However, in December, 2011 DeepCapture had its chance to speak in court in Canada. Once it had heard our side, the Court  pulled its injunction, and found that Nazerali’s lawyers had misled the Court.

As famed Stoic philosopher Nicholas Cage put it in Con Air, “On any other day that might seem strange.”

But this is, after all, the world of DeepCapture, where dogs and cats dance together and the fire rain falls. So now, the rest of the story….

Early in 2011 Mark Mitchell began a multipart story exploring the way that various elements of transnational Organized Crime, international terrorist financiers, and foreign intelligence services have entwined, infiltrated the global financial system, and are manipulating and destabilizing it.

Which sounds like a lot to swallow, I know, until one considers that on July 25, 2011, President Obama signed an Executive Order declaring a national emergency on pretty much precisely those grounds:

I, BARACK OBAMA, President of the United States of America, find that the activities of significant transnational criminal organizations, such as those listed in the Annex to this order, have reached such scope and gravity that they threaten the stability of international political and economic systems.  Such organizations are becoming increasingly sophisticated and dangerous to the United States; they are increasingly entrenched in the operations of foreign governments and the international financial system, thereby weakening democratic institutions, degrading the rule of law, and undermining economic markets.  These organizations facilitate and aggravate violent civil conflicts and increasingly facilitate the activities of other dangerous persons.  I therefore determine that significant transnational criminal organizations constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States, and hereby declare a national emergency to deal with that threat.

The US National Security Council immediately followed up with this statement:

“Transnational organized crime (TOC) poses a significant and growing threat to national and international security, with dire implications for public safety, public health, democratic institutions, and economic stability across the globe. Not only are criminal networks expanding, but they also are diversifying their activities, resulting in the convergence of threats that were once distinct and today have explosive and destabilizing effects…. The apparent growing nexus in some states among TOC [Transnational Organized Crime] groups and elements of government—including intelligence services—and high-level business figures represents a significant threat to economic growth and democratic institutions… As they expand, TOC networks may threaten stability and undermine free markets as they build alliances with political leaders, financial institutions, law enforcement, foreign intelligence, and security agencies.”

These statements from the White House and NSC are precisely on point with DeepCapture’s thesis. In fact, the Executive Order goes on to name four criminal networks which figure prominently in DeepCature’s story

We knew DeepCapture’s story would raise eyebrows, but we believed, and still believe, that it is important journalism concerning issues that clearly are of global concern and should be part of the public debate.  And as journalists, we at DeepCapture are quite proud of having been so far ahead of the curve, and so shockingly far ahead of the US mainstream media, which (we contend) are (with rare exception) such lapdogs to corporate America, and especially to the financial interests, that they would never have been able to put this story together even if all the relevant evidence were shoved up its nose (which it was).

Deep Capture believes that it is not incidental that only the British journal The Economist has been able to cover this issue, with such recent stories as:

America’s dodgy financial plumbing: TOO A FAIL COUNT –The sheer number of unsettled trades is rattling regulators

Financial terrorism: THE WAR ON TERABYTES – Policymakers worry about attacks on America’s financial system

NAKED SHORT – SELLING:  A not-so-short story

In September 2011 Altaf Nazerali, who, while not a central character in the story, is mentioned numerous times, contacted us raising concerns that certain statements regarding him were inaccurate. Mark looked back at his  reporting and, in cases where he believed it was warranted, modified the story: While we believe that facts should be reported, we are never above taking another  look at the story to make sure that we are as fair as possible. Good journalism stirs good debate.  And we are responsible journalists.

Mark sought further contact with Nazerali in early September but heard nothing further.

Then without any warning to Deep Capture, Nazerali attempted to silence Deep Capture.

On October 18, 2011, without notice to Deep Capture, Mark, or Deep Capture’s internet hosts, Nazerali filed a  lawsuit in Vancouver, Canada and appeared the same day before a judge seeking an injunction  taking Deep Capture off the internet and seizing its domain name. Only Nazerali and his lawyer were in the courtroom when he asked for this injunction so the judge only heard one side  of the story. Nazerali got his injunction.

Ali Nazerali  delayed serving formal notice of this injunction on Deep Capture and its reporters. The first  mailed service was made about 10 days after the injunction was made. The actual personal  service did not occur for several weeks. Nazerali did not comply with Canadian law and  promptly serve Deep Capture with copies of all of the affidavits and legal submissions he put  before the judge on October 19, 2011 at his one-sided injunction application. That only came to  our attention in late November. All of this had the effect of delaying Deep Capture’s ability to  seek relief from the court.

However, Nazerali’s lawyers immediately sent notice of the Canadian court’s injunction against Deep Capture to Google, Bing, GoDaddy, and other internet companies  demanding that they comply with it, and black out the DeepCapture site.

Amazingly (to me), these US companies complied, and blacked out Deep Capture. GoDaddy took down the site. Google and Bing both erased all of DeepCapture from the caches. In the most literal sense, we disappeared down Orwell’s Memory Hole.

On December 13, 2011 Deep Capture and Mark were able to appear before the British Columbia court . We presented our case through affidavits showing the basis for our  reporting. We presented the judge with the governing Canadian law which places severe  restrictions on pre-trial injunctions, limiting them to rare and special circumstances which do not  apply to Deep Capture.

Ruling from the bench (i.e., immediately), the judge denied Mr. Nazerali’s request that the injunction be  extended beyond December 13, 2011.

In addition, the judge expressly ruled that Ali Nazerali’s lawyers had misled the judge who heard  Nazerali’s earlier argument on October 19, 2011.

At that point Deep Capture was free to return to the internet.

However, Ali Nazerali was not done. He had his lawyer send an e-mail to Rackspace citing to the  original October 19, 2011 injunction order and asking that Rackspace refuse to host Deep  Capture.  He neglected to tell Rackspace that the British Columbia court had already refused to extend the  injunction and that it had ceased to have any force. And he certainly did not tell Rackspace that the British Columbia court had criticized Nazerali’s submissions to the original judge on October  19, 2011, finding that Nazerali’s lawyer had misled the court.

Ali Nazerali wants to keep Deep Capture and its reporting away from the public.  But why would Mr. Nazerali sue Deep Capture, a Utah company, in Canada? We can only  speculate. As Gary Weiss (himself a shill for criminal elements, as has been widely documented within DeepCapture) noted in his blog almost immediately after the original injunction was  issued, Canadian law provides far less protection for free speech than is guaranteed by the  United States Constitution. In fact, Canadian defamation law differs in so many key respects  from United States law that at least one federal court has held that Canadian defamation  judgments are unenforceable against United States citizens.

In fact, one key difference is what is meant by “defamatory.” It is true that the Canadian court  noted that Deep Capture’s reporting regarding Mr. Nazerali was “defamatory.” But, importantly, this does not mean that it was not true or that it was not fair reporting. It does not mean that such  statements may not be published. And it does not mean that Mr. Nazerali is entitled to any  damages. Rather, it simply means that the statements regarding Mr. Nazerali tended to harm his  reputation.

“Carole took the cookies from the cookie jar” is defamatory under the law of British Columbia.  Stating that Carole took the cookies tends to harm her reputation even if she did, in fact, take the cookies. Here Mr. Nazerali has been involved with certain individuals and cultivated certain relationships that may harm his reputation as such connections become known. But this does not mean that such relationships cannot, and should not, be fairly and freely reported.

Importantly, no court has held that Deep Capture’s reporting as to Mr. Nazerali was “actionably  defamatory.” After the Canadian Court was given the chance to read Mark’s affidavit explaining the basis for his reporting, it denied Mr. Nazerali’s request for an extension of the injunction  keeping Deep Capture away from the public on the basis that the claims and defenses should be  heard and determined by a jury at a trial.

Most hilariously, I had an idea that seems to have worked. For years a Cone of Silence had surrounded Deep Capture. Once the supine and obedient mainstream press could no longer speak for me, but had to confront me, in my own words, on this website, they revealed themselves for what they are: Barroom bullies who, once called out, stick their faces back in their beers and pretend not to have heard.  But during the time that DeepCapture was blacked out, the Cone of Silence surrounding Deep Capture was finally lifted. Parties that once made great circumlocutions to avoid mentioning us (lest they let readers evaluate the arguments and evidence for themselves) suddenly were pounding their chests.  So I decided to let DeepCapture stay down for a few weeks, to give them a chance to strut. I am utterly confident that, now that Deep Capture is back online, they will return to muttering into their beers, as has been their practice lo these many years.

Now that we are back on-line you deserve to know what happened, especially since the facts should cause concern in everybody that appreciates the role a free press and free speech  play in a free nation (and the offending story will be republished, in full, and with a great deal of new information that Nazerali’s legal jousting caused to come our way: thank you, Ali Nazerali).

The US mainstream media apparently find unremarkable the alacrity with which Google, Bing, and GoDaddy would accede to a foreign court’s injunction to black out a US website.  Thus, Deep Capture was forced to tell the rest of this story (which, we maintain, is but a microcosm of the whole story of capture) in order to continue  our investigative journalism within our constitutional rights to freedom of speech and press.

After all, we are the red pill.

Gandhi said, “First they ignore you, then they laugh at you, then they fight you. Then you win.” Holman Jenkins Jr.’s April 12 Business World column “Do Nudists Run Wall Street?” moves us to stage No. 3: It contains the normal amount of distortion I have come to expect from financial media, but as it also makes the first attempt to confront the right issue, it is a step forward. Bravo.

Mr. Jenkins claims that I “propound a theory” that Overstock’s “shares are grossly undervalued.” This is wrong: I have never lamented Overstock’s valuation nor connected it to the naked shorting issue. The “elaborate Webcasts . . . found at businessjive.com” cited by Mr. Jenkins never once mention Overstock. He provides no other citations, which is appropriate, as there are none. Last, the quote he attributes to me, “If I’m crazy, why am I running a public company?” is something I never said. I challenge Mr. Jenkins to produce this or any similar quote.

However, Mr. Jenkins correctly depicts me as a jihadi against naked shorting. I do believe blackguards have practiced “failure to deliver” (FTD) for profit, while incidentally destroying businesses and (probably) destabilizing our capital markets. I also think that if this nation ever grasps how its savings have been looted through this mechanism, a few million Americans are going to show up at the corner of Wall and Broad with pitchforks and nooses. Thus, financial journalists spin countless, “Just another CEO who’s mad at shorting” stories, of which Mr. Jenkins’s piece is an example.

Patrick M. Byrne
President
Overstock.com
Salt Lake City

1) DeepCapture remains committed to the highest journalist standards.  Any error in our work should be pointed out immediately, and we will rectify it .

2) DeepCapture is better than mainstream media, whose intellectual self-confidence, rigor, and integrity I described in my 2008 piece, “Carol Remond Tells a Joke She Doesn’t Get (DowJones)”:

“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.“

Because DeepCapture is better, we are happy to engage, and self-confident enough in our work that we practice “right of response” journalism: We will publish, unedited, any response (of any reasonable length) by miscreants named in our stories. If Specially Designated Global Terrorists have spokesmen, we’ll publish them.

3) All goombas should understand that the day anything untoward occurs is the day that The Collected Works of Mark Mitchell 2008-2011 appears in the in-boxes of 41.7 million people.

4) Finally, Mark has been acting entirely at my direction.  So all nastiness should be directed at me, not him.

Very respectfully,

Patrick Byrne

Editor-in-Chief

DeepCapture.com

“BUSTOUT: a confidence scheme in which an established business is taken over, a large stock of merchandise is purchased on credit and quickly sold, and the business is then abandoned or bankruptcy is declared.”  – Merriam-Webster Dictionary

Mark Mitchell has continued exploring the financial instability of the last four years, including the crash of 2008 and the Flash Crash of 2010.  His conclusion is that various activities associated with market manipulation (e.g., naked short selling, high frequency trading, derivatives such as Credit Default Swaps and synthetic CDOs, sponsored access, regulatory capture, press manipulation) follow a familiar leverage-and-loot pattern and can be traced to fairly cohesive network that includes Italian and Russian organized crime, Sunni extremist financiers with ties to Al Qaeda, the Russian FSB, the Albanian Mafia, agents of the Iranian regime, and “legtimate” American financial operators, many of them among the closest associates of Michael Milken.

The result, “The Miscreants’ Global Bust-Out”, is 230 pages long. DeepCapture will be publishing it in approximately 25 installments over the coming weeks.

To continue, click: Chapter One: Was the United States Attacked By Financial Terrorists?

If this and the story which follows concern you, and you wish to help, then:

1) Use the Social Media buttons at the top of the article to help it go viral;

2) Email it to a dozen friends;

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

Here is Alvin Entin’s Motion to Withdraw.

Given that this was shortly after a Florida Judge, Gill Freeman, threw the book at Barry for lying throughout a civil proceeding, and days before Barry pled down to five federal years, one does not have to be Fellini to figure this one out. For those interested in the full back-story, however, including the role of the conniving Sam Antar,  see below.

Today’s “If Only There Were a Pattern” Moment: Sam Antar Crony Barry Minkow Still a Crook. Who Knew?
The Honorable Gill Freeman Throws Book at Barry Minkow, Nicks Paymaster Sam Antar. Plus, A Question for Whitney Tilson, Minkow Paymaster #2
Memo to Barry Minkow and Sam Antar: Roll Early, Roll Often
Rut Roh. The “Stock Manipulator” Meme Finally Escapes the Box. Somebody Call Somebody.
Paragon of Integrity Whitney Tilson Gets Laryngitis, Too

Sam Antar pled guilty to crimes cited in this Wanted Poster

The sounds of squealing could be heard over the low hum of the air recirculation machinery in the drab, windowless federal interview room.  “Please!” Sam Antar wimpered. “Let me write one more smear. Let me feel like I’m a player, one last time!”

The federal agent spoke sharply: “Silence!”  She turned to look at her colleagues with bemusement.  “Jesus, what is it with these finance gerbils? I haven’t seen someone break this pitifully since that bookkeeper in Reno. ” She set aside her Nutcracker Flail, took a long pull on her Gaulioses, and said, “OK, let’s give Sam the night off. We’ll get him cleaned up for the judge in the morning.”

With that, Sam Antar, still restrained in straightjacket, was hauled back to the Shower Room, where he spent the night toe-writing in excrement on the linoleum.

Which would be altogether unremarkable, were it not for the fact that within hours, a Bloomberg reporter named Clyde Eltzrothis called, asking me to comment on it.

No kidding, after everything that has happened, there is still someone, somewhere, who does not get the joke. By all appearances Clyde is  new to the game, may not know the back-story, and therefore deserves the benefit of the doubt (that is to say, I am not going to read too much into Clyde’s calling me within hours of the appearance of Sam’s latest). Some gentle coaching is in order.

Actual Clyde Eltzroth avatar from Google Profiles

Fortunately, gentle coaching is my strong suit. So, Clyde Eltzroth, here are those comments you requested:

1) It is not our job to host DA’s on a no-limits fishing trip, especially when they have not acted in good faith in the past.

2) I do not believe that Mr. Antar is a ‘reformed’ white collar felon.  His co-worker, Barry Minkow, just pled guilty to felonies associated with the very type of conduct in which felon Antar continues to engage.

• Today’s “If Only There Were a Pattern” Moment: Sam Antar Crony Barry Minkow Still a Crook. Who Knew?
• The Honorable Gill Freeman Throws Book at Barry Minkow, Nicks Paymaster Sam Antar. Plus, A Question for Whitney Tilson, Minkow Paymaster #2
• Memo to Barry Minkow and Sam Antar: Roll Early, Roll Often
• Rut Roh. The “Stock Manipulator” Meme Finally Escapes the Box. Somebody Call Somebody.

3) The outrage expressed by Sam Antar and Gary Weiss is selective, disingenuous, and hypocritical.

To fully appreciate Sam Antar and his methods, Clyde, you should read “Why Are Fortune Magazine and the New York Financial Media Suddenly Pimping Sam Antar the Crook? Note that besides angering a sitting state Attorney General enough to write a letter excoriating Sam Antar and warning that, “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,” in 2007 Sam Antar famously posted the names, ages, and addresses of  6 and 9 year old girls on an Internet message board.

Sam Antar threatens two little girls

Gary Weiss has performed legendary sock-puppetting around the Internet. It became the subject of the greatest Wikipedia scandal in its history, as was ably reported in The Register:

• Wikipedia black helicopters circle Utah’s Traverse Mountain
• Emails show journalist rigged Wikipedia’s naked shorts
• Wikipedia kills Greatest Show On Earth

4) Judd Bagley is the good guy. He is a journalist who helped map out how a network of dirty hedge fund operators and their coterie of shill journalists (including Barry Minkow and Sam Antar) work together to manipulate stocks (as Barry Minkow has just pled guilty to). Judd mapped that network. You can read about it here: The stories behind the Rocker and Gradient lawsuit story

Note that Barry Ritholt made the same accusations against Judd that Sam Antar is now making. Unfortunately for Ritholt, he went on CNN Radio, at which point CNN surprised Barry by bringing Judd on air, giving Barry a chance to make his allegations against Judd, live. Barry, who moments before was full of righteous bluster, folded like a cheap chair. Really, you should listen to it, as Ritholtz went from accusation-overdrive to reverse-and-back-away in some sort of record for cravenness. Podcast: Barry Ritholtz and a tale of two media

Now, Clyde Eltzroth, I have a request for you. You asked me for response to Sam Antar’s latest, and response I have provided. I believe that journalistic ethics require that, when you write about this, you need mention where my response was made: DeepCapture.com.

Good luck with that.

UPDATE:

It turns out that Clyde published his story on Bloomberg precisely 10 minutes after contacting someone at Overstock to let us know he was writing this story.

How’s that for service?

By Clyde Eltzroth

April 12 (Bloomberg) — Overstock.com fell after White Collar Fraud blog questioned whether OSTK is obstructing allegations of consumer fraud in California.

Blog author Sam Antar says he’s a convicted felon, former CPA, former CFO of Crazy Eddie’s; Antar said he doesn’t own any OSTK securities long or short

OSTK had no immediate response

OSTK short interest 6.7% of float: Data Explorers

OSTK down 16% YTD

Link: http://whitecollarfraud.blogspot.com/

Link to Company News:{OSTK US <Equity> CN <GO>}

For Related News and Information:

Top Stories:{TOP<GO>}

To contact the editor responsible for this story:

Clyde Eltzroth at +1-212-617-1879 or

celtzroth1@bloomberg.net

World’s Most Influential Value Investors to Gather This November in New York City

The 2nd Annual New York Value Investing Congress will feature a compelling speaking program of value investors who have proven over time that their methods and strategies succeed. Some of today’s most prominent value investors will detail the thinking behind their investing methodology, discuss recent successes and offer their latest stock recommendations.

Speakers at the 2nd Annual New York Value Investing Congress will include:

Joel Greenblatt, Gotham Capital

Marty Whitman and Curtis Jensen, Third Avenue Funds

Larry Robbins, Glenview Capital

James S. Chanos, Kynikos Associates

William Ackman, Pershing Square Capital

David Einhorn, Greenlight Capital

Christopher H. Browne, Tweedy, Browne Company

Lisa O’Dell Rapuano, Lane Five Capital

Bruce Berkowitz, Fairholme Capital

Kian Ghazi, Hawkshaw Capital

Patrick Byrne , Overstock.com

Whitney Tilson, T2 Partners and Value Investor Insight

Glenn Tongue, T2 Partners

Some weeks before the conference, Whitney contacted me to let me know that Jim Chanos and David Einhorn were insisting to him that I not be allowed to appear. Naturally, Whitney caved to Chanos and Einhorn, and disinvited me.

There were no hard feelings, on my part, anyway. No blood, no foul. Simply by way of comparison, however, I will tell a related story. In 2007  Brett Goetschius contacted me with an invitation to speak at his upcoming PIPEs conference. I told him of what had happened with Whitney Tilson. Brett said, “Don’t worry, in the last year the hedge fund community has changed their attitude. At least 50-60% of them now understand you are right. Especially the small and mid-sized ones. In any case, I’m extending this invitation, and I won’t back out.” Brett proved true to his word, and I presented to about 800 hedge fund managers a presentation I called, “DeepCapture“, to a warm reception. I launched this site a week or so later.

Given this history, however, about which some men might have felt shame, it was odd to see Whitney Tilson slag me  in a column he wrote in 2008 (as you will see below).

By 2009 Deep Capture was tracking and writing about the activities of Sam Antar and Barry Minkow.  Both were hard-core convicted felons. At the age of 23, Barry had been sentenced to 25 years in prison, and served seven.  Yet we became aware that Barry Minkow was actually working for Whitney Tilson. I was more than a little surprised to see that, as there are normally sharper difference between the riffraff and the simply spineless. While Barry claimed to be doing “research” for Whitney, but we knew that Barry did not actually do anything resembling what a legitimate hedge fund would consider research. As Florida State Judge Gill Freeman later wrote:

“Fact No. 29: Minkow withheld documents he perceived to be harmful to his case. Among other things, the concealed documents demonstrate:

• that Minkow’s investigators questioned the accuracy of statements of fact he included in his report on Lennar;

• the perfunctory nature of Minkow research and investigation before he accused Lennar and its executives of operating like a ponzi scheme, giving its COO a disguised kickback, being a financial crime in progress, and other statements;”

Deep Capture had learned that Whitney Tilson had paid Barry Minkow $40,000 to do something. But if Barry did not do research, what was Whitney paying him to do?

In March, 2011 Barry Minkow was arrested, and last week plea bargained his way down to another five years of jailhouse stew.

So I thought that was a good time to ask Whitney a few questions.

From: Patrick Byrne
Sent: Sunday, March 20, 2011 4:44 PM
To: ‘WTilson@T2PartnersLLC.com’
Cc: ‘feedback@tilsonfunds.com’
Subject: Request for comment on news story

Dear Whitney,

I hope this finds you well. It has been too long since our lunch together.

This weekend I have finalized a nice little piece on Barry Minkow, with whom it appears you are acquainted. You may note that you are invited to respond, and may wish to take advantage of this invitation, before I give this wide distribution.

Very respectfully,

Patrick Byrne

Journalist, DeepCapture.com

The Honorable Gill Freeman Throws Book at Barry Minkow, Nicks Paymaster Sam Antar. Plus, A Question for Whitney Tilson, Minkow Paymaster #2

Posted on 17 March 2011 by Patrick Byrne
Tags: Barry Minkow, Gill Freeman, Sam Antar, Whitney Tilson

Barry Minkow spent last week in plea negotiations regarding a federal indictment on which he is hoping to receive only 5 years, says his lawyer. (LA Weekly: Barry Minkow to plead guilty to insider trading).  In December, 2010, a Florida judge threw her proverbial book at Barry Minkow, and it glanced off Sam Antar, who had been paid Barry’s paymaster to the tune of $250,000, Barry had testified. In addition, the judge found as a matter of fact that Sam Antar destroyed documents necessary for her trial. Minkow also gave sown testimony that well-known New York hedge fund manager Whitney Tilson paid him $40,000: more on this below.

Sam Antar, generally not short of opinion, has suddenly developed laryngitis.

Barry Minkow and Sam Antar are two of the most remarkable swindlers in recent American history, each guilty of frauds measured in the hundreds of millions of dollars. Two decades ago their names gave off the same foul stench that Bernie Madoff’s does today.

Whitney Tilson is invited to explain to DeepCapture’s audience why he would join legendarily convicted financial criminal Sam Antar in making payments to also-legendarily convicted financial criminal  Barry Minkow, who now is pleading guilty to his 58th financial felony. (You know how to reach me, Whitney. DeepCapture will give you 250 words, with no editing. But we may provide commentary.   )

…..

From: Patrick Byrne
Sent: Sunday, March 20, 2011 7:32 PM
To: ‘WTilson@T2PartnersLLC.com’
Cc: ‘feedback@tilsonfunds.com’
Subject: RE: Request for comment on news story

Dear Whitney,

While I am at it, I have two other questions:

1.       You wrote a story ( http://seekingalpha.com/article/80997-nyt-smears-david-einhorn-again ) in which you said:

L) All this is a bit unsatisfying for those who would want to regulate short sellers. But unfortunately, bad news is part of any financial system.

Davidoff is becoming more and more incoherent as he tries to wrap up this hatchet job of a post. He appears to be saying that because the market sometimes (he asserts) is a sucker for media hype (by, I assume, market manipulating short sellers?), there are people who want to regulate short sellers and prevent them from ever saying anything negative about any company. Other than Patrick Byrne, who are these people?

When you wrote this, did you really believe that I “want to regulate short sellers and prevent them from ever saying anything negative about any company.”

a.       If so, on what basis did you ascribe that belief to me?

b.      If not, why did you ascribe the belief to me?

2.       Do you consider Barry Minkow’s plea bargaining to a 5 federal-year prison term (per his lawyer: see Minkow in Plea Talks With U.S. Prosecutors Over Fraud Case, Lawyer Says) an  inappropriate attempt by the federal government to “regulate short sellers and prevent them from ever saying anything negative about a company”?

I look forward to the courtesy of your response. I trust 72 hours will be sufficient.

If you choose to respond on your own blog, I predict you will be so unconfident of your response that you will find a circumlocution to avoid mention of “DeepCapture” (just wanted to get that on the record now).

Very respectfully,

Patrick Byrne

Journalist, DeepCapture.com

Oddly, Whitney, once so voluble on these matters, has been incapable of response. Given the integrity and moral fiber he demonstrated in withdrawing his speaking invitation at the insistence of Jim Chanos and David Einhorn, I cannot say I’m shocked that Whitney Tilson would lazily ascribed to me a claim such as that quoted above, then refuse to defend it, and also refuse to clarify his involvement with the two-time criminal Barry Minkow.

Those who need to get caught up will appreciate the following review, with some additional information thrown in for color.

Following his release from prison for stock manipulation, Minkow created the Fraud Discovery Institute (FDI), which, according to a disclaimer on the FDI website, was originally funded by fees collected in return for “various training sessions as well as public speaking engagements.”

FDI’s ostensibly altruistic motivation persisted until spring of 2007. At that time, verbiage was added to the company disclaimer revealing two additional sources of revenue: “short positions” and “third party payers.” This was Minkow’s subtle disclosure of the fact that he would subsequently be paying the bills by means of the profits derived from trading (in this case, short-selling) ahead of FDI’s attacks on public companies, and that these attacks would be financed by third parties who felt Minkow’s motives, one must presume, were aligned with their own.

This evolution in FDI’s incentive structure – from karmic to economic – was a fateful one for Minkow, as it marks the beginning of his march down a path that by all appearances leads to prison. Given its significance, it will be the primary emphasis of the remainder of this piece.

We now know that the change to FDI’s disclaimer was timed in accordance with its publication of an attack on USANA (NASDAQ:USNA), a publicly traded company in whose stock Minkow had previously purchased hundreds of put options, anticipating they would increase in value as the company’s stock fell (that is, buying a put against a company’s stock is just one way to bet that its price is going to fall).

How Minkow came to target USANA is both instructive and well-documented, thanks to the testimony Minkow gave when deposed in the defamation suit USANA brought in response to the attack (though it’s since been equally well-documented that being under oath is by no means a guarantee Minkow will tell the truth).

According to Minkow, one summer day in 2006, entirely without warning, fellow convicted stock manipulator Sam Antar called to announce that he would be sending Minkow $100,000 – no strings attached. Together with $150,000 sent in the months to follow, Antar handed Minkow $250,000 of the nearly $300,000 used to finance the USANA attack.

This payment is interesting for myriad reasons, two of which follow:

First, Minkow currently finds himself in a familiar role as defendant in a defamation suit borne of one of FDI’s more recent attacks – this time against public company Lennar. A source familiar with the lawsuit tells me that in his deposition in the case, Sam Antar testified that the $250,000 he gave Minkow bought Antar access to Minkow’s operation, and that Antar paid it anticipating that he would eventually create a comparable business based on the FDI model. Strikingly, the source also reveals that Antar went out of his way, under oath, to express hatred toward his then-wife Robin Antar, whose personal bankroll was without doubt the actual source of the funds, assuming they did in fact originate anywhere near Sam.

Second, arguing against the possibility that the money was indeed Antar’s is the fact that public records reveal that within months of Antar’s $250,000 gifts, the State of New York issued a warrant for unpaid taxes against him in the amount of $473.15. That tax debt remains unpaid to this day.

In his subsequent divorce from Robin, Sam was unable to cover the cost of his own attorney, and was forced to beg the former Mrs. Antar to pay for both hers and his. Additionally, Antar’s remaining $60,000 SEC-ordered fine (brought about by his involvement in the Crazy Eddie stock scam) appears to remain unpaid. Finally, a 2008 civil judgment ordering Antar to repay a $200,000 debt to real estate financier Morris Cohen has been actively ignored by Antar.

Point being: the $250,000 Antar gave Minkow both financed the USANA attack and bought Antar access to FDI’s operations. What’s less clear is the origin of the money, given the amount of evidence indicating Antar himself has a net worth well below zero.

According to Minkow, he and Antar first agreed to collaborate on the USANA attack in October of 2006.

Interestingly, that’s the same month in which Gary Weiss, an outspoken defender of illegal, manipulative short selling, went out of his way to introduce Antar to the readers of his blog. The occasion was a comment Antar made on a column penned by Herb Greenberg, yet another defender of illegal short selling and the man who would, just days before FDI’s USANA attack, announce to the world that Minkow and Antar had recently joined him for lunch.

From that day on, the blogs operated by Weiss and Antar operated in close synch with one another and both made effusive praise of Minkow a consistent element in their writing.

FDI’s USANA attack was published in February of 2007 but remained largely unnoticed until March 15, when the Wall Street Journal wrote about it.

One month later, a clear anti-USANA PR offensive was launched by FDI.

Within the space of three days, Gary Weiss again made a special effort to introduce his readers to blogging accountant Tracy Coenen, a recent addition to the FDI team. Together, Antar, Weiss and Coenen carefully coordinated their blog subject matter and cross linking, in order to achieve maximum visibility on search engines, all the while heaping thick praise on Minkow’s efforts.

Two more events coincided with this mid-April PR blitz: class action securities attorney Howard Sirota (operating anonymously) became a frequent and rabidly anti-USANA participant in online discussions of the company’s stock. Sirota, as it turns out, is a close friend of Sam Antar’s and has represented the late Anthony Bruan, who is significant in that he contributed $10,000 toward the financing of FDI’s USANA attack.

Clearly, Antar brought both Sirota and Bruan into the picture — Sirota likely with an eye toward leading a shareholder class action suit against USANA, and Bruan hoping to make a quick few bucks shorting the stock.

When his true identity was publicly revealed by me in June of 2007, Sirota defended his several months’ worth of anonymous attacks on USANA and at the same time revealed that he had also bought put options in the stock, anticipating it would fall in response to Minkow’s actions.

In his deposition in the case, Minkow testified that Sam Antar had similarly either sold shares of USANA short or had invested in speculative put options.
Perhaps most significantly, the middle of April 2007 saw a dramatic and sustained surge in delivery failures of USANA shares, which is generally a result of a concerted effort to illegally depress the price of the stock.

In other words, FDI’s mid-April anti-USANA PR blitz appears to have been timed to coincide with a manipulative trading scheme intended to apply significant, artificial downward pressure on USANA’s share price.

Furthermore, this effort involved Sam Antar, Tracy Coenen, Gary Weiss, Howard Sirota, and of course, Barry Minkow.

In the years that have followed, Weiss, Coenen, Antar and Minkow have grown quite close and effusive in their affection for one another. Coenen, who knows nothing about corporate finance, has even joined Weiss in defending illegal, manipulative short selling and attacking companies victimized by the practice.

Antar, for his part, revealed under oath that he was paid $30,000 by Minkow for his support of FDI’s attack on Lennar (though he promises to pay it all back).

Tracy Coenen testified that she was paid $50,000 by FDI for her work on the same project. Gary Weiss has yet to be asked what he got for his trouble, but in light of the phrase he used in the inaugural post on his own blog – “only a fool writes for free” – we can surmise there was something in it for him, too.

To top it all off, Tracy Coenen got Minkow, Antar and Weiss each to pen an enthusiastically positive review of a book related to accounting fraud she published during this period (and while Minkow’s review remains indelibly printed inside the book, Tracy’s had the good sense to remove that one from her website).

We can also surmise that Minkow was beyond pleased with Weiss’s support for FDI’s efforts, given the fact that Minkow tends to cite a post from Weiss’s blog, verbatim and in toto, when explaining away the lawsuit USANA brought in response to FDI’s attack. (As an aside, that particular post by Weiss ends as follows: “Congratulations, Barry, and keep up the good work.”)

Notably, Minkow has been subjected to substantial criticism by the judge overseeing the Lennar suit – in which Minkow is the primary defendant – for, among other things, the destruction of evidence. This includes email communication from Minkow to Antar and Coenen. Most significantly, these same emails have also been deleted by Antar and Coenen – strongly suggesting a conspiracy by these three not only to defraud, but to cover-up.

Thus far, only Minkow has been held to account for these dark deeds, but the gears of justice grind fine yet slow, and the eventual inclusion of — at the very least — Antar and Coenen seems inevitable.

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

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

THE STOCK MANIPULATION MEME

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

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

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

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

THE COVER-UP

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

THE CRUSADE

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

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

THE BREAKTHROUGH

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

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

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

Far bigger than Whitney Tilson.

Note that Sam also sent it to a number of financial writers with whom Sam is on good terms, and whose names will be known to regular readers of DeepCapture:  Joe Nocera and Floyd Norris (both of New York Times), Roddy Boyd, and Gary Weiss, all of whom had an awful lot to say about me until I confronted them in the pages of this website, at which time they reverted to mumbling into their beers rather than engage DeepCapture in debate. Which is, I think, a good indication of how confident they truly were of their own research, argument, and prose: they talked big in the locker-room and at the weigh-in, but pissed themselves stepping onto the mat.

Being the nice guy I am, I answered Sam, albeit belatedly.

Sam’s email to me, and my reply, are below.

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

From: Sam E. Antar [mailto:sam@whitecollarfraud.com]
Sent: Sunday, May 09, 2010 8:14 AM
To: Patrick Byrne; Board – Jonathan Johnson; Kevin Moon; Joseph Tabacco
Cc: ‘Israel, Kenneth D.’; ‘Korb, Norman J.’; ‘Caleb Newquist’; ‘Gary Weiss’; ‘Joe Nocera’; norris@nytimes.com; ‘Aaron Elstein’; ‘William K. Wolfrum’; ‘Felix Salmon’; ‘roddy boyd’; ‘Simpson, Richard’; ‘Fitzsimons, Brian’; ‘Carnall, Wayne’; ‘Corpfin-ENFLiaison’
Subject: Overstock.com Q2 2010 Conference Call
Importance: High

Dear Patrick Byrne and other persons from Overstock.com:

Overstock.com’s Q2 2010 conference call is scheduled for today at 3 PM ET. I will be calling in. I expect to be permitted to participate in said call and ask relevant questions about Overstock.com. As I recall, in 2005 you allowed a lay person named Phil Saunders AKA Easter Bunny to participate in the call.

Sam E. Antar

Web site: www.whitecollarfraud.com

Blog: www.whitecollarfraud.blogspot.com

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

From: Patrick Byrne
Sent: Thursday, March 24, 2011 2:59 PM
To: ‘Sam E. Antar’; Board – Jonathan Johnson; Kevin Moon; Joseph Tabacco
Cc: ‘Israel, Kenneth D.’; ‘Korb, Norman J.’; ‘Caleb Newquist’; ‘Gary Weiss’; ‘Joe Nocera’; norris@nytimes.com; ‘Aaron Elstein’; ‘William K. Wolfrum’; ‘Felix Salmon’; ‘roddy boyd’; ‘Simpson, Richard’; ‘Fitzsimons, Brian’; ‘Carnall, Wayne’; ‘Corpfin-ENFLiaison’
Subject: RE: Overstock.com Q2 2010 Conference Call

Dear Sam,

By odd coincidence, your email from last May popped out of our junk email filters today. I say “coincidence” because you have been on my mind of late, given the sudden return to prominence of your esteemed friend Barry Minkow, another felon  who “reformed” himself and became, like you, the recipient of various “It takes one to know one” puff-pieces from the financial media. However, according to today’s WSJ,

“Barry Minkow Charged in Fraud Against Lennar: Federal prosecutors charged former fraud investigator Barry Minkow with conspiracy to commit securities fraud by allegedly disseminating false information in 2009 about home builder Lennar Corp., according to court documents filed Thursday in Miami federal court. The complaint charges that Mr. Minkow, along with a person identified as Conspirator A and others, conspired to ‘artificially manipulate and depress Lennar’s stock’ …. The charge against Mr. Minkow comes with a maximum prison term of five years. …. The criminal complaint also says that Mr. Minkow abused his relationship with federal law-enforcement officials and induced them to open up an investigation into Lennar…”

Shocked, am I. Shocked, I say. It turns out that Barry’s “reformation” was just another scam, and he actually remained a criminal all along? And his “It takes one to know one” shtick was just a cover he used for smear campaigns to move stock prices? And the financial media did not do their homework before writing their lotion-job profiles of him? And he gulled federal officials into going along for the ride?……….. No, that couldn’t possibly be. That’s just far too whacky a story.

So that is why unearthing your email today is so serendipitous, Sam. I’ve been thinking of writing you to ask your opinion on this matter. Could a man [] be a convicted felon, reposition himself as contrite and repentant, claim to the public to be using his skills as a swindler to ferret out crime, get the press and the federal government to buy into it, then conduct smear campaigns simply in order to manipulate stocks on someone else’s behalf? In your unique view, how plausible is that scenario, Sam? You seem like just the guy to ask, especially since DeepCapture’s technological forensics establish such good fellowship between Barry and you (and for that matter, Gary Weiss, whose email I note you included above).

While you’re at it, is there any chance you can explain why Barry Minkow gave sworn testimony that you wired him $100,000 “out of nowhere,” and then, wired him another $150,00 (see Minkow transcript, 10:39 to 10:46)? Especially as you are a bankrupt and hold yourself out as virtually penniless, this seems a little odd: Do you often wire people $250,000 for purposes they cannot define?

In December the Florida judge found that Barry actually did not do any research, but just smeared. Yet Barry also gave  testimony that Whitney Tilson paid $40,000 to Barry.  It seems odd that someone like Whitney would rely on research from Barry, especially as (per the judge) Barry’s research is phony. Any idea what that payment was for? Whitney Tilson has become oddly unresponsive to my emails.

Remember, Sam: Roll early, roll often. Oh, but you know that already.

With hopes of big things in your future, I remain,

Your friend,

Patrick M. Byrne

Journalist, DeepCapture.com

PS You may have been busy last week, Sam, and missed my two essays on these matters. Enjoy.

March 17: Today’s “If Only There Were a Pattern” Moment: Sam Antar Crony Barry Minkow Still a Crook. Who Knew?

March 17: The Honorable Gill Freeman Throws Book at Barry Minkow, Nicks Paymaster Sam Antar. Plus, A Question for Whitney Tilson, Minkow Paymaster #2

Barry Minkow spent last week in plea negotiations regarding a federal indictment on which he is hoping to receive only 5 years, says his lawyer. (LA Weekly: Barry Minkow to plead guilty to insider trading).  In December, 2010, a Florida judge threw her proverbial book at Barry Minkow, and it glanced off Sam Antar, who had been paid Barry’s paymaster to the tune of $250,000, Barry had testified. In addition, the judge found as a matter of fact that Sam Antar destroyed documents necessary for her trial. Minkow also gave sown testimony that well-known New York hedge fund manager Whitney Tilson paid him $40,000: more on this below.

Sam Antar, generally not short of opinion, has suddenly developed laryngitis.

Barry Minkow and Sam Antar are two of the most remarkable swindlers in recent American history, each guilty of frauds measured in the hundreds of millions of dollars. Two decades ago their names gave off the same foul stench that Bernie Madoff’s does today. So Deep Capture invites Whitney Tilson to explain why he would join legendarily convicted financial criminal Sam Antar in making payments to also-legendarily convicted financial criminal  Barry Minkow, who now is pleading guilty to his 58th financial felony. (You know how to reach me, Whitney. DeepCapture will give you 250 words, with no editing. But we may provide commentary.   )

What is more to the point of DeepCapture, however, is that until this latest turn of events, Barry Minkow and Sam Antar had, notwithstanding their prior convictions on massive financial crimes, successfully repositioned themselves within the US financial media as experts in crime-fighting (see 60 Minutes‘ 2006 puff-piece on Barry Minkow, “It Takes One to Know One“, and Fortune Magazine’s 2007 lotion-job on Sam Antar, “Takes One to Know One“). Barry and Sam used the imprimatur of the mainstream press to return to criminal behavior (which Barry has now acknowledged). The ease with and degree to which the New York financial media swallowed this remarkable bullshit  will attest for a generation to the intellectual corruption and broad imbecility of broad swathes of the US financial media.

No, seriously. That really happened.  Two convicted financial felons, the Madoff’s of their generation, made comebacks by gulling the financial press into writing lotion-job stories saying that they were now reformed and devoted to stopping crimes, not committing them.  Here is UPI on Barry Minkow: “Barry Minkow: Cleaning up, reaching out.” Here is, again, Fortune Magazine from late 2007: “Takes one to know one -Sam Antar, the felonious former CFO of Crazy Eddie, is now teaching students and prosecutors how to spot fraud in public companies.” And then, it turns out, both used their new-found status as authorities to whom the press turned in order to resume their criminal activity, which again, as of yesterday, leaves Barry hoping for only a five year sentence, and his paymaster Sam Antar with laryngitis.

In the spirit of reconciliation and forgiveness, however, I will offer the US financial media one concession: your gullibility is understandable. In high school I had a history professor who brought an actual American Nazi to class, and let us argue with him. For many of my classmates debating the Nazi was like trying to nail Jell-O to the wall. I discovered that only if one can grasp the concept of “complete venality” can one defeat a scoundrel. Many people, however, are intellectually helpless against such people, because deep down they cannot grok the possibility that anyone can spin and lie and spin and lie and spin and lie and spin some more, then lie and lie on top of it.

I believe that the preceding accurately describes the mentality of some US journalists who gave these knuckleheads more credit than they should have. For others, however, giving credence to Sam Antar or Barry Minkow was simply an expression of an ideological commitment: those publications favor Wall Street over the United States, and they were willing to give credence to Barry and Sam’s work in order to further the agenda of Wall Street, which is more or less the purpose of their publications.

I know that is a lot to accept. So don’t trust me, trust a Florida state court judge, The Honorable Gill Freeman, who brought her hammer down on Barry Minkow.  Judge Freeman’s entire  opinion can be read here: Order Granting Lennar’s Motion for Sanctions–Dec 27 2010 (warning: It is so scathing one almost feels sorry for them. Or, well… maybe not.)

I cannot help resist quoting at length from it: as you read Judge Freeman’s words, please remember my description of the American Nazi.

THIS CAUSE came before the Court on Plaintiffs Motion for Sanctions and for entry of default and other relief against Defendants Barry Minkow and the Fraud Discovery Institute, Inc. for their willful and egregious litigation misconduct. The parties filed extensive papers in support and in opposition of the motion, and the Court held a two-day evidentiary hearing on August 26 and 27, 2010 at which time Mr. Minkow was examined by Plaintiffs’ and Defendants’ counsel, as well as the Court.

Having carefully considered all the papers, the evidence filed by both parties, evidence introduced at the hearing, including Mr. Minkow’s testimony, and arguments of counsel, it is ORDERED and ADJUDGED that Plaintiffs’ Motion be, and the same is hereby, GRANTED as set forth below, based on the following findings of fact and conclusions of law.

With full knowledge of the rules and his obligations as a litigant in this Court, Mr. Minkow has withheld key documents, destroyed or discarded important evidence, concealed the identity of material witnesses, willfully violated court orders, and engaged in actions to cloud his misconduct. Minkow repeatedly intentionally misrepresented these matters to his own lawyers, in sworn affidavits filed with this Court, at depositions in this case, and at the evidentiary hearing itself, including in response to questions from this Court. Mr. Minkow was repeatedly impeached by his own documents, documents he never produced in this case as to material issues. The evidence clearly and convincingly established that Minkow has acted knowingly, unilaterally, and improperly in deciding what evidence is relevant and what information Lennar, the Court, and his lawyers should and should not know.

Minkow’s misconduct has been pervasive, intentional, and committed to gain unfair advantage over Plaintiffs and to deceive this Court. Lennar and its counsel spent numerous hours investigating Minkow’s activities in this litigation, and evidence which Plaintiffs have repeatedly requested has been discarded and/or irretrievably lost.

Plaintiffs’ right to fair process and trial has been severely and irrevocably compromised. No remedy short of default, together with full reimbursement of the attorneys’ fees and costs incurred in connection with Plaintiffs’ extensive and continuous efforts to obtain evidence and discovery, can restore Plaintiffs to “the position [it] would have occupied in the absence of [Minkow's] willfulness and bad faith.”

…

In its papers and at the evidentiary hearing, Lennar introduced substantial evidence that Minkow created and tendered false documents in this case.

…

Fact No.7: In this case, Minkow has been represented by three experienced, capable attorneys: Alvin Entin and Joshua Entin of Florida, and Michelle Baker of California. The Court finds that Minkow misled his attorneys multiple times on material issues.

…

Fact No.9: Minkow testified he could not recall whether he sent the letter to any person with whom he worked on the Lemlar investigation, including Tracy Coenen, Terry Gilbeau, Paul Palladino, Jeff Sachs, Sam Antar, or Shannon Boelter, or otherwise instruct any person to preserve documents in connection with this litigation. [emphasis added]

…

Fact No. 11: The evidence also showed that Tracy Coenen, Terry Gilbeau and Sam Antar deleted emails about Lennar they had exchanged with Minkow…

…

Fact No. 21: On October 7, 2009 Minkow submitted an affidavit swearing that he had produced all documents in his possession, custody, and control responsive to Lennar’s document demands and this Court’s June 15 and July 9, 2009 Orders. (Ex. 10 at”if”if 5-7; Ex. 8; Ex. 16; Ex. 20.)

Fact No. 22: These sworn statements in Minkow’s October 7, 2009 affidavit were false. At the time he represented that he had made a complete production, Minkow had possession, custody, or control of numerous documents responsive to Lennar’s document demands and this Court’s June 15 and July 9, 2009 Orders, including but not limited to, the following documents material to this case:

• a version of the November 30, 2008 engagement agreement between Minkow and Nicolas Marsch containing a six-page, 11-point “confidential proposal” (Ex. 202); .

• another version of the November 30, 2008 engagement agreement between Minkow and Nicolas Marsch containing materially different compensation terms (Ex. 200);

• numerous emails with Mr .. Marsch, Paul Palladino, Tracy Coenen, Sam Antar,Terry Gilbeau, Shannon Boelter, and other individuals involved in the Lennar investigation;

Fact No. 23: Minkow knew he had possession, custody, or control of these and other documents, but made the decision to withhold them.

…

Fact No. 25: At the August 26,2010 hearing, Minkow admitted that he withheld these documents and others but said it was “negligent” because, at the time he represented he had produced all responsive documents, Minkow was working “18 hours a day” filming a movie about his life and he was “swamped and overwhelmed.”  The Court does not find this testimony credible and rejects this excuse.

Fact No. 26: On several subsequent occasions, when he was not filming a movie including as recently as August 11, 2010, Minkow continued to withhold documents and falsely represent that he had produced all documents in his possession, custody, or control responsive to Lennar’s document demands and this Court’s June 15 and July 9, 2009 Orders.

Fact No. 27: On each occasion, Minkow knew he had possession, custody, or control of such documents responsive to the Court’s Orders, but he–alone-made
the decision to withhold them.

Fact No. 28: Minkow’s year-long withholding of documents was not inadvertent, accidental, or negligent.

Fact No. 29: Minkow withheld documents he perceived to be harmful to his case. Among other things, the concealed documents demonstrate:

• that Minkow’s investigators questioned the accuracy of statements of fact he included in his report on Lennar;

• the perfunctory nature of Minkow research and investigation before he accused Lennar and its executives of operating like a ponzi scheme, giving its COO a disguised kickback, being a financial crime in progress, and other statements; and

• Minkow’s use of possibly illegal means to obtain personal, confidential information about Lennar, its executives, and others.

Fact No. 30: By withholding these documents, Minkow wilfully violated the Court’s June 15,2009 Order and the Court’s July 9, 2009 Order.

…

Fact No. 31: Minkow introduce~ no credible evidence to substantiate his assertion that he was unable to produce documents because his Hewlett Packard computer was stolen, crashed, and/or was hacked.

Fact No. 32: The evidence showed that in February 2010, Minkow was named as a defendant in another matter by a company called Medifast, Inc. … Lennar is not a party to that case.

Fact No. 33: In April and May 20 I 0, Medifast had· served Minkow with requests for documents in their case. On July 1, August 10,16, and 23,2010, Minkow produced more than 4,000 pages of documents to Medifast, including scores of emails. Among the documents produced to Medifast were documents that should have been, but were not, produced in this case despite this Court’s June 15 and July 9,2009 Orders.

Fact No. 34: When confronted at the evidentiary hearing with a document from the Medifast production, but not produced here, one that was responsive to Lennar’s document requests-Minkow testified, “I never even thought this had anything to do with it… What in the world would make me think I had to tum it over to Lennar?”

Fact No. 35: This testimony is not credible and, even if it were, demonstrates Minkow’s contemptuous disregard for the rules of litigation and his belief that he–not the Court-determines what is relevant.

Fact No. 36: The documents Minkow produced to Medifast-but not in this case-refute Minkow’s testimony that he was unable to produce emails in this case because his computer had been stolen, crashed, and/or hacked.

Fact No. 37: Lennar has incurred great expense to procure some evidence from third parties, and it is highly probable considerably more evidence that Minkow should have produced has been withheld, deemed irrelevant by Minkow himself, concealed and/or destroyed. Due to Minkow’s misconduct, neither Lennar nor the Court has any way of knowing the nature, extent, or volume of evidence that should have been produced but has been concealed and destroyed.

…

Fact No. 40: Minkow had represented that the Hewlett Packard computer on which he performed the vast majority of work related to his investigation of Lennar (and on which he had exchanged untold numbers of emails with Tracy Coenen, Terry Gilbeau, Paul Palladino, Jeff Sachs, Sam Antar, Shannon Boelter and others) had earlier been hacked, and likely was destroyed and/or discarded; after Minkow was added as a defendant in this case, after being served with a preservation letter, after being served with a Notice of Deposition Duces Tecum requiring the production of documents, and after Plaintiff had filed its first sanctions motion.

Fact No. 41: Minkow has not introduced any credible evidence that all information from the Hewlett Packard was copied, duplicated, stored, and preserved without the loss of discoverable evidence.

Fact No. 42: Minkow admitted that the transfer of his email archives from the Hewlett Packard to a new computer was “incomplete.”

Fact No. 43: On July 21,2010, the Court ordered Minkow to appear and provide testimony at an evidentiary hearing scheduled for August 4, 2010. The
Court allowed Minkow to appear in San Diego and provide testimony via videoconference.

Fact No. 44: Lennar made significant preparations to arrange the videoconference for the hearing on August 4.

Fact No. 45: On July 30,2010, Minkow agreed to voluntarily appear live in Miami at the evidentiary hearing scheduled for August 4, 2010.

Fact No. 46: Lennar relied on Minkow’s representation and Lennar’s counsel made significant preparations to attend and examine Minkow in person at the
hearing on August 4 in Miami.

Fact No. 47: On the morning of August 3, 2010, Minkow informed the Court that he would not attend the hearing scheduled for August 4, 2010 in person or via video conference from California. Minkow asserted that on August 2, 2010, while in Los Angeles awaiting a flight to Miami, he became ill and went to the emergency room at a Los Angeles hospital. Minkow represented that he was restricted from traveling to Florida for the hearing.

Fact No. 48: On August 4 and 10, 2010, the Court ordered Minkow to produce, among other things, evidence that he had been to the emergency room / hospital.

Fact No. 49: Ten days later, on August 20, 2010, Minkow submitted an affidavit wherein he admitted that he had not gone to the emergency room.  Minkow had lied to Plaintiffs, the Court, and his own lawyers.

Fact No. 50: Minkow swore that he could not “recall” what he had said to his lawyers and his assistant the morning of August 3, 2010 because he was on pain medications. The Court does not find this testimony credible.

Fact No. 51: The Court finds that Minkow intentionally deceived Plaintiffs and the Court regarding the emergency room visit because he knew that such a claim would require this Court to postpone the August 4, 2010 hearing.

Fact No. 52: At the August 26,2010 hearing, Minkow testified that he “didn’t think it [whether he went to the emergency room] mattered. I had a doctor verifying I was ill, and I thought that is all that mattered.”

Fact No. 53: This testimony is not credible and demonstrates Minkow’s contemptuous disregard for the rules of litigation and his belief, again, that he-not the ermines what is relevant.

Fact No. 54: At the August 26, 2010 hearing, when Minkow was impeached by the fax header on his own doctor’s letter, Minkow testified for the first time that the assistant who picked him up in Los Angeles was not in San Diego, California, as he earlier had testified, but rather was in Orange County, California.

Fact No. 55: This testimony contradicts his affidavit ofless than a week earlier in which he swore that his assistant “drove to Los Angeles from San Diego, California.”

Fact No. 56: When confronted with his contradictory. affidavit, Mr. Minkow testified that the location of his assistant was “irrelevant.”

Fact No. 57: This testimony is not credible and demonstrates Minkow’s contemptuous disregard for the rules of litigation and his consistent belief that he, not the Court, determines what is relevant.

…

PERVASIVENESS OF MINKOW’S MISCONDUCT

Fact No. 95: Minkow’s withholding and destruction of evidence, concealment of witnesses, and false testimony constituted a fraud on the Court.

Fact No. 96: Minkow has displayed no regard for the Court’s Orders, his testimonial oaths, the administration of justice, or his obligations as a litigant.

Fact No. 97: Minkow had ample opportunity to correct his misconduct and avoid sanctions. Minkow chose not to do so.

Fact No. 98: Minkow has wrongfully acted as though it is his right, not that of the Court, to determine what documents are relevant, what issues are material, and what information the Plaintiffs, the Court, and even his own lawyers should and should not know.

Fact No. 99: Minkow has displayed no appreciation of, or remorse for, the burden and expense that his withholding and destruction of evidence, concealment of
witnesses, false testimony, and other misconduct have caused Plaintiffs and the Court.

Fact No. 100: The Court finds that the likelihood Minkow would comply with his discovery obligations or the Court’s Orders in the future is unlikely.

Remember what I said above about the American Nazi? How if someone lies and spins and lies and lies some more, they can actually keep going for a long time?  When you catch them out in a lie, they often apologize, say they are sorry. Lots of them even cry (really, I see it every time I deal with sociopaths). They then continue with a new lie, a new spin, until you catch them again. They just keep going and going.

That is a pretty fair description of Judge Freeman’s description of Barry Minkow. Withhold evidence and lie about it by saying the evidence was destroyed; Destroy the evidence then lie about that; when confronted, say that your computer was hacked and that evidence is gone (even though it is not); when told to appear in court, claim that you have been in an emergency room; when asked for evidence you were in an emergency room, say that a doctor gave you advice; when confronted with the fact that the doctor’s letterhead reveals a forgery that shows you were lying, change the city. And so on and so forth.

Incidentally, this pattern continues almost to this day. In February, 2011, LA Weekly reported: “Pastor Barry Minkow’s Community Bible Church Hit by $50,000 Burglary; Ex-conman Minkow Has a History of Faked Burglaries”.

I assume that Barry will go find God again, or claim he was off his medications, or or or. A guy like this can never own what he does. However, simply as a tactical matter, he can apologize. That will come someday, and he will sound sincere, and Fortune Magazine or Bloomberg or Portfolio Magazine will trumpet the redemption of a fraudster, who will then go on and attack a list of companies that bears striking resemblance to the list of companies being bet against by the favorite hedge fund sources of those same publications.

However, I would like to draw attention to the names “Tracy Coenen” and “Sam Antar“, which appeared repeatedly in the judge’s order.  “The evidence also showed that Tracy Coenen, Terry Gilbeau and Sam Antar deleted emails about Lennar they had exchanged with Minkow,” wrote Judge Freeman. They destroyed emails, says the judge, but “Minkow testified he could not recall whether he sent the letter”  Tracy Coenen and Sam Antar instructing them to preserve documents.

So Tracy and Sam just happen to have deleted  all their email traffic on the precise subject of the lawsuit, and did so in some magically irrecoverable way. Sure, it happens all the time. “What judge, those emails? Oh, I was watching NBA and hit my laptop’s magic delete key and all those emails vanished from my laptop, and from my server, and coincidentally as I passed in front of my microwave my hard drive got wiped the recommended 3-7 times to US Department of Defense clearing standard DOD 5220.22, and gosh, I’m sorry, but none of those emails can be recovered.”

The strangest thing about such folks, like the strangest thing about the American Nazi, is the fatuity with which they tell lies, knowing they are lies, knowing that you know they are lies, and knowing that you know that they know that you know they are lying. I have had to deal with it a few times in business settings, and it really is remarkable. Again, only when they are completely cornered (and I have had reason to do so on occasion), they burst into tears, own everything they did as long as you have already proven it, promise they will never do it again, and watch out of the corners of their eyes to see if you are buying it. Like Barry Minkow is probably doing in a federal interview room right now.

That is the dynamic you need to be understand in order to comprehend people like this. Those familiar with Sam Antar’s work will recognize how his modus operandi is indistinguishable from his friend Barry’s: the rules do not apply, just lie and attack and lie and attack and lie and pretend to do “fraud research” as a cover for your own criminal activity, and chum friendly journalists into buying into it all, and hope no one digs deeper into your smears.

That said, now that you understand the nature of Barry Minkow, might it be worthwhile for some actual journalist to pursue the following line of research:

• Judge Freeman found as Fact 29:  “Among other things, the concealed documents demonstrate the perfunctory nature of Minkow research and investigation before he accused Lennar and its executives of operating like a ponzi scheme, giving its COO a disguised kickback, being a financial crime in progress, and other statements”. In other words, Minkow took payments, did bogus research, then made wild criminal accusations.  The Feds have now hit him with criminal charges, and he is (according to his lawyer) in the middle of plea bargaining, hoping to get only 5 years. But Minkow is small potatoes. He was paid to do these things by someone.  Who was paying Minkow?
• Barry Minkow testify under oath that Sam Antar, paid him over $250,000 in two wires in 2006. But Sam Antar is a bankrupt, and claims to be broke. Do broke people normally send quarter-million dollar wires?
• Barry Minkow testified (see around 9:59) that Whitney Tilson, the well-known New York hedge fund manager, paid Minkow $40,000 to write a “report”? Does that strike anyone as odd?  Given how “perfunctory” Minkow’s investigations are, why would a money manager like Whitney Tilson pay Barry Minkow? When Whitney Tilson took his clients’ funds to manage, did he tell them that he would be making decisions based on the insights of the inestimable Barry Minkow? Or, did Whitney Tilson pay Barry Minkow for other reasons?

If we actually had journalists in this country, they would not need this laid out in such a paint-by-the-numbers fashion.

Still, hope springs eternal….

1) Barry Minkow turned out to be, once again, a crook. See Bloomberg: Minkow in Plea Talks With US Prosecutors Over Fraud Case, Lawyer Says, and LA Times: Barry Minkow to plead guilty to insider trading.

2) Sam Antar went unusually silent about his long-time colleague and friend, Barry Minkow, resorting once again to spewing hateful off-topic smears on message boards rather than address why it is that Sam has spent years working with and defending a fellow who can now look forward to another 5 years of jailhouse stew.

So for those new to this tale, let me fill in some missing pieces.  For documentation of all the following claims, see “The ties that bind Sam Antar and Barry Minkow” and “Why Are Fortune Magazine and the New York Financial Media Suddenly Pimping Sam Antar the Crook?“  (Here is more on Minkow, and more on his paymaster, Sam Antar).

Sam Antar is upset because Sam has long defended Barry Minkow. In fact, they are close associates, and have much in common:

• At the age of 23, Barry Minkow was convicted on 57 counts of fraud (Minkow Is Convicted on All Charges : Jury Decides That ZZZZ Best Founder Masterminded Fraud) then sentenced to prison for 25 – 30 years for financial crimes (he served 7).
• Sam Antar was CFO of one of the greatest financial scams of the 1980′s, also committed financial crimes for which he also became a convicted felon (though he ratted on his cousin, Crazy Eddie, to get by with house arrest and skip prison). As Fortune Magazine described the scam: “When the company, which went public in 1984, blew up in a financial scandal in 1987, Sam Antar, an accountant, was its CFO. 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.” Of Sam himself, Fortune wrote, “Sam E. Antar is a convicted felon, and he will not let anyone forget it for a minute. Whenever you find yourself starting to think of him as merely a fast-talking yet charming New York character, he’ll come out with something like: ‘I had no remorse whatsoever as a criminal. I had no concern about any other human being. I enjoyed being a criminal.’” To understand Sam better, I recommend that you re-read the preceding sentence, substituting the word “sociopath” for the words “felon” and criminal”. It will make much more sense.
• In the last five years these two remarkable swindlers  successfully repositioned themselves as (I-shit-thee-not) “fraud investigators”, and a gullible financial media not only allowed this to happen by blindly parroting their claims with no scrutiny, they actually (again, I-shit-thee-not) championed the reemergence of Barry Minkow and Sam Antar. In fact, since 2006 the US media have portrayed Barry and Sam as intellectual luminaries and legitimate sources. In 2006 60 Minutes, normally a show with higher journalistic standards than the financial press, devoted a full 14 minute segment to Barry Minkow titled “It Takes One to Know One“.  A year later Fortune Magazine displayed their originality of thought and style by doing an identical lotion job on Barry’s colleague Sam Antar, with the title, “Takes One to Know One” (demonstrating literally how a Party Line gets “parroted” by journalists). Here is Sam Antar yucking it up on CNBC with journalistic worthy Herb Greenberg, sharing his deep thoughts with Larry Kudlow, and being  given a rub-down in Portfolio Magazine. (Note Portfolio’s URL: “SEC hounding whistle-blowers such as Antar and Einhorn“. That would be David Einhorn, another hedge fund manager whose name turns up in  DeepCapture investigations of this riff-raff: How odd). In addition, note that the author of the Portfolio piece is Gary Weiss, about whom one of the most respected journalists in America once warned me, ““I’ve known Weiss for years. Be careful. He’s a psychopath.” (One can read about Gary here: “Gary Weiss, Psychopath and Scaramouch“).
• As convicted felons  who played roles in massive financial swindles that became the stuff of legend, Barry Minkow and Sam Antar may have been perplexed at the ease of their return to society as noted economists. But if they were they did not show it, and instead, slid comfortably into new roles that let them return to committing financial crimes, this time with the imprimatur of the mainstream press.
• in 2007 Barry gave sworn testimony (see depositions part 1 and part 2) that Sam Antar had recently sent him a $150,000 wire, then another $100,000 wire, in order to provide vaguely defined services related to the stock market. Given that Sam is a bankrupt and claims to be penniless, that might strike some as odd. I don’t recall penniless people of my acquaintance sending $250,000 wires. When one allegedly penniless convicted swindler wires another convicted fraudster $250,000 for services that neither can explain, I get suspicious. Call me madcap.
• In December, 2010 Barry Minkow was sanctioned by a judge in a civil case involving stock manipulation.  Because the LA Weekly is not a New York-based financial publication it was able to report the information fairly, without the glossy spin characteristic of the normally-fawning Wall Street media.
  • December, 2010 – LA Weekly wrote:   “Barry Minkow Destroyed Evidence And Lied To Court In Extortion of Lennar Corp., Judge Rules“.
  • January, 2011 – LA Weekly wrote: “Barry Minkow’s New Scandal: A judge slams the purportedly redeemed con man with huge sanctions. A Miami judge has ruled that former Los Angeles con man Barry Minkow lied, concealed material witnesses and destroyed or discarded key evidence in the libel and extortion lawsuit filed against him by home-building giant Lennar Corp.“
• Today, Barry Minkow pleads guilty in yet another criminal financial case, and according to his lawyer, is hoping to go away for only 5 more years.

If only there were a pattern, if only there were a pattern….

Incidentally, the Third Musketeer with Barry Minkow and Sam Antar is Gary Weiss, about whom one can read here and, more generally, here.

Oh, and lastly, I suppose journalistic ethics require that I disclose that some time ago DeepCapture’s investigations turned up much information and evidence that, as concerned citizens, we turned over to Lennar Corp, which Lennar put to great effect in developing their civil suit, which ultimately resulted both in the Miami judge sanctioning Barry Minkow and (today) in Barry Minkow’s guilty pleading in a criminal case. I thought it only fair that DeepCapture’s intimate involvement in exposing Barry Minkow be known by the reader, and by Barry himself. He can stew on that for the next 5 years.

Point #2: In the USA there is much slop in these “clearing and settlement” mechanisms. Processes that you would expect to be one-to-one, or fixed-number-to-one, are actually sponge-to-one. People who understand this slop can loot the system knowing that it will not be discovered for a long time (and not in the ruins, if it comes to that).  Unfortunately, their activity leaves behind a residue that is a form of financial derivative, which in large quantities poses systemic risk.[1]

Point #3: In the last two years this issue has been the common denominator underlying scandals involving stocks,[2] Mortgage Backed Securities (MBS),[3] Credit Default Swaps (CDS’s),[4] commodities,[5] and Exchanged Traded Funds (ETF’s).[6]

Point #4: The line between Organized Crime and the financial community has grown fuzzy.[7] In particular, clearing and settlement is all mobbed-up, and wherever one pokes into it one quickly comes upon Bad Boys and Bad Boy Firms.

Point #5: You hope that financial regulators and journalists are protecting you from things like this, but they are not. Why not? Some have been co-opted intellectually: Our financial intelligentsia holds an inappropriately fervent commitment to the Efficient Market Hypothesis, and this leads them to overlook the ways that slop in the system is pernicious (even if is fungible slop).[8] Some lack the horsepower to follow along.[9] And some, like Jim Cramer, are dirty.[10]

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

[1] As Warren Buffett’s partner Charlie Munger put it, “Those delays in delivering sometimes reflect tremendous slop in the clearance process. It is not good for a civilization to have huge slop. Sort of like how it isn’t good to have a lot of slop in nuclear power plants.” Berkshire Hathaway Annual Shareholders’ meeting, May 2007.

[2] “SEC Extends Naked Short-Sale Order on Fannie, Freddie” (“The U.S. Securities and Exchange Commission extended an emergency limit on short sales in shares of Freddie Mac, Fannie Mae and 17 brokerages as it prepares broader rules to thwart stock manipulation”), Bloomberg, July 29, 2008. “Naked Short-Selling Blamed in Wall St Crisis” Associated Press, 9/16/2008.

[3] In “The End of Wall Street” (Portfolio Magazine, November 2008) Michael Lewis wrote:

““That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. ‘They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,’ Eisman says. ‘They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?’”

For an explanation of how this ties in to the ongoing foreclosure crisis, see “Foreclosure Crisis: Punchline to a Michael Lewis Joke from 2008?” (Deep Capture, October 18, 2010).  For an explanation of the systemic stakes, see “The Real Danger From the Foreclosure Crisis”, Zerohedge, 10/15/2010.

[4] “Regulation: EU Comes Out Against Naked CDS Shorting”, Euromoney Magazine, March, 2010.  Regarding the claim that naked shorting of CDS is a benign activity, “Richard Portes, professor of economics at the London Business School, says that’s a nonsense. He uses the example of the 1992 sterling crisis, when George Soros bet around $10 billion against sterling, which most observers believe significantly affected the market and the outcome, even though daily trading volumes at the time were $100 billion. As Portes sees it, naked CDS as a speculative instrument might be a key link in a vicious chain that eventually could lead to a run on a sovereign’s credit quality.”

[5] “Silver Market Probe: Act Now, CFTC Is Urged”, Wall Street Journal, October 27, 2010. “The CFTC’s investigation of silver has heated up in recent weeks. The agency’s enforcement staff has circulated a packet of information to CFTC lawyers and commissioners, outlining some of its findings in the silver probe, including documents that could suggest there have been attempts to manipulate prices.”

[6] “New Report Outlines Causes of Market Distortions Choking Recovery and Preventing New Growth Companies from Going Public: Derivatives known as ‘ETFs’ are the true culprits in artificially setting stock prices and posing threats to market stability“, Kaufman Foundation, November 8, 2010. “New Report Blasts ETF’s For Systemic Risk” CNBC, November 8 2010. “Can Naked Shorts Collapse an ETF?”, Barron’s, December 7, 2010.

[7] See FBI Operation Uptick: “In what authorities are calling the largest securities-fraud bust in U.S. history, 120 defendants — including members of all five New York City Mafia crime families and the treasurer of New York City’s police-detectives pension fund — were indicted Wednesday…” CNN, June 14, 2000. For a more recent investigation into how Organized Crime has become entwined in our market, see “Michael Milken, 60,000 Deaths, and the Story of Dendreon“, DeepCapture, July 2009.

[8] For explanation, see “The Deep Capture Analysis: Systemic Risk”.

[9] See for example “Anti-Investigative Reporter Joe Nocera and the Newspaper of Non-Record (New York Times)”.

[10] See Jon Stewart’s magisterial public dismemberment of Jim Cramer at “Daily Show: Jim Cramer Extended Interview Parts 1, 2 and 3”. For fuller background, see “Deep Capture: Jim Cramer is a Complicated Man”.

“Overstock Adding Racketeering Allegations to Ongoing Lawsuit vs. Goldman Sachs and Bank of America Subsidiary Merrill Lynch: Company Files Motion to Amend its Lawsuit to Add Claims of Civil RICO“

Numerous stories quickly appeared in Reuters (“Overstock accuses Goldman. Merrill of racketeering; Overstock says RICO charges apply in case“) and Associated Press (“Overstock adds RICO claim to short-sale suit“).

At first Goldman punted its reply (“A Goldman Sachs spokesman said the bank opposes the motion, but did not elaborate”, read the early version of the Reuters story), but, after having an hour to think of it, managed this witticism:

“‘The motion is the latest attempt by Overstock to shift the blame for its poor share price performance,’ a Goldman Sachs spokesman said.”

Coming  from an institution that recently (Bloomberg, December 1, 2010: “Fed Names Recipients of $3.3 Trillion in Crisis Aid“) fastened itself to the public sugar teat for tens of billions in indirect bailouts and $24 billion of direct capital support lest it go the way of the wild buffalo and vaudeville,  that statement is funny.

Truly.