In 2005, Patrick Byrne, the CEO of Overstock.com and future Deep Capture investigative reporter, began a public crusade against illegal naked short selling (hedge funds and brokers creating phantom stock to manipulate stock prices down). He said, over and over, that the crime was destroying public companies and had the potential to trigger a systemic meltdown of our financial markets.

Soon after, I began to investigate a network of short sellers, journalists, and miscreants. I concluded that many of the people in this network were connected to two famous criminals – “junk bond king” Michael Milken and his associate, Ivan Boesky. I also began taking a close look at the Mafia’s involvement in naked short selling.

In my last installment (click here to read), I described some of the strange occurrences that attended this investigation. Where the story left off, I’d recently been threatened in a bookstore, and then ambushed by three thugs who told me to stay away from this story. My unwitting employer had been bribed by short sellers, Patrick had been told by a U.S. Senator that his life was in danger, and a Russian matryoshka doll had appeared on the desk of an offshore businessman.

Inside this matryoshka doll was a slip of paper marked with the letter “F”…

* * * * * * * *

Soon after receiving the matryoshka doll, the offshore businessman invited Patrick Byrne to a greasy spoon diner in Long Island. Over the previous year, the businessman had provided Patrick with some information about the naked short selling scam, and the hope was that he might have something more to say.

But that day at the diner, all he had was a message.

“I’ll make this quick,” the businessman said, with two other witnesses present. “I have a message for you from Russia. The message is, ‘We are about to kill you. We are about to kill you.’ Patrick, they are going to kill you. If you do not stop this crusade [against naked short selling], they will kill you. Normally they’d have already hurt someone close to you as a warning, but you’re so weird, they don’t know how you’d react.”

In a later conversation with a colleague of Patrick’s the businessman said [verbatim]: “These things don’t happen to me anymore. I mean, I’ve been out of that world [the world of Mafia stock manipulation] for a dozen years or more. These…there are defined signals here that lead me to believe that they [the Mafia] have been disturbed. The only way they coulda been disturbed is if they own Rocker or if he is using them for leverage.”

Rocker. That’s David Rocker.

At the time, David Rocker was a “prominent” hedge fund manager specialized in short selling (betting that stock prices will fall). It was also the case that Rocker had spent the last couple decades insinuating to people on Wall Street that he was somehow tied to the Mob.

But Rocker was probably full of it. He didn’t have ties to the Mob. Perhaps he merely believed that his insinuations lent him a certain cachet.

* * * * * * * *

From 1973 to 1981, Rocker was a general partner in a short selling hedge fund managed by Michael Steinhardt, who is one of Wall Street’s most “prominent” investors, regularly hailed by The Wall Street Journal and CNBC as a genius and a font of wisdom.

Some years ago, Steinhardt belatedly acknowledged that he is the son of Sol “Red” Steinhardt, who was once a major player in the Genovese Mafia organization. Steinhardt, Sr. spent several years in Sing-Sing prison after a New York City prosecutor described him as the “biggest Mafia fence in America.”

Incidentally, experts concur that the Genovese Mafia family brought the Russian Mob to America.

* * * * * * * *

The largest investors in Steinhardt Jr.’s first hedge fund were associates of the Genovese Mafia (whose investments came in large sacks of cash), Marty Peretz (future founder, with Jim Cramer, of TheStreet.com), Marc Rich (future fugitive charged with tax evasion and illegal trading with Iran and Libya), and Ivan Boesky (later imprisoned on multiple counts, most of them involving stock manipulation schemes orchestrated with “junk bond king” Michael Milken).

By 1991, Steinhardt owned another hedge fund — JGM Management – with a “prominent investor” named James Marquez. The star employee at JGM was “prominent investor” Samuel Israel III.

A few years later, Israel and Marquez founded the Bayou Group, one of the biggest hedge fund frauds in history. A significant part of the Bayou fraud involved Israel “feeding” his investors’ money into a Ponzi scheme run by Robert Booth Nichols, who has been targeted by authorities as a business associate of the Genovese Mafia family.

When Israel was sentenced to prison last year, he briefly disappeared. His car was found on a bridge. Scrawled in the dust on the hood was a note: “Suicide is Painless.”

Authorities arrested Israel’s girlfriend, whom they suspected of harboring a fugitive. Shortly after, Israel rode a red motor scooter to a Boston police station and turned himself in. Apparently, he was not dead. He had tried to fool us.

Meanwhile, Israel had filed a lawsuit against Nichols, alleging that Nichols had ripped him off. Apparently, Israel (who could not be reached for this article) would like us to believe that he is not tied to Nichols or the Genovese Mafia.

Nonetheless, Israel has a certain cachet. So do Steinhardt and James Marquez.

* * * * * * * *

In the 1990s, Steinhardt founded another hedge fund, Steinhardt Partners. The co-founder and head trader of Steinhardt Partners was a “prominent investor” named John Lattanzio.

The limited public information about Lattanzio concerns a Russian prostitute.

Apparently, Lattanzio proposed marriage to the prostitute and gave her a diamond ring. Alas, the couple separated, and Lattanzio asked for his ring back. After all, it had cost him $289,275.00.

But the prostitute seemed to believe that the ring was payment for services rendered. The dispute ended up in court, where the prostitute testified that Lattanzio had told her that he had ties to the Mafia.

Yes, said the prostitute, Lattanzio (Steinhardt Partners’ co-founder and head trader) had big-time Mafia connections, and he “would not hesitate to use them to harm me.”

From what I know of Russian strumpets, there is at least one area where they cannot be trusted – and that is where it concerns their love life. So perhaps Lattanzio had his heart broken. Perhaps, in the heat of passion, he said some crazy stuff about the Mafia to make himself seem dangerous. If that is the case, I send Mr. Lattanzio my condolences.

Indeed, I would enjoy meeting him. He has a certain cachet.

* * * * * * * *

Rocker left Steinhardt’s hedge fund in 1981 and went to work for an investment management firm called Century Capital Associates.

Information on this firm is limited, but it seems to have been largely owned in the 1980s by the Belzberg brothers — William, Sam and Hymie.

The Belzbergs were among Michael Milken’s closest cronies (family member Mark Belzberg was in fact implicated by the SEC in Milken’s stock manipulation schemes). They were at the inner core of the Milken machine – buying and selling the junk bonds of other Milken cronies. Often, the Belzbergs collaborated with Milken to blackmail, seize, or destroy public companies. .

In the late 1980s, the Belzbergs announced that they were going to take over Crazy Eddie, which was then a famous home electronics retail chain. The Belzbergs joined forces with Crazy Eddie’s founder, Eddie Antar, and the company’s chief financial officer, Sam Antar, in a supposed effort to take the company private.

This is a story for another time, but for now it suffices to say that Crazy Eddie was a massive fraud, the Belzbergs (and Milken) likely knew this already, and when the company was raided by the FBI a few months later, it emerged that Sam Antar had been feeding information to both the FBI and a lawyer, Howard Sirota, who was preparing to sue the company.

The Belzberg’s did not buy Crazy Eddie. Instead, just before the FBI arrived, the company was sold to another investor, Victor Palmieri. Robert A. Marmon, who was hired by Palmieri to run Crazy Eddie, told me that he arrived to find that the company’s top employees – the only people who had had direct access to the Antars – were all burly, armed thugs who claimed to be former employees of the Mossad, Israel’s secret intelligence agency.

It was Marmon’s job to fire the Antars’ corporate goons. “I’ve never been so scared in my life,” he said. “There weren’t any explicit death threats. They just stared you down, so you got the message.”

* * * * * * * *

Sam Antar is a convicted felon, but he never went to prison because he testified against his cousin, Eddie Antar, in return for house arrest. Now he is paid by short sellers with ties to David Rocker and associates of Michael Milken. The assignment to which he devotes the majority of his time is to use the Internet to harass and smear the reputations of Deep Capture founder Patrick Byrne and his colleagues.

At one point, Antar threatened the young children of Deep Capture reporter Judd Bagley, posting their names, ages, and address on the Internet. As I described in my last installment, Antar has made what I can only interpret to be veiled references to two seminal events in my life – the time I was ambushed and punched in the eye by three thugs, and the day that a goon in a bookstore threatened my close relative.

When he is not harassing us, Antar helps Howard Sirota (the attorney who sued Crazy Eddie) file bogus class action lawsuits against companies targeted by short sellers. A recent court case also describes Antar delivering $250,000 in cash to a man named Barry Minkow

In the 1980s, Minkow built a carpet cleaning and insurance restoration company called ZZZZ Best, with the bulk of his finance coming from Michael Milken, and other funds coming from associates of the Genovese organized crime family.

ZZZZ Best was a massive fraud that manufactured false restoration claims – some of them on Las Vegas casinos that had been financed by Michael Milken and investors tied to the Genovese organized crime family.

Minkow spent some time in prison. Now he runs an outfit called the Fraud Discovery Institute out of the Community Bible Church in San Diego, where he is a preacher. The Fraud Discovery Unit is in the business of publishing negative information about public companies targeted by Howard Sirota and short sellers tied to David Rocker, Michael Steinhardt, and associates of Michael Milken.

In one of Sam Antar’s famous Internet messages (he signs them, “Sam Antar, Convicted Felon”), he warned that we at Deep Capture were taking chances by writing about the Mafia connections of Barry Minkow, whom Antar described as his “friend.”

“You have awakened a sleeping giant,” Antar wrote.

* * * * * * * *

In addition to their involvement with Crazy Eddie and David Rocker’s operation, the Belzberg brothers – William, Sam, and Hymie – also tried in the 1980s to take over a investment services concern called the Bache Group. But executives of the Bache Group did not want the Belzbergs to seize their company.

According to the executives, the Belzbergs had ties to the Mafia. The executives went public with their allegations, citing, among other things, a U.S. Customs report that described the Belzbergs cavorting with some Genovese mafiosi in Acapulco.

Fortune magazine reported that these allegations were “unsubstantiated.”

But the Belzbergs have a certain cachet

* * * * * * * *

The Belzbergs were also the largest providers of capital to John Mulheren, a “prominent investor” who was famous in the 1980s for the arbitrage operation that he ran out of Spear Leeds & Kellogg, a broker-dealer and notorious naked short seller that was later merged into Goldman Sachs Execution and Clearing (which currently employs Elliot Faivinov, a Russian man who in 2006 was, for reasons of his own, receiving copies of the phone records of a woman who was then Deep Capture reporter Patrick Byrne’s girlfriend).

The Department of Justice alleged that Mulheren routinely engaged in stock manipulation schemes with Ivan Boesky, targeting companies financed by Milken. In 1987, when Boesky was indicted, and the government began to investigate Milken, Mulheren announced that he was going to murder Boesky.

Depending on the story, Mulheren either forgot to take his psychiatric medication, or he was worried that Boesky was going to squeal. Either way, he was arrested on the way to Boesky’s house. In Mulheren’s car, police found a 9-millimeter pistol, a .357 Magnum, a 12-gauge pistol-grip shotgun, a .233-caliber Israeli Galil assault rifle, and 300 rounds of ammunition.

It is a common misperception that Boesky’s testimony led to the 98-count indictment of Michael Milken. Considering the scope of business the two criminals did together, Boesky actually provided very little information to the government. He told prosecutors that he was afraid that he might be killed. On several occasions he told prosecutors that he might be killed by Milken’s “friends in Vegas.”

* * * * * * * *

Far more important to the government’s case against Milken was evidence that it obtained when 50 armed troopers stormed the offices of a hedge fund called Princeton-Newport. The founder of this hedge fund, Edward Thorp, once partnered with the Genovese organized crime family to develop a system for cheating Las Vegas casinos. He wrote a seminal book on counting cards in black jack, and soon after, he was a critical – perhaps the most critical – figure in the Milken operation.

The base of Milken’s operation was the high-yield debt department of Drexel Burnham Lambert in Beverly Hills. From there, he underwrote and sold billions upon billions of dollars worth of junk bonds. Hence the moniker, “the junk bond king.”

But most observers believe that Milken derived a greater part of his fortune from a web of private partnerships and personal brokerages that traded, and often manipulated, not just the debt, but also the stock of public companies. Most profitable of all Milken’s businesses were two Chicago-based brokerages – Belvedere Securities and EGM partners – that he co-owned with the Genovese Mafia card-counter Edward Thorp.

In 2006, Thorp’s son, Jeffrey, was charged by the SEC with destroying more than 20 companies in a scheme that involved unbridled naked short selling (millions upon millions of phantom shares sold into the market). Jeffrey Thorp also collaborated closely in short selling schemes with Anthony Elgindy, a notorious phantom stock peddler who is now serving an 11 year prison sentence for stock manipulation, extortion, and bribing FBI agents.

Elgindy, like Thorp’s father, is tied to the Genovese organized crime family.

When Elgindy appeared in court for sentencing, the judge noticed that Elgindy was missing the tip of one finger. Elgindy could not provide a straight answer as to what had happened, but a source close to the Elgindy investigation claims that Elgindy was forced by Russian mobsters to saw off his own finger as a warning not to squeal on his partners in crime.

* * * * * * * *

When delivering the death threat to Patrick Byrne, the offshore businessman mentioned David Rocker, and as we now know, Rocker was a general partner in Michael Steinhardt’s first hedge fund — largely capitalized by the Genovese Mafia and Ivan Boesky. We also know that Rocker later worked for Century Capital, largely owned by the Belzbergs – William, Sam, and Hymie – who might or might not have been cavorting with Genovese mafiosi in Acapulco, but were certainly the largest funders of John Mulheren.

After getting caught on his way to murder Ivan Boesky, Mulheren went to jail, where he spent most of his time in consultation with Anthony “Fat Tony” Salerno, a Genovese Mafia capo who had recently begun a 100 year prison sentence.

Upon his release, Mulheren (whose convictions were later reversed on appeal) went into business with a “prominent investor” named Israel Englander. Soon after that, Mulheren died (apparently of a heart attack), but Englander continued to manage Millennium Partners, a “prominent” short selling hedge fund whose major investors are the Belzbergs – William, Sam, and Hymie.

By this time, David Rocker had left the Belzberg’s Century Capital to start his own hedge fund – Rocker Partners.

* * * * * * * *

Here I must skip ahead more than a decade: In 2004, Deep Capture reporter Patrick Byrne (pursuant to his day job of being CEO of Overstock.com) was on a Lehman Brothers-sponsored road show seeing dozens of hedge funds, attempting to sell a $120 million convertible bond in Overstock. When he sat down in Millennium’s offices, a man entered. His opening words were, “Millennium wants to take the entire $120 million of this offering. Of course, we’ll need a board seat to go with that.”

This would have given the hedge fund access to inside information about Overstock. And it would have given Millennium the ability to sell the company short without borrowing shares in the open market.

This is a common strategy employed by short sellers tied to Michael Milken or his associates. As I will show in future stories, many companies that agree to this arrangement are eventually destroyed or seriously wounded by naked short selling – hedge funds offloading phantom stock.

Overstock board member Gordon Macklin, the former chairman of Hambrecht & Quist, a straight-shooting investment bank, warned Patrick not to do the deal with Millennium.

Millennium, after all, had a certain cachet.

Patrick declined Millennium’s offer, and went ahead with the offering to a number of hedge funds.

A few months after Millennium’s offer to acquire the bonds, affiliated hedge fund managers, including David Rocker, began a short selling attack on Overstock.

* * * * * * * *

One hedge fund closely affiliated with David Rocker is SAC Capital, which is managed by Steven Cohen, and is said to account for more than 3 percent of all the trading on the New York Stock Exchange. BusinessWeek magazine has described Cohen as “The Most Powerful Trader on Wall Street.”

Some years ago, there was an article by Fortune magazine called “The Shabby Side of the Street.” This article did not mention Steve Cohen. It did not mention him because, by this time, Cohen was a “prominent investor.”

But while “The Shabby Side of the Street” does not mention Cohen, it is all about Gruntal & Co., which is where Cohen spent his formative years. Cohen was a proprietary trader for Gruntal in the 1980s and early 1990s – up until the day when he founded SAC Capital.

Gruntal, we can assume, is where Cohen developed his network and learned the tricks that made him the “most powerful trader on Wall Street.”

Fortune magazine interviewed a former Gruntal employee, who described the ambience there: “Gruntal was the Island of the Misfit Toys. But they didn’t care what was going on in our sick, dysfunctional office as long as we were making money. We had no manager, and it’s illegal not to supervise brokers. I remember doing cartwheels down the hall, drinking beer at my desk, smoking pot, having sex in the stairwell. Whatever!”

* * * * * * * *

The Fortune magazine article about Gruntal also failed to mention Michael Milken. It did not mention Milken because Milken was, by then, a “prominent philanthropist.” But Milken had been intimately involved with Gruntal, whose parent company, a financial services and insurance conglomerate called the Home Group, had been central to the Michael Milken empire.

As nearly every account of Michael Milken’s schemes will tell you, Milken worked with a select group of cronies (many of whom controlled large insurance and financial services conglomerates) to operate what amounted to a Ponzi scheme.

The cronies would sell junk bonds through Milken to raise finance. Then the cronies would use much of this finance to buy (from Milken) the junk bonds of other cronies in the group. The cronies and Milken would then trade the junk bonds among themselves, raising their prices incrementally as they passed them on to the next crony (a process known as “daisy-chaining”), before fobbing them off to little old ladies and dimwitted pension fund managers.

Until the scheme collapsed, Milken’s junk-bond merry-go-round generated enormous profits and seemingly unlimited finance for his select cronies. So the cronies could not only buy more junk bonds from Milken, but they could also use their billions to harass, destroy, or initiate hostile takeovers of public companies.

Meanwhile, Milken presided over a nationwide network of private partnerships (such as those he had with the Mafia card-counter Edward Thorp), arbitrage and short selling partnerships (such as Ivan Boesky’s criminal operation), short selling hedge funds (such as Michael Steinhardt’s Mafia-funded outfit), and brokerages that could help put public companies on the defensive.

Home Insurance was a key buyer and issuer of Milken junk bonds. It was the second largest unsecured creditor to Milken’s operation at Drexel. It also owned about $15 million worth of Ivan Boesky’s short selling and arbitrage outfit. Meanwhile, Home’s subsidiary, Gruntal & Co., employed traders who were on quite friendly terms with Milken and others in his network.

* * * * * * * *

Gruntal’s options department was founded by a man named Carl Icahn. After leaving Gruntal, Icahn formed Icahn & Co., receiving most of his finance from Michael Milken, but also a significant chunk of capital from a “prominent investor” named Zen Wolfson.

Since then, Wolfson has been involved with a number of Wall Street brokerages that are tied to the Genovese Mafia. One such brokerage is Pond Securities, which, in 2001, was implicated by the SEC in a massive naked short selling (phantom stock) fraud. Among the victims of Pond Securities were companies that had employed the services of Ladenburg Thalmann, an investment bank largely controlled by Carl Icahn.

In an upcoming story, I will tell you more about Ladenburg Thalmann’s role in the naked short selling scandal. I will tell you more about Pond Securities and its relationship with a man who remains a fugitive in Austria. And I will tell you more about Carl Icahn, who is not only one of the most “prominent investors” in America, but also a man with a certain cachet.

* * * * * * * *

Another employee of Gruntal – a fellow who sat next to Steve Cohen (later known as “the most powerful trader on the Street”) – was Stephen Feinberg, who had moved to Gruntal from Michael Milken’s operation at Drexel Burnham Lambert. Feinberg had been one of Milken’s most favored employees. Most likely, he moved to Gruntal (“the “shabby side of the Street,” as Fortune magazine described it) to reinforce the relationship between Gruntal and Milken’s nation-wide stock manipulation network.

Nowadays, Feinberg runs Cerberus Capital, one of the most powerful private equity firms in America. In an upcoming story, I will tell you how Cerberus loots the companies it seizes.

Its techniques have a certain cachet.

* * * * * * * *

Yet another “prominent investor” who sat on Steve Cohen’s trading floor at Gruntal was Samuel Israel III.

Israel left Gruntal to work for a hedge fund owned by Steinhardt (the son of the “biggest Mafia fence in America”). As you will recall, Israel later wrote “Suicide is Painless” on his car and briefly disappeared after being sentenced for masterminding one of the largest hedge fund frauds in history – a fraud that Israel ran with help from a co-founder of Steinhardt’s hedge fund and another fellow connected to the Genovese Mafia.

Also on Steve Cohen’s trading floor at Gruntal was Maurice A. Gross, whose biggest client was Thomas Gambino, a prominent member of the Gambino Mafia family. This was in the days when the Gambinos and the Genovese still collaborated on Wall Street.

Gross later left Gruntal, and in 1997, he and a Pakistani fellow named Mohammad Ali Khan tried to steal the Gambinos’ money.

Fortunately, Elliot Spitzer intervened. At the time, Spitzer was New York’s attorney general. Throughout his political career, Spitzer received by far the greatest percentage of his campaign funding from short sellers (such as Jim Chanos, who provided a rent-free beach house to the hooker who later forced Spitzer to resign as governor) who are closely tied to Steve Cohen and SAC Capital.

Spitzer forced the former Gruntal broker to give the Gambinos their money back. There is no evidence, however, that Spitzer was concerned that New York’s second largest organized crime family was running money through a brokerage owned by cronies of Michael Milken and Ivan Boesky.

In 1996, Gruntal was charged with embezzling millions of dollars. By then, Steve Cohen had left to begin his career as the “most powerful trader on the Street.”

* * * * * * * *

So in 2006, I was investigating Steve Cohen’s SAC Capital, David Rocker, Michael Steinhardt and their network of miscreants. I was also investigating “prominent” journalists (at The Wall Street Journal, The New York Times, CNBC and other major news organizations) who had unusual relationships with this network and who were going to extraordinary lengths to cover up the naked short selling (phantom stock) scandal.

That’s when three guys in Armani suits saddled up to me in a quiet bar. As you will recall from my last installment, one of the Armanis introduced himself to me as a former Boesky employee, and told me a story about a fellow who got his brains blown out after “peeking” into the ladies underwear department at Saks Fifth Avenue.

Steve Cohen’s SAC Capital is known colloquially as “Sak.” I do not know for certain that Armani was telling me I shouldn’t be “peeking” at Cohen’s dirty underwear. It was a strange encounter, to say the least.

But if you doubt that journalists sometimes receive such threats, consider the case of Los Angeles Times reporter Anita Busch. One day after work, Busch found, in the front seat of her car, a dead fish and a rose. In the windshield of her car, there was bullet hole and a note that said, simply, “Stop!”

Later, the LA Times reporter was nearly killed when two men in a black Mercedes tried to run her over.

All of this was the handiwork of Anthony Pellicano, a former soldier in the Genovese Mafia organization who had found employment as a hired-thug and private investigator. Most of Pellicano’s clients had been Hollywood actors like Steven Seagal (who has been reported by some news organizations to have ties to the Mob, though I have not confirmed those reports) and various billionaires, a significant number of whom had ties to Michael Milken.

When Pellicano put the dead fish and the bullet hole in the reporter’s car, he was working for Michael Ovitz, the Hollywood mogul. Busch and the LA Times were investigating the business dealings of Ovitz, and Ovitz apparently hired the former Genovese Mafia soldier to stop the story in its tracks.

Ovitz, as you may know, is one of Michael Milken’s closest friends. They were high school classmates. In later years, Milken and Ovitz did a lot of business together.

While Pellicano was threatening an L.A. Times reporter, he was also employed by Adam Sender, who runs a hedge fund called Exis Capital. Sender is a former employee of Steve Cohen at SAC Capital. Steve Cohen — the “most powerful trader on the Street” — provided Sender with most of his start-up capital. Exis and Sender are considered by most everyone on Wall Street to be essentially subsidiaries of SAC (a.k.a. “Sak”).

Apparently, Sender had some kind of dispute with a business partner, so he called Pellicano, the former Genovese Mafia soldier. In a conversation that was recorded by the FBI, Sender said to Pellicano: “You have 100% free reign to do whatever you feel will make this cocksucker as unhappy as possible…I’d like to make the fucking asshole as uncomfortable as possible…I’m going to continue the lawsuit until doomsday… when the time is right I’m going to fix him.”

You can listen to the full conversation here.

In a later conversation, Pellicano allegedly offered to have Sender’s business partner disappear. The former Genovese soldier said he’d make his move while the business partner was driving to Los Angeles from Las Vegas. He’d force the business partner off the road. Then Pellicano would kill the business partner and bury him in the Nevada desert. Nobody would know a thing.

In court, Sender testified that he turned down Pellicano’s murder-for-hire offer. But Pellicano was convicted for multiple crimes – such as offering to have a man buried in the Nevada desert and putting a dead fish, a rose, and bullet hole in the car of a journalist investigating Michael Milken’s best friend from high school.

* * * * * * * *

I do not know whether any merit can be given to the offshore businessman’s speculation that Rocker might be “owned” by the Mafia. I do not know whether Rocker had anything to do with the message that the Russian Mafia was going to kill Patrick Byrne.

I do know, however, that in a later phone conversation, the offshore businessman explained how the death threat had been conveyed to him. He said he returned home one night and his wife told him there was a package on his desk. “And there was a beautiful little box, and inside was a matryoshka.”

“And I opened up the…matryoshka, and inside is an `F’ with a cross on it — which is from Felix.”

The businessman said he contacted Felix. And Felix said, “tell [Patrick]….we’re going to fucking take it private.”

* * * * * * * *

In 1998, Felix – that’s Felix Sater – forgot to pay the rent on a locker at the Manhattan Mini Storage in Soho. As a result, police found inside this locker two pistols, a shotgun, and a gym bag stuffed with documents outlining various money laundering and stock manipulation schemes orchestrated by Felix Sater and his partners.

Felix is a Russian immigrant said by authorities to have ties to both the Russian Mafia and the Genovese organized crime family.

In 1991, Felix stabbed a stock broker in the face with a broken stem of a wine glass.

* * * * * * * *

After reviewing the contents of Felix’s locker, the FBI launched a sweeping investigation that culminated, in the summer of 2000, with the bureau’s famous “Operation Uptick” – sometimes referred to as the “Mob on Wall Street” operation. More than 100 stock brokers and investors allegedly tied to the Mafia were arrested – the biggest securities bust in FBI history.

Among those arrested in the “Mob on Wall Street” operation were a number of people tied to Michael Milken or his closest cronies. One of them was Gene Phillips.

In the 1980s, Phillips ran a company called Southmark, which was at the center of the Milken Ponzi. Southmark was, in fact, the single largest real estate conglomerate ever financed by Milken. But it didn’t just buy real estate. In only one of many transactions, Milken delivered over $400 million in junk bond finance to Phillips, and Phillips used every penny of that finance to buy (from Milken) the junk bonds of other Milken cronies.

The “Mob on Wall Street” case alleged that Phillips engaged in stock manipulation schemes with a coterie of miscreants who were tied to the Genovese organized crime family. Ultimately, Phillips was acquitted.

But even before he was arrested, Phillips had a certain cachet.

* * * * * * * *

Felix Sater (the man who allegedly sent the matryoshka doll) was ultimately named as an “unindicted co-conspirator” in a Mafia-run stock fraud. One of his friends co-authored a book, “The Scorpion and the Frog,” which suggests that Sater (whom the author of the book gives a pseudonym, “Lex Tersa”) cut a deal allowing him to avoid prosecution if he helped the CIA set up a phony arms deal with Osama Bin Laden. Anything is possible, I suppose.

At any rate, Sater is now the (silent) proprietor of the Bayrock Group, a real estate investment company. The Bayrock Group has eleven partners. All are of interest, but let’s focus on two of them.

One is The Sapir Organization, which is an organization run by a Russian immigrant named Tamir Sapir. A lawyer for The Sapir Organization said the organization would answer no questions because the organization is “very, very private.” So information about Sapir’s background is spotty.

Sapir has stated publicly that he once owned a home electronics store that catered to Russian KGB officials living in New York. The name of the store remains a mystery. All Sapir has said is that he was “the Crazy Eddie of Russia” – a playful reference to Sam Antar’s electronics company (i.e., the massive fraud that the Antars were going to take private with those Milken cronies, the Belzbergs – Walter, Sam, and Hymie).

After electronics, Sapir began trading oil. Then he struck it big in real estate. Now, he is believed to be a billionaire.

He might also be a Russian Mafia boss. Journalists have danced around this issue. Sapir himself has stated to The New York Times that “I am not Mob.” But he once had Genovese Mafia associates running his real estate empire. So if Sapir is not a Russian Mafia boss, he is at least a Russian boss of Mafia employees.

By way of example: The man who formerly ran The Sapir Organization’s real estate portfolio is named Frederick J. Contini. In addition to being associated with the Genovese Mafia clan, Contini once entered a secret plea to racketeering.

Also, Contini once stabbed a man in the face with the broken stem of a wine glass.

He said it was just a bar fight.

This was some months after Felix Sater stabbed a man in the face with the broken stem of a wine glass.

Felix said it was just a bar fight, too.

* * * * * * * *

The second important partner of Felix Sater’s Bayrock Group is Apollo Real Estate Advisors, which is part of the empire controlled by a famous billionaire – Leon Black.

If Michael Milken were to name the ten people who are closest to him, Leon Black would surely be one of them. The two men have known each other since at least 1975, when “prominent investor” Carl Lindner, who was one of Milken’s key junk bond cronies, was acquiring shares in United Brands, formerly known as United Fruit, a company that has been accused of everything from bribing heads of state to funneling money to Latin American drug gangs.

Lindner eventually gained control over the company, but not before Eli Black — United Brands’ CEO and the father of Leon Black — crashed through a thick plate-glass window on the 44^th floor of the Pan Am building, and plunged to his death.

They said Black broke through the plate glass window with his briefcase.

They said it was suicide.

* * * * * * * *

Some years after his father crashed through the window, Leon Black was heading up mergers and acquisitions at Drexel Burnham Lambert, home base of Milken’s junk bond operation. Black was Milken’s most ardent ally at Drexel. After Milken was indicted, Black rallied to Milken’s defense. It was Black, more than anyone, who prevented Drexel from firing Milken. And Black has remained obstinately loyal to the criminal Milken ever since.

After Milken went to prison, Black founded the Apollo Group, an investment partnership that received most of its initial funding from a French aristocrat named Rene Thierry Magon de La Villehuchet.

Among Black’s first moves as an independent “prominent investor” was to launch a takeover bid for Executive Life, a bankrupt insurance and financial services conglomerate.

The Black group won the bid after a fierce battle with a group of competing bidders, led by Jack Byrne, who was then the chairman of Fireman’s Fund, a major insurance company.

Later, though, it emerged that Black’s takeover of Executive Life had been illegal because he had secretly been fronting for certain French investors, including Monsieur Rene Thierry de La Villehuchet. Some of the French investors had illegally parked stock with Black to hide their involvement (“parking stock” being one of the favorite techniques of the Milken-Boesky-Thorp crew, and a recurrent theme in the 98-count indictment that sent Milken to jail).

There were indictments (though, somehow, not of Black or Monsieur Rene Thierry de La Villehuchet). After the indictments, Jack Byrne, recognizing that he’d been cheated out of a deal, sued Black and won an $80 million dollar judgment, some $30 million of which was ultimately paid to Jack Byrne’s company.

Jack Byrne, of course, is the father of Patrick Byrne, who a few years later received a vicious death threat, allegedly by way of a Russian matryoshka doll delivered by Leon Black’s Mafia business partner Felix Sater.

* * * * * * * *

None of which is to suggest that Black or Michael Milken had anything to do with the matryoshka doll or the death threat. Milken is now a “prominent philanthropist,” and Black is a “prominent investor.” But if anybody sees Mr. Black, please ask him if he thinks his Mafia friends could help us get to the bottom of this.

(Neither Black nor Felix nor Milken return my calls).

* * * * * * * *

Executive Life, the company that Black’s group illegally purchased, was in bankruptcy because it had been transformed into a Ponzi scheme by Fred Carr, who is widely regarded to have been Michael Milken’s single most important junk bond crony.

Milken delivered billions of dollars in junk bond finance to Carr, and Carr used much of his Milken finance to buy (from Milken) junk bonds that had been issued by Gene Phillips, the Belzbergs, Carl Lindner, and few others in Milken’s close circle of cronies.

Prior to destroying Executive Life, Carr was tied to a mutual fund company called Investors Overseas Services. Carr was a “feeder” (somebody who raised money) for Investors Overseas Services, and at one point he announced that he was a major shareholder in the company and planned to take it over.

Another “feeder” to Investor Overseas Services (OIS) was John Pullman, a reputed associate of the Genovese organized crime family. At one point, Canadian police taped a conversation in which Anthony “Fat Tony” Salerno (the fellow whom John Mulheren befriended in prison after failing to assassinate Ivan Boesky) suggested that Pullman owed him money.

There was also Sylvain Ferdman. He couriered cash to IOS from clients in South America. Ferdman testified before a grand jury in New York that he had also been a courier for the Genovese organized crime family.

* * * * * * * *

No story about Michael Milken is complete without reference to a “prominent investor” named Meshulum Riklis. By most every account, Riklis was Milken’s first big client and his most important mentor – the man who taught Milken the art of junk bond Ponzis and stock manipulation.

Riklis, who was also known as the husband of Hollywood starlet Pia Zadora, began working with Milken not long after Riklis bought Schenley Distributors, a distillery, in a deal that was clouded by accusations of pay-offs to organized crime. Schenley retained as its major distributors one Joseph Fusco, reputed to be a former member of Al Capone’s gang in Chicago, and Joseph Linsey, a colleague of the Genovese family mobster Meyer Lansky (who worked closely with Michael Steinhardt’s father).

Riklis’s next move was to buy the Riviera casino in Las Vegas. Reportedly, he was hand-picked for this deal by the sellers, a group of Mafia-affiliated characters led by Morris Shenker, who was the personal attorney, close confidant, and business partner of Jimmy Hoffa, the Mafia-connected president of the Teamsters.

One day, Hoffa had a meeting scheduled with Anthony “Tony Jack” Giacalone and Anthony “Tony Pro” Provenzano, two capos of the Genovese organized crime family. Hoffa disappeared on the way to the meeting and was never seen again.

By then, though, the Teamsters had become one of Milken’s most important customers –dependable buyers of junk bonds that Milken issued for select cronies – Riklis, Carr, Gene Phillips, Carl Lindner (who was acquiring United Brands when Leon Black’s father fell through a thick plate glass window), and just a few others.

* * * * * * * *

Through Riklis and the Teamsters, Milken built a solid clientele of Las Vegas casino operators, such as Carl Icahn, and related enterprises (such as the Genovese-financed ZZZZ Best carpet cleaning outfit).

One of Milken’s biggest clients was Steve Wynn, a “prominent investor” who received lots of Milken finance to open casinos and buy (from Milken) junk bonds issued by other Milken cronies – Lindner, Riklis, Gene Phillips, Icahn, and a just a few others (all of whom had a certain cachet – more on the others in upcoming stories).

Wynn is now widely credited with transforming Las Vegas into the kind of place where you can go with the kids.

Meanwhile, Milken describes Wynn as one of his closest friends.

In 1983, which is right around the time that Milken and Wynn began doing business together, the Criminal Investigation Department of London’s Scotland Yard produced a report stating that “the strong inference which can be drawn from the new intelligence is that Stephen Wynn…has been operating under the aegis of the Genovese [Mafia] family since he first went to Las Vegas in the 1960s…”

Scotland Yard determined that there was an especially strong relationship between Wynn’s father, Mike, and Genovese mobster Anthony “Fat Tony” Salerno. Around this time, the FBI caught “Fat Tony” on tape, in a conversation that suggested that the mobster had ties to the younger Wynn as well. Among other things, “Fat Tony” told his colleagues that they should try to get the younger Wynn to reign back his activities in Las Vegas. Wynn had become too conspicuous.

This was before “Fat Tony” entered into jail-cell consultations with John Mulheren, the Milken crony who had sought to murder Ivan Boesky. It was after “Fat Tony” was caught on tape describing his relationship with the “feeder” who worked with Milken crony Fred Carr on the Investors Overseas Services.

Wynn vigorously denies any connection to “Fat Tony” and the Mafia.

By the way, “Fat Tony” wore a fedora and usually had big Cuban cigar in his mouth. These people really do exist.

They have a certain cachet.

* * * * * * * *

Meshulum Riklis also denies having any connection to the Mafia.

But he does not deny that he at one point tried to buy Investors Overseas Services. This was right about the time that Milken-crony Fred Carr began buying up shares in IOS. It was also right about the time that Investors Overseas Services was found to be the biggest Ponzi fraud in history.

Soon after, Investors Overseas Services was handed over to a “prominent investor” named Robert Vesco, who looted it dry, and fled to Cuba.

* * * * * * * *

Investors Overseas Services was the biggest Ponzi scheme in history until last month, when Bernard Madoff’s Mafia-affiliated operation was revealed to be the new all-time biggest Ponzi scheme.

Investors Overseas Services was a straight-forward swindle. Bernard Madoff’s $50 billion Ponzi was more complicated, involving not just his fund management business, but also his brokerages.

Madoff’s brokerages engaged in naked short selling (offloading stock that had not been borrowed or purchased—phantom stock), likely on behalf of miscreant hedge funds looking to drive down prices. In fact, Madoff successfully lobbied the SEC to enact a rule that allowed market makers such as himself to engage in naked short selling. At the SEC, this rule was called “The Madoff Exception.”

Moreover, a source who has seen some of Madoff’s trading records says that Madoff filled buy orders for stock by naked short selling the stock to his customers’ accounts. So, perversely, significant buying volume through Madoff’s brokerages in a firm’s stock would generate yet more phantom shares, putting downward pressure on the price of that stock.

All of this naked short selling created massive liabilities (probably accounted for as “stock sold, and not yet delivered”). Those liabilities, plus the money that Madoff simply pocketed instead of buying or borrowing real stock, surely accounted for a large chunk of that $50 billion figure.

Last summer, naked short selling (phantom stock) burst into public view as an integral factor in the implosion of the U.S. financial system. In November 2008, former SEC Chairman Harvey Pitt, echoing the words of many other experts and officials, said, “Naked short selling is what’s causing a lot of the problems in the market.”

In other words, Madoff’s operation was not just the largest known swindle in history. It was also a phantom stock machine. And that makes it but one participant in a much bigger scandal — a crime that might have brought us to the brink of a second Great Depression.

* * * * * * * *

At any rate, historic achievements tend to have overlapping protagonists. So it was no surprise to learn that one of Madoff’s most important “feeders” was Fairfield Greenwich Group, part-owned by a “prominent investor” named Philip Taub. Philip’s father, Said Taub, a “prominent investor” from Europe, had been an important “feeder,” along with Michael Milken’s cronies and other people affiliated with the Genovese Mafia, for the Investors Overseas Services Ponzi.

Another Madoff “feeder” (and a partner with Madoff in a brokerage called Cohmad) was a “prominent investor” named Robert Jaffe. Previously, while working for E.F. Hutton, Jaffe ran money for the Anguilo brothers, the Boston dons of the Genovese organized crime family.

There was also Sonja Kohn, who was a “prominent” member of the Wall Street investment community before moving to Austria to set up Bank Medici, the primary purpose of which seems to have been to find Russian oligarchs and mafiosi (often one and the same) to participate in Madoff’s schemes.

According to The New York Times, Kohn has disappeared. She apparently told people that she feared that somebody would have her killed.

* * * * * * * *

And, finally, there is the sad story of the French aristocrat Monsieur Rene Thierry Magon de La Villehuchet.

As you will recall, this aristocrat almost single-handedly funded Leon Black’s Apollo Group. And you will remember that this aristocrat also played a key role in Black’s bid for Executive Life – a bid that turned out to be illegal, resulting in Black losing an $80 million lawsuit to the father of Deep Capture reporter Patrick Byrne.

In later years, this French aristocrat remained one of Leon Black’s most important business associates. He was a loyal friend – a committed member of the Michael Milken network – even after Black’s Mafia business partner Felix Sater threatened to murder Patrick Byrne (This according to the courier of that threat, who quoted Felix as saying, “we’re going to fucking take it private” if Patrick continued his crusade against illegal naked short selling.).

All of which makes it interesting to know that this French aristocrat also raised billions of dollars for the greatest Ponzi scheme the world has ever known – a Ponzi scheme that entailed illegal naked short selling that probably helped topple the American financial system.

That’s right, Monsieur Rene Thierry Magon de La Villehuchet not only provided most of the initial funding to Milken-crony Leon Black’s Apollo Group. He was also one of the most devoted “feeders” to the Bernard Madoff $50 billion phantom stock Mafia swindle.

And one day last month, police entered a luxurious office in a New York skyscraper. On the desk, there were pills (what kind of pills has not yet been revealed). On the floor, there was a box cutter. There was no note.

But there he was — Monsieur Rene Thierry Magon de La Villehuchet.

He was dead.

They said it was suicide.

* * * * * * * *

To be continued….

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked as an editorial page writer for The Wall Street Journal in Europe, chief business correspondent for Time magazine in Asia, and as an assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University.

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

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You can bet that the hedge fund talking points were rolling off the CNBC fax machine last week, and really, the network did a stellar job – right on par with the high-powered lobbyists in Washington. Yes, the folks at CNBC should join hands with those lobbyists, and take a deep bow. It was a heck of a show – a real extravaganza.

I doubt the American people even know what hit them.

It is hard to believe, given that the news has so quickly disappeared from the front pages, but the SEC last Tuesday issued an historic “emergency order” to head off financial apocalypse by preventing criminals from “naked short selling” the stock of 19 big finance companies.

The SEC’s move was kind of weird (Why only 19 companies?) but it was gratifying to Deep Capture and a band of crusaders who have long been hollering that crooked hedge funds use naked short selling (selling stock that has not been purchased or borrowed, and usually does not exist – i.e., phantom stock) to drive down prices and destroy public companies for profit.

For years, arrogant journalists brushed off the crusaders, while a pack of dishonest, but influential reporters with close ties to hedge funds harassed and ridiculed them (see, “The Story of Deep Capture”). Meanwhile, government agencies denied that phantom stock was a problem. SEC Director of Trading and Markets James Brigagliano once referred to the crusaders as “bozos.”

But on Tuesday…well, here was something altogether different. The SEC said that phantom stock was not just a problem; it was an “emergency” that had the potential to crash the nation’s financial system.

In other words, the bozos were right!

Well, we cheered, and then we closed our eyes to take in that warm glow of vindication. My eyes were closed a bit too long, I’m afraid, because I missed the curtain opening on Cirque du CNBC and its amazing spectacles – great feats of flimflammery, upside down speechifying, all manner of contortionism and illusion.

Within three days, this grim circus, with a lot of help from the mighty hedge fund lobby, would reduce the SEC’s “emergency order” to a twisted joke – a grand gesture to do nothing whatsoever.

The day after the SEC’s declaration, the circus was already well under way, with the hedge funds spinning furiously and their media marionettes singing the party line: short sellers are “vital” to free markets; everybody loves free markets; only bad companies and bad CEOs complain about short sellers – go investigate the CEOs, hands off the “vital” hedge fund managers.

As for billions of dollars of phantom stock threatening to topple the American financial system – don’t even mention it. If somebody does, repeat, over and over, “Only bad companies complain about shorts…shorts are vital”

I sketch out the hedge fund party line only for those who are new to the so-called “debate” over naked short-selling. If you’re a long-time crusader, you’ve heard it all before. You’ve heard it on CNBC so often that you’re probably now banging your head against a wall and saying something like, “oogly oogly oogly,” half-mad with incomprehension – still unable to come to terms with the utterly surreal spectacle of an important television news network, in the United States of America, completely whitewashing a massive crime.

By the time CNBC interviewed SEC Chairman Christopher Cox on Wednesday, the top market cop seemed to have become rather befuddled by it all. Amidst the incessant chants – “bad CEO’s…vital short-sellers” – Cox backed away from his earlier suggestion that he might extend the emergency order to protect the entire market, rather than just 19 big financial firms with ties to Wall Street.

Meanwhile, Chairman Cox suggested, preposterously, that it’s somehow more acceptable to naked short smaller companies because their shares are harder to locate and borrow. This is something only a hedge fund contortionist would say. There are always shares to borrow at some price, and a tough borrowing environment hardly justifies selling millions of non-existent shares to drive down prices.

But we sympathize with Mr. Cox. While the CNBC lady suggested that the SEC should investigate bad companies instead of shorts, and questioned whether the SEC had initiated some kind of “witch hunt” against short-sellers generally, the chairman labored valiantly to point out the obvious (though apparently not to CNBC) distinction between legal short-selling and the blatantly illegal practice of spreading maliciously false information while selling non-existent stock to create panic and drive down prices.

Mr. Cox seemed like he wanted to do the right thing. It’s just that Cirque du CNBC can be a rather discombobulating place.

Moments before the SEC Chairman was interviewed, circus clown Joe Nocera, who doubles as the New York Times’ top business columnist, was on CNBC, working up the crowd by suggesting that Mr. Cox had lost his mind and was doing the bidding of bad companies and stupid people “saying woe is us, woe is us, blame it on the shorts.”

Remember, Joe Nocera is the anti-investigative journalist whom Deep Capture has tape recorded telling some of his media colleagues that the naked short-selling scandal “makes his eyes glaze over,” and he isn’t going to look into it because “life is too short.”

Far easier to read from the script: “Bad companies! Vital shorts!”

The next day, CNBC had yet to televise any of the CEOs, economists, and many other experts who agree that the phantom stock problem is, indeed, an “emergency.” Instead, the network brought on hedge fund cronies to say that their hedge fund cronies are “vital.”

Predictably, CNBC did a long interview with the dreaded Michael Steinhardt, a mentor and incubator of some of the most notorious short-and-distort hedge funds in the land. Steinhardt, for example, once employed David Rocker, who has regularly used the media (most notably, CNBC’s Herb Greenberg) and a dubious financial research shop called Gradient Analytics to disseminate misleading information about target companies, most of which are also victimized by massive levels of phantom stock. Jim Cramer, CNBC’s top-rated “journalist,” once ran a hedge fund out of Steinhardt’s offices, and CNBC’s “Money Honey,” Maria Bartiromo is married to the top partner in Steinhardt’s newest fund.

These are the sorts of relationships that prevail at CNBC. Our critics say it is too “conspiratorial” to point out these relationships, but we believe otherwise. Watch CNBC. Observe the lubrications that are lathered on favored hedge funds. Then judge for yourself.

Steinhardt didn’t have much to say about hedge funds that destroy public companies by selling billions of dollars of phantom stock while publishing false financial information, colluding with crooked law firms to file class action lawsuits, orchestrating dead-end government investigations, hiring convicted criminals and thugs to harass CEOs, and feeding false information to compliant journalists. Indeed, he didn’t have much to say at all, except the predictable mantra that all the “moaning and groaning” about short-sellers comes from bad companies and silly people who are angry about falling stock prices.

Participating in this interview was Paul Roth, another hedge fund manager who was mentored by Steinhardt. When asked whether it would be a problem if, say, a hedge fund were to sell ten times as many shares as actually exist in a company, Roth said, “That’s not illegal…the problem is sometimes you located the shares [and sold them] but somebody scooped them up [before you could deliver them to their rightful owners].”

CNBC’s Joe Kernen, who conducted the interview, characteristically let this statement go unchallenged. So let us state, for the record, that it would be a crime of monumental proportions to sell, say, 1,000 shares in a company that had only 100 shares outstanding. It is a crime because you cannot possibly “locate” or “scoop up” 900 shares that do not exist. It is a crime because there is only one possible reason why a hedge fund would sell ten-times a company’s public float, and that’s to manipulate the stock price.

But understand how these people think: If you can get away with it, it’s not illegal.

Around the same time that CNBC was massaging Steinhardt and Roth, members of the Securities Industry and Financial Markets Association, the leading Wall Street lobbying outfit, were on a conference call with some high-level SEC officials.

As it were, none of the hundreds of companies victimized by phantom stock got to be on any conference calls. But they’re used to that.

They’re also not too surprised that after CNBC aired the hedge funds’ talking points for three days, and the lobbyists wailed on the conference call, and uncounted other hedge fund billionaires bellowed in the name of “efficient markets” and the right to destroy “bad” public companies, the SEC announced that it would preserve its “market maker exemption,” which allows some brokers to sell stock they don’t have in order to “make a market.”

The “market maker exception” is one of several loopholes that hedge funds have been using for years to create billions of dollars worth of phantom stock. Market makers are, in fact, required to eventually deliver the stock they sell. But the name “market maker” imbues magic powers. If the SEC asks why you haven’t delivered the shares you sold, stick the words “market maker” on your forehead, mutter something about keeping things “liquid”, and the SEC goes away – even when you’ve sold ten times the float and even when the phantom stock goes undelivered for months or years at a time.

Since it was already against SEC rules to use naked short selling to drive down prices, the most exceptional feature of the commission’s “emergency order” was that it was going to close the “market maker exception” loophole – at least as it applied to trading in 19 big financial companies. By retaining that exception, the SEC has, in essence, decided that it isn’t going to do anything after all. Hedge funds and their “market makers” can go right on selling phantom stock and threatening the stability of the American financial system.

From “emergency” to “exception” in a few short days…Behold the powers of Cirque du CNBC and its hedge fund choreographers.

Folks, today was history in the making. The Deep Capture thesis, which is that miscreant short-sellers have put the American financial system at risk, can no longer be in doubt.

First came the stunning announcement that the SEC has sent subpoenas to 50 hedge fund managers as part of a major investigation into rumor-mongering and illegal short-selling of Bear Stearns and Lehman Brothers. Then came the even more remarkable announcement from SEC Chairman Christopher Cox that he is instituting an “emergency action” requiring traders to pre-borrow stock before shorting all “substantial” financial companies.

Of course, there is a some bitter irony here. Over the years, hundreds of public companies have been grievously wounded by hedge funds who sell phantom stock (ie. stock they have not borrowed), and the SEC has done nothing. Now Wall Street finance companies, including the very investment banks whose prime brokerages facilitated the creation of phantom stock, find themselves victimized by phantom stock, and the government decides it’s time to do – or at least, say – something about it.

We’d be glad to see the big banks suffer their Shakespearean fates if the SEC were to rescue the hundreds of innocent victim companies who have been hollering about the phantom stock problem for years. We’ll see if the SEC extends the emergency action to the rest of the market, as Mr. Cox suggested it might.

Either way, all the talk of an “emergency” suggests that the SEC recognizes just how big the phantom stock problem has become. Obviously, it sees the catastrophe of Bear Stearns as a clear-cut case of short-seller abuse. A well-timed false rumor, presented as fact by CNBC, combined with phantom stock sales, took the bank down. Now, the same people are using the same tactics against Lehman Brothers. Fannie and Freddie are on the brink. And experts say there are 300-plus other publicly traded companies – including 50 finance companies — getting similarly clobbered.

An “emergency,” indeed.

All of which makes certain journalists look like bona fide clowns. For years, a clique of influential reporters—I call them “the Media Mob”–have insisted that short-sellers do no wrong and that phantom stock is not a problem. On Friday, Deep Capture noted that the media’s hedge fund apologists, including Joe Nocera of the New York Times, had shied away from commenting on the collapse of Bear Stearns.

The next day, Joe Nocera of the New York Times commented on the collapse of Bear Stearns. Predictably, he argued that short-sellers had nothing to do with it. He wrote, “it takes some gall for Bear Stearns to blame short sellers for its failure…what Bear Stearns management fails to mention is how much of its capital was tied up in subprime sludge.”

The sludge, Joe, is not the point. As your close friend Jim Cramer has described (behind closed doors, if not on CNBC), “the game” of market manipulation is to find a weakness and amplify it out of all proportion to reality. It is one thing to say that Bear’s balance sheet was weak (I agree, Bear was a piece of crap). It is quite another thing to get a compliant television reporter (in this case, Cramer crony David Faber, on CNBC) to spark a run on the bank by reporting, as if it were fact, the completely false and utterly catastrophic news that Goldman Sachs had cut off Bear Stearns’ credit — and to do that while somebody’s selling millions of shares that do not exist.

As we said last week, the SEC shouldn’t just subpoena the hedge funds: It should subpoena CNBC’s David Faber. He says a hedge fund “friend” gave him that information about Goldman cutting off Bear’s credit. That hedge fund “friend” very likely broke the law. The SEC needs to find out who he is. Journalists have no constitutional right to cover up crimes under the guise of protecting sources.

But short-sellers don’t commit crimes. So says the Media Mob. Why do they say this? The kindest explanation is that Nocera and crowd honestly believe that it is simply too dangerous to criticize shorts because shorts are so absolutely “vital” – the only people able to provide negative information to the markets and the media. This worn notion fails, of course, to make the distinction between law-abiding short-sellers who provide real analysis and crooks who circulate scurrilous lies while churning out phantom stock.

It also contains a stunning admission: that the financial media is incapable of conducting financial research on its own. Journalists consider short-sellers “vital” sources of negative information because journalists do not have the wherewithal to look at a balance sheet and determine for themselves whether something might be wrong. Baffled by all those numbers, the journalists turn to short-sellers (and sometimes even convicted criminals) for help. Which is another way of saying that our financial media is written in large part by financially motivated Wall Street sharks–a real abomination, when you think about it.

But in the case of Nocera, there is something even more sinister at play. To understand Joe Nocera’s positions on short-selling, it is necessary to understand the crowd he runs with. It is a clique of journalists and short-selling hedge funds, most of whom are connected in some way to CNBC’s Jim Cramer.

Some journalists challenge power; this clique of journalists covet it. They desire nothing more than to be players in “the game.” (Some are quite blatant about this; witness Nocera pal Herb Greenberg, who sells “forensic” research to short-sellers while using them as sources in his CNBC reporting).

These journalists defend their short-selling friends at all costs. They routinely pat each other on the back and pimp each others’ books. They quote each other in their stories, and snicker almost out loud as they attack the same public companies, always parroting the same financial analysis, delivered to them by the same small group of dubious hedge fund managers.

This is an old boys and girls network tighter than anything on Capitol Hill – and infinitely more saddening, because the media’s not supposed to be this way. .

You could see this network at work in the case of Gradient Analytics, a research shop that publishes blatantly false information for short-selling hedge fund managers, many of whom are connected to Cramer. For awhile, Jon Markman, a former editor for Cramer’s website, TheStreet.com, was running a dodgy hedge fund out of Gradient’s back offices, while one of Gradient’s managers was accumulating multiple identities and social security numbers to conceal his activities.

At the same time, the Media Mob, including CNBC’s Herb Greenberg, who was Markman’s former co-editor at TheStreet.com, churned out stories containing Gradient’s false information about companies that also happened to be victimized by phantom stock – and still more stories labeling anyone who mentioned the words “phantom stock” or “naked shorting” as “loony” or “seeing UFOs.” A former Gradient employee testified under oath that Herb conspired with Gradient and a hedge fund manager named David Rocker so that Rocker could illegally profit from his stories on CNBC and Marketwatch.com.

When the SEC launched an investigation into Gradient, and issued subpoenas to Jim Cramer and Herb Greenberg, the Media Mob rose up in their defense. Pathetically, the SEC allowed itself to be terrorized by this mob, and closed down its investigation before enforcing the subpoenas. When I began a story about this for the Columbia Journalism Review, the Media Mob turned on me. Joe Nocera called my editor to defend Herb and pressure CJR to kill my investigation. (This was unheard of; working journalists do not make quiet calls to try to have stories killed).

Then Nocera, Herb, and their friend Dan Colarusso, of the New York Post, sat on a famous panel at the Society of Business Editors and Writers. The panel’s stated mission was to defeat “business journalism bashers” – namely, Deep Capture reporter Patrick Byrne and Bob O’Brien, a.k.a. the “Easter Bunny,” a devastatingly effective blogger who had been writing about the media’s failure to cover the problem of phantom stock.

A Deep Capture ally snuck into Nocera’s panel and got it all on tape (see “The Story of Deep Capture” for the recording). Colarusso vowed to “crush” Patrick and the Easter Bunny with “barrels of ink.” Herb said that he wouldn’t write about phantom stock because it’s “not what I do” – even though a majority of the companies he had written about were phantom stock victims. Nocera, meanwhile, said that naked short-selling (phantom stock selling) “makes his eyes glaze over” and he “can’t be bothered” to cover it because “life is too short.”

Maybe so, but before and after that panel, Nocera wrote columns insisting that short-sellers do no wrong and phantom stock is not a problem – even though he had been presented with heaps of data proving otherwise. Nocera’s columns, widely circulated and praised by the Media Mob, contained no data and not a single reference to a credible source. One of his columns quoted, as an expert — Herb. Another column quoted the expert Roddy Boyd, then a reporter for the New York Post.

I know why Nocera quoted Roddy – Roddy’s a card-carrying member of the Media Mob who has worked closely with criminals doing dirty work for Cramer-affiliated short-sellers. (See “The Story of Deep Capture” for more on this.) Still, this was something amazing: the New York Times quoting a New York Post reporter as an expert! You’d think some editor somewhere would have wondered about this. (Roddy Boyd, now with Fortune, is, not incidentally, one of the few reporters still insisting that short-sellers of Bear Stearns and Lehman have done no wrong).

Last month, after we named Nocera in “The Story of Deep Capture,” Nocera wrote a column in which he was critical of Milberg Weiss, the law firm that was caught paying kickbacks to plaintiffs who filed bogus class-action lawsuits against public companies. He wrote, “I’ve long thought that [Milberg] ran a kind of extortion racket, filing class-action lawsuits against companies whose stock had dropped – without a shred of evidence that any wrongdoing had taken place – and then torturing them with legal motions until they settled.”

What Nocera did not mention (though we made it clear in “The Story of Deep Capture,” which Nocera had read) is that Milberg Weiss coordinated its attacks on public companies with short-selling hedge funds, skeezy “independent research” shops (most notably, Gradient Analytics) and Nocera’s media friends.

Indeed, a Gradient timesheet, obtained by Deep Capture, shows that while Gradient was allegedly colluding with Herb Greenberg, its employees were getting paid by the hour to work for Milberg Weiss. .

But Herb is a friend of Nocera, Gradient’s short-selling clients are friends of Herb – and well, you know how it works. These journalists don’t get their friends in trouble. Indeed, check their work – not one of them, in all their years, has ever identified, or even hinted at, a single instance of short-seller wrongdoing.

In his most recent article apologizing for the short-sellers who destroyed Bear Stearns, Nocera refers extensively to one of our favorite hedge fund managers, Jim Chanos, of the aptly named Kynikos (“Cynical,” in Greek) Partners. This is the fellow who provided a rent-free beach mansion to a hooker employed by Elliot Spitzer, who was Jim Cramer’s college roommate. Chanos is also the fellow who helped Bethany McLean of Fortune magazine break the Enron story, which partially explains why his media fans seem to believe he can do no wrong. Everything he says–including his reassurances that phantom stock doesn’t exist–is reported as fact.

So now, Nocera reports that Chanos believes that, in the case of Bear Stearns, there were no crimes committed by short-sellers. And, according to Nocera, Chanos “knows what he’s talking about. In the last days of Bear Stearns’ death spiral, a top executive called Mr. Chanos, who was not short the stock but had been a client for years. The executive pleaded with him to go on CNBC and tell the world that all was well at Bear Stearns…Mr. Chanos declined the request.”

This is at least partly false. Good sources tell us that Chanos was short Bear Stearns, though he may have already cashed out “in the last days” of the “death spiral.” As for that “top executive” at Bear Stearns, he seemed to be doing his job by asking people to vouch for his company. Surely, he has nothing to hide. Why does Nocera keep him anonymous? Did Nocera check to see if this person even existed? Well, anything’s possible.

In any case, it is entirely misleading to suggest, as Nocera does, that Chanos really believed that Bear Stearns was not a victim of rumor-mongers. In fact, Chanos believed that it was quite possible that hedge funds were circulating false information about Bear Stearns.

We know Chanos suspected as much because he said so at a recent conference of the Securities Industry and Financial Markets Association. Clearly trying to distance himself from this scandal, Chanos said, “I would urge our regulators at home to examine the sources of these [rumors], whether there’s evidence that people are trading on information they know to be false and inducing others to trade on information they know to be false, which is against the law and always has been…”

On CNBC, Jim Cramer is similarly insisting that illegal short-selling should be stopped. This is a far cry from a year ago, when he said the issue is the most “falsely overweighted topic on Wall Street,” and phantom stock selling is something that happens “very rarely.” Today, he said “hundreds” of companies have been affected, adding, preposterously, that he has long been on a “crusade to bring back honest short-selling.” Cramer, like Chanos, seems intent on distancing himself from the scandal that they helped cover up for the past three years.

Message to Media Mob: The rest of you should also start to distance yourself from this scandal. Do it quickly – before somebody exposes the enormous fraud that you have perpetrated on the American public.

For the complete, very long tale of how a clique of journalists helped cover-up a massive crime on Wall Street, see “The Story of Deep Capture.”

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This episode examines the state of the news media, and the apparent bias business writers have against stocks targeted by illegal naked short selling hedge funds.

As an example, I take a look at a specific instance of business journalists continually getting one key fact wrong in their reporting, and the unwillingness of the Wall Street Journal — even when confronted with the truth — to correct the error.

Click here to read the original WSJ story (as reprinted in the Seattle Times).

Also, a transcript of this episode is available here.

Theme music for the Deep Capture Podcast composed by Derek K. Miller.

Certain journalists and convicted criminals with ties to hedge funds have suggested that we at Deep Capture are crazy because we believe some short-sellers deliberately destroy public companies for profit.

Last night, JP Morgan CEO Jamie Dimon was interviewed by Charlie Rose.

Rose said, “[Bear Stearns CEO] Alan Schwartz is quoted as saying.. that he thought [the demise of Bear Stearns] was premeditated [by short-sellers].

Dimon responded: “I would say where there is smoke, there’s fire. If someone knowingly starts a rumor or passes on a rumor, they should go to jail…This is even worse than insider trading. This is deliberate and malicious destruction of value and people’s lives. They shouldn’t go to jail for a short period of time. So if I was the SEC I’d find out who made the money and I’d investigate–emails, phone records, you name it–and I’d find out….There’s enough smoke around that I think there should be a full investigation…”

So now the CEO of JP Morgan is crazy, too. So is former Bear Stearns CEO Alan Schwartz. Lehman Brothers CEO Richard Fuld said something similar, so he must be a crackpot. The SEC itself claims to have begun an investigation. They’re all nuts.

Anyway, permit us to suggest an easy way to get this investigation moving: Send a subpoena to CNBC reporter David Faber.

On March 13 and March 14, Faber told CNBC viewers that a hedge fund manager – “a friend” whom he “trusts” – told him that Goldman Sachs had refused to accept Bear Stearn’s credit. This information was false. It was a deliberate, malicious rumor delivered to a friendly journalist in order to destroy Bear Stearns.

Find out who Faber’s hedge fund friend is. Case solved.

This would not be the first time that Faber reported misinformation in service to a hedge fund friend. He used to do it for Jim Cramer, back before Cramer became CNBC’s leading “journalist” – back when Cramer was running his own hedge fund. A former employee of Cramer’s hedge fund has written a book, “Trading with the Enemy,” in which he describes Cramer feeding Faber tips and illegally trading ahead of Faber’s reports on CNBC.

It is no small coincidence that a clique of journalists connected to Cramer regularly write false or misleading hatchet jobs on companies targeted by short-sellers connected to Cramer. And it is no coincidence that these same hedge funds have deliberately and maliciously sought to destroy dozens of public companies and people’s lives by circulating rumors, issuing bogus “independent financial research,” clogging Internet message boards with false information, filing bogus class-action lawsuits, getting the SEC and other government agencies to conduct dead-end investigations, and hiring convicted felons to harass CEOs. (And that’s not all; see “The Story of Deep Capture” for the gory details.)

It is also worth noting that in almost all of the companies targeted by these people, somebody has sold massive amounts of phantom stock to further drive down prices. Two companies targeted by these people are Lehman Brothers and Bear Stearns. Both have been victimized by phantom stock sellers.

We’d say somebody should investigate this. But that would be crazy.

Let’s pick up “The Story of Deep Capture” where it left off – with the demise of Bear Stearns and the near collapse of the American financial system.

It’s April 2, 2008, and CNBC reporter Charlie Gasparino has just reported that Lehman Brothers CEO Richard Fuld claims to have evidence that short-sellers, who profit from falling stock prices, actively colluded to bring down Bear Stearns.

Indeed, the SEC is already investigating precisely this possibility. The regulator has said that it would like to know whether short-sellers circulated false rumors about Bear Stearns’ liquidity and credit risk in order to spark a run on the bank. And it has announced that it is investigating allegations that hedge funds engaged in “naked short selling” to drive down Bear Stearns’ stock. This isn’t surprising considering that SEC numbers show, for example, that in the week of Bear Stearns’ destruction, up to 13 million of its shares were shorted naked – ie. sold and not yet delivered. That’s 13 million shares of phantom stock — and most experts assume there was much more of it, perhaps 100 millions fake shares, in parts of the system that the SEC doesn’t monitor.

Live on CNBC with Gasparino is reporter Herb Greenberg. Herb is a dishonest journalist. He has quite literally made a career out of taking dictation from a small group of closely affiliated short-selling hedge funds. Virtually every story he has ever written or broadcast has come from these people. He protects his hedge fund friends by repeatedly denying that phantom stock is a problem. And a former employee of a financial research shop called Gradient Analytics claims to have witnessed Herb conspiring with at least one short-seller, David Rocker, to hold his negative stories until Rocker could establish short positions. This is called front-running — a jailable offense.

CNBC is not concerned about this. Nor is it concerned that, in addition to his duties as a “journalist,” Herb is now also running his own financial research shop that caters to short-sellers. Yes, after years of denying that he has too-cozy relationships with short-sellers, Herb is now seeking to profit from those very relationships. His new company’s slogan is “bridging financial journalism and forensic analysis.” Anybody who believes that media and money don’t mix should be appalled.

Anyway, it is unsurprising that Herb is live on CNBC reporting that short-sellers had nothing to do with the demise of Bear Stearns. Instead, Herb says, Bear Stearns was taken down by a “crisis of confidence.” Could short-sellers have caused the “crisis of confidence?” Herb thinks not.

Herb says, “….if you take a look at [fellow CNBC reporter] David Faber’s reporting which was very interesting…”

* * * * * * * *

Good idea, Herb. Let us take a look at David Faber’s reporting. It was not just interesting. It was jaw-dropping – an utterly grotesque display of journalistic malfeasance.

Indeed, Faber’s reporting probably contributed a great deal to the precipitous collapse of Bear Stearns – an event so potentially calamitous that the Federal Reserve had to meddle in the investment banking sector for the first time since the great stock market crash of 1929.

On Tuesday, March 11, rumors were circulating around Wall Street that Bear Stearns was out of cash and that other banks were no longer accepting its credit risk. If anybody were to think these rumors were true, there would be panic – a run on the bank. If the rumors were false, as they quite demonstrably were, it was the job of the media to quash them.

CNBC’s Charlie Gasparino did his job. On that afternoon, he noted that there were “serious doubts” about Bear Stearns business model. He said that Bear Stearns was a “mediocre bank.” But he also noted that the rumors on Wall Street were suggesting something far worse –imminent bankruptcy–and that there was not a scrap of evidence suggesting that these rumors were true.

Gasparino quoted Bear Stearns CFO Sam Malinaro as saying “Why is this happening? I don’t know how to characterize it. If I knew why this was happening I would do something to address it. I spent all day trying to track down the sources of the rumors, but they are false. There is no liquidity crisis, no margin calls. It’s all nonsense.”

Gasparino stressed that there was no reason to doubt Bear Stearns’ claims. “I know Sam Malinaro pretty well,” he said. “He’s one of the best straight shooters in the markets.”

If Gasparino had stayed on the case, the uncertainty surrounding Bear Stearns’ liquidity and credit risk might have subsided, and the bank might have survived. But the next day, for some reason, Gasparino was taken off the Bear Stearns story, and David Faber took over.

A few rumors – even doctored memos falsely claiming that big banks had refused to accept Bear’s credit — were still circulating around Wall Street. Early that morning — Wednesday, March 12 — Faber interviewed Bear Stearns’ CEO, Alan Schwartz.

Actually, it was more like a prison interrogation than an interview. Faber demanded that Schwartz explain the rumors. Schwartz said the rumors were not true. Quite in contrast to Gasparino, Faber made it clear from his tone that viewers shouldn’t trust Bear’s executives.

Then Faber delivered this whopper: “…I’m told by a hedge fund that I know well…I’m told that [last night] Goldman would not accept the counterparty risk of Bear Stearns.”

Bang! The beginning of the end.

Understand how important this is. Previously, most people assumed that the rumors about Bear’s access to leverage were nothing more than…rumors. No reporter had suggested otherwise.

Now, for the first time – live on CNBC, in the middle of a mission-critical interview with Bear’s CEO — a prominent journalist was reporting that the rumors were true. He stated — as if it were fact — that Goldman Sachs, one of the biggest investment banks in the world, had refused to take Bear Stearns’ credit.

Faber was generous enough to note that this information came from a hedge fund “friend,” and it wouldn’t take a genius to see that this hedge fund “friend” was probably some skeezy short-seller of Bear Stearns’ stock – but still, Faber’s comment was nuclear explosive.

Soon after Faber’s comment, Schwartz is about to provide details proving that Bear Stearns is not at all illiquid – that it has ample cash (and is therefore hardly a credit risk). He says: “…none of the speculations are true, but….”

Just then, a woman’s voice interrupts: “I’m sorry! I’m sorry!”

What? Can this possibly be happening? The CEO of a giant investment bank is about to provide evidence that the bank is not insolvent – that the American financial system is therefore not on the brink of collapse. This is perhaps the most important financial news moment of the past ten years, and now CNBC has cut off the CEO in mid-sentence!

“I’m sorry,” the CNBC woman says. “David, I’m sorry breaking news, I just want you to know that we have New York state officials confirming that New York governor Elliot Spitzer will resign today. Formal resignation, we don’t have it, but it is now confirmed that the governor of New York will resign today.”

“Thanks for that not unexpected news,” says David Faber.

This was probably straight-forward idiocy – nothing more sinister than that. But you’d think CNBC could have waited a few minutes for this “not unexpected” news. And anybody with a healthy sense of irony might chuckle and point out that Jim Cramer, the former hedge fund manager who is now CNBC’s top-rated personality and basically runs the place, was Elliot Spitzer’s best friend and college roommate. The irony is all the richer when you consider that Elliot Spitzer’s career was built almost entirely on the funding and machinations of a small group of short selling hedge fund managers – including Dan Loeb, David Einhorn, and Jim Chanos (owner of the beach house where Spitzer’s favorite hooker lived rent free), and that these very same hedge fund managers are the ones who are quite aggressively attacking Bear Stearns.

Schwartz looked mighty pissed off. After the interruption, he tried to continue: “We put out a statement that our liquidity and balance sheet are strong. Maybe I should expand on that a little bit…”

“Well, yeah,” Faber interrupts. “Why don’t you.”

The reporter’s tone again suggests that the CEO is not to be trusted. Tone aside, Faber doesn’t let Schwartz answer. Instead, he launches into a long and completely irrelevant monologue about the markets generally being in bad shape.

“Well, the markets have certainly gotten worse,” says Schwartz, clearly baffled by all of this.

Then, finally, the CEO manages to provide the salient information – the information that Bear Stearns customers and traders around the world have been waiting to hear. He says, “Our balance sheet has not changed at all. So let me just talk about that for a second….When we finished the year we reported that we had $17 billion of cash sitting at the parent company as a liquidity cushion…Since year end, that liquidity cushion has virtually been unchanged. So we still have many many billions of excess cash…we don’t see any pressure on our liquidity let alone a liquidity crisis.”

That certainly should have calmed the waters. There was no evidence that Schwartz was being disingenuous about having that $17 billion. Bear Stearns might have been the crappiest bank on Wall Street, but as long as customers knew that Bear Stearns had that $17 billion in cash, there was unlikely to be a run on the bank.

Unless, that is, a “reputable” media source was to suggest that, say, Goldman Sachs, had cut off credit.

Astonishingly, in the ensuing 24 hours, CNBC never once repeats the news that Bear Stearns has $17 billion in cash. And though it repeatedly references the interview with Schwartz, the network does not once replay the CEO’s strongest comment: “We don’t see any pressure on our liquidity, let alone a liquidity crisis.”

But Faber does repeat the startling “news” about Goldman.

At 8:48 AM on Wednesday, he says, “There are a lot of concerns out there…about counterparty risk. Frankly, I’ve been hearing from people whom I trust that there are some firms out there unwilling to put on new – new — counterparty risk with Bear Stearns…You had it at Goldman…Goldman said no we’re not taking Bear’s counterparty risk – this was yesterday.”

The hedge fund manager whom Faber “trusts” was lying. Goldman was not turning down Bear’s credit. We know this because some minutes later in the broadcast, Faber says so. He says it very quickly, just as an aside, as if it doesn’t matter at all. He says, by the way, “I have heard that that trade did actually go through—Goldman did say alright, now we will accept Bear as a counterparty.”

So Faber has just admitted, in an off-handed kind of way, that he was lied to by the hedge fund he “trusts.” In other words, up until this point, there is no evidence at all that rumors being circulated by hedge funds have any merit whatsoever.

Despite this, Faber proceeds to unleash this gobbledygook: “At the end of the day, while they say over and over they have plenty of liquidity, and in fact they may, it all comes down to confidence. They need to have access to capital, access to leverage. Otherwise, they’re dead! And it can happen very quickly.”

With this, Faber looks at his computer, and says, “Let’s see where the stock is.” Then he declares with glee: “Oops! It’s down!”

So now Faber has just pronounced that Bear Stearns might be “dead!” Why might Bear Stearns be “dead?” Because, Faber says, Bear needs “access to capital” – this in the same sentence where he says “in fact they may” have plenty of liquidity (ie. access to capital). Perhaps by “may” he meant to suggest that Bear “may not” have access to capital. Either way, he carefully omits the fact that the bank has told him it has $17 billion in cash.

The other reason Bear is “dead” is because it needs “access to leverage.” Is there any evidence that it does not have access to leverage? So far, there is none other than the Goldman news, which Faber has just admitted to be a complete fabrication delivered to him by a hedge fund “friend” whom he “trusts.”

Meanwhile, in an effort to send Bear Stearns’ share price spiraling downward, hedge funds are selling tens of millions of dollars worth of phantom stock. SEC data shows that more than 1.2 million shares sold that Wednesday were not delivered on time.

It only gets worse. The next morning — Thursday, March 13 — there is still no evidence that anybody is turning away Bear’s credit or pulling out money. CNBC still has yet to repeat the all important $17 billion figure. And now, Faber is back on television, fanning the flames, and repeating the bogus Goldman news.

He says, “I talked [yesterday] about a particular trade I was aware of where Goldman Sachs did not want to stand up as a counterparty and face Bear on new counterparty risk.”

Yes, David, you did talk about Goldman – and you admitted that your information was false. Why are you repeating this?

In a stuttering attempt to explain himself, Faber says to his television audience, “Now ultimately that trade did take place [ie. Goldman did accept Bear’s credit] after my interview with Mr. Schwartz concluded, but the day prior, Goldman did not want to. I have incontrovertible proof of that.”

Right. Whatever. The SEC should subpoena Faber to find out which market-manipulating hedge fund fed him the false information about Goldman.

Of course, if the SEC were to do this, the Media Mob would go berserk and start waving the First Amendment right to protect hedge funds who take down public companies by feeding journalists false information. Remember that the SEC once tried to subpoena Herb Greenberg and Jim Cramer, only to back down after Cramer vandalized his government subpoena live on CNBC and a bunch of Herb and Cramer’s media pals rose up in their defense.

But enough of this, already. These journalists are not protecting whistleblowers or freedom of speech. These journalists cannot even properly be called “journalists.” They are, or at least aspire to be, market players. They are helping slippery hedge fund managers who are destroying public companies for profit, and putting the American financial system at risk. I’m all for real reporters standing up to federal agencies, but these “journalists” are special cases. The SEC should not allow itself to be intimidated by them.

Alas, it’s too late for Bear Stearns. On the morning of March 13, there was still no evidence that anybody had pulled money out of Bear Stearns or denied its credit, but after repeating the Goldman falsehood, Faber reported: “I remember when Drexel Burnham went down [the smarmy inference being that Bear Stearns is a crooked company similar to Drexel]…It happens fast, very fast. It happens because those who do business with a firm such as that [read: `a crooked firm’] lose confidence.”

“And when they lose confidence,” Faber continued, “they pull their lines, and that’s it. It’s done. Pack your bags. Go home. It can end in an hour.”

About an hour later, a hedge fund called Renaissance Technologies Corp., shifted $5 billion out of Bear Stearns. That was the first client to “pull its lines.” Many others followed suit.

With Faber blowing taps, panic ensued.

And by that evening, Bear was, indeed, “dead.”

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This episode includes clips of Patrick Byrne’s recent interview on the Terry Gilberg radio talk show, in addition to a brief look at the role of stock message board “bashers” in the manipulation process. This, in turn, leads to an interesting look at shocking irony surrounding the recent destruction of Bear Stearns at the hands of illegal naked short selling hedge funds.

You can learn more about contract stock message board basher Yolanda Holtzee here.

Finally, rock star attorney Wes Christian comments on this week’s filing of a lawsuit by shareholders of Taser International against several broker-dealers thought to be complicit in the long-running manipulation of Taser’s stock.

Subscribe to the Deep Capture podcast series via RSS feed!

Theme music for the Deep Capture Podcast composed by Derek K. Miller.

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In this episode, I demonstrate the existence of illegal short side stock market manipulation, and point to recent events as evidence that those responsible for this form of fraud will shortly taste some long-delayed justice.

Market Reform proponent Patrick Byrne also offers commentary.

Subscribe to the Deep Capture podcast via our RSS feed!

Theme music composed by Derek K. Miller: a musical genius, a great guy, and a soon-to-be (I pray) cancer survivor.