One of the central theses of The Story of Deep Capture, Mark Mitchell’s epic work of media criticism, is that the staff of TheStreet.com is overwhelmingly beholden to the interests of a few criminal, short-selling hedge funds.
Herb Greenberg, Dan Calorusso, Dave Kansas, Jesse Eisenger: all launched their careers at TheStreet.com.
Such an ignominious list of alumni is matched only by the institution’s co-founder: Jim Cramer, and early investor: David Rocker (founder of Rocker Partners hedge fund).
There’s little doubt that TheStreet.com has been home to more than its fair share of captured journalists. What’s less clear is the matter of cause and effect: does the organization excel at breeding, or merely attracting such people?
Based on the example of former TheStreet.com writer Peter Eavis — contrasting what can be learned about him in the many documents recently made public in the lawsuit pitting Fairfax Financial against SAC Capital and several other hedge funds, with what he’s accomplished since — I’m inclined to believe that the dysfunction at TheStreet.com is a product of the toxic culture of the place, and that well-intended writers with talent who leave early enough have the capacity to redeem themselves.
Peter Eavis features prominently in several documents acquired through discovery in the Fairfax case. The earliest mention of him appears in an email dated July 10, 2002, in which John Hempton told Rocker employee Monty Montgomery “I have Peter interested” in his belief that Fairfax Financial was a fraud.
Later, short selling hedge fund manager Jim Chanos refers to Eavis as John Hempton’s “guy”.
On January 15, 2003, Eavis published his first column on Fairfax: Unsure times for insurer Fairfax Financial, making a special effort to attack the integrity and business acumen of Fairfax CEO Prem Watsa.
While the tone of that piece implies plenty about Eavis’s state of mind when he wrote it, somewhat more telling is the comment he uses to preface the article when sending it, just 20 minutes after publication, to Rocker hedge fund employees:
“Watsa good old Canadian insurer to do?”
One month later, Eavis publishes Fairfax Tirade Can’t Obscure Sea of Red, comparing Prem Watsa to, among other things, a wounded animal.
Less than 20 minutes later, Eavis sends the column to Rocker, prefaced by:
“Prem gets nasty.”
Exactly one month later, it was Eavis again, with Fairfax’s Buffett Pose Falls Short, which he again promptly sent, this time commenting:
“Imitation gives way to evisceration.”
On April 3, 2003, Eavis is back on the attack, with Fairfax Walks the High Wire on Rates, which he also wastes no time in noting:
“Prem in the bunker.”
One month and two days later, Eavis writes Fairfax Fog Only Thickens, calling the company “beleaguered” despite its having just announced first quarter earnings of $10.60 per share. Eavis claims he offered Fairfax an opportunity to respond, but that the company “didn’t immediately return a call seeking comment.”
The lack of a prompt return call might have been a result of the fact that Eavis filed his column at 7:10am EDT.
While Fairfax employees likely were not in the office at that early hour, we know Eavis was, as he emailed the column within six minutes, prefaced by:
“More on the anti-Buffett.”
Finally, on May 15, 2003, we see the most telling email exchange of all, this time following Eavis’s column Fairfax Is Banking on the Luck of the Irish.
In stark contrast with the victorious tone of the emails on his four earlier columns, Eavis is sheepish when announcing this latest, saying:
“Two numerical errors in the first version, so I’m re-sending this. The mistakes made Fairfax look better than it should. A link to the corrections can be found at the bottom of the piece. Apologies.”
Hey, Peter…even the best reporters make mistakes. That’s why pencils have erasers, as they say, and why publications have “Corrections and Clarifications” sections. If you owe anybody an apology, it’s your readers, which was taken care of in the body of the correction itself.
And yet, Eavis apparently felt apologies were also due Rocker Partners hedge fund, where an anticipated payday depended upon Fairfax looking as bad as possible.
Why on earth would Eavis feel such a debt to Rocker?
A little less than an hour later, Monty Montgomery replied, writing:
“…….boy, hard to believe, but i think it’s very true…..this ends up with Hempton summoned to toronto to tell the authorities/regulators how he figured it out when no one else could……toronto’s just across the lake from the farm, that will be a good excuse for us all to get together there and throw back a couple of cold beers…….”
To which Eavis responded:
“sounds very tempting — both the farm and the ringside seat for watsa’s comeuppance.”
I’d be hard pressed to list all the standards of ethical journalism Peter Eavis violated in just his first five months of covering Fairfax Financial.
But if I were to try, I’d start by pointing out the deep conflict of interest inherent to obviously using his column as a tool to make David Rocker, one of his employer’s largest investors, rich.
Interestingly, in the months to follow, Eavis seemed to lose interest in Fairfax, his frequency of coverage plummeting from over one column a month to less than one per quarter. About that time, he also seems to have quit seeking the approval of anybody at Rocker Partners.
Then, in 2006, Eavis left TheStreet.com for the Wall Street Journal, where he has evolved into a quite prolific and skilled contributor, whose broad body of work appears not to include anything relating to Fairfax.
Is Peter Eavis corrupt? I’d have to say that no, I don’t think so. At least not corrupt after the tradition of Bethany McLean.
Instead, I suspect the culture at TheStreet.com to be very corrupting, though the condition does not have to be a terminal one.
Finally, I wish to point out that in seeking his comment, I did establish contact with Peter Eavis, and at his request provided copies of the above-referenced emails. I was disappointed when he failed to offer a response two days ago, as promised. Should Peter change his mind at any time, I will gladly append his comments below.
If this article concerns you, and you wish to help, then:
1) email it to a dozen friends;
2) go here for additional suggestions: “So You Say You Want a Revolution?“
Thanks for laying this out so masterfully for all who reads to comprehend. I am not sure what is happening, if anything, in the Fairfax suit but your writings can only help the plaintiff & prosecution. It is up to us to alert our Congress whose heads are spinning already regarding the Madoff scheme.
Thanks to each and all involved in educating Joe Sixpack since our Captured and Corrupt media won’t.
If you or anyone else is writing a book on this corruption and fiasco, I’ll take a crack at a title.
The Deep Capture of Wallstreet Journalist: Inking the Way to Corruption While Making
“Mad Money” onthestreet.
I’m glad you gave Peter extra time to respond before posting this. Why am I not surprised that you would do that? I would like to here what he has to say. Keeping the door open is great.
When did Chanos refer to Eavis? I see nothing in calling him “guy”… simply might not have known who he was. Chanos did know Hempton . We need context to show that Eavis was “guy”..
I suppose that you are saving some of the details for brevity here and a bigger picture later.
Don’t leave out Richard Baker who left Congress midterm, which coincidently?allowed him to avoid stricter rules as to how long one had to wait before lobbying Congress. If Eavis was redeemed, Baker wasn’t.. that is really sad because Baker tried and failed to get good regulations through. It was almost like he threw in the towel and joined the opposition.
On January 15, 2008, Baker announced his intention to resign from Congress to take a lobbying position with the Managed Funds Association. He left office on February 2, 2008. This triggered a special election, won by Democrat Don Cazayoux, who defeated Republican and former Democrat Woody Jenkins.
Where does Senator Shelby fit into all of this?
He was instrumental in protecting the thieves.
How about those pages from the discovery? (I know there are a lot of them)
I’d love to see them if you get a chance to post a link to them when they are scanned.
Or do you know of a website where i can download the 1,000 pages of discovery you mention? (i don’t mind a fee if one is charged)
Madoff buy in deadline Dec. 29
anyone want to take a guess at what the operating budget for CNBS is….gotta be staggering. I’d like to know where they are getting all this money to employ so many crooks….follow the money
Peter was emboldened by his success prior to this FFH hatchet-jobbing in correctly exposing the Calpine disaster before/as it happened. This pattern of previously correctly exposing a stock scam or a doomed company, such as Herb Greenberg’s late ’90s pieces exposing a couple of scam companies, seems to give these journalists a license to then bash for profit any vulnerable company they and their hedgie associates damn well please. Sad, that.
Once a journalist has one credible feather in his cap, he is then a mark for a hedge fund manager to use (whether the journalist is completely self-aware of it our not) to use for a bash-for-profit scheme. Greenberg is the poster child for that, and Eavis is not far behind. Didn’t he leave journalism to become a minister at one time?
Piperdown, you make an excellent and very perceptive point. Bethany’s feather was Enron. After a huge score like that and all the acclaim that comes with it, it would be natural to worry about duplicating that level of success and avoiding the fate of the overnight has-been. Note that Cohodes enticed McLean by saying “FFH is the Canadian Enron and it could even be worse…”
looking back on this year, it seemed things began to change when Goldman and Morgan were under the gun. I find that ironic. They didn’t say a word when other companies were being destroyed. Mack “the knife” got what was coming to him, and these are the two shops who were responsible for the dramatic rise and fall of oil and nat gas.. Borrowed money from the Fed to gun up oil and nat gas, and their monkey cheerleader Cramer on t.v. to push it up. I used to check the energy plays he was pushing in the summer and shockingly Goldman had positions in almost all of the them. And good old Gary Shapiro resigns as head of Morgan’s commodity trading on July 4th…THE TOP OF OIL. Along with the abuse of naked shorting there should be more digging into the abuse of the commodity markets created by Goldman, Morgan, Ice, and BP. FYI, the drastic move in the bond market I believe is a huge short squeeze, that acccording to a bond trader i trust from chicago…apparently the crooked hedgies are all short or at least they were…
We’re all going to learn soon enough if the new Schapiro SEC will represent more of the same or provide genuine reform. In the abusive naked short selling (ANSS) arena there is and always has been only one solution to past crimes and one form of meaningful deterrence to future crimes and that is mandated buy-ins of all delivery failures once they hit an age wherein the default assumption of the DTCC associated with all delivery delays being of a “legitimate” nature until proven otherwise gets “proven otherwise”. I would think that this would be around T+7 (S+4) or so.
If you go back in time you’ll recall that first of all there was this thing we refer to as a “U.S. corporation” which is domiciled in any one of our 50 states. It was based on the concept of its “shares” acting as the unit of equity ownership with the foundational concept of “one share, one vote”.
Only later came the need to set up “markets” to trade in these “shares”. These “markets” needed “market intermediaries” to facilitate in this trading. Somewhere along the line the concept of “U.S. corporations”, its “shares” and “one share, one vote” as well as the prognosis for the success of these “corporations” and the value of these “shares” got thrown under the bus in order to serve the financial interests of these “market intermediaries” that in effect “hijacked” these “markets”.
Soon there appeared layers upon layers of “derivatives” of these “shares” that became freely tradeable despite the fact that their trading had profound negative effects on the prognosis for the success of the underlying U.S. corporation. They did however have profound positive effects for the financial interests of the “market intermediaries” facilitating the trading of these “derivatives”. Soon however the concept of the underlying “U.S. corporation”, the prognosis for its success, the value of its “shares” and the foundational concept of “one share, one vote” became barely recognizable.
Imagine how much cleaner Wall Street would be and how much stronger our financial system would be if the SEC, the DTCC, the SROs and the exchanges would not have approved the trading of any “derivatives” of the “shares” of “corporations” that were deleterious to the value of these “shares” or detrimental to the prognosis for the success of the underlying “U.S. corporation”. The “market intermediaries” benefiting from this “casino-like” atmosphere created during this “hijacking” process would obviously not be too enamored with this idea but all U.S. citizens in need of the congressionally mandated “investor protection and market integrity” whether investors or not would be extremely appreciative.
At this critical point in time there is indeed only one solution left and that is the mandated buy-ins of previously established naked short positions of a certain critical age whether the delivery failures are being hidden at the DTCC in “C” sub accounts, in ex-clearing “arrangements”, on the trading desks, offshore, in foreign clearing systems allowed to interface with the DTCC, etc. The massive numbers of readily sellable “securities entitlements” that these delivery failures have procreated represent invisible toxic waste within the share structure of a corporation targeted for destruction that is actively manipulating the share price of victimized U.S. corporations downwards as we speak. How many more U.S. corporations and the jobs they provide need to die before this new SEC recognizes the “hijacked” nature of our clearance and settlement system and the markets that their “participants” intermediate?
The 1933 “Securities Act” also known as “The Disclosure Act” mandates that all information “material” to the prognosis for any investment in any corporation be made known to the public. In a “prospectus” a U.S. corporation is mandated to reveal every tiny “grain of sand” of risk inherent to an investment made in that corporation. How can the SEC and the DTCC refuse to reveal to the investing public on a timely basis the gigantic “boulder of risk” present in the form of massive numbers of invisible to the eye but readily sellable “securities entitlements” actively manipulating the share prices of victimized issuers downwards? The SEC has no safe middle ground to occupy any more. It has to stop violating the ’33 Act and start enforcing it as per its congressional mandate. It can either get rid of these excessive amounts of readily sellable “securities entitlements” or warn investors of their existence. If it’s too embarrassing to tell the world of the “corruptly hijacked” nature of our current markets then removing them via mandated buy-ins is the only other solution.
SEC inspector general report.
Why isn’t it front page news that a Madoff family member is on the board of directors of the NSCC which does all the clearing?
NATIONAL SECURITIES CLEARING CORPORATION
RESPONSE TO THE DISCLOSURE FRAMEWORK FOR SECURITIES SETTLEMENT
3. Does the securities settlement system have a Board of Directors?
(a) What is its composition?
Peter B. Madoff
Bernard L. Madoff Investment Securities
Also was on the board of SIFMA.
Bernard Madoff’s brother Peter resigned Wednesday from the board of the Securities Industry and Financial Markets Association, a lobbying group that represents 650 global securities firms, due to “circumstances surrounding recent events,” a Sifma spokesman said. The group is influential on securities and banking regulation in Washington. Peter Madoff couldn’t be reached for comment.
The lobbying firm Dow Lohnes Government Strategies filed paperwork on Dec. 12, terminating its lobbying contract with Bernard L. Madoff Investment Securities. That ended more than 10 years of Madoff lobbying in Washington, in which his investment firm spent more than $400,000 to influence the federal government.
But lobbying is just a piece of Madoff’s influence in Washington. His family has contributed nearly $400,000 to political committees. And his niece, Shana Madoff Swanson, who serves as a compliance attorney at his firm, is married to a former high-ranking Securities and Exchange Commission official, Eric Swanson.
It has emerged that in 2001, Ms Schapiro, now the chief executive of the Financial Industry Regulatory Authority (FINRA), employed Mark Madoff to serve on the board of the National Adjudicatory Council – the division that reviews disciplinary decisions made by FINRA.
“All In The Family”, true sense of the word. Shame on our Governing Body, Shame on our Regulators. Follow The Money !
Judd, you don’t have to post this but I wanted you to see it..
“PHILADELPHIA–(BUSINESS WIRE)–Aug. 31, 1999–
Richard Sauer, Assistant Director of the Enforcement Division of the Securities and Exchange Commission, will be the featured guest on Rocker Partners Analyst Marc Cohodes’ weekly RadioWallStreet show, “Facts from the Other Side of the Tracks” on Tuesday, August 31, 1999 at 4:15 PM EDT, Investor Broadcast Network announced.”
The SEC has a budget of $900 million to oversea 13,000 companies. That’s $70,000 per company.
Are we getting good value out of an organization that is little more than a PR front for people like Madoff?
We cannot begin to imagine what blogsites like this and thesanitycheck.com is doing to these miscreants. Wanna bet legal advise is being sought out in droves by journalists and Hedgefund managers alike? Lets see how long they can maintain their arrogant stance of “We can do no wrong”. Now we should start to see “Guns and Badges” go to work….Rich people are losing money now. They will pay attention now!!! You think Madoff was/is the only one pulling off this stunt. The Scam of Wall Street is being made public now for all to see. It took CNBC
less that a week to come up with a one hour special on Madoff, called Scam of the Century, complete with interviews of victims of losses. Strange, because these people don’t know that they have lost all yet do they? They are selling the fiasco very hard and I wonder why. We may soon see.
Check out the institutional holders of the Street.CON….the one and only Mark Cohodes, as of sept 30, owns 1.2 million shares…..Now, why would he be so dumb as to do that, unless he was asked, or forced to do so. Any ideas anyone why He would be a recent buyer?…it sure wasn’t as an investment
Another one. Madoff people had senior positions everywhere that mattered.
Security Traders Association of New York
Larry T. Birch
Bernard L. Madoff Investment Securities LLC
Larry is honored to accept the Presidency of STANY and looks forward to the challenge of leading STANY during these times of historic change. Our trading community is in the midst of one the most dynamic transformations in its history. Sweeping shifts in the business landscape coupled with unprecedented regulatory intervention have dramatically altered the landscape of the capital markets. As our industry faces the host of challenges posed by these changes, Larry looks forward to working with the board and the membership to insure STANY continues to prove an invaluable resource to its membership.
why is it that most of these people went to Harvard or worked at Goldman sachs, or both….seems to be a recipe for illegality to have a harvard law degree and work in the investment world…..Spitzer, Rocker, Cramer, etc…i could go on and on and on….ironically our new prez is a Harvard lawyer and is being advised by Goldman…hope thats just a coincidence
Something not adding up here..Can anyone point me in the direction to anything that would tell me 1) How much money Madoff was paid last 3 years or so. 2) With all this money he made/stole how come he is’nt listed on Forbes billionaires list? Something just ain’t adding up. Steve Cohen, Griffin, Soros,Paulsen are all there among other notables but this guy is noticeably missing.What’s up with that? Red Flag number 1. One other thing before this scandal I never heard of Madoff, did you? Almost as if he existed in another world.
Sean, I think you are onto something. He’s rich, but not billionaire rich.
I think he’s like the guy that drives the “getaway car”. He facilitated the mechanics of fails by setting up a computerized system where he needed to naked short to accept the buy to the nearest 100th of a second and by dealing with so many other systems (NYSE, Canada, Germany, Arca, etc.), he could hide the fails.
But, he doesn’t seem to be the guy making all the money.
He’s a great patsy, a family run company built from scratch on a dime, paying the big guys (payment for order flow) to send him business, then turning a blind eye when the business is raping the system or laundering money.
I can’t wait for this site to start naming the billionaires that were actually responsible for the heists.
In China, the Government officials worry about “Social Unrest”.
In the USA, does the SEC worry about “Social Unrest”?
People are now becoming better-informed about corruption on Wall Street – and they have connected-the-dots that the SEC is not doing its job as an investigative & enforcement regulatory agency of the securities industry, especially now that Cox has ordered the SEC to investigate itself. What a joke! This failed-institution should be dismantled immediately — and the entire building should be cleansed.
Is it time to organize a “MILLION INVESTOR MARCH ON CORRUPTION” — straight to the footsteps of the SEC Building?
I hope for “justice” – and I hope Ms. Mary Shapiro, Obama’s new appointment to Chair the SEC, will not be a “tool” for the Hedge Funds to engineer even faster Bear Raids.
If Ms. Mary Shapiro does not reinstate the Uptick Rule and enforce the illegality of fail-to-delivers caused by Naked Short Selling, then she will have failed at the job — same as Cox.
It is time for “justice” — to make the playing field level again.
I’m a fan of the rogues gallery on the front page. Public humiliation is like the old pillories.
These people that are paid to lie, like Stu Goldstein at the DTCC (Larry Thompson hired an outside contractor as a PR expert as he got tired of trying to lie with a straight face) or Carol Remond aka Redmond (why did she have to change her name) or Gary Weiss and his baloney brigade, they all need to be exposed.
Counterfeiting is not an anonymous, systemic crime that we can’t fix.
Individual greedy human weasels and cockroaches make it happen and those weasels should be displayed to the world.
My suggestion is pictures on the front page.
Here’s a start.
Guilty looking fund manager:
Hang ’em high, I’m serious about naming names. I think the best think deepcapture can do is make it personal. Can you imagine one of these cockroaches trying to sue for libel and exposing their lies to discovery?
It’s hard to change a system, but it is easy to hold individual a-holes accountable and the media whore lapdogs that get paid to lie for a living should be the first to the public internet photo pillory.
There’s a lot of anger in this country and it wouldn’t take much to direct them to the people that are screwing them.
Every time I hear CNN say “a country divided”, I hear the banksters trying to get us to fight with each other over abortion or gay marriage or republican versus democrat or red states versus blue states rather than to realize that business cycles and the rat race are their making and it’s the people versus the counterfeiting thieves.
We’d all double our standard of living if we could get rid of the parasites.
$3 trillion of $10 trillion in government debt is provably counterfeit. Think about that.
Every time some government official says that we need to pay down the debt, think that a Madoff is enabling some offshore billioniare to counterfeit thirty cents for every $1 we borrow.
These wallstreet criminals are like lice. They are hard to get rid of and are contagious, but we can get rid of them if we quarantine our politicians and media from their influence.
I thought I was contributing to making a difference, but my posts were censored.
I am so angry that I wonder what other posts have been censored here. This site loves the cockroaches.
I’m sure this post will be censored by morning, but I have to wonder why this site is so worried about protecting the cockroaches.
We’re going to take this country back, but appears that deepcapture is one of them.
Ah, Cramer- what can be said….Cramer is the king of selling the chicken once they have all left the coop
Mad Money’s Cramer Calls 2008 ‘Year of Natural Gas’.
Publication: Gas Processors Report
Publication Date: 09-JUL-08
COPYRIGHT 2008 Hart Energy Publishing, LP.
The natural gas market is getting a lot of attention from Jim Cramer, host of CNBC’s Mad Money program. In fact, the influential stock market analyst has called 2008, “the year of natural gas.”
In the past few months, he has recommended Anadarko, Apache, Chesapeake Energy, Devon Energy, XTO Energy, El Paso Corp. and Southwestern Energy as strong stocks.
Why is Cramer backing the natural gas industry? He says it is the “fuel of the future” because it is cleaner than the other alternatives. He also cites the fact that natural gas prices are still much lower than oil prices, which is bound to change given their traditional pricing averages.
Note that the AVERAGE pick is down more than 60% in 4 months….but does Jimbo talk about it? Nah- he’s too busy running for SEC Chairman…
There are no words to describe this man that do him justice…..none
In keeping with the thesis that EDUCATION as to the truly heinous nature of abusive naked short selling (ANSS) frauds will in the end lead to its eradication one has to study the arguments of those doing their best to block any meaningful reform in this arena. The single best way to study this is by reviewing the “comment letters” submitted to the SEC every time any reform is put on the table. If securities fraudsters don’t make their case at these times they risk meaningful reforms being implemented even by “captured” regulators fearful of legislating against the desires of 99% of those interested enough to tender comments on these issues. When securities fraudsters do weigh in on these matters by necessity they are often faced with the unenviable task of proffering arguments that become more and more transparent as the investment community serving as the victims of these thefts become more EDUCATED.
In the last several “comment periods” hosted by the SEC on abusive naked short selling issues the arguments of those fighting meaningful reform center around all of this wonderful “LIQUIDITY” that they are willing to provide on behalf of investors attempting to buy shares at bargain basement price levels. What investors don’t realize is that in the case of abusive market makers (MMs) and their co-conspiring unregulated hedge funds investors are purchasing relatively cheap tickets onto this “elevator” we refer to as the “markets” but the elevators have unknowingly been pre-programmed to only go in the “down” direction. The question arises as to when does this theoretically beneficial “injection of liquidity” become the INTENTIONAL drowning of U.S. corporations with a tsunami of “liquidity” financially benefiting those that have previously assumed large naked short positions against these companies and what can we do about it.
The securities laws state that a truly bona fide MM is allowed an exemption from both pre-borrowing and making “locates” before making admittedly naked short sales. This exemption was designed to address the reality that in fast moving markets a truly bona fide MM may not have time necessary to execute a pre-borrow or “locate”. In reality a truly bona fide MM is mandated to address BOTH order imbalances in markets involving an overabundance of buy orders that dwarf sell orders by naked short selling a MODERATE amount of shares into the imbalance AND order imbalances in markets characterized by an overabundance of sell orders that dwarf buy orders by buying back shares ESPECIALLY WHEN HE HAS A PREEXISTING NET NAKED SHORT POSITION IN THAT ISSUER’S SHARES. The assumption of the regulators was that MMs would remain close to net neutral. The problem is that our clearance and settlement system has been illegally converted to one based on “collateralization versus payment” (CVP) instead of the congressionally mandated “delivery versus payment” (DVP). Thus the sale of shares by abusive MMs even when they don’t exist still allows them access to the funds of unknowing investors despite their constant refusal to deliver that which they sold. As the readily sellable “securities entitlements“ resulting from these failures to deliver invisibly accumulate in the share structures of issuers targeted for attack then the share price can predictably be placed into a “death spiral” downwards. This then lessens the collateralization requirements for these failed delivery obligations which in turn results in the investment dollars of the unknowing investors unconscionably flowing into the wallets of those that continue to refuse to deliver that which they sold.
When naked short selling onto the buy side after naked short selling a MODERATE amount of shares the truly bona fide MM allows the order imbalance to seek out a higher share price level wherein the natural forces of supply and demand can find an equilibrium level. If a MM is not willing to “inject liquidity” into BOTH types of markets then he is not legally allowed to access that incredibly powerful but universally abused exemption. The fraudulent accessing of this exemption forms the foundation for a large percentage of abusive naked short selling frauds as abusive hedge funds are willing to shower willing MMs with fees, commissions and order flow in exchange for their illegally accessing this exemption. Part of the problem is that there is basically no “barrier to entry” to becoming a “market maker”. All one has to do is to file a 15c2-11 on a corporation or “piggy back” onto some other MM’s filing and voila you’re a “market maker” with access to that trillion dollar exemption.
A PROPOSED SOLUTION-“THE 98% RULE”
If a “theoretically” bona fide MM wants to access that exemption he needs to be FORCED to “prove” the bona fide nature of his acts by doing what a truly bona fide MM does. He needs to be FORCED to place and permanently leave a bid for the same amount of shares that he is naked short selling at perhaps 98% of the level at which he is naked short selling. This way the damage done by his naked short sale which results in a failure to delivery and the procreation of readily sellable “securities entitlements” that drive down the share price via inflating the “supply” of readily sellable “shares and/or securities entitlements” will be at least partially mitigated. As it stands now there is a “regulatory vacuum” in this arena and most MMs will do whatever it takes to attract the business of hedge funds that currently spend $11.2 billion annually in fees and commissions to those market intermediaries willing to be the most “accommodative” to the financial interests of the hedge fund manager. Entrusting MMs with absolutely no “barrier to entry” to some sort of “honor system” in the midst of trillions of dollars of temptation is unconscionable.
If you get a moment study the Reg SHO “comment letters” on the sec.gov website tendered by the various securities industry and hedge fund lobbyists and learn about all of this wonderful “liquidity” they have to generously offer to us investors.
Erik, you have to respect the decisions made by the blog owners. Posting here is a priviledge not a right. If Patrick, Mark or Judd censored your post it must have been for a good reason. Such a childish rant as you have posted about this issue was uncalled for and disrespectful to what these gentlemen are doing. Not because you cannot get your own way should you come off the way you did. If you had a problem you should have contacted one of the the journalists by email not in public as you did here. This action by you totally negated what I thought was an outstanding post (whether censored or not) regarding the counterfeit government debt of 7 billion. I expect better from you and all other posters. Lets not be so quick to judge. I know there must be a good reason for what was done. I trust their decisions and so should you!!!
Erik: I checked and your comment was automatically blocked because it included four links (the limit is three…in order to minimize spam comments). I’ve manually approved the comment and you’ll find it above.
Mr. DeCosta, all this generous liquidity from the market makers is leaving me all wet. I’d rather they give me shares for my money.
What’s perverse about this is that by pushing the share price low, it actually increases buying and profits to them as the investors think the stock is cheap. The lower they push the price, the more buy volume you’d expect to see and the more money flowing to them.
An aerial tour of the homes of Bernie and the bailed out bankers.
ted, it actually becomes comical when you see abusive MMs and the industry and hedge fund lobbyists not only volunteer to provide this wonderful “liquidity” to us investors but they actually insist on being allowed to provide this beneficial “liquidity”. These are the “Madoffs” of the world volunteering to do us investors favors. Something just doesn’t pass the smell test. The comic relief comes when one realizes that when your DTCC-administered clearance and settlement system has been illegally converted into one based on mere “collateralization versus payment” (CVP) then the “injection of liquidity” becomes synonymous with being allowed to place the share price of the corporation under attack into a self-propagating “death spiral” and thus result in the shunting of the investor’s funds into the wallets of the crooks that continue to refuse to deliver that which they sell. Not that we don’t appreciate the sentiment of these would be “investor advocates” but I think the investing world would just as soon do without that type of “liquidity”. The moral of the story is to beware of DTCC “participants” bearing gifts especially those that slosh around in their containers. The other thing to keep in mind is that since all of these “securities entitlements” resulting from the failures to deliver associated with all of this generous “provision of liquidity” are allowed to be “readily sellable” as if they were real “shares” because of UCC Article 8. This results in that much more “substrate” for these market intermediaries to earn commissions from buying and selling as well as rental income as you can’t tell real shares from mere “securities entitlements” (IOUs) on a monthly brokerage statement. That’s why your monthly brokerage statement says “securities held long” and not “shares owned”.
Eavis and CPN. Tell a CPN investor at that time that Eavis was legit. And why is it ol YAHOO allows the nefarious behavior of the paid bashers who sit there day in and day out spouting the mis information, false rumores etc. Then again some might wonder what OREILLY was doing recently with his bashing or GE day in and day out. Front running for Newscorp. And Poor Sheldon Adleson of LVS. Talk about phantom shares. Someone mind doing a count. Finally Ol street.com continues as it has it Dvorchak and Faulkner taking shots at Sun Microsytems/JAVA. Who are those two benefactors. J C writng BULL on a govt document and then feigning wiping it against his butt and he wanted to be the NEW SEC head. I love the work being presented here but let’s get real. UNLESS some heavy hitters go to JAIL being right is about as significatn as MICHAEL COLIONI knowing the police were corrupt and were complicit and allowing some to try to hit the dad while in the hospital. Finally lets not forget that this year saw attacks on the system while the gang sat like deer in the headlight and when it was done a near collpase and trillions lost. NOW that we see the FED cut to near zero it’s pretty evident they were attempting some strategy last year when they held OFF cutting 50 basis points in DEC and cutting only .25 but my my three days after options expiration and the dow dropping from 14k to 11k ish dragging many an equity under strikes that were vulnerable to be delivered. The list is LONG and it’s obvious the FED KNEW. Unfortunately as with any game there’s a strategy on both sides…good and bad. CAUSE AND EFFECT. Thanks to all the contributers. I inform as many as I can. Write in to the SEC but in the end. They still killed WB/WM/near killed MER/ and are trying to kill. GEESH. Oh that’s right accoring to any Yahoo financial message board THEY ARE ALL GOING BK. .. JC;s sudden he’s got religion is embarassing but I’m not expecting much from OBAMA. WHY? ASK FRANK SERPICO.
(This is a snip-it of an interview with Matt Renner-the interviewer and Gary Aguirre-the interviewee. Gary is the ex-SEC lawyer that was “mysteriously” fired after going after a Wall Street “whale” for securities laws violations. Note the “revolving door” analogy and the “just don’t rock the boat” mentality for SEC staff. If you “just don’t rock the boat” by prosecuting Wall Street big fish then you will have your turn to go through the “revolving door” from the SEC to jobs on Wall Street paying 10 times as much. Why are they worth paying that much money annually? It might partly be for previous “favors rendered” but mainly because of the contacts they have that are still within the SEC and that can be tapped for “favors” when in need i.e. for willingly donning a blindfold when the ex-SEC staff member’s new employer’s actions fall under the microscope. This mentality explains a great deal about the SEC’s behavior when it comes to the refusal to provide truly meaningful deterrence to abusive naked short selling crimes as this might “rock the boat” of the hand that may soon be feeding you.)
MR: Why do you think the SEC didn’t use these regulatory powers (over “investment advisors like Bernie Madoff) in this (Madoff) case?
GA: We can’t really prejudge it at this point. There is a lot of talk in the media that there were personal links between SEC staff and Madoff. One has been identified; I’m not sure he was the only one involved. But stepping beyond personal connections, in general, I believe that the SEC has been reluctant to apply the securities laws to the big players, to Wall Street’s elite. They have often gotten a pass. The SEC is focused on the small players.
In the investigation that I conducted (on a Wall Street “whale”), which is now the subject of a Senate report, there was suspicious trading activity involving both a hedge fund involving an $18 million profit. They also detected a $150,000 profit by a low-level employee of General Electric (GE) and a Taiwanese kung fu instructor. SEC passed on the hedge fund case where the trading indicated millions in profit and SEC focused on the GE employee and the kung fu instructor. The SEC and the US attorney rigorously prosecuted the low-level GE employee, but both passed on any investigation of the major hedge fund.
This is not a rarity; it is more the practice. The exception is when they look at an elite player on Wall Street. Not only is it an exception, if you try to pursue a big player as I did; it can be career-shortening experience. At the SEC, it is a culture of deference. That culture is intolerant of investigations into the Wall Street elite. Keep in mind that the SEC was created to keep an eye on Wall Street, so it has completely lost sight of its mission and that is why we have a situation like the one with Madoff.
MR: What is it about the culture at SEC that steers them away from looking at the big Wall Street players?
GA: All the agencies have to some extent or another a revolving door [where government employees rotate out to the private sector and earn more money]. But at the SEC, what you rotate into is an enormous salary leap. SEC managers may make $200,000. That same person may make $2 million as a starting salary on the outside and can move up from there. Now, when he leaves, I’m not sure he’s worth $2 million as a lawyer, but he takes his Rolodex with him and that Rolodex is gold. The system maintains itself, because those that stay know their turn will come if they play the game. They see a director or associate director move onto a $2 million job with a Wall Street law firm. Then, the departed employee calls back to his former colleagues and says, “you know I really don’t think there is much of a case against so-and-so, I’d like for you to take a look at it.” And the case goes away; the system goes on in perpetuity.
MR: Did you see the revolving door in action in your case?
(On January 31, 2005, prior to the phone call mentioned below, an email beginning with the word “Yowza!” was sent from Jan Lower, an attorney at the Debevoise and Plimpton law firm, to Aguirre’s supervisor Paul Burger. The email described in detail the potential earnings that a former SEC official could receive at the Debevoise and Plimpton law firm – $2 million a year.)
GA: Senior officials at the SEC got a call from Debevoise lawyer asking about a case I was handling. It was clear she wanted the investigation of John Mack to go away so he could become Morgan Stanley’s new CEO. And it did go away. SEC associate director Paul Berger derailed the investigation and when I questioned that decision, fired me. Within a few days of firing me, he made an inquiry through one of his colleagues to the Debevoise law firm to see if they were interested in hiring him. After the case against Mack was dead, Berger took a job with Debevoise and that is where he’s working now. I’ll let you draw your own inferences.
What you have when you leave the SEC is contacts with the SEC, you have the Rolodex and the ability to call back to people you used to work with. I don’t want to single out Burger, I think that is really the culture there. A culture of ‘don’t rock the boat,’ the industry does not want ‘boy scouts,’ and if you can be effective with the SEC through your contacts, that is a very valuable asset you can bring to the table.
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