“Really? That’s beautiful. I love it!” He replied with glee.

Joseph E. Floren, Esq., is a lawyer at Morgan Lewis, the white shoe law firm defending Goldman Sachs against Overstock’s prime broker litigation, and tonight I celebrate the mistake Joe Floren made yesterday.  In filing Goldman’s response to Overstock’s motion to vacate the trial court judge’s decision to stay his own decision to unseal various documents related to this litigation (in more straightforward English: the trial court judge decided to unseal some documents while also deciding to delay acting on his decision, but we objected to this delay, and Goldman responded to our objections), Joe Floren screwed the pooch. He filed something containing an attachment he forgot to redact. That attachment is a previous filing of Overstock’s, a filing which contains but a sample of the shenanigans at Goldman and Merrill that has turned up over the course of five years and millions of pages of discovery, but which filing we had redacted when we made it (as good litigants do).

Fortunately for the cause of all that is good and right about America, Joe Floren’s goof came to the attention of a diligent 1st amendment attorney in California named Karl Olson, who represents the Economist, Bloomberg, the New York Times and Wener Publications (owners of Rolling Stone magazine) in their efforts to obtain the documents.  Karl Olson provided Joe Floren’s sloppy filing to his clients. Tonight these stories appeared:

Rolling Stone: Accidentally Released – and Incredibly Embarrassing – Documents Show How Goldman et al Engaged in ‘Naked Short Selling’ 

 Bloomberg: Goldman, Merrill E-Mails Show Naked Shorting, Filing Says

Economist: An enlightening mistake 

Really, Joe Floren?  That’s beautiful.  I love it.

I could be wrong, but I do not believe anything like this had ever happened before. Never in history had a court outside the United States blacked out (censored) an entire American media website, much less at the behest of one man who did not like what was written in only one of hundreds of articles on many subjects that were  published on that website in the exercise of First Amendment rights.

Fortunately, on December, 13, 2011, the court heard my application opposing a continuation of the injunction and considered my detailed affidavits defending this story. Finding in my favor, and refusing to extend the injunction, the court noted that the October 19 injunction was based on an incorrect legal test for pre-trial injunctions which had been suggested to the judge by lawyers for Mr. Nazerali at the earlier one-sided hearing. 

Applying the correct legal test for injunctions, which my lawyer described in his submissions on December 13, the court ruled that our freedom of speech had to be restored, at least until Mr. Nazerali’s claims were tested at a trial.

Since then, I have taken a few months to investigate further, and we are now publishing an updated version of this book-length story, chapter by chapter.

Even if you had followed DeepCapture prior to the interruption, I encourage you to read this updated version of the story because it goes quite a bit deeper, and contains additional evidence and information that supports my thesis. In addition, I have clarified and refined my argument, because some people had slightly misunderstood it, while others (such as Mr. Nazerali and the former journalist Gary Weiss, who features prominently in this story) had misrepresented what I had written.

* * * * * * * * *

The Miscreants’ Global Bust-Out

Chapter One

Was the United States Attacked by “Financial Terrorists”?

I did not think that Zuhair Karam was violent, but I telephoned him because I thought his biography was interesting. For example, it was interesting that soon after making a home in the United States, Zuhair Karam obtained finance to publish a semi-famous work of jihadist propaganda, and soon thereafter, became a proprietary day trader of equities and derivatives at a small, unregistered brokerage in Chicago.

Many of the other people who operated through this brokerage also had interesting biographies. One of them was a trader who had ties to Russian organized crime, and whose business partner was  killed in a brutal gangland-style murder in New Jersey. Also trading through this little unregistered brokerage in Chicago was an account controlled by the top henchmen of a Russian oligarch and members of an organized crime syndicate that has been accused by U.S. officials of having ties to both Al Qaeda and the Russian government’s intelligence services.

In addition there was (to name just one more) a trader whose family members worked for the Revolutionary Guard in Iran. One of this trader’s close relatives (based outside Iran) had employed an undercover Iranian government agent who was implicated in a terrorist attack and who was caught shipping sophisticated weaponry to Hezbollah, the jihadist outfit that takes its directions from the Iranian regime.

Zuhair’s little brokerage, meanwhile, maintained partnerships with a number of other brokerages, all of which were similarly interesting. Some of these brokerages were operated by people who had previously been principals at brokerages controlled by La Cosa Nostra, Russian organized crime syndicates, and (in most cases) both. Some of these brokerages had important ties to a man who is now (according to credible reports from Moscow) running financial crime operations for the Russian intelligence services.

One of these brokerages was a parternship with a Moscow bank that is (according to U.S. offficials) controlled by the Russian intelligence services. Another brokerage in the network had a partnership with an outfit controlled by some of the incorporators of a U.S.-based Iranian government company that was (in 2009) not only investigated for transacting manipulative trading, but also accused by the Department of Justice of conducting espionage against the United States and funding Iran’s nuclear weapons program.

Meanwhile, some owners and/or top employees of brokerages in this network included: a fellow who once worked for a man who commands a private army in Lebanon; another guy who had worked for a trader who orchestrated an ill-fated scheme to topple the government of Afghanistan in league with a heroin-smuggling warlord who worked closely with Iran; and an Iranian trader whose family was, in the 1990s, flying cargo planes filled with gem stones from a remote Illinois runway, in partnership with a money launderer who ran an organization that had hosted the leadership of Hezbollah.

Yet another of the brokerages in the network was connected to a Middle Eastern financial institution that has been accused of funding terorrism, and which financed a bank in Sudan that was founded by Osama bin Laden himself. Meanwhile, not just Zuhair Karam, but a number of traders who either controlled brokerages in this network or traded through the brokerages had business relationships with Islamic organizations that have been listed in a famous Muslim Brotherhood document as being organizations designated to lead a “Grand Jihad in eliminating and detroying the Western civilization from within.” 

Perhaps just as important, the clients of these brokerages included some of America’s most notoriously destructive financial operators, many of whom themselves have business relationships with organized crime and, perhaps not coicidentally, also have business relationships with financiers of terrorism.  

But what is most noteworthy about these brokerages is that they all cleared their trades through an outfit in Texas that was relatively obscure until late 2007, when it suddenly became (by volume) the largest brokerage on the planet. Moreover, data strongly suggests that most of this new volume was short selling targeting critical American companies, including the the nation’s largest financial institutions.

Indeed, the data suggests that this one previously obscure outfit in Texas (an outfit whose principal clientele was the network of brokerages that I have just briefly described, and which this story will describe in far more detail) transacted more short selling targeting major American financial institutions than the combined short selling (targeting financial institutions) transacted by the broker-dealers of Wall Street titans Goldman Sachs, Citigroup, and Merrill Lynch.

Moreover, this barrage of short selling continued and intensified through September, 2008, when the Securities and Exchange Commission was moved to issue an “Emergency Order,” stating that manipulative short selling had likely contributed to the collapse of major financial insitutions (e.g. Bear Stearns, Lehman Brothers) and was threatening to undermine the stablity of the American financial system.

As for Zuhair Karam – well, I didn’t know enough about him, but I knew a little. For example, I knew that he was born in Lebanon, and had recently spent some time overseas, where he came to be attached to an Islamic cleric named Sadathullah Khan, who tells the media that he is “moderate” – a term that, of course, has different connotations depending on your perspective.

Some people say that Sadathullah Khan is an extremist, partly because he has had ties to an outfit called the Supreme Council of Global Jihad, which espouses violence. Sadathullah Khan, meanwhile, has also worked closely on projects (an Islamic media project, for example) with a cleric named Zakir Naik, who has preached that “Every Muslim should be a terrorist.”

When he talks to the Western press, Zakir Naik says he is not fond of Al Qaeda, but in a video made for his followers, he said, “If Osama bin Laden is fighting the enemies of Islam, I am for him…If he is terrorizing America the terrorist, the biggest terrorist, I am with him.” Imam Naik also served as a mentor to Najibullah Zazi, an Al Qaeda operative who was arrested in 2009 shortly before carrying out a plan to plant explosives in the New York City subway system.  

Imam Naik was banned from entering the United Kingdom after he was deemed to be immoderate, but the United States still grants him visas (he hasn’t been charged with involvement with any terrorist plot) and perhaps he will one day return to Chicago, where he once gave what he calls “my most famous speech” at a gathering organized by an outfit that has worked closely with the Bridgeview Mosque, a house of worship in Bridgeview, a middle-class neighborhood on Chicago’s south side.

Zuhair Karam, in addition to his work as a financial operator, has been fairly prominent among the small band of jihadis who congregate at the Bridgeview Mosque, where Zuhair’s relative has helped organize the mosque’s fund raising for groups such as Hamas and Palestinian Islamic Jihad.

The Bridgeview Mosque, it should be said, serves thousands of ordinary people, most of whom probably harbor no politics other than a desire for peace. Many jihadis, meanwhile, are not themselves violent people, and merely support the political ideology of jihad. But there was a time when the Bridgeview Mosque’s imam regularly gave fiery sermons urging jihadi freedom fighters to take up arms.

The sermons were toned down after the FBI began investigating, but it is assumed by some prominent terrorism experts that the Bridgeview Mosque’s top officials (and Zuhair’s family) are members of the Muslim Brotherhood. One reason to believe this is that the mosque is controlled by the Islamic Society of North America (ISNA), which government investigators have identified as being a Muslim Brotherhood front.

The Muslim Brotherhood is a diverse organization, and at least publicly disavows violence. It is probably wise to engage the Brotherhood, rather than vilify and incite it. Nonetheless, it should be understood that the Brotherhood is united in its opposition to the foundational principals of Western civilization and is making efforts to undermine the United States.

It is also true that many Muslim Brotherhood figures in the West (including some officials at ISNA) have been accused of providing material support (including money, personnel, and sometimes weapons) to violent terrorist groups, including Al Qaeda. 

The Bridgeview Mosque itself has not been accused of directly supporting Al Qaeda, but there is no question that it has funded other violent jihadist groups. For example, according to the Chicago Tribune and others, the mosque was one of the most important funders of Palestinian Islamic Jihad, an outfit that was spawned by the Muslim Brotherhood and also takes directions from the regime in Iran.

Zuhair Karam and his relatives are close family friends of Sami al-Arian, who was not only a founding director of ISNA, but also a U.S.-based leader of Palestinian Islamic Jihad, indicted in 2003 for funding terrorist attacks in Palestine. As Rachel Ehrenfeld, now director of the Economic Warfare Institute, first reported, FBI investigators suspected (though never proved) that Sami al-Arian provided support to the Al Qaeda hijackers who carried out the 9-11 attacks on the World Trade Center and the Pentagon.

The Bridgeview Mosque and many traders affiliated with brokerages discussed above were also among the principal supporters of the Holy Land Foundation, which was indicted on charges of financing terrorism in 2007 after prosecutors demonstrated that it was a principal U.S. front for Hamas, another Muslim Brotherhood creation that receives support from Iran. The mosque’s directors, and one of Zuhair’s family members, meanwhile, help administer investment funds worth billions of dollars controlled by the North American Islamic Trust, an investment bank (and a unit of ISNA) that has been tied to the Muslim Brotherhood and was named as an unindicted co-conspirator in the government’s case against the Holy Land Foundation.

In addition, some Bridgeview Mosque congregants (a number of them close family friends of Zuhair Karam, and some of them also traders who operated through the same network of brokerages) were involved with a Chicago-based charity called The Benevolence International Foundation, which was actually an Al Qaeda front, founded by Osama bin Laden’s brother-in-law. According to federal prosecutors, Benevolence was “involved in terrorist activities” and had contacts with “persons trying to obtain chemical and nuclear weapons on behalf of Al Qaeda.”

More to the point of this story, Mark Flessner, a former U.S. prosecutor who was at the front lines of the government’s “war on terrorism”, has said that the Bridgeview Mosque was, at least until it came under closer government scrutiny, a “gold mine of information about terrorist finance.” 

So, obviously, I wanted to know more about the Bridgeview Mosque, and I wanted to know more about Zuhair’s brokerage and other brokerages in its network. Zuhair, as I mentioned, was far from the only jihadi ideologue attached to these brokerages, though I do not mean to single out jihadis. It was perhaps more important that this network of brokerage had highly significant ties to organized crime syndicates. Some of those syndicates (especially the ones emanating from Russia) had become politicized and were hostile to the United States. 

When I called Zuhair for the first time in 2010, our conversation did not go well. Zuhair began by demanding to know how I had come to possess his telephone number. I told him, honestly, that I had found his phone number in the White Pages, but he refused to believe me. When I explained that I had some questions about the little brokerage where he had worked, he insisted that he didn’t know anything about the brokerage, and he said that he did not know anyone else who worked there.

After some additional prodding, Zuhair said, “Look, man, I’m just one of the little guys.” I said, “Yes, I know, but let’s meet anyway, I can tell you more about this investigation.”

Zuhair seemed already to know about some investigation. He said, “Shit, man, I thought this was over.” Which seemed strange to me because the only investigation I knew about was the investigation that I was conducting. But I wanted to be helpful, so I said, “Let’s meet, I can tell you more about it.”

Zuhair paused. He seemed to be figuring it all out. Finally, he said, “You’re not a journalist, that’s for sure, man, tell me who you are…Are you an Arabian?” No, I am not an “Arabian” – that’s what I told Zuhair Karam. I said there’s this investigation, I have information.

I did not have any negative feelings about Zuhair or the Bridgeview Mosque. I told him that I had some sympathy for some of the opinions expressed in the jihadist propaganda that he had produced. (The propaganda was focused on the situation in Palestine).

I had also developed a fascination with Islam, and considered it to be an attractive religion. I told Zuhair this, and I told him I would like to come down to the mosque to meet him. I said I’d also like to meet his father, Haaz Karam, who helped raise money for Islamic Jihad.

Zuhair said, “He’s not my father.” So I said, “Sorry, your relative.” And Zuhair said, “Yeah, so…what is this? Man, the FBI — you say you’re a journalist, why do you know about this investigation? That just isn’t right…the FBI…man, I’m telling you, I’m just one of the little guys…the FBI…the FBI can come, let them come, they know where I live, let them come, let them try – see if I care.”

* * * * * * * *

In his 2010 report to Congress, Admiral Dennis Blair, who was then the U.S. director of national intelligence, outlined one of the biggest threats to America’s economic well-being and national security. He began by noting that transnational organized crime syndicates are closely intertwined with the intelligence services and governments of some countries (such as Russia) that are considered to be adversaries of the United States. He then stated that “the nexus between international criminal organizations and terrorist groups [including, but not limited to Al Qaeda]…presents continuing dangers.”

In the same breath, the national intelligence director warned that transnational organized crime syndicates are “undermining free markets,” and “almost certainly will increase [their] penetration of legitimate financial and commercial markets, threatening U.S. economic interests and raising the risk of significant damage to the global financial system.”

We should understand the implications of what the national intelligence director was saying. He was saying that organized crime syndicates (and, by inference, the jihadist groups and foreign governments that maintain ties to organized crime syndicates) have the capability to disrupt the financial markets and harm the American economy. The only question was: had they already done so?

On August 12, 2011, President Barack Obama answered that question in dramatic fashion. The president reiterated that there was a clear “nexus” between transnational organized crime syndicates, multiple terrorist groups, international drug cartels, and some foreign governments and intelligence services that are hostile to the United States. 

The president also reiterated that transnational organized crime syndicates (and, by inference, perhaps others in the “nexus”) had not only “penetrated” the “legitimate” financial industry (i.e. Wall Street), but had already “undermined markets” to such an extent that they now posed an imminent “threat to the stability of the global financial system.”  

The president did not just reaffirm this assessment. He declared it to be a “National Emergency.”

The president did not precisely define what he meant by “undermining markets,” but many in the national security community believe that one of the bigger threats “to the stability of the global financial system” is manipulative short selling and what I refer to as the “bust outs” of publicly listed American companies, the wider markets, and the economy itself.

* * * * * * * * *

The term “bust-out” is one that I borrowed from organized crime. In the old days, mobsters would take over, say, the corner bar, load it up with debt, loot the cash, declare bankruptcy, and force the bar out of business. In the modern world of high finance, “bust outs” come in many permutations, but most of them follow the same routine of leverage, loot, and destroy.

Some “bust outs” see traders financing a company (often legitimate companies; in other cases companies that are frauds to begin with) and gaining a degree of control over the company’s stock price. The traders then “pump” the stock for a period of time, but ultimately the company is looted, the stock is “dumped,” and affiliated short sellers attack the company, sending its stock into a death spiral.

In a typical “pump and dump,” the manipulative short selling accompanying the “dump” ensures that the stock hits zero before the company has a chance to raise capital from more legitimate sources, and before shareholders have an opportunity to get out of the stock and cut their losses. 

In other cases, individuals or firms will provide a legitimate company with toxic finance (often referred to as “death spiral” finance), which, for reasons explained in this story, immediately causes the company’s stock price to lose value. The financiers and affiliated traders then attack the company with manipulative short selling, sending the stock into a death spiral, and making it impossible for the company to raise new capital from more legitimate sources.

When the company is forced into bankruptcy, the people who provided the finance (often the same people as the short sellers) receive what is left of its assets, and they pocket short selling profits in excess of the cost of the initial toxic finance.

In still other cases, miscreants simply invest in a company’s shares or bonds, and gain a degree of control over the company’s management, either by demanding seats on the board or by exerting influence as major shareholders or creditors. Often the financial operators will then work with corrupt insiders to loot the company or engage in more complex schemes to saddle a company with toxic assets (purchased from the  miscreants themselves or from their associates).

Ultimately, the goal is to loot and weaken the company.

If the company is publicly listed (private companies are also “busted out,” and this final step does not, of course, apply to them), the miscreants or their associates eventually attack the company with manipulative short selling. For complex reasons (to be outlined in this story), owning a company’s bonds (especially convertible bonds, sometimes known as “toxic converts”) makes it easier for the bond owners and their associates to engage in manipulative short selling.

There is also a long history of miscreants not just investing in a company, but taking the company over entirely, and looting its assets. Once sufficiently looted, the company is, as usual, attacked with manipulative short selling. Before the company’s board of directors or regulators have an opportunity to oust the miscreants, the company’s stock goes into a death spiral, making it impossible for the company to raise new capital, and forcing a bankruptcy.

In such cases, the tendency is to say, “Well, it was bad company, so its bankruptcy was inevitable.” But often, the companies are good companies until they are “busted out,” and often even troubled companies would be salvageable if it were not for the rapid death spirals of their stock prices, which do not allow time for restructuring or the ousting of the miscreants who gained control over the company.

There are also plenty of cases in which financial operators do not gain any control over their target company, but merely attack it with a steady barrage of manipulative short selling, meanwhile deploying any number of other tactics (for example, spreading false rumours about the company’s health, and manipulating credit default swap prices, which are an important measures of a company’s well-being) to drive down the company’s stock price.

* * * *  * * * *

Financial operators have, in fact, been “busting out” major American companies since at least the 1980s, when numerous savings and loan banks were “busted out,” fuelling what came to be known as the “savings and loan crisis,” which delivered a devastating blow to the financial system. Many of the perpetrators of those “bust-outs” (see, for example, the book “Inside Job,” which is the seminal work on the savings and loan crisis) had ties to organized crime. 

Sometimes organized crime syndicates perpetrate “bust outs” for the purposes of laundering money. The dirty cash goes into companies in the form of toxic finance, and comes out clean in the form of short selling profits. In cases where short sales are not “covered” (i.e. in many cases involving manipulative short selling, and in all cases where the target stock hits zero), the short selling profits do not even have to be reported to tax authorities.

Former FBI investigators and experts who study financial crime say that market manipulation and “bust outs” of publicly listed companies is one of the more important money laundering techniques deployed by the world’s leading organized crime syndicates and other miscreants. Indeed, many of history’s biggest “money laundering” scandals were, in fact, market manipulation and “bust out” scandals.

In 1999, for example, a famous scandal saw the Russian government and organized crime syndicates with ties to the Russian intelligence services laundering upwards of $7 billion through the Bank of New York. As later chapters of this story will demonstrate in great detail, this money laundering was (according to a careful reading of indictments, statements of government investigators, and other information) the tail end of a large scale market manipulation (“bust out”) network that destroyed countless U.S. public companies.

Some of the destroyed companies were pure frauds that were “pumped and dumped.” But many of the companies had been going concerns until they were targeted by people who had ties to Russian organized crime, and who gained control over the companies’ stock prices. Once in control, they “pumped” and then “dumped” the stocks while engaging in manipulative short selling that sent the stocks into death spirals.

Today, Russian organized crime continues to “bust out” public companies with a vengeance. While this activity has gone largely unreported by the media, a notable exception is Forbes magazine’s Nathan Vardi, who has written multiple stories (see, for example, his story, “Sewer PIPEs”) that note the extensive involvement of financial operators with ties to Russian organized crime syndicates in one form of “death spiral” finance (so-called “PIPEs”) and the manipulative short selling that usually comes with such finance.

As we will see, there is no question that Russian organized crime syndicates have (as White House national security staffers maintain) ties to the Russian intelligence services. It is, moreover, my contention that when “bust-outs” are perpetrated by organized crime syndicates with ties to the Russian intelligence services, we should consider whether they are motivated, at least to some extent, by politics, and specifically by Russia’s disdain for the United States and the prevailing economic order.

But, of course, Russian organized crime is not the only concern. As we know, the president and his national security staff say that there is a “nexus” between transnational organized crime syndicates (including, but not limited to those emanating from Russia) and other potentially hostile constituencies, including jihadist organizations and foreign governments besides Russia.

Therefore we must ask whether sophisticated financiers with ties to jihadist organizations or hostile foreign governments are among those who have “undermined markets,” thereby inspiring the president to declare a “National Emergency.”

It is not often that a president issues a formal declaration of a “National Emergency,” and it is even less often that a president suggests that he is doing so because transnational organized crime syndicates (and perhaps others in the nexus, including terrorist organizations and hostile foreign governments) have “penetrated” the “legitimate” financial sector (i.e. parts of Wall Street) and are now posing a “threat to the stability of the global financial system.”

One would think that this would be front page news. But, amazingly, the president’s declaration of a “National Emergency” received almost no coverage at all from the major media outlets. One rare exception was the highly respected Economist magazine (based in Britain), which noted the “National Emergency” (and also noted the dearth of U.S. media coverage of the emergency) in a December 2011 article (titled, “Financial Terrorism”) that noted the possibility that the financial system might already have been attacked by hostile entitities.

While America’s media and financial regulators seem largely uninterested in this issue, some in the national security community are devoting a lot of attention to it. A 110 page report commissioned by the Department of Defense Irregular Warfare Support Program even goes so far as to state that there is high likelihood that the economic cataclysm of 2008 was significantly worsened by politically motivated “financial terrorists intent on wiping out the American financial system.”

The report (a copy of which can be found at DeepCapture.com) makes reference to the massive volumes of short selling that went through the previously obscure brokerage that I discussed at the outset of this story. While the report for the Department of Defense does not identify the brokerage by name, I will do so in later chapters of this series, and I will also name its client brokerages (i.e. the network that I briefly described above). However, to understand the significance of these brokerages, we must first cover some other ground.  

* * * * * * * *

The report for the Department of Defense states with good reason that the weapons most likely to be used by financial terrorists are so-called “naked” short selling and other forms of short-side market manipulation.

Before I continue, let me stress that short selling is a perfectly legitimate practice. It involves traders borrowing shares and then selling them, hoping the price will drop so that they can repurchase the shares at a discount, return them to the lender, and pocket the difference.

In “naked” short sales, however, traders do not borrow or purchase stock before they sell it. They simply sell what they do not have – phantom stock. You probably can  imagine how easy it is for miscreants to suppress the price of a security if they are able to swamp a market with artificial supply.

Of course, by definition, if people are selling a phony supply of a security, then they cannot be delivering what they are selling. Regulators and Wall Street folks call this “failure to deliver.”

There are, in fact, a variety of methods that can be deployed to create “failures to deliver.” There are technical differences among the methods, but all share this one basic idea: generate “failures to deliver” that act as phony supply to drive down a security’s price. Because “naked short selling” is the most famous of these methods, and because the differences among it and the other methods are generally so technical as to interest only experts, I intend to refer to this whole class of methods as “naked short selling”, or even more generally, “market manipulation.”

As the report commissioned by the Defense Department correctly points out, foreign governments, terrorist groups, or organized crime syndicates wishing to manipulate the markets would not have to do the dirty work themselves. They would need only to invest in one among the multitude of American hedge funds  that have ties to organized crime and have demonstrated that they are willing to deploy financial weapons of mass destruction for profit.

Under one scenario described in the Defense Department report, “a terror group could direct investments to a feeder hedge fund. The feeder fund would locate a Cayman Islands based hedge fund on their behalf that was predisposed to sell short financial shares. With sufficient new money, the hedge fund would expand its short selling activity (naked and traditional) and trade through dark pools or with sponsored access. At the same time, the same terror group might invest heavily in [credit default swaps] of the targeted short sales…”

Experts painted similar scenarios in testimony before a September 2010 informal meeting of the House Committee on Homeland Security. These experts were unanimous in their opinion that a hostile foreign entity could crash the U.S. financial markets. And to do so, it would most likely engage in manipulative trading through one of several brokerages that offer platforms – such as dark pools or so-called “sponsored access” – that enable miscreant financial operators to trade in anonymity.

Partly because such trading platforms exist, and for several other reasons (see Patrick Byrne’s DeepCapture story, “A Peace Sign to Wall Street”), SEC data reflects only a fraction of the naked short selling that occurs in the markets. But even the SEC’s partial data show that an average of 2 billion shares “failed to deliver” nearly every day in the months and weeks leading up to the 2008 market meltdown.  Those shares, as I have explained, “failed to deliver” because they were phantom shares – artificial volume that drove down stock prices.

The SEC’s incomplete data also shows that more than 13 million shares of Bear Stearns sold short during the week before that bank’s demise in March 2008 failed to deliver. Soon after Bear Stearns collapsed, the CEOs of Morgan Stanley, Merrill Lynch, Lehman Brothers, and other major financial institutions began complaining to the SEC that naked short sellers had caused the demise of Bear Stearns and were now targeting their own banks.

We need to take seriously the complaints of the Wall Street CEOs because they were intimately familiar with the crime of naked short selling. Many of their own brokerages had engaged in it. When people are raising hell about a crime that has previously lined their pockets, it is reasonable to assume that they know what they are talking about.

Moreover, the Wall Street CEOs continued to demand that the SEC take action against the market manipulators even after their high-paying hedge fund clients (some of whom might themselves have been naked short sellers, others of whom were merely inclined to object to stronger regulation of any sort) asked the CEOs to stop their campaign.

When the CEOs continued to complain about the naked short selling, many of their big hedge fund clients began to pull their business in protest. It goes without saying that Wall Street CEOs do not sacrifice large chunks of their profits to speak out against crimes that do not exist.

On July 15, 2008, the SEC responded to the Wall Street CEOs by issuing an “Emergency Order” that temporarily protected 19 of the nation’s largest financial institutions (the biggest banks plus Fannie Mae and Freddie Mac) from naked short selling. The stock prices of these financial institutions immediately soared in value, and it looked like a major crisis had perhaps been averted.

Amazingly, though, the SEC lifted its “Emergency Order” just weeks later, on August 12. The next day, the naked short sellers resumed their attacks. The SEC’s own data (which, again, incompletely reflects the full magnitude of the problem) shows failures to deliver rising steadily from August 12 onwards, and these failures to deliver correspond directly to the downward spiral of stock prices.

According to the SEC’s partial data, Lehman Brothers saw an astounding 30 million of its shares fail to deliver during the week before the bank collapsed on September 15, 2008.

And make no mistake: Lehman might well have survived if it were not for the naked short selling and other attacks (such as the seemingly deliberate insertion of damaging false rumors into the marketplace, and the apparent manipulation of credit default swaps) that hammered its stock price. 

Three days after Lehman’s collapse, on September 18, the SEC issued another Emergency Order, this one banning all short selling. In that Emergency Order, the SEC (without mentioning any banks by name) stated clearly that manipulative short selling was contributing to the collapse or near collapse of multiple banks, and thereby threatening to collapse the entire financial system.

In the weeks before Lehman’s collapse, the bank had plenty of liquidity to remain a going concern, and it had deals in the pipeline that would have enabled it to raise capital. But the freefall of Lehman’s stock price and (I will show) other maneuverings by short sellers derailed those deals, and panicked clients pulled their cash. Only then was Lehman forced to declare bankruptcy.

Lehman was not a healthy bank, to be sure. And there is no doubt that it was weakened with help of corrupt insiders who leveraged and looted. But that leverage and looting was only one part of larger “bust out” that saw miscreants selling to the corrupt insiders toxic assets (which I will describe in a moment), while others attacked the bank with manipulative short selling.

If it were not for that manipulative short selling, the stock would not have gone into a death spiral, and there might have been time to restructure and oust the corrupt insiders. Lehman was a venerable bank that had survived plenty of bouts of ill health and worse economic downturns. But it had never faced an assault on its stock price like the one that it saw in the lead-up to September 18, 2008. 

And nearly every other major bank, regardless of its health, faced precisely similar fates during the gory month of September, 2008. All seemed doomed to collapse until the SEC issued its September 18 “Emergency Order” banning all forms of short selling, legal or otherwise.

There was no reason to ban legal short selling (a crackdown on illegal naked shorts would have been enough), but the Emergency Order gave the markets some breathing room while the Treasury Department prepared the massive (and now notorious) bailouts that signified that the government would not allow any more banks to collapse, no matter what sort of attacks might be directed at them.

As the authors of the report for the Defense Department’s irregular warfare unit conclude, there is no question that short-side market manipulators contributed to the collapse or near-collapse of many of America’s largest financial institutions in 2008. The report states further that “the [short selling] attacks on [America’s biggest banks] were so brazen that it is difficult to imagine that they were uncoordinated.”

* * * * * * * * *

It wasn’t just the banks that were attacked. The SEC’s partial data shows that there was also massive naked short selling of exchange traded funds, or ETFs. These are publicly listed funds that are often highly leveraged and typically trade a basket of multiple stocks across a given industry. When market manipulators attack an ETF, they inflict damage on the entire industry that the fund indexes  – and the high leverage magnifies the impact.

Meanwhile, there is strong evidence that the markets for U.S. government debt have also come under attack. The first naked short selling assault on U.S. Treasuries was launched in September 2001, at the time of Al Qaeda’s attacks on the World Trade Center and the Pentagon. Prior to the 9-11 tragedy, a daily average of $1.5 billion worth of U.S. government bonds failed to deliver. During the week immediately after 9-11, the daily failures to deliver were an astounding average of $1.5 trillion.

This was new and unusual market manipulation on a Herculean scale, but it was even worse during the months leading up to and following the 2008 crisis, when an average of $2.5 trillion worth of U.S. Treasuries failed to deliver every day. The authors of the report for the Defense Department speculate that financial terrorists, having precipitated the financial crisis, might have intended to attack the government bond markets in an attempt to bankrupt the national treasury.

Unfortunately, the government has done little to address the problem. Despite having issued its 2008 “Emergency Order” stating that manipulative short selling had contributed to the demise of major banks and now threatened to collapse the financial system, the SEC has yet to prosecute even one manipulative short seller involved in those attacks. That is, the SEC has yet to prosecute even one of the people who (according to the SEC) nearly obliterated the global financial system in 2008.

Meanwhile, after the president declared a “National Emergency” in 2011, he never said another word about it. The government has yet to prosecute any of the “legitimate” Wall Street outfits that have (according to the president) been “penetrated” transnational organized crime syndicates. Nor has the government arrested any members of transnational organized crime syndicates that have (according to the president) “undermined markets” to such an extent that they now pose an imminent “threat to the stability of the global financial system.”

* * * * * * * *

The media fails to give sufficient attention to these problems, insisting instead on reinforcing the narrative that the financial crisis was in essence caused by “reckless” lending to home buyers who could not pay back their mortgages. It is correct that the financial crisis of 2008 had its proximate cause in the collapse of the mortgage and property markets a year earlier, but that is only the surface of the story.

The Financial Crisis Inquiry Commission (FCIC) made clear in its January 2011 report to Congress that the principal cause of the mortgage and property disaster was the freakish collapse in 2007 of the market for collateralized debt obligations (CDOs), which are packages of mortgages that trade like securities.

As the FCIC also made clear, the collapse of the CDO market was by no means inevitable. Nor did it have much to do with “predatory” lending or the quality of most subprime mortgages.  Rather, the problem was that more than half of the CDOs issued in 2006 and 2007 were so-called “synthetic” CDOs, every single one of which was deliberately designed to self-destruct.

That is, just a few firms that specialized in marketing “synthetic” CDOs worked with a select number of bankers and short sellers to hand-pick a relatively small number of mortgages that seemed certain to default. The miscreants then packaged bets against those relatively few toxic mortgages into so many self-destruct CDOs that they came to account for (I must repeat) more than half of the overall market.

It is not quite correct to say that this was phantom supply similar to what is generated by naked short selling. But there is no question that the “synthetic” CDOs created a market that was, alas, “synthetic.” It was a market overwhelmed by a supply of instruments that purported to contain representative samplings of an underlying asset (subprime mortgages) that a reasonable person might expect to have some value, but which actually contained (as only the short sellers knew) assets that were worth zero.

In other words, a small number of miscreants effectively flooded the market with massive volumes of synthetic toxicity.

As these miscreants surely knew, the self-destruct CDOs would, indeed, self-destruct, and thereby wipe out the overall market for CDOs, causing property values to crash. And when that happened, the banks that had leveraged themselves to the hilt to buy CDOs and overvalued property would  be weakened. They would not be so weak that they had to die. But their weakness would create negative sentiment that could be turned into a panic if miscreants were to circulate exaggerated rumors about the banks’ problems and unleash waves of naked short selling that would send stock prices into death spirals.

In short, the report commissioned by the Department of Defense Irregular Warfare unit was correct to note that the financial crisis that nearly destroyed the nation went “far beyond normal expectations…” The authors of this report were also right to note that all of the events that precipitated the financial cataclysm raise “serious questions about whether this was a purposeful attack and if so, by whom, and why?”

By whom? And why?  Over the coming weeks, DeepCapture will be publishing the remaining chapters of this book-length story, which is the product of a years-long investigation into the underworld of market manipulation and the vulnerability of the U.S. economy to malicious attacks. To that first question – by whom? – we do not have all the answers, but we have quite a few. That is, our investigation has led us down many paths, but they all seem to circle back to a distinct network of individuals and financial firms.

This social and business network did not single-handedly wreck the economy, but we will see that financial operators in this network were responsible for much of the mortgage fraud that occurred in the lead-up to the crisis, while others in the network created (with fraudulent mortgages) most of the self-destruct CDOs that crashed the CDO market in 2007.

People in this network also sold toxic assets to corrupt insiders at the leveraged big banks. These toxic assets included not just CDOs, but also (we will see) a number wildly overvalued properties whose prices were certain to collapse, and all the more so after the CDOs self-destructed. Once poisoned by the toxic assets, the banks were vulnerable to the short selling attacks that came in 2008. And the social and business network described by this story includes many of the world’s most notorious short sellers and market manipulators.

Moreover, this social and business network nicely illustrates the “nexus” described by the president and a his national security staff on August 12, 2011, when the president stated that the “legitimate” financial sector (i.e. parts of Wall Street) had been “penetrated” by transnational organized crime syndicates with ties to terrorist organizations and hostile foreign governments. As we know, the president suggested that this “nexus” had “undermined markets” and now posed a “threat to the stability of the global financial system.”

In other words, the social and business network (or “nexus”) described in this story is comprised mostly of “legitimate” American financial operators. However, the extent to they are actually “legitimate” deserves scrutiny given the extent to which they have “undermined markets,” and given that many of them have done business with others in a “nexus” that includes transnational organized crime syndicates, agents of hostile foreign governments, and sophisticated financiers with ties to the global movement of radical jihad.

Before I continue, though, let me define what I mean by “network.” It is not the case that all of the people in this network know each other, and it is certainly not the case that all or any of its constituencies (i.e., terrorist financiers, transnational organized crime syndicates, agents of rogue states, and “legitimate” American financial operators, among others) gathered in some secret meeting hall to hatch one grand conspiracy to wipe out the global financial system. Some of the relationships I will describe in this story are, in fact, once or twice removed.

However, it is the case that a number of “legitimate” firms and individuals in this network have engaged in activities (sometimes in tandem with organized criminals, terrorist financiers, and/or agents of hostile foreign governments) that have done damage to the markets. I also feel that it is fair (indeed a matter of some urgency) to describe the larger “social network” and the relationships between the people who inhabit this network.   

Nobody, of course, is guilty by virtue of his relationships alone. That a “legitimate” financial operator (whether he be from the United States, Canada, Saudi Arabia, or wherever) has done business with, say, a Russian organized crime boss or a Saudi billionaire who has funded Al Qaeda, does not mean that the “legitimate” financial operator supports terrorism or would knowingly participate in a politically motivated act of financial terrorism against the United States. 

Nonetheless, there is strong reason to believe that the report for the Department of Defense Irregular Warfare Support Program was right: the United States was attacked by financial operators with ties terrorist organizations and rogue states. There is also clear reason to believe that “legitimate” American financial operators and transnational organized crime syndicates have attacked the markets. In addition, there is reason to believe that some relationships between these various consituencies are not altogether irrelevant, and might, indeed, account for the magnitude of the damage done to the financial system.  

The evidence is not 100 percent conclusive, but the facts are suggestive. At a minimum, they point to a scenario for how things might have played out in 2008–a scenario that needs to be taken seriously because it does show that the United States is, without doubt, vulnerable to future attack. Indeed, there is every reason to believe that such an attack is inevitable.

When the attack comes, I hope that this story will have provided at least a few good answers to that first question:  ”By whom?”

As to the Defense Department report’s second question – why? – I have no definitive answers. And ultimately, the question might be irrelevant. The damage to the economy is the same whether it has been done in the name of profit or jihad; in the name of terror, geopolitics, another billion bucks, or nothing more than the fun of the game. The financial operators who will be described in this story come in many stripes, but their various activities pose a collective threat to American prosperity and national security.

In Chapter 2, I introduce some information about some of Zuhair Karam’s* friends, including prominent Saudi billionaires alleged to have financed Al Qaeda, and one fellow who ran an Islamic organization accused of inserting Al Qaeda spies into the U.S. military, and who subsequently set up a financial weapon of mass destruction that has, without doubt, done damage to the American markets.

To be continued…

* * * * * * * **

*Zuhair Karam is an alias. I have chosen not to use his real name because despite his initial reluctance to cooperate with our investigation, he subsequently became helpful.

However, I intend to publish the names of many of the other people affiliated with his brokerage, along with details about their backgrounds and activities. In addition, I will, in upcoming chapters, provide complete data and information to support the allegation that Zuhair’s brokerage and its partner brokerages contributed the financial crisis. That data and information can only be understood, however, in light of other information that I must present first.

* * * * * * * *

Mark Mitchell is a journalist who spent most of his career working as a correspondent for mainstream media publications before joining DeepCapture.com, which is the only publication devoted entirely to exposing the corruption and cracks in the American financial system. Mitchell is the author of a recently published book: The Dendreon Effect: How Felons, Con-men, and Wall Street Insiders Manipulate High-tech Stocks, which is available from most major booksellers, including Amazon and Overstock.com.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

After all, we are the red pill.

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

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

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

Patrick M. Byrne
President
Overstock.com
Salt Lake City

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

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

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

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

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

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

Very respectfully,

Patrick Byrne

Editor-in-Chief

DeepCapture.com

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

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

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

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

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Here is Alvin Entin’s Motion to Withdraw.

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

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

Sam Antar pled guilty to crimes cited in this Wanted Poster

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

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

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

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

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

Actual Clyde Eltzroth avatar from Google Profiles

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

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

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

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

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

To fully appreciate Sam Antar and his methods, Clyde, you should read “Why Are Fortune Magazine and the New York Financial Media Suddenly Pimping Sam Antar the Crook? Note that besides angering a sitting state Attorney General enough to write a letter excoriating Sam Antar and warning that, “In light of Mr. Antar’s background as a convicted white collar criminal, we believe that the public should carefully scrutinize and objectively examine any public statements Mr. Antar makes,” in 2007 Sam Antar famously posted the names, ages, and addresses of  6 and 9 year old girls on an Internet message board.

Sam Antar threatens two little girls

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

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

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

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

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

Good luck with that.

UPDATE:

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

How’s that for service?

By Clyde Eltzroth

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

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

OSTK had no immediate response

OSTK short interest 6.7% of float: Data Explorers

OSTK down 16% YTD

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

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

For Related News and Information:

Top Stories:{TOP<GO>}

To contact the editor responsible for this story:

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

celtzroth1@bloomberg.net

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

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

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

Joel Greenblatt, Gotham Capital

Marty Whitman and Curtis Jensen, Third Avenue Funds

Larry Robbins, Glenview Capital

James S. Chanos, Kynikos Associates

William Ackman, Pershing Square Capital

David Einhorn, Greenlight Capital

Christopher H. Browne, Tweedy, Browne Company

Lisa O’Dell Rapuano, Lane Five Capital

Bruce Berkowitz, Fairholme Capital

Kian Ghazi, Hawkshaw Capital

Patrick Byrne , Overstock.com

Whitney Tilson, T2 Partners and Value Investor Insight

Glenn Tongue, T2 Partners

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

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

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

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

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

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

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

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

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

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

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

Dear Whitney,

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

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

Very respectfully,

Patrick Byrne

Journalist, DeepCapture.com

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

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

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

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

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

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

…..

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

Dear Whitney,

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

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

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

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

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

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

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

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

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

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

Very respectfully,

Patrick Byrne

Journalist, DeepCapture.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE STOCK MANIPULATION MEME

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

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

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

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

THE COVER-UP

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

THE CRUSADE

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

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

THE BREAKTHROUGH

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

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

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

Far bigger than Whitney Tilson.

Libyan government minders tasked with controlling reality as presented to foreign press corps quickly and brutally silenced al-Obeidi, whisking her away in a waiting automobile. You can read more about this heartbreaking story here.

Following al-Obeidi’s abduction, journalists inquired as to her fate. A government spokesman dismissed the incident, saying al-Obeidi was “drunk and possibly mentally challenged.”

In the absence of a legitimate defense, hacks always attack the whistleblower’s mental state.

This incident took be back to August, 2005. Patrick Byrne had just given a presentation that figuratively barged into the middle of Wall Street’s snoozing press corps, seeking to publicly draw attention to a financial assault being experienced by many small public companies at the time.

One of the few employees of a media outlet (I hesitate to call him a “journalist”) who wrote about the presentation was Roddy Boyd, a well-known shill for the very people Byrne had just called out. Boyd crafted one mocking version of his story, but found it failed to meet his handlers’ expectations. So, at their request, he edited his piece to add a line questioning whether Byrne was drunk or suffering mental illness when he gave the presentation.

In the absence of a legitimate defense, hacks always attack the whistleblower’s mental state.

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

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

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

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

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

Dear Patrick Byrne and other persons from Overstock.com:

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

Sam E. Antar

Web site: www.whitecollarfraud.com

Blog: www.whitecollarfraud.blogspot.com

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

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

Dear Sam,

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

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

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

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

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

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

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

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

Your friend,

Patrick M. Byrne

Journalist, DeepCapture.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

…

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

…

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

…

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

…

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

…

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

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

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

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

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

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

…

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

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

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

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

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

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

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

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

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

…

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

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

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

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

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

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

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

…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

…

PERVASIVENESS OF MINKOW’S MISCONDUCT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Still, hope springs eternal….