This is Part 3 of an ongoing series.
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.
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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.”
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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= = = = =
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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.
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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.
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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.”
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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.”
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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.”
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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.
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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.
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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.
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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…
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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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