The mainstream financial media says that the SEC should not crack down on criminal short sellers because short sellers are vital to the markets (and vital ghost-writers of a lot of what appears in the financial media). But much of the world has come to understand the enormity of the illegal short selling scandal, and there is a palpable feeling that the days are numbered for the miscreants who are turning our markets to mush.
Consider the events of just the last 24 hours.
Yesterday, we received word that Jonathan Curshen of Red Sea Management was arrested in New York. As described in “The Story of Deep Capture,” Curshen used to work for Pacific International, a Mafia-infested brokerage that has been favored by criminal naked short sellers and serves as a popular source to journalists, such as Dow Jones Reporter Carol Remond, who insist that illegal naked short selling isn’t a problem.
A Deep Capture team member, working undercover, once traveled to Costa Rica to meet Curshen. On multiple occasions, this creep admitted to our undercover vigilante that he participated in illegal naked short selling – and threatened to kill anyone who revealed this. Curshen also admitted laundering money for criminal short sellers, and described special debit cards that could not be traced to their users. These cards, Curshen said, were used to pay off government officials and journalists.
We are awaiting details of the charges against Curshen. They should be interesting.
Meanwhile, it was announced today that Deutsche Bank Securities has agreed to pay the largest fine ever levied by the New York Stock Exchange for short-selling violations. Only the Associated Press and Reuters reported this news. Reuters noted that Deutsche Bank completed sales of securities “without borrowing the securities or having reasonable grounds that they could be borrowed.” This is otherwise known as illegal naked short selling.
Strangely, however, Reuters suggested it wasn’t naked short selling at all. It wasn’t naked short selling,said Reuters, because the case involved “failures to locate the securities to cover short sales, not necessarily a failure to deliver the securities.”
How does one deliver securities that one has not located? Late in the day, Reuters put out a corrected story with a quote from a NYSE official who said, yes, “if you can’t locate the securities, it may lead to a fail to deliver” – and, yes, that is naked short selling, which is another way of saying that Deutsche Bank Securities sold massive amounts of phantom stock.
This is not at all surprising. For years, a devoted crew of bloggers have pegged Deutsche Bank as a central player in the naked short selling scandal. This was a big reason why the bloggers were called “conspiracy theorists” and “crazies,” and I suppose it would be pretty nutty of me to suggest that one of these days there’s going to be jail time for the criminal hedge funds that ordered Deutsche Bank to sell all that phantom stock in an effort to destroy public companies for profit.
But short sellers are vital to the markets, so let’s pretend not to notice the third interesting news item of the day, which is that Morgan Keegan & Co., a Tennessee-based brokerage, has fired stock analyst John Gwynn for allowing short-selling clients to see his research reports before they were made available to the public. As Deep Capture reporter Judd Bagley noted in our previous blog post, the reports in question all concerned a company called Fairfax Financial.
A small group of short-sellers are alleged to have participated in a scheme – dubbed the “Fairfax Project” – to drive down Fairfax’s stock price. We noted in “The Story of Deep Capture,” that one of the short selling hedge funds, an affiliate of Steve Cohen’s SAC Capital, went so far as to hire a thug named Spyro Contogouris to threaten Fairfax’s executives and their families. The thug (later jailed for ripping off a Greek shipping magnate) even wrote a letter to the church pastor of Fairfax’s CEO, accusing the CEO, who is an honest family man, of being a sado-masochist group-sex afficionado who had scammed the Catholic Church out of millions of dollars.
In a lawsuit filed in 2006, Fairfax claimed that this group of short sellers – Steve Cohen, David Rocker, Jim Chanos and Dan Loeb – conspired with Morgan Keegan to manufacture false, negative research about Fairfax. Morgan Keegan, no doubt to avoid liability, maintains that the research was accurate, but I’ve seen some of that research, and it can hardly be called “truth.” In any case, by firing Gwynn, Morgan Keegan makes it plenty clear that the short-sellers who attacked Fairfax were up to no good.
This same clique of short-sellers has attacked dozens of other companies, almost always resorting to similar tactics: false “independent” research (dictated by the short-sellers, who trade ahead of it); harassment of targeted executives by thugs and criminals; scurrilous rumor-mongering; so-called “bashers” who are paid by the shorts to flood the Internet with smears and distortions; corporate espionage; government investigations (which are instigated by the shorts, and drain corporate resources, but usually end in no action); and bogus class action lawsuits (usually filed by a corrupt law firm called Milberg Weiss until Milberg’s top partners went to jail for bribing plaintiffs).
A hugely disproportionate number of the companies that have been targeted by this clique of short-sellers have also been victimized by massive levels of phantom stock. Ultimately the SEC will have to say who was behind the illegal naked short selling, and so far it has not prosecuted anyone. However, it has launched an investigation into Dan Loeb, who aside from being named as a leader of the “Fairfax Project,” has featured prominently on Deep Capture for paying a minion to manage a stable of criminals and knaves to smear corporations and whitewash the naked short selling scandal.
The media has dutifully mimicked Loeb’s claim that the SEC is only investigating whether he has “communicated” with other hedge fund managers – and, golly, there can’t be anything wrong with sharing ideas with one’s colleagues. But we’ll wager that Loeb isn’t telling the whole truth, and the SEC is investigating the full range of tactics employed by his crew of short-selling scallywags.
It is par for the course that the media has been kind to Loeb. For years, his clique of short-sellers have been the primary sources of negative information for a small cast of influential, but dishonest journalists. The journalists’ stories were often false, but they — along with the phony financial research, the criminal bashers, the hired thugs, the bogus lawsuits, the dead-end government investigations, and the piles of phantom stock – helped pummel stock prices. When the stock prices fell, the journalists wrote more stories blaming the companies for their falling stock prices.
Not once have any of these journalists written about the shenanigans of their short-selling sources. Not once have the journalists suggested that the short-sellers’ tactics or phantom stock could have contributed to the falling stock prices that were the subjects of so many of their stories. Indeed, the most degenerate of these journalists — CNBC’s Herb Greenberg, former BusinessWeek reporter Gary Weiss, Bethany McLean of Fortune Magazine, Carol Remond of Dow Jones, Joe Nocera of the New York Times – have gone to lengths to convince the American public that short-sellers do not commit crimes.
Perhaps following the lead of their eminent colleagues, or perhaps because they simply don’t have time to clear away the smoke blowing from the hedge fund lobby, a number of other journalists continue to behave as if illegal naked short selling is not a problem. And today, with the emergence of yet more evidence to the contrary — with the criminals backed against the wall, and the search light creeping closer — there was from the complicit journalists nothing but silence.