Tag Archive | "Bethany McLean"

The stories behind the Rocker and Gradient lawsuit story

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The stories behind the Rocker and Gradient lawsuit story


Today, short-selling hedge fund Rocker Partners paid Overstock.com (NASDAQ:OSTK) $5-million to settle the lawsuit filed against them in August of 2005. Rocker Partners also entirely dropped its own countersuit.

Overstock.com CEO Patrick Byrne is a frequent contributor to DeepCapture.com.

This is a major victory, not only for Patrick and Overstock.com, but for all public companies targeted by bear raiding hedge funds.

But thanks to the unusually skewed reporting surrounding it, chances are you either hadn’t heard about the suit, or were under the impression it was frivolous and certain to fail.

This presentation explains part of the story behind the coverage of the suit, using some innovative methods to explain why what you heard about the suit and its merits likely had little in common with the reality of it.

As promised in the video, researchers are encouraged to find additional links within the Facebook friend lists of the short-selling hedge funds and journalists and bloggers who love them. To make the process easier, I’ve compiled this spreadsheet. If you discover anything interesting, particularly with respect to the hedge funds and reporters linked to other bear raid targets, please write about your findings it in the comment section below.

Also, very shortly I’ll be adding an interactive, dynamic relationship browser to this post, which will make it easy for you to visualize these networks.

Posted in AntiSocialMedia with Judd Bagley, Deep Capture Book, Deep Capture Podcast, Featured Stories, The Deep Capture CampaignComments (322)

The Pendulum Swings

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The Pendulum Swings


Pendulum_animationBack in college, where the combination of free time and that university mojo so often lend themselves to this sort of thing, a friend and I challenged each other to cram the most undeniable truth into complete sentences of the fewest possible words.

In the end, we settled on the following:

“Entropy increases” and “The pendulum swings.”

The first sentence is a reference to the Second Law of Thermodynamics.

The second sentence is a reference to the fact that cultural trends will always increase in pervasiveness and acceptance until some limit is broached, at which time opposing forces will be applied that cause society to respond with increasing negativity toward that trend. And, as with an actual pendulum, the higher the upswing, the more forceful the push back will be.

How true both are.

I first encountered the market reform movement near the end of 2005. Over the months that followed, I witnessed the following:

  1. An SEC staffer in San Francisco subpoenaed the communications of Jim Cramer, Herb Greenberg, Bethany McLean, Carol Remond and a handful of other “journalists” suspected of colluding with Gradient Analytics and short selling hedge fund Rocker Partners, only to have SEC Chairman Chris Cox personally sabotage the effort. This was followed up almost immediately by the SEC vindictively subpoenaing Patrick Byrne.
  2. FOIA requests filed with the SEC intended to give some sense of the scope of the delivery failure problem were regularly denied or spitefully filled with minimal accompanying explanation.
  3. Numerous brutal articles were published attacking opponents of naked short selling – Byrne primarily among them – under the bylines of (surprise) Jim Cramer, Herb Greenberg, Bethany McLean, Carol Remond, Joe Nocera, and Roddy Boyd.
  4. Audio tape captured by a market reform operative who covertly accessed a panel discussion featuring Herb Greenberg, Joe Nocera and Dan Colarusso (then Roddy Boyd’s editor) hosted by the Society of American Business Editors and Writers. The theme of the discussion was essentially “How do we deal with these lying anti-naked short selling bloggers who are so critical of us?” Among other things, the tape caught Joe Nocera saying (to loud applause) he felt life was too short to bother understanding whether naked shorting is actually a problem, and Dan Colarusso saying he and his newspaper had the capacity to “crush” Patrick Byrne.
  5. An all-out PR offensive launched by the Depository Trust & Clearing Corporation (DTCC) attacking opponents of naked short selling.
  6. The emergence of Gary Weiss, an ostensibly credible former business journalist and blogger, bursting onto the scene, proclaiming naked short selling beneficial and its opponents crazy.
  7. The hijacking and distortion of the Wikipedia article on naked short selling by whom we would soon learn was none other than Gary Weiss. Given journalists’ well-documented over-reliance on Wikipedia, this was undoubtedly a key factor in our difficulty getting them to provide more balanced coverage of the issue.
  8. A special session of the Utah Legislature which, catching the banks flat-footed, resulted in passage of a law requiring brokerages with operations in Utah to promptly disclose stock delivery failures. But before it could go into effect, and after the prime brokers managed to rally their armies of lobbyists, the law was handily repealed.
  9. Unprecedented growth of companies on the Reg SHO Threshold Securities list, indicating that, contrary to the intended aim of Regulation SHO, naked shorting was becoming increasingly prevalent.

On balance, it was a very dark time for the market reform movement, as every charge was followed by a blistering counter-charge, and every lunge answered by a quick parry. More than once, I recall hearing even the staunchest market reformers openly question the capacity of a rag-tag band of revolutionaries to counter the enormous influence and resources brought to bear by the hedge funds and prime brokers who were getting rich from the practice of manipulative naked short selling, and I couldn’t help but wonder whether I’d picked the wrong battle.

That’s not to say I ever doubted the correctness of the cause – only the correctness of my decision to join a fight that sometimes seemed impossible to win and certain to result in damage to my reputation as it had to Patrick Byrne’s and so many others’.

But in those moments of doubt, I’d remind myself of an eternal truth: the pendulum swings.

In other words, as dark as those days were, there would invariably be restraining forces applied to help slow – and eventually stall and even reverse – the momentum built up by decades of Wall Street villainy and the deep regulatory capture of the institutions intended to counter it.

What we could not have realized – as such perspective only comes with time – is that we (meaning, you, me, and everybody else who’s taken steps to do something about illegal naked short selling) were in fact the very restraining forces so many of us were expecting to arrive, cavalry-like, from some unknown quarter, and that as dark as those days seemed, they appeared quite bright to those who had endured the 1990s and early part of the current decade, when the practice persisted, without restraint, like a drunken orgy.

Of course, the event that finally brought the pendulum to a decisive halt and reversal was the current economic crisis, which saw the term “naked short selling” dragged into the popular lexicon (as determined by Yahoo! listing it as one of its five most popular search terms in September of 2008).

Since then, as the link between naked short selling and the beginning of the crisis itself has been solidly established, valiant members of Congress – most notably Delaware Senator Ted Kaufman – have dragged the issue of naked short selling into the political lexicon, as well.

Where are we today?

  1. The SEC recently enacted permanent restrictions on illegal naked short selling, which include greatly enhanced disclosure of delivery failures and shorting activity.
  2. Today, the SEC brought its first enforcement cases against illegal naked short selling.
  3. Also today, FINRA expelled a member firm for engaging in illegal short selling.
  4. Jim Cramer has been deeply and publicly shamed. Herb Greenberg is now a ‘consultant’. Bethany McLean has left business journalism. Dan Colarusso continues looking for steady employment. Roddy Boyd, Carol Remond and Joe Nocera all retain their former positions, but seem to steer clear of anything resembling the issue of naked shorting.
  5. The DTCC is mum on the issue as well.
  6. Gary Weiss – since abashed and banned from Wikipedia – sinks ever deeper into obscure irrelevance while the Wikipedia article on naked short selling that he once controlled has been liberated and made to read nearly as it should.
  7. Substantive legislation with the capacity to end illegal naked short selling and other short-side market abuses once and for all is currently working its way through Congress.
  8. As of today, the Reg SHO Threshold Securities list is 23% shorter than it was on the day I met Patrick Byrne (and 90% smaller than it was at its height in July of 2008), and is nearly devoid of the kinds of promising, well-capitalized companies whose inclusion used to be a sure sign of an impending bear raid.

These are all developments that seemed impossible in the dark days of 2006.

But here we are.

Yes, the pendulum is now unambiguously swinging in our direction, but the job is not done. Indeed, we can only be assured of progress to the extent that we each recognize our responsibility to continue pushing.

Posted in Featured Stories, The Deep Capture CampaignComments (58)

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Fortune Magazine Stonewalls Exposure of Bethany McLean Perfidy


Summary – This post contains two emails I sent Fortune Magazine regarding Deep Capture’s work documenting an inappropriate relationship between journalist Bethany McLean and hedge fund Rocker Partners. If after reading this you agree that mine were fair questions deserving of reply, then please do me this small service: write Fortune and tell them you think they should answer these questions (you might even post a copy of your email as a comment to the bottom of this post, so there be public record of it):

Managing Editor: Andrew Serwer – aserwer@fortunemail.com

Time, Inc. Communications Director Katy Reitz – Katy_Reitz@timeinc.com

Dear Reader,

When Fortune Magazine contacts me I always respond (excluding unnoticed emails they send at day’s end hours before press-time). Yet Fortune Magazine has refused to comment on  DeepCapture’s documentation of the perfidious behavior of Fortune Magazine Reporter Bethany McLean. Two DeepCapture posts (“Bethany McLean: Your Benefit of the Doubt is Hereby Revoked” and “Rocker Partners and Bethany McLean: the Smarmiest Guys in the Room“) reconstruct how Rocker Partners sought out Bethany McLean to target a firm, took out a large short position 10 days after her cooperation was secured, then doubled down two months later, just three days before Bethany published her hatchet job (a time-line that suggests, of course, that they were privy to the content and timing of Bethany’s article). In addition, Bethany’s  reporting relied heavily upon Spyro Contogouris, a conman, now imprisoned, about whom she spun apologetics while regurgitating his criticisms (criticisms that with the passage of time proved baseless). When the share price of the target company rose, Bethany commiserated with the short-selling hedge fund that had assigned her the story, sending this email:

From: Bethany McLean
Sent: Thursday, March 22, 2007 6:12:48 PM
To: Marc Cohodes
Subject: Re: ffh

Sorry to be a little bad-tempered. This FFH story almost killed me, so I hate hearing that it was pointless. Maybe it’ll be a long, slow thing..

Thinking that Fortune Magazine might be troubled to learn that one of its journalists had provided such white glove service to a hedge fund, I sent Fortune two emails (below) giving opportunity to comment. They have refused. Please read the correspondence below and, if you agree that Fortune Magazine should address these concerns publicly, please let  Fortune know it (following the instructions at the top of this essay).

I thank you in advance for considering this request.

Respectfully,

Patrick M. Byrne

========================================
On Mon, Dec 22, 2008 at 7:03 PM, Patrick Byrne wrote:

Dear Ms. Reitz,

Happiest of holidays.

Last week I sent you a link to an exposé on erstwhile Fortune journalist Bethany McLean. https://www.deepcapture.com/bethany-mclean/

Today DeepCapture posted the sequel: analysis of the trading records of Rocker Partners (a.k.a. Copper River) confirms that Rocker did front-run Bethany’s story, both shortly after she met with Rocker Partners’ representative Richard Sauer (a.k.a. “Lavaman”, himself a former SEC attorney whose federal career seems to mirror Bethany’s approach to journalism), and then again immediately before Bethany published. https://www.deepcapture.com/rocker-partners-and-bethany-mclean-the-smarmiest-guys-in-the-room/

Note the data in that exposé regarding failures to deliver, and the likely provenance of those failures, in my recent critique of a DowJones reporter (“Carol Remond Tells a Joke She Doesn’t Get“).

I am preparing this as a story to be included in an Overstock email that gets sent to 17 million of my closest friends. It would explain that a crooked hedge fund (since imploded) cooperated with a bent reporter to break the law, the reporter used her offices at Fortune to indulge their illegal acts, that Fortune had been warned of this possibility and engaged in a cover-up, and that Fortune practices shill journalism for favored Wall Street elite, many of whom are crooks (a message that will, I expect, resonate). In short, Bethany’s emails and Rocker’s trading records will be used to demonstrate how the standards of journalism evinced by Fortune are more bent than a streetwalker’s stumble.

I understand the legal ramifications of suggesting to 17 million Americans that Fortune has taken part in a criminal conspiracy, of course, and will happily provide our lawyers’ address for receipt of service, upon request.

On the other hand, an abundance of journalistic caution leads me to contact Fortune once again to offer opportunity for comment, and in particular, to correct me if I am in error. In fact, I would like to offer you the opportunity to respond in up to 50 words that I will commit not to edit or abridge, an offer that is surely more generous than those your publication generally makes (setting aside whatever unknown arrangements it or its journalists make with hedge funds such as Mr. Rocker’s, of course). Please feel free to respond to the allegations above, or the questions below, or simply respond more generally, as you prefer.

I look forward to hearing from you. Until then, I remain,

Your humble servant,

Patrick Byrne

Journalist, DeepCapture.com

PS Please tell [a long-time acquaintance at Fortune] that I return her regards…

========================================

From: Patrick Byrne
Sent: Wednesday, December 17, 2008 2:22 AM
To: Katy_Reitz@timeinc.com
Subject: Respectfully request on-the-record response

Dear Ms. Reitz,

Please find a blog that DeepCapture posted today regarding 2006-2007 communications between a hedge fund manager and erstwhile Fortune reporter Bethany McLean concerning Canadian financial company Fairfax. I have obtained these communications pursuant to the decision of a New Jersey State court.

As is evident from the emails, the hedge fund manager put Ms. McLean up to the story hoping that a report in Fortune magazine would move the stock down. When the stock instead went up it rendered Ms. McLean’s story “pointless” in her eyes (which makes [sense] only in a world where her “point” was to move the stock down). After commiserating with the hedge fund Ms. McLean expressed her wish that the targeted company’s demise would be “a long, slow thing.”

Questions:

1) What is Fortune’s policy regarding journalists working with short selling hedge funds to drive down stock prices?

2) Has Fortune conducted an internal investigation into the relationship between Ms. McLean and hedge funds, including the one mentioned in the blog?

a) What were the results of that investigation?

b) Did this investigation have anything to do with Ms. McLean’s departure from Fortune?

3) Has Fortune conducted an internal investigation to determine the accuracy of Ms. McLean’s reporting on Fairfax and on other companies?

a) What was the result of that investigation?

b) Did this investigation have anything to do with Ms. McLean’s departure from Fortune?

4) Is Fortune aware that nearly every story written by Ms. McLean since 2001 was sourced from the same group of hedge funds, and that she never once contradicted their analysis? By Fortune’s standards, does this constitute “balanced” reporting?

5) In one email, Ms. McLean mentions Spyro Contogouris, who was employed by a group of hedge funds to harass and threaten Fairfax executives. After Mr. Contogouris was arrested by the FBI, Ms. McLean continued to characterize him as a credible financial researcher who worked independently of hedge funds. Does Fortune stand by that characterization?

I do not know when I am going to publish, but would expect it would be next week. However, I sincerely wish to represent fairly the point of view of Fortune.

Most respectfully,

Patrick Byrne

Reporter, DeepCapture.com

If this article concerns you, and you wish to help, then:

1) Let Fortune know how you feel about Bethany McLean’s work by writing Managing Editor Andrew Serwer (aserwer@fortunemail.com) and TimeLife’s spokesperson Katy Reitz (Katy_Reitz@timeinc.com) (post copies in the comment section below!);

2) email it to a dozen friends;

3) go here for additional suggestions: “So You Say You Want a Revolution?

Posted in Journalists Tried to Be Players But Became Pawns, The Deep Capture CampaignComments (67)

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A hedge fund suite for Richard Sauer


In a recent interview, SEC whistleblower Gary Aguirre offered his insights into the regulatory failings that allowed the Bernie Madoff scheme to reach such enormous proportions for so long.

Aguirre places particular blame upon the “revolving door” culture that hangs over the SEC’s workforce, with its attendant promise of a lucrative move to the private sector in store for those whose approach to regulation is deemed acceptable to the regulated.

As Aguirre puts it:

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 … [There’s 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.

To summarize, Gary Aguirre says that a large part of the SEC’s widely-acknowledged (though not as yet fully comprehended) dysfunction results from the self-reinforcing cycle of:

  1. High level SEC staffers accepting positions with powerful institutional market participants, in order that they might…
  2. Pressure their former associates to take regulatory action beneficial to their employers, and in the process…
  3. Impressing upon former associates the value of regulating selectively – as the former staffer had done – in order to ensure their own eventual move to the private sector.

This revolving door dynamic is at the heart of the high degree of “regulatory capture” observed at the SEC and a central focus of this blog.

But enough of the theory of the SEC’s revolving door…let’s look at it in practice (as Mark Mitchell did in a superb item last month) through the example of Richard Sauer, former assistant director of the SEC’s Division of Enforcement.

First, a little background.

In June of 2003, after 13 years with the Commission – including seven as assistant director – Richard Sauer left the SEC for the law firm of Vinson & Elkins. There, among his clients, Sauer counted Rocker Partners hedge fund.

On October 6, 2006, the New York Times published Bring on the Bears, a rather lengthy opinion-editorial authored by Sauer, which argues, on the surface, that short sellers are as vital to healthy markets as predators are to healthy ecosystems.

Fair enough.

But set in the shadow of that well-worn market truism are some disconcerting clues as to Sauer’s mindset, both present and past.

For one, Sauer is dismissive of the uptick rule (a provision created to prevent bear raids intended to drive a company’s stock down) as an unfair vestige of a by-gone era, calling for its elimination.

For another, Sauer reveals that while at the SEC, he initiated many investigations into public companies based on the tips from short sellers betting on a drop in those companies’ stock prices. Indeed, he says short sellers were his only source for these kinds of investigations.

And for yet another, Sauer defends the relationship short-biased hedge funds have with journalists such as Herb Greenberg, Roddy Boyd, Carol Remond and Bethany McLean, while calling on the SEC to initiate enforcement actions against companies that “attribute their woes to conspiracies by short sellers,” and “retaliate against critics through defamation campaigns and manipulative short squeezes.”

As unsound as his logic is, on one point we can be certain: Sauer is at least telling the truth. A former co-worker confirms that while he and Sauer worked together at the SEC, Sauer had been involved, at least tangentially, in most of the investigations instigated by short-selling hedge fund Rocker Partners.

But the most telling sentence in Sauer’s op-ed piece is the one he didn’t even write, but which appears a the end, as an editor’s note. It reads:

Richard Sauer, a former administrator in the Securities and Exchange Commission’s enforcement division, joined the management at a short-biased hedge fund this week.

Of course, that short-biased hedge fund turned out to be Rocker Partners (which had recently changed its name to Copper River Partners).

In December of 2006 Institutional Investor Magazine published a small story on Sauer’s new gig, noting that “[hedge] funds regularly brought [Sauer] complaints of possible wrongdoing at companies they were betting against.”

When asked whether his job description at Rocker Partners might include getting future SEC investigations launched, Sauer responded, “it remains to be seen.”

In point of fact, thanks to emails produced through discovery in the Fairfax Financial (NYSE:FFH) vs. SAC Capital, et al, lawsuit, we know that there was nothing at all remaining to be seen, for by mid-November of 2006, Sauer had already emailed keyesr@sec.gov (someone he apparently knew well enough to address only as “Rob”), pointing him to one of the anti-Fairfax sites set up by Spyro Contogouris, and attempting to spin Contogouris’ then-recent arrest on embezzlement charges as a Fairfax-motivated act of retribution.

In light of what we’ve just learned, let’s revisit Gary Aguirre’s theory of regulatory capture at the SEC:

  1. Former Associate Director of Enforcement Richard Sauer accepts a position with Copper River Partners, a short-biased hedge fund known to be heavily shorting Fairfax Financial.
  2. Sauer pressures former SEC colleague Robert Keyes to take regulatory action likely to negatively impact the share price of Fairfax.
  3. Keyes is impressed by the need to regulate selectively – as Sauer had most likely done while at the SEC – in order to ensure his own eventual move to the private sector.

And the cycle continues.

Of Aguirre’s three requirements, we can state with certainty that in the case of Richard Sauer, the first two are satisfied. It is my opinion that the third requirement has been, as well.

What all this means is not that Richard Sauer is a bad person, for I don’t know a thing about his character. What I do know is that he has spent most of his professional career enabling bad people, first from within a fatally flawed regulatory agency, and later from without.

Mr. Sauer, if you’re reading this, given your recent unemployment following Copper River’s collapse, I sincerely hope you’ll hold out for a job that breaks the cycle of regulatory capture and actually makes the world a better place in the process.

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?

Posted in Our Captured Federal Regulator the SEC, The Deep Capture CampaignComments (16)

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Rocker Partners and Bethany McLean: the smarmiest guys in the room


In a recent item, I concluded — based on my analysis of an email exchange between former Fortune reporter Bethany McLean and Copper River Partners (formerly known as Rocker Partners) hedge fund manager Marc Cohodes — that McLean wrote a highly critical article about Fairfax Financial Holdings (NYSE:FFH) with the expectation that her work would cause FFH stock to drop precipitously in value.

By way of review, the evidence shows that Marc Cohodes of Rocker Partners hedge fund first approached Bethany McLean about Fairfax on December 7, 2006. Bethany then met with Rocker Partners employee (and former SEC attorney) Richard Sauer 11 days later, and presumably began work on what would become her March 6, 2007 article The inside story of a Wall Street battle royal shortly thereafter.

The evidence further demonstrates that when, by March 21, 2007, FFH stock price had gone up 45 points instead of down as expected, both McLean and Cohodes were unhappy.

Why would this be?

Anybody familiar with the ongoing conversation held on this blog knows the answer, but not wanting to take for granted that all readers here are either sufficiently seasoned or in agreement, I offer the following, which was, like the above-referenced email exchange, gleaned from the many documents gained through discovery in the Fairfax Financial vs. SAC Capital, et al, lawsuit; specifically, from records of Rocker’s evolving short position in Fairfax stock during the months before and after the publication of McLean’s article.

Beginning on January 4, 2007: ten trading days after McLean met with Richard Sauer, Rocker Partners shorted $2.4-million in Fairfax stock.

In February, Rocker added just over $100,000 to their Fairfax short.

Then, on March 1, 2007, three trading days before McLean’s article, Rocker added another $1.5-million to their position.

All told, Rocker was betting at least $4-million that the price of Fairfax stock would drop.

But unfortunately for Rocker, that’s not what happened.

Indeed, Fairfax stock rose a healthy 20% between March 6th and 22nd, when Rocker’s Marc Cohodes emailed McLean, wondering why Fairfax wasn’t dropping as a result of her story, as expected.

Apparently satisfied that circumstances were unlikely to improve, that very day Rocker began covering its short position…97,000 shares worth, to be exact. By the end of May, Rocker’s entire Fairfax short position was closed out, at a substantial loss.

Of course that’s all interesting, but as always, there’s more.

An analysis of the failed trades in Fairfax stock recorded and disclosed by the SEC for that period proves instructive.

Most notable is the sharp decline in FFH failures to deliver observed at the end of May, 2007. In fact, with the exception of a transient spike on June 8, fails are essentially reduced to zero at precisely the same time Rocker Partners closes out its FFH short position.

Given such a deep commitment to cheating, I find it surprising Rocker Partners never managed to be a more successful hedge fund.

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?

Posted in Journalists Tried to Be Players But Became Pawns, The Deep Capture CampaignComments (43)

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Bethany McLean: your benefit of the doubt is hereby revoked


There’s no sense denying it: reporters depend on sources, and in the mind  of most business journalists, a connected hedge fund manager will always prove a more valuable source than even the CEO of a public company.

Hence, as I’ve reminded my fellow market reformers time and time again, it is not necessarily a sign of corruption that some business journalists — Bethany McLean included — regularly toe the hedge fund line.

However, as I’ve very recently learned — at least in the case of Bethany McLean — I was wrong.

What changed my mind?

Christmas.

Rather, the early Christmas that arrived for me in the form of about 1,000 pages of discovery just unsealed in the Fairfax Financial (NYSE:FFH) vs. SAC Capital, et al, lawsuit, in which Fairfax claims a conspiracy (or “Enterprise” as it is termed in the suit) involving multiple short-selling hedge funds, financial analysts and business journalists intent on destroying the company for monetary gain.

Included in this mass of documents are hundreds of emails and instant message transcripts between hedge fund managers, their operatives and such “journalists” as Bethany McLean, Herb Greenberg, and Roddy Boyd.

Almost without exception, each of these is immensely useful in understanding how these folks all relate to each other. But among them all, the most revealing — to say nothing of damning — are those between Bethany McLean, then of Fortune, and the upstanding folks at hedge fund Copper River Management.

The emails appear below in blue, with my comments in black.

From: Marc Cohodes
Sent: Thursday, December 7, 2006 3:21:12 PM
To: Bethany McLean
Subject: ffh

FFH is the Canadian Enron and it could even be worse…We are sending you stufff.. I suggest since [Copper River employee and former SEC attorney Richard] Sauer is on the East Coast (for now) that you 2 meet, and soon… there is an “enterprise” here and he can lay it out clear as day.

It bears noting that, according to filings in the Fairfax suit, the various participants in the attack on Fairfax stock referred to their effort collectively as “the Enterprise”. Whether or not this is what Cohodes was alluding to when using the term — which might not otherwise belong within quote marks in this context — is not clear, but certainly suggestive.

From: Bethany McLean
Sent: Thursday, December 7, 2006 3:48:43 PM
To: Marc Cohodes
Subject: Re: ffh

Makes sense. Send me whatever you can think of – the more documents the better!

Without Cohodes offering a bit of proof to back his Enron/Fairfax comparison, McLean finds it “makes sense” and commits to move ahead.

From: Marc Cohodes
Sent: Thursday, December 7, 2006 3:51:37 PM
To: Bethany McLean
Subject: Re: ffh

don’t you worry…where do you want the stuff fed-exed to… I would set up a time for Sauer to come and see ya.. His code name is “Lavaman”…

Cohodes then forwards this exchange to employee  Rick Sauer, who schedules a meeting between himself and an unusually eager McLean, set for one week thence.

The outcome of that process was McLean’s scathing March 6, 2007 Fortune piece: The inside story of a Wall Street battle royal.

How can I be certain that this particular story was the direct result of the Cohodes’s efforts? The answer to that question is where the situation becomes particularly disturbing…sufficient to leave me feeling physically ill, and prepared to officially add Bethany McLean to the short but distinguished list of truly captured and corrupt journalists.

From: Marc Cohodes
Sent: Wednesday, March 21, 2007 9:51 AM
To: Bethany McLean
Subject: ffh

you hear anything there??? the stock is up 45 points since your piece and I dont understand it…

Of note: on March 5, 2007 FFH closed at $190.09, and on March 21, 2007, FFH closed at $234.53, a difference of $44.43.

From: Bethany McLean
Sent: Wednesday, March 21, 2007 11:51:57 AM
To: Marc Cohodes
Subject: Re: ffh

I’m getting the same question from other people. No, I don’t have a clue. I’m worried they’ve gotten the SEC or the Southern District to take them seriously – the Spyro [Contogouris] stuff makes you realize anything is possible – and they’re leaking the news to shareholders ahead of time. What do you think?

A day later, Cohodes icily responds with nothing more than his cell phone number.

From: Marc Cohodes
Sent: Thursday, March 22, 2007 5:12 PM
To: Bethany McLean
Subject: Re: ffh

415-350-88**

Based on McLean’s reply, we can presume she followed Cohodes’s tacit demand, and that the conversation was less than pleasant.

From: Bethany McLean
Sent: Thursday, March 22, 2007 6:12:48 PM
To: Marc Cohodes
Subject: Re: ffh

Sorry to be a little bad-tempered. This FFH story almost killed me, so I hate hearing that it was pointless. Maybe it’ll be a long, slow thing..

I suspect the emails you’ve just read are the real reason Bethany McLean made a sudden departure from the world of business journalism earlier this year.

As for me, it’s been nearly 24 hours since I first encountered this exchange, and yet I still cannot read it without feeling like I’ve just taken a blow to the solar plexus.

Seeing proof that both a hedge fund manager and an ostensibly reputable business writer viewed the sacred institution of journalism as a means of wrecking a company, and that they both also felt disappointment when their efforts proved insufficient, with the “journalist” finding solace in the prospect that the company’s eventual destruction might simply be a “long, slow thing” literally leaves me breathless.

Stay tuned for still more of the explosive revelations found within the reams and reams of discovery in this case.

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?

Posted in Journalists Tried to Be Players But Became Pawns, The Deep Capture CampaignComments (56)

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Short-Sellers Spin Themselves Silly, SEC Sounds Strong


After years of intermittently ignoring and whitewashing one of history’s biggest financial swindles, the Wall Street Journal today, for the first time, published some basic truths about the crime: “Illegitimate naked short selling is different from [legal short-selling]…this kind of manipulative activity can have drastic consequences…Eliminating the prospect of naked short selling will help assure investors that… when the market declines it is not because of unseen manipulators and `distort and short’ artists.”

Unfortunately, these words were not written by some enterprising journalist seeking to nail the criminal hedge funds who have manufactured billions of phantom shares (shares sold “naked” because they don’t exist) while using other dubious tactics – such as publishing false “independent” financial research, working with a crooked law firm (the recently indicted Milberg, Weiss) to saddle companies with bogus class action lawsuits, hiring thugs and private investigators to harass corporate executives, orchestrating dead-end government investigations, employing armies of basement-dwelling creeps to bash companies and smear reputations on Internet message boards, and feeding distorted and maliciously false information to compliant or naïve journalists – all part of a massive, collusive effort to destroy public companies for profit.

No, sadly for anyone who cares about the state of our financial markets and media, those crimes go mostly unreported. And as for the few basic truths that appeared in today’s Wall Street Journal, they were not products of any journalistic effort. They were, rather, the words of SEC Chairman Christopher Cox, who managed (no doubt, with some difficulty) to convince the Journal to publish an op-ed wherein he explains why he had to issue an “emergency order” to prevent abusive short-selling from crashing the American financial system.

Why is this not front page news? Why is the Journal not clamoring for the criminals to be put away?

We’ve noted that The Wall Street Journal’s “Money & Investing” section, which covers the hedge fund beat, was once under the control of editor David Kansas, who was known for unleashing reporters on companies targeted by his long-time short-selling friends, while ignoring, with seemingly purposeful intent, all evidence suggesting that his friends were up to no good. Kansas, I believe, was the principal reason why the Journal long held back from investigating the naked short selling scandal.

But Kansas and some of his comrades have left the Journal, and I believe most of the paper’s other reporters are well-intentioned. It’s just that this is a complicated story – it can take time to wade through the grim data, to see for yourself the rapes in progress, and to come to terms with the ugly dimensions of the problem. It’s all the harder when you’re having smoke blown in your face by people whom, for whatever mistaken reasons, you have come to respect.

It is no coincidence that Jim Chanos, manager of hedge fund Kynikos Associates, was elected chairman of the Coalition of Private Investment Companies, the hedge fund lobbying and PR outfit. Chanos is the guy who helped Fortune Magazine’s Bethany McLean break the Enron story. Ever since, he’s been the David Koresh of media, convincing a cohort of zombified journalists that he can bestow blessed immortality — the next big scoop. The reporters swoon to this guru’s sermons, even when they sense that there is something untrue – even when, Waco-like, the authorities are closing in and a gruesome end is nigh.

Chanos has been busy dishing out the usual proselytizations: short-selling is good for the markets, short-sellers help root out bad companies like Enron, short-sellers are victims – nice fellows under attack by crazies and people who don’t like free markets. “We’re on the side of the angels,” Chanos proclaimed yesterday, clearly hoping that the media’s cries of “Amen!” would drown out the rumblings of a government that finally seems to be waking up to the notion that while there is nothing wrong with short-sellers, and free markets are swell, there is something not so good, and not so free, about a market getting pummeled by peddlers of fake stock and false information.

Chanos and his followers should throw in the towel. Contrary to our earlier concerns, it seems like the SEC is blowing off the hedge fund lobby and its media followers. Short-sellers of stocks in 19 financial companies have actually been forced to borrow real shares — not just locate them; not just say “yeah, yeah, my buddy in Staten Island’s got ‘em in his drawer,” but have real shares in hand before selling them. Even better, Cox said today that he intends to expand the enforcement across the entire market. We’ll see if he follows through.

Perhaps to avoid panic, the SEC Chairman has said that his emergency order was a preventive step, and was not meant to suggest that naked short-selling of the financial stocks was already rampant. But we know from SEC data that more than $6 billion worth of shares go undelivered every day. We know further that the phantom stock has been targeted at specific companies, including Bear Stearns, which saw as many as 13 million shares fail to deliver in its final days. Much more naked shorting takes place “ex-clearing” – for which no public data exists.

The immediate results of the SEC’s emergency order speak to just how big the ex-clearing problem is. Since Monday, when the order took effect, short-selling of the affected companies has decreased by 70 percent – and 90 percent in the cases of Fannie Mae and Freddie Mac. It is safe to say that a lot of that reduction is attributable to hedge funds that were previously selling shares without borrowing them. Now extrapolate to the entire market. We know that short-sales make up around 30 percent of total market volume. If we knock some points off that 70 percent number and decide that, say, half of short-selling has been naked – then 15% of total market volume on any given day could be phantom stock.

That is an admittedly rough number. The fact is, we just don’t know the exact figure. But as evidence for the hypothesis that the number is, in fact, even larger, consider that Chanos and friends insist that the SEC’s restrictions on illegitimate naked short selling will seriously reduce “liquidity” in the markets. Some Wall Street lobbyists have even suggested to the SEC that the New York Stock Exchange would have to temporarily shut its doors if the SEC were to enforce its emergency order market-wide.

In other words, people like Chanos (who has denied that he has ever participated in naked short selling and has previously expressed surprise that it even occurs) is now saying that the practice is so widespread that the markets cannot function without it. The market’s “liquidity” depends on illegitimate naked short selling. Without the phantom stock which predominates in our markets, nobody would know what to do–prices would go haywire, there’d be total chaos.

All of which is reminiscent of the SEC’s earlier weird statements that naked short selling occurs rarely, but there’s so much naked short selling that enforcing rules against it might “create excess market volatility.”

If you’re a journalist, and you’re still confused, just wrap your head around this: even the hedge funds now admit that a very significant chunk of the stock that they sell cannot be readily borrowed. It cannot be borrowed, because it does not exist. This massive supply of phantom stock is what is setting prices in our supposedly “free market.”

It is a recipe for financial meltdown It is the scandal of a lifetime. And the financial media fiddles.

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A Scandal Unfolds, and the Media Mob Scampers


Three years ago, Deep Capture reporter and Overstock CEO Patrick Byrne gave a famous conference call that he titled, “The Miscreant’s Ball.” His thesis was simple: Some short-selling hedge funds collude to destroy public companies by spreading misinformation, orchestrating government witch hunts, filing bogus class-action lawsuits, and, most egregiously, selling billions of dollars worth of phantom stock.

In the months that followed “The Miscreants Ball” presentation, a clique of journalists with close ties to short-selling hedge funds and CNBC’s Jim Cramer (himself a former hedge fund manager), set out to sully the reputations of Patrick and everyone else who sought to expose short-seller crimes.

Cramer pal Joe Nocera, who is the New York Times’ top business columnist, wrote that Patrick’s crusade against hedge funds that sell phantom stock was “loony beyond belief.” CNBC contributor and Marketwatch columnist Herb Greenberg, formerly an editor with Cramer’s web publication, TheStreet.com, labeled Patrick the “worst CEO in America” for taking on the shorts (ie., the same shorts who are now paying Herb for “independent” financial research). Fortune magazine’s Bethany McLean, who has yet to write a story that was not sourced from a small group of short-sellers connected to Jim Cramer, suggested in an article titled “Phantom Menace” that Patrick should be fired from Overstock for speaking out against the problem of phantom stock.

At the time, I was the editor of the Columbia Journalism Review’s online critique of business journalism. The attack on Patrick was like nothing I’d seen before, so I decided to write a story about the media’s coverage of short-sellers and phantom stock. When Herb Greenberg and Joe Nocera got word of this, they both called my editor demanding that he kill the story. Cramer sent a public relations goon to delay the story. Then a short-selling hedge fund, Kingsford Capital, appeared in my offices and offered to pay my salary.

My successor at the Columbia Journalism Review is now called “The Kingsford Capital Fellow.” One of Kingsford Capital’s managers was a founding editor of Cramer’s website, TheStreet.com. I do not believe that Kingsford’s interest in the Columbia Journalism Review is philanthropic. And I do not believe that the Columbia Journalism Review, “the nation’s premier media monitor” is capable of objectively monitoring the financial media so long as it’s chief writer on the subject is paid directly by this very controversial, Cramer-connected, short-selling hedge fund.

Perhaps facing similar pressures, or perhaps because they are unwilling to contradict Cramer’s influential Media Mob, or maybe because they’re just plain lazy, other journalists have shied away from covering the problem of illegal short-selling. Instead, reporters have incessantly repeated the party line that “short selling is good for the market. Only bad CEOs complain about short-sellers.”

In March, short-sellers destroyed Bear Stearns by spreading false information and selling millions of phantom shares. And now the shorts are going after another major investment bank. In a week of high drama, hedge funds have been circulating blatantly false and hugely damaging rumors that big institutions are pulling their money out of Lehman Brothers. If March SEC data is any indication, the shorts are also selling millions of dollars worth of phantom Lehman stock.

One of the nation’s most important investment banks is down, and another is on the brink. The American financial system wobbles.

And, suddenly, Cramer’s Media Mob is silent. Gone is all of the talk about Patrick Byrne being crazy. Nocera says nothing about the attacks on Lehman and Bear. Bethany McLean recently wrote a favorable review of a book written by David Einhorn, the most prominent short-seller of Bear Stearns and Lehman, but she dares not mention the current market predations.

Herb Greenberg, who used to sing the praises of short-sellers almost weekly, was last heard defending his hedge fund friends in April. CNBC seems to have taken him off that beat. (The network recently dispatched Herb to the San Diego County Fair, where he interviewed a vendor of deep-fried Twinkies).

But Jim Cramer is talking. No doubt to distance himself from the growing scandal, he went on CNBC today and said precisely what Patrick Byrne said three years ago. Noting that short-sellers are colluding to take down Lehman, he said the problem is “the need to be able to get a borrow and see if you can find stock….. no one is even calling to see if they can get a borrow. [In other words, hedge funds are selling stock they don’t have — phantom stock]. It’s kind of like, well listen, let’s just knock it down. It’s very similar to what Joe Kennedy would have done in 1929 [leading to Black Monday and the Great Depression] which is get a couple of cronies together and let’s take it down…”

Too late, Jim. For three years, you, CNBC, and a clique of journalists very close to you have ignored this crime because your short-selling hedge fund cronies claimed that phantom stock is not a problem. Meanwhile, hundreds of companies have been affected. Billions of dollars of value have been wiped out. And lives have been destroyed.

It is one of the most ignominious episodes in the history of American journalism.

Click here to enter the $75,000 “Crack the Cover-up” contest.

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