Joe Floren Screws the Pooch (Goldman Sachs, Morgan Lewis & Bockius)

Note: This was written and originally published in May of 2012. I republish it now for no good reason other than a recrudescence of disgust.

The first time I heard Joe Floren speak I was standing behind him in an elevator in his law firm’s San Francisco office tower  as another lawyer informed him that the subpoena Joe Floren had served the previous day on a colleague of mine had reached her in the hospital, after a difficult delivery of her first child, while she was breastfeeding for the first time.

Gleefully Joe Floren replied, “Really? That’s beautiful. I love it!”

 Joe Floren Screws the Pooch (Goldman Sachs, Morgan Lewis & Bockius)

(Joe Floren with insecure little goatee)

Joseph E. Floren, Esq., is a lawyer at Morgan Lewis, the white shoe law firm defending Goldman Sachs against Overstock’s prime broker litigation, and tonight I celebrate the mistake Joe Floren made yesterday.  In filing Goldman’s response to Overstock’s motion to vacate the trial court judge’s decision to stay his own decision to unseal various documents related to this litigation (in more straightforward English: the trial court judge decided to unseal some documents while also deciding to delay acting on his decision, but we objected to this delay, and Goldman responded to our objections), Joe Floren screwed the pooch. He filed something containing an attachment he forgot to redact. That attachment is a previous filing of Overstock’s, a filing which contains but a sample of the shenanigans at Goldman and Merrill that has turned up over the course of five years and millions of pages of discovery, but which filing we had redacted when we made it (as good litigants do).

Fortunately for the cause of all that is good and right about America, Joe Floren’s goof came to the attention of a diligent 1st amendment attorney in California named Karl Olson, who represents the Economist, Bloomberg, the New York Times and Wenner Publications (owners of Rolling Stone magazine) in their efforts to obtain the documents.  Karl Olson provided Joe Floren’s sloppy filing to his clients. Tonight these stories appeared:

Rolling Stone: Accidentally Released – and Incredibly Embarrassing – Documents Show How Goldman et al Engaged in ‘Naked Short Selling’ 

 Bloomberg: Goldman, Merrill E-Mails Show Naked Shorting, Filing Says

Economist: An enlightening mistake 

Really, Joe Floren?  That’s beautiful.  I love it.

 Joe Floren Screws the Pooch (Goldman Sachs, Morgan Lewis & Bockius)

How Joe Floren looks to his colleagues, per Above the Law

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You Don’t Have to Be Einstein to Get This….. But Apparently He Did.

“The prestige of government has undoubtedly been lowered considerably by the Prohibition law. For nothing is more destructive of respect for the government and the law of the land than passing laws which cannot be enforced. It is an open secret that the dangerous increase of crime in this country is closely connected with this.”

– Albert Einstein
(1879-1955) Physicist and Professor, Nobel Prize 1921
Source: “My First Impression of the U.S.A.”, 1921
http://quotes.liberty-tree.ca/quote_blog/Albert.Einstein.Quote.9993

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Stevie Cohen, When PBS is Devoting Frontline Shows to Your Perfidy (“To Catch a Traitor”), Is That Bad? (SAC)

 

And yes, I know that PBS used “trader,” not “traitor.” De gustibus non est disputandum.

 

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Economic Warfare as an Instrument of Transnational Organized Crime

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Steven A. Cohen: “That’s guilty! Guilty, guilty, guilty!!”

 

NBC: Billionaire Steven Cohen’s hedge fund could pay $1B fine in fraud case: sources

 

 Steven A. Cohen: Thats guilty! Guilty, guilty, guilty!!

 

 

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Jim Cramer’s TheStreet.com Upgrades OSTK to Buy: ‘The Hun is always either at your throat or at your feet’ – Winston Churchill

On May 31 TheStreet.com (which at one point had notorious Wall Street villains Jim Cramer and David Rocker as shareholders #1 and #2, and has repeatedly been used by Jim Cramer in the pursuit of the kinds of illegal market practices for which he so proudly took credit in this video), published an “upgrade”: Overstock.com Inc. Stock Upgraded (OSTK). Given my history with Jim Cramer, including unsuccessfully attempting to draw a libel suit from him some years ago by writing ““Jim Cramer is a Complicated Man and by calling Cramer a “criminal” in an Overstock.com marketing email to close to 20 million people , the compliment is something of a surprise, and reminiscent of the full Churchill line, “By its sudden collapse, … the proud German army has once again proved the truth of the saying, ‘The Hun is always either at your throat or at your feet.’”

Patrick

N.B. Generally I divorce references to my day job at Overstock from my writing on DeepCapture. I mention Overstock here only when it is unavoidable, as it is here. Nothing in this brief post is meant to suggest endorsement of Overstock or TheStreet.com (which I continue to maintain is one node in a criminal enterprise that has emerged on Wall Street in the last 15 years, abetted by an SEC which has bravely re-branded itself as Wall Street’s Towel Boy), nor make any comment about the stock price.

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Great Teachers & A Grand Unified Political Theory

Some months ago, while scraping the bottom of the barrel of possible speakers, the esteemed Rutgers Philosophy Department invited me to give a talk. Also invited to attend were the Economics and Law faculties and students. I decided to speak about some of my greatest teachers in life, and show how what I learned from them ties into various decisions I have made in business and in life. I hope you enjoy it, because I put my back into it.

Patrick M. Byrne speaks at Rutgers University from Overstock.com on Vimeo.

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Professor William Black Flunks Bethany McLean for Giving Hall Passes to Goldman Sachs and Wall Street

I first heard of William K. Black over 20 years ago as the regulator who had stood up to the “Keating 5″ and come out the hero of the S&L crisis (in which I gained some early experience: hence my awareness of him). Later, as a professor of law and economics at University of Missouri in 2005, Black wrote a book about control fraud,  “The Best Way to Rob a Bank is to Own One,” available here. You should read it.

Yet I had never heard Black speak until one night in April, 2009, when he appeared on Bill Moyers. How refreshing it was to see the tabloid analyses be at last replaced with discourse about the system itself (and remember that while the following claims now seem barely controversial, in 2009 most were still heretical):  Banksters. Fraud versus trust. Moral hazard and pathological incentives in the financial system (e.g., lending firms’ Ninja Loans + investment bankers pooling mortgages + captured ratings agencies = toxic waste = systemic risk).  FBI warned on mortgage fraud in 2004, but the Machine failed to react. Bank lobbyists. Glass Steagall. Brooksley Born and Credit Default Swaps. Bailout of the elites. Bank CEOs. Cover-up. Strategy to keep the public from understanding how bad the problem is. Prompt Corrective Action Law: Nationalize zombie banks. WHERE IS OUR PECORA COMMISSION? Scared of insolvent banks being revealed. Mimicking the strategies of Japan’s Lost Decade.  AIG-to-Goldman bailout.  Increasingly horrific give-aways of taxpayer money. Stop hiding the losses.  The current bleak numbers still vastly underestimate the fraud problem.

Black had me at “control fraud.”  I leave it to the community of readers to judge the familiarity of the other claims he made:

 

Alas, Bethany McLean and I are not so sympatico, and in fact have had a challenging relationship. Her side of the story is told  here:

Is Overstock the new Amazon?

PHANTOM MENACE

DeepCaptures’ side, here:

Bethany McLean: your benefit of the doubt is hereby revoked

Rocker Partners and Bethany McLean: the smarmiest guys in the room

David Einhorn, Cheryl Strauss, and the “Unavailable” Bethany McLean

One interesting aside: in the last year I have had numerous journalists bring up to me Bethany’s emails wherein she schemes with a hedge fund (emails obtained by DeepCapture from a New Jersey courthouse and published in Bethany McLean: your benefit of the doubt is hereby revoked). These journalists have told me that they know about it and see it as a tremendous breach of journalistic ethics. So there it sits, an open secret, although not, apparently, a secret anymore, but just something about which one whispers.  In a similar fashion, Jim Cramer’s video sat on DeepCapture for a couple of years drawing no comment, until Comedy Central confronted Cramer with it.

In any case, this week on CNBC Maria Bartiromo invited William Black and Bethany McLean on as guests to discuss the Justice Department’s decision not to pursue criminal charges against Goldman Sachs for its role in the financial crisis in general, and for selling financial products from whose specific failure Goldman profited. Truly remarkable performances were delivered by all, albeit in different ways.

Black responds to Maria’s opening by stating the obvious: Generating liar loans and packaging them for resale is fraud. There is no evidence that there was a significant federal investigation, or that a grand jury was convened. There is an absence of  accountability.  Goldman has been given a pass by Obama and Bush.

Bethany responds with bromides delivered with a dulcet confidence intended to suggest that she knows what she is talking about. Her analysis: I don’t think anybody is giving  Goldman Sachs a pass to be honest. I think this is a tough case to make. I do think integrity needs to be restored to the financial system, but you don’t do that by bringing a case that shouldn’t be made. Goldman Sachs didn’t make liars’ loans -  they actually among the Wall Street firms were not on the ground making mortgages. So if you can’t bring a case against Countrywide how can you possibly bring a case against Goldman Sachs?  … From an overall perspective Goldman Sachs as a firm lost money in the mortgage business. Awfully tough to bring that case to a jury and win, I think… I’m not giving Goldman a pass or any of Wall Street a pass. I think I’m with Bill on that. But I don’t think this was a criminal case.  I think Goldman’s customers should make the call: Do we want to do business with this firm? …

These vapid apologetics draw Maria Bartiromo’s stammering, nodding approval: As you said earlier, stupidity does not mean criminality.

Bethany: Greed and venality do not make a criminal case.

There are two remarkable items about Bethany’s performance. First, note the air of confidence she exudes when in fact (as will become clear) she has essentially no idea of what she is talking about (hence the expression “a journalistic understanding”). Second, note that Bethany is apparently unaware that the man she is debating on-air, Professor William K. Black, knows a lot about what she is talking about. In fact, he is perhaps the nation’s foremost expert on precisely the issue she and Maria are trying to spin to Goldman’s behalf: the federal prosecution of white collar crime at financial institutions.

Professor Black continues like a gentle professor with two weak students: Critical area here…. First, I’m the type of person that was involved in training the FBI agents, the assistant US attorneys, serving as the expert witness in these successful prosecutions where we had a 90% successful rate. Um, clearly people are not understanding fraud mechanisms. In accounting control fraud, the firm – loses – money. Indeed that is one of the defining elements because the way you maximize it is by making bad loans. And Goldman did make liar’s loans, it did it through subsidiaries, and Goldman purchased loans that it knew to be fraudulent, and it packaged them and sold them as if they were good loans. This belief that this is the first virgin crisis in which fraud was not driving it is amazing. Nobody believes it about the savings and loan debacle. No one believes it about the Enron era fraud. And given what you’ve seen in the last three weeks, how can you believe it out of the current…”

Bethany appears to panic slightly then, unable to respond substantively to a single one of Black’s arguments, simply locks into a repetitive, droning regurgitation of the talking points she just delivered a moment earlier (which amplifies my suspicion that some Goldman PR flack gave them to her to memorize). Behold Bethany McLean’s verbatim analysis of legal culpability in the greatest financial collapse of our lifetime (so far):

Maria, I think there was a hue and a cry and a lot of political pressure to bring charges in this case. And I think that if they could have, they would have. And I don’t think that any of our interests are served… I think it’s just as dangerous to bring a case that shouldn’t be made as to not bring a case that should be made. Neither one helps with the integrity of the financial system. I agree – peoples’ behavior during this crisis was unethical, it was abhorrent, it was every word you can come up with for ‘wrong.’ But if you are going to bring a case against Goldman Sachs you have to bring a case against every single other Wall Street firm as well as every mortgage originator as well as every home owner who lied on his or her mortgage application. You cannot single out one firm and say we are going to charge Goldman and we’re not bringing charges against everybody else. That’s wrong.

Maria Bartiromo: That’s a great point.

William Black (like a professor exasperated with dull students he can no longer humor): No, it’s not a great point. It’s a terrible point. You’ve got to start with somebody. Your first prosecution is always your first prosecution. And you can always say where there’s been an epidemic of fraud…”

 

Bethany’s nails-on-a-chalkboard apologetics have received a fair bit of shocked attention this week:

Columbia Journalism Review: “Bill Black goes on CNBC and shreds Maria Bartiromo and Bethany McLean on whether Goldman Sachs (and others) could and should have been prosecuted for fraud related to the financial crisis…”

Bill Black vs Goldman Sachs Apologists

WATCH: Bill Black On CNBC Debates Wall Street Fraud-Deniers Maria Bartiromo, Bethany McLean

Bethany McLean Demonstrates her Profound Lack of Understanding of Control Fraud, Gresham’s Dynamics, and Justice: “In this painful CNBC segment, former Goldman Sachs employee Bethany McLean provides a heartfelt apologia for her much-maligned former employer. Bethany says it is time for us all to move on for the good of confidence in the economy…In the process of prostrating herself for GS, she demonstrates her complete lack of understanding of control fraud, Gresham’s Dynamics, and how white collar crime can be pursued.”

I think this interview was unusual in that her panic drew Bethany into baring her biases incautiously (though frankly, the first sentence she uttered the first time she called me in 2004 conveyed to me that she is a shill and a Mean Girl). Asserting without argument that  political pressure supported bringing charges against Goldman, Bethany appears literally incapable of considering the possibility that net political pressure ran in the opposite direction, and that in fact were it not for “political pressure” Goldman Sachs would have been prosecuted years ago.

But personally, I think Bethany is not really incapable of considering such a possibility, and that her adamancy thus has other motive.

Daily headlines disappoint with lack of prosecution, making clear that this will go down as history’s “first virgin financial crisis” (in Professor Black’s phrase) in which fraud played no role.  When you read these headlines, imagine Bethany McLean, or someone very much like her, standing in an oak-paneled room in Washington, DC, droning through the same set of talking points to some senior decision-maker, and that decision-maker slowly getting snowed in under the same dulcet non sequiturs as appear in this remarkable exchange.

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Barron’s Gary Weiss Caught Plagiarizing Matt Taibbi, Find-Replaces Style With Spin

Two months ago a schlubby-but-savage Goldman lawyer named Joseph E. Floren made a mistake that caused some previously redacted information about Goldman Sachs to slip into the public’s hands. The event  was ably covered by such globally-respected publications as Bloomberg, the Economist, and Rolling Stone.

photo Barrons Gary Weiss Caught Plagiarizing Matt Taibbi, Find Replaces Style With SpinRolling Stone: Accidentally Released – and Incredibly Embarrassing – Documents Show How Goldman et al Engaged in ‘Naked Short Selling

Bloomberg: Goldman, Merrill E-Mails Show Naked Shorting, Filing Says

Economist: An enlightening mistake

Leading legal blog “Above the Law” described the situation this way: ”It has been quite a while since we have covered a grand mal discovery screw-up here at Above the Law,” and summarized the moment with the accompanying image.

And seminal law journal DeepCapture.com published its May, 2012, analysis entitled “Joe Floren Screws the Pooch“, referencing the Bloomberg, Economist, and Rolling Stone stories cited above.

Since May I have wondered, With the truth emerge at last in publications such as Economist, Bloomberg, and Rolling Stone, surely the Bad Guys must understand they have lost control of the narrative. Surely, I thought, they are working out some new damage control strategy  to deflect or usurp the truth  as it comes out.

And as always, Gary Weiss doesn’t let us down.

This weekend brought forth from Weiss an effort that takes the same facts as the articles cited above, spins them to best advantage for the criminals, and is most remarkable for being an obvious rip-off of Taibbi. That’s right, Barron’s published an essay cribbed from a previously-published essay by a competing magazine’s journalist in a plagiarization so bald it would not pass muster at one of those companies that sells term papers to college undergraduates. Moreover, it presents clear evidence that the Bad Guys realize they have lost control of the narrative, and are searching for ways to restore their control.

Alas, the best weapon they have in their arsenal is…. Gary Weiss?

I encourage readers to compare Taibbi’s article side-by-side with Weiss’ treatment of exactly the same set of documents.

Matt Taibbi, Rolling Stone (May 15, 2012):

Accidentally Released – and Incredibly Embarrassing – Documents Show How Goldman et al Engaged in ‘Naked Short Selling

Gary Weiss, Barron’s (August 4, 2012):

Documents accidentally unsealed from Overstock.com’s failed lawsuit against prime-broker units of Goldman and Merrill Lynch raise questions about short sales.

Matt Taibbi:

 ”The lawsuit between Overstock and the banks concerned a phenomenon called naked short-selling, a kind of high-finance counterfeiting that, especially prior to the introduction of new regulations in 2008, short-sellers could use to artificially depress the value of the stocks they’ve bet against. The subject of naked short-selling is a) highly technical, and b) very controversial on Wall Street, with many pundits in the financial press for years treating the phenomenon as the stuff of myths and conspiracy theories.”

Gary Weiss (two months later):

“Naked short selling has long dwelled in the grassy knoll of the equity markets, denounced by crackpots, devotees of penny stocks, and troubled companies eager to divert attention from their failings. In other words, sightings of it often turn out to be bunk.

“Despite this, a failed naked-shorting lawsuit lodged against all of the major Wall Street prime brokers, including units of Goldman Sachs Group and Merrill Lynch, by Overstock.com, has raised intriguing issues. The case, filed in California Superior Court in San Francisco in 2007, was summarily dismissed in January on a technicality;…”

Matt Taibbi:

“A quick primer on what naked short selling is. First of all, short selling, which is a completely legal and often beneficial activity, is when an investor bets that the value of a stock will decline. You do this by first borrowing and then selling the stock at its current price; then, after the price drops, you go out, buy the same number of shares at the reduced price, and return the shares to your original lender. You then earn a profit on the difference between the original price and the new, lower price.

“What matters here is the technical issue of how you borrow the stock. Typically, if you’re a hedge fund and you want to short a company, you go to some big-shot investment bank like Goldman or Morgan Stanley and place the order. They then go out into the world, find the shares of the stock you want to short, borrow them for you, then physically settle the trade later.”

Gary Weiss (two months later):

“NAKED SHORTING—selling stock that the seller doesn’t have and hasn’t borrowed, in the hope that its price will quickly fall, letting the seller repurchase it at a lower price and then deliver the stock to the buyer—is generally illegal. Usually, sellers must borrow a stock, or at least determine that they can borrow it, before they can sell it short.”

One can go through this new article doing this one-to-one mapping of content and tone from the August piece by Gary Weiss onto Matt Taibbi’s story from May.  It’s all rather creepy, actually.

It is an attempt to re-highjack the narrative. I predict that however this plays out over the next couple of years you will see Weiss tagging along trying to reconstruct the story to the benefit of the criminal element described in DeepCapture. He’s obsessive. It is almost as if his job is to downplay, minimize, and cover-up in vain attempt at damage control.

No, it’s exactly as if his job is to downplay, minimize, and cover-up. We’ll see how vain it is when we see what publications go along for the ride, besides Barron’s.

That, of course, is the most remarkable thing of all: That a publication like Barron’s would publish something by Gary Weiss, given what has long been publicly documented about him. We know, because we documented it. Newcomers to this story might start with the Reader’s Digest version by reading “Gary Weiss: Psychopath and Scaramouch“. For the graduate course on this psychopath, look him up on antisocialmedia.net.

I think, however, that this was a strategic mistake by the Bad Guys, in that it provides the public (and importantly, other journalists!) with a controlled experiment: one set of facts being handled by three real journalists and one hedge fund choagie.

Perhaps decades from now it will be a case study in some school of journalism’s graduate seminar on “Journalism and the Fall of the American Oligarchy, 2008-2014″:

“OK students, the assignment for next week’s class is a paper that examines Goldman’s inadvertent release of those its documents as treated by Bloomberg, Economist, and Rolling Stone, versus how the same event was treated by Gary Weiss, a pseudo-journalist who had already been exposed long before that as a hedge fund shill. For extra credit, describe the significance of its publication in Barron’s: Did Barron’s willingness to publish an obvious rip-off of Matt Taibbi reflect the desperation felt by the Sith to recapture the narrative?”

 

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Apparently, The Turtles Run Only to Neil Barofsky

A story is told that Bertrand Russell, while teaching for a year in India, was once interrupted from a lecture on modern cosmology by an audience member who declared, “The universe rides on the back of a turtle.”

To which Russell replied, “But what’s the turtle ride on?”

“Another turtle,” replied the audience member.

Insisted Russell, “But what’s that turtle ride on?”

Came the answer, “I’m sorry Professor, but it’s turtles all the way down.”

That story has often come to mind over the last eight years. In the early part of the last decade I had cause to mingle in financial circles, and by 2004 I had smelled skunk regarding a range of Wall Street activities such as are chronicled extensively on DeepCapture. I went with plenty of data, anecdotes, and experts, first to NASD, then to the SEC, then the House, then Senate Banking, and finally to the financial press. All of them reacted with something between indolence and hostility (and thus began seven years of one federal investigation against me after another, just as I had been forewarned). I began to use the expression “Turtles all the way down” to describe the Establishment and its capture by financial interests, and wondered if the turtles would run all the way down, forever, or if we would ever hit something solid.

Today has brought good cheer in the form of an excellent piece by Gretchen Morgenson, “Into the Bailout Buzz Saw“, concerning Bailout, by Neil Barofsky (coming out Tuesday, July 24). Ms. Morgenson, one of several journalists at the New York Times, describes assertions that will not be strange to long-term readers of DeepCapture:

“IT might seem remarkable that there’s more to say about our late Bailout Age. But there is more — a lot more…..

“We tag along with Mr. Barofsky, a former federal prosecutor, as he walks into a political buzz saw as the special inspector general for TARP. Government officials, he says, eagerly served Wall Street interests at the public’s expense, and regulators were captured by the very industry they were supposed to be regulating. He says he was warned about being too aggressive in his work, lest he jeopardize his future career…

“‘The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true,’ Mr. Barofsky said in an interview last week. ‘It really happened. These suspicions are valid…’

“THIS was just one of many examples from Mr. Barofsky’s 16-month tenure, during which, he says, Washington abandoned Main Street while rescuing Wall Street. ‘There has to be wide-scale acknowledgment that regulatory capture exists, dominates our system and needs to be eradicated,’ Mr. Barofsky said in the interview. ‘It was my job to bring as much transparency to taxpayers so they knew what was going on. Writing the book, I tried to bring the same level of transparency so people understand how captured their government has become to the financial interests.’”

Oh.

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