Tag Archive | "Gradient Analytics"

The stories behind the Rocker and Gradient lawsuit story

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The stories behind the Rocker and Gradient lawsuit story


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

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

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

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

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

 

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 6 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 6 of 15)



What follows is PART 6 of a 15-PART series. The remaining installments will appear on Deep Capture in the coming days, after which point the story will be published in its entirety.

Click here to read PART 1

Click here to read PART 2

Click here to read PART 3

Click here to read PART 4

Click here to read PART 5

Where we left off, we had learned that CNBC’s Jim Cramer had declared Dendreon to be a “battleground stock.” And we had learned that Dendreon subsequently came under attack by criminal naked short sellers, right at the time that its promising treatment for prostate cancer had been endorsed by an FDA expert advisory panel, and right before that treatment was to be derailed by some strange occurrences.

While it is impossible to know who was responsible for the illegal naked short selling (the SEC keeps that a big secret), we know that the people who orchestrated those strange occurrences (which I will describe in due course) and at least seven of the ten hedge fund managers who held large numbers of Dendreon put options (bets against the company) are tied to Michael Milken, the famous criminal who is now considered to be a “prominent philanthropist” with a special focus on prostate cancer.

Now we learn a bit more about this network and the attack on Dendreon, a company with a promising treatment for prostate cancer…

* * * * * * * *

When the FDA’s advisory panel voted in favor of Provenge, most Wall Street research analysts were predicting a bright future for Dendreon. But as naked short sellers piled on with ever increasing gusto, hedge fund managers continued to whisper in reporters’ ears. And two Wall Street analysts did more than whisper – they shouted, day after day, that Dendreon’s treatment for prostate cancer was doomed.

One of these analysts is named Jonathan Aschoff, and he works for a financial research outfit called Brean Murray Carret & Co.  The day after the advisory panel vote, in an interview with Reuters, Aschoff made the long-shot prediction that the FDA would not approve Provenge, but would instead ask Dendreon to supply additional data showing that the treatment was safe and effective–a process that could take years. Soon after, Aschoff told other media outlets that the FDA would set a “dangerous double standard” by approving Provenge because the treatment “did not meet its primary goal in two Phase III trials.”

During the first days of April 2007, Aschoff was everywhere, continuously repeating this notion that the FDA would set a “dangerous double standard” by approving Provenge.  On April 9, Aschoff reiterated his “sell” rating for Dendreon, setting a target for the stock at a mere $1.50, which implied that the stock would lose more than 90 percent of its value by the end of the year. Reuters, Associated Press, CNBC and other media dutifully reported Aschoff’s comments as though they shed  light on the merits of Dendreon’s prostate cancer treatment.

Aschoff’s performance raises a few basic questions. The first is, how did a Wall Street analyst know that it would be “dangerous” to approve a medical treatment? It is an odd day, indeed, when the media turns to Wall Street for wisdom on matters of science and health.

The second question is, why was Aschoff so confident that the FDA would not approve Provenge? Given that the FDA had followed its advisory panels’ decisions in 97% of cases, and in 100% of cases involving drugs for dying patients, Aschoff’s prediction seemed rather far out. What did he know that the rest of the world did not know?

The third question is, who is Jonathan Aschoff?

* * * * * * * *

In 2003 – back when journalists still occasionally investigated stories, rather than parroting whatever hedge funds and Wall Street analysts whispered in their ears – The Wall Street Journal won a Pulitzer Prize for a story that nailed Jonathan Aschoff for being a fraud.

According to the Journal, Aschoff often impersonated doctors in order to acquire inside information on the status of drug trials underway at his target companies. A certain Dr. Cunningham, who worked at a cancer center in Dallas, told the Journal that he initially believed that Aschoff was a doctor. But he discovered that he was dealing with a fraud when he mentioned to Aschoff that an experimental treatment had caused some reduction of the “lymphadenopathy.”

“What’s that?” asked Aschoff.  He didn’t have a clue, even though “lymphadenopathy” is a  common medical term. It means, “swollen lymph nodes.”

Nonetheless, some years later, the Associated Press, Reuters, and other media outfits were willing to believe that Aschoff knew enough about medicine to be quoted as a reliable source – a source who had, for some reason, concluded that Dendreon’s treatment for prostate cancer was “dangerous.”

What reason did Aschoff have for reaching that conclusion?

* * * * * * * *

One more question: Which hedge funds were paying Aschoff’s bills?

There is one particular network of hedge fund managers that is known to pay “independent” financial research shops to publish biased or false negative reports on companies that they are selling short.

Former employees of “independent” financial research firm Gradient Analytics have provided sworn affidavits that hedge fund manager David Rocker–once the largest outside shareholder of TheStreet.com; former employee of  Milken-Boesky crony Michael Steinhardt (who is the son of “the biggest Mafia fence in America) and Steve Cohen–now “the most powerful trader on Wall Street;” reportedly once investigated by the SEC for trading on inside information provided to him by Milken’s shop Drexel Burnham–heavily influenced, edited, dictated, and in some cases actually wrote Gradient’s false, negative research about public companies. That means, of course, that Cohen and Rocker had copies of “Gradient’s” research before it was published, which is also highly improper.

And emails acquired by Deep Capture show that Cohen and hedge fund manager Jim Chanos, among others in their network, received and traded ahead of biased reports published by a research outfit called Morgan Keegan. After Deep Capture reporter Judd Bagley broke this story, the SEC began (but will probably never conclude) an investigation into the matter.

Were hedge funds in this network dictating Aschoff’s research, too? I don’t know the answer to that question, but it is worth noting that after the SEC sanctioned Aschoff for impersonating doctors, he went to work for an outfit called Sturza’s Institutional Research, which was owned by a fellow named Evan Sturza.

The SEC has launched (but of course never completed) multiple investigations of Sturza’s companies, which catered to a particular network of short sellers by publishing negative commentary on biotech companies. For example, in 1996, the SEC began (but has never completed) an investigation into whether Sturza conspired with the above-mentioned Michael Steinhardt and a firm called Gilford Securities to take down the stock of a biotech company called Organogenesis.

In the 1980s, Gilford Securities employed Jim Chanos (the above-mentioned fellow who is now under SEC investigation for trading ahead of biased research reports). Chanos manages a few hedge funds, the most famous of which is called Kynikos Associates. He is also the head of the short seller lobby in Washington, and a much favored source of information for the New York financial press.

In 1985 – back when Chanos was still at Gilford; back when journalists did investigations rather than parrot whatever Jim Chanos whispered in their ears – way back then is when The Wall Street Journal published a front page story about a “network” of short sellers said to include Jim Chanos and Michael Steinhardt. The story suggested that this network destroyed public companies for profit and described some of the more egregious tactics – espionage; impersonating journalists to get inside information; conspiring to cut off companies’ access to credit; spreading dubious information – that were employed by Chanos and others in his network.

At the time, Chanos made some effort to publicly distance himself from Michael Milken. And he recently told one reporter that lawyers threatened him in the 1980s because he was selling short companies that had been financed by Milken’s junk bonds. However, the truth is that Chanos’s short selling in the 1980s tended to support Milken’s machinations, and in later years Chanos remained very much a part of the old Milken network.

Chanos got his big break in the 1980s by short selling and ultimately destroying a company called Baldwin United. As part of this effort, Chanos and his colleagues at Gilford Securities went so far as to meet with Baldwin United’s bankers, and (through all manner of horror stories) convinced the bankers to cut off Baldwin’s access to credit. Soon enough, the company went bankrupt, and Michael Milken quickly got himself hired as advisor to the bankruptcy.

According to a well-known businessman who was involved in the bankruptcy proceedings, Milken abused his advisory position, handing out confidential information to his network, which ended up owning much of Baldwin’s assets.

As the story goes, Chanos’s take down of Baldwin impressed Michael Steinhardt (the short-seller whose father was the “biggest Mafia fence in America”) and Steinhardt introduced Chanos to his key limited partners – including Ivan Boesky (later indicted for manipulating stocks with Milken) and Marty Peretz (a Milken and Boesky crony who would later co-found TheStreet.com, along with Boesky crony Jim Cramer and a few hedge funds in this network).

Peretz, an aristocrat who has long been a part-time professor at Harvard, introduced Chanos to one of his former students, Dirk Ziff, who manages a hedge fund called Ziff Brothers Investments. The emails cited above show that Ziff Brothers, like Chanos and Steve Cohen, was receiving advance copies of those Morgan Keegan reports.

Dirk Ziff is part of the network of which I write. Indeed, Chanos launched his first hedge fund out of Dirk Ziff’s offices. This was a few years after Chanos left his position at Gilford Securities, which had a few key clients, one of whom was Michael Steinhardt, son of “the biggest Mafia fence in America.”

In the 1990s, five Gilford Securities traders–Chester Chicosky, Todd M. Nejaime, Lawrence Choiniere, Kevin P. Radigan, and William P. Burke – were arrested as part of Operation Uptick, the biggest Mafia bust in FBI history. Although some of these traders had left Gilford by the time they were indicted, they were charged with crimes allegedly committed while they were still working for Gilford. Specifically, the Gilford traders were charged with accepting bribes from a Mob-run brokerage called DMN Capital, and for helping to manipulate stocks with a cast of characters that included ten Mafia soldiers and a former New York police detective.

I asked H. Robert Holmes, who was Chanos’s boss at Gilford, whether he had any comment on the  Mafia’s infiltration of his firm. He said, “I don’t know what you’re talking about? This is bullshit.” He also said he was completely unaware that any Gilford traders had been arrested for accepting bribes and manipulating stocks with a large cast of Mafia goons and Mafia associates. That is, he claimed to be unaware of an event in his company that had been vigorously publicized by the FBI and the SEC.

By the time of Operation Uptick, of course, Chanos was no longer with Gilford. He was then a “prominent investor” – a member of the world’s most powerful network of financial operators, a network whose members are portrayed by the press as geniuses and heroes, never mind that this is the very network that has been destroying companies since 1980s – the very network that is (as should by now be apparent) comprised of the criminal mastermind Michael Milken and his Mafia-connected cronies.

As a member of this network, Chanos is, of course, on close terms with Jim Cramer, the CNBC personality who once planned to run his hedge fund out of Milken co-conspirator Ivan Boesky’s offices. It was owing to Cramer that Chanos became the largest donor to the political campaigns of New York Governor Eliot Spitzer, who was Cramer’s best friend and former college roommate. When Spitzer was caught with a hooker and forced to resign, it emerged that the hooker, “Ashlee Dupre”, had been living rent-free in Chanos’s beachside villa. Ashlee called Chanos “Uncle Jim.”

I tell you all this only to show the relationships that bind some particularly destructive short sellers and miscreants. It is this network that attacked the big banks last year, helping trigger the collapse of the financial system. And members of this network are the most “prominent” players in the biotech space.

One of those players is Jonathan Aschoff, the doctor-impersonating fraud who was, in the Spring of 2007, making the long-shot prediction that the FDA would not approve Dendreon’s “dangerous” treatment for prostate cancer. As we know, Aschoff previously worked for Sturza’s Institutional Research, run by a fellow who faced multiple SEC investigations (none of which led to any action) for allegedly publishing false information to help short sellers (such as Michael Steinhardt) manipulate stocks.

Under the strain of those investigations, Sturza shut his operation down. Now Sturza helps manage a hedge fund called Ursus. Ursus is owned by Jim Chanos, the Steinhardt protégé who housed the hooker of Cramer’s former college roommate, Eliot Spitzer.

Ursus specializes in shorting biotech stocks. There are Wall Street brokers who say that Ursus was short selling Dendreon while Sturza’s disciple, Jonathan Aschoff, was bashing the company and others in this network were looking to cash in.

But it is difficult to know for sure whether Ursus was selling short. It is difficult to know who was responsible for flooding the market with at least 9 million (and maybe tens of millions of) phantom Dendreon shares. It is difficult to know because the SEC does not require hedge funds to disclose their short positions, and does not release information on who is selling stock and failing to deliver it.

As far as the SEC is concerned, it’s all a big secret.

But we do know that Aschoff was predicting that Dendreon’s stock would sink to $1.50 right after Dendreon received an overwhelmingly positive vote from the FDA’s advisory panel, and right before Dendreon was derailed by some singularly strange occurrences. In addition, we know that at this time only ten hedge funds on the planet held large numbers of Dendreon put options (bets against the company), and that at least seven of those hedge funds can be tied to the famous criminal Michael Milken or his close associates.

Michael Milken, of course, is not just a criminal, but also a “prominent philanthropist” whose Prostate Cancer Foundation has received much acclaim from the world at large. But, as we will see, it was not just those seven hedge funds, but Michael Milken himself, who stood to earn a tidy profit from the strange occurrences that were to derail Dendreon, a company with a promising treatment for prostate cancer.

* * * * * * * *

To be continued…Click here for Chapter 7.

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Email Exposes Short Seller Plot to Destroy a Public Company


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

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5,000 Words About An Obscure Bad Newswire Reporter


The ever cuddly Carol Remond (“I’m going to shred this guy to bits,” she said of Deep Capture reporter Patrick Byrne) has published yet another defense of criminal naked short sellers. In a recent column for Dow Jones Newswires, Carol writes that the SEC should think twice about cracking down on the criminals because some of the people (she names four) who have complained about illegal naked short selling have run into legal problems of their own.

Maybe I have too much faith in the press, but I suspect that this sort of intellectual dishonesty – this deliberate illogicality and mischief-making – could appear only on the financial pages. Certainly, editors of Metro sections don’t permit their columnists to write that cops should let gang-bangers clean out every convenience store in town just because some Quicky Marts have been caught cheating on their taxes.

Yes, it must be that different standards apply to financial columnists. Probably, it’s because finance is so complicated. Robbing a convenience store – an editor can understand that’s bad. But criminal hedge funds selling something they don’t have – apparently that’s pretty technical. If the columnist says that illegal naked short sellers (hedge funds offloading phantom stock to drive down prices) are good folk…well, she’s been studying this “complex” and “controversial” issue for a long time – let her run with it.

But now the Secretary of the Treasury, the Chairman of the SEC, and all the other people (except hedge fund managers) who have seriously studied this issue agree that it is bad for markets when people sell things that don’t exist. That this was ever a matter of “debate” will astound historians for generations to come, but the surreal intellectual “battle” is over, and it is time for Dow Jones to decommission Carol Remond. She’s become the Joan Rivers of the newswires – her gruff exterior failing to compensate for a tired act.

Carol devoted 17 of her 36 columns this year to ridiculing or discrediting critics of illegal short-selling. The other 19 columns carefully omitted mention of naked short selling, even though most of the columns were sourced from short-sellers and focused on companies that had been hit by massive levels of phantom stock. In a number of her columns, Carol alluded favorably to one particular clique of short-sellers while deliberately censoring information about their most egregious shenanigans.

Of course, Carol’s reporting was always a bit off-kilter. There was, for example, her famous April, 2004 column about the NASD’s decision to close a loophole that was allowing criminals to sell phantom stock through Canada. Carol wrote that the move wasn’t fair because “market participants” had told her it was too hard to find real stock. If editors at Dow Jones didn’t wonder why their reporter was advocating for the freedom of criminals to sell unlimited amounts of fake stock, they might have thought it a bit odd that the only “market participant” named in Carol’s story was Pacific International, a notorious Canadian brokerage whose most celebrated employee was funneling cash to the Genovese organized crime family.

Also strange was Carol’s long-standing, close relationship with Anthony Elgindy, a Mafia-connected short-seller who liked to flash his .380 Colt handgun in business meetings. For years, the Dow Jones reporter used Elgindy’s information in numerous stories about the companies he shorted, but she never mentioned that her pal was extorting and blackmailing the companies’ CEOs, bribing FBI agents, and churning out heaps of phantom stock.

Elgindy was convicted in 2005 for racketeering and stock manipulation. Still, Carol might have stayed faithful to her old friend. But it emerged from prosecutors’ evidence that Elgindy had used unflattering terms to describe Carol’s posterior. She became incensed and wrote columns detailing his crimes (but portraying him as an anomaly – the rare short who violated the law). When the judge handed down an 11-year prison sentence, Elgindy broke down in tears, and there in the court gallery was Carol, laughing with glee.

I’m no psychologist, but Carol seems to have a vindictive streak. It was only after Patrick Byrne criticized her reporting that she vowed to “shred this guy to bits,” and proceeded with considerable vigor to tell people that Patrick was running some kind of criminal enterprise out of a gay bathhouse in San Francisco. (He wasn’t.) When she was criticized by the anonymous blogger and redoubtable crusader against phantom stock who calls himself the Easter Bunny, Carol went on a similar rampage, trying to unmask her critic and prove that he was illegally pumping stocks out of a Las Vegas strip club (The Bunny was doing no such thing, though he did register his blog’s domain name to a nudie bar as a joke.).

It is indeed possible that Carol goes to extreme lengths to whitewash illegal naked short selling, not because she fails to see that it is wrong, but simply because the crusaders against the crime have been so critical of her reporting. Carol probably even thought the crusaders had something to do with the SEC issuing her with a subpoena in 2006, when the commission began an investigation into alleged short-seller crimes. Yes, that must have been the final straw. Carol was provoked. She got angry. She became obsessed. And now…it’s war! Vendetta Journalism.

The only other possibility is that Carol is cool-headed and calculating – that a particular clique of short-sellers have fed her nearly every column she has ever written (including those that won her a Loeb Award, the Pulizer of business journalism), and now she is settling debts and currying favor with her benefactors by deliberating covering-up one of the biggest financial crimes of our lifetimes.

That would be something—eeevil!

Whatever the case, I liked her column that was all about an outfit called Institutional Credit Partners accusing Fairfax Financial, a reputable company in Canada, of misrepresenting an off-balance sheet transaction. Carol gave credence to these accusations, though no reputable investigator had ever done so. She also suggested that Institutional Credit Partners was working alone – that it’s “independent” analysis had just revealed this supposedly shocking news about an off-balance sheet transaction.

The truth, which Carol omits, is that the same bogus information was previously circulated by a thug named Spyro Contogouris, who had been hired by a short-selling hedge fund to harass and threaten Fairfax executives. One of Spyro’s many feats was to write an anonymous letter to the pastor of Fairfax’s CEO suggesting that the CEO was a sado-masochistic group sex aficionado who once scammed the Catholic Church out of millions of dollars.

When Carol published her column, the FBI had arrested Spyro for ripping off a Greek shipping magnate. Carol left that part out. She also forgot to mention that Spyro had been bailed out of jail by the manager of the eminently respectable and completely “independent”…Institutional Credit Partners.

But Carol was no doubt keen to attack Fairfax because the company had sued a clique of short sellers, including Steve Cohen of SAC Capital (a subsidiary of which hired the charming Spyro) and David Rocker, formerly of Rocker Partners. These are Carol’s friends and allies.

Which is why Carol received a government subpoena in 2006. The SEC was investigating relationships among a few journalists, David Rocker, and Gradient Analytics – yet another seedy outfit that claims to be “independent,” though its former employees have given sworn affidavits that short-sellers including Rocker dictated much the information in its falsehood-laden financial research reports.

SEC officials continue to believe that Carol has information that could help them understand Gradient and Rocker’s methods. But to the great chagrin of these officials, the SEC leadership shut down its investigation after the Media Mob went ballistic. Apparently, the SEC was violating the right to free speech by issuing subpoenas to journalists and “independent” research shops.

Never mind that one journalist – Herb Greenberg, first at TheStreet.com, then at MarketWatch.com and CNBC – was accused (in a sworn affidavit from a former Gradient employee) of timing his negative stories, premised on Gradient’s false research, so that Rocker could profit from their deleterious effect on stock prices. Never mind that Jon Markman, a one-time managing editor of MSN Money and formerly Herb Greenberg’s co-editor at TheStreet.com, was named as running a dodgy hedge fund out of Gradient’s back office (“independent” research shops aren’t supposed to run hedge funds, especially if they’re trading on their “independent” research).

Never mind, too, that one of Gradient’s managers acquired multiple aliases and fake IDs to conceal his activities. You won’t hear this from certain quarters of the financial media. You certainly won’t hear it from Carol Remond Rocker, Gradient, Spryo the Goon – these are Carol’s bros. Fairfax messed with them. So Carol went to Fairfax’s house for a driveby shooting. Hidden in the trunk was a heaping pile of phantom stock. (Fairfax has spent most of the last three years on the SEC’s list of companies whose stock is “failing to deliver” in excessive quantities – clear evidence of a sustained, criminal attack by naked short-sellers, covered-up by Carol.).

Here’s another good one: In April, Carol published a column praising a “reclusive financier” named David Gelbaum for “doing his part to try to stave off recession.” A few months earlier, Carol had raved in another column that the same “reclusive financier” was practicing “a new form of philanthropy.” Carol explained that Gelbaum’s “philanthropy” and recession-fighting involved nothing more than financing a number of alternative energy companies through “private placements in public equity” – or PIPEs.

Now, with these two columns, Carol is having a little fun – thumbing her nose at her critics, seeing what she can get away with, no doubt cackling with diabolical delight. For she knows full well, but pointedly ignores the fact that PIPEs, commonly referred to as “toxic financing,” are the single most notorious weapon of criminal naked short sellers. Crusaders like the Easter Bunny (see his blog, TheSanityCheck.com) have been screaming about this for years, and the SEC agrees that illegal short-selling in the PIPE industry is rife.

In a typical PIPE scam, a hedge fund invests in a cash-strapped, thinly traded public company. In return, the hedge fund receives securities that can be converted to stock, typically at a discount of around 15% to the market rate. The hedge fund manager presents himself as a serious investor, all geared up to build a great company, but then turns around and naked shorts the company, hoping it will go out of business.

With help from a complicit broker, the hedge fund proceeds to shift his discounted shares back and forth among accounts, making it appear that he is delivering real stock to cover his naked shorts. The high volume of trading in discounted shares, coupled with another wave of naked short selling, can send the stock into a “death spiral.” By cracking the stock, the PIPE provider positions himself to earn a big profit by failing to deliver the huge amounts of phantom stock he has sold.

Nathan Vardi of Forbes Magazine describes the proliferation of these scams in an article titled, “Sewer Pipes,” and notes that some of them have been perpetrated by criminals connected to the Mafia – specifically the Genovese organized crime family.

Carol’s columns point out that Mr. Gelbaum, her “reclusive” PIPEs financier, spent much of his career with a hedge fund called Princeton-Newport Partners, which was run by Edward Thorp, a “mathematician” who once authored a book about how to win at blackjack. She doesn’t reveal that Thorp actually developed a system for cheating Las Vegas casinos in cahoots with Manny Kimmel, a mobster from the Genovese organized crime family.

Princeton-Newport derived a significant portion of its revenue from parking stock and colluding in other illegal schemes with Michael Milken, the famous 1980s criminal who has since reinvented himself as a philanthropist, hedge fund collaborator, and media-revered mastermind of miscellaneous investment schemes. A government investigation into Princeton-Newport’s activities produced the key evidence (even more important than the insider trading information provided by Ivan Boesky) leading to Milken’s 1989 conviction on multiple counts of securities fraud.

Neither Gelbaum nor Thorp were charged, but it is perhaps worth noting that the Thorp family worked closely with Anthony Elgindy, the felonious Mob-connected gun-toting short-seller who was Carol’s close friend until he said uncharitable things about her butt. In 2006, the SEC fined Thorp’s son, Jeffrey, $8 million for masterminding a massive fraud that involved (what else?)…toxic PIPEs and naked short-selling.

Carol is aware of this case because she wrote a column about it, noting that the government’s investigation into Elgindy had led agents to his con-conspirator, Jeffrey Thorp. Of course, Carol is incapable of writing anything negative about short-selling, so her column failed to mention that Thorp was a naked short-seller — a strange omission considering the SEC had said that Thorp’s PIPE financing was fraudulent precisely because he had naked shorted into oblivion the 22 companies that he had financed.

The other thing strange about Carol’s column was that it disappeared. It was yanked from the Dow Jones web site. It was removed from media databases, such as Lexus-Nexus and Factiva. It was completely scrubbed from the Internet, though a snippet of it can be found on a blog called Wall Street Folly.

Maybe Carol’s mind was scrubbed, too. Maybe she has no idea that PIPEs and naked short selling go hand in hand. Maybe she completely forgot that a guy working with her old Mob-connected friend, Anthony Elgindy, masterminded the biggest short-selling PIPE fraud of all time. It could even be totally normal that Carol, a reporter who’s life is covering short-sellers, never wrote a story about PIPEs until along came a “reclusive financier”– the former partner of the Mob-connected father of the Mob-connected fraudster who colluded with Carol’s Mob-connected friend while orchestrating the biggest short selling PIPE fraud in history – and only then it was time for Carol to publish two columns about PIPEs and refer to them as a “new form of philanthropy.”

Actually, the “reclusive financier” is probably a decent fellow. He’s never lied to me – that makes him ok in my book. I’m not saying that he’s a fraud. I’m saying that Carol is a fraud. Brainwash, vengeful rage, cold-calculation, lunkheadedness – it’s all the same: she’s a fraud. She lied to us in nearly every one of the 36 columns she wrote this year. There’s an industry infested with mobsters and scalawags and she tracks down the one reclusive PIPE financier who’s a decent fellow. She says he “is doing his part to try to stave off recession.” Carol is lying. The “reclusive financier” is honest – he’d never say something so ridiculous.

Consider the condition of the companies that Mr. Gelbaum has reclusively financed. Carol mentions six of them –Beacon Power Corp., Worldwater & Power Corp., Emcore Corp, Octillion Corp., Bluefire Ethanol Fuels Inc, and Open Energy Corp. When Carol was writing, all of these companies had spent a good deal of time on the SEC’s list of companies likely to have been victimized by illegal naked short selling. Unsurprisingly, the companies’ stock prices have all been on trajectories that look a lot like “death spirals.” Worldwater is now worth a few cents. It was at around $3.00 when it received its reclusive PIPE. Open Energy is trading for less than a penny. Carol reveals none of this.

Oh, my. What other wonderments has Carol conjured? Let’s see — last September, she wrote a column assuring us that the Depository Trust and Clearing Corporation (DTCC) is an upstanding institution. What other “journalist” would dare attempt such a feat? I can think of only one: Gary Weiss, a former BusinessWeek reporter who runs black-ops public relations efforts for the DTCC, anonymously attacking the organization’s critics on stock message boards and even wangling special editing privileges of the DTCC’s Wikipedia entry, all the while flat-out lying about his activities.

The DTCC’s job is to “clear and settle” all securities transactions, but it doesn’t do that very well, which is a big reason why there is so much phantom stock (i.e. stock that doesn’t “settle”). The DTCC knows who is naked short selling and it has a lot of data showing how much phantom stock is in the system. But it says it won’t release this information because it’s against DTCC rules. Which isn’t surprising, since the rules are written by the DTCC’s owners, who are the very same Wall Street firms that engage in naked short selling.

The SEC technically regulates the DTCC, but SEC officials admit they have neither a clue how the place operates, nor the power to force it to turn over complete data. So the DTCC is an essentially unregulated, criminal-protecting, black box institution – which happens to handle more than $1.5 quadrillion – or 30 times the total gross product of the entire planet – every year. There should be a pack of journalists outside its machine-gun fortified doors, cameras flashing, questions hurled.

Instead, there is Carol. Her column gloats that a court dismissed a legal case brought against the DTCC by a company called Nanotech, which was attacked by naked short sellers. Carol says it is bad for companies to sue the DTCC. It is bad because the SEC (whose officials say they have no idea what the DTCC does) filed an amicus brief saying that it had signed off on the DTTC’s rules (which are written by naked short-sellers). Listen to the SEC and trust the DTCC, says Carol, who claims to like short-sellers because they are the market’s “skeptics.”

The head of the DTCC’s PR department is named Stuart Z. Goldstein. He’s a real master of whirly logic and circuitous denials. He’s a mean guy, too — nasty as hell. Question the DTCC’s rectitude, and Stuart Z. will threaten to get you fired and unleash the lawyers.

But Carol loves Stuart Z. And Stuart Z. loves Carol. Ask about the DTCC, and get no answer from Stuart Z. Instead, says he, “Read Carol, and you will see, she’s the best there is. Nobody understands the DTCC” – only Carol and Stuart Z.

Stuart Z. and a clique of short-sellers – these are Carol’s friends. That is why Carol goes to such lengths to bash a company called Biovail, which had sued Gradient Analytics, the company that was managed by at least one guy with multiple aliases while it allegedly let short-seller David Rocker ghost write its “independent” research. Carol received a government subpoena when the government investigated Gradient, and she’s keen to show that her creepy friends are swell, so she devotes no less than six of her 36 columns this year to bashing Biovail (NYSE:BVF), her readers no doubt waiting with tongues hanging for just one more column – one last scrap of arcane negativity about a minor drug company in Canada.

The SEC charged Biovail with finagling its finances, so it seems its executives were not entirely wholesome. But six out of 36 columns to show that Gradient was right? That seems a lot considering the many perfectly innocent companies that Gradient has slimed. Gradient was not right about Biovail, either. In fact, it published a lot of blatantly false information about the company, suggesting at one point that its revenues had nosedived at a time when they were in fact soaring.

Meanwhile, shorts working with Gradient paid off a bunch of doctors to get them to testify (to the media and government investigators) that they had been “bribed” by Biovail to prescribe one of its drugs. The company maintained that it only paid the doctors a small hourly fee to participate in a marketing program (which is a standard sleazy practice of most pharmaceutical companies) but the government leveled charges, citing the doctors’ testimony, though not the fact that the doctors had been paid-off by short-sellers. Biovail settled out of court rather than accept even the small risk of a conviction that would have shut it out of the U.S. market and destroyed its business.

It is quite common for miscreant short-sellers to pay for phony testimony. There is, in fact, a company called Gerson Lehrman, run by former hedge fund employees, that specializes in locating, training and paying-off experts of dubious veracity – largely on behalf of short-selling clients.

When Carol’s friend David Rocker and Gradient Analytics began short-selling Taser, the stun-gun company, there was no strong evidence that a Taser gun had ever killed anyone. This was clearly unacceptable, so Rocker found an expert. His name was James Ruggieri and he was an unemployed high school dropout who’d never touched a stun-gun and didn’t know anything about electricity—but Ruggieri had a plan, and that was to get himself a bunch of chickens and plug them into an electrical socket.

This worked well. Some of the chickens caught on fire, half of them died, and from this, the high school dropout deduced that stun-guns could kill half of all people – a conclusion that he submitted to the American Academy of Forensic Science.

Soon a gaggle of Rocker’s media friends were reporting that a renowned expert from the American Academy of Forensic Science had concluded that stun guns kill. No doubt with help from short-sellers, dozens of people filed lawsuits claiming that their relatives had died after getting Tasered. How did they know? The American Academy of Forensic Science said so.

All but one lawsuit was dismissed, but in the meantime, Taser’s executives had to spend much of three years touring the country, publicly zapping themselves at every opportunity to demonstrate that Tasers don’t kill. (It is possible that Tasers have killed some people, but there is no science to support this, only anecdotal evidence of Taser incidents followed by deaths, most of which might have been caused by cocaine overdoses and other factors).

While the high school dropout was electrocuting chickens, Rocker allegedly busied himself writing Gradient Analytic’s “independent” research reports and submitted them to his friends at the SEC, which dutifully launched an investigation into Taser. The investigation sapped Taser’s resources and distracted its executives–who now had to spend half their time answering to government investigators, and the other half firing Tasers into their chests – for several years until, finally, the SEC announced that Taser’s books were clean – Gradient’s “independent” research, dictated by Rocker, was utterly false.

Of course, Taser has spent most of the past three years on the SEC’s list of companies whose stock is failing to deliver in excessive quantities. That’s undisputable evidence that it is the victim of a sustained attack by hedge funds selling phantom stock.

But you won’t hear about this from Carol Remond. You won’t hear about any of the dozens of companies similarly trampled by short-sellers – only to be cleared of wrong-doing by government investigators. Carol says only bad companies criticize her short selling and “independent” research-writing friends. And she’s got just 36 columns a year to tell us about all of those bad companies. Six of them are called Biovail.

Another four columns focus on a company called RemoteMDX, which makes GPS tracking bracelets used by prisons. RemoteMDX might be a bad company. It might not. Carol provides no good evidence either way. Instead, she merely notes that short-sellers are all over it. She names only one—Citron Research, whose principal, Andrew Left, was once caught double-cashing checks and was also banned for three years from the commodities and futures business after the National Futures Association found that he “made false and misleading statements to cheat, defraud or deceive a customer…”

Mr. Left has been accused of naked short-selling by a company called BIDZ.com, but he assures me in an email that he has never sold phantom stock. “I believe naked short selling is dangerous to the financial system,” he says.

He’s right. Mr. Left is honest. Carol is the fraud.

According to Carol, the most suspicious thing about RemoteMDX is that a German brokerage claims that an investor ordered a bunch of the company’s stock and never paid for it. So now the brokerage is stuck with the stock. Carol seems to think that this is RemoteMDX’s fault. I don’t know why.

The more likely culprit is the brokerage, Norddeutsche Landesbank (NordLB). As Carol notes, NordLB claims to have purchased 14.75 million shares on February 25. But a total of only 3.2 million shares traded that day. Could it be that NordLB took possession of around 11 million phantom shares in service to a naked short selling client or broker? Would NordLB’s announcement that it was looking to offload 14.75 million unwanted shares put downward pressure on the stock price, to the great benefit of naked short sellers?

I don’t know the answers to those questions. But it’s certain Carol wouldn’t ask them. Carol’s sources say RemoteMDX is suspicious. Are the sources suspicious? The sources are short-sellers and if you’re a journalist in “the game,” you don’t ask that question.

That is why Carol’s readers do not know that RemoteMDX has spent 128 days this year on the SEC’s list of phantom stock victims. And that is why Carol neglects to reveal that while nobody other than Carol and her shadowy sources have accused RemoteMDX of wrongdoing, the German authorities have begun to investigate the brokerage, NordLB, for “irregular trading” in RemoteMDX’s stock.

Meanwhile, another column by Carol. Headline: “Autopsy of a Naked Shorting Poster Child: USXP.” That’s Universal Express. Somebody needs to tell the colorful tale of this company—Carol doesn’t do it justice. But for now, it suffices to say that USXP’s CEO has been charged with some heinous crimes – cooking the books, stealing corporate money, selling unauthorized shares, churning out outlandishly false press releases, and being married to the Imelda Marcos of Boca Raton.

USXP’s shareholders – highly organized, devotional, and ever-ebullient–say (in emails to just about every journalist, lawyer, professor and government official in the country) that the jury is still out and the judge has been bought. They say the SEC’s charges were designed to silence the CEO, who had given a speech about naked short selling. Then the government put him in a jail usually reserved for brutal killers. Then they stuck him in solitary confinement. All to silence his views on naked short-selling. It’s a cover-up! A massive conspiracy!

Gee, I wonder why Carol wants people to believe that this company is the “poster child” for crusaders against naked short selling. I don’t know enough about USXP to have an opinion. But to Carol, it looks bad. It sounds crazy. It suits her propaganda.

A company called Allied Capital is no poster child, but it’s been plenty shafted by naked short sellers. It has spent months on the SEC’s victim list, with up to 3.5 million of its shares failing to deliver. Meanwhile, David Einhorn, who is part of Carol’s short-seller clique, has spent much of the past three years insinuating that Allied is something like Enron (which titillates journalists looking to break the next big corporate scandal). Einhorn has even written a book about his attack on Allied, which Carol must read, and I must review, because it’s a pretty good description of the short-and-distort game.

People like Deep Capture reporter Patrick Byrne began exposing Einhorn a couple of years ago, and the short-seller seems to have calculated that it was time to take the PR offensive. His strategy is clear: reveal all his tactics, and hope that his openness lends an aura of innocence – as if he really believes the tactics are legit. Then spin the story to make it seem like Einhorn is some kind of folk hero – a concerned citizen fighting an epic battle against an evil corporation, a corrupt government, and a dysfunctional status quo.

Einhorn even suggests that he lost his battle against Allied – he’s a victim, which is a more sympathetic thing to be than a rich short-seller. He says if he ever makes any profits from shorting Allied, he’s going to donate it all to charity! (He’s made a lot of profits, but so far there’s no evidence of any donations).

Anyone who disagrees with Einhorn’s analysis, or begins to investigate him for stock manipulation, is lambasted as a corporate shill and part of the broken establishment, which no journalist wants to be.

Brilliant public relations, actually. It seems to have worked. Journalists follow this guy like he’s the Jerry Garcia of finance. But all you have to do is read his book and see that he was lying about Allied all along. One of his partners had “influence” at the SEC, he says, so the commission, along with other agencies, launched a multi-year investigation that cost Allied upwards of $50 million. But, as Einhorn notes, everybody – investment banks, the SEC, court judges – concludes that he’s full of it. Allied is no Enron.

The only crime at Allied involved the Michigan office of an Allied subsidiary called BLX. The office gave out some fraudulent loans to friends. In other words, it scammed Allied. Some members of Congress have asked the Small Business Administration to explain in more detail its oversight of BLX. So Carol wrote a column about that, her suggestion being that David Einhorn—friend of Carol’s friends, enemy of Carol’s critics—must be right about Allied. It’s the next Enron.

In a similar vein, Carol wrote a column that noted in a tone of sheer giddiness that her friend David Rocker had countersued Overstock, the company run by Deep Capture reporter Patrick Byrne. This was significant, Carol suggested, because Rocker had once countersued some company in Belgium that turned out to be a fraud. Get it? Crooks in Belgium sued Rocker. Patrick Byrne sued Rocker. Therefore, Patrick Byrne is a crook.

Right, and exploding chickens in your backyard is science. Rocker no doubt delivered Carol’s brilliant deduction to the SEC, which was still investigating Overstock at Rocker’s behest. Keeping things weird, Sam Antar, a convicted felon who orchestrated the swindle at Crazy Eddie appliances, which was once the world’s biggest corporate fraud, had begun to help Rocker run the SEC’s investigation of Overstock while posting on the Internet his own “independent” research, which looked a lot like the “independent” research that Gradient and Rocker made together.

Shortly after Carol’s column was published, the SEC announced that it would take no action against Overstock, but Carol didn’t write about that. Patrick is the founder of Deep Capture, and I’m writing for Deep Capture, so call me biased, but it seems to me that Carol ought to apologize for insinuating that Patrick was a crook.

But Overstock was never Carol’s real concern. Rather, she was intent on discrediting Patrick’s crusade against illegal naked short selling. Last August, when the NYSE busted somebody for this crime, Carol wrote a column that said, “Turns out that one guy did, in fact, illegally trade shares in [Overstock]” But, of course, it “doesn’t come close to amount to [sic] the massive conspiracy alleged by Overstock.”

Actually, Carol, Overstock alleged that several million phantom Overstock shares have been floating around the market for the past few years. Patrick Byrne and many others (including myself) are crusading against the crime because hundreds of companies have been similarly affected and it threatens the stability of our financial system.

At this point, every expert unattached to your clique of short-sellers agrees with this assessment. The Chairman of the SEC agrees with it. And you, out of vindictiveness or allegiance to some pretty dirty players, are one of the only people still calling it a “conspiracy” theory.

That’s why I just wrote 5,000 words about you.

(Click here for a compendium of Carol Remond stories)

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The SEC Declares Emergency, and Joe Nocera Yammers On


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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