Tag Archive | "Matt Taibbi"

On Rolling Stone, Penson Financial, the Mafia, and Naked Short Selling

Tags: , , , , , , , ,

On Rolling Stone, Penson Financial, the Mafia, and Naked Short Selling


As should be clear from the contents of Deep Capture, the world of illegal naked short selling is a weird one, populated by sociopathic billionaires, slick lobbyists, famous felons, bent regulators, crooked law firms, corporate spies, message board maniacs, sinister banks, shifty private investigators, mendacious professors, professional dissemblers, propagandists, grifters, thugs, liars, and the Mafia.

Things become all the more weird when you consider that regulators and law enforcement do almost nothing to stop naked short selling, even though a growing number of prominent people – everyone from U.S. Senators to George Soros – insist that criminal naked short sellers helped take down Bear Stearns, Lehman Brothers, and the American financial system. Then there’s the weird fact that anybody who tries to shed light on this weird state of affairs is quickly subjected to smear campaigns that are…weird.

Anyway, message to Matt Taibbi: Welcome to our world.

Taibbi, as many people know, is the star reporter who published a major expose about naked short selling in the most recent issue of Rolling Stone magazine. In addition, he has published a few blogs providing more evidence to support his claim that illegal naked short selling is a big deal and it’s pretty “hilarious,” as he puts it, that the government hasn’t prosecuted the people who might have helped crash the financial system.

In one of his blogs (which you can read here), Taibbi posts a video that seems to show a day trader conducting a short sale of stock in an unnamed big bank through a brokerage called Penson Financial. The SEC says that short sellers have to have “reasonable grounds” that they can locate actual stock to deliver to their buyers. As Taibbi rightly points out, this is a “very  funny piece of regulatory policy – asking greedy ass financial companies to determine what to them is a ‘reasonable’ effort to follow the rules. “

At any rate, if you believe what you see in Taibbi’s video, Penson Financial gave that day trader a phony “locate” on quite a few of the unnamed big bank’s shares. In fact, the video seems to show Penson Financial confirming that it had “located” many billions of the unnamed big bank’s shares – altogether, five times as many shares as were then in circulation. In other words, it seems that if this trader had had the inclination and the funds, Penson would have accepted a massive naked short sale, helping the trader flood the market with billions upon billions of shares that simply did not exist.

This is rather important, because Deep Capture has reviewed evidence showing that little Penson Financial and one other relatively unknown firm were by far the biggest traders in financial stocks in the first nine months of last year, handling more than 80 percent of volume. To repeat, Penson Financial, a little firm in Dallas, Texas, and one other relatively small firm handled by far the biggest volume of trading in the stock of all those big banks that collapsed last year, leading to the worst financial crisis since the Great Depression. When it came to clearing trades in financial stocks, Penson was bigger than Goldman, bigger than Merrill, bigger than every major brokerage on Wall Street.

We do not know for certain that the trading through Penson was naked short selling. We know only that naked short selling accounted for much of the overall trading last fall in companies like Lehman Brothers. And we know that a preponderance of the overall trading went through Penson. Perhaps Penson carefully weeded out the naked short sellers, in which case it handled almost all of the trading in financial stocks except for naked short selling. But if Taibbi’s video is any indication, Penson was certainly willing to locate stock that did not exist.

If I have anything to add to Taibbi’s terrific reporting, it is this: Penson Financial’s vice president in charge of stock clearing (that is, the head of the division that appears to have located stock that did not exist) is a man named Christopher Sandel. From 1985 to 1995, Sandel was a top executive at Adler Coleman, best known for being the clearing firm to the Genovese Mafia family.

Adler Coleman famously went bust when its top customer, the Genovese-controlled brokerage Hanover Sterling, self-imploded in one of the greatest naked short selling scandals of all time. Several traders tied to the Gambino crime family were charged with naked short selling companies that were underwritten by Hanover. That the Genovese Mafia brokers at Hanover were not charged in this case seems odd, because the most likely scenario is that the Genovese underwrote hapless companies, pumped their stock prices, and then called in the Gambinos to vaporize the companies, with everybody profiting on the way down.

Anyway, when some of America’s biggest financial companies collapsed under a barrage of short selling last fall, an enormous chunk of that trading was being cleared by a fellow who used to work for a company that seemed to specialize in clearing trades for the Mafia. Should this concern us? Might the Mafia have played some role in the collapse of the financial system? If I were more heavily armed, I would venture an opinion.

Now, of course, there is a concerted effort to portray Taibbi as a sucker, and his video as a fake. One blogger who has suggested as much is Gary Weiss, a former BusinessWeek reporter. As we have documented elsewhere on Deep Capture, Gary Weiss is a corrupt pseudo-journalist whose sources have included naked short sellers with ties to the Mob. Among Gary’s favorite sources were John Fiero (fined $1 million in Hanover Sterling scandal), Anthony Elgindy (currently serving an 11 year prison sentence for short selling crimes and alleged to have had his finger sawed off by Russian mafiosi who were concerned that he would become a government informer), and Manuel Asensio (who once worked for a Mafia-controlled brokerage called First Hanover).

Weiss has reported extensively on the Mafia’s infiltration of Wall Street, but he has, for years, insisted that only conspiracy theorists believe naked short selling is problem. He wrote a great deal about Hanover Sterling, but not once did he mention that naked short selling was central to that case. In his book, “The Mob on Wall Street,” Weiss told the story of a Genovese Mafia broker, and mentioned that this Mafia broker claimed to clear his trades through none other than…Penson Financial.

But, of course, Gary insisted that the Mafia broker must have been lying, because Penson is a “legitimate firm.”

Meanwhile, a blog called ClusterStock has also suggested that Taibbi’s video is a “hoax.” Taibbi has written a fine rebuttal to that claim (which you can read here), so I have nothing to add, except that ClusterStock was founded by Henry Blodget, who was famously charged with securities fraud in 2002, and by the former co-owners of DoubleClick, a company that was once defrauded by the Colombo Mafia family. DoubleClick was never charged with any crimes, as it was, alas, the victim.  Such is the sad fate of many firms that  have business dealings with the Mafia (of course, this fate may be avoided by adhering to a simple dictum: “Avoid having dealings with the Mafia”).

I tell you this not because I think there is some kind of conspiracy, but  merely because I am fascinated by the always colorful biographies of people who attack those who seek to expose the crime of naked short selling. Blodget is, by all accounts, a reformed criminal, and I’m sure the other people at ClusterStock  are law-abiding people. Gary Weiss would be perfectly innocent, too — except that he’s an out-and-out fraud.

Recently, Deep Capture reporter Judd Bagley revealed that Weiss was the anonymous author of a blog on the popular website Daily Kos. This blog, of course, denied that naked short selling is a crime, while smearing those who said otherwise. To support its smears, the blog, written by the anonymous Gary Weiss, referred readers to another blog, written by none other than Gary Weiss.  Indeed, Gary Weiss has had a great many phony on-line aliases, and all of these Gary Weiss aliases proclaim that Gary Weiss is right and great.

In a variation of this on-line chicanery, ClusterStock’s writers littered the comments section of Taibbi’s blog with allegations that his video was a “hoax.” To support these allegations, the ClusterStock writers provided links to another blog…ClusterStock. Presumably, Gary Weiss will also provide links to ClusterStock. Oh wait, he already did that.

Meanwhile, Penson Financial, has written a letter to the SEC, suggesting that Taibbi’s video was (what else?)…”a hoax.”  In the letter, Penson Financial, which was fined in 2006 for naked short selling, promises that it does not engage in naked short selling.

The SEC no doubt believes this.

Posted in Featured Stories, The Mitchell ReportComments (76)

Rolling Stone Reports that Naked Short Selling Killed Bear Stearns and Lehman Brothers

Tags: , , , , ,

Rolling Stone Reports that Naked Short Selling Killed Bear Stearns and Lehman Brothers


Matt Taibbi has published a story in Rolling Stone magazine that nobody should miss. It’s not yet available on-line, so you’ll have to pick it up at the newsstands, but here’s a quick summary.

Taibbi writes:

“On Tuesday, March 11th, 2008, somebody – nobody knows who – made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half of their value in nine days or less. It was madness – “like buying 1.7 million lottery tickets,” according to one financial analyst.”

Bear’s stock would have to drop by more than half in a matter of days for the mystery figure to make a profit. And that is what happened.

As Taibbi explains, “the very next day, March 12, Bear went into a free fall…Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…Or what?”

Taibbi speculates (as has Deep Capture) that these options might have been purchased by somebody who was abusing the options market maker exemption to engage in illegal naked short selling. And Taibbi goes beyond speculation to state, as an obvious fact, that illegal naked short selling helped bring Bear Stearns to its knees.

Presumably operating under that assumption, the SEC issued more than 50 subpoenas to Wall Street firms in the wake of Bear’s collapse, but “it has yet to indentify the mysterious trader who somehow seemed to know in advance that one of the five largest investment banks in America was going to completely tank in matter of days.”

Taibbi continues: “The SEC’s halfhearted oversight didn’t go unnoticed by the market. Six months after Bear was eaten by predators, virtually the same scenario repeated itself in the case of Lehman Brothers – another top-five investment bank that in September 2008 was vaporized in an obvious case of [naked short sellers engaging in] market manipulation. From there, the financial crisis was on, and the global economy went into full-blow crater mode.”

Taibbi notes that there were many other factors that made the economy weak. But he says that naked short selling is what pushed Bear and Lehman over the edge. If it weren’t for naked short selling – a massive “counterfeiting scheme,” in Taibbi’s words — those banks would likely have survived, and we might have avoided an all-out financial catastrophe.

This cannot be stressed enough. Criminals deliberately destroyed two of America’s biggest investment banks, precipitating the greatest financial cataclysm since the Great Depression. And the government has done absolutely nothing to bring those criminals to justice. In fact, as Taibbi makes clear in his story and on his blog, the most likely culprits are feted by top government officials in closed door meetings.

I’d call this the biggest financial and political scandal in the history of this country.

Certainly, it is, as Taibbi writes, “one of the most blatant cases of stock manipulation in Wall Street history.” Certainly, it is, as Taibbi writes, “the two biggest murders in Wall Street history.” And, certainly, it is odd that this very big story has appeared in Rolling Stone, but has yet to be covered by a single mainstream news publication.

The Wall Street Journal, The New York Times, Fortune, BusinessWeek – they have all known about naked short selling since Deep Capture reporter Patrick Byrne began hollering about it in 2005. But none of them write about it. Instead, we find a competent financial journalist, and the only major story about one the greatest financial crimes of all time, published in a slightly alternative magazine about music.

I worry for the Republic.

* * * * * * * *

Posted in Featured Stories, The Deep Capture Campaign, The Mitchell ReportComments (131)

  • Popular
  • Latest
  • Comments
  • Tags
  • Subscribe

Related Sites