David Einhorn, Cheryl Strauss, and the “Unavailable” Bethany McLean
As will be explored in a subsequent piece, it would be fair to describe my relationship with Bethany McLean of Fortune as “strained”. However, it is not unusual for her to write or call me seeking comment, generally regarding allegations fed her by crony hedge funds which she dutifully regurgitates on command, and sometimes regarding other things, too. I make it a point to respond promptly. On rare occasion when I have contacted her, she has responded promptly as well.
Thus I was a bit surprised at the turn taken by the following correspondence:
________________________________________
From: Patrick Byrne
Sent: Thursday, February 28, 2008 10:46 PM
To: Bethany Mclean
Subject: comment sought
Dear Bethany,
For the record, do you have any comment on either of these stories?
http://community.overstock.com/deepcaptureblog/why-is-sam-antar-the-crook-being-pimped-by-fortune-magazine-and-the-rest-of-the-new-york-financial-media/
http://community.overstock.com/deepcaptureblog/gary-weiss-scaramouch-psychopath/
Respectfully,
Patrick
_____________________________________________
From: Patrick Byrne
Sent: Friday, March 14, 2008 12:37 PM
To: Bethany Mclean
Subject: Three requests
Dear Bethany,
1) I understand Roddy has become a co-worker at your fine magazine. I am not confident I have his correct email. Would you mind sending it to me (or ask him to do the same)?
2) I have posted a new piece about Michael Steinhardt (if I do say so myself, it’s frightfully good). Would you please provide comment it?
http://community.overstock.com/deepcaptureblog/category/9-the-players/
3) If you do not intend to provide comment on this or any of my stories, would you please let me know that? Any further explanation you would be willing to share in that regard would be much appreciated.
Your friend,
Patrick
________________________________________
From: Patrick Byrne
Sent: Thursday, March 27, 2008 12:49 PM
To: ‘bmclean@fortunemail.com’
Subject: Hello
Dear Bethany,
Hello. I hope you are well. As you are perhaps aware, I am working on an article in which you will figure. I want to treat you justly and have your point of view represented fairly. Unfortunately, you have not called or written me back (though I have always been prompt in my responses to your inquiries, I believe). I do not wish to publish and have you feel slighted. Therefore, on the off-chance that the reticence of your reply stems from a fear that I will not quote you accurately, may I propose a solution? I would like to ask you two questions. If you will answer these questions, I will commit to using your answers in full, unedited (I propose an upper limit on the length of each reply: 50 words). Since this is far more generous a deal than I generally extract from the New York financial journalists of my acquaintance, surely it should ease any discomfit you may have in being the recipient, rather than the purveyor, of questions.
Very respectfully,
Patrick
—–Original Message—–
From: bethany_mclean@fortunemail.com
[mailto:bethany_mclean@fortunemail.com]
Sent: Thursday, March 27, 2008 1:57 PM
To: Patrick Byrne
Subject: your email
Hey, Patrick. The only communication I’ve received from you (apart from today’s email) was another email in which you asked me to comment on a piece you’d written on Michael Steinhardt. (I think.) You’re correct that I didn’t respond to that. My editor has asked that you speak to our PR people. You can contact Katy Reitz at katy_reitz@timeinc.com.
Thanks.
—–Original Message—–
From: Patrick Byrne [mailto:PByrne@overstock.com]
Sent: Friday, April 04, 2008 3:07 AM
To: Reitz, Katharine - Fortune/Money
Cc: McLean, Bethany - Fortune
Subject: RE: your email
Dear Ms. Reitz,
As you can see below, I am writing at the suggestion of Ms. Mclean regarding the possibility of her answering several on-the-record questions for a story I am writing. Is this something you would be willing to facilitate?
Respectfully,
Patrick M. Byrne
—–Original Message—–
From: katy_reitz@timeinc.com [mailto:katy_reitz@timeinc.com]
Sent: Friday, April 04, 2008 8:12 AM
To: Patrick Byrne
Subject: RE: your emailPatrick,
Can you please email me the questions and I will see if Bethany is
available to answer. Also, please let me know what your deadline is and
what publication this interview will appear in. Thanks.
Katharine S. Reitz
Director of Communications
Fortune|Money Group
o. 212.522.6724
m. 917.543.9176
katy_reitz@timeinc.com
—–Original Message—–
From: Patrick Byrne
Sent: Friday, April 04, 2008 1:11 PM
To: ‘katy_reitz@timeinc.com’
Subject: RE: your email
Katy,
My questions for Bethany concern her state of knowledge at the time she wrote SGR regarding the investment track record of Jim Chanos prior to Enron (attached please find discussion of Jim Chanos in Bethany’s book on Enron; I can also provide Mr. Chanos partners’ letter if she needs).
What was Bethany’s understanding of that track record? Did she know what it was when she wrote SGR?
If she did not know, why not? Did she ask?
If she did know, does she believe her account on page 319 adequately summarizes it?
An answer within the next week would be deeply appreciated. You may assume that the first place her answer would be published would be within Overstock.com, or at DeepCapture.com.
Most respectfully,
Patrick
—–Original Message—–
From: katy_reitz@timeinc.com [mailto:katy_reitz@timeinc.com]
Sent: Tuesday, April 08, 2008 10:42 AM
To: Patrick Byrne
Subject: RE: your email
Patrick,
Bethany is unavailable to comment.
Thanks,
Katy
—–Original Message—–
From: Patrick Byrne
Sent: Tuesday, April 08, 2008 11:50 AM
To: katy_reitz@timeinc.com
Subject: RE: your email
Dear Katy,
Thank you for your kind response. I can wait, as it turns out, given the collapse of Bear and some subsequent comments made last week in the Senate, my publication schedule has changed. When would she be available for comment?
Very respectfully,
Patrick
============================================================================
I received no further reply, no elucidation of when Bethany would no longer be “unavailable for comment.”
However, this evening, just as I was preparing to leave work, I checked my email, and found this. Since it was sent at a quarter to 1 PM East Coast time, and Bethany gave me to “the end of the day” (which came four hours later for her), the time to respond has elapsed, obviously. And since Bethany neglected to call my office, cell, or assistant, though these are all numbers she has and has called in the past, I was not aware of her email until this evening.
—–Original Message—–
From: Bethany McLean [mailto:bethany_mclean@fortunemail.com]
Sent: Tuesday, April 22, 2008 10:43 AM
To: Patrick Byrne
Subject: Fact checking question
Hi, Patrick -
I’m doing a short book review of a new book by a hedge fund manager named
David Einhorn. The book isn’t about you, and nor is the review. But
Einhorn does write about your August 2005 conference call because you
mentioned both him and his wife on it. You also made some statements about
his business. Einhorn says you were factually inaccurate about both his
business and his relationships. You also made some unsubstantiated and very
negative allegations about his wife. Do you want to comment on this at all?
The column is shipping off at the end of the day, so please let me know.
Thanks,
Bethany
==============================================
I’m new to this reporting gig, so I have to ask: Is that odd? Is it odd that for weeks Bethany would not be “available” to answer two simple questions such as the ones I posed her (even given the generous terms I offered regarding the timing of her reply and the use of her quote), but then would be available to describe vaguely some criticisms David Einhorn has made about me, and ask for my comment by end-of-day? Is this asymmetry of responsiveness, time, and use of quotes, odd?
What makes these people feel so threatened by a level playing field?
Given that I just sat down at my email I have evidently missed Ms. McLean’s timetable: besides, given the vagueness of her description, it is hard to know what a reasonable reply would look like (beyond noting that it is not clear if David Einhorn is saying my allegations about his wife were false, or rather, simply that he felt they were unsubstantiated and negative). But Bethany does raise interesting points with which the reader should become familiar.
David Einhorn’s wife is Cheryl Strauss-Einhorn, who is, or was, an editor at Barron’s. It’s fair to say that Cheryl Strauss Einhorn’s favored sources over the years have been the short-selling friends of her boyfriend/husband. As a couple, they illustrate the intersection of money management and compliant journalism whose description is Deep Capture’s mission.
By way of example, here is Cheryl writing on Jim Chanos (yes, this is the same Jim Chanos mention above, the one about whom Bethany wrote a book-length lotion-job, about which she is now refusing to answer two simple questions). Note also Cheryl’s mention of David Rocker. Importantly, Cheryl notes (as if it’s all kosher) that most “bear” short interest (as opposed to arbitrage) is actually naked shorting (by the way, that is the same “naked short selling” which the New York financial press has spent the last three years denying exists).
Anyway, here are excerpts from this fine example of Cheryl’s work:
===============================================================================
Short Fuses: Romping Dow leaves professional bears Bloodied; is this the sign of a market top?
By Cheryl Strauss Einhorn
1113 words
17 July 1995
Barron’s
15
English
(Copyright (c) 1995, Dow Jones & Company, Inc.) ….
….
“As the stock market charges ever higher, pros are increasingly asked if short selling continues to make sense as an investment discipline,” laments Jim Chanos, head of Kynikos Associates in New York and a dean of the short-selling community. “The frustrating thing has been trying to nail down just what has changed in the market such that it hasn’t had a 10% correction since 1990. Is it a new era? We are questioning the discipline as a whole, wondering if the short side of the market will ever work again.”
Well, it worked last year — for Chanos, at least. Even as other shortsellers were having problems, Chanos’s flagship Ursus Partners reaped a hefty 46.2% return, while the S&P 500 Index was up 1.3%. So far this year, though, Chanos has lost more than 20%, bringing his assets under management to $200 million, down from $250 million on Jan. 1. In recent weeks there have been rumors swirling that Chanos was giving up the shorting game, rumors that he denies vigorously. “It just isn’t true,” he says.
Chanos recently received another large chunk of money to manage on behalf of a wealthy New York family, and as he puts it, “It is our intention to remain fully invested.”
“Besides this one client, though, no one else is stepping up and saying, `Now is the time to give money to a short fund,’” Chanos concedes. “But if not now, when? Valuations are crazy and the public is in the market with both feet.”
Between now and the stock market’s eventual downfall, Chanos expects to see “a lot of shorts throw in the towel.” And a lot already have. By one calculation, assets in funds dedicated to shorting stocks have shrunk to somewhere between $600 million and $800 million in total, down from a peak of $3.5 billion in 1990. Put another way, it’s less than 1% of the $6 trillion that comprises today’s equity market capitalization.
….
There was also talk in the market last week that David Rocker, head of the hedge fund Rocker Partners LP, was thinking about giving up his penchant for going short. Rocker conceded that it’s been a tough year, but he says he remains net short because he believes the market is highly overvalued. With folks like Chanos and Rocker so demoralized, it’s easy to understand why short interest has slipped in such highflying stocks as Boston Chicken and Electronic Arts. Despite all the shorting in months past, these stocks just keep climbing. In fact, Boston Chicken’s short interest fell 17% between May 15 and June 15, and Electronic Arts’ fell 10% during the same period.
Nonetheless, overall short open interest on the New York Stock Exchange rose 3% in the month ended June 15, while short interest in the Nasdaq National Market was about flat. It’s important to note, though, that these numbers do not discriminate between naked short positions, taken by outright bears, and short positions that are part of arbitrage activity, such as a fund buying S&P futures while shorting the underlying stocks.
Short-sellers have been further hurt by a Nasdaq rule put into effect in September 1994 that prohibits shorting a stock on a downtick. “The brutal reality of the short-selling business is that one has to be there before the bad news hits,” says Chanos.
Still, Chanos continues to be drawn like a magnet to segments of the market he sees as most overvalued. Technology stocks, he wrote in a recent letter to investors, “increasingly look like a bubble, with many questionable companies receiving ludicrous valuations. Institutional investors are now horribly overweighted in this sector and most have the view that nothing can go wrong.”
….— Still Flying High
==========================================================================
A more remarkable example of Cheryl’s work can be found in her October, 2000 article regarding the “uptick rule”. As I discussed in my essay “Jim Cramer is a Complicated Man“, this is a rule that were implemented in the 1930’s to curtail the ability of stock manipulators to destroy companies. According to someone who worked for him, Jim Cramer flouted this while managing money at Cramer Berkowitz. The rule was repealed in the summer of 2007. Recently Cramer has been on TV explaining (correctly if insincerely) how the repeal of this rule is a disaster for our markets, allowed hedge funds to steal from hard-working Americans, and perhaps contributed to the implosion of Bear Stearns.
So it is instructive to see in retrospect how Cheryl analyzes this rule.
Cheryl’s article begins with the nice neutral title, “SEC may drop biased trading restrictions”, then goes downhill from there. I will make bold those sentences that represent the point of view of those who think that hedge funds should not be encumbered by the uptick rule. I will italicize those that represent the point of view who think the uptick rule a necessary check on the powers of stock manipulators. I will leave untouched any sentences that are simply factual, about which neither side would disagree.
=================================================================================
Clock Ticks For Short-Sale Rule- SEC may drop biased trading restrictions
By CHERYL STRAUSS EINHORN (Barrons, 10/2/00)
The SEC is considering dropping its restrictions on short sales of securities. The rules were implemented in 1938 to prevent stock manipulators from driving down share prices through short-selling. Proponents of the so-called short-sale rules have long maintained they are needed to help promote stock-market stability. But detractors consider the regulations outmoded in today’s increasingly transparent market. Besides, they point out, no precautions have ever been legislated to rein in manipulators seeking to drive up prices through similar means.
Although the SEC has put out a concept release seeking comment on the restrictions from securities-industry participants, Annette Nazareth, head of the market regulation division, acknowledges the whole subject is up for grabs. “Personally, I can find no economic basis for the short-sale rule,” she says.
Short-sellers hope to profit by selling borrowed shares that they can buy back later at lower prices. Under current restrictions, stocks can be shorted only on an uptick — that is, at a price above the preceding trade.
While the short-sale rule has remained fundamentally unchanged for the past 62 years, financial markets have changed radically since the 1930s. For openers, there has been substantial improvement in market surveillance. And as the volume, velocity and complexity of trading escalate, restrictions on short-selling “may inject unnecessary inefficiencies” into the market, Nazareth says.
John Damgard, president of the Futures Industry Association, agrees. “It makes no sense to prejudice a sale up or down,” he says.
The uptick requirement, he adds, just serves “to make people feel warm and fuzzy, because they like things to go up.”
Short-sellers, on the other hand, make other investors feel neither warm nor fuzzy. Through the years they have often been tarred as naysayers, doomsdayers and all-around troublemakers who love to gloat when the market tumbles. Yet there is little data linking their activities to price movements in the securities markets.
Dan Loeb, a New York hedge-fund manager, would like to see the uptick restriction abolished because it increases the difficulty of implementing short sales. Besides, he notes, “Shortsellers provide a service to the market by increasing liquidity and providing a cap on speculative stocks.” While the evidence in recent years suggests the last is merely wishful thinking, in fact short-sellers’ skepticism sometimes does inject a sorely lacking dose of reality into phantasmic situations.
Many institutions use short selling as a hedging tool, to protect their stock and bond portfolios from market declines. Gains in such short positions theoretically will offset any declines in the value of the firm’s portfolio.
Not all market participants want to do away with the short-sale rule, however. Major brokerages such as Merrill Lynch are conflicted about the shortsale regulations. While trading desks consider the rules excessively cumbersome, investment bankers and brokers believe the restrictions will protect their clients’ shares from potential “death spirals,” in which stocks are hammered by repeated waves of selling.
The SEC, according to its concept release, is considering eight different measures regarding short-sale regulations. In addition to outright elimination, these include suspending the short-sale rule when a stock or the market rises above a certain price threshold; providing exceptions for actively traded securities; focusing shortsale restrictions on certain corporate events, such as mergers, or trading strategies, such as options expirations; exempting hedging transactions and revising the definition of “short sale.”
The commission, which has received many complaints about short-sale abuses in the over-the-counter market, also is exploring whether to extend the rule to non-exchange-listed securities.
The short-sale issue is timely in part because Congress this week is expected to pass legislation lifting the 1982 ban on trading stock (as opposed to stockindex) futures. With trading volume in bond and currency futures down 10% this year, the futures business would welcome the opportunity to move into the equity market. Global competition, too, is propelling the issue forward. Beginning in January, the London International Financial Futures and Options Exchange plans to begin trading futures on a handful of U.S. stocks, including AT&T, Cisco Systems, Citigroup, Exxon Mobil and Merck.
Ironically, if the ban on stock futures is lifted, the short-sale rule could become moot. Not only are there no ticks in futures, but also short-sellers would not have to borrow shares to short them. Thus, they wouldn’t face having their shares “bought in,” which is what happens in a short squeeze, a form of market manipulation. Investors then would be able to sell futures on stocks without cumbersome restrictions or regulatory bias.
=========================================================================================================
That sure looks like thoughtful, unbiased analysis to me. Please keep in mind that the elimination of this “regulatory bias (sic)” in 2007 is now being brought up in US Senate hearings (as well as by Jim Cramer) as contributing to the take-down of Bear Stearns and the current market crisis in general. Also, note that Annette “Personally, I can find no economic basis for the short-sale rule” Nazareth is a lawyer, not an economist, and is one of the two SEC commissioners who stepped down within days of the publication of the Senate investigation into the whistle-blowing claims of SEC Senior Investigator Gary Aguirre, as is described by my piece on the regulatory capture of the SEC. She is also the person to whom I was referring when I wrote, “who, as we shall see later, is via marriage directly linked to the issue whose exposure is the ultimate purpose of this blog: unsettled trades in our settlement system.” But these are stories for another day.
These two articles demonstrate my point, I believe: writing articles favorable to one’s husband and his friends is a pretty clear conflict of interest. Call me madcap.
In August 2005 I mentioned Cheryl’s work in the Miscreants Ball conference call. The only objections I ever received were claims that she was no longer, in fact, employed at Barron’s. To these objections I simply sent people a link to the Barron’s masthead, which on that day did (and for all I know, still does) list her as an editor. No other inaccuracies were ever reported to me.
About six months later, Mark Mitchell from the Columbia Journalism Review began asking questions about Cheryl Strauss. According to him, her stories literally began disappearing from the Barron’s database within days. That is a good indication of how proud they were of the work of Cheryl Einhorn, née Cheryl Strauss.
In late 2005 I had lunch with Bethany. I mentioned that I had recently been shown the trading records of David Einhorn, and while Overstock was not among his positions, there were other statistical anomalies of note. It was the only time I saw her flinch.
In the summer of 2006 I had lunch with Whitney Tilson, a paymeister of convicted felon Barry Minkow (according to a deposition Barry gave). Whitney invited me to address a group of hedge funds at that year’s Value Investor Congress, which he organized. Whitney’s friend David Einhorn protested my appearance to Whitney, whereupon Whitney rescinded his invitation to me. (One year later a different conference organizer, Brett Goetschius of “The Pipes Report” gave me a similar invitation to address 800 hedge funds. I told him I could accept his invitation, but that he would just have to rescind his invitation later. He replied, “No no, in the last year the whole community has changed: at least 50-60% of hedge funds are now on your side.” I went and gave the talk and received a nice ovation: the recording of this became the body of Deep Capture: The Movie.)
Last year Bethany devoted some serious effort to trying to prove that I was collaborating in a vast secret scheme with someone. Unfortunately for her case, I had never met my supposed collaborator.
But Bethany is nothing if not persistent. Some weeks ago Bethany visited a hedge fund for an interview. According to them, she regurgitated the criticisms of one obscure analyst who was trashing a firm in which they had invested, criticisms they were immediately able to dispel, with documentation (including a recent FDA approval about which she was unaware). She got visibly irritated, then brought up my name. When they told her that they thought I was right about compliant journalists being spoon-fed stories by select hedge funds, she got very irritated, and left somewhat abruptly, they say.
If only there were a pattern….
Your humble servant,
Patrick
PS Bethany, if you know any of the specificities of David Einhorn’s allegations of error on my part, please let me know. Deep Capture is in the final stages of preparing a major piece, and would not want to repeat being “factually inaccurate about both [Einhorn’s] business and his relationships.” Since you are writing a column about his book, you probably are familiar with the substance of his claims (of course, most reporters would have actually given some clearer indication of his claims when asking for my comment on them, beyond saying he thought I was “factually inaccurate”). In any case, out of an abundance of caution, please let me know of any specifics about which you or David Einhorn believe I was in error, so that such error would not be replicated in the coming piece. We journalists have our standards, of course.
PPS To the casual reader: have any of you noticed that, for all that these journalists like to write about me and how improbable are my claims, none of them mentions DeepCapture.com? The Wall Street Journal once practiced a remarkable circumlocution in order to avoid mentioning where to find my blogs. It is almost as if…. they fear their own writing will not stand up on its own. What do you bet Bethany’s upcoming column avoids mentioning it as well?
Posted in 9) The Deep Capture Campaign |
April 23rd, 2008 at 4:00 am
Do we have to buy the book, or can we get Einhorn to call, and tell what we need to know (think)?
Thanks.
April 23rd, 2008 at 4:28 am
I love this one………”which is what happens in a short squeeze, a form of market manipulation”.
Unabated, undelivered, non-hypothecated, aggressive short attacks on a company with no uptick rule, coupled with media attacks, are a legitimate investment philososphy. Yet, getting caught where they have to cover those shorts in a squeeze is manipulation.
Is her brain ever remotely aware of what her word processor said?
April 23rd, 2008 at 5:46 am
Patrick,your turning into a very good reporter,journalism is all about,WHO,WHY,WHERE,and WHEN,those are what great reporters report,your on your way to being a great reporter.
April 23rd, 2008 at 5:50 am
I forgot one thing,to be a truely great reporter you must report exactly what you uncover,THE TRUTH,strange as it may be sometimes.
April 23rd, 2008 at 6:14 am
Nazareth’s comment : “Annette Nazareth, head of the market regulation division, acknowledges the whole subject is up for grabs. “Personally, I can find no economic basis for the short-sale rule,” she says.” ”
I suppose that she believed that the market is perfect and that those who sold short will eventually have to buy in. After all, the enforcement in the U.S. market is the “gold standard” and the market is sooooo transparent.. The idea that a shortseller could manipulate a thinly -traded stock with all this enforcement and transparency is just so tinhat. Of course, one can see what happened immediately upon the rescission of the uptick rule, with market volatility doubling and tripling long term and intraday. Volatility is what they wanted and they got it.. right? Is volatility something one would consider “economic”? Is having an unlimited sell-side bias with the options marketmaker exemption used without the restrictions of that archaic uptick rule “economic”?
Did Ms. Einhorn pick on Ms. Nazareth because she was sure she would get a quote she could use? Having a quote from a Commissioner adds weight to a story, no? What exactly did that comment mean? Was Nazareth just oblivious to why the rule was in place? It wasn’t put there for economics, it was put there to curb human nature, to help stop bear raids. It would be enlightening to see what the question was that elicited that response.
“up for grabs” means what? Does that mean that the powerful forces are about to grab? Hindsight shows that there was only one side had the juice and the rules that were put in place or rescinded favored the sellside. The grandfather clause was illegally slipped in to make it even more biased.
On the long-term, the old charts before the rescission will be a straight thin line, then a thicker line.. but all of this will be made smaller and smaller as inflation makes the price of everything go up. Why don’t the markets get reported with an inflation index included? That would show a different story.
The biggest market manipulator is the Commission. They grandfathered fails, have given out MM exemptions, even to the OMM, and then removed the uptick rule. The only gold standard at the SEC is their golden parachutes into industry.
The SEC has protected themselves by not recording the meetings where they are influenced to make their decisions. If the GAO or the new guy look at the data and comments, then look at the decisions, it won’t add up. The public makes a concerted effort to clean things up and the SEC goes against the majority of requests and what is publicly known.
Now that the Commission is overriding the penalties set by Enforcement and reducing fines, it looks like most of the problems in our market stem from the top. It gives the Commissioners juice to negotiate better parachutes.
April 23rd, 2008 at 7:05 am
Sam,
You wrote:
“I love this one………’which is what happens in a short squeeze, a form of market manipulation’.
“Unabated, undelivered, non-hypothecated, aggressive short attacks on a company with no uptick rule, coupled with media attacks, are a legitimate investment philososphy. Yet, getting caught where they have to cover those shorts in a squeeze is manipulation.
“Is her brain ever remotely aware of what her word processor said?”
Yes, it is as dopey as you make it sound. I thought about adding another paragraph pointing out such inanities, but decided it took me too far afield. Thanks for handling it.
Patrick
April 23rd, 2008 at 7:35 am
I think this Deep Capture site will be the turning point for the manipulated market, much like the O’Reilly Factor and Fox News changed the playing field of the biased and manipulated media. Once people realize that they have a source of fair reporting and a person that has stunning character and honesty overseeing this source of information they will flock to this site because unlike Fox News this site relates to their future and net worth. The more emphasis that is put on that this is a source of info that is looking out for you.. I think you have Bethany on the defensive, a place she never had to visit because of her manipulations and biased reporting. You make a hell of a journalist.
April 23rd, 2008 at 9:00 am
Your welcome, Patrick.While I am at it, I may as well handle another one.
A certain blogger, who I do not want to give any credence to so no names other than this one is a CONVICTED felon, accused you of unfairly timing the quarterly results to trap shorts. (results which his earlier blog said were really not good, then in this argument they were referred to as “above expectations”. who knows, today may bring yet another interpretation)
It struck me how upset these guys get when they don’t have the news/article before the general public. Makes for a tough trade, i guess, I mean, having to do real research.
The inmates are running the asylum.
April 23rd, 2008 at 9:01 am
Hedgies also using brokers’ brokers, feeding them standing sales orders (where a penny a few pennies a share begins to add up for the broker over a peroid of time) and scripts. Not uncomon, then, for reporter(s) to be referred to brokers’ broker who, in turn, feeds the reporter the party line or the Word in the Street.
April 23rd, 2008 at 11:25 am
My personal favorite statement is the 1995 piece by Bethany that says naked short positions are those taken by “outright bears.” So, she implies, short sellers which borrow and deliver the shares sold short are really not fully committed to their negative view of the company sold short. Only a naked shorter has the courage of conviction that the shares will go down.
In fact, the “committed bear” she describes has no greater financial risk than the legal short. Her committed bear engages in illegal manipulation to be certain the share price goes down, so actually the financial risk involved is less than the legal short accepts.
You’re right, Patrick, if only there were a pattern.
April 23rd, 2008 at 12:05 pm
n-tres-ted… I believe that the committed bears are legally shorting, but they do not have their position hedged with calls or another position. That can be called “naked”. In this case, I think the reference is not about those who short without a pre-borrow.
Shelby, some time ago, may have been calling an unhedged short position a naked short. But he didn’t seem to know enough to differentiate between legal unhedged short position and the illegal creation of counterfeit shares. Then again… maybe he is on the take.. His assistant (Casey?) is now a Commissioner. Is it odd that a person who was working for someone who was supposed to overseeing the SEC is now a regulator? Her next job should be in the industry. She would be very valuable as a lobbyist at both the Congressional and SEC level.
Strange, how everything comes back to the SEC.
April 23rd, 2008 at 12:45 pm
“While the short-sale rule has remained fundamentally unchanged for the past 62 years, financial markets have changed radically since the 1930s. For openers, there has been substantial improvement in market surveillance. And as the volume, velocity and complexity of trading escalate, restrictions on short-selling “may inject unnecessary inefficiencies” into the market, Nazareth says.”
An audit of what SEC market surveillance caught an prosecuted would prove to be an almost empty bucket. Then compare what the NASD and NYSE found in that same period. Then look at the fines and penalties, comparing that with the gain those offenders achieved. Then how many offenders went to jail in that time window? How many of those NASD, NYSE or SEC offenders lost their securities licenses?
April 23rd, 2008 at 11:02 pm
You know…
Patrick is starting to look like a sharp Lawyer, as well as a good Journalist.
Seems to me he knows most the answers before he frames the questions.
Is it any wonder that he is making some of the so called “Smartest Guys in The Room”
very nervous about what he will be asking next???????? Or knows. Or will be telling.
Patrick da PitBull…Grrrrrrr, Bite em!
April 24th, 2008 at 12:23 am
I support everything you’re doing Patrick, and doing quite well I might add, so I say this purely for sake of accuracy.
I am 100% convinced from reading her article above that her reference to “naked short selling” is not talking about FTD’s. She’s contrasting it with arbitrage which is hedged short selling (long plus short position). She’s using naked in the same sense as buying naked puts or selling naked calls, i.e., fully exposed to the short side of the trade, the definition of an “outright bear”. I don’t think this lady has any real understanding of trading but is clumsily trying to describe what she heard from others. Who knows, maybe she’s heard here husband talking about the real “naked short selling” and got confused by the term.
April 26th, 2008 at 10:06 am
Patrick et al this may be a little of topic but I think some major bad news maybe on the way because of the following. You know the saying”Rats always desert a sinking ship” I think this is the beginning of a mass exodus of some of the Big Prime Brokers. This is how it starts.
Goldman Sachs mortgage head Dan Sparks quits
Marketwatch - April 25, 2008 4:50 PM ET
Related Quotes
Symbol Last Chg
GS Trade 192.00 +3.21
MER Trade 49.64 +1.55
CS Trade 54.91 +0.85
Quotes delayed at least 15 minutes
NEW YORK (MarketWatch) — The head of Goldman Sachs Group Inc.’s mortgage department, Dan Sparks, will leave for personal reasons, a spokesperson for the investment banking giant said Friday.
Sparks will be replaced by the head of U.S. credit trading, Justin Gmelich, and the head of credit sales, Thomas Cornacchia, said a person familiar with the matter.
Sparks will stay on to oversee any transition in the department.
At Goldman Sachs’ (GS), Sparks led the mortgage department for less than two years, but had been with Goldman for almost two decades in various capacities, trading various securities.
The Wall Street Journal reported Sparks’ expected departure on its Web site Friday afternoon.
Among its investment banking rivals, Goldman was the unequivocal winner in a year that saw most rocked by bad investments in subprime mortgage-related securities.
Global banks have lost almost $300 billion on the investments overall, causing a ripple effect that put the deep freeze on credit markets and tightened lending standards for borrowers.
Goldman, however, not only avoided entangling itself in some of these subprime-related products, but it also instituted a successful short-selling philosophy that bet the market for such securities would fail. It ultimately won big on this bet.
Indeed, in its fourth quarter filings for 2007, Goldman said “significant losses in non-prime loans and securities were more than offset by gains on short mortgage positions.”
Goldman lost around $4 billion on bad write-downs related to the subprime fallout, a smaller amount than major competitors such as Merrill Lynch and Co. (MER), which lost almost $30 billion. Switzerland’s Credit Suisse (CS) lost $38 billion..
Goldman also remains one of the world’s most liquid larger banks. Wachovia Corp. research analysts estimated last week that the bank has as much as $80 billion in liquidity, up from $60 billion in the fourth quarter
April 26th, 2008 at 10:08 am
Sean,
I think it happened it started at the SEC a couple years ago, and is now getting worse.
Patrick
April 26th, 2008 at 12:58 pm
Patrick, are your warehouses the ones that when you turn on the lights, one goes on, then the next and so on and so on until all the lights are completely on? Well you have turned the switch on that to shows what is REALLY going on in Wall Street and the Criminals are leaving before Armaggedon (sp)
I now understand why you are the “Most hated man on Wall Street” and I thank you along with many others. Do you really think that Chuck Prince, Jimmy Cayne and Stan Oneal from Merrill left because they were forced out? They knew what was coming and got out of dodge in time. I also find it unusual that Billionaire Joe Lewis is keeping so quiet about losing 20% of his wealth (1.12 bill) in the Bear Stearns bear raid by JPM and the Fed.. More to come on that one soon, I hope. Billionaires don’t like to be fleeced,but unlike the rest of us they can do something about it.. The plot only thickens and I expect to see OSTK up above $30 real soon.”He who sells what is’nt his’n , must buy it back or go to prison”. Senator Bennett.
April 28th, 2008 at 6:19 pm
I think it is time to stop giving the benefit of the doubt or polite excuses to all these government regulators and politicians who blatantly make a mockery of our laws and rules for the market. It is becoming more aware every day that this is always a coincidence instead of a well thought plan that has all the ramifications considered and answered for if ever challenged or exposed. Chris Cox deserves nothing less than an indictment.
April 29th, 2008 at 1:36 pm
Dr. Byrne:
Do you think that the puff piece in yesterday’s WSJ and the positive book review from a couple days ago parroting Einhorn’s claim to be a victim of an allegedly improper SEC investigation are an effort to rehab the guy’s image in some way, or make him look like a good guy in advance of something?
Must admit, I am a bit surprised because in my experience the SEC only investigates victims of manipulative short sellers, never the shorties themselves. But maybe someone at Allied Capital has “juice.”
Or am I just paranoid?
April 30th, 2008 at 11:35 am
I see McLean’s article was published where she said Dr. Byrne “declined to respond to that charge”
I wrote a nice little letter to the folks at fortune.
April 30th, 2008 at 3:44 pm
ww2player,
Feel free to post your letter. We are all curious.
I notice Bethany did not mention DeepCapture. How totally unexpected.
Patrick
May 1st, 2008 at 1:22 pm
I am writting this in reguards to the article Short’s story written by Bethany McLean. Specificly about this part:
Einhorn also recounts how Patrick Byrne, CEO of Overstock.com (OSTK), went on a “made-up rant” about Einhorn, his wife, and his business on a conference call in August 2005. Byrne declines to address that charge. Around the same time, Byrne also filed a lawsuit against a hedge fund that was short Overstock’s shares and a research firm that had published critical analysis. That tactic has since been copied by other companies. Perhaps not surprisingly, most of the skeptics are now silent. Funny: Back in 2005, one of the SEC’s concerns was the “threat of litigation.” Turns out actual litigation is acceptable.
To me that seems to be a pretty negative statement. It seems like Mr Byrne has something to hide about his “made-up rant.” and if the reader is to do as the author suggests in her conclusion and use our judgement to evaluate the information in the article then one could come to the conclusion that Mr Byrne has something to hide.
But in Reality, he is much more transparent in his articles it seems than your editor-at-large. Patrick Byrne wrote the following on his website http://www.deepcapture.com/david-einhorn-cheryl-strauss-and-the-strange-availability-of-bethany-mclean/
However, this evening, just as I was preparing to leave work, I checked my email, and found this. Since it was sent at a quarter to 1 PM East Coast time, and Bethany gave me to “the end of the day” (which came four hours later for her), the time to respond has elapsed, obviously. And since Bethany neglected to call my office, cell, or assistant, though these are all numbers she has and has called in the past, I was not aware of her email until this evening.
—–Original Message—–
From: Bethany McLean [mailto:bethany_mclean@fortunemail.com]
Sent: Tuesday, April 22, 2008 10:43 AM
To: Patrick Byrne
Subject: Fact checking question
Hi, Patrick -
I’m doing a short book review of a new book by a hedge fund manager named
David Einhorn. The book isn’t about you, and nor is the review. But
Einhorn does write about your August 2005 conference call because you
mentioned both him and his wife on it. You also made some statements about
his business. Einhorn says you were factually inaccurate about both his
business and his relationships. You also made some unsubstantiated and very
negative allegations about his wife. Do you want to comment on this at all?
The column is shipping off at the end of the day, so please let me know.
Thanks,
Bethany
I’m new to this reporting gig, so I have to ask: Is that odd? Is it odd that for weeks Bethany would not be “available” to answer two simple questions such as the ones I posed her (even given the generous terms I offered regarding the timing of her reply and the use of her quote), but then would be available to describe vaguely some criticisms David Einhorn has made about me, and ask for my comment by end-of-day? Is this asymmetry of responsiveness, time, and use of quotes, odd?
What makes these people feel so threatened by a level playing field?
Given that I just sat down at my email I have evidently missed Ms. McLean’s timetable: besides, given the vagueness of her description, it is hard to know what a reasonable reply would look like (beyond noting that it is not clear if David Einhorn is saying my allegations about his wife were false, or rather, simply that he felt they were unsubstantiated and negative). But Bethany does raise interesting points with which the reader should become familiar.
David Einhorn’s wife is Cheryl Strauss-Einhorn, who is, or was, an editor at Barron’s. It’s fair to say that Cheryl Strauss Einhorn’s favored sources over the years have been the short-selling friends of her boyfriend/husband. As a couple, they illustrate the intersection of money management and compliant journalism whose description is Deep Capture’s mission.
By way of example, here is Cheryl writing on Jim Chanos (yes, this is the same Jim Chanos mention above, the one about whom Bethany wrote a book-length lotion-job, about which she is now refusing to answer two simple questions). Note also Cheryl’s mention of David Rocker. Importantly, Cheryl notes (as if it’s all kosher) that most “bear” short interest (as opposed to arbitrage) is actually naked shorting (by the way, that is the same “naked short selling” which the New York financial press has spent the last three years denying exists).
Anyway, here are excerpts from this fine example of Cheryl’s work:
etc, etc.
I would surmise that just about all of your readers wouldn’t know about Mr. Byrnes website or his previous dealings with McLean. It seems they have a history.
PS Bethany, if you know any of the specificities of David Einhorn’s allegations of error on my part, please let me know. Deep Capture is in the final stages of preparing a major piece, and would not want to repeat being “factually inaccurate about both [Einhorn’s] business and his relationships.” Since you are writing a column about his book, you probably are familiar with the substance of his claims (of course, most reporters would have actually given some clearer indication of his claims when asking for my comment on them, beyond saying he thought I was “factually inaccurate”). In any case, out of an abundance of caution, please let me know of any specifics about which you or David Einhorn believe I was in error, so that such error would not be replicated in the coming piece. We journalists have our standards, of course.
PPS To the casual reader: have any of you noticed that, for all that these journalists like to write about me and how improbable are my claims, none of them mentions DeepCapture.com? The Wall Street Journal once practiced a remarkable circumlocution in order to avoid mentioning where to find my blogs. It is almost as if…. they fear their own writing will not stand up on its own. What do you bet Bethany’s upcoming column avoids mentioning it as well?
I was wondering if you would get some of your reporters together and at least watch the movie on the http://www.deepcapture.com/ site. Maybe it might help them recognize when someone is trying to use them and the reasons why. Then they hopefully will start asking those folks some questions and printing those stories. Instead of just doing those folks bidding.. Which would make for the better article?
As a reader of the Short’s story article, and not following the advice in the conclusion( instead of lashing out at the author). In my judgement, the information in the whole article is suspect because of McLean giving Byrne less than a day to respond to her question and then writting that he declined to address that charge. Instead of saying that he couldn’t be reached it appears that McLean has a motive for wanting to make Byrne look bad. WHY? Could it be that Byrne has hit a nerve with the information in his articles? Articles in which he has given McLean weeks to answer his question and that has still gone unanswered.. Again WHY? Isn’t that one of the questions reporters are supposed to ask?
I would appreciate a response.
Thank You
May 3rd, 2008 at 11:11 am
please address some of your previous comments involving David Einhorn; which he disputes in his new book - specifically:
1. What “personal relationship” between Jules Kroll and David Einhorn were you referring to on the 8/11/05 conference call? In his book, David says “Though we retained the firm to investigate Allied, I have never met or spoken with Jules Kroll, the founder”.
2. Have you ever been in Greenlight? You said this “Greenlight, I’ve been in Greenlight…..” during the same conference call. In his book, David says the following “Byrne had never been “in” Greenlight. I didn’t find an “arb” in college or trade it from my dorm room. This does sound like the story of Ken Griffin, founder of Citadel, who did just that at Harvard”.
3. Who is “they” in the following comment you made on the same conference call; and who’s version is accurate? - you said “David Einhorn is the guy who is, of course, obsessive about his [security] concerns. They literally told me in Greenlight how he’s got six cell phones and swaps SIM cards and takes a different route to work. And when I was in Greenlight, they were explaining how you can’t even, I couldn’t even go into this part of the office and see him”.
David’s response (again, from his book): “Again, Byrne has never been “in” Greenlight, nor has anyone at the firm met him. Obviously, there is no secret part of Greenlight where I hide. I own only one cell phone and didn’t know what a SIM card was until I asked someone after the conference call…”
Thanks - Glenn
May 8th, 2008 at 2:08 pm
Patrick,
This is a comment about the complete contents so far on DeepCapture.com and after having spent the last week ’til wee hours in the morning going through everything, including all the links.
I retired a couple of years ago. I wanted to “give back” to society by getting involved with Wikipedia… Doing research on Wikipedia and what it was all bout I came across many “critical sites” about how Wikipedia operates… One of the most interesting site was Judd’s AntiSocialMedia (ASM): it blew me away! I continued and I realized that ASM had been inactive for a while… Humm… “Perhaps the ‘Bad Guys’ finally did him in…”, I thought. Wow.. So, I continued looking around some more and finally came across DeepCapture. And I’m glad to hear that Judd is alive and well, and continuing to kick butts just as effectively as he always did on DeepCapture.com. Say hello to Judd for me: ASM is excellent!
I have not been much of an investor in my life as I am one of those Joe6Pack. It is only towards the end of my career that I was able to put some money away for my “old days”, and it is already taking a dive… Thus, in addition to the company Pension Fund, all this could evaporate Real Soon Now…
All I can say, is “kudos” to you. You have impressed me, and many others on the Net I might add, with your unrelenting tenacity in fighting back these scoundrels and their shenanigans… The tide is finally slowly turning and what you have been saying for so long is starting to be accepted by the very same people that were against you. We’re starting to see those same people addressing this very significant issue. Although I’m up here in Canada, it affects us all the same, if not worse, as our NSS rules as ever worse than on Wall Street…
You also did something that is quite significant for us up in the great white north, at least for me: we have recently seen some “dubious” activities (no need to elaborate as this is not the forum…) that may have biased our judgment against Americans overall… However, to see someone like you stand up and fight and spread the word about it and not being afraid of doing so, brings back a level of confidence for our cousins south of the 49th… Sort of a rallying call, isn’t it!
Keep it up Patrick, I have learned a lot from you and you have my deepest gratitude and respect for all your efforts.
In support of your campaign, I have added you DeepCapture link to my new Blog.
To end a more humourous note, as for further support, please let me know how I could be of any help to you and your campaign as OverStock.ca does not exists yet, and you don’t ship to Canada either! To paraphrase the ever so precious comment about the “return of the mattress covers”, what can you do about that?
Regards and many thanks.
Michel Coutu
PS: If I was a movie producer, I’d sure go after you for the movie rights…
May 13th, 2008 at 7:37 pm
DeepCapture ought to be required study at every school of ‘higher’ learning presumptuously awarding MBA’s.
Ought, is the joke word. Education is a high priority subject for controlling hands who prefer operating as in my namesake, to insure the ‘voters’ remain compliant to the agenda. The agenda rarely revealed anywhere but here.
Since democracy depends on an educated populace, the deranged remain ‘interested’ to see that the milk of education be watered down.
Maybe a good film maker and you should have a conversation. Drama goes down easier with the addle-brained general population.
I have to laugh, I saw an ad for Golden Gate University today. Pictured was a serious looking blonde woman under the headline, The Best Thing About The Old-Boy Network: avoiding it entirely.
Of course I thought that you, Patrick, must have designed the ad! Maybe, though, it indicates changing perceptions. I hope for true democracy, but before that an education system to feed it, and the vibrant markets that come out of it. Arrangements we are sorely short of in America.
Accolades to all you do!!