Obama, Iran, the JPOA, and Federalist Paper #75 (“The Treaty-Making Power of the Executive”)

Obama, Iran, the JPOA, and Federalist Paper #75 (“The Treaty-Making Power of the Executive”)

I am not going to opine on the particulars of the President Obama’s Iran deal (“Joint Plan of Action”), other than to say that many years ago I spent time in Iran, loved the people and  came to think that they are the USA’s natural allies in that part of the world’s (just as in my travels I came to believe that Vietnam is our natural ally in continental Asia), but had a beef with the authoritarianism of most of the mullahs I met (a dissatisfaction that I had opportunity to express to them while there). I am a liberal (not in the modern American misuse of the term, but in the correct, Hayekian/Milton Friedman sense of the term), and to me non-liberals generally seem like sociopaths. So while analysis of the terms of JPOA that I might venture would come from that mixed sense of a belief that American engagement with Persia would be good for the world, while standing up for America’s liberal values (and for those countries that broadly share them, such as Israel) is also good for the world, I will leave that for another place and time. Instead, this comment on the JPOA will be based not on its substance, but on the process which gave birth to it: In my experience, when any one person (including myself) believes that one’s greater wisdom, virtue, or intelligence puts one in a position to bypass institutions which have evolved (such as common law) or which have withstood the test of time (such as the US Constitution), it generally works out badly.

With that in mind, I would would like to excerpt from Federalist Paper #75, “The Treaty-Making power of the Executive” (Alexander Hamilton, emphases added):


“With regard to the intermixture of powers, I shall rely upon the explanations already given in other places, of the true sense of the rule upon which that objection is founded; and shall take it for granted, as an inference from them, that the union of the Executive with the Senate, in the article of treaties, is no infringement of that rule. I venture to add, that the particular nature of the power of making treaties indicates a peculiar propriety in that union. Though several writers on the subject of government place that power in the class of executive authorities, yet this is evidently an arbitrary disposition; for if we attend carefully to its operation, it will be found to partake more of the legislative than of the executive character, though it does not seem strictly to fall within the definition of either of them. The essence of the legislative authority is to enact laws, or, in other words, to prescribe rules for the regulation of the society; while the execution of the laws, and the employment of the common strength, either for this purpose or for the common defense, seem to comprise all the functions of the executive magistrate. The power of making treaties is, plainly, neither the one nor the other. It relates neither to the execution of the subsisting laws, nor to the enaction of new ones; and still less to an exertion of the common strength. Its objects are CONTRACTS with foreign nations, which have the force of law, but derive it from the obligations of good faith. They are not rules prescribed by the sovereign to the subject, but agreements between sovereign and sovereign. The power in question seems therefore to form a distinct department, and to belong, properly, neither to the legislative nor to the executive. The qualities elsewhere detailed as indispensable in the management of foreign negotiations, point out the Executive as the most fit agent in those transactions; while the vast importance of the trust, and the operation of treaties as laws, plead strongly for the participation of the whole or a portion of the legislative body in the office of making them.

“However proper or safe it may be in governments where the executive magistrate is an hereditary monarch, to commit to him the entire power of making treaties, it would be utterly unsafe and improper to intrust that power to an elective magistrate of four years’ duration. It has been remarked, upon another occasion, and the remark is unquestionably just, that an hereditary monarch, though often the oppressor of his people, has personally too much stake in the government to be in any material danger of being corrupted by foreign powers. But a man raised from the station of a private citizen to the rank of chief magistrate, possessed of a moderate or slender fortune, and looking forward to a period not very remote when he may probably be obliged to return to the station from which he was taken, might sometimes be under temptations to sacrifice his duty to his interest, which it would require superlative virtue to withstand. An avaricious man might be tempted to betray the interests of the state to the acquisition of wealth. An ambitious man might make his own aggrandizement, by the aid of a foreign power, the price of his treachery to his constituents. The history of human conduct does not warrant that exalted opinion of human virtue which would make it wise in a nation to commit interests of so delicate and momentous a kind, as those which concern its intercourse with the rest of the world, to the sole disposal of a magistrate created and circumstanced as would be a President of the United States.”

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Anthony Elgindy, R.I.P.

Anthony Elgindy, R.I.P.

Anthony_Elgindy_RIPBy now astute readers of DeepCapture have gathered that over the years I have developed a soft spot in my heart for the assorted brigands, cutpurses, swindlers, and crooks who inhabit these pages. One must keep in mind that they have looted the savings of millions, of course, and some of them are terrorists who wish to harm to our country, but when I was an altar boy I learned that even when rage-stomping bullies and miscreants I would invariably feel a twinge of sympathy. So perhaps it is a legacy of that misspent youth, but when I learned last night that Anthony Elgindy (AKA “Amir Elgindy” AKA “Tony Pacific”) killed himself Thursday, I confess that my chuckle  had a certain sad edge to it. Call me sentimental.

Amir Elgindy was an Egyptian with ties to the Muslim Brotherhood who immigrated to America and, like some others from that neck of the woods, gave himself an Italian name upon arrival. Here he engaged in various forms of stock market mischief. In 2000 he was indicted on nine counts of insurance fraud, and pled guilty to a mail fraud count on which he served four months in federal pen. In 2003 the NASD fined his brokerage, Key West Securities, and expelled Elgindy because he “engaged in a manipulative scheme in 1997 to inflate artificially the share price of Saf T Lok, Inc. through the entering of fraudulent quotations in the Nasdaq system, selling the stock short at the artificially high prices, and then taking active steps to depress the share price of Saf T Lok through the dissemination of negative research comments” (i.e., what is known in the parlance as “a pump-and-dump”).

But Elgindy’s real genius manifested itself in the late 1990’s when he set up a cleverly-designed password protected website on which various criminals (about 60-70 in all), shielded from public scrutiny, coordinated illegal short-and-distort market manipulation schemes. I say, “cleverly designed” because it was rigged as a message board on which one could not scroll backwards. Day and night various criminals would openly discuss which firms to target next, what brokerages were giving loose locates to enable illegal naked short selling, and which toady journalists had been fed stories they had agreed to publish, and when.

Unfortunately for Anthony Elgindy, one of his closest friends was not, in fact, loyal to him. This friend hired assistants to sit at computer screens around the clock, 24/7/365, hitting “Print Screen” every couple of minutes and making physical record of all that was said in this chat room for nearly three years. Many years ago I obtained an attic full of bankers boxers filled with these print outs, which, incidentally, I caused to be scanned and stored with a law firm for posterity. Some future historian working to recreate the evolution of Wall Street criminality in the decade leading up to the Crash of ’08 could find no better place to start than working through these tens of thousands of pages of print-outs, which are available for the asking (come to think of it, maybe it is time I just cause it all to be posted online myself, probably on one of those Dutch servers that is immune from subpoenas and lawsuits). Therefore, unscrambling the various relationships among the miscreants I pursued on Wall Street was far easier than it may have appeared to outsiders. There they were, in black and white:

  • One hedge fund manager rejoices in the compliance of pseudo-journalist Herb Greenberg (of Jim Cramer’s thestreet.com), opining, “maybe when thestreet.com folds we can hire Herb to work exclusively for us” (NB: they did, and that describes Herb’s subsequent career at CNBC and ever after, until he faded into obscurity).
  • Dave Kansas, also of Jim Cramer’s TheStreet.com. Dave Kansas went on to edit the C Section of the Wall Street Journal, where I first crossed paths with him in 2002 when he degraded a story on Bill Hambrecht’s Dutch Auction IPO as a favor to the Wall Street firms he has spent his career dutifully servicing with all the verve and imagination of a lifer in a Tijuana hump-hump bar.
  • Carol Remond of DowJones.  Later I tangled with Carol Remond on occasion and she became the object of my journalistic attention: see one of my favorite pieces, “Carol Remond Tells a Joke She Doesn’t Get“, in which she engages in debasing apologetics for the failure of David Rocker’s hedge fund, which collapsed in October 2008 through no fault of its own (Carol maintains), but (no kidding, this was her position) simply because in September 2008 rules were adopted preventing Rocker Partners from breaking the law anymore.
  • Bloomberg’s Dave Evans, it is written,”gave us SPBR for free-been very profitable.”
  • Dan Loeb, now a well-known New York hedge fund manager, who got his start on Elgindy’s board using the pseudonym “Mr. Pink”, once wrote of Dave’s willingness to be spoon fed stories to regurgitate on cue in Bloomberg (stories in front of which this syndicate of hooligans could trade). For his services “Dave Evans is a made man,” wrote now-respectable hedge fund manager Dan Loeb.


Elgindy furthered this stock picking “prowess” by bribing two FBI agents to feed him advance knowledge of federal investigations against companies, information in front of which, again, he and his gang of merry miscreants could trade.  He would have gotten away with it forever, I think, but on September 10, 2001, he called his Smith Barney broker and told him to liquidate his (Elgindy’s) stocks, saying that “tomorrow the Dow is going to 3,000” (it was 9,600 at the time). The next day when planes hit buildings the Smith Barney broker called the feds, who rolled up Elgindy and his stock discussion board. At trial the federal prosecutors decided to leave aside mention of their belief that Elgindy had prior knowledge of 9/11 on the grounds that it was too inflammatory: knowing he was losing the trial, however, Elgindy’s lawyer started bringing up such allegations, which opened things up for the feds to discuss them in court. That part of the trial transcript was later sealed by the judge, but in 2007 an enterprising Bloomberg journalist named Gary Matsumoto managed to obtain them from a Brooklyn court storage facility, and it is clear that the feds absolutely believed that Elgindy knew about 9/11 the day before it occurred.

Elgindy was convicted on those charges of bribing FBI agents. Between his conviction and his sentencing he was under house arrest in his home near San Diego. When he showed up to the court for sentencing, he came with only 9 fingers, the other having been lost “in a beach barbecuing accident,” he told the judge. When the prosecutor pointed out that Elgindy had been under house arrest and unable to access a beach, Elgindy changed to another improbable story. A person central to the case later told me that certain elements of Organized Crime had shown up at Elgindy’s house while he was awaiting sentencing, told him that if he talked while he was in prison they would skin Elgindy’s wife alive, took Elgindy to his basement, and at gunpoint forced him to saw his own finger off with a hacksaw, the better to remember the tutorial.

Elgindy was subsequently sentenced to 11 years in federal prison. While in prison he followed my activities closely, even obsessively.  As a result, I made arrangements for an associate of mine to befriend Elgindy (under pretense) through email, and he actually received permission to visit Elgindy in prison in 2006. Three days before my associate’s visit, the Federal Bureau of Prisons revoked my associate’s permission, moved Elgindy to isolation, and refused my colleague further communication with Elgindy. How odd.

Elgindy was released from prison in January, 2014, having served nine years in total. Evidently the strain of it all was too much for the poor fellow, however, and Elgindy killed himself three days ago (Thursday, July 23, 2015). Details of his demise and whether or not it was another “beach barbecuing accident” have not yet been made public.


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Goldman Sachs Internal Memo (Yesterday): “Easy to Borrow List to be Discontinued”

Goldman Sachs Internal Memo (Yesterday): “Easy to Borrow List to be Discontinued”

This post may be a little inside-baseball. I will not explain at length the significance of this (if it does not make sense, you will have to read around in DeepCapture to understand it fully), but the short version is as follows.

My battle with Wall Street started off as a fight regarding slop in the settlement system and how it could be used to rig the stock market (the battle later expanded into other areas, including organized crime, economic warfare, and what I felt was an insufficiently proactive regulatory environment, the latter of which, I am happy to say, is showing signs of real improvement). For a decade I have asserted that one of the sources of that slop has been the system that governs short selling. One of the sources of that slop has concerned how hedge funds locate stock to short sell. And one form of that slop originates in the “Easy to Borrow List” that prime brokerages put out each day.

Every day each prime broker (e.g., Goldman, JP Morgan) looks at the stock it has available to lend to short sellers. Assume that a prime broker has 100,000 shares of Martha Stewart Omnimedia (ticker: MSO) “in the box,” which is to say, “available to lend.” They put that on a list of “Easy to Borrow” stocks that it then faxes in the morning to its hedge fund clients. A hedge fund who wants to short MSO then looks at this morning’s fax, and can short sell sell 100,000 shares of MSO. It can claim it has met its requirements to have a good faith belief that it will be able to locate stock to deliver in three days  based on its having seen this morning’s Easy to Borrow list from its prime broker.

Of course, three high school kids and a pet turtle can figure out the flaw in this system: there is nothing to keep five different hedge funds who all receive the same fax from all short selling that same 100,000 shares MSO, and thus, selling 500,000 shares  into the market place (while only 100,000 are able to be delivered). Yet the authorities have traditionally done nothing to stop this, because the prime broker can say, “We didn’t lie, there were 100,000 MSO in the box this morning when we faxed out that list.” And the five individual hedge funds could not be pursued because each one could say, “I saw it on the Easy to Borrow list this morning, so I had a ‘good faith reason to believe’ I had located shares available to borrow.” Believe it or not, while the nefarious activities described within DeepCapture often use a lot of jargon, and likely seem highly arcane to outsiders, at their heart they are often no more complicated than that. Therein lies the brilliance of these illegal schemes: there is not one pair of dirty hands to cuff, just a bunch of smudgy fingers scattered throughout the system.

Seven weeks ago the SEC (towards which I, having been quite a scold for many years, now feel compelled to give significant credit) tagged Merrill Lynch/Bank of America with an $11 million fine regarding their participation in such loosey-goosey activities over many years. See Merrill Lynch pays $11 mln to settle short sale violations (Reuters, June 1, 2015). In full disclosure, I should mention that Merrill Lynch/Bank of America are on the business end of a lawsuit concerning precisely these activities, a lawsuit which I filed years ago in California, which a few months ago received a green light from the California Supreme Court, which just this week had a judge assigned to try the case (who herself has called a Case Management Conference for August 12), and which, with a little bit of luck, will be being heard later this year or early in 2016 by twelve California citizens good and true.

In a major development, yesterday afternoon Goldman circulated an internal memo announcing that it is discontinuing its long-standing use of Easy to Borrow lists. (To protect my source within Goldman I am sanitizing things by just posting a screen shot of the relevant portion):




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Grateful Dead “Fare Thee Well” Concert Their Greatest Prank Ever: A 60’s Style Acid Test

Grateful Dead “Fare Thee Well” Concert Their Greatest Prank Ever: A 60’s Style Acid Test

dead50America’s Band is making history in their “Fare Thee Well” concert tonight. I’ve been here for three days, and the first two were what we expected (and last night’s July 4 concert was like no other July 4 party I have ever witnessed) but tonight…. I have followed Kesey and the Dead since 1968 (yes, I was 6), attended and/or listened to too many concerts to number, I was prepared for anything, but not tonight. I’ve never seen a musical performance in my life like tonight.  Magnificent unapologetic 60s music, the most hard-core Ken Kesey-style Merry Prankster “happening” that only the Dead could have pulled off. Their “Fare Thee Well” concert is not a message from them to us but a message for us to each other: from its opening chords they staged the whole concert tonight as a massively apocalyptic event, a bunch of crazy 60’s stone cold phreaks gathering at the edge of Armageddon to dance one last time together.

As Deep Capture readers are used to doing, we can now sit back a see how long it takes the world to catch up with what happened tonight.

POSTSCRIPT (7/13/2015):

I have found only one review of the final night of Grateful Dead’s three night “Fare Thee Well” performance that hinted at what happened there. Not a single one of the countless video clips that have been published across the Internet (including some in many major publications) caught the moment. Indeed, I believe many in attendance were baffled until it was almost too late.  I will explain what I saw (in doing so I fear I must over-quote lyrics, which I will replace if the proper video clip emerges).

The sound for the third (Sunday) night was mixed differently than I had ever heard, even at a Dead show, and  in a way that would probably not have been apparent to anyone streaming it at home. In much of the first set, and especially into the climax of the first set, the bass was heavily boosted, and the reverb just…. well… would not fade away (if I may be excused the expression). The result was a stadium vibrating like we were being visited by Armageddon itself. As the sun went down and the first set began to draw to a close, the Dead blasted Soldier Field with a sound that got increasingly cataclysmic,  psychedelic, and weird until (I believe the films will show) even a fair bit of the audience took their seats. In the twilight they transitioned to their climax, distilling 50 years of of music into one howling crescendo, as if to say, “We will not be here to do it for you again, we will condense it into one drop, so please taste this,” and literally shook the stadium with “Throwing Stones/Ashes to Ashes” (see 1987 studio version here) while like a man on fire Bob Weir  defiantly shouted these lyrics:

Picture a bright blue ball just spinning, spinning free
Dizzy with eternity
Paint it with a skin of sky, brush in some clouds and sea
Call it home for you and me
A peaceful place, or so it looks from space
A closer look reveals the human race
Full of hope, full of grace, is the human face
But afraid we may lay our home to waste

There’s a fear down here we can’t forget
Hasn’t got a name just yet
Always awake, always around
Singing ashes, ashes, all fall down
Ashes, ashes, all fall down

Now watch as the ball revolves and the night-time falls
And again the hunt begins and again the blood wind calls
By and by, again, the morning sun will rise
But the darkness never goes from some men’s eyes
(Well I know)
It strolls the sidewalk and it rolls the streets
Staking turf, dividing up meat
Nightmare spook, piece of heat
It’s you and me, you and me

Click flash blade in ghetto night
Rudy’s looking for a fight
Rat cat alley, roll them bones
Need that cash to feed that Jones
And the politicians throwing stones
Singing ashes, ashes, all fall down
Ashes, ashes, all fall down

Commissars and pinstripe bosses roll the dice
Anyway they fall, guess who gets to pay the price?
Money green, or proletarian gray
Selling guns instead of food today
So the kids they dance and shake their bones
And the politicians throwing stones
Singing ashes, ashes, all fall down
Ashes, ashes, all fall down

Heartless powers try to tell us what to think
If the spirit’s sleeping then the flesh is ink
History’s page will be neatly carved in stone
The future’s here, we are it, we are on our own
On our own, on our own, we are on our own

If the game is lost, then we’re all the same
No one left to place or take the blame
We will leave this place an empty stone
Or that shining ball of blue we call our home

So the kids, they dance, they shake their bones
And the politicians throwing stones
Singing ashes, ashes, all fall down
Ashes, ashes, all fall down

Shipping powders back and forth
Singing black goes south and white comes north
And the whole world full of petty wars
Singing I got mine and you got yours
While the current fashions set the pace
Lose your step, fall out of grace
The radical, he rant and rage
Singing someone got to turn the page
And the rich man in his summer home
Singing just leave well enough alone
But his pants are down, his cover’s blown
And the politicians throwing stones
So the kids, they dance, they shake their bones
‘Cause it’s all too clear we’re on our own
Singing ashes, ashes, all fall down
Ashes, ashes, all fall down

Picture a bright blue ball just spinning, spinning free
It’s dizzying, the possibilities

Ashes, ashes, all fall down
Ashes, ashes, all fall down…


There in the gloam of Soldier Field,  those who had been part of The Trip and those who had only heard of it had come together as though on the rim of a volcano on the verge of a final massive eruption. Those who sensed there is no escape chose to face it by gathering one last time on that edge to surrender with love and joy in a frenzy of ecstatic dance to surrender . That moment, that first set’s ending, was truly the final message of the Grateful Dead.

The second set was nurturing, and as if to help us recover from what we had been shown. They told us to keep truckin’, and sang of the passing of their peripatetic friend Neil Cassady (an inspirational figure in Beat literature, such as Dean Moriarty in Jack Keroac’s On the Road, and with Kesey a seminal figure in the Beat-Hippie bridge),  and the spiritual echoes Cassady left in his wake (including the birth of Cassady Law to a crew member of the Grateful Dead):

I have seen where the wolf has slept by the silver stream.

I can tell by the mark he left, you were in his dream.
Ah child of countless trees, ah child of boundless seas.

What you are, and what you’re meant to be
Speaks his name, though you were born to me,
Born to me, Cassidy.

Lost now on the country miles in his Cadillac.
I can tell by the way you smile, he is rolling back.
Come wash the nighttime clean, come grow the scorched ground green.

Blow the horn, and tap the tambourine.
Close the gap of the dark years in between
You and me, Cassidy.

Quick beats in an icy heart, catch colt draws a coffin cart,
There he goes and now here she starts, hear her cry.

Flight of the seabirds
Scattered like lost words,
Wield to the storm and fly.

Fare thee well now, let your life proceed by it’s own design.
Nothing to tell now, let the words be yours, I’m done with mine.
Fare thee well now, let your life proceed by it’s own design.
Nothing to tell now, let the words be yours, I’m done with mine.

See official version from 1980:


They moved on with (among others) an incomparable “Terrapin Station”, ended with “Not Fade Away,” and double-encored with “Touch of Grey” (“I will get by, I will survive”) then, to close, “Attics of My Life”:

In the attics of my life…
When there was no ear to hear, you sang to me….
When there were no strings to play, you played to me….
Where all the pages are my days, and all the lights grow old.
When I had no wings to fly, you flew to me, you flew to me…
In the secret space of dreams, where I dreaming lay amazed.
When the secrets all are told, and the petals all unfold.
When there was no dream of mine, you dreamed of me.


It was a beautiful second set, played with the tenderness of a last parting.  But I had no doubt that what the Grateful Dead came for was to create that singular, unrepeatable moment that occurred when the narrative arc of “America’s Band” celebrated its conclusion in Soldier Field as we all bid each other “Fare Thee Well” in a dusk of fear, darkness, and dizzying possibilities.





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How CNBC (Becky Quick, Jim Cramer, and Joe Kernan) Can Solve Its Collapsing Viewership Problem

How CNBC (Becky Quick, Jim Cramer, and Joe Kernan) Can Solve Its Collapsing Viewership Problem

One of the proudest moments of my life came the day that the CNBC producer called to tell me that the article I had written on Jim Cramer was the single meanest thing she had ever read in her life and that I was banned from CNBC forever.

The article in question, “Jim Cramer Is a Complicated Man,” is largely composed of quotes from Jim’s own writings, with some minimal explication from me. Though Jim’s confessions are tawdry enough to make a pimp squirm, since that piece largely draws upon extensive quotes from Jim’s own writing I do not see how it can be called, “mean”. I do know that various people (e.g., a Georgetown Law School professor friend) who read it have upon completion expressed dumfounded disgust at Cramer.

There is also, of course, the additional issue of the video I caused to be supplied to Comedy Central a year later, a video which Jon Stewart used to publicly humiliate Jim Cramer in a way that in any sane world would have left Jim lucky to be delivering weather forecasts from Butte, Montana.

Thus I was surprised to see on June 5, 2014 Ms. Becky Quick declare on air that she “would love to have Patrick [me] on” CNBC, followed by Joe Kernan’s faux-bewildered account deliberately distorting my early and prescient criticisms of Wall Street. I was not surprised, however, to see Jim Cramer coyly declare that Overstock.com is the one stock in the universe of stocks upon which he will not comment.


I immediately posted a blog accepting Ms. Quick’s invitation (“My Response to Becky Quick’s Proposal: I Do“). Naturally, since the moment that I picked up the gauntlet that the three of them threw down that morning, CNBC has gone dark. No one there, not a journalist, not a producer, not a technician, will reply to my  request that they simply name a time and place for me to appear.

Then recently a post over at Zerohedge (“CNBC Viewership Plunges to 21 Year Low“) brought to light the sad news of the utter collapse of CNBC’s viewership:

CNBC August 2014


CNBC, I’m here to help. Why not make good on your statement that you “would love to have me on” CNBC, and schedule an appearance? Make it live, promote it ahead of time, and we’ll draw some numbers together.


Patrick M. Byrne

Journalist, DeepCapture.com

PS Live broadcast only, naturally.






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And Now a Message from Our Sponsor….

And Now a Message from Our Sponsor….

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Ex-Mafia Boss Mentions Mafia Activity on Wall Street (CNBC)

Ex-Mafia Boss Mentions Mafia Activity on Wall Street (CNBC)

You can also watch the segment on the CNBC website here


“I did a lot of things at times with people on Wall Street. I don’t trust them. That’s the bottom line. A lot of guys are shady and they did shady things with me so I don’t trust them.”

I like this guy.

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Meanwhile, Euroclear (Europe’s DTCC) Warns That It, Too, Engages in Fractional Reserve Banking Without a Reserve Requirement

Meanwhile, Euroclear (Europe’s DTCC) Warns That It, Too, Engages in Fractional Reserve Banking Without a Reserve Requirement

“The Euroclear operator advises as follows: under Belgian law, investors that are credited with securities on the records of the Euroclear operator have a co-property right in the fungible pool of interests in securities on deposit with the Euroclear operator in an amount equal to the amount of interests in securities credited to their accounts. In the event of the insolvency of the Euroclear operator, Euroclear participants would have a right under Belgian law to the return of the amount and type of interests in securities credited to their accounts with the Euroclear operator. If the Euroclear operator does not have a sufficient amount of interests in securities on deposit of a particular type to cover the claims of all participants credited with such interests in securities on the Euroclear operator’s records, all participants having an amount of interests in securities of such type credited to their accounts with the Euroclear operator will have the right under Belgian law to the return of their pro-rata share of the amount of interests in securities actually on deposit” (emphasis added).

– Warning on securities issued in Europe

Maybe somebody should invent a way to issue a cryptosecurity that trades on a peer-to-peer exchangeless-exchange that generates a public ownership ledger while bypassing all Bezzle-generating centralized institutions.

Just a thought.

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While CNBC Searches for Its Courage, Glenn Beck and Patrick Byrne Discuss Oligarchy on The Blaze

While CNBC Searches for Its Courage, Glenn Beck and Patrick Byrne Discuss Oligarchy on The Blaze

This week I swung through Dallas to be interviewed by Glenn Beck. I was given a tour of TheBlaze, where I found they have assembled some first-rate talent (e.g., President Betsy Morgan, formerly CEO of HuffingtonPost). Their interior design is superb: Beck has taken over a former TV/movie studio and converted it into a really functional, collaborative, attractive tech workspace such as one might expect to see in Silicon Valley or Silicon Alley (do they even still use that term?). The modern-yet-retro that harkens back to the Golden Age of Radio. Simply from an entrepreneur’s point of view I found it all (including their business model) impressive.

The interview went well. I had done one interview with Glenn Beck five years ago, and remember it as being one of the first times that I felt the journalist actually wanted to give me a chance to explain my beliefs without throwing chaff and distortion in my way. So I had positive expectations going in, but still, was again impressed with Glenn’s research, thoughtfulness, and  willingness to engage in an intellectual conversation like an adult.

Incidentally, below please find that first interview I had with Glenn Beck five years ago. My section starts at 7:15, and while short, I note the same virtue as I saw in this week’s interview: Glenn is willing to engage deep issues such as oligarchy, institutional design, and the erosion of our republic in a way that few journalists in the “lunatic mainstream” are willing or able to follow.


Update: After publicly inviting me on air over a month ago (cf. “My Response to Becky Quick’s Proposal: I Do“) CNBC still will not return a phone call or email and will not, in fact, allow me on their show. CNBC vs. Glenn Beck: You make the call.

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Robert Brazell: Shyster Extraordinaire

Robert Brazell: Shyster Extraordinaire

Learning that a Texas judge recently issued a capias arrest warrant for Rob Brazell (Kondos v Brazell Note Order for Capias) brings back memories of the most extreme sociopath I have ever met. Since 1999 Rob Brazell has stood out in my mind as the most remarkable paragon of dishonesty and two-faced greed it has been my place to witness in any business setting. Fourteen years ago I believed that all business between Rob Brazell and myself was concluded and I hoped never to deal with any issue relating to him again. From time to time over the years I have heard that Brazell was raising money on misleading claims regarding his relationship Overstock.com and myself, and when anyone bothered to ask me, I told the truth. Recently, however, Rob Brazell has had both that capias arrest warrant issued by a Texas judge,  and had another fraud action filed against him (rob-brazell-named-in-fraud-lawsuit), yet has become more aggressive in his misleading self-promotion using Overstock’s name. As a result, while I do not generally go out of my way to hurt anyone’s reputation, it has become clear to me that I have a duty to the public to set the record straight, a duty which in my silence so far I have, arguably, neglected. I will here seek to avoid further editorial comment, but simply relate my experiences with Brazell.

In Spring 1999 I received information about a firm that was in the flea-market-products liquidation business. At that time, about 65,000 people in this country made their living selling at flea markets. Brazell had originally formed a company that used a broadcast fax method to alert people in the flea market industry of available lots, and let them order from those lots using the telephone’s push-buttons. Around the time that I first heard of him, Brazell had gotten live a site that allegedly displayed such close-out products for sale on the Internet, but in fact the site was informational only: that is, there was no piping connecting it to products in any warehouses or even basic customer service systems. The site displayed products and let people enter credit cards to be charged, but little of the piping between the two was in place. In addition, the business was, I learned, on its last gasp: it was out of cash and (absent a cash infusion) would be shutting its doors in two weeks.

As primitive, immature, and almost reckless as the system seemed, I recognized the opportunity the internet presented for this business model. At the time, most were analyzing Internet retail in terms of its ability to strip out transportation costs (an ability which was already in question). But liquidation is all about search costs, and the Internet strips out search costs handily. Therefore, liquidation and the Internet seemed made for each other (as eBay was already proving in a B2C model). On that basis, I agreed to meet with them.

My first meeting with Brazell as awkward: Brazell and his lawyer and backers quickly expressed their general discomfort with me (I am not a Utah native, and they all were), and speculated that I was a “vulture capitalist” intent on stealing their business. I assured them that I was not, that I had retired from business, had just accepted a faculty position at Dartmouth, and had no intention of getting involved in the firm. Believing that time was of the essence in getting some momentum and that the buying team Brazell had assembled would give a head start in developing this business model, I made an offer to buy a minority stake in the business for $4 million. The reaction of Brazell and his lawyer to my offer was odd to the point of amateurish: In front of me, they openly discussed it but convinced each other that if they waited another couple of weeks until the business was about to close, they would then have me over a barrel and could demand better terms. Scratching my head, I left, telling them to get in touch if that day came.

The next Thursday they called to inform me they were going bankrupt the next day, Friday, and wanted to negotiate a deal, insisting weirdly that because I only had one day to act before they shut the firm, they expected better terms than I had previously offered. I told them I would inject the same $4 million that I had offered previously, but now I wanted 60% of the business for it. There was a long silence on the speaker phone before I heard Brazell say meekly, “Accepted.” Lawyers set to work handling the money and stock transaction. However, because of the fact that the office was being shut the next day and all employees fired if the cash did not get in the till, it was not possible to perform the customary due diligence first. In addition, other than some credit card processing records that showed de minimus sales (a couple hundred dollars per day) and a checking account with almost nothing in it, I figured (incorrectly), If there are any undisclosed problems, how bad can they be? Our lawyers papered over the transaction the next morning: my one stipulation was that, given that their ownership structure was poorly documented and they apparently were having disputes about that among themselves already, the documents made crystal clear that all such disputes occurred on their side of the 40 yard line.

A few weeks thereafter (in early June, 1999) I went to see Brazell to look at the business in which I had now acquired majority stake. Brazell sat me down and in a roundabout fashion explained that they had a small “logistics” problem. My interest perked up: I always enjoyed logistics. Brazell continued, For some time they had been taking orders for products they did not actually have. The plan had been to wait until they had, say, orders for six units of some model of Seiko watch, then call Seiko and try to buy those watches, receive them in their office, then remail them to the six customers. However, Brazell continued, they had been taking the cash that they had been getting by charging customer credit cards, then using it to pay operating expenses, so they were in a little bind, and he wanted my advice. Still not quite grasping what he was explaining to me, I asked, “How much would it cost to buy all the inventory you have already charged people for?” He told me, “$300,000.” I told him I was shocked at the size of the number and his description of it as a “logistics” problem, when in fact, it sounded criminal to me: He was charging people’s credit cards without having the goods to sell. He replied, “We researched that. It turns out you can charge the credit card if you have a ‘reasonable belief’ you are going to be able to acquire the goods. And the lawyers say that we can say we have ‘reasonable belief’ if….” He proceeded with some Philadelphia lawyer argument that showed he had anticipated exactly how he would defend himself if he ended up in court. I cut him off and said, “So how quickly can you buy those and get them out to people?” Brazell replied, “We could do that in a week or so. But I have a better idea. I have scouted out a space on the west side of town. We could move there, change our name, and…” Brazell continued explaining as I, puzzled, lost the thread, trying to understand how any of such maneuvers would solve the fact that there were customers expecting $300,000 of products that they did not have. It took me quite a bit longer than it should have to grasp, Oh, Brazell is suggesting that we just disappear under a new name and address and keep the $300,000. He’s a swindler. As soon as I understood where he was going I cut him off and told him, “Of course we are going to buy the $300,000 of products and send them out. And don’t ever suggest something like that to me again.”

On the same day, while going through their meager financial statements (really no more than a few simple Excel spreadsheets), I realized that they did not make any sense whatsoever. They did not tie to each other. I asked their CFO (allegedly a CPA) some basic questions and discovered, for example, that he did not know thee difference between gross margin and net margin, or what costs went into gross margin, etc. I told him I wanted to check on his CPA credentials, at which point he got up and walked out of the room, picked up his hat, and left the company. I confronted Rob about it, and discovered that not only he could he not tell me his gross margin, he could not define it, either. And his ideas for developing the company all amounted to PR stunts of one form or another, but had nothing to do with building value of any kind. I hired and inserted Jason Lindsey (CPA) as CFO to make sure no further untoward activities occurred.

At this point I belatedly conducted due diligence on Rob Brazell and discovered quite a colorful past. At one company he had run he had gotten short on cash and solved the problem by going into his credit card receipts and randomly picking hundreds of people to whom he could charge $100 each, in order to get tens of thousands of dollars to keep his firm afloat. He had also conserved cash by stopping  payments on the health insurance for his employees and their families, without telling them: They learned when someone took their kid to the hospital. He had had a run-in with the Utah Attorney General over getting people to cough up hundreds of dollars to learn about various get-rich-quick schemes that never panned out, and had to sign a Consent Decree with the Utah Attorney General in order to stay out of jail. And he had worked at a company that was in the flea market supply business, but he used his position as Sales Manager to steal all that firm’s customers by diverting them to the new business he started on the side (causing the collapse of the business for which he had been working). In Salt Lake City, which the Wall Street Journal regularly names as the Fraud Capital of America, Brazell was known as a remarkable scoundrel. Being from New Hampshire, I had known none of this.

As these facts came in over the course of the summer, my dreams of slipping off into a quiet academic life began to recede. At the end of the summer semester I left that teaching position at Dartmouth, went to Utah, and starting digging in. As they say in The Godfather, “The fish stinks from the head down”: When a fellow like Brazell is running a firm, many employees are sure to be crooks themselves. In dealing with them, it became clear to Jason and me that the firm was going to need an enormous bloodletting. I did not know who was good, but it was easy to see who some of the bad actors were who had to be removed. So in September, 1999, I began cutting the shady people, starting with Brazell himself: Brazell was gone on some extended vacation, but when he returned I had him meet me in my motel room across the street, and fired him. Over the next month or two, I cut twelve out of eighteen people.

There started to be signs of a board fight, but Brazell had run everything in such a slipshod way that none of the paperwork and documentation existed by which anything could be worked out in a businesslike manner. I hired a much more serious law firm than the one which the firm had previously used, and instructed them to create whatever set of documents needed Brazell’s signature to make everything airtight. “But how do we get Brazell to sign them?” we wondered. Our lawyers contacted his lawyers, who refused on his behalf. That put Brazell in the position of having leverage over the firm simply by gumming up the board work that had to be completed to get the business ship-shape and properly organized.

Opportunity presented itself a few days later, when Brazell demanded to meet Jason and me off-site to air his feelings of having been cheated out of his firm. As I was to learn was his custom in business meetings, he brought his wife, a highly attractive female triathlete, a real head-turner, who opened up the meeting telling me, “Look me in the eye. I like a man to look me in the eye when he’s fucking me.” Startled, I proceeded with the business matters at hand, explaining gently that the business Brazell had known was gone, that it was now under the control of a new investing group, and he had no position in the new firm other than as a minority shareholder. Brazell responded with a 30 minute lecture that, as was his wont, constantly misused legal and business terms, as though all he knew he had acquired from watching TV shows. Somewhere in his rant, when he got good and wound up, some perverse instinct made me say, “By the way, as long as you are here, would you mind signing some paperwork?” I put in front of him the stack the lawyers had prepared. With his typical grandiosity he flourished a pen and began signing his way through the stack of paperwork as he continued his rant at me. Again his wife interrupted to say, “Look me in the eye. I like a man to look me in the eye while he’s fucking me.” For my part, I was trying to keep a straight face as I watched Brazell sign away the only leverage he had left on the firm. When he finished his signing and his ranting, I asked for the stack of documents, made a copy of it all, and handed it to Rob with the suggestion he show them to his lawyer. Brazell, satisfied that he had properly stood up for himself, stood to leave, giving his wife one more chance to turn and say to me, “Look me in the eye. I like a man to look me in the eye as he is fucking me.” I looked her in the eye. About thirty minutes later Brazell called me from the office of his lawyer, who was explaining to Rob that he had just signed away all the leverage he had over us (that being, that the corporate records were so sloppy as to be virtually nonexistent). Brazell told me, “I am going to drive back to your office, and on the advice of counsel, I demand that you give me every signature page I signed.” I told him I would not do that. Brazell replied, “Then on the advice of counsel I rescind my signature.” I hung up.

In October, 1999 we launched Overstock.com. Brazell was not an employee when we launched, had no position in the company, and had no legal relationship other than a small minority shareholder, and was unwelcome on the premises. But I could do nothing to keep him from showing up at the shareholder meetings. In those early days we were having shareholder meetings about once per month. I had inherited a group of minority investors who ranged from sophisticated investors to farmers from northern Utah who had put their savings into the firm that Brazell had run into the ground. The investors ranged from sharpies to innocents who had been lured into investing over a backyard barbecue. I sought to treat them all fairly and graciously, though some fraction of them were half-buying Brazell’s line that I was a vulture capitalist who had swooped in and stolen their firm from them, and if only I had not done this against Brazell’s wishes they would all be rich (however, I believe that by two or three meetings all or essentially all of the shareholders had come to see things a bit more clearly). The capital structure was a mess (most of those investors had no business whatsoever investing with a guy like Brazell), but I played that hand as fairly as I could, passing the hat for further capital raises at prices that did not wipe everyone else out (like most majority owners would have done). I was facing a moral dilemma: I did not think some of those people should have been investing in a risky start-up, but they were already shareholders and so it was not fair to water them down without letting them invest, either. Therefore, these capital raises were accomplished by giving then-current shareholders pari passu investment rights, but admonishing them that it was highly risky and they should probably not be taking part. Of course, for some of them such warnings only seemed to make them salivate over the opportunity to invest more, whereas others appeared to heed my warning.

One incident in this regard stands out, though it represents many. There was a woman with a clerical job in the company. She was attractive, 50-ish, and had followed Brazell from firm to firm for several years. She was a widow, and I thought she was a fine lady, but I understood her loyalties were to Brazell. One day Brazell slipped into the office unannounced (he had been forbidden from coming inside, but that day he did anyway): he and this woman quickly slipped into a meeting room while Jason and I stood down the hall, discussing whether we should actually physically remove him. When he saw me walking down the hall towards the meeting room, Rob quickly stood up and departed. But an hour later this fine woman asked to see Jason and me. It appeared to be registering on her for the first time that this man she idolized, Brazell, might not be looking out for her best interests. Haltingly, her story came out: A year or two earlier Brazell had come to her and asked her to buy stock in the company: She had $180,000 in savings, and Brazell had convinced her to give it to him, in return for which he gave her some stock. Now, a year later, with Brazell gone and the company in new hands, she owned about 5% of the company. However, at the prices at which we were then raising money for the firm, her position was worth about $1 million. The reason Brazell had shown up in the office, she explained, was that he was now telling her that the $180,000 she had given him had been only a loan, not a purchase of equity, and that the stock she had been given was just collateral for that loan she made. He had shown up with a check for $180,000 and paperwork documenting that she was having her loan paid back, and was now retrieving the stock for his own possession. It was the strangest, most slap-dash view of financing I had ever heard, given by a widowed clerical worker who clearly had no idea what she was talking about or doing, and who should never, ever have been invited by Brazell to invest in the first place. Not only had he done that, now that her investment was worth $1 million, he had gone to her to swindle her out of it with a bunch of equity/loan double-talk. It was a remarkable performance, even for Brazell.

Overwhelmed with my now-full understanding of Rob Brazell, and aware that this widow, formerly his acolyte, had lost her trust in Brazell (and perhaps slowly gained some in us), I asked my father for his advice. On that advice, I went out and hired her a lawyer at the company expense. The lawyer was a real piece of work: the kind of junkyard dog attorney who advertises on the back of the Yellow Pages. I met him and said that even though the firm was paying, I wanted him to defend the widow’s and only the widow’s interest, to get involved, and do whatever he thought right, even if that meant suing the firm. After a day of talking with his client, he came back and explained to me that he dealt with guys like Brazell all the time, that there was a culture in Utah arising from the uranium boom days where people talk neighbors and acquaintances into investing in flim-flam penny stocks, often conducted at a backyard barbecue or over a neighbor’s fence. He had spoken to the widow and had her roughly convinced that we (myself and the company) were the good guys, and that Brazell had cheated her. She would not sue if she could have her stock back and keep the $180,000. The lawyer told me, “I deal with these sociopaths all the time. He’ll probably cry. But he’ll sign.” I had the pleasure of calling Brazell, bringing him into my office, telling him the widow’s demands, and sliding the requisite paperwork in front of him. The lawyer had been right: Brazell broke into a flop-cry like I have never witnessed. His tears literally flew across the table on me. Never saw anything like it. As he signed away the $1 million of stock out of which he had just cheated her, and the $180,000, he cried, “What I need is an adviser! I need someone who can show me the ins-and-outs of these things!” I told him, “Rob, you don’t need an adviser to tell you not to rip off a widow.” He signed the paperwork and delivered the funds that day.

For some reason I still cannot comprehend, I actually tried to save Brazell face after that. We let him attend some board meetings as an observer only (with no actual board membership). I did not speak ill of him. There had been one significant investor who had been Brazell’s friend who had sided with Brazell during these skirmishes. That fellow invested $10 million in a new Internet business Brazell started. We worried that Brazell was coming to our board meetings as an observer just to pick up our secrets (there were at the time enormous arbitrages available in Internet marketing, and while observing our board meetings he was taking detailed notes on them). However, we should have realized we had nothing to fear: Brazell went out and did precisely the opposite of what we were doing, and was bankrupt in a few months. When I ran into that large investor socially a few years later, he apologized to me for having sided against me and not having realized that Brazell was a “crook” (his word).

There is one more classic Brazell story to share. I had made president of our firm Karla Bourland (a highly-regarded factory-physics Tuck Business School professor who had assumed the role of a personal tutor for me years earlier). I was CEO, but Karla was president in those early days (1999-2001). Karla thought it was odd, given my history with Rob, that I still tried to treat him with dignity, and made face-saving measures on his behalf. However, given that I had made that decision, she supported it fully, treated Brazell with dignity, and supported the little face-saving measures I took on his behalf publicly and with the company. Brazell always expressed great appreciation to us both for this.

While president of Overstock, Karla was invited to join the Young Presidents’ Organization, a prestigious business society. Karla was thrilled at the professional recognition, and did everything possible to prepare for joining. She made the rounds, met other members, did the screenings, etc. When the time came for the local chapter to vote on her admittance, however, someone used his or her blackball privileges to veto her membership (every member of a YPO chapter has the right to blackball the admittance of a new member). I knew Karla could rub people the wrong way, and wondered which of the town burghers she had offended. I called Brazell (probably the first and only time I initiated a contact with him), who had been a member of YPO for years and still maintained good relations there, to see if he could figure out who it was that had blackballed Karla, that she might be given a second vote. Brazell was on good terms with Karla at the time and, grateful that she had accommodated some face-saving measures for him, readily agreed to look into it. A few weeks went by with no word from him other than that he was nosing around trying to find out. Finally, a senior member of the local YPO sought me out to tell me the truth: Karla had been blackballed by Brazell himself.

For perhaps the 10th time I met Brazell offsite, this time with Karla in tow, and told him what a skunk he was, given that Karla was at the time working 100 hour/weeks for a firm in which he had a financial interest, and that she had joined me in going out of our way not to discredit Brazell in the business community (though we had both been afforded chances aplenty). Brazell once again burst into tears, said his shrink told him he had some complex or another that made him do these things, blah blah blah, and left. A month or so later Brazell called me to get together. We did, and he told me that his therapist had told him that the only way to fix things was to make amends, atone for himself, and that Brazell had decided to do that by nominating Karla to YPO himself. I thought that was an unusually classy move of Brazell, and thanked him. He nominated Karla, who was again rejected, this time on the grounds that she had passed the age-limit for new YPO members the previous week.

Again, weeks later someone in YPO who know Brazell reached out to me to tell me the truth (about which Brazell was already bragging to those he thought were his friends, most of whom had been burned so many times by Brazell they would readily dish up things like this): Rob had asked for the YPO bylaws to study, and when he did, he discovered an age limit, and that Karla was a month away from crossing it. So Brazell held back two months, and then came to us with his whole “atonement” story of wanting to nominate Karla, knowing that she would again be rejected because of the age limit. The tearful “atonement” stuff was just more sociopathology. The only thing I can say to the credit of Brazell is that, when I confronted him about this behavior, he again collapsed emotionally, acknowledged it was true, said he did not know what made him do the things he did, etc.

Thankfully, that was the last business dealing I ever had with Rob Brazell. I did see him once more, a few years later, while I was sitting in a diner into which Brazell happened to walk. He came over, I stood, we shook hands, and he politely asked if he could call me for lunch some day. I told him, “I’d rather you not.” Then, a few years later, Brazell rode on a plane next to someone who is close to me, who later reported that Brazell was raving about a new business he had started that was like “free money”: It was a brokerage or some similar entity that gave promiscuous locates to short-sellers and collected fees for doing so (if this does not make sense, search around on DeepCapture for an explanation). According to my friend, Brazell was giggling about his new business because it was so simple: All one had to do was tell short-sellers some words they needed to hear, and the checks just rolled in. It was not clear to my friend if Brazell understood that such a business model was illegal, abetted the criminal behavior of stock-manipulators, and put him square in the center of the pernicious Wall Street activities that I was then seeking to bring to the attention of the public. I told my friend that it would not matter to Rob Brazell if he understood all of that, or not.

That was the last time I heard any specifics of Rob Brazell’s activities, though occasionally through the years I have heard word of him running around raising money for some scheme or another saying he started Overstock.com. In sum, however, the truth is that Brazell started a company that had no sustainable business model, employed a bunch of crooks, collapsed, and which I led a group of investors to acquire, recapitalize, and re-start. Brazell never worked one day at any company called “Overstock.com.” He started a predecessor company that failed (in part, because Brazell literally does not know how to read a balance sheet or an income statement, and uses terms like “gross margin” without having the faintest idea what they actually mean). The day his company failed, I stepped in and bought control of it, shortly thereafter fired him and most of his shady colleagues, and restarted it all over again, and relaunched it as Overstock.com. Brazell has fleeced those close to him (from widows family members to fellow members of the LDS Church) of millions upon millions. He took ideas that were well-known by the early 1980’s (that we were moving from a manufacturing economy to one where intellectual capital was more important), regurgitated them fifteen years later in a puerile text called The Idea Economy which he self-published, then ran around acting like he was a Nobel prize winner. I do not know of anyone who ever invested with Brazell who did anything but lose all his money, sometimes to Brazell himself. I cannot recall a single conversation with Rob Brazell where he did not propose something  unseemly, unethical, or illegal, sometimes with no apparent awareness that it was so, but more often, with obvious indifference to such concerns. He is a sociopath, the kind who plays games like the YPO story illustrated above, and can with all comfort sit and look across the table from someone and lie through his teeth, but be back the next day scraping and apologizing, while actually just trying to figure out his next trick. That a warrant has been issued in Texas for the arrest of Rob Brazell is something worth celebrating.


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