No, no newspaperman actually said that. In so many words, anyway. But the following story is true.

In the spring of 2006 I met with the very bright editor of the editorial page of a major American newspaper (I do not name the paper only because I do not wish to embarrass the individual involved). After several hours of discussion, he said gently, “I know my paper has not been so fair to you.” He proceed to invite me to submit an editorial on the subject of naked short selling, suggesting a length of 1,200 words. I predicted that he would not be permitted to publish it. He replied, “I run the editorial page. I determine what gets published on it.”

Some time thereafter I sent him the editorial that appears below. The next day he called and said, “I’m terribly embarrassed to have to say this, but it appears I will not be able to publish this or anything by you.”

He sounded surprised. I wasn’t.

That said, it seems it a shame not to let it see the light of day, even at this late date. So again, the following is an editorial prepared for a major US newspaper which ostensibly is concerned with the operation of our capital market. The months referred to are 2006 months. Since then, the numbers involved have increased 30-100%.

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

A stock transaction is an exchange of stock for money. In our country the mechanisms by which stock and money change hands (”settlement”) have become divorced. Commissions are paid when money is delivered, not stock. Since follow-through incentives are weak, sometimes no stock changes hands, in which case the system creates markers of various kinds. These can be failed-to-deliver short sales (the famed “naked shorts”), the (perhaps more numerous) failed-to-deliver long sales, failures to receive from overseas exchanges, share entitlements (i.e., what is left behind in your brokerage account when your broker loans your stock to someone else), “open positions,” and “desked” trades (whereby your broker buries your order in his desk but takes your money and sends you monthly brokerage statements reflecting a trade that never actually occurred). Because our system does not adequately distinguish these markers from real shares, the markers take on lives of their own, multiplying, and creating three problems as they do.

First, these phantom shares turn proxy voting and corporate governance into a hoax. The April issue of Bloomberg magazine reports, “A robust market for stock loans puts into circulation billions of borrowed shares that can create multiple votes that corrupt corporate elections.” The effect is that, “In close contests with little room for error, the results of high-stakes company decisions may hinge on the invisible influence of millions of votes that shouldn’t be counted.” According to Thomas Montrone, CEO of Registrar & Transfer Co., “It is an abomination…. A lot of the time we have no idea who’s entitled to vote and who isn’t. It’s nothing short of criminal.” A securities consultant notes, “There are votes cast twice on almost every matter of substance… It definitely can and does, in my experience, affect the outcome of corporate elections and proposals.”

How deep is this problem? Bloomberg writes that the “Securities Transfer Association, a trade group for stock transfer agents, reviewed 341 shareholder votes in corporate contests in 2005. It found evidence of overvoting-the submission of too many ballots-in all 341 cases.” Bloomberg suggests that that this is not innocent, but that arbitrageurs have discovered and are exploiting this crack. As one source notes, “It appears to be the case where there are opportunities to game the system.” Bloomberg concludes that until these problems are fixed, “double and triple voting on one share will continue to make a mockery of shareholder democracy.”

It’s one thing if a “Should HP buy Compaq?” decision gets gamed by arbitrageurs who understand the back office better than anyone else, but there is a second way this crack is exploited to harm investors. In a normal market supply and demand balance in equilibrium. If, however, some market participants can produce phantom goods, and thus shift the supply curve to the right, they can shift the equilibrium price as well (that’s why it is “illegal”). In some companies the supply of phantom shares has become a significant fraction of (or perhaps multiple of) the shares issued and outstanding. Evidence of this comes from detailed analysis of proxy over-voting such as appears in the Bloomberg article cited above, the persistence of firms on the Reg SHO threshold list, and examination of records from transfer agents, the Depository Trust and Clearing Corporation, and Freedom of Information Act responses from the SEC. A recent SEC FOIA response regarding the 2004 FTD’s of one company reveals days where over 40% of the volume were phantom shares, but I believe it may reach more than that in some companies. While the SEC could settle this question in a heartbeat, the Commission refuses to release relevant data on the following grounds: “The fails statistics of individual firms and customers is proprietary information and may reflect firms’ trading strategies.” That those strategies are “illegal” is apparently of little moment to our regulator.

Phantom shares can be used to game proxy voting and warp market prices, but the third effect is the one that haunts me: what risk do they create for the system? Robert Shapiro, Harvard Ph.D. economist and former Undersecretary of Commerce under President Clinton, has written, “There is considerable evidence that market manipulation through the use of naked short sales has been much more common than almost anyone has suspected, and certainly more widespread than most investors believe.” His research into death-spiral converts (a type of financing that generally is accompanied by naked shorting) turned up at least 200 companies that appear to have been largely destroyed, posting “a combined market loss of more than $105 billion.” Considering the more general topic of “massive naked short sales” he writes, “we believe that this type of stock manipulation has occurred in many hundreds and perhaps thousands of cases over the last decade…. Illicit short sales on such a scale or anything approaching it point to grave inadequacies in the current regulatory regime.” It would also imply damages in the low trillions of dollars (hence, the circling by plaintiff’s attorneys that has been reported in recent months).

Again, the SEC and DTCC have sought to assuage nascent public concerns while releasing as little data as possible. The SEC’s FOIA responses, however, reveal that on any given day, 500 million shares remain unsettled (N.B. this does not include share entitlements, desked trades, open positions, overseas delivery failures, or, as far as anyone can tell, ex-clearing). SEC economist Leslie Boni analyzed the FTD problem, and her report describes FTD’s as “pervasive,” calculates that the average persistence of failures is 56 trading days, that some go on for much longer, and that these failures are not random but strategic. Bradley Abelow, a former DTCC director questioned under oath for confirmation as New Jersey Treasurer, reluctantly described settlement failures within our system as “occur[ing] as a matter of course with great regularity,” adding “fails to deliver of securities is endemic.” The SEC’s own website, in a section on Regulation SHO explaining why in January 2005 they grandfathered all failed deliveries, reads, “The grandfathering provisions of Regulation SHO were adopted because the Commission was concerned about creating volatility where there were large pre-existing open positions” (those would be the same “large pre-existing open positions” they elsewhere assure us do not exist).

A tremendous amount of quibbling occurs over whether or not such evidence is decisive. What is overlooked is that we are not debating the properties of sub-atomic particles beyond the sensitivities of modern equipment. The question of how many unsettled long and short sale, open position, desked trades, offshore failures and share entitlements exist for any firm is a knowable fact. Each element is, in fact, known by someone. They aren’t saying. Instead, those who know these elements struggle to assure the public that there is no problem, and suggest that anyone trying to bring attention to this issue is a malcontent.

We are far down a financial rabbit-hole, one in which the SEC’s Red Queen is downplaying the problem while grandfathering it on the grounds that it is “concerned about creating volatility where there were large pre-existing open positions,” and refuses to disclose the size of these “large pre-existing open positions” on the grounds that it “is proprietary information and may reflect firms’ [illegal] trading strategies.” We catch disquieting glimpses of hundreds of millions of persistent unsettled trades,

I vaguely remember some guy named Jeff Mitchell but off the top of my head I cannot place him. I do associate him with the miscreants as a wannabee-player of some sort, but the details escape me.

In any case, my answer to Jeff is:

Jeff,

Low-rent stumble-bums (i.e., Sam Antar and Gary Weiss) don’t get to climb in the ring with Ali, but I’ll meet Dan Loeb, David Einhorn, or Steve Cohen for legitimate public debate anytime, anywhere.

Patrick Byrne

Now, you may reasonably ask, “What was Jeff’s question?” Please find it below. It appears born of a frustration that the narrative which they had captured so laboriously, and to such great effect, has slipped from them. Journalists are now pushing past bromides that have passed as discourse from hedge fund mouthpieces such as Joe Nocera, and on hedge fund infomercials such as the CNBC channel. It must be a stressful time for them. Anyway, here was Jeff’s come-on, published, as you will see below, with his permission:

Patrick/Judd,

A couple of years ago on Silicon Investor I suggested a Naked Shorting Conference. My fear was always that if I organized it, by the time the date came no one would care since it would be old news. Apparently it’s still newsworthy, albeit for different reasons. So I figure such a conference is still worthwhile.

As you know, I have little respect for both of you. In fact, I think you are both nuts. But, having made a hobby over getting scam companies (many with mob influences) shut down over the years, at potential great risk and almost no reward, I guess that makes me nuts as well. Actually, I’ve been called worse than nuts, for what that’s worth.

In any event, as I’ve written to Sam Antar, I personally find great entertainment in this whole naked shorting saga. Yes, I know it’s a very serious subject to many people. And I’m serious about trying to have a conference on it. What I’m trying to say is that while I’m opinionated, I don’t have an agenda with a conference other than to provide a serious forum where perhaps one side might be able to change the other side’s mind. Or, barring that, entertain the audience… while educating them in the process.

A successful conference would have four groups present: 1) Byrne and his minions (choose who you want to invite), 2) Gary Weiss and the financial media (they can choose who they want to invite), 3) The SEC, DTCC, OIG, FINRA, etc., and 4) The hedge fund owners. I can take care of getting people from the latter two groups. All topics, the format, etc. would be hashed out in public on a thread on SI. I can then invite people suggested by the audience. The intent is not to ambush anyone.

First off, is this worth doing? If you guys say it’s not, then no point in it. If you are interested, then let me know when this might work for you. I’m thinking DC might be a good place since the SEC is there. Perhaps October. Just to be clear, I’m not doing this as a good deed. I wish I were independently wealthy or owned a hedge fund, but I don’t. It makes no sense for me to spend months on something unless I can actually make money at it. If that bothers you, then, again, there’s no point in proceeding. Otherwise, I think such a conference would be fun.

BTW, I’ve learned not to write anything in an email that if posted publicly one would regret. This just seemed more appropriate as an email. I’m going to at some point mention I wrote both of you. If you want to post this somewhere on-line and vet it with the masses, or forward it along privately, fine. That’s up to you. And even if I told you not to post this, you probably would anyhow J.

Thanks.

- Jeff Mitchell

PS I remember reading of an experiment years ago that purported to prove that fish don’t know they swim in water; similarly, these guys swim in their own arrogance in a manner of which they seem to be unaware. For example, what makes Jeff Mitchell think that we need his help reaching the DC folks he mentioned, or any others? My sense is that they are all pretty damn sick of getting snowed by the Westport, Connecticut crowd.

The closing minutes of “There Will Be Blood” handily dramatizes naked short selling and, more generally, Wall Street’s relationship to the United States (WARNING: movie spoiler).

Oilman Daniel Plainview (Daniel Day-Lewis) discovers oil near Bakersfield, California, and buys up property in the area for drilling. He covets in particular the vast oil reserves under the land of William Bandy. Bandy refuses to sell on the advice of his preacher, Paul Sunday. Plainview goes on to build a fortune pumping oil from the tracts he has purchased.

Years later, a down-on-his-luck Preacher Sunday approaches Daniel Plainview and offers to help him purchase “the Bandy tract” to Plainview (in return for a kick-back, naturally). Here is Plainview’s response:

The movie ends on this cheery note:

These clips provide fine metaphor for the issue which Deep Capture seeks to expose: naked short selling. Wall Street has figured out how to drink America’s milkshake. The “straw” used is the act of taking investors’ savings in return for stock that Wall Street never actually had, never really borrowed, and consequently, never delivered. But they took the cash. This “straw” is composed of loopholes and rationalizations: loopholes that let them drain the capital of Americans, and rationalizations that let them do it with a straight face on the grounds that _______ (insert meaningless rationalization here: “They’re rich and thus good for it”; “All liquidity is good, even liquidity based on fraud”; “People who complain about paying for things they never receive are whining”; “The folks doing this are smarter than everyone else and have $45 million apartments” etc.)

The US is the supine Preacher Sunday, bleeding to death with a crushed skull. And Wall Street is, most definitely, finished with us.

Joe Nocera has a problem.

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

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

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

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

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

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

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

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

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

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

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

On 9/12/07, Patrick Byrne wrote:

Dear Mr. Nocera,

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

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

Sincerely,

Patrick Byrne

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

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

–On 9/12/07, Patrick Byrne wrote:

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

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

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

On 9/12/07, Patrick Byrne wrote:

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

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

Patrick

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

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

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

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

Dear Joe,

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

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

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

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

Warm personal regards,

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

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

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

Dear Patrick,

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

All best,

Joe Nocera

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

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

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

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

Dear Joe,

You write:

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

Are you claiming that it is false?

Again, with warmest personal regards,

Patrick

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

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

Yes, my answer is that his claim is false.

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

Dear Joe,

Thank you so much for the courtesy of your response.

Now the follow-ons:

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

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

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

Yours truly,

Patrick M. Byrne
Reporter, DeepCapture.com

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

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

Good luck.

Joe Nocera

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

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

If only there were a pattern….

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

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

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

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

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

Best,

Joe Nocera

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

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

all best,

Joe Nocera

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

Dear Joe,

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

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

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

Best regards,

Patrick

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

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

all best,

Joe Nocera

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

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

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

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

Dear Joe,

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

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

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

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

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

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

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

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

Would you like to revisit any of these answers?

Fond regards always,

Patrick

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

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

best,

Joe

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

Dear Joe,

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

Regards,

Patrick

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

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

Dear Joe,

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

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

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

Very respectfully,

Patrick

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

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

Joe Nocera

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

Dear Patrick,

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

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

Thanks for your consideration.

all best,

Joe Nocera

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

Dear Joe,

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

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

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

• The Final Word on Gary Weiss and Wikipedia

• Gary Weiss and his Yahoo Gnomes

• Gary Weiss doesn’t like Liz Moyer

• Gary Weiss, Usenet Troll

• Gary Weiss: his DTCC Ties and Lies

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

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

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

• We did not contact Roger. Roger contacted us.

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

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

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

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

Most respectfully,

Patrick M. Byrne

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

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

all best,

Joe Nocera

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

Dear Joe,

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

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

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

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

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

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

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

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

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

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

Please comment.

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

Most respectfully,

Patrick

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

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

all best,

Joe Nocera

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

Dear Joe,

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

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

Warmest regards,

Patrick

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

They haven’t changed.

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

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

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

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

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

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

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

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

Dear Messieurs Ingrassia and Headlam:

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

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

With true respect,

Patrick M. Byrne

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

Mr. Byrne,

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

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

Yours sincerely,

Larry Ingrassia

Business editor

The New York Times

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

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

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

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

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

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

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

2) email it to a dozen friends;

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

As will be explored in a subsequent piece, it would be fair to describe my relationship with Bethany McLean of Fortune as “strained”. However, it is not unusual for her to write or call me seeking comment, generally regarding spurious allegations fed her by crony hedge funds which she dutifully regurgitates on command, and sometimes regarding other things, too. I make it a point to respond promptly. On rare occasion when I have contacted her, she has responded promptly as well.

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

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

Dear Bethany,

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

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

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

Respectfully, Patrick

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

Dear Bethany,

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

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

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

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

Your friend,

Patrick

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

Dear Bethany,

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

Very respectfully,

Patrick

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

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

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

Dear Ms. Reitz,

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

Respectfully,
Patrick M. Byrne

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

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

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

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

Katy,

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

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

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

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

Most respectfully,
Patrick

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

Patrick,

Bethany is unavailable to comment.

Thanks,

Katy

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

Dear Katy,

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

Very respectfully,

Patrick

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

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

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

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

Hi, Patrick -

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

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

Thanks,

Bethany

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

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

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

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

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

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

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

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

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

….

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

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

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

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

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

….

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

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

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

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

….— Still Flying High

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If only there were a pattern….

Your humble servant,

Patrick

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

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

The mainstream financial media says that the SEC should not crack down on criminal short sellers because short sellers are vital to the markets (and vital ghost-writers of a lot of what appears in the financial media). But much of the world has come to understand the enormity of the illegal short selling scandal, and there is a palpable feeling that the days are numbered for the miscreants who are turning our markets to mush.

Consider the events of just the last 24 hours.

Yesterday, we received word that Jonathan Curshen of Red Sea Management was arrested in New York. As described in “The Story of Deep Capture,” Curshen used to work for Pacific International, a Mafia-infested brokerage that has been favored by criminal naked short sellers and serves as a popular source to journalists, such as Dow Jones Reporter Carol Remond, who insist that illegal naked short selling isn’t a problem.

A Deep Capture team member, working undercover, once traveled to Costa Rica to meet Curshen. On multiple occasions, this creep admitted to our undercover vigilante that he participated in illegal naked short selling – and threatened to kill anyone who revealed this. Curshen also admitted laundering money for criminal short sellers, and described special debit cards that could not be traced to their users. These cards, Curshen said, were used to pay off government officials and journalists.

We are awaiting details of the charges against Curshen. They should be interesting.

Meanwhile, it was announced today that Deutsche Bank Securities has agreed to pay the largest fine ever levied by the New York Stock Exchange for short-selling violations. Only the Associated Press and Reuters reported this news. Reuters noted that Deutsche Bank completed sales of securities “without borrowing the securities or having reasonable grounds that they could be borrowed.” This is otherwise known as illegal naked short selling.

Strangely, however, Reuters suggested it wasn’t naked short selling at all. It wasn’t naked short selling,said Reuters, because the case involved “failures to locate the securities to cover short sales, not necessarily a failure to deliver the securities.”

How does one deliver securities that one has not located? Late in the day, Reuters put out a corrected story with a quote from a NYSE official who said, yes, “if you can’t locate the securities, it may lead to a fail to deliver” – and, yes, that is naked short selling, which is another way of saying that Deutsche Bank Securities sold massive amounts of phantom stock.

This is not at all surprising. For years, a devoted crew of bloggers have pegged Deutsche Bank as a central player in the naked short selling scandal. This was a big reason why the bloggers were called “conspiracy theorists” and “crazies,” and I suppose it would be pretty nutty of me to suggest that one of these days there’s going to be jail time for the criminal hedge funds that ordered Deutsche Bank to sell all that phantom stock in an effort to destroy public companies for profit.

But short sellers are vital to the markets, so let’s pretend not to notice the third interesting news item of the day, which is that Morgan Keegan & Co., a Tennessee-based brokerage, has fired stock analyst John Gwynn for allowing short-selling clients to see his research reports before they were made available to the public. As Deep Capture reporter Judd Bagley noted in our previous blog post, the reports in question all concerned a company called Fairfax Financial.

A small group of short-sellers are alleged to have participated in a scheme – dubbed the “Fairfax Project” – to drive down Fairfax’s stock price. We noted in “The Story of Deep Capture,” that one of the short selling hedge funds, an affiliate of Steve Cohen’s SAC Capital, went so far as to hire a thug named Spyro Contogouris to threaten Fairfax’s executives and their families. The thug (later jailed for ripping off a Greek shipping magnate) even wrote a letter to the church pastor of Fairfax’s CEO, accusing the CEO, who is an honest family man, of being a sado-masochist group-sex afficionado who had scammed the Catholic Church out of millions of dollars.

In a lawsuit filed in 2006, Fairfax claimed that this group of short sellers – Steve Cohen, David Rocker, Jim Chanos and Dan Loeb – conspired with Morgan Keegan to manufacture false, negative research about Fairfax. Morgan Keegan, no doubt to avoid liability, maintains that the research was accurate, but I’ve seen some of that research, and it can hardly be called “truth.” In any case, by firing Gwynn, Morgan Keegan makes it plenty clear that the short-sellers who attacked Fairfax were up to no good.

This same clique of short-sellers has attacked dozens of other companies, almost always resorting to similar tactics: false “independent” research (dictated by the short-sellers, who trade ahead of it); harassment of targeted executives by thugs and criminals; scurrilous rumor-mongering; so-called “bashers” who are paid by the shorts to flood the Internet with smears and distortions; corporate espionage; government investigations (which are instigated by the shorts, and drain corporate resources, but usually end in no action); and bogus class action lawsuits (usually filed by a corrupt law firm called Milberg Weiss until Milberg’s top partners went to jail for bribing plaintiffs).

A hugely disproportionate number of the companies that have been targeted by this clique of short-sellers have also been victimized by massive levels of phantom stock. Ultimately the SEC will have to say who was behind the illegal naked short selling, and so far it has not prosecuted anyone. However, it has launched an investigation into Dan Loeb, who aside from being named as a leader of the “Fairfax Project,” has featured prominently on Deep Capture for paying a minion to manage a stable of criminals and knaves to smear corporations and whitewash the naked short selling scandal.

The media has dutifully mimicked Loeb’s claim that the SEC is only investigating whether he has “communicated” with other hedge fund managers – and, golly, there can’t be anything wrong with sharing ideas with one’s colleagues. But we’ll wager that Loeb isn’t telling the whole truth, and the SEC is investigating the full range of tactics employed by his crew of short-selling scallywags.

It is par for the course that the media has been kind to Loeb. For years, his clique of short-sellers have been the primary sources of negative information for a small cast of influential, but dishonest journalists. The journalists’ stories were often false, but they — along with the phony financial research, the criminal bashers, the hired thugs, the bogus lawsuits, the dead-end government investigations, and the piles of phantom stock – helped pummel stock prices. When the stock prices fell, the journalists wrote more stories blaming the companies for their falling stock prices.

Not once have any of these journalists written about the shenanigans of their short-selling sources. Not once have the journalists suggested that the short-sellers’ tactics or phantom stock could have contributed to the falling stock prices that were the subjects of so many of their stories. Indeed, the most degenerate of these journalists — CNBC’s Herb Greenberg, former BusinessWeek reporter Gary Weiss, Bethany McLean of Fortune Magazine, Carol Remond of Dow Jones, Joe Nocera of the New York Times – have gone to lengths to convince the American public that short-sellers do not commit crimes.

Perhaps following the lead of their eminent colleagues, or perhaps because they simply don’t have time to clear away the smoke blowing from the hedge fund lobby, a number of other journalists continue to behave as if illegal naked short selling is not a problem. And today, with the emergence of yet more evidence to the contrary — with the criminals backed against the wall, and the search light creeping closer — there was from the complicit journalists nothing but silence.

Make no mistake: what you witnessed this week was not some natural process – an economy “souring,” a bubble “bursting.” This was not the “invisible hand” at work. This was not even capitalism.

This was the premeditated, systematic destruction of market value by an elite crowd of Wall Street cronies who no doubt cackled with delight in the cleverness of their mischief-making. This was criminal behavior on an ungodly scale – the unprecedented looting of America.

Do you think I’m overstating this? Consider that the hedge funds who did this employed precisely the same tactics that precipitated the stock market crash of 1929 and the Great Depression that followed.

One of these tactics, as almost everybody now finally realizes, is called “naked short selling.” It involves hedge funds and their brokers selling stock that they do not possess – phantom stock – to dilute supply and drive down prices.

Often, the short-selling saboteurs engage in other shenanigans – whispering scurrilous rumors, oozing innuendo, orchestrating bogus class action lawsuits, deploying armies of Internet message boards to foment negativity, paying seedy “independent” financial research shops to publish distorted analysis, hiring thugs to harass executives and their families, conducting corporate espionage, and instructing government cronies to launch dead-end investigations.

You never heard about this from the mainstream financial media. You never heard it because the market saboteurs were writing the media’s talking points. Some reporters were merely addicts, dependent on the dealers of distortion for negative stories. Other reporters were genuinely corrupt. They thought the market machinations were good fun. “I wanna play, too,” they said. They reveled in taking down companies, and then they asked their short-selling accomplices for jobs.

Our nation’s most influential financial journalists knew that naked short selling was rife. They knew that hundreds of companies had been victimized. They had all the data and they had every reason to believe that billions of phantom shares floating around the system could not be good. But they said naked short selling never happens. They said only bad CEOs and crazy people complain about short seller crimes. They whitewashed the biggest scandal of our lifetimes, and then our markets crumbled.

It was the darkest moment in the history of American journalism.

* * * * * * * *

In July, the SEC issued an “emergency order” to prevent naked short selling from destroying the financial system. The order required short sellers of stock in 19 financial companies to actually obtain real stock before selling it.

This was hardly intrusive, but the media, copying straight from the hedge fund lobby’s script, said that the SEC should leave the short sellers alone. The emergency order had hurt “market efficiency,” the journalists wrote, though common sense would suggest that a market cannot efficiently set prices when it is bloated by phantom supply. The emergency order decreased “liquidity,” the reporters wrote, though they provided no credible data to support this claim, and failed to explain how a liquid market in phantom stock benefits anyone other than a few hedge fund billionaires.

Even worse, some reporters argued that the SEC should not crack down on naked short selling because short sellers are “vital” sources of negative information to the media. What if some of these “vital” sources are manipulating markets? Criminals, apparently, are untouchable, so long as they dish dirt to reporters. The abomination riles all the more when you know (as I do, having studied thousands of these dirt-strewn stories) that the majority of them contain insinuation, omissions, and outright falsehoods.

At any rate, the financial media convinced the SEC to let its emergency order expire. Even as the markets nosedived, journalists, including CNBC’s Charlie Gasparino, were calling the emergency order “ridiculous,” and the SEC cowered. Within a few weeks Lehman Brothers was gone, Merrill Lynch was gone, Fannie Mae and Freddie Mac were nationalized, and American International Group, a company with a trillion dollars in assets, was trading for a dollar a share and soliciting handouts from the Fed.

On Wednesday of this week, the SEC rushed out new rules that purported “zero tolerance” for naked short selling. According to the SEC, there would now be a “hard” close out rule, requiring hedge funds to deliver real stock within three days of selling it.

Even if the SEC were to enforce a three day settlement, it wouldn’t do much, because the manipulators work like this: A hedge fund tells his broker to sell a million shares of XYZ. The broker doesn’t have any shares, but he sells them anyway. That is phantom stock and for three days it dilutes supply, and eats away at the financial system. When settlement day comes, the broker asks a second broker to sell him a million shares of XYX. The second broker doesn’t have any shares, but he sells a million shares of XYZ (the price now much lower) to the first broker, who uses the phantom stock to settle his initial sale of phantom stock.

When the second broker has to settle, he calls the first broker…and the phantom stock shuffle continues until the falling price makes it impossible for the company to raise capital. Then it’s bankruptcy, the stock is zero, and nobody has to deliver anything.

In any case, “Oooh, weee…‘zero tolerance.’ Really scary.” For years, hedge funds have habitually violated stock delivery requirements, and the SEC has done nothing. Big words didn’t scare anybody. When the SEC announced its new rules, the hedge fund lobby cheered, the media reported the cheers, and the manipulators went hog wild.

By Thursday afternoon, it was looking like Goldman Sachs, Morgan Stanley, and countless smaller banks were on death row. Call this “liquidity.” Call it “market efficiency.” Call it what you like, but it wasn’t good. The meltdown was so severe that traders on Wall Street genuinely believed that Al Queda was taking down the financial system.

More likely, it was the small clique of terrorist hedge fund managers who are most beloved by our financial media. Alas, the SEC panicked. To forestall the end of the world, it decided on Thursday night to ban all short selling of stocks in 700-plus financial companies.

It is a shame that it had to come to that. Short-selling is a legitimate practice, and lots of people do it the legal way. Proper short selling probably keeps the markets honest. If the SEC had cracked down on illegal short selling long ago, the cataclysm would have been averted.

At any rate, maybe now would be a good time for the media to take a closer look at the naked short selling scandal. Stephen Moore, who works for the Wall Street Journal editorial page, said on CNBC that naked short selling caused this week’s turmoil. Why has the Journal not published an editorial expressing outrage?

The Journal’s editorial page, the finest in the country, rightly abhors government interventions, but this is not about free markets. It is about preserving property rights – the basic capitalist tenet that people must own what they sell. It is about stopping criminals.

Aside from the Journal’s editorial page, there is a world of media that has not been compromised by short sellers – a world of good reporters who live far from Wall Street and could be covering this scandal from multiple angles. They need to do so quickly. The SEC will lift its current ban. And if it doesn’t start prosecuting people – if we don’t get a permanent, market-wide, and properly enforced rule requiring short sellers to pre-borrow real stock – then it will once again be open season for hedge fund terrorism, and where our towering financial system once stood, there will be nothing but a gaping, smoldering hole.

More than two years ago, Patrick Byrne, the future Deep Capture reporter, had dinner with an editor of one of the nation’s most important newspapers. The editor said, “I know the media has not been fair to you on the naked short selling issue. Would you like to write an editorial?”

Patrick said, “Sure, but it won’t get published.”

The editor said, “I decide what gets published.”

Patrick wrote the editorial. A day after he submitted it, the editor, known to be a gentleman, called Patrick and said, “I am terribly embarrassed to have to tell you this, but it appears that I will not be able to publish your editorial – or, for that matter, anything else written by you.”

Other publications seemed to have a similar attitude, so Patrick put his editorial in a drawer.

But he didn’t shut up about naked short selling. He said that this problem would eventually crash the financial system. He lambasted the media for failing to cover it.

The media did not listen. Influential journalists, I am embarrassed to tell you, went out of their way to silence or ridicule people who said naked short selling was a problem.

Well, now that Wall Street has suffered the biggest calamity since the Great Depression, almost everyone agrees that naked short selling is a problem. John McCain, Hillary Clinton, the Chairman of the SEC, the Secretary of the Treasury, and the CEOs of some of the very investment banks that have long participated in naked short selling – they all said last week that this crime must be stopped, or the financial system is toast.

So, just for kicks, Patrick dusted off his editorial.

This time, it was published – by Forbes.com.

Too late now, perhaps. But, please, read this editorial. Read it because it is so simple. Read it because you will see what some of our most sophisticated financial journalists failed, or refused, to grasp.

Read it because the media could not, or would not, and this says something very important about the quality of our public discourse.