at the time, and I remember early reports that he was shedding deadwood and making good personnel decisions. But then came a redesign that didn't jell, massive layoffs and advertiser defections. It was a sad end to 80 years of stewardship of the magazine by McGraw-Hill.

© 2009 Gary Weiss. All rights reserved.

My Marley Snarls at a Friend

I like to refer to Overstock.com's famously wacky CEO, Patrick Byrne, as "my Marley," as in the famously wacky dog that was depicted in a recent movie, a memoir, and, originally, in columns in a Florida newspaper by John Grogan.

I understand Grogan's fascination with his dog, because it is the same fascination that I have with Byrne. Marley and Byrne are journalistic gifts that keeps on giving, providing endless amusment. One is the world's worst dog, the other is the nation's worst CEO. Both are endlessly destructive, paranoid--howling at thunderstorms. The difference is that Marley was at bottom a lovable mutt, and the theaters overflowed with tears when the doggie died in the Owen Wilson-Jennifer Aniston movie. Great dog. A story of love.

Byrne is very much the same, if you replace "lovable" with "despicable."

This brings me to the latest adventures of my Marley. What has he chewed up this time? Whose leg has he humped? Has he peed in the ocean off Dog Beach? Well, this time, the Journalist's Best Friend has done it again, by wandering over to the website of a potential ally, a person not unsympathetic to his naked shorting crusade, and making do-do all over the place.

The venue was the blog of someone named Lila Rajiva, who posted on the fake Matt Taibbi video. This is hardly a mega-blog, and her point was hardly unique. Besides, it's sort of a moot issue by now. Taibbi has ceased defending the video since Penson Financial wrote a letter to the SEC saying that the video is a fake.

Byrne heard a dog whistle summoning him to this obscure blog. Still being careful not to vouch for the accuracy of an obvious fake, he could have simply politely pointed out to Ms. Rajiva that he felt the case for its being fake was shaky, or something like that, thanked her for her interest, and gone on his way. Most CEOs wouldn't post on obscure blogs at all, of course, since they're too busy running their companies. But the SEC-investigated Byrne knows that the less time he spends running the company into the ground, the better.

So here comes my Marley, as usual going totally bonkers, growling and snapping (unlike Marley, he is a vicious little pooch), personally attacking her and accusing her of being part of a "disinformation campaign" in a hysterical, paranoid rant beginning, "BEWARE ALL READERS." Lila Rajiva is now part of The Enemy, not only wrong but malevolent, acting on instructions from unseen powers:

You can imagine that if a journalist uncovers a loophole through which wealthy, powerful interests are stealing money, those interests will organize a disinformation campaign to block their exposure (perhaps written in weasel-words that a layman would not catch).

What needs to be kept in mind is that the object of this nutty attack is sympathetic to naked shorting arguments, as is a fellow blogger who posted as follows:

Although, I have never followed Byrne's ranting and ravings in detail, I am aware that he has been leading a near one man crusade against naked short-selling. On this limited bit of information, I have always considered him somewhere between an eccentric and a nut job.

Judging from Lila's post she has had about as much interest in Byrne as I have had....

He tells us that deep dark interests would attempt to battle Taibbi. And implies that these deep dark interests have decided to employ Lila and me as their conduits. LOL.

Let me tell you something, even people who I generally tend to agree with are probably nervous about getting too close to me, and try and tell me what to post.

The chance that some black hat operator is going to be comfortable approaching me to attack Taibbi is absurd. I rip the penultimate black hat operator Goldman Sachs regularly. I don't think I have ever said a good thing about them.

This blogger, Robert Wenzel, makes clear that he is sympathetic to some of Byrne's views. But that doesn't stop Byrne. He chews up the trousers of anyone who comes within range, potential friend, foe or total stranger. He can't help himself.

That is what makes Patrick Byrne my Marley.

© 2009 Gary Weiss. All rights reserved.

Mr. Storch Goes To Washington

There is, or should be, a furor over a gent named Storch being named as the first chief operating officer of the SEC enforcement division.

No, not this Storch:



But this one:



His name is Adam Storch, he comes from Goldman Sachs, and he is 29 years old. (Photo from the ever-resourceful Business Insider.)

Now, getting back to the first Storch: his name is Larry Storch, and as every baby boomer knows, he was one of the regulars on a great old TV show called F Troop. F Troop ran on ABC from 1965 to 1967, which means that it was off the air for thirteen years when Adam Storch was born.

I'm sorry, but somebody who is too young to know who Larry Storch is should not be in a job of this importance. Even if he is from Goldman Sachs, and thus is part of that vampire squid thing.

The SEC, at least under Christopher Cox and its other George W. commissioners, was the F Troop of securities law enforcement. Adam Storch needs to know this, and that requires a knowledge of F Troop that he could not possibly have.

It also would be nice if he was old enough to shave.

Zero Hedge points out that he apparently doesn't have a brokerage license. I think that his lack of market experience is not necessarily a bad thing. He could have been, perhaps, administrator of some actual investigative organization, which Goldman Sachs most definitely is not.

Storch may surprise us and turn out to be a crackerjack investigative COO, despite his tender years and lack of knowledge of F Troop. But this is, on its face, not an encouraging hire.

© 2009 Gary Weiss. All rights reserved.

Bloomberg Buys BusinessWeek, but Whither the Staff?

Bloomberg L.P. officially became the buyer of BusinessWeek today, as expected. Here's a memo to the BW staff by the soon-to-be-former owner, and here's a Bloomberg press release.

A few things are left unclear in the official pronouncements, and they're not minor:

• How many people get fired?
• What happens to BW's bureaus?
• And, of course, obviously, what exactly will the new BW-Bloomberg look like?

This paragraph from the Bloomberg release goes a little bit beyond corporate-talk:

“Bloomberg looks forward to becoming steward of the great BusinessWeek franchise that McGraw-Hill has built over the past 80 years,” said [Norm] Pearlstine. “We are uniquely positioned to preserve and build the market presence of BusinessWeek. Our shared values and complementary resources give us the editorial and technological expertise, data, analysis and depth of reporting to create a new model for the business weekly.”

Now, this doesn't entirely exclude the possibility that Bloomberg would jettison the entire staff, as Women's Wear Daily reported the other day, but it certainly undermines that thesis.

That's the bottom line, obviously. The big fear from the outset was that BW might fall into the clutches of a viperish private equity type. That's not happening, so this turns out to be one of the better possible outcomes. But the jury is still out as to exactly what "becoming steward of the great BusinessWeek franchise" is going to mean.

© 2009 Gary Weiss. All rights reserved.

Bloomberg + BusinessWeek = Layoffs?

Amy Wicks of Women’s Wear Daily has a glum prediction today: the expected takeover of BusinessWeek by Bloomberg L.P. could mean the layoff, she says, of the entire staff.

Wicks says that "the company is expected to only take on the BusinessWeek name and Web site, and none of its staff or bureaus." She says that if "Bloomberg does take over BusinessWeek, the company is expected to use the staff from Bloomberg Markets magazine to provide editorial for the acquired title."

In other words, by this account, the sale of BW would be really nothing more than a disguised way of shutting the magazine--a p.r. stunt as much as anything. Let's hope it doesn't happen.

I can understand why a new owner would jettison the top management of the magazine, who were responsible for a redesign that was an editorial flop and a commercial disaster. In fact, not doing so would be a bit strange. But certainly a major media organization like Bloomberg could make use of a talented staff.

UPDATE: The exodus begins. I'm sure the only thing keeping many staffers at their posts is a lack of job opportunities.

You know, I know this isn't pleasant for the people involved, but it's sure a lot better than the fate of staffers at Portfolio, who found out one Monday morning that the magazine was closed--effective immediately. The Portfolio offices were empty a week later.

© 2009 Gary Weiss. All rights reserved.

Patrick Byrne, Facing Dilemma, Lashes Out at Penson Financial

Conspiracy theorist/fantasist Mark Mitchell, Deep Capture blog

Sam Antar today describes the serious dilemma facing Patrick Byrne, the wacky CEO of Overstock.com. Thanks to an SEC investigation instigated by Sam, who has posted frequently about how Overstock has systematically inflated its financial statements, Byrne is caught between the proverbial rock and a hard place.

He has to either restate Overstock's recent earnings--including a much-ballyhooed "profit" in the fourth quarter that was actually a loss--or wait until the SEC forces him to do so. Sam writes:

If Overstock.com restates its financial reports it will be the third time in three years that the company had to correct financial reports due to violations of GAAP: (1) inventory accounting error - Q1 2002 to Q3 2005, (2) customer refund and credit error – Q1 2003 to Q2 2008, and (3) underbilled income from fulfillment partners – Q1 2003 to Q2 2009. Patrick Byrne will have the unique distinction being the CEO of a company that restated financial reports from overlapping prior accounting periods three times: Q1 2003 to Q3 2005.

As usual in such situations, Byrne has dispatched one of his underlings to stage a diversion, by posting an item in Byrne's Deep Capture blog entitled "On Rolling Stone, Penson Financial, the Mafia, and Naked Short Selling."

The Byrne employee to get this task is Mark Mitchell, former editor of the Audit column at Columbia Journalism Review online. Mitchell was forced out of his job at the Audit in the summer of 2006. This item gives a good idea why CJR was happy to see Mitchell walk out the exit door for the last time.

But phony "journalism" by PR hacks is sometimes first-rate propaganda, and what we have here is an excellent example of the tactics of the naked shorting conspiracy theorists. I don't know if what we have here is particularly good as propaganda, but I do know that the gullible lap up this kind of thing.

In this case, Mitchell targets Penson Financial Services, the subject of a famous hoax video posted on the internet by Matt Taibbi, and he uses insinuations, built on stuff he makes up, to drill his point: that Penson is up to no good, and that it is in the service of the Mafia.

Mitchell says as follows:

If I have anything to add to Taibbi’s terrific reporting, it is this: Penson Financial’s vice president in charge of stock clearing (that is, the head of the division that appears to have located stock that did not exist) is a man named Christopher Sandel. From 1985 to 1995, Sandel was a top executive at Adler Coleman, best known for being the clearing firm to the Genovese Mafia family.

There's only a few problems with this paragraph, as in "everything":

1. Adler Coleman cleared trades for a rotten brokerage named Hanover Sterling, and, as I reported a good 13 years ago in a Business Week cover story, The Mob on Wall Street, Hanover was connected to the Genovese crime family. But it's nonsense to claim that Adler "cleared" for the Genoveses, and there's no evidence tying Adler to the Mafia.

2. Sandel is not in charge of stock clearing at Penson. He left that position two years ago. See this press release.

Mitchell goes on to build on his lie:

... when some of America’s biggest financial companies collapsed under a barrage of short selling last fall, an enormous chunk of that trading was being cleared by a fellow who used to work for a company that seemed to specialize in clearing trades for the Mafia.

The "fellow" is Sandel, who left in August 2007, seven months before the financial companies starting collapsing. And they collapsed because of their swan dive into derivatives, not because of a "barrage of short selling."

Mitchell then proceeds to wander down memory lane, back into microcap stock-land in the 1990s, misquoting and fabricating, finding opportunities for lies in every sentence. What's interesting, to me at least, is that the source material he twists into fabrications is stuff I've written over the years, and the guy whom he misquotes and lies about is moi.

For example:

Mitchell:

He [me] wrote a great deal about Hanover Sterling, but not once did he mention that naked short selling was central to that case.

The only reason Mitchell can yammer on, inaccurately, about shorting of Hanover stocks is that I wrote about it in the BW cover story, in which I described how the mob was shorting those stocks. In Wall Street Versus America I delve into the shorting of Hanover stocks, and point out that it was naked short selling. What was central to "that case" was not the shorting, however, but brokers who were paid kickbacks ("chops") to sell worthless stocks to the public.

Mitchell:

In his book, “The Mob on Wall Street,” Weiss told the story of a Genovese Mafia broker, and mentioned that this Mafia broker claimed to clear his trades through none other than…Penson Financial.

The book is Born to Steal, it told the story of a broker tied to an associate of the Colombo crime family, and, when he set up a fictitious firm called United Capital, he forged statements indicating he cleared through Penson. United Capital was an imitation brokerage, just a vehicle for stealing. It didn't trade and there was nothing to "clear."

Mitchell:

Several traders tied to the Gambino crime family were charged with naked short selling companies that were underwritten by Hanover.

Nobody was ever charged with naked shorting companies underwritten by Hanover. However, traders tied to the DeCavalcante crime family did indeed short Hanover "house" stocks (not necessarily underwritten by the firm), as I described in Wall Street Versus America and first reported way back in 1996.

As a matter of fact, when former FBI director Louis Freeh praised my BW stories for aiding prosecutions in Florida, he was directly referring to the DeCavalcante prosections. So I guess you can say that I helped put a naked shorter in jail--though, as it happens, naked shorting was not part of the criminal case against the DeCavalcante crew.

There's more goofy, casual lies, which most people probably wouldn't notice unless they happen to have written a book on the subject:

Hanover Sterling, self-imploded in one of the greatest naked short selling scandals of all time.

Though there was naked shorting, what made this a scandal was that customers were sold worthless stocks.

That the Genovese Mafia brokers at Hanover were not charged in this case seems odd...

Sure is odd, because top Hanover brokers were charged, indicted, convicted and imprisoned.

Mitchell melodramatically concludes:

Might the Mafia have played some role in the collapse of the financial system? If I were more heavily armed, I would venture an opinion.

He does need to be more heavily armed. With the facts, not fantasies.

Usually I don't respond to Mitchell. If I did, I'd be doing nothing but responding to that psycho in this blog. But I think it's important in this instance to demonstrate the kind of moronic lies floating around the naked shorting world, most of them deliberately promulgated by Mitchell and other Byrne employees.

I think it's pretty plain now that the hoax video came from somebody in the naked shorting la-la land. Taibbi is only the most recent and best-known victim to be suckered by these idiots, and he won't be the last.

All of the above deliberate misrepresentations and lies are underwritten by Byrne, who founded and finances Deep Capture. But none of this is going to save Byrne from his day of reckoning with the SEC, if they have the guts to enforce the securities laws.

© 2009 Gary Weiss. All rights reserved.

Did Penson Lie in its SEC Letter?

Matt Taibbi hasn't responded to the letter made public yesterday by Penson Financial Services, which he accused of a pretty serious securities law violation in a blog post the other day.

But while he's remaining mum, somebody spoke up in his defense, positing the following in a comment to Clusterstock:

LOL. Go to law school. Then re-read that letter. "There was no locate at the time of the video" is hardly the same thing as saying, "There was no locate for x-billion shares for CITI." They also didn't say, "We would never approve a locate greater than the float."

When a lawyer speaks, it's best to pay attention to what he or she *did not* say.

Now, it could be that the video is a hoax.

I find it telling, though, that the letter does not deny any of Taibbi's underlying allegations. Would Penson have approved such a trade? If not, why not say, "The video must be a hoax, because we would NEVER approve such a trade." Etc.

Actually the letter did more than just say that. It starts out by saying, "The purpose of this letter is to inform you of an apparent hoax and unsupported accusation of a violation of Regulation SHO by Penson."

In the third paragraph it says, "The purpose of this letter is to inform you that Taibbi's post is based on false information." And then, toward the bottom, it says, "While we are uncertain whether Taibbi's article is the result of a hoax or something more deliberate......"

(A copy of the letter can be found here.)

I don't see much wiggle room here. Penson is saying that the video is either a hoax or something worse than a hoax, something "more deliberate." I guess that's a gentle way of saying that Taibbi made the whole thing up.

As I said yesterday, there are possibilities: Either Penson is lying, or it is not.

Perhaps Penson knows full well that this is a legit video, and is sliming and lawyering through the thing by sending a letter intended to mislead the SEC. Or the video is a hoax, but in fact the company really engages in the kind of behavior depicted in the video. Then it misled the SEC when it said that it has "written supervisory procedures" on short sales.

In either case, Penson is in major doo-doo. That letter would constitute what is known in the criminal justice system as obstruction of justice. That's because the letter is designed to head off any possible SEC or Justice Department investigation into securities law violations at the firm.

The other possibility, as another blogger put it yesterday, is that Penson is not lying and Taibbi got "punk'd." He fell for a fugazy video.

Hey, I'm comfortable with both scenarios. My first major investigative piece for BusinessWeek was way back in 1988, when I wrote about sleaziness by what was then the largest clearing firm, Pershing, then a division of Donaldson, Lufkin & Jenrette. Pershing used to engage in various practices, too complex to explain here, that enriched itself at the expense of shareholders. I learned back then how sleazy the back office and stock-clearing business can be.

Some years later I wrote about how Bear Stearns apparently knew about customers being ripped off by slimy penny stock houses. Bear came charging at us, lying through its teeth about the whole thing--but had the good sense not to lie to the SEC.

So maybe Penson is lying too, maybe its denial is a lot of hooey. But if it isn't, Matt Taibbi has put out some pretty serious misinformation. Not only hasn't he corrected that misinformation, but he has stood by his story in an emphatic way.

UPDATE: Investment News reporter Dan Jamieson says that Taibbi would not respond to an email requesting comment. Odd. You'd think he'd be anxious to defend his "scoop," if he still thinks it's genuine.

Jamieson reports that "Daniel Son, president of Penson's parent, Penson Worldwide Inc., said several 'doctored' versions of the video have appeared on YouTube."

The naked shorting conspiracy crowd still hasn't attested to the genuineness of the video, although there's a reasonable chance it came from one of those loons. Really not very nice to let Taibbi hang like that. Mark Mitchell, an ex-CJR editor who was pushed out of his job in 2006 and now works for Overstock.com's wacky CEO Patrick Byrne, came galloping to Taibbi's defense in a blog post Wednesday--almost.

Writing in Byrne's Deep Capture blog, the cracked-up ex-journalist carefully doesn't endorse the genuineness of the video. Instead he wanders down memory lane, making stuff up, in an effort to smear Penson. Since this is a good idea of how the naked shorting loons rewrite history, I've provided a full analysis here.

The Proxy Partisans blog opines: "We'll see how it pans out. But it seems to me that it is Taibbi who is way out on a limb here. And I hear wood cracking."

© 2009 Gary Weiss. All rights reserved.

Ben Stein's Employer Drops Lawsuit Against Blogger

In a previous post I described how Freescore.com, Ben Stein's employer, had sought to silence a blogger who was dared to criticize that slimy company. Public Citizen's Consumer Law and Policy Blog reports that the suit has been dropped.

But here's what makes the whole thing funny. Freescore claimed "victory" because it said its suit against Yahoo!--another Stein employer-- was moot because it had identified the blogger who had the temerity to criticize these night crawlers.

According to CL&P:

...the villain whom they want to sue for defamation is Franklin Seegers, who allegedly lives in Washington, DC.

A few minutes research online would have told them how wrong that is. According to the Washington Post, in 2006 DC resident Franklin Seegers was sentenced to 40 years for his role in a violent drug gang known as Murder Inc. Federal Bureau of Prisons records show that Seegers can now be found at the Butner Federal Correctional Complex in North Carolina. These are the brilliant sleuths who charge $29.95 per month for protection against identity theft for Internet users who call to get their “free” credit score?

More on this from Ben Stein's nemesis, Felix Salmon, in his blog here.

© 2009 Gary Weiss. All rights reserved.

Bloomberg--or 'No Sale'--is the BusinessWeek Frontrunner

Reuters reports today that two bidders have dropped out of the running to buy BusinessWeek: OpenGate Capital and Mort Zuckerman. This is not good news, at least not for my struggling alma mater.

OpenGate was a slash-and-burn private equity outfit, but Mort Zuckerman was a kind of old-fashioned media mogul-wannabe. Seeing him drop out is troubling.

This puts Bloomberg in a kind of shoo-in position to buy BW. But it also means that if Bloomberg drops out there will be no other serious contenders apart from ZelnickMedia.

ZelnickMedia? Don't they even know how to put spaces between words? Here's something about a recent acquisition of a "direct response television media company" it just bought. I'm only linking to it because it was the second highest link on Google. Hot dog! One heck of an acquisition.

That puts BW in one heck of a pickle. Anyone who has ever tried to sell anything knows that the more bidders, the merrier. Right now, BW is stuck between Bloomberg and Zelnick. Looks to me more like Bloomberg and "no sale."

UPDATE: It now seems that Reuters is partnering with Zelnick. If so, that gives Bloomberg some real competition, and is awfully good news for the struggling magazine.

© 2009 Gary Weiss. All rights reserved.

Was Matt Taibbi the Victim of a Hoax?

Folks, I have a confession to make: I was in a minor auto accident the other day. I am really not in the mood for any massive fight with some guy who likes to call people "assholes." I have a sensitive disposition, am in a bad mood, and I don't think my constitution could take it.

But nevertheless, we have an interesting situation here: Matt Taibbi, who writes for Rolling Stone, posted the other day what he described as a "video" showing a "naked swindle" as in "naked short selling" in action.

The video is here.

One of several responses from Clusterstock is here.

Taibbi's response to that is here.

The back-and-forth over the video has been vitriolic, but this blogger seems to have a good handle on the thing.

Two things struck me as odd about this whole situation. One is that naked shorting conspiracy theorists, who you'd expect to rally around Taibbi in a situation like this, were strangely silent. So was Penson Financial Services, the actual location of the naked swindle in question, according to Taibbi:

A clearing firm that worries about the rules and whines about not being able to locate this or that stock is not going to keep the business of a lot of these day traders. So you see a lot of cut corners.

This video is an example of a cut corner.

Well, there you go. That's the guilty party: Penson and only Penson, according to Taibbi. No other brokerages are mentioned by Taibbi as being involved.

This is a serious accusation. If Penson okayed a "locate" of a massive number of shares without good cause, if it "cut a corner" as he put it, Penson could be accused of being an accomplice (or accessory or something) to a genuine market manipulation. See, while I've said numerous times that naked shorting conspiracy theories are overblown hooey, the fact remains that if someone actually did use naked shorting to drive down the price of a stock, that would be market manipulation.

If a trading system or clearing firm allows naked shorting that could drive down the price of a stock, it's a big problem. And by the way, that's got nothing to do with Regulation SHO or any of the other sturm und drang from the SEC over the past few years. Market manipulation has always been illegal.

If not, it's Taibbi who's got the big problem. Someone gave him a "fugazy" video and he got taken in. Is that what happened?

I went to the Penson website and noticed that the chief spokesperson there is a gent named Andy Yemma. I wrote him to ask if there was a response, and he emailed me a letter Penson has sent to the SEC:



So either Penson Financial Services is a bunch of crooks that just committed a criminal act and compounded it by lying to the SEC, or Matt Taibbi is the victim of a hoax. There is no third alternative.

At first I thought that maybe Taibbi got this from one of the conspiracy theorists themselves. But now I'm not to sure. Was Taibbi set up? Was he sandbagged? See, I'm a bit conspiracy-minded myself.

Of course, the NSS conspiracy types are not always the brightest bulbs in the package, and they do indeed traffic in sheer hokum.

But Taibbi is on record rather profanely rejecting the charge that he was the victim of a hoax.

Since he's standing by his story, what I can't understand is why Taibbi underplayed the seriousness of this whole thing. What he's saying is that Penson--a rather large Wall Street firm--is a criminal enterprise. Remember, he's saying that unequivocally, no weasel words. He's claiming direct culpability by that firm, by Penson, not by some broker clearing trades by the firm. He says Penson "cut corners" and that the video proves it.

He's got a big story on his hands. Bigger than Madoff! Unless it's a hoax, that is.

By the way, if it's not a hoax, where are the naked shorting conspiracy sites? Why aren't they flocking to his side? Hmmmmm?

UPDATE: Penson issued a vigorous denial in a letter to the SEC, which is unwise if it isn't innocent. Taibbi would not respond to an email from a reporter from a Wall Street trade publication. Guess he wants it to go away. It won't. See my follow-up here.

It seems pretty likely now that the video is a hoax, probably concocted by a naked shorting conspiracy nut.

In this post I describe how the naked shorting loons systematically lie, sometimes crudely, in the hope of trapping the unwary. Taibbi would appear to be their latest target.

© 2009 Gary Weiss. All rights reserved.

Patrick Byrne Repeats 'Eagle Scout Defense' to SEC Investigation

Patrick Byrne's nemesis featured in Crain's

Crain's New York Business today has a terrific cover story on white collar crime fighter Sam Antar, online here (subscription or free trial required). It's filled with terrific nuggets of information, one of the most interesting of which is that Overstock.com CEO Patrick Byrne repeats, word-for-word, what is shaping up to be Overstock's lame defense of its accounting irregularities: the "Eagle Scout defense."

Repeating what he told the Salt Lake Tribune in an ethnic-slur-laced interview, Byrne said that his defense to the SEC investigation, which was clearly prompted by Antar's meticulous analysis of the company's accounting, is that his accountants, who he alleges would be to blame for any irregular accounting (Heaven knows, not him!) are "Eagle Scouts."

In the Tribune he said:

"Our accounting department is a bunch of square Utah Eagle Scouts," Byrne said. "Their instructions were to keep the books conservatively. In 2006, our auditors said we were being too conservative."

In Crain's he said:

“Our accounting department is a bunch of square Mormon eagle scouts, and their orders are to be as straitlaced as possible,” he says.

Putting aside the inappropriate and patronizing reference to his accountants' alleged religion--this guy is really hung up on people's religion, isn't he?--it's striking how Byrne is trying to shift blame to underling, faceless "accountants."

The problem is that it won't wash.

Thanks to a little-enforced post-Enron law known as "Sarbanes-Oxley," Byrne, not faceless "Eagle Scouts" wearing eyeshades, is personally responsible for Overstock's financial statements and signs off on them, attesting to their truthfulness--something designed to prevent precisely this kind of blame-shifting to "the Mormons in our accounting department."

CFO Steve Chestnut also has to place his John Hancock on the financial statements with a Sarbox attestation--scouting merit badges and religious affiliation notwithstanding.

It's also sheer bull. Ever since he started examining Overstock's finances in early 2007, Sam Antar has been telling Byrne, in both blog postings and emails, that his accounting has not been in accordance with Generally Accepted Accounting Principles. Sam has detailed how Byrne created a "cookie jar reserve" that he has been using to minimize losses and create a long-promised fourth quarter "profit" that was actually a loss.

Byrne has acknowledged seeing Antar's emails and posts from day one, and has responded by mocking Sam, attacking him on his conference calls, and siccing his nauseating Internet stalker, Judd Bagley, to smear him on the Internet. Bagley has stalk him pretty much everywhere, contacting his estranged wife, and even turned up to attack Sam at the NPR website, when Sam gave an interview not mentioning Overstock at all.

Unless the SEC decides to take a dive, again, and ignore Byrne's falsifying of financial statements, Byrne is going to find it hard to evade responsibility by blaming his crookedness on unnamed "Mormons."

I have a sneaking suspicion that we're going to see a lot more Yiddish curses and LDS-blame-shifting from this character in the months ahead. Byrne's mummy and daddy really need to talk with him (maybe when they send him the monthly trust fund check) about talking about people's religion. It tends to... no, on second thought, better not say anything.

© 2009 Gary Weiss. All rights reserved.

Has BusinessWeek's Cavalry Finally Arrived?

Help may be on the way for BusinessWeek

Years ago, I used to work at a little Washington outfit called States News Service. It was perpetually struggling for survival, and the boss man always used to keep the staff at bay by saying that the "cavalry" was coming.

I was reminded of that when I read Tom Lowry's scoop in BW Online yesterday that Mort Zuckerman had thrown his hat in the ring. It had previously seemed that Bloomberg was the front runner, but Zuckerman is a serious contender who might actually be able to buy BusinessWeek.

What's refreshing, from a purely parochial media-watching point of view, is Tom's source: Mort Zuckerman. Not an "unnamed source close to the bidding process" (interested in manipulating the news to his or her own benefit) but the guy himself.

Also gratifying was that it was the first major scoop BW had achieved in covering its own sale (word of which first emerged on the Bloomberg wire, whose entry into the bidding was first reported by the NY Post's Keith Kelly).

What's surprising to me is that Rupert Murdoch hasn't expressed interest. BusinessWeek could be an even more significant megaphone for him than the Wall Street Journal, and there would be none of this nonsense about unenforceable editorial controls. He certainly doesn't mind losing money when he feels it's necessary. BW is one hell of a brand name. Odd.

Zuckerman told Keith Kelly that he put in a bid because he's a "junkie for journalism." That's something you don't hear much anymore, even for public relations purposes.

© 2009 Gary Weiss. All rights reserved.