Wednesday, March 31, 2010

California to You Owe Us $8.5 million (or is it $7.5 million?)

Byrne: Still hasn't learned to count

My favorite corporate crime petri dish,, just released its delayed and re-re-re-restated financial statements for 2009 and 2008 (which it has previously loused up), and a quick skim reveals some interesting tidbits.

I'm sure that the white collar crime-fighter Sam Antar will be providing an expert accountant's analysis of this latest spate of Overstock filings, but a skim shows a few interesting things:

First--stop the presses! Overstock's auditors at KPMG says that Overstock has insufficient internal controls.

Second, the Marin County District Attorney and four other DAs in northern California want the company to fork over $8.5 million to settle consumer ripoffs by Overstock. The company disagrees and is fighting it, so .... No, wait a moment, make that read "$7.5 million." It uses the smaller number on page F-37 and the bigger number on page 33.

Really. Here it is. Page 33:
In January 2010 attorneys for the Company received correspondence from the Office of the District Attorney of County of Santa Clara in which the respective offices of the various district attorneys have made a collective proposal to resolve the dispute by the Company's payment of $8,500,000 in penalties and reimbursement.
Page F-37:
The Company received correspondence from the Office of the District Attorney of the County of Monterey in which the respective offices of the various district attorneys have made a collective proposal to resolve the dispute by the Company's payment of $7,500,000 in penalties and reimbursement.
Hey what's a million here or there when your numbers are already fabricated, right? Anyway, I'm sure glad they asked for that delay to get their numbers straight.

By the way, California made this demand back in January. Isn't it charming how Overstock didn't bother filing an 8-K saying that people who can put you in jail want $8.5 million/$7.5 million? As I've said before, Overstock's not big on niceties of the securities laws, particularly the ones concerning "fraud," "ethics" and "disclosure."

There's a lot more, I'm sure -- such, as I suspect, these numbers--stated, restated or parboiled--not be worth the powder to blow them away. Just an educated guess.

Oh, except for that $7.5 million/$8.5 million number. I'm sure one of those numbers is correct. Maybe.

There was a restrained press release on the latest attempt at financial reporting from Overstock's loony, cyberstalking CEO Patrick Byrne.

Said Byrne, "I thank you for being patient with us as we worked through the questions raised by the SEC, the transition to the KPMG team, and the extra time it took to ensure that our financial statements are accurate." Yes indeed.

Since there was a press release, I imagine that Salt Lake City's tongue-tied newspapers now will have something to rewrite. I'll be majorly shocked if they mention that little problem in California. After all, that would require doing something other than rewriting the press release or running the wire story.

Anyway, I'm sure there will be more on this always entertaining company. Stay tuned.

© 2010 Gary Weiss. All rights reserved.

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Tuesday, March 30, 2010

A Close-In Look at the SEC's Revolving Door

My column today is a close look at the SEC's revolving door, and how it contributed to the disgraceful treatment of Allied Capital and David Einhorn. The column can be found here.

The inspector general report is an incredible document, and I quote from it at length in my article. Unfortunately it lives down to all the expectations some of us have had about the SEC for quite a while--particularly concerning the influence of the "revolving door" of ex-SEC officials representing companies before the SEC.

Companies are entitled to the best representation possible. But the taxpayers shouldn't be subsidizing what has become a training course for ambitious lawyers--or as the OIG report puts it, "aggressive counsel."

© 2010 Gary Weiss. All rights reserved.

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Another Overstock official leaves for greener pastures

Sam Antar has a blog item on the latest news from the loony bin that is seems that its Treasurer, Rich Paongo, quietly skedaddled in February, and the company "forgot" to file a Form 8-K disclosing that material event.

What makes it material is that Paongo left one month after his name emerged in correspondence with then-CFO Chidester over the company's hidden cash flow woes. Chidester left the company at the same time as Paongo, but the latter's departure was never revealed.

Indeed, word of his decision to seek greener pastures in the middle of a recession came not from any official channel but from an anonymous comment to my blog item linked above. The comment was from out in Utah, no doubt from one of the company's numerous loose-lipped insiders. It's confirmed by Paongo's and Twitter public profiles.

I guess Byrne is hoping for the Allied Capital Treatment in his ongoing tussle with the SEC. He may be right. It's hard reading the SEC Inspector General's report without realizing that Overstock probably has got this matter licked. But hey, I'd be happy to be proven wrong.

Byrne, meanwhile, has until Wednesday to file a 10-K for 2009. Followers of this always entertaining company have marked that date on their calendars, but I doubt that these dudes have got their Quarterly Lie figured out just yet. Another delay would not surprise me.

© 2010 Gary Weiss. All rights reserved.

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Saturday, March 27, 2010

Goodbye, "Howard" McGraw

BusinessWeek salutes "Howard" McGraw

Above is a story that has been on the website for the past three days: an AP obituary of former McGraw-Hill CEO Harold McGraw that gets his name wrong in the headline.

BW was not alone. Apparently nobody at the AP or its member papers (such as this one) noticed that his name is "Harold" not "Howard." Otherwise I assume there would have been a correction and all these mistakes would have been fixed.

Strange isn't it? You'd expect that if the error was going to be corrected anywhere, it would be at BW.

I guess there's a bit of symbolic significance in this boner going uncorrected. Over the past few years, BW has become unrecognizable since the days when McGraw ran the magazine's former parent in the seventies and early eighties. One observer recently contended that BW had morphed over the past few years into the "Reader's Digest of American finance."

McGraw was an old-school CEO who rejected a bid from American Express, handsome as it was, on the grounds that Amex would not have been a proper steward of the company or the magazine.

The New York Times reported in its obituary that McGraw said Amex “lacks the integrity, morality and sensitivity” to merge with McGraw-Hill.

Wow. Can you imagine anyone rejecting a bid for a media company today on the grounds that an acquirer lacked "integrity, morality and sensitivity"? I wonder sometimes if those words have been cut out of the dictionary.

On the contrary, the current CEO Terry McGraw, his son, was only too happy to toss BW under the bus when it ceased being profitable. He put it up for sale and would have sold it to a venture capital outfit if the price had been right.

I happen to think that Terry's a good guy, but I doubt very much that he would have rejected a buyer for BW because it lacked "integrity, morality and sensitivity." Hell, it looks like he wouldn't have rejected a buyer even if it failed to come up with much in the way of bucks. Bloomberg paid chump change for BW.

So of course nobody noticed Harold McGraw's name was misspelled. It's also not really surprising that rather than pointing out how the company and BW were saved by this forgotten old man, BW runs an AP obit that underplays the Amex battle and doesn't even get his name right.

That figures. The correct spelling of his name wasn't the only thing that has been forgotten.

© 2010 Gary Weiss. All rights reserved.

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Wednesday, March 24, 2010

Did the SEC Give the 'Allied Capital Treatment'?

The Washington Post had a great article yesterday describing a recently released -- if heavily redacted -- report by the SEC Inspector General David Kotz, describing how the SEC flubbed an investigation of a company called Allied Capital, instead turning its guns on short-seller David Einhorn, who had blown the whistle.

Allied filed for bankruptcy in October 2008, but not before Einhorn was the subject of a smear campaign by CEO Patrick Byrne's "Deep Capture" website. Byrne claimed that Allied was among the terrific companies (including Overstock, natch, but also including innocent companies like Bear Stearns and Lehman Brothers) that were "attacked" by horrid people like Einhorn.

The parallels between Allied and Overstock are startling:
  • Both were probed for accounting irregularities at the instigation of short-sellers.
  • Both managed instead to get critics investigated--Einhorn in the case of Allied, Gradient Analytics in the case of Overstock.
  • Both engaged in issuer retaliation, including a campaign against Einhorn by Allied and Byrne's smear campaign against whistleblower Sam Antar, conducted by Byrne's employee Judd Bagley (right), a possible pederast noted recently for stalking the kids and spouses of Byrne's critics.
  • Both were guilty as hell. Allied eventually succumbed to its own sliminess, and Overstock, under renewed SEC investigation, has recently admitted that its financial statements were completely fatuous. Antar's analysis of Overstock's accounting was completely vindicated.
The Post article focused on the SEC's malfeasance, including the excessive deference the SEC granted former SEC lawyers in the employ of Allied. The Post article notes that "Among other things, Kotz questions how SEC officials decide to open investigations and whether they are unduly influenced by outside lawyers -- particularly former SEC officials -- in conducting the probes."

It's not entirely clear if that's another commonality, though Overstock had on its payroll at least one ex-SEC lawyer, a proud lawyer for stock market thieves named Brent Baker. He worked for Overstock from 2004 until joining a Salt Lake City law firm in August 2006, and was at Overstock at the same time the SEC was probing critics of Overstock and subpoenaing reporters Herb Greenberg (also targeted by Allied) and Carol Remond, who had written critically of the company. The subpoeanas were later withdrawn.

As Joe Nocera observed in the New York Times at about the time those subpoenas were issued, Byrne sent Greenberg a gloating email three days before the subpoenas were issued. That stinks to high heaven. How did Byrne find out about the subpoenas?

Baker once belched forth the following creepy sentiments in his now-deleted blog "," responding to a comment I once had made about issuer retaliation:
Guess what? Patrick and the DeepCapture folks are all correct. I saw it from within the belly of the beast and I can honestly tell you that "bent journalists" are more of a problem for our capital markets than "retailating issuers." Give me a break.
The SEC inspector general needs to explore the role that this character had in the whole Overstock mess.

David Einhorn wants the full, unredacted Inspector General report issued, but that's just a small part of what the SEC needs to do. In addition to finally taking action against Overstock for its in-your-face accounting violations, Kotz needs to thoroughly explore the SEC's conduct toward Overstock, and the dynamics that led to the abortive subpoenas being issued and the Overstock probe dropped.

The SEC needs to shut the revolving door that puts ex-SEC lawyers on the payroll of SEC targets as soon as they leave the employment of the agency. That makes the SEC less of an enforcement agency as it is a kind of training camp for the likes of Brent Baker, who make a fortune after they leave the SEC by working for the people they used to probe.

Byrne has withdrawn himself and his cronies from their usual cyberstalking duties for the past few weeks, because of what I presume are intense negotiations with the SEC over the firm's fate.

It will be interesting to see if the SEC takes a dive--again.

© 2010 Gary Weiss. All rights reserved.

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Wednesday, March 17, 2010

The Problem With's Latest Problem

Byrne: Tried to pull a fast one in his SEC filing

In my blog item yesterday about the corporate street thugs at, I pointed out that that there was a problem with the "notice of late filing" that these child-stalking douche bags quietly slipped into the SEC's files a few minutes before deadline.

Leave it to to have a problem with a problem. Of course, to use the word "problem" in the same sentence with "" is a bit of an oxymoron in itself. Well, as promised, here's the problem with the problem: It lies.

Hey, they don't call's financial statements the "Quarterly Lie" for nothing. Today's installment, described in Sam Antar's blog this morning, is that Overstock slipped in "new previously undisclosed material violations of Generally Accepted Accounting Principles (GAAP) and other Securities and Exchange Commission disclosure rules."

The problem is that Overstock specifically says these were not previously undisclosed issues.

If you turn to "Part III - Narrative," Overstock's chief can't-count-to-save-his-life officer, Stephen J. Chestnut, recounts a bunch of "errors" that need to be fixed before these geniuses can file their 10-K for 2009. Chestnut prefaces this list of goofs by saying, very nonchalantly, "As announced on January 29, 2010,, Inc. . . "

He then goes on to list some serious GAAP and disclosure issues that weren't announced on Jan. 29.'s wack-a-do CEO Patrick Byrne has been hiding under his desk while all this is going on, dodging a demand by Sam Antar that he apologize for lying about Sam correctly identifying Overstock's fraudulent accounting.

Not only that, but Byrne attacks Sam on the Overstock website, as Sam describes in his blog today.

That's a pretty clear case of issuer retaliation. I wonder if the SEC will wake up long enough to take action against these hoodlums? Banning its management from ever coming within 500 feet of a public company would be a good start.

UPDATE: Barry Ritholtz and Jr. Deputy Accountant weigh in. Love that graphic.

© 2010 Gary Weiss. All rights reserved.

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Tuesday, March 16, 2010 Fails to Celebrate Latest Fiasco

My favorite corporate crime petri dish,, and its goofball CEO Patrick Byrne, have been laying low recently, as followers of these child-stalking douche bags waited anxiously for what has come to be known as the Quarterly Lie: Overstock's attempt every three months to fabricate profits out of red ink.

Today, in a filing that came about a half-hour before the drop-dead deadline, Overstock filed a form with the SEC asking for more time to file its 10-K for 2009, on the grounds that the need to restate every financial statement since Adam created a logistical problem for these poor dears. But not to worry, they expect to erect another mountain of profit out of sun-dried red ink.

No press release, no yipikaye, to celebrate this latest fiasco. But there is this gem:
Also in its 2009 Form 10-K, the Company plans to report material weaknesses in its internal control over financial reporting.
File that under "No shit, Sherlock."

The only problem (well, it's not the only problem, but I'm being rhetorical) is that this latest filing has more than a bit of a problem.

As for what that problem is, tune in tomorrow. Same time, same station, same douche bags.

UPDATE: The envelope, please. . .

© 2010 Gary Weiss. All rights reserved.

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R.I.P. BusinessWeek's Independent Identity

A BusinessWeek editor reconsiders traveling to Planet Bloomberg

There's a classic Twilight Zone episode about a bunch of aliens landing on earth. The earthlings rest easy when they find that the aliens have a book called "To Serve Man." So everybody happily climbs on the spaceship until the end, when the rest of the book is translated. The heroine shouts, "It's a cookbook!"

I was thinking back on that great old episode as I pondered the fate of the staff of BusinessWeek after its acquisition by Bloomberg L.P.

No question, the magazine has improved in a number of ways, and has gotten praised to the hilt, largely because the depleted staff is now supplemented by people from the wire. It's helped a lot that recent BW stories have been by name journos on the Bloomberg payroll like Amanda Bennett, author Roger Lowenstein and my former Portfolio colleague Dan Golden, a Pulitzer-winning investigative reporter.

But as for the BW staff, which was pleased and excited by the prospect of being acquired by this mighty news organization--well, let's face it, that old Twilight Zone episode isn't off the mark at all, as best as I can see.

Prior to the acquisition, BW folks were assured that they were cherished, and that the quality of the staff was a major consideration in the decision to pick up the magazine for peanuts.

That was the promise. Then came reality.

There was a substantial head-chopping when the magazine was acquired late last year, with 123 people losing their jobs, and then another crushing layoff last week, involving 25 staffers getting pink slips and another 12 moving to the wire.

How many are left? It's hard to say. BW hasn't published a masthead in a very long time, which makes the calculation difficult. So does the fact that a lot of BW people -- some officially listed on Bloomberg directories as being on the staff -- actually work for the wire, not the magazine.

Here's a baseline: When I left the magazine in 2004, there were 251 people on the masthead of the domestic edition. That counts pretty much all the people on the editorial staff, including a couple who were on contract and not on staff.

And here's the best guess as to the size of the current staff:

During the layoff last week, Ad Age reported that 25 people were laid off and another 12 were transferred to the wire, accounting for "roughly one-third" of the staff (that is, the editorial staff, the writer of the article tells me). If those numbers are correct, there were 111 people before the layoff and 74 afterward, more or less.

That number seems a bit low. One insider, using the directories available internally, tells me that the editorial staff now comprises about 100 people. But that's just an estimate.

A more interesting indicator can be found by looking at the number of New York-based writers employed by the magazine.

In 2004 there were about 35 of us, with titles ranging from "senior writer" to "department editor," writing about subjects ranging from finance to economics to the Internet and science. Most of us also edited from time to time, but writing articles was the main part of the job.

Today there are three New York-based writers at the magazine. Now, not all the vanished are out on the street. Most of my colleagues at the Finance department, for instance, now write for the wire.

What this means is that BW's institutional memory is fading fast, its corporate culture has been totally up-ended, and its independent identity is pretty much gone.

Does any of this matter? Well, as Starkman points out in his blog, the magazine was pretty much at death's door at the time of the acquisition. Ad sales were collapsing, as they were for most business magazines, and the magazine's editorial franchise was staggering. To quote Starkman, the magazine became "the Reader's Digest of American finance."

It was either sale or a funeral. Still, it's tempting to consider what might have been, had McGraw-Hill decided to keep the magazine and try to turn it around, rather than give up.

© 2010 Gary Weiss. All rights reserved.

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The Problem With Dodd's Financial Reform Bill

I can sum it up in one word: "plenty." While it has positive aspects, they're likely to be shredded in the Republican buzz saw, and excessive power is granted to a captive Federal Reserve.

More juicy details can be seen in my latest column, which can be found here.

© 2010 Gary Weiss. All rights reserved.

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Thursday, March 11, 2010

How Patrick Byrne Can Apologize to a Whistleblower

The Going Concern blog today has an amusing item describing how CEO Patrick Byrne can apologize to Sam Antar--the convicted felon and former Crazy Eddie scam mastermind whose sharp analysis of's fraudulent financials has been vindicated.

The accounting blog has three suggestions, among them: gift cards – Nothing says I’m sorry like free stuff that the aggrieved party can pick themselves. Bonus, the overhead on Byrne’s own inventory must be low. You know, because it’s his, not because there is any monkey business going down on OSTK’s financials.
To me, an even better gift would be a candygram--containing a truthful answer to the following email, which Sam sent Byrne the other day:

from Sam E. Antar
date Tue, Mar 9, 2010 at 2:12 PM
subject FW: Restatement

To Patrick M. Byrne:

Having not received a response from last night’s email (see below), I am asking for a response to the following question I asked you in that email:

Will you finally admit that I was correct when I reported in my blog that violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement?

In addition, I have the following questions:

Will you finally admit that I was correct when I reported in my blog that used an improper EBITDA from Q2 2007 to Q2 2008 in violation of SEC Regulation G to materially inflate its financial performance, in light of its later amended disclosures?

Will you publicly admit that I was right about’s violations of GAAP and other SEC disclosure rules (such as Regulation G)?

Will you publicly admit that you were wrong when you claimed that the company was complying with GAAP and other SEC disclosure rules, while at the same time you were publicly defaming me and other critics?

Will the company admit that I notified audit committee member Joseph J. Tabacco about’s GAAP and SEC disclosure violations (such as Regulation G) and continued to issue improper financial reports until it was forced to make corrections in its financial reporting?

As the CEO of you owe me a public apology.


Sam E. Antar
The ordinarily voluble Byrne hasn't responded. As the Gipper used to say, he can run, but he can't hide.

© 2010 Gary Weiss. All rights reserved.

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Wednesday, March 10, 2010

Another Layoff at BusinessWeek

I was intrigued by the reports from Keith Kelly and Jeff Bercovici today that another layoff is imminent at the already depleted staff of BusinessWeek.

Keith says BW, which was hit by a catastrophic 30% decline in ad pages last year, "is bracing for a sweeping restructuring that will see many of the magazine's editorial staff reassigned within Bloomberg LP, while around 30 people are slated to get pink slips." That's interesting, because much of the former magazine staff was already reassigned within Bloomberg.

Jeff reported that the new Bloomberg BusinessWeek will engage in this umpteenth staff defoliation "to pave the way for a sweeping redesign of the magazine, which will debut April 23." (The umpteenth "sweeping redesign," I might add.)
Tyrangiel has been on the job since November -- enough time to figure out which of the holdovers from the BusinessWeek staff he wants to keep around. That said, this batch of layoffs is expected to be far more modest in number than the last, which included 60 employees from the editorial side alone. As it was last time, the news is being withheld until after the magazine completes its weekly close on Wednesday.
I'll be curious to see where those layoffs come from. Under the old regime, layoffs cut meat from the magazine, with line editors and writers laid off while the bloated upper masthead was actually expanded. Most writers at the magazine, such as the entire Finance staff, now report to the wire, which suggests that these cuts will come predominantly from editors. Keith says the photo department will be hard hit, but I'm curious to see if the upper masthead remains intact, as has been the former practice.

There is, meanwhile, an intriguing blog post by a prominent p.r. guy named Eric Starkman that raises a touchy question: is the "Peter Principle" at work in journalism? He cites BW as an example.

Stephen J. Adler, who also held senior editorial positions at the Journal before being named editor of BusinessWeek in 2005, is another example of how journalism rewards failure. BusinessWeek, a once grossly underrated magazine that long eschewed gourmet sizzle for solid meat-and-potatoes reporting and analysis, badly stumbled under Adler’s four-year leadership. Under his tenure, the weekly magazine essentially became the Reader’s Digest of American finance, replete with oversized typeface, condensed stories, and bulky photos and graphics that badly reduced the magazine’s news hole. The magazine was on the brink of failure when Bloomberg picked it up for next-to-nothing last fall. Adler resigned shortly after the deal was announced, subsequently moving on to Thomson Reuters where he was named senior vice president and editorial director of its Professional division. Since the sale, BusinessWeek is fast returning to its previously high editorial standards, which is to Bloomberg’s great credit.

It's a harsh assessment, but one that I've heard frequently over the past few years from journalists and p.r. people alike, as well as from current BW staffers.

I disagree with Eric on one point: I think it's far too early to say that BW has returned to its previous high standards. A lot will depend, I think, on what happens in that layoff.

UPDATE (3/11): As predicted, the layoffs took place on Thursday.Talking Biz News has more on the layoffs. Only two names were in the initial tally, both writers.
says that twenty-five staffers are being pink-slipped and that another 12 are being offered jobs within Bloomberg--a staff reduction of one-third, it says.

© 2010 Gary Weiss. All rights reserved.

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Tuesday, March 09, 2010

"No One Would Listen" to Harry Markopolos -- Including the Media

Harry Markopolos's book No One Would Listen has zoomed to No. 19 at and I can see why: it's a fast-paced thriller that is clearly the best book so far on the Bernie Madoff scandal. Markopolos sheds new light on how the SEC screwed up its Madoff probe--and how the media also dropped the ball.

Markopolos's book (marred only by, arghhhhh, reconstructed quotes) describes in detail his contacts with the late John Wilke of the Wall Street Journal, which fizzled out after a year. Forbes and the New York Times also were contacted and did nothing, but Markopolos had placed all his eggs in the Journal basket, which was a mistake.

Markopolos writes:
The question I wrestled with for a long time was: Why? When the newspaper that existed only to cover the financial world was handed a detailed explanation of the biggest fraud in Wall Street history, why wouldn't someone at least conduct a cursory investigation? Three phone calls, two phone calls, that's all it would have taken to verify that I wasn't some kind of nut, that the accusations I was making were based on fact. A half hour, that's all.
So far there are two alternative, contradictory explanations of what happened.

One, from Joe Nocera, is that Wilke "spent a little time rummaging around the Madoff story, but he didn’t really have any way to get at it, other than to take Mr. Markopoulos’s word for it, and that wasn’t good enough for either John or The Journal."

The other is that Wilke was eager to do the article but was stymied by his editors.

There's now an alternative theory being floated. A Wall Street Journal review yesterday concedes that "the press also did not cover itself in glory," but goes on to suggest that it was at least partly Markopolos's fault that he was ignored.

Former Journal editor Richard Tofel writes:
The author of "No One Would Listen" is fond of describing himself as "slightly eccentric," but he is not exactly self-aware. By his account, the fault for his having been ignored throughout eight years of warnings is everyone else's. But that conclusion requires ignoring much of his story.
Tofel goes on to recount some eccentric behavior by Markopolos and concludes his review as follows:
None of this behavior makes Mr. Markopolos's case against Mr. Madoff any less convincing. Nor does it excuse the SEC. But it does provide a fuller picture of the author than the cardboard cut-out of the lonely hero we've been hearing about for the past 15 months. With his book, Mr. Markopolos sheds more light than he intends on just why no one would listen.
Indeed. If Markopolos's case was convincing, that doesn't excuse the SEC--or the media.

I have a better explanation for why Markopolos didn't make any headway in the press: he just failed to contact enough reporters.

When Wilke began to lose interest, Markopolos should have gone back to Barron's, which ran an early account raising questions about Madoff, or approached Fortune or BusinessWeek, or other people at the Times or Journal. Or any number of other publications.

In other words, Harry Markopolos could have used a good press agent--which says a hell of a lot less about Markopolos than it does about the financial press.

© 2010 Gary Weiss. All rights reserved.

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Tuesday, March 02, 2010

The SEC Botches Decade-Long Amex Probe

My column today examines one of the longest-running legal disputes in SEC history--a ten-year-long struggle to decide how weak a penalty to impose on the American Stock Exchange and its CEO, Salvatore Sodano.

The SEC found in 2000 that the Amex had done an awful job of keeping its floor traders honest, and directed that it shape up. The Amex did nothing. The SEC reacted to that act of nonfeasance by engaging in a little nonfeasance of its own.

In the end it decided to impose a penalty that was not only weak, but nonexistent.

© 2010 Gary Weiss. All rights reserved.

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