Tag Archive | "Joe Nocera"

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.

 

Posted in AntiSocialMedia with Judd Bagley, Deep Capture Book, Deep Capture Podcast, Featured Stories, The Deep Capture CampaignComments (326)

The Pendulum Swings

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The Pendulum Swings


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

In the end, we settled on the following:

“Entropy increases” and “The pendulum swings.”

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

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

How true both are.

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

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

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

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

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

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

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

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

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

Where are we today?

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

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

But here we are.

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

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Gary Weiss knows what Joe knows


How did Gary Weiss come to know the substance, sentiment and timing of one of New York Times business columnist Joe Nocera’s most vicious attacks against opponents of illegal naked short selling, long before it was published?

We asked Joe.

Joe doesn’t know.

It all started on January 10, 2006, when Business Week writer Tim Mullaney clumsily fell into the very trap he had set for Overstock.com CEO (and Deep Capture reporter) Patrick Byrne. You can read all the gruesome details here and then here.

One week later, Gary Weiss launched his blog. We know from emails between Weiss and Floyd Schneider (read this to learn how I came to posses them) that at about that same time, Weiss began trying to convince journalists and editorial columnists to pen attacks on opponents of illegal naked short selling, particularly Patrick Byrne and Bob O’Brien (whom Weiss calls “Bob O’Baloney”), the pseudonymous author of the highly influential Sanity Check blog.

Weiss did this with little success, until February 22 of 2006, according to the following two emails Weiss sent to Floyd Schneider:

From: garyrweiss@verizon.net

To: Floyd3491@aol.com

Subject: Re: (no subject)

Date: Wed, 22 Feb 2006 18:34:19 -0500

Received: from unknown (HELO maincomputer) (garyrweiss@verizon.net@70.23.60.180 with login) by smtp101.vzn.mail.dcn.yahoo.com with SMTP; 22 Feb 2006 23:34:15 -0000

—–

Incidentally, don’t tell nobody! — but was preoccupied today. Interview with Joe Nocera of the Times for his Saturday column. Seems he is focussing on the naked-Mullaney situation. Mullaney tells me Nocera is sympathetic. We shall see……

Mullaney obviously is extremely nervous but me, I am fairly pleased I must say. I was… oh… shall we say unfavorable toward our Mr. O’Baloney.

The above is confidential!

Followed shortly by…

From: garyrweiss@verizon.net

To: Floyd3491@aol.com

Subject: Re: (no subject)

Date: Wed, 22 Feb 2006 18:56:25 -0500

Received: from unknown (HELO maincomputer) (garyrweiss@verizon.net@70.23.60.180 with login) by smtp102.vzn.mail.dcn.yahoo.com with SMTP; 22 Feb 2006 23:56:21 -0000

—–

Yeah, well I want to shift on to be a little quiet and modest between now and Friday. Yes, O’Baloney seems to have run up the white flag it would seem, at least for the time being. I think the SABEW blog seems to have brought him to reality. That is what was picked up by Nocera, by the way. This is totally my doing! Yuk yuk yuk.

The Mullaney thing really touches a raw nerve, you know.

Based on the above, we can conclude that at least three days ahead its publication date, Gary Weiss knew all about Nocera’s February 25, 2006 column Overstock’s Campaign of Menace.

Note, in the first of the two emails, Weiss insisted that “The above is confidential!”

This is with good reason, as it’s considered a serious breach of ethics for a business writer to reveal the nature of his or her coverage of public companies to outsiders ahead of time, lest the information be used to the advantage of an unscrupulous investor (ie, “trading ahead” of the story).

And yet, Weiss knew. And boasted about knowing.

Recently, Patrick Byrne asked Joe Nocera to comment on this apparent ethical misstep.

Here is Nocera’s response:

From: Joe Nocera

To: Patrick Byrne

Subject: Re: that gary weiss email

Sent: Thursday, July 17, 2008 11:31 AM

—–

I have no idea why Mr. Weiss would make those claims, nor has he ever had any “inside information” about any of my columns. I don’t give out such information. all best, Joe Nocera

I welcome Joe to explain how reality, and his apparent interpretation of it, can possibly co-exist.

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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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A Scandal Unfolds, and the Media Mob Scampers


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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