The Illustrious Henry Blodget Thinks I Am A Very Bad Man, Part 1

The Illustrious Henry Blodget Thinks I Am A Very Bad Man Man, Part 2: The Essay Business Insider Requested Then Refused To Publish

Today’s late-morning mailbag brought quick response from Mr. Henry Blodget.  Before trying to make sense of it, I respectfully suggest the reader consider the two links above (especially the first).  Also note that Mr. Blodget has over time, and especially in the last two months, published and republished “every yellow journalism hit-piece written by any slack-jawed mouth-breathing jackanapes who can manage to sit on a keyboard”, as I wrote earlier today, language which seems to have given New York Times’ reporter Floyd Norris the vapors (perhaps because Floyd could not turn a phrase if it had a handle on it).   Given this background, some might find Mr. Blodget’s response odd:

From: hblodget@gmail.com [mailto:hblodget@gmail.com] On Behalf Of Henry Blodget
Sent: Tuesday, February 02, 2010 11:12 AM
To: Patrick Byrne
Subject: Re: Overstock CEO Byrne

Patrick,

I didn’t realize we had reached a permanent impasse on the post, but judging from your Deep Capture entry, I guess we have.  I’m sorry you experienced the recent exchange as “nastiness.”  I certainly didn’t.

I don’t think you are a “very bad man.” (I don’t know you well enough to know).  I’m very impressed with the company you’ve built, as well as with your intelligence, accomplishments, and willingness to challenge convention.  I do wonder why you occasionally do things that, from my perspective, seem self-destructive.  But I suspect a lot of people who have watched and interacted with you over the years feel that way.

Henry

I won’t editorialize, instead choosing to leave it to interested parties to read the correspondence published in   The Illustrious Henry Blodget Thinks I Am A Very Bad Man, Part 1 and privately decide the measures of truth versus rationalization in Mr. Blodget’s reply.  Feel free to share an opinion below.

Of course, Henry Blodget could save us all the effort, and simply publish the essay that Business Insider requested that I write almost two months ago, and that I wrote over a month ago, and whose publication he then stalled, dodged, and temporized (though he seems to manage to republish the yellow journalism hit pieces within hours of their first appearance). After all, weeks ago I faxed Henry the signed indemnity he requested (with but the one change described in the earlier blog, and that is, that I, not he, get to fight any lawsuit that those of his acquaintance might choose to file), and posted the essay today myself, thereby eliminating all elgal risk for him. So, if Henry was being truthful in suggesting that this was not a dead issue, and he was not merely temporizing, then there is really a way he could show it.

After all, Henry Blodget would not be just trying to spin the public, would he?

OVERSTOCK CEO PATRICK BYRNE REPLIES TO HEDGE FUND CHOAGIES: WE’RE THE GOOD GUYS, YOU’RE THE BAD GUYS

“It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so.” – Will Rogers

I have spent five years trying to expose and disrupt bad behavior on Wall Street. I conducted this campaign through public appearances and DeepCapture.com, a site of investigative journalism I fund. Those I have attempted to expose have sought to prevent public understanding of my claims by generating a mish-mash of things for the public to “know [but] that ain’t so.”

Henry Blodget has graciously invited me to respond to them here.  When some years ago Henry first wrote of me he prefaced his thoughts with something along the lines of, “I’m the last guy in the world to criticize someone for what he puts in an email, but…”: that, and the present invitation to which I now respond, demonstrate to me that Henry has a sense of intellectual integrity and, it appears, humor. I thank him for his invitation, and welcome this chance to set the story straight.

I will do so in three sections: The Fight, The Result, and The Cover-Up.

THE FIGHT

My argument can be expressed in three points:

1)      Participants in our capital market take for granted the settlement system running behind the scenes, but more slop exists in that settlement system than is commonly understood.

2)      Stock manipulators can employ this settlement-slop when they conduct bear raids. One of their techniques is “naked short selling” There are others that are not, technically, “naked short selling” but which have essentially the same effect  (e.g., failed long sales, failed offshore deliveries, abuse of the option market maker exception to create married puts or “bullets”, swaps, daisy-chaining, “bed-and-breakfasting” and perhaps other methods understood only by a handful guys who are bright lights in that lofty firmament which is Caribbean banking).

3)       In August, 2005 I gave a webcast (“The Miscreants’ Ball”) where I discussed the pattern of modern bear raids.  The pattern I described included such elements as:

a)      a group of hedge funds which seemed to be on the scene wherever stock manipulation occurred;

b)      some putatively independent analysts and journalists who seemed to be shilling for those hedge funds;

c)       an “independent” research shop named Gradient who was writing hatchet-jobs on cues given by hedge funds like Rocker Partners (I made public affidavits from three ex-Gradient employees attesting to this and to reporter Herb Greenberg’s participation in the scheme);

d)      Milberg Weiss, a class-action law firm which filed lawsuits in coordination with these bear raids;

e)       Jim Cramer, the man in whom the stock manipulators and journalists seemed to intersect;

f)       Eliot Spitzer, a New York Attorney General with problematic ties to this group;

g)      and the SEC, whom I accused of not protecting the public due to having grown inappropriately close to powerful Wall Street interests.

In closing, I suggested that this network centered on someone I referred to as “the Sith Lord”. In interviews that followed I explained this by repeating a specific formulation:  “I really think in terms of a composite of two people.  Someday I might sack up and let the world know who the master minds are, but not now” (a hint broad enough for Wall Street to understand, I assumed).

Note that while the Miscreants’ Ball was occasioned by a lawsuit Overstock.com had filed, little of it (less than ¼) actually concerned Overstock. The remaining ¾ of the webcast mapped this pattern of bear raids in our markets.

I followed up on the Miscreants’ Ball with a three year campaign expounding on the possibility that these manipulative techniques were creating a settlement residue which degraded corporate voting, destroyed firms, and might be destabilizing the financial system.

THE RESULT

Since that day in 2005:

1)      Milberg Weiss imploded under DOJ indictment, and its leaders were jailed, for using “paid plaintiffs” (i.e., shills). The indictment has a remarkable line (pages 29-30) to which no journalist has turned attention: “Unlike the other class members in the Lawsuits, the Paid Plaintiffs purchased the securities at issue anticipating that the securities would decline in value, in order to position themselves to be named plaintiffs in securities fraud class actions and to obtain kickback payments from MILBERG WEISS, BERSHAD, SCHULMAN, and others.”  No journalist has yet asked, How did Milberg Weiss know which securities to direct its “Paid Plaintiffs”  to purchase, and why were they “anticipating that [those] securities would decline in value”? Are Lerach and Weiss stock pickers?

2)      Jim Cramer appeared in a video recounting how his hedge fund engaged in practices that he described as illegal but common, practices that were precisely what I had alleged (Cramer’s lawyers had managed to get that video removed from every spot on the Internet except DeepCapture, and I am proud it played a role in Jim’s undoing at the hands of Jon Stewart);

3)      Eliot Spitzer suffered his well-known comeuppance with Ashley Dupre (no disrespect to these fine ladies intended). Less discussed is the fact that Ashlee turned out to be living rent-free in the home of Jim Chanos, a hedge fund manager who was both one of Spitzer’s earliest and largest supporters, and a key member of the network of hedge funds I had been spotlighting. So far the press corps has accepted that as coincidence, apparently assuming that one day Eliot Spitzer just picked up the Yellow Pages and called a cat-house. The possibility that hedge funds may have been involved in the procuring of Ashlee or her colleagues, and thus enjoyed joint ownership of the Attorney General of the State of New York, is something that to my knowledge only one national publication is pursuing.

4)      In late 2008, Gradient settled with Overstock, issuing apology for and retraction of their scurrilous claims (sums paid, if any, have not been disclosed). In late 2009, Rocker Partners paid Overstock $5 million to settle for its part in the scheme (without admitting said scheme’s existence, to be fair).

5)      Much correspondence among hedge funds, journalists, analysts, hired thugs, and Mafiosi has gotten public (some in essays published on DeepCapture, some in actions taken by the feds), and it reveals precisely the relationships which I had posited in that call.

6)      Bloomberg Magazine published “The Corporate Voting Charade”, an investigative piece by Bob Drummond, describing how slop in our settlement system makes corporate elections a “sham”. As Drummond wrote, “the results of high-stakes company decisions may hinge on the invisible influence of millions of votes that shouldn’t be counted, says Thomas Montrone, chief executive officer of Cranford, New Jersey–based Registrar & Transfer Co., which oversees shareholder elections. ‘It is an abomination,’ Montrone, 58, says. ‘A lot of the time we have no idea who’s entitled to vote and who isn’t. It’s nothing short of criminal.’” Drummond proceeds, “There are votes cast twice on almost every matter of substance,” Hagberg, 63, says. “It definitely can and does, in my experience, affect the outcome of corporate elections and proposals.”

7)      By 2008 numerous journalists were covering how companies were destabilized by these techniques of settlement-system gaming. Bloomberg TV did a half hour Special Report, “Phantom Shares”, that was nominated for an Emmy – Long Form Investigative Journalism.

8)      In 2008’s systemic crisis settlement-gaming was repeatedly implicated:

a)      Two Wall Street firms which had been saying the crime of naked short selling didn’t exist went under screaming it had been their undoing;

b)      The SEC implemented an unprecedented emergency order to protect our financial system from the crime they had been saying didn’t exist;

c)       In autumn, 2008 regulators from the G-20 held emergency meetings directed towards keeping the financial system from Chernobylling from this non-existent crime;

d)      Also in autumn, 2008, the SEC finally closed some of the settlement loopholes that enabled the crime that didn’t exist, and several hedge funds (including Rocker Partners) imploded when the loopholes they weren’t using were suddenly closed.

9)      In December, 2008, Bernie Madoff turned himself in, and everyone from 60 Minutes to the United States Congress learned about “regulatory capture” and the SEC under George Bush;

10)   As I write, feds seem to be rolling up a network of hedge fund players, and press reports put at the center of that network one Steven A. Cohen, or “SAC” as his fund is called (while the hedge fund community reduces its ties to SAC, Reuters recently killed a story on Cohen, at his request).

So may we agree that the DeepCapture Team turned out to be at least directionally correct?

The Cover-Up

When I started my campaign I was curious to discover how far extended the intellectual corruption of the New York financial press. I mapped it with sonar-pings, and in time became convinced that, with some exceptions (notably, several Bloomberg journalists, Fox Business, and a few islands of reporters isolated here and there) the bulk of the New York financial press lack a faculty for critical thought and the courage to take a position contrary to a well-accepted truth, and a few are actually hostile to truth.  If I were still teaching, I would say that most performed like Continental Philosophy hysterics forced to take an econ class. Their conformity and indolence permitted a cover-up to persist.

1)      Their list of Wash-Rinse-Repeat instructions was short:

a)      Do not report what Byrne is saying about bear raids; pretend he is just talking about Overstock.

b)      Do not report what Byrne says about naked short selling; pretend he is talking about Overstock.

c)       Pretend not to understand the “Sith Lord” reference. It’s a metaphor. Say: “Who uses metaphors? That’s crazy, right?”

d)      Prime directive – Do not feed the “bear raids” meme. Bear raids do not exist.

2)      The social media cover-up: DeepCapture.com ‘s investigative journalist/technologist Judd Bagley acquired a computer filled with emails that confirmed the relationships among hedge funds and law firm cut-outs, convicted stock manipulators, message board posters and Wikipedia sock-puppets that all sane observers already saw.  This network conducted the following activities:

a)      Two million pages on Wikipedia run by one set of rules. The page on Naked Short Selling runs by a different set of rules. In what became the largest internal scandal in Wikipedia’s history, it turned out that a down-and-out journalist named Gary Weiss had been given control of this page by the Wikipedia higher-ups. In fact, Weiss ultimately made a mistake that revealed he was manipulating social media from within the DTCC, the Fort Knox-like corporation at the heart of the settlement system, as Judd Bagley uncovered.  What followed was an enormous Wikipedia civil war in which, ultimately, the Wikipedia community caught Gary Weiss red-handed. The Register, a British on-line publication focusing on Silicon Valley, covered this story extensively.  Their first stories were skeptical, but as a staggering amount of evidence accumulated in support of them, they shifted sides and confirmed what we had been claiming: “reporter” Gary Weiss was part of a remarkable campaign to manipulate social media to cover up financial crime.

b)      We and our sympathizers were frequently threatened. One journalist who took our side was jumped, beaten up, and told to stay away from this story. One fellow traveler, Dave Patch, saw his and his wife’s names, addresses, and social security numbers posted at an online message board. Mary Helburn (another fellow traveler) saw someone using as aliases the names of her nephew (a head-injury-survivor) and deceased sister to post nasty and vaguely-threatening messages. Judd Bagley, an investigative journalist who works for DeepCapture, saw the names, ages and home address of his two young daughters posted online by Sam Antar (naturally, shortly thereafter Sam became a favored presense for Fortune Magazine and CNBC). None in the press would report on any of this. However, in a display of selective outrage which demonstrates the low intellectual integrity of which I write, when Judd recently documented and questioned the appropriateness of the fact that the hedge fund folk and the journalists of whom we write are Facebook Friends with each other (which one would not see, for example, among political reporters and the politicians they cover), that was written about as though it were an incredibly intrusive thing for Judd to do, even though the material he assembled was already self-published on Facebook by those later claiming it was intrusive of Judd to gather and display. Interestingly, in their stories criticizing Judd most choagies went far out of their way to bury mention of DeepCapture (some did not even mention it at all, though that is where Judd’s work appeared). Instead, “Overstock” was substituted for “DeepCapture.com”, my name for Judd’s (at least in titles), they claimed it was “hacking” when no hacking occurred (they’re just technologically illiterate), and they write of lists of “Overstock’s enemies and critics” when, in fact, this and most of what Judd writes nothing to do with Overstock. This song isn’t about me: it’s about the extraordinary deference show by the financial press to some bear raid-conducting hedge funds. But that is the meme that must be suppressed.

A year ago DeepCapture was voted the Internet’s Best Business Blog, and recently, named  best for Business Investigative Journalism.  The Wall Street Journal graciously listed mine as among the “Best Calls of 2008”, and CNBC talking heads recently acknowledged  we turned out to be right all along.  Ye the CNBC/Fortune/New York Times crowd, who once leapt on obscure issues related to me (Herb Greenberg wrote a story the thesis of which was that sometimes I answered emails quickly, but sometimes slowly), went mute as soon as we launched DeepCapture. I believe they realized from that point forward reporting on my allegations would require mentioning DeepCapture, which would make it too easy for the public to investigate. They thus suddenly ceased coverage altogether, or only engaged in circumlocution-filled slurs.  When DeepCapture blossomed the choagies lost control of the narrative, so their best hope became to avoid its mention.

So Henry, that is my rebuttal to the choagies: We were right and their outrage about Judd is as selective as their cover-up was transparent. Their Roar of Criticism became a Cloak of Silence the day DeepCapture launched, which tells the objective readers all she needs to know.

I look forward to meeting someday, Henry, and until then, I remain,

Yours in good humor,

Patrick M. Byrne

And so ends the story of recent “nastiness” with the Illustrious Henry Blodget.  And I must say, it is good to see how much personal growth he has achieved since his days at Merrill Lynch.

For those new to the game, however, a modest introduction about Henry Blodget is necessary.  So here it is.

Who is Henry Blodget?  First, watch this 2002 high-buzz advertisement Charles Schwab ran as a swipe against Merrill Lynch (NYSE:MER):

Second, understand that this ad is about Henry Blodget, who, until shortly before, had been head of research for Merrill Lynch’s Global Internet Investment.  As Slate.com immediately wrote of the “lip-stick on the pig” ad:

“This ad was produced right on the heels of Merrill Lynch’s public flogging for the sins of the infamous stock analyst Henry Blodget a few weeks back. And it was instantly interpreted as a direct shot at Merrill, so much so that CBS refused to air the Schwab ad at all. (Merrill, after all, is said to be a bigger advertiser on the network than Schwab is.)”

And as the New York Times wrote of the Schwab ad,

“In May, Schwab started airing a set of TV spots that pointed up the conflicts of interest of Wall Street firms that cater to both individual investors and corporate clients. The most controversial of those depicted a sales manager at an unidentified brokerage firm exhorting his troops to sell the stock du jour.

‘Let’s put some lipstick on this pig,’ the manager tells them.

Schwab’s timing was impeccable. The ads appeared about six weeks after Eliot Spitzer, the attorney general of New York, publicly contended that Merrill’s stock analysts had recommended stocks of companies they had privately maligned. In one e-mail released by Mr. Spitzer, a Merrill analyst called one of his recommended stocks a ‘dog.’”

Henry did much more than tout to the public a stock he privately considered a “dog”. PBS produced a fine 2002 story about Henry Blodget which provided a useful chart from which I excerpt:

MERRILL LYNCH ANALYSTS IN PUBLIC AND PRIVATE

And so on and so forth. The bottom line is that Henry Blodget’s behavior towards the public of which he was putatively a fiduciary had what Hunter S. Thompson described (with reference to Nixon’s crew) as “a mean sort of consistency.”

Again, in the interests of brevity I will wrap up my preamble with the suggestion that the reader wishing to learn more might start with the SEC’s 2002 complaint against Henry Blodget.

Then read this 2003 SEC settlement announcement, “The Securities and Exchange Commission, NASD and the New York Stock Exchange Permanently Bar Henry Blodget From the Securities Industry and Require $4 Million Payment.”

Be sure not to miss the (again, Nixonian) “disclosure” he made to the public about his past when, in 2004, Henry Blodget was (I-shit-thee-not) hired as a financial journalist by Slate.com (the same organization that had previous written of “Merrill Lynch’s public flogging for the sins of the infamous stock analyst Henry Blodget”).

Finally, the reader should understand that in 2007 Henry co-founded Business Insider , a website devoted to reporting on the securities of companies in the technology industry. Which is, of course, not to be confused with participating in the securities industry from which, in a settlement with the United States Securities and Exchange Commission, NASD, the New York Stock Exchange, Henry had agreed to be…. well, permanently barred.

Thus concludes my attempt at bringing newcomers up to speed on the Illustrious Henry Blodget.

And so we turn to Henry and my recent correspondences, about which, as the Good Doctor liked to say, res ipso loquitor.

From: hblodget@gmail.com [mailto:hblodget@gmail.com] On Behalf Of Henry Blodget
Sent: Sunday, December 13, 2009 9:49 AM
To: Patrick Byrne
Subject: Overstock, Deep Capture

Patrick,

Just wanted to reach out directly.  If you feel we ever get anything wrong or you want to say anything directly to our readers, please let me know.  Happy to publish under your byline and link back to Deep Capture, Overstock, or anywhere else.

Hope the holiday season is going well for Overstock.

All best,

Henry

From: Patrick Byrne
Sent: Sunday, December 13, 2009 1:12 PM
To: ‘Henry Blodget’
Subject: RE: Overstock, Deep Capture

Henry,

Wow. Mighty decent of you. Really? I’ll take you up on it.

Best returned,

Patrick

From: Patrick Byrne
Sent: Sunday, December 27, 2009 3:45 PM
To: Henry Blodget
Subject: RE: Overstock, Deep Capture

Dear Henry,

Thank you for this kind invitation. I have done so, and enclose my modest efforts here. I hope you feel this is adequate, and I thank you for publishing it. I hope it draws you much traffic and attention.

Regards,

Patrick

PS Oddly enough, the only thing I could not source appropriately was my recollection of a quote from the first time you wrote on me. It was something that I thought was gracious and funny. This quote appears (as best as I could remember it) in the second paragraph here: if you could find the actual quote, feel free to fix my recollection.

From: Patrick Byrne
Sent: Sunday, December 27, 2009 3:52 PM
To: Henry Blodget
Subject: Overstock (NASDAQ:OSTK) CEO Byrne

PPS Just fixed a couple typos I found.

Happy Holidays,

Patrick

From: Patrick Byrne
Sent: Wednesday, December 30, 2009 3:37 PM
To: Henry Blodget
Subject: Overstock CEO Byrne

Henry,

Oh well. Since you have not answered, I could not help but take one more swipe at refining this. Again, please use this last draft if you got to publish.

Can you at least confirm you have gotten these, and let me know your intentions?

Patrick

From: hblodget@gmail.com [mailto:hblodget@gmail.com] On Behalf Of Henry Blodget
Sent: Wednesday, December 30, 2009 4:04 PM
To: Patrick Byrne
Subject: Re: Overstock CEO Byrne

Patrick,

Thanks very much for sending.  Sorry for the slow reply–I’ve been out of the office this week.

I enjoyed this, and we’d love to publish it.  One issue that came up is that it’s more expansive in scope than I was expecting, and we don’t have the resources to run a detailed legal and fact check.

Given this, the easiest way to handle would be to have Deep Capture publish the piece and we’ll run the first couple of paragraphs and link to the rest.  That would also give you the ability to make further edits if you like.

Alternatively, we can send you a standard indemnification agreement that we use with some freelance and syndication work.

Sorry for this hitch.  Thanks again for writing and sending.  Look forward to running what we can soon.

All best,

Henry

From: Patrick Byrne
Sent: Wednesday, December 30, 2009 4:08 PM
To: Henry Blodget
Subject: RE: Overstock CEO Byrne

Henry,

Answers below in CAPS (which do not imply screaming!)

Patrick

From: hblodget@gmail.com [mailto:hblodget@gmail.com] On Behalf Of Henry Blodget
Sent: Wednesday, December 30, 2009 3:04 PM
To: Patrick Byrne
Subject: Re: Overstock CEO Byrne

Patrick,

Thanks very much for sending.  Sorry for the slow reply–I’ve been out of the office this week. NO WORRIES. I FIGURED YOU WERE TAKING THE TIME OFF. GOOD FOR YOU.

I enjoyed this, and we’d love to publish it.  One issue that came up is that it’s more expansive in scope than I was expecting, and we don’t have the resources to run a detailed legal and fact check. I UNDERSTAND

Given this, the easiest way to handle would be to have Deep Capture publish the piece and we’ll run the first couple of paragraphs and link to the rest.  That would also give you the ability to make further edits if you like.

Alternatively, we can send you a standard indemnification agreement that we use with some freelance and syndication work. SURE. ACTUALLY, I WOULD PREFER IT THIS WAY. YOUR SITE. MIGHT FAIR OF YOU. JUST SEND ME THE INDEMN AGREEMENT BY EMAIL. IF YOU HAVE HEARTBURN OVER ANY PARTICULAR PARAGRAPH, LET ME KNOW.

Sorry for this hitch.  Thanks again for writing and sending.  Look forward to running what we can soon. COOLIO ON ALL.

All best, RETURNED. BEST IN THE NEW YEAR.

Henry

From: Henry Blodget [mailto:hblodget@businessinsider.com]
Sent: Friday, January 08, 2010 6:01 AM
To: Patrick Byrne
Subject: Re: Overstock CEO Byrne

Patrick,

Very sorry.  Got slammed when I got back.  Will get the letter to you today.

Henry

Henry Blodget

CEO, The Business Insider

hblodget@businessinsider.com

From: Patrick Byrne
Sent: Friday, January 08, 2010 12:33 PM
To: Henry Blodget
Subject: RE: Overstock CEO Byrne

Henry,

Coolio. No worries: Believe me, I udnerstand the “slam” part.

I appreciate you doing this. I hope it brings you some attention.

Best,

Patrick

From: Patrick Byrne
Sent: Friday, January 15, 2010 2:58 PM
To: Henry Blodget
Subject: RE: Overstock CEO Byrne

Henry,

Is it something I said?

Patrick

From: hblodget@gmail.com [mailto:hblodget@gmail.com] On Behalf Of Henry Blodget
Sent: Friday, January 15, 2010 3:05 PM
To: Patrick Byrne; Julie Hansen
Subject: Re: Overstock CEO Byrne

Thanks, Patrick.

Did you get the indem letter from Julie earlier this week?  Have been waiting to get it back.  Copying her…

Henry

Henry had spoken the truth: four days earlier a colleague of his named Julie Hansen, the COO of Business Insider had, in fact, emailed an indemnity agreement. And so began again our pas-de-deux (or pas-de-trois, as it were).

From: Julie Hansen [mailto:jhansen@businessinsider.com]

Sent: Monday, January 11, 2010 12:07 PM

To: Patrick Byrne

Subject: agreement for your Business Insider post

Patrick,

Henry forwarded your email to me. Attached please find the letter agreement covering your post for the Business Insider. Please sign and return a copy to me. You can email a signed PDF or fax it to 718-785-9531.

Please let me know if you have any questions on the attached.

All best,

J.

From: Patrick Byrne
Sent: Friday, January 15, 2010 3:07 PM
To: Henry Blodget; Julie Hansen
Subject: RE: Overstock CEO Byrne

Ah-ha! No I had not, but I just found it (our traps filtered it out: I will fix that).

I will get it to back to you this afternoon or Monday morning. Thanks.

From: Patrick Byrne
Sent: Monday, January 18, 2010 10:07 AM
To: ‘Julie Hansen’; ‘Henry Blodget’
Subject: Overstock CEO Byrne

Dear Julie & Henry,

Good morning. Thanks again for this. Two issues:

1) I have faxed back the indemnity agreement. I want to alert you to one issue therein. The way it was written, no control of the litigation was ceded to the guy bearing the cost and risk. That cannot work, for the following reason: if the day after you published it Stevie Cohen sued you for a $1 billion, you could, theoretically, say “Yes, you’re right, I’ll pay.” And send me the bill. I know you wouldn’t do that, but I do not think the contract written that way. Given that I am taking the economic risk, the contract should cede control of any such case (however improbable) to me, and I’ll fight it out (with your cooperation, of course). In the expectation that you would find this reasonable (even if the formulation you sent me is your standard agreement, this is surely not a standard situation) I made this one change in the pdf you sent me, signed it and faxed it back moments ago.

2) As I had the weekend, I gave this one last turn on the wheel. Just tiny stylistic changes.

Thanks again for this. I hope it draws you much traffic and attention (and I will use my meager resources to promote same).

Much respect for your offer to let me write this, Henry.

Sincerely,

Patrick

From: Patrick Byrne
Sent: Wednesday, January 20, 2010 11:14 AM
To: Patrick Byrne; Julie Hansen; Henry Blodget
Subject: RE: Overstock CEO Byrne

Dear Julie and Henry,

Good afternoon.

Any word on timing?

Respectfully,

Patrick

From: Julie Hansen [mailto:jhansen@businessinsider.com]
Sent: Wednesday, January 20, 2010 11:16 AM
To: Patrick Byrne
Cc: Henry Blodget
Subject: Re: Overstock CEO Byrne

Patrick,

Thanks for your follow-up. I haven’t had a chance to review the changes you suggested but I will get to them ASAP and let you know.

All best,

J.

From: Patrick Byrne
Sent: Wednesday, January 20, 2010 11:24 AM
To: Julie Hansen
Cc: Henry Blodget
Subject: RE: Overstock CEO Byrne

Thank you.

From: Patrick Byrne
Sent: Thursday, January 21, 2010 11:02 AM
To: ‘Julie Hansen’
Cc: Henry Blodget
Subject: RE: Overstock CEO Byrne

Julie,

Thanks again. However, I notice this morning that Business Insider has published yet more gibberish (http://www.businessinsider.com/americas-nastiest-ceo-2010-1)  that first appeared only 2 days ago. So if it is not too much to ask, please be so kind as to let me know:

1) when you will be able to publish my piece;

2) or, failing that, when you will be able to let me know when you will be able to publish my piece.

Respectfully,

Patrick

From: Henry Blodget [mailto:hblodget@businessinsider.com]
Sent: Thursday, January 21, 2010 11:08 AM
To: Patrick Byrne
Cc: Julie Hansen
Subject: Re: Overstock CEO Byrne

Patrick,

Thanks.  Are we set on the letter?  If so, I’ll read the latest version and edit for tomorrow.

(I’ll send you the requested edits, obviously).

Henry

From: Patrick Byrne
Sent: Thursday, January 21, 2010 11:10 AM
To: ‘Henry Blodget’
Cc: Julie Hansen
Subject: RE: Overstock CEO Byrne

Henry,

Indeed we are. if you are able, please just edit in Word and track changes, so I can give you a quick turn-around. I’m honored to have you edit me.

I hope this gets you a fair bit of publicity.

Patrick

From: Henry Blodget [mailto:hblodget@businessinsider.com]
Sent: Thursday, January 21, 2010 11:21 AM
To: Patrick Byrne
Cc: Julie Hansen
Subject: Re: Overstock CEO Byrne

Thanks, Patrick.

One initial question… What does the word “choagie” mean?  Looked it up and nothing seemed to fit.

Henry

From: Patrick Byrne
Sent: Thursday, January 21, 2010 4:41 PM
To: Henry Blodget
Cc: Julie Hansen
Subject: RE: Overstock CEO Byrne

“Choagie” has the connotation of some combination of “lackey” + “sycophant” + “shill”.

Funny, I, too, have noticed that it is not in slang dictionaries I checked, though I know a couple of unrelated people who use it. Its meaning seems to be clear to everyone in context, I’ve noticed (maybe because it sounds enough like “toady”?)

If you would prefer to substitute “Toady” in the title and throughout, feel free.

From: Julie Hansen [mailto:jhansen@businessinsider.com]
Sent: Thursday, January 21, 2010 3:11 PM
To: Patrick Byrne
Cc: Henry Blodget
Subject: Re: Overstock CEO Byrne

Patrick,

I’ve reviewed the change you made and we can’t agree to that. The boilerplate language is consistent with publishing agreements we have signed with other media companies. And while you’re right that you are not a standard author – “CEO” is not in the byline of many BI writers – the rights situation is fairly standard.

Can we return to the original language?

Best,

J.

From: Patrick Byrne
Sent: Friday, January 22, 2010 12:43 PM
To: ‘Julie Hansen’
Cc: Henry Blodget
Subject: RE: Overstock CEO Byrne

Julie,

I am afraid not. Respectfully, I’m happy to indemnify you, as I said, but as written the agreement would permit Jim Chanos to file a frivolous $1 billion suit and your side to put up a weak fight (or no fight at all) and then say, “OK, Patrick will pay.”  Surely you see that this is not reasonable position.

Please let me know your final decision, either way.

Regards,

Patrick

No answer has been received, though Henry continues to find time and space to publish and republish every yellow journalism hit-piece written by any slack-jawed mouth-breathing jackanapes who can manage to sit on a keyboard.

As should be clear from the context, notice that the indemnity agreement Henry and Julie sent to me provided that, once they published my piece, if they got sued by anyone they had full control of the defense, could decide to settle for any amount, I had to pay, and I could have no input (in other words, they wanted the proverbial “blank check”).  Notice that my response did not refuse to give them that unlimited indemnity, but simply stipulated that  my lawyers got to put on the defense of my blank check (a position which would give heartburn to any lawyers but my own, I might mention). Other than that one small adjustment, I had accepted their entire indemnity agreement, as written.

For the legally-inclined reader who wishes to analyze this for herself, here is the agreement as they sent it to me, and here is the one I returned to them, signed.

A smart Midwestern fellow of my acquaintance once taught me that if someone won’t give you a response, and won’t tell you when he will be able to give you a response, it is fair to consider it a non-response.  But just in case, I let them have another 10 days.

So at this point, I think it is fair to publish what I wrote at the request of Henry Blodget, but which Business Insider has refused to publish.

(Next: The Illustrious Henry Blodget Thinks I Am a Very Bad Man, Part 2: The Essay Business Insider Requested Then Refused To Publish)

An example of a particularly sordid scheme, orchestrated by hedge fund billionaire John Paulson, was discovered some time ago by David Fiderer, a blogger for the Huffington Post. The information in Fiderer’s blog is rather incriminating, and, of course, the mainstream media is not on the case, so I think it bears repeating.

In a close reading of Wall Street Journal Gregory Zuckerman’s book, “The Greatest Trade Ever”, an otherwise starry-eyed account of Paulson’s bets against the mortgage market, Fiderer discovered this nugget:

“Paulson and [partner Paolo Pellegrini] were eager to find ways to expand their wager against risky mortgages. Accumulating it in the market sometimes proved to be a slow process. So they made appointments with bankers at Bear Stearns, Deutsche Bank (NYSE:DB), Goldman Sachs (NYSE:GS), and other banks to ask if they would create CDOs that Paulson & Co. could essentially bet against.”

As Fiderer explains, Paulson asked the banks to create those CDOs “so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs subordinate claims on the mortgage collateral were close to worthless. By the time others have figured out the fatal flaws in these securities which had been ignored by the rating agencies, Paulson could collect up to $5 billion.

“Paulson not only initiated these transactions, he also specified the terms he wanted, identifying which mortgages would be stuffed into the CDOs, and how the CDOs should be structured. Within the overall framework set by Paulson’s team, banks and investors were allowed to do some minor tweaking.”

It is not clear which banks ultimately participated in Paulson’s scam, but Fiderer quotes Bear Stearns trader Scott Eichel as saying that his bank refused. “It didn’t pass the ethics standards;” Eichel said, “it was a reputation issue and it didn’t pass our moral compass. We didn’t think we could sell deals that someone was shorting on the other side.” Bear Stearns’ moral compass was usually pointed towards the darker regions, but perhaps this is why Paulson subsequently became one of the more eager short sellers of Bear Stearns’ stock.

Fiderer continues: “Prior to 2006, there were not many opportunities for naked short selling on subprime securitizations. But in January of that year, investment banks launched a new product, which enabled Paulson to place those bets on a large scale. The ABX index, a sort of Dow Jones Average of subprime mortgage securities, facilitated benchmarking the price of credit default swaps.”

In fact, it was a black box company called the Markit Group that created the ABX index. The banks were minor shareholders in Markit Group and provided data. I have noted in a previous blog that the Markit Group is a dubious outfit to say the least, and there is good reason to suspect that the direction of the ABX index was influenced by hedge fund managers and their allies at the big banks. I do not have evidence that Paulson was one of those hedge funds, but authorities ought to be asking questions.

Fiderer goes on to suggest that bad loans to homeowners were a significant cause of the financial crisis. On this front, I disagree with him. Certainly, some mortgage lenders were unscrupulous, and there was a certain amount of predatory lending, but the conventional wisdom that this is what crashed the economy is simply false.

At the time that the mortgage securities markets began to go south in 2007, defaults on subprime loans had increased only slightly month-to-month, and were in fact considerably lower than in earlier years. In the second quarter of 2007, for example, only 7.7 percent of subprime loans were 30 days past due, slightly up from 6.76 percent in the second quarter of 2006, but considerably lower than the 9.9 percent in the second quarter of 2001.

The problem lied not in the loans themselves, but in the fact that the loans had been packaged (apparently, to a large extent, at the behest of John Paulson and perhaps other bearish billionaires) into fraudulent securities that were traded and probably manipulated by a select number of hedge funds and large banks. In a somewhat similar scheme, hedge funds often pump up the stock of public companies before initiating short selling attacks aimed at demolishing those same companies.

The economy was brought to its knees by a few powerful and eminently dirty players on Wall Street, not by poor people who had the temerity to buy themselves houses.

As my feelings may not be obvious, even-handedness and transparency dictate that I disclose that compared to Roddy I’ve observed more intellect in a ice addict sitting on the floor of a 7-11 trying to remember how to use Comet and Pam Spray to cook meth, and more dignity in a crackhead living off $2 hand-jobs at the bus station.

Followers of the Overstock story (itself a sub-plot of the DeepCapture epic) know that at the end of 2008 Gradient Analytics’ Donn Vickrey and Bettis Brothers Carr and Leland apologized for and retracted years’ worth of lies, accusations, and smears about Overstock. Given that they had made their allegations a cornerstone of their business development, their decision to apologize and recant may,  I suspect, have undermined their ability to represent themselves as anything but lapdogs willing to charge for shill “research” one day those same fund managers they’ll sell out the next.  Then in late 2009, Rocker Partners dropped their counter-suit against Overstock and made their own apology in the form of a $5 million check.

In a process known as “discovery”, in the course of this lawsuit both sides turned over millions of pages of documents to the other.  Since the turning over of documents and depositions thereon, Gradient Analytics publicly retracted their accusations and apologized, and Rocker Partners dropped their counter-suit and coughed up $5 million: the litigation-conversant reader may make her own inference as to  how the weight of evidence tipped the scales of justice in this particular case.

Of more immediate interest, however, is the fact that, though those millions of pages of documents are covered by protective orders of the court, and hence their disclosure by Gradient, Rocker Partners, or their esteemed counsels (e.g., Fred Norton, Esq.) would be illegal, Roddy Boyd today emerged in possession of this material, which he proceeded to use in clumsy attempt to reprise his role as minor Wall Street lick-spittle.

Now having spent my share of hours in the company of all of these luminaries of ethics and right action, which one violated the court’s protective orders is difficult for me to say. I’ve had mops with more character than the lads at Gradient Analytics. David Rocker is bitter and insane (I wonder how he played it at his country club: “I swear I’m innocent, folks, but just in case, I hired David Boies’ criminal defense partner“).  Of course, in four years of litigation the ever-charming Fred Norton managed (as far as I could tell) precisely one moment of humanity, and even there, his motives were not entirely clear. So I’ll call it a photo-finish. (Though if I were a gambling man, I might have to put my money on the long-shot bet: the guys at Gradient, who give off that unique scent of low-rent hustlers just bright enough to have figured out they are playing out of their league but not bright enough to back away from the table).

Setting aside the issue of which of these pillars of our community gave the finger to a sitting California judge (and a retired federal judge who acted as Discovery Master in our litigation), an interesting question remains: will Roddy Boyd, having lost all appearance of reputation, honor, and employment, be game for another try?

And once again, Roddy doesn’t let us down.

Alas, beyond his brief stint at now-defunct criminal bacchanal that was Refco, Roddy has no actual work experience by which to make sense of the material thus provided him. So I think it best to  let his email tell the story, with my brief answers inserted in bold italics.

From: Roddy Boyd [mailto:roddyboyd@ymail.com]
Sent: Wednesday, January 13, 2010 7:04 AM
To: Patrick Byrne
Subject:

Patrick,

Roddy Boyd here. I am writing a story for Slate’s thebigmoney.com. I have set up this email account for this query and will no longer use it after 4:30 pm EST tonight. I will phrase the questions as bluntly as possible because I am not seeking to engage in an E-mail exchange. Should you need to reach out to the story’s editor, Please approach Jim Ledbetter. I believe his email address is James.Ledbetter@thebigmoney.com. Please have your response in by 4:30 pm EST.

Your response will be linked to in its entirety, as well as referenced within the body of the story–I imagine it would look something like, “Patrick Byrne said, ‘xyz…..’” (To see Byrne’s full response, click here.)

Answer: Thanks for the tip, Roddy, but I just decided to answer here on DeepCapture. We appreciate the link, though, and will return it once you publish. Remember, we journalists have to stick together.

The story deals with Overstock’s state of affairs in the fall of 2005 and winter of 2006. Specifically, It (sic) references the problems you had with factors such as CIT because of Overstock’s losses and its percieved (sic) weak operating position. The governing theme of the piece is that financial investigative reporting on fully operational companies is imprecise (unlike say doing a post-mortem on Lehman or Enron.) In other words, the concerns of OSTK critics about liquidity and the build-your-own-jewelry initiative appear correct, but that they (likely) could never have guessed precisely why.

“[A]ppear correct”, do they? Well we’re still here and doing quite well, thank you, while your patron David Rocker plays shuffleboard in Florida, muttering my name under his breath like a wino’s lament as he realizes that for years to come his own name will give off a foul stench among the smart money set he unsuccessfully aped.

An Email (sic) I quote, from 11/14/05, from David Chidester to you, Jonathan Johnson and Jason Lindsey says, “Unfortunately what we feared has begun. Some factors and banks have stopped insuring our payables.”

This clearly had been a problem of some duration for OSTK, since on 9/22/05, five weeks after your suit was filed, you stated in an email to your colleagues, “I just sat with CIT. They confirmed that at one time we were reasonably good (not great), and have turned to shit in the last six months.” You added: “For years, I have been hearing from accounting that we pay our vendors super-promptly.”

Answer: The fact that we were considering  the views held by some does not make them material any more than, for example, my saying that “Roddy Boyd is a half-bright hedge fund shill” would have been a material event for New York Post, or Fortune, or whomever was then displaying the unfortunate judgment of employing  you. Some folks at CIT said one thing, some factors said another, our accounts said something else, our Paydex score (you may have to look that one up) held up throughout (and  is now an 80, pretty much at the top of the vendor-payment pyramid in our industry), and CIT turned out to be the one that went under. Ohhh, the irony, the irony.

The story also references emails between Rich Paongo and Chidester on January 20, 2006 which looked at the problems three of Overstock’s factors and lenders had with the company: “Not meeting projections, no profits, low cash, and slow payments .” On February 28, 2006, Joanne Dalebout, E-mailed you and your colleagues, “All [vendors] are saying that with Overstock in the papers a lot and the lawsuit they don’t think we will be in business and that we are too much of a risk? Also having problems with CIT not approving small orders.”

Answer: It appears your understanding of “material” includes how some people react to how other people react to exaggerated hedge fund-planted media pieces written by…. You.  These were not prevalent internal views or conclusions nor, most importantly, my views: I thought they were wrong, I proved to be right, and CIT went the way of the wild buffalo and your job at Fortune.

Why did OSTK not reference the troubles it was having with its key credit providers in any of its public communications?

Answer: So your understanding of “material” would include the report of a buyer about the rumors spread by a factor to the companies that this factor charged to justify the price of its services? Did I miss anything?

As you will recall, one of the concerns that OSTK critics had was the company’s cash-flow and operational soundness. For a retailer, this would clearly appear to meet the threshold of materiality. Do you disagree?

Answer: I do.

And would you elaborate on this decision?

Answer: Same answer.

The story will also mention “Operation heist and freeze” with your “Lubbavitcher friends” from Ice.com.

Answer: Right on.

–Why did you not disclose, per Jonathan Johnson’s report to the OSTK board on 7/13/05, that the diamond VIE was structured as it was to avoid “Nexus in the State of New York for sales tax purposes.”

Answer: Same answer plus the issue was not material plus tax is discussed in the due course of the conduct of any business plus have you ever considered trying the fact-fact-logical-inference thing instead of the stuck-on-stupid-reporter thing?

–Please elaborate on Overstock’s decision to avoid paying sales tax and to not disclose the identities of Moshe Krasnanski and Meyer Gniwisch.

Answer: I think you mean “collect sales taxes” and the law of this country requires us to collect sales tax in some cases and not in others and remind us again, What’s it like to go through life with a room temperature IQ? Can you hide your own Easter Eggs?

Thank you,

Roddy Boyd

Don’t mention it, Roddy. Remember, I’m always here to help.

Very respectfully,

Patrick Byrne, Journalist

LATE EDITION:

PS I see Roddy just sent a follow-on:

From: Roddy Boyd [mailto:roddyboyd@ymail.com]
Sent: Thursday, January 14, 2010 12:53 PM
To: Patrick Byrne
Subject: one follow up question

Forgive the additional query, but it is germane.

The big diamond block, the trade you staked with Moshe and Meyer for about $7.5mm, appears to have originated from one Lev Leviev, a rather interesting man.

Leviev, outside of his NYC and West-Bank real estate operations, is also one of the more active miner and marketers of Angolan diamonds, an area whose extraction methods and principles are quite controversial.

Were those diamonds sourced from Angola? If so, could you elaborate on any debate you had with respect to doing this sort of business?

thank you

Roddy Boyd

Answer: Fred Norton went down the same line of questioning, and I’ll give you the same answer I gave him. No they were not sourced from Angola nor were they blood diamonds, and yes I conducted an investigation to that effect before doing the deal: said investigation consisted of asking my four Lubavitch rabbi friends plus the family patriarch (himself, a Ha-Shoa survivor who spends half his day in Talmudic studies) and having them tell me what I already knew, which is, that they would never engage in or draw me into any business which was not super-clean.

And thanks for playing, Roddy.

It remains unclear how Cohen convinced Goldstein’s superiors to shelve their journalistic ethics, but it is not surprising that he succeeded. After all, Cohen is “the most powerful trader on the Street.” He is also part of a network of closely affiliated hedge fund managers that for many years all but dictated much of what was published by the New York financial press.

Three years ago, while working for the Columbia Journalism Review, a magazine affiliated with Columbia University’s school of journalism in New York, I began investigating this network of hedge funds. I worked for many months on this story, and compiled evidence that the hedge fund managers, including Steve Cohen, had developed extremely odd relationships with small number of dishonest journalists.

This evidence gradually convinced me that the hedge funds and journalists not only routinely worked together to disseminate false information about public companies, but also set out to cover up the serious crime of market manipulation via naked short selling.

As I was preparing to publish this story, a hedge fund called Kingsford Capital donated a large sum of money to the Columbia Journalism Review. Indeed, it was made clear to me that my salary would be paid directly from Kingsford’s donation.

I have made this abundantly clear in various stories that I have since written for Deep Capture, but new evidence confirms that Kingsford is tied directly to Steve Cohen’s network of hedge funds and shady journalists – that is, the very network that I was planning to expose in the Columbia Journalism Review when Kingsford announced that it would henceforth be paying my salary.

I left the Columbia Journalism Review soon after Kingsford announced its “donation.” It is possible that my editors would have done the right thing and published my story had I remained. However, I have no doubt that Kingsford Capital’s “donation” stemmed not from some newfound dedication to the field of media criticism, but was intended as a means of acquiring leverage over the Columbia Journalism Review.

Moreover, new information suggests that Kingsford’s financial inducements might have persuaded other journalists to cover up short seller crimes.

This is a scandal of rather significant proportions, so let’s review the evidence, old and new.

• While at Columbia, a key focus of my investigation was a financial research shop called Gradient Analytics. Former Gradient employees had testified under oath that short selling hedge funds – especially Steve Cohen’s SAC Capital and Rocker Partners – wrote and traded ahead of Gradient’s false, negative reports on public companies. Former employees of Gradient also said that journalist Herb Greenberg, then of CNBC and MarketWatch.com, timed his false, negative stories, which were based on Gradient research, so that Rocker could profit from the effect those stories had on stock prices.

• In the course of investigating SAC Capital and Rocker, I was taking a close look at the bear raid on a company called Fairfax Financial (NYSE:FFH). As we have since shown in numerous Deep Capture reports, Rocker, SAC Capital and a few closely affiliated hedge funds – including Jim Chanos’s Kynikos Capital, and Dan Loeb’s Third Point Capital – conspired to destroy Fairfax. As part of this ultimately unsuccessful attack, the hedge funds attempted to cut off Fairfax’s access to credit. They traded ahead of false financial research that had been written with their cooperation. And they hired a thug named Spyro Contogouris to harass and threaten Fairfax executives.

• Emails obtained from discovery in a lawsuit filed by Fairfax Financial (NYSE:FFH) show that Kingsford Capital, the hedge fund that donated money to pay my salary at the Columbia, is directly tied to Steve Cohen, Rocker Partners and the other hedge funds that were attacking Fairfax at the time of my investigation. In one email, from Kingsford manager David Scially to Rocker Partners employee Russell Lyne, the subject line reads: “http://www.spyrocontogouris.com” – a reference to the website of the above-mentioned thug, Spyro Contogouris. The contents of the email is redacted, so it is difficult to know what was discussed, but it is safe to assume that Kingsford and Rocker were communicating about the attack on Fairfax.

• It has also come to my attention that Kingsford Capital at one time employed the above-mentioned thug, Spyro Contogouris. Two weeks after Kingsford agreed to “donate” money to the Columbia Journalism Review, the FBI arrested Contogouris as part of an investigation into this same network of hedge funds.

• Another target of my investigation was TheStreet.com (NASDAQ:TSCM). Although some good journalists work for that publication, a review of hundreds of stories and numerous bear raids made it clear to me that TheStreet.com had been founded partly to serve the financial interests of select short selling hedge funds, including Rocker Partners, which was then TheStreet.com’s largest shareholder (apart from founder Jim Cramer). Over the course of my investigation, I closely examined the journalism of TheStreet.com’s five founding editors. It was clear that these five journalists had routinely disseminated false information that served the interests of their short selling sources, including Rocker Partners and SAC Capital.

• Four of the five founding editors of TheStreet.com were as follows:

1) Jim Cramer, famously of CNBC;

2) David Kansas, then of the Wall Street Journal;

3) Herb Greenberg, the CNBC and MarketWatch reporter mentioned above, said to be conspiring with Rocker and Gradient Analytics;

4) Jon Markman, then running a hedge fund out of the offices of the above mentioned Gradient Analytics. (Markman has since gone on the record saying that hedge funds pay journalists to write false stories.)

• The fifth founding editor of TheStreet.com was Cory Johnson. In 2006, Cory Johnson was a manager of Kingsford Capital, the hedge fund that donated money to pay my salary at the Columbia Journalism Review, right before I was to publish a story exposing the five founding editors of TheStreet.com and the hedge funds in their network. After I published my first Deep Capture story raising questions about Kingsford’s donation to the Columbia Journalism Review, Johnson removed all references to Kingsford from his online profiles at LinkedIn.com and other social networking sights.

• Another focus of my investigation at Columbia was a hedge fund manager named Jim Carruthers. Patrick Byrne, in his capacity as CEO of Overstock.com, had recently sued Rocker Partners and given a famous conference call presentation in which he described the shenanigans of Rocker and affiliated hedge funds. During this presentation, Patrick stated that he had been informed that Carruthers had been posing as a private investigator as part of the network’s efforts to smear public companies. An email obtained in the Fairfax discovery, written by an employee of the above-mentioned Third Point Capital, and addressed to the above-mentioned Dan Loeb, states: “Jim Carruthers (ex Eastbourne partner, Scially friend, etc.) would like to come up and meet with you…It would be well worth your time.” In other words, Scially, the Kingsford Capital manager, was on good terms with both Carruthers and Loeb, at the time that Kingsford announced that it would be paying the salary of the journalist (me) who was seeking to expose Carruthers, Loeb, and the rest of their network.

• Deep Capture reporter Judd Bagley has obtained a list of people whom Kingsford Capital manager David Scially invited to be his “friends” on Facebook, the social networking site. Among Scially’s Facebook friends were Rocker Partners’ managing partner, and three of this managing partners’ family members. Several bloggers, such as Gary Weiss (more on him below), have written that Judd’s Facebook list is a Nixonesque “enemies list” dreamed up by Overstock CEO Patrick Byrne, when in fact Byrne was not involved in its creation, most of the people on the list have nothing whatsoever to do with Overstock.com, and it was not “dreamed up”, but merely documents cold facts (bilateral Facebook friendships) that are in fact public. When considered alongside the emails and other evidence, the Facebook revelation is excellent evidence that Scially is close to Rocker Partners – close enough to invite the managing partner and much of his family to be his internet pals. That is big news – a clear motive for Kingsford Capital to begin paying my salary right before I was going to publish strong evidence that Rocker Partners and others in its network were dirty players.

• Scially’s Facebook friends also include the above-mentioned Dan Loeb, accused of conspiring with Rocker Partners in the attack on Fairfax; David Einhorn, a hedge fund manager whom I was investigating because he consistently attacks public companies in cahoots with Loeb and others in the network; and Dan Colarusso, a journalist I was investigating because he had vowed to use “barrels of ink” to “crush” Patrick Byrne, who was famously crusading against naked short sellers and this same network of miscreant hedge fund managers. (Patrick is now a Deep Capture reporter.) This additional Facebook information is clear evidence that Kingsford Capital is part of the network I was investigating when Kingsford Capital “donated” money to the Columbia Journalism Review.

• Another target of my investigation at CJR was a journalist named Gary Weiss. Weiss, a former reporter for BusinessWeek magazine is flat-out corrupt. It is a disgrace to the profession of journalism that he is still working. While at BusinessWeek, he published stories fed to him by Kingsford Capital while deliberately covering up illegal naked short selling by Kingsford’s then business partner. Since then, Weiss has been caught anonymously authoring blogs that spew lies about people he considers to be his enemies. He has been caught anonymously authoring blogs in which he effusively praises himself — Gary Weiss. He has denied that he authored the blogs about himself despite all evidence to the contrary. He was caught shilling for the Depository Trust and Clearing Corp. (an outfit at the center of the naked short selling scandal) while posing as a journalist. He was caught lying about his shilling. He was caught lying and denying when he was caught controlling the Wikipedia entry on naked short selling. He has lied repeatedly in his blogs about Deep Capture reporters Patrick Byrne and Judd Bagley. He has lied about me – for example, stating that I was fired from the Columbia Journalism Review. He has continued to lie and cover up the crime of naked short selling. He has lied and covered up crimes committed by people tied to the Mafia. And the common denominator of all this lying has been to boost the profits of short selling hedge fund managers, such as his pals at Kingsford Capital, which “donated” a lot money to the Columbia Journalism Review shortly before I was going to publish a story exposing Gary Weiss and his hedge fund friends. (For complete evidence of Gary Weiss’s lying, and his ties to Kingsford Capital, please search through Deep Capture’s archives. We have published extensively on the subject).

• Another target of my investigation at CJR was a hedge fund manager named Manuel Asensio, who is tied closely to Gary Weiss. Asensio previously worked for First Hanover, a brokerage tied to the Mafia. He is a self-confessed naked short seller and has been fined for naked short selling infractions. He was also once a business partner of Kingsford Capital. That is to say, Kingsford and Asensio contractually agreed to attack public companies together. I think it’s safe to say that Asensio was close to Kingsford Capital at the time that Kingsford Capital delivered a bundle of money the Columbia Journalism Review.

• Another focus of my investigation at CJR was the appalling bear raid on a collectibles company called Escala (NASDAQ:ESCL). Not only was Escala the victim of massive amounts of illegal naked short selling, but a hedge fund convinced the Spanish government that Escala’s parent company, based in Madrid, was fleecing investors in philatelic collectibles. The Spanish government closed the parent company, Afinsa, but not a single executive of the company has since been prosecuted for any crime. Former clients of Afinsa are now petitioning the Spanish government, claiming that the closure was a gross miscarriage of justice. For the full story, I encourage you to visit a website (www.gregmanning.me) put together by Escala’s former CEO. This website provides evidence that the hedge fund at the center of the bear raid on Escala – the hedge fund behind the Spanish government’s decision to close Afinsa — was none other than Kingsford Capital, which donated a bundle of money to the Columbia Journalism Review while I was busy trying to figure out which hedge fund was at the center of the bear raid on Escala.

• While I was working on my story for the Columbia Journalism Review, a reporter named Justin Hibbard was working on a similar story for BusinessWeek magazine. I have reviewed emails between Hibbard and one of his sources. These emails clearly show that Hibbard had received evidence that various companies had been clobbered by illegal naked short selling. The emails suggest that Hibbard was investigating ties between journalists and naked short sellers, and that he had interviewed the above-mentioned Herb Greenberg. But for some reason, Hibbard’s story was killed. It never appeared in BusinessWeek. Shortly after Hibbard’s story was killed, Hibbard had a new job – working as consultant to Kingsford Capital.

• After I wrote my first story raising questions about Kingsford’s “donation” to the Columbia Journalism Review, Hibbard erased all mention of Kingsford from his profiles on LinkedIn.com and other social networking sites. In a phone interview, Hibbard told me that he “preferred not to discuss” his relationship with Kingsford. When I asked what happened to his BusinessWeek story about naked short selling and corrupt journalists, he said that he had never worked on any such story. When I told him I had evidence to the contrary, he said he might have done some initial research on naked short selling, but he never finished the story. Currently, Hibbard works as a private investigator catering to the needs of short sellers and other “activist” investors. In an interview with an online publication, he said he serves hedge funds by “covertly” observing executives of public companies, taking photos of the executives with a spy camera, staking out offices, using multiple cars to trail the executives, etc. I assume Kingsford Capital is one of his clients.

• My successor at the Columbia Journalism Review is now referred to as the “Kingsford Capital Fellow.” He has written several stories arguing that the above-mentioned Gradient Analytics is innocent, despite massive amounts of evidence to the contrary. He has written that short sellers are swell and good sources for journalists (glossing over the distinction between short selling and abusive short selling, just as a child molester would gloss over the distinction between sex and pedophilia). He has criticized a 60 Minutes television news expose on Gradient and Steve Cohen of SAC Capital. He has criticized Bloomberg News for writing that criminal naked short sellers helped take down Bear Stearns and Lehman Brothers. And he has portrayed the corrupt Gary Weiss as a respectable reporter. I don’t mean to suggest that the “Kingsford Capital Fellow” is dishonest, but I predict he will not write about journalists who have been corrupted by Kingsford Capital’s network of hedge fund managers.

To summarize, a particularly nasty network of hedge fund managers and criminals use underhanded tactics to influence the press. We have a money trail, multiple motives, and plenty of other reasons to believe that this network got to the Columbia Journalism Review, which is the only watchdog there is to keep the press honest.

So it goes. Interesting world, isn’t it?

Recently, yet another effort to infiltrate and alter the content of Wikipedia by a proponent of illegal shorting came to light and was foiled. As before, the infiltrator was former Business Week reporter Gary Weiss (whom a senior contributor recently termed “one of [Wikipedia’s] most slippery sockpuppeteers”), operating for over a year in complete defiance of an edict specifically banning him from the site based on his very well-documented history of abusing Wikipedia for his own conflicted purposes.

In the past (as you can read about here), we know Weiss spread misinformation relating to stock fraud via Wikipedia on behalf of the Depository Trust and Clearing Corporation (DTCC), the Wall Street firm considered a key enabler of illegal short selling. Exactly who’s sponsoring Weiss these days is unclear; however, as the evidence that follows will demonstrate, his concerted effort to whitewash DTCC’s Wikipedia article makes that company the prime suspect.

Now that his ruse has been uncovered – yet again – the focus becomes one of identifying and repairing the damage done. A brief review of some of the thousands of changes made by Weiss will give you a sense of both the scope of the problem and the nature of his motives. I’m organizing the following tiny sampling of Weiss’s Wikipedia edits by topic, with the content as it originally appeared on the left, with Weiss’s changes on the right. Words added or removed appear in red.

As you read what follows, ask yourself two questions:

1. Which version, be it the left (before Weiss) or the right (after Weiss), better reflects reality and serves readers (particularly journalists) seeking to form an opinion?
2. What might be Weiss’s motive for obsessively making these changes (and literally hundreds more like them)?

If there is a silver lining to this cloud, it’s the following: Wikipedia’s current ruling Arbitration Committee, which has the unenviable task of, among other things, dealing with Weiss and his continued efforts to subvert their authority, is genuinely interested in doing the right thing in this situation. Though you might take that for granted, I can assure you that this has not always been the case. Indeed, at one time, Wikipedia’s ArbCom seemed to go out of its way to enable Weiss’s abuse of this most important social media platform, resulting in (if you can believe it) an even greater number of yet more dramatically skewed and self-serving changes to these articles by Weiss.

Wikipedia has come a long way since then.

Finally, it seems unlikely that Portfolio.com, where he authors a business column, is aware of Gary Weiss’s actions. They would probably appreciate knowing more. If you agree, consider sending a brief and informative note to Condé Nast Publications Group President David Carey: David_Carey@condenast.com.

Postscript: If you’re at all unclear on why you should be bothered that DTCC seems to have hired former journalist Gary Weiss to cover-up the crime of illegal of naked short selling, I strongly suggest you check out Lila Rajiva’s recent post on the composition of that company’s board of directors.

_____________________

And now, for what long-time readers of DeepCapture.com will recognize as my favorite part of writing about Gary Weiss: a little running up of the score (piling on with additional insights that don’t necessarily make the case on their own, but certainly make the case much more entertaining).

After discovering the Wikipedia edit placing Gary Weiss within the Fort Knox-like DTCC (see this for the explanation, if you didn’t already follow the link above), I sent DTCC spokesman Stuart Z. Goldstein the following email:

From: Judd Bagley
To: Stuart Goldstein
Sent: Wed, 31 Jan 2007 10:24 PM
Subject: media inquiry
Mr. Goldstein,
Yesterday I received some information suggesting Gary Weiss either is or has been hired or retained by the DTCC (or DTC or NSCC). Can you confirm the existence of a professional relationship between Gary Weiss and your organization?

More than two days passed with no response. Finally, I received the following:

From: Stuart Goldstein
To: Judd Bagley
Date: Fri, Feb 2, 2007 at 12:00 PM
Subject: your inquiry

*** Body Not Included ***

That’s right…the body of the email read only “*** Body Not Included ***”

With that, I responded:

From: Judd Bagley
To: Stuart Goldstein
Date: Fri, Feb 2, 2007 at 1:20 PM
Subject: Re: your inquiry

Mr. Goldstein,
Thanks for your reply, though the body appears to be missing…may I trouble
you to re-send your reply?

Goldstein’s record-breaking response (especially considering his earlier reply took two days to arrive) hit my inbox three minutes later:

From: Stuart Goldstein
To: Judd Bagley
Date: Fri, Feb 2, 2007 at 1:23 PM
Subject: Re: your inquiry

My response to your question is no.

On the surface, this would seem to be Goldstein denying a relationship between DTCC and Weiss. The problem is, I didn’t ask a yes or no question. I asked him to confirm something specific, to which he responded “no.” The answer didn’t fit.

I twice asked Goldstein to clarify his response, and was twice ignored.

That’s when I realized I’d been played.

Goldstein’s quick reply of “My response to your question is no” was probably calculated beforehand as his response to my inevitable request that he re-send the reply which read only “*** Body Not Included ***”.

He got me.

Here’s how this applies to Weiss.

Weiss’s most recently-banned Wikipedia sockpuppet, known as JohnnyB256, generally began to arouse suspicion in September, following a series of extremely slanted edits to the Wikipedia article on DTCC. At that time, multiple Wikipedia editors asked JohnnyB256 if he had a relationship with Gary Weiss. JohnnyB256 avoided answering the question (other than to dismiss it as “unmitigated gall”) until a senior Wikipedia administrator known as Lar inserted himself into the conversation to say he felt it was a “reasonable question.”

JohnnyB256 then responded, in a way that was unambiguously directed to Lar alone, saying, “The answer to your question is ‘no’.”

Only problem is, Lar was the one person who never asked him the question. Unfortunately, nobody picked up on this serpentine strategy at the time, allowing JohnnyB256 to claim he’d already answered the question of  a link to Weiss when it came up from time to time.

Anybody else suspect Weiss and the DTCC are using the same playbook?

As with all those included on these emails, I had to do some research to determine the role each played for their respective employers at the time the emails were sent. For most, this was easy. But for Jeff Perry, it was difficult. That’s because since 2002, when the emails were originally sent, Perry has worked for SAC, Third Point, and Kynikos.

So, not only do these supposedly fierce competitors share and profit from inside information, they also share employees.

The sender of possibly the most damning of the highlighted emails was, at the time, SAC portfolio manager Forrest Fontana, who, with the help of a SAC investment of $50-million, left to start his own hedge fund, Fontana Capital, in 2005. However, despite a very strong start, Cohen suddenly pulled his money out of Fontana Capital in 2007, leaving the firm far out of the money and, according to Reuters, hardly a hedge fund at all these days.

And this brings us to another interesting phenomenon, recently examined by financial blogger and author Lila Rajiva: the startlingly high mortality rate of SAC-sponsored spin-off hedge funds. As Lila notes, the consistently poor performance of Cohen’s anointed proteges — often a result of Cohen’s inconsistent support of them — contrasted with the strong showing of one fund launched by former SAC traders who left under a cloud, is a little suspicious…as though maybe these satellite SACs weren’t supposed to succeed.

Here are Lila’s observations on the matter:

1. The high number of SAC traders who seem to have gone off into their own businesses.

You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite.  People seem to have been leaving all the time to form their own businesses.

But SAC was also said to be a very tough environment. You produced, or you left.

So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.

2. None of the spin-off firms seems to have been very successful.

Why not? Why couldn’t these hot-shot traders make money on their own?

The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.

But those things are likely to be true of other firms as well, not solely SAC.

Still not convinced.

Furthermore, consider this.

3. A spin-off fund that didn’t get money from Cohen ended up quite successful:

“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.

Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”

4. Even spin-offs that were doing well were shut down.

When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.

Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006.  But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.

Reuters quotes someone familiar with the record of ex-SAC traders:

“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.

Shades of Bernie Madoff….

Someone need to look closely at what happened to the money at these firms…

Funds like Blue Ridge, Greenlight, Third Point, Glenview, and Maverick are cutting back on any contact with [SAC Capital's Steve Cohen]. When we asked major players such as [President of hedge fund Kynikos Associates] Jim Chanos and others if they’ve been pinging Stevie about a trade lately, you’ll get a very defensive ‘no.’

…Extra measures are being taken to hire data-miners to comb through any and all emails firms and their trading consultants ever sent to anyone at SAC in an attempt to erase them from internet memory.

If true, hedge funds Third Point and Kynikos will find it quite impossible to delete all their correspondence with SAC, given DeepCapture.com possesses several emails which, it just so happens, implicate all three funds in insider trading of a different sort; specifically, influencing and trading ahead of an analyst’s report.

DeepCapture.com first reported on this situation nearly one year ago, but I feel it’s worth revisiting and updating this topic, given recent developments.

Here’s the short version: in late 2002, a group of short-selling hedge funds, led by Kynikos Associates, learned from a Morgan Keegan analyst that he was preparing to initiate very pessimistic coverage of Canadian insurance company Fairfax Financial Holdings (NYSE:FFH). Kynikos promptly alerted SAC Capital and Third Point Partners about this prime shorting opportunity. In the days that followed, traders at Kynikos and SAC met with the analyst, reviewed and offered input on drafts of his forthcoming report, and, together with Third Point Partners, built up large short positions in Fairfax, which they very profitably covered following the report’s publication.

In one particularly telling email, a SAC trader sends an email to Steve Cohen himself, in which he explicitly states that SAC will cover their Fairfax short position following the Morgan Keegan report’s publication.

Here’s the long version: Fairfax Financial Holdings was first listed on the NYSE on December 20, 2002. During its first 15 trading days there, volume averaged well under 180,000 shares.

Then, on January 16, 2003 FFH volume exceeded 500,000 shares on an otherwise uneventful day in the life of a Canadian insurance company.

The next day, January 17, 2003 Morgan Keegan analyst John Gwynn initiated coverage of FFH with a scathing report and rating of “underperform”, making for one of the more eventful days in the lives of Fairfax shareholders, as their investments took heavy losses on extremely high volume.

Because information drives markets, one would expect to see extra activity in the wake of new information, such as that introduced by Gwynn on the 17th.

But what accounts for the unusually high volume observed the day before Gwynn’s report was published?

The answer to that question would come in October of 2008, when Morgan Keegan announced that Gwynn had been terminated for sharing his unpublished research on Fairfax with a small group of short-selling hedge funds.

Gwynn’s termination appears to be linked to the lawsuit Fairfax filed against several firms, including SAC, Third Point and Morgan Keegan alleging racketeering.

Email and trading data obtained through discovery in that suit conform that hedge funds Kynikos, Third Point, and SAC Capital all traded ahead of this material, non-public information.

It all started on December 11, 2002 when Kynikos employee Mark Heiman alerted Chanos that he had just learned from an analyst at Ziff Brothers Investments that a Morgan Keegan analyst was about to publish a negative report on Fairfax.

From: Mark Heiman (Kynikos Analyst)
Sent: December 11, 2002 11:06 PM
To: James Chanos (Kynikos President), Douglas Millett (Kynikos COO)
Subject: Fairfax
——————————————————————-
I just got off the phone with ZBI’s insurance analyst, Michael Ting. He just talked to a new insurance analyst at Morgan Keegan, and apparently that analyst is about to initiate FFRX at “Underperform,” with the thesis being that they are extremely under-reserved into the $3-$5 BN area. Also, there may be an article in Forbes or Fortune soon that will be similarly critical.
Ting said he thought that analyst was one of the best P&C analysts he has talked to, and wanted to give us the heads-up, as well as hear how we’re coming at it.

The next day, Kynikos employee Matt Cantrell apparently contacted Gwynn, as he sent Ting several documents relating to Fairfax subsidiaries, with the comment, “John Gwynn believes these might be of interest to you.”

Four days later, Heiman spoke to Gwynn personally, having a conversation which he summarized in the following report to Chanos:

From: Mark Heiman (Kynikos Analyst)
Sent: December 16, 2002 4:46 PM
To: James Chanos (Kynikos President), Douglas Millett (Kynikos COO), Charles Hobbs (Kynikos Managing Partner)
Subject: Fairfax
——————————————————————-
Just spoke to John Gwinn at Morgan Keegan, and he was more critical of FFRX than I’ve ever heard a sell side analyst. It looks like his criticisms of from the top to the bottom–everything from underwriting to accounting to dishonesty. He gave me his basics, as he is somewhat restricted because he hasn’t officially launched. It will be interesting to see how much of this the people who run the research department there will let him publish!

On December 18, 2002, Chanos forwarded Heiman’s email to Jeff Perry, then a senior portfolio manager at SAC Capital.

The day after Fairfax began trading on the NYSE, Gwynn’s revelations became much more explicit as he shared with Kynikos employee Heiman portions of his forthcoming report on Fairfax.

From: Mark Heiman (Kynikos Analyst)
Sent: December 21, 2002 6:03 PM
To: James Chanos (Kynikos President), Douglas Millett (Kynikos COO), Charles Hobbs (Kynikos Managing Partner)
Subject: Fairfax
——————————————————————-
Last night John Gwinn at Morgan Keegan faxed over to me an outline detailing the issues at FFH, basically those he will be publishing on. He has been a huge help and even offered to talk to me from his home today. We can look at these and talk to him next week–I just wanted to come in today and take a look at what he sent to get a head start on what he sent.

In the days to follow, Gwynn and SAC Capital Portfolio Manager Forrest Fontana held a face to face meeting where they discussed Fairfax.

Fontana followed up on that meeting via email to Gwynn:

From: Forrest Fontana (SAC Portfolio Manager)
Sent: January 06, 2003 8:57 AM
To: John Gwynn (Morgan Keegan Analyst)
Subject: RE: hope you had a nice holiday!
——————————————————————-
you available to touch-base on Fairfax sometime this week?

Followed by Gwynn’s prompt and eager reply:

From: John Gwynn (Morgan Keegan Analyst)
Sent: January 06, 2003 9:01 AM
To: Forrest Fontana (SAC Portfolio Manager)
Subject: RE: hope you had a nice holiday!
——————————————————————-
Name the time.

Fontana proposed a conversation the following day and requested a spreadsheet summarizing Gwynn’s analysis on Fairfax, which Gwynn promised to send.

On January 13, 2003 Fontana sent his boss, Steven A. Cohen himself, a summary of his planned activities for the week, which included:

Tuesday 1/14: Morgan Keegan expected to launch on Fairfax with sell rating – we will be covering into this.

As it turns out, Gwynn’s report was published on the 17th of January, not the 14th as Fontana expected. Still, it’s clear that SAC Capital was formally planning to trade ahead of the information received by Gwynn.

Trading records produced by Kynikos and Third Point all tell the same story: heavy short selling in anticipation of Gwynn’s report, and highly profitable short covering in the days that followed.

What did John Gwynn get out of all this? That’s unclear, though upon his firing, Morgan Keegan went to great lengths to say that Gwynn’s opinions were his own and not influenced by the hedge funds that profited from advance knowledge of them. We’ll likely never know more than that, as Gwynn reportedly passed away earlier this year.

The next question is: did Morgan Keegan get anything out of this arrangement?

The answer is yes: On December 21, 2002, the day after Kynikos received Gwynn’s unpublished analysis, Kynikos COO Douglas Millett declared his intention to begin sending business to Morgan Keegan.

Apparently, that’s how big hedge funds like Kynikos operate, which makes Chanos, who is also head of the Coalition of Private Investment Companies,  the logical person to lobby Congress as that body considers long-overdue reforms.

A few weeks after these emails were initially published here on DeepCapture.com, the Wall Street Journal reported “The Securities and Exchange Commission is investigating whether several hedge funds traded improperly after being given advance notice by a research analyst of his negative report on a prominent insurer.”

At the time, I made it clear that if anything became of that investigation, I would publicly eat my hat…not because of a lack of evidence of wrongdoing on the part of these hedge funds, but because — consistent with its captured state — it goes against the SEC’s culture to take action against big players.

Had these been small hedge funds acting illegally, the SEC’s version of civil justice would have most certainly been both swift and sternly-worded.

First, for what it is worth: David Rocker’s partner Marc Cohodes and I are not on speaking terms, and I’ll doubt we’ll make each other Christmas cards, but given that he has figured in a recent post or two of Judd’s I think I’d better make clear something clear. I cannot go into anything that we learned in discovery, of course, but my impression of things is that Cohodes actually turned out to be an adult, in that when David Rocker went nuts at me with anger, malice, and frustration, Cohodes tried to rein Rocker in. He may not have reined as early or hard as I would have wished, but I do believe that Cohodes tried to provide Rocker some adult supervision. Thus, Judd’s recent work should be understood to be less about Cohodes personally, and more about substantiation of the claim that is one of the central theses of DeepCapture, and that is, certain journalists have grown inappropriately close to the hedge fund beat.

Second: We can always tell when we are getting to them by the whine of the Spin-Blender’s motor in the blogosphere and financial media. Right now, they’ve punched the button marked, “Purée”. However, by doing so they are making an unusual mistake. Their normal system is to write stuff with lots of quarter-truths and spin, but that would take a casual reader a fair bit of time to unscramble. Regarding Judd’s recent two posts, however, their work is shoddy. So let me lay it out in terms of “Reality” and “Bizarro World Reality”.

Reality:

DeepCapture claims that a network of hedge funds is inappropriately close to a set financial journalists and bloggers. The Party line response has always been that the hedge fund managers are too competitive with each other to be friends, and that the journalists and bloggers are independent of the hedge funds. DeepCapture investigative reporter Judd Bagley used an assumed name to infiltrate their Facebook network and discovered that, yes, the hedge fund managers are in fact Facebook Friends with each other and precisely the financial journalists and bloggers about whom we have been writing, and that (while no one would claim that Facebook Friendship = “co-conspirators”), this fact is interesting.

Sentence-by-sentence translation into Bizarro World Speak:

• “DeepCapture claims that a network of hedge funds is inappropriately close to a set financial journalists and bloggers. The Party line response has always been that the hedge fund managers are too competitive with each other to be friends, and that the journalists and bloggers are independent of the hedge funds.” Bizarro translation: “Patrick Byrne is crazy. Haven’t you heard he’s crazy? I’ve heard he’s crazy. Look at all these hedge funds, financial journalists and bloggers who say he’s crazy.” (Note to Bizarro Translator: Avoid mentioning that the financial journalists and bloggers who say this are the ones whom we have accused, avoid mentioning that Overstock has now won many millions of dollars over these accusations, and most importantly, suppress at all costs the fact that Overstock actually occupies a minute role in DeepCapture’s accusations, which concern activities across the capital market .)

• “DeepCapture’s investigative reporter Judd Bagley used an assumed name to infiltrate their Facebook network…” Bizzaro World: “Overstock CEO Patrick Byrne hacked Facebook.” (Note to Bizarro translator: Avoid mentioning the fact that all the information Judd used was public, on Facebook, and the Facebook T&C stipulates that this information is public).

• “…[Deepcapture] discovered that, yes, these hedge fund managers are in fact Facebook Friends with each other and precisely the financial journalists and bloggers about whom we have been writing, and that (while no one would claim that Facebook Friendship = “co-conspirators”), this fact is interesting.” Bizarro Translation: “Patrick Byrne has made an enemies list of anyone critical of Overstock.” (Note to Bizarro Translator: Avoid mentioning that many, if not most, of the people in Judd’s video have never had anything to do with Overstock, in order to avoid addressing, or even admitting the existence of, the central claim of DeepCapture concerning  inappropriately close relations among financial journalists and the hedge fund beat).

As I said, what is interesting about this recent spate of blogs is how thin the veneer is getting. Pretty much any casual reader who comes across the blogs harping on Judd and who then clicks through to Judd’s work (especially The Stories Behind the Rocker and Gradient Lawsuit Story) is going to see the Reality/Bizarro divide in about 2 minutes. Sloppy work, guys: I know it must sting, but try to maintain your standards, OK?

As is described at great length in these pages, Wikipedia has been one of the principal battlegrounds in the effort to cover-up the crime of illegal naked short selling.

For just over two key years, former journalist Gary Weiss dedicated an enormous amount of time and energy to the process of gaining control over and skewing the Wikipedia article on naked short selling. We know that given Wikipedia’s influence as a research tool – of journalists in particular – the heavily Weiss-influenced version of the article made it much more difficult than it should have been to get real reporting done on the issue.

Fortunately, as more and more Wikipedians came to see what Weiss was doing, an army of volunteers banded together to prove, beyond any doubt, the extent of Weiss’s deception. Their conclusion: Weiss created multiple Wikipedia identities (commonly known as “sockpuppets”) working in parallel to give the false impression of much more support for his position than actual existed.

This is a huge no-no on Wikipedia, and resulted in Weiss’s permanent expulsion from the project, and the liberation of the naked short selling article (though far too late to matter, as naked short sellers managed to destroy Bear Stearns exactly one month later).

If you’ve followed the Deep Capture saga for very long, that much you probably knew.

Now you’re going to hear the rest of the story.

For the purpose of what follows, you need to know that in 2007, Weiss’s two main Wikipedia sockpuppets were named Mantanmoreland and Samiharris.  In September of that year, a group of Weiss’s protectors decided to create a private mailing list in order to counter the efforts of the growing number of people already working together to expose Weiss, his lies and his enablers.

Included on that private list were Wikipedia’s founder Jimbo Wales and three or four dozen other members of the site’s inner circle. Just to complete the illusion, Gary Weiss also joined the list…twice, as both Mantanmoreland and Samiharris.

Some time ago, I was given many of the emails exchanged by what came to be known as the super-secret Wikipedia Cyberstalking list. What follows is an abridgement of one of them.

The thread begins with Weiss sock Samiharris lamenting the failure of an effort to silence Wikipedia editor Cla68, who had engaged in multiple attempts to make the article on Gary Weiss himself (which was, in fact, written by Weiss) read a little less like a promotional brochure.

The matter became so contentious that Jimbo Wales himself and Cla68 exchanged emails in an attempt to find some common ground. By the time that exchange was over, Jimbo wrote to the members of the Wikipedia Cyberstalking list:

“Cla68 has written to me, and what he has written confirms what I have thought for a long time… I am not the only sane and reasonable person who thinks it very likely that Mantanmoreland is Gary Weiss and who would be thrilled to have a proof otherwise.”

Shortly adding:

“If Mantanmoreland would properly identify himself to me and prove that he is not Gary Weiss, we could put all this to bed quite easily.”

Of course, Mantanmoreland (Weiss) did not appreciate this, and responded:

“I am disheartened by Jimbo’s private comments, disgusted by his handling of stalkers when they correspond with him, and have absolutely zero faith in his ability to properly handle stalker issues himself.  I am sorry, but this is something he should delegate to others. When he privately corresponds with a stalker like Bagley or a helper like Cla68 his heart melts and he gets all mushy. It has happened before and it has happened again. It’s not going to stop. Wikipedia’s handling of stalkers is going to fail as long as stalkers can make headway by privately corresponding with Jimbo.”

Jimbo’s slight mangling of Shakespeare can be forgiven by this, his pitch-perfect response:

“The queen doth protest too much, Gary.”

Weiss’s reply barely manages to contain his rage:

“Oh I missed the “Gary”. Please be sure to use that name every time you refer to me, as I want to be reminded of your behavior tonight…because tonight was the night you officially became a stalker.”

That’s right. Weiss, having found some success labeling me and everybody else intent on enforcing some accountability for his actions “stalkers”, actually applied the label to Wikipedia founder Jimbo Wales himself.

At that point, Samiharris (also Weiss, remember) decides to offer himself some support in condemning Wales:

“I have to sleep on it to absorb the magnitude of the founder of Wikipedia acting this way.”

With that, Mantanmoreland and Samiharris signed off.

The next day, Samiharris started a new thread, hoping to recast Mantanmoreland’s earlier attacks on Wales:

“At its very lowest point, Jimbo precisely replicated the tone and content of a [Wikipedia criticism site] Wikipedia Review attack. I mean that literally. His response to Mantanmoreland, calling him “Gary,” could have been made by [Wikipedia Review administrator] Somey.”

To this, Wales offered the response of his life:

“I am frustrated that Mantanmoreland has not been more helpful to us in confirming that he is not Gary Weiss.  I think that the evidence for that is insufficient for us to know for sure, but that on average it tends to suggest it.  I have proposed a few different ways that Mantan could resolve this, but he is unwilling to even consider it.

And I am frustrated with you for your repeated personal attacks on me and complete refusal to assume good faith.  Any allegation against me, no matter how trivial or unsupported by evidence, is accepted by you as fact.  I think that’s unfortunate.

That frustration caused me to be inappropriately blunt with Mantan. But the issue is real. My concern is that if Mantanmoreland is really Gary Weiss, then it is only a matter of time until this is proven…either by Bagley or someone else…and we will find that we have been manipulated in a pretty sad way.

The evidence that Weiss has sockpuppeted all over the Internet is pretty compelling, and even the mainstream press has commented over his refusal to directly address it. Is Mantan one of those socks? We have no proof either way, but I think the evidence tends to suggest it.

It upsets him that I think that, but there you go.  Speaking the truth as I see it seems to me to be the most simple and direct way to correct any errors that I may have.”

Of course, everything I alleged linking Weiss with Mantanmoreland and Samiharris eventually was very publicly proven, and as Wales predicted, the clout once enjoyed by Weiss’s inner circle defenders was forever diminished.

This exchange, and many others like it involving Jimbo Wales and Gary Weiss in his multiple forms, also convinces me that – contrary to what I have openly wondered in the past – Jimbo’s public denial of the Weiss/Mantanmoreland+Samiharris connection, despite his private acceptance of the same, was based primarily on a desire to avoid damaging Wikipedia, as opposed to any theorized influence brought to bear by his associates in the Chicago options trading community (where a key component of illegal naked short selling takes place). I was wrong about that.

There are a few other insights we can take away about Gary Weiss from this exchange.

• First, when backed into a corner, Weiss will reflexively and irresponsibly lash out at his accusers.
• Second, Weiss seems programmed to characterize any efforts at investigating his online misbehavior as “stalking.” That, together with cries of “anti-Semitism,” are the two most well-worn tools in his chest.
• And third, Weiss’s willingness – even eagerness – to go to great lengths to mislead all around him is pathological. He can’t help himself.

Put it all together, and it’s easy to see why Gary Weiss was the logical choice when proponents of illegal naked short selling sought a resolute apologist for their repugnant practice.

Today, I make an exception.

In a recent post, I offered a theory as to why the reporting on a specific incident – DeepCapture contributor and Overstock.com (NASDAQ:OSTK) CEO Patrick Byrne’s filing of a defamation lawsuit against short-selling hedge fund Rocker Partners – was so undeniably polarized. In short, regional and non-business press reported very objectively on the suit, while the New York financial press coverage was overwhelmingly pro-Rocker Partners and anti-Byrne.

My theory cited Facebook friend relationships (information which is, according to Facebook itself, considered public) to demonstrate that with very few exceptions, the authors of the adversarial reporting all have close personal relationships with Marc Cohodes or his friends, and in some cases, with Cohodes’ family members.

I questioned how these reporters can be expected to do their jobs when these relationships exist between them and those they are supposed to be covering. I also pointed out that no political reporter would dare be “friends” (Facebook or otherwise) with an elected official he or she was tasked with covering, for that would inevitably cloud their journalistic integrity.

I’m not the only one who sees the world this way. Recently, judges and attorneys in Florida were prohibited from being Facebook friends with one another, since “online ‘friendships’ could create the impression lawyers are in a position to influence judge friends.”

As for my video, never once did I refer to “naked short selling.”

Not once.

Nor did I use the word “conspiracy.”

Not once.

This is a simple case of supposedly objective business journalists and bloggers being too close to their subject, Marc Cohodes, and allowing the relationship to affect their reporting. Period.

Those who are claiming that I was painting a larger conspiratorial picture either didn’t watch the video, or are attempting to intentionally deceive their readers and cloud this issue. I’m not sure which is more shameful.

I should also point out that those who are claiming I was painting a larger conspiratorial picture are – not coincidentally – directly tied to Marc Cohodes or his friends. The resulting stab at journalism (in name only) is hardly a conspiracy; it’s human nature and in the case of these writers, very poor form and an even more poorly-kept secret.

In anticipation of this response (what could be more predictable?) I preemptively uploaded a spreadsheet documenting the extended – and publicly available – relationships connecting these folks, which I invited DeepCapture readers to examine in order to spot additional links which might explain still more instances of questionable journalism in support of bear raiding short sellers.

Some are trying to spin this as an “enemies list”, but as anybody who took the time to watch my video knows, that’s just a frantic attempt at damage control by a bunch of blushing writers.

Finally, I want to address the most unhinged reporting on this of all: that of Gary Weiss, a blogger initially hired to attack critics of illegal short selling on behalf of the Depository Trust and Clearing Corporation.

Of all the disjointed untruths Gary has spewed in our nearly four-year old battle, the best – or should I say the worst – came out today. Weiss writes:

I found that somebody — gee, I wonder who? — hacked into my Facebook account and uploaded photographs of “guilt-by-association” presentations Bagley has drawn up over the years, one of which was made the picture associated with my account. Now that ain’t legal either, obviously. And yes, I will prosecute.

Weiss, and all those who believe any of this (public) Facebook data was acquired via hacking, give me much more credit than I deserve. Cracking a site like Facebook would be just about impossible. No, there was no hacking. Some users might hide their friend lists from their profile page, but that doesn’t make them go away. If you want proof (and have a Facebook account) go ahead and peruse the not-so private Facebook friend lists of Gary Weiss, Sam Antar and Tracy Coenen.

But be warned: doing so will get you labeled a “hacker” by them.

As for this nonsense about hacking into his account in order to upload images to it: what Gary, a Facebook newbie who’s a little too quick to believe the first convenient notion that pops into his head, is probably seeing are images that somebody (not me nor anybody I know of) has uploaded to their own accounts and tagged with his name. These would appear under his photo tab in a section dedicated to “Photos of Gary”, which is distinct from whatever images he might upload. If that bothers him, Gary has the ability to un-tag himself from any user’s photos. If you need help with that Gary, just let me know. I’ll walk you through it.

But, consistent with his mandate, despite an easy explanation, Gary decided to take the libelous route, as have the usual members of his entourage.

I only hope their apologies are published at least as prominently.

(Those of you who enjoy reading about Gary Weiss’s sockpuppeting misadventues will take great joy at the post I intend to publish later today.)

Overstock.com CEO Patrick Byrne is a frequent contributor to DeepCapture.com.

This is a major victory, not only for Patrick and Overstock.com, but for all public companies targeted by bear raiding hedge funds.

But thanks to the unusually skewed reporting surrounding it, chances are you either hadn’t heard about the suit, or were under the impression it was frivolous and certain to fail.

This presentation explains part of the story behind the coverage of the suit, using some innovative methods to explain why what you heard about the suit and its merits likely had little in common with the reality of it.

As promised in the video, researchers are encouraged to find additional links within the Facebook friend lists of the short-selling hedge funds and journalists and bloggers who love them. To make the process easier, I’ve compiled this spreadsheet. If you discover anything interesting, particularly with respect to the hedge funds and reporters linked to other bear raid targets, please write about your findings it in the comment section below.

Also, very shortly I’ll be adding an interactive, dynamic relationship browser to this post, which will make it easy for you to visualize these networks.

The first item reads as follow:

“The OIG has opened an investigation into complaints from an investor alleging that the SEC failed to investigate instances of market manipulation and other misconduct in connection with the review, and eventual non-approval, of a developmental drug. The investor also has alleged that the SEC failed to investigate a recent bear raid on the stock of the company that developed the drug, causing a severe plunge in the stock price. The OIG has reviewed several hundred pages of documents, including numerous emails and attachments provided by the complainant. The OIG expects to complete its investigation and issue a report of investigation in the next reporting period.”

I have confirmed that this is a reference to the bear raid on Dendreon, described in considerable detail by Deep Capture.  There is plenty of evidence — including, perhaps, those documents and emails referred to by the OIG — pointing to miscreancy in this case. Indeed, it is one of the more despicable cases of market manipulation on record – and many cancer patients were deprived of potentially life-extending treatment as a result. We look forward to reading the OIG’s report – it should be a doozy.

The second item of interest in the OIG report is this:

“The OIG continued its investigation of an allegation that SEC staff engaged in retaliation against a company after it publicly complained about naked short selling in the company’s stock. During this reporting period, the OIG took the sworn testimony of the staff attorney who worked on the matter and reviewed numerous relevant documents. The OIG has completed its investigative work and plans to issue its report of investigation prior to the end of the next semiannual reporting period.”

It has long been a contention of Deep Capture that the SEC has not just ignored allegations of naked short selling, but has gone after companies that complain about it, often at the behest of the short sellers themselves. This report, too, should be interesting, to say the least.

It wasn’t so long ago that people who did battle against abusive short selling and captured government officials were labeled as conspiracy theorists. Now, thanks to SEC Inspector General David Kotz and a few other honest people in government – people like Senator Ted Kaufman – we might finally see some light shed on some of the shenanigans that have made America look an awful lot like a third world basket case.

Yes, there are hedge funds that do bad things.

Yes, there are government officials who help them.

It’s an ugly reality, and the OIG is to be commended for treating serious allegations as they should be treated – i.e. seriously.

Sam’s correspondence is filled with the the brio and charming repartee one normally associates with the letters of Voltaire (for more examples, see my recent piece, “Sam Antar: PS And Is That Mr. Goniff?“) So it seems a shame not to share today’s treasury of Sam’s wit with a wider audience.

From: Sam E. Antar [mailto:sam@whitecollarfraud.com]
Sent: Wednesday, November 18, 2009 11:24 AM
Subject: Overstock.com Conference Call Scheduled Today at 5 PM
Importance: High

Hi Patrick Byrne:

I received read receipts from you and other persons at Overstock.com regarding my previous email requesting to participate in the live conference call so I can ask questions about Overstock.com’s accounting practices and financial disclosures. However, I received no response from you or your employees. Since my blog posts about Overstock.com’s improper establishment of “cookie jar” reserves to cook its books is the main issue here, in the interest of transparency you should let me participate in the call to discuss those issues with management. By shutting me out of the call, you will be viewed as stonewalling those issues and afraid to address them.

Regards,

Sam E. Antar

__________________________________________________________________________________________________

From: Patrick Byrne <PByrne@overstock.com>

Date: Wed, 18 Nov 2009 12:48:08 -0700

Hi Sam:

Please:

1) Admit you paid fellow conman Barry Minkow $300,000 in cash (as he testified in deposition: see pages 8-10) to write hatchet jobs on USANA;

2) Disclose where you got the $300,000;

3) Explain why it was necessary to pay someone else to shill for you when you are an expert in the business of exposing frauds.

I’m looking forward to your answers.

Warm regards,

Patrick

__________________________________________________________________________________________________________

From: sam@whitecollarfraud.com [mailto:sam@whitecollarfraud.com]
Sent: Wednesday, November 18, 2009 2:01 PM
Subject: Re: Overstock.com Conference Call Scheduled Today at 5 PM

Hi Patrick;

I am asking the questions and not you. I will call in. It will be your choice whether to allow me to ask questions about your improper use of cookie jar reserves to manipulate earnings.

Sam

__________________________________________________________________________________________________________

From: Patrick Byrne [mailto:PByrne@overstock.com]
Sent: Wednesday, November 18, 2009 11:38 PM
Subject: RE: Overstock.com Conference Call Scheduled Today at 5 PM

” I am asking the questions and not you.”

Well evidently not.

__________________________________________________________________________________________________________

From: Sam E. Antar [mailto:sam@whitecollarfraud.com]
Sent: Wednesday, November 18, 2009 9:57 PM
Subject: RE: Overstock.com Conference Call Scheduled Today at 5 PM

Hi Patrick Byrne:

Why did you lie when you said there were no further questions? Are you afraid of taking questions from somebody who is aware of what you are doing and why it violates the securities laws?

Sam E. Antar

__________________________________________________________________________________________________________

Sam,

I just think that before you are allowed on a conference call with grown-ups you should make clear who you and what your motivations really are, and answering these questions would be a good start in that direction:

1) Admit you paid fellow conman Barry Minkow $300,000 in cash (as he testified in deposition: see pages 8-10) to write hatchet jobs on USANA;

2) Disclose where you got the $300,000;

3) Explain why it was necessary to pay someone else to shill for you when you are an expert in the business of exposing frauds.

Remember, well-started is half-finished.

Patrick