My long crusade (or Mitzvah, or Jihad, depending upon what side you’re on) against Wall Street corruption has seen similar  Truman Show moments. As is described in Mark Mitchell’s The Story of Deep Capture, in November, 2004 a fellow calling himself “Bob O’Brien” called me to explain some wild-sounding theories about Wall Street criminality. I did not pay  much attention to him, because he opened the conversation candidly letting me know that “Bob O’Brien” was not his real name, and that he was living out of a backpack in foreign lands for fear of getting whacked by Organized Crime. He sensed my disbelief, so before he signed off he told me he was going to make four long-shot predictions, and when they came true, to get back in touch with him. His predictions were as follows: a specific set of journalists (from whom, incidentally, I had never previously heard) would all be calling to do hatchet jobs on me; that Overstock stock would be getting listed on numerous obscure foreign exchanges; that I would become the target of a federal investigation; and that the SEC had recently adopted a regulation, Reg SHO, mandating that starting in January 2005 (two months hence), US exchanges would have to start listing stocks which were seeing excessive failures to deliver (a sign of market manipulation), and Overstock would be one of them. I thanked him and hung up, chuckling to myself.

A day or so after “O’Brien” called I received a call from the first of the journalists he named, and over the following two weeks, all of them called me. Our stock became listed on exchanges in Stuttgart, Munich, Berlin, Bavaria, Hamburg, Bahamas, and Australia. I went under the first of numerous federal investigations (when one ends another immediately starts in its place, and through litigation discovery and FOIA requests we have confirmed the existence of a minor industry of hedge funds and hedge fund choagies who perpetually lobby various government agencies to investigate me on trivial, obscure, and even Kafkaesque matters: remarkably, those government employees compliantly obey, in some cases shortly before taking jobs with the hedge funds who requested such concierge service). And in January, 2005, NASDAQ stared publishing its Reg SHO list of manipulated stocks: there are almost 3,000 firms listed on NASDAQ, a few dozen of which were on the Reg SHO list, and OSTK was one of them.

It was a minor Truman Show moment: if the world is organized as it appears on the surface, it should not be possible for a spotlight to fall out of the blue sky onto the street. And it should not be possible for a guy to make four wild predictions and have them all come true. The philosophers of science tell us that the power of any theory is its ability to make predictions. This guy made some far-out predictions, they all came true, and it would have been intellectually dishonest of me to dismiss him just because he said he was calling from a payphone at a Guatemalan bus stop to keep the Mob from whacking him, and was laying down a rather heavy rap about market manipulation, Organized Crime, and some of the major players on Wall Street.

So I began studying the issue he had been describing to me, that is, our capital market’s stock settlement system and its various loopholes.  Over time, I came to understand that it was not just sloppy, it was sloppy to an almosst inconceivable degree. I could not imagine how it had been designed to tolerate that much slop, unless someone wanted it to be sloppy.

But the real Truman Show moment came in April, 2005, from the SEC itself, which never lets me down. It came in the form of a memo they posted on their sec.gov website. It has been taken down, but thanks to the wonders of the WayBack Machine we can still visit it in archived form. In it, they described their purpose in implementing Reg SHO, what it did and did not mean, and crucially, why they decided to “grandfather” (that is, forgive) all the failed trades that were in the system at the time of the passing of Reg SHO. If you are paying attention, you will have the same reaction to this as Jim Carrey did when the spotlight fell from the sky onto the street in front of his home:

Division of Market Regulation:

Key Points About Regulation SHO

Date: April 11, 2005

…

F. Grandfathering Under Regulation SHO

The requirement to close-out fail to deliver positions in threshold securities that remain for 13 consecutive settlement days does not apply to positions that were established prior to the security becoming a threshold security. This is known as “grandfathering.” For example, open fail positions in securities that existed prior to the effective date of Regulation SHO on January 3, 2005 are not required to be closed out under Regulation SHO.

The grandfathering provisions of Regulation SHO were adopted because the Commission was concerned about creating volatility where there were large pre-existing open positions.

Why that explanation struck me as so bizarre is because the SEC passed Reg SHO only under intense and unprecedented public pressure, insisting the whole time that it was not needed because naked shorting was not going on and there were no significant failed positions in the market. Then, they passed it with a loophole saying that it “does not apply to positions that were established prior to the security becoming a threshold security”, justifying this “grandfathering” on the grounds that: ” the Commission was concerned about creating volatility where there were large pre-existing open positions.”

If you are following along, the preceding statement by the SEC should seem Truman-Show-strange to you.  Think of it this way: The SEC was simultaneously arguing that there were no large open failed positions and even if there were they would not affect the market; but, they had to forgive all of them already in the system because if those non-existent large open positions were forced to cover it would create volatility. In sum: The large open failed positions do not exist, and if they existed they would not be affecting prices, but reversing those non-existent, non-price-affecting large open positions would crack the market.

To me, seeing that posted on the SEC website was like seeing a spotlight crash into the street out of a blue sky.

I am going to expand this story a bit, in a way that it will become even stranger.

Again, the SEC passed Reg SHO only under intense public pressure in 2003-2004. My source from inside the SEC has told me that never in his career had there been an issue that Wall Street’s lobby fought with such intensity, and that throughout that battle, the upper echelons of the SEC (e.g., Annette Nazareth, Linda Thomsen, James Bragagliano, Eric Sirri)  were carrying water for Wall Street. During that period, the SEC’s push-back to the public was that Reg SHO was not needed because there naked short selling was not going on, and hence, there were no significant delivery failures in the market.

Under the Administrative Procedures Act (APA), before making final decision is reached about the wording of a new regulation, a US regulator has to propose to the public the regulation that is being considered, in order to give the public time to comment.  Following this process, in 2004, under this intense public pressure, the SEC proposed a version of Reg SHO that had tiny teeth in it. After a period of public comment that was overwhelmingly in favor of making Reg SHO tougher, the SEC adopted a version that had no teeth at all.  Even within the SEC this was regarded as a transparent legalistic bait-and-switch, one that let them thwart public pressure yet keep the SEC in technical compliance with the APA.

In early 2005 the exchanges (such as NASDAQ and NYSE) began publishing Reg SHO lists. The persistence of names on these lists demonstrated that failing to deliver stock was, in fact, a regular feature of our capital market, the SEC’s protestations notwithstanding. In response, the SEC began arguing that, while yes, it was occurring after all, it was minor, inadvertent, and random, a result of random human error. Then in June, 2005, a consulting economist they hired, Dr. Lesli Boni, published Strategic Delivery Failures in U.S. Equity Markets, which told just the opposite tale. In her summary she wrote:

“Using a unique dataset of the entire cross-section of U.S. equities, we document the pervasiveness of delivery failures and provide evidence consistent with the hypothesis that market makers strategically fail to deliver shares when borrowing costs are high. We also document that many of the firms that allow others to fail to deliver to them are themselves responsible for fails-to-deliver in other stocks. Our findings suggest that many firms allow others to fail strategically simply because they are unwilling to earn a reputation for forcing delivery and hope to receive quid pro quo for their own strategic fails.”

People who were calling for transparency on this issue found themselves fighting the SEC to obtain even the most basic data. Many resorted to Freedom of Information Act requests, and even then, had to fight for each morsel of data. The SEC stuck to its guns, insisting that this was a non-issue, yet opposing the public release of data that could instantly determine who was right.

In the years following that I became part of a movement that fought skirmishes with the SEC.  I funded the deployment to Washington of entire legal and lobbying teams who tried to convince Congressmen and Senators of the seriousness of this problem, and take even the most obvious, commonsensical steps to address it (not for the company I happen to run, but for the marketplace as a whole). We tried to get Congress to pressure the SEC simply to disclose the data, or better yet, to eliminate the grandfather clause and the option market maker exception, and (our greatest hope) enforce a pre-borrow requirement on all shorting. Throughout this period, I was frequently made aware that lobbying on the other side of the table were the Wall Street banks, and the SEC itself.

Then, in 2008, our financial system began imploding, and the SEC immediately passed an unprecedented emergency order (“SEC Enhances Investor Protections Against Naked Short Selling“) granting the most aggressive form of protection we had been seeking (imposing a pre-borrow requirement on short selling), yet extending it only to the 19 most significant financial firms at the heart of Wall Street. That seemed odd on many levels, not the least of which was that many of those firms were prime brokers who had been enabling hedge funds to do it to other publicly traded companies.

Then, in September, 2008, the SEC rolled out a market-wide reform that was, once again, carefully designed to be toothless. It was around this time that I began publicly describing the SEC as bootlick of Wall Street (“Overstock CEO Comments on SEC’s New Rules Against Naked Short Selling: ‘Nerf penalties for financial rapists’ declares Byrne”).

In October and November of 2008, regulators around the globe began taking emergency measures:

September 21, 2008 Associated Press: “Dutch ban ‘naked’ short selling for 3 months: The Dutch Finance Minister is banning ‘naked’ short selling of financial stocks for the next three months to increase the stability of financial markets…”

October 28, 2008 Wall Street Journal: “Japan Cracks Down on Naked Short Selling: Tokyo: Japan moved Tuesday imposed new restrictions on so-called “naked” short selling of stocks…”

November 14, 2008 “Australia bans naked short-selling: CANBERRA: Australia moved to slap a permanent ban on the most controversial form of short-selling yesterday amid an historic fall in share prices, part of a crackdown that is also targeting hedge funds and credit rating agencies.”

November 21, 2008 – The Financial Times: “Regulators to discuss short selling rules: Global securities regulators will gather on Monday to discuss rules on short selling and disclosure of credit derivatives, the head of the US Securities and Exchange Commission said on Thursday.”

November 24, 2008 Reuters “Global regulators focus on abusive short selling”

Then, in December, while regulators in the rest of the modern world focused on cracks in their respective settlement system, the SEC switched back to dragging its feet:

December 9 – Reuters: “SEC urged to do more to curb naked short selling”

Since then, settlement issues have been at the forefront of discussions of the financial crisis in Europe and the rest of the world.  Germany:  “Merkel sticks to her guns, calls for global market reform: Angela Merkel told a meeting of international financial leaders that the G-20 must work together to reform the finance system. Merkel is pushing for tougher market regulations….” Britain, March 7, 2011: “MEPs vote for ‘naked’ short-selling restrictions”.  European Union: “Merkel, Sarkozy seek EU ban on naked short selling, CDS“. Japan: “Japan to extend naked short selling ban to Oct”. Etc.

Yet in the US, the issue has, once again, disappeared. How utterly odd.

In sum, then,  since 2003 the settlement system which underlies our capital markets has seen problems that disappeared, reappeared, disappeared, reappeared, and disappeared to suit the needs of the Wall Street elite and their handmaidens at the SEC. Initially, in 2003-2004, there were (according to the SEC) no problems in the settlement system worth speaking of. Then in 2004, the SEC passed a rule, Reg SHO, that did nothing of substance beyond drawing draw bull’s-eyes on firms already being manipulated: to do so, they danced within the outer limits of the Administrative Procedures Act, whose purpose is precisely the opposite of the use to which it was put by the SEC. Yet in April, 2005 the SEC explained that the rule they passed had grandfathered the problem “because the Commission was concerned about creating volatility where there were large pre-existing open positions” that until then they had insisted did not exist. Simultaneously, the SEC continued to claim that the problems in the settlement system were negligible and inadvertent, until in June 2005 their own economist, Lesli Boni, showed they were pervasive and deliberate. From 2005-2007 the SEC continued to insist that they were not significant, but fought tooth-and-nail to prevent being released to the public the data that would decide things one way or another. Then in 2008 the SEC suddenly considered it a massive problem requiring an unprecedented emergency regulation to stop it, but just for those Wall Street banks which had for years been enabling it against other publicly traded companies. Then while regulators in the rest of the modern world have spent 2009 -2011 figuring out how to fix holes in their settlement systems, the SEC has switched back to regularly scheduled Muzak on the subject.

The government and Wall Street lawyers who went along for this ride display a mentality best described in this passage from Orwell’s 1984:

“The power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them….To tell deliberate lies while genuinely believing in them, to forget any fact that has become inconvenient, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies — all this is indispensably necessary. Even in using the word doublethink it is necessary to exercise doublethink. For by using the word one admits that one is tampering with reality; by a fresh act of doublethink one erases this knowledge; and so on indefinitely, with the lie always one leap ahead of the truth.”

But the greatest Truman Show weirdness comes from the rest of us, driving away, listening to the radio.

That was Fortune Magazine quoting me on January 28, 2011, regarding the escalation of Overstock’s claims against Goldman Sachs, in an article entitled, “Nastiest CEO lashes out at Goldman”. The title underscores their sympathies and journalistic objectivity.  Displaying identical logic and equanimity there were, perhaps, similar “Nasty Belgians Lash Out at Fatherland” articles in the Nazi press of May, 1940.

Expecting Fortune Magazine to provide critical reporting of Wall Street in this first decade of the 21st century would be like expecting  Sports Illustrated to provide critical reporting on Michael Jordan in the last decade of the 20th century. They cannot: it’s a fan-mag. But Fortune‘s choice of title betrays its orientation more clearly than a dozen deconstructions of my own could accomplish.

One should note, however, that beneath its hysteria there are two facts on which Fortune Magazine is reporting. Those facts are:

1.       As my Overstock colleague Jonathan Johnson, Esq., put it, “Recently discovered revelations of concerted action among certain market makers and these two brokerages necessitate that we amend our complaint to include additional claims. We expect that this conduct of Goldman Sachs and Merrill Lynch is fully actionable under anti-racketeering laws.”

2.       I wish to make Goldman Sachs explain its actions not to a White House to which Goldman is the largest donor (“Goldman Sachs was top Obama donor“, CNN, April 2010); not to FINRA, its own industry’s self-regulating body in which Goldman is the dominant member (“Goldman Action Highlights FINRA Facade“);  not to an SEC which has been hopelessly captured beyond repair (“Why Isn’t Wall Street in Jail?“, Matt Taibbi, Rolling Stone); not to members of the Senate Banking Committee from both sides of the aisle (“Goldman Sachs Congressional Inquisitors Also Beneficiaries of Firm’s Financial Largesse“). I simply want to see Goldman to explain itself to 12 Americans whom they don’t own.

Because Fortune Magazine is allergic to both of these facts, this is how they treat them:

1.       Regarding the escalation of our lawsuit to RICO, Fortune provides this anodyne description: “Overstock said it made a filing with a New Jersey court allowing it to seek triple damages in its 2007 suit against the brokers.” In comparison, note how the same fact was treated by various news organizations whose business model is not tied to  regular and profound supplication before Wall Street:

a.       Reuters:  ”Overstock accuses Goldman. Merrill of racketeering. Overstock says RICO charges apply in case” (December 16, 2010).

b.      Associated Press: “Overstock adds RICO claim to short-sale suit: Overstock.com Inc. said Thursday that it sought to add racketeering charges against Goldman Sachs and Merrill Lynch….” (December 16, 2010)

c.       Benzinga:  “Overstock Adds RICO Claim To Goldman Sachs/Merrill Lynch Suit: As a result of evidence gathered through discovery in its prime brokerage lawsuit, Overstock.com, Inc. has filed a motion in California State Court to amend the suit to include claims under New Jersey’s Racketeer Influenced and Corrupt Organizations (RICO) Act.” (December 16, 2010).

d.      TechRockies: “Overstock Sues Goldman Sachs, Merrill Lynch Over Racketeering” (December 17, 2010).

e.      Benzinga: “Goldman Sachs Engaged In Interstate Racketeering, Says Overstock’s Patrick Byrne” (February 15, 2011).

2.      Regarding my insistence that Goldman answer for itself within the one system it cannot rig, Fortune’s title and subtitle say it all: “Nastiest CEO lashes out at Goldman: It is hard to know who (sic)to root for in this one”. Overstock conducted four years of discovery,  obtained documents to support a RICO action, and filed that RICO action, which in the eyes of Fortune Magazine makes me a “nasty CEO” who is “lash[ing] out” against Goldman Sachs. The thought of poor, defenseless Goldman Sachs having to answer to 12 Americans whom they don’t own and cannot buy clearly gives Fortune Magazine’s staff the vapors.

It is the thesis of DeepCapture that the banksters have hijacked not just the regulators and  industry self-regulators, but the politicians who oversee them, the academics who serve them, and much of the New York-based financial press. Of this observation Fortune once again provides fine confirmation. I am sure that Soviet apparatchiks could have wished for no more supine and obedient press coverage from their own state media services as Goldman Sachs (and by extension, Merrill Lynch) have received here from Fortune Magazine.

“About a year ago I attended a meeting of the P.E.N. Club, the occasion being the tercentenary of Milton’s Aeropagitica — a pamphlet, it may be remembered, in defense of freedom of the press. Milton’s famous phrase about the sin of ‘killing’ a book was printed on the leaflets advertising the meeting which had been circulated beforehand.

“There were four speakers on the platform. One of them delivered a speech which did deal with the freedom of the press, but only in relation to India; another said, hesitantly, and in very general terms, that liberty was a good thing; a third delivered an attack on the laws relating to obscenity in literature. The fourth devoted most of his speech to a defense of the Russian purges. Of the speeches from the body of the hall, some reverted to the question of obscenity and the laws that deal with it, others were simply eulogies of Soviet Russia… political liberty was not mentioned… Significantly, no speaker quoted from the pamphlet which was ostensibly being commemorated…

“There was nothing particularly surprising in this. In our age, the idea of intellectual liberty is under attack from two directions. On the one side are its theoretical enemies, the apologists of totalitarianism, and on the other its immediate, practical enemies, monopoly and bureaucracy. Any writer or journalist who wants to retain his integrity finds himself thwarted by the general drift of society rather than by active persecution. The sort of things that are working against him are the concentration of the press in the hands of a few rich men, the grip of monopoly on radio and the films…Everything in our age conspires to turn the writer, and every other kind of artist as well, into a minor official, working on themes handed down from above and never telling what seems to him the whole of the truth… In the past, at any rate throughout the Protestant centuries, the idea of rebellion and the idea of intellectual integrity were mixed up. A heretic — political, moral, religious, or aesthetic — was one who refused to outrage his own conscience. His outlook was summed up in the words of the Revivalist hymn:

Dare to be a Daniel
Dare to stand alone
Dare to have a purpose firm
Dare to make it known

“To bring this hymn up to date one would have to add a “Don’t” at the beginning of each line.”

Orwell’s disappointment in the meek conformity of the writers of his day mirrors DeepCapture’s in the business journalists of our own. A close reading of much of what has passed for business journalism in recent years reminds one of nothing so much as Soviet-era artists dutifully churning out dozens of murals of square-jawed workers striding boldly into the future, or hack reporters extolling the virtues of this or that ball-bearing plant, perhaps criticizing the occasional apparatchik who has fallen from favor with the masters, but entirely incapable of independent thought which questions the system itself, a system in whose benefits those reporters derive modest share.

As will be remembered by anyone who experienced that totalitarian era first-hand (as I did, living in mainland China for 12 months in 1983-1984), this ideological correctness generally expresses itself in a eagerness to confront with pronouncements, coupled with an incapacity to engage in even the mildest form of real debate.  I will illustrate this point by publishing an exchange I had some months back with the SABEW Pooh-Bahs, after I had submitted my application to SABEW wearing my DeepCapture.com (“2008 Weblogs Award for Best Business Blog”) journalist’s hat.

———————————————————————————————-

From: Dare, Donna D. [mailto:DareD@missouri.edu]
Sent: Saturday, January 24, 2009 11:49 AM
To: Patrick Byrne
Subject: Regarding Your Application for SABEW Membership

January 24, 2009

Patrick Byrne, Journalist

Deepcapture, LLC

I regret to inform you that your application for membership in the Society of American Business Editors and Writers Inc. has been denied.

The Membership Committee could not ascertain that your primary career responsibilities fit the criteria for membership.  You may submit evidence to support your application, such as story clippings or audio- or videotape.

Criteria for membership in SABEW (as stated in the organization’s bylaws) is as follows:

Membership in the Society shall be restricted to persons for whom a significant part of their occupation involves writing, reporting, editing or overseeing business, financial or economic news for newspapers, magazines, newsletters, journals, books, press or syndicate services, radio or television, online publications, or other media approved by the board and to teachers and students of business journalism or business media subjects at recognized colleges or universities or other organizations approved by the Society’s Board of Governors.  Members may retain full membership status, after being assigned to another news position at news organizations, even if the new position is not directly involved in business news.

If, in the future, you meet the criteria, we would be happy to reconsider your application for membership in SABEW.

If you wish to appeal this decision, please contact the SABEW office at sabew@missouri.edu.

SABEW did not process (and has destroyed) your credit card information submitted with the membership application on 1-18-09.

Thank you for your interest in SABEW.

Sincerely,

Donna Dare

SABEW Membership Coordinator

Ph:  573-882-7862

Email: dared@missouri.edu

www.sabew.org

———————————————————————————————-

From: Patrick Byrne [mailto:PByrne@overstock.com]
Sent: Saturday, January 24, 2009 8:00 PM
To: SABEW; Dare, Donna D.
Subject: RE: Regarding Your Application for SABEW Membership

Donna Dare

SABEW Membership Coordinator

Dear Ms. Dare (& SABEW Membership Appellate Court),

I thank you for the courtesy of your response denying my application for membership in SABEW. Respectfully, however, and per your letter, I am writing to appeal this decision on the grounds that the reason you gave in your letter is not, in fact, supported by the bylaws from which you have quoted. The inconsistency can be seen in these two points:

*    In denying my application you wrote, “The Membership Committee could not ascertain that your primary career responsibilities fit the criteria for membership.”

* The paragraph from your organization’s bylaws you have cited in support of this position reads: “Membership in the Society shall be restricted to persons for whom a significant part of their occupation involves writing, reporting, editing or overseeing business, financial or economic news for newspapers, magazines, newsletters, journals, books, press or syndicate services, radio or television, online publications, or other media approved by the board and to teachers and students of business journalism or business media subjects at recognized colleges or universities or other organizations approved by the Society’s Board of Governors.  Members may retain full membership status, after being assigned to another news position at news organizations, even if the new position is not directly involved in business news.”

As one can plainly see, in denying my application your membership committee has referred to “primary career responsibilities” as the standard. This position is not supported by the bylaws you have cited, which instead state that membership will be restricted “to persons for whom a significant part of their occupation involves…” These are clearly two quite different standards.

You have also written, “You may submit evidence to support your application, such as story clippings or audio- or videotape.” Towards that end, I submit the following:

1.      “The Darkside of the Looking Glass” – This online lecture and PowerPoint explanation of settlement failures in our equity system has been downloaded well over 1 million times, including over ten thousand times from IP’s associated with news organizations, and over 30,000 times from IP’s associated with the federal government.

2.      “Deep Capture: The Movie” – This presentation, performed in October, 2007 in front of 800 hedge funds and members of the press, has been viewed over 50,000 times.

3.      The website I founded, DeepCapture.com , has recently received the 2008 Weblog Award for the #1 Business Blog on the Internet (this is, in fact, the largest blog poll in existence).

4.      My individual writings are organized there as, “Deep Capture: The Explanation”, to which your committee may refer.

5.      Here you will find a selection of over two dozen appearances I have made on CNBC, Bloomberg, and Fox Business.  Some of these relate to my corporate duties, but many of these appearances make little to no reference to those duties, and instead seek my opinions on matters of business and economics.

6.      As you are perhaps not aware, my investigation and exposure of deep systemic problems in our nation’s stock settlement system became the subject of a Bloomberg Special Report that was itself nominated for an Emmy, Long Form Investigative Journalism.

In sum, it is clearly correct to say that “a significant part of [my] occupation involves writing, reporting, editing or overseeing business, financial or economic news for … newsletters, … radio or television, online publications…” For this reason, I respectfully challenge the membership committee’s decision and reasoning, as elaborated upon above.

Of course, I am not blind to the possibility that the content of my reporting (much of which is critical of other members of SABEW) is what discomfits the members of the Membership Committee. However, I have reviewed the bylaws of your organization and find no evidence of an ideological standard which applicants must meet. Please inform me if I am in error on this point.

Until then, I remain,

Your humble servant,

Patrick M. Byrne, PhD

Journalist, DeepCapture.com

———————————————————————————————-

From: Kevin Noblet [mailto:kevin_noblet@hotmail.com]
Sent: Monday, January 26, 2009 9:01 AM
To: Patrick Byrne
Cc: Donna Dare
Subject: RE: Regarding Your Application for SABEW Membership

Patrick:

Donna forwarded your message to me. In SABEW’s view, not all business blogs qualify as news publications just as all writing and editing doesn’t qualify as journalism. From its standpoint your activities and those of DeepCapture seem closer to corporate public relations, and SABEW isn’t open to PR professionals _ or of course to retail business executives.

I hope this makes the decision clearer.

Donna also had forwarded me Judson Bagley’s message and I responded to him along similar lines.

Regards,

Kevin Noblet

Secretary and Membership Committee Deputy Chair
SABEW

From: Patrick Byrne
Sent: Monday, January 26, 2009 4:36 PM
To: knoblet@pobox.com
Cc: Donna Dare
Subject: RE: Regarding Your Application for SABEW Membership

Kevin,

Respectfully, could you explain how DeepCapture is “corporate public relations”? We are performing analyses on data that no one else has obtained; these analyses are requested by national news organizations and numerous congressional reps, senators, and various other federal bodies; our  analyses of flaws in the nation’s settlement system have become fodder for numerous congressional demands of the SEC; our publication of secretly-recorded tapes of journalists planning a cover-up, and our unearthing of emails documenting the relationships among hedge funds and journalists, are apparently of strong interest to many others in this profession (judging from the volume of traffic we get from news organizations).  Clearly, the vast majority of DeepCapture’s activities have precisely 0 to do with my corporate day job as a “retail business executive.”

Is this truly the fig leaf behind which your organization is going to hide? Why not write into the bylaws a rule which demands ideological purity? It would save all this back-and-forth at least.

Regards,

Patrick

———————————————————————————————-

Then, as no answer was forthcoming (or ever came), I then sent this:

———————————————————————————————-

From: Patrick Byrne
Sent: Wednesday, January 28, 2009 1:23 PM
To: ‘knoblet@pobox.com’
Cc: ‘Donna Dare’
Subject: RE: Regarding Your Application for SABEW Membership

Dear Kevin,

Here is some more of that “corporate public relations” you don’t want to miss. This one is from Mark Mitchell.

Strange Occurrences, and a Story about Naked Short Selling

Regards,

Patrick

———————————————————————————————-

Now the truth is, I did not really have a burning desire to join SABEW. To steal a page from Groucho Marx, I wouldn’t want to join any club that would have SABEW members as members.  That said, I thought it would be interesting to find out if a profession which professes a commitment to toleration and pluralism would display the same commitment it asks of society, or would it respond, as SABEW ultimately did, like apparatchiks threatened by the possibility of criticism? I confess that my interest was pretty negligible, so confident was I in the likely result, but I did think it a box worth checking off.

As I mentioned, this past week the SABEW conference in Denver went on without me. Something occurred there, apparently unscripted, which reminds me of the aftermath of Jim Cramer’s appearance on Jon Stewart’s The Daily Show. In any earlier age Cramer’s exposure there would have meant his disappearance from public life and, possibly, the tarnishing of his network beyond recovery, but ours is an age in which shame and accountability are wholly absent (as P. J. O’Rourke wrote, “If you say a modern celebrity is an adulterer, a pervert and a drug addict, all it means is that you’ve read his autobiography.”) Since that night, Cramer has publicly spun his appearance along the lines of, They say we could have done more to see this coming, and in the future we’ll try harder, apparently banking on the fact that many people did not see, or will not remember, what really happened: Jon Stewart dismembered Cramer not for “not trying hard enough”, but instead, for taking part in crimes such as stock manipulation, and for relying upon shill journalists in his schemes to cheat the public. Those are two quite different things, and in any sane world, Cramer would not be permitted to rewrite history so effortlessly.

By press accounts, this past week’s SABEW Denver conference saw the apparatchiks employing the same kabuki dance, the same confessions and self-criticisms directed to the wrong issues. On April 27, this Reuters story appeared (“Did the Watchdog Forget to Bark?” ) describing the scene:

“The opening panel at the Society of American Business Editors and Writers annual meet in Denver addressed an interesting question: Did 9,000 business journalists blow it when it came to ringing the alarm bells on the financial meltdown?

The five SABEW panelists — The New York Times’ business editor Larry Ingrassia, Columbia Journalism Review critic and former Wall Street Journal reporter Dean Starkman, personal finance columnist Jane Bryant Quinn, Emmy-winning former ABC News investigative reporter Allan Dodds Frank and Greg Miller, a professor at the University of Michigan — agreed that the financial press could have done more. Newspapers, wire services, magazines and television stations could have been more aggressive…”

On that same day The Colorado Independent (“A Center for Independent Media”) wrote, “Business Reporters Confess News Sins While the US Economy Collapsed“.

“In a windowless room at the Westin Hotel in downtown Denver, leading business journalists and editors explained how the media “blew it” in covering the economic meltdown. They admitted, on one hand, to falling under the sway of free-market ideology and celebrating risk-taking financial leaders and, on the other, to missing the complex story of the rupturing system by only reporting it in parts and to almost no effect for the past decade.

Although not planned as confession, the discussion, which kicked off the annual conference of the Society of American Business Editors and Writers (SABEW), quickly descended into an unburdening, with the panelists taking turns voicing their own explanations and excuses for the failure. Former Wall Street Journal managing editor and current ProPublica.org chief Paul Steiger moderated the impromptu journalistic penitence.

‘We drank the Kool-Aid,’ said Jane Bryant Quinn, personal finance columnist for Bloomberg and Newsweek. ‘We believed that free markets were the best kind [of markets].’ She said it had become ‘unfashionable’ over the last three decades to write about regulation, so they didn’t.”

Apparently, as far as SABEW’s membership is concerned, the events of recent months reflect only a lack of being suitably “aggressive”, of not “hav[ing] done more”, and, as always, of having been taken in by “free-market ideology.” Those are the issues over which SABEW members now wring their hands, it being apparently unthinkable (just as it is with Jim Cramer) that some of their membership deeply transgressed all notions of journalistic ethics by growing so close to favored hedge fund sources that they became shills (e.g., Bethany McLean), and when their sources committed crimes, those journalists threw the credibility of their publications into denying, downplaying, masking, and apologizing for that crime (and now, on the basis of little evidence and no investigation, prematurely declare it resolved, as Floyd Norris did yesterday).

In Capitalism, Socialism, and Democracy, Joseph Schumpeter wrote, “Capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever defense they may hear.” Schumpeter neglected to mention that to this same jury, the possibility that the enforcement of regulation has been compromised due to the subversion of the mechanisms of enforcement, from the exchanges to the regulators to the politicians to, most disturbingly, the intellectual class itself (in particular, those who count themselves members of SABEW), is a possibility which that jury finds unthinkable, quite literally, and in the purest Orwellian sense.

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) write SABEW’s Donna Dare and Kevin Noblet (DareD@missouri.edu and knoblet@pobox.com) asking them to make explicit the ideological policies to which SABEW demands its members conform (and please post as a copy of your email to them in the comment section below);

3) go here for additional suggestions: “So You Say You Want a Revolution?“

(draft only)

I now turn to Gary Weiss. Last year one of the most prominent journalists on Wall Street warned me, “I’ve known Weiss for years. Be careful. He’s a psychopath.” As you will see, he was neither joking nor exaggerating. I think, however, that Gary is better described as a “Scaramouch.”

In a series of brilliant investigations, Judd Bagley, a reporter-investigator-technologist friend of mine (and more recently, I am proud to say, a colleague) studied the IP footprints Gary’s computers have left scattered across the Internet for over a decade, and posted his extraordinary analyses of them on his cleverly-titled site, “Antisocialmedia.net”. Judd’s posts are as disturbing with regard to what they reveal about our society’s discourse, as they are regarding the activities of Gary himself.

It is a complex story that I recount below in as clear and straightforward a manner as I can muster. The best way for me to do that is to break it into 7 short stories. Embedded within each are links to carefully documented research . I respectfully suggest the reader try to understand these as individual stories, before synthesizing them into one complete picture.

#1) Gary’s start in social media

Gary started with simple Usenet group posting in the mid 1990′s, often making productive contributions to newsgroups devoted to matters Judaic. However, as this analysis shows, by the late 1990′s Gary had become a chronic “sock-puppeter,” that is, he maintained a stable of identities and personalities under which he could post in order to steer conversations to his ends (Gary even posted anti-Semitic statements that he could then respond to under other names). Another user caught Gary red-handed and confronted him. Establishing a pattern that would become Gary’s hallmark, when he was caught red-handed Gary Weiss practiced the “deny-deny-deny-then-disappear” school of personal responsibility.

Another pattern of Gary’s emerged as well: that of accusing anyone who disagrees with him about anything as being anti-Semitic. One person whom he has accused of hundreds of times of anti-Semitism complained to the Anti-Defamation League. Showing immense class, the ADL looked into it all and dismissed Gary out-of-hand. Notwithstanding this, Gary continues to level this allegation against that same man (under the assumption, presumably, that he understands anti-Semitism better than the ADL).

#2) Gary’s manipulation of Amazon reviews

For years Gary posted numerous reviews on Amazon praising his own books and trashing the work of other business journalists, as this analysis shows. While Gary’s sock-puppets trash other journalists (e.g., Charles Gasparino), there is one journalist whom he never bashes, but whom he uses his sock-puppets to promote: Jim Cramer. Hilariously, though they were supposed to be the work of various disinterested strangers, Gary’s sock-puppets’ glowing Amazon reviews of his own work began disappearing the moment Judd began exposing Gary’s methods.

#3) Gary goes beserk against another journalist and that journalist’ wife at the United Nations

The following remarkable history is recounted, with thorough documentation, on these two posts.

a) Ian Williams, a British journalist, was president of the United Nations Correspondents Association (UNCA) and UN correspondent for The Nation. Mr. Williams’ wife, a BBC World Service journalist (and native of Uzbekistan), also held a position within the UNCA.

b) Gary’s wife (an Indian national holding herself out as a correspondent for the Indian newspaper The Pioneer of India) applied to work within the United Nations Correspondents Association. To be admitted to the UNCA she had to demonstrate that she was in fact a journalist who covered the UN. Towards that end she submitted copies of her stories from the front page of The Pioneer of India, along with a letter from The Pioneer‘s editor, Chandan Mitra, attesting to her employment there. On that basis she was admitted to the UNCA and began working in the UN offices in Manhattan.

c) Gary’s wife coveted the UNCA position above her that was then held by Ian Williams’ wife. Gary attempted to dislodge Ian Williams’ wife from that position by claiming that Mrs. Williams had lied in order to get her visa to enter the US, so as to create an opening which his own (Gary’s) wife could take. Gary’s allegations proved false.

d) Journalists at the UNCA noticed that the stories which Gary’s wife was regularly submitting from The Pioneer to document her ongoing UN coverage were of identical size and location on the front page of The Pioneer. A bit of investigation proved that they were all forged, and had been photo-shopped on a computer. The Pioneer was contacted, and its Editor Chandan Mitra stated that Mrs. Weiss had “never been engaged by The Pioneer for any purpose,” his signature on her documentation was “an outright forgery,” as was the letterhead upon which it had been generated. Simply put, Gary’s wife was a fake : she never was a reporter for The Pioneer of India. Gary’s wife’s UN credentials were revoked and she was escorted from UN premises under armed guard.

e) Within days of the exposure of Gary’s wife and her being escorted out of the UN, Gary was on Amazon writing reviews under the name “Ted Dichtler” trashing Ian Williams’ work, and within 30 days, had founded “Mediacrity,” a blog putatively devoted to media criticism, but actually largely engaged in (anonymously) hammering away at journalist Ian Williams for being “a fourth rate hack” and continuing the demonstrably false smears against Ian Williams’ wife.

f) It should also be noted that when confronting a man on a Usenet group, Gary posted that man’s wife’s name and home address. Pretty sleazy (although the man in question was a bigot, I think good manners demand that one not get even with a guy by revealing his wife’s name and address). In contradistinction to Gary, however, Judd, ever the gentleman, wrote:

“AntiSocialMedia.net has issues with Gary Weiss, not his wife. As it happens, one of the more startling examples of abuse of social media we’ve discovered anywhere and the central theme of this, the third part of this series on Gary Weiss – cannot be told without making reference to that relationship. However, because her identity is ultimately not material to this situation, we shall only refer to her as ‘Mrs. Weiss’ (though Weiss is not her real last name) and have set this site’s comment filter to immediately reject any comments that contain either her first or last name. Comments containing any other personally identifying information belonging to Mrs. Weiss will be immediately deleted and the commenter barred from further use of this site.”

I will follow the same principle here on DeepCapture.

g) Aside from the general zaniness of the story, there are at least two take-aways from this:

i) Gary had accused Mrs. Williams of lying to get her visa, but those accusations were false. Gary did this while Gary’s own wife was forging her credentials, which credentials were the basis of her own employment at the UN. Thus, Gary and his own wife were engaged in the act of which they were falsely accusing another journalist’s wife. That act takes a sociopath (e.g., the kind who could post anti-Semitic comments while continuously accusing others of anti-Semitism).

ii) What was Mrs. Weiss doing for those years when she was given access to the UN, under the guise of being a correspondent for The Pioneer of India?

#4) Gary manipulates stock message boards

Gary also stays busy posting thousands of times per year on stock message boards, as this remarkable piece by Judd exposes. Gary’s stock message board sock-puppeting and “bashing” sometimes involves switching among 6 sock-puppets while going at it for over 24 hours at a stretch, in a remarkable display of intensity and duration. What an odd “hobby.” Curiously, the stocks with which he concerns himself generally mirror the positions of Jim Cramer, Roddy Boyd, Bethany McLean, Herb Greenberg, Carol Remond, etc.

If only there were a pattern…

#5) Gary Weiss, Pyschopath: The Prequel

At this point you are probably wondering, “Who in the hell is Gary Weiss?” Allow me to give you seven pieces of background, a-g.

a) In the 1990’s, Gary made a name for himself with a BusinessWeek series exposing the Italian Mob (in particular, the Gambino Crime Family) and its infiltration of Wall Street. Bravo. But he relied heavily on two sources. One journalist who interviewed them told me that after debriefing them, and examining materials they supplied, “I can safely say that Gary Weiss built his career in the 1990’s just typing up whatever two sources gave him.”

b) In the mid-1990’s a Forbes reporter based in Russia named “Paul Klebnikov” wrote an expose called, “The Godfather of the Kremlin?” about an alleged Russian Mafia figure named Boris Berezovsky.

c) In 1999 Al Chalem and Laier Lehmann, two New Jersey stockbrokers operating a New Jersey securities firm called “Harbor Securities,” were executed in a New Jersey mansion. The same two sources who had supplied Gary so much other material presented him with evidence that this time it was not the Italian Mafia, but the Russian Mafia, and in particular, Boris Berezovsky. Gary then ran a story that (they maintained) fabricated everything they had told him in an attempt to divert attention from Russian involvement and focus it on (in this case non-existent) Italian Mob involvement. One of Gary’s sources actually sued Gary in an attempt to get public that which he felt Gary was suppressing.

d) In 2000, Forbes’ Paul Klebnikov completed a book, The Godfather of the Kremlin. It reiterated his earlier allegations about Mr. Berezovsky, but without the question mark. Quickly there appeared a series of anonymous Amazon reviews trashing Mr. Klebnikov’s book and discounting its conclusions. On the same days these reviews appeared on Amazon, Gary had a rash of positive reviews of his work. This and the language of the reviews trashing Mr. Klebnikov’s work raise an obvious question: if these startling coincidences of timing were not in fact coincidences, why was Gary adding to his normal routine (that is, going on Amazon with sock-puppets to promote his own work) the additional labor of trying to discredit the work of a Forbes journalist (Paul Klebnikov) who was trying to expose the Russian Mob? And is this related to the claim of his own two sources that his coverage of the execution of the two stockbrokers was designed to move attention away from the Russians and onto the Italian Mob?

e) On July 9, 2004, Paul Klebnikov was assassinated leaving the Moscow offices of Forbes.

f) Days later in July, 2004, Gary left BusinessWeek. If you ever want to shut a BusinessWeek reporter up, ask, “What were the circumstances surrounding the departure of Gary Weiss from BusinessWeek?” In a notoriously gossipy crowd, it is a closely guarded secret.

g) One of the first things Gary seems to have done after departing BusinessWeek was to join Project Klebnikov, “The global media alliance investigating the July 9th, 2004 murder of Paul Klebnikov, the editor-in-chief of the Russian edition of Forbes magazine.” I’ll bet O.J. Simpson finds his wife’s real killer before Gary solves that investigation.

#6) Gary covers-up for the DTCC from within DTCC offices:

Speaking of strange places from which to post: at the heart of our nation’s stock settlement system, and hence, at the heart of the issues of concern to DeepCapture, is a nearly unknown corporation called “The DTCC.” The company provides settlement for the nation’s capital market: $1.5 quadrillion in trades are settled there every year (that is, about 30X the economic output of the entire planet). For most of its history it has largely escaped regulation: state regulators are admonished that they cannot peer inside because the DTCC is federally regulated, and the DTCC has told federal regulators it escapes their regulation due to its strange ownership structure (one former federal regulator, and one former employee of the DTCC, have both told me the feds would not know where to begin if they tried to regulate it).

In short, at the heart of the world’s economy is an enourmous black box that is regulated except on the days it’s not, and through which 30X the economic output of the world flows. It is my contention that much of Wall Street’s illegal activity is funneled through this strange entity.

The huge, nondescript building in downtown Manhattan that houses the DTCC is something of a Fort Knox. Long-gun toting guards watch the entrances, and journalists who have been inside tell me that entering it is tougher than getting into the Federal Reserve or any comparable institution.

Gary recently made a slip that revealed he was inside the offices of the DTCC, using one of their computers to post on Wikipedia about the DTCC. Given that it’s like getting into Fort Knox, I’m pretty sure that’s odd. However, it casts some light on why Gary has been stridently denying that the DTCC is dirty and that none of the issues I have been raising regarding stock market manipulation are legitimate, and why he has (according to a colleague of his in the financial press sympathetic to me) devoted 93% of his blogs to criticizing my efforts to expose the illegal Wall Street activity which, I claim, intersects within the DTCC. Just as interestingly, when given opportunity to comment, the DTCC went into cover-up mode straight out of Bizarro World.

#7) The Finale

The following heavily-documented story qualifies as “mind-blowing.” It is so extraordinary, in fact, many people find it almost impossible to synthesize. Therefore I am going to tell it by first giving a three paragraph synopsis, then by recounting the story in 14 steps, a-n, with documentation for each.

The synopsis:

The intellectual battle over the existence of criminal naked short-selling has been won. As is demonstrated throughout DeepCapture, what was dismissed three years ago as a fringe theory is now no longer in serious dispute. There is an ongoing criminal prosecution and regulators and SRO’s have recently imposed multimillion fines over it. Papers by academic and government economists have confirmed it and reputable journalists have broken news stories concerning its effects. A Bloomberg documentary concerning naked short selling was nominated for an Emmy for long-form investigative journalism. Last summer SEC Chairman Christopher Cox aknowledged that it is real and illegal. Just last week, SEC Chairman Cox again publicly and matter-of-factly discussed the reality of this crime in a hearing at the United States Senate, in answer to sharp questioning from US Senator Bob Bennett. Earlier this week, Dr. Robert Shapiro, a Fellow of the National Bureau of Economic Research, Brookings, Harvard, and a former US Undersecretary of Commerce for Economics, explained the reality and implications of this crime on Canada’s Business News Network (start at minute 17).

Yet throughout the evolution of this awareness, the Wikipedia page on naked shorting has fought a steadfast rearguard action. It will be a matter for a future historian to reconstruct in detail, but at all times the thrust of that page has been to deny and deride the emerging understanding of the issue. Since the time when complete denial became impossible, it has labored mightily to minimize the problem of naked short-selling and all the attendant issues discussed in Deep Capture, citing every critic (Gary Weiss, Floyd Norris, Joe Nocera, and Holman Jenkins of the WSJ) while allowing only barest mention of the positive attention it has received from investigative journalists and economists.

I believe that the chief reason this happened was because Gary Weiss used the name “Mantanmoreland” (and later, “Samiharris”) to hijack the Wikipedia articles on naked short selling, Patrick Byrne, and Overstock.com (as well as the page on Gary Weiss himself). In addition, all the mechanisms within Wikipedia which are supposed to prevent such an act were subverted by Wikipedia’s elites on Gary’s behalf. Judd exposed Gary within Wikipedia, but Wikipedelites suppressed Judd’s evidence. When he began posting it off-Wikipedia on AntisocialMedia.net, Wikipedelites fought to make mention of “Antisocialmedia.net” or “Judd Bagley” a thought-crime within Wikipedia (under the spurious reasoning that someone mentioning either of them had to be a sock-puppet of Judd). Hence, no evidence contrary to official doctrine was permitted at “the free encyclopedia that anyone can edit.” However, evidence slowly circulated within the Wikipedia-in-Exile-community until the conventional Wikipedians began looking into Gary. Wikipedia ‘s founder Jimbo Wales did everything possible to stop their investigation, although it turns out he knew all along that Judd was right. It has turned into a civil war within the Wikipedia community.

I turn take the paragraph immediately preceding this one, and serve its full story, cut into 14 bite-sized pieces, a-n.

The evidence:

a) Judd posted evidence that Gary was manipulating Wikipedia under the name “Mantanmoreland” (and later, “Samiharris”).

b) When confronted, Gary denied it, saying, “Similarly [Judd Bagley] continues to publish the lie that I am this ‘Mantanmoreland’ long after it was, again, denied by both myself and Jimbo Wales of Wikipedia.”

c) Judd sent evidence to a Wikipedia uber-administrator named “SlimVirgin,” who was posing as a neutral arbiter. However, as this demonstrates, when SlimVirgin received Judd’s evidence she immediately forwarded it to Gary (without even opening it herself).

d) A community debate ensued over whether Mantanmoreland was guilty of a Conflict Of Interest violation when he created and dominated the “Gary Weiss” page (i.e., whether or not he was in fact Gary Weiss). A highly regarded Wikipedia figure named “Cla68″ (apparently a former military officer living in Asia with encyclopedic knowledge of so many subjects that he is revered within Wikipedia) got close to taking sides against Gary. In a step that was extremely unusual given Wikipedia’s philosophies of transparency and strict retention of all sides of a debate, Wikipedia-founder Jimbo Wales personally intervened to delete the record of the debate. As Jimbo Wales wrote:

“The page contained wildly inappropriate speculation that a notable author was sock-puppeting. As I am sure you are aware, many authors have had their careers badly damaged by being caught sockpuppeting at Amazon, etc., and it is deeply wrong for people to ask me to restore a page with such speculations in Wikipedia after the claims have already been investigated and dismissed. If there are further problems in the future, there will be no problem restoring the article at that time. In the meantime, it is my position that MOST AfD pages for living persons or active companies should be courtesy blanked (at a minimum) as a standard process, and deleted in all cases where there was inappropriate commentary. This is not the current policy, but current policy does allow for deletions of material which is potentially hurtful to people.–Jimbo Wales 01:42, 13 November 2006 (UTC)”

e) Taking things to an Orwellian extreme the “ArbCom” (“Arbitration Committee”) attempted to pass a “BADSITES” policy prohibiting mention of “Judd Bagley” and “antisocialmedia.net,” the site Judd had started to post evidence as he gathered it (all evidence having been prohibited within Wikipedia itself). The debate ran for many weeks, but throughout it, it was prohibited even to name “Judd Bagley” or “antisocialmedia.net.” That is, for many weeks a debate raged in which the accused (Judd Bagley and his site antisocialmedia.net) could not be named, nor was the accused allowed to have a voice, nor were dissenting opinions permitted (on the grounds that anyone who wrote one must be a sock-puppet of the accused). All this happened on Wikipedia, “the free encyclopedia that anyone can edit.”

f) Throughout that process, anyone trying to mention Judd or Antisocialmedia.net, or positions supported by either, was banned as a Wordbomb sock-puppet (note the circularity of this position: WikiTruth demands that Goldstein be banned, and anyone sounding like he might agree with Goldstein will be banned, because clearly, he must be a sock-puppet of Goldstein. Hey, it worked in 1984, right?)

“Any user who creates links to the attack site or references it (other than in the context of this Arbitration) may be banned.”

g) Eventually, this was actually proposed as a matter of official policy for Wikipedia (“the free encyclopedia that anyone can edit.”)

“After warning, or without warning in the case of users familiar with the issue, users who link to the attack site or reference it may be blocked for an appropriate period of time.” (emphasis added)

h) As if that were not enough, in an attempt to prevent Judd Bagely from pointing out to observers the manifest circularities, fabrications, and sheer Orwellianism of the BADSITES debate, Wikipedia blocked Overstock and 1,000 homes around Judd Bagley’s neighborhood, as was exposed in this article that appeared in the well-regarded online British tech journal, The Register.

i) That effort collapsed of its own foul weight. However,  as this other investigative piece in The Register exposed, it did spawn the creation of a secret email list for Wikipedia elites wherein they plotted how to shape the discourse within Wikipedia.

j) Just when you thought this story could not be any weirder, an email has surfaced that was written by Jimbo Wales in September, 2007 at the start of this conflagration, where he admitted already believing that Mantanmoreland was Gary Weiss (this exchange occurred on another of those secret elite-only email lists):

Mantanmoreland@gmail.com: “…I am not going to reveal my real identity to prove that just because Judd Bagley is making a fuss. Rest assured that after all that has happened I am more determined than ever to not reveal my real identity to any person associated with Wikipedia.”

jwales@wikia.com(Jimbo Wales): “I just want to go on record as saying that I believe the reason for this is that Mantanmoreland is in fact Gary Weiss.”

k) Despite this private admission, Jimbo spent the next four months publicly defaming Judd and intimidating anyone who explored Gary Weiss’s activities on Wikipedia. For example, he wrote to the renowned Wikipedian Cla68:

“I fear that you have been manipulated by lying stalkers and trolls, and I am happy to talk to you about it privately, but I am sick of the drama around this issue on this page, and it absolutely has to come to an end…– Jimbo Wales 01:32, 21 October 2007 (UTC)”

l) Despite Jimbo’s opposition (and in the face of his attempts to derail it), over the last two weeks the Wikipedia community has to its credit performed exhaustive analysis of the Mantanmoreland account (as well as “Samiharris”, an additional Gary Weiss sock-puppet) and come down overwhelmingly in favor of Judd’s original thesis.

m) Even in that setting, Wales again attempted to derail the process and deny his earlier recognition of a link between Gary Weiss and Mantanmoreland. Here Jimbo dances on an arcane postmodern distinction between “knowing” and “believing it is a fact that” (in this context it’s a distinction without a difference, Jimbo). Jimbo’s statement is a compendium of fallacies from Logic 101 (e.g., argument from authority, ignoring contravening evidence, ad hominem attacks, non sequiturs, and straw-man rebuttals).

“Because there has been unseemly and false speculation in some quarters that I know this (or related claims) to be true, and that I have admitted as such in private forums, it is important for me to state what I know and what I don’t know.

“Claims about Mantanmoreland being author Gary Weiss have been floating around for a long time. Various claims of ‘proof’ have been made, none of which I have found convincing. At times I have believed one way, at times I have believed another way. I have investigated the claims to the best of my ability and I have been unable to find proof one way or the other.

“An email I sent to Mantanmoreland and others has been widely quoted as evidence that I supposedly ‘know’ this claim to be true. Such interpretations are malarky, and most of the people making the claims appear to me to be acting in bad faith. What I said, at a point in time, was that I believed it to be true that Mantanmoreland == Gary Weiss. This was specifically in the context of a conversation in which I was trying to get more evidence… a proof, one way or the other. Me believing at a point in time in an investigation that something was true, is not the same thing as an assertion that it is true, nor of an “admission” or anything else.

“Mantanmoreland steadfastly denies being Gary Weiss. Ask him yourself if you want to know.

“Related allegations that I am protecting a ‘friend’ are nonsense. Mantanmoreland and I do not get along well at all.

“Related allegations that I have some vested interest in the underlying content dispute are even worse nonsense. I have no opinion about ‘naked short selling’. I have never sold a stock short in my life. I have no financial interests of any kind in this case. If you read anything otherwise, or hints to that effect, on the overstock.com blog or elsewhere, well, I don’t know was else to say but: nonsense. I think such allegations tell more about the people who are making them than anything else.

“Regarding the specific claim at issue here, whether Samiharris and Mantanmoreland are the same user, I can say quite firmly that I do not believe it to be true. I have interacted (argued!) with both users over an extended period of time by private email, and I have not seen any reason to think it true. The offsite ‘evidence’ relating to this comes from a highly questionable source, and furthermore strikes me as completely unpersuasive. For all we know, these are faked screenshots from someone who has engaged in a campaign of harassment and bad behavior (on-wiki and off-wiki) that has been really astounding to witness.

“I have reviewed my email archives to look for similarities between the users. I have examined email headers. I have looked for textual similarities, time patterns, etc. I see nothing to lead me to a conclusion that Sami Harris and Mantanmoreland are the same user.

“For these reasons, I do not believe it to be true that Mantanmoreland == Samiharris. –Jimbo Wales (talk) 02:19, 15 February 2008 (UTC)”

n) All but Weiss’s most dogmatic defenders were silenced, however, when a law student from Chicago published a graph showing the dates and times of all Mantanmoreland’s Wikipedia edits. In it, one can clearly note two things: the rich posting patterns of Mantanmoreland and Samiharris never overlap (statistically, highly improbable); and more importantly, a perfect “phase shift” of precisely the right duration corresponding to a period in which Gary’s own Forbes work revealed him to be in India.

Conclusion

Gary Weiss is a psychopath and a Scaramouch, but this is incidental. Here is the moral of the tale: the great dilemma that journalists face is that they want to be first with a story, but most do not have the nerve to publish a story that is too far ahead of the pack. I believe Gary Weiss went to such effort to hijack these Wikipedia articles because somewhere, someone understands that professional journalists, much as they deride Wikipedia, will never depart more than a few degrees from a Wikipedia consensus. Thus if one can hijack a page so that it simply repeats the accusations of a few co-opted journalists, then rare is the new journalist who will come along and escape that equilibrium. Thus, by hijacking the Wikipedia consensus one can corral much of the industry of modern journalism (this is all the more reason why those few journalists who departed from that consensus over the last year, however meekly or bravely, deserve admiration).

The deeper question, then, is this: how many social institutions have failed when a “journalist” is manipulating the discourse within both the news and social media, and all the mechanisms that should curtail him are short-circuited? Or, more to the point of DeepCapture, trying to drown out a scandal while simultaneously manipulating social media from within the corporation that is at the heart of that scandal?

Postscript: There is a side matter that, in all fairness to Gary, I should mention to condition your reading of what I wrote about him. It is this: I have a lady friend who for 13 years has managed and been part-owner of a superb Italian restaurant in Manhattan. Her restaurant generally receives a Zagat’s rating of 23 or 24 (with a 24-rating being the threshold for the serous foodies). In fact, the restaurant is regularly one of the lowest-priced Zagat-24’s in Manhattan. Its reviews generally range from good to stellar. Weeks after Gary joined Forbes, a harsh, puerile review of her 10-employee restaurant appeared in Forbes magazine. I’m pretty sure that’s odd, too. Because the writing was florid and made no sense it is natural to suspect Gary of having written it (note to Gary: how does a pasta dish like orecchiette taste like it is from Bombay? And “branzino” is Mediterranean sea-bass, which explains why it tastes like fish.) Of course, it could have been just a coincidence that, weeks after Gary began his relationship with Forbes, the magazine suddenly felt the need to review a small Italian restaurant managed by the woman then displaying the unfortunate judgment of dating me (full disclosure: since then she has decided to display better judgment). I don’t really know if Gary was behind it, pursuing a personal vendetta by misusing his position as a journalist to hurt my magnificent lady friend.

But it sure is his style.

If this article concerns you, and you wish to help, then:

1) Let Forbes know how you feel about their columnist by writing Forbes Managing Editor Carl Lavin at clavin@forbes.net (post a copy in the comment section here!);

2) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?“

Managing Editor: Andrew Serwer – aserwer@fortunemail.com

Time, Inc. Communications Director Katy Reitz – Katy_Reitz@timeinc.com

Dear Reader,

When Fortune Magazine contacts me I always respond (excluding unnoticed emails they send at day’s end hours before press-time). Yet Fortune Magazine has refused to comment on  DeepCapture’s documentation of the perfidious behavior of Fortune Magazine Reporter Bethany McLean. Two DeepCapture posts (“Bethany McLean: Your Benefit of the Doubt is Hereby Revoked” and “Rocker Partners and Bethany McLean: the Smarmiest Guys in the Room“) reconstruct how Rocker Partners sought out Bethany McLean to target a firm, took out a large short position 10 days after her cooperation was secured, then doubled down two months later, just three days before Bethany published her hatchet job (a time-line that suggests, of course, that they were privy to the content and timing of Bethany’s article). In addition, Bethany’s  reporting relied heavily upon Spyro Contogouris, a conman, now imprisoned, about whom she spun apologetics while regurgitating his criticisms (criticisms that with the passage of time proved baseless). When the share price of the target company rose, Bethany commiserated with the short-selling hedge fund that had assigned her the story, sending this email:

From: Bethany McLean
Sent: Thursday, March 22, 2007 6:12:48 PM
To: Marc Cohodes
Subject: Re: ffh

Sorry to be a little bad-tempered. This FFH story almost killed me, so I hate hearing that it was pointless. Maybe it’ll be a long, slow thing..

Thinking that Fortune Magazine might be troubled to learn that one of its journalists had provided such white glove service to a hedge fund, I sent Fortune two emails (below) giving opportunity to comment. They have refused. Please read the correspondence below and, if you agree that Fortune Magazine should address these concerns publicly, please let  Fortune know it (following the instructions at the top of this essay).

I thank you in advance for considering this request.

Respectfully,

Patrick M. Byrne

========================================
On Mon, Dec 22, 2008 at 7:03 PM, Patrick Byrne wrote:

Dear Ms. Reitz,

Happiest of holidays.

Last week I sent you a link to an exposé on erstwhile Fortune journalist Bethany McLean. http://www.deepcapture.com/bethany-mclean/

Today DeepCapture posted the sequel: analysis of the trading records of Rocker Partners (a.k.a. Copper River) confirms that Rocker did front-run Bethany’s story, both shortly after she met with Rocker Partners’ representative Richard Sauer (a.k.a. “Lavaman”, himself a former SEC attorney whose federal career seems to mirror Bethany’s approach to journalism), and then again immediately before Bethany published. http://www.deepcapture.com/rocker-partners-and-bethany-mclean-the-smarmiest-guys-in-the-room/

Note the data in that exposé regarding failures to deliver, and the likely provenance of those failures, in my recent critique of a DowJones reporter (“Carol Remond Tells a Joke She Doesn’t Get“).

I am preparing this as a story to be included in an Overstock email that gets sent to 17 million of my closest friends. It would explain that a crooked hedge fund (since imploded) cooperated with a bent reporter to break the law, the reporter used her offices at Fortune to indulge their illegal acts, that Fortune had been warned of this possibility and engaged in a cover-up, and that Fortune practices shill journalism for favored Wall Street elite, many of whom are crooks (a message that will, I expect, resonate). In short, Bethany’s emails and Rocker’s trading records will be used to demonstrate how the standards of journalism evinced by Fortune are more bent than a streetwalker’s stumble.

I understand the legal ramifications of suggesting to 17 million Americans that Fortune has taken part in a criminal conspiracy, of course, and will happily provide our lawyers’ address for receipt of service, upon request.

On the other hand, an abundance of journalistic caution leads me to contact Fortune once again to offer opportunity for comment, and in particular, to correct me if I am in error. In fact, I would like to offer you the opportunity to respond in up to 50 words that I will commit not to edit or abridge, an offer that is surely more generous than those your publication generally makes (setting aside whatever unknown arrangements it or its journalists make with hedge funds such as Mr. Rocker’s, of course). Please feel free to respond to the allegations above, or the questions below, or simply respond more generally, as you prefer.

I look forward to hearing from you. Until then, I remain,

Your humble servant,

Patrick Byrne

Journalist, DeepCapture.com

PS Please tell [a long-time acquaintance at Fortune] that I return her regards…

========================================

From: Patrick Byrne
Sent: Wednesday, December 17, 2008 2:22 AM
To: Katy_Reitz@timeinc.com
Subject: Respectfully request on-the-record response

Dear Ms. Reitz,

Please find a blog that DeepCapture posted today regarding 2006-2007 communications between a hedge fund manager and erstwhile Fortune reporter Bethany McLean concerning Canadian financial company Fairfax. I have obtained these communications pursuant to the decision of a New Jersey State court.

As is evident from the emails, the hedge fund manager put Ms. McLean up to the story hoping that a report in Fortune magazine would move the stock down. When the stock instead went up it rendered Ms. McLean’s story “pointless” in her eyes (which makes [sense] only in a world where her “point” was to move the stock down). After commiserating with the hedge fund Ms. McLean expressed her wish that the targeted company’s demise would be “a long, slow thing.”

Questions:

1) What is Fortune’s policy regarding journalists working with short selling hedge funds to drive down stock prices?

2) Has Fortune conducted an internal investigation into the relationship between Ms. McLean and hedge funds, including the one mentioned in the blog?

a) What were the results of that investigation?

b) Did this investigation have anything to do with Ms. McLean’s departure from Fortune?

3) Has Fortune conducted an internal investigation to determine the accuracy of Ms. McLean’s reporting on Fairfax and on other companies?

a) What was the result of that investigation?

b) Did this investigation have anything to do with Ms. McLean’s departure from Fortune?

4) Is Fortune aware that nearly every story written by Ms. McLean since 2001 was sourced from the same group of hedge funds, and that she never once contradicted their analysis? By Fortune’s standards, does this constitute “balanced” reporting?

5) In one email, Ms. McLean mentions Spyro Contogouris, who was employed by a group of hedge funds to harass and threaten Fairfax executives. After Mr. Contogouris was arrested by the FBI, Ms. McLean continued to characterize him as a credible financial researcher who worked independently of hedge funds. Does Fortune stand by that characterization?

I do not know when I am going to publish, but would expect it would be next week. However, I sincerely wish to represent fairly the point of view of Fortune.

Most respectfully,

Patrick Byrne

Reporter, DeepCapture.com

If this article concerns you, and you wish to help, then:

1) Let Fortune know how you feel about Bethany McLean’s work by writing Managing Editor Andrew Serwer (aserwer@fortunemail.com) and TimeLife’s spokesperson Katy Reitz (Katy_Reitz@timeinc.com) (post copies in the comment section below!);

2) email it to a dozen friends;

3) go here for additional suggestions: “So You Say You Want a Revolution?“

By way of review, the evidence shows that Marc Cohodes of Rocker Partners hedge fund first approached Bethany McLean about Fairfax on December 7, 2006. Bethany then met with Rocker Partners employee (and former SEC attorney) Richard Sauer 11 days later, and presumably began work on what would become her March 6, 2007 article The inside story of a Wall Street battle royal shortly thereafter.

The evidence further demonstrates that when, by March 21, 2007, FFH stock price had gone up 45 points instead of down as expected, both McLean and Cohodes were unhappy.

Why would this be?

Anybody familiar with the ongoing conversation held on this blog knows the answer, but not wanting to take for granted that all readers here are either sufficiently seasoned or in agreement, I offer the following, which was, like the above-referenced email exchange, gleaned from the many documents gained through discovery in the Fairfax Financial vs. SAC Capital, et al, lawsuit; specifically, from records of Rocker’s evolving short position in Fairfax stock during the months before and after the publication of McLean’s article.

Beginning on January 4, 2007: ten trading days after McLean met with Richard Sauer, Rocker Partners shorted $2.4-million in Fairfax stock.

In February, Rocker added just over $100,000 to their Fairfax short.

Then, on March 1, 2007, three trading days before McLean’s article, Rocker added another $1.5-million to their position.

All told, Rocker was betting at least $4-million that the price of Fairfax stock would drop.

But unfortunately for Rocker, that’s not what happened.

Indeed, Fairfax stock rose a healthy 20% between March 6th and 22nd, when Rocker’s Marc Cohodes emailed McLean, wondering why Fairfax wasn’t dropping as a result of her story, as expected.

Apparently satisfied that circumstances were unlikely to improve, that very day Rocker began covering its short position…97,000 shares worth, to be exact. By the end of May, Rocker’s entire Fairfax short position was closed out, at a substantial loss.

Of course that’s all interesting, but as always, there’s more.

An analysis of the failed trades in Fairfax stock recorded and disclosed by the SEC for that period proves instructive.

Most notable is the sharp decline in FFH failures to deliver observed at the end of May, 2007. In fact, with the exception of a transient spike on June 8, fails are essentially reduced to zero at precisely the same time Rocker Partners closes out its FFH short position.

Given such a deep commitment to cheating, I find it surprising Rocker Partners never managed to be a more successful hedge fund.

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?“

Hence, as I’ve reminded my fellow market reformers time and time again, it is not necessarily a sign of corruption that some business journalists — Bethany McLean included — regularly toe the hedge fund line.

However, as I’ve very recently learned — at least in the case of Bethany McLean — I was wrong.

What changed my mind?

Christmas.

Rather, the early Christmas that arrived for me in the form of about 1,000 pages of discovery just unsealed in the Fairfax Financial (NYSE:FFH) vs. SAC Capital, et al, lawsuit, in which Fairfax claims a conspiracy (or “Enterprise” as it is termed in the suit) involving multiple short-selling hedge funds, financial analysts and business journalists intent on destroying the company for monetary gain.

Included in this mass of documents are hundreds of emails and instant message transcripts between hedge fund managers, their operatives and such “journalists” as Bethany McLean, Herb Greenberg, and Roddy Boyd.

Almost without exception, each of these is immensely useful in understanding how these folks all relate to each other. But among them all, the most revealing — to say nothing of damning — are those between Bethany McLean, then of Fortune, and the upstanding folks at hedge fund Copper River Management.

The emails appear below in blue, with my comments in black.

From: Marc Cohodes
Sent: Thursday, December 7, 2006 3:21:12 PM
To: Bethany McLean
Subject: ffh

FFH is the Canadian Enron and it could even be worse…We are sending you stufff.. I suggest since [Copper River employee and former SEC attorney Richard] Sauer is on the East Coast (for now) that you 2 meet, and soon… there is an “enterprise” here and he can lay it out clear as day.

It bears noting that, according to filings in the Fairfax suit, the various participants in the attack on Fairfax stock referred to their effort collectively as “the Enterprise”. Whether or not this is what Cohodes was alluding to when using the term — which might not otherwise belong within quote marks in this context — is not clear, but certainly suggestive.

From: Bethany McLean
Sent: Thursday, December 7, 2006 3:48:43 PM
To: Marc Cohodes
Subject: Re: ffh

Makes sense. Send me whatever you can think of – the more documents the better!

Without Cohodes offering a bit of proof to back his Enron/Fairfax comparison, McLean finds it “makes sense” and commits to move ahead.

From: Marc Cohodes
Sent: Thursday, December 7, 2006 3:51:37 PM
To: Bethany McLean
Subject: Re: ffh

don’t you worry…where do you want the stuff fed-exed to… I would set up a time for Sauer to come and see ya.. His code name is “Lavaman”…

Cohodes then forwards this exchange to employee  Rick Sauer, who schedules a meeting between himself and an unusually eager McLean, set for one week thence.

The outcome of that process was McLean’s scathing March 6, 2007 Fortune piece: The inside story of a Wall Street battle royal.

How can I be certain that this particular story was the direct result of the Cohodes’s efforts? The answer to that question is where the situation becomes particularly disturbing…sufficient to leave me feeling physically ill, and prepared to officially add Bethany McLean to the short but distinguished list of truly captured and corrupt journalists.

From: Marc Cohodes
Sent: Wednesday, March 21, 2007 9:51 AM
To: Bethany McLean
Subject: ffh

you hear anything there??? the stock is up 45 points since your piece and I dont understand it…

Of note: on March 5, 2007 FFH closed at $190.09, and on March 21, 2007, FFH closed at $234.53, a difference of $44.43.

From: Bethany McLean
Sent: Wednesday, March 21, 2007 11:51:57 AM
To: Marc Cohodes
Subject: Re: ffh

I’m getting the same question from other people. No, I don’t have a clue. I’m worried they’ve gotten the SEC or the Southern District to take them seriously – the Spyro [Contogouris] stuff makes you realize anything is possible – and they’re leaking the news to shareholders ahead of time. What do you think?

A day later, Cohodes icily responds with nothing more than his cell phone number.

From: Marc Cohodes
Sent: Thursday, March 22, 2007 5:12 PM
To: Bethany McLean
Subject: Re: ffh

415-350-88**

Based on McLean’s reply, we can presume she followed Cohodes’s tacit demand, and that the conversation was less than pleasant.

From: Bethany McLean
Sent: Thursday, March 22, 2007 6:12:48 PM
To: Marc Cohodes
Subject: Re: ffh

Sorry to be a little bad-tempered. This FFH story almost killed me, so I hate hearing that it was pointless. Maybe it’ll be a long, slow thing..

I suspect the emails you’ve just read are the real reason Bethany McLean made a sudden departure from the world of business journalism earlier this year.

As for me, it’s been nearly 24 hours since I first encountered this exchange, and yet I still cannot read it without feeling like I’ve just taken a blow to the solar plexus.

Seeing proof that both a hedge fund manager and an ostensibly reputable business writer viewed the sacred institution of journalism as a means of wrecking a company, and that they both also felt disappointment when their efforts proved insufficient, with the “journalist” finding solace in the prospect that the company’s eventual destruction might simply be a “long, slow thing” literally leaves me breathless.

Stay tuned for still more of the explosive revelations found within the reams and reams of discovery in this case.

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?“

Before publishing the following critique of Carol Remond’s recent article on Copper River, I contacted Carol for comment. Unlike Joe Nocera and Floyd Norris (both of the New York Times), who have at least had the integrity to defend their work, however haplessly, Carol refused any on-the-record comment on this subject. Thus she joins that tradition of journalistic worthies which includes Bethany McLean, Herb Greenberg, and Roddy Boyd, who refuse to defend their work. They can critique, but not engage, opine, but not defend: the sophomores of intellectual discourse.

Last week DowJones reporter and shill extraordinaire Carol Remond wrote a story, “Hedge Fund Copper River to Liquidate“, about the implosion of her hedge fund patron, Copper River (née Rocker Partners). Following a course charted by no lesser luminary than Roddy Boyd (cf. “Roddy Boyd Works It Likes He’s Paying the Rent“), Carol devotes the article to shameless apologetics that would make a congressman blush. Quelle surprise, Carol.

I am not a bayonette-the-wounded kind of guy (indeed, to investors in Copper River I send my condolences). But buried within Carol’s  article is a critical admission that will be of interest both to readers of DeepCapture.com, and to those investors ill-starred enough to have stayed with Copper River/Rocker Partners through to its ugly and ignominious end. Carol states:

“Copper River held large short positions in some illiquid stocks when the Securities and Exchange Commission tightened the rules governing short selling…. By doing away with an exemption that was the backbone of a trading strategy that allowed funds to short stocks through the options market, the SEC effectively restricted their ability to maintain these positions.”

The “trading strategy” that was curtailed by the SEC “doing away with an exemption” that existed in the options market  was the illegal strategy of naked shorting via rolling failed  positions through the options market maker exception to Regulation SHO.  Ms. Remond appears not to understand the SEC’s view of this illegal strategy. A fine paper by noted young economist John Welborn fleshed this out over a year ago (“Married Puts, Reverse Conversions and Abuse of the Options Market Maker Exception on the Chicago Stock Exchange”) . In it, he explained the requirement to locate stock, the exception to that requirement which Reg SHO makes for market makers, and the SEC’s view of the misuse of that exception. I will quote from John’s paper at length:

“THE OPTIONS MARKET MAKER EXCEPTION

“An FTD is commonly the result of a naked short sale (or a naked long sale) that does not settle, i.e. the shares sold short (or long) are never delivered to the buyer. In general, naked shorting is illegal. As the SEC’s Chairman Chris Cox said on July 12, 2006, “Selling short without having stock available for delivery, and intentionally failing to deliver stock within the standard three-day settlement period, is market manipulation that is clearly violative of the federal securities laws.”1 There are, however, a few of mechanisms through which naked short sales can be legally executed. One such mechanism is the “options market maker exception.”

“Current SEC rules state that a short seller, acting via a broker-dealer, need only ‘locate’ (as opposed to borrow) the stock prior to a short sale. Regulation SHO requires:

‘…A broker-dealer, prior to effecting a short sale in any equity security, to “locate” securities available for borrowing… Specifically, the rule prohibits a broker-dealer from accepting a short sale order in any equity security from another person, or effecting a short sale order for the broker-dealer’s own account unless the broker-dealer has (1) borrowed the security, or entered into an arrangement to borrow the security, or (2) has reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due. The locate must be made and documented prior to effecting a short sale, regardless of whether the seller’s short position may be closed out by purchasing securities the same day.’2 (Emphasis added.)

“In theory, stock markets are made more efficient by intermediaries who ‘make markets’ in order to smooth price and volume fluctuations.3 A market maker acts as a temporary counterparty that poses as buyer or seller in order to facilitate market liquidity. Ideally, market makers’ positions last minutes or hours; generally, positions are closed out at the end of each day. Large prime brokers make markets in both equities and options. Some broker-dealers, like Goldman Sachs and Merrill Lynch, clear and execute trades for options market makers…

“In the process of making markets, which requires hedging positions, market makers theoretically may need to sell stock they temporarily do not have. For this reason, Regulation SHO allowed market makers, ‘…[an] exception from the uniform “locate” requirement, as Rule 203(b)(2)(iii), for short sales executed by market makers, as defined in Section 3(a)(38) of the Exchange Act, including specialists and options market makers, but only in connection with bonafide market making activities (emphasis added).’4 Note that:

‘Bona-fide market making does not include activity that is related to speculative selling strategies or investment purposes of the broker-dealer and is disproportionate to the usual market making patterns or practices of the broker-dealer in that security. In addition, where a market maker posts continually at or near the best offer, but does not also post at or near the best bid, the market maker’s activities would not generally qualify as bona-fide market making for purposes of the exception. Further, bona-fide market making does not include transactions whereby a market maker enters into an arrangement with another broker-dealer or customer in an attempt to use the market maker’s exception for the purpose of avoiding compliance with Rule 203(b)(1) by the other broker-dealer or customer. 5 (Emphasis added.)’

“1 Christopher Cox, Chairman, SEC, “Opening Statements at the Commission Open Meeting,” July 12, 2006.

“2 SEC, Final Rule: Short Sales, Release No. 34-50103, Rule 203 – “Locate and Delivery Requirements for Short Sales,” July 28, 2004.

“3 Some view the market maker as an anachronism left over from the days when stock traded in 1/8th increments and paper certificates actually changed hands. Now, in the electronic age, stock trades in decimals and paper stock has been separated from the electronic claims of ownership on that stock (a process known as “dematerialization”).

“4 SEC Rule 203.

“5 Ibid, Section 1b, “Exceptions from the Locate Requirement: Bona-fide Market Making.”

Thus, Carol is explicitly stating, no doubt unwittingly, that the “backbone of a trading strategy” employed by David Rocker and Rocker Partners/Copper River was, in fact, abuse of an exception which the SEC had specifically deemed out-of-bounds.

Sloppy work, Carol: recommend you send for new instructions.

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?“

Admittance into Roddy’s New York financial journalism spooge-bucket-brigade is conditional upon acceptance of The Fundamental Principle and First Corollary of that august fraternity:

The Fundamental Principle – Hedge funds can do no wrong, particularly if they belong to a small constellation whose brightest lights are Stevie Cohen, Dan Loeb, David Einhorn, Jim Chanos, David Rocker & Marc Cohodes.

The First Corollary -  If any corporation or individual appears to have been wronged by activities of any of these hedge funds, using methods up to and including stock counterfeiting and manipulation, blackmail, harassment, and intimidation, use of private eyes and internal moles, inciting endless and expensive investigations that go nowhere, and so on and so forth, it must only be because they deserved it (for proof, see The Fundamental Principle).

Today Fortune Magazine’s Roddy Boyd gives fine illustration of these rules in an article on  Copper River Partners (née Rocker Partners). This is the same Copper River/Rocker Partners whose exploits are chronicled throughout DeepCapture, and who have been frequent beneficiaries of reportorial lotion-jobs from Roddy, Karen Richardson (WSJ), Herb Greenberg (CBSMarketWatch), Joe Nocera (New York Times), and Jim Cramer (CNBC & TheStreet.com), and have been long-time recipients of  Bethany McLean’s highly-regarded regulars-only service. (Full disclosure: Copper River is also on the business end of a Marin County lawsuit filed by Overstock.com, in which I played modest role.)

In today’s think-piece, Roddy treats us to such insights as:

• “But for noted short-sellers Copper River Management, a $1 billion hedge fund based in Larkspur, Cal., the month turned into a perfect storm. A devastating combination of counter-party failure, sudden regulatory edicts and margin calls conspired to turn the fund’s performance on its ear, leading to a 55% loss in just two weeks.” Translation: In the last two weeks Copper River lost over half of its billion dollars, though not through any fault of its own. Instead, counter-party failure, regulators, and those pesky margin calls “conspired” to create “a perfect storm” that lost the half-billion dollars.

• In case the point was lost that none of this had to do with the quality of Copper River’s investments, Roddy Boyd writes it out. He really does, in those words: “What’s worse for Copper River is that the battering had nothing to do with the quality of its investments.”

• We are treated to a bit of financial arcana: “On top of that, as Lehman unwound its own internal hedges to the Copper River trades, its trading desks bought shares of these companies, driving up their prices and leading to losses for Copper River.” Translation: Lehman sold puts to Copper River that Lehman then hedged by shorting stock (most likely in abuse of the option market-maker exception), and when Lehman covered those shorts it hurt Copper River, whose investment strategy assumed an environment where shorts rarely need cover (and understandably so). As far as Roddy Boyd is concerned, the possibility that a short might “cover” (that is, “at some point obtain and deliver that which they have sold”) and thereby cause loss to a favored hedge fund has “nothing to do with the quality of its investments.”

• As though that litany of impositions were not harrowing enough, Roddy chronicles further injustices suffered by Copper River: “That was bad enough, but on September 19, the bottom fell out for the fund. That was when the Securities and Exchange Commission ordered unprecedented restrictions in short sales” (as our nation’s financial system was imploding). And further, “As prices in those stocks shot upwards, Copper River was forced to cover – or buy back – some of its positions at steep losses. “ This is intolerable: how could a hedge fund such as Copper River make money if it has to deliver what it sells?

• And lastly, this chestnut: “The rising stock prices also led to a series of margin calls (demands for additional cash collateral to be deposited in a margin account) from Goldman Sachs, Copper River’s prime broker.” I’m with Roddy on this one: it’s damn inconsiderate of Goldman Sachs to insist that Copper River have funds to back its play.

But perhaps I am too hard on Roddy. “Out of the crooked timber of humanity no straight thing will ever be made,” said Kant. A gal moves to the big city, gets behind, does things of which she is not proud. Molded are we all of imperfect clay.

But normally, she doesn’t write home about it.

It’s just Roddy’s ill fortune to have to perform these acts in national print.

Thus I was a bit surprised at the turn taken by the following correspondence:

From: Patrick Byrne
Sent: Thursday, February 28, 2008 10:46 PM
To: Bethany Mclean
Subject: comment sought

Dear Bethany,

For the record, do you have any comment on either of these stories?

http://community.overstock.com/deepcaptureblog/why-is-sam-antar-the-crook-being-pimped-by-fortune-magazine-and-the-rest-of-the-new-york-financial-media/

http://community.overstock.com/deepcaptureblog/gary-weiss-scaramouch-psychopath/

Respectfully, Patrick

From: Patrick Byrne
Sent: Friday, March 14, 2008 12:37 PM
To: Bethany Mclean
Subject: Three requests

Dear Bethany,

1) I understand Roddy has become a co-worker at your fine magazine. I am not confident I have his correct email. Would you mind sending it to me (or ask him to do the same)?

2) I have posted a new piece about Michael Steinhardt (if I do say so myself, it’s frightfully good). Would you please provide comment it?

http://community.overstock.com/deepcaptureblog/category/9-the-players/

3) If you do not intend to provide comment on this or any of my stories, would you please let me know that? Any further explanation you would be willing to share in that regard would be much appreciated.

Your friend,

Patrick

From: Patrick Byrne
Sent: Thursday, March 27, 2008 12:49 PM
To: ‘bmclean@fortunemail.com’
Subject: Hello

Dear Bethany,

Hello. I hope you are well. As you are perhaps aware, I am working on an article in which you will figure. I want to treat you justly and have your point of view represented fairly. Unfortunately, you have not called or written me back (though I have always been prompt in my responses to your inquiries, I believe). I do not wish to publish and have you feel slighted. Therefore, on the off-chance that the reticence of your reply stems from a fear that I will not quote you accurately, may I propose a solution? I would like to ask you two questions. If you will answer these questions, I will commit to using your answers in full, unedited (I propose an upper limit on the length of each reply: 50 words). Since this is far more generous a deal than I generally extract from the New York financial journalists of my acquaintance, surely it should ease any discomfit you may have in being the recipient, rather than the purveyor, of questions.

Very respectfully,

Patrick

—–Original Message—–
From: bethany_mclean@fortunemail.com
[mailto:bethany_mclean@fortunemail.com]
Sent: Thursday, March 27, 2008 1:57 PM
To: Patrick Byrne
Subject: your email

Hey, Patrick. The only communication I’ve received from you (apart from today’s email) was another email in which you asked me to comment on a piece you’d written on Michael Steinhardt. (I think.) You’re correct that I didn’t respond to that. My editor has asked that you speak to our PR people. You can contact Katy Reitz at katy_reitz@timeinc.com.
Thanks.

—–Original Message—–
From: Patrick Byrne [mailto:PByrne@overstock.com]
Sent: Friday, April 04, 2008 3:07 AM
To: Reitz, Katharine – Fortune/Money
Cc: McLean, Bethany – Fortune
Subject: RE: your email

Dear Ms. Reitz,

As you can see below, I am writing at the suggestion of Ms. Mclean regarding the possibility of her answering several on-the-record questions for a story I am writing. Is this something you would be willing to facilitate?

Respectfully,
Patrick M. Byrne

—–Original Message—–
From: katy_reitz@timeinc.com [mailto:katy_reitz@timeinc.com]
Sent: Friday, April 04, 2008 8:12 AM
To: Patrick Byrne
Subject: RE: your emailPatrick,

Can you please email me the questions and I will see if Bethany is
available to answer. Also, please let me know what your deadline is and
what publication this interview will appear in. Thanks.

Katharine S. Reitz
Director of Communications
Fortune|Money Group
o. 212.522.6724
m. 917.543.9176
katy_reitz@timeinc.com

—–Original Message—–
From: Patrick Byrne
Sent: Friday, April 04, 2008 1:11 PM
To: ‘katy_reitz@timeinc.com’
Subject: RE: your email

Katy,

My questions for Bethany concern her state of knowledge at the time she wrote SGR regarding the investment track record of Jim Chanos prior to Enron (attached please find discussion of Jim Chanos in Bethany’s book on Enron; I can also provide Mr. Chanos partners’ letter if she needs).

What was Bethany’s understanding of that track record? Did she know what it was when she wrote SGR?

If she did not know, why not? Did she ask?
If she did know, does she believe her account on page 319 adequately summarizes it?

An answer within the next week would be deeply appreciated. You may assume that the first place her answer would be published would be within Overstock.com, or at DeepCapture.com.

Most respectfully,
Patrick

—–Original Message—–
From: katy_reitz@timeinc.com [mailto:katy_reitz@timeinc.com]
Sent: Tuesday, April 08, 2008 10:42 AM
To: Patrick Byrne
Subject: RE: your email

Patrick,

Bethany is unavailable to comment.

Thanks,

Katy

—–Original Message—–
From: Patrick Byrne
Sent: Tuesday, April 08, 2008 11:50 AM
To: katy_reitz@timeinc.com
Subject: RE: your email

Dear Katy,

Thank you for your kind response. I can wait, as it turns out, given the collapse of Bear and some subsequent comments made last week in the Senate, my publication schedule has changed. When would she be available for comment?

Very respectfully,

Patrick

============================================================================

I received no further reply, no elucidation of when Bethany would no longer be “unavailable for comment.”

However, this evening, just as I was preparing to leave work, I checked my email, and found this. Since it was sent at a quarter to 1 PM East Coast time, and Bethany gave me to “the end of the day” (which came four hours later for her), the time to respond has elapsed, obviously. And since Bethany neglected to call my office, cell, or assistant, though these are all numbers she has and has called in the past, I was not aware of her email until this evening.

—–Original Message—–
From: Bethany McLean [mailto:bethany_mclean@fortunemail.com]
Sent: Tuesday, April 22, 2008 10:43 AM
To: Patrick Byrne
Subject: Fact checking question

Hi, Patrick -

I’m doing a short book review of a new book by a hedge fund manager named
David Einhorn. The book isn’t about you, and nor is the review. But
Einhorn does write about your August 2005 conference call because you
mentioned both him and his wife on it. You also made some statements about
his business. Einhorn says you were factually inaccurate about both his
business and his relationships. You also made some unsubstantiated and very
negative allegations about his wife. Do you want to comment on this at all?

The column is shipping off at the end of the day, so please let me know.

Thanks,

Bethany

==============================================

I’m new to this reporting gig, so I have to ask: Is that odd? Is it odd that for weeks Bethany would not be “available” to answer two simple questions such as the ones I posed her (even given the generous terms I offered regarding the timing of her reply and the use of her quote), but then would be available to describe vaguely some criticisms David Einhorn has made about me, and ask for my comment by end-of-day? Is this asymmetry of responsiveness, time, and use of quotes, odd?

What makes these people feel so threatened by a level playing field?

Given that I just sat down at my email I have evidently missed Ms. McLean’s timetable: besides, given the vagueness of her description, it is hard to know what a reasonable reply would look like (beyond noting that it is not clear if David Einhorn is saying my allegations about his wife were false, or rather, simply that he felt they were unsubstantiated and negative). But Bethany does raise interesting points with which the reader should become familiar.

David Einhorn’s wife is Cheryl Strauss-Einhorn, who is, or was, an editor at Barron’s. It’s fair to say that Cheryl Strauss Einhorn’s favored sources over the years have been the short-selling friends of her boyfriend/husband. As a couple, they illustrate the intersection of money management and compliant journalism whose description is Deep Capture’s mission.

By way of example, here is Cheryl writing on Jim Chanos (yes, this is the same Jim Chanos mention above, the one about whom Bethany wrote a book-length lotion-job, about which she is now refusing to answer two simple questions). Note also Cheryl’s mention of David Rocker. Importantly, Cheryl notes (as if it’s all kosher) that most “bear” short interest (as opposed to arbitrage) is actually naked shorting (by the way, that is the same “naked short selling” which the New York financial press has spent the last three years denying exists).

Anyway, here are excerpts from this fine example of Cheryl’s work:

Short Fuses: Romping Dow leaves professional bears Bloodied; is this the sign of a market top?

By Cheryl Strauss Einhorn
1113 words
17 July 1995
Barron’s
15
English
(Copyright (c) 1995, Dow Jones & Company, Inc.) ….

….

“As the stock market charges ever higher, pros are increasingly asked if short selling continues to make sense as an investment discipline,” laments Jim Chanos, head of Kynikos Associates in New York and a dean of the short-selling community. “The frustrating thing has been trying to nail down just what has changed in the market such that it hasn’t had a 10% correction since 1990. Is it a new era? We are questioning the discipline as a whole, wondering if the short side of the market will ever work again.”

Well, it worked last year — for Chanos, at least. Even as other shortsellers were having problems, Chanos’s flagship Ursus Partners reaped a hefty 46.2% return, while the S&P 500 Index was up 1.3%. So far this year, though, Chanos has lost more than 20%, bringing his assets under management to $200 million, down from $250 million on Jan. 1. In recent weeks there have been rumors swirling that Chanos was giving up the shorting game, rumors that he denies vigorously. “It just isn’t true,” he says.

Chanos recently received another large chunk of money to manage on behalf of a wealthy New York family, and as he puts it, “It is our intention to remain fully invested.”

“Besides this one client, though, no one else is stepping up and saying, `Now is the time to give money to a short fund,’” Chanos concedes. “But if not now, when? Valuations are crazy and the public is in the market with both feet.”

Between now and the stock market’s eventual downfall, Chanos expects to see “a lot of shorts throw in the towel.” And a lot already have. By one calculation, assets in funds dedicated to shorting stocks have shrunk to somewhere between $600 million and $800 million in total, down from a peak of $3.5 billion in 1990. Put another way, it’s less than 1% of the $6 trillion that comprises today’s equity market capitalization.

….

There was also talk in the market last week that David Rocker, head of the hedge fund Rocker Partners LP, was thinking about giving up his penchant for going short. Rocker conceded that it’s been a tough year, but he says he remains net short because he believes the market is highly overvalued. With folks like Chanos and Rocker so demoralized, it’s easy to understand why short interest has slipped in such highflying stocks as Boston Chicken and Electronic Arts. Despite all the shorting in months past, these stocks just keep climbing. In fact, Boston Chicken’s short interest fell 17% between May 15 and June 15, and Electronic Arts’ fell 10% during the same period.

Nonetheless, overall short open interest on the New York Stock Exchange rose 3% in the month ended June 15, while short interest in the Nasdaq National Market was about flat. It’s important to note, though, that these numbers do not discriminate between naked short positions, taken by outright bears, and short positions that are part of arbitrage activity, such as a fund buying S&P futures while shorting the underlying stocks.

Short-sellers have been further hurt by a Nasdaq rule put into effect in September 1994 that prohibits shorting a stock on a downtick. “The brutal reality of the short-selling business is that one has to be there before the bad news hits,” says Chanos.

Still, Chanos continues to be drawn like a magnet to segments of the market he sees as most overvalued. Technology stocks, he wrote in a recent letter to investors, “increasingly look like a bubble, with many questionable companies receiving ludicrous valuations. Institutional investors are now horribly overweighted in this sector and most have the view that nothing can go wrong.”

….— Still Flying High

==========================================================================

A more remarkable example of Cheryl’s work can be found in her October, 2000 article regarding the “uptick rule”. As I discussed in my essay “Jim Cramer is a Complicated Man“, this is a rule that were implemented in the 1930′s to curtail the ability of stock manipulators to destroy companies. According to someone who worked for him, Jim Cramer flouted this while managing money at Cramer Berkowitz. The rule was repealed in the summer of 2007. Recently Cramer has been on TV explaining (correctly if insincerely) how the repeal of this rule is a disaster for our markets, allowed hedge funds to steal from hard-working Americans, and perhaps contributed to the implosion of Bear Stearns.

So it is instructive to see in retrospect how Cheryl analyzes this rule.

Cheryl’s article begins with the nice neutral title, “SEC may drop biased trading restrictions”, then goes downhill from there. I will make bold those sentences that represent the point of view of those who think that hedge funds should not be encumbered by the uptick rule. I will italicize those that represent the point of view who think the uptick rule a necessary check on the powers of stock manipulators. I will leave untouched any sentences that are simply factual, about which neither side would disagree.

=================================================================================

Clock Ticks For Short-Sale Rule- SEC may drop biased trading restrictions

By CHERYL STRAUSS EINHORN (Barrons, 10/2/00)

The SEC is considering dropping its restrictions on short sales of securities. The rules were implemented in 1938 to prevent stock manipulators from driving down share prices through short-selling. Proponents of the so-called short-sale rules have long maintained they are needed to help promote stock-market stability. But detractors consider the regulations outmoded in today’s increasingly transparent market. Besides, they point out, no precautions have ever been legislated to rein in manipulators seeking to drive up prices through similar means.

Although the SEC has put out a concept release seeking comment on the restrictions from securities-industry participants, Annette Nazareth, head of the market regulation division, acknowledges the whole subject is up for grabs. “Personally, I can find no economic basis for the short-sale rule,” she says.

Short-sellers hope to profit by selling borrowed shares that they can buy back later at lower prices. Under current restrictions, stocks can be shorted only on an uptick — that is, at a price above the preceding trade.

While the short-sale rule has remained fundamentally unchanged for the past 62 years, financial markets have changed radically since the 1930s. For openers, there has been substantial improvement in market surveillance. And as the volume, velocity and complexity of trading escalate, restrictions on short-selling “may inject unnecessary inefficiencies” into the market, Nazareth says.

John Damgard, president of the Futures Industry Association, agrees. “It makes no sense to prejudice a sale up or down,” he says.

The uptick requirement, he adds, just serves “to make people feel warm and fuzzy, because they like things to go up.”

Short-sellers, on the other hand, make other investors feel neither warm nor fuzzy. Through the years they have often been tarred as naysayers, doomsdayers and all-around troublemakers who love to gloat when the market tumbles. Yet there is little data linking their activities to price movements in the securities markets.

Dan Loeb, a New York hedge-fund manager, would like to see the uptick restriction abolished because it increases the difficulty of implementing short sales. Besides, he notes, “Shortsellers provide a service to the market by increasing liquidity and providing a cap on speculative stocks.” While the evidence in recent years suggests the last is merely wishful thinking, in fact short-sellers’ skepticism sometimes does inject a sorely lacking dose of reality into phantasmic situations.

Many institutions use short selling as a hedging tool, to protect their stock and bond portfolios from market declines. Gains in such short positions theoretically will offset any declines in the value of the firm’s portfolio.

Not all market participants want to do away with the short-sale rule, however. Major brokerages such as Merrill Lynch are conflicted about the shortsale regulations. While trading desks consider the rules excessively cumbersome, investment bankers and brokers believe the restrictions will protect their clients’ shares from potential “death spirals,” in which stocks are hammered by repeated waves of selling.

The SEC, according to its concept release, is considering eight different measures regarding short-sale regulations. In addition to outright elimination, these include suspending the short-sale rule when a stock or the market rises above a certain price threshold; providing exceptions for actively traded securities; focusing shortsale restrictions on certain corporate events, such as mergers, or trading strategies, such as options expirations; exempting hedging transactions and revising the definition of “short sale.”

The commission, which has received many complaints about short-sale abuses in the over-the-counter market, also is exploring whether to extend the rule to non-exchange-listed securities.

The short-sale issue is timely in part because Congress this week is expected to pass legislation lifting the 1982 ban on trading stock (as opposed to stockindex) futures. With trading volume in bond and currency futures down 10% this year, the futures business would welcome the opportunity to move into the equity market. Global competition, too, is propelling the issue forward. Beginning in January, the London International Financial Futures and Options Exchange plans to begin trading futures on a handful of U.S. stocks, including AT&T, Cisco Systems, Citigroup, Exxon Mobil and Merck.

Ironically, if the ban on stock futures is lifted, the short-sale rule could become moot. Not only are there no ticks in futures, but also short-sellers would not have to borrow shares to short them. Thus, they wouldn’t face having their shares “bought in,” which is what happens in a short squeeze, a form of market manipulation. Investors then would be able to sell futures on stocks without cumbersome restrictions or regulatory bias.

=========================================================================================================

That sure looks like thoughtful, unbiased analysis to me. Please keep in mind that the elimination of this “regulatory bias (sic)” in 2007 is now being brought up in US Senate hearings (as well as by Jim Cramer) as contributing to the take-down of Bear Stearns and the current market crisis in general. Also, note that Annette “Personally, I can find no economic basis for the short-sale rule” Nazareth is a lawyer, not an economist, and is one of the two SEC commissioners who stepped down within days of the publication of the Senate investigation into the whistle-blowing claims of SEC Senior Investigator Gary Aguirre, as is described by my piece on the regulatory capture of the SEC. She is also the person to whom I was referring when I wrote, “who, as we shall see later, is via marriage directly linked to the issue whose exposure is the ultimate purpose of this blog: unsettled trades in our settlement system.” But these are stories for another day.

These two articles demonstrate my point, I believe: writing articles favorable to one’s husband and his friends is a pretty clear conflict of interest. Call me madcap.

In August 2005 I mentioned Cheryl’s work in the Miscreants Ball conference call. The only objections I ever received were claims that she was no longer, in fact, employed at Barron’s. To these objections I simply sent people a link to the Barron’s masthead, which on that day did (and for all I know, still does) list her as an editor. No other inaccuracies were ever reported to me.

About six months later, Mark Mitchell from the Columbia Journalism Review began asking questions about Cheryl Strauss. According to him, her stories literally began disappearing from the Barron’s database within days. That is a good indication of how proud they were of the work of Cheryl Einhorn, née Cheryl Strauss.

In late 2005 I had lunch with Bethany. I mentioned that I had recently been shown the trading records of David Einhorn, and while Overstock was not among his positions, there were other statistical anomalies of note. It was the only time I saw her flinch.

In the summer of 2006 I had lunch with Whitney Tilson, a paymeister of convicted felon Barry Minkow (according to a deposition Barry gave). Whitney invited me to address a group of hedge funds at that year’s Value Investor Congress, which he organized. Whitney’s friend David Einhorn protested my appearance to Whitney, whereupon Whitney rescinded his invitation to me. (One year later a different conference organizer, Brett Goetschius of “The Pipes Report” gave me a similar invitation to address 800 hedge funds. I told him I could accept his invitation, but that he would just have to rescind his invitation later. He replied, “No no, in the last year the whole community has changed: at least 50-60% of hedge funds are now on your side.” I went and gave the talk and received a nice ovation: the recording of this became the body of Deep Capture: The Movie.)

Last year Bethany devoted some serious effort to trying to prove that I was collaborating in a vast secret scheme with someone. Unfortunately for her case, I had never met my supposed collaborator.

But Bethany is nothing if not persistent. Some weeks ago Bethany visited a hedge fund for an interview. According to them, she regurgitated the criticisms of one obscure analyst who was trashing a firm in which they had invested, criticisms they were immediately able to dispel, with documentation (including a recent FDA approval about which she was unaware). She got visibly irritated, then brought up my name. When they told her that they thought I was right about compliant journalists being spoon-fed stories by select hedge funds, she got very irritated, and left somewhat abruptly, they say.

If only there were a pattern….

Your humble servant,

Patrick

PS Bethany, if you know any of the specifics of David Einhorn’s allegations of error on my part, please let me know. Deep Capture is in the final stages of preparing a major piece, and would not want to repeat being “factually inaccurate about both [Einhorn's] business and his relationships.” Since you are writing a column about his book, you probably are familiar with the substance of his claims (of course, most reporters would have actually given some clearer indication of his claims when asking for my comment on them, beyond saying he thought I was “factually inaccurate”). In any case, out of an abundance of caution, please let me know of any specifics about which you or David Einhorn believe I was in error, so that such error would not be replicated in the coming piece. We journalists have our standards, of course.

PPS To the casual reader: have any of you noticed that, for all that these journalists like to write about me and how improbable are my claims, none of them mentions DeepCapture.com? The Wall Street Journal once practiced a remarkable circumlocution in order to avoid mentioning where to find my blogs. It is almost as if…. they fear their own writing will not stand up on its own. What do you bet Bethany’s upcoming column avoids mentioning it as well?

Nocera’s problem is not what Apple CEO Steve Jobs thinks of him (“Steve Jobs Doesn’t Have Cancer, Calls NYT Columnist a ‘Slime Bucket’“).

No, Joe’s problem is that the naked short selling issue went mainstream this summer. In the last 6 weeks there have been literally hundreds of articles that describe the reality of this crime, its effects on individual companies, the risk it poses to firms at the core of our financial system, the extraordinary steps the SEC has taken to protect them from that risk, the demands of a former SEC Chairman to take draconian steps to rid our markets of the practice, the promises of the current SEC Chairman to do so, and so on and so forth.

The problem this presents for Joe Nocera is not simply that he is on record as maintaining that “most people who understand the issue or have looked into it think it’s pretty bogus” (New York Times, June 10, 2006). Joe’s problem is that he went so far as to discourage other journalists from digging into the subject.

I possess a secretly-recorded tape of a talk Joe Nocera gave two years ago to SABEW, the Society of Business Editors & Writers, wherein Joe preached the virtue of being an anti-investigative journalist. In it, Joe says, “…naked short selling… makes my eyes glaze over…So I asked Patrick Byrne exactly this question…I said, ‘Well why do you…why are you in this naked shorting fight since it’s not really what you are litigating?’ And he said, ‘Well, it’s like supporting education; it’s a good thing to do.’” The other journalists in the audience, that “herd of independent minds,” readily agreed with a knowing yuck-yuck-yuck to an assertion about which they had no knowledge whatsoever. (Consider their yuck-yucking in the context of the fact that I have, in fact, sunk what most would consider a fair bit of change into private scholarships and education reform in the US, and built 19 schools across Africa and Central Asia that educate about 6,000 kids).

New York Times’ Joe Nocera continues, “So it’s hard to take [Patrick] seriously on that issue when you hear him say something like that. Having said that, you know, I think it probably would be worth somebody’s time to say, Is there something to naked shorting or not? What is naked shorting? What does it mean? What is the problem here? But, you know, life’s too short. I don’t want to do it.”

So Joe’s problem is not that he is on record as ignoring (though he did that too), not just derisively dismissing (though he did that as well), but discouraging journalists from investigating something that has turned into a crisis for our financial system. Joe dismissed it as “pretty bogus”, with no argument, simply asking his audience to rely upon his authority instead. He turned out to be wrong. One might just put it down to honest error, but philosophically Joe keeps close company with various hedge funds whose names turn up wherever naked short selling becomes an issue, and he has had (as you will see) a curious relationship with Gary Weiss (whose involvement in a cover-up on behalf of the DTCC has been amply demonstrated within DeepCapture).

I believe this constellation of facts is meaningful,  that Joe Nocera took part in the cover-up of a financial scandal, and the New York Times was used in that cover-up.

I’m going to share some email correspondence with Joe Nocera, correspondence which will, I believe, shed light on this bold claim. As you will see, I have given Joe ample opportunity to request that this be off-the-record, or clarify his position one way or another in that regard, and he has failed to do so. Thus freed of any duty to keep them private, I publish them now, organized into flurries of back-and-forths, with minimal editorial explanation in bold italic font.

========================================================================================

Here is an exchange from one year ago that establishes the tone of my communications with Joe Nocera. Note that his replies are oblique, if not unresponsive altogether.

========================================================================================

On 9/12/07, Patrick Byrne wrote:

Dear Mr. Nocera,

I’d like to ask for your comment on Dr. Angel’s Reg SHO comment letter.

I’d prefer your comment be on-the-record, but let me know and I will respect your decision either way.

Sincerely,

Patrick Byrne

From: Joe Nocera [mailto:joe.nocera@gmail.com]
Sent: Wednesday, September 12, 2007 10:34 AM
To: Patrick Byrne
Subject: Re: Jim Angel’s Reg SHO Comment Letter

If I come back at Reg SHO, I’ll do it in my column. but thanks for asking.

–On 9/12/07, Patrick Byrne wrote:

Thanks. May I safely assume that your response was on-the-record?

From: Joe Nocera [mailto:joe.nocera@gmail.com]
Sent: Wednesday, September 12, 2007 4:44 PM
To: Patrick Byrne
Subject: Re: Jim Angel’s Reg SHO Comment Letter

i’m in the middle of a magazine story right now, and simply don’t have time to dive into this issue. if you want to use that fact to blast me, etc etc., not much I can do about it.

On 9/12/07, Patrick Byrne wrote:

Not interested in “blasting” anyone, Joe: I am just a seeker of truth.

You would have saved time with a simple “yes” or “no” but, that said, best of luck on your magazine story.

Patrick

========================================================================================

In anticipation of wider readership of Mark Mitchell’s exposé of naked short selling on Wall Street, I contacted Joe Nocera for comment on one of Mitchell’s allegations. Including New York Times designated “Readers’ Representative” Clark Hoyt on the email, I wrote:

========================================================================================

From: Patrick Byrne
Sent: Sunday, June 29, 2008 2:52 PM
To: Joe Nocera
Cc: public@nytimes.com
Subject: Comment requested

Dear Joe,

Behold a line from Mark Mitchell’s story on Deep Capture quoting an email from Mr. Gary Weiss.

“Deep Capture has come to possess a great number of emails between various journalists and miscreants. In one, the former BusinessWeek reporter brags to the crooked mortgage broker of influencing the contents of Nocera’s ‘Campaign of Menace’ article in The New York Times. ‘This is totally my doing,’ Gary writes. ‘Yuk. Yuk. Yuk.’ “

I am writing for any comment from you regarding Mr. Weiss’ claim, or, if you wish, regarding the more general claims of Mitchell’s piece, before its more widespread publication.

If you are unwilling to comment, please let me know that too.

Warm personal regards,

Patrick M. Byrne
CEO, Overstock.com & Reporter, DeepCapture.com

PS I am new to this reporting gig: to be fair, how long does one normally give the subject of a piece to comment before publishing? In the past, you have emailed me in the afternoon hours before deadline and, since I was not on my computer at that precise moment, I missed opportunity to comment on something you wrote about me. I suspect that such treatment was unusual. So please let me know.

From: Joe Nocera [mailto:joe.nocera@gmail.com]
Sent: Sunday, June 29, 2008 3:13 PM
To: Patrick Byrne
Cc: public@nytimes.com
Subject: Re: Comment requested

Dear Patrick,

Gary Weiss can write whatever he wants in emails, just as you can write whatever you want in the various forums available to you. Just because he says something in an email doesn’t make it true, just as your various faux-polite rants aren’t true just becuase you make a claim of one sort or another. I don’t know how you find the time to root out us corrupt journalists in addition to the corrupt government officials and the corrupt hedge fund managers! Most CEOs I know believe that running their companies is a full-time job. Anyway, it is always a pleasure corresponding with you, and I look forward to reading your “more-in­ sorrow-than-in-anger” posting about how I didn’t answer your question the way you had hoped.

All best,

Joe Nocera

========================================================================================

The churlishness of Joe’s reply (“faux-polite”?) took me aback, and Joe was wrong about something (he had answered the question just as I’d hoped, though we professionals are not swayed by soft concerns). But what struck me most odd about Joe’s reply was that he had constructed it in a way that he did not have to answer the question: If I say “Gary asserts X” and Joe says, “Gary can say anything he wants”, then Joe is not really saying whether or not X is true. So I decided to dig a bit.

========================================================================================

From: Patrick Byrne
Sent: Sunday, June 29, 2008 3:19 PM
To: Joe Nocera
Cc: public@nytimes.com
Subject: RE: Comment requested

Dear Joe,

You write:

“Just because [Gary Weiss] says something in an email doesn’t make it true”.

Are you claiming that it is false?

Again, with warmest personal regards,

Patrick

–Original Message–
From: Joe Nocera [mailto:joe.nocera@gmail.com]
Sent: Sunday, June 29, 2008 3:21 PM
To: Patrick Byrne
Subject: Re: Comment requested

You are such a dogged reporter! You have a future in this business.

Yes, my answer is that his claim is false.

From: Patrick Byrne
Sent: Sunday, June 29, 2008 3:26 PM
To: Joe Nocera
Subject: RE: Comment requested

Dear Joe,

Thank you so much for the courtesy of your response.

Now the follow-ons:

1) Did you claim that you did not communicate with Mr. Weiss about the subject of that piece before its publication?

2) Do you have any explanation as to why Mr. Weiss would be “Yuck yuck yuck[ing]” about its appearance being “totally [his] doing”?

I look forward to your promt reply. Until then, I remain,

Yours truly,

Patrick M. Byrne
Reporter, DeepCapture.com

From: Joe Nocera [mailto:joe.nocera@gmail.com]
Sent: Sunday, June 29, 2008 3:30 PM
To: Patrick Byrne
Subject: Re: Comment requested

Patrick, as you must surely know, since you’re a reporter and all, I just can’t talk about who I talk to when i write my column. As for question number 2, I have truly no idea.

Good luck.

Joe Nocera

========================================================================================

So to relate this to current events and findings documented within Deep Capture: there is a financial crime called “naked short selling”, against which this summer the SEC took emergency action to prevent the center of our financial system from Chernobyling. For several years evidence had developed regarding the existence of this problem and its locus in a corporation called, “DTCC”. Since January 2006 pseudo-reporter Gary Weiss has worked full-time to downplay, deny, and deride that evidence, but has been exposed doing so from within the DTCC (that is, the corporation at the heart of the scandal). In 2006 Joe Nocera wrote a column that hewed tightly to Gary’s (now discredited) party line regarding this crime, and Gary Weiss yuck-yuck-yucked to a friend about Joe’s column being “totally my doing”.

If only there were a pattern….

And the best explanation for this constellation of facts that Joe Nocera can muster is, “I have truly no idea.”

Clever answer, that, capable of throwing all but the most dogged reporters off the scent.

========================================================================================

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
On Behalf Of Joe Nocera
Sent: Wednesday, July 16, 2008 1:31 PM
To: Patrick Byrne
Subject: that Weiss email

Dear Patrick, Did your or Mr. Miller (sic) ever post anything about Gary Weiss’ email regarding me? The one you asked me about a few weeks ago? If you could send me the URL I would appreciate it. Also, could you please tell me how you got a hold of it?

Best,

Joe Nocera

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
On Behalf Of Joe Nocera
Sent: Wednesday, July 16, 2008 10:22 PM
To: Patrick Byrne
Subject: that gary weiss email

Patrick, I spent some time today at Deep Capture and Antisocial Media looking to see if you had posted anything about the email you had asked me about from Gary Weiss. Never did find anything. I’d like to reiterate my request that if you’ve posted could you point me to the URL? I’d be grateful. Also, have been to Deep Capture, of course, I know now how you got the emails, so no need to answer that. Thanks.

all best,

Joe Nocera

From: Patrick Byrne
Sent: Wednesday, July 16, 2008 10:26 PM
To: Joe Nocera
Subject: RE: that Weiss email

Dear Joe,

As you have apparently learned, I obtained a computer containing the correspondence (i.e., 8,000 emails) of a number of New York financial journalists, hedge funds, paid bashers, convicted stock swindlers, lawyers, and even a private eye or two. Interesting reading. We call that computer The Enigma (after the WWII story), and I personally take full responsibility for having come into its possession (though credit for the investigative journalism that led to that moment is all Judd Bagley’s). And the answer to the question you are asking yourself is: yes.

The place to start reading is Mark Mitchell’s piece here. Just search for your name (skip the time it appears associated with a recording we made of you, unless that interests you too). Then if you read around in Deep Capture you will see that we have started to dribble out the content of these emails in blogs that elucidate their full meaning.

How did we get this material? Within DeepCapture you will see that we have recently been revealing more about the circumstances by which I obtained these emails. Beyond what you see there, however…You know that as a journalist I cannot reveal my sources or methods.

Best regards,

Patrick

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
On Behalf Of JoeNocera
Sent: Thursday, July 17, 2008 5:53 AM
To: Patrick Byrne
Subject: Re: that gary weiss email

Patrick- here’s another question- do you think there is anything wrong with mining Mr. Schneider’s hard drive to extract personal emails and other personal information?

all best,

Joe Nocera

========================================================================================

This is where it started to get interesting: Joe was now asking a vaguely-worded question (which “Mr. Schneider”?) based on a false assumption (that information I had extracted from a corporate computer, given to me by the owner of that corporation, was in fact someone else’s “personal information”). In any case, I thought it was time to press Joe about his early “I have truly no idea” response, simply by sharing Gary’s email about Joe, with Joe.

========================================================================================

From: Patrick Byrne
Sent: Wednesday, July 16, 2008 10:46 PM
To: Joe Nocera
Subject: RE: that gary weiss email

Dear Joe,

It seems we are both working late. So as long as you are up…

I am attaching an email that Gary Weiss wrote to a crony.

Two weeks ago I told you, “I am writing for any comment from you regarding Mr. Weiss’ claim, or, if you wish, regarding the more general claims of Mitchell’s piece, before its more widespread publication.”

To this, your response was: “Just because [Gary Weiss] says something in an email doesn’t make it true”.

I then asked, “Are you claiming that it is false?”

To which you responded, “Yes, my answer is that his claim is false.”

I then asked, “Do you have any explanation as to why Mr. Weiss would be ‘Yuck yuckyuck[ing]‘ about its appearance being ‘totally [his] doing’?

To which you responded, “I have truly no idea.”

Would you like to revisit any of these answers?

Fond regards always,

Patrick

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
On Behalf Of JoeNocera
Sent: Thursday, July 17, 2008 6:00 AM
To: Patrick Byrne
Subject: Re: that Weiss email

Patrick, thanks for your response.. I might be writing about this next week; if I decide to do so, I’ll be in touch on Wednesday. I know you prefer email, but I think a phone conversation might be in order, if you’re willing. The fluidity of a conversation works, with the ability to ask new questions based on your answers, better for me than a series of emails etc. I did ask you a question in another email this a.m. about the ethics of mining this computer for its emails-something, frankly, no journalist would do. I hope that you will give me the courtesy of a response.

best,

Joe

From: Patrick Byrne
Sent: Thursday, July 17, 2008 9:05 AM
To: Joe Nocera
Subject: RE: that gary weiss email

Dear Joe,

Does the “you” in your question refer to “Patrick Byrne” or “anyone on the Deep Capture team”?

Regards,

Patrick

PS In the future, I think that all you have to do is go to DeepCapture and search for “Nocera” to find anything about you.

From: Patrick Byrne
Sent: Thursday, July 17, 2008 9:29 AM
To: Joe Nocera
Cc: nytnews@nytimes.com; public@nytimes.com
Subject: RE: that gary weiss email

Dear Joe,

Given our history, I respectfully request more precision in your questions. You write for the New York Times, and that is something of which you should be capable.

In this case, as you know, there are two Mr. Schneider’s at issue. The owner of the hard drive, Roger Schneider, gave it to me with instructions to mine it and turn my findings over to the authorities. I think that my doing so was, therefore, not unethical, but good citizenship.

Given your history of obfuscating such salient details with a consistency that seems determined, I thought it best to cc: several of your editors on this conversation, purely as a prophylactic measure. I do not know Mr. Okrent’s email, but would be obliged if you would supply it.

Very respectfully,

Patrick

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
On Behalf Of Joe Nocera
Sent: Thursday, July 17, 2008 9:30 AM
To: Patrick Byrne
Subject: Re: that gary weiss email

really, I’m asking whether you, Patrick Byrne, think there is anything wrong with taking a computer and mining it for Floyd’s personal emails? The computer, as i understand it, also contains personal mortgage data for customers of XXXXX, so there is a data theft issue here. So I would also like to know whether you view the possession of this computer, which contains private data of mortgage customers, a form of data theft? Thanks for your consideration.

Joe Nocera

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
On Behalf OfJoe Nocera
Sent: Thursday, July 17, 2008 10:28 AM
To: Patrick ByrneCc: nytnews@nytimes.com; public@nytimes.com; Lawrence Ingrassia;Bruce Headlam
Subject: Re: that gary weiss email

Dear Patrick,

As you know, I am perfectly happy to have you send our exchanges to anyone you want, including my editors. My boss is Larry Ingrassia (XXXXX@nytimes.com), and my direct editor is Bruce Headlam (XXXXX@nytimes.com.) I have attached this series of emails to them so that you don’t have to do so. Also the public editor is currently Clark Hoyt. However, sending an email to him at public@nytimes.com will get this exchange to him.

For the record I disagree that I have distorted any of our conversations or other exchanges. And yes, I understand that the computer belonged to Roger Schneider. However, the material on the computer belonged to two entities, it seems to me: Floyd Schneider, whose private emails you have now exhumed, and XXXXX, which has private data about their mortgage customers and potential mortgage customers. You have given me an explanation why you believe exhuming Floyd Schneider’s emails is not data theft. However, you have not explained how being in possession of this private mortgage data does not constitute data theft.

Thanks for your consideration.

all best,

Joe Nocera

From: Patrick Byrne
Sent: Thursday, July 17, 2008 10:45 AM
To: Joe Nocera
Cc: nytnews@nytimes.com; public@nytimes.com;bizday@nytimes.com; XXXXX; XXX
Subject: RE: that gary weiss email

Dear Joe,

Again, simply as a prophylactic measure of unknown worth, I am cc:’ing some charged with providing adult supervision at your fine newspaper in my response.

The facts regarding how we can into possession of 8,000 emails of traffic among various convicted stock swindlers, paid message board bashers, hedge fund patrons, and financial journalists is fully and accurately described The Enigma.

For examples of the kinds of information we have pulled off of it, you might also familiarize yourself with these posts:

• The Final Word on Gary Weiss and Wikipedia

• Gary Weiss and his Yahoo Gnomes

• Gary Weiss doesn’t like Liz Moyer

• Gary Weiss, Usenet Troll

• Gary Weiss: his DTCC Ties and Lies

For just one, small instance of how this material concerns you, please see “The Story of Deep Capture” by Mark Mitchell, and search for the word, “yuk”. There is other material on The Enigma that very directly concerns you. Thus, in any sane world you would not be allowed to use the New York Times to cover your tracks, but I’m not making any bets on that.

I have heard from the CEO of XXXXX regarding the wildly false claims you made to him regarding XXXXX customer data. Therefore, I will clear up here your (once again, seemingly deliberate) misapprehensions:

• The computer in question belonged to Roger Schneider, who owns a small home mortgage operation in New Jersey, and who employed his brother, Floyd Schneider, until he caught Floyd involved in dubious financial transactions.

• We did not contact Roger. Roger contacted us.

• Roger deleted all XXXXX customer information from the computer before turning it over to me, so that it just contained Floyd’s emails. I instructed Judd that he was to verify that it contained no customer information as a first step (and quarantine any if it did): Judd verified that it contained no such information.

• Roger gave (not “sold”) me this computer he owned, with the request that I mine it for evidence of illegal activity and turn it over to the authorities.

• DeepCapture quickly culled through the material and provided the results of that first pass to XXXX with a complete briefing on the origins of the material.

I think these were the laudable acts of a concerned citizen. If you believe there is something wrong with these acts (or simply if, given the fact that naked short selling has been implicated in the current systemic crisis in our financial system, precisely as I predicted and you did everything possible to obfuscate, you regret such statements you have made as this), then you ought to rethink the difference between being an investigative journalist, and an anti-investigative journalist.

Most respectfully,

Patrick M. Byrne

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
OnBehalf Of Joe Nocera
Sent: Thursday, July 17, 2008 11:01 AM
To: Patrick Byrne
Cc: nytnews@nytimes.com; public@nytimes.com;bizday@nytimes.com; XXXXX; XXX
Subject: Re: that gary weiss email

Patrick- thanks for your response. Just so you understand, there was nothing “deliberate” about my “misapprehensions.” I had heard something that I was trying to track down. That is why I called Paul at XXXXX, and why I emailed you. You have now given me your answer. You will note that nothing has been published. But to find out things, I journalist has to ask questions and try to get answers. That is how it works. I will try to call you next week.

all best,

Joe Nocera

From: Patrick Byrne
Sent: Thursday, July 17, 2008 11:17 AM
To: Joe Nocera Cc: nytnews@nytimes.com; public@nytimes.com;Lawrence Ingrassia; Bruce Headlam; XXXXX; XXXXX
Subject: RE: that gary weiss email

Dear Joe,

Thank you for sending me the names and emails of those who supervise you: given that you have previously dropped cc:’s from our traffic, I was unsure how squeamish you were about their inclusion in our communication.

For the benefit of Messieurs Ingrassia and Headlam I am resending my email of moments ago, responding to your false allegation about private mortgage data. I am also cc:ing the CEO of XXXXX, and Roger himself.

In addition, I have five questions for you, although any of your colleagues are welcome to respond:

1) In one email to Floyd Schneider (enclosed), Gary Weiss takes credit for one of Joe’s columns, saying “This is totally my doing! Yuk yuk yuk.” Do you have any explanation as to why Mr. Weiss would do this?

2) In another email (not enclosed) Weiss makes it clear that he is familiar with the substance, sentiment and timing of at least one of your Overstock.com-focused columns before it is published. How might Weiss have come to posses this information?

3) Are you (or anyone at the New York times) at all concerned that someone with foreknowledge of a column critical of a public company might use it to trade ahead of its publication?

4) What does the Times’ code of ethics say with respect to this kind of situation?

5) Given the national media’s breakthrough understanding of “naked short selling” being implicating in our current systemic crisis, what are your feelings now about this 50 second statement you made at a SABEW conference?

The following question is for either Mr. Ingrassia or Mr. Headlam:

Some time ago I was told by an employee of the New York Times, “Patrick, I do not want to get into the newsroom politics too much, but I want to tell you that the word we use around here regarding Nocera’s writing on you is ‘surreal’. We say that it is ‘surreal’ that the New YorkTimes has published what Joe Nocera has written about you.”

Please comment.

Joe, Earlier today you suggested that you would prefer a telephone conversation to email. When would you like to have that call?

Most respectfully,

Patrick

From: joe.nocera@gmail.com [mailto:joe.nocera@gmail.com]
On Behalf Of JoeNocera
Sent: Thursday, July 17, 2008 11:31 AM
To: Patrick Byrne
Cc: nytnews@nytimes.com; public@nytimes.com;Lawrence Ingrassia; Bruce Headlam; Paul Lamparillo; XXX
Subject: Re: that gary weiss email

Dear Patrick, everybody drops CC:s from time to time, by hitting reply instead of reply all by mistake. very few people would view that action as darkly as you do. as for your questions, as I have said I have no idea why Mr. Weiss would make those claims, nor has he ever had any “inside information” about any of my columns. I don’t give out such information.

all best,

Joe Nocera

From: Patrick Byrne
Sent: Thursday, July 17, 2008 1:57 PM
To: Joe Nocera
Cc: nytnews@nytimes.com;public@nytimes.com; Lawrence Ingrassia; Bruce Headlam
Subject: RE: that gary weiss email

Dear Joe,

Boundless is my relief at your assurance that the fine standards of our “newspaper of record” remain upheld. One question thus remains:

Given the national media’s breakthrough understanding of “naked short selling” being implicating in our current systemic crisis, what are your feelings now about this 50 second statement you made at a SABEW conference?

Warmest regards,

Patrick

From: joe.nocera@gmail.com[mailto:joe.nocera@gmail.com]
On BehalfOf Joe Nocera
Sent: Thursday, July 17, 2008 2:05 PM
To: Patrick Byrne
Subject: Re: that gary weiss email

They haven’t changed.

From: joe.nocera@gmail.com[mailto:joe.nocera@gmail.com]
On BehalfOf Joe Nocera
Sent: Thursday, July 17, 2008 2:06 PM
To: Patrick ByrneCc: nytnews@nytimes.com;public@nytimes.com; Lawrence Ingrassia; Bruce Headlam
Subject: Re: that gary weiss email

just realized that I hadn’t send previous email to all the cc:s. I wrote; “They haven’t changed.”

========================================================================================

OK…. So concerning an issue that has been implicated in the near-collapse of our financial system, and drawn furious demands for reform from Wall Street bankers, The US Chamber of Commerce, the American Bankers Association, dozens of Senators and Congressional representatives, and a former and the sitting SEC Chairmen, Joe Nocera stands by his statement from two years ago discouraging other journalists from investigating this issue. His stands by his statement claim that “most people who understand the issue or have looked into it think it’s pretty bogus.”

This, dear reader, is why I say that Joe Nocera is an anti-investigative journalist.

Surely those charged with providing supervision to Joe might be troubled by his counseling journalists not to investigate a crime that has since been implicated in the most severe financial crisis of our lifetime, I thought. So I decided to write them and see. Unfortunately, I discovered that Joe Nocera is not the only New York Times employee capable of oblique response.

========================================================================================

From: Patrick Byrne [mailto:PByrne@overstock.com]
Sent: Thursday, July 17, 2008 4:04 PM
To: Lawrence Ingrassia; Bruce HeadlamCc: nytnews@nytimes.com; public@nytimes.com
Subject: request for comment
Importance: High

Dear Messieurs Ingrassia and Headlam:

1) Given the national media’s breakthrough understanding of “naked short selling”being implicating in our current systemic crisis, what are your feelings now about this 50 second statement made by Mr. Nocera at a SABEW conference two years ago?

2) Some months ago a widely-known and well-respected journalist at the New York Times, “Patrick, I do not want to get into the newsroom politics too much, but I want to tell you that the word we use around here regarding Nocera’s writing on you is ‘surreal’. We say that it is ‘surreal’ that the New York Times has published what Joe Nocera has written about you.” Do you have any comment on this?

With true respect,

Patrick M. Byrne

From: Lawrence Ingrassia [mailto:ingrassia@nytimes.com]
Sent: Thursday, July 17, 2008 2:24 PM
To: Patrick Byrne
Cc: nytnews@nytimes.com; public@nytimes.com; ‘Bruce Headlam’
Subject: RE: request for comment

Mr. Byrne,

Regarding your first point, Joe Nocera is a columnist. As a columnist, he is allowed a point of view.

Regarding your second point, Mr. Nocera is a very widely-known and very well-respected columnist. Moreover, he is an award-winning columnist, having won both a Loeb Award for commentary and a Sabew best columnist award this year, and having been a finalist for a Pulitzer Price for commentary in 2007. The journalistic honors awarded for his work speak volumes.

Yours sincerely,

Larry Ingrassia

Business editor

The New York Times

========================================================================================

When a nation’s central bank has to open its windows to recapitalize its banking sector while regulators construct an emergency levee around the trading in 19 firms at the heart of its financial system, I think it is safe to call that “a crisis”. Much blame for this crisis can be laid at the doorstep of our indolent and incurious New York financial press, the output of which is typified by Mr. Ingrassia’s response. Regarding his own columnist deriding, and discouraging other journalists from investigating, a crime that has since been implicated in the deepest financial crisis of our lifetime, the New York Times business editor can muster no more defense than, “Joe Nocera is a columnist. As a columnist, he is allowed a point of view.”

Actually, Mr. Ingrassia, Joe Nocera is “allowed” a point of view whether or not he is a columnist. The question is whether Joe Nocera will be “allowed” to use the New York Times to shill for crooked hedge funds by spewing apologetics for a crime that may have come close to toppling the US financial system, or whether the editorial staff of the New York Times is able to provide adult supervision.

The free press are the white blood cells of the body politic. When they fail, that body’s other systems remain in equilibrium only so long. That principle is well-illustrated by this situation.

Mr. Ingrassia says one thing with which I agree. “The journalistic honors awarded for [Nocera's] work speak volumes.” Those awards were all given to Joe by colleagues in the industry of financial journalism. I agree, this does in fact “speak volumes.” And that such awards would be made to an anti-investigative journalist like Joe Nocera (listen to him again) goes along way towards explaining the predicament in which our nation currently finds itself.

If this article concerns you, and you wish to help, then:

1) Let the New York Times know how you feel about their columnist by writing Business Editor Lawrence Ingrassia (ingrassia@nytimes.com), Media Editor Bruce Headlam (headlam@nytimes), and public@nytimes.com (post copies in the comment section here!);

2) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?“

1. In the 1980′s a New York electronics retailer named Eddie Antar, running a chain of discount electronics stores called, “Crazy Eddie,” perpetrated an enormous swindle. As a recent Fortune Magazine article put it, “The debacle cost investors roughly $145 million and involved just about every kind of accounting fraud then known to man, including receipt skimming, money laundering, and the counting of bogus inventory.” A key player in the swindle was the company’s CFO (and Eddie Antar’s cousin) Sam E. Antar.

2. When Sam was busted, he ratted out his two cousins, who each served several years in prison on the strength of Sam’s testimony (I guess Eddie was Crazy after all, to trust Cousin Sam). Sam Antar ratted out family members in return for a reduced sentence of six months’ house arrest and 1,200 hours community service.

3. Barry Minkow is a convicted stock cheat who, at the ripe age of 23, was sentenced to 25 years for his various stock fraud schemes (no small feat). He was released after 6 years. Recently he became entangled in a new stock manipulation case. Three months ago Minkow was subpoenaed and deposed, and in that deposition (pages 8-10), disclosed that Sam Antar the Crook had paid Minkow $250,000 (in two payments, one of $100,000 and one for $150,000) to turn his skills against a public company that he, Sam Antar the Crook, was shorting.

4. Within months of Sam Antar the Crook paying Minkow $250,000, the State of New York issued a $471 tax warrant against Sam Antar the Crook (it turns out that Sam has quite a history of these, so it cannot be put down to forgetting to put a stamp on an envelope). Is the fact that a fellow could not pay a $471 tax lien, but could wire a quarter-million dollars to an ex-con stock cheat, odd?

5. At the request of Sam Antar the Crook, Utah Attorney General Mark Shurtleff met with Sam on the condition that Sam not attempt to spin it as an endorsement of Sam’s views. Sam had his meeting then immediately welched on that promise. The Attorney General wrote a letter describing this chain of events, along with a disclaimer against believing Sam, that he twice attempted to post on Sam’s blog. Sam refused to let the Attorney General post it. At that point, Attorney General Shurtleff made public this letter scolding Sam for welching, and discouraging the public from listening to Sam about pretty much anything (“In light of Mr. Antar’s background as a convicted white collar criminal, we believe that the public should carefully scrutinize and objectively examine any public statements Mr. Antar makes.”)

6. Sam and Sam-cronies (Gary Weiss and Howard Sirota) regularly accuse those who disagree with them, or try to expose their shenanigans, as anti-Semites. Ed Manfredonia, one of the many whom they have repeatedly accused of anti-Semitism, asked the Anti-Defamation League to get involved. Displaying great class, the ADL got involved, and wrote this letter utterly rejecting those allegations. Notwithstanding the ADL’s statement, Sam continues to make endless allegations of anti-Semitism towards those who cross him.

7. These days Sam spends much time posting dozens of deposition-style posts directed at me and my colleagues, over-and-over, dozens if not hundreds per week (what an odd “hobby” for Sam to have). Generally they are inconsequential half-truths, quarter truths, or flat non sequiturs. Even people who formally tolerated him have begun pointing out his lunacy to him.

8. Sam attempted to intimidate one of my colleagues by posting on a public message board the names and address of my colleague’s wife and two little girls, ages 6 and 9:

___________________________________________________________________

How would reputable journalists treat Sam? They would not touch him with a ten-foot pole. Which would explain why several figures within the New York financial media are anxiously and suddenly promoting him.

That’s right: though Sam is a swindler who ratted out his own family, a $500 tax cheat capable of paying a convicted stock swindler $250,000, and a message board basher who threatens 6 and 9 year old girls, Sam Antar the Crook has recently received heavy, positive promotion from the New York financial media.

For example, Sam Antar has recently appeared on CNBC, Herb Greenberg has salivated over him at lunch, and Forbes columnist Gary Weiss cannot stop fondling Sam in print (more on them anon).

Most significantly, Fortune Magazine recently published a 2,738 word profile of Sam Antar (“Takes One to Know One”) in the style known among journalists as, “a lotion job.” What was most remarkable about Fortune’s profile of the reformed Sam was that, as Fortune mentioned 4/5 of the way through:

“As a would-be fraudbuster, Sam E. has yet to notch his first kill. (Although in fairness he doesn’t hold himself out to be a full-time 10-Q detective. ‘I don’t have 40 people working for me like the SEC,’ he says.) He hasn’t brought any companies down or caused any regulators to open any investigations.”

That is, Fortune wrote a lotion-job profile of an ex-con swindler whose discernible contributions to humanity consist of nothing noteworthy beyond taking part in an infamous and massive scheme of fraud and embezzlement then saving his own skin by ratting out two family members in return for a reduced sentence, and whose recent “reform” has amounted to being a paymaster to another ex-con stock manipulator and threatening two little girls, but nothing beyond this that Fortune can name.

Does that seem odd of Fortune? Because it seems a little odd to me.

Is the sudden, major promotion that Sam Antar the Crook is receiving from the New York financial media due to some inexplicable lapse in their research or understanding, or is there a motive behind it? If there is a motive, whose motive is it? What interests are being served?

Cui bono?

Which question brings us one step closer to the heart of the problem: Gary Weiss, The New York Post, Herb Greenberg & CNBC, and Fortune Magazine.

——————————-

Sam E. Antar, the Crook

Overstock had gone public in May 2002 and, by the end of 2003, in the eyes of some, it was doing well. In 2003, its fourth year of business, Overstock’s revenue was just shy of $300 million. Many competitors had come and gone, amassing losses of half-a-billion or more, before shutting their doors. Amazon, the 800-pound gorilla in our industry, had burned $3 billion in its start-up cycle before having a profitable quarter. By comparison, Overstock had lost $68 million but had already had one GAAP-profitable quarter (“GAAP” = “Generally Accepted Accounting Principles,” the strictest accounting measure of profitability). In addition, Overstock had had two EBITDA-positive quarters (“EBITDA” = “Earnings Before Interest, taxes, Depreciation, and Amortization,” a somewhat looser standard that some on Wall Street apply to companies on the grounds that it better approximates the “true” economics of a firm). Moreover, in 2002 Overstock had a full year (2002) of positive operating cash-flow (cash-generating ability is another way, and to some the people, the most important way, of measuring a firm’s real economics). In addition, Overstock had ended 2003 with a bang-up quarter, growing 94% and generating $21.9 million in operating cash flow for Q4. All this occurred while we were jockeying around capital and infrastructure that were miniscule in comparison with the hundreds of millions, or even billions, that “Wall Street’s darlings” had been employing.

As was becoming my custom, at the end of the quarter I wrote a lengthy shareholder letter explaining what was going on in the business, where my colleagues were doing well, where I was screwing up, and projects the company needed to accomplish in the future. In that letter I mentioned, “Gross profit,” a term about as common in the discussion of financial statements as, I’d estimate, the term “wide receiver” is in discussions of football (in the case of my letter, 2.5% of the letter concerned gross profit).

The day our earnings press release appeared (with my letter embedded in it), Larry Kudlow & Jim Cramer of CNBC invited me to appear on their TV show. I had been on Kudlow & Cramer once or twice by then and they seemed like smart, decent fellows, so I agreed, and drove to the studio in Salt Lake City from whence one does remote interviews. This interview was different from our prior ones, however, in that they attacked me aggresively. The basis of their attack was my use of the mysterious phrase, “Gross profit,” in my discussion of Overstock’s financials. Cramer in particular berated me as if he had caught me in some heinous incantation. They gave me a brief moment to respond, then quickly signed off.

As I drove away from the studio feeling somewhat mystified, my cell phone rang. The caller was a man from deep within Wall Street “smart money” circles, someone known widely within the hedge fund community, who has been friendly to me, and even has looked out for me when he could. He speaks in charming if profane emphatics.

He said, “You know what just happened, don’t you?”

“What do you mean?” I asked.

“You want to know what just happened? I’ll f—ing tell you what just happened. Here’s how it works. Those two guys are part of the short-seller community. Cramer especially is part of this ring of hard-charging short-sellers on Wall Street. I’ll bet you anything that one of his buddies is short your company. Whoever it is saw your earnings release, saw you blew your numbers away, got on the phone to Cramer and said, ‘Don’t you dare let this thing start moving. Don’t you f—ing dare let this move!’ So Cramer goes on TV and screams that nonsense at you. I bet my last f—ing dollar that’s what happened. It’s been like this all my career, but it’s never been like this.”

Later that week, a fund manager who had seen the interview told me, “That was the most unprofessional interview I have ever seen in my life.” In time, others would mention it to me, so that months and even a year later, I’d meet people who said, “I saw you on with Cramer one time. That was the craziest interview I ever saw.”

That was the first time I heard the joke, but I did not get it until I heard it the second time, a few weeks later, in February, 2004, while I was in Kabul (because it is a natural next question: I was in Afghanistan searching for artisans to become suppliers for Worldstock). Our PR Director at the time, a calm, mellow Californian named “Scott,” had sent an urgent message saying that a BusinessWeek reporter, Tim Mullaney, was going to write a story attacking the price comparisons listed on Overstock’s website. Mullaney was asking about a set of products which were precisely the same products that another two reporters had called asking about that same week. Since Overstock had about 12,000 products at the time, the coincidence was odd. In addition Scott said, Mullaney was acting as though he wanted us to know he planned on writing a hatchet job.

Scott wanted me to contact Mullaney at BusinessWeek. I had a rented satellite phone in my luggage, so I charged it and walked up a hill overlooking my hotel on the outskirts of Kabul, and called Tim Mullaney at BusinessWeek’s offices in New York.

As background, here is the lowdown on price comparisons. Price comparisons are imperfect because price data is imperfect. Overstock does the best it can to give real price comparisons, updating data as we learn it (electronic products are the most troublesome because prices can drop suddenly when new models are introduced). Above all, Overstock is clear about its price comparison methods. Every month Overstock sells a million items, and a few dozen times a customer informs us that a price comparison is wrong, at which point we update our system with the new data, if we have not already caught it ourselves. This always seemed like a pretty fair system (but recently Overstock adopted Amazon’s price comparison methods).

So in February 2004 I was standing in the wind on a hilltop outside Kabul in the middle of the night trying to explain this to a BusinessWeek reporter through the static of a satellite phone. As I spoke he started saying, “Uh-huh, uh-huh, uh-huh.” I paused, thinking he was indicating he understood and had another question to which he wished to move on, but none came. “I’m sorry, were you asking me something?” I asked.

“No, no, go ahead, I’m with you,” Mullaney answered, adding “Uh-huh, uh-huh uh-huh” as soon as I started to speak.

Mullaney asked me about a few electronic products, and I explained to him the issue with electronics: that when a manufacturer introduces a new product the comparison price on the older product drops, and can catch Overstock off-guard until we catch the change ourselves or a consumer notifies us. He had an example of a competitor selling a television for a price that was $20 below Overstock’s: he had not factored in the fact that they were charging $100 shipping, and Overstock charged $2.95 shipping, so in reality their real price was $77 higher than Overstock’s. I began to explain this to him. “Uh-huh uh-huh uh-huh,” he said, cutting me off.

I signed off, perplexed.

The next day I got a message from that same man within Wall Street’s “smart money” set, the one who had called me after the bizarre Kudlow & Cramer interview. His message to me in Kabul was that the word was out around Wall Street that negative stories on Overstock were about to appear in BusinessWeek and The New York Post. He even predicted the days they would appear and the lines of attack.

The stories did subsequently appear on the days he predicted they would, and they said just what he had told me they were going to say.

That was odd, because hedge funds are not supposed to know the timing and content of articles coming out in the press before the general public does. I’m not sure, but I think I read that somewhere.

That’s when I got the joke. It was the second time I’d heard it (Kudlow & Cramer was the first) but I’ve always been a bit slow on the uptake.

Since that time there have been many strange moments and I’ve learned a lot. I will not try to convince you of anything, but for the rest of this chapter I am going to tell you that same joke, in numerous ways. Most of the things I write here you will be able to check, but some you will not, in which case you’ll have to decide for yourself if I am telling the truth.

Even if you never heard of or cared about Overstock.com, you should know this: if you invest in the US stockmarkets, then whether or not you get this joke, it gets you.