Category | The Deep Capture Campaign

The World’s Greatest Con (Chapter 1): Members of the United States Congress Nominate Mafia-tied Criminal for the Nobel Peace Prize

The World’s Greatest Con (Chapter 1): Members of the United States Congress Nominate Mafia-tied Criminal for the Nobel Peace Prize

In the summer of 2011, I published a DeepCapture story that described a man named Yank Barry as a convicted criminal with deep ties to organized crime, and though my story was ignored by others in the media, I did at least receive in response one email (through a third party) from a fellow named Rasvir Mustan, who was a director of the Global Village Champions Foundation, a charity that Yank Barry established as part of his supposed efforts to end hunger in nations around the world and bring about world peace.  

Rasvir Mustan’s email (which was sent to Steadfast Networks, the company that provided DeepCapture.com with its internet server) read as follows: “You have a website on your server domain name: www.deepcapture.com. The content on that site has named Oliver Buck Revell—Former Associate Deputy Director of the FBI [and]…Yank Barry—Gusi Peace Prize Winner, Nobel Peace Prize nominee….This article has associated them with international crimes and ties to Bernie Madoff, arms dealing, Al-Qaeda, Russian Mafia, and a host of other illegal activities.” 

Rasvir Mustan’s email continued: “These accusations, lies and mistruths are fabricated. These actions will have legal consequences along with criminal charges and a suit for damages in the millions. The owners of DeepCapture.com will be sued and Steadfast Networks will be a party to the suit for having served this content. There are criminal penalties for defamation. Every word and every defamatory accusation made will serve as separate instances for which there will be charges filed. Rest assured all parties will pay for each one in the form of monetary damages, but most importantly criminal jail time for each and every occurrence…Suspend this website immediately or legal proceedings will begin.”  

When our server forwarded that email to us, we were quite alarmed because we did not know (and nor had we written) that Yank Barry had ties to Al Qaeda. We were also alarmed by Rasvir Mustan’s suggestion that we were going to do “jail time” for having written about Yank Barry. We were not aware that it was a criminal offense to publish the truth about criminals.  

One of Yank Barry’s closest associates, though, is Oliver “Buck” Revell, who was previously the associate deputy director (second in charge) of the Federal Bureau of Investigation (FBI). Revell was also previously the chief of the FBI’s counter-terrorism operations, and perhaps he could have DeepCapture’s principals jailed under the new FBI guidelines that classify some bloggers, activists, and critics of Wall Street as potential “domestic terrorists”  

We have not yet been jailed, but on the same day that Rasvir Mustan sent his email, a man named Altaf (Ali) Nazerali, who was an associate of Yank Barry, and who had founded a company called Imagis Technologies, the chairman of which was former FBI man Buck Revell, filed a libel lawsuit against DeepCapture and convinced a court in Canada to issue an injunction that shuttered DeepCapture for more than three months. The court in Canada issued this injunction before we even knew that Mr. Nazerali had filed a lawsuit against us, and without giving us an opportunity to defend what I had written about Mr. Nazerali and his associates.

The court injunction also prohibited Steadfast Networks from providing a server to DeepCapture. Furthermore, the court injunction prohibited DeepCapture from publishing on any other server. For more than three months, DeepCapture.com was nothing more than a blank, white page because DeepCapture had been literally censored from the internet on orders from a foreign court, without trial. And the injunction was meant to remain in place until we went to trial, which would not occur for several years. It was also unclear what would happen at trial so it seemed, for a time, that the entire media outlet DeepCapture.com (not just what we had written about Mr. Nazerali, but everything we had ever published) might have been permanently wiped from the internet.

So far as I know, this was the first time in history that American journalists had been censored on orders of a foreign court, and I can think of no precedent of a foreign court issuing an injunction that successfully shuttered an entire U.S. media outlet. Fortunately, our lawyer was subsequently able to present our case before a different judge in the Canadian court, and that judge ruled that the earlier injunction had been improperly issued because the court had been misled by Mr. Nazerali’s lawyers. So, after three months during which DeepCapture.com was nothing but a blank, white page, DeepCapture.com was allowed to once again appear on the internet, and our case is scheduled to go to trial—hopefully a fair trial—in April, 2015. 

Shortly before publication of the story you are about to read, Yank Barry told me that Mr. Nazerali had asked him, Yank Barry, and others to join his lawsuit against DeepCapture, meaning the Mr. Nazerali’s original plan was to have multiple of his associate pool their resources in the attempt to censor DeepCapture so that it would no longer be able to publish stories like this one. (After Yank Barry told me that Mr. Nazerali had asked him to join in his lawsuit against DeepCapture, Yank Barry told me that he does not know Mr. Nazerali personally, which was simply not true).

In a few weeks from now, DeepCapture will publish an article about Mr. Nazerali that will give readers a better idea of why Mr. Nazerali went to extreme lengths to convince a foreign court to censor DeepCapture—i.e. because DeepCapture, unlike, say, The New York Times, publishes information that actually concerns the well-being of the public. In this article, DeepCapture reveals some other information that should be of concern to the public, namely more information about Mr. Nazerali’s associate, Yank Barry.

As you might have noticed, Rasvir Mustan’s email described Yank Barry as a “Nobel Peace Prize nominee.” At the time when we received Mustan’s email, there was no public record of Yank Barry having been nominated for the Nobel Peace Prize, so I assumed that Mustan was either mistaken or deliberately overstating Yank Barry’s accomplishments. Indeed, I thought it could not possibly be that Yank Barry was actually nominated for the Nobel Peace Prize because, after all, Yank Barry was a criminal with ties to organized crime, as this story will show with an abundance of documentary evidence.   

Some months after we received Mustan’s email, in March 2012, Yank Barry’s public relations firm issued a press release stating that Yank Barry had, in fact, been nominated for the Nobel Peace Prize, but still, at that time, Yank Barry had been nominated for the Nobel Peace Prize by nobody other than an obscure lawyer in Bulgaria, and this hardly seemed like a genuine nomination for the most prestigious prize known to mankind. Two years later, though, something remarkable happened. Two years later (i.e. just this year, 2014), Yank Barry received genuine nominations for the Nobel Peace Prize from no less than three members of the United States Congress.  

This multi-chapter article will show that three members of the United States Congress not only nominated Yank Barry for the Nobel Peace Prize, but did so knowing full well that Yank Barry was a convicted criminal with ties to organized crime, and this story will show that those members of Congress, along with other current and former officials of the U.S. government, refused to disassociate themselves from Yank Barry even after they were presented with indisputable evidence of the following (all of which will be explained in detail with full documentation):   

1) Yank Barry was once convicted and sentenced to prison for working in league with major organized crime figures (i.e. leaders of the Mafia) to extort a large sum of money from a business partner.

2) Yank Barry was convicted by a jury for money laundering, conspiracy, and corruption after the jury determined that Yank Barry had paid large bribes to the director of the Texas state prisons, though the jury conviction was unilaterally overturned by a judge who was himself guilty of, at a minimum, doing a large favor for a friend.

3) Yank Barry’s charity, the Global Village Champions Foundation, whose work was the ostensible reason why Yank Barry was nominated for the Nobel Peace Prize, is an instrumentality of fraud, used for the personal enrichment of Yank Barry himself.

4) Yank Barry’s charity, the Global Village Champions Foundation, began as a company (i.e. not a charity) called Global Village Market, which was a massive fraud that looted large sums of money from its investors, and which was listed on a sham stock exchange operated in league with people tied to organized crime.

5) Yank Barry has used his charity, the Global Village Champions Foundation, as cover for other criminal enterprises operated in partnership with people tied to organized crime. For example, the Global Village Champions Foundation was used to promote a company that fraudulently claimed to have a viable treatment for AIDS, and which was operated by Yank Barry and members of the Global Village Champions Foundation advisory board, with the further involvement of people tied to organized crime.  

6) Yank Barry has used the Global Village Champions Foundation to promote a multi-level network marketing scheme that was set up to sell, among other products, a product that Yank Barry fraudulently claims to have anti-aging and other miracle medical properties, such as being able to protect the body from cancer, being able to cure diabetes, and being able to rid the body of radioactive contamination from Fukushima and other nuclear disasters.

7) Yank Barry has used the Global Village Champions Foundation as cover for an international syndicate involved in the trafficking of counterfeit and stolen art.

8) Yank Barry conspired with others to orchestrate a criminal takeover of one of America’s most prominent art galleries—a business worth around $133 million—and illegally shipped art that he stole from that gallery from the United States to foreign countries.

9) Yank Barry participated in the corruption of current and former public officials, some of whom helped Yank Barry perpetrate his crimes, others of whom protected Yank Barry knowing that he was a criminal.

In other words, while Rasvir Mustan, director of Yank Barry’s supposed charity, the Global Village Champions Foundation, is threatening DeepCapture’s principals with “jail time,” it is Yank Barry and his associates who should be doing jail time, as the evidence presented in this long story will make clear.  

This, we hope, is not a story that will, in fact, result in DeepCapture’s principals doing jail time, but as will become evident to readers of this article, jail time is not out of the question because other innocent people have done jail time for no reason other than the fact that they exposed the criminality of Yank Barry and/or his associates, and then became acquainted with the cesspool of corruption that passed for the American “justice” system.  

* * * * * * * * *  

Are you among the many people who tend to believe what is published and broadcast by the major news organizations? If so, do a quick Google search and review the many mainstream news reports about Yank Barry. You will find that there are a great many mainstream news stories about Yank Barry, and you will find that most of them report basically the same information. Following is a representative sampling of the stories about Yank Barry that have appeared in the mainstream press during just this year (2014) alone:

1) CNN on Yank Barry saving Syrian refugees in Bulgaria

2) NBC News on Yank Barry, leader among global humanitarians and philanthropists

3) Fox News on Yank Barry, a “man with a big heart and deep pockets

4) ABC News on Yank Barry nominated for the Nobel Peace Prize

5) News program “Daytime” on Yank Barry, nominee for the Nobel Peace Prize

6) Time Magazine, Yank Barry, the “Jewish Schindler, and Nobel Peace Prize Nominee”

7) Yank Barry on the Larry King Show (CNN)

8) Sarasota Herald Tribune, Yank Barry Nominated for the Nobel Peace Prize

9) Sarasota Herald Tribune: Yank Barry Again Nominated for the Nobel Peace Prize

The list goes on, and again, if you do a search, you will find many more news items about Yank Barry, nearly all of them repeating basically the same story. For those who do not wish to read and/or watch all of the other stories, I will provide here a lengthy quotation from just one typical story, published in the Sarasota Herald Tribune, a newspaper that stands out for having published no less than three prominently displayed stories announcing Yank Barry’s nominations for the Nobel Peace Prize.

The story in the Sarasota Herald Tribune was especially complimentary, but again, it was typical of most other reporting on Yank Barry. The story read:

“In a 33 year music career, Yank Barry jammed on the stage with Jimi Hendrix, wrote and produced songs for Gary U.S. Bonds, and was a member of legendary band The Kingsmen of ‘Louie Louie’ fame. The post music career…has been equally spectacular….

He [Yank Barry] cofounded a nonprofit group [called the Global Village Champions Foundation] with Muhammad Ali that has donated [nearly one billion] meals to relief agencies; and he spearheaded relief missions to disaster and war torn countries. Now, the 64 year old has been nominated for the Nobel Peace Prize for his humanitarian work and his role in securing the release of six foreign medical workers sentenced to death in Libya.

Speaking from Japan, where he is negotiating with government officials to supply apple pectin to people who may have been exposed to radiation from the nuclear accident in Fukushima, Barry said it was humbling that his relief work has been acknowledged. ‘It’s a nice feeling to be recognized, but that’s not why I’m doing it,’ he said. ‘It’s become a mission that I believe in.’”

To stress that Yank Barry was in good company, the story went on: “First awarded in 1901, the Nobel Prize for Peace is widely regarded to be the most prestigious award of its kind. Previous recipients include U.S. presidents Theodore Roosevelt, Woodrow Wilson, Jimmy Carter, and Barack Obama. The Dalai Lama, Nelson Mandela and Martin Luther King, Jr. have also received the award.”

There is more, and it really is worth reading in full, keeping in mind that dozens of media outlets reported the same basic story. The Sarasota Herald Tribune continued: “Born in Montreal, Barry became a touring member of The Kingsmen in 1968. He pioneered the first quadraphonic album in 1970 and he recorded the rock opera ‘The Diary of Mr. Gray.’ He later moved into songwriting and production, working with numerous artists, including Englebert Humperdink. As his music career settled down…he bought [a company that makes a dehydrated soy-based meat substitute] and began selling [the dehydrated meat substitute] to penal systems and governments. The business thrived.”

The story continued: “As Barry traveled the world, he saw first hand how his product could help countries struggling with malnutrition. With boxing great Muhammad Ali, he formed Global Village Champions Foundation. Barry now donates about 60 percent of the profits from his soy company to the nonprofit, using it for donated meals and work with groups like the Salvation Army in the United States and the Red Cross… ‘Ali and I had always talked about feeding kids. We started doing a lot of good; it became pretty addictive,’ he [Yank Barry] said. ‘It’s a great feeling. I think everyone should do it.’”

And on and on…you are encouraged to read the full story (linked above).

Now that you have read the Yank Barry party line (and, again, basically the same party line about Yank Barry has appeared on CNN, NBC, ABC, Fox News, etc.), I will relate the alternative story about the life and times of Yank Barry, namely the story that can be learned by anyone with the slightest sense of critical inquiry and a respect for the truth. I will begin with Yank Barry’s “spectacular” career in the music business, followed by an in-depth look at his supposed charity, the Global Village Champions Foundation, and its claim (made repeatedly on its website and elsewhere) to have fed nearly one billion people, most of them needy children.

Then we will discuss some of Yank Barry’s recent business ventures, all of them directly related to his “charity” work, and all of them monumental scams, as is Yank’s charity itself. Along the way, we will meet some of Yank’s business associates, including various organized crime figures implicated (variously) in narcotics trafficking, weapons smuggling, murder, attempted murder, and dealing in stolen and counterfeit art.

* * * * * * * * *

Yank Barry, at every opportunity, and for more than two decades, has repeated the information that his younger years were marked by a spectacular music career, most notably as the lead singer of The Kingsmen, the band famous for its hit song “Louie Louie.” The song “Louie Louie” reached number one on the charts in the 1960s, and later became famous again as the theme song in the 1978 movie “Animal House.” To this day, the song “Louie Louie” has resonance with people everywhere, and though the heyday of the Kingsmen has past, the band is an American icon.

But Yank Barry was never a member of the Kingsmen, much less that band’s lead singer, and Yank Barry had nothing whatsoever to do with the song “Louie Louie.”  Yank’s claim to have been a member of the Kingsmen was exposed as a lie as long ago as 1998, when journalist Rod Macdonell published a 3,300 word story about Yank Barry in the Montreal Gazette, one of Canada’s leading newspapers. That story reported that “Yank Barry was never a member of the Kingsmen who recorded ‘Louie Louie’—a claim he has made repeatedly over the years. In 1987, he declared bankruptcy. In 1982, he was sentenced to six years in prison for extorting a business partner. And he is currently charged in Texas with money laundering and paying a bribe to the director of prisons there…”

The story in the Montreal Gazette, however, was flushed down the memory hole. It could not be found anywhere on the internet (it was not even available in the Montreal Gazette’s own archives) until we at DeepCapture recovered the story and posted it here at DeepCapture.com.

After the Montreal Gazette published its story back in 1998, Yank Barry continued to describe himself as the former lead singer for the Kingsmen, and numerous journalists for major news organizations continued to describe him that way as well. The only exception was journalist Joe O’Conner who, in April 2012, published a big story about Yank in The National Post, another newspaper in Canada.

The story in The National Post, which was entitled “The World According to Yank,” confirmed that Yank Barry was never a member of the Kingsmen. The story reported that Yank Barry was, at best, once a member of a cover band that sometimes called itself the Kingsmen, but Yank’s band was not at all famous, and Yank’s band had nothing to do with the song “Louie Louie.”

Amazingly, even after The National Post published its story confirming that Yank was never a member of the Kingsmen, other journalists simply ignored this revelation (or couldn’t bother to do a quick Google search to check their information), and continued to report that Yank Barry was, in fact, formerly the lead singer for the Kingsmen, famous for “his” number-one hit song “Louie Louie.” Yank Barry, meanwhile, continued to describe himself as the former lead singer of the Kingsmen wherever he went.

We could dismiss Yank’s claim as nothing more than a fantasy (we all wish we were rock stars), but Yank has used his claim to have been the lead singer of the Kingsmen to ingratiate himself with various celebrities, and Yank Barry’s claim to have been a member of the Kingsmen is, in fact, a significant part of a much larger fraud that Yank Barry has perpetrated over the course of many years. This fraud has, in addition, progressively grown in magnitude to the point where it is now perpetuated not only by Yank, but also by, among others, prominent celebrities and even members of the United States Congress.

Therefore, it needs to be stressed: Yank Barry absolutely was never a member of the Kingsmen, much less the lead singer of that band, and nor was Yank Barry ever a member of any other famous band. He did not jam with Jimmy Hendrix, and nor did he in any other way have a “spectacular” music career.

Since so many other media organizations have reported that Yank was the lead singer of the Kingsmen, DeepCapture conducted an in-depth investigation into the history of the Kingsmen that included interviews of a former member of the Kingsmen, and interviews with leading experts on the Kingsmen, including the proprietors of a website called LouieLouie.net, which is the leading repository of information about the Kingsmen, supported and endorsed by former members of the Kingsmen themselves. All of these sources confirmed that Yank Barry was never a member of the Kingsmen, and aside from Yank’s own publicity materials and the many media stories sourced from Yank himself, there is not a single document in the historical record identifying Yank Barry as being a member of the original Kingsmen, much less the lead singer of that band, much less in any way connected to or responsible for the song “Louie Louie.”

Even Yank Barry’s own brother, who goes by the name Neil Floyd, confirms that Yank was never a member of the Kingsmen. And Yank himself, in a conversation with me, conceded that he “was not a member of the original band” and that he was “only 16 years old” when the original Kingsmen band was formed. At the same time, though, Yank, in one of several phone calls with me, insisted that he was, in fact, the lead singer of the Kingsmen. When I asked him if he was referring to his cover band, which he called the Kingsmen, he said “It wasn’t a cover band. It was the Kingsmen. I was the lead singer.” He encouraged me to do more research.

I had already done my research, but after talking with Yank Barry, and somewhat confused as to how he could still be claiming to have been the lead singer of Kingsmen, and at the same time acknowledging that he was not a member of the original Kingsmen, I did some further research, and discovered that the only thing new was that somebody had added a line to the Wikipedia entry for the Kingsmen. This same line had been copied onto a few other websites, and it read as follows: “In late 1968 with the original group on a recording and touring hiatus, the Kingsmen’s management team, believing they owned the rights to the name, worked with the Kasenetz-Katz production organization and studio musicians to release a single on the Earth label (“Feed Me”/”Just A ‘B’ Side). A separate group was formed with new members (including lead singer Yank Barry) to tour on the East Coast until disbanding after a cease and desist order was filed by the original group.”

A footnote to the Wikipedia entry for the Kingsmen read: “Yank Barry was the lead singer for a separate Kingsmen group in the late 60s…He is listed at www.LouieLouie.org as a Kingsmen member based on his shared history with the original group and his ongoing humanitarian efforts.”

That new line on Wikipedia was likely inserted by Yank Barry himself, part of his effort to convince the few people who call him on his fraud that he is not technically committing fraud when he says he was the lead singer of the Kingsmen because he was the lead singer of a band that called itself the Kingsmen until the real Kingsmen issued a cease and desist order. But the fact remains: Yank Barry, by continuing to claim that he was a member of the real Kingsmen, the iconic band that recorded the hit song “Louie Louie,” is, in fact, committing a fraud and telling a lie of immensely audacious proportions.. Again, Yank was never a member of the real Kingsmen and nor was he ever a member of any band that was in the least bit famous.

Notice that the new Wikipedia line mentions that a website called LouieLouie.org lists Yank Barry as a member of the Kingsmen based on his ‘”shared history with the orginal group.”  It should be noted that LouieLouie.org is different from LouieLouie.net. While LouieLouie.net is the leading repository of information about the Kingsmen and the song “Louie Louie” (and contains no information about Yank Barry having been a member of the Kingsmen), LouieLouie.org contains little information at all other than a video, prominently displayed on its home page, of Yank Barry on stage, singing the song “Louie Louie.”

That is not a video of Yank Barry singing “Louie Louie” back in the 1960 or 1970s. It is a video of Yank Barry singing “Louie Louie” in February, 2014 (this year, not long after I began work on this story), and the video was made by Yank Barry’s public relations firm. We will return to that video momentarily, but suffice it to say that the video is part of Yank’s effort to maintain the fraud that he was, back in the 1960s and 1970s, a singer for the Kingsmen, the famous band responsible for the song “Louie Louie.”

Assuming that it is true that Yank was the lead singer of a separate group called the Kingsmen (and even that much might not be true), there is no evidence whatsoever that Yank’s band had a “shared history” with the real Kingsmen, other than to have borrowed the Kingsmen name. Again, Yank’s band, if it existed, was not at all famous. It was not the real Kingsmen, the iconic band famous for its hit song “Louie Louie,” though Yank has repeatedly claimed and convinced much of the world that he was, in fact, the lead singer of the Kingsmen, and that he had something to do with that iconic band’s hit song “Louie Louie.”

After The National Post published its story (“The World According to Yank”) confirming that Yank Barry was never a member of the Kingsmen, Yank filed a libel lawsuit against The National Post, and in a conversation with me, Yank stressed that he had filed this lawsuit against The National Post. Yank told me that he was going to win the lawsuit because real members of the Kingsmen, among others, including Carla Bruni-Sarkozy, a singer and former model who is also the wife of former French President Nicolas Sarkozy, were going to testify on his behalf and confirm that he was the lead singer of the Kingsmen. Yank also told me that the prime minister of Canada was going to make a big announcement sometime this month (November, 2014), and Yank suggested that this announcement was going to have something to do with his being the former lead singer of the Kingsmen.

After filing his lawsuit against The National Post, Yank Barry, earlier this year (2014), also filed a $10 million defamation lawsuit against Wikipedia and four Wikipedia editors who had edited Yank Barry’s Wikipedia page to reflect the fact that Yank Barry was never a member of the real Kingsmen. This followed one of the great Wikipedia wars in history, with some editors of Wikipedia repeatedly correcting Yank Barry’s page to reflect the fact that he was never a member of the Kingsmen (and also including information about Yank’s various other crimes and frauds), while an army of trolls and allied Wikipedia editors, apparently employed by Yank (or so it was suggested in Wikipedia forums) repeatedly corrected the corrections, so that Yank was once again described on Wikipedia as a member of the Kingsmen.

Yank’s lawsuit against Wikipedia claimed that Yank had suffered from serious “mental distress” as a result of what was written about him on Wikipedia. Yank’s lawyers subsequently withdrew the lawsuit, but claimed they were going to file another lawsuit against Wikipedia, this time using a “new strategy.”

Then, not long after I began preparing this story, and not long after Yank filed his lawsuits, something remarkable happened. Yank Barry’s public relations agency (in February, 2014) issued a press release that was headlined: “Former The Kingsmen lead singer to reunite with band in Ocala, Fla. For the first time since 1970, Yank Barry will sing ‘Louie Louie’ with the band.” [emphasis in the original].

This was something new, for now Yank Barry was not only claiming (falsely) to have been the former lead singer of the Kingsmen, but also claiming, for the first time, that he was actually going to perform with the Kingsmen in a live concert for all to see. Even more remarkable, Yank really did appear with genuine members of the Kingsmen at a concert in Florida. You can view the video of the performance below (this is the same video posted on LouieLouie.org) where real Kingsmen drummer Dick Peterson introduces Yank Barry by saying: “Back in the 1960s and 1970s we had a fellow who played with us in the Kingsmen, and he’s gone on to become extremely successful…Yank is a pretty incredible human being. His organization has given over a billion dollars to hungry people all around the world.”

Then Yank Barry takes to the stage to belt out “Louie Louie” with Peterson backing him up. In addition to showing the performance itself, the video below, which looks a bit like a real rock-u-mentary, shows Yank Barry and two former members of the Kingsmen, Peterson and Mike Mitchell, the latter of whom was the lead guitarist for the real Kingsmen, reminiscing together about their youthful years together in the band.  Watch the incredible video here:

Both Peterson and Mike Mitchell were, in fact, real members of the Kingsmen, and you heard them correctly: they were saying that Yank, too, really was a member of the Kingsmen. Prior to the day in 2014 when some of the real Kingsmen performed with Yank in Florida and appeared in that video, no real member of the Kingsmen had ever described Yank Barry as having been a member of their band. Indeed, on multiple occasions prior to 2014, real members of the Kingsmen had considered taking legal action against Yank in hopes that he would discontinue with his false claim to have been a member of the Kingsmen—a claim that was not only enabling Yank to capitalize on the fame of the song “Louie Louie,” but was also giving the Kingsmen a bad name in light of Yank’s other activities to be discussed.

But beginning with their 2014 performance in Florida and the subsequent release of that video, and continuing to the present moment, at least two former members of the Kingsmen (real American icons) are now falsely describing Yank Barry as a former lead singer in their band. Not only are at least two real Kingsmen now falsely describing Yank Barry as the former lead singer of the Kingsmen, famous for “his” song “Louie Louie,” and not only are they thereby lying to their fans (many of whom look upon this lie with awe, as they do not recall anyone named Yank Barry being in the band), but also they are (perhaps unwittingly) helping Yank Barry perpetrate a much larger fraud against people around the world—a fraud that we will discuss at great length.

This must be stressed: For more than two decades, Yank Barry has been promoting himself as the former lead singer of the Kingsmen, but he was never a member of that band. He never played with the real Kingsmen, and he never had anything to do with the Kingsmen or the recording of their hit song “Louie Louie.” The song “Louie Louie” was, in fact, authored by an African-American singer named Richard Berry, who shares nothing with Yank other than a last name that Yank acquired when he stopped going by his real name, Gerald Falovich (Yank also goes by other aliases, including Gerald Barry).

But in 2014, not long after I began preparing this story, and not long after Yank filed his lawsuits against Wikipedia and The National Post, real members of the Kingsmen (genuine American icons), for the first time ever, appeared in a concert with Yank, and then appeared in that video. See also this NBC News special on Yank Barry and the Kingsmen:

When you watch the NBC News special, take a close look at Yank’s office, as a few television news organizations have interviewed Yank in that same office, and the office shows the scope of Yank’s fraud. If you look closely, you can see that the walls of that office are lined with the gold and platinum records that Yank supposedly scored during his spectacular music career. There are also many other awards displayed in that office, along with photographs of Yank with government officials and celebrities, and the office is otherwise just what one would expect of a former rock star turned world-renowned philanthropist and humanitarian.

Now, once more, watch the video produced by Yank’s publicity machine:

Incredibly, in the video produced by Yank’s publicity machine, none other than Mike Mitchell, the former lead guitarist of the real Kingsmen, and Dick Peterson, a former drummer for the real Kingsmen, universally recognized as the official spokesman of the Kingsmen, not only report that Yank Barry was, in fact, a member of the Kingsmen, but speak in some detail about the good times that they and Yank had playing together back in the 1960 and 1970s, when Yank was the lead singer of their band. How could this be? Were Yank’s detractors wrong all along?

No, they weren’t wrong. Yank Barry had never played with any members of the real Kingsmen prior to the day in 2014 when real members of the Kingsmen appeared with Yank in that video. And as to how this could be—well, it is quite easy to be when you are Yank Barry, who is, perhaps, one of history’s all-time greatest and most audacious con-men. He is not just a con-man. He is (as Rod Macdonell, author of that 1998 story in the Montreal Gazette, calls him) “Mr.Telfon.” Every time Yank has been convicted of a crime or implicated in wrong doing, he has risen from the ashes and restored his reputation.

Every time one of his frauds is exposed, Yank recovers to perpetrate an even bigger fraud. This time, soon after Yank’s claim to have been a member of the Kingsmen was exposed as a fraud, Yank convinced at least two real members of the Kingsmen to participate in his fraud. And it is not only the two members of the Kingsmen who are now lying on Yank’s behalf. Yank has convinced other famous musicians to participate in the fraud as well.

It is not clear whether these other famous musicians know that Yank Barry’s claim to have been a member of the Kingsmen is a lie, but several famous musicians have vouched that Yank was a member of the Kingsmen, and Yank has even appeared on stage with several famous musicians, including Billy Ray Cyrus and U.S. Gary Bonds, to sing “Louie Louie.” See the video below of Yank on stage with multiple famous musicians, including Billy Ray Cyrus:

See also this video of Yank on stage with a large number of musicians and other celebrities:

When I called Mike Mitchell, lead guitarist of the Kingsmen (no relation to myself, Mark Mitchell, the author of this article), I asked him if Yank Barry really was a member of the Kingsmen. Mitchell said, “No, Yank was not a member of the original group.”

Did Yank have anything to do with the song “Louie Louie”?

“Well, no,” said Mitchell.

Then why did Mitchell appear in Yank’s video to report that Yank was a member of the Kingsmen?

“Well,” said Mitchell, “Yank was in a band that called themselves the Kingsmen, so it was a sort of off-shoot of the Kingsmen.”

Later, in another conversation, after I was encouraged by Yank Barry to call Mitchell again, Mitchell, clearly having been briefed by Yank, denied that he had, in his earlier conversation with me, decribed Yank’s band as an “off-shoot” of the Kingsmen, and stated unequivocally that “Yank Barry was a member of the Kingsmen. He was the lead singer.” However, Mitchell stated that he himself (i.e. Mitchell) was not a member of the band for which Yank Barry was the lead singer. In other words, Yank Barry was not a member of the real Kingsmen, for which Mitchell was the lead guitarist, and Mitchell was lying when he stated that Yank was lead singer of the real Kingsmen. Mitchell was also not being honest when he appeared in Yank’s video, reminiscing about the fun days he had back in the day, playing with Yank in the band.

To repeat: Mitchell never played with Yank in any band until earlier this year, 2014, and it was likely not a coincidence that Yank got real members of the Kingsmen to lie for him shortly after he filed his lawsuits against The National Post and Wikipedia. As I mentioned, Yank told me he expects to win his lawsuit against The National Post with help from testimony of the real Kingsmen. It remains to be seen whether the real Kingsmen are actually going to perjure themselves in court for Yank’s benefit, but if they do, Yank might well win his lawsuit.

Mitchell told me: “We have authorized Yank to use the Kingsmen name. Also, Yank recently came out and sang with us, so that makes him a member of the Kingsmen, as far as we’re concerned.”

So there you have it. Yank Barry, otherwise known as Gerald Falovich, among other aliases, including Gerald Barry, after more than 20 years of hijacking the Kingsmen’s good name, fraudulently capitalizing on their fame, and (we will see) perpetrating other frauds to the tune of “Louie Louie,” has not only pulled off his fraud, but he has made it true. The real Kingsmen have now, as of 2014, made Yank Barry an official member of the band!

But I will repeat one last time: at least two real members of the Kingsmen are lying to their fans when they say that Yank Barry was a member of their band back in its heyday during the 1960s and 1970s, or at any time prior to a few months ago, when Yank convinced them to appear in his video.

I asked lead guitarist Mike Mitchell, “Is Yank paying you to let him use the Kingsmen name?”

He said, “No.”

I asked Mitchell, “Do you believe that Yank’s charity has fed a billion needy children?”

Mitchell said: “I take what Yank says at face value.”

I informed Mike Mitchell that Yank is not what he claims to be, that he has not fed a billion children, and that he is, in fact, a criminal and a fraud. I told him I had evidence—evidence that this article will describe in excruciating detail, showing that Yank Barry’s charity is a massive fraud, and that Yank Barry is actually one of the greatest cons in history.

Mitchell said, “Well, that’s Yank’s business. It has nothing to do with me.”

In my second conversation with Mike Mitchell, I reiterated that Yank Barry’s charity was a fraud.

Mitchell said, “I don’t care. Yank’s alright by me.”

* * * * * * * * *      

The key moment in that video above comes when Yank Barry says to Mike Mitchell and Dick Peterson of the Kingsmen how glad it made him feel to see the headline in the London Daily News that read: “From ‘Louie Louie’ to the Nobel Prize.” In fact, the London Daily News, to its credit, never published any such headline, but other media, of course, picked up on the basic theme, which Yank’s public relations firm communicated not only with the video, but also with multiple press releases headlined: “Yank Barry, From ‘Louie Louie’ to Nobel Peace Prize Nomination.”

The first such press release (read the full press release here) actually appeared back in 2012, and after the headline (“Yank Barry, From ‘Louie Louie’ to Nobel Peace Prize Nomination”), the press release read: “Kiril Gorianov, Deputy Chairman of the International Arbitration Court, nominates Yank Barry for the 2012 Nobel Peace Prize…‘In my estimation, Mr. Barry has made an undeniable contribution to World Peace,’ Gorianov said.”

That sounded impressive, and it yielded dozens of media stories about the former “Louie Louie” singer who had been nominated for the Nobel Peace Prize. Again, readers are encouraged to do a quick Google search to see just how much media play this story received, but in addition to the stories to which I provided links above, see, as just one more typical example, Fox News: “Life After Hollywood, ‘Louie Louie” singer Yank Barry nominated for the Nobel Peace Prize.” And after you have perused all of those media stories, consider that at the time when they were published or broadcast, Yank had not been nominated for a Nobel Peace Prize by anyone other than Kiril Gorianov.

Gorianov was an obscure lawyer in Bulgaria.

It was true that Gorianov was the “Deputy Chairman of the International Arbitration Court,” but that was something different from the International Court of Arbitration, often referred to simply as “The Court,” which is (to quote The Court’s website) “the world’s leading body for the resolution of international disputes by arbitration.”

It was also something different than the International Court of Justice in the Hague, but those in the media apparently assumed that Yank had been nominated for the Nobel Peace Prize by either the International Court of Arbitration or the International Court of Justice in the Hague.

The truth, again, was that Yank was nominated by one Bulgarian lawyer who happened to be the deputy chairman of an outfit called the International Arbitration Court, which was different from the International Court of Arbitration. The International Arbitration Court (whose deputy chairman nominated Yank for the Nobel Peace Prize) was a Bulgarian outfit that had been founded on a whim by a few Bulgarian lawyers, including, of course, the one who nominated Yank for the Nobel Peace Prize.

The International Arbitration Court in Bulgaria has nothing to do with the International Court of Justice in the Hague or the International Court of Arbitration, which has offices throughout the world. So far as I can tell, the International Arbitration Court in Bulgaria doesn’t have much to do with anything at all. It doesn’t engage in many discernable activities, and it doesn’t appear in the media (except in the context of Yank’s nomination for the Nobel Peace Prize), though it did, of course, enable Yank to say that he was nominated for the Nobel Peace Prize by the deputy chairman of an organization with an impressive sounding name.

It is even possible that Gorianov established the International Arbitration Court in Bulgaria for precisely that reason, namely so that he could nominate Yank and help convince the world that the nomination was real by saying he was the deputy chairman of an organization with an impressive sounding name while also advancing his own business interests. Indeed, this seems a most likely proposition given that Gorianov not only established the International Arbitration Court in Bulgaria, but was also a principal with Yank Barry’s charity, the Global Village Champions Foundation, whose work was the ostensible reason why Gorianov nominated Yank Barry for the world’s most prestigious award.

As can be seen on Global Village Champions Foundation shipping documents (see, for example, the shipping documents posted here at DeepCapture.com, namely documents with Gorianov’s name prominently listed), items that the Global Village Champions Foundation shipped to Bulgaria were shipped to Gorianov at an address in Bulgaria where Gorianov worked not only as a lawyer, but also as the local representative of the Global Village Champions Foundation.

We will see that the Global Village Champions Foundation is more a business than a charity, and a massive fraud, but we can already see that Yank Barry himself is a massive fraud who asked his business partner (i.e. Gorianov, the Bulgaria representative of the Global Village Champions Foundation) to nominate him for the Nobel Peace Prize, and then, with his business partner’s nomination in hand, convinced dozens of media organizations to publish stories about the “Louie Louie” singer who had been nominated for the most prestigious prize known to mankind because he was (aside from being the former lead singer of the Kingsmen) a leading humanitarian who has fed nearly one billion needy children while (in the words of Gorianov, as quoted in Yank’s initial press release) “making an undeniable contribution to World Peace”

According to Yank’s publicity machine (and according to numerous media organizations), Yank was nominated for the Nobel Peace Prize not only because he was a world renowned humanitarian who had fed nearly a billion people, but also because (to quote the above Yank Barry press release): “Barry met with [Libyan] President Muammar Qaddafi to begin negotiations for release of five captive Bulgarian nurses and one Palestinian medical intern sentenced to death for conspiring to infect over 400 children with HIV in 1998 and causing an epidemic at El-Faith Children’s Hospital in Benghazi.”

The arrest of those five Bulgarian nurses, known as the Benghazi Five, was, at the time, a big story, and it was also a big media story when Yank Barry, famous for his song “Louie Louie,” ostensibly met with Qadaffi to negotiate the release of the Bulgarian nurses. But there is no evidence that Yank Barry actually met with Qadaffi. There are Yank Barry websites with photographs purporting to show Yank Barry meeting with Libyan government officials whose true identities cannot be confirmed, but none of those numerous photos show Yank Barry meeting with Qadaffi. When I asked Yank Barry if he really had met with Qadaffi, he said “I sure did.” When I asked him why he had not posted any photographs of his meeting with Qadaffi, he said “I don’t have any photographs.”

In any event, it was not Yank Barry who secured the release of the captive Bulgarian nurses. The Bulgarian nurses were released under pressure from multiple governments and world leaders. There is, in addition, no evidence that Yank Barry’s charity, the Global Village Champions Foundation, has donated a billion meals to charity, and nor has Yank Barry done anything at all to suggest that he is any sort of leading “humanitarian” or advocate for world peace. The media and Yank’s publicity machine often describe Yank Barry as a “soy products” billionaire who donates 60 percent of his profits to charity, but while Yank certainly has a lot of money, we will see that he has obtained much of that money from criminal activities, not by selling “soy products,” and again, we will see that he has not donated a great deal of his money to charity.

Yank does operate a “soy products” company called Vitapro International, also known as Vitapro Foods, which has one product, a dehydrated soy-based meat substitute (known as “Vitapro”). But while Yank has claimed that this is a multi-billion dollar company, with manufacturing facilities around the word, and at least 177 employees, the truth is that most of the Vitapro product is manufactured by other companies. When I asked Yank Barry about this, he conceded (perhaps only because he knew I had the evidence) that most of the Vitapro product was manufactured not by Vitapro itself, but by “sub-contractors.”

Yank said that Vitrapo has one manufacturing plant, in Bulgaria, and he said it really was true that Vitapro has “more than 150 employees,” but a former employee of Vitapo says that Vitapro has only a few employees, most of them among Yank’s relatives, and the former employee said that if Vitapro does have a manufacturing plant in Bulgaria, it was opened only sometime recently, after this former employee discontinued his association with the company.

Vitapro International’s website used to show an address in Montreal, but it presently shows only two addresses, one in Bulgaria (namely, Gorianov’s address) and one in Belize, and neither of those addresses house manufacturing facilities. The photograph of the supposed Vitapro corporate headquarters shown on the Vitapro website is a fake photograph made with Photoshop or some similar software. When I sent Yank Barry’s spokesman, Glenn Selig, and Yank Barry himself emails asking for documentation showing that Vitapro had manufactured large quantities of dehydrated meat substitute, I initially received no reply, and though Yank later called me on several occasions, he was unable to provide documentation that either Vitapro or its subcontractors had manufactured large quantities of dehydrated meat substitute.

This is important because Yank Barry says that his Global Village Champions Foundation is largely funded from Vitapro’s profits, and the media has reported not only that the Global Village Champions Foundation has donated nearly one billion meals to needy people, most of them children, but also that most of those meals were in the form of Vitapro’s dehydrated meat substitute. There is no evidence that Vitapro has ever produced anywhere close to enough dehydrated meat substitute to constitute nearly one billion meals, much less donated that many meals to charity.

When I asked Yank Barry about this, he stated (contrary to what he had told others in the media, namely those in the media who take dictation for Yank, rather than ask real questions) that most of the meals that the Global Village Champions Foundation had delivered to needy children were not, in fact, in the form of Vitapro’s dehydrated meat substitute. He said there was evidence on the Global Village Champions Foundation’s website that the Global Village Champions Foundation had delivered rice and other food products to needy people, and that those other food products, along with a comparatively smaller amount of Vitapro, amounted to nearly one billion meals. Or, as Yank put it, “Maybe its not a billion meals. Maybe I’m off by 20 or 60 million meals, but its close to one billion meals…and it’s all documented on our website.” But again, we will see that the documents on that website show that Yank’s charity has delivered nowhere close to one billion meals.

Yank is also failing to tell the truth when he tells the media that he is a “soy products billionaire,” and that he has donated more than a billion dollars to charity. Yank’s publicity machine says that Vitapro donates 60 percent of its profits to charity, but even if that were true (and there is no evidence that it is true), it would be nowhere close to a billion dollars (because Vitapro certainly does not have profits anywhere close to that amount, if it has any profits at all).

Yank also operates a company called ProPectin that manufactures an apple-pectin product (called ProPectin). ProPectin is based in Bulgaria, and much as Yank claims that 60 percent of Vitapro’s profits go to charity, so too does Yank claim that 60 percent of ProPectin’s profits go to charity.

In addition, just as the media reports that Yank is donating large amounts of Vitapro dehydrated meat substitute to needy children, so too does Yank claim that he is donating much of his ProPectin product to charity. But we will see that Yank has delivered no more than a few boxes of ProPectin to charity, and even those few boxes (literally, just a few boxes) were not so much charity as marketing, similar to free samples that people hand out in supermarkets. Yank certainly has not delivered 60 percent of ProPectin’s profits to charity, and ProPectin is otherwise of no use to needy people around the world.

The above-noted article in the Sarasota Herald Tribune, among others, reported that Yank Barry went to Japan after the Fukushima disaster in order to “distribute apple pectin” to survivors of the disaster, and the Sarasota Herald Tribune, among other media, suggested that Yank’s trip to Japan was another mission of charity. It was true that Yank went to Japan to “distribute” apple-pectin, but he went, more specifically, to market and sell his product ProPectin, which, of course, was made out of apple-pectin. According to Yank, ProPectin is able to rid the human body of radioactive contamination from disasters like the Fukushima meltdown, and Yank says that ProPectin has anti-aging and other miracle properties, such as being able to cure diabetes and protect the body from cancer. But we will see that no credible scientist or medical professional has determined that ProPectin has those miracle properties.

When Yank travels to nations around the world, he always makes sure to bring with him a celebrity, most often the famous former boxer Muhammad Ali, whom Yank describes as a “close friend.” Muhammad Ali is one of the few people who are revered around the world, and Muhammad Ali is especially popular in the Muslim world, where he has opened doors for Yank, while, of course, drawing more media attention.

Yank’s public relations machine regularly reports that Yank co-founded the Global Village Champions Foundation with Muhammad Ali, but Muhammad Ali was not a co-founder of the Global Village Champions Foundation or any other charity operated by Yank Barry. It is true that several celebrities, including Muhammad Ali, endorse the Global Village Champions Foundation, but Yank and the media leave out the part that Yank pays Muhammad Ali to endorse Global Village and to be photographed with Yank in various locations around the world.

We will, as I have promised, review evidence that Yank has not donated anywhere near enough to charity to suggest that he is any sort of leading philanthropist, and nor is he a genuine “humanitarian” who has made an “undeniable contribution to World Peace,” though that is how he is portrayed not only by his public relations machine, but also by major news organizations. Consider a recent report on CNN (make sure to watch the CNN report in full):

When interviewed by CNN in Bulgaria, Yank stated that he was going to broker an end to the war in Syria, and CNN obligingly reported Yank’s statement that he was planning to meet with Syrian leader Basher Assad. CNN’s reporter also expressed no disbelief when Yank said that Assad would listen to him, perhaps even end the war, because he, Assad, loves the song “Louie Louie.” This was actually a big media story (singer of “Louie Louie” and Nobel Peace Prize nominee to broker peace with Assad), but Yank never actually met Assad, and nor did Yank make any other effort to actually broker an end to the war in Syria. Similarly, of course, no documentation supports Yank’s claim to have met Qadaffi, though his alleged meeting with Qadaffi was a big media story, reportedly one reason why Yank was nominated for the Nobel Peace Prize.

Only one journalist reported the fact that it was only an obscure Bulgarian lawyer who had nominated Yank for the Nobel Peace Prize, while questioning whether a nomination from an obscure Bulgarian lawyer actually counted as a real Nobel Peace Prize nomination. That journalist was Joe O’Conner of The National Post, the same journalist who confirmed that Yank was never a member of the Kingsmen. The full title of O’Conner’s story was “The World According to Yank: Montrealer with checkered past gets the Nobel nod, or does he?” The story suggested that a press release from a Bulgarian lawyer did not count as a real Nobel Peace Prize nomination. (Yank, recall, has filed a libel lawsuit against The National Post, but I have confirmed the truth of every statement in The National Post’s story about Yank).

We will discuss Yank’s “checkered past” in detail, but first it needs to be noted that when The National Post exposed the truth about Yank Barry’s supposed Nobel Peace Prize nomination, Yank responded by not only filing a lawsuit against The National Poast, but also stepping up his media campaign, with dozens of media outlets ignoring the revelation in The National Post, and repeating the story that Yank Barry, iconic singer of “Louie Louie,” had been nominated for the Nobel Peace Prize in recognition of his philanthropy and quest for world peace. Then came the media stories describing Yank as the “Jewish Schindler.”

There were literally dozens of these stories, published in newspapers and magazines all around the world, and also broadcast on television news networks around the world. One of these stories was a big story in Time Magazine entitled, “‘Jewish Schindler’ Taps Boxing Legend Evander Holyfield to Help Syrian Refugees.”  You are encouraged to read that story in Time Magazine, and you are encouraged to read the dozens of other stories describing Yank Barry as the “Jewish Schindler” because these stories (like most media stories about Yank Barry) are a case study in how easy it is for one miscreant, with the help of a few others, to insert one massive lie into a sufficient number of news reports so that the whole world believes the lie to be true. And how, with almost laughable ease, our media is manipulated by conmen and criminals.

Yank has had help in this regard from his public relations counsel, Glen Selig, who can often be seen on the leading television networks discussing big “news” stories, such as the endless story about the Amanda Knox trial. Selig has access to a lot of leading celebrities and politicians, and the major news organizations often turn to Selig for help in arranging interviews with those celebrities and politicians. In return for Selig’s help, the major news organization not only report whatever nonsense that the celebrities and politicians wish to spew, but also agree to report whatever nonsense Selig provides about his clients, including, apparently, Yank Barry.

This is how the major news organizations operate, as I know, having spent much of my career working for major news organizations (including Time Magazine and The Wall Street Journal). With a few exceptions, journalists do not conduct their own investigations, or even do any actual reporting. Instead, they rely on a relatively small clique of PR operatives to feed them stories. As a result, a relatively small number of PR operatives (including also government PR operatives) are able, quite literally, to control much of what appears in our media, and much of what appears is propaganda and lies.

The description of Yank as the “Jewish Schindler” was a clever public relations ruse. The “Jewish Schindler” moniker, of course, is a reference to Oskar Schindler, the heroic German man who helped thousands of Jews escape from Nazi Germany, a story made famous by the movie “Schindler’s List.” Yank, who apparently is Jewish, was allegedly helping Muslims and Christians escape persecution and war in Syria. The media swallowed this story hook, line and sinker, reporting, without the least bit of skepticsm, Yank’s claim that he had not only “rescued’ refugees out of Syria, but had even found housing for a lot of those refugees in four-star luxury hotels.

As one more typical example, see this report on Fox News:

When I spoke with Yank by telephone, he claimed that he had transported thousands of refugees out of Syria, and said, “They’re calling me the Jewish Schindler! I rescued thousands of them, Christians and Muslims….ISIS was going to cut off their heads.” Yank also said he negotiated with ISIS to secure the release of the refugees, who were apparently being held hostage. “I’ve been dealing with ISIS,” he said, “We saved those refugees from ISIS.”

When I asked Yank if there was evidence that he had housed numerous refugees in four-star hotels (a claim that other media had reported without so much as asking for the names of the hotels, much less checking with the hotels to see if there were any refugees living there), Yank assured me that he had housed refugees in hotels, but was unable to provide me with evidence (e.g. hotel receipts) showing that he had, in fact, done so. He also did not provide me with the names of the hotels.

Aside from that, there was Yank’s appearance at a refugee camp in Bulgaria with famous boxer Evander Holyfield and CNN cameras in tow. There were Syrian refugees in that camp, but they had already escaped persecution in Syria, without the help of Yank, which is why they were in Bulgaria.

Yank announced (before the cameras) an offer to move 733 Syrian refugees from the camp in Bulgaria to a building that he described as a “safe house” owned by his charity, the Global Village Champions Foundation. Yank’s “safe house” is discussed in the CNN report posted above, and if you have not yet done so, you are encouraged to watch that CNN report in full. There are, in fact, many news stories describing Yank’s offer to move 733 Syrian refugees to a Global Village Champions Foundation “safe house,” and they all repeat what was reported on CNN. But the “safe house” described by Yank on CNN (and described by many other news organizations) was nothing other than a seedy hotel, owned by Bulgarian people, not by Yank Barry or the Global Village Champions Foundation. And there is no evidence that Yank or the Global Village Champions Foundation actually moved 773 refugees to that “safe house” (i.e. a seedy hotel).

Incredibly (or not so incredibly to anyone who knows how CNN operates), CNN not only reported Yank’s announcement that he was moving 733 Syrian refugees to a safe house, but showed film of happy Syrian children playing in a nice room full lof toys while suggesting that this was film of Syrian refugees who had been moved to Yank’s safe house. That film was not of Yank’s safe house, and those Syrian children had not been helped by Yank in any way. CNN simply showed some stock footage of Syrian children playing with toys, and suggested (falsely) that these were children who had been moved to Yank’s “safe house.”

Actually, all you have to do is watch the CNN report carefully to see that Yank Barry did nothing other than bring one family to a seedy hotel after nearly starting a riot at the refugee camp by making big promises and failing to fulfill those promises. Note also in this CNN report Yank’s claim that he was going to meet the Bulgarian prime minister, and Yank’s claim that his next stop was a meeting with Syrian president Bashar Assad (he didn’t meet Assad).

Furthermore, we will see that Yank’s promise to move 773 refugees to a safe house is one of the most generous acts of charity ever conducted by the Global Village Champions Foundation, which has pocketed some unknown but probably significant quantity of money by making fraudulent claims, including its claim (posted on its website, and repeated incessantly in the media) that the Global Village Champions Foundation has, as of this writing, delivered 988, 911,330 (i.e., nearly a billion) meals to starving people, most of them children, in underdeveloped nations around the world. (In one of our phone conversations, Yank stated that the Global Village Champions Foundation is entirely self-funding, and that it does not accept money from outside sources, but Yank has, at minimum, taken in money for the foundation by holding numerous raffles and by promising his distributors that a percentage of his profits from sales of ProPectin and Vitapro are delivered to charity. Yank also told me that the Global Village Foundation has numerous “corporate sponsors,” which, if true, means that he is taking in money from corporations as well)

It was soon after the “Jewish Schindler” stories began appearing in the media this year (2014) when Yank “reunited” with the Kingsmen for the “first time since 1970” (actually, the first time ever). Then something else remarkable happened. It was not something surprising, but it was nonetheless remarkable that Yank Barry, who had previously been nominated for the Nobel Peace Prize by nobody other than an obscure Bulgarian lawyer, received (just this year, 2014) nominations for the Nobel Peace Prize from other people as well.

Indeed, Yank Barry was, in short order, nominated for the Nobel Peace Prize by no less than three members of the United States Congress.

When members of the U.S. Congress nominate someone for the Nobel Peace Prize it is the real deal. So now, Yank Barry was a genuine and official Nobel Peace Prize nominee. Just as he had overcome the exposure of his Kingsmen fraud and become a real member of the Kingsmen, so too had Yank overcome the exposure of his Nobel Peace Prize fraud and become a genuine Nobel Peace Prize nominee. And though numerous news organizations reported that members of the U.S. Congress nominated Yank Barry for the Nobel Peace Prize, no news organization reported the important facts of this story.

After the three members of Congress nominated Yank for the Nobel Peace Prize, major news organizations once again reported the “‘Louie Louie’ to Nobel Peace Prize” blather, and numerous news organization again reported that Yank had parlayed a spectacular music career into an even more spectacular career as a “soy products tycoon” and “humanitarian” who gives most of his money to charity, meanwhile brokering peace with world leaders like Qadaffi and Assad. But not one news organization communicated the true enormity of this story. If they had done so, the headlines would have read: “Members of the United States Congress Nominate Hardcore Mafia-tied Criminal for the Nobel Peace Prize in Recognition of Massive Fraud, Conspiracy, Corruption, Dealing in Stolen and Counterfeit Art, Extortion, Grand Theft, Market Manipulation, Death Threats, and Doing Business with others who have ties to organized crime.”

We will see that my headline is the full truth—Yank Barry has even done jail time for his involvement in a mob extortion scheme, and yes, we will see that he has done other business with people tied to organized crime, But before we move on to the details of Yank’s business with people tied to organized crime, we must ask the question: Why would members of Congress nominate such a man for the Nobel Peace Prize?

It no doubt helped that Yank was able to present members of Congress with the many earlier media stories describing him as a leading humanitarian and former member of the Kingsmen who had already been nominated for the Nobel Peace Prize (by nobody other than his business partner in Bulgaria, but no media had mentioned that, and only one media publication, The National Post, had cast doubt on the legitimacy of Yank’s nomination). More important, though, we must consider the possibility that members of the U.S. Congress nominated the unsavory Yank Barry for the Nobel Peace Prize because they, too, are unsavory.

The first member of Congress to nominate Yank for the Nobel Peace Prize was Congresswoman Sheila Jackson Lee of Texas, and she surely recalled not only that Yank had done jail time for his involvement in a Mafia extortion scheme (we will discuss the Mafia extortion scheme momentarily), but also that Yank had subsequently, in 2001, been convicted for corruption, money laundering and conspiracy after a jury concluded that he had paid bribes to the director of the Texas state prisons. According to Yank’s conviction, the director of the Texas state prisons, a man named James A. Collins, in exchange for a $20,330 cash payment and a $1033/day retainer paid by Yank, arranged for Yank to win a contract to supply $33 million worth of Vitapro’s dehydrated meat substitute to unfortunate prisoners in Texas.

This was one of the bigger scandals in Texas history. One prominent publication, the Texas Monthly, described it as “The Great Texas Prison Mess” and “the worst and most costly scandal in decades.” But, of course, that story, too, was quickly flushed down the memory hole, as were the many reports that not only had a jury concluded that Yank bribed the director of the Texas state prisons, but also Yank had poisoned prisoners in Texas with his dehydrated meat substitute.

The official docket from Yank’s case in Texas is worth a read (it is posted here at DeepCapture.com), and note that it was written into the official record that Yank’s dehydrated meat substitute caused “adverse health effects,” including severe rashes, nausea, and best of all, “excessive and rampant flatulence.” At one point, there were multiple protests and hunger strikes in the Texas state prisons, with prisoners expressing their rage at having been poisoned by Yank’s dehydrated meat substitute.

This, of course, is the same dehydrated meat substitute that Yank claims to be donating to “charity,” but again, we will see that Vitapro has manufactured (actually, purchased from subcontractors) only small quantities of dehydrated meat substitute. Although Yank’s company, Vitapro, obtained a $33 million contract to supply the Texas prisons, he only delivered a small amount of his dehydrated meat substitute to the Texas prisons before he was indicted, and before there emerged reports that he had poisoned the prisoners, at which point the contract was cancelled. A former Vitapro employee informs DeepCapture that the dehydrated meat substitute that Yank delivered to the prisons had been sitting in the basement of his home, and was so stale as to be wholly inedible.

It seems reasonable to suspect that Congresswoman Sheila Jackson Lee, who represents a district in Texas, would have recalled this seminal episode in the history of her state. But, then, Yank Barry has friends in Texas, including not only the congresswoman and other members of congress, but also numerous members of the Texas state legislature. According to Yank, the Texas state legislature plans, later this  month (November, 2014) to issue a formal apology for Yank’s earlier conviction in Texas, confirming that he was not, in fact, guilty of any crime.  Another friend of Yank, apparently, is the judge who presided over his trial in Texas. After Yank was convicted by a jury of his peers, the judge, the Honorable Lynn Hughes, not only ignored the jury, but unilaterally overturned the conviction, and then unilaterally acquitted Yank on all charges. This was, in fact, one of the stranger trials in the history of the American justice system (it is rare for a judge to unilaterally overturn a jury conviction) and we will discuss it at further length in upcoming sections of this story.

Before we discuss the peculiarities of the justice system, though, we need to further discuss Yank’s nominations for the Nobel Peace Prize. Actually, given the Bizarro-world nature of our government, perhaps there should be nothing surprising about the nominations, but we need to stress (since it has not been noted by our media) that Congresswoman Jackson Lee ignored Yank’s checkered past when she nominated him for the Nobel Peace Prize, and the congresswomen did not mention Yank’s criminal convictions when she gave a speech on the floor of Congress to recognize Yank Barry for his supposed efforts to feed the hungry and bring about world peace.

Congresswoman Jackson Lee’s speech on the floor of Congress is, in fact, worth listening to in its entirety. Here is a video of her speech:

The congresswoman began as follows: “Mr. Speaker, with a lot of enthusiasm, I rise to recognize and to acknowledge a renaissance man.”

That would be Yank Barry. Yank the renaissance man.

The congresswoman continued by stating that Yank Barry was “determined to help make the lives of children around the world much better. Yes, he had a sense of humor, and he was also a musician, and he visualized a day without hunger…Yank Barry has many sides to him [indeed, he does, as we shall see], but enthusiastically he takes each challenge, some that he has overcome in life, and put on the boxing gloves…I am excited that he has joined with Muhammad Ali and Gary U.S. Bonds to form the Global Village Champions Foundation…”

Again, Muhammad Ali did not “join” with Yank Barry “to form” the Global Village Champions Foundation. Muhammad Ali was paid by Yank to endorse the Global Village Champions Foundation and businesses, including Vitapro, affiliated with that “charity.” Gary U.S. Bonds, a famous musician, also did not “join” with Yank Barry “to form” the Global Village Champions Foundation, though Gary U.S. Bonds has endorsed the Global Village Champions Foundation, and has also endorsed Yank’s claim to have been the lead singer of the Kingsmen. We should assume that Gary U.S. Bonds, like so many others, has been duped by Yank, though it cannot be ruled out that he knows that Yank is a fraud (I was unable to reach Gary U.S. Bonds for comment, and a list of questions sent to Muhammad Ali went unanswered).

In any event, Congresswoman Jackson Lee went on to state that Yank “has served almost one billion meals.”

A number of the meals that Yank has served were meals that he served to prisoners in Texas, those meals having been paid for by tax-payers, with some of their money kicked back as “charity’ to the director of the Texas state prisons, but the congresswoman, of course, didn’t mention that. (Yank does not deny that he paid consulting fees to the director of Texas of state prisons, though he says that this was not corruption, and stresses that after his jury conviction, the judge acquitted him of charges that his payments were a form of bribery).

In her speech on the floor of Congress, Congresswoman Sheila Jackson Lee continued: “So, along with his 33 year music career, jamming with Jimi Hendrix, writing jingles, and yes, singing with the Kingsmen of ‘Louie Louie’ fame, we can be grateful that he and his wife, Yvette, have turned to a very important challenge, the Global Village Champions Foundation, which strives to become the undisputed world leader in private humanitarian delivery of nutrition to needy persons everywhere, sustaining life, and helping to eradicate world hunger.”

This speech might have been written by Yank Barry himself. Go to the Global Village Champions Foundation website, and you will find the following statement: “The Global Village Champions Foundation is striving to become the undisputed world leader in private humanitarian delivery of nutrition to needy persons everywhere, sustaining life, and helping to eradicate world hunger…” Which is precisely what the congresswoman said, and we will address that claim, along with the claim that Yank has delivered nearly one billion meals to  needy people, most of them children.

Congresswoman Sheila Jackson Lee

Congresswoman Sheila Jackson Lee

Indeed, as I have promised, we will see that the claim is a massive fraud, but first let it be noted that I sent multiple emails to Congresswoman Jackson Lee’s press secretary, Mike McQuerry. One of my emails to McQuerry read as follows: “I am a journalist preparing to publish a story about a man named Yank Barry and his charity, Global Village Champions Foundation.”

My email continued: “I see that Congresswoman Sheila Jackson Lee has nominated Yank Barry for the Nobel Peace Prize, and I am hoping that the congresswoman or someone in her office can answer a few questions for me. My story will report that the Global Village Champions Foundation is a massive fraud, and that Yank Barry is a criminal implicated in…frauds and crimes. My principal question for Congresswoman Jackson Lee is this: Would she like to know about the crimes perpetrated by Yank Barry? And having been informed that Yank Barry is a criminal and that his charity is a fraud, will she do the right thing and not only revoke her nomination of Yank Barry for the Nobel Peace Prize, but put pressure on the FBI to arrest Yank Barry and charge him for the fraud that he has perpetrated…”

My email concluded as follows: “As it stands now, I am operating under the assumption that Congresswoman Jackson Lee is an honest person who has been misinformed as to the nature of Yank Barry’s activities, but if she is unable or unwilling to answer my questions, and does not take action against Yank Barry, I think it will be fair of me to write that the congresswoman is [enabling] an ongoing fraud….I hope to hear back from the congresswoman or somebody in her office.”

Subsequently, I sent the press secretary a compendium of evidence that Yank was a fraud and a criminal—namely evidence that the remainder of this story will discuss in detail–along with evidence that Yank’s business partners include people tied to organized crime, and that Yank himself has ties organized crime. The press secretary said he would bring this information to the congresswoman and get back to me, but he never got back to me, and the congresswoman never revoked her nomination of Yank Barry for the Nobel Peace Prize. Nor did she do anything else to put an end to Yank Barry’s fraud.

To this day, there is posted on her official website a press release (you can read the press release here at DeepCapture.com) in which the congresswoman describes Yank Barry as a global humanitarian, and singer of “Louie Louie” worthy of the Nobel Peace Prize. I will not go so far as to suggest that the congresswoman is complicit in Yank’s fraud, but at a minimum, we have here a case of a congresswoman helping a criminal deceive the public. And the scope of Yank Barry’s fraud will become apparent to any reader who makes it to the end of this long story, just as it was made apparent to the U.S. congresswoman.

It must be noted, in addition, that it is not just one congresswoman who has expressed support for Yank Barry. Soon after Congresswoman Sheila Jackson Lee gave her speech on the floor of Congress, the entire U.S. Congress voted almost unanimously to fly an official “Yank Barry American Flag” over the U.S. Capitol building. That is correct: the American flag flying on top of the U.S. Capital building was, for a time, officially dedicated to…Yank.

Congressman Al Green also nominated Yank Barry for the Nobel Peace Prize

Congressman Al Green also nominated Yank Barry for the Nobel Peace Prize

Furthermore, Yank Barry subsequently received two more Nobel Peace Prize nominations, one from Congressman Al Green, also of Texas, and one from Congressman Danny Davis, who represents a district on the West side of Chicago (including Chicago’s roughest neighborhoods).

Yank Barry, in turn, promptly posted on his website a letter from Congressman Davis—a letter on Congressional stationery, officially nominating Yank for the Nobel Peace Prize—and there was another wave of media publicity about the “Louie Louie” singer who had once again been nominated for the most prestigious prize known to mankind, all because Yank was, according to Congresswoman Jackson Lee, quoting Yank Barry, an “undisputed world leader in private humanitarian delivery of nutrition” to needy children everywhere and a renowned humanitarian leading the struggle for world peace.

I called the office of Congressman Davis and left a message with his receptionist stating that I was a journalist working on a story about Yank Barry, and that I wanted to confirm that the congressman had nominated Yank Barry for the Nobel Peace Prize. Under ordinary circumstances, the congressman’s press secretary would have called me with an answer, either in the negative or the affirmative, or I would have been ignored altogether. But the congressman seemed to consider this an important matter, and just a few hours after I left the message, the congressman himself called me on my home phone number.

In his gravelly voice, the congressman said that he most certainly had not” nominated Yank Barry for the Nobel Peace Prize, and that he had no idea who Yank was. “Never heard of him,” said the congressman, “Does he have a lot of money?”

I knew that Congressman Davis was lying to me because Congresswoman Jackson Lee had confirmed that Congressman Davis had nominated Yank, and the fact that Congressman Davis had nominated Yank was reported in a press release (from Congresswoman Jackson Lee’s office) posted on the official website of Congress. You can read the press release in full yourself (it is posted here at DeepCapture.com). Along with the usual platitudes, the press release stated clearly that not only Congresswoman Jackson Lee, but also Congressman Davis and Congressman Al Green had nominated Yank Barry for the Nobel Peace Prize.

Congressman Danny Davis, our government at work for us

Congressman Danny Davis, our government at work for us

Congressman Davis, of course, had also written a formal letter on official stationery of the U.S Congress (you can find a copy of the letter posted here at DeepCapture.com), addressed to the Nobel Committee, and nominating Yank Barry for the Nobel Peace Prize. I suspected that Congressman Davis told me he had no idea who Yank was because he had heard from Congresswoman Jackson Lee that I was about to expose Yank as a fraud. Perhaps the congressman knew Yank to be a criminal (more on Yank’s crimes shortly), and by claiming he had no idea who Yank was, the congressman was trying to distance himself from a potential scandal.

In any case, I played along, and when the congressman asked me who Yank Barry was, I told him that Yank was a world renowned philanthropist and humanitarian. The congressman said, “A philanthropist, eh? Well he ain’t come to the West side to help nobody, and there’s a lot of people in my district be needing some help.”

Then the congressman threatened my life. Or so it seemed to me. When I asked the congressman if he was sure he didn’t know who Yank Barry was, the congressman said, “I don’t know Yank Barry, never heard of him….I do know the director of prisons up there [a reference, I believe, to the fact that Yank had been convicted for bribing a director of prisons].” Then the congressman said, I used to know a young girl up there. She was a nice girl. But she died. A damn shame.”

That was the end of the conversation. I thanked the congressman for calling, and the congressman hung up. And, yes, though I will concede that it is possible that I am misinterpreting the congressman’s words, they sounded an awful lot like a veiled death threat, similar to other death threats that I have received over the course of many years investigating organized crime.

A U.S. congressman threatening the life of a journalist? That is our government at work for us, and though it will be hard for some readers to believe that an American journalist would receive death threats, much less a threat from a U.S. congressman for investigating an “undisputed world leader in private humanitarian delivery of nutrition” to needy children everywhere, it will be easier for readers to believe after they have read this article in its entirety. It will be easier to believe once we have more fully discussed Yank Barry’s “charity,” which is no undisputed leader of anything, though it is unique in that it involves various scams that Yank has perpetrated in league with, among others, people tied to organized crime, while Yank Barry himself has threatened to murder people. It will seem still easier to believe once we have come to more fully understand the extent to which elements of our government have been captured by criminals.

* * * * * * * * *

Aside from his time playing with various obscure bands, including the one that he supposedly called the Kingsmen, and aside from ingratiating himself with a number of famous musicians, Yank Barry’s “spectacular 33 year music career” amounted to nothing more than a (short) career with a record company in Montreal called McConnell Records. That career ended in 1985, when Yank was sentenced to six years in prison for conspiring with members of the Mafia to extort $82,330 from the owner of McConnell Records, a man named John McConnell.

At that time, Yank was acquainted with a number of organized crime figures, including Willie Obront, a leader of a mafia group in Montreal known as the Dubois Gang; and Antonio Commisso, otherwise known as L’avvocatu (or “The Lawyer”), a leader of the powerful Ndrangheta Mafia organization, and the top boss of the Siderno Group, a faction of the Ndrangheta that is based in Siderno, Italy, though it has a large presence in Canada. Antonio Commisso was based in Toronto until his arrest in 2005, and was widely regarded as the top boss of the Italian Mafia in Toronto.

Another of Yank Barry’s associates was Cosimo Commisso, who was the son of Antonio Commisso, and who was known as “The Quail.” Just after his arrest, Antonio Commisso appointed Cosimo to be the top boss of the Siderno Group, and Cosimo has now replaced his father as the top Mafia boss in Toronto.

In fact, Yank Barry was on close terms with most leaders of Canadian organized crime, and one of Yank’s business partners was Vincenzo “Vic” Cotroni, also known as “The Egg,” who had been recruited into the Bonanno Mafia family, and who was widely regarded as the Godfather of Cosa Nostra’s operations in Montreal. Vic Cotroni controlled organized crime in Montreal in partnership with the above-mentioned Willie Obront (Cotroni and Obront were known in Montreal as “The Untouchables”) until March 3, 1984, when Vic Cotroni passed away, at which point his brother, Francesco “Frank” Cotroni, another associate of Yank Barry, became the top boss of the Montreal Mafia.

Most journalists, of course, never ask Yank Barry about his association with mobsters, but when a journalist with a publication called Offshore Alert questioned Yank about his associations, and how it came to be that Yank was sentenced to six years in prison, Yank explained the episode to the journalist this way: “I felt pretty cool rubbing elbows with these people [i.e. mobsters]. I wasn’t involved in their business; it was just being able to know them. It was almost like hanging out with superstars. I knew Frank Catroni. I knew Vince Cotroni. You’d go to clubs and they’d give you free drinks.” But contrary to Yank’s assurances, Yank was, in fact, in business with those mobsters, and one of his business schemes involved trying to orchestrate a Mafia takeover of the record company, McConnell Records, that employed Yank, hence his “spectacular” music career.

Yank was convicted only for working with organized crime figures to extort $82,330 from the owner of McConnell Records, but Yank was, in fact, trying to take over McConnell Records in league with his Mafia associates. Yank explained away the episode as follows: “I flew down to Jamaica and my ex-wife was there with a prostitute who was supposed to be one of the Don’s [Vic Catroni’s] girlfriends or mistresses. The prostitute met John [McConnell] at a bar…He picked her up, took her home to sleep and the next day got a phone call that said, ‘You were sleeping with the Don’s mistress.”’

Actually, McConnell got that call from Yank Barry, and Yank informed McConnell that he, McConnell, would have to pay “the Don” $82,330 or “the Don” would have him, McConnell, murdered. This was a blatant mob extortion scheme, which was why Yank Barry was subsequently sentenced to six years in prison (and served 11 months of that sentence). And again, Yank was also working with the mob in an attempt to not only extort $82,330 from McConnell, but also to take over this man’s record company.

Yank, though, in his interview with the Offshore Alert journalist, further explained the episode away by saying that “John [McConnell] came to me for help and I helped him, told him how much it would cost and he paid it…I easily could say it was the drugs. I was young; a lot of it was drugs. It was wrong. It was definitely wrong. I’m not proud of it, but I did it. Prison probably saved my life. I stopped doing drugs, and started realizing there’s got to be something better than this.”

According to Yank, he never again had involvement with mobsters.

This was essentially the same story that Yank repeated during a recent appearance on the Larry King Show (CNN). Yank was invited (or invited himself) to appear on the Larry King Show in order to tell the uplifting tale of a man who had once gotten himself into trouble, but had redeemed himself by establishing a world-renowned charity, the Global Village Champions Foundation, that has been endorsed by leading celebrities, including not only Muhammad Ali, but also the famous boxers Evander Holyfield and Mike Tyson, both of whom appeared with Yank on the Larry King Show.

Larry King did not ask Yank for details about his involvement with organized crime and his attempted takeover, in league with the mob, of McConnell Records. Instead, Larry King lobbed a softball question: “So how do you think your life changed? You had troubles in your life.” And Yank said, “Oh, yeah, I had a lot of trouble…I went to jail. I was the under president of a record company and, uh, the mob was extorting the chairman of the board. And ‘The Godfather’ had just come out. I was 21 years old [actually, Yank was 32 years old at the time, but never mind]. And I went to the movie ‘The Godfather’ with two of the Godfathers. I thought it was very cool. It wasn’t so cool when I got convicted. I did ten and a half months. It really changed my life. I stopped doing drugs, and did a total turnaround.”

This, no doubt, was what Congresswoman Sheila Jackson Lee meant when she said, during her speech on the floor of Congress, that “Yank Barry has many sides to him, but enthusiastically he takes each challenge, some that he has overcome in life….” Sure, Yank was involved in a Mafia extortion scheme, but he was 32 years-old (or 21 years-old, according to Yank’s false memory), and Yank did his time. He learned his lesson. He no longer thinks mobsters are cool. And after Yank did his jail time in 1982-1983, he never again had dealings with mobsters. This according to Yank and his supporters.

Below, you can find a photograph, dated 2005, that has never appeared in any media publication, and which has never been seen in public, though I sent a copy to Congresswoman Sheila Jackson Lee and others of Yank’s supporters in government, all of whom ignored it. I received this photo from one of Yank’s associates, and it is a photo, dated 2005, of Yank Barry sitting with Cosimo Commisso, now the top boss of the Italian Mafia’s operations in Toronto.

Yank Barry and Cosimo Commisso

Yank Barry and Cosimo Commisso

 

 

 

 

 

 

 

 

That’s Yank Barry on the left, Cosimo Commisso on the right. The photo was taken at a party that Yank held in the Bahamas for his friends and business partners.

When I asked Yank Barry about his relationship with Cosimo Commisso, Yank, who knew that I had the photo because I had sent it to Congresswoman Jackson Lee and others of his associates, stated that he had met Commisso on only one occasion (namely, the occasion on which he was photographed with Commisso). He said, “Somebody brought Commisso to my house in the Bahamas. I had no idea who he was. I had never met him before. I didn’t know he was organized crime. Somebody told me later that he was organized crime, and I never saw him again. I haven’t done business with him.”

Yank said the mobster was introduced to him as “Cosi,” and he didn’t have any idea that the man he was meeting was named Cosimo Commisso. It seems improbable that Commisso was introduced as “Cosi” (he goes by the nickname Coz, or sometimes Koz), and Yank’s statement that he had no idea who Commisso was seems implausible in light of the fact that he himself admits to having associations with others of Canada’s leading organized crime figures. Indeed, according to a man who attended Yank’s party in 2005 (i.e. the party at which Yank was photographed with Commisso), Yank and “Koz” talked at length about their mutual associations with Canada’s other leading organized crime figures, and though Yank claims that he had associations with organized crime figures only back in the 1980s, we will see in the later chapters of this story that Yank was, at a minimum, trying to get Commisso to invest in one of his business ventures at the time when that photo was taken in 2005.

We will also see that there is documentary evidence that Yank was, at that time, doing business with other people tied to organized crime. And, of course, the coming chapters of this story will discuss at length the Global Village Champions Foundation, which is, according to Congresswoman Sheila Jackson Lee (and according to Yank) “striving to become the undisputed world leader in private humanitarian delivery of nutrition to needy persons everywhere.”

To be continued…Click here to read Chapter 2

The next chapter of this multi-chapter story contains information showing that Yank Barry’s charity, the Global Village Champions Foundation, is an instrumentality of fraud, used for Yank Barry’s personal enrichment, though it does dispense to the needy a few scraps here and there in order to keep up appearances. The chapter following that one contains detailed information about Yank Barry’s more recent business dealings with people tied to organized crime, along with information about Yank’s relationships with some of the Federal Bureau of Investigation’s most celebrated heroes. All claims in this story will be backed up with indisputable evidence that will be explained in detail. Only at DeepCapture.com (motto: “We are the red pill”).

Correction: This chapter originally reported that Yank Barry did not meet the Bulgarian prime minister. As it turns out, he did, in fact, meet the Bulgarian prime minister. I apologize for the error. — Mark Mitchell

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

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

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

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

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

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


 

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

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

CNBC August 2014

 

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

Respectfully,

Patrick M. Byrne

Journalist, DeepCapture.com

PS Live broadcast only, naturally.

 

 

 

 

 

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And Now a Message from Our Sponsor….

And Now a Message from Our Sponsor….

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

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

You can also watch the segment on the CNBC website here

 

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

I like this guy.

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

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

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

– Warning on securities issued in Europe

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

Just a thought.

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

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

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

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

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

 

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

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Robert Brazell: Shyster Extraordinaire

Robert Brazell: Shyster Extraordinaire

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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Deep Capture Files Major Lawsuit Against the SEC

Deep Capture Files Major Lawsuit Against the SEC

I have filed a  lawsuit against the Securities and Exchange Commission (SEC), which previously failed to respond adequately to my Freedom of Information Act (FOIA) requests seeking SEC documents related to the SEC’s various investigations (and failure to perform adequate investigations) of naked short selling crimes that undermined the stability of the American financial system.

This is the first lawsuit against the SEC ever filed by a journalist seeking information about the SEC’s failure to regulate naked short selling, one of the most serious crimes affecting the American markets. I have filed the lawsuit with help from Gary Aguirre, a former senior enforcement official with the SEC, famous for having blown the whistle on the protection that top SEC officials were providing to hedge fund Pequot Capital and Morgan Stanley CEO John Mack.

Aguirre made headlines in 2006 by reporting in Congressional testimony that he had been improperly fired by the SEC after complaining that top SEC officials had derailed an investigation into an insider trading scheme perpetrated by Pequot Capital, and that the investigation had likely been derailed because the Aguirre had also been investigating Mack in connection with the insider trading, while Aguirre’s supervisor at the SEC was preparing to take a job with Mack’s law firm.

What did not make the headlines was the fact that Aguirre reported in that same Congressional testimony that when he was improperly fired, he had been investigating not only insider trading, but also naked short selling. “The investigation was two-pronged,” Aguirre reported to Congress. One prong concerned “insider trading.” However, the second, and far more important prong, concerned “market manipulation” and, more specifically, “two suspected violations: wash sales and naked shorts.”

“My colleagues,” Aguirre reported to Congress, “believed [the naked short selling] held a greater potential to severely injure the financial markets.” Indeed, Aguirre reported to Congress that naked short selling had the potential to deliver a market crash similar to the crash of 1929, from which followed the Great Depression.

Two years later, in 2008, that prediction proved correct when naked short selling contributed to a meltdown just as severe as the great crash of 1929. At that time in 2008, the CEOs of multiple Wall Street investment banks (long among the perpetrators of naked short selling) complained that naked short selling was contributing to the death spirals in their stock prices, and the SEC responded by issuing an unprecedented “Emergency Order” that temporarily banned all short selling of stock in more than 900 companies in the financial industry.

In that Emergency Order, the SEC effectively admitted that naked short sellers were contributing to the worse financial crisis since the Great Depression, and the SEC subsequently enacted new rules that supposedly made it more difficult for traders to engage in naked short selling, but those new rules were not sufficient, and to this day, the SEC has not sanctioned even one trader for perpetrating the naked short selling that (according to the SEC) contributed to the great meltdown of 2008, and nor has the SEC released any documents concerning its supposed investigation into that naked short selling—one of the great unsolved crimes of the century.

One purpose of my lawsuit is to force the SEC to hand over documents related to its investigation, or failure to investigate, the naked short selling that contributed to the great meltdown of 2008, but that is not all. There is massive amount of other information my lawsuit seeks to extract from the SEC, and I encourage you to read the lawsuit in its entirety because it is a gory chronicle indeed of the crimes that naked short sellers have perpetrated against the markets, and an even more shocking tale of how the SEC has failed to enforce the law while actually providing cover for the perpetrators of a crime that, at the present moment, is still undermining the stability of the global financial markets.

The lawsuit is posted in its entirety below:

United States District Court

FOR THE NORTHERN District of ILLINOIS

Eastern division

MARK MITCHELL

Plaintiff,

v.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Defendant.

Case No. ____________________

 

 

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

  1. This is an action under the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552, as amended, to compel Defendant United States Securities and Exchange Commission (“SEC”) to produce, provide access to, and make available certain records specified below that were requested by Plaintiff Mark Mitchell.
  2. As specifically alleged below, Plaintiff seeks records under FOIA from the SEC relating to:
    1. the opening of matters of inquiry (MUIs), the opening of investigations, and the filing of any enforcement proceedings by the SEC in relation to individuals or institutions who may have violated SEC Regulation SHO (“Reg SHO”) and/or engaged in the naked short selling of the stock of public companies, or
    2. the opening of MUIs, opening of investigations, or the filing of any enforcement proceedings involving specific public companies whose stock was the subject of possible violations of Reg SHO and/or naked short selling.

JURISDICTION

  1. This Court has jurisdiction over this action pursuant to 5 U.S.C. § 552(a)(4)(B).

PARTIES

  1. Plaintiff is a citizen of the United States, a resident of Cook County, and a journalist.
  2. Defendant is an agency of the United States Government and has possession and control of the records that are the subject of this action.

 

RELEASE OF THE RECORDS SOUGHT TO PLAINTIFF WOULD SERVE THE HIGHEST PUBLIC INTEREST

  1. The release and disclosure of the information sought by Plaintiff’s FOIA requests as alleged in this complaint would serve the highest public interest because Plaintiff would utilize the released information to contribute significantly to the public’s understanding of the following:
    1.  the inherent flaws in regulations created by the SEC to stop naked short selling;
    2. the lack of transparency in the regulatory system relating to the processing of short sale trades;
    3. the SEC’s lax enforcement of the securities acts and related rules, including Reg SHO, against those who engage in naked short selling, and, most importantly;
    4. how these factors combine to create a dangerously high and unacceptable level of risk to the integrity of the nation’s and the world’s capital markets.

The records should be furnished without any charge in that the information is in the public interest because it is likely to contribute significantly to the public understanding of the operations or activities of the SEC and is not primarily in the commercial interest of the requester.

  1. Federal regulations describe how the SEC has been entrusted with powers and duties of “great social and economic significance to the American people,” the prevention of abuses that would undermine the integrity of the nation’s economic institutions. Section 200.53 of Title 17 of the United States Code of Federal Regulations spells out that trust:

Members of the Securities and Exchange Commission are entrusted by various enactments of the Congress with powers and duties of great social and economic significance to the American people. It is their task to regulate varied aspects of the American economy, within the limits prescribed by Congress, to insure that our private enterprise system serves the welfare of all citizens. Their success in this endeavor is a bulwark against possible abuses and injustice which, if left unchecked, might jeopardize the strength of our economic institutions.

  1. As more specifically alleged below, naked short selling by broker-dealers in their own accounts and on behalf of other market participants is exactly the type of abuse that could “jeopardize the strength of our economic institutions.” The SEC has not merely failed to stop this form of market abuse. It has created a regulatory system which conceals naked short selling, prevents the public (including investors and other victims of naked short selling) from investigating the naked short sales, rewards those who engage in it, and also rewards securities exchanges, which have a duty to enforce the law, for closing their eyes to the unlawful practices consummated through them.
  2. As specifically alleged below, the SEC has sponsored, supervises, and presides over a regulatory system that has allowed and in fact encouraged broker-dealers and other market participants to create billions of shares of counterfeit stock in hundreds of millions of trades which collectively put the integrity of the capital markets at risk. The counterfeit stock has been and continues to be created through a practice commonly referred to as “naked short selling.”  Naked short sales share no properties in common with lawful short sales, except both involve a purported sale of stock.
  3. In a lawful short sale, the seller borrows the stock from a third party and makes real delivery of the borrowed stock to the buyer.  In a naked short sale, the market participant neither owns nor has borrowed the stock, but nevertheless purports to sell genuine stock of the public company to the buyer.  In substance, a market participant who engages in a naked short sale delivers counterfeit stock to the buyer.
  4. Once the counterfeit stock is sold through a naked short sale, it continues in circulation in the securities markets much like counterfeit bank notes continue in circulation after they are introduced into the monetary system. It has the effect of increasing the supply of stock available on the market for sale, which generally has a depressing effect on the price of the genuine stock of the public company whose name the counterfeit stock bares. The naked short sales of counterfeit stock harm investors holding genuine stock, investors who receive the counterfeit stock, and the public company whose stock is diluted with counterfeit stock.  The aggregate creation of counterfeit stock creates high and unacceptable risks to the integrity of the nation’s and the world’s capital markets.
  5. Plaintiff is a reporter for DeepCapture.com, an online financial news service.  He previously worked as editorial page writer for The Wall Street Journal in Europe, chief business correspondent for Time magazine’s Asia edition, and as assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University.
  6. Plaintiff gathers information from numerous sources often overlooked by the mainstream financial media, uses his editorial skills to turn this raw information into narratives regarding the financial industry, and regularly publishes that information on an internet website known as DeepCapture at no cost to the public.[1]
  7. Deep Capture also publishes news stories by other authors whose stories meet DeepCapture’s scope of interest and editorial standards.
  8. The website is called DeepCapture because it focuses on objectively presenting in-depth news coverage of events and actions that demonstrate that the independence of a federal agencies have been compromised by regulatory capture. Regulatory capture occurs when a regulatory agency, such as the SEC, which was created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating. These agencies are called “captured agencies.”
  9. The DeepCapture website, for which Plaintiff writes, has received awards, such as Business Insider’s award for best investigative journalism and the Webby award for best business reporting. The DeepCapture website has also been discussed by mainstream news organizations, e.g., CNBC and Wired magazine.
  10. Plaintiff has also written numerous articles on the DeepCapture website about how the SEC is not only a captured agency but is part of a larger group of institutions that have been captured by the financial industry in this country.
  11. Plaintiff has published numerous articles on the DeepCapture website describing how financial institutions and individuals have engaged in naked short selling in the stock of public companies. These violations were rarely reported by the mainstream or financial media. To the extent that naked short selling was reported in the financial media, some mainstream news organizations, including Bloomberg News,[2] reported that naked short selling was a serious problem, but these reports were few in number, and other journalists often expressed skepticism that naked short selling was even occurring, thereby giving false comfort to the public regarding the risks naked short selling posed to the nation’s capital markets.
  12. Plaintiff is one of the few journalists, perhaps the only one, who regularly writes about naked short selling. Plaintiff believes it is vitally important for the American public to be aware that the SEC is failing to contain market participants such as large investment banks, market-makers, and multibillion dollar hedge funds from engaging in naked short selling. It is as if the Department of the Treasury were aware of massive printing of US currency by counterfeiters and yet declined to take any action to stop them.
    1. The following examples illustrate the depth and uniqueness of news stories published on the DeepCapture website relating to naked short selling:
      1. In relation to the settlement between FINRA and UBS in October 2011,  Plaintiff was one of two media sources that reported that FINRA had found and UBS had admitted committing “tens of millions” of violations of Reg SHO and that those violations put at risk the integrity of the capital markets.[3] In the light of FINRA’s finding and UBS’s admissions, the FINRA enforcement proceeding against UBS was unquestionably the single most significant regulatory case brought by the government or a Self-Regulating Organization (“SRO”) relating to naked short selling since Reg SHO became operative on January 1, 2004. In contrast, neither the financial nor the mainstream media reported that UBS had committed “tens of millions” of violations of Reg SHO and that the cumulative effect was to create a significant risk to the integrity of the capital markets.[4]
      2. In a story written by another reporter, DeepCapture was one of two media sources that reported on the investigation conducted by the SEC’s Office of the Inspector General (“OIG”) which resulted in a finding by the OIG in Case No. 512 (Unauthorized Disclosure of Non-Public Information) that two SEC attorneys had passed along nonpublic information through a corrupt FBI agent to a cabal engaged in naked short selling.[5] Through the reporter’s own exhaustive research and investigation, he identified the two SEC employees and published an article in DeepCapture, Moral Hazard at the SEC, which described in detail how the two SEC investigators had communicated the nonpublic information through a corrupt FBI agent to the naked short selling cabal.[6] The financial and mainstream media did not cover the story.
  13. As specifically alleged below, the magnitude and scope of naked short selling creates major risks to the stability of the nation’s capital markets. Equally disturbing, as alleged below, the SEC, a captured agency, is not protecting the nation’s investors or the capital markets from this form of market abuse.
    1. Plaintiff seeks the records described in this complaint to use in articles he and other guest authors will write and publish on the DeepCapture website informing the public of the risks naked short selling poses to the integrity of the nation’s capital markets and the SEC’s complicity in creating a regulatory system that does not deter naked short selling. All of the information from the SEC is vitally needed because, as alleged below, the system created by the SEC relating to the short sale trades of public companies has little if any transparency. Plaintiff intends to make avaiable to the public all records obtained through this proceeding.

FACTUAL BACKGROUND

  1. The regulatory history relevant to the current naked short selling of stock in public companies began in 1985 when the National Association of Securities Dealers, Inc. (“NASD”) commissioned Irving M. Pollack (“Pollack”)[7] to conduct a study of short selling (“Pollack study”). As stated in his report, Pollack concluded:  “The fail-to-deliver / fail-to-receive problem has the potential for causing serious difficulties in a lengthy bear market.”[8] Naked short sales routinely result in failures to deliver and failures to receiveunless they are concealed by the broker-dealers who execute them. Pollack’s report also noted that there was no inherent mechanism to constrain the buildup of failures to deliver and warned of the consequences: “[T]he fact that there is no automatic mechanism preventing the substantial buildup of short positions at the clearing corporation and of fails to receive in the brokerage firms carries the potential for serious problems, particularly in the event of crisis market conditions.”[9] Pollack’s warning would prove prophetic two decades later in 2008, when giant investment banks began to collapse due in part to naked short selling.
  2. Based on the conclusions in the Pollack Study, the NASD proposed an amendment to Section 59 of the NASD Uniform Practice Code which amendment was designed to curb naked short selling. In approving the amendment, SEC Exchange Release No. 26694, issued on April 4, 1989, the SEC concluded, “the NASD is taking a reasonable approach to deal with the problems that the Pollack study revealed. While fails-to-deliver resulting from short sales may be relatively infrequent, we cannot say that the proposed mandatory buy-in rule for public customers is an unwarranted restriction on short selling.”[10] The same SEC release also recognized: “naked short selling potentially can present substantial manipulative concerns. …  The ability of naked short sellers to employ this leverage to effect ‘bear raids’ would appear to provide support for the NASD’s decision to impose additional discipline on naked short selling.” For the next 14 years, the SEC limited its role in relation to naked short selling to approving rules proposed by SROs relating to containing naked short selling. The constraints incorporated into the amendment to NASD Section 59 proved inadequate to stop or contain naked short selling.
  3. On October 28, 2003, the SEC implemented its own rules to prohibit naked short selling when it issued Exchange Act Release No. 48709 (“Release 48709”) which included a preliminary version of Reg SHO.[11]
  4. In Release 48709, the SEC explained the negative effects of naked short selling on the securities market:

Naked short selling can have a number of negative effects on the market, particularly when the fails to deliver persist for an extended period of time and result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. At times, the amount of fails to deliver may be greater than the total public float. In effect the naked short seller unilaterally converts a securities contract (which should settle in three days after the trade date) into an undated futures-type contract, which the buyer might not have agreed to or that would have been priced differently. The seller’s failure to deliver securities may also adversely affect certain rights of the buyer, such as the right to vote. More significantly, naked short sellers enjoy greater leverage than if they were required to borrow securities and deliver within a reasonable time period, and they may use this additional leverage to engage in trading activities that deliberately depress the price of a security.

 

  1. In Release No. 48709, the SEC also explained how the SEC believed Reg SHO “would address the problem of ‘naked’ short selling.” The SEC pointed to two principal mechanisms that were expected to contain naked short selling:

[1] Proposed Regulation SHO would, among other things, require short sellers in all equity securities to locate securities to borrow before selling, and [2] would also impose strict delivery requirements on securities where many sellers have failed to deliver the securities. In part, this action is designed to address the problem of “naked” short selling.[12]

 

As more particularly alleged below, the financial crisis demonstrated that neither mechanism curbed naked short selling

  1. Reg SHO became operative on January 1, 2005. In the commentary accompanying the final rule, the SEC expressed its optimism that Reg SHO and, in particular, Rule 203 would contain naked short selling:

As adopted, Rule 203 creates a uniform Commission rule requiring broker-dealers, prior to effecting short sales in all equity securities, to “locate” securities available for borrowing, and imposes additional delivery requirements on broker-dealers for securities in which a substantial amount of failures to deliver have occurred (“threshold securities”). We believe that strong and uniform requirements in this area will reduce short selling abuses. The locate and delivery requirements will act as a restriction on so-called “naked” short selling.[13]

 

  1. From the date Reg SHO became operative, January 1, 2005, until the financial crisis struck in September 2008, the SEC’s enforcement of Reg SHO was almost nonexistent. Two SEC administrative decisions made passing reference to naked short selling and Reg SHO in 2006. In both cases, SEC administrative judges were dismissive of contentions that public companies were being ravaged by naked short selling.[14]
  2. The SEC brought two administrative decisions to enforce Reg SHO in 2007.[15]  In both cases, the alleged Reg SHO violations were limited to allegations that the respondents had falsely characterized short sales as long sales. The SEC’s minimal enforcement of Reg SHO from 2005 through 2008 implies its belief that the mere issuance of Reg SHO had convinced broker-dealers, traders, and other market participants to suspend their practice of naked short selling. Those engaged in naked short selling were unimpressed by a new regulation which the SEC chose not to enforce. The SEC’s tough talk in Reg SHO, absent its enforcement, did not deter or frighten them.
  3. The SEC’s tepid enforcement of Reg SHO from its operative date, January 1, 2005, until the financial crisis struck in 2008 gave no clue that naked short selling was festering in the shadows, invisible to public companies afflicted by it. Few saw naked short selling as a serious risk to public companies, and virtually none saw it as a systemic risk that could threaten the capital markets. Until the 2008 financial crisis, the common perception was that naked short selling, if it existed, afflicted only a few, relatively small public companies.
  4. One industry group, the broker-dealers, knew before the 2008 financial crisis that naked short selling was rampant and also knew the supposed constraints of Reg SHO were easily circumvented.
  5. The Securities Industry Group (“SIA”), which represents more than 600 broker-dealers, has been particularly effective in blocking legislative and rule-making efforts to contain naked short selling. The SIA and its members successfully lobbied the SEC to draft the language in Reg SHO and other rules so that broker-dealers could conceal their lucrative naked short selling practices within loopholes the SEC incorporated into Reg SHO.
  6. The SEC dubbed one of the loopholes the “Madoff exemption,” since it was the brainchild of Bernard Madoff (“Madoff”). Madoff was held in high esteem by the SEC in July 2004 when it issued the release accompanying the final version of Reg SHO. The “Madoff exemption” effectively allows a “bona fide” market-maker to engage in naked short selling briefly, supposedly as part of its role as a true market-maker.  The limitation (bona fide) generally requires the market participant to simultaneously place a buy order at or near the best bid and a sell order at or near the best ask.  As a practical matter, it is difficult  if not impossible for public companies and market participants, with exception of the broker-dealers, to determine whether a specific short sale is a naked short sale or a trade by a “bona fide market-maker,” because the data necessary to make the determination is generally unavailable.
  7. As a consequence of the Madoff exemption, more accurately described as the Madoff loophole, and SEC’s inability to track compliance with Reg SHO as alleged herein, the SEC has brought only one proceeding for abusing the bona fide market maker exemption, a case against an individual who was an insignificant market participant.[16]  The SEC has never brought a case against a broker-dealer for abusing the bona fide market-maker exception.
  8. The “Madoff exemption” was not the only loophole the SEC incorporated into Reg SHO at the behest of the SIA and its members. Market participants can also engage in short term naked short sales if they have “reasonable grounds to believe” they can borrow the stock before they have to deliver it to the buyer.[17]  This creates an even bigger loophole in Reg SHO.
  9. The SEC has been and continues to be incapable of determining whether short sale trades by broker-dealers and other market participants are in compliance with Reg SHO, because it has lacked the market surveillance expertise and equipment to track the volume and speed of the securities trading since Reg SHO became operational in January 1, 2005. The discrepancy between trading activity, now at approximately 5 million messages per second, and the SEC’s capacity to track that trading activity has progressively widened since Reg SHO became operative. The decision by the SEC to create Reg SHO, which purports to contain naked short selling, when the SEC knew it lacked the capacity to monitor the securities markets for violations of Reg SHO leads to the inescapable conclusion that Reg SHO was a sham to appease the public companies, investors and traders who had been harmed by naked short selling, while not offending the broker-dealers, especially the mega broker-dealers owned by Wall Street investment banks, who engaged in naked short selling since Reg SHO was in fact unenforceable.
  10. The SIA has also vigilantly monitored the state legislatures for possible legislation which could fill the glaring gaps in Reg SHO and thereby threaten the broker-dealers’ lucrative naked short selling practice. In July 2006, the SIA learned that Utah had enacted a statute designed to stop naked short selling. The SIA immediately filed a civil action for injunctive relief to stay the enforcement of the statute. Later, the SIA led the successful charge to repeal the statute. The SIA’s actions to block the enforcement and then repeal the Utah statute is exactly the type of “protection” the SIA promises its broker-dealer members on its website with this words: “The Security Industry Association (SIA) protects and advances our members’ interests by: advocating pro-industry policies and legislation on Capitol Hill and throughout the 50 states…”[18]
  11. Despite the lax enforcement of Reg SHO, the tone of the SEC’s releases relating to Reg SHO began to change in August 2007 to reflect the growing and legitimate concern by public companies and their investors about the harmful effects of naked short selling. For the first time, the SEC releases relating to Reg SHO contained this language:

[M]any issuers and investors continue to express concerns about extended fails to deliver in connection with “naked” short selling. To the extent that large and persistent fails to deliver might be indicative of manipulative “naked” short selling, which could be used as a tool to drive down a company’s stock price, fails to deliver may undermine the confidence of investors. These investors, in turn, may be reluctant to commit capital to an issuer they believe to be subject to such manipulative conduct. In addition, issuers may believe that they have suffered unwarranted reputational damage due to investors’ negative perceptions regarding large and persistent fails to deliver. Any unwarranted reputational damage caused by large and persistent fails to deliver might have an adverse impact on the security’s price.[19]

 

Though the SEC had begun to hear public companies and their investors complain about naked short selling and sharpened its own rhetoric about naked short selling to appease the institutions and individuals harmed by naked short selling, it still took no meaningful action to enforce Reg SHO or the antifraud provisions of the securities acts against those who were engaged in the unlawful practice.

  1. The SEC sharply escalated its verbal war against naked short selling in July 2008 when the chief executive officers of some of the world’s largest investment banks frantically sought protection from Congress and the SEC in relation to the naked short selling which was contributing to the collapsing prices of the stock of those banks. For the first time, it was not merely stock of smaller public companies which was being ravaged by naked short selling. Instead, naked short selling was perceived as a contributing cause of the failures of the nation’s oldest and biggest investment banks: Bear Stearns,[20] Merrill Lynch,[21] and Lehman Brothers.[22] The warning by the Pollack Study two decades earlier that naked short selling “carries the potential for serious problems, particularly in the event of crisis market conditions” seemed to be coming true.[23]
  2. The voices of the CEOs reached a crescendo in September 2008 after three international and venerable U.S. investment banks (Bear Stearns, Merrill Lynch, and Lehman Brothers) had failed, leaving Morgan Stanley and Goldman Sachs teetering on the edge of the abyss. Time magazine quoted from a memo that John Mack, Morgan Stanley’s Chief Executive Officer, had sent to employees: ‘“What’s happening out there? It’s very clear to me — we’re in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down,’ fumed John Mack.”[24] On September 17, 2008, Barron’s reported: “[T]he Securities & Exchange Commission’s head Christopher Cox is investigating naked short selling of shares of Morgan Stanley and Goldman Sachs after receiving calls from Morgan Stanley CEO John Mac [sic] about improper short-selling that was responsible for the stock’s nearly 30% decline today.”[25]
  3. The pleas of the banks’ CEOs brought instant credibility to the notion that naked short selling could destroy public companies, even huge ones if the time was ripe. But the failing banks had special credibility. Bear Stearns, Lehman Brothers and Merrill Lynch all had their own proprietary desks manned by astute traders who had the skill and technology to recognize naked short selling. Each bank also had affiliated broker-dealers whose traders made markets in thousands of public companies. No one was better equipped than the traders in the banks’ brokerage firms to recognize that the banks’ stocks were in the crosshairs of traders who were pulling the trigger on naked short sales. More than likely, these banks through their proprietary desks and affiliated brokerage firms had pulled the trigger on naked short selling aimed at other public companies in the past.
  4. The SEC quickly recognized the credibility and urgency of Morgan Stanley’s and Goldman Sachs’s pleas for help, particularly in view of the fact that three other banks had so quickly failed. Not surprisingly, Rule 203 had failed to deter naked short selling when that deterrence was most needed, during a financial crisis, just as the Pollack Study had predicted. The SEC responded with a series of emergency regulations and amendments to Reg SHO from July 2008 through July 2009 to stop or at least contain naked short selling.
  5. On July 15, 2008, the SEC issued an emergency order prohibiting any short sales in the stock of 19 financial institutions, including Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs). In the release accompanying this emergency order, the SEC directly linked the order to the naked short sales of Bear Stearns stock. The release begins with the following explanation for the halting of naked short sales:

False rumors can lead to a loss of confidence in our markets. Such loss of confidence can lead to panic selling, which may be further exacerbated by “naked” short selling. As a result, the prices of securities may artificially and unnecessarily decline well below the price level that would have resulted from the normal price discovery process. If significant financial institutions are involved, this chain of events can threaten disruption of our markets.

 

The events preceding the sale of The Bear Stearns Companies Inc. are illustrative of the market impact of rumors. During the week of March 10, 2008, rumors spread about liquidity problems at Bear Stearns, which eroded investor confidence in the firm. As Bear Stearns’ stock price fell, its counterparties became concerned, and a crisis of confidence occurred late in the week. In particular, counterparties to Bear Stearns were unwilling to make secured funding available to Bear Stearns on customary terms. In light of the potentially systemic consequences of a failure of Bear Stearns, the Federal Reserve took emergency action.[26]

 

  1. In issuing another emergency order in September 17, 2008, the SEC expressed even greater alarm how naked short selling had “exacerbated” other factors in causing the widening collapse of the securities markets. The SEC issued a protective stay on short sales trades in the stock of more than 900 banks, insurance companies, and securities firms. The SEC explained the rationale for the broadened stay with these words:

The Commission continues to be concerned that there is a substantial threat of sudden and excessive fluctuations of securities prices and disruption in the functioning of the securities markets that could threaten fair and orderly markets. As evidenced by our recent publication of an emergency order under Section 12(k) of the Securities Exchange Act of 1934 (the “July Emergency Order”), we are concerned about the possible unnecessary or artificial price movements based on unfounded rumors regarding the stability of financial institutions and other issuers exacerbated by “naked” short selling. Our concerns, however, are no longer limited to just the financial institutions that were the subject of the July Emergency Order. In addition, we have become concerned that some persons may take advantage of issuers that have become temporarily weakened by current market conditions to engage in inappropriate short selling in the securities of such issuers.[27]

 

  1. On October 14, 2008, as the financial crisis deepened, the SEC released an interim amended version of Reg SHO to stop naked short selling (Exchange Act Release No. 58773). The summary to the release announcing the interim rule explained its purpose as follows:

The Securities and Exchange Commission (“Commission”) is adopting an interim final temporary rule … to address abusive “naked” short selling in all equity securities by requiring that participants of a clearing agency registered with the Commission deliver securities by settlement date, or if the participants have not delivered shares by settlement date, immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the settlement day following the day the participant incurred the fail to deliver position.[28]

 

  1. In the same release (Exchange Act Release No. 58773), the SEC revised its description of how naked short selling could harm public companies. The SEC no longer described the harm caused by naked short selling as a perception held by public companies and their investors. The SEC described the harm as real. On October 14, 2008, for the first time, the SEC described how naked short selling inflicted harm on public companies as follows:

To the extent that fails to deliver might be part of manipulative “naked” short selling, which could be used as a tool to drive down a company’s stock price, such fails to deliver may undermine the confidence of investors. These investors, in turn, may be reluctant to commit capital to an issuer they believe to be subject to such manipulative conduct.[29]

 

  1. On the same date, October 14, 2008, the SEC issued a separate release announcing another amendment to Reg SHO eliminating the options market-maker exception and narrowing the bona fide market-maker exception, all to contain naked short selling. The summary to the 2008 amendment explained the purpose of the amendment as follows:

The Securities and Exchange Commission (“Commission”) is adopting amendments to Regulation SHO under the Securities Exchange Act of 1934 (“Exchange Act”). The amendments are intended to further reduce the number of persistent fails to deliver in certain equity securities by eliminating the options market-maker exception to the close-out requirement of Regulation SHO. As a result of the amendments, fails to deliver in threshold securities that result from hedging activities by options market-makers will no longer be excepted from Regulation SHO’s close-out requirement. The Commission is also providing guidance regarding bona fide market making activities for purposes of the market-maker exception to Regulation SHO’s locate requirement.[30]

 

  1. Between July 15, 2008, and July 27, 2009, the SEC issued eight releases relating to amendments to Reg SHO and “naked” short selling, including some emergency orders, all intended to contain naked short selling.[31]
  2. Had those who engage in naked short selling not chosen the investment banks as victims during the financial crisis in 2008, the scope of these violations would likely remain unknown, except of course to those who are committing them. Now that those banks are prospering again, there is little motivation for them to speak publicly about naked short selling. Many of the records sought by Plaintiff relate to the SEC’s aborted investigations of naked short selling of the investment banks (Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Goldman Sachs) whose collapse or near collapse deepened the financial crisis.
  3. After the SEC issued the amendments to Reg SHO and emergency amendments in 2008 and 2009, the minor administrative proceedings brought by the SEC’s Division of Enforcement again gave the impression that naked short selling was more an irritant than a serious threat to public companies. The SEC brought two classes of cases to enforce Reg SHO: one alleged intentional violations against minor market participants who used options to circumvent Reg SHO,[32] and the other alleged inadvertent and narrow violations against broker-dealers affiliated with large investment banks.[33] None of these cases hinted that the violations of Reg SHO were systemic or created a risk to the stability of the capital markets. There seemed to be a disconnect at the SEC between (1) the five SEC Commissioners who had acted expeditiously to issue half a dozen rules and emergency orders to contain naked short selling during the 2008 financial crisis and (2) the SEC’s Division of Enforcement which again reverted to its tepid enforcement of Reg SHO and the non-enforcement of the antifraud provisions of the securities acts against those engaged in naked short selling.
  4. The conflict in the courses of action between the five Commissioners and the SEC Division of Enforcement suggests the SEC believed it could deter the market participants who engaged in naked short selling, including those who had deepened the financial crisis by contributing to the collapse or near collapse of five US based international investment banks (Bear Stearns, Merrill Lynch, Lehman Brothers, Morgan Stanley, and Goldman Sachs), by strengthening the regulations prohibiting naked short selling without meaningfully enforcing those regulations, i.e., by tough words without action. In short, the numerous revisions strengthening Reg SHO and other emergency orders were the rough equivalent of the SEC repeatedly telling those engaged in naked short selling: “Don’t do that again. This time we are really serious.”
  5. The willingness of the world’s largest brokerage firms to flout the SEC rules designed to prohibit naked short selling was established beyond doubt in the fall of 2011 when FINRA’s Department of Enforcement released its Letters of Acceptance, Waiver and Consent (“AWC”), which included FINRA’s findings and conclusions, arising out of its enforcement proceedings against two of the world’s largest brokerage firms, UBS Securities, the brokerage arm of UBS Financial Services, a financial institution with $2 trillion in assets, and Credit Suisse Securities,  the brokerage arm of Credit Suisse Financial Services, a financial institution with nearly $1 trillion in assets.
  6. In its AWC with FINRA, UBS signed off on committing approximately 30 different classes of Reg SHO violations over the five-year period from January 2005 through December 2010. The total number of Reg SHO violations committed by UBS is an unknown, since the best FINRA could do in quantifying the number of UBS violations of Reg SHO was to place them in the “tens of millions.”[34] Likewise, FINRA could not fix a date when the UBS violations of Reg SHO had stopped.
  7. The magnitude of these violations may be more easily grasped when viewed in terms of the dollar value of the phantom stock UBS created out of thin air through the naked short sales it executed. When UBS short sold stock it did not own, possess, had not borrowed, and had not arranged to borrow, it was in essence selling counterfeit stock. Under the conservative assumption that the average size of each trade was 100 shares and the average price was $10, the average transaction would have created $1,000 worth of counterfeit stock. Since UBS engaged in tens of millions of transactions creating counterfeit stock, it created counterfeit stock pretending to be worth tens of billions of dollars. By way of example only, if UBS created counterfeit stock in 50 million transactions, it would have created $50 billion worth of counterfeit stock.
  8. As alleged above, UBS was not alone in committing massive violations of Reg SHO.  In its AWC with FINRA, Credit Suisse admitted committing massive violations of Reg SHO during the four-and-a-half-year period from June 2005 through December 2010. In all, Credit Suisse also signed off on committing approximately 30 classes of violations directly or indirectly relating to Reg SHO. For its part, Credit Suisse entered “more than ten million short sale orders without locates.”[35]  Using the same conservative assumptions as before, Credit Suisse likely effectively created at least $10 billion in counterfeit stock. Once again, the scope and volume of the violations raise serious concerns regarding the effectiveness of the regulatory system designed to stop naked short selling.
  9. The massive Reg SHO violations by UBS and Credit Suisse did not merely create risks of harm to public companies and their investors. The scope and magnitude of these violations of Reg SHO had the potential to destabilize the system itself. In the settlement agreement, FINRA found and UBS conceded that the “duration, scope and volume of the trading [violations] created a potential for harm to the integrity of the market (emphasis added).”[36] The only aspect of the settlement more stunning than the scope of UBS’s violations—whose sale of counterfeit stock threatened the integrity of the capital markets—was the tiny fine paid by this $2 trillion company:  $12 million.
  10. FINRA’s release of the AWCs with UBS and Credit Suisse in the fall of 2011 redefined the magnitude of counterfeit stock which giant broker-dealers could create. The number of violations–in the tens of millions—the scope of the violations–approximately 30 classes—and magnitude of the harm, which put at risk the integrity of the market, point to one simple, overarching question: how did the SEC, FINRA, and the exchanges overlook the massive UBS and Credit Suisse violations of Reg SHO for at least half a decade?
  11. The Depository Trust & Clearing Corporation (“DTCC”), which settles and closes virtually all stock sales, supposedly also monitors those trades for violations of Reg SHO and naked short selling. The same question must be asked: How did the DTCC overlook the massive violations by UBS and Credit Suisse for at least half a decade?
  12. Supposedly, Reg SHO should have kept UBS and Credit Suisse in check. The regulation was not untested when it became operative in January 2005. It incorporated the SEC’s enforcement experience with earlier regulations designed to curb naked short selling.[37] The SEC released the preliminary version of Reg SHO on October 28, 2003.[38] It then went through a fourteen-month trial process before it became operative on January 1, 2005. Since then, it has been refined from time to time to work out the kinks.[39] It was significantly amended in October 2008 to stop the naked shorts which were destabilizing the nation’s investment banks during the financial crisis.[40] UBS and Credit Suisse were nonetheless able to engage in massive violations of Reg SHO for years after the regulation became operative, including twenty-seven months after the 2008 amendments were supposed to have cured the flaws in Reg SHO.
  13. The UBS and Credit Suisse cases highlight another inherent and major flaw in Reg SHO: the regulation purports to prohibit trading practices which are largely invisible to law enforcement, regulators, public companies, and market participants (except those committing the violations). The lack of transparency pervades every nook and cranny in the stock trading system as a short sale passes through it. By inadvertence or design, the lights are switched off on short sales as they are electronically processed by the executing broker, the clearing broker, the exchanges, and the DTCC. The lack of transparency continues even when the SEC and FINRA release their decisions and settlements relating to naked short selling or the enforcement of Reg SHO to the public.
  14. The FINRA AWCs with UBS and Credit Suisse illustrate how FINRA itself shut off the lights on UBS’s and Credit Suisse’s violations. Despite the tens of millions of violations of Reg SHO admitted by UBS and Credit Suisse, not a single public company was identified as a victim of those violations.  Although at least 270 UBS customers participated in those violations, none was identified. Although UBS and Credit Suisse could not have committed the Reg SHO violations without the participation of its employees, FINRA brought no proceeding against any executive or employee of either company for participating in any of the tens of millions of violations. The same is true of the SEC’s releases describing its settlements with Goldman Sachs in 2007[41] and 2010,[42] and UBS in 2011.[43] The silence surrounding the SEC’s and FINRA’s enforcement of Reg SHO violations is deafening, and that silence is inexplicable in view of the potential harm those violations can cause. Again, according to the FINRA-UBS settlement, “The duration, scope and volume of the trading created a potential for harm to the integrity of the market.”[44]
  15. A June 2009 study, Analysis of Twenty-First Century Risks in Light of the Recent Market Collapse, commissioned by the U.S. Department of Defense addressed how the lack of transparency makes it impossible to identify those responsible for the bear raids of the nation’s investment banks during the financial crisis. The report observed:

While substantial, unusual trading activity can be identified, the source of the bear raids has not been traceable to date due to serious transparency gaps for hedge funds, trading pools, sponsored access, and sovereign wealth funds. What can be demonstrated, however, is that two relatively small broker dealers emerged virtually overnight to trade “trillions of dollars worth of U.S. blue chip companies. They are the number one traders in all financial companies that collapsed or are now financially supported by the U.S. government. Trading by the firms has grown exponentially while the markets have lost trillions of dollars in value” (emphasis in the original).[45]

 

  1. Naked short selling occurs in the shadows, where it is too dark to see. It is dark because the government, the SROs, and exchanges who have the duty to regulate short sales have turned off the lights where this trading occurs. The light with the highest wattage was switched off by the DTCC. The DTCC has a virtual monopoly in clearing and settling all the stock trades in the U.S., with the exception of internalized trades which broker-dealers need not report to it. The DTCC refuses to provide public companies with any useful information regarding violations of Reg SHO and naked short selling, unless it is ordered to do so by a court. As a private institution, the DTCC is not subject to FOIA. Consequently, absent a court order, every window into the DTCC is shuttered from the view of every public company. With his complaint, Plaintiff seeks records of the SEC’s five-year investigation of the DTCC for aiding and abetting violations of Reg SHO and naked short selling.
  2. Virtually no useful information relevant to Reg SHO violations is available from the exchanges and trade reporting facilities. Only the NASDAQ exchange, where only a tiny fraction of the stock of public companies is traded, provides any meaningful information to public companies, the public or journalists. Further, since NASDAQ is the most “lit” trading center, a fact well known to those who engage in naked short selling, it is not their favorite venue. As noted in a 2012 academic study, broker-dealers and their customers prefer more user-friendly venues where the rules are ignored so price manipulation through naked short sales can flourish,[46] like the Chicago Board Options Exchange.[47] Not surprisingly, the largest number of short sales are conducted over the FINRA TRF, which has the least visibility of all of the trading centers.
  3. As the facts demonstrate, the system itself is designed so public companies, investors and other market participants can never know whether they are being victimized by naked short selling. The words of Ferdinand Pecora (whose investigation of Wall Street after the 1929 crash led to the creation of the SEC) ring as true today as they did in 1939 when he first uttered them: “The Public was always in the dark. It could not tell whether sales were due merely to the ‘free play of supply and demand,’ or whether they were the product of manipulated activities…It all looks alike on the ticker (emphasis added).”[48]
  4. The lack of transparency creates multiple obstacles for investors and public companies to determine whether a stock trade is an unlawful naked short sale. None of the fifteen exchanges or trade reporting facilities identifies the market participant who engaged in a short sale. Likewise, no trading center or exchange releases information relevant to whether a short sale was executed within an exemption to Rule 203.
  5. Assuming someone harmed by a naked short sale could ascertain that the trade was a short sale, the seller had not borrowed the stock, the market-maker exemption did not apply, and the identity of the short seller, there would still be no violation of Rule 203 if the short seller believed he could borrow the stock, which is nearly impossible to verify. No regulator even purports to track whether a market participant has located stock to borrow before executing a sale.
  6. A case filed and settled by the SEC in June 2013, In the Matter of Chicago Board Options Exchange,[49] offers insight into why the exchanges are so reluctant to provide public companies with any information relating to short sales. Simply put, the Chicago Board Options Exchange (“CBOE”) was profiting on the illegal short sales.  These are some of the relevant facts which the SEC alleged and the CBOE admitted:

Not only did [the CBOE] fail to enforce the Commission’s rules by not adequately investigating a member firm’s compliance with Regulation SHO of the Exchange Act (“Reg. SHO”), CBOE’s conduct also interfered with the Commission’s Division of Enforcement (“Enforcement Division”) staff’s Reg. SHO investigation of the same member firm. This conduct was egregious. CBOE assisted that member firm by taking the unprecedented step of providing information for, and edits to, the member firm’s Wells submission to the Commission ─ even more troubling, the information and edits provided by CBOE resulted in the member firm providing the Commission with inaccurate and misleading information. When questioned by Enforcement Division staff about the underlying matter, CBOE failed to disclose that it had assisted the member firm with its Wells submission. CBOE also failed to enforce Reg. SHO because it employed a Reg. SHO surveillance program that failed to detect a single violation, despite numerous red flags that its members engaged in violative conduct.[50]

 

  1. As a SRO, the CBOE was obligated to enforce its members’ compliance with the federal securities laws and rules, including Reg SHO. In effect, the CBOE was a deputy of the SEC.  However, instead of enforcing Reg SHO, the CBOE closed its eyes to hundreds of millions of dollars in naked short sales consummated by one of its members, optionsXpress (a subsidiary of Charles Schwab) and some of optionsXpress’ biggest customers in 25 public companies and then the CBOE tried to obstruct the SEC’s investigation.[51]
  2. The SEC’s release on the CBOE’s failure to enforce Reg SHO and subsequent efforts to obstruct the SEC’s investigation pointed to the reason the CBOE was behaving in this way:

CBOE’s Regulatory Services Division is responsible for enforcing the federal securities laws and regulations and CBOE rules. Until recently, CBOE had no formal policies separating its Regulatory Services Division from its business side, which was responsible for CBOE’s income generation. In fact, until recently, CBOE’s Chief Regulatory Officer reported up to a senior business executive. As a result, the line between business and regulation became blurred.[52]

 

  1. The violations the CBOE had permitted optionsXpress to commit were not merely violations of Reg SHO. In a separate case, the first of its kind, SEC Chief Administrative Law Judge Brenda Murray found that the naked short sales by the optionsXpress cabal constituted violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10(b)(5) and 10(b)-21.[53] The CBOE had closed its eyes to the fraudulent naked short sales by one of its members and then tried to obstruct the SEC’s investigation of the fraud.
  2. The optionsXpress decision found the optionsXpress cabal had designed a fraudulent scheme using options to circumvent the stock delivery requirements of Reg SHO Rule 204. But broker-dealers and market participants who engage in naked short selling do not have to resort to fraud to circumvent the Rule 204 stock delivery requirements. Other terms of Rule 204 create an exception to its delivery requirements, perhaps more accurately perceived as a huge loophole.  Whether exception or loophole, the effect is the same: the huge void in Rule 204 in effect converts the rule into an honor code. To understand how this exception-loophole emasculates Rule 204, some understanding of Rule 204’s moving parts may be helpful.
  3. In essence, Rule 204 is supposed to prevent short term naked shorts from becoming long term naked shorts. To that end, it requires delivery of the stock in three days[54] for non-market-makers and six days[55] for market-makers. As alleged above, the SEC issued Rule 204 at the height of the financial crisis, after three investment banks (Bear Sterns, Merrill Lynch and Lehman Brothers) had failed and Morgan Stanley and Goldman Sachs were teetering on the edge of failure.
  4. Regulators, broker-dealers and market participants commonly refer to the huge loophole in Rule 204 with a comforting euphemism: “internalization.” As a practical matter, it is more accurate to think of it as a de facto exception to Rule 204. It allows executing and clearing brokers to happily engage in naked short selling, so long as neither party tattles on the other. With billions to be made, tattling is extremely rare.
  5. In the official lexicon, “internalization” occurs where broker-dealers execute client trades as agents or principals within their own trading system.[56] These internalized trades are not reported to the DTCC, and thus the DTCC will never know whether the trade resulted in a failure to deliver. The DTCC has repeatedly informed the SEC that it recognizes this exception.[57] On this point, its fourth quarter June 2006 Rule 19b-4 filing stated:

Trades executed in the normal course of business between a Member that clears for other broker/dealers, and its correspondent, or between correspondents of the Member, which correspondent(s) is not itself a Member and settles such obligations through such clearing Member (“internalized trades”) are not required to be submitted to the Corporation and shall not be considered to violate the “pre-netting” prohibition.[58]

 

  1. A DTCC white paper has defined internalization in even broader terms than described in the DTCC’s Rule 19b-4 filings with the SEC. It defined the term as follows:

Internalization, for purposes of this paper, is the execution of separate correspondents’ trades by a clearing broker within its own record keeping system, and the related practice of failing to submit trade data on these “internalized” trades to the clearing corporation, so that not all activity is reported to the clearing corporation. For example, a clearing broker has a correspondent relationship with two separate broker dealers. One correspondent enters into a transaction with another correspondent of the same NSCC member. In effect, one correspondent is short and one is long. The NSCC member, however, is net flat for the transaction. The member clears the activity internally and does not report it for clearance at NSCC.[59]

 

  1. The same DTCC paper went on to discuss the risks of internalization:

Internalization and summarization (a first cousin of internalization) have come into play recently because while these trade data submission techniques enable members to reduce their trade recording and clearing fees, these practices also introduce new clearing risks because all trades are not submitted for clearance and because correspondent broker activity may not be reported accurately.[60]

 

  1. As pointed out in the DTCC white paper, internalization introduces new risks that “broker activity may not be reported accurately.” A FINRA disciplinary action fleshes out a little how the “broker activity may not be reported accurately” in the 2012 case:

The findings stated that in each instance of the fictitious loans, Luerman falsely stated that one of the various financial institutions that frequently loaned securities to the firm was the counterparty and had agreed to the fictitious transaction. For each of the fictitious transactions, Luerman also invented and reported a false lending fee. The firm did not receive any securities in connection with the fictitious transactions, and the firm’ systems automatically cancelled these transactions.[61]

  1. The phony booking of loans between broker-dealers is not the exclusive territory of small fry. The big players do this more astutely. In Overstock.com v. Morgan Stanley,[62] attorneys for Goldman Sachs and Merrill Lynch accidentally released excerpts of emails written by Goldman Sachs and Merrill Lynch employees. These emails offer a window into how the big broker-dealers play the game:   One Merrill Lynch executive suggests the firm “might want to consider allowing…customers to fail,” to which a colleague replies: “We are going to look into that.” Another asks: “How and when can we prevent the delivery [of shares]?” In another e-mail he requests an update from a lieutenant on “how we are going to fix fails and I want to know what we nees [sic] to do to make 369 market-makers fail.” In response to a question from a large client about efforts at “cleaning up” fails, a Goldman Sachs employee says that “we will let you fail.” In another message, he refers to a senior colleague “really backing down from…cleaning up fails.”… The e-mails also suggest close commercial links between the two firms [Merrill Lynch and Goldman Sachs]… [63]
  2. In essence, the internalized trades include all trades except those traded over an exchange or traded through pools. These internalized trades and the trades executed in dark pools, are reported through the FINRA Trade Reporting Facility (“TRF”). Like the internalized trades, the trades executed in dark pools, as their name suggests, have no transparency. Both the internalized trades and the trades executed in dark pools create an enormous hole in Rule 204.
  3. As the case with Rule 203, there is little transparency whether broker-dealers comply with Rule 204. The transparency boils down to a list published by the SEC every two weeks identifying the public companies that have had failures to deliver and the amount of those failures.[64] No other information, e.g. the identity of the broker-dealer who failed to deliver the stock, is disclosed.  Of course, this does not include all the fail-to-deliver trades that are hidden by “internalization.”
  4. The SEC has direct responsibility for creating numerous flaws in Reg SHO, the creation of market rules which cloak in darkness every step in the process of a short sale trade, and, of course, its lax and discriminatory enforcement of Reg SHO (serious prosecutions of tiny market participants and mild rebukes to the mega brokerage firms).
  5. The multiple flaws in Reg SHO, the lack of transparency in short sale trading and the SEC’s lax enforcement have combined to make compliance with Reg SHO a form of self-regulation. The notion that Wall Street banks and hedge funds can self-regulate was disproved in 1929 and again in 2008.
  6. Plaintiff has filed this complaint, because the SEC has flaunted his FOIA requests, which seek records relating to the SEC’s purported efforts to investigate and civilly prosecute those who engage in naked short selling. By way of example, Plaintiff’s FOIA requests have sought records of the SEC’s administrative proceeding against optionsXpress, In the Matter of optionsXpress.[65] For the first time, in that case the SEC alleged and proved that optionsXpress (a broker-dealer), one of its highest officers, and one of its biggest customers committed securities fraud by engaging in naked short sales. Yet, the SEC has refused to release the transcripts of the public hearing or any of the documents admitted into evidence.
  7. In another of those requests which are the subject matter of the complaint, Plaintiff sought records relating to an investigation of the DTCC for possible violations of Reg SHO. Plaintiff is informed and believes, and thereon alleges, that the SEC conducted a six-year formal investigation of the DTCC in connection with its possible participation in naked short selling. Plaintiff is informed and believes, and thereon alleges, that the SEC has eighteen storage boxes relating to its investigation of the DTCC which are responsive to Plaintiff’s requests. The SEC has failed to release any of these records.
  8.  The SEC has failed to release records sought by Plaintiff’s 26 FOIA requests relating to (1) the SEC’s matters under inquiry, investigations and administrative proceedings of those suspected of engaging in naked short selling or aiding and abetting the violation and (2) the SEC’s matters under inquiry, investigations and administrative proceedings of those victimized by naked short selling. In this way, another regulator, this time the SEC, switched off the lights which could bring some visibility to the shadows where naked short selling has flourished and continues to threaten the integrity of the capital markets themselves, according to FINRA.[66]

FIRST CAUSE OF ACTION

  1. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In The Matter of Peter J. Bottini and Kevin E. Strine, Administrative Proceeding File No. 3-14848, Securities Exchange Act of 1934 Release No. 710:

 

  1. All transcripts of any hearings during said administrative proceeding;
  2. All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;
  3. All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;
  4. All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and
  5. All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

  1. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 1.
  2. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 1 and assigned it tracking number 14-02120-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 2.
  3. Exhibit 2 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02120-FOIA.

SECOND CAUSE OF ACTION

  1. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In the Matter of Rhino Trading, LLC, Administrative Proceeding File No. 3-13677, Securities Exchange Act of 1934 Release No. 60941:

 

a)            All transcripts of any hearings during said administrative proceeding;

b)            All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c) All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)            All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)            All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

  1. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 3.
  2. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 3 and assigned it tracking number 14-02121-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 4.
  3. Exhibit 4 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02121-FOIA.

THIRD CAUSE OF ACTION

  1. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In the Matter of Jeffrey A. Wolfson, Administrative Proceeding File No. 3-14726, Securities Exchange Act of 1934 Release No. 67451:

 

a)       All transcripts of any hearings during said administrative proceeding;

b)      All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c)       All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)      All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)      All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

  1. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 5.
  2. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 5 and assigned it tracking number 14-02122-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 6.
  3. Exhibit 6 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02122-FOIA.

FOURTH CAUSE OF ACTION

100. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS received or generated by the SEC in any matter under inquiry (MUI) or INVESTIGATION relating to possible violations of Regulation SHO, for the naked short sale of any stock, or for failures to deliver any securities from January 1, 2007, to the present. These MUIs or investigations can be identified by doing a search of the CATS, its replacement, or any other system maintaining a list of SEC investigations using the search terms “Regulation SHO,” “Reg SHO,” “Rule 203,” “Rule 204,” “naked short,” “naked shorts,” or any other terms commonly used within the SEC in referring to MUIs or investigations relating to violations of Regulation SHO.

 

101. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 7.

102. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 7 and assigned it tracking number 14-02123-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 8.

103. Exhibit 8 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02123-FOIA.

FIFTH CAUSE OF ACTION

104. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In the Matter of Goldman Sachs Execution & Clearing, L.P., Respondent, Administrative Proceeding File No. 3-13877, Securities Exchange Act of 1934 Release No. 62025:

 

a)      All transcripts of any hearings during said administrative proceeding;

b)      All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c)       All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)      All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)      All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

105. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 9.

106. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 9 and assigned it tracking number 14-02124-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 10.

107. Exhibit 10 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02124-FOIA.

 

SIXTH CAUSE OF ACTION

108. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In the Matter of TJM Proprietary Trading, LLC, Administrative Proceeding File No. 3-13569, Securities Exchange Act of 1934 Release No. 60440:

a)      All transcripts of any hearings during said administrative proceeding;

b)      All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c)       All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)      All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)      All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

109. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 11.

110. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 11 and assigned it tracking number 14-02125-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 12.

111. By letter of April 22, 2014, the SEC’s FOIA Office notified Plaintiff that it had not located or identified “any information responsive to [Plaintiff’s] request”. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 13.

112. By letter of April 22, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02125-FOIA (Exhibit 13). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 14.

113. By letter of April 23, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 14) and assigned it tracking number 14-00167-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 15. Exhibit 15 is the last communication Plaintiff has received from the FOIA Office regarding FOIA Request 14-02125-FOIA or its appeal.

SEVENTH CAUSE OF ACTION

114. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following All RECORDS of any INVESTIGATION or matter under inquiry (MUI) relating to Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com from January 1, 2008, to the present.

 

This request is limited to RECORDS maintained in a MUI, INVESTIGATION, administrative proceeding or civil action where Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com was a subject of the MUI, investigation, administrative proceeding or civil action.

115. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 16.

116. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 16 and assigned the portion of the request regarding Sam Antar tracking number 14-02126-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 17.

117. Exhibit 17 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02126-FOIA.

 

EIGHTH CAUSE OF ACTION

118. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following All RECORDS of any INVESTIGATION or matter under inquiry (MUI) relating to Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com from January 1, 2008, to the present.

 

This request is limited to RECORDS maintained in a MUI, INVESTIGATION, administrative proceeding or civil action where Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com was a subject of the MUI, investigation, administrative proceeding or civil action.

 

119. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 16.

120. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 16 and assigned the portion of the request regarding Barry Minkow tracking number 14-02127-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 18.

121. Exhibit 18 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02127-FOIA.

 

NINTH CAUSE OF ACTION

122. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following All RECORDS of any INVESTIGATION or matter under inquiry (MUI) relating to Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com from January 1, 2008, to the present.

 

This request is limited to RECORDS maintained in a MUI, INVESTIGATION, administrative proceeding or civil action where Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com was a subject of the MUI, investigation, administrative proceeding or civil action.

 

123. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 16.

124. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 16 and assigned the portion of the request regarding Fraud Discovery Institute tracking number 14-02128-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 19.

125. Exhibit 19 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02128-FOIA.

TENTH CAUSE OF ACTION

126. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following All RECORDS of any INVESTIGATION or matter under inquiry (MUI) relating to Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com from January 1, 2008, to the present.

 

This request is limited to RECORDS maintained in a MUI, INVESTIGATION, administrative proceeding or civil action where Sam Antar, Barry Minkow, the Fraud Discovery Institute, or WhiteCollarFraud.com was a subject of the MUI, investigation, administrative proceeding or civil action.

 

127. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 16.

128. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 16 and assigned the portion of the request regarding WhiteCollarFraud.com tracking number 14-02129-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 20.

129. Exhibit 20 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02129-FOIA.

ELEVENTH CAUSE OF ACTION

130. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In the Matter of Hazan Capital Management, LLC, Administrative Proceeding File No. 3-13570, Securities Exchange Act of 1934 Release No. 60441:

 

a)      All transcripts of any hearings during said administrative proceeding;

b)      All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c)       All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)      All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)      All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

131. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 21.

132. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 21 and assigned it tracking number 14-02130-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 22.

133. Exhibit 22 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02130-FOIA.

TWELFTH CAUSE OF ACTION

134. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In the Matter of UBS Securities LLC, Administrative Proceeding File No. 3-14620, Securities Exchange Act of 1934 Release No. 65733:

 

a)      All transcripts of any hearings during said administrative proceeding;

b)      All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c)       All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)      All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)      All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

135. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 23.

136. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 23 and assigned it tracking number 14-02131-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 24.

137. Exhibit 24 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02131-FOIA.

THIRTEENTH CAUSE OF ACTION

138. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In the Matter of OptionsXpress, Inc., Administrative Proceeding File No. 3-14848, Securities Exchange Act of 1934 Release No. 710:

 

a)      All transcripts of any hearings during said administrative proceeding;

b)      All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c)       All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)      All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)      All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

139. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 25.

140. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 25 and assigned it tracking number 14-02132-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 26.

141. Exhibit 26 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02132-FOIA.

FOURTEENTH CAUSE OF ACTION

142. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying the following RECORDS relating to In The Matter of Gary S. Bell,  Administrative Proceeding File No. 3-14660, Securities And Exchange Commission, Securities Exchange Act of 1934 Release  No. 65941:

 

a)      All transcripts of any hearings during said administrative proceeding;

b)      All documents or other writings filed by either the SEC or the respondents in said administrative proceeding;

c)       All exhibits attached to any filing by the SEC or the respondents during said administrative proceeding;

d)      All transcripts of any testimony taken during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding; and

e)      All exhibits marked or identified during the MUI, informal investigation or formal investigation that occurred prior to the commencement of said administrative proceeding.

 

143. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 27.

144. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 27 and assigned it tracking number 14-02133-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 28.

145. Exhibit 28 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02133-FOIA.

FIFTEENTH CAUSE OF ACTION

146. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS relating to any matter under inquiry (MUI) or INVESTIGATION of Wedbush Securities for possible violations of Regulation SHO and/or naked short selling since January 1, 2009, to the present.

 

147. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 29.

148. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 29 and assigned it tracking number 14-02134-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 30.

149. By letter of March 4, 2014, the FOIA Office informed Plaintiff that it had “located 194 pages of records, of which 175 pages are released in full or in part, and the other 19 pages are withheld in full. The withheld records are exempt from release under Exemptions 4, 5, 6, 7(A) and/or 7(C), 5 U.S.C. § 552(b)(4), (5), (6), (7)(A) and/or (7)(C), 17 CFR § 200.80(b)(4), (5), (6), (7)(A) and/or (7)(iii),…” A true and correct copy of the March 4, 2014, letter from the FOIA Office, without enclosures, is attached hereto and incorporated by reference as Exhibit 31.

150. By letter of March 5, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02134-FOIA (Exhibit 31). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 32.

151. By letter of March 13, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 32) and assigned it tracking number 14-00044-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 33. Exhibit 33 is the last communication Plaintiff has received from the FOIA Office regarding FOIA Request 14-02134-FOIA or its appeal.

SIXTEENTH CAUSE OF ACTION

152. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS of any SEC matter under inquiry (MUI) or INVESTIGATION of Global Securities involving possible naked shorting or violations of Regulation SHO by Global Securities from January 1, 2008, to the present.

 

This request is limited to RECORDS maintained in a MUI and/or INVESTIGATION relating to Global Securities from January 1, 200, to the present.

 

153. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 34.

154. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 34 and assigned it tracking number 14-02135-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 35.

  1. 155.  By letter of January 22, 2014, the FOIA Office informed Plaintiff that it had not located or identified “any records responsive to [Plaintiff’s] request.” A true and correct copy of the January 22, 2014, letter from the FOIA Office is attached hereto and incorporated by reference as Exhibit 36.

156. By letter of January 22, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02135-FOIA (Exhibit 36). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 37.

157. By letter of January 29, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 37) and assigned it tracking number 14-00027-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 38.

158. By letter of March 6, 2014, Associate General Counsel Richard M. Humes denied Plaintiff’s appeal regarding FOIA Request 12-02135-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 39.

SEVENTEENTH CAUSE OF ACTION

159. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS relating to any matter under inquiry (MUI) or INVESTIGATION of any individual or business entity in connection to possible violations of Regulation SHO and/or naked short selling in relation to Morgan Stanley during 2008.

 

160. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 40.

161. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 40 and assigned it tracking number 14-02136-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 41.

162. Exhibit 41 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02136-FOIA.

EIGHTEENTH CAUSE OF ACTION

163. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS relating to any matter under inquiry (MUI) or INVESTIGATION of any individual or business entity in connection to possible violations of Regulation SHO and/or naked short selling in relation to Merrill Lynch during 2008.

 

164. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 42.

165. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 42 and assigned it tracking number 14-02137-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 43.

166. Exhibit 43 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02137-FOIA.

NINETEENTH CAUSE OF ACTION

167. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS relating to any matter under inquiry (MUI) or INVESTIGATION of any individual or business entity in connection to possible violations of Regulation SHO and/or naked short selling in relation to Lehman Brothers during 2008.

 

168. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 44.

169. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 44 and assigned it tracking number 14-02138-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 45.

170. Exhibit 45 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02138-FOIA.

TWENTIETH CAUSE OF ACTION

171. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS relating to any matter under inquiry (MUI) or INVESTIGATION of Citadel Securities for possible violations of Regulation SHO and/or naked short selling since January 1, 2009, to the present.

 

172. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 46.

173. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 46 and assigned it tracking number 14-02139-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 47.

174. By letter of April 21, 2014, the FOIA Office informed Plaintiff that it had not located or identified “any records responsive to [Plaintiff’s] request.” A true and correct copy of the April 21, 2014, letter from the FOIA Office is attached hereto and incorporated by reference as Exhibit 48.

175. By letter of April 22, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02139-FOIA (Exhibit 48). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 49.

  1. By letter of April 23, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 49) and assigned it tracking number 14-00169-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 50.

177. Exhibit 50 is the last communication Plaintiff has had from the SEC regarding FOIA request 14-02139-FOIA.

TWENTY-FIRST CAUSE OF ACTION

178. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS relating to any matter under inquiry (MUI) or INVESTIGATION of any individual or business entity in connection to possible violations of Regulation SHO and/or naked short selling in relation to Bear Stearns during 2008.

 

179. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 51.

180. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 51 and assigned it tracking number 14-02140-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 52.

181. Exhibit 52 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02140-FOIA.

TWENTY-SECOND CAUSE OF ACTION

182. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS relating to any matter under inquiry (MUI) or INVESTIGATION of Knight Capital for possible violations of Regulation SHO and/or naked short selling since January 1, 2009, to the present.

 

183. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 53.

184. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 53 and assigned it tracking number 14-02141-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 54.

185. Exhibit 54 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02141-FOIA.

TWENTY-THIRD CAUSE OF ACTION

186. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA and the Privacy Act, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS or COMMUNICATIONS from January 1, 2006, to the present, relating to any exemption from, exception to, or non-application of Regulation SHO to Al Safi Trust in whole or in part or any preferred status of Al Safi Trust under regulation SHO.

 

187. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 55.

188. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 55 and assigned it tracking number 14-02142-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 56.

  1. 189.  By letter of April 3, 2014, the FOIA Office informed Plaintiff that it had not located or identified “any records responsive to [Plaintiff’s] request.” A true and correct copy of the April 3, 2014, letter from the FOIA Office is attached hereto and incorporated by reference as Exhibit 57.

190. By letter of April 10, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02142-FOIA (Exhibit 57). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 58.

191. By letter of April 11, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 58) and assigned it tracking number 14-00137-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 59.

192. By letter of April 28, 2014, Associate General Counsel Richard M. Humes denied Plaintiff’s appeal regarding FOIA Request 12-02142-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 60.

TWENTY-FOURTH CAUSE OF ACTION

193. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS of any SEC matter under inquiry (MUI) or INVESTIGATION of Penson Financial and/or Wedbush (or any of its previous names) involving possible naked shorting or violations of Regulation SHO by Penson Financial and/or Wedbush from January 1, 2008, to the present.

This request is limited to RECORDS maintained in a MUI and/or INVESTIGATION relating to Penson Financial and/or Wedbush (or any of its previous names) from January 1, 2008, to the present.

194. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 61.

195. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 61 and assigned tracking number 14-02143-FOIA to the portion of the request regarding Penson Financial. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 62.

  1. 196.  By letter of February 5, 2014, the FOIA Office informed Plaintiff that it was “withholding records responsive to [Plaintiff’s] request under 5 U.S.C. § 552(b)(7)(A), 17 CFR § 200.80 (b)(7)(i).” A true and correct copy of the February 5, 2014, letter from the FOIA Office is attached hereto and incorporated by reference as Exhibit 63.

197. By letter of February 12, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02143-FOIA (Exhibit 63). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 64.

198. By letter of February 19, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 64) and assigned it tracking number 14-00037-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 65. Exhibit 65 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02143-FOIA.

TWENTY-FIFTH CAUSE OF ACTION

199. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS of any SEC matter under inquiry (MUI) or INVESTIGATION of Penson Financial and/or Wedbush (or any of its previous names) involving possible naked shorting or violations of Regulation SHO by Penson Financial and/or Wedbush from January 1, 2008, to the present.

 

This request is limited to RECORDS maintained in a MUI and/or INVESTIGATION relating to Penson Financial and/or Wedbush (or any of its previous names) from January 1, 2008, to the present.

 

200. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 61.

201. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 61 and assigned tracking number 14-02144-FOIA to the portion of the request regarding Wedbush. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 66.

  1. 202.  By letter of March 4, 2014, the FOIA Office informed Plaintiff that “all records responsive to this request have been processed and provided to you in response to FOIA request 14-02134-FOIA.” A true and correct copy of the March 4, 2014, letter from the FOIA Office is attached hereto and incorporated by reference as Exhibit 67.

203. By letter of March 5, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02144-FOIA (Exhibit 67). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 68.

204. By letter of March 13, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 68) and assigned it tracking number 14-00043-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 69. Exhibit 69 is the last communication Plaintiff has received from the SEC regarding FOIA request 14-02144-FOIA.

TWENTY-SIXTH CAUSE OF ACTION

205. By letter of November 29, 2013, pursuant to the applicable provisions of FOIA, Plaintiff requested access to and copies of specified documents as follows:

I am requesting that you release for inspection and copying all RECORDS of any matter under inquiry (MUI) or INVESTIGATION which became SEC investigation HO-09973. All RECORDS of any SEC MUI or INVESTIGATION of Adnan Khashoggi/Genesis Intermedia for possible naked shorting or violations of Regulation SHO by Adnan Khashoggi/Genesis Intermedia from January 1, 2008, to the present.

 

This request is limited to RECORDS maintained in a MUI and/or INVESTIGATION relating to Adnan Khashoggi/Genesis Intermedia from January 1, 2008, to the present.

 

206. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 70.

207. By letter of December 3, 2013, the SEC’s FOIA office acknowledged receipt of Exhibit 70 and assigned it tracking number 14-02145-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 71.

  1. 208.  By letter of March 4, 2014, the FOIA Office informed Plaintiff that it had not located or identified “any records responsive to [Plaintiff’s request.” A true and correct copy of the March 4, 2014, letter from the FOIA Office is attached hereto and incorporated by reference as Exhibit 72.

209. By letter of March 5, 2014, Plaintiff appealed the FOIA Office’s decision regarding request 14-02145-FOIA (Exhibit 72). A true and correct copy of said appeal, without enclosures, is attached hereto and incorporated by reference as Exhibit 73.

210. By letter of March 13, 2014, the FOIA Office acknowledged receipt of Plaintiff’s appeal (Exhibit 73) and assigned it tracking number 14-00042-APPS. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 74.

211. By letter of May 13, 2014, Associate General Counsel Richard M. Humes denied Plaintiff’s appeal regarding FOIA Request 12-02145-FOIA. A true and correct copy of said letter is attached hereto and incorporated by reference as Exhibit 75.

PLAINTIFF’S CLAIM FOR RELIEF: VIOLATIONS OF FOIA

212. Plaintiff re-alleges and incorporates by reference all preceding paragraphs.

213. Plaintiff is entitled by law to access the records requested under the FOIA.

214. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully comply with paragraphs a through e of Plaintiff’s November 29, 2013, request for the records (Exhibit 1), as specified in paragraph 88 above.

215. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 3) as specified in paragraph 92 above.

216. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 5) as specified in paragraph 96 above.

217. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 7) as specified in paragraph 100 above.

218. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 9) as specified in paragraph 104 above.

219. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 11) as specified in paragraph 108 above.

220. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 16) as specified in paragraphs 114, 118, 122, and 126 above.

221. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 21) as specified in paragraph 130 above.

222. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 23) as specified in paragraph 134 above.

223. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 25) as specified in paragraph 138 above.

224. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 27) as specified in paragraph 142 above.

225. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 29) as specified in paragraph 146 above.

226. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 34) as specified in paragraph 152 above.

227. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 40) as specified in paragraph 159 above.

228. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 42) as specified in paragraph 163 above.

229. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 44) as specified in paragraph 167 above.

230. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 46) as specified in paragraph 171 above.

  1. 231.   Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 51) as specified in paragraph 178 above.

232. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 53) as specified in paragraph 182 above.

233. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 55) as specified in paragraph 186 above.

234. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill Plaintiff’s November 29, 2013, request for records (Exhibit 61) as specified in paragraphs 193 and 199 above.

235. Defendant SEC is in violation of the FOIA, 5 U.S.C. § 552, by failing to fully and lawfully fulfill paragraphs a through e of Plaintiff’s November 29, 2013, request for records (Exhibit 70) as specified in paragraph 205 above.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff respectfully requests that the Court:

  1. Declare that Defendant SEC has violated the FOIA by failing to satisfy Plaintiff’s November 29, 2013,  requests for records as specified in paragraphs 88, 92, 96, 100, 104, 108, 114, 118, 122, 126, 130, 134, 138, 142, 146, 152, 159, 163, 167, 171, 178, 182, 186, 193, 199, and 205 above;
  2. Order Defendant SEC to immediately search for and release all records responsive to

Plaintiff’s November 29, 2013, requests for records  as specified in paragraphs 88, 92, 96, 100, 104, 108, 114, 118, 122, 126, 130, 134, 138, 142, 146, 152, 159, 163, 167, 171, 178, 182, 186, 193, 199, and 205 above;

  1. Award Plaintiff his  costs and reasonable attorney’s fees and litigation costs in this action; and
  2. Grant such other and further relief as the Court may deem just and proper.

 

Dated: May 28, 2014                                                       MARK MITCHELL

Plaintiff.

 

 

 

By:          /s/ Hal J. Wood                

One of His Attorneys

 

 

Hal J. Wood (ARDC #6217069)

hwood@hmblaw.com

HORWOOD MARCUS & BERK CHARTERED

500 West Madison Street, Suite 3700

Chicago, Illinois  60661

Phone: (312) 606-3200

Fax: (312) 267-2197

 

Gary J. Aguirre (ARDC #6315132)

gary@aguirrelawapc.com

AGUIRRE LAW, APC

501 West Broadway, Suite 800

San Diego, California 92101

Phone: (619) 400-4960

Fax: (619) 501-7072

 

 

 

 

.

 

 

 

 

 

 


[1] The home page for Deep Capture is https://www.deepcapture.com/ (last visited May 20, 2014).

[2]  Gary Matsumoto, Naked Short Sales Hint Fraud in Bringing Down Lehman, Bloomberg.com, March 19, 2009, available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB1jlqmFOTCA (last visited May 20, 2014).

[4] There were a few, very brief articles indicating that UBS had violated Reg SHO, but none offered a clue of the magnitude of the violations or their potential impact on market integrity. See for example: FINRA Fines UBS $12M for Alleged Short-Sale Violations, Dow Jones News Service, Oct. 25, 2011.

[5]  U.S. SEC OIG Report of Investigation, Unauthorized Disclosure of Non-Public Information, Jan.12, 2010, available at http://www.sec.gov/about/offices/oig/reports/investigations/2010/OIG-512(redacted).pdf (last visited May 20, 2014).

[6] Judd Bagley, Moral Hazard at the SEC, DeepCapture.com, July 28, 2010, available at https://www.deepcapture.com/moral-hazard-at-the-sec/ (last visited May 20, 2014).

[7] Irving M. Pollack joined the SEC staff in 1946 and was Director of the Division of Enforcement beginning in Sep. 1972. In Feb. 1974, Mr. Pollack began to serve as Commissioner, filling the unexpired term of Hugh F. Owens who resigned. He continued as Commissioner until 1980.

[8] Irving M. Pollack, Short-sale Regulation of NASDAQ Securities, July 1986. See http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=1359&print=1.

[9] Id.

[10] SEC Exchange Release No. 26694, 1989 SEC LEXIS 652 (April 4, 1989).

[11] “On October 28, 2003, the Commission published for public comment a proposed rule, Regulation SHO, on short sales.” Related to Proposed Short Sale Rule, Regulation SHO, Replacing Rules 3b-3, 10a-1, 10a-2 and Amending Rule 105 of Regulation M,  SEC Exchange Act Release No. 48709,  2004 SEC LEXIS 1674 (July 28, 2004).

[12] Id.

    [13] Id.

    [14] In the Matter of Vladlen “Larry” Vindman, Securities Act Release No. 8679, 2006 SEC LEXIS 862 at 28,  (April 14, 2006) relegated the issue to a footnote:

 

Although “naked short selling” is not a defined term in the federal securities laws, the Commission has taken regulatory action to reduce short selling abuses. See Short Sales, Exchange Act Rel. No. 50103 (Aug. 6, 2004), 83 SEC Docket 1492, 1493 (noting that location and delivery requirements of Regulation SHO “will act as a restriction on so-called ‘naked’ short selling”)

 

See also:  In the Matter of Eagletech Communications, Inc., Initial Decisions Release No. 287, 2005 SEC LEXIS 1318 (June 7, 2005); In the Matter of Eagletech Communications, Inc. Exchange Act Release No. 54095, 2006 SEC LEXIS 1534 (July 5, 2006).

[15] Sandell Asset Management Corp., et al., Exchange Act  Release No. 8857, 2007 SEC LEXIS 2377, (Oct. 10, 2007) and In the Matter of Goldman Sachs Execution & Clearing, L.P., Exchange Act Release No. 55465, (March 14, 2007).

[16] In the Matter of Jeffrey A. Wolfson, Exchange Act Release No. 67451, 2012 SEC LEXIS 2265 (July 17, 2012).

[17] In this regard, Rule 203(b) provides as follows:

 

(b) Short sales. (1) A broker or dealer may not accept a short sale order in an equity security from another person, or effect a short sale in an equity security for its own account, unless the broker or dealer has:

(i) Borrowed the security, or entered into a bona-fide arrangement to borrow the security; or

(ii) Reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due; and

(iii) Documented compliance with this paragraph (b)(1).

(Emphasis added)

[19] Exchange Act Release No. 56212, 2007 SEC LEXIS 1754, (Aug. 7, 2007).

[20] “Any investigating commission must examine the role of short selling, especially naked short selling, in deepening the crisis. Did short selling ultimately cause the collapse of Bear Stearns Cos., Lehman Brothers Holdings Inc. and the near death of American International Group Inc.?” Keeping Markets Vital, Pensions and Investments, Sep. 29, 2008, available at http://www.pionline.com/article/20080929/PRINT/309299985/keeping-markets-vital (last visited May 21, 2014).

[21] “Investors like Hardesty contend that naked short-selling, if left unchecked, would have given hedge funds and other aggressive short sellers an unfair advantage to attack other victims after Lehman Brothers, Merrill Lynch…were said to be among the likely targets.” Naked Short-Selling Blamed in Wall St Crisis, The New Zealand Herald, Sep. 16, 2008, available at http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10532426&ref=rss (last visited May 21, 2014).

[22]

Lehman’s demise was brought on by many destabilizing factors — the collapse of the real estate market, naked short attacks, false rumors, widening spreads on credit default swaps, rating agency downgrades, a loss of confidence by clients and counterparties, and buyers sitting on the sidelines waiting for an assisted deal.

Lehman Bros. CEO Testifies, CNBC/Dow Jones Business Video, Oct. 6, 2008.

[23] Supra, n. 7.

[24] Bill Saporito, Are Short Sellers to Blame for the Financial Crisis? Time Magazine, Sep 18, 2008, available at http://www.time.com/time/business/article/0,8599,1842499,00.html (last visited May 21, 2014).

[25] CNBC: SEC Investigating Shorting of Morgan, Goldman, Barrons.com, Sep. 17, 2008; available at: http://blogs.barrons.com/stockstowatchtoday/2008/09/17/cnbc-sec-investigating-short-selling-of-morgan-goldman/ (last visited May 21, 2014).

[26] Exchange Act Release No. 58166, 2008 SEC LEXIS 1633, (July 15, 2008).

[27] Exchange Act Release No. 58572, 2008 SEC LEXIS 2058 (Sep. 17, 2008).

[28] Amendments to Regulation SHO, Exchange Act Release No. 58773, 2008 SEC LEXIS 2320 (Oct. 14, 2008) at 1.

[29] Id.

[30] Exchange Act Release No. 58775, 2008 SEC LEXIS 2319 (Oct. 14, 2008).

[31] Exchange Act Release No. 60388, 2009 SEC LEXIS 2563 (July 27, 2009); Exchange Act Release No. 59748, 2009 SEC LEXIS 1219 (April 10, 2009); Exchange Act Release No. 58774, 2008 SEC LEXIS 2318 (Oct. 14, 2008); Exchange Act Release No. 58775, 2008 SEC LEXIS 2319 (Oct. 14, 2008); Exchange Act Release No. 58773, 2008 SEC LEXIS 2320 (Oct. 14, 2008); Exchange Act Release No. 58711, 2008 SEC LEXIS 3216 (Oct. 1, 2008); Exchange Act Release No. 58572, 2008 SEC LEXIS 2868 (Sep. 17, 2008); Exchange Act Release No. 58166, 2008 SEC LEXIS 1633 (July 15, 2008).

[32] In the Matter of Gary S. Bell, Exchange Act Release No. 65941, 2011 SEC LEXIS 4379 (Dec. 13, 2011); In the Matter of Peter J. Bottini, et al., Exchange Act Release No. 66814, 2012 SEC LEXIS 1223 (April 16, 2012); In the Matter of Jeffrey A. Wolfson, et al., Exchange Act Release No. 66283, 2012 SEC LEXIS 350 (Jan. 31, 2012); In the Matter of Rhino Trading, et al., Exchange Act Release No. 60941, 2009 SEC LEXIS 3925 (Nov. 4, 2009); In the Matter of Hazan Capital Management, LLC et al., Exchange Act Release No. 60441, 2009 SEC LEXIS 2722  (Aug 5, 2009); In the Matter of TJM Proprietary Trading, LLC, et al., Exchange Act Release No. 60440, 2009 SEC LEXIS 2721  (Aug 5, 2009); In the Matter of OptionsXpress, Inc., et al., Exchange Act Release No. 66815, 2012 SEC LEXIS 1222 (April 16, 2012); and In the Matter of Jeffrey A. Wolfson, Exchange Act Release No. 67451, 2012 SEC LEXIS 2265 (July 17, 2012).

[33] In the Matter of Goldman Sachs Execution & Clearing, L.P., Exchange Act Release No. 62025 (May 4, 2010) and In the Matter of UBS Securities LLC, Exchange Act Release No. 65733 (Nov. 10, 2011).

[34] The agreement repeatedly states that some of the violations lasted at least until December 2010. Financial Industry Regulatory Authority Letter of Acceptance, Waiver and Consent No. 20080144511, (“UBS settlement”) available at http://www.finra.org/web/groups/industry/@ip/@enf/@ad/documents/industry/p124887.pdf.

[35]  Financial Industry Regulatory Authority Letter of Acceptance, Waiver and Consent No. 20080144512, (“Credit Suisse settlement”) at 9-10; available at http://www.finra.org/web/groups/industry/@ip/@enf/@ad/documents/industry/p125336.pdf.

[36] UBS settlement, supra, n. 34.

[37] Securities Exchange Act Release No. 48709, 2003 SEC LEXIS 2594 (Oct. 28, 2003): “The Securities and Exchange Commission (Commission) is publishing for public comment new Regulation SHO, under the Securities Exchange Act of 1934 (Exchange Act), which would replace Rules 3b-3, 10a-1, and 10a-2.”

[38] Id.

[39] See for example: Amendments to Regulation SHO, Securities Exchange Act Release No. 54154,  2006 SEC LEXIS 1611 (July 14, 2006); Regulation SHO and Rule 10a-1, Securities Exchange Act Release No. 55970, 2007 SEC LEXIS 1398 (June 28, 2007); and Amendments to Regulation SHO, Securities Exchange Act Release No. 56212, 2007 SEC LEXIS 1754 (Aug. 7, 2007).

[40] See Amendments to Regulation SHO, Securities Exchange Act Release No. 58775, 2008 SEC LEXIS 2319 (Oct. 14, 2008).

[41] In the Matter of Goldman Sachs Execution & Clearing, L.P., Securities Exchange Act Release No. 55465, (March 14, 2007).

[42] In the Matter of Goldman Sachs Execution & Clearing, L.P., Securities Exchange Act Release No. 62025, 2010 SEC LEXIS 1601 (May 4, 2010).

[43]  In the Matter of UBS Securities LLC, Securities Exchange Act Release No. 65733, 2011 SEC LEXIS 3985 (Nov. 10, 2011).

[44] UBS settlement, supra, n. 34.

[45]  Kevin D. Freeman, CFA, Economic Warfare: Risks and Responses; Analysis of Twenty-First Century Risks in Light of the Recent Market Collapse, June 2009, at 2; available at http://www.vectorpub.com/economic-warfare-risks-and-responses-by-kevin-d-freeman.pdf (last visited May 22, 2014).

[46] “During such price reversal episodes, short sellers actively consume bid side liquidity and tend to route their orders to venues that do not abide by the rules that restrict short sales.” Andriy Shkilko, Bonnie Van Ness, and Robert Van Ness, Price-destabilizing Short Selling, Financial Management, Vol. 41, No. 2, summer 2012; available at http://www.researchgate.net/publication/228985117_Price-destabilizing_short_selling/file/79e4150b8af163074a.pdf (last visited May 22, 2014).

[47] In the Matter of Chicago Board Options Exchange, Inc. et al., Exchange Act Release No. 69726, June 11, 2013.

[48] Ferdinand Pecora, Wall Street under Oath: The Story of Our Modern Money Changers, at 267.

[49] In the Matter of Chicago Board Options Exchange, Inc. et al., supra, n. 47.

[50] Id., at 3.

[51] Id. Also, In the Matter of optionsXpress Inc., et al., Exchange Act Release No. 66815, 2012 SEC LEXIS 1222 (April 16, 2012) and In the Matter of optionsXpress, Inc., et al., IDR Release No. 490, 2013 SEC LEXIS 1643 (June 7, 2013).

    [52] In the Matter of Chicago Board Options Exchange, Inc. et al., supra, n. 47 at 13.

[53]  Regarding Jonathan I. Feldman, a customer of optionsXpress, Judge Murray’s decision observed:

 

The options market, like other securities markets, operates on the understanding that sellers of securities will settle with delivery on the required date. Feldman’s actions constitute fraud because by writing calls he represented to the market as a whole and to purchasers of his deep-in-the-money calls that he was going to make delivery if his calls were exercised and assigned when he had no intention of doing so, and, in fact, by entering buy-writes, he did not cover his short position.

In the Matter of optionsXpress, Inc., et al., IDR Release No. 490, 2013 SEC LEXIS 1643 (June 7, 2013), at 233.

[54] See Rule 204(a)(1).

[55] See Rule 204(a)(3).

[56] Securities Exchange Act Release No. 60997, 2009 SEC LEXIS 3700 (Nov. 13, 2009).

[57] See for example: DTCC Form 19b-4 for 2013, available at http://www.dtcc.com/~/media/Files/Downloads/legal/rule-filings/2013/nscc/SR-NSCC-2013-14.ashx (last visited May 22, 2014); and DTCC Form 19b-4 for 2006, available at http://www.gpo.gov/fdsys/pkg/FR-2013-07-05/html/2013-16088.htm (last visited May 22, 2014).

[58] DTCC Form 19b-4 for 2006 at 5, fn 11, id.

[59] DTCC, Managing Risk in Today’s Equity Market: A White Paper on New Trade Submission Safeguards, Feb. 28, 2003, at 7; available at http://164.109.172.95/downloads/leadership/whitepapers/managingrisk.pdf (last visited May 22, 2014).

[60] Id. at 2.

[61]Disciplinary and Other FINRA Actions, August 2012, at 37; available at http://www.finra.org/web/groups/industry/@ip/@enf/@da/documents/disciplinaryactions/p151416.pdf (last visited May 22, 2014).

[62] Overstock.com v. Morgan Stanley et al., CGC-07-460147, Superior Court of the State of California (San Francisco).

[63] The Economist, An Enlightening Mistake, Economist.com, May 15, 2012, available at http://www.economist.com/node/21555472 (last visited May 22, 2014).

[64]

The first half of a given month is available at the end of the month. The second half of a given month is available at about the 15th of the next month. We cannot guarantee that the data will be posted by a particular date. We cannot guarantee the accuracy of the data.

See http://www.sec.gov/foia/docs/failsdata.htm (last visited May 22, 2014).

[65] In the Matter of optionsXpress Inc., et al., Exchange Act Release No. 66815, 2012 SEC LEXIS 1222 (April 16, 2012).

[66] UBS settlement, supra, n. 34, and Credit Suisse settlement, supra, n. 35.

Posted in The Deep Capture CampaignComments (252)

My Response to Becky Quick’s Proposal: I Do

My Response to Becky Quick’s Proposal: I Do

Dear Ms. Quick,

I am flattered at your invitation and accept with alacrity. Please let me know where and when.

Warm regards,

Patrick

Update: to date, CNBC has been characteristically mum when following up on my offer to graciously accept Ms. Quick’s invitation.

The Overstock.com PR team has made overtures to CNBC on the following dates, without any response:

June 5                  Rebecca Quick and Joe Kernen

June 16                Rebecca Quick and Joe Kernen

July 10                 Kate (Farrell) Welsh, producer

July 21                 Kristen Chang, segment producer

July 22                 Karina Frayter, producer

July 22                 Karina Frayter, producer

Posted in The Deep Capture CampaignComments (28)

Guess What Folks, David S. Evans Does Not Know His Ass from a Hole in the Ground (Patrick Byrne’s reply to David Evans’ Bitcoin hit-piece, “Guess What Folks, Overstock.com Does Not Take Bitcoin”)

Guess What Folks, David S. Evans Does Not Know His Ass from a Hole in the Ground (Patrick Byrne’s reply to David Evans’ Bitcoin hit-piece, “Guess What Folks, Overstock.com Does Not Take Bitcoin”)

On May 23, 2014 PMNTS.com (“what’s next in payments and commerce”) published a piece (“Guess What Folks, Overstock.com Does Not Take Bitcoin”) by David S. Evans that is as remarkably poor an example of research and analysis as one is likely to see these days.

  • “Partick Bryne, Overstock’s CEO and ‘Bitcoin Messiah’, even gave the keynote at last week’s Bitcoin2014 conference in Amsterdam. If he’s not a believer, who is?” asks Mr. Evans in his opening paragraph (misspelling both my first name and last in a foreshadowing of the general shoddiness of his homework).
  • In the next paragraph Evans falsely asserts about Overstock’s acceptance of Bitcoin, “To pay with the Bitcoin button you need a Coinbase wallet.” In this he is simply wrong: Anyone with Bitcoin can pay with that button (I suspect that this mistake is another expression of Evans’ unfamiliarity with Bitcoin and inattention to detail).
  • Now jumping to the end (where Mr. Evans buries his lead), “In the end, in this bizarro world, even the Bitcoin Messiah wants greenbacks.” Actually, even the Bitcoin Messiah has to pay his suppliers, and since they want greenbacks, at some point the Bitcoins that customers spend at Overstock must be converted to greenbacks to pay for those goods and services. This basic truth has Mr. Evans so agitated that he sees the whole process as “smoke and mirrors.”
  • In developing the previous point, Evans falsely asserts, “Overstock.com never takes possession of bitcoins or anything denominated in bitcoins.” This is also wrong: at checkout our customers’ Bitcoins are moved to our wallet, then Coinbase sells Bitcoins from that wallet back into the market in return for dollars on our behalf (however, we have stated publicly and accurately that we are accumulating Bitcoin reserves equal to 10% of all Bitcoin spent on our site).
  • Another paragraph, another blithering idiocy: “It gets weirder. How did you get bitcoins in your wallet in the first place? You were asked to link your bank account to Coinbase.” Actually, there are a plethora of ways one may acquire Bitcoin that have nothing to do with Coinbase, and all of the Bitcoin thus acquired works with Overstock.
  •  “Overstock could have a bitcoin account, and pay people and vendors in bitcoin, regardless of whether people want to buy stuff from Overstock using their bitcoins.” Except that nobody (e.g., the IRS) has worked out the tax issues related to paying employees in Bitcoin (though I have on several occasions said publicly that we wish to be at the forefront of paying Bitcoin to employees and vendors who will accept it, and have publicly invited firms that work in those areas to contact me).

And so on and so forth.  Nearly every paragraph of David Evans’ initial piece, and even in his back-spinning “clarification,” has errors that would make a college sophomore blush. That is quite an accomplishment for a man who bills himself as “ranked among the top 3 percent of economists in the world” (with, as one comes to expect from Mr. Evans, no explanation or citation).

Posted in The Deep Capture CampaignComments (35)

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