The Story of Deep Capture

You can download a printable version of The Story of Deep Capture here.

By Mark Mitchell, with reporting by the Deep Capture Team

Introduction - by Mark Mitchell

I began working on a version of this story in January 2006, while serving as an editor for the Columbia Journalism Review, a publication tasked with upholding the standards of the American media. In November 2006, a hedge fund that was at the center of the scandal I was investigating offered the Columbia Journalism Review a great deal of money. Shortly before CJR accepted the money, I left my job, so I do not know if my editors, whom I believe to be honest people, would have allowed me to persevere. But I have no doubt that the hedge fund’s “beneficence” was aimed at preventing the publication of stories like this one.

And it might well have succeeded if Patrick Byrne had not approached me with an idea. Why not combine forces and spearhead a whole new approach to investigative journalism? Most media content is produced by rumpled journalists (i.e., people like me), working alone under tight constraints. Deep Capture could be something different – a power team circumventing the traditional media and pushing limits to uncover the truth.

When I entered the picture, this team had already established that a small number of law-breaking hedge funds had put the American financial system at risk of collapse. Indeed, the hedge funds are employing the same tactics that contributed to the stock market crash of 1929 and the Great Depression that followed. If you want to understand the current turmoil in our financial markets, you could do no better than to read the material in Deep Capture: The Analysis.

The lengthy (40,000 word) story that follows should help you to understand how – and why — Patrick came to embark on this project. I am the author of the story, and attest to its accuracy, but it benefits substantially from the work of the Deep Capture team: freelance researchers, bloggers, gonzo computer hackers, economists, and even a one-time foreign intelligence agent.

Some mainstream journalists will not like this story. They will perhaps disapprove of our methods or decry the advent of vigilante journalism. But most of all, they will not like this story because it is largely about them – a tale of reporters who seek to be players, but instead become pawns – a tale of prominent journalists who help cover up a massive financial crime while toadying to some of Wall Street’s slimiest operators.

* * * * * * * *

And it all starts when Patrick Byrne gets a phone call from the Easter Bunny. Really, that’s what the guy calls himself – the Easter Bunny – and he talks like the Bee Gees on fast forward, a nasally frantic falsetto, on and on about some kind of conspiracy involving big time Wall Street operators, the Mafia, and a bunch of famous journalists. Somebody’s got to stop these people, the Bunny says, or the American financial system is going to come crashing to its knees. Also, the bad guys might put a bullet between the Easter Bunny’s ears.

Now, Patrick Byrne is just a CEO in Utah — he sells toasters. He doesn’t see what this has to do with him, and the Easter Bunny seems pretty weird, so he says, uh-huh, uh-huh, okey-dokey, and thinks maybe he’ll hang up the phone and go for a pastrami sandwich.

But the Easter Bunny persists. He says it’s a conspiracy, the biggest financial heist in history…look, he says, don’t believe it, but he’s going to make some predictions–and Patrick can see for himself whether they come true…

* * * * * * * *

August 12, 2005the proudest day of Patrick Byrne’s life. Some months have past since the Easter Bunny got in touch, and now Patrick is on a conference call with 500 blue chip investors and a few journalists. He tells his telephone audience that he’s been talking to this fellow named Bob (which is another Easter Bunny alias), and Bob seems like he lines his hat with tinfoil, he really does, but he’s laid out this scheme, he’s made some predictions…so everybody please download Patrick’s computer generated slide show and follow along from home.

The first slide reads, “The Miscreants’ Ball.” Patrick says the miscreants are selling billions of dollars of stock that simply does not exist – phantom stock. They have destroyed hundreds of public companies for profit. Some journalists, meanwhile, are “crooked.” They’re “lickspittles.” They are famous journalists and they cover up the miscreants’ crimes. They attack all who oppose them. One reporter has been terrorizing a little old lady in Vegas, purported to be the Easter Bunny’s mother. Another reporter, she’s French — she’s been telling people that Patrick is running some kind of criminal cabal out of a gay bathhouse in San Francisco.

And that’s not all, follow along please with the slides — they show how the miscreants and the journalists have ties to government agencies and private investigators, maybe the Mafia, and also an arms dealer, an undercover mole, a corrupt law firm, and Eliot Spitzer. There’s mention, too, of a “master criminal from the 1980s” — call him “the Sith Lord,” like in Star Wars - he might be orchestrating all this, and Patrick can’t just sit on his hands, he’s not cut out for it, it’s his black Irish temper, so he’s going to say to the Sith Lord, to the miscreants, to the journalists: “Did I stutter? Did I stutter, or did I say I was going to take this fight to you?

“Well, now you know what I mean.”

* * * * * * * *

Patrick is the CEO of Overstock.com and, truth be told, his company sells more than just toasters. It is a discount retail outlet that sells all sorts of stuff – one of the fastest growing companies on the Web and a company that seemed, at least for a while, like it might become a serious competitor to Amazon. But in the time since the “Miscreants’ Ball” presentation, Patrick has been better known for his fight against Wall Street – and for embracing something called the Market Reform Movement.

The Market Reform Movement is an uprising born of a new era – when you don’t have to be entirely normal to make a positive difference in the world. It is a loose coalition of eloquent ranters and the ingeniously unhinged – internet lurkers, lonely muckrakers, and apocalyptic visionaries. They battled in obscurity for years before Patrick lent a sympathetic ear to the Easter Bunny, who was among the movement’s chief agitators.

Note: Deep Capture has met the Easter Bunny (who also uses the alias Bob O’Brien) on several occasions. We think he’s brilliant, and consider him part of our team, but we maintain a pledge never to ask for his real name because he fears for his safety. Shortly after the Easter Bunny’s initial call to Patrick, a clique of journalists with close ties to the miscreants begin a two-year campaign to unmask him. Throughout, they suggest that the Easter Bunny is somehow suspicious – a criminal, maybe. Then, finally, in September 2005, The New York Post publishes the sinister, hot-off-the-presses news that the Easter Bunny is, in fact, a used medical equipment salesman named Phil.

Whatever. The Bunny and his fellow town criers have what is surely the world’s largest database of Wall Street malfeasance. Patrick examines their data with an open mind. He lends some structure to their efforts. He funds an expanded investigation. And gradually, he comes to see, clear as day – there is a crime. It is a financial heist of monstrous proportions, and Patrick believes it threatens the stability of the American financial system. He decides to fight the criminals.

And then, something amazing happens: the Market Reform Movement goes mainstream. Members of Congress, brave individuals inside the Securities and Exchange Commission, the U.S. Chamber of Commerce, famous trial lawyers, respected economists and recovering stock brokers all reach the same conclusion: hundreds of companies have been victimized by the very crimes that Patrick laid out in his “Miscreants’ Ball” presentation – the ones that the Easter Bunny and his band of blogging oddballs have been describing for years.

* * * * * * * *

The crimes are the work of Wall Street hedge fund managers and brokers who engage in a common trading strategy known as short-selling. A short sale is a way of making money when the price of a stock goes down. You borrow shares from someone else and immediately sell them off. If the price drops, you buy the shares back and return them to the original owner, pocketing the difference. If a company goes out of business, short-sellers hit the jackpot.

This is perfectly legal and unobjectionable. But some short-sellers do not play by the rules. A small group of powerful hedge fund managers stop at nothing to annihilate the companies they sell short. Their tactics include: blackmail, smear campaigns, espionage, fraud, harassment, extortion, bribery, rumor-mongering, sabotage, off-shore money laundering, political cronyism, frivolous lawsuits, witness tampering, biased financial research, false identities, bogus credit ratings, bribery, libelous blogs, bad science, forgery, wiretapping, counterfeiting, collusion, lying, cheating, threats and theft.

Their most egregious trick is to sell “phantom stock.” By exploiting a glitch in Wall Street’s computerized trading system, and a loophole in federal regulations, some hedge funds sell virtually unlimited amounts of stock that they have not yet borrowed or purchased. This is often referred to as “naked short selling.” Hedge funds use this tactic to flood the market with supply and drive down prices – which is blatantly illegal.

Patrick has written a blog explaining how this works in laymen’s terms. An economist has written a detailed history of “failures to deliver” (i.e. stock sold and not delivered, because it is phantom stock) for Regulation magazine, published by the Cato Institute. A former SEC Chairman has spoken extensively against the problem. Many other researchers, several professors, a former SEC economist, and a former deputy secretary of commerce have also written papers on the subject. If you are interested in the mechanics of the crime, read some of those papers here, here, here, here, here, and here.

But it is enough to know that by the time Patrick gives his “Miscreants’ Ball” presentation, the Securities and Exchange Commission has published a list of more than 300 companies whose stock has been sold but never delivered in excessive quantities. In other words, a significant fraction of the stock sold in more than 300 companies is phantom stock. If you think you own shares in one of these companies, the chances are that a broker has sold you air to satisfy a crooked hedge fund client. The computer might say that you own stock, but in reality, you do not.

In addition to the 300-plus companies on the SEC’s list, as many as 1,000 companies have already been wiped off the map by illegal short-selling, according to some experts.

Short-sellers’ collusive behavior and dubious tactics might have contributed to the demise in March, 2008, of Bear Stearns, America’s fifth-largest investment bank. The Chairman of the SEC recently told the U.S. Senate that the SEC is investigating precisely this possibility. The consensus among economists is that if the Federal Reserve had not intervened, the fall of Bear Stearns would have triggered the collapse of the American financial system. Similarly collusive “bear raids” contributed to the great crash of 1929.

SEC officials fail to prosecute the criminals even as they suggest that miscreant short-sellers have put the American financial system at morbid risk.

Clearly, this is a scandal of epic proportions.

Which raises the question: Where the hell is our media?

* * * * * * * *

February 27, 2006… Herb Greenberg is leaning forward on his stool. His arms are flapping and his eyes are popping. His face has gone hot-purple, stark against the red-blue television glow. It is six months since Patrick’s now-legendary “Miscreants’ Ball” presentation, and, Herb, the famous journalist, is live on CNBC. He is pretty sure there is a conspiracy. It is a conspiracy to get Herb. Yes, “What’s really going on is there’s a conspiracy. There’s another conspiracy, there is a conspiracy-the real conspiracy, if there is a conspiracy, is a conspiracy…it’s aaaall tied to the same thing, this whoooole concept of trying to make sure, make it so this guy [Herb] can’t do his job anymore.”

Sitting next to Herb, nodding in agreement, is Jim Cramer, host of “Mad Money.” This program is all that keeps CNBC out of the ratings quicksand, and it is easy to understand its appeal. Cramer is manifestly chimpanzee-like in both comportment and worldview–a fully arresting specimen of unsated mammalian appetition–a self-styled “journalist” who grunts and growls and snorts and says funny things like “Booyah!” while jumping up and down, smashing chairs, and telling people how to make shitloads of money gambling on the markets. Good TV!

It is impossible to overstate the effect that these characters have had on our public discourse. It is not just that they have propagated a style of “journalism” that sees short-term stock flipping (rather than long-term investment) as the holiest of all business endeavors. It is that close associates of Herb and Cramer have seized control of a vast swath of the American financial media. Indeed, if you have seen a negative story about a public company in recent years, the odds are greater than even that it was written by a friend-of-Cramer.

Many of Cramer’s friends are former employees of TheStreet.com, a financial news website substantially owned by Cramer. They have included the editor and top columnists for The Wall Street Journal “Money & Investing” section, top business writers for The New York Times, reporters at Fortune magazine and BusinessWeek, the editor of The New York Post business page, the editor of MSN Money, and others. Herb, a CNBC commentator and a star columnist for MarketWatch.com, was among the founding editors of TheStreet.com – “Murderers Row,” they called themselves.

I have analyzed well over a thousand stories written by this clique of journalists. The vast majority of them were sourced from a small group of short-sellers who are also friends of Cramer. Other popular sources for this group of journalists include convicted felons, mobsters, dubious private investigators, crooked lawyers, hired stock bashers, and gun-toting goons – most of whom are tied to the Cramer constellation of short-sellers.

Some of the stories written by these reporters are accurate enough. But many are not. The journalists misconstrue data with seemingly purposeful intent. They exaggerate and obfuscate. They publish innuendo or merely repeat, Deus Optimus Maximus, the words of their hedge fund and criminal friends.A single negative story by one of these reporter-thugs can send a company’s stock tumbling by more than 50% — pure profit for their hedge fund sources, who of course sell the company short (often right before the articles are published). Meanwhile, an overwhelming majority of the companies targeted by these journalists will also be the victims of phantom stock selling and other shenanigans. The journalists do not mention this in their stories, and in fact go out of their way to deny that phantom stock exists.

Anyone who says otherwise is subjected to a vicious media smear.

So it was that Patrick’s “Miscreants’ Ball” presentation provoked a barrage of media coverage. Setting the tone was a next-day story in The New York Post business section, written by Roddy Boyd and edited by Dan Colarusso, formerly of TheStreet.com. The story was accompanied by a large photograph that showed Patrick in a tight t-shirt, arms spread, slightly bug-eyed. Hovering over his head, there was a big, multicolored flying saucer.

Patrick Byrne “is not currently under any psychiatric care,” reported the Post, “and [a company spokesman confirmed] he was sober when he gave the presentation.”

patrick byrne with ufo from new york post The Story of Deep Capture

* * * * * * * *

Patrick is unfazed. He works tirelessly, criss-crossing the nation, gathering evidence – telling all who will listen that the hobgoblins of finance and their snickering note-takers are destroying companies and putting the American financial system at risk. But these miscreants–they control the airwaves, they’ve seized control of the whole gosh darn media machine and the message they keep on delivering, unchallenged, over and over, is that Patrick Byrne is an incontrovertible psychopath. They say he’s a wacko. They say he’s a liar, too. And a creep. A menace. A crook, even! They says his company is the next Enron. Hell, they say, he’s got a nudie bar dancer running the place!

A nudie bar dancer? Yes, that’s what some journalists say. The story first appears in November, 2005, on a blog authored by Jeff Matthews, a former writer for TheStreet.com. Patrick has to go to great lengths to demonstrate that the story is false – that his vice president of marketing is not and never was a stripper. This, he says, is not to disparage the profession–he’s friends with a few “wigglers” and they’re all finer human beings than certain New York hedge fund managers and financial journalists.

Which, by February 2006, seems to me an awful lot like wisdom – a view supported, anyway, not only by the noble spirit and perspicacity of your average wiggler, but also by the spectacle that is unfolding live on CNBC.

Herb the famous journalist is yammering about a conspiracy – a conspiracy to get Herb. He is angry. He is perhaps also scared. He is downright hysterical because the government is investigating. This investigation will soon be derailed – the victim of cowardice and strange events – but for now, in February 2006, the Securities and Exchange Commission would like to know whether a financial research shop called Gradient Analytics conspired with short-selling hedge fund managers, including a man named David Rocker, to disseminate false information about public companies as part of a scheme to manipulate stock prices. The investigators believe that Jim Cramer and Herb are central to this conspiracy and have issued them both with subpoenas. TheStreet.com got a subpoena, too.

Herb thinks this is an outrage-a conspiracy to destroy Herb. He says he has no special relationship with Rocker or Gradient. Cramer says he’s never heard of Gradient and he’s met Rocker only once – in a grocery store.

So Herb and Cramer have commandeered the CNBC television network. For several days, the endless lead-ins: Coming Up Next: We’ll hear from Herb! Coming Up Next: Herb and Cramer tell the world that Patrick Byrne and his band of blogging freaks orchestrated the “whoooole” thing – the whole government investigation. Patrick Byrne is rich. He’s suspicious. He’s a menace. He orchestrated the “whoooole” investigation to silence the free press – the free press as epitomized by Herb and Cramer. Coming Up Next: It’s an outrage! Coming Up Next: It’s a conspiracy!

Coming Up Next: More on this conspiracy.

* * * * * * * *

Cramer, who is a sociopath, owns TheStreet.com with Marty Peretz, who is an aristocrat. Peretz is also the former editor of the New Republic magazine. He dabbles in high finance and Harvard professing, which has resulted in his entrusting a large portion of his family fortune to a close-knit group of hedge fund managers, several of whom were his students. For example, Cramer was his student. Then Cramer was destitute. He lived in a car with a loaded gun hidden under the seat. Eventually, though, Peretz gave Cramer some money to start a hedge fund, which Cramer managed with celebrated ruthlessness until he resolved to seek spiritual enlightenment as a TV news host.

Cramer had originally planned to run his hedge fund out of the offices of Ivan Boesky. Shortly before he was to move in, however, the feds busted Boesky for insider trading, making him one of the most famous criminals of the 1980s. (This is not necessarily to suggest that Boesky is the “Sith Lord” mentioned in Patrick’s “Miscreants Ball” presentation. Some people have wagered that Patrick was referring to Michael Milken, a business colleague of Boesky known as the “junk bond king,” who also went to prison in the 1980s. Patrick has since modified the analogy, saying that the crime has multiple masterminds – “like Al Qaeda”).

When Boesky went to prison, Cramer worked instead with hedge fund manager Michael Steinhardt. The media portrays Steinhardt as a financial wizard, a deep thinker and an all-around swell guy. The truth is, he’s a thug who perfected the concept of trading on privileged information, and pounded it into the heads of his employees. “What’s your edge!?” he’d shout, pacing his trading room floor. “What’s your fucking edge!?” After one of Steinhardt’s tirades, a top employee (and the godfather to Steinhardt’s children) had a heart attack. It is said that Steinhardt showed no remorse.

Indeed, Steinhardt has one of the most fearsome reputations on Wall Street. Which is perhaps unsurprising given that Steinhardt’s father, Sol “Red” Steinhardt, was a mobster once described by a Manhattan district attorney as the biggest Mafia fence in America. Steinhardt Sr. worked for the Genovese organized crime family, with goons like Meyer Lansky and Vinnie “Blue Eyes” Alo, before he was sentenced to a number of years in Sing-Sing prison.

By Steinhardt Jr.’s own account, the principal partners in his first hedge fund were the Genovese Mafia, Ivan Boesky, Marty Peretz (the aristocrat who funded Cramer), and a man named Marc Rich. Rich is closely connected to Ronald Greenwald, described in the authoritative book Red Mafiya as the man who, along with the Genovese family, brought the Russian Mob to America.

In 1983, Rich was indicted for trading illegally with Iran while Islamic revolutionaries were holding the American embassy hostage in Tehran. Along with his associate, “Pinky” Green, he fled to Switzerland. In 2001, Steinhardt, a big-time operator in Democratic circles, convinced Bill Clinton to give Rich a scandalous presidential pardon, but Rich remains in Switzerland to avoid paying his tax bill.

In the early 1990s, Steinhardt shut down his hedge fund after he was implicated in a scheme to corner the U.S. treasuries market – a horrendous infraction with serious implications for the U.S. economy.

So this is a rough crowd. Says one Wall Street trader: “It was the day the bad guys came to town — when Steinhardt and his people arrived.”

One of Steinhardt’s people is Jim Cramer. Another is Cramer’s wife, who was known as the “Trading Goddess” when she worked as Steinhardt’s head trader. Maria Bartiromo, a CNBC anchor known as the “Money Honey,” is married to the top partner in Steinhardt’s newest hedge fund. (A former employee of Cramer’s hedge fund has written that Cramer often fed tips to the Money Honey, trading ahead of her stories, and it is rumored that she recruited him to CNBC.)

And then there is David Rocker, the short-selling hedge fund manager believed to be scheming, along with Cramer and Herb, with Gradient Analytics, the financial research shop under SEC investigation in 2006.

Cramer says he’s met Rocker only once – apparently while squeezing the grapefruit at some grocery store. But the truth is, Cramer knows Rocker well. Rocker is a former employee of Steinhardt’s hedge fund. He worked there at the same time as the Trading Goddess.

And, until recently, Rocker was the largest outside shareholder in Cramer’s website, TheStreet.com. Cramer sometimes quotes the hedge fund manager on his television show, and once interviewed him live. Rocker is also a regular writer for TheStreet.com, where he bashes stocks that Cramer subsequently also bashes in multiple stories on both the website and CNBC.

In February 2006, the SEC is investigating Gradient Analytics for disseminating false information about public companies. The agency has affidavits from former employees who say that Gradient’s “independent research” is produced by recent University of Arizona graduates who know little to nothing about finance and essentially take dictation from hedge fund managers, including David Rocker.

One of these employees says that Herb conspired with Rocker to hold his negative stories (premised on Gradient’s false information) until Rocker could establish short positions. This is called front-running – a jailable offense. It is reasonable to suspect that Rocker had similar relationships with TheStreet.com (of which he has owned a substantial portion) and other media.

Not long before Cramer announced his SEC subpoenas, Rocker sold all of his shares in TheStreet.com. Cramer sold around $2 million of his own shares. If Cramer knew about the SEC investigation before he sold his shares, which was almost certainly the case, he was trading on insider information – another jailable offense.

But Cramer don’t know nothin’ about nothin’. And Herb thinks the SEC investigation is an outrage. So Herb and Cramer have commandeered CNBC. They are live on CNBC. Herb has jabbered something about a conspiracy – a conspiracy to get Herb.

And now Cramer is going to show us something.

He’s pulled out a big, red magic marker. Veins are popping, rope-like, from his bald cranium. And he’s snarling. Cramer is actually snarling while he uses the big red magic marker to scribble something on a piece of paper.

He holds the paper up to the camera.

It’s…it’s his government subpoena…Cramer has vandalized his government subpoena! On live TV… in big red letters…

It says, “BULL!”

* * * * * * * *

Nobody in the media seems bothered by this. To the contrary, the Media Mob rises to Cramer and Herb’s defense. For example, Joe Nocera of The New York Times, who is an old friend of Herb, writes a column attributing the SEC investigation to Patrick Byrne’s “Campaign of Menace.” Wall Street Journal columnist Jesse Eisinger, formerly of TheStreet.com, writes that the SEC investigation violates freedom of speech. He says that Patrick’s theories about short-seller crimes make “”Da Vinci Code” look like “Where’s Waldo?” Other journalists – along with the Society of Professional Journalists (SPJ) and the Society of Business Editors and Writers (SABEW) — dutifully line up behind the Journal, the Times, and CNBC.

Meanwhile, these journalists continue to use Gradient and Rocker as sources in negative articles. MSN Money’s stock rating feature, which gives “buy” and “sell” recommendations to the website’s readers, is based entirely on Gradient’s analysis. CNBC’s stock picking tool also comes from Gradient.

This is pretty appalling given that the journalists have good reason to believe that Gradient produces bogus research. They know that its supposedly “independent” financial researchers are kids who take dictation for Rocker. And they know that Herb and Gradient have been accused of committing serious crimes. They know because they have the affidavits from Gradient’s former employees.

A few other key facts, known to many journalists, but so far unreported:

  • Cramer claims never to have heard of Gradient, but a former Gradient employee says that Cramer’s colleague, Becky Quick, has confirmed in emails and on the phone that “Cramer loves Gradient’s research,” and that he has requested their research on specific stocks.
  • Herb claims to have no special relationship with Gradient, but he had access to its computer system and regularly logged in.
  • Herb’s research assistant, Brian Harris, spent a significant amount of time working out of Gradient’s office. (Herb claims that Harris was trying out for a job there).
  • A guy named Jon Markman was for some time running a hedge fund out of Gradient’s back office. So-called “independent” research shops aren’t supposed to run hedge funds. If Markman was trading in advance of Gradient’s research and Herb’s stories, as the firm’s former employees claim he was, this is yet another jailable offense.
  • Markman is one of Herb’s close friends. He was, along with Herb, a top editor of TheStreet.com. After that, and prior to starting a dodgy hedge fund in Gradient’s back office, Markman was the managing editor of MSNMoney.com (which explains why MSN Money continues to use Gradient’s research).

And maybe Herb, Markman, Eisinger, Nocera, Cramer and all the other journalists who think Gradient is a credible source–and who call Patrick Byrne a wacko, a Waldo and a menace–can tell us why at least one Gradient manager has used multiple aliases and IDs to hide his activities.

* * * * * * * *

There was a time, before Rocker and Gradient came along, that Patrick Byrne was a darling of the financial press. In 2002, Fortune magazine called him “The Renaissance Man of E-commerce“. The article noted that Patrick is an admired protégé of celebrity investor Warren Buffett. It added that Patrick has a black belt in tae kwon do, “has bicycled across the U.S. three times, studied moral philosophy at Cambridge as a Marshall fellow, and briefly pursued a career in boxing. Byrne also speaks Mandarin-not to mention four other foreign languages-and translated Lao Tse’s Way of Virtue…He has a nearly photographic memory [and can study] a deck of cards for a couple of minutes [and] recite them back, one by one…six months later.” Byrne also survived a three-year “bout with seminoma, a cancer that reduced his 6-foot-5-inch frame from 240 pounds to 164…[and left] his body scarred with the marks of 20 surgeries.”

There were no short-sellers behind the Fortune story, but short-sellers do often pump stocks up before they trash them. If they take their short positions at a peak price, they make more money on the way down. This might explain why, in December 2003, Cramer couldn’t say enough good things about Patrick and Overstock. “We really like this guy,” Cramer said on Kudlow & Cramer, the CNBC show he was then hosting. Yes, Cramer was very impressed by Overstock’s growth. He said it was a really great company. He said he was gonna go to Overstock.com and buy Mrs. Cramer a Christmas present.

Soon after, David Rocker took his initial short position in Overstock. The first sign that this might affect the media coverage of the company came in January 2004, when Patrick was invited to appear again on Kudlow & Cramer. Only a few weeks had passed since Cramer’s initial extolments, but now the mood was entirely different. Now Cramer and his co-host, Larry Kudlow, seemed to be casting aspersions on Patrick’s character.

In his quarterly earnings statement Patrick had cited Overstock’s gross profits, which had increased nicely. There was nothing at all unusual about this – Patrick also cited net profits and many other figures – but Kudlow and Cramer hinted that it was somehow suspicious, that maybe mentioning gross profits was a slippery thing to do, and maybe Patrick was trying to overstate his success.

“You talk about something called gross profits,” said Kudlow, “Why are you – is this a confusion thing, an ambiguity thing, or what point were you trying to make?”

Yeah, said Cramer, “You don’t need to….You don’t need to – I know that you don’t regard that as spin. But…”

Patrick was visibly baffled. “Gross profit is an accounting term,” he said. “It’s an accounting term…on an income statement…I described each line on the income statement…”

* * * * * * * *

“You saw what just happened, didn’t you? It was a set-up. This is what these guys do – they try to make CEOs look like they’re cooking the books. It’s pure smear. They take their cues from short-sellers. Watch out, these people don’t mess around. They’re dirty players.”

It’s a Wall Street broker on the phone, and Patrick has just left the studio where he was blindsided by Kudlow and Cramer. He still doesn’t know anything about the Wall Street cabal, but it was a strange interview, and he’s had some other warnings.

Like just recently, he got two calls, from two different hedge fund managers. The hedge fund managers told Patrick that one of their brokers, a guy who handles short-sellers’ orders for Bear Stearns, a major investment bank, had sold 300,000 shares in Overstock that he didn’t have – phantom shares. The broker registered the sale on his computer – which created a sort of I.O.U. – but he had no intention of finding real shares to buy or borrow and then deliver to the purchaser.To justify this action – and perhaps to put some additional downward pressure on the stock – the broker circulated a rumor that Patrick was using some kind of offshore synthetic instrument to sell his stock while hiding this from the public. This was completely false.

In January 2004, Patrick doesn’t know it yet, but short-sellers are preparing to take down Overstock. Soon, the company will come under attack from multiple directions. Millions of phantom Overstock shares will be sold into the market. And the media – led by Cramer, Herb and affiliated journalists, will orchestrate an unprecedented smear, all the while insisting that phantom stock is not a problem.

* * * * * * * *

On January 23, 2004, just a few days after Patrick hears about the sale of 300,000 non-existent Overstock shares, Carol Remond, a reporter for Dow Jones Newswires, publishes a story about a recent decision of the National Association of Securities Dealers (NASD). Members of the self-regulating body (later renamed the Financial Industry Regulatory Association) have long had to abide by the requirement that they deliver the stock they have sold within three days. It is not just a NASD rule – it’s U.S. law. But some brokers have bypassed this rule by selling, and never delivering, phantom stock through foreign brokerages that do not belong to the NASD. Now the NASD has announced that it will try to close this loophole.

Preventing traders from breaking the law seems hardly controversial, but Remond, the French-Canadian reporter who will later try to establish that Patrick is running a criminal enterprise out of a gay bathhouse (she will also later get a government subpoena along with Herb and Cramer) apparently thinks the NASD should keep out of the way. “Taking most market participants by surprise,” she writes, “the National Association of Securities Dealers has drastically tightened its rules governing short-selling” by closing the loophole allowing sales of phantom stock. The “market participants” think – and Remond agrees – that this is no good because “it’s impossible to borrow the shares of…overvalued development stage companies.”

So Remond – siding with her sources – thinks that if it is impossible to borrow shares of a company, hedge funds should nonetheless be able to sell, sell, sell. Create unlimited amounts of illegal phantom stock to drive down prices and never deliver it. This is Remond’s standard position: if a company is deemed “overvalued” by short-sellers, then the short-sellers should be allowed to destroy it. This position is shared by every journalist affiliated with Cramer, David Rocker, and a crew of dirty players.

How dirty? Well, the only “market participant” named in Carol’s story is Pacific International, a brokerage in Canada. As Remond surely knows, more than 15 American criminal indictments have targeted Pacific International clients. It is widely suspected as a favored broker for sellers of phantom shares. Five of the indictments mention Pacific International as a conduit for money laundering and stock fraud.

In one court case, Sasha Angus, the director of enforcement for the British Columbia Securities Commission, describes this scene: “Jean Claude Hauchecorne, one of the top revenue producers at Pacific International, was summoned to New York…Phil Abramo and Phil Gurian, entered the room with two other men. These men were armed… ….Abramo and Gurian were apparently high-ranking members of the Mafia.”

On that day, Abramo and Gurian, of the Gambino crime family, threatened to kill Hauchecorne because he had funneled money to a stock promoter linked to the rival Bonanno and Genovese Mafia clans.

According to Carol, Pacific International is a credible source – just your average “market participant.”

Most of the Cramer crowd of journalists would agree.

* * * * * * * *

Fortunately, there is a wild-eyed guy in Massachusetts named Dave Patch. Dave is an engineer. He spends his days building parts for jet airplanes. At night, though, he is a revolutionary firebrand, churning out searing entries on his blog, which is called InvestigateTheSec.com, and firing off cantankerous letters to government officials and mainstream journalists about the problem of phantom stock.

In September 2006, SEC Director of Trading and Markets James Brigagliano referred to Dave Patch and his fellow crusaders as “bozos.” For years prior, the SEC said that there was very little phantom stock in the system. Then, one day, it said there was so much phantom stock in the system that it couldn’t force the sellers to deliver real stock because it would cause “excessive volatility” – a euphemism for “total market chaos.”

A couple of years ago, Dave began invoking the Freedom of Information Act to compile reams of trading data. This data, combined with research published by the securities industry itself, suggests that there is now around $12 billion of phantom stock in just one corner of the system. There is an unknown amount – perhaps $100 – $150 billion – in a part of the system that is not monitored by any regulatory body. Just as a spill of $1,000 of radioactive waste costs much more than $1,000 to clean up, a certain dynamic of the stock market (named, “short squeezes”) means that to clean up $100 billion of phantom shares would cost much more than $100 billion: it could easily cost over $1 trillion.

Dave puts this information on his blog. He receives back-up from a crew of anti-phantom stock fanatics who live on the internet. Meanwhile, the Easter Bunny takes on the role of chief PR man, publishing his own fiery – and often hilarious – blog, which he calls TheSanityCheck.com. One day, the Easter Bunny calls Patrick Byrne, who launches an unprecedented public campaign against phantom stock sellers and the journalists who support them.

Then, on March 26, 2008, as the markets are melting down, the SEC invites Dave Patch to brief the agency on the phantom stock problem. The Counsel to the Inspector General of the SEC writes a letter to investors who have complained about naked short-selling.

It says that the SEC Inspector General has “met with Mr. David Patch…at which time he gave us an extensive briefing on this topic. We understand the seriousness of the concerns about naked short selling and have begun looking into potential audit issues related to this matter.”

Says a former SEC attorney: “It wasn’t until Dave Patch started firing off FOIA requests that anyone started taking this seriously.”

* * * * * * * *

In mid-April, 2004, millions of shares of Overstock.com have been sold and never delivered – phantom stock. FOIA data later proves this. But in April 2004, Patrick doesn’t yet know Dave Patch or the Easter Bunny. He doesn’t know anything about phantom stock. Nor does he know that a clique of journalists protect the hedge funds that sell phantom stock – and that these same journalists will stop at nothing to smear the targets of their short-selling friends.

So Patrick makes the mistake of appearing again on Kudlow & Cramer.

“But once again, once again, you are confusing the heck out of me and everybody else with your arguments about gross,” says Kudlow. “I’m not really sure why you continue to do this and what it is you’re trying to hide.”

Gross profits again? Patrick can’t believe it. “No good deed goes unpunished,” he says. “I’ve tried to explain the economics of our business. I wrote a three-page letter this time. Last quarter, I wrote a 12-page letter. Maybe it is confusing. I thought I’m trying to do a good thing.”

“But what is it that you’re hiding on this?…Are you trying to say to us you’re not making as much in sales revenue or that you will have a better future? I mean, it’s utterly confusing to me.”

“Well,” says Patrick, “first of all, I’m all about GAAP.” [GAAP stands for Generally Accepted Accounting Principles--the accounting system that is..."generally accepted."]

“So,” says Kudlow, “if you say GAAP profit–GAAP gross profit is up 83 percent, isn’t that misleading, this idea of GAAP gross profit?”

“Larry, that’s…”

“Quick answer.”

“…That’s…”

“Quick answer.”

“Quick answer is that’s a silly question. GAAP has a concept called revenue, a concept called gross profit, a concept called net profit. Those are GAAP–a basic accounting course teaches that.”

“I don’t understand it. I don’t understand it. Anyway, thank you for coming back.”

* * * * * * * *

While CNBC’s top television personalities are suggesting that it is some kind of crime for Patrick to cite a standard accounting term, a man named Amr Ibrahim Elgindy is attempting to board an airplane in Islip, New York, using a fake ID with the name Manny Velasco. In his possession are four cell phones, a suitcase full of cash, and $40,000 worth of jewelry. Elgindy would normally be carrying his .380 colt handgun, but he’s left that at home. Too risky carrying it in airports – especially when you’re fleeing the country.

Elgindy is hoping to get to Lebanon, where his remaining assets are stashed, but today he isn’t going anywhere. The woman at the counter has looked at him askance. She has looked at his ID, and looked again, and now she’s disappeared behind a curtain. She calls the cops, and before long they are hauling Elgindy away as he cries and pleads and says, “No really, I’m Manny Velasco – Elgindy is just some guy I met in New York!”

Amr Elgindy got his start working for Blinder, Robinson, nicknamed “blind ‘em, rob ‘em,” a Mafia-linked brokerage whose founder, a gold-chain and diamond-crusted-pinky-ring wearing goon named Meyer Blinder, eventually went to prison for securities fraud. Amr, who also goes by the names Anthony Elgindy and Anthony Pacific, later set up his own operation, establishing himself as one of Wall Street’s most flamboyant short-sellers – and a favored source to one segment of the financial media.

The FBI began investigating Elgindy after receiving a tip from a Solomon Smith Barney broker who said that on September 10, 2001 (that is, the day before the terror attacks on the World Trade Center), Elgindy had placed a call to Smith Barney instructing them to liquidate his kids’ trust funds. He also said, “Tomorrow the Dow is going to drop to 3,000 points.” (It was at 9,600 at the time.) The government spends months investigating whether Elgindy has connections to terrorists and advance knowledge of 9-11.

Ultimately, prosecutors indict him for the more demonstrable crimes of racketeering, conspiracy and securities fraud. (He gets 9 years for those crimes, and another 2 years for trying to flee the country.) Elgindy’s many offenses include bribing an FBI agent to provide him with information on agency investigations of public companies (the agent also gave Elgindy information on an on-going 9-11 investigation: Elgindy’s own), manipulative short-selling, and extortion. If the companies paid Elgindy off, he’d agree to stop disseminating false information about them.

A lot of people lost money on stocks that Elgindy attacked, and many of those people began investigating him long before the FBI did, often posting their findings on the internet. Gary Dobry, for example, is a Chicago boxer, artist and street busker who spent the better part of a year writing long screeds about Elgindy’s crimes. He also created pretty good acrylic paintings of Elgindy, and sold them at art shows.

Dobry’s obsession with Elgindy ended when he received death threats, and somebody threw a pair of garden shears through the window of his boxing gym (this, we will see, is a standard threat from mobsters in the securities business). But Deep Capture has recruited other Elgindy foes to its team. One of them is a former businessman whose company was destroyed by Elgindy, and who has made it his life’s mission to expose short-sellers’ crimes.

The businessman prefers to remain anonymous because he fears a Mafia hit, but he’s accomplished a great deal. For example, he traveled, undercover, to Costa Rica to meet Jonathan Curshen, a former trader for the Mafia-infested Pacific International and current proprietor of Red Sea Management, an offshore money laundering outfit. On multiple occasions, Curshen admitted to our undercover vigilante that he sells phantom stock — and threatened to kill anyone who revealed this. Curshen also described a special debit card that cannot be traced to its user. This, he suggested, could be used to pay off government officials and journalists.

elgindy.thumbnail The Story of Deep Capture

But the undercover businessman’s biggest coup was in gaining membership to an online short-selling discussion board that Elgindy ran before he went to prison. Seeing that Elgindy was openly discussing crimes on the site, the businessman began taking screenshots of every page, so that his garage is now piled high with boxes of transcripts (which Deep Capture has scanned and stored somewhere safe).

In these transcripts, Elgindy and other short sellers make hundreds of references to certain journalists – most of them friends-of-Cramer. The reporters frequently mentioned include Herb Greenberg and David Kansas, both then editors of TheStreet.com (Kansas later becomes editor of The Wall Street Journal “Money & Investing” section), Carol Remond, and Dave Evans, a reporter for Bloomberg News. (When Federal agents raided Elgindy’s office, they found 2,000 hours worth of recorded phone conversations. According to a source knowledgeable about the investigation, “Herb Greenberg and Jim Cramer are all over those tapes.”)

Here’s one fairly typical comment, from a hedge fund manager on Elgindy’s online discussion board: “maybe when thestreet.com folds, we can hire Herb to work exclusively for us.”

At another point, a hedge fund manager calling himself “Peter” says: “Dave Evans gave us SPBR for free-been very profitable.”

A key member of this online community is Dan Loeb, a hedge fund manager who uses the screen name “Mr. Pink” (a reference to a criminal character in the Quentin Tarantino film Reservoir Dogs).

Mr. Pink says, “Dave Evans is a Made Man.”

* * * * * * * *

The short-sellers on Elgindy’s website talk a lot of nonsense (at one point they debate whether Elgindy and Dave Evans “swapped spit,” or merely engaged in a “loogie spitting” contest), so it’s possible that they are merely boasting about paying off journalists. But the comments on Elgindy’s website were so numerous that one can’t help but suspect that the relationships between these journalists and the short-sellers was beyond normal. At a minimum, the reporters must have known that hedge funds were trading ahead of their stories.

The reporters should also have known that Elgindy’s information was suspect – and that his target companies were often victims of short-seller crimes. Data obtained under the Freedom of Information Act shows that massive amounts of phantom stock were sold in the companies that Elgindy and his cohort shorted. As Carol Remond and others surely knew, Elgindy was also among the dubious clients of Pacific International, the Canadian brokerage that has catered to Wall Street operators connected to the Genovese crime family. “Let’s remember,” says one member of Elgindy’s website, “because of CANADA we can NAKED SHORT!”

Elgindy also brags on his website of having supplied the SEC and other government agencies with negative information. The SEC, especially, would helpfully open investigations into the companies targeted by Elgindy, precipitating huge declines in their stocks. One former SEC official interviewed by Deep Capture admits to having worked often with Elgindy. “I’d send his information up my up-line,” he says. “My superiors would tell me to open an investigation.” In most cases, the SEC never filed charges against the targeted companies.

But the investigations left the companies’ stock and reputations in tatters. Contributing to this, Herb and the rest of the Media Mob would write multiple negative stories about the companies Elgindy shorted. “These were good companies. A lot of them were pharmaceutical companies that had made important medical advances,” says the former SEC investigator. “Elgindy hurt them badly. He stopped new cures. And the SEC helped. The media helped.”

Elgindy is in jail, but the short-sellers who were members of his website, and who joined him in his “bear raids” on innocent companies, are still in business. One of them is John Fiero, who went by the screen name of “Bond,” and whom the NASD fined $1 million for selling phantom stock in companies that had the misfortune of being underwritten by Hanover Sterling, a brokerage that has been linked to the Genovese Mafia clan.

Fiero has yet to pay that fine. Quite to the contrary, a member of Elgindy’s website wrote at one point that the NASD had given Fiero an office and a set of trading computers — inside the NASD’s headquarters. If this was true, the NASD was either deeply corrupted, or it was using Fiero as an informant in ongoing investigations of phantom stock trading.

And then there is Dan Loeb, a.k.a. Mr. Pink. Loeb is a short-seller best known for hurling vitriol at his “enemies,” and for maintaining a high profile relationship with Fab 5 Freddy, the gangsta rapper. He is also very much a part of the Cramer constellation of hedge funds. And give him this: he stands by his boys.

Once, a respected hedge fund manager named Kenneth Griffin hired someone away from a hedge fund run by Loeb’s crony David Einhorn, who is also a friend of Cramer. In an email, Mr. Pink accused Griffin of running a “gulag,” and wrote: “Let me be clear that…should you attempt to hire people from [my friends], I will consider it an…act of war.”

Now, with Elgindy in prison, Mr. Pink’s friends are at “war” with Patrick Byrne and Overstock.com.

The generals in this war are David Einhorn, David Rocker, and the Media Mob led by Herb and Jim Cramer (who met Rocker once, in a grocery store).

* * * * * * * *

Cramer has a shtick whereby he brags about the crimes he has committed, perhaps so that he can later claim that his openness suggests a certain innocence. That might be why, in a semi-private discussion on his website, Cramer advocates breaking the law to drive down stock prices.

“Maybe you need $10 million capital to knock [a stock] down,” he says. “It’s a fun game and it’s a lucrative game…By the way, no one else in the world would ever admit that, but I don’t care…That’s right, and you can say that here, and I’m not gonna say it on TV…it’s really important to use a lot of your firepower to knock that [stock] down… Now, you can’t foment. That’s a violation of…You can’t create yourself an impression that a stock’s down. But you do it anyway cause the SEC doesn’t understand it…This is just actually blatantly illegal….But I think it’s really important to foment…You get [the CNBC reporter]…talking about it as if there’s something wrong [with the stock]. Then you would call the [Wall Street] Journal and you get the bozo reporter…if you’re not doing it, maybe you shouldn’t be in the game.”

* * * * * * * *

Nobody understands “the game” and “bozo reporters” better than David Rocker. He is one of the most popular sources ever to use the business media to his advantage. His information has appeared with near-constant regularity on CNBC and TheStreet.com, and he has been a favored source for Cramer’s friends at The Wall Street Journal, Fortune magazine, and MSN Money. Herb Greenberg has written negatively about nearly every company that Rocker has sold short, usually repeating Rocker’s analysis verbatim.

The information in these stories is often bogus. Much of it has come from Gradient Analytics, the financial research shop that the SEC has subpoenaed, along with Herb, Cramer and Carol Remond, in 2006. In addition to the three affidavits that the SEC received, several other former Gradient employees are willing to testify that the place is staffed by kids who take dictation from Rocker or other hedge fund managers, and then produce phony negative research designed to cause stock prices to collapse.

Rocker routinely takes this “independent research” to the SEC, suggesting that his target companies are committing accounting fraud – that they’re the next Enrons. The Rocker constellation of hedge funds is pretty tight with the SEC – much as Elgindy was. The government agency will investigate just about any company named by these people. In return, Rocker has employed at least one high-level SEC employee who investigated his target companies. No doubt, others wonder whether they, too, might get lucrative jobs.

Some of the companies that the SEC investigates at the behest of these hedge funds have actually done something wrong. But often, the SEC eventually has to announce that the companies are beyond reproach. That, however, can take several years, by which time, news of the investigations – dutifully circulated by the Media Mob – will have inflicted mortal damage on these companies’ stock prices and business operations.

Around the same time that these SEC investigations begin, and usually right after a friend-of-Cramer publishes a negative article, a slippery law firm will file a class action lawsuit alleging that the target company has defrauded its investors. The law firm that has been most often responsible for these suits – the firm that has sued almost every company shorted by the Rocker constellation of hedge funds – is Milberg Weiss. This same law firm was on close terms with Amr Elgindy and his government cronies. “FBI and SEC will be here soon,” Elgindy said to a hedge fund manager on his website, “as will class [action] Milberg Weiss guy.”

Patrick Byrne warned people about this firm in his “Miscreants’ Ball” presentation. The Media Mob ridiculed him. Less than a year later, Milberg Weiss was indicted and its founding partner was sentenced to prison for racketeering, mail fraud and bribery. The firm paid off its plaintiffs to induce them to sue companies targeted by affiliated hedge funds. According to court documents, Milberg Weiss instructed people to buy stock in target companies, “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.”

Anticipating that the securities would decline. How in the world could they have known that the securities would lose value? Well, soon after the phony plaintiffs bought shares in a company, somebody would flood the market with massive amounts of phantom stock. And while Milberg was preparing its law suits, Gradient and similar outfits would release bogus financial research. Indeed, a Gradient employee time sheet obtained by Deep Capture has a line-item tagged “Milberg Weiss” – suggesting that Gradient’s employees were concomitantly working for the crooked law firm.

With phantom stock flooding the system, and the SEC preparing to investigate, and dubious financial research shops releasing bogus information, the Media Mob would attack with biased, negative stories. As the stock plummeted, Milberg filed its pre-fabricated lawsuits (inserting the media stories as evidence) alleging that the target company had ripped off its investors by causing its own stock prices to plummet. The lawsuits, of course, caused the stock prices to plummet even more, at which point the Media Mob would write more stories blaming the companies for their falling stock price.

The Media Mob avoids questions about Milberg’s dubious practices – and certainly never reports on them.

And, in February 2006, when Gradient comes under investigation, the journalists go berserk. The investigation is a violation of free speech, they say – and the “whoooole” thing was orchestrated by Patrick Byrne and the Easter Bunny.

* * * * * * * *

Back in April 2004, while Elgindy was posing as Manny Velasco, and Cramer’s television partner was grilling Patrick on gross profits, and phantom stock was flooding the market, and a pack of journalists affiliated with Cramer and Gradient Analytics were attacking every company that Rocker shorted – when all of this was happening, the Easter Bunny thought, gee, there might be a pattern. He first gained notoriety among the Media Mob by starting a blog that chronicled the travails of a little mortgage lender in Kansas City, MO called NovaStar Financial.

There is no particular reason why anyone would be interested in this obscure company, but it had been given national exposure by a certain segment of the financial press. On April 12, 2004, The Wall Street Journal “Money & Investing” section (edited by David Kansas, formerly of TheStreet.com) published a negative article by Jonathan Weil (who later went to work for a financial research shop that caters to short-sellers and law firms that file class action lawsuits). The Journal, depending on information from hedge funds linked to Cramer, suggested that NovaStar had licensing problems in multiple states, when it did not.

During that month, Herb also attacked NovaStar in more than a dozen separate stories – many of them containing false information. His analysis appeared on MarketWatch.com, CNBC and MSN Money. TheStreet.com followed suit. NovaStar’s stock plunged by more than 30%, and on April 15, crooked law firm Milberg Weiss, with amazing alacrity and foresight, filed a class action lawsuit (using the Journal article as its principal evidence) alleging that NovaStar’s “investors” had been grievously harmed by the falling share price. The next day, the SEC, no doubt at the behest of short-sellers, opened an investigation of NovaStar, inflicting yet more damage.

In the midst of all this, the Easter Bunny sent Herb a detailed analysis that showed that Herb had completely misread an important line on NFI’s financial statement. Herb blithely responded with, “You’re free to interpret the data any way you want” – which is his standard answer.

Now, it is fair to say that in 2008 subprime mortgages have become a risky business. But that is different from saying, in 2004, that a specific mortgage company has done something wrong. Even as NovaStar continued to post strong profits well into 2006, short-seller games – including the sale of phantom shares — kept the stock price in the mud. SEC data obtained under the Freedom of Information Act shows that millions of shares of NovaStar had been sold but not delivered on April 11, 2004 – the day before the Journal article. The number of phantom NovaStar shares in the system increased steadily over the next three years.

Today, the stock price is too low even to trade on NASDAQ. It has been reduced to the pink sheets – reserved for penny stocks.

The SEC’s investigation of NovaStar remains open, but as of early 2008, it had yet to announce an investigation into hedge funds that trade phantom stock.

As of April 2008, Herb was still covering NovaStar. Lately, he’d been dancing on its grave.

* * * * * * * *

Not long before NovaStar came under attack, Michael Milken, the “junk bond king,” appeared in the offices of Allied Capital, a DC-based financial company that shares certain financial characteristics with NovaStar. There, he told an Allied executive, “You know, I already am quite a large shareholder of your stock – but my name will never show up on any list you’ll see.”

This may have been a reference to a practice called “parking stock” (owning stock but “parking” it in the accounts of friends with whom one has made under-the-table arrangements), a practice that figured in the high-count indictment that sent Milken, along with Boesky, to prison in the 1980s.

Milken returned on several occasions and seemed intent on ferreting out every detail of Allied’s business. Then, the interrogations came to an abrupt end.

A couple of months later, Cramer’s friend David Einhorn was at a hedge fund luncheon. Sitting next to him was corporate raider Carl Icahn. Halfway through the meal, Einhorn stood up and told the hedge funds assembled in the room, “Allied Capital is going to zero!”

On April 26, 2004, Dan Loeb (a.k.a. Mr. Pink, the guy who once promised to go to “war” for Einhorn) posted a comment on a Yahoo message board, saying: “ALD [Allied] turd getting flushed, swirling down the toilet.”

At the same time, reports on Allied’s supposed misdeeds, created by the Kroll Investigative Agency and a politically connected Texas businessman named Jim Brickman, were delivered to the SEC and the Department of Justice, which began investigations. These inquisitions became so onerous that Allied had to create what one employee calls the “Department of Investigations” just to satisfy the government requests that poured in, year-after-year.

The Kroll Investigative Agency seems to have developed a unit tasked specifically with manufacturing dirt on companies shorted by the Cramer constellation of hedge funds. Einhorn and his cronies commissioned the report that was submitted to the DOJ, and it should be unsurprising that most of its allegations were groundless.

After four years of ongoing investigations, and countless media stories alleging wrongdoing, charges have been brought against one person – an ex-employee of a company that represents less than 5% of Allied’s portfolio of investments.

Meanwhile, the SEC and DOJ have yet to investigate claims that Allied is the victim of illegal phantom stock selling. So Deep Capture has done it’s own investigation. This took all of five minutes – the time we needed to write and send a Freedom of Information Act request to the SEC. The SEC wrote us back, providing data showing that there have at times been 3.5 million phantom Allied shares. That is, somebody had sold at least 3.5 million shares that were never delivered because the shares did not exist.

And again, that number represents phantom shares in just one corner of the system. The number of phantom shares in the rest of the system is thought by most observers to be many times greater. However, the SEC refuses to release data about the number of phantom shares in other layers of the system. In fact, Patrick, Dave Patch and others have suggested that the SEC might not even know.

In any case, the SEC has the power to prosecute the sellers of phantom stock, but it has so far refused to do so.

* * * * * * * *

And what if Overstock, Allied Capital, and NovaStar were not the only victims. Suppose there were a clique of hedge funds and reporters who descended upon hundreds of public companies, mocking and harassing them, driving their CEOs to conniptions or barricaded silence. Suppose further that billions of dollars worth of phantom stock in these companies had been sold into the market.

Suppose we know this because people like the Easter Bunny and Dave Patch have devoted large chunks of their lives to exposing the crime. But we also know it because Leslie Boni, a resident economist at the SEC has published a seminal report, “Strategic Failures to Deliver,” which identifies phantom stock as a major problem. We know it because former Undersecretary of Commerce Robert Shapiro has done his own study, concluding that naked short sellers have vaporized as many as 1,000 companies.

And we know it because in January 2005, the SEC begins publishing a list of more than 300 companies whose stock has been sold, but never delivered, in excessive quantities. There is some initial muttering about the phantom stock being the result of “clerical errors,” – maybe the real stock is sitting under a mattress somewhere, or the dog ate it – but this is so much gobbledygook, as evidenced by the huge amount of undelivered stock and the SEC’s later admissions that phantom stock is a “serious problem.”

We also know from Leslie Boni’s statistical analysis that high volumes of phantom stock are concentrated in very specific companies. We know from our own analysis that there is a wildly high probability that those same stocks have been targeted by Milberg Weiss lawsuits and in hatchet jobs by the Media Mob. The stock-eating dog must have friendly relations with Herb, Carol Remond, Jim Cramer and their friends.

Peter Chepucavage, the SEC attorney who drafted the so-called Reg SHO rule requiring the SEC to begin listing victimized companies, has told us that its enactment was preceded by an unprecedented lobbying effort spearheaded by Wall Street. The result, he says, is watered down enforcement. While the SEC listed the victim companies, for example, it stipulated no way of helping them – which is like publishing the names of rape victims while refusing to prosecute rapists. (Indeed, the stock prices of many of the companies on the list dropped significantly in the days after the list first appeared.)

But, anyway, there it is: a list, supplied by the SEC — unequivocal evidence that hundreds of companies are victimized by a stark financial crime.

Now, suppose that one CEO fights back. He fights back because of what short-sellers’ illegal tactics are doing to the shareholders of his and other companies, and also, because he is worried that the creation of phantom stock will have systemic implications.

Maybe this CEO gives a presentation titled “The Miscreants’ Ball,” identifying a group of journalists who are the eager stooges of rule-bending hedge funds. Maybe, for a while, government investigators begin to take an interest in some of the CEO’s allegations – and maybe important politicians, economists and even a few objective journalists began shaking their heads and saying things like, Holy bejeezers, Byrne and that Easter Bunny character are right. Not in every respect, maybe, but clear as day: this is one of history’s great financial heists.

Well, in this case, the journalist-stooges might become somewhat agitated. Suppose they set out to defend themselves and their Wall Street friends-to disparage the CEO and others who question the tactics of some short-sellers and their value as media sources.This, one can imagine, is a battle that the journalists are keen to win. Maybe some, like Herb, go more or less bonkers. And for others, perhaps, there are few limits inviolable–no filth unbearable.

Imagine that.

What would happen then?

* * * * * * * *

What?… “Ehhhhhhhh.”

Roddy Boyd, The New York Post, has just had an idea.

It’s a hunch. Yeah, he’s Roddy-Boyd-The-Post, and now he’s, “ehhhhh,” sticking his head in a garbage can. Yeah, his head is in the garbage can, and he’s just hypothesizing here, but he’s pretty sure, pretty sure, “ehhhhh” those are used – “yeah, they’re used condoms.”

And twenty of them!

It is January 2006, five months after Patrick Byrne filed a lawsuit against David Rocker and Gradient Analytics and then held a famous conference call putting Rocker at the center of a massive financial crime dubbed “The Miscreants’ Ball.” Heaps of evidence implicating these people – affidavits, testimony from victim companies, the SEC’s data – has been given to the media, but now Roddy-Boyd-The-Post is, “ehhhhh,” doing a favor for Gradient Analytics.

A couple of days ago, Donn Vickery, Gradient’s managing partner, called Roddy, who takes his marching orders from Post business editor Dan Colarusso, formerly of TheStreet.com. What Vickery needed was this: There had been a couple of private investigators parked outside of Gradient. They’d been eyeballing the place, talking to employees. Maybe Roddy could snoop around, see what he could find out.

So Roddy begins working the phones. He is, “Ehhhhh… Roddy-Boyd-the-Post, here, investigating the aggressive tactics used by Patrick Byrne and Overstock’s private investigators.”

Patrick has not sent any PIs to talk to Gradient’s employees. The investigators (eminently polite, according to some Gradient employees) are working for another company, a Canadian pharmaceutical manufacturer called Biovail. Biovail is later sued by the SEC for inflating its numbers, and perhaps it did something wrong, but there is no question that Gradient has published research about the company that is blatantly false. There is, indeed, enough of this misinformation to fill an encyclopedia, but as a very typical example, consider that Gradient claimed in a report that Biovail’s growth “slowed dramatically” at a time when it had increased by more than 35%. (Really, this is a standard Gradient “mistake.”)

Gradient is working on the Biovail case with a group of hedge fund managers, including David Rocker. Among other tricks, people working for these hedge funds have paid doctors to get them to say that Biovail bribed them to prescribe one of its drugs. These questionable bribery charges have instigated a federal investigation into Biovail and quotes from the doctors (who admit that they were paid by hedge funds to say they were bribed by Biovail) have appeared in a Wall Street Journal “Money & Investing” section story titled, “Biovail is Paying Doctors Prescribing New Heart Drug,” and in a story in Barron’s magazine, written by Bill Alpert, a close friend of Herb. (While Roddy is doing a favor for Gradient, the SEC has just subpoenaed Herb as part of its investigation into Gradient, and Alpert has just written, bizarrely, that he wishes he could get a subpoena, too, because he quoted those paid-off doctors and getting a subpoena is “terrific publicity.”)

Roddy knows about the bribed doctors and he knows about Gradient’s phony research. He knows about short-seller tactics, including the use of phantom stock. But Roddy isn’t interested in all of that. Instead, he’s doing a favor for Gradient. And now he’s got his head in a garbage can.

The garbage can is outside the home of Jerry Treppel, a Banc of America analyst whom Biovail accuses of helping disseminate Gradient’s false research with the hedge funds that are accused of driving down Biovail’s stock price.

Roddy-Boyd-The-Post has figured out that, “ehhhhh,” Treppel is more than fifty years old. Treppel is also a financial analyst who has been married for a long time.

He is more than fifty years old.

A financial analyst.

Married.

“Ehhhhhhhh.”

“Twenty condoms!?”

“This ain’t Jerry Treppel’s garbage.”

That’s when I knew I was on to something,” Roddy-Boyd-The-Post later tells me, “A fifty year old married financial analyst couldn’t, ehhhhhh – you know, he couldn’t be getting that much action. That’s how I knew that Biovail’s investigators must’ve stole the garbage and replaced it with someone else’s garbage. They were looking for stuff about Gradient. I figured it out – you know, ehhhhh, I did some real enterprise [investigative] work here. I busted them, man. Nobody helped me.”

Yes, as a favor to Gradient and its hedge fund clients, Roddy figured it all out. Then he filed the big news.

“TRASH STALKERS,” read the headline. “Biovail’s investigators… repeatedly took the trash of former Banc of America Securities analyst Jerry Treppel…”

* * * * * * * *

So now we have Roddy with his head in a garbage can, and Herb on CNBC saying there’s a conspiracy to get Herb, and Cramer vandalizing his government subpoena, and Herb’s friend Joe Nocera writing about “Overstock’s Campaign of Menace” in The New York Times, and Cramer’s former employee Jesse Eisinger comparing Patrick to “Where’s Waldo” in The Wall Street Journal, and Herb’s friend Bill Alpert saying he’d like to get a subpoena, too – for publicity.

But that’s not all — we also have a very peculiar former BusinessWeek reporter named Gary Weiss firing off friendly emails to a crooked mortgage broker and financial flimflammer who is so unambiguously bad that he sent his father to an early grave.

Deep Capture has come to possess a great number of emails between various journalists and miscreants. In one, the former BusinessWeek reporter brags to the crooked mortgage broker of influencing the contents of Nocera’s “Campaign of Menace” article in The New York Times. “This is totally my doing,” Gary writes. “Yuk. Yuk. Yuk.”

In another email, Gary recounts his successful campaign to keep a reporter named Liz Moyer from getting a job at BusinessWeek because she has written favorably of companies victimized by short-sellers. Moyer, who is now with Forbes, is one of the few journalists who have accurately described the phantom share problem.

Gary left BusinessWeek in 2004 under circumstances that remain a closely guarded secret. From January 2006 until today, his primary occupation has been to author a blog devoted entirely to badmouthing Patrick Byrne and pooh-poohing the notion that phantom stock is a problem. His arguments are not so much arguments as personal attacks. Anybody who utters the words “phantom stock” is a “crackpot” or a member of the “Baloney Brigade.”

Gary regularly suggests, meanwhile, that Overstock is some kind of fraud. He provides not a single scrap of evidence for this, but instead makes vague accusations and then instructs anyone wanting details to visit another blog – this one authored by Sam Antar, former chief financial officer of a family-owned electronics firm called Crazy Eddie. In the 1980s, Crazy Eddie (“Our prices are…..INSAAAAANE”) perpetrated a $145 million swindle involving receipt skimming, bogus inventory and international money laundering. When Sam was busted, he ratted out his two cousins in return for a reduced sentence of six months house arrest.

According to a recent court case, Sam has funneled at least $250,000 to Barry Minkow, who is also a criminal. Minkow served seven years in prison for his role in ZZZZ Best, a fraudulent carpet cleaning company that cost investors $100 million. Minkow now runs an outfit called the Fraud Discovery Institute out of the Community Bible Church in San Diego, where he is a preacher. In one of the financial world’s great ironies, The Fraud Discovery Institute specializes in identifying companies that have supposedly cooked their books – though no reputable investigator has ever concurred with any of its analysis.

Both Sam and Minkow hold themselves out as reformed criminals who can shed light on corporate crime. But it is clear they have merely found a new scam: publishing false information for short-sellers. Utah Attorney General Mark Shurtleff, who has had dealings with Sam, has written a public letter warning investors that, “in light of Mr. Antar’s background as a convicted white collar criminal, we believe that the public should carefully scrutinize and objectively examine any public statements that Mr. Antar makes.”

Invariably, Sam and Minkow attack the same companies as the Cramer constellation of hedge funds, and, unsurprisingly, that is where they derive at least part of their income. Court documents show that Minkow has received at least $10,000 from Whitney Tilson, a friend of Cramer who has shorted companies along with David Einhorn, for whom Dan Loeb, a.k.a. Mr. Pink, vowed to go “to war.”

Mr. Pink, meanwhile, contracts with an outfit called Magic Consulting – owned by convicted stock manipulator Michelle McDonough (formerly Michelle Sarian). McDonough’s job is to coordinate a stable of internet stock message board posters and complicit journalists who bash stocks shorted by Loeb and his friends. McDonough was herself a fairly prolific message board basher, prior to going to prison in 2000.

One message board poster in McDonough’s stable is the crooked mortgage broker and financial flimflammer who is frantically emailing back and forth with former BusinessWeek reporter Gary Weiss in the winter of 2006, soon after Gary established his blog devoted to bashing Patrick Byrne and denying that phantom stock is a problem.

The flimflammer is named Floyd Schneider — a former employee of Amr Elgindy, the gun-toting goon, a.k.a. Manny Velasco, who plotted short strategies with Mr. Pink before instructing his Smith Barney broker to liquidate his kids’ trust funds on the day before 9/11, causing him to get caught in a giant stock manipulation scheme. Floyd has a long history of credit card fraud and stealing money from customers, and once he even filched $20,000 from his own uncle. On his death bed, Floyd’s father said to several associates: “My son – he is a liar and crook. Floyd is the reason that I am dying.”

Floyd has posted tens of thousands of messages smearing Patrick Byrne, Overstock, and many other companies–all, coincidentally, swimming in phantom stock. Meanwhile Sam Antar of Crazy Eddie, who is delivering large sums of money to convicted fraudster Barry Minkow (paid, in part, by Whitney Tilson, colleague of Mr. Pink and Cramer) has posted thousands of his own false and defamatory statements about Overstock, both on message boards and on his blog.

A number of journalists are on strangely good terms with these crooks. Fortune magazine, for example, has written a positive profile of Sam Antar. Roddy-Boyd-The-Post has written an email to a known conman in which he refers to Michelle McDonough as “our mutual best friend.”

But few journalists are closer to this cast of swindlers than Gary Weiss, the former BusinessWeek reporter.

And who, exactly, is this Gary Weiss character?

Well, this is where the story gets really weird.

* * * * * * * *

Gary Weiss is a journalist best known for penning the 1996 BusinessWeek cover story, “The Mob on Wall Street,” which documented Mafia involvement in stock brokerages, including Hanover Sterling, run by the Genovese clan.

In 2003, he published a book, “Born to Steal,” which tells the story of Louis Pasciuto, a Genovese-linked criminal who worked for Hanover. Pasciuto cooperated extensively with Gary, so it is fair to say that the two are friendly. When Pasciuto was later sentenced to prison, Gary wrote an article in his defense.

Now, remember, Hanover Sterling, Pasciuto’s employer, was at the center of one the biggest phantom-stock selling scandals of all time. The NASD eventually fined John Fiero (a.k.a. Bond — a member, along with Mr. Pink, of Amr Elgindy’s online short-selling discussion group) for naked shorting Hanover stocks in cahoots with several mobsters from the Gambino crime family. Their phantom stock selling destroyed a number of companies, and put Hanover out of business, probably with the acquiescence of Hanover’s Genovese handlers. The naked shorting also destroyed Adler Coleman, then one of Wall Street’s largest clearing firms.

That was in 1995 — one year before publication of “The Mob on Wall Street” — but Gary’s story makes no mention of phantom stock or illegal naked short selling. Indeed, Gary paints Fiero as the victim of Mafia harassment.

Since 1995, one of Gary’s most important sources has been Manuel Asensio, a short-seller who for many years was a hero to a certain clan of journalists. Several reporters, including Gary, have written worshipful profiles of Asensio, heralding his supposed expertise at identifying overvalued public companies. None of these stories allude to Asensio’s mysterious past, which seems to have included stints at a number of dubious brokerages.

In 2000, the NASD fined Asensio for failing to make an “affirmative determination” that stock could be borrowed before he sold it. (In other words, he sold phantom stock). In 2006, Asensio was barred from associating with any NASD member (think of the securities industry’s equivalent of Hannibal Lecter in straitjacket and mask) after he failed to respond to charges that he published false information in financial research reports. Before that, he worked extensively with Mike Wilkins, a short-seller and part-time screenwriter of Hollywood B-movies.

A fellow named Ed Manfredonia, who was the primary source for a story Gary wrote about corruption on the American Stock Exchange – the longest investigative report ever published by BusinessWeek–says he was sitting in Gary’s office when the BusinessWeek reporter received a fax from Wilkins’ hedge fund containing negative information about a company called Hemispherx BioPharma. Manfredonia says he told Gary that he had information from Asensio’s clearing firm, Spear Leads & Kellogg, that Asensio had sold 300,000 phantom shares in Hemispherx. But Gary ignored this information and wrote a negative story about the company, helping its stock to plunge by more than 50% — pure profit for Wilkins and Asensio.

Now, Ed is quite the character. A former stock broker who has been living on welfare for years, he says he’s been unable to get a job ever since making allegations that major players on the American Stock Exchange were committing all sorts of heinous acts – like smuggling cocaine from Columbia, and laundering money for Imelda Marcos.

Ed is a compact man and his eyes bulge behind Coke-bottle eyeglasses. He once came to my office at the Columbia Journalism Review and spent three straight hours delineating the “crimes” of Gary Weiss. During these three hours, I uttered maybe a couple dozen words. When I left the room to get a glass of water or use the restroom, Ed just kept right on talking. He has filed countless lawsuits (which he writes himself) against Gary and others, and spent a considerable amount of time following Gary around, asking why Gary lied in his stories. In January 2005, BusinessWeek filed a restraining order against Ed.

But Ed is, in certain respects, credible. A New York district attorney’s office once wired him as part of a large-scale investigation into some of the very allegations that he leveled against the American Stock Exchange. In a story titled, “Offering Credence to the Crank,” Gary wrote that, “In talking to his friends, current and former Amex officials and traders, I kept hearing the same thing: Ed gets too excited, but he is telling the truth.”

I think Gary was right to use Ed as a source (he’s certainly an improvement over the cast of crooks with whom Gary is currently collaborating) and it wasn’t very nice of him to call Ed a “crank.” Ed is different, a bit stressed-out perhaps, but he’s obviously had an inside look at corruption on Wall Street. Some of his information is solid. For example, his claims that Asensio sold phantom stock in Hemispherx BioPharma were later repeated in a report by expert court witness Robert Lowry, who spent 23 years in the SEC’s division of market regulation.

There is also this: In 1999, somebody entered the New Jersey mansion of Albert Alain Chalem, told him to kneel on his marble floor, and shot him in the head. The killers fired several more bullets into Chalem’s face, and then, in a manner less gruesome, killed his companion, Maier Lehmann.

Chalem and Lehmann were involved in various pump and dump schemes, but they were also short-sellers and to a certain group of journalists, popular sources of negative information about public companies. (One gets a sense of the sorts of people to whom some journalists turn for information). Chalem and Lehmann were also heavily involved in the production of phantom stock.

At the time of the murders, Ed offered to introduce Gary to Chalem’s bodyguard, who had good information that the killings were the work of the Russian Mob. Chalem had lost a bundle of money through a brokerage that was controlled by the Russians, and on the night before his murder, he and his bodyguard had met and argued with some Russian thugs. Threats were exchanged.

Deep Capture has looked into Ed’s story – and it checks out. There is every reason to suspect that the Russians (and, by extension, the Genovese crime family) were involved in the murders of Al Chalem and Meier Lehmann.

But Gary would not meet with the bodyguard. Indeed, the BusinessWeek reporter was adamant – he would not talk to anyone who intended to accuse the Russians of committing this, or any other crime. Nor would he mention Chalem and Lehmann’s involvement in selling phantom stock.

Instead, he wrote a story suggesting that Chalem and Lehmann died because they were pumping stocks with members of the Gambino crime family. As Gary knew, the Gambinos were at the time in a bitter feud with the Genovese and their Russian allies. (Gambino mobsters, remember, had threatened to murder the top revenue earner at Carol Remond’s source, Pacific International, because he had funneled a large amount of money to a Genovese-linked stock promoter). So it was no small decision to ignore information that the Russians had ordered the murders.

Ed suggests that Gary pinned the murders on the Gambinos because he was trying to get movie producers interested in his book, and movie producers find the Italian Mob more compelling than the Russians. Either that, or Gary’s favorite sources had a beef with the Gambinos.

In an email to me, Gary’s source Manuel Asensio wrote, “I don’t know anything at all about Al Chalem and Meier Lehmann. I don’t know who they are and have never read or heard anything about them, or spoke to anyone, including Gary, about it.” In another email, he said he has never talked to Gary about the Mafia, he has never read Gary’s articles about the Mob on Wall Street, and he has no interest in the subject.

I called Asensio to ask about a lawsuit that had claimed that he had previously worked for First Hanover, a Mob-linked brokerage run by a guy who later became a crack addict and a homeless person. I also wanted to know about Asensio’s experience in selling phantom stock.

He said he never worked for First Hanover. He said there is nothing wrong with selling phantom stock – it should be legal. He listened as I described some of the information I had gathered for this story.

And then he offered to put me on his payroll.

* * * * * * * *

So, in November 2006, I was working on this story at the Columbia Journalism Review, and I had two large diagrams on the wall above my desk. One of these diagrams showed the multiple links between hedge fund manager William Ackman, a friend of Cramer who was funded by the aristocrat Marty Peretz, and Gene Philips, a real estate magnate who was arrested in 2000 along with around 150 stock brokers from the five New York Mafia families – the largest securities fraud bust in history. (Philips was later acquitted).

The other diagram had, written on the top, inside a box, the name of a hedge fund: Kingsford Capital. This hedge fund, I had learned, specialized in short-selling and was managed by Mike Wilkins, the Hollywood screenwriter who had extensively collaborated with Manuel Asensio. So “Asensio” and “Wilkins” were written on the diagram.

I had also learned that another manager of Kingsford Capital was Cory Johnson, who, along with Herb and Jim Cramer, was one of TheStreet.com’s founding editors – a member of “Murderers’ Row.” (Johnson had previously earned his financial creds as the editor of a hip-hop basketball magazine.)

At the time, Kingsford was also paying consulting fees to Justin Hibbard, who had just left his job at BusinessWeek. Since Kingsford and Asensio were favored sources of that other former BusinessWeek reporter, Gary Weiss (whose only employment at the time was writing a blog smearing Patrick Byrne and denying the existence of phantom stock), I had put his name on the diagram, too. And finally, I had noted on the diagram that several companies shorted by Kingsford Capital and Asensio happened to have been victimized by phantom stock.

So there they were – these diagrams.

And then, one day in November 2006, there was a man.

He walked into the offices of the Columbia Journalism Review, strolled up to my desk, glanced at the diagrams, and smiled. Then he went into our conference room with an editor of the Columbia Journalism Review.

After a short time, the editor invited me into the conference room to meet this man. The man was very cordial. He smiled and presented me with his business card.

The card said, “Mike Wilkins, Kingsford Capital.”

Mr. Wilkins had a proposal for the Columbia Journalism Review.

And this proposal involved a large sum of money.

* * * * * * * *

Meet Judd Bagley, crack technologist and Deep Capture investigator. He’s at his desk, which is half-covered with a tangled mess of wires and hard drives–his hands are up in the air, fingers fluttering like the wings of a hummingbird, and he’s in the midst of a gorgeously long sentence that begins with something about Spartan war tactics, then segues into thoughts on Tennessee Williams and the origins of the marble in the Parthenon, and now seems finally to be ending with a lengthy explication of his “methods” for exposing the obsessions and transgressions of a former BusinessWeek reporter named Gary Weiss.

“…and using my methods,” he concludes with an adjustment of his spectacles, “I’ve been able to deduce that Gary Weiss is…”

..that Gary Weiss is, in essence, a charlatan and a scoundrel.

It is owing to Judd’s work that we know, without a shadow of doubt, that the hedge fund manager who calls himself Mr. Pink pays Gary’s friend, the flimflammer Floyd Schneider, through his intermediary Michelle McDonough, a convicted stock manipulator formerly known as Michelle Sarian. Hedge funds affiliated with Mr. Pink, meanwhile, are paying convicted fraudster Barry Minkow, who is receiving large wads of money from the crook Sam Antar, who spends most of his time working with Gary to smear Patrick Byrne and Overstock.

In appreciation of Judd’s efforts in delineating these connections, Sam Antar the Crook has issued some nasty threats, at one point posting the names of Judd’s two young daughters on the internet.

So, right–these (along with Manuel Asensio and Kingsford Capital) are Gary Weiss’s friends. He’s probably been working with at least some of them since 1995, when he published “The Mob on Wall Street” and another story, “The Secret World of Short-Sellers.” In the latter story, Gary provided a sympathetic account of a short-seller who wasn’t named, but whom we know to be Asensio. The short-seller is painted as something of a hero for attacking a small oil company called Solv-Ex.

As Gary knew (because he mentioned it in passing in “The Mob on Wall Street”), Solv-ex had alleged at the time that a group of Mafia-linked investors were playing games with its stock. This was never proven. But a federal grand jury later looked into suspicious short-selling of Solv-ex, and the company sued Asensio, along with Michelle Sarian (a.k.a. Michelle McDonough) and Deutsche Bank’s Morgen Grenfell Asset Management. (Separately, Peter Young, a Morgen Grenfell fund manager who had set up secret accounts to invest in the oil company, was prosecuted in England. Peter showed up in court wearing a floral dress, bright red lipstick, and high heels – and then plead insanity).

In any case, we know that Michelle Sarian (a.k.a. Michelle McDonough) is now helping Mr. Pink pay Gary’s friend, Floyd the Flimflammer, to smear public companies on the internet. And thanks to Judd’s methods (pure genius, these methods) we have concrete proof that Gary has himself used a variety of fake names to post thousands of messages on internet stock discussion boards, such as Yahoo! The messages either defame people who believe that phantom stock is a problem, or contain negative information about companies shorted by Mr. Pink and other hedge funds affiliated with the Cramer constellation.

And, really, Gary’s efforts go way beyond the call of duty. By tracking the IP footprints left by Gary’s computer, Judd has been able to observe the former BusinessWeek reporter posting, non-stop, for stretches of 24 hours and longer, his writing becoming more and more garbled as time goes by.

Gary also spends time on Amazon.com, writing anonymous reviews of his own books. As soon as this habit was exposed on Judd’s blog, Antisocialmedia.net, Gary scrambled to erase the reviews, but we preserved a few nice examples. Here is Gary’s review of Gary’s book about the Mob on Wall Street:

“Why? BECAUSE YOU CAN’T PUT IT DOWN!!!!! I took this book to the beach during the July 4th weekend and made the mistake of starting to read it in the afternoon. There I was as the sun was setting at 8, and I was still reading it. Everyone was gone and I was squinting as the sun went down. That’s how electrifying this book is.”

Man, that’s a good book.

* * * * * * * *

For further insight into the character and tactics of Gary Weiss, consider the story of how Gary plotted to destroy a fellow journalist named Ian Williams, a reporter for The Nation who was president of the United Nations Correspondents Association (UNCA). Apparently, Gary’s wife wanted a position in the UNCA that was held by Williams’ wife, a BBC World Service journalist and a native of Uzbekistan. So Gary tried to drive Mrs. Williams out of the country by accusing her of lying in order to get a U.S. visa.

Gary’s allegations proved absolutely false. Instead, it emerged that Gary’s wife, a citizen of India, had herself forged a bunch of documents to secure UN press credentials. For example, as part of her application, Mrs. Weiss submitted multiple stories that she had purportedly written for The Pioneer, an Indian newspaper, and a letter confirming her appointment to that newspaper, signed by the Pioneer’s editor. The stories were fakes –later proven to have been photo-shopped on a computer — and the Pioneer’s editor, Chandan Mitra, stated that Gary’s wife had “never been engaged by The Pioneer for any purpose.” He added that the signature on the letter was “an outright forgery”. The UN revoked Mrs. Weiss’s credentials and escorted her from UN premises under armed guard.

Days later, Gary was on Amazon, anonymously trashing Ian Williams’ books. Then he founded “Mediacrity,” a blog supposedly devoted to media criticism, but actually focused, at least initially, on heckling Ian Williams and circulating unfounded rumors about Williams’ wife.

* * * * * * * *

It would be possible to dismiss Gary as a marginal creep. But his strange views on phantom stock are widely cited. Herb Greenberg and other journalists regularly promote his blog. Meanwhile, Gary and his crook friends do more than post lies on blogs and internet message boards. They have also seized control of Wikipedia – one of the most important (though certainly not accurate) sources of information on the internet.

That’s right, Gary Weiss was until recently the sole (anonymous) author of multiple Wikipedia pages, including the blatantly distorted entries on naked short selling (phantom stock), Overstock, and Patrick Byrne. (Gary Weiss is, of course, also the author of the glowing Wikipedia page on Gary Weiss.) And though Wikipedia claims that it can be edited by anyone, the truth is that until this scandal broke, the pages authored by Gary Weiss were given special protection. Nobody other than Gary Weiss could touch them.

Judd put together proof of what Gary was doing, and submitted it for review to a high-ranking Wikipedia administrator known only by the screen name, “SlimVirgin.” Rather than examine this evidence, SlimVirgin immediately forwarded it to Gary Weiss. One of Judd’s “methods” allowed him to determine this immediately.

Judd also quickly learned that Gary’s privileged status on Wikipedia was, in fact, the result of SlimVirgin’s interventions. For months, anytime a user attempted to edit a page controlled by Gary, SlimVirgin would step in and restore Gary’s preferred version.

Wikipedia allows its administrators to remain anonymous, and they would if it weren’t for clever internet sleuth Daniel Brandt. Brandt unmasked the man who edited the Wikipedia entry of one-time government official John Seigenthaler to suggest that Seigenthaler had a role in the assassinations of both JFK and RFK. Brandt also revealed that a Wikipedia administrator who had claimed to be a professor of theology with two doctorates was, in fact, a 24-year-old college drop-out. These two incidents became the basis for critiques of Wikipedia in the New Yorker and other mainstream media.

For his third act, Brandt discovered that SlimVirgin’s true identity is one Linda Mack, a woman who was suspected of working as a British intelligence agent. It turns out that Linda Mack also studied philosophy with Patrick Byrne at Cambridge University, where, for a time, they had a close if somewhat odd relationship. Patrick wrote a public letter describing this relationship. The letter has literary merit. Check it out here.

Meanwhile, John Cooley, a former correspondent for ABC News, wrote a public letter describing how Mack had once worked as a research assistant for ABC. His former boss, Pierre Salinger, fired SlimVirgin when he began to suspect that she was spying on ABC for MI5, the British intelligence agency.

Soon after Cooley sent this letter, I interviewed a man named Edwin Bollier, who was once accused of supplying the suitcase bomb that blew up Pan Am Flight 103 over Lockerbie, Scotland, in 1988. SlimVirgin’s boyfriend was on that plane, so that could explain her interest. But Boiller says that SlimVirgin once showed up in his office and identified herself as an agent for MI5.

When Judd reveals that Gary Weiss is the anonymous editor who has conspired with the supposed one-time MI5 agent called SlimVirgin to hijack the Wikipedia pages on phantom stock, Wikipedia founder Jimbo Wales and SlimVirgin dismiss it all as “conspiracy theory.” Wales announces that Gary Weiss has nothing to do with those pages. Gary himself flat out denies that he has ever edited a Wikipedia page.

When Judd continues to present his evidence, and persists in making this an issue, Wikipedia administrators begin to debate an Orwellian “Bad Sites” policy which would prohibit a certain website from being mentioned on Wikipedia. This online debate generates more words than are contained in the New Testament (literally, Judd has done a comparison) and is focused entirely on Judd’s blog, Antisocialmedia.net, as the one “Bad Site.” Things get really strange when Wikipedia’s administrators decide that their discussion about this “Bad Site” must continue without mention of the site itself.

So now, websites advertising child pornography and other evils are regularly mentioned on Wikipedia, but a single utterance of “Antisocialmedia.net”, a blog devoted largely to describing the strange attempts of Gary Weiss and SlimVirgin to whitewash the problem of phantom stock, is enough to have an administrator removed from his position and banned forever from Wikipedia.

Then Wikipedia takes the unprecedented step of blocking the IP addresses of Overstock and 1,000 homes in Judd’s neighborhood in Traverse Mountain, Utah. One should not underestimate the significance of this: Judd and his neighbors, and the employees of Patrick Byrne’s Overstock.com, become the only people on the planet who cannot access the Wikipedia edit function. The Register, an internet publication (something like a British version of Wired Magazine), does a story about this, titled, “Wikipedia Black Helicopters Circle Utah’s Traverse Mountain.”

Meanwhile, Jimbo Wales and SlimVirgin continue to vehemently deny that Gary Weiss has anything to do with the “Naked short selling” Wikipedia entry.

But then several of Wales’s contributions to a very small and private email list are leaked to Judd. One of these – a September, 2007 email from Wales — alluding to Mantanmoreland, the on-line alias of the author of the Wikipedia “Naked short selling” entry – reads as follows:

From: jwales@wikia.com (Jimbo Wales)

I just want to go on record as saying that I believe the reason for this is that Mantanmoreland is in fact Gary Weiss.

When Wikipedia administrators see this, they rise up against Wales. For months, Wales and SlimVirgin have been assuring them that Gary is not the editor of the entries on naked short selling – that Judd isn’t credible, that he’s a conspiracy nut and author of the world’s only “Bad Site.” Now, here is clear evidence that Wales and SlimVirgin had duped the other administrators.

Meanwhile, dozens of Wikipedia users submit amazingly detailed and academic studies (one employs phraseology to demonstrate language-use similarities between Gary and his on-line aliases) that help prove that Gary Weiss is indeed the anonymous, conflict-laden editor who controls, with the support of SlimVirgin, every Wikipedia entry having to do with naked short selling, phantom stock, Patrick Byrne, Overstock.com, and Gary Weiss himself.

Wales dissembles, saying that “believing” that Gary Weiss is Mantanmoreland is “not the same as knowing for sure.” But as the scandal spins out of control, more evidence emerges of coordinated distortion of Wikipedia pages. It appears, for example, that Wales wangled changes to the entry on a Canadian newscaster in exchange for sex. And The Register reveals that a cabal of Wikipedia administrators have hijacked the entry for a religious cult leader, Prem Rawat, who refers to himself as the “Lord of the Universe.”

Then Jeff Merkey, a former top scientist at software development company Novell, writes Wales an email that says, “I just sent ***ALL*** of your emails to the associated press, exposing your lies and deceit.” The Associated Press, in turn, reports that Wales gave special protection to the Wikipedia article on Jeff Merkey in exchange for a substantial donation to the Wikimedia Foundation.

As of April, 2008, a veritable revolution is underway at Wikipedia. Its administrators are demanding explanations-especially about Wales’ relationship with Gary Weiss and SlimVirgin. The Wikipedia founder, backed into a corner, has become ever more defensive, though he is agreeing to look into the Gary Weiss allegations.

“I support that this investigation continue,” Wales writes on a message board, “and request that it be done in a kind, thoughtful, loving way.”

* * * * * * * *

The importance of Wikipedia entries should not be underestimated. If you do a Google search for “naked short selling,” the all-important number-one result is the Wikipedia entry that says in no uncertain terms that phantom stock does not exist.

Did Jimbo Wales give special protection to Gary Weiss and SlimVirgin, allowing them to hijack this and other Wikipedia pages? It is perhaps too early to say for sure, but it is worth understanding a little bit about Jimbo Wales’ prior career.

To summarize: Before founding Wikipedia, Wales owned a soft core porn site. Before founding a soft core porn site, Wales was a key player in the precise area of the Chicago options market where naked short sales are often negotiated.

For a good explanation of how phantom stock is created in league with options market makers in Chicago, read this paper.

(Click here to read The Story of Deep Capture, Part 2)

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