Rut Roh. The “Stock Manipulator” Meme Finally Escapes the Box. Somebody Call Somebody.

    “Minkow’s manipulation of the market … caused a severe drop in the stock prices of a large local corporation. This type of deceit and abuse of trust will not be tolerated… we will investigate and prosecute stock manipulation cases to help protect the integrity of our capital markets…When false statements are disseminated to deceive the investing public, whether they’re designed to prop up a company or tear it down, the FBI will dedicate all available resources to bring disseminators of such falsehoods to justice.” – United States Department of Justice, Press release, March 24, 2011

    Minkow Charged In Stock Fraud, Extortion Case – A financial fraud investigator and ex-convict was charged with conspiracy in a Florida federal court on Thursday, a week after agreeing to plead guilty to allegations that he intentionally depressed a company’s stock with false accusations of fraud.” – Law360, March 24, 2011

    DeepCapture is seeing an influx of visitors, many of them new. So I am going to give a concise explanation of the stock manipulation meme that Deep Capture explores.

    THE STOCK MANIPULATION MEME

    Years ago, Steve Cohen figured out that finding a good company to invest in and waiting for its stock to go from $4 to $28 took acumen and patience, whereas taking a company down from $28 to $4 could be done in weeks, and, through the magic of short selling, was  just as profitable.   For Steve Cohen and a number of associated players this insight led to the emergence of a business model: instead of simply betting against companies (short selling), it would pay to disrupt them (naked short selling, orchestrating smear campaigns in the press, instigating federal investigations and shareholder class action lawsuits, etc.)

    In the intervening years a network has emerged that developed this business model into an industry. Michael Milken and Ivan Boesky (two famous criminals from the 1980’s) were financiers to the stock manipulation industry, and brought with them the involvement of Organized Crime (primarily, Genovese Family, and later, Russian Mafia). Its current shining lights appear to include Jim Chanos, David Einhorn, Dan Loeb, and Bill Ackman. Numerous wannabees have circled from time to time, from low-rent (David Rocker) to preppy (Whitney Tilson, it now appears). Profiting from stock manipulation would be difficult without the involvement of prime brokers who turn a blind eye to certain trading strategies, primarily, naked short selling, but also, variants such as married puts (by which hedge funds lay off an aspect of their criminal activity to the prime brokers, and prime brokers lay off an aspect of the crime to market makers).

    The journalists who became spokesmodels for these cutpurses range from Pinto (Roddy Boyd, Carol Remond, Herb Greenberg) to Lexus (Bethany McLean), with every make and model in between (some, such as Bethany McLean and Roddy Boyd, have never written a story that was not sourced from this tiny set of hedge funds, and breezily engaged in email conversations which reveal their understanding of their role as puppets). Other financial journalists (e.g., Joe Nocera, Floyd Norris) sided with these now-exposed journalists not from corruption, but from having forgotten their duties as journalists. At the bottom of the food chain, we find a small group of phony “researchers” (Barry Minkow, Sam Antar, Gradient Analytics) who conduct no real research, but who produce endless phony “where there’s smoke there’s fire” allegations for parroting by C-list bloggers (Gary Weiss, Tracy Coenen, Floyd Schneider, Yolanda Holtzee, etc.), which are then imported into the mainstream financial press through the efforts of the shill journalists listed above.

    For many years, these schemers made a federal toy of the SEC, whose staffers  gave concierge service to stock manipulators  before going to work for their law firms (e.g., Linda Thomsen), or sometimes, even directly for the hedge funds in question (e.g., Richard Sauer, for whom Rocker Partners and Bethany McLean had a code-name, “Lavaman”). Jim Cramer has participated both as a money manager (as he confessed on video), and also, as a journalist (as DeepCapture has demonstrated). DeepCapture also suspects the involvement of former New York Attorney General Elliot Spitzer’s, due to Spitzer’s proximity to Cramer (Spitzer’s college roommate and lifelong friend) and Chanos (Spitzer’s largest financial backer), the confluence among this network’s targets and the objects of Spitzer’s prosecution, and the slightly salacious fact that Jim Chanos let live rent-free in his house Eliot Spitzer’s main escort, Ashlee Dupree (who should be ashamed of herself for having anything to do with these low-lifes).

    THE COVER-UP

    Such schemes are illegal, as is the trading that seeks to profit from them. Though these patterns are easy to spot, with this basic scheme distributed so cleverly across so many market participants (hedge funds, prime brokers, market makers) and typists who look enough like journalists to be shielded by the 1st amendment (e.g., Jim Cramer, Herb Greenberg, Carol Remond, Bethany McLean), they are difficult to prove, .  In fact, any attempt to inform the public about these patterns has traditionally been met by tremendous smear campaigns by all the journalist-typists mentioned above. Importantly, these smear campaigns not only attack the messenger, they distort the message, insisting that what is at issue is “short selling”  (a practice which is easy to defend), and systemically refusing even to mention the allegations of stock manipulation (via naked short selling and manipulation of journalists and law enforcement). It has become clear over the last six years that the New York financial press has a mandate to suppress the stock manipulation meme. That is why the New York financial press, once so intense on discrediting this meme,  flipped off like a light-switch the moment we began expressing and documenting it in both particular and pattern on DeepCapture, criticism of which would have led readers to visit and understand the arguments for themselves.

    THE CRUSADE

    In 2004 Gradient Analytics, a Phoenix-based company putatively in the business of providing research to hedge funds, began a smear campaign against Overstock (a company in which I work by day). The zeal with which they stretched to make any allegation they could muster in literally dozens of poorly-researched publications, and their strange behavior in communication with us (aggressively turning a deaf ear to any attempt to explain to them the accounting basics they had misunderstood) left us certain that they were up to mischief, but puzzled as to their motives. Soon, several sympathetic hedge funds contacted me to inform me that this was Gradient’s business model: any hedge fund could pay them $25k/year, and for that fee, command the preparation of multiple hatchet jobs. Clearly, someone had bought the economy pack regarding us. Not long thereafter, several employees of Gradient Analytics got in touch with me and described, in great detail (and ultimately in three affidavits) how a hedge fund named “Rocker Partners” (run by David Rocker) was the hedge fund behind this stock manipulation scheme (they named Herb Greenberg as participating, and also said that Steve Cohen was “twenty times worse”). As much from a sense of civic duty as anything else, Overstock sued Rocker and Gradient, and then, the entire prime brokerage industry.

    Throughout the litigation, pretty much the entire aforementioned set of typists, pseudo-journalists, and C-list bloggers who had spent so many years carrying water in these hedge fund schemes (i.e., Jim Cramer, Herb Greenberg, Bethany McLean, Roddy Boyd, Carol Remond, Joe Nocera, Floyd Norris, Sam Antar, Gary Weiss, Tracy Coenen, Floyd Schneider), tried to convince the public that Overstock’s lawsuits had no merit and that no such schemes exist. All but the most shameless C-list players, however, contracted laryngitis on the subject when Overstock received apologies for and withdrawal of Gradient’s smear campaign, a $5 million check from Rocker (“Rocker Pays $5 Million to Overstock.com to Settle Lawsuit“), another $5 million check from some of the prime brokers, and got going a serious-as-a-heart-attack RICO action going against Goldman Sachs and Bank of America subsidiary Merrill Lynch, with a trial date in December, 2011.

    THE BREAKTHROUGH

    An identical scheme starring many of these players has come to light in federal court in Florida over the last two weeks. Barry Minkow (like Sam Antar, an ex-convict with a history of enormous financial crimes) “was charged with conspiracy in Florida federal court… after agreeing to plead guilty to allegations that he intentionally depressed a company’s stock with false allegations of fraud.” The company whose stock was being “intentionally depressed… with false allegations of fraud” was a Fortune 500 company named Lennar, Inc. The modus operandi was identical to the David Rocker/Gradient Analytics scheme against Overstock.

    The fact that there is such overlap among the cast of characters should not be surprising. As is documented in numerous places in DeepCapture (“The ties that bind Sam Antar and Barry Minkow”, Today’s ‘If Only There Were a Pattern’ Moment: Sam Antar Crony Barry Minkow Still a Crook. Who Knew?“, “The Honorable Gill Freeman Throws Book at Barry Minkow, Nicks Paymaster Sam Antar. Plus, A Question for Whitney Tilson, Minkow Paymaster #2″, ” Memo to Barry Minkow and Sam Antar: Roll Early, Roll Often“, etc.) these folks all work together. Sam Antar paid Barry Minkow $250,000 for services Barry could not explain;  Gary Weiss re-introduced Sam Antar to the world in 2006; Gary Weiss introduced Tracy Coenen in 2007;  Whitney Tilson paid Barry Minkow $40,000 for “research” in the model of Gradient Analytics’ smear campaign; Barry Minkow paid Sam Antar $30,000 back for cooperation in another smear campaign; Dan Loeb’s hedge fund, Third Point, employed as a cut-out another ex-convict stock manipulator named Michelle McDonough to manage related manipulation campaigns conducted by Floyd Schneider and Yolanda Holtzee. Gary Weiss brags in email to Floyd Schneider about feeding Joe Nocera his material. And so on and so forth.

    What is not yet public is who was behind this particular stock manipulation scheme now being pursued in federal court. Barry Minkow’s publications, filled as they were with “false allegations of fraud,” were always closely preceded by large trading activity far beyond the capacity of Barry, Sam Antar, or even Whitney Tilson (who, as his hedge fund is about $120 million, is something of a pisher in the hedge fund world).  That is to say, someone knew every time that Barry was about to publish “research” that would move a stock price, and was betting big that Barry’s publications would move those prices (that is, after all, the point of a stock manipulation campaign: to create a lead-pipe cinch on which to bet). Given the size of the bets, it had to be someone big.

    Far bigger than Whitney Tilson.

    This post was written by:

    - who has written 226 posts on Deep Capture.

    I am a concerned citizen who has been focused on systemic instability since 2004.

    Contact the author

    39 Responses to “Rut Roh. The “Stock Manipulator” Meme Finally Escapes the Box. Somebody Call Somebody.”

    1. lenofus says:

      The frustration, and I’m sure Patrick and a myriad of others feel it too, is watching this stuff on a daily basis, knowing it’s as obvious as a fat girl in the Victoria Secret catwalk, and seeing “eyes right” like some sort of victory parade, as everyone who can do something about it looks the other way.

      “Heartbreaking”, “maddening”, “tragic”, ……..you pick the adjective. One’s as good as the next.

      • huck says:

        Patrick. I have no qualms about providing the someones big…. stevie cohen, chanos, and george soros. No need to look any further, I HOPE.

    2. Anonymous says:

      Tilson runs a microfund and somehow gets on CNBC regularly? Wtf?

    3. glenn surowiec says:

      I think you are wrong for lumping Tilson/Ackman with the others – they both do excellent/legitimate research w/o engaging in the devilish smear campaigns described above. I understand that Tilson paid $40k to Minkow for “research”…but let’s not get carried away about what that implies.

    4. Anonymous says:

      lenofus

      That pretty much sums it up.

    5. Anonymous says:

      so glenn why do you think TIlson would give $40K to someone like Minkow? Research? Minkow should be paying Tilson, not vice versa, if that money was for research. It was for services rendered. Online, multi-player, blog-message board-etc meme spreading. For Tilson’s positions. Put that in the pipe and smoke it. I hear Deep C has the tracks to prove it.

    6. Anonymous says:

      then the question for Tilson’s limited partners is what possible legitimate service could Minkow provide to Tilson’s Fund? One would hope that Tilson does his own research.

    7. Sean says:

      So Glenn .. what pray tell should we imply? U guys are killing me.If this were laid out any clearer Stevie Wonder could read it.These guys are evil to their core PERIOD!! The dominoes are falling and people are beginning to realize that their pensions and savings are being ripped off ala Bernie Madoff. This is getting to the good part finally. Thanks again Patrick and Deepcapture. Mark we await the next masterpiece. Lets see how long the Justice department and the other captured regulators can look the other way. I mean its only be 6 years no?

    8. Anonymous says:

      so is gary weiss still haunting the Wikipedia “naked short selling” article? lol

      • Rcoutme says:

        No. Wikipedia finally had to cave to numerous people’s investigations and banned Weiss from contributing. For a while they were still preventing the correction of naked short-selling. I believe that they have finally “allowed” the suggestion that it may be a problem.

    9. glenn surowiec says:

      I think Tilson probably thought he was paying for “A” grade and instead received “F” grade research. I don’t know if he was duped or just didn’t care enough to do lengthy due dilligence b/c the amount ($40k) wasn’t material to him.

      The reality is this – the buy side pays for lots of different research from lots of different providers. Like marketing expenses, some of it turns out be be great and some of it turns out to be crud….but often this can only be determined in hindsight.

    10. jerry jeff walking says:

      I pray the RICO case is a grand slam…with Little Stevie and others catching line drives to the bullocks.

    11. glenn surowiec says:

      Sean – thanks. My point is let’s not overgeneralize “these guys” – there are very real differences between Tilson/Ackman and the others that shouldn’t be glossed over.

      • blackbart says:

        You mean there must be a legitimate reason that Tilson gives a convicted felon $40,000 who is running stock manipulation schemes non-stop ala USNA, Medifast, IOC, LEN, etc.? All with the same pattern and in collusion with the same dirty players? Are you an idiot?

    12. Jeff says:

      For those of you who are new to Deep Capture, the crime that Patrick is describing works basically like this (my interpretation of the information I’ve received from DeepCapture.com):

      1. A cabal of criminals including, from the bottom up, “reporters”, “analysts”, brokers, large brokerage companies, hedge fund managers, and organized crime kingpins target a company.

      2. The hedge funds naked short sell the company. Short selling, of course, allows you to sell stock you don’t have, and you do it because you think the stock price is going to drop, at which point you’ll be able to buy it back cheaper, using just a portion of the money you received from the sale, and keeping the rest as profit. Perfectly legal, but only if you, as required by law, have access to some real shares to sell, which you borrow and pay interest on. In NAKED short selling on the other hand, no shares are located or borrowed, and the very act of selling non-existent shares artificially increases the supply, thereby having a depressing effect on the stock price. When MILLIONs of shares are naked shorted, the effect on the stock price can be significant.

      3. Not content with that (illegal) advantage, the “analysts” write reports critical of the company by either exaggerating known weaknesses in the company, or by just making things up.

      4. The “reporters” disseminate the results of the “analysis” by writing major media stories critical of the company.

      5. Somehow, the cabal is able to convince the SEC that the company needs to be investigated, the news of which further shakes the confidence of legitimate investors in the company.

      6. The company stock, now being attacked on multiple fronts, drops precipitously. The company, oftentimes a young tech company that needs capital to survive, is no longer able to issue stock to generate that capital because the stock price is so low, and is often forced out of business.

      7. The cabal keeps the profits, for which they invested nothing other than payments for the services of the various miscreants in the scheme.

      Meanwhile, the captured government regulators do nothing to stem the flood, and the captured financial press does nothing to report on the crimes exposed by Deep Capture.

      You can read all about it in Mark Mitchell’s lengthy, but VERY interesting piece, “The Story of Deep Capture” (see link in header bar at top of page). You’ll learn that this process has been repeated many hundreds, perhaps in excess of a thousand, times. The sums of money being stolen through this scheme is mind-boggling.

      Imagine if you could sell 5 million shares of a $10 stock that you don’t own, receiving $50M, and then the company going out of business (with your help) so you never have to buy the stock back. Pure profit. Company gone. Major CRIME. And then do this over and over and over. You do the math.

      I don’t think it’s a stretch to say these greedy, organized, amoral weasels are stealing a large chunk of America’s wealth, hitting millions of individual investors, retirement funds, university funds, etc. in the process. It has to be a major factor in the state of our economy.

      Much appreciation and many thanks are due to the Deep Capture team, Patrick Byrne, Mark Mitchell, and Judd Bagley for their courage and thoroughness in bringing this story to light.

      By the way, when you finish The Story of Deep Capture, Mark Mitchell’s second major article, “Michael Milken and Dendreon” (also linked above), goes into exquisite detail about the coordinate attack on a single company, Dendreon. And we are anxiously awaiting a third Mitchell piece due out in the near future, so stay tuned!

      • My Take On It says:

        Jeff:

        They also have their cake and eat it too, by having some kind of financial hook before, or getting one after, the stock price collapses, which they or their friends then use to take control of the more promising companies or their assets.

        The old variant was to give a loan to a good/promising privately held company that wanted to expand (through a private investor found by a pre-placed insider/employee/”friend” or someone who just shows up at the door with promises of help. Sometimes the poor suckers come unwittingly to them), take the stock and/or assets as collateral, have the company use all the funds to expand, and then, when the company is again low on funds but poised to take off, call the loan and foreclose on the stock and/or assets.

        Now they do the same thing with a publicly traded company, by taking assets and/or millions of unissued stock (that makes them the majority stockholder) as collateral, short sell the stock and then foreclose on the assets and/or stock. This way you can get the company/assets, take other investors money and do it on their own time schedule, so as to maximize profit and use OPM to enhance the value of their soon to be acquired asset(s). There are obviously many variants.

        On another point, one way for them to invest all the illgotten gain and make sure that the same scheme does not happen to them is to take a good publicly held company, not necessarily the one they scammed, private.

        This generation is just lazy. They have no respect for all the hard work that their forefathers used to have to do to put on a good pump and dump, asset stripping, breakout, or other type of financial crime. When you take all the hard work out of being unethical, immoral and corrupt, what plan have you got for your family to do in the future other than to be lazy people with all the money, in control and with a sense of entitlement?

      • Lennie Barbour says:

        Wow, twice. You hit it on the head perfectly, including a standing ovation to the team for their work. Well said.

    13. Dan Wilton says:

      Thanks Patrick. I can’t begin to say how much Deep Capture has meant to me as a source of comfort in a financial world of hurt and deception. Where oh where are the cops? I await the day when Deep Capture changes or adds to its focus and starts to expose relentlessly the captured alphabet agencies and their built in individual bureaucrats who fatten their wallets at the expense of the public while sitting at the public trough.

    14. Anonymous says:

      Good to see Deep Capture is back on the beat.

    15. ravenseye says:

      Bravo! Encore!

      for those of us who have observed similar patterns for well over a decade know how weiss highlighted elgindy (currently serving time), and then filled the void with schneider. several of the other journalists you mentioned were also doing hit pieces for them after accounts to funnel the hit pieces via business newswire etc were lost. the cast of characters have a long, documented history!

    16. lenofus says:

      Hey, Glenn. When’s the last time DC was wrong? When did they not research something to the hilt?

      My suggestion would be, sit back, and watch. Because basically, I think the should take heavy equipment and level 6th ave. Then, turn south, and head to the Battery. But I really haven’t seen DC make a gaffe yet.

    17. glenn surowiec says:

      lenofus – I think DC is spot-on with their assessment of most of the individuals. But they occasionally go too far and I believe they have in the case of Tilson/Ackman.

    18. lenofus says:

      “………occasionally, they go to far.” ????????????

      Sorry. They research, you guess. My bet is,they’re right. And , it’s not really a guess.

      I was told, “it’s all sleight of hand. There is never an honest trade.”

      You don’t get those numbers perchance. You take the chance out of it. The first Wall St. from 1987 was more on than Stone ever knew.

    19. jerry jeff walking says:

      MNKD stock under pressure by FDA (Dr Hamurg?) and chemist:

      24.
      MannKind Corp. (“MannKind”) is a Delaware corporation headquartered in Valencia, California. At all relevant times, MannKind’s common stock was registered with the Commission pursuant to Section 12 of the Exchange Act and traded on NASDAQ. The company sponsored FDA review of the drug “Afrezza.”

      http://sec.gov/litigation/complaints/2011/comp21907.pdf

    20. Rich says:

      Major kudos to the entire DC team! Many thanks for your continued work on exposing these financial shenanigans. With the impending conviction of Barry Minkow, one can hope that this will lead to more exposure and possibly bring down more players of the pyramid even though our regulators look the other way.

    21. ron doc says:

      With scum buckets like Barry,blab to save my scab,Minkow, Sam,da sham,Antar and Gary,will sing like a canary,Weiss The cops should be able to get the whole sordid story in a couple of days.
      Then they could follow the story right to the top of the rancid corpse of a financial system that DC has documented. Wouldn’t be hard for a good cop!

      Oh, if we just could find a honest cop. There are so many Tracey’s involved who need to be squeezed like a ripe pimple.

    22. blackbart says:

      Minkow has now entered guilty plea

      Convicted conman Barry Minkow became an FBI informant in fraud cases after a stint in prison but has now pleaded guilty in Miami to new fraud charges involving homebuilder Lennar Corp.

      Minkow pleaded guilty Wednesday to a single securities fraud conspiracy count. Prosecutors say he released false information about Lennar on the Internet and through emails and regular mail. That caused Lennar’s stock price to plummet 20 percent and was an attempt to force the company to pay off a San Diego developer.

      http://news.yahoo.com/s/ap/20110330/ap_on_re_us/us_ex_conman_minkow_charges

    23. Anonymous says:

      Minkow to roll over….like buddy Antar did to his cousin

      http://www.latimes.com/business/la-fi-minkow-plea-20110330,0,3397417.story

    24. actsnow says:

      WOW,it’s about time,Mink the stink escaped a lenghty prison sentence so my guess is he will be joined by Sammie,our justice system moves slow but sure.

    25. Noel says:

      Good work Patrick,

      I’m sick how these scum get away with this Naked Short Selling,

      I involved in some chinese solar stocks and seems that WS has shorted all of china. I can’t understand some of the best performing stock out there and they lie, fake downgrades world is coming to an end etc stuff. These hedge funds need to be put in prison, No wonder America will not be a place to do business if this keeps going on.

      Stocks I’m in LDK, JASO, TSL, SOL, YGE, STP all very low single digit PE’s, Analysts come out and upgrade them with twice and 3x the value nothing happens then certain analysts come out with downgrade stock fall’s 10-15%. I can understand why some people stay away, but when you believe in a company why should you be shafted by WS scum..

      All stocks have huge short interest showing on reg sho, loads of basher’s on blogs,and paid shil’s and analysts doing hedgies work.

      I have been looking at all the Chinese stocks lately and noticed a similar occurrence across them all. WS not happy with China so the naked short it….

      I know it’s not the only stocks they short, you can see them all over the place..

      When do these feckers cover there short positon
      Do they ever…….

      • jerry jeff walking says:

        You are sadly correct.

        That’s why average American investors have largely left the market.

    26. harveywalbinger says:

      Noel,
      I assume you are a trader & not buying to hold long. Otherwise, you had better get to reading more DC content. The abusive naked short selling is a ridiculous fraud. But it’s not the naked shorting by itself that is so troubling. It’s the resulting accumulation of FTDs that will cause the S to HTF. I’ve minimized my exposure to the rigged game. I suggest everyone do the same. There’s no safety in stocks-even good stocks… Just sayin’

    27. my attention was focus on “THE STOCK MANIPULATION MEME”. this is not just a single case but it is common in a company,

    28. Nice one guys..! thank for sharing this cool blogs!

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