Tuesday, October 06, 2009

Was Matt Taibbi the Victim of a Hoax?

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

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

The video is here.

One of several responses from Clusterstock is here.

Taibbi's response to that is here.

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

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

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

This video is an example of a cut corner.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© 2009 Gary Weiss. All rights reserved.

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