Vanity Fair Reports “Greatest Financial Scandal in History”
You read it here first. But if you don’t believe us, hear it from Vanity Fair instead.
In the magazine’s latest issue, released today, correspondent Byran Burrough reports that “More than a few veteran Wall Streeters believe an investigation by the Securities and Exchange Commission will uncover evidence that [investment bank Bear Stearns] was the victim of a gigantic “bear raid”—that is, a malicious attack brought by so-called short-sellers, the vultures of Wall Street, who make bets that a firm’s stock will go down.”
According to Vanity Fair, the SEC is investigating short-sellers who “employed a complex scheme to force a handful of major Wall Street firms to hold up trades with Bear, then leaked the news to the media, creating an artificial panic.”
People on Wall Street are calling this “the greatest financial scandal in history,” Vanity Fair reports.
The magazine argues, just as Deep Capture did a few days ago, that CNBC’s David Faber facilitated this scandal. The magazine describes Faber’s appalling interview with Bear Stearns CEO Alan Schwartz as follows:
Faber’s first question was a bombshell. He told Schwartz he had direct knowledge of a trader – a single trader – whose credit department had held up a trade with Bear Stearns, citing concerns about its health. At Bear, many executives gasped. It was a killer statement: Faber was saying, in essence, that Bear’s status as a trader, the basis of its business, was in question….only later did Faber say on-air the trade in question had finally gone through. But the damage had been done.
‘You knew right at that moment that Bear Stearns was dead, right at the moment he asked that question,’ a Wall Street trader of 40 years told me. ‘Once you raise that idea, that the firm can’t follow through on a trade, it’s over. Faber killed him. He just killed him.’
All in all, this is a pretty good article. But it could have done more to describe the full scope of “the greatest financial scandal in history,” noting that this scandal has touched hundreds of other companies, and that its most worrying component, ignored by the financial press, is the sale of billions of dollars worth of phantom stock. More than $60 million worth of Bear Stearns stock that was sold on the day of Faber’s bombshell was not delivered on time – no doubt because the stock did not exist.
So who provided that bogus tip to Faber? Who sold all the phantom stock? Who killed Bear Stearns?
Further down, Vanity Fair reports:
According to one vague tale, initially picked up at Lehman Brothers, a group of hedge-fund managers actually celebrated Bear’s collapse at a breakfast that following Sunday morning and planned a similar assault on Lehman the next week. True or not, Bear executives repeated the story to the S.E.C., along with the names of the three firms it suspects were behind its demise. Two are hedge funds, Chicago-based Citadel, run by a trader named Ken Griffin, and SAC Capital Partners of Stamford, Connecticut, run by Steven Cohen. (A spokesman for SAC Capital said the firm “vehemently denies” any suggestion that it played a role in Bear’s demise. A Citadel spokeswoman said, “These claims have no merit.”)
I think it’s wrong to point a finger at Ken Griffin of Citadel. My initial reporting suggests that Griffin was not even short Bear Stearns. Also, Griffin’s rivals routinely throw his name around – usually when they are trying to distract attention from their own misdeeds.
It will be up to the SEC and DOJ to indentify the true culprits, but perhaps they could start by interviewing the hedge fund managers who were short Bear Stearns. These include Griffin rivals David Einhorn, Jim Chanos, Dan Loeb (who once vowed to go “to war” against Griffin), and, yes, Steve Cohen.
As described in “The Story of Deep Capture,” all of these hedge fund managers are in some way closely connected to CNBC’s Jim Cramer. They routinely conduct gang tackles on companies, employing the services of a small, but influential group of financial journalists, most of whom are also connected in some way to Jim Cramer – himself a former hedge fund manager.
One of these reporters is David Faber, who has been close to Cramer for over twenty years. A former employee of Cramer’s hedge fund has written a book that describes Cramer routinely feeding tips to Faber and then illegally trading ahead of Faber’s reports on CNBC.
Deep Capture reporter Patrick Byrne began describing the activities of the Cramer crowd of journalists and hedge fund managers more than three years ago. I began investigating them more than two years ago.
For that, we have both been labeled “conspiracy theorists.”
Now Bear Stearns is dead. Vanity Fair has written its own “conspiracy theory.” And the SEC and DOJ are on the case.
When people start going to jail, we will know who was right.
Posted in 9) The Deep Capture Campaign |
June 30th, 2008 at 5:39 pm
Great job Mark, Patrick, Judd, at being the frontrunner to this story.
It will not take intelligence to crack the Bear stearns debacle, it will only require a willing investigative participant in the SEC. My bet, the SEC continues to play the fool to aid Stevie Cohen and others in further manipulating our markets and the survival of our local communities.
June 30th, 2008 at 8:07 pm
Ladies and gentlemen would someone please answer this (yes you too Patchie) I am in a quandry as to why we have not heard from the shareholder who lost more than 1 billion dollars in less than 5 months buying Bear Stearns stock. I have Googled any actions that he may have taken to get the responsible parties to justice (unless of course he is one of the bad people) and have found nothing. One would think that there would be some sort of action taking place on his behalf against these culpable entities..no? Especially with all this coming out from Mark and now Vanity Fair. Strange Indeed.
July 1st, 2008 at 12:36 am
Does the First Amendment give you the right to yell “Fire!” in a crowded theater?
Something Mr. Faber and his lawyers should ponder.
I am beginning to wonder about GE’s liability in all of this. It may only be inattentiveness of management, but certainly its agents - aka captured journalists - have been active participants in moving (manipulating) the markets, not just reporting. Food for thought…
July 1st, 2008 at 12:58 pm
Sean, until a legal argument can be made no lawsuit will survive. look at how long Overstock, Sedona, and so many others have waited just for Discovery. Shareholders in Bear Stearns will give the federal authorities time to make a case that may be usefull in a future civil action.
Consider; Massachusetts just filed a claim against UBS where they identified damning e-Mails. Civil actions UBS filed today can now present something other than speculation before a judge, they can provide samples of evidence. That usually greases the next step.
July 2nd, 2008 at 2:13 am
We really needed Vanity Fair to educate us???? NOT
Happy 4th Patrick
Baron
July 2nd, 2008 at 2:47 pm
Baron Munch,
Thanks. Cool name.
Patrick
July 2nd, 2008 at 5:13 pm
OK. This is the 2 in a 1-2 punch combo. Bear Stearns put themselves in this position by carrying toxic paper that was virtually untradeable. I buy the whole “deep capture”, it’s basically a morphology of the pump and dump of the late nineties. But, other than the mobs proclivity towards loan-sharks, are there any connections between phantom stocks and CDO’s?
July 3rd, 2008 at 2:25 pm
Hi Patrick,
Here’s a quick antidote to counterfeit bear raids: declare dividends! If the stocks are tightly held by company insiders, and there are more than 100% of outstanding shares being traded, why not use the voting power to put in a one-time dividend declaration? Why not buy up a lot of the counterfeit shares, then declare an enormous one time per share dividend, that would be taking money directly from the counterfeiters.
July 4th, 2008 at 12:08 am
I knew many of the original principals at Bear Stearns for years, and I was sponsored for my first CClub membership by the head of Block Trading there, a gentleman now dead. He sponsored Alan Schwartz just before me.
A lot of innocents at Bear will never recover. What no one will talk about is what was really underneath this raid. Has anyone tried to find out what entity was the largest bond fail at Bear?
Could it have been a major NY Bank? No Raid this size could have been managed with out a syndicate “Manager”. Wouldn’t it have been logical for the biggest short in the street to have been that syndicate manager?
How do I know who this biggest short is? I was asked to run their short account long ago and far away.
The most obvious candidate name is not only the most powerful investment bank, it is also at the same time the biggest hedge fund of all.
Thirty-six years in this space taught me rules I have NEVER seen broken. If you can’t see the never ending links of all these elements to all the other related elements, vertically and horizontally, you are missing this entire picture.
Dividends are one answer, but only if you exit US markets. Tenders won’t work here either. Markets MUST settle.
Wake up and smell the napalm. If anyone wants to really know who is responsible for this scandal, look in a mirror.
July 4th, 2008 at 8:52 am
“Compulsive reader”-you’re question is bang on. “Phantom stock” is a “CDO”. It is a form of a “derivative”. It is a “Collateralized debt obligation”. The collateral needed is calculated on a daily marked-to-market basis. It is a form of “securitization”. Why? Because one of the definitions of a “security” is “an evidence of indebtedness”. The biggest flaw in our current clearance and settlement system is allowing the sellers of phantom stock to access the funds of the purchaser without ever delivering that which was sold. All the seller needs to do is to “securitize” this IOU via a “derivative” process which converts what the purchaser thought was a delivery versus payment “equity” transaction into what amounts to an “undated futures contract” i.e. a “derivative” transaction. The thing to concentrate on is the lack of “prompt settlement” of these “equity” transactions as mandated by Section 17 A of the ‘34 Exchange Act. The mere “collateralization” of a debt has nothing to do with the “good form delivery” needed to legally “settle” an equity transaction. Warren Buffet was very prescient in his observation that the blatant abuse of “derivatives” could bring down our entire financial system. Part of the problem is that derivatives are very difficult to accurately “value”. If an abusive market maker is naked short a gazillion shares of an issuer the position is marked to market at the current share price that can be slammed down in an instant especially in the absence of an “Uptick rule”. This type of “valuation” fails to factor in the fact that covering a gazillion share naked short position would naturally drive the share price up astronomically. Our current system rewards fraudulent behavior by allowing abusive b/ds to calculate their net capital reserves on a daily marked to market basis. A gazillion share naked short position in an issuer whose share price was easily pushed down 95% beefs up the net capital reserves of the worst of the worst fraudsters. The result is a financial system constructed like a “house of cards” instead of one based on the foundational concept of “prompt settlement” of all equity transactions. What we have now is the “prompt conversion” into a derivative transaction. dr. d
July 6th, 2008 at 10:44 am
Patrick, I’m assuming you will not allow Rocker et al off the hook with some settlement. Will discovery be placed in the public record so we might take the truth to the Dept, of Justice? The sociopaths have to be stopped. Their goal is the destruction of the financial world for their own gain.
July 6th, 2008 at 12:53 pm
Pattern Maven and Dr. D. I believe these are the 2 best and most incriminating post that I have ever read. If this does’nt show that Goldman has a monopoly on all these illegal activities and have the appropriate people in high places to keep them out of the legal system or being prosecuted nothing ever will. The question is how do we prove these accusations when the trading records are being kept secret by the SEC and DTCC? I don’t think we’ll ever know!!! Thanks for the knowledge. I now have a better understanding of the problem because of you two.
July 14th, 2008 at 5:34 pm
I know little of these matters, but what would happen if the CEO of a company under attack sent a communication to all shareholders of record requesting them to take physical delivery of their shares? Wouldn’t this smoke out naked shorts and possibly cause a short squeeze?