Confronted by “L’Affaire de Facebook”, Miscreancy Apologists Set Spin-Blenders on “Purée”

The ability of the financial bloggers and journalists to miss the point never ceases to astound me. So, two issues.

First, for what it is worth: David Rocker’s partner Marc Cohodes and I are not on speaking terms, and I’ll doubt we’ll make each other Christmas cards, but given that he has figured in a recent post or two of Judd’s I think I’d better make clear something clear. I cannot go into anything that we learned in discovery, of course, but my impression of things is that Cohodes actually turned out to be an adult, in that when David Rocker went nuts at me with anger, malice, and frustration, Cohodes tried to rein Rocker in. He may not have reined as early or hard as I would have wished, but I do believe that Cohodes tried to provide Rocker some adult supervision. Thus, Judd’s recent work should be understood to be less about Cohodes personally, and more about substantiation of the claim that is one of the central theses of DeepCapture, and that is, certain journalists have grown inappropriately close to the hedge fund beat.

Second: We can always tell when we are getting to them by the whine of the Spin-Blender’s motor in the blogosphere and financial media. Right now, they’ve punched the button marked, “Purée”. However, by doing so they are making an unusual mistake. Their normal system is to write stuff with lots of quarter-truths and spin, but that would take a casual reader a fair bit of time to unscramble. Regarding Judd’s recent two posts, however, their work is shoddy. So let me lay it out in terms of “Reality” and “Bizarro World Reality”.


DeepCapture claims that a network of hedge funds is inappropriately close to a set financial journalists and bloggers. The Party line response has always been that the hedge fund managers are too competitive with each other to be friends, and that the journalists and bloggers are independent of the hedge funds. DeepCapture investigative reporter Judd Bagley used an assumed name to infiltrate their Facebook network and discovered that, yes, the hedge fund managers are in fact Facebook Friends with each other and precisely the financial journalists and bloggers about whom we have been writing, and that (while no one would claim that Facebook Friendship = “co-conspirators”), this fact is interesting.

Sentence-by-sentence translation into Bizarro World Speak:

  • “DeepCapture claims that a network of hedge funds is inappropriately close to a set financial journalists and bloggers. The Party line response has always been that the hedge fund managers are too competitive with each other to be friends, and that the journalists and bloggers are independent of the hedge funds.” Bizarro translation: “Patrick Byrne is crazy. Haven’t you heard he’s crazy? I’ve heard he’s crazy. Look at all these hedge funds, financial journalists and bloggers who say he’s crazy.” (Note to Bizarro Translator: Avoid mentioning that the financial journalists and bloggers who say this are the ones whom we have accused, avoid mentioning that Overstock has now won many millions of dollars over these accusations, and most importantly, suppress at all costs the fact that Overstock actually occupies a minute role in DeepCapture’s accusations, which concern activities across the capital market .)
  • “DeepCapture’s investigative reporter Judd Bagley used an assumed name to infiltrate their Facebook network…” Bizzaro World: “Overstock CEO Patrick Byrne hacked Facebook.” (Note to Bizarro translator: Avoid mentioning the fact that all the information Judd used was public, on Facebook, and the Facebook T&C stipulates that this information is public).
  • “…[Deepcapture] discovered that, yes, these hedge fund managers are in fact Facebook Friends with each other and precisely the financial journalists and bloggers about whom we have been writing, and that (while no one would claim that Facebook Friendship = “co-conspirators”), this fact is interesting.” Bizarro Translation: “Patrick Byrne has made an enemies list of anyone critical of Overstock.” (Note to Bizarro Translator: Avoid mentioning that many, if not most, of the people in Judd’s video have never had anything to do with Overstock, in order to avoid addressing, or even admitting the existence of, the central claim of DeepCapture concerning  inappropriately close relations among financial journalists and the hedge fund beat).

As I said, what is interesting about this recent spate of blogs is how thin the veneer is getting. Pretty much any casual reader who comes across the blogs harping on Judd and who then clicks through to Judd’s work (especially The Stories Behind the Rocker and Gradient Lawsuit Story) is going to see the Reality/Bizarro divide in about 2 minutes. Sloppy work, guys: I know it must sting, but try to maintain your standards, OK?

  1. Patrick, real quick here.. what “Standards”? These characters are like unemployed teachers.. no class. Their day is coming this settlement only begins the weeping and gnashing of teeth that is about to ocurr and I can’t wait for the final curtain call. Gary,et al do you all see that red light frantically blinking on your key board? Well that is your career termination light going into overdrive. Peace!!!

  2. Hi –

    Can I sugggest that both the journalists involved and the deep capture team go back to their seats, stop making faces and throwing spitballs at each other, and catch up on their homework instead.

    None of this is Nixonian, but frankly, it´s not very useful either.

    A lot of people “friend” other people purely for net-working and have no personal relationship whatever with them.
    In fact, they might friend their enemies in an effort to do just what Judd Bagley just did.

    Objectivity can be assessed from analyzing journalists’ writing
    Don´t you think it would be easier and more appropriate to stick to that (as you just did here) than to try to suss out exactly who talks to whom and how much?

    I understand the temptation to retaliate when you feel elements in the media are ganging up and/or rewriting history.

    But maybe the internet reading public is not as parochial or as easily swayed by idle rhetoric as you assume.

    Lila Rajiva

  3. If you find it too hard to believe some press dolts are in bed with big corrupt money interests then read the link…and just about the time you think this guy wears a giant foil cap keep reading and note the quotes at the end and tell me all those guys wore foil hats as well. If even some of this stuff is true the problems are bigger than we think.

  4. News Flash………..


    WASHINGTON — The House of Representatives, in a display of anti-Wall Street sentiment, passed sweeping legislation Friday that rewrites the rules governing financial markets, aiming to restrict the operations of big banks and the powers of the Federal Reserve.

    The legislation, if enacted, would bring the biggest change to financial rules since the 1930s, changing business practices for everyone from mortgage brokers in California to traders on Wall Street. The vote advances a major White House initiative designed to tackle the perceived causes of last year’s financial crisis.

    The House’s action isn’t the final word. The Senate has yet to act, and an early version of its bill is different from the House version in many respects. But senators hope to have an agreement in principle by the end of December and to pass a bill in the first half of 2010.

    Under the House version, large financial companies including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. would be hit with billions of dollars in fees and would see new restrictions on their operations.

    The bill would strip nearly all of the Federal Reserve’s powers to write consumer-protection laws and would allow — for the first time — an arm of Congress to audit the Fed’s monetary policy decisions, supposedly a politics-free zone. The Fed has fiercely resisted the idea.

    For consumers and individual investors, the bill gives shareholders an advisory vote on executive compensation and creates a new Consumer Financial Protection Agency.

    The new federal agency would write rules and examine banks for compliance with consumer protection policies on mortgages, credit cards and other products.

    The bill, written in large part by House Financial Services Committee Chairman Barney Frank, aims to fill gaps in the regulatory toolkit exposed by last year’s crisis. It would give the government the power to break up even healthy financial companies if regulators believe they pose a threat to the financial system. It will also direct the Federal Deposit Insurance Corp. to collect $150 billion in fees from big financial institutions to create a fund to pay for future large failures.

    Business and banking groups lobbied hard to kill the bill, particularly the consumer agency, which critics charge would have the effect of restricting credit to consumers.

    “Certain provisions in the legislation will undermine our shared goal of market stability and reducing systemic risk,” said Timothy Ryan, president and chief executive of the Securities Industry and Financial Markets Association, in a written statement. “We believe there can be additional improvements in the Senate,” said a spokesman for Bank of America Corp.

    “A new agency is just a whole new bureaucracy,” J.P. Morgan Chase & Co. Chief Executive James Dimon said Tuesday at an industry conference.

    The final vote was 223-202, with 27 Democrats joining unanimous Republican opposition.

    Attention now shifts to the Senate, where lawmakers fought bitterly several weeks ago about what future financial rules should look like.

    A big issue is what to do with the CFPA. Liberals view it as central to any regulation. House lawmakers have already agreed to exempt smaller banks from its examiners. Senate Republicans don’t want the agency created in the first place.

    One Senate deal under consideration would allow the new agency to be created, but wouldn’t let it examine or enforce new rules against banks in most cases.

    Senate Banking Committee Chairman Christopher Dodd has proposed creating a single federal bank regulator, stripping supervisory powers from the Fed and FDIC. His goal was to more closely focus each agency on their core responsibilities and eliminate the turf-fighting between different regulators.

    Three days of debate on the House bill highlighted deep philosophical differences between Democrats and Republicans about the role of regulation in capitalism. Democrats argued that more government involvement was necessary to prevent a future financial collapse and to protect consumers.

    “We are sending a clear message to Wall Street,” said Speaker of the House Nancy Pelosi (D., Calif.). “The party is over. Never again.”

    Republicans countered that the Democrats’ plan would create huge government bureaucracies, stifling access to credit. “Their bill will continue the destruction of jobs in this country,” said Rep. Scott Garrett (R., N.J.).

    House lawmakers made multiple changes to an original White House proposal, often injecting a more populist bent to penalize large financial companies while also exempting smaller firms from certain bank examinations.

    Democratic leadership narrowly defeated an amendment by Rep. Walt Minnick (D., Idaho) that would have quashed the creation of the Consumer Financial Protection Agency. In one victory for banks, Republicans and more than 70 Democrats defeated an amendment that would have allowed bankruptcy judges to rework the terms of mortgages.

    Write to Damian Paletta at [email protected] and Robin Sidel at [email protected]

    ( )

  5. Here is the real dilemna here.. If Patrick and Deepcapture can find this info. (like Harry Markopolos did on Madoff) why are’nt any of of “Regulatory agencies investigating and convicting these thieves? Can you say bought and paid for? Someone has got to be aware of these crimes and coverups. Senator Kaufman anyone??

    1. “cos the reg’ltorz are captured by b’tard theives..


      The games the names play was “don’t be rocking the boat”. It was all to good.

      As the truth about who did what to who bubbles to the surface, we are going to discover many things that inhabit the other side of the mirror.

      Although Doc & the Lads have very carefully deconstructed the abusive ‘equity’ hedging tricks involved in Hedgers like Rocker and the text book methods of this breed, what has come to light once the fundamental “black box’ is understood, is that the massive fixed income markets have been rigged in much the same way. It was these fixed income markets/credit markets that froze up, the equity side was the volatile little sibling in comparison.
      Once again, in 2010 it is my prediction and bet that major US banks are going to feel the error of SIV devalue, enormous write down of later vintage CDO’s and other kitchen sink Debt. Some of this laughably is based on the second mortages that values have evaporated, making these bonds essentially uncollateralised!!! I wonder how much of that crap CITI and B & A own? 99% worthless.

      While Ms Bair crys to deaf ears, and Tim the Pixie continues to bleet, the WhiteHouse looks for distractions for us, Tiger buys snatch wherever he plays (allegedly) …..Dextor finishes off Lithgow tonight (or not!)

      Keep an eye on the TED SPREAD _ _all the warning signs are there


    2. The SEC OIG is about to report on their investigation regarding Dendreon. You can bet that DeepCapture played a HUGE part in making sure the OIG began their investigation.

  6. Don’t get too excited folks. There’s still a very good chance that the ANSS perps won’t be held accountable for anything, just as the culprits of last years financial meltdown haven’t been.

    Who made the $270 million bet on Bear Stearns ? I rest my case. It’s not enough to shame them…

    Last Friday’s new financial reform is about the need to restore confidence in the markets so Congress passed some legislation create the appearance of reform. I am doubtfull this legislaion would have passed without the typical “no accountability” loophole verbiage included. Hell most of the time our Congress doesn’t even read the damn bills.

    1. I think we’ll see another OIG investigation into the SEC’s handling of BSC options trading. I think the OIG is increasingly frustrated by the fact that the SEC is failing to do their job and the OIG is having to face Congress and explain why there haven’t been prosecutions against the SEC.

  7. Patrick, if a fake identity, in “Larry Bergman”, who no one on your so-called enemies list could possibly have known in real life, was so casually and easily befriended, doesn’t that quod erat demonstrandum (QED) disprove the relevance of any of the relationships you misappropriated?

    1. Doesn’t the fact that not a single one of the demonstrated relationships have been denied by anyone mentioned in the original post automatically make your QED argument irrelevant?

  8. Gee, Sarge, were you trying to help the cause by arguing that because Mr. Byrne has not denied I am correct means I must be? Your turn to spin this one, Mr. Hall.

    1. are you the same jeff mitchell that business wire sued in regards to a phoney webnode press release?
      …Business Wire filed the Webnode lawsuit in April in U.S. District Court in San Francisco, alleging that the prank constituted fraud and infringement of Business Wire’s trademark. The suit also alleged breach of contract, defamation and conspiracy, and said the three used the service to “publicize a phony investment opportunity.”‘
      ABOVE QUOTE FROM December 7, 1999

  9. Jeff Mitchell was a regular poster on Anthony Elgindy’s blog (in jail, naked shorted the airlines on Sept. 10th, 2000, Egyptian national) on

    They archive everything. Look up “ask anthony” and go back in time and you will find the scammers have archived their intentions for all eternity.

    Sorry, Jeff, you lose!

    Some cockroaches don’t understand they should scurry and hide when the antiseptic light of truth is shone in their direction.

    1. Anon, Tony Elgindy never shorted the airline stocks. He did, however, liquidate his holdings on the day prior to 9/11 which led him to be accused of having foreknowledge of 9/11. As it turns out, it was a horrifying coincidence that led to him being dragged from San Diego to Ground Zero for trial, while those who could offer testimony on his behalf were threatened with RICO if they took such a chance. My contention is not about his innocence or guilt, but over the fact he never had a fair trial.

      I was never a member of Tony’s own web site. I only posted on his message board on Silicon Investor every now and then: Tony freely admits he used to work for boiler rooms peddling scams—and the drugs, fast cars, and fast women that went along with it. To his credit, once he realized this, he dedicated his life to going after scammers. His license plate was Dow 0. He was as anti Wall Street as they come. The Deep Capture stuff about Tony is deeply flawed.

      1. Jeff, would you care to share your side of the Business Wire lawsuit in which they accused you of issuing a phony “press release” using their trademarks and copyrights?

        Why would you do such a thing? Or are you just another poor, misunderstood, innocent market participant, just like everyone else that has been accused of malfeasance?

  10. I get the distinct impression that these losers know that they will face a reckoning soon and it won’t be pretty.

  11. Jeff,
    If Deep Capture was wrong then I suppose Gary Dobry was wrong as well. How is it you seem to be entangled by connection and otherwise to less than stellar affiliates? Did you ever solve the Suzanne Jovin Murder Case yet? Curious to know where you obtained your law degree from?


    —– Original Message —–
    From: Jeff Mitchell
    To: xxxxxxxxxxxx
    Sent: Saturday, November 16, 2002 8:34 PM
    Subject: Heads Up

    Ms. XXXXXXXXXX, I found it quite interesting that Michael Ruppert’s now
    discredited information mirrored something Jacalyn Deaner wrote in the
    summer. A few quick searches on Google and it became obvious your role
    in all this. Whether the “research” originated from you, Deaner, or
    Dobry is immaterial to me. What is material is that I see my name —
    erroneously and libelously — linked to your group’s delusional thinking
    you have uncovered some mob run global financial conspiracy. Do I think
    writing this letter will change your mind? No. Not at all. In fact,
    knowing the way Dobry and Deaner think, they’ll insist they struck a nerve,
    I’m worried, scared, etc., and be even more convinced than ever they
    are correct. You know what? I really don’t care what they think. The
    entire point of this short note is to tell you I and my attorney are now
    holding you equally responsible for material emanating from Deaner and
    Dobry. I’ve also alerted Tony Elgindy (who I only know from SI, btw, not
    that you’ll believe me) in the event he or his attorney may find use
    for it somehow. Consider this a heads up. – Jeff

    1. For the record, I don’t believe Deep Capture has ever reported that Elgindy was shorting airline stocks before 9/11. We have reported, as Jeff mentioned, that he liquidated his long holdings the day prior.

  12. Judd,
    I think the big question is how Elgindy knew and stated the market would drop to 3000 on Sept 11, 2001 from 9600. I suppose as Mitchell said that too was “it was a horrifying coincidence.”
    Perhaps in a crime novel of fiction, but this crime lead to the death of 3000+ Americans and was not fiction, it was a true story.
    I also wonder why if Jeff knew Elgindy was into drugs, boiler rooms etc as stated above why would be be affiliated with him and testify on his behalf?
    Care to enlighten us on just how Elgindy got his finger Chopped Off after he had been arrested but before trial?

  13. Jeff Mitchell says:
    December 13, 2009 at 8:18 pm

    “Gee, Sarge, were you trying to help the cause by arguing that because Mr. Byrne has not denied I am correct means I must be? Your turn to spin this one, Mr. Hall.”


    Since you seem absolutely intent on coming here to split hairs, let me choose my words carefully. You came here to proffer an argument that because an “imaginary” person was accepted into people’s “friend” lists on a social media website, that automatically invalidates any real relationships that may exist between any of these people with the rest of the “friends” listed on their accounts. Aside from the obvious logical fallacy of your claim, you are the only person to come out arguing that these relationships are completely invalid based on a technicality. Even the people accused in the original post have taken up a completely different defense (and in a certain case, a completely absurd defense…this whole “they hacked into my Facebook account” response that comes from a person who owes his entire public existence to the work he does online…Gary Weiss…demonstrates an extremely low level of knowledge of how things work in this “series of tubes” we like to call the internet, and quite frankly, makes him look guilty as hell), NOBODY BUT YOU has yet attempted to deny the existence or validity of any of these demonstrated relationships. Now I ask you, who is trying to spin the issue here?

    Aside from this, your personal relationship to this issue has already been well documented by some of the other people posting here. Do yourself and your cause a favor and stop with the childish attempts at distraction (my 7 year old has you beat hands down in this regard, you could learn a lot watching her try to argue and squirm her way out of trouble). You only serve to hurt your case by making irrelevant arguments, and your lame attempts at trying to impress with your “superior” level of intelligence (ie “I’ll offer up a Latin phrase to support my argument, that should impress upon all of them that I must know what I’m talking about”) only alienate you further from the readers here. Drop the lawyer speak, the crowd here is neither impressed nor wooed by these tactics.

    1. I had a nice little laugh when I read this link, as the article highlighted the fact that some fund managers are now claiming to increase their short positions with OSTK due to this whole “Facebook dilemma”, yet the ticker that was conveniently placed under the smiling picture of Patrick shows the value of OSTK to be increasing? 100% pure handcrafted fail.

  14. The games that people play!! “Naked Access” What’s next huh?

    “Naked access” now 38 pct of U.S. trading – report
    Mon Dec 14, 2009 5:30am GMT Email More Business & Investing News… By Jonathan Spicer

    NEW YORK (Reuters) – A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.

    Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.

    Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.

    The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.

    The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiencies.

    Sang Lee, managing partner specializing in market structure at Aite, wrote in the report that the industry now expects the SEC to adopt market-wide standards for monitoring sponsored access, and that it was likely naked access would be banned for non-broker-dealers.

    “The idea here is to level the playing field so that no one segment of the market has a clear advantage caused by lack of industry uniformity in risk checks,” Lee wrote.

    Overall sponsored access, including both naked and what Aite called filtered access, which gives the sponsoring broker more monitoring and safety valves, accounts for half of all U.S. equity volume, the report

    Rest of story inlink below.

  15. You would think by now with the advent of the internet a broker would be a thing of the past just as they push for stock certificates to be a thing of the past. I am sure a computer run system monitored by some independant source ( non crook affiliated) could monitor the computer generated addition and subtraction just fine without human RICO influenced corruption. Can’t have that though because the Perps would all be out of business and the regulators would be few saving taxpayers millions upon millions of government dollars. I nominate Gary Aguire the systems controller of a purly broker/dealer free trading society allowing a level playing field. Until then, i’ll keep my money to myself rather than have it illegally robbed from me by playing casion styled trading.

  16. Patrick, Judd, Mark and All,

    Today, I discovered something interesting at a Yahoo Financial Message Board, specifically at the BMY message board.

    I discovered that I am UNABLE to post this link, which I found in as explained below:

    I tried several times starting on last Saturday with no success.

    I was NOT able to post the following message on BMY message board UNTIL I eliminated the link…………..

    “Fraudulent Voting Practices On Wall Street…

    In the upper right hand part of under ” 5.The Corporate Democracy Hoax” is a link to a Bloomsburg report about the normal fraudulent voting practices on Wall Street (thank you Patrick for the link), and of course Insider Wall Streeters are in charge of this whole fraudulent process:

    Corporate Voting Charade….

    Here is one quote from this report:

    “If political elections were run like corporate votes, people would be allowed to cast as many ballots as they could, as long as the total didn’t exceed the number of registered voters, Lambiase says. “It’s an affront to the public trust,” he says.””

  17. Mitchell, Jeff that is, apologizing for Elgindy. Amazing. I often wonder who these guys think their audience is. Everyday, we get more folks seeing the light, more folks understanding, even the Congress paying token tribute to the fact that wall st. is a source of capital destruction.

    The Elgindy story on Deep Capture is factual. It is solid reporting on an unbelievable chapter in this mess. And it is nowhere near over.

    Go over to the Overstock Yahoo board. They’ll give you five stars and cheer your drivel. That, or get a job in a Third World Dictatorship as Propaganda Minister. We don’t buy it.

  18. Actually it’s more like never argue with a fool for bystanders can not determine who the fool is and who the fool isn’t. The informed here can easily determine who the good guys are and who the fools are that have been sent here in an attempt to distract and confuse. Bottom line put the crooks in jail and throw away the keys and then put the fools in there with them to play their joker.

  19. [ NOTE!!!!!: THis message was blocked by Yahoo Financials on 12-15-2009 ]

    Yahoo did NOT allowing me to post a message here yesterday, nor last weekend, because it contained a link to RGM Communications Inc. website…

    Yahoo was blocking a link that is contained on following page, which is dedicated to linking to articles about….
    …. Naked Short Selling and Illegal Trading Conduct:
    [NOTE: This website is BLOCKED by Yahoo Financial]

  20. Before a person can be listed as a friend on facebook, doesnt the other need to accept his friend request? In other words, I guess all these relationships sent friend requests, and accepted those friend requests despite being way too competitive and far too independent?

    The guys spinning this junk need better writers.

  21. Do you guys have any idea how big this?? It is one of the most important things that may happen in our favor for our cause. This is called “Precident”. Let’s pray and spread the word. Soverign immunity my backside…ITS OVER!!!

    SEC wants Judge to Dump Suit claiming it was Negligent; Madoff

    SEC wants judge to dump suit claiming it was negligent in failing to stop Madoff


    The U.S. Securities and Exchange Commission asked a judge to throw out a suit by two of Bernard Madoff’s victims who accused the agency of negligently failing to uncover a scheme that wiped out at least $19 million.

    The agency has said it missed at least six opportunities to spot Madoff’s fraud because it assigned inexperienced employees to inquiries and failed to pursue leads. If the case succeeds, the SEC could be exposed to thousands of lawsuits.

    The complaint seeks to waive the government’s “sovereign immunity” from lawsuits under a law permitting such cases if workers were negligent. The SEC said the suit fails because the law has an exception for so-called discretionary functions performed by workers, such as deciding how to staff cases and seek evidence, Assistant U.S. Attorney Sarah Normand said in a filing yesterday in federal court in Manhattan.

    “The manner in which the SEC investigates suspected violations of the securities laws is grounded in policy and committed to the SEC’s discretion by Congress,” Normand said in the filing. “Even assuming that the SEC acted negligently in the course of its Madoff investigations, the discretionary function exception would still apply.”

    The case is Molchatsky vs. United States of America, 1:09- cv-08697, U.S. District Court, Southern District of New York (Manhattan).

  22. as they say on the Street.,, these bums could not trade their way out of a paper bag, that is why they pay for protection..need a neg story on wire

  23. SEC disappoints yet again (NPR):

    SEC Just Now Seeking Key Information On Meltdown
    Jake Bernstein and Jesse Eisinger, ProPublica

    December 16, 2009

    Audio for this story from All Things Considered will be available at approx. 7:00 p.m. ET
    ProPublica, the nonprofit investigative news organization, working with NPR’s Planet Money, has uncovered documents that reveal the SEC is only now asking the most basic questions about how Wall Street functioned in the days leading up to the crisis. Robert Siegel speaks with Jesse Eisinger, senior reporter for ProPublica, about the findings. A ProPublica article about the investigation so far is at right.

    text sizeAAADecember 16, 2009
    Almost three years since banks started taking losses that led to the worst financial crisis since the Great Depression, the Securities and Exchange Commission is still asking basic questions about what happened.
    The SEC is conducting an information-gathering sweep of the key players in the market for collateralized debt obligations, the bundles of mortgage securities whose sudden collapse in price was at the center of the meltdown of the global banking system.
    In a letter dated Oct. 22, the SEC sent what amounts to a questionnaire to a number of collateral managers, the middlemen between the investment banks that created the complex financial products and the investors who bought them.
    Collateralized debt obligations are made up of dozens, if not hundreds, of securities, which in turn are backed by underlying loans, such as mortgages. Investment banks underwrite the structures and recruit their investors. Collateral managers, brought in by the investment banks but paid by fees from the assets, select the securities and manage the structures on behalf of the investors. CDO managers have a fiduciary duty to manage the investments fairly for investors.
    Since 2005, $1.3 trillion worth of CDOs have been issued, with a record $521 billion in 2006, according to the securities industry lobbying group SIFMA. The collapse in value of mortgage CDOs triggered the 2008 financial collapse.
    Were You There?
    If you were involved in the CDO business during the end days of the boom, please contact us at (917) 512-0258 or e-mail at [email protected].

    ProPublica and NPR have confirmed that the SEC letter was sent to several managers, although the distribution list was likely industrywide. At the height of the boom in 2006, only 28 managers controlled about half of all CDOs, according to Standard and Poor’s.
    Banks began disclosing the first big losses on CDOs in early 2007. The infamous Bear Stearns hedge funds ran into problems beginning that summer. By that August, the credit markets began seizing up. Merrill Lynch and Citigroup were among the hardest hit by losses on bad investments in mortgage-based securities and CDOs.
    The SEC’s letter focuses on information regarding “trading, allocation and valuations and advisers’ disclosure,” though it also asks for other details on how the managers ran their businesses. The letter requests information on CDOs issued since Jan. 1, 2006.
    The letter asks collateral managers for information about what investments they made on their own behalf and how they valued these investments. Securities experts say the letter indicates that the agency is still gathering basic information about the CDO market, despite its centrality to the banking crisis.
    “One wonders why this letter, especially given the general nature of it, is just now being sent. And why wasn’t it sent several years ago, as the CDO market was exploding?” says Lynn Turner, who was the SEC’s chief accountant in the late 1990s. “It makes it look like the SEC is several years behind the markets.”
    Even Wall Street executives and securities lawyers who were involved in the CDO business at its height have privately expressed surprise that the SEC was only now contacting them for such rudimentary information.
    The SEC declined to comment on the letter. As a policy, a spokesman said, the agency doesn’t comment on its regulatory actions. The SEC has jurisdiction over CDO managers and enforces rules against securities manipulation, among other violations. The letter does not use the words “inquiry” or “investigation.”
    Interviews with market participants and former regulators point to several areas that the SEC might be investigating. Some managers had their own in-house investment funds and may have taken positions that were in conflict with those of the investors in the structures that they managed. In some cases, their hedge funds may have bet against the very slices of the securities they were managing on behalf of the investors in the structure.
    Underwriting investment banks often had influence over the investment choices some CDO managers made, giving rise to another possible conflict of interest. The agency may be looking at whether that influence was proper or not.
    “The possibility for conflicts and self-dealing is huge,” says Turner, the former SEC chief accountant.
    To date, the agency has little to show for its probes into the causes of the crisis that engulfed global financial markets just over a year ago. In June 2007, Christopher Cox, then the SEC chairman, testified before Congress that the agency had “about 12 investigations” under way concerning CDOs and collateralized loan obligations and similar products. A little more than a year later, Cox told Congress that the number of investigations into the financial industry, including the subprime mortgage origination business, had ballooned to more than 50 separate inquiries.
    There could be multiple reasons why investigations are proceeding slowly. Such cases are complex and require enormous resources and expertise. Regulators also face the hurdle of proving intent to defraud.
    Under Cox’s stewardship, the SEC fell into disarray, and it was harshly criticized by Congress and its own inspector general, particularly for its failure to catch the Ponzi scheme of Bernie Madoff. The turnover of the new administration, which ushered in new leadership at the much-criticized agency, has also likely slowed efforts. In recent months, under new Chairman Mary Schapiro, the SEC has made insider-trading inquiries a high priority.
    So far, there have been few indictments or civil complaints. In a sign of how long these cases can take, the mortgage company New Century Financial Corp. disclosed in March 2007 that it was the subject of an SEC investigation into possible insider stock sales and accounting irregularities. It wasn’t until last week — Dec. 7 — that the SEC filed a formal complaint against former executives of the company. The government’s highest-profile prosecution involving the financial collapse — the case against two managers of the Bear Stearns hedge fund for alleged securities and wire fraud — failed to gain a conviction when a jury decided that the men were simply bad businessmen rather than criminals.
    This story is part of an ongoing investigation by ProPublica, a nonprofit investigative newsroom, in collaboration with NPR’s Planet Money.

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  24. Was it not Jesse Eisinger (author above) who tried to find the Easter Bunny and was hauled off by some rent-a-cops when he started bugging a elderly lady in Las Vegas? So many memories!

  25. Ex has Cohen by the sack (NYT):

    December 17, 2009
    Claims of Insider Trading From Trader’s Ex-Wife

    This is a story about money and marriage on Wall Street — one about a fugitive, a billionaire, an ex-wife and her lawsuit.

    It begins happily enough, 30 years ago this month, when a Wall Street trader named Steven A. Cohen married his sweetheart Patricia Finke.

    Today, Mr. Cohen is among the world’s richest hedge fund managers, with a $6 billion fortune. And Ms. Cohen, whom he divorced long ago, is leveling some startling accusations.

    In a lawsuit filed Wednesday, Ms. Cohen claims her ex-husband hid millions of dollars from her — a common enough complaint as big-money divorces go.

    But here the story gets a little weird. Some of those millions, Ms. Cohen claims in her suit, were reaped through insider trading in the 1980s.

    And then it gets even weirder. To hide his millions, the complaint asserts, Mr. Cohen funneled money to a New York real estate operator who was later convicted on fraud charges and then fled to Costa Rica, where he was eventually tracked down.

    If Ms. Cohen’s claims are shocking, her motive is perhaps less so. She wants money — lots of it. She is seeking $300 million.

    As in other divorce cases involving prominent business figures, the case threatens to put on a spotlight on an ex-spouse’s private business dealings.

    In her complaint, Ms. Cohen outlines what she characterized as a long-running racketeering scheme run by Mr. Cohen. She claims her former husband lied under oath about his net worth, conducted mail and wire fraud and concealed from her and the Supreme Court of New York millions of dollars that he possessed in 1990, thus reducing her divorce settlement.

    Even in this post-Madoff era, the accusations might seem outlandish. Mr. Cohen, known as Stevie, is one of the nation’s most successful money managers. With a $13 billion hedge fund and a sumptuous Connecticut estate, he is, at 53, a Wall Street legend.

    All of this comes at an uncomfortable moment for Mr. Cohen and his company, SAC Capital Advisors. Since federal prospectors began making arrests in a major insider trading investigation in October, SAC, which is based in Stamford, Conn., has been linked to the case.

    A former SAC analyst has pleaded guilty on charges related to insider trading that occurred years after he left the firm and has agreed to provide any information he might have about insider trading that occurred when he was at SAC. No current SAC employee or manager has been charged with wrongdoing.

    Responding to the suit, a SAC spokesman said Wednesday in a statement: “These are ludicrous allegations made by a former spouse that are entirely without merit. It is disgraceful that a member of the bar would assist her in what can only be considered a transparent attempt to extort money.”

    Ms. Cohen declined to comment for this article, but her lawyer, Paul Batista, did not mince words.

    “What I look forward to most is the day when Steve Cohen has to face 12 people on a jury and have to answer for what he did to his former wife,” Mr. Batista said.

    The brouhaha opens a window into life of one of Wall Street’s most secretive characters. Mr. Cohen is rarely seen in public. He lives in his own private Xanadu — a 14-acre estate, complete with a basketball court and ice rink, in ultra-wealthy Greenwich, Conn.

    He has also amassed one of the world’s most significant collections of 20th Century art, with masterpieces by the likes of Jackson Pollock, Damien Hirst and Eduard Munch. He and his current wife, Alexandra, have four children.

    While Mr. Cohen was making his name and fortune, his former wife lived in relative obscurity, on the Upper West Side of Manhattan. She raised the couple’s two children, now in the 20s, and dabbled in real estate.

    In her complaint, filed in New York’s Southern district, Ms. Cohen focuses on events that occurred when her ex-husband worked at Gruntal & Company, a small investment bank. His record at Gruntal is not entirely clean. In 1995, the New York Stock Exchange censured him for inflating the price of a penny stock. The manipulation took place in 1991, after the couple divorced.

    Ms. Cohen, however, claims her former husband broke the rules as far back as the 1980s. And she asserts that for two decades he hid millions of dollars from her with the help of Brett K. Lurie, a lawyer for Mr. Cohen who became a partner in real estate deals.

    And Ms. Cohen claims that her former husband did not just hide things from her — he also hid them from the authorities.

    Mr. Lurie, who was convicted in 1994 on a range of charges, could not be reached for comment on Wednesday.

    Ms. Cohen is pursuing her case under a civil version of the RICO laws that are often used against organized crime. It is an highly unusual tactic in a divorce matter, lawyers said, and its success is far from certain. Lawyers uninvolved in the case said they could remember few instances were civil RICO laws were used in a case related to a divorce.

    “It’s very uncommon,” said Allan D. Mantel, the immediate past president of the American Academy of Matrimonial Lawyers and a lawyer at Stein, Riso, Mantel.

    That so much time has passed since the divorce also hurts Ms. Cohen’s case, he said. The statute of limitations for mail fraud and wire fraud under civil RICO is four years, though lawyers say that if the fraud was actively concealed, the court could open the statute of limitations.

    “The longer it goes, the worse it gets,” Mr. Mantel said.

    Ms. Cohen, however, seems unbowed. She has spent three years preparing her case, which she began after seeing a “60 Minutes” episode about Mr. Cohen.

    She claims in her suit that in 1985, while they were married, Mr. Cohen confessed to her that he received inside information on the takeover of RCA by General Electric. When she asked him if trading on such information would be illegal, Mr. Cohen said that that he knew that the source was a former classmate of his from Wharton. But he obtained the information from a mutual friend, so he was not involved in insider trading.

    Mr. Cohen told her that he had made substantial profits on the trade and assured her that insider trading was only a civil matter, not a criminal one, according to her complaint. In 1986, Mr. Cohen invoked his Fifth Amendment rights when testifying about his trades before the Securities and Exchange Commission.

    Ms. Cohen goes on to claim that Mr. Cohen lied to her about SAC’s predecessor, SAC Trading, which he opened in 1986. He told her at the time that he was still employed by Gruntal and that SAC held no liquid assets. In fact, her complaint asserts, Mr. Cohen had struck out on his own.

    Ms. Cohen also claims that Mr. Cohen hid money through real estate transactions involving Mr. Lurie. Her former husband also shifted millions of dollars into an account at Pan American Bank in Miami, the complaint says.

    When the couple divorced, Mr. Cohen stated that he had a net worth of $16.9 million. But $8.7 million of that as “worthless,” he said, because of a bad real estate deal.

    According to court documents related to that deal, Mr. Cohen had invested in eight apartment buildings with Mr. Lurie.

    Steven Cohen and Mr. Lurie eventually fell out. In a subsequent lawsuit, Mr. Lurie testified that Mr. Cohen told him the money had come from an SAC Trading account.

  26. Not to sound rude but can you guys posting stories do so by posting a header and then a link instead of the whole article. Most of the stories being presented are unrelated to the blog itself and take up a lot of space.

    1. Some folks don’t have a login on NYT and other sources, but will consider doing that.

      As for whether a posting directly pertains, tangential items help build the gestalt that is emerging and it may spark further connections.

  27. Can anyone remember Mark Mitchell informing us of this…

    In her complaint, filed in New York’s Southern district, Ms. Cohen focuses on events that occurred when her ex-husband worked at Gruntal & Company, a small investment bank. His record at Gruntal is not entirely clean. In 1995, the New York Stock Exchange censured him for inflating the price of a penny stock. The manipulation took place in 1991, after the couple divorced.

  28. Think the heat is’nt on the SEC.. think again

    Slumdog Schapiro Bites Back
    By EAMON JAVERS | 12/17/09 1:11 PM EST

    In September, Mary Schapiro said of the Madoff fraud, ‘It is a failure that we continue to regret, and one that has New documents released by the Securities and Exchange Commission show that the agency tasked with regulating the nation’s financial markets has not taken any action on a host of allegations of internal wrongdoing. The allegations range from SEC employees suspected of insider trading to assisting in a Ponzi scheme and even, in one case, possession of a dangerous weapon inside a federal facility.

    The documents were turned over to the non-profit group Project on Government Oversight in response to a Freedom of Information Act request for a detailed list of the investigations launched by the commission’s inspector general, who is tasked with rooting out internal problems, and the commission ’s response in each case.

    The data turned over by the SEC shows that the commission has taken “no action” on 27 of the 52 recommendations made by its inspector general since 2007. And they show that the inspector general’s investigations uncovered a wide range of improper activity within the commission, including:

    • “Conflict of interest; Improper solicitation and receipt of gifts from a prohibited source and other misconduct”

    • “Suspicions of insider trading and appearances of impropriety in securities transactions; Violations of financial reporting requirements”

    • “Disclosure of non-public information”

    • “Misuse of government computer resources to assist Ponzi scheme and violations of standards of ethical conduct”

    The SEC has taken no action on any of those findings, the documents show. What’s more, the inspector general’s Bernard Madoff-related finding that the SEC had failed to uncover a Ponzi scheme has also met with “no action” by the SEC.

    A second document released by the commission lists 312 recommendations made in the inspector general’s audits since December 2007 – the status of 197 of these recommendations is still listed as “Pending.”

    SEC spokesman John Nester said the commission reviews each recommendation issued by the inspector general. “We take seriously the recommendations of the Inspector General,” he said. “We have put in place a process to review every outstanding recommendation regarding internal policies and procedures and have been making progress in addressing them. Additionally, with respect to personnel actions, we carefully consider the recommendations and do not hesitate to take action as appropriate based on the facts, and in accordance with due process.”
    The SEC has struggled to reinvent itself since the Madoff story broke in late 2008, revealing that the commission had multiple chances to catch the multi-billion fraud, and missed each one.

    In September, Mary Schapiro, who was appointed to run the commission by President Barack Obama in January, said of the Madoff fraud, “It is a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors.” And she said that the SEC has implemented a host of reforms in the year since the scandal, including streamlining enforcement procedures and putting more experienced staffers on the frontlines.

    Despite all that, the inspector general’s recommendations in a slew of cases appear not to have been followed. The inspector general, David Kotz, recommended specific actions be in each case of the violations he uncovered. In the conflict of interest and gift case, for example, Kotz recommended “Disciplinary action, up to and including dismissal,” as he also did in the case involving disclosure of non-public information.

    On the suspicions of insider trading, Kotz suggested “Disciplinary action.” And in the case of an SEC employee who allegedly assisted a Ponzi scheme – which apparently was not Madoff-related – Kotz suggested that the SEC claw back $25,000 in benefits the employee had received from the SEC by taking an early retirement when her role in the alleged scam was discovered. Yet the commission took no action.

    The audit recommendations include suggestions for new policies, procedures and training techniques. Some of them are aimed at helping the SEC avoid another Madoff-like failure. For example, the inspector general recommended that the SEC should “put in place procedures to ensure that investigations are assigned to teams where at least one individual on the team has specific and sufficient knowledge of the subject matter (e.g. Ponzi schemes).”

    “It is simply unacceptable for a federal agency to ignore so many of the findings and recommendations made by its [inspector general],” wrote Danielle Brian, the executive director of the Project on Government Oversight, in a letter to Schapiro on Dec. 16th. “Based on the SEC’s poor track record as revealed in these documents, the public has every reason to question the agency’s commitment to implementing the sorely needed post-Madoff reforms.”

  29. New study out supporting the importance of the “revolving door” between the SEC and Wall Street.

    The SEC and the Financial Industry: Evidence from Enforcement against Broker-Dealers

    Stavros Gadinis
    Harvard University – Harvard Law School

    August 11, 2009

    Harvard Law and Economics Discussion Paper No. 27

    Recent financial collapses have focused policymakers’ attention on the financial industry. To date, empirical studies have concentrated on corporate issuer activity, such as securities offerings and class actions. This paper makes a first step in studying SEC enforcement against investment banks and brokerage houses. This study suggests that the SEC favors defendants associated with big firms compared to defendants associated with smaller firms in three ways. First, SEC actions against big firms are more likely to involve exclusively corporate liability, with no individuals subject to any regulatory action. Second, the SEC is more likely to choose administrative rather than court proceedings for big-firm defendants, controlling for types of violation and levels of harm to investors. Third, within administrative proceedings, big-firm employees are likely to receive lower sanctions, notably temporary or permanent bars from the industry. To explain this gap, the paper first investigates whether big-firm violations are qualitatively different from small firms’ violations, but finds no support for this. This paper next explores two hypotheses that could explain a systematic bias in enforcement patterns: that constraints in bureaucratic resources weaken the SEC’s negotiating position towards big firms, and that SEC officials favor prospective employers.

  30. Who cares if there is a real share or a real commodity behind the IOU.

    “Before ICE, the average American family spent 7% of their income on food and fuel. Last year, that number topped 20%. That’s 13% of the incomes of every man, woman and child in the United States of America, over $1Tn EVERY SINGLE YEAR, stolen through market manipulation.”

  31. So what took the FBI so long to report or investigate these claims? Please tell me they are not “Captured” too.

    She sang to Kang

    Cohen’s Ex-Wife Alerted FBI Two Years Ago

    December 18, 2009

    More than two years before filing her $300 million lawsuit accusing ex-husband Steven Cohen of insider-trading, Patricia Cohen took her concerns to the Federal Bureau of Investigation.

    Patricia Cohen, who was divorced from the SAC Capital Advisors chief in 1990, contacted FBI Special Agent B.J. Kang in 2007, after reading a report about SAC’s battle with Canadian insurer Fairfax Financial Holdings. She said she first began to suspect something was amiss at her ex-husband’s hedge fund after seeing another report on alleged market manipulation by SAC, this one by the CBS newsmagazine ’60 Minutes’ on its battle with pharmaceutical company Biovail.

    She later spoke with Kang’s supervisory, FBI Supervisory Special Agent Patrick Carroll, the New York Post reports. Kang, who reportedly interviewed Patricia Cohen at her Manhattan apartment, had been looking into allegations of illegal activity at SAC. More recently, he has been involved in both the Raj Rajaratnam and Bernard Madoff fraud cases.

    In her lawsuit, filed on Wednesday, Patricia Cohen accuses her ex-husband of having traded on insider information about General Electric’s takeover of RCA in 1985. She alleges that Cohen told her he made a substantial amount of money on the trade, which allegedly occurred while he was at investment bank Gruntal & Co., but that it wasn’t insider-trading.

    Cohen went on to found SAC’s predecessor the following year. His ex-wife alleges that he hid millions in assets from both her and the authorities, lying under oath about his net worth. Her lawsuit also alleges that he committed mail and wire fraud.

    A SAC spokesman called Patricia Cohen’s claims “ludicrous” and “entirely without merit.”

  32. Now I wonder if infiltration by past unbiased reporters (D.C.) may have caused this reaction.. LOL!!

    Hedge Fund Lobby Bars Reporters From Largest Annual Meeting
    December 18, 2009
    For the second time this year, the Managed Funds Association has decided to bar reporters from one of its events.

    This time, the U.S.’s largest hedge fund lobbying group has reversed its 15-year policy of allowing reporters to attend its annual conference in Key Biscayne, Fla. The networking event is the MFA’s largest annual get-together, and generally attracts less than a dozen members of the press.

    As to why a group that has been harshly criticized for its secrecy and lack of transparency would respond with more secrecy and opacity, MFA marketing and communications director D. Brooke Harlow told Investment News, “there had been a couple of issues over the last two years.”

    Rest of story below.

  33. Managed Funds Association (MFA), the global trade association of the alternative investment industry, announced today that D. Brooke Harlow has been named executive vice president and managing director of marketing and communications, effective immediately. Ms. Harlow is responsible for the strategy and implementation of the Association’s global business development and marketing initiatives, as well as communications and media outreach to policy makers, members and the global alternative investment industry. Ms. Harlow was previously managing director of communications and public affairs at Highbridge Capital Management, a New York-based hedge fund.

    Richard H. Baker, MFA President and CEO, said, “We are delighted that Brooke has joined MFA in this vital role during such an important time for industry participants to work together on key issues and to speak with a unified voice. Brooke’s in-depth knowledge of the alternative investment industry, proven communication skills and sound judgment are a strong addition to MFA as we continue to expand our membership and focus on critical issues that impact our members’ ability to serve their investors worldwide.”

    Ms. Harlow will work directly with Mr. Baker to develop and coordinate MFA’s business development and communications priorities and initiatives.

    As managing director of communications and public affairs at Highbridge Capital Management, Ms. Harlow was responsible for the corporate communications, marketing, branding and public affairs operations at the firm and served as its spokesperson. Prior to joining Highbridge, Ms. Harlow was a vice president of investment bank marketing and communications at JPMorgan for six years. While at JPMorgan, Ms. Harlow managed the media relations for the global credit, emerging markets and private equity businesses at the bank. She also served as head of marketing and communications for Latin America and as a member of the Latin American Investment Bank management committee.

    Previously, Ms. Harlow managed media relations and marketing for StarMedia Network, a portfolio company of JPMorgan Chase’s private equity unit. Before joining StarMedia, Ms. Harlow was a senior associate at Burson-Marsteller in Washington, D.C. She was a member of the public affairs practice and implemented media relations, crisis communications and government affairs strategies for international clients. Ms. Harlow also worked at CNN from 1997-1999 serving as a field producer in the Washington, D.C. and Mexico City bureaus. Ms. Harlow graduated from Yale University with a B.A. in American Studies. Ms Harlow was also selected as a Rotary Scholar in 1997 and studied at El Colegio de Mexico in Mexico City, Mexico as part of their Masters in International Relations program.

  34. Anonymous,

    Thank you for the link to the story:

    1. US Congress Sells Out to Wall Street
    #1 in Top 25 Censored Stories for 2010/2009

    The Pattern of Criminal Activity by the Banking / Wall Street gang is becoming more and more clear… Along with the Pattern of Congress Assisting and Enabling the Banking / Wall Street Crimes against the American Citizens.

    One important thing missing from this article is a reference to Former FED Chairman Alan Greenspan’s guiding principal that Fraud does NOT need to be regulated.

    I would like for someone to write a DEAR MR ALAN GREENSPAN open letter to expose his criminal neglect during his terms of office.

  35. I heard an interesting comment last week on NPR news about WHY Banks are NOT loaning money to small businesses, the backbone of the U.S. economy…

    The expert stated that banks may not be loaning money to small businesses, because they can make more money for the bank through trading.

    I assume this person was referring to trading such as, Stock market trading and FOREX trading.

    This may be another reason we need the Glass–Steagall Act law brought back again to separate banking from investment banking.

      1. I agree – this is scary.

        This possibility had not even entered my mind, until I heard it spoken. This statement has the sound of truth in it.

  36. IStand, Dylan Ratigan of MSNBC Morning show has been stating this for the last month or so. I can post some of the numerous links if you would like.

    For example of the proof of the above statement see link above. Why should they lend if they can use our money to trade and manipulate the market to make big bucks. Lending to small business’ is not a large em=nough profit marging for these guys.Also check out this video from Dylan.

  37. Could you imagine the uproar if Patrick Byrne ever whined like a baby as did Steve “Sith Lord” Cohen did here. Weiss, Norris, Remond and the rest of the baloney brigade would go berserk..would’nt they?
    (Post and article taken from investorsvillage)

    Cohen’s desperate moves….

    DOJ vise clamping down tighter…. beads of sweat rolling down his smug mug, bulging jugular……

    Wail, Stevie boy, wail…….

    Reuters kills hedge fund story after pressure

    December 21st, 2009

    Reuters editors last week killed a story by investigative reporter Matthew Goldstein about hedge fund trader Steven Cohen after Cohen complained to top Thomson Reuters executives that he was being persecuted by the news agency’s reporting, sources at Reuters said.

    Goldstein’s story was an “incremental” advance in the reports swirling around Cohen that he engaged in insider trader during the 1980s, Reuters sources said. There have been reports that Cohen is next in the sights of the SEC following the Galleon case, which featured SEC wiretapping the conversations of hedge fund manager Raj Rajaratnam.

    Goldstein’s story was based on documents, and was approved by Reuters lawyers. After Goldstein contacted Cohen for the pro forma no comment before the story ran, Cohen repeatedly called Devin Wenig, CEO of the Thomson Reuters Markets Division and the No. 2 executive at Thomson Reuters, to complain about the story.

    Wenig passed on the complaints to Reuters Editor in Chief David Schlesinger, who asked editors to look into them. Reuters editors debated the story for three days before finally killing it.

    A Reuters spokeswoman, when contacted by Talking Biz News, commented, “We make decisions on whether or not to run stories purely on journalistic grounds.”

    The decision has hit morale at the news agency, where reporters had been encouraged by the formation of an enterprise team in recent months, the hiring of a former New York Times Sunday business editor Jim Impoco to head that effort, and Goldstein moving over from a columnist position to investigative reporting.

    The enterprise team also was allowing Reuters reporters to write longer analytical pieces which had been anathema at the news agency for years. In its first few months, the team had coordinated several hard-hitting pieces including one questioning the investment decisions of giant California pension fund Calpers, and a piece about China that caught the eye of the White House and led to an interview with President Obama.

    “If Reuters wants to have credibility in enterprise reporting, its editors need to stand by reporters and resist pressure from people like Cohen,” said one Reuters insider.

    1. Reuters better get some goddamn backbone or their ‘Enterprise’ effort will see the light of day stillborn — the life sucked out of it by the bloated corpse-child Cohen.

  38. Goldman Sachs trying to destroy Freight Sector:

    Teamsters Request SEC Review YRC Credit-Default Swaps (Update3) Share Business ExchangeTwitterFacebook| Email | Print | A A A
    By Pierre Paulden and Shannon D. Harrington

    Dec. 22 (Bloomberg) — International Brotherhood of Teamsters President James Hoffa is asking the U.S. Securities and Exchange Commission and New York State Attorney General Andrew Cuomo to review “questionable promotion” of credit- default swaps tied to trucking company YRC Worldwide Inc.

    Hoffa sent letters to the regulators and members of Congress, the Teamsters said today in a statement distributed by PR Newswire. YRC, the biggest U.S. trucking company by sales, is seeking a debt-for-equity exchange to avert bankruptcy.

    YRC, which has pushed back the deadline for the swap three times this month, must complete the tender by Dec. 31 to avoid a $19 million payment of interest and fees that would leave the trucker in an “unsustainable” position, the Overland Park, Kansas-based company said Dec. 17 in a regulatory filing.

    Facing a slump in freight demand, YRC is locked in a struggle with a group of bondholders who own derivatives that would pay out if the company defaults, two people familiar with the situation told Bloomberg News last week. The deadline for the tender offer is 11:59 p.m. tomorrow in New York.

    “The stakes are so high and the consequences potentially so imminent that we believe it is imperative that your office begin an immediate inquiry at its earliest opportunity,” Hoffa wrote in a letter addressed to Cuomo.

    Goldman Sachs Group Inc., Deutsche Bank AG, TD Bank Financial Group, Barclays Capital and UBS AG “have a history of making markets in these types of derivative financial products,” Hoffa said in the letter.

    Minimum Participation Rate

    Goldman Sachs spokesman Michael DuVally reiterated comments from last week that the New York-based bank “neither has a position in, nor makes markets in, YRC corporate bonds or credit-default swaps.”

    TD spokeswoman Susan Webb declined to comment on the letter, saying the bank “adheres to all regulations and is in compliance with all government oversight.”

    Deutsche Bank spokeswoman Michele Allison and Barclays spokesman Mark Lane declined to comment. UBS spokesman Doug Morris said he couldn’t immediately comment. Spokesman Richard Bamberger said Cuomo’s staff was reviewing the letter.

    YRC received approval from its bank lenders and the Teamsters allowing an amendment to the exchange offer that lowers the minimum participation rate to 80 percent from 95 percent, the company said today in a regulatory filing.

    Letter to Blankfein

    Last week, Hoffa wrote a letter to Goldman Sachs Chief Executive Officer Lloyd Blankfein saying the firm was creating derivatives trades that would benefit from a bankruptcy.

    DuVally has confirmed the bank received that letter and said in an interview on Dec. 17 that the New York-based bank was “actively exploring ways to help” YRC.

    Goldman Sachs sent e-mails to debt investors on Dec. 16 offering pricing levels on YRC bonds and credit-default swaps and saying that $25 million of the bonds and swaps were “trading here,” according to people familiar with the matter who declined to be identified because the negotiations aren’t public.

    YRC’s $150 million of 8.5 percent notes due in April fell 0.75 cent on the dollar to 59 cents as of 11:29 a.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The shares rose 25 cents, or 28 percent, to $1.14 on the Nasdaq Stock Market.

    Credit-default swaps are financial instruments based on bonds and loans that are used to hedge against losses or to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

    To contact the reporters on this story: Pierre Paulden in New York at [email protected]; Shannon D. Harrington in New York at [email protected]

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