Friday, March 31, 2006

The Man Who Could Not STFU

In my last couple of posts (here and here) I examined companies that want analysts and reporters to STFU.

Today we have a CEO -- a major figure in the STFU Campaign -- who cannot and will not STFU.

I refer, of course, to Patrick Byrne of But first I have to admit that Byrne has confounded me.

In all my many years of writing about Wall Street and Corporate America -- twenty-two to be exact -- I have encountered many CEOs, possibly hundreds. And there is a pattern here. Almost without exception, I have been weirder than they were.

And mind you, I truly don't believe that I am that weird a guy. It's just that reporters are, by definition, more likely to be weird than CEOs. There are plenty of reasons for that. I will save those reasons for another time.

However -- and I say this with something bordering on admiration-- Patrick Byrne is clearly weirder than me and weirder than the vast majority of the people who write about him. It is the reason why, I think, the media is alternately intimidated, charmed and utterly terrified of this guy.

One reason for the foregoing is Byrne's inability to STFU.

As an example thereof I hereby reproduce, in its entirety, a post that Byrne placed on the Motley Fool stock message board last night. The post, and its responses, can be found here:


"I have always considered the Fool and especially the Gardners and Bill Mann decent and honorable. However, I believe the deletion of posts has gotten out of hand, and reflects underlying bias at the I will lay out my thinking, then ask your opinion.

"I am aware that anytime paradigms collide it becomes possible to question the other's motives. So I have not beat this drum as hard as I might have. But from his remarkably programmatic postings here, and his history of bashing stocks that are on the Miscreant Shortlist, I believe Seth Jayson is "bent" and has an agenda (I do not know whether his shilling is from bribery or some other mechanism). I suspect Usually Reasonable is also co-opted, and has been assigned the task of trying to win non-official Fools to his side as "just another interested poster." I wonder about Eurotrash: occasionally he seems reasonable, but often it feels like his shtick is to play the, "Oh I'm really on your side, but just quibble quibble quibble" game.

"But I am not sure, I admit. So I wanted to ask carefully for the opinion of the Fools, not to insult anyone, but just to know if I were paranoid. So I posted a poll asking for other folks' read on this issue, starting with Seth. I think this was a legitimate question for me to wonder about, and hence, a legitimate question for me to pose to the Fool community. Early reads of the poll showed that most Fools strongly suspected Seth of being compromised.

"The poll was taken down. It got deleted, as I am sure any posts asking for others' opinions on the veracity of UR and ET would be deleted as well.

"I think it was illegitimate of to remove my poll on Seth. I really wanted to learn something, and would have learned something were it not for this, as would we all have. I believe it is incredibly inappropriate for the Fool to own the tool of discourse, mold the tool of discourse through Seth, and then prohibit the one tool that would let the rest of us Fools communicate our perceptions without risk of distortion. It takes the marvelous invention that is Fooldom and opens the door to the possibility of it turning into just another closed circle of corruption (like Wall Street and its lapdog media show).

"This impression has been exacerbated by discovering the TeachMeSomthing is now having even fair and innocuous questions being deleted in favor of Seth Jayson's histrionics.

"What do observers think?

I agree: now corruptly protects shills and suppresses dissent
I agree: Fool now protecting shills and kills dissent, but unwittingly
I disagree: they may be shills, but Fool just wants civilit
I disagree: they are not shills, Fool is right, Byrne is a nut

Click here to see results so far."

The above libelous trash -- I have no idea why it wasn't promptly deleted -- was accompanied by buttons etc., allowing people to "vote."

Now, it is tempting to ridicule this post, but I won't. But I do have to ask: Does this man have the slightest idea how downright weird he is being? Does he care? And will he ever STFU?

UPDATE: A reader brings to my attention a terrific editorial on this onging wackiness in the New York Sun.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Thursday, March 30, 2006

The STFU Campaign (continued)

An intriguing red herring has arisen in the STFU Campaign. It all has to do with something called Section 17(b) of the Securities Act of 1933.

Apparently some of the STFU campaigners say that Gradient Analytics, whose alleged horribleness I mentioned earlier, violated 17(b) by not disclosing that it got paid by a hedge fund to issue a research report.

There is an ironic aspect to this, which I'll be coming to in a moment, but first here is the text of Section 17(b), in its entirety. You can find it yourself here, on page 30:

(b) It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article,letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. [emphasis added]

A hedge fund is not an "issuer, underwriter or dealer."

Despite the pretty darn clear language of this law, I heard on the always-reliable CNBC this morning that the SEC staff -- going all out to help the STFU Campaign -- may apply it to this situation anyway. Seems like a stretch to me, but what the heck. I'm not a lawyer and if they want to increase disclosure requirements, well, more power to them.

Still, I am struck by the irony here. As I describe in Wall Street Versus America, the folks at the SEC do an absolutely miserable job of enforcing Section 17(b) as written against its actual targets -- corporate stock issuers that pay for stock touting. You'd think they might want to try doing a bit of that first, before bending it to meet the requirements of the STFU Campaign.

There are plenty of reasons to dislike hedge funds and their allies -- I have about five chapters' worth of reasons in my book. The SEC should focus on those issues (such as the burgeoning number of crook-run hedge funds) and quit carrying water for crummy companies that don't like criticism.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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The STFU Campaign & the Joys of Paranoia

So the STFU Campaign is going full-blast, I see.

I refer, of course, to the "Shut the F--- Up" Campaign being waged by the cruddy pharmaceutical company Biovail and the cruddier Internet retailer against their respective critics. The cable-TV business channels are following every twist and turn of the campaign by these two companies, with the assistance of an obligingly dumb Securities and Exchange Commission, to silence their critics.

The hopes and dreams of money-losing companies everywhere are going with them! I am sure the STFU Campaign will spread across this great land of ours, silencing the few independent research firms and financial journalists who fail to fall in line with corporate dogma.

To me, the most interesting thing about the STFU Campaign is its use of a time-tested technique in American discourse -- paranoia.'s goofy CEO, Patrick Byrne, pioneered the use of Applied Paranoia in the multi-pronged short-seller-research firm-media-etc.-etc. conspiracy theory that he unleashed at a conference call last August. Biovail, while less goofy, is also alleging that the company's share price is in the toilet because of a conspiracy involving much the same characters.

As Max Boot observed in the Los Angeles Times yesterday, paranoia is a time-honored feature of American public discourse. Boot observed that in his 1964 essay, "The Paranoid Style in American Politics," the late Richard Hofstadter noted:

"One of the impressive things about paranoid literature is the contrast between its fantasied conclusions and the almost touching concern with factuality that it invariably shows. It produces heroic strivings for evidence to prove that the unbelievable is the only thing that can be believed."

As examples, Boot noted, Hofstadter "cited a 96-page pamphlet by Joseph McCarthy that contained 'no less than 313 footnote references' and a book by John Birch Society founder Robert Welch that employed 'one hundred pages of bibliography and notes' to show that President Eisenhower was a communist."

Boot was citing Hofstadter's essay to debunk a study on the Israel lobby, but I think his point extends to the STFU Campaign.

The paranoid "naked shorting" conspiracy cult embraced by Byrne is, of course, notable for amassing mountains of meaningless "evidence" -- mostly statistics concerning "fails to deliver" securities. The lawsuits, similarly, support their conspiracy charges with detailed allegations and sworn statements by objective, dispassionate fired former employees.

So onward with the STFU Campaign! And remember: If your company's stock falls in price, it's not your fault. It's them.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Wednesday, March 29, 2006

Yale Yanks Some Hedgie Money

The Wall Street Journal reports today -- here's a subscriber-only link -- that Yale University is yanking $500 million that its endowment had invested with a hotshot hedge fund manager named Christopher Hohn.

"Officials at Yale. . . were concerned that the $15.2 billion endowment's position in Mr. Hohn's fund had grown too large," said the Journal, quoting "people familiar with the matter."

The reason newspapers have to quote "people familiar with the matter" when they do stories like this is that university endowments are ridiculously opaque. And when it comes to their investments in hedge funds, they clam up like the 1950s Kremlin. Leaf through any endowment's annual report and you'll see what I mean.

As I describe in Wall Street Versus America, Yale is in a league of its own when it comes to being uninformative about it endowment, treating serious inquiries from students -- their putative "customers" -- with arrogance and condescension. Yale is enamored of hedge funds generally and the Farallon hedge fund group in particular, and efforts by students to get the university to come clean about its holdings have run into a brick wall.

Yale has been boasting about all kinds of terrific returns, which it attributies to its hedgie investing. Unfortunately, if you believe in efficient markets as I do, you know that terrific returns can become not-so-terrific fairly rapidly. That's particularly true when it comes to certain types of hedge fund investments.

It's time for university endowments open their books and reveal their exposure to all classes of investments -- particularly hedge funds. If they won't -- and believe me, they won't -- then students may want to follow the example of their counterparts at Yale and other universities. They got some hedge fund data anyway and put it on the web. Here's their website.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Welcome, Dealbreaker Readers!

I see that I'm getting some traffic from the hot new Dealbreaker website, which was kind enough to list this little author blog in its blogroll.

If you like my humble off-the-cuff bloggie, imagine what you'll think of 300-odd pages of even more scintillating content, hitting the book stores next week!


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

Tuesday, March 28, 2006

The SEC's Keystone Kops (redux)

The Keystone Kops at the Securities and Exchange Commission (pictured at left during a recent open meeting) have again proven that they are adept at running in circles, or chasing the good guys while the bad guys stand around, laughing.

The laughter in this instance comes from a wide asssortment of individuals who hate tough financial reporting. I'm sure that when they read the New York Post article today, indicating that the SEC was probing contacts between Gradient Analytics and eight financial journalists, they were mighty pleased that SEC resources were being wasted in such an idiotic manner.

This is the latest chapter in a long-running, increasingly surreal battle between the aforementioned research firm and two companies, Overstock and Biovail, that don't cotton to criticism very much. Overstock is run by a joker who blames his money-losing company's travails on mysterious (and nonexisistent) "malefactors," and Biovail is a mediocre drug company that also is going the "victim" route.

These bozos have gotten the SEC enthralled. Why am I not surprised?

As I explored in a New York Times op-ed piece on Saturday, the SEC does an excellent job of slapping meaningless fines on large firms -- most recently Bear Stearns -- when they are caught in some kind of alleged (no admission of guilt is usually sought) impropriety. They also have systematically ignored massive microcap fraud, as I explore in my book.

So it stands to reason that, being singularly ineffective at punishing real transgressions, the SEC would do an outstanding job of wasting its time. Thus the current witch hunt against the handful of journalists who engage in tough financial journalism.

If the very hard-working and poorly managed folks at SEC wants to see who they are pleasing, I'd suggest that they head on over to a crackpot website called "," where this witch hunt is currently being celebrated. This website, which is financed by unknown persons and run by a full-time scam artist who carefully guards his identity, has one purpose and one purpose only: to serve the interests of stock fraud. Its unknown, anonymous benefactors want to delude investors into believing that stocks of scummy companies decline because of "them" -- a nonexistent conspiracy -- and not the fact that they are scummy companies.

These kooks and criminals are happy. The rest of us should be sad.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Monday, March 27, 2006

Early Kudo etc. etc. etc.

The first general-circulation review of Wall Street Versus America has come out (a bit, ahem, early) -- and it is a rave from the Houston Chronicle. Here is a link.

Golly. "Erudite and savagely funny." Very nice. True, but nice.

I've been blogging a bit less than usual because of the press of other business, including this op-ed piece that ran in the New York Times on Saturday. Bear Stearns was recently the subject of a $250 million fine that was, as I describe, chump change.

Meanwhile, I see that there has been a lot of activity on the short-selling-subpoena-baloney-Overstock-Biovail-etc.-etc.-etc. front, including a report on 60 Minutes on Biovail's lawsuit against a hedge fund and independent research firm. It was a straightforward account, and it had nothing to do with the nonexistent "naked short selling" scandal, so naturally it was immediately proclaimed as a major public relations victory by the Baloney Brigade.

Oddly, a Dateline NBC segment last August, though sympathetic to the balonies, was vilified by these same knuckleheads. Logic has never been their strong point.

Lesley Stahl said something to the effect that this segment should interest every small investor with an IRA or 401k. I agree. If the CEO of a company you own goes on a crusade against short-sellers, dump the stock immediately.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Friday, March 24, 2006

A Blast From the Past

Yesterday the U.S. Attorney's office in Brooklyn rounded up a gaggle of alleged Mafia-linked wiseguys who ran boiler rooms a few years ago. Here's a New York Post story.

What's I found interesting about yesterday's arrests is that these are some of the same people I wrote about in Business Week slightly over eight years ago. Here's a link to my BW story.

This shows you how long it can take for the feds -- and Eastern District prosecutors are a top-notch bunch, by the way -- to make a case against alleged securities crooks. It also shows the resilience of the individuals involved. These guys allegedly continued to rip off investors even after their chief reputed Mob connection -- John Baudanza -- appeared in my story. Some of the scams described in the indictment were chugging along in 2000, nearly three years afterwards.

Two of the firms mentioned in the indictment, TYM and Amerivet, also made appearances in my 2003 book Born to Steal. But the reputed Pennsylvania wiseguy who I connected to those firms in the book, Ralph Torrelli, was not named in yesterday's indictments.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Tuesday, March 21, 2006

Probe the NYSE (again)?

New York Post columnist John Crudele, reacting to Dick Grasso taking the Fifth, suggests today that prosecutors initiate a criminal investigation of the New York Stock Exchange.

"Let's see whether illegal activity was condoned under Grasso's watch," says Crudele, who has been doggedly following NYSE floor-trading improprieties for some years.

Actually the operative term is "re-initiate," as there have been both civil and criminal proceedings involving the NYSE in recent years. The paper trail is pretty clear on just what happened, as I describe in Wall Street Versus America, and that means only one thing: Absolutely nothing is going to happen.

Still, as long as we're talking about stuff that isn't going to happen, why limit such a theoretical criminal probe to the Grasso era?

There's considerable evidence that floor trading improprieties go back quite a few years, and occurred during the administration of his predecessor, ex-SEC chairman Bill Donaldson. Why not probe the Donaldson era? Or his predecessors? (I know, I know... statute of limitations and all that.... Still, I can ask, can't I?)

Meanwhile I really wish Spitzer would stop wasting state resources with this silly Grasso litigation. There are so many other investor and consumer issues of greater importance, as anyone who has ever rented an apartment in New York City can attest.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Monday, March 20, 2006

"Spitzer vs. the Little Guys"

That's the title of a terrific op-ed piece today in the Wall Street Journal by Jacob Zamansky, the noted plaintiff's lawyer. Zamansky points out that despite all the hype over Eliot Spitzer's settlement with Wall Street firms over their tainted research, "it has become apparent that Wall Street successfully played Mr. Spitzer as a sucker."

Zamansky puts his finger on the reasons for that, one of which was that Spitzer did not require the firms to admit liability. That put small investors at a disadvantage when they pursued their claims in the stacked-deck arbitration system.

Frankly I'm not sure investors would have had a slam dunk even if the firms had admitted liability. However, I think his point concerning arbitration is correct. The unfairness of mandatory arbitration is one of the issues that I explore in Wall Street Versus America. If the system is as fair as the Street says it is, why not make it voluntary?

Zamansky goes on to make some pointed comments about Spitzer's Grasso litigation, noting that it benefits the millionaire owners of the NYSE: "If Mr. Spitzer were truly committed to reform, he'd insist the NYSE become more responsive to individual shareholders's needs as a condition of his involvement in the pursuit of Mr. Grasso."

Great piece. Here's a link.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Saturday, March 18, 2006

Dick Grasso and the Constitution

The Wall Street Journal and Washington Post reported yesterday that Dick Grasso is getting some more bad publicity. Oh my. Seems he cited his Fifth Amendment right against self-incrimination during an SEC investigation into alleged trading improprieties at the New York Stock Exchange several years ago.

Now, what in heaven's name is the relevancy of this? After all, Grasso was never charged by the SEC or anything like that. Also, as one SEC Law blog points out, "taking the Fifth" could mean a variety of things other than "I'm hiding something."

So dragging Grasso's name through the mud over this seems to be overreaching at best. What makes it worse is that it's being done to make a "point." Which is that Grasso's not answering those question somehow indicates whether or not he was a "good market regulator" and thus maybe should pay back some of the bucks he received.

I'm serious. There are people out there who really think -- or at least say with a straight face -- that Grasso was paid $140 million to keep NYSE floor traders in line!

Is that or is that not the funniest thing you've ever heard?

The Post quoted a Spitzer deputy as saying: "The question here is whether the compensation [Grasso] received was reasonable. The stock exchange is first and foremost a regulator. . . He was questioned about his performance of his regulatory role." [Emphasis added.]

I placed one of the sentences in italics because it captuires one of the many misconceptions about the NYSE. The Big Board's principal function, as I describe in Wall Street Versus America, is self-perpetuation for the benefit of its members.

Dick did an outstanding job in that capacity, so I really wish they'd leave the man alone.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Thursday, March 16, 2006

Fifty-Seven is Not Over the Hill

The other night I had the privilege of attending a retirement party for a really great guy -- one of the most upstanding people I know -- who just left the FBI after a thirty-year career. It was a wonderful night, but I'm ashamed to admit that I learned something at that party, for the first time, that I didn't know before -- and which I think is utterly absurd.

What I learned was that there is a mandatory retirement age for FBI special agents. Fifty-seven years old! Sometimes, I'm told, the FBI will extend that to the ripe old age of sixty under special circumstances.

I have to tell you, learning that FBI special agents are immediately forced to the rocking chair -- or, more commonly, nice jobs in private industry -- at that age did not make me feel any safer concerning either terrorism or white collar crime. While I'm not personally familiar with the FBI's efforts against the former, I do know that its work against securities fraud and organized crime has been extraordinarily effective, and that it has agents who have built up an enormous amount of experience.

Seems to me the FBI should go out of its way to keep those people, and not toss them out at fifty-seven.

Anyway, I just thought I'd get that off my chest. It just strikes me as a sad waste of experienced manpower.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.


Wednesday, March 15, 2006

My Experience With Chinese Water Torture

Most journalists at one time or another have said to themselves, "I could go into PR. It would be easy. I know how journalists think/act/behave."

Oh really? Don't reach that conclusion until you've had a story written about you -- as is happening at this very moment to little old moi.

Well, to be precise the story is not all about me, but it seems to include me, and I have been interviewed extensively for it. Now I don't want to "pull a Patrick Byrne" and say who this gentleman is or tell you the name of his publication. But I can say that I find the experience unnerving for a whole bunch of reasons, among them the very distinct impression that he... well.... let's just say I'm nervous, that's all. For example, I just got an email today from him that I found disturbing. Not being you-know-who, I won't share it with you. I may not be in PR, but I am not that dumb.

Waiting for this article to come out has been torture, given my (hopefully inaccurate) perception of its thrust and slant. However, that brings me back to my initial point. Every journalist who's been a subject of an article knows how nerve-racking or even revolting the entire process can be. Well, imagine if this is all one did for a living -- deal with people like us! It would be torture. It is torture.

So, I ask you. Does anyone out there feel sorry for me?

Really? Not a single one?


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.


Tuesday, March 14, 2006

Today's Question

Actually it's a two-part question.

As I indicated yesterday, I think it's great that Patrick Byrne, CEO of Overstock Inc., made cryptic comments yesterday and Sunday night, saying that big stuff was happening on Monday -- presumably stuff favorable to Overstock's beleaguered shareholders.

Well, Overstock shares went up quite dramatically yesterday, though that was probably for largely unrelated reasons. And -- nothing happened, at least to my knowledge.

Anyway, here's my question. Is it kosher under Regulation FD for a CEO to communicate potentially market-moving news in this fashion? Should the propriety of Byrne's actions be explored by regulators?

I certainly don't have an answer to the first question, but I think the second question is a hearty "yes." (And by the way, I hope he gets a clean bill of health. I think clearly worded press releases are passe'. Give me a cryptic comment on the Internet any day!)

Still waiting for that big news, by the way.

P.S. At least two dozen regulatory people read this blog, judging from the email addresses on the mailing list. Come on, guys! Pitch in with some thoughts on this subject. Anonymous comments are OK, but keep 'em clean, please.

UPDATE: Still waiting for the "big news." Meanwhile, on March 15 -- responding to Herb Greenberg raising the Regulation FD issue on CNBC -- Byrne addressed the point through one of his favorite methods of communication, the attack-dog "sanitycheck" website. Its courageously anonymous proprietor said as follows, in the midst of an extented anti-Greenberg smear:
For the record, I spoke with Byrne, and the big news he is expecting has nothing to do with OSTK. Except in the sense that naked short selling has something to do with it.

Nice of Byrne to more or less "clarify," wouldn't you say? Of course, according to Byrne, "naked shorting" is very much material to the company's stock trading. It certainly appears to be a primary reason some unsophisticated retail investors are buying the shares.

Anyway, I look forward to continued cryptic remarks on the Internet by Byrne, and I hope that other CEOs pick up on his modern and high-tech method of more or less communicating with investors and the public.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Monday, March 13, 2006

The Smear du jour .... Redux

I promised myself, for the sake of my digestive tract, to avoid quoting from the childish demagogues of the "sanity check" naked-shorting conspiracy cult website. But... well, today's smear du jour is too juicy to resist.

The sanity check item, widely touted on the Internet, has the giddy title "Is word out? Is Cramer going to jail?" and the item was devoted to that theme. The bravely pseudonymous author of the item, "Bob O'Brien," (nom de smear of ex-used medical equipment peddler Phil Saunders) had a good source this time -- one sentence spoken on the Don Imus radio show this morning. All, according to O'Brien, in support of his thesis that Cramer has an unholy alliance with short-sellers. And profited, presumably. After all, why else would one "go to jail"?

The only problem is that, as has been widely publicized -- everywhere but on the naked-shorting cult websites, that is -- Cramer hasn't done any short-selling since 2000. He can't. CNBC editorial policy won't let him. (Though I guess he could, theoretically, violate CNBC editorial policy or commit murder or.... whatever.) The other targets of O'Brien's smears are financial journalists who are also strictly prohibited from doing any trading on stocks they mention. And, like Cramer, their integrity is beyond reproach.

Well, I guess that's one of the nice things about having a phony name: You can smear people all you want, and get away with it. Sure, they can sue you -- if they can penetrate the several layers of secrecy you have carefully erected for just that very eventuality.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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'Boiler Room' Redux

One of the serious, ongoing problems faced by the stock market -- one that you rarely read about in the media -- is the ongoing menace of stock-pushing boiler rooms, selling U.S. stocks to overseas investors. The problem is highlighted in this article, which appeared in London's Sunday Times yesterday.

The newspaper reported that it "has been inundated with letters from readers who have lost up to £100,000 after investing through boiler rooms — so-called because of their hard-sell tactics and high-pressure sales targets."

This very good piece highlights the problems posed by one of the most idiotic features of our securities laws, the "Regulation S" shares that are sold exclusively overseas.

These boiler rooms operate across national borders so they are difficult to tackle. And as I describe in Wall Street Versus America, they are not a new problem by any means. They have been operating for literally decades as badwill ambassadors of American capitalism.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Could be..... Who Knows...

At times like this a song from West Side Story goes through my head. You know, "Could be.... Who knows.... There's Something Good.. On its Way... I will know... Right away.... Soon as it showwwwwwws." That music came to mind today as I read the FinancialWire website, in which I saw an interesting snippet.

The headline of the item was "StockGate: Has Canada Admitted It Has Been Aiding And Abetting Short Sales; New Events Tonight?"

The most prominent battler against manipulative trading, Patrick Byrne, CEO of has told FinancialWire to expect important new developments tonight, but did not say what he expects to occur.

Some have expected the subpoenas to journalists issued by the SEC to be reactivated, with the full support of SEC Commission Chair Christopher Cox, and some have speculated that General Electric (NYSE: GE), may suspend CNBC's Mad Money due to Cramer's public display of disrespect for legal authority in the face of the SEC subpoenas, capped by his writing BULL on the face of his and cavalierly tossing it to the floor while on-air, possibly leaving him the latest reincarnation of Lonesome Rhodes, a character in A Face in the Crowd.

I should point out that I don't ordinarily read Financialwire every day. I got wind of this item because it was splashed all over Internet message boards, where it was picked up by a reader and sent to me. I also see that Byrne posted a tantalizing tidbit on a Motley Fool message board late last night, saying "Big story breaking next 24 hours. Stay tuned.."

I've got to hand it to Patrick Byrne -- as before, he really knows how to get the word out. No ordinary methods of information-dissemination for this gentleman. I certainly hope what he's doing is strictly in accordance with the securities laws, because I think news releases with Sarbanes-Oxley language at the bottom is strictly passe'. I'd like to see more corporate CEOs doing this, particularly when, in this instance, it is quickly seized upon by message-board touts as a way of pushing up Overstock's share price.

Let's keep those innuendos coming! After all, something's coming I don't know what it is... but it is .... gonna be great!


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Sunday, March 12, 2006

The Slow Wheels of Justice

Great piece in the Asbury Park Press today about the last chapter in the long-running saga of Bob Brennan and First Jersey Securities.

Brennan was a photogenic guy who ran a brokerage firm that pushed its wares on the public in the 1980s. He was famed for his TV commercial, one of which showed him arriving in a helicopter at a building resembling the White House. "Come Grow With Us," the announcer would say.

Some tough financial journalists -- predecessors to the ones receiving SEC subpoenas today -- proved that Brennan was a charlatan. For years he was unsuccessfully pursued by the SEC.. But eventually, long after the last investor was fleeced, the feds finally nailed Brennan.

The Press picks up the story:

[Brennan] filed for bankruptcy in August 1995, shortly after a federal court judge said he defrauded investors and fined him $75 million.

Federal investigators eventually determined that Brennan didn't disclose everything he owned on his bankruptcy petition. He was tried and convicted of bankruptcy fraud. And he is serving a 12-year sentence at the federal prison at Fort Dix.

The bankruptcy court trustee, Donald F. Conway, actually did a pretty good job of tracking down Brennan's assets and distributing $62 million to victims. Still, that's less than half of the $143.3 million in restitution Brennan was ordered to pay.

Anyway, it's a nice piece. There are plenty of microcap-pushing Bob Brennans out there -- none quite so big, but in the aggregate they are far more of a danger to investors than Bob Brennan ever was. It's a shame we don't see more media attention to this problem.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Friday, March 10, 2006

The Real Mess at Enron -- Naked Shorting, Of Course!

I promised myself that I could let at least one day go by without saying anything about the wild and (literally) crazy naked-shorting cult, but .... well, I can't resist. They are fascinating in a grotesque way, and attract interest the way people crowd around a traffic accident.

Anyway, a reader brings to my attention what is actually a very typical message on a Yahoo stock message board from Mary Helburn, who is executive director of something called the National Coalition Against Naked Shorting.

After first noting a report of supposed naked shorting in UAL stock in 2002 (shortly before it went bankrupt), she went on to point out that everything you have read is wrong. Enron and other major corporate disasters of recent years were all victims of naked short-selling:

It isn't just UAL. It is any company that has bad news.. CPN, DAL, Enron...

This is the tip of the iceberg.... and it is all coming out..

They prey on small caps that they can manipulate and large caps under stress. They sell,sell, sell and make it look like it was all the company when it was really naked short selling. Wall Street, hedge funds, brokerages, do not want this out for the public to know. [Emphasis added]

Enron shareholders should be collecting from the brokerages for their losses.


CPN was the stock symbol of Calpine Corp. and DAL was Delta Airlines -- both of which wound up in bankruptcy after years of well-publicized corporate woes. Or at least, that is what "they" wanted you to think. That it was the company. It wasn't! It was them! Them! Themmmmmm!

Another message board poster tried unsuccessfully to reason with Helburn. . .

Do you really think UAL could have sold some shares in a secondary at $5 to pull it out of its debt death spiral, but was prevented from doing so by abusive shorting causing its stock to go to 30 cents?

That isn't what happened. There was abusive shorting, but the stock went worthless because the business went bankrupt due to debt overcome by massive operational losses.

You are mixing 2 separate issues together, Mary, and I cannot understand why you continue to do so.

. . . but she held her ground.

Remember, this is typical -- a mainstream example of the rubbish disseminated by the Baloney Brigade.

To answer the gentleman's question, there's a simple explanation why the Baloney Brigade "continues to do so," generating this pap day after day: It is all they have.

There is no naked shorting scandal, only paranoid fantasies. Deprived of facts, all they are left with is fiction -- and it would be funny if these bozos weren't so influential with our regulators and lawmakers.

UPDATE: A reader points me toward another manifestation of this effort to slap "naked shorting" on every financial scandal of recent years, this one appearing on the "blog" of a Baloney Brigadier named Dave Patch. On Feb. 13 (a Friday, perhaps?) he posted a rambling essay devoted to explore that Enron-as-shorting victim theory.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Thursday, March 09, 2006

Independent Analysts and Lawsuits

Overstock CEO Patrick Byrne issued a taunting press release today, challenging a research firm to come out in the schoolyard and.... no. Wait a sec. Oh, he challenged the firm, which he is suing, to countersue him. You can read the stupid, childish thing here.

Jesse Eisinger wrote a smart column in the Wall Street Journal yesterday, mentioning the problems facing independent analysts and citing the threat posed by lawsuits such as Byrne's, which he is pursuing against Gradient Analytics and others. Joe Nocera made the same point in the New York Times a couple of weeks ago.

A week or so ago I observed that journalists were reacting weakly to the threat posed to their colleagues by SEC subpoenas. SABEW has since taken a strong stance on the subject. Might be nice to see analyst and research trade groups take a similarly principled stance when their colleagues are dragged through costly, inane litigation.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Wednesday, March 08, 2006

The Stupidity of Hedge Fund Investing

Some news out of Atlanta recently (see this AP story) underlines a point to which I devote several chapters in Wall Street Versus America -- investing in a hedge fund, including one of the ubiquitous funds of hedge funds, is one of the dumbest things you can do with your money.

The Atlanta news highlights just one of the many reasons to steer clear of these overhyped doggies -- the chance that the fund manager might simply walk away with your money. Quoting an SEC and private lawsuit against fund manager International Management Associates, which is contesting the charges, the AP reported as follows:

[A hedge fund manager] and his company are accused of collecting between $115 million and $185 million from at least 500 investors since 1997 and misleading some of them -- through false statements and documents -- to believe the value of those investments was increasing.
"Certainly over the past year and earlier, the amount of money that was supposed to be in the respective funds was, in fact, not there," SEC lead counsel Bill Hicks said.

This same thing has happened, in various guises, again and again and again.

Sure, the vast majority of hedge fund managers are honest, upright, upstanding citizens. It's not their fault that some crumb bums are entering the business and that hedge funds are structurally prone to the kind of thievery that allegedly occurred here. In fact, you can argue that hedge fund investors -- in this instance a slew of NFL football players -- have only themselves to blame for being naive enough to buy into a hedge fund in the first place.

Yet they (or, more precisely, their managers) do so. Why? I devote several chapters to hedge fund fallacies in my book, and here is an oversimplified breakdown:

* Myth. Hedge funds are a subject of a massive media-fed mythology. A large part of this mythology involves "Super Investors" who aren't so super.
* Data. The available data, particularly over the long-term, just isn't very good.
* Opacity. Hedge funds aren't obliged to say a thing to anybody, with the exception of some new SEC registration requirements that aren't going to do much good.

Now, all this is just the problems that hedge funds pose from an investor standpoint. They also pose systemic issues, mainly involving derivatives and leverage, that have not been addressed by regulators. By the way, that's another reason to get annoyed with the "naked shorting" conspiracy cultists -- they want regulators to address a non-problem posed by hedge funds, diverting attention from the real systemic issues.

Fortunately, only a small minority of investors can buy into hedge funds. However, the rules are so riddled with loopholes that more investors than ever can invest in them. The rest of us are left with a a form of managed investment that is only slightly less dumb -- an actively managed mutual fund.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.


Tuesday, March 07, 2006

Let's Keep That Love Unrequited

SEC Chairman Christopher Cox gave an interview to the Orange County Register yesterday in which he made some nice, soothing, reassuring sounds about that nasty journalist-subpoena controversy. Register columnist Jonathan Lansner said Cox "quite bluntly told me Monday that he's determined to keep his agency out of the way of hard-nosed financial reporters."

Cox went on to say that the SEC "relies on aggressive investigative journalism to uncover wrongdoing in companies. Therefore, the SEC should do nothing to chill that work." He also said that "Financial journalists need to understand that the SEC considers them vital partners in our mission."

Good! Give that regulator a cigar. (Oops! Bad joke. Ethics rules....)

I think it is great that Cox feels so warm and fuzzy about the press. (By the way, as long as everybody's saying nice things about each other, I have something nice to say about Chris Cox in my book! You'll have to read it to find out.)

However, I have a problem with reporters feeling this way about the SEC. Too much reporting of the SEC, as I describe in you-know-what, has not been tough enough on that august agency and other regulators.

So I hope that my colleagues keep this alleged adoration unrequited, but I know better than to expect that it will happen.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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The NYSE (yawn) Goes Public

Tomorrow, for the first time in its 200-something-year history, the New York Stock Exchange becomes a publicly traded company! Isn't that exciting? Isn't that terrific? Isn't that ...zzzzzzzzzz....

I'm just mentioning this NYSE-going-public thing because it is an example of the kind of story of which I would like to see less in the financial press, in favor of stuff that really matters to people.

I know, it has to be covered. Here's one good piece in Marketwatch, for example, and I am sure tomorrow there will be a lot of other nice stories on the subject. Can we give it a rest after that, guys?

The financial media spends far too much of its limited resources pursuing inside-baseball stuff of little interest to anyone north of Chambers Street. After Dick Grasso's self-destruction in September 2003, you couldn't grab a sheet of newspaper to line a litterbox without finding a story with "NYSE" or "Grasso" somewhere. It was ridiculous.

As I say in you-know-what, the actual location where a stock is traded -- whether it is a "trading floor" or a "trading ceiling" or a computer network or whatever -- is a matter of little consequence to most investors. True, it matters greatly to high-volume institutional traders. The rest of us couldn't, and shouldn't, care less.

The same thing goes for the "governance" of the NYSE. Again, who cares? If the NYSE wants to be a paragon of lousy management, that is of little concern to anyone except the NYSE's owners, who are currently 3,000 or so retired millionaire seatholders.

Meanwhile, I read in the Wall Street Journal law blog that Dick Grasso is being deposed by Eliot Spitzer today as part of that ridiculous lawsuit that was filed against him. Good gawd. So Grasso was paid a lot of money. Again, who the hell cares? As I say in you-know-what, he earned every penny of what he was paid (though not exactly for the reasons outlined in NYSE press releases).

If he hadn't been overpaid he wouldn't have lost his job, and if he hadn't have lost his job the NYSE would not be going public, and those 3,000 retired millionaires wouldn't be getting a nice hunk of change. They're making out nicely, so who's got a reason to complain? Or perhaps I should say, "Who's got a reason to complain who's not running for governor?"

At least Spitzer isn't doing something even less useful, like being led around by the nose by the anti-naked-shorting cultists of the Baloney Brigade. Perhaps he could have a word with the ones who are, at the SEC and other state regulatory agencies.

P.S. I'd like to welcome all the very nice (I am sure) people who have signed up via Notifylist to get updates when this blog is updated. Among them are a grand total of 23 people with email addresses from our financial regulatory agencies! A extra-special welcome to y'all.

A prime number. How lucky!


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Monday, March 06, 2006

News From the High Plains

In the continuing saga of Overstock, which I am following with facination the way I used to watch The Fugitive when I was a kid, even routine corporate tidings are imbued with significance. Thus the Wall Street Journal picked up what it described as an "intriguing filing" with the SEC by the Richard Kimble of this saga, CEO Patrick Byrne.

The filing said as follows:

"Effective February 17, 2006, High Plains Investments LLC pledged 1,000,314 Shares of the Issuer to a commercial bank in connection with the extension of a line of credit by the bank to High Plains Investments LLC. At the same time, Dr. Byrne pledged 494,886 Shares to the bank in connection with the same line of credit."

According to SEC filings, the Journal noted, "Mr. Byrne is a General Partner at High Plains Investments, so this is a bit of two-fer for him. The filing didn't offer an explanation for the transaction."

Well, let's see. Looks like the guy owns a partnership of some kind and it borrowed some money, using some shares as collateral but..... hey..... wait a minute.

Were those "real" shares or were they "counterfeit" shares? In case you're wondering what I mean by that, everyone on Planet Earth except for Patrick Byrne -- and a handful of other advocates of a nutty Wall Street conspiracy theory -- believe that if a share "failed to deliver" in the clearing process it ain't really a share, and they make a big fuss of asking for their cerificates just to be sure that they ain't been "failed." (Doing so also squeezes any shorts that may be out there, not coincidentally.)

It's all a lot of baloney, of course, and Byrne has been embracing this screwball conspiracy theory to distract attention from the fact that his company's stock is in the toilet.

Still, it is interesting to see the distinction omitted from the filing. That is, he didn't say, "the pledged shares were real shares and had not failed to deliver," or somesuch. Byrne seems to think the whole thing is so important that he's had a rupture with the chairman of the company, his dad, over his participation in this screwy crusade. You'd think it would be important enough to put in the filing.

I assume Byrne made that "counterfeit" vs. "real" determination. After all, if they were "counterfeit" shares.... well, doesn't that mean that the whole deal isn't kosher?

Or could it be that, in his heart of hearts, he realizes the whole thing is a lot of baloney?

Anyway, I'm looking forward to the next episode.

UPDATE: Later on March 6, Byrne gave an interview to C-Net in which he implied that his father, former GEICO CEO John Byrne, was getting a little long of tooth and maybe not totally sensible at times. "You know, when you're 74, you feel differently every day, based on what you have for breakfast that morning," he said of his father.

The elder Byrne's had warranted this smear for giving an interview saying that he may step down as chairman of the company because of his son's embarrassing conduct.

Having insulted his own father, it was no great surprise that Byrne lashed out for the umpteenth time at the financial press and "Wall Street." No, he didn't get a peek at Wall Street Versus America. He's not upset with the media failing to run tough stories on incompetent CEOs, or mad at analysts touting stocks, or peeved at the unfair arbitration system.

No, Byrne's beef is that some members of these two institutions don't like Overstock and don't like Patrick Byrne. How wrong they are. What have they been having for breakfast?

FURTHER UPDATE: He later gave an interview saying that the Depository Trust and Clearing Corp. is run by "criminals." I guess he wants publicity or something. Oops! I lost the link.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Saturday, March 04, 2006

News From the Corporate Circus World

Patrick Byrne, the conspiracy-theorist-CEO of, today apparently responded to press accounts of dissatisfaction with his stewardship by the chairman of the company, his father John Byrne, who has publicly threatened to quit.

I say "apparently" because his method of communication lies on the scale of reliability somewhere between "innuendo" and "bush telegraph."

Byrne communicated with the world by apparently speaking to the anonymous proprietor of the "sanitycheck" naked-shorting-conspiracy website. No direct quotes, just a lot of paranoid ranting attributed, accurately or not, to Byrne by.... I'll take a deep breath now.... a person named "Bob O'Brien" who carefully conceals his identity (he has been identified by the NY Post as ex-used medical equipment peddler Phil Saunders) so that he can smear people without repercussions.


Kind of a weird way to apparently communicate with the public about a serious issue. But then again, this is not what I would describe as a "serious" company. This is, the One-Ring Circus of Corporate America.

Press releases and ordinary shareholder communications with Sarb-Ox language at the bottom and all that boring stuff -- not for this company! No sir. Anonymous websites are Overstock's method of communications. That's more suited to the Big Top, after all.

Back on Planet Earth, the Wall Street Journal today pointed out, quite correctly, that logic would dictate that sonny boy, and not the elder Mr. Byrne, should be taking it on the arches. After all, the Journal noted, that is what sound corporate governance is all about.

All very rational and intelligent, and therefore totally irrelevant.

Oh, I was focusing so much on Byrne's dipsy-doodle method of communicating with his shareholders that I almost forgot to relate the apparent substance of his remarks.

I'd sum it up this way: If his comments were correctly communicated (a dubious prospect at best), Patrick Byrne gave his father, his shareholders, the media, and pretty much the rest of the Western World the upward thrust of his middle finger.

UPDATE: Late on March 5, "sanitycheck" summed up a hellish week for Overstock this way: "Jack Byrne says he wishes Patrick would spend more time on the business, Patrick agrees."

I know, it's funny -- until you realize that a conspiracy-nut website is the only mode of communication utilized by Patrick Bryne to disseminate information to the public on this vital issue. (I mean, it is important when the chairman threatens to quit, even when he's not your poppa. No?)

I've gotten some emails suggesting that what Byrne is doing may violate the securities laws in some way. Baaah. Nonsense. I am sure he is adhering to the letter of the law, and in fact I think that what he is doing is quite admirable, not to mention informative.

The manner in which a CEO communicates with the public, after all, says a lot about the CEO and his company. Some CEOs post detailed statements on their websites. Warren Buffett has lengthy question-and-answer sessions at his annual meetings.

Patrick Byrne grants interviews to an anonymous con man who calls himself "the Easter Bunny."

Hey, what else do you need to know?

* * *
Other recent coverage: Overstock CEO Scolded by His Dad, "Overstock 'Jihad' Divides Father and Son"

Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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SEC Commissioner Flops on Microcap Fraud

Securities and Exchange Commissioner Paul Atkins yesterday challenged the SEC to do a better job of fighting microcap fraud. When I read about the speech on Reuters, I felt pretty good. The guy seemed to "get it."

But then I read the text of the speech on the SEC website, and I wanted to throw up.

Atkins noted that the dollar volume of the microcap market is enormous -- $57 billion -- and not adequately policed by the SEC. Terrific. I describe in detail in Wall Street Versus America how the SEC does a crummy job of pursuing stock fraud. The reason, Atkins says, is the culture of the SEC enforcement staff:

Beating micro-cap fraudsters is a fight that we can and must win. So why have we not been able to put more micro-cap promoters out of business? I believe one reason is that junior staff members think that spending time pursuing pump-and-dump promoters is a poor career investment.

If the junior staff believe that only big dollar penalties against corporations will bring a promotion, and managers believe that only these cases will distinguish them from their peers, then is it a surprise that individual staff members avoid spending time pursuing pump-and-dumps?

True, Atkins' agenda was transparently ideological, and more concerned with making life easier for big corporations than helping investors. Still, at least he was making sense on microcap fraud. Or at least he was -- until he started spouting baloney.

In describing the problem of microcap fraud, Atkins said as follows:

Fraud in this market manifests itself through old-fashioned boiler-rooms with hard-sell cold-calling; new tactics such as cyber-smear or the infamous voicemail that was supposedly incorrectly left on machines giving a bogus stock "tip"; and bear raids composed of an unholy alliance of abusive short sellers, stock promoters, class-action lawyers, and others.

I put in italics the stuff that made me reach for the barf bag. Atkins ruined a perfectly good speech by showing how the fraudulent "naked shorting" conspiracy cult has polluted the regulatory mindset.

There have been hundreds if not thousands of cases of boiler rooms pushing stocks and using all kinds of manipulative tactics that cause stocks to climb. But bear raids on legitimate stocks -- or even not-so-legitimate stocks -- happen on the "once in a blue moon" order of magnitude.

Just look at the slew of prosecutions and SEC enforcement actions in recent years and you can see what I mean. You can count "bear raids" since the first Bush administration on the fingers of one hand. You need a small auditorium's worth of hands to count all the instances of boiler room and "chop stock" manipulations in which shorting played no role whatsoever.

That doesn't matter to the crackpots and crooks of the anti-shorting Baloney Brigade, who have waged a war of lies and intimidation to divert regulators from real stock fraud.

If you want to see the damage they've done, just go over to the SEC website and read the Atkins speech.

If you want to read several dozens more examples of the SEC doing things that are just as dumb.... well, I guess you'll have to wait until the book comes out.

Atkins is certainly right that microcap fraud needs attention. But what requires attention is genuine fraud -- not conspiracy theories spun by the very same people who perpetrate pump-and-dump scams.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Friday, March 03, 2006

Financial Journalists and Manipulation

Writing in the SABEW blog today, Chris Roush reflects on the coverage of the SEC subpoena controversy and is not happy. The coverage, at least in three major periodicals, "missed the boat." The SEC, he feels, is treading in dangerous waters by probing reporters in the first place.

Says Chris, "The SEC needs to take a step back and review what it's doing. To involve reporters in trying to discipline those in the marketplace conveys that the SEC dozen't know how to do its own investigative work."

I would take that thought one step further. To me, this investigation -- inspired, apparently, by CEO-conspiracy-theorist Patrick Byrne of -- demonstrates pretty conclusively that that the SEC's priorities have been turned on their head.

The agency, inspired by the allegations in a suit Overstock filed against analysts, is probing reporters engaging in tough reporting on companies, using a research firm that serves short-sellers (horrors!) as a source.

That's not a problem. The real problem facing financial journalism -- which is also none of the SEC's business -- is reporters serving as a conduit for Wall Street hype and sleaze.

There were numerous examples of that during the 1990s bull market, and numerous examples of that today. Even the sleaziest stock promoters were not above at least trying to get their viewpoint before the audiences of major publications.

I can site a whole bunch of examples of that. However, there's only one that I can talk about, because I already wrote about it in my book Born to Steal (Warner Books: 2003).

A drug dealer-turned-stock promoter by the name of Ralph Torrelli was pushing a crappy stock called Internet Holdings, and in the summer of 1997 he sent a "due diligence package" to Business Week. It was routed to me because I was writing the Inside Wall Street column while the regular columnist was on vacation. In it was a handwritten note from Torrelli, apparently included by mistake.

I didn't write about Internet Holdings. But what if I had? I'd have committed a major journalistic blunder. But something the SEC would have been warranted to probe? No way.

Journalist naivete is a major problem. You saw it some of the coverage of the naked short-selling conspiracy nuts, as I recount in Wall Street Versus America, and in the coverage of the Brad Abelow hearings in Trenton last week. One of the persons testifying in Trenton was an anti-Semitic conspiracy theorist who used to be a penny stock broker. Another was a CEO recently sanctioned by the SEC. The reporters covering the hearings quoted these mutts without mentioning their background.

That kind of thing is a problem for journalists, not the SEC.

What is a problem for the SEC, however, are newsletters and websites that purport to engage in "journalism" and "independent research" when they are actually shills for companies and stock promoters.

Cox mentioned yesterday that people "masquerading as journalists" are a problem -- and he's absolutely right. To my surprise and disappointment, Cox's comment, reported by Reuters, was not wide widely disseminated today.

A good example of the foregoing, as I noted in an item yesterday, is the "santitycheck" website, run anonymously by a buddy of Overstock's CEO who carefully conceals his identity. Its principal purpose is to intimidate journalists, particularly critics of Byrne, and to advance the cause of stock fraud by spinning nutty "naked shorting" conspiracy theories.

The SEC should investigate "sanitycheck" and its ilk, but should keep its cotton-picking hands off honest journalists and research firms and market commentators who are doing what regulators are supposed to be doing -- policing real Wall Street fraud.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Thursday, March 02, 2006

Cox on Phony Journalists

SEC chairman Chris Cox, quoted by Reuters tonight, says that the agency is working on subpoena guidelines for journalists. He then makes the following pointed observation:

He said the commissioners had discussed the problem of defining who is and is not truly a journalist. "There are people masquerading as journalists who really aren't. That's a concern," he said. He said the guidelines would concern only the news media and no one else.
This is indeed a concern. The "sanitycheck" website, promoted by Overstock CEO Patrick Byrne on CNBC yesterday, bills itself as an "independent" website that likes to say that it engages in "journalism." But if you follow Byrne's advice and go there, you see that it is run anonymously by an individual who hides behind a phony name while he promotes several companies, Overstock among them. One of its primary functions is to slander and intimidate journalists who fall afoul of those companies.

That's not "journalism" by any stretch of the imagination. Time for the SEC to take action against this fraudulent website and its scummy operators and hidden backers.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Blowback at

The Wall Street Journal Online reports this afternoon that John Byrne, former CEO of GEICO and father of the world's most despicable CEO -- Patrick Byrne of -- is thinking seriously of stepping down as chairman of sonny boy's company.

The word for this is "blowback." All the crazy conspiracy theories circulated by the younger Mr. Byrne are beginning to take effect -- except not the way he wanted.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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The Journal Stands Up for Free Markets

The Wall Street Journal editorial page today weighed in eloquently on the SEC's subpoena-frenzy, and also ripped to shreds the hysteria that has arisen concerning short-selling. Ditto for an editorial yesterday in the New York Sun, which made much the same points.

The Sun and Journal both recognize something has been overlooked by the SEC in its eagerness to please the anti-shorting cult: the free markets -- not an evil cabal of short-sellers -- is what makes stock prices fall.

As I pointed out yesterday, crummy companies have long used short-selling as a scapegoat for their own failures. Sure, stock prices can be manipulated downward. It happens -- about once in a blue moon, while upward stock manipulation is an immense, recurring problem, the subject of hundreds of regulatory actions and indictments. The anti-shorting crusade wants regulators to wear themselves out chasing after shorts, so that the daily plague of upward price manipulation is allowed to fester, unhindered.

The anti-shorting con men have succeeded handsomely. The SEC subpoenas, and the passage of Regulation SHO, are an example of their malignant power and influence. I explore their "Baloney Blitzkrieg," in Wall Street Versus America, and in recent days I've described their smear campaign against journalists. See this item and this one.

The leading anti-shorting website, which was promoted by's screwy CEO Patrick Byrne on CNBC yesterday, exploited its five minutes of fame yesterday with a cartoon libeling Marketwatch's Herb Greenberg with a cartoon showing him in prison garb. This kind of infantile feces-tossing is typical of the shorting cult's grimy tactics.

The anti-shorting cult doesn't want free markets. They want freedom -- the freedom to sell stocks in cruddy companies, and smear and bully critics like Greenberg, with as little government interference as possible. But when these same stocks decline, they want heavy-handed regulatory intervention.

The absurd Regulation SHO is the anti-shorters' handiwork. It is based on the proposition that extended "fails to deliver" of securities are bad. Yet regulators, including the SEC, have long insisted that whether a security "fails" or not doesn't hurt investors one bit.

The leader of the anti-shorting cult, Byrne, is a living example of the hypocrisy and intellectual dishonesty of this position. Byrne, when not making a fool of himself on nationwide TV, engages in inconsistent political posturing and at one point called himself a "libertarian."

In fact, he wants the government and court system to do his job for him, and improve the stock price of He may actually believe the rubbish he has been spouting that a conspiracy of shorts has depressed his company's share price. The problem, of course, is not short-sellers but that isn't profitable. No amount of suing and TV appearances and journalist-bullying is going to change that.

Byrne's dad, former GEICO chief executive John Byrne, is clearly embarrassed by sonny boy's televised antics. The Toronto Globe and Mail reported today:
While the fight rages, Mr. Byrne's 74-year old father, John, who is a director of, is getting a bit impatient. In an interview yesterday, John Byrne said he has every confidence in his son but added: "There may be something to this, I don't know whether there is or there isn't. I wish he would just pay attention to just running his company. That's the problem with the world today, sons don't do what their father's tell them to do."

I don't know if that's a problem. Patrick Byrne's problem is that Overstock is losing money. The SEC's problem is that it has allowed its enforcement and regulatory agenda to be influenced by a screwball CEO and the nuts of the anti-shorting conspiracy cult.


  • Speaking of anti-shorting nuts, take a look at the anti-Semitic comment to this item from a prominent anti-shorting conspiracy activist named Darren Saunders, a former penny-stock pusher who was one of the anti-shorting crackpots who testified against Bradley Abelow in Trenton last week.

    Clearly, as Jeff Matthews once observed in his blog, there is an anti-Semitic tinge to aspects of the anti-naked-shorting cabal. The saner anti-shorting conspiracy theorists might want to take a hard look at the creatures crawling through their movement.

  • Other good comments on the anti-shorting hysteria are available here, from Houston attorney Tom Kirkendall's blog, and here, from Ideoblog. Also, Loren Steffy clarifies his column on the short-selling nonsense and makes some keen observations.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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Wednesday, March 01, 2006

The SEC -- Chasing After Good Guys or Bad Guys?

Charles Gasparino opines today in Newsweek on the journalist-subpoena controversy, and explains the rationale of the SEC thusly:
There is another issue here as well. As a financial journalist I've always approached my job as that of a watchdog. Usually, that puts us on parallel tracks with the people at the SEC whose job is also to root out crime and abuse and protect small investors from miscreants in the financial world. In their investigation of Overstock, the SEC's top officials apparently believed that journalists could play the same role as other witnesses in their investigations since journalists are known to consort with all sorts of people, even the people they are investigating.

Fair enough. But with whom are the subpoenaed journalists (Herb Greenberg, Carol Remond and Jim Cramer) "consorting"? "Malefactors"? Or stock analysts dedicated to rooting out overvalued and manipulated companies?

What's out of kilter here is that the SEC is investigating people who are indeed on the same side as the agency-- that is, on the occasions when it deigns to pursue stock fraud.

Meanwhile, the bad guys -- the stock touters promoting the fictitious "stock counterfeiting conspiracy" -- are the ones cheering on the feds.

This is not the first time that the anti-shorting crowd has screamed "stock manipulation" and tried to push the feds into engaging in a wild goose chase. A good example came in the mid-1990s, and involved a company called Solv-Ex that also blamed shorts for its crummy stock performance. The company's top officials pressed hard for SEC action.

In fact, as I reported in Business Week at the time, the Solv-Ex stock was being manipulated upward by Mob-linked stock scamsters. The company itself was never linked to any Mob-related activity.

In the end, Solv-Ex was subject to an SEC enforcement action. In 2004, an appellate court upheld a lower court's findings that Solv-Ex's two top officers "had made material misrepresentations and/or omissions in public statements and in filings with the SEC." No short-selling manipulation was ever found.

The SEC, and the media, need to keep in mind this history of anti-shorting hysteria -- and the sorry pedigree of the anti-shorting hysterics. Solv-Ex is just one of many examples of cruddy companies using shorts as scapegoats.

Meanwhile, Overstock CEO Patrick Byrne appeared on CNBC this morning to spin the subpoena thing in his usual dippy way. No, he had nothing to do with the investigation. No, he hasn't been spouting conspiracy theories. Really? Was it a figment of everyone's imagination when he said in August that a "Sith Lord" and other "malefactors" were conspiring to drive down the price of his company's stock?

Today Byrne's main purpose was to tout the conspiracy-nut website "Sanitycheck," run by Byrne's anonymous Internet hatchet man "Bob O'Brien," who the NY Post has identified as an ex-used medical equipment peddler named Phil Saunders.

Hopefully the SEC will investigate whatever links may exist between Byrne and Saunders/"O'Brien," who functions as a kind of de facto investor relations man for Byrne and other companies. Is it kosher for "O'Brien" to do so while carefully concealing his identity -- so that he can safely make vicious, slanderous attacks on journalists who threaten to write about Byrne? Note "O'Brien's" smear of Business Week writer Tim Mullaney and his vicious attacks -- which are continuing to this day -- on Greenberg.

Who's paying the freight for "O'Brien"? Time for the SEC to stop chasing its tail and hone in on this malicious, anonymous creep's activities.

In addition to touting "sanitycheck," Byrne also pushed a website that appears to be some kind of startup in the stock loan business. Judging from its website, which contains anti-naked-shorting propaganda, there seems to be a link between that firm and the "stock counterfeiting" cultists.

As the SABEW blog observed this morning, this is all good television. Still, I wonder how long CNBC should continue to give a forum for this loopy CEO and his crackpot theories and fave crackpot website and smears -- even if they are, as they were today, immediately answered by one of his targets.

UPDATE: Loren Steffy has a slightly different take on the foregoing in the Houston Chronicle. Steffy more or less says that Chris Cox is a spineless political hack, and calls for his resignation. "With journalists rallying to Greenberg's defense, he can look like a champion of free speech while heaping public humiliation on the enforcement division," he says.

I think this criticism is misdirected. The problem is not Cox caving in to pressure to more or less halt a stupid set of subpoenas. The problem is what appears to be, from all indications, a dumb SEC investigation.

The White Collar Crime Prof blog says that "Subpoenaing the press will not be haphazard at the SEC." I am not reassured.

Here's an update on Byrne and his proxies using Wikipedia to pursue his corporate goals and vendettas.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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