Around 10 years ago a small number of citizen activists began identifying SAC Capital as being a central player in a “network” of hedge funds that engaged in all manner of dubious practices.

The media ignored the citizen activists.

In 2005, Patrick Byrne, then CEO of internet retailer Overstock.com (and future reporter for  DeepCapture.com) gave a famous conference call titled “The Miscreants Ball” in which he sought to expose a “network” of miscreant hedge funds. Soon after, Patrick identified SAC Capital as being the central player in that miscreant network.

The media ridiculed Patrick.

In 2007, DeepCapture was founded, and in May 2008, we published “The Story of Deep Capture” to tell the story of how DeepCapture came into being and to expose a pack of prominent journalists who seemed to be doing the bidding for (i.e. they were “captured” by) a “network” of miscreant hedge funds, including SAC Capital.

Since then, DeepCapture has published numerous stories exposing various misdeeds that have been perpetrated by these journalists and hedge funds, including SAC Capital. Some of the journalists ignored us. Some of them ridiculed us. Some of them, such as the eminently corrupt Gary Weiss, ridiculed us and fought us at the same time.

Gandhi said: “First they ignore you, then they ridicule you, then they fight you, then you win.

Then the news broke (this week) that SAC founder Steve Cohen has received a subpoena to appear before a grand jury, possibly a prelude to an indictment of Cohen and/or his hedge fund. In addition, the media has reported that SAC Capital is the main target of the largest insider trading investigation in FBI history, and the media has even reported (at long last and accurately) that SAC Capital is part of a larger “network” of financial operators and hedge funds involved in insider trading. So, apparently, we win.

But we have not won.

We will not have won until the day when the media reports that SAC Capital and other hedge funds in its “network” are involved in activities that are more damaging to the markets than mere insider trading. For example, some of the creditors to Lehman Brothers have sued SAC Capital and two other hedge funds for allegedly perpetrating manipulative short selling that triggered the 2008 death spiral in the stock price of Lehman Brothers and the resulting collapse of that bank.

You will recall that the collapse of Lehman Brothers brought the global financial system to the brink of apocalyptic ruin.

It is not clear what the status of that lawsuit is, so we cannot yet say with certainty that SAC Capital was the culprit behind the manipulative short selling that contributed (as even the SEC noted in 2008 “Emergency Order”) to the collapse of Lehman, but there is little doubt that hedge funds in the “network” have schemed to destroy other important companies. Have a read, for example, of the following email.

= = = = =Begin Message= = = = =

Message # : 727

Message Sent: 02/22/2006 08:57:48

From: AHELLER3@bloomberg.net|ANDY HELLER|EXIS CAPITAL MANAGEM

To: JONKALIKOW@bloomberg.net|JONATHAN KALIKOW|STANFIELD CAPITAL

Subject: CNBC – FAIRFAX

Reply:

He did this one time before, and the stock went down 3 on the open, then closed up 1. the way to get this thing down is to get them where they eat, like the credit analysts and holders. we’re taking this baby down for the count. ads and I are going to toronto in 2 weeks for a group lunch. J

= = = = =End Message= = = = =

That email was authored by a top employee of Exis Capital, which is an offshoot of SAC Capital, and as you can see, it concerns a conspiracy to take “this baby down for the count.” The “ads” to attend the “group lunch” was former SAC trader Adam D. Sender, head of Exis. The “baby” to be taken “down for the count” (unsuccessfully, in the end) was Fairfax Financial, a major, publicly listed insurance and financial firm.

The emails were acquired through discovery in Fairfax’s lawsuit against a group of hedge funds, one of which was SAC Capital. Although SAC Capital was ultimately dropped from the lawsuit, SAC’s satellite funds (including Exis and an outfit called Sigma Capital) were not dropped from the suit, which is ongoing. And the discovery from that lawsuit has produced additional evidence of shenanigans at SAC Capital. See, for example, DeepCapture stories “Hedge Funds Reading Tomorrow’s Headlines Today,” and “Hedge Funds Scurry…”

It is important for the media to begin paying attention to SAC Capital’s more egregious behavior because far too many people believe that SAC has done no worse than engage in a bit of insider trading, and a lot of people regard insider trading as nothing worse than “good research.” In addition, failing to tell the full story ensures that history will repeat.

Back in 1991, when Michael Milken was sentenced to prison, the media reported that Milken’s principal crime was insider trading when, in fact, he and others in his “network” had also “busted out” (i.e. looted and destroyed) multiple savings and loan banks, some of them among the most important financial institutions in the nation. Those “bust-outs” contributed to the savings and loan crisis that began in the late 1980s, and which ultimately cost American tax-payers billions of dollars in bailouts—a portent of bigger and better things to come.

This is Part 3 of an ongoing series.

Read Part 1

Read Part 2

A few years ago, a clique of influential journalists went to extraordinary lengths to cover up the problem of illegal short selling. In the face of indisputable data and evidence, the journalists insisted, over and over, that “naked” short selling (hedge funds manipulating stock prices by flooding the market with phantom stock) rarely occurred. And they said short sellers (who profit from falling stock prices) don’t set out to destroy public companies.

Moreover, if a person were to criticize illegal short selling, the reporters would smear that person’s reputation with a savagery that was almost without parallel in contemporary journalism.

At the time, these journalists were working at major news organizations like The Wall Street Journal, The New York Times, and CNBC, but most shared a common history: they had been founding editors or top employees of TheStreet.com, a financial news website. The few who had not worked for TheStreet.com were close colleagues of TheStreet.com’s owner, Jim Cramer, who is best known as the eccentric host of CNBC’s “Mad Money” program.

Having studied more than 1,000 stories by these journalists, I can assure the reader that nearly every one of them was sourced from a tight network of hedge fund managers, and that a great many of the stories were false or misleading. Moreover, most of the people in this network (including Jim Cramer himself) are tied in important ways to two famous criminals from the 1980s – Ivan Boesky and “junk bond king” Michael Milken.

And though I realize that is hard for some people to absorb this, I will continue to provide evidence that a surprising number of the “prominent investors” in this network have had dealings with associates of organized crime – the Mafia.

* * * * * * * *

Last spring, we published “The Story of Deep Capture,” which sought to explain the origins of the Deep Capture website (mission: “to bypass the ‘captured’ institutions mediating our nation’s discourse”) by way of exposing the machinations of the Cramer clique of journalists and their short selling sources.

One day after we published our story, Cramer had some kind of awakening. Whereas he had previously sought to whitewash short seller crimes, he now suddenly repeated our assertion that illegal short selling was a big problem – the same problem that precipitated the great stock market crash of 1929.

A few months later, abusive short selling was implicated by U.S. Senators, CEOs of major banks, the U.S. Chamber of Commerce, respected academics, prominent law firms, current and past chairmen of the Securities and Exchange Commission, and then-Treasury Secretary Hank Paulson in the near total collapse of our financial system.

Nowadays, Cramer is even more adamant. He says he knows a lot of short sellers. He says that short sellers are destroying public companies. He says they crushed the markets and they’re going to crush America too.

These short sellers, Cramer hollers, are downright “diabolical.”

* * * * * * * *

If you have not done so, please read Deep Capture reporter Patrick Byrne’s primer on naked short selling. Please read “The Story of Deep Capture.”

Think about what Cramer has said.

And then have a look at the following email.

= = = = =Begin Message= = = = =

Message # : 727

Message Sent: 02/22/2006 08:57:48

From: AHELLER3@bloomberg.net|ANDY HELLER|EXIS CAPITAL MANAGEM

To: JONKALIKOW@bloomberg.net|JONATHAN KALIKOW|STANFIELD CAPITAL

Subject: CNBC – FAIRFAX

Reply:

He did this one time before, and the stock went down 3 on the open, then closed up 1. the way to get this thing down is to get them where they eat, like the credit analysts and holders. we’re taking this baby down for the count. ads and I are going to toronto in 2 weeks for a group lunch. J

= = = = =End Message= = = = =

* * * * * * * *

That email was authored by a top employee of Exis Capital, which is an offshoot of SAC Capital — said by some to be the most powerful hedge fund on Wall Street. We can’t be certain who, aside from the email’s author and “ads” (Adam D. Sender, head of Exis), attended that “group lunch.” But from other emails we know that a particular “group” of hedge fund managers did, indeed, intend to take “this baby down for the count.”

The “baby” was Fairfax Financial, a major, publicly listed insurance and financial firm.

The above email (acquired through discovery in Fairfax’s lawsuit against some members of the “group”) makes reference in the first line to journalist Herb Greenberg, who bashed Fairfax on CNBC, apparently causing the stock to go “down 3 on the open.” Other emails in our collection (we’ll publish a couple more of them) suggest that Herb’s reporting involved nothing more than contacting the “group” to find out what he was supposed to say.

* * * * * * * *

Herb took Fairfax “down 3 at the open” in February 2006, right at the time that Herb, a founding editor of TheStreet.com, received a subpoena from the Securities and Exchange Commission. TheStreet.com also got a subpoena. So did Jim Cramer, the owner of TheStreet.com. Short seller David Rocker, a member of the “group” and then the largest outside shareholder of TheStreet.com, got a subpoena too.

At the time, the commission had opened a formal investigation into Gradient Analytics, a financial research firm that stood accused by multiple former employees of manufacturing false “independent” research reports in cahoots with short sellers (namely, the “group”) and letting the short sellers trade ahead of the reports’ publication.

The “group” – which also included “prominent investor” Jim Chanos of Kynikos Associates – had a similar scam going with “independent research” firm Morgan Keegan. Deep Capture reporter Judd Bagley broke that story more than a month ago. Bloomberg News, which seems to be the only major media outfit willing to write critically about these “prominent investors,” picked the story up last week.

The Wall Street Journal published a major, front-page article that exposed the dubious tactics that Jim Chanos and affiliated short sellers used to demolish public companies.

But that article was published more than twenty years ago — in 1985.

Since then, the Journal has not published a single negative story about Chanos and his friends. It has not published a single investigative story about abusive short selling.

When David Kansas, a founding editor of TheStreet.com, was running The Wall Street Journal “Money & Investing” section, that part of the paper served as little more than a mouthpiece for Rocker, Cohen, Chanos and affiliated “prominent investors.”

But last week, even The Wall Street Journal had to acknowledge that Chanos is now the target of an SEC investigation.

* * * * * * * *

When the SEC issued subpoenas in the Gradient investigation, one former Gradient employee provided a sworn affidavit stating that Herb Greenberg held his negative stories so that David Rocker could establish short positions that would make money when Herb’s stories caused stocks to do such things as go “down 3 at the open.”

At the time, Jon Markman, a founding editor of TheStreet.com and later managing editor of MSN Money was running a hedge fund out of Gradient’s back office. Former Gradient employees said that Markman was also trading ahead of Herb’s negative stories and Gradient’s false negative information. If true, this would likely be illegal.

But SEC officials say that the investigation in February 2006 was aimed at bigger prey than just Gradient and a few journalists. The commission was aware that some “prominent investors” were, in the words of our email author, taking companies “down for the count.” Good people at the SEC (the rank and file) hoped to put a stop to this.

But when the subpoenas were issued, Herb, Cramer and others in their media clique went berserk. They said journalists don’t have special relationships with short sellers. They said short sellers don’t destroy companies. Cramer famously vandalized his government subpoena – live on CNBC.

Under this “media” pressure, the SEC chairman announced that it would not enforce the subpoenas. Later, the SEC dropped its investigation altogether.

In an interview with Bloomberg News about the decision not to enforce the subpoenas, SEC attorney Kathleen Bisaccia said this: “To have the chairman publicly slap us in the face for doing our jobs – that really crushed the spirit of a lot of people for a long time.”

Indeed, former SEC officials say that this was a pivotal moment in SEC history. With morale sapped, the commission all but ceased to function.

Certainly, it did not stop the short sellers who would soon begin efforts to take some of Wall Street’s biggest financial institutions “down for the count.”

* * * * * * * *

Herb Greenberg, the journalist who took Fairfax “down 3 at the open,” and who was alleged to have allowed at least one short seller in the “group” to trade ahead of his stories, now runs an “independent” financial research firm that advertises itself as “bridging financial journalism and forensic analysis.”

We believe that Herb receives the bulk of his income from the above-mentioned “group” and affiliated “prominent investors.”

* * * * * * * *

From the above email it is evident that in addition to working with corrupt journalists, the “group” sought to destroy Fairfax Financial by getting “them where they eat.” That is, the hedge funds sought to “take this baby down for the count” by cutting off the company’s access to capital.

Sometimes “prominent investors” will merely dish dirt to a company’s lenders. Other times, the schemes are more complicated, with investors in their network actually financing the company. This gives them access to inside information and (in the case of convertible debentures) to stock that can be lent to affiliated short sellers.

In other cases, “prominent investors” will buy the company’s debt, package it into “collateralized debt obligations” (financial weapons of mass destruction that were pioneered by Michael Milken’s team at Drexel Burnham Lambert), and then trade it in such a way as to make it seem as if the company is in trouble.

When the time is right, the “prominent investors” fob off the debt to some witless or compliant pension fund. Then they tell people that they’re no longer financing the company – the company’s been “cut off.”

Meanwhile, the company will be subjected to unbridled “naked” short selling – hedge funds illegally selling stock that they do not actually possess (phantom stock) to manipulate down the share price. (By way of example: when the above email was written, SEC data showed that millions of phantom Fairfax shares had been “failing to deliver” on a daily basis.

What usually happens is that legitimate lenders see the plummeting stock price. They see a supposed “financial partner” yanking credit. They see the negative media. They see the debt trading at disturbing prices. They have short sellers feeding them horrible news about the company.

The legitimate lenders know the news is false. They know the company is credit worthy. But the negativity itself becomes a liability. The falling stock price is a liability. The legitimate lenders get worried. They raise their cost of capital, or cut if off altogether.

And so the “baby” goes “down for the count.”

* * * * * * * *

Fairfax survived this onslaught. Other companies were not so lucky.

Last year, Bear Stearns, Lehman Brothers, and dozens of other companies all went bust in a similar pattern — waves of naked short selling slightly preceding false stories planted in the media and then, suddenly, a financial “partner” cutting off a source of capital.

That is, short sellers got these companies “where they eat.”

Did the short sellers “cause” these companies to collapse? If a sniper shoots at a man who is swimming in a dangerous ocean current, and the man drowns, we cannot say for sure that the sniper “caused” the man’s death. But we can say that shooting at struggling swimmers is a crime.

Which short sellers committed the crimes? Only the SEC and the FBI can tell us for sure.

But we know which “group” attacked Fairfax Financial. We know that this same “group” and affiliated “prominent investors” attacked the big financial companies that collapsed last year. And we know that the people in this “group” are not passive investors.

Rather, when they attack a “baby,” they seek to take it “down for the count.”

Given that the collapse of the financial companies caused an economic catastrophe that will wipe out the jobs and savings accounts of millions of Americans, it seems that the “group” and affiliated “prominent investors” warrant further attention.

* * * * * * * *

One “prominent investor” is Adam Sender, proprietor of Exis Capital, the hedge fund that employs the author of the above email. As you will recall, Exis is an offshoot of SAC Capital, which is managed by Steve Cohen – described by BusinessWeek magazine as “the most powerful trader on the Street.”

As I noted in my previous piece, a former Mafia soldier turned private investigator offered to have one of Sender’s business partners buried in the Nevada desert. Sender claims to have declined this offer, but an FBI recording (hear it again here) suggests that Sender paid more than $200,000 to that former Mafia soldier and that Sender intended to “fix” his business partner and somehow bring about a “doomsday.”

Sender also hired a thug named Spyro Contogouris to harass and threaten executives of Fairfax Financial – part of the “group” effort to take that “baby down for the count.” In upcoming stories, I will publish some of Spyro’s shocking emails. In one, he told an FBI agent that somebody was threatening his life. He claimed that it was lawyers working for Fairfax Financial.

But that claim seems somewhat absurd. Fairfax Financial is a Canadian insurance company run by a mild-mannered immigrant from India named Prem Watsa, who is known as “the Warren Buffett of Canada.”

Given that Spyro wrote his email shortly before he was arrested by the FBI agent, and given that this FBI agent was investigating the “group,” it is possible that Spyro either made up the story to solicit sympathy, or the “group” was threatening Spyro’s life to prevent him from testifying.

Either way, it says something about the state of the American media that this intrigue, involving a major financial firm and some of the nation’s most “prominent investors,” is not front page news.

* * * * * * * *

The recipient of the email promising to take Fairfax “down for the count” was Jonathan Kalikow of Stanfield Capital, a hedge fund specialized in the trading of collateralized debt obligations.

Jonathan is a member of the mighty Kalikow family. The patriarch of this family is “prominent investor” Peter Kalikow, who was one of the largest financial backers of the stock manipulation firm run by Ivan Boesky, the famous criminal from the 1980s.

But Peter Kalikow is perhaps best known as the former owner of The New York Post.

When Kalikow owned the Post, the newspaper’s fleet of delivery trucks was handed over to members of New York’s five organized crime families. With Bonanno Mafia soldier Richard “Shellack-head” Cantarella presiding over the delivery bay, guns and drugs were loaded into the Post’s newspaper trucks and transported throughout the city.

Indeed, the New York Post became one of La Cosa Nostra’s principal smuggling operations.

* * * * * * * *

The other members of the “group” — David Rocker, Steve Cohen of SAC Capital, Jim Chanos of Kynikos Associates, and Dan Loeb of Third Point – have been discussed at length on this website. In upcoming installments, I will tell you more about them and others in their network.

They are all “prominent investors.”

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, a 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. Email: mitch0033@gmail.com

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

1) email it to a dozen friends;

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

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.

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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:

1) email it to a dozen friends;

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

Among the disturbing facts contained in the recently unsealed documents obtained via discovery in the Fairfax Financial (NYSE:FFH) vs. SAC Capital, et al, lawsuit are the lengths to which short-selling hedge funds go to attack the leadership of the companies they’ve designated for destruction.

In the case of Fairfax, when the work of corrupt Morgan Keegan stock analyst John Gwynn and thestreet.com columnist Peter Eavis failed to get the job done, a “real” expert was called in; namely: Spyro Contogouris of MI4 Reconnaissance.

Contogouris and MI4 employee Max Bernstein were hired by Exis Capital Management, among the smaller of the half-dozen hedge funds comprising the “Enterprise” targeting Fairfax, in early 2005. Their primary mission was to gain access to material non-public information from sources in and around Fairfax. Their secondary mission seems to have been harassment of Fairfax executives, both public and private.

This effort got off to an impressive start, in the form of a 30-page document anonymously sent by Bernstein to Rev. Barry Parker, head of the Toronto church attended by Fairfax CEO Prem Watsa. The gist of Bernstein’s package was as follows: Prem Watsa bears a striking resemblance to a convicted swindler named Marty Frankel, and even if Watsa is not Frankel, Rev. Parker should beware and call Watsa to repentance for Fairfax Financial’s accounting.

In December of 2005, Contogouris and Bernstein created premwatsa.com, an attack site. In one exchange of instant messages, the two discuss how to use posts planted on stock message boards to build traffic to the site, and blithely speculate as to how Watsa and other Fairfax officers will react upon discovering it.

Meanwhile, Contogouris created a document, since discredited, dubbed “Fairfax Fraud Facts”, which he circulated broadly among journalists and analysts. This document sparked substantial negative coverage of Fairfax.

It was possibly in this context that, in an undated instant messenger exchange, Andrew Heller, manager of Exis Capital, told Bernstein: “tell spyro, bloomberg was taken care of, and he will receive payment.”

I contacted Heller, seeking context to clarify this potentially significant tidbit, but he refused to comment, citing the ongoing nature of the Fairfax lawsuit. The only thing of any substance Heller would say was that his hedge fund remains “up net 15% on the year.”

Congratulations, Mr. Heller.

MI4’s effort to secure inside information ramped up significantly in May of 2006.

On the 29th of that month, MI4 created the following “Intelligence Profile” on an officer of Fairfax (whose name is redacted):

On May 31st, Contogouris, posing as a reporter, gained access to the back offices of that Advent Group, a Fairfax subsidiary in London, trolling for potential insiders to act as sources.

The next day, Contogouris personally delivered a package to Advent Group CFO Trevor Ambridge, asking that Ambridge provide inside information or risk criminal prosecution.

From his emails, one gets the impression that this is the sort of thing Contogouris quite relishes. However, presently things would take a rough turn for the self-styled corporate spy.

The first blow came six weeks later, when Fairfax named Contogouris in the lawsuit that led to the document production that led to this post.

The second, more severe blow came in November of 2006, when Contogouris was arrested by the FBI, charged (and subsequently indicted) with engaging in an unrelated multi-million-dollar real estate fraud.

While this came as a surprise to many, seasoned observers might have predicted something negative was about to happen to Contogouris when, in late September of 2006, apropos of nothing, Rocker Partners order-taker and former New York Post business writer Roddy Boyd, wrote FBI’S SECRET SOURCE, claiming:

“An FBI spokeswoman confirmed to The Post that Spyro Contogouris, who analyzes companies’ balance sheets, was deputized by the FBI in June to approach Fairfax’s former chief financial officer, Trevor Ambridge, as part of an investigation into the insurance company’s accounting and stock trading.”

It’s worth noting that none of the other writers following up on Boyd’s story — myself included — managed to get FBI confirmation of the supposed “deputy” status bestowed upon Contogouris.

In fact, the United States Senate Judiciary Committee found Boyd’s claim sufficiently strange to specifically ask FBI Director Robert Mueller about it, three weeks after Contogouris was arrested. Mueller’s response (see pages 70 and 71) was simple:

“The FBI does not “deputize” members of the general public.”

So what was motivating Boyd and Contogouris?

For Boyd’s part, that’s simple: as is revealed in documents unsealed in the Fairfax case reveal, (documents which I will be examining here shortly), Roddy writes what certain short-selling hedge funds tell him to write.

As for Contogouris, I suspect that, aware of the trouble looming on the real estate front, he made contact with the FBI as a “confidential informant” (something you or I could do at any time) seeking to ingratiate himself with that agency, possibly earning what he expected would be some form of immunity from other prosecution in the process. Then, fearing that despite these efforts his arrest was imminent, Contogouris used his hedge fund contacts to plant the story with Boyd, hoping the feds would be too embarrassed to nab someone they apparently trusted enough to “deputize”.

Four months after his arrest, the story of Spyro Contogouris and Fairfax was examined at length by another high profile business writer, who practically tied herself in a knot attempting to distance Contogouris from Fairfax’s attackers while simultaneously lending credibility to his work.

The author of that piece was none other than Bethany McLean.

To quote my friend Patrick Byrne: “If only there were a pattern.”

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

1) email it to a dozen friends;

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