Thursday, February 26, 2009

The Bard of Our Great Depression


Our bard

Every Depression needs a Bard, and for that I nominate somebody who was born during the last Big One, Leonard Cohen.

Here's an NPR link that takes one to an hour of Cohen's phenomenal recent concert in New York.

He's touring the U.S., by the way. Tickets can be purchased here. He's coming back to New York in just a few months, fortunately. We need him!

© 2009 Gary Weiss. All rights reserved.

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Wednesday, February 25, 2009

Naaah, the Magazine Business Isn't in Trouble

I just ordered a DVD from Amazon.com, and got an email in return offering me Rolling Stone for a year, Men's Journal for a year, and US Weekly for two months for a buck each.

I chose Rolling Stone and Men's Journal. My VISA was billed for $2.00.

The magazine business is in trouble? Naaah.

By the way, someone sent me a photo of reporters for Rolling Stone and Men's Journal walking to their next assignment:



(And yes, I know, people in glass houses....)


© 2009 Gary Weiss. All rights reserved.

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Northern Trust Puts on the Ritz


Peter Cohan today tells the stomach-turning story of the TARP-fed bank Northern Trust, which evidently believes we're still in the Roaring Twenties and not 1930, throwing a huge soiree at taxpayer expense.

The source of this scoop is the celebrity website TMZ.com, which says:
Northern Trust, a Chicago-based bank, sponsored the Northern Trust Open at the Riviera Country Club in L.A. We're told Northern Trust paid millions to sponsor the PGA event which ended Sunday, but what happened off the golf course is even more shocking.

Northern Trust flew hundreds of clients and employees to L.A. and put many of them up at some of the fanciest and priciest hotels in the city. We're told more than a hundred people were put up at the Beverly Wilshire in Bev Hills, and another hundred stayed at the Loews Santa Monica Beach Hotel. Still more stayed at the Ritz Carlton in Marina Del Rey and others at Casa Del Mar in Santa Monica.
The shocking part is that Northern Trust has lapped up $1.6 billion in taxpayer bailout money.

Cohan adds:

I just feel sorry for Northern Trust's 450 workers who lost their jobs in December, 4% of its workforce. And did I mention the biggest suckers of all? You and me are on the hook for this LA blowout. And unless the government steps in, there seems to be nothing to stop them from partying again -- they sure must think we're fools.

© 2009 Gary Weiss. All rights reserved.

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Tuesday, February 24, 2009

Depression Mania


All this Depression talk is depressing.

President Obama tonight has a great opportunity to convince the country that we are not sliding into another Great Depression. Fat chance for that, but still we can hope.

Michelle Leder reports at Footnoted.org that she is impressed by "the number of companies that seem to be mentioning the Great Depression in their [10-K] filings." There's Caterpillar--well I guess that's understandable. I've never forgiven them for tearing down Tom Joad's shack in The Grapes of Wrath. But so has Prudential.

There are certainly advantages to some aspects of the Great Depression, I suppose. One could get a room in a flophouse for 5 cents. Riding the rails might be fun. But I must say that witnessing businesses croaking right and left leaves something to be desired so far.

The other day, for instance, the Journal Register newspaper chain declared bankruptcy. Years ago I worked in a bureau of the Hartford Courant, and my competition, and my competition was a paper called the Middletown Press. It was a fat, advertisement-filled newspaper without much investigative zeal but with a great franchise. It was gobbled up by the Journal Register chain some years ago, and now, like the rest of the news business, it's dying.

So Obama has a chance tonight to convince us that people are going to stop dropping like flies around us. I hope he succeeds, but I doubt he will.

UPDATE: He seems to have convinced the public, based on quickie polls after the speech, but not the market, based on early price action.

© 2009 Gary Weiss. All rights reserved.

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Patrick Byrne Modestly Removes Himself From List of Overstock.com Risk Factors

My favorite corporate train wreck, the ethically-challenged money losing corporate crybaby Overstock.com, received some well-deserved derision last summer when word emerged that its dipsy-doodle CEO, Patrick Byrne, had listed himself as the company's No. 1 risk factor.

Beginning with the second quarter financial statment, Overstock disclosed as follows:
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.
Actually the disclosure was neither true nor complete, because Byrne's jihad is against his critics and not on the subject of naked shorting on the merits, since he has never addressed, on substance, any of the points raised by people who think his stock market conspircy theories are full of beans. In fact, his smear campaign against critics, being issuer retaliation (something the SEC supposedly is interested in), is in itself a bona fide risk factor Byrne has never disclosed.

Word of the disclosure, in which Byrne essentially conceded that his company had become a laughingstock, resulted in wry commentary at Footnoted.org and Floyd Norris' New York Times blog. Floyd said that it "is the first time I have ever noticed a company listing the possibility of 'criticism and derision' in the media as a risk factor." Byrne, never to take accurate coverage lying down, responded that he was not a laughingstock, and added Floyd to his ever-lengthening enemies list.

Well, you'll be pleased to know that Overstock.com is no longer a laughingstock. The language, which was repeated in the third quarter report released in November, was edited out of the 10-K that was released yesterday.

Here's the 10-Q from last November (deleted sentences highlighted in red):



And here's the 10-K that was released yesterday:



Seems to pose a bit of a disclosure issue for Overstock, because the company is clearly as much of an object of derision today as it was in November. But I guess the embarrassment of having to disclose that proved too much for the man who has come to be known as "Wacky Patty" because of his kooky behavior. So I guess ego, as usual, trumps common sense. I wonder if Overstock's crackerjack legal eagle, ex-SEC lawyer Brent Baker, decided that his ex-colleagues didn't need to know about this anymore.

Mind you, this is just from a casual reading of the 10-K. When Overstock has to disclose stuff there is usually a veritable fun-house of hidden sewage beneath the pavement. Stay tuned.

© 2009 Gary Weiss. All rights reserved.

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Monday, February 23, 2009

How the SEC Missed on Stanford and Is Missing on Overstock.com

Two articles have appeared over the past couple of days that I view as bookends: one describing how the SEC missed out on the R. Allen Stanford's alleged Ponzi scheme, and the other describing how the SEC is missing out on an ongoing corporate trainwreck, Overstock.com and its flouting of accounting rules and Sarbanes-Oxley.

Here's the article on Stanford, by the AP's Marcy Gordon, and here is the Overstock analysis, which appeared on Stockwatch.

Note the parallel themes: SEC incompetence.

Stanford:
"Stanford's businesses were inspected and investigated several times, starting in 2006 by the SEC and in 2004 by the NASD, the brokerage industry's self-policing group, now called the Financial Industry Regulatory Authority, or FINRA. NASD's scrutiny resulted in several disciplinary actions: the regulator fined his brokerage company four times, with penalties totaling $70,000, for violations that included misleading investors in sales materials about the risks of the CDs."

Overstock:

[Overstock CEO Patrick] Byrne's claim, parroted by [Overstock president Jonathan] Johnson, that Overstock.com's "EBITDA reconciles to GAAP" is gobbledegook. EBITDA is presented as a specific number; GAAP is a set of accounting principles. It makes no sense to claim that a specific number reconciles to a set of accounting principles. A specific number must be reconciled to another specific number.

As [white collar crime crusader Sam] Antar properly points out, EBITDA, a non-GAAP financial measure that does not include an adjustment for stock-based compensation must be reconciled to a particular GAAP measure; specifically, net income or, in the case of Overstock.com, net loss.

As it turned out, after giving Mr. Antar such a dismissive public drubbing and insisting that Overstock.com's treatment of EBITDA was right, Mr. Byrne and his Overstock.com cohorts evidently reconsidered their position.

On Nov. 10, 2008, Overstock.com filed an amended annual report for 2007, amended quarterly reports for the first two quarters of 2008 and its third-quarter report. With nary a peep, the company abandoned its non-compliant EBITDA and substituted "Adjusted EBITDA" properly reconciled to its net loss.

"Antar the Crook" was clearly right and "Wacky Patty" was clearly wrong.

The company also defies Sarbanes-Oxley by flushing its code of ethics down the toilet and engaging unethical conduct and issuer retaliation , as I've pointed out.

Last year, Chris Cox's SEC dropped an investigation of Overstock. History repeats.

© 2009 Gary Weiss. All rights reserved.

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Friday, February 20, 2009

President Obama Does Something Right

No CEOs in the cabinet. Hear hear!

"There was nothing quite like watching the daily work of geniuses like Carly Fiorina to make one hunger to have CEOs all up in our governments," says Jason Linkins in HuffPost. The business of America may be business, as Cal Coolidge said, but lately business sucks.

© 2009 Gary Weiss. All rights reserved.

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Requiem for a Junk Lawsuit

One of the most noxious corporate blame-shifters I know is Biovail, a Canadian biotech company whose primary product appears to be litigation----suing short sellers in an unsuccesful effort to prove that it isn't a heap of dung. A few months ago the company pleaded guilty to criminal charges. Here's a blog item from last May describing the charges and some of the awful press coverage Biovail has received.

Yesterday, a federal judge tied a bow around this whole stinky mess, by throwing out a junk lawsuit against some hedge funds that had been accused of conspiring to drive down the company's share price.

In so doing, Judge Stanley R. Chesler described the suit as a preemptive strike against a class action suit. The judge said:

“The record before the court suggests that these proceedings and the RICO action proceedings were all part of a choreographed strategy by Biovail and its attorneys designed to constitute a counterattack against the Biovail securities action,” he wrote. “The conduct is so egregious, and the futility of imposing alternate sanctions is so clear, that dismissal is the only appropriate sanction.”
I can think of a more appropriate sanction: fine the responsible parties and their lawyers, and insist that they be paid out of their own personal funds. It would be nice if the Obama administration started taking strong action against companies that file frivolous lawsuits like this. It's called "issuer retaliation" and it's a major problem.

© 2009 Gary Weiss. All rights reserved.

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Thursday, February 19, 2009

More News From Mary Schapiro. Brace Yourself.

The SEC just announced the appointment of a new director of enforcement, a gent named Robert Khuzami. Here's an AP story on the appointment. I view this as good news and bad news, with the bad far outweighing the good.

First the good news: I must admit I've never heard of the gent, but evidently he was a crackerjack federal prosecutor in Manhattan a few years ago, and handled a bunch of high visibility cases. One involved a character named Lino, who was ran brokerages for the Bonnano crime family.

According to the SEC release: "As Chief of that Office's Securities and Commodities Fraud Task Force for three years, Mr. Khuzami prosecuted numerous complex securities and white-collar criminal matters, including those involving insider trading, Ponzi schemes, accounting and financial statement fraud, organized crime infiltration of the securities markets, and IPO and investment adviser fraud."

The bad news is that he is general counsel of Deutsche Bank, and no doubt will go back to Deutsche Bank, or some other esteemed institution, at much higher pay, once his time as SEC enforcement director is at an end.

Now, honestly, is there any place on God's green earth where Mary Schapiro could have found an enforcement director other than one of the biggest multinational banks? Is she even the slightest bit interested in restoring investor confidence in her fairly-maligned agency?

I'm sure Khuzami is a terrific lawyer, but he's just too close to Wall Street to be both effective and reassuring to the public. His appointment is not only a bad idea, it is a depressingly bad idea.

© 2009 Gary Weiss. All rights reserved.

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Richard Ketchum Has to Answer for His Past

That's the title of a really excellent blog post today by securities lawyer Bill Singer. A link to it is here.

Ketchum has been nominated to replace Mary Schapiro, President Obama's questionable choice as SEC chairman, to head FINRA. As Bill points out in his blog, Ketchum, who served briefly as a Citigroup attorney as well as a lengthy regulatory career, is hardly a dream candidate for the job:

Unfortunately, it is his "vision" for regulation that forces me to pause. FINRA proposes to hand its helm over to a former Citigroup insider -- these days, not exactly a credential to inspire confidence (although Ketchum's tenure there was notably short). Moreover, Ketchum is yet another one of those former SEC-former NASD-former NASDAQ types who had many, many opportunities to reform our failed regulatory system and either chose to perpetuate it or simply lacked the ideas and will to accomplish the task. I do not believe that you can undertake the necessary overhaul of Wall Street's failed regulatory system by merely recycling old faces and ideas. Regrettably, that is how I see Ketchum.
It's a long and detailed examination of Ketchum's record that should be read carefully.

© 2009 Gary Weiss. All rights reserved.

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A Corporate Cry Baby Bites the Dust



Very few things are predictable in the markets, except that a company whose CEO cries about short selling ---especially the mythical menace of naked short selling --- is either a crook, a dummy, or both. So it is with a company that began its journey to that great bucket shop in the sky this week: a surgical supply outfit called Arthrocare.

Arthrocare has weeped bitter tears about short sellers who claim that its accounting is FUBAR. Poor thing, to be so ill treated! Isn't it awful how companies are attacked by short sellers? Except that yesterday it announced that it is under both SEC and criminal investigation into... the company's accounting, which Arthrocare concedes has been totally screwed up from head to tail:

The Audit Committee was informed that certain sales and marketing personnel within the Spine Business Unit provided physicians and their billing staff with merchandise and administrative services at no charge potentially in exchange for their utilization of the Company’s products. The Audit Committee has determined that Company personnel at all levels lacked adequate healthcare compliance training and that Company billing personnel lacked adequate training and supervision in insurance reimbursement requirements. In addition to considering and implementing remediation efforts, the Audit Committee is undertaking a review of such practices in other business units.

The Company is unable to estimate the possible effect of the review on the ongoing restatement of its financial statements for the years 2000 through 2007 and the quarter ended March 31, 2008.
Translation: if you have any 10-Ks or 10-Qs going back to the Clinton administration you can throw them in the trash can. Its crybaby-in-chief, CEO, is stepping down.

Another short seller crybaby that has been ground into dust by its own crappiness is an outfit called Medis Techologies has been screaming about naked shorting for years. Just a few months ago CEO Robert K. Lifton devoted a large portion of his quarterly earnings release to loud weeping over naked short selling, boasting about a meeting with George Bush's comatose SEC chairman Chris Cox:

During this period, much has been written and discussed about improper practices connected to short selling and the SEC has promulgated rules regarding naked shorting and other improper actions by short sellers as they relate to certain large financial institutions. Last month, I had the opportunity to meet with Counsel to SEC Chairman Cox and present our view that these new rules should apply to all companies, large and small. Our Company, for example, has the dubious distinction of being number one on the Regulation SHO list showing failures to deliver shares for 758 days. To be sure the harm to these large financial institutions can have serious broad based consequences, but as I pointed out in our SEC meeting, it is those smaller companies that predatory short selling- what Chairman Cox terms “distort and short” - can more easily destroy. These companies are the ones which help create new technologies that our country needs in order to compete successfully on today’s highly competitive playing field. Our recommendations to the Commission call for stopping illegitimate naked short selling in a number of ways. First, to amend Regulation SHO effectively to require...
The reference to "Regulation SHO" refers to a rule, passed by the SEC as a sop to blame-shifting CEOs like Lifton, requiring brokers to settle trades and thus wipe out any possiblity of naked shorting (despite the total absence of evidence that there is actually a problem called "naked short selling"). Reg SHO was a godsend tot he Liftons of this world, because it meant that if they appeared on the list they had a ready-made excuse for their own incompetence and/or crookedness.

Since those words were writte, Medis's stock has declined from $3 to under 50 cents because of poor financial performance, and yesterday, the company announced that its crybaby CEO was "retiring."

© 2009 Gary Weiss. All rights reserved.

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Wednesday, February 18, 2009

Patrick Byrne's Smear Campaign Backfires

Mark Mitchell, Deep Capture
One of the techniques of the loony-tunes CEO of Overstock.com, Patrick Byrne, in advancing his shrill and nonsensical Wall Street conspiracy theories is to dispatch across the Internet an army of paid hirelings led by former Florida Republican wingnut Judd Bagley and disgraced ex-CJR editor Mark Mitchell. Well, Byrne seems to have picked the wrong target.

A shill for Byrne who goes by the Internet moniker "Shawn Brandom" (I mentioned him or her a while back), made the mistake of spamming Byrne's "Deep Capture" smear site as a comment on a Huffington Post article by filmmaker and journalist Diane Tucker. Bad move. Tucker responded:
The comment above by "Shawn Brandom" is interesting but not credible. These are actually the first three paragraphs of a story written by Mark Mitchell, a journalist who has been criticized for being the shill of Overstock.com CEO Patrick Byrne. Here is the link:

http://garyweiss.blogspot.com/2008/04/mark-mitchell-mystery-solved.html

At first I was going to delete "Brandom's" comment. But I'm leaving it up because it illustrates a growing problem in financial reporting: who can you trust?
Tucker didn't let it go at that. She followed up with journalist and writer William K. Wolfrum, who authored a terrific post entitled "Wow. Overstock.com CEO Patrick Byrne is an unethical freak." Now, of course, the "wow" factor is pretty much gone for any regular reader of this blog. But it was all new to Wolfrum, so the result is a lengthy excoriation of Byrne and his hirelings Bagley, Mitchell and so forth, known and unknown.

Wolfrum observed:

. . .it’s one thing when a couple filmmakers hoax a gullible media with meaningless made-up factoids. It seems as though it would be another thing altogether when a publicly traded company would go through an amazing amount of hoaxing and “astroturfing” to bolster it’s CEO’s numerous lawsuits.

But such is the world of Overstock.com and it’s CEO Patrick Byrne. Because Byrne understands the Internet, and has given himself a voice using corrupt or invented characters.
Evidently Byrne has not won over an adherent to his conspiracy theories:

Not being an economist, I won’t even begin to attempt to give an opinion on Byrne’s naked short-selling campaign. But even without that, I can definitely report that there is just a non-stop foul stench emanating from Overstock.com and Byrne.

The stenchmeister is Bagley, Byrne's pointhuman in the field of "issuer retaliation"----the term of art for public companies retaliating against critics. Bagley leads the online smear army and is paid by Byrne to construct elaborate conspiracy theories on the basis of surmise and innuendo. That is OK I suppose, until you realize that the man cannot distinguish between fact and fancy. I'm not kidding. I seriously doubt that he can make that distinction on even the most trivial of subjects.

Just the other day he just flat-out lied when a message board member made a passing reference to Bagley's sole "journalism" experience, which is working as a traffic reporter for Metro Networks. Bagley said "I've never even worked as a traffic reporter." He stuck by his story until confronted with evidence that he had, indeed, reported on traffic jams on the highways and byways of Salt Lake City. He then posted that his "wife reminded him" about his humble past employment, which he omits from his online resume.

At about the same time, Bagley posted this flight of fancy to describe why his Deep Capture creeps posted innuendo that Bethany McLean, of Enron fame, left Fortune under a cloud -- and not the truth, which is that she left for Vanity Fair.

Wolfrum summed up this phenomenon neatly:

Overstock.com is apparently ruled by a modern version of Ed Wood’s film troop. They are a very stupid bunch who don’t seem to have a focus on reality whatsoever. And like Ed Wood, they are doomed to inglorious failure.

Seriously, leaving everything else out, look at it like this: The CEO of a publicly traded company has created several Web sites and hired several people to attack his enemies and sockpuppet at blog comment sections. All the while producing what seems like thousands of words daily about short-selling.

UPDATE: That was faster than usual. No sooner than the ink dried on this post then I get a call from the creepy disgraced ex-journalist, Mark Mitchell. Since he is a clone of Bagley's in the dishonesty department, all he heard after "what was your name again?" was the sound of my receiver being replaced on the hook.

© 2009 Gary Weiss. All rights reserved.

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Has the SEC Lost the Scent on Allen Stanford?


Have you seen this man?

Yesterday the SEC pulled out all the stops to announced a three-year-delayed securities bust, involving Allen Stanford, whose $8 billion financial empire is allegedly infested with fraud. Well, guess what? Apparently Stanford has read all that terrific media, because he has gone missing.

Bloomberg says that the crackerjack SEC enforcers have lost track of the gent. Bloomberg reports:
“We don’t know where he is, quite frankly,” said Rose Romero, director of the SEC’s office in Fort Worth, Texas.
Gee, you'd think that the feds would keep tabs on someone engaged in a "massive, ongoing fraud" of the Bernie Madoff variety, as this one is supposed to be. After all, they might flee the jursdiction. Duh.

© 2009 Gary Weiss. All rights reserved.

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Tuesday, February 17, 2009

Treasury Releases Depressing Monthly Lending Numbers

The Treasury just released its first monthly lending snapshot for the banks which are on the federal dole. I don't have a link at present, which is probably just as well because it is depressing and not worth dwelling on before dinner.

Here are the "highlights": banks are lending! Sort of.

Despite significant headwinds posed by unprecedented financial market crisis and economic turn, banks continued to originate, refinance and renew loans. [emphasis in original]
Great! But......

Significant challenges facing both banks and consumers that impact demand for and extension of credit include the shut down of various credit markets and the process of loan securitization.
Surely that has to be the end of the bad news. No... wait, there's more..

Due to decreasing loan demand and tighter underwriting standards, as well as other factors such as charge-offs, or losses written off on loans, banks reported a general trend of modestly declining total loan balances. [Emphasis in original]
So they're still lending! Just lending less. There's more:

a.From October to December, total residential mortgage balances across the twenty banks was essentially flat. The median percent change in total residential mortgage balances was a decrease of 1 percent.
Ok, that sucks. And so it goes. Corporate loan balances down, and now this goody:

c.Credit card borrowing increased, while available credit decreased. The median percent change in average total loan balance for U.S. credit cards was an increase of 2 percent. The median percent change in total used and unused commitments for U.S. credit cards was essentially flat. For banks with the largest credit card loan balances, the decrease was more marked.
Wow! Wonderful! An area of prosperity: usurious loans to the poor, though banks are cutting back on that too. What a great economy we have.

© 2009 Gary Weiss. All rights reserved.

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The SEC Triumphs on Stanford Financial! Not.


The SEC today is wearing out its shoulder blades today, slapping itself on the back for rolling up an alleged $8 billion fraud at Stanford Financial.

Only problem is that a whistleblower alleged it was a Ponzi scheme in a lawsuit three years ago.

God bless our regulators for being right on top of the job. If they were in charge of the Normandy landings they'd have hit the beaches at about the time of the premier of the Ed Sullivan Show in 1947.

© 2009 Gary Weiss. All rights reserved.

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Sunday, February 15, 2009

A Link Between Bernie Madoff and Class Action Plaintiffs?

One of the stranger elements of the Bernie Madoff mishegas emerged today in a post on the Overlawyered blog: the presence of people affiliated with class action law firms on the list of Madoff victims.

In addition to persons tied to class action lawyers at Milberg Weiss, Wolf Popper and Wolf Haldenstein,
[Securities lawyer Howard] Sirota believes that other persons and entities on the Madoff victims list have also served as lead plaintiffs in securities litigation or as plaintiffs in other litigation handled by class-action firms. All of which could be mere coincidence, or could suggest that either Madoff himself or others in his circle might have played some role in funneling lead plaintiffs to the class-action bar.
I don't share Overlawyered's anti-class action zeal, though I do feel that these suits yield little for investors. But there is something a bit fishy, or at least ironic, about the presence of people from class action firms on this list. If class action plaintiffs are on the list, that is a lead that the feds need to pursue.

© 2009 Gary Weiss. All rights reserved.

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Friday, February 13, 2009

The Chanos Sideshow

Creepy corners of the Internet that promote anti-short-selling conspiracy theories are giddy today over news that the SEC may be taking a look at Jim Chanos, who exposed Enron, for the heinous crime of talking about an analyst report before it was issued. The horror!

To the anti-shorting fruitcakes, you see, talking about an analyst report before it is issued is fine, if you are going to buy the stock. To them, you see, there is no stock, no matter how foul, that should ever decline. That's why so many naked shorting troubadors wind up behind bars or spend their lives dodging SEC subpoenas. But doing so much as crossing the street against the light is a hanging offense, the theory goes, if short-selling be the intent.

The problem with this latest escapade is that it's arguable at best whether what Chanos did is even the teeniest bit illegal, as Felix Salmon explains. He calls the whole thing a "sideshow," which is an understatement.

That won't prevent short-hating Neanderthals from using this as an excuse to attack shorts, particularly with Overstock.com's nutter CEO Patrick Byrne on a campaign contribution spree. Dan Colarusso says at Clusterstock that Utah Senator Orrin Hatch, who ably represents the Stock Fraud Capital of the World, has "laid siege to short-selling in the past." So stay tuned.

© 2009 Gary Weiss. All rights reserved.

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Felling Stimulated Yet?



Here is a link to the conference report for the $787 billion stimulus bill. Yesterday, congressional staffers were complaining that they couldn't get ahold of the report. But here it is, courtesy of ProPublica.

Caution: big files, as befits the insufficient but big bucks.

Now, you may ask, why do I have a big picture of a brain at the top of this post? Because, as every teenage male eventually learns, stimulation is a function of the brain. To stimulate the economy, people need to feel stimulated. Much as I admire our new president, I just don't know if anything he's done so far is going to stimulate us into spending, lending and so forth.

I tend to agree with Newsweek that we are "all socialists now." But that presupposes a boldness that Obama has not shown. His Treasury Secretary has yet to demonstrate that he is going to do a better job of salvaging the financial system than his predecessor. His stimulus plan is widely believed to be inadequate.

No wonder the market is in the doldrums and no, that's not "Wall Street" talking, that's the financial markets being unstimulated.

© 2009 Gary Weiss. All rights reserved.

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Stolen Money Pays for Madoff's Penthouse Incarceration?

Scott Paltrow has an intriguing article on Portfolio.com today, describing the possible culpability of other members of the Bernie Madoff family in his $50 billion swindle. Yesterday, the Massaschusetts attorney general charged that the missus, Ruth Madoff, withdrew funds just before the scam was disclosed.

What this adds up to is more than Mrs. Madoff possibly needing her own lawyer. It means that the entire Bernie Madoff "single crook" story has a good likelihood of being a crock. And, as nightmare follows day, that again raises a gnawing question: why is Bernie Madoff confined in a penthouse and not at Metropolitan Correctional Center?

The reason he's not eating stale baloney sandwiches at the MCC is that his wife can afford to pay for the round-the-clock monitoring that he requires to avoid incarceration. But it's increasingly clear that all that fancy prison-avoiding is paid for by stolen money.

Which again raises the question: why isn't The Shtunk in jail?

© 2009 Gary Weiss. All rights reserved.

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Wednesday, February 11, 2009

Tim Geithner: the 'Typical Economist'

An AP story on Tim Geithner's shifty-eyed appearance at his first non-press conference says as follows:

"He comes across to me as a typical economist. He's not a huge personality. He's not really good at this," said Gilbert Coleman, president of an economic consulting firm in Reno, Nev.
That may be true. But as I've pointed out in the past, he's not an economist.

© 2009 Gary Weiss. All rights reserved.

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Naked Shorting Promoter Goes on the Lam

A little Internet radio outlet called MN1.com has served as one of the primary megaphones for the naked shorting conspiracy nuts, notably Overstock.com's screwy CEO Patrick Byrne (left) and Richard A. Altomare (below), the larcenous ex-CEO of Universal Express, who has gone in and out of jail in his role as a leading naked shorting troubadour.

Crooks stick together, and it was no great surprise that Byrne and Altomare appeared on MN1.com not long before the site's founder, Joshual Lankford, received widespread publicity for participating in pump-and-dump schemes. Lankford was barred for life by FINRA in October 2007.

Byrne helped boost listeners for the crook-run MN1.com, feeding naive boobs to its pump-and-dump schemes, by offering a "Club O
membership worth $29 to listeners to his MN1 rant. All references to this support of the MN1 scam have been nuked from the Internet, but a reference to it can be found here.

Well, their pal Lankford is in trouble. He was slammed with a federal court indictment yesterday, and according to an AP dispatch is considered a fugitive from justice.

Not to worry. Lankford (left) has taken the naked shorting nuts under his wing when they were most desperate for publicity, so I am sure that many of the stock market conspiracy theorists would be happy to reciprocate now that he is in need.

© 2009 Gary Weiss. All rights reserved.

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Thank You, Mr. Ackerman

It took two and a half hours, short before the conclusion of the morning session of the House Financial Services Committee hearing today, for a member of the panel to ask the eight assembled bankers to provide a detailed accounting of what they've done with all that TARP money.

Gary Ackerman of Queens, who usually excels at banging his fist, made the request just as I suspect pretty much everyone watching this lackluster hearing was beginning to nod off.

That will make interesting reading. Thanks for asking, Mr Ackerman.

The hearing resumes at 1:15 p.m. Perhaps we can get less grandstanding, fewer inquiries on the significiant but off-topic issue of credit cards (a subject near to my heart, believe me) and more on TARP, more on lending, more on other central issues.

© 2009 Gary Weiss. All rights reserved.

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Obama Confuses Markets With 'Wall Street'

I don't think there's much doubt that the Geithner Selloff yesterday was a reaction of the financial markets as a whole to Treasury's Paulson Lite bank bailout plan. So I was disappointed to see President Obama dissembling on that subject in an interview with ABC News last night.

"Wall Street I think is hoping for an easy out on this thing and there is no easy out," Obama told ABC's "Nightline" program when asked about the markets' negative verdict to the plan.

"Essentially what you've got are a set of banks that have not been as transparent as we need to be in terms of what their books look like," the president said in excerpts of the interview.

Essentially what you've got is Obama ignoring the vehement concern about Paulson Lite from investors--and the approval of the plan by Wall Street.

As AP pointed out in an article today,

Industry groups heaped praise on the proposal, which Treasury Secretary Timothy Geithner unveiled in a speech Tuesday.

"We are encouraged by the creative and wide-reaching suite of programs outlined today," Tim Ryan, chief executive of the Securities Industry and Financial Markets Association, said in a statement that endorsed each point of Geithner's plan.

"It's big, it's bold, it's tailored, it's targeted," crowed Scott Talbott, a lobbyist with the Financial Services Roundtable.

The news media has been, I think, a bit too gentle on the Obama administration on this vital issue. When Obama misrepresents something basic like this, the media needs to call him to account.

© 2009 Gary Weiss. All rights reserved.

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Preventing the Next Madoff

How to do that, maybe, is online now and will appear in the March issue of Portfolio. The solution, I suggest, is to view Wall Street as a kind of corrupt police department, not as an honest one with bad apples.

Read all about it here.

UPDATE: CJR's Audit section has a nice follow-up.

© 2009 Gary Weiss. All rights reserved.

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Tuesday, February 10, 2009

Tim Geithner Shows His Inner Paulson


The market giving Tim Geithner a Bronx cheer

The New York Times this morning described how the Treasury's new bailout plan is shaping up to be a complete sellout to Wall Street, a kind of Paulson Lite with absolutely zero requirements for banks to lend and zero restrictions on executive pay.

And no, forcing banks to file "monthly reports" on what they're doing or not doing is not the same as forcing them to lend.

Kind of makes sense. The Washington Post reported today that Geithner walked away from the New York Fed with more than $500K in severance, unused vacation time and other goodies. I guess he'd have a hard time talking about stuff like executive comp with a straight face when he's getting a nice little golden parachute himself.

No, strike that. In his speech he did talk about executive comp with a straight face. He's just not going to do anything about it, according to the Times.

As for that swell gelt, the Post says:

According to an official at the New York Fed, Geithner's severance is from a supplementary retirement plan that would have begun paying out when Geithner turned 55. Geithner is 47, and the board decided to give him the cash equivalent, the official said.
How nice! Say, who is on that board anyway? Here is a link to a list of the members of the board of the New York Fed. Let's see... Jamie Dimon, Jeff Immelt.... some guy from Adirondack Trust ... some guy from Banco Popular. Steve Friedman of Stone Point Capital, the CEO of Pepsico. Well, I'm glad there's no conflict of interest involved, no one who could ever, possibly need the assistance of the Treasury for any reason whatsoever.

Am I being harsh? Maybe. But I am sorely disappointed with what I've seen so far from the Treasury. Sweet severance packages just don't make it seem any better.

According to the Post, by the way, new SEC chairman Mary Schapiro gets an even more magnificent chunk of change from FINRA. Kraft Foods and Duke Energy.

Maybe now Geithner can afford a competent accountant to prepare his tax returns. Schapiro, of course, now has "f. you" money, and I think we can confidently expect that unless she amazes all of us, she is going to give the finger to investors during her tenure.

The market sold off sharply while Tim Geithner was in the middle of his flat, vague, specifics-bereft and uninspiring televised presentation. I guess that makes it unanimous. You'd think that at least bank stocks would appreciate the unwarranted gift their shareholders are about to get from Uncle Sam, but that didn't happen either. Stocks like Citigroup led the selloff.

Why? Here's my guess: the market, like the rest of us, wanted something new, something different, some leadership, and didn't get it. We expected transparency, and instead we got zero details. As a matter of fact we (and that includes Obama himself) expected a press conference and we got a speech to Treasury employees.

UPDATE: Geithner appeared on CNBC later. More rhetoric, more evasions, and the words "complicated" and "difficult" used about two dozen times.

© 2009 Gary Weiss. All rights reserved.

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Monday, February 09, 2009

Mary Schapiro Would Have Been a Great Chiropractor

I used to have a chiropractor when I was a kid, a Dr. Shapiro, who I remember mostly for yanking my neck. I was thinking of my old Dr. Shapiro today as I read the grossly misplaced praise lavished on outgoing SEC enforcement director Linda Thomsen by new SEC chairman Mary Schapiro:

"Linda's achievements have been nothing short of extraordinary, even heroic, in an era of unprecedented challenges in our securities markets," said SEC Chairman Mary L. Schapiro. "Linda has distinguished herself in public service through her keen intellect, profound understanding of our securities laws, and relentless pursuit of wrongdoers. While Linda's wisdom, judgment, integrity and humor will be sorely missed by all of her colleagues, the agency and the investors we serve will always be grateful for Linda's service."
Reading this, I felt like I sometimes did coming out of Dr. Shapiro's office, my neck having been wrenched, my back cracked and my head spinning. Is Schapiro serious? Isn't this the same Thomsen who presided over the emasculation of the SEC enforcement division, turning it from a state of near uselessness to utter uselessness? At a House Financial Services Committee hearing the other day, Thomsen received the most ferocious public flagellation I have ever seen bestowed.

Praising Linda Thomsen's "extraordinary achievements" is like praising the "magnificent foresight" of the unnamed Wall Street Journal editor who sent down word, "hey, let's forget about Bernie Madoff."

Sure, one says nice things about departing employees, even those leaving under quite the same tidal wave of scorn as Thomsen, but this is too much. It shows a total vacuousness, much as Schapiro showed when she appeared on the cover of a stock-pumping rag called Equities.

Mary Schapiro should quit while she is ahead and buy and adjustable couch. She can make a guy feel like his head's been twisted by just issuing a press release.

Greg Newton has more in this hilarious post today,

© 2009 Gary Weiss. All rights reserved.

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Saturday, February 07, 2009

The Wall Street Journal is Short Staffed

Yup, that's the explanation that's percolating out of the Wall Street Journal on why it ignored Bernie Madoff whistleblower Harry Markopolos.

An anonymous source tells the CJR's Audit that unnamed Journal editors, and not reporter John Wilke, were to blame:

This person says Wilke wanted to do the story but couldn’t get approval within the Journal’s labyrinthine editorial structure to proceed.

“Wilke was hot for the story but the editors had him on other things,” my source says. “The paper had been through cutbacks and didn’t have enough people to do everything at once.”

Yeah, right. As I said before, they didn't believe Markopolos. If they did, if they believed it was possible a former Nasdaq chairman and one of the most distinguished people on the Street was a crook, it stands to reason they would have gone all out to investigate that. These are not stupid people.

In effect, this anonymous person is saying "despite the possibility of Madoff possibly being a crook and ripping off investors, we couldn't spare anyone from the mutual fund scoreboard or the Page One A-Head desk, and none of our X-dozen Wall Street reporters were available, as all were doing more important things than determining whether a vaunted Wall Street figure was a criminal". But there you have it, third hand, through an anonymous source. Sure would be nice to get an official explanation.

By the way, if they really were all tied up with more important things, why didn't they tell Markopolos to take his story elsewhere?

UPDATE: The Audit updated its item to reflect further comment from the Journal, whose spokesman now says that this unnamed source is wrong:

CORRECTION:
In this post I said the Madoff story got caught up in the “Journal’s labyrinthine editorial structure.” In fact, I didn’t have enough evidence to support that. Subsequently, the Journal spokesperson got back to us, saying this: “As a general rule, we don’t comment on our news gathering decisions, but the statements you are providing us are materially wrong and don’t come from a person in a position to know our editing decisions.”
That apparently relates to the "didn't have enough people to do everything at once" quote above, which I had found amazing. Evidently it's not true.

OK, so what is the truth? Only the Journal can address that. Since this happened under a previous editing regime and different ownership, I can't see what's stopping the newspaper from explaining why it ignored Markopolos.

UPDATE: A letter from Jesse Eisinger, published at Talking Biz News, points out that reporter John Wilke had a full plate during this entire period. I have no doubt about that, which is why Markopolos should have been referred to another reporter. I can't understand why Markpolos didn't do that on his own initiative, after it became clear he was getting a runaround.

© 2009 Gary Weiss. All rights reserved.

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Friday, February 06, 2009

Mary Schapiro Begins to Talk the Talk


As I say every time I write about this person, I was not thrilled by the appointment of Mary Schapiro to head the SEC, and I dearly wish she would step down and some real agent of change would step into the job. Still, I have to admit that Mary Schapiro is beginning to talk the talk.

She was quoted today as saying that the agency needs to act as if its "hair is on fire."
"I like to tell the staff we are going to act like our hair is on fire," SEC Chairman Mary Schapiro told reporters after an appearance at a conference.
She's reportedly has canned the do-nothing enforcement chief Linda Thomsen, and she has also tossed out a rule under her odious predecessor, Chris Cox, that hamstrung the already-comatose enforcement division.

But these are baby steps and rhetoric so far. We need to see action.

Securities lawyer Bill Singer put it well today in his blog today:
Assuming that you conclude, as I have, that nothing of substance has changed, then answer this one last chilling question: Do you see any proof that substantive, meaningful reforms are in the works?
Headline grabbing words and a few head-choppings won't do. The SEC needs a top-to-bottom housecleaning. It needs a fundamental change in culture.

© 2009 Gary Weiss. All rights reserved.

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We Need to Know Why Harry Markopolos Got the Bum's Rush

Ryan Chittum of CJR's Audit column follows up on the strange story of the Wall Street Journal and Harry Markopolos, the Bernie Madoff whistleblower.

Reacting to my blog post yesterday, in which I theorized that the Journal simply didn't believe the guy, Chittum says:

That sounds right to me. We all know who Markopolos is now. But who knew him then? Trust me, Journal reporters get a lot of cranks weaving elaborate conspiracy theories and trying to convince the WSJ to print them.
I see Chittum's point, and of course the folks at the Audit know whereof they speak. The former editor of the Audit, Mark Mitchell, has morphed into a shrill stock market conspiracy theorist, now on the payroll of Overstock.com's wacky CEO Patrick Byrne. Mitchell recently alleged that the Audit was "bribed" by a hedge fund. So as you can see, it happens in the best of families.

But the problem with the "crank" theory is that Markpolos simply did not have any of the hallmarks of a crank. He was a trained forensic accountant and fraud examiner. He worked for a respected money management firm. His motives were as impeccable as his credentials, and while he may have been a bit overbearing, suggesting lines of questioning, their treatment of the man simply makes no sense to me.

The Madoff morass is just too big, too destructive, too poorly timed to let a shrug and a "I doubt he contacted us" and "we cover even bigger scandals" suffice. I think the Journal should do what what the New York Times has done in the past, most recentlty in its 2005 post-mortem of the Valerie Plame affair, and cover this story itself. It should explain how it passed up on an opportunity to expose the biggest financial scandal in history. It should explain why somebody at the newspaper didn't hear this man's story.

I would not be terribly surprised if the Journal does just that. Like it or not, the newspaper is part of the story, just as the Times was with Valerie Plame.

© 2009 Gary Weiss. All rights reserved.

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Thursday, February 05, 2009

More on Markopolos, Bernie Madoff and the Wall Street Journal

Jason Linkins patiently combed through all the emails and other documentation released by Bernie Madoff whistleblower Harry Markopolos the other day, and the result is a definitive, blow-by-blow account of Markopolos's dealings with the Wall Street Journal in the Huffington Post.

As I observed in an update to my earlier post, former WSJ managing editor Paul Steiger told Editor & Publisher that he didn't know that Markopolos approached his paper. Indeed, the E&P story questions whether the newspaper received a tip from Markopolos at all:

Former Wall Street Journal Managing Editor Paul Steiger said he does not recall the tip a Journal reporter supposedly received about Bernie Madoff three years ago, and adds he "highly doubts" it happened.
Excuse me? Is he saying that Markopolos did not approach the Journal, that his testimony is false?

Anyway, as recounted by Linkins, who based his account on the voluminous supporting documentation released by Markopolos, the whistleblower struggled throughout 2006 to get the Journal's attention, and actually kept the faith through 2007. I repeat: 2007! The man's patience was extraordinary.

First 2006:

Markopolos stayed on the hook with the Journal through 2006. In August, he finally mentions that he's "meeting with the WSJ in two weeks," a meeting he secured after threatening to take the story to "Ben Stein over at Barron's." An "immediate response" from the WSJ, with a meeting set-up, was his reward.

Even still, the next reported contact with Wilke was at the end of September 2006. Wilke was still working the story at that time, but it's telling that in his September email, he captures the effort as one "to get the Bernie Madoff Story up and running."

In November 2006, Markopolos said the following in an email to a third party:
"[Wilke] said that his editor thinks that hedge fund scrutiny will increase now that Democrats are in power and greenlighted John's investigation starting in January.

I guess we wait and see what transpires...the guy does top shelf corruption stories, but everything he investigates in on a schedule."
Yeah, I guess so. Makes you wonder, reading this, if there was more than one person in the Journal's Washington bureau, or more than one person covering finance at the Journal.

Then came 2007, and Markopolos was still being led around by the nose:

By January 2007, Markopolos had detected further disturbing news on Madoff, still sending the news to Wilke like shock and awe: "Bernie Madoff purported to deliver 8.45% to his investors in 2006...It didn't happen because it is mathematically impossible."

The defibrillation didn't help. By February 2007, Markopolos is sounding a downcast note: "The Wall Street Journal's John Wilke has been a huge disappointment. Obviously they were the wrong choice. Eventually Bernie will blow up and everybody will say, 'I told you so.'"

Nevertheless, at the end of June, Markopolos is back in touch with Wilke, encouraging him to go out on strike: "Keep it up. Murdoch would be poison for the paper." If Wilke continued to be a "disappointment," Markopolos didn't let on. His Murdoch criticism was larded with praise for the paper and its "insightful financial journalism" and the need to preserve it.

So, at some point, Wilke manages to get back in Markopolos' good graces. But movement on the story seems to grind to a dead halt soon after. For months, the collected emails from Markopolos are mainly filled with gallows humor on the coming disaster, shared with the handful of contacts with whom he'd been pursuing the investigation.
Since the Journal is unlikely to ever explain itself, I'll try to offer my guess as to what why a top investigative reporter and his editors dropped the ball so terribly:

They didn't believe Markopolos.

It's that simple. I can't think of any other possible explanation, and I don't think that any other one has any chance of being credible.

© 2009 Gary Weiss. All rights reserved.

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