Vanity Fair Reports “Greatest Financial Scandal in History”

    You read it here first. But if you don’t believe us, hear it from Vanity Fair instead.

    In the magazine’s latest issue, released today, correspondent Byran Burrough reports that “More than a few veteran Wall Streeters believe an investigation by the Securities and Exchange Commission will uncover evidence that [investment bank Bear Stearns] was the victim of a gigantic “bear raid”—that is, a malicious attack brought by so-called short-sellers, the vultures of Wall Street, who make bets that a firm’s stock will go down.”

    According to Vanity Fair, the SEC is investigating short-sellers who “employed a complex scheme to force a handful of major Wall Street firms to hold up trades with Bear, then leaked the news to the media, creating an artificial panic.”

    People on Wall Street are calling this “the greatest financial scandal in history,” Vanity Fair reports.

    The magazine argues, just as Deep Capture did a few days ago, that CNBC’s David Faber facilitated this scandal. The magazine describes Faber’s appalling interview with Bear Stearns CEO Alan Schwartz as follows:

    Faber’s first question was a bombshell. He told Schwartz he had direct knowledge of a trader – a single trader – whose credit department had held up a trade with Bear Stearns, citing concerns about its health. At Bear, many executives gasped. It was a killer statement: Faber was saying, in essence, that Bear’s status as a trader, the basis of its business, was in question….only later did Faber say on-air the trade in question had finally gone through. But the damage had been done.

    ‘You knew right at that moment that Bear Stearns was dead, right at the moment he asked that question,’ a Wall Street trader of 40 years told me. ‘Once you raise that idea, that the firm can’t follow through on a trade, it’s over. Faber killed him. He just killed him.’

    All in all, this is a pretty good article. But it could have done more to describe the full scope of “the greatest financial scandal in history,” noting that this scandal has touched hundreds of other companies, and that its most worrying component, ignored by the financial press, is the sale of billions of dollars worth of phantom stock. More than $60 million worth of Bear Stearns stock that was sold on the day of Faber’s bombshell was not delivered on time – no doubt because the stock did not exist.

    So who provided that bogus tip to Faber? Who sold all the phantom stock? Who killed Bear Stearns?

    Further down, Vanity Fair reports:

    According to one vague tale, initially picked up at Lehman Brothers, a group of hedge-fund managers actually celebrated Bear’s collapse at a breakfast that following Sunday morning and planned a similar assault on Lehman the next week. True or not, Bear executives repeated the story to the S.E.C., along with the names of the three firms it suspects were behind its demise. Two are hedge funds, Chicago-based Citadel, run by a trader named Ken Griffin, and SAC Capital Partners of Stamford, Connecticut, run by Steven Cohen. (A spokesman for SAC Capital said the firm “vehemently denies” any suggestion that it played a role in Bear’s demise. A Citadel spokeswoman said, “These claims have no merit.”)

    I think it’s wrong to point a finger at Ken Griffin of Citadel. My initial reporting suggests that Griffin was not even short Bear Stearns. Also, Griffin’s rivals routinely throw his name around – usually when they are trying to distract attention from their own misdeeds.

    It will be up to the SEC and DOJ to indentify the true culprits, but perhaps they could start by interviewing the hedge fund managers who were short Bear Stearns. These include Griffin rivals David Einhorn, Jim Chanos, Dan Loeb (who once vowed to go “to war” against Griffin), and, yes, Steve Cohen.

    As described in “The Story of Deep Capture,” all of these hedge fund managers are in some way closely connected to CNBC’s Jim Cramer. They routinely conduct gang tackles on companies, employing the services of a small, but influential group of financial journalists, most of whom are also connected in some way to Jim Cramer – himself a former hedge fund manager.

    One of these reporters is David Faber, who has been close to Cramer for over twenty years. A former employee of Cramer’s hedge fund has written a book that describes Cramer routinely feeding tips to Faber and then illegally trading ahead of Faber’s reports on CNBC.

    Deep Capture reporter Patrick Byrne began describing the activities of the Cramer crowd of journalists and hedge fund managers more than three years ago. I began investigating them more than two years ago.

    For that, we have both been labeled “conspiracy theorists.”

    Now Bear Stearns is dead. Vanity Fair has written its own “conspiracy theory.” And the SEC and DOJ are on the case.

    When people start going to jail, we will know who was right.

    This post was written by:

    - who has written 87 posts on Deep Capture.


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