Saturday, August 29, 2009

Required Viewing: American Casino

I just saw a preview of the new documentary American Casino, which opens in New York in a few days, and I have to say that it totally blew me away. It's deft, sophisticated, and riveting--a really impressive piece of work.

To be frank, I almost expected to be either bored to tears or blasted with overgeneralizations and conspiracy theories. Instead, what I saw was a documentary that performs a real public service.

This was a considerable undertaking. The bailout and the housing crisis are extraordinarily complex, and the challenges facing a filmmaker must be daunting. Remember that we're talking not just about stuff that's easy to show on camera, like people being booted out of their homes, but the financial machinations that drove the nation to the brink of bankruptcy.

Sure, Andrew and Leslie Cockburn show people being kicked out of their homes, and gruesome stuff like rats decomposing in swimming pools, but they also showed the financial and political forces that led to the crisis, and the monstruous consequences of the bailout.

American Casino sets a high bar for Michael Moore's impending documentary and the other films that will follow.

With the help of Mark Pittman of Bloomberg, who has done some of the best work in the press on the financial crisis, they examine specific mortgage-backed instruments and trace one down to an individual homeowner being kicked out of his house. Their descriptions of mortgage-backed securities, credit default swaps and other financial instruments, and how they all tie together into a noose around all our necks, are about the best I've seen.

Scenes of foreclosed homes and destroyed lives in Baltimore and Stockton, California, are harrowing. But to me, what was really impressive was how the Cockburns brought all that financial minutae to life. People need to understand what happened, and why it happened, and that's very tough to show on screen.

The Cockburns put the blame were it belongs: on Washington, which deregulated credit default swaps in a law pushed by Phil Gramm in December 2000, and which encouraged the sales of mortgages to people who couldn't afford them.

Gramm's key role in the crisis is rarely mentioned, so that was a particularly satisfying thing to see.

I'm looking forward to Moore's Capitalism, A Love Story and other documentaries that are in the pipeline, including one on Bear Stearns specifically. American Casino is the first to come on screen, and it bodes well for the rest of them.

© 2009 Gary Weiss. All rights reserved.

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Monday, August 24, 2009

Veteran Crime Fighter Seeks Spitzer's Old Job

I was pleased to see that Eric Dinallo has thrown his hat in the ring, more or less, for New York State Attorney General. Evidently the job has a good chance of becoming vacant, since Andrew Cuomo is likely to run for governor.

Dinallo is mainly known for his role in the rescue of AIG when he was Superintendent of Insurance, and he drew high marks for his work in that job from consumer advocates. I remember Dinallo well from his days as lead prosecutor in the trial of the chief financial officer of A.R. Baron, and he went on to become a top deputy to Eliot Spitzer when he was attorney general.

Whatever the revisionist historians like to say about Spitzer, he certainly put the fear of God into Wall Street--not enough fear, as it turned out.

It would be interesting to see what happens if Dinallo gets the job. Hopefully he'll pick up from where Spitzer left off, and also continue Cuomo's credible job in consumer affairs issues.

© 2009 Gary Weiss. All rights reserved.

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Sunday, August 23, 2009

A (Bio)Vail of Tears

There was weeping and wailing and blubbering among inept CEOs across the land in recent days as a federal court judge threw out a junk lawsuit against hedge fund manager SAC Capital Advisors and Gradient Analytics by the veteran underperforming blame-shifter, Biovail Corp.

In retrospect it was one of more well-engineered blame-shifting lawsuits of recent years, as this cruddy little pharmaceutical company carefully targeted one of the least sympathetic hedge fund managers in creation. Biovail even managed to con 60 Minutes into a brain-dead segment celebrating its cause. But at the end of the day junk is junk, and out the suit went.

Here's the unanswered question: what is the SEC going to do about the larger issue raised by this lawsuit, which is the nagging problem of issuer retaliation? That's the practice of companies retaliating against analysts, investors and other critics. Biovail raised issuer retaliation to a high art, and was filing lawsuits against shorts since back in the early 1990s.

My favorite corporate crime petri dish,, still has a junk lawsuit pending against Rocker Partners, a hedge fund that made the terrible mistake of shorting Overstock's perenially overvalued shares.

It's the aim of issuer retaliation to keep the market from working properly and preventing the free flow of information. Issuer retaliation works, because small research shops can be bled white by lawsuits, while public companies have plenty of shareholder money to use for lawyers.

The SEC has neglected issuer retaliation entirely, while sometimes paying lip service. SEC chairperson Mary Schapiro won't even do that. After all, talking about blame-shifting lawsuits won't put her on the cover of Equities magazine or other stock-pumping rags.

Getting off her fanny and doing something about it won't win her any political brownie points, but it might actually change the direction the agency has taken since slip-sliding into corporate-protection mode when Harvey Pitt slithered onstage in 2001.

© 2009 Gary Weiss. All rights reserved.

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Saturday, August 22, 2009

The Big Newspaper Row in Connecticut Gets Uglier

The battle royale between the Hartford Courant and its fired consumer columnist, George Gombossy, is ratcheting up in ugliness. Today Gombossy published on his blog a list of key advertisers "I was to be nice with."

The list can be found here. It is a long list.

He calls it "the list of prime advertisers The Courant gave me so that I would know to ring the alarm bell at [Courant senior veep Jeff] Levine’s office in case I even considered writing one negative word about them. Other Courant reporters and columnists have received similar orders recently."

I was directed by The Courant’s top management to write nothing negative about them in my columns or blogs, nor approve of any reader negative comment, without first giving top management a chance to censor and potentially kill the offending item. The list – which includes state agencies – applies to all Courant reporters and columnists.
It seems to me that the Courant has some 'splaining to do, and falling back on the "we can't comment because of potential litigation" just won't wash.

This is, or should be, a major scandal. Gombossy (who I've never met, by the way) was not some recently hired snot nose kid but a 42-year veteran and a former business editor of the paper. It is not only an example of really bush league journalistic non-ethics, but also managerial stupidity. When the geniuses at the paper fired Gombossy did they really think he wouldn't squawk?

© 2009 Gary Weiss. All rights reserved.

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Wasserstein: Will He Be Good for BusinessWeek?

If I were a betting man (and mind you, I suck at betting), my guess would be that Bruce Wasserstein will buy BusinessWeek. That seems to be the conventional wisdom (see here and here), and I agree.

BW's Jon Fine even says, in an casual reference in his latest blog post, that Wasserstein is "the candidate among the known potential bidders most favored by the rank-and-file at BusinessWeek."

I can understand why Wasserstein is the front-runner. That's glaringly obvious, because he's building up something of a mini-empire, including New York magazine and The Deal (and formerly the American Lawyer). When he bought New York he said he wanted to build up its business coverage. Which he did.

But I'm surprised the staff favors Wasserstein, assuming that is true (which I tend to doubt). I recall that once he addressed the staff at a Pennsylvania retreat, but that was many years ago and few survivors of that event are still at the magazine.

I'm surprised for two reasons. The first is that one of the active bidders is Joe Mansueto. He has an association with BW dating back to the 1980s, and he's done a bangup job as owner of Fast Company. The second--and I'm surprised how little this is mentioned in the coverage--is that Wasserstein's purchase of BW would pose fairly glaring conflict-of-interest issues. Hello? The head of not one but two major firms (Wasserstein's private equity shop and Lazard) buying one of the three big business magazines?

Now, I suppose that one could argue that conflict of interest concerns don't always add up to much in the media business. Remember all the furor about Rupert Murdoch owning the Wall Street Journal? Big outcry, "safeguards" adopted. Hah! It now has Rupe's thumbprint and nobody gives a damn.

Back in '92, Worth magazine was started by Fidelity mutual funds. Initially there was a flurry of concern, but it faded away, and Worth was accepted as an established personal finance magazine. But then the magazine had to be sold off because of a conflict of interest with Fidelity's growing financial services unit.

Wasserstein's purchase of New York resulted in an initial bout of concern, such as this piece in the New York Observer, but that faded away too. Hell, a respected business news site-- run by a guy banned from the securities industry, and ditto ditto, and rumors are drifting around that a widely read finance blog is run by an insider trader. Maybe people just don't care about conflicts of interest and stuff like that anymore. Maybe one could argue that McGraw-Hill has a big conflict of interest because it owns Standard & Poor's.

What I do know is that so far there's been zero concern about the obvious conflicts that might arise, certainly regarding Wall Street coverage, from a major investment banker buying one of the Big Three business magazines. I guess that's about the best indication you can find of the really rotten state the magazine business is in.

One thing I can tell you is that if Brucie had bought Portfolio I'd have been the first one to acclaim it, conflicts of interest notwithstanding.

© 2009 Gary Weiss. All rights reserved.

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Friday, August 21, 2009

NPR Shuts Down Patrick Byrne Smear Campaign

National Public Radio won't let Byrne libel critic on its site

UPDATE: Judd Bagley copped a plea to eight drug felonies in April 2013. See "Closing the File on a Criminal and Junkie Named Judd Bagley," March 30, 2015.

Yesterday I described how's wacky CEO, Patrick Byrne, dispatched his hireling Judd Bagley to the National Public Radio website for the purpose of smearing Sam Antar, the felon turned white collar crime fighter.

Sam had committed the crime of actually appearing on a radio program! Imagine that. What a cur. He didn't mention Overstock or Byrne--whose accounting practices he has severely criticized--but Byrne was not about to let Sam appear on a radio show without telling his listeners what a bad person he is, and that his debunking of's smoke-and-mirror earnings just isn't true.

Bagley and then Byrne appeared in the comments section of an NPR blog--which didn't mention Overstock, Byrne or any subject, I must re-emphasize--to smear Antar with lies accusing him of stock manipulation.

I re-re-repeat, the broadcast and blog had absolutely nothing to do with Overstock, Bagley or anything related, and nobody in the comments section breathed a word about any of that. It was character assassination and cyberstalking, pure and simple.

Bagley then exorted the brain-dead league at a stock message board to swarm over NPR, which they did in the finest astroturfing fashion by showering Byrne's and Bagley's posts with recommendations.

Well, it seems that this latest front of the Overstock Campaign of Menace (as Joe Nocera has put it), has fallen flat. An NPR staffer has stepped in to remind Byrne--who makes his living off the Internet, remember--that you can't just come on the NPR message boards to attack one of their guests, just because their analyses of your accounting makes you unhappy.

NPR staffer Caitlin Kenney posted the following comment this morning:
All comments that are not germane to this interview have been removed. Personal attacks will not be allowed in this space and if they continue, we will close the comments here. Thank you.
I'm sure that Caitlin Kenney will now go on Byrne's ever-lengthening enemies list.

Not to worry. Byrne will find other venues for his attacks on critics, perhaps some low-wattage AM station in Outer Moron, Arizona or some far-right cookaroo in Foxland. His reputation will be ground even more surely into dust. No amount of flacking by p.r. consultants and softball interviews is going to change that.

I wonder if any of the people he pays to exorcise his image have ever said to him, "Mr. Byrne, try not acting like a complete nutcase."

Don't listen, Byrne. For bloggers everywhere you're the gift that keeps on giving. There are critics to be stalked, fairy tales to construct, lies to tell. Keep up the good work.

© 2009 Gary Weiss. All rights reserved.

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Thursday, August 20, 2009

The Hartford Courant's Strange Bedfellows

Lately the Hartford Courant has gotten attention for firing its consumer columnist, George Gombossy, after he proposed a column on a major advertiser, the Sleepy's bedding chain. You might wonder if this once-great newspaper could stoop any lower.

Apparently it has.

A reader brings to my attention a rather interesting arrangement that was announced last month, but has gotten little attention, that puts the Courant and its sister TV station in bed with a pink sheet company called Organic Alliance to provide "multimedia content" and "programming."

It's all spelled out here, in a press release issued last month by a company called Organic Alliance Inc., which trades on the pink sheets. That's the root cellar of the financial markets, where the tiniest and riskiest companies are to be found:

Organic Alliance, Inc. (Pink Sheets: ORGC) has announced the company is working with Hartford Courant, WTIC Fox 61 and WTXX to produce multi-media content (television, newspaper and web) focusing on the beneficial aspects of natural and organic and lifestyle choices. Programming will focus on the use of natural and organic products, include cooking demonstrations, health and fitness tips, visits to natural and organic product producers and places where the natural lifestyle is flourishing.
Hey, I'm all for organic food. But this arrangement raises several questions. What exactly are the Courant's obligations under this arrangement? What exactly are they talking about here when they say "content"? Advertisements? I would think not. That's not content. Advertorials? Or, heaven forbid, news content? What about the "programming"?

I emailed the Courant yesterday morning to ask about this, and received no response. I'm still hoping the folks there will respond and clear the air.

I also hope the Courant did proper due diligence on this company before signing on the dotted line. I really don't know anything about this company and have no idea what it's up to. However, one familiar name that cropped up in registation statements filed with the SEC in 2008 (such as this one) is Michael Wachs of CEOCast.

Wachs was described by Bill Alpert of Barron's a few years ago as a "big time financial felon."

Hey, this would be a great George Gombossy column, don't you think? Too bad, and too convenient for the Courant, that he's not there.

© 2009 Gary Weiss. All rights reserved.

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Patrick Byrne Employee Stalks Critic on NPR

Patrick Byrne's shill Bagley gives NPR a taste of what it's like

 UPDATE: Judd Bagley copped a plea to eight drug felonies in April 2013. See "Closing the File on a Criminal and Junkie Named Judd Bagley," March 30, 2015.

White collar crime-fighter Sam Antar, who masterminded the Crazy Eddie stock swindle and now fights his former ilk, has been all over the media lately. He was interviewed by National Public Radio recently and was then the subject of an blog post entitled, "Inside The Mind Of A Financial Criminal."

Sam has long since mended his ways and now fights financial crime. So who turns up in the comments but a genuine, active stock market miscreant, Judd Bagley, who is paid by's wacky CEO Patrick Byrne to harass his critics. Sam has been a persistent critic of Overstock's accounting and of Byrne's behavior, including his employment of Bagley.

Bagley posted a comment falsely accusing Sam of being a "current stock manipulator." Nowhere in his post does he disclose that he is employed by one of Sam's target's, or that he was's p.r. director until recently and is now employed directly by Byrne to do stuff like post nasty comments about critics of his boss.

Talk about stock manipulation. That smells like it to me. NPR deleted the post, though its shadow remains on the site.

Bagley posted his trash again and it was deleted again. Hey, that's how he makes his living.

But he didn't give up. This guy works hard for his salary. He then vented his frustrations on a stock message board, calling for his fellow stock pumpers to descend upon the NPR message board.

Why all the expenditure of energy?

Sam has been actively exposing Overstock's cheesy accounting, and recent posts have shown that Overstock has only been able to generate a slim "profit" by using smoke-and-mirrors card tricks that violate Generally Accepted Accounting Principles.

Overstock has fought back, not by addressing Sam's points but by unleashing this creepy, amoral nightcrawler, a former flack for a Jeb Bush commissioner who specialized in personally attacking reporters in Florida.

Sam didn't utter a word about Overstock, Byrne or the nauseating Bagley in his broadcast report. This was purely a case of gratuitous (and repeated) character assassination on the part of someone who makes his living by doing so.

Overstock has a market capitalization of about $290 million, which isn't bad at all for a company with a breathtakingly inept CEO, has a negative net worth, and has burned through all of its capital. You have to wonder, how much of this market cap is attributable to Byrne silencing his critics through tactics like this?

UPDATE: Byrne, taking a break from running his company into the ground, weighed in on the NPR message board. His comment was promptly deleted. I wonder if the media dummies who give this guy a platform are aware of the kind of nut he is. Are memories that short?

© 2009 Gary Weiss. All rights reserved.

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Tuesday, August 18, 2009

More on the Degradation of the Hartford Courant

It's depressing to read today's New York Times account of the Hartford Courant's firing of consumer columnist George Gombossy. The Times account adds new, blood-curdling details of the degradation of what had once been a fiercely independent, award-winning newspaper--the oldest in the nation, as it often likes to point out.

A few months ago, Mr. Gombossy said, he was called into a meeting with Courant executives. He had written columns about a Connecticut contracting company that was also a Courant advertiser. ["director of content" Jeff] Levine said that he had received a letter from the contractor about the columns, and asked Mr. Gombossy to meet with the company and to “be nice to them” because an advertising deal was at risk, Mr. Gombossy said.

“At that point, I told them I’m refusing and I said, ‘You’ve got to fire me if you insist on me doing that,’ ” Mr. Gombossy said. According to him, Mr. Levine then backpedaled on the demand to meet with the advertiser, but said that he could not write about a major advertiser unless it was cleared by Mr. Levine.
Gombossy also said he was told he couldn't post blog comments from readers critical of advertisers.

This is, of course, disputed by the Courant's editor. I believe Gombossy.

"Gombossygate" reflects the inherent tensions that newspapers are going to experience as the industry dies. As I pointed out in Salon a couple of years ago, the interests of newspapers and shareholders are inherently irreoncilable. The Tribune Company, which owns the Courant, was delisted in February so that's no longer a factor. What's happening here is elemental--an indication of the kind of sacrifices publishers are making to stay alive. In the case of the Courant, it is a conscious decision to sacrifice its integrity.

UPDATE: A Courant spokesman emailed me the following response:

Company Statement:

The overriding consideration on stories reported by the Hartford Courant is making sure the facts are thoroughly checked out and correct. Our advertisers have no influence on what we report, including stories that may include them. This is a long time Courant policy.

Our readers and advertisers do and should expect us to report stories we know are accurate and fully reported. George Gombossy’s story needs and is receiving additional checking and verification. This is a common practice required by our editors with all Courant news stories, including columns by Mr. Gombossy, and while employed with the Courant, he was well aware of this and accepted and followed this policy over the years.

While Mr. Gombossy's position was eliminated, he was made aware of the newly-defined consumer reporter position that will be combined with our newspaper, television station and Web site. He did not express interest.
Thanks for the statement. Good luck with that "additional checking and verification" process. It's been how long since Gombossy submitted the column on Sleepy's? Sixteen days?

Gombossy has an "official statement" of his own.

Previously, he had said as follows: Maybe someone also wants to ask her [the Courant's editor] for the email that informed me of why my column was not running and what question did I fail to answer. Her problem is going to be that no such an email exists and no such conversation took place between me and any of my editors."

I'm glad the Times followed up, but clearly this story is not over.

© 2009 Gary Weiss. All rights reserved.

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Monday, August 17, 2009

The Hartford Courant Loses Its Last Shred of Dignity

When I worked at the Hartford Courant fresh out of college in the 1970s, the Courant had a rock-solid reputation for integrity. One of its rising stars was George Gombossy, then head of the Willimantic bureau and later a muckraking consumer columnist.

The Courant has fallen on hard times financially, having been swept into bankruptcy by its publisher the Tribune Company, but at least you'd hope the paper was holdings its head high. Alas no.

The paper is embroiled in a messy controversy over Gombossy, who was fired after the paper yanked a column he wrote about the Sleepy's bed chain. He was going to report a state "investigation into consumer complaints that Sleepy’s sold mattresses or box springs that were used instead of new, and in one case infested with bedbugs."

Sleepy's, you see, is a big advertiser. The blog reported:

“We’re on the precipice of real danger in society here,” Gombossy told me Sunday night. “This is not about me. I’m fine. I’m going to be 62 in less than a month. I can retire. That’s why I’m in a position to raise this issue.

“We’re in a very dangerous situation where most media companies including the Hartford Courant are run by marketing people now instead of journalists, and they do not understand why we have the ethics that we do."

Sleepy's is the biggest mattress chain in America, so the story that Gombossy broke has national implications.

Years ago, when reporter Don Bolles was killed, reporters swarmed over Arizona as part of what was then known as the Arizona Project, and which later became Investigative Reporters & Editors. When an atrocity like this happens, reporters should respond similarly. This time the target is not just Sleepy's, but the Courant.

The Courant is a monopoly newspaper in much of the state. Is this an isolated instance or an example of a broader malaise at the newspaper? The people, particularly in Connecticut, have a right to know.

Here's one question I'd like to see answered: did the Courant take action against Gombossy on its own, or did it knuckle under to a complaint from Sleepy's?

Gombossy is trying to fill the gap with a weblog, But that's no substitute for a gutsy media, to the extent such a thing still exists.

In a memo posted on Romenesko this afternoon, the Courant claims that Gombossy's "position was eliminated" and, as for the column, that it "is being held by the newspaper to get answers to certain questions."

Uhh, excuse me. This was a column about an investigation by the attorney general. The source was the attorney general, on the record. The column was scheduled to run on Aug. 2, more than two weeks ago.

What has the Courant been "checking" during that time? Whether Sleepy's wants its ads run on page three of page five, maybe?

© 2009 Gary Weiss. All rights reserved.

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Friday, August 14, 2009

Today's Naked Shorting Poster Child: The 'Enron of Spain'

As I noted in my item the other day on the famous "Sith Lord" delusion at,"naked short selling" has been used as an excuse for malfeasance, fraud and even criminality at a host of miserable companies. There is Overstock, of course, Universal Express, CMKM Diamonds, and even Enron.

Today comes a particularly grotesque example of the NSS excuse genre: the "Enron of Spain," Greg Manning Auctions a/k/a Escala Group.

The "sad tale" of this horrific company unfolds today on the website of R. Emmett Tyrrell Jr.'s American Spectator, in a truly dreadful article by Brett Joshpe.

Here's the story reduced to its essentials: As a result of "allegations" against this company, there is a Spanish police raid accompanied by suspicious trading. The terrible thing is not the reason the company was raided, involving pyramid scheme allegations that have "never been proven and vigorously denied."

What's horrid here, according to Joshpe, are insinuations of "naked short selling"--which has never been alleged, much less denied--and, of course, collusion by the evil financial press which had the audacity to say that this was a bad company. There's lots on that, as well as the usual "fails to deliver" statistics.

Interestingly enough, Congress issued a report in 1991 on short selling in which it stated that the publication Barron's was used by short sellers to spread negative information about companies. Louis Corrigan from Kingsford Capital, a hedge fund with heavy short positions, also reportedly told Spanish authorities that Afinsa was a fraudulent company.

Following these reports and protests by Escala, the brokerage firm Oppenheimer looked into the company and reported on November 29, 2005 that "two financial publications published false, negative stories on Escala Group, driving the shares down 25%. Based on our research, the implied allegations in the stories are false." It also said that "the articles of November 22 again imply that the authors worked in conjunction with these same hedge fund managers. The fact that both articles were published on the same slow news day further raises our suspicions."

Note that the veracity of the Oppenheimer reports is not questioned.

Then came the May 2006 raid by Spanish police and then, again, the emphasis is not a company that lies on its books, but evil naked shorts:
In December 2006, Escala shook up its management and announced that it was restating prior earnings going back to 2003.
So what does that mean? Bad company, right? No, according to Joshpe, what's bad is that the stock went down after the company admitted that it's accounting was FUBAR.

In December and into January of 2007, the market for Escala shares again exhibited signs of potential manipulation, as volume exploded, along with fails to deliver.
Well, yeah. When a company admits that its financial statements are about as valuable as used toilet paper, naturally volume will "explode" and so will failures to deliver the stock.

The SEC finally took action, very belatedly in March 2009, against Escala. The SOBs just can't get their act together, says Joshpe. The forgot to act against the evil nekkid short sellers.
For Manning, it is an unfortunate irony that the body charged with ensuring fair marketplace trading declined to investigate prior trading irregularities but is now pursuing him.
Damn! The SEC forgot to act against the really important thing that happened here.

Speaking of which, what really happened here? For that, you have to spend approximately forty seconds on the Internet. I guess Joshpe didn't have the time.

First of all the "vigorously denied" is a bit imprecise. The company agreed to the consent decree without admitting or denying the allegations. The SEC litigation release is interesting reading, but doesn't tell the whole story. To find that requires about ten seconds of the forty required to research this company.

You need to go to a scathing article by my Project Klebnikov colleague Rich Behar on the Fox website back in 2006. He pointed out that "some 350,000 working and middle-class investors in collectible stamps in Spain and Portugal may have lost billions of dollars in savings."

These investors were guaranteed annual returns of 6 to 10 percent in their stamp collection investments, depending on how many years they held the stamps. But as one top stamp fraud expert told FOX News: “You could buy these stamps all day on eBay (EBAY) for one-tenth of what Afinsa had valued them at for their investors.”

The allegation is that rather than earning investment returns, early investors were simply being paid out of revenues that later investors brought to the party – essentially a Ponzi scheme.
The "Enron of Spain" expression was used by a philatelic expert quoted by Behar.

Oppenheimer, whose pumping of Escala merited a pat on the back from Joshpe, was raked over the coals by Behar.

Manning himself is quoted in Behar article three years ago: saying “the real story is what short-sellers and the media have done to the company, and that story I’m confident will someday be told."

Manning got his wish three years later.

There's an ironic postscript to this story. Joshpe points out that class action suits were filed on the day of the police raid--a hardly surprising denouement, but made out in the article to be a sign of nefarious evildoing. Well, it so happens another class action suit was filed against Escala a week after the raid by Berman DeValerio, one of whose partners, Joseph J. Tabacco, sits on the board of fellow naked shorting poster child

Seems that Tabacco's firm had a nice payday:

Thereafter the parties agreed to settle the action and on September 22, 2008 the Court preliminarily approved the Settlement. Pursuant to the Stipulation of Settlement between the Lead Plaintiffs and Defendants, a Settlement Fund in the amount of $18,000,000, consisting of $10,000,000 in cash, plus interest, and 4 million shares of Escala Common Stock with a value of at least $8,000,000, will be created for the Class. The Judge approved the settlement at a final approval hearing on December 3, 2008.
© 2009 Gary Weiss. All rights reserved.

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Thursday, August 13, 2009

Bernie Madoff Deflowers. . . . Hadassah?

Pardon me while I barf

My grandmother belonged to an organization called Hadassah. It never had any particular political meaning, at least to me; it was just a group that Yiddish-speaking old women used to belong to back in the old days in the Bronx. When you say "Hadassah" I think of my grandparents' generation, very wholesome and all that.

Well, I guess that borscht-and-babushkas image is about to change forever. Word crept out of the Bernie Madoff sewer today that the ever-reliably creepy Madoff had an affair with the former chief financial officer of Hadassah.

So says a new tell-all book by the married lady in question.

What makes the whole thing surrealistic is that this woman, and her organization, were Madoff victims.

Sheryl "Weinstein and her husband of 37 years, Ronald, were forced to sell their Manhattan home on the Upper East Side a week earlier because they had 'lost everything,' she told the judge," according to Bloomberg.

Well, I guess she has got to earn back that money somehow. Why not do so by humiliating herself and her husband? St. Martin's Press has handled release of the book in hush-hush fashion; note the "to be announced" line where the author should be in its Amazon listing, right next to an illustration of the book's cover, showing Mrs. Weinstein's name.

The Madoff saga was always nauseating, but now we're really testing the limits of our intestinal juices. A British newspaper reported:

Her book 'Madoff's Other Secret: Love, Money, Bernie, and Me' is said to go into explicit detail about their affair.

And it will also include photographs and some intimate descriptions of Madoff, said John Murphy, spokesman for the publishing company, St. Martin's.

As my grandmother would have said, "feh." My poor grandmother. Life was so simple then. No Madoffs to worry about, only pogroms.

I just hope that this is the end of it. If there are more "Bernie screwed me" revelations, in the non-financial sense of the word "screw," life just won't be worth living.

© 2009 Gary Weiss. All rights reserved.

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Wednesday, August 12, 2009

The Problem With Jailing Bernie Madoff's Rat

Judge Richard Sullivan is taking a big risk by refusing to release Frank DiPascali, the Bernie Madoff CFO who has become a cooperating witness. Not a personal risk. Oh no.

It's a low-risk move from the CYA perspective. Had Sullivan released DiPascali, as prosecutors wanted, he might well have been skewered by Madoff's many victims. And obviously, if DiPascali had fled, as Sullivan warned was a realistic possibility, he'd never hear the end of it.

But what Sullivan has disregarded is that the price for this CYA move is that DiPascali may stop cooperating.

In addition to the effect on the Madoff case, his refusing to release DiPascali is a real step backward for law enforcement. Prosecutions of all forms of crime, but particularly organized crime and white collar cases, depend upon insiders ratting out their collaborators.

Sullivan seems to be saying that in a well publicized case, a deal with prosecutors won't be worth a damn.

Future cooperators in the Madoff case, and I'm sure the feds have others, have good reason to wonder if they'll wind up in the can even if the prosecutors promise they won't. This means that prosecutors may have a hell of a time making cases against others who made the Madoff scam possible.

If that happens, Sullivan won't be blamed. After all, he just kept the guy in jail and who can blame him for that?

It's a low-risk move--for the judge. Cynical, self-centered and very dangerous.

© 2009 Gary Weiss. All rights reserved.

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Happy Birthday, Sith Lord: Patrick Byrne's Delusion is Four Years Old

The 'Sith Lord' dropped from Byrne's vocabulary after 2005's wacky CEO Patrick Byrne has been flacked to the news media by his two p.r. firms in recent days, giving a series of softball video interviews and expounding on his formula for "success"--i.e., years of unprofitable losses and occasional "profits" through accounting card tricks.

I'm not surprised that any of the interviewers have asked Byrne about his accounting, which I doubt most would understand, but I am surprised that none of the interviewees have raised an obvious question: Who is the Sith Lord?

Today is the the fourth anniversary of the celebrated analyst conference call at which Byrne said that someone he called the "Sith Lord" was attacking Overstock via the horrid plague of naked short selling.

The Sith Lord was not a figure of speech. Here are excerpts from the conference call. As Bethany McLean reported at the time in Fortune,

Even hardened denizens of Wall Street were shocked by a conference call that Patrick Byrne, the CEO of online retailer, held on Aug. 12. "I want to get something off my chest," Byrne announced. Then he launched into a rant about a "miscreants ball" in which he mentioned hedge funds, journalists, investigators, trial lawyers, the SEC, and even Eliot Spitzer. "I believe there's been a plan since we were in our teens to destroy our stock, drive it down to $6--$10 ... and even a plan for how the company would then get whacked up." The "designated final owner," who provided the "orchestration," was someone Byrne dubbed the "Sith Lord," a person he refused to identify other than to say that "he's one of the master criminals from the 1980s."
So who is that person? Byrne never talks about it, even when discussing his amazing conference call on his blog, and he ducks the question on the rare occasions it has been raised. But keep in mind that this was taken seriously at the time that Byrne talked about the Sith Lord. He went on CNBC to reiterate his fairy tale, under questioning from Ron Insana.

There's no problem with fairy tales at bedtime for the kiddies. A conference call arranged to disseminate information to investors and the public is another matter. Since it's a federal crime for a CEO to lie at a conference call on something quite so significant as some master criminal conspiring against your company's stock, the ball is in the SEC's court. New chairperson Mary Schapiro talks a good game, and the SEC's press release machinery is in overdrive. Here's one way for her to put her enforcement machinery where her mouth is.

© 2009 Gary Weiss. All rights reserved.

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Tuesday, August 11, 2009

Ben Stein's 'Unblemished' Employer

The Times calls this a conflict of interest for a finance columnist. The nerve!

(updated with class action suit)

I have no idea if Ben Stein is correct when he claims that the New York Times wasn't really upset with his acting as principal spokesman for something called He says a column on Obama is what really teed 'em off.

That's possible. Maybe they decided they didn't like his haircut either. I can't read the minds of any of the persons concerned. But I do know that Stein's description of FreeScore--he calls it "an Internet aggregating company" with an "unblemished record with consumer protection agencies"--is.... well, let's just say "incomplete."

FreeScore has got the word "free" in its name, and its website emphasizes that word. Free! Free! That word must be used a dozen times. Nowhere on the first page of its website do you see that you have got to pay $29.95 a month for the privilege of getting your credit scores. has a great analysis of how FreeScore snares unwary consumers in its website and TV commercials.

It seems quite obvious that the newspaper puked its corporate guts when it saw that its high visibility columnist was shilling for a sleazy outfit like this. If this isn't a conflict of interest, I don't know what is.

While Stein may be right that this company has a spotless record with regulatory agencies, that only indicates to me that regulatory agencies, particularly the Federal Trade Commission, have got some work to do. As Mouseprint points out, FreeScore only recently commenced its advertising campaign. That probably helps explain its "unblemished" record. is just one of numerous businesses run by an outfit called Vertrue, Inc., which according to its website is " owned by Velo Holdings, a private investor group consisting of One Equity Partners, Rho Ventures and Brencourt Advisors, together with certain members of Vertrue's management."

A list of Vertrue's businesses can be found at its listing at the Better Business Bureau website, where it receives a BBB rarity--an "F" grade for customer service.

Anyone who has ever dealt with the BBB can attest that it is anything but a rabid pro-consumer organization. Its main job is to protect its membership by giving consumers an ineffective venue for complaints. "F" grades are only given to the absolute dregs.

Vertrue's questionable business practices have been plastered over the media, and resulted in this letter (pdf) to Vertrue's CEO by the Senate Commerce committee. And then we have a class action suit against Vertrue and Adaptive Marketing LLC, the unit that owns, which makes some serious allegations:

The Complaint alleges that Defendants’ business models are based on gaining access to confidential credit card and bank account information in order to charge consumers fees for worthless “memberships” and “services” that plaintiffs and other Class members never desired or authorized. By doing so, the Complaint states, Defendants have established one of the largest unauthorized consumer billing operations in the United States through the placement of internet advertising on various legitimate (and illegitimate) websites. As the Complaint alleges, VistaPrint’s advertisements purport to sell graphic design and customized printed products, while Vertrue and Adaptive Marketing purport to sell membership programs that provide discounts on various consumer goods and services. And, as the Complaint states, because there is no legitimate demand for Adaptive Marketing’s membership programs, VistaPrint’s internet websites and advertisements serve as a pretext for gaining access to consumers’ confidential financial information in order to charge unauthorized fees.

In fact, the Complaint further alleges, consumers almost never legitimately join any of Vertrue and Adaptive Marketing’s various membership programs, nor do they authorize Defendants Vertrue and Adaptive Marketing to charge their credit cards or debit from their bank accounts any monies. The Complaint asserts that when consumers contact any of the Defendants to request that they remove and refund the unauthorized fees charged to their credit cards, they are given the “runaround”, and are unable to obtain refunds of the unauthorized charges.

Here's the Epinions writeup on another Adaptive Marketing venture: "Here is a company that sells your credit card or bank information, without you knowing, to anyone willing to pay for it. " Real sweethearts.

I assume that Stein has Internet access, which was all he would have needed to obtain these little nuggets of information about the people who have hired him. He knew, or should have known, the track record of this company, and that being the public face of an Adaptive Marketing LLC unit carried with it definite risks.

Stein says the following at the end of his American Spectator piece:

In my life, I have done plenty wrong. I am not the master. I am the servant and a poor one at that.
Yeah, I know. He is in hot water because he is servant of an outfit that takes advantage of poor, befuddled, desperate consumers. But if he's "poor" after letting his punum be plastered over its website, he should get himself another agent.

© 2009 Gary Weiss. All rights reserved.

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Wednesday, August 05, 2009

A Media Death Watch

Jeff Bercovici has a provocative post today at Daily Finance suggesting that a bunch of well-known media titles, from to BusinessWeek, are destined for that great copy desk in the sky.

Apparently BW was the favorite of the "brain trust" that he assembled:

BusinessWeek. This was the clear consensus favorite, and it should come as no surprise, seeing as it was only two weeks ago that McGraw-Hill announced that it was reviewing "strategic options" for the 80-year-old weekly. Those options don't look good to my Brain Trustees.

"I don't think anyone will buy it, and McGraw-Hill will not stomach its continued loss," says one newspaper executive, speaking for many.
The numbers are pretty bad, but I think this assessment is way off.

Several serious buyers are indeed looking at the magazine, including, most recently, Joe Mansueto, publisher of Fast Company. BW has a brand name, tarnished as it may be because of missteps in recent years. There's been a drastic dropoff in advertising caused, in my view, not just by the economy but because the magazine just isn't attractive to advertisers anymore.

Mansueto can reverse that slide into oblivion. His Fast Company kicks ass, and has been racking up awards this year because of a humongous story on China's ventures in Africa by Rich Behar. That article was about the size of entire issues of BW lately.

Yeah, I know, FC has been losing ad revenues too. So has everyone. But few publications are at death's door like BW.

If Mansueto takes charge, he could make BW attractive to advertisers again. Worse case scenario: he, McGraw-Hill or another buyer could turn BW into a web-only product. But shut BW entirely and terminate an 80-year history? I just can't see Terry McGraw carrying out the coup de grâce in what has been a slow murder of this once-dominant magazine.

© 2009 Gary Weiss. All rights reserved.

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It's now becoming clear why, out of the blue,'s ditsy CEO Patrick Byrne is on a cyberstalking frenzy, unleashing his hireling Judd Bagley on the usual suspects (mainly me): Byrne is, as usual, cooking the books to manufacture phantom profits.

It's all in an "Open Letter to Mary Schapiro" posted today by white collar crime fighter Sam Antar.

As usual it's all spelled out, a road map for regulators, if they have the guts to take on Byrne. Which they don't.

I can understand if Sam feels frustrated that his campaign to expose the accounting gimmickry at Overstock has resulted in absolutely nothing so far. But frankly I am not surprised, as the SEC's uselessness has been proven time and again. Under Schapiro, the agency has been engaged in a protracted struggle for survival, at a time when Treasury Secretary Tim Geithner plans to eat the SEC's lunch with a new consumer protection agency.

More and more, Schapiro's tenure at the SEC is reminding me of her term as president of NASD Regulation, which began in 1996 at the height of the microcap fraud era. At the time, her main job was generating press releases, while the "chop houses" continued their ripoffs unaffected. It took the FBI to shut down the crooked brokerages.

Similarly, you can't expect Mary Schapiro's SEC to actually enforce the law against Overstock. There's too much political pressure being brought to bear, too many ex-SEC lawyers working hard to keep Overstock and Byrne from being sanctioned. The media doesn't care, because "Byrne is cooking the books" is, like "Byrne is a nut," an old story, and outside of Salt Lake City nobody cares. Only Fox puts him on the air, and I don't know how long that is going to continue after a debacle like this interview.

Frauds don't continue forever, and Overstock's cash reserves are being depleted. While Sam is right that Byrne produced an accounting "piggy bank" to inflate his earnings, the actual piggy bank is getting lighter and lighter. That can't continue forever.

© 2009 Gary Weiss. All rights reserved.

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Tuesday, August 04, 2009

Good News for BusinessWeek

So the BusinessWeek "sale watch" continues, with virtually no interest at all from the media for some reason, except for BW's own Jon Fine. He has the latest tidings, which actually are quite good.

Jon reports today that Joe Mansueto "has expressed interest in pursuing a deal for BusinessWeek, individuals familiar with the situation say, and representatives from his Mansueto Ventures are expected to meet with BusinessWeek management at some point in the next several days for a detailed presentation of the magazine and its finances."

This is good news. Mansueto has a long association with BW dating back to the 1980s, when he became the magazine's exclusive provider of mutual fund data, and since then he has gone on to rescue the magazine Fast Company. He's not a slash-and-burn venture capital type, and might actually improve the magazine. Joe is an old colleague of BW's executive editor and BW Online chief John Byrne, who edited Fast Company briefly.

Mansueto's Morningstar Inc. was selected in the late 1980s to provide mutual fund data to BW in preference to Lipper Analytical Services, which had a corner on the business at the time. We liked Morningstar's data so much that we chose Morningstar even though we had to pay for it, and substantially, while we could have gotten Lipper's data for free.

He once was in the running to buy Business 2.0. He failed to pull off the deal and it died.

If I were running a betting pool, I'd put my money on Mansueto. Of course, I've always been a lousy gambler.

One can't overstate the importance of this. Joe is about as close as BW may come to a "white knight." Actually he might even be better than some of the publishing companies that have decided to pass, because he's an entrepreneur with an interest in journalism.

© 2009 Gary Weiss. All rights reserved.

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Sunday, August 02, 2009

The AP's Misguided "5 words for $12.50" Policy

I'm as sympathetic as most people, maybe more so than most, with the AP's striving to prevent piracy of its stories on the Internet. I even said so in a comment on CJR Online's Audit blog a few days ago.

But a loyal reader brings to my attention that I was being just a bit too sympathetic. This blog post from some weeks ago, which I hadn't seen, indicates that the AP is, to say the least, overreaching in its effort to prevent people from quoting its articles, and extracting payment from those that do.

The New York Times had reported in June about the AP's effort to stop unauthorized piracy of its articles. That led to a furor and the Audit reported that the AP is simply trying to prevent systematic ripoff of their articles.

But look what you see on the bottom of articles on the AP's website. I picked one at random. Note the link at the bottom "Click here for copyright permissions."

Click there and then click "post" and then "post excerpt."

According to the form that pops up, if I wanted to post five to 25 words for a nonprofit or educational blog, I pay $7.50. If it's a "for profit" blog--which I guess includes bloggers like myself who get reap the beneficence of Ad Brite and so forth for lunch money---the cost is $12.50.

Seriously. Here's the pay chart:

Yeah, I know the AP says it won't sue small-time bloggers and such. Then what's this all about?

Like I said, I'm sympathetic to the AP. One of my first jobs was with a little wire service that went bust (two that went bust if you count one that I left before it went bust). I know what a horrid business it is. But this is overreaching, pure and simple, and simply atrocious p.r.

© 2009 Gary Weiss. All rights reserved.

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