Wednesday, October 07, 2009

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'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.

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