Tag Archive | "Whitney Tilson"

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The Honorable Gill Freeman Throws Book at Barry Minkow, Nicks Paymaster Sam Antar. Plus, A Question for Whitney Tilson, Minkow Paymaster #2


Barry Minkow spent last week in plea negotiations regarding a federal indictment on which he is hoping to receive only 5 years, says his lawyer. (LA Weekly: Barry Minkow to plead guilty to insider trading).  In December, 2010, a Florida judge threw her proverbial book at Barry Minkow, and it glanced off Sam Antar, who had been paid Barry’s paymaster to the tune of $250,000, Barry had testified. In addition, the judge found as a matter of fact that Sam Antar destroyed documents necessary for her trial. Minkow also gave sown testimony that well-known New York hedge fund manager Whitney Tilson paid him $40,000: more on this below.

Sam Antar, generally not short of opinion, has suddenly developed laryngitis.

Barry Minkow and Sam Antar are two of the most remarkable swindlers in recent American history, each guilty of frauds measured in the hundreds of millions of dollars. Two decades ago their names gave off the same foul stench that Bernie Madoff’s does today. So Deep Capture invites Whitney Tilson to explain why he would join legendarily convicted financial criminal Sam Antar in making payments to also-legendarily convicted financial criminal  Barry Minkow, who now is pleading guilty to his 58th financial felony. (You know how to reach me, Whitney. DeepCapture will give you 250 words, with no editing. But we may provide commentary. 😉  )

What is more to the point of DeepCapture, however, is that until this latest turn of events, Barry Minkow and Sam Antar had, notwithstanding their prior convictions on massive financial crimes, successfully repositioned themselves within the US financial media as experts in crime-fighting (see 60 Minutes‘ 2006 puff-piece on Barry Minkow, “It Takes One to Know One“, and Fortune Magazine’s 2007 lotion-job on Sam Antar, “Takes One to Know One“). Barry and Sam used the imprimatur of the mainstream press to return to criminal behavior (which Barry has now acknowledged). The ease with and degree to which the New York financial media swallowed this remarkable bullshit  will attest for a generation to the intellectual corruption and broad imbecility of broad swathes of the US financial media.

No, seriously. That really happened.  Two convicted financial felons, the Madoff’s of their generation, made comebacks by gulling the financial press into writing lotion-job stories saying that they were now reformed and devoted to stopping crimes, not committing them.  Here is UPI on Barry Minkow: “Barry Minkow: Cleaning up, reaching out.” Here is, again, Fortune Magazine from late 2007: “Takes one to know one -Sam Antar, the felonious former CFO of Crazy Eddie, is now teaching students and prosecutors how to spot fraud in public companies.” And then, it turns out, both used their new-found status as authorities to whom the press turned in order to resume their criminal activity, which again, as of yesterday, leaves Barry hoping for only a five year sentence, and his paymaster Sam Antar with laryngitis.

In the spirit of reconciliation and forgiveness, however, I will offer the US financial media one concession: your gullibility is understandable. In high school I had a history professor who brought an actual American Nazi to class, and let us argue with him. For many of my classmates debating the Nazi was like trying to nail Jell-O to the wall. I discovered that only if one can grasp the concept of “complete venality” can one defeat a scoundrel. Many people, however, are intellectually helpless against such people, because deep down they cannot grok the possibility that anyone can spin and lie and spin and lie and spin and lie and spin some more, then lie and lie on top of it.

I believe that the preceding accurately describes the mentality of some US journalists who gave these knuckleheads more credit than they should have. For others, however, giving credence to Sam Antar or Barry Minkow was simply an expression of an ideological commitment: those publications favor Wall Street over the United States, and they were willing to give credence to Barry and Sam’s work in order to further the agenda of Wall Street, which is more or less the purpose of their publications.

I know that is a lot to accept. So don’t trust me, trust a Florida state court judge, The Honorable Gill Freeman, who brought her hammer down on Barry Minkow.  Judge Freeman’s entire  opinion can be read here: Order Granting Lennar’s Motion for Sanctions–Dec 27 2010 (warning: It is so scathing one almost feels sorry for them. Or, well… maybe not.)

I cannot help resist quoting at length from it: as you read Judge Freeman’s words, please remember my description of the American Nazi.

THIS CAUSE came before the Court on Plaintiffs Motion for Sanctions and for entry of default and other relief against Defendants Barry Minkow and the Fraud Discovery Institute, Inc. for their willful and egregious litigation misconduct. The parties filed extensive papers in support and in opposition of the motion, and the Court held a two-day evidentiary hearing on August 26 and 27, 2010 at which time Mr. Minkow was examined by Plaintiffs’ and Defendants’ counsel, as well as the Court.

Having carefully considered all the papers, the evidence filed by both parties, evidence introduced at the hearing, including Mr. Minkow’s testimony, and arguments of counsel, it is ORDERED and ADJUDGED that Plaintiffs’ Motion be, and the same is hereby, GRANTED as set forth below, based on the following findings of fact and conclusions of law.

With full knowledge of the rules and his obligations as a litigant in this Court, Mr. Minkow has withheld key documents, destroyed or discarded important evidence, concealed the identity of material witnesses, willfully violated court orders, and engaged in actions to cloud his misconduct. Minkow repeatedly intentionally misrepresented these matters to his own lawyers, in sworn affidavits filed with this Court, at depositions in this case, and at the evidentiary hearing itself, including in response to questions from this Court. Mr. Minkow was repeatedly impeached by his own documents, documents he never produced in this case as to material issues. The evidence clearly and convincingly established that Minkow has acted knowingly, unilaterally, and improperly in deciding what evidence is relevant and what information Lennar, the Court, and his lawyers should and should not know.

Minkow’s misconduct has been pervasive, intentional, and committed to gain unfair advantage over Plaintiffs and to deceive this Court. Lennar and its counsel spent numerous hours investigating Minkow’s activities in this litigation, and evidence which Plaintiffs have repeatedly requested has been discarded and/or irretrievably lost.

Plaintiffs’ right to fair process and trial has been severely and irrevocably compromised. No remedy short of default, together with full reimbursement of the attorneys’ fees and costs incurred in connection with Plaintiffs’ extensive and continuous efforts to obtain evidence and discovery, can restore Plaintiffs to “the position [it] would have occupied in the absence of [Minkow’s] willfulness and bad faith.”

In its papers and at the evidentiary hearing, Lennar introduced substantial evidence that Minkow created and tendered false documents in this case.

Fact No.7: In this case, Minkow has been represented by three experienced, capable attorneys: Alvin Entin and Joshua Entin of Florida, and Michelle Baker of California. The Court finds that Minkow misled his attorneys multiple times on material issues.

Fact No.9: Minkow testified he could not recall whether he sent the letter to any person with whom he worked on the Lemlar investigation, including Tracy Coenen, Terry Gilbeau, Paul Palladino, Jeff Sachs, Sam Antar, or Shannon Boelter, or otherwise instruct any person to preserve documents in connection with this litigation. [emphasis added]

Fact No. 11: The evidence also showed that Tracy Coenen, Terry Gilbeau and Sam Antar deleted emails about Lennar they had exchanged with Minkow…

Fact No. 21: On October 7, 2009 Minkow submitted an affidavit swearing that he had produced all documents in his possession, custody, and control responsive to Lennar’s document demands and this Court’s June 15 and July 9, 2009 Orders. (Ex. 10 at”if”if 5-7; Ex. 8; Ex. 16; Ex. 20.)

Fact No. 22: These sworn statements in Minkow’s October 7, 2009 affidavit were false. At the time he represented that he had made a complete production, Minkow had possession, custody, or control of numerous documents responsive to Lennar’s document demands and this Court’s June 15 and July 9, 2009 Orders, including but not limited to, the following documents material to this case:

• a version of the November 30, 2008 engagement agreement between Minkow and Nicolas Marsch containing a six-page, 11-point “confidential proposal” (Ex. 202); .

• another version of the November 30, 2008 engagement agreement between Minkow and Nicolas Marsch containing materially different compensation terms (Ex. 200);

• numerous emails with Mr .. Marsch, Paul Palladino, Tracy Coenen, Sam Antar,Terry Gilbeau, Shannon Boelter, and other individuals involved in the Lennar investigation;

Fact No. 23: Minkow knew he had possession, custody, or control of these and other documents, but made the decision to withhold them.

Fact No. 25: At the August 26,2010 hearing, Minkow admitted that he withheld these documents and others but said it was “negligent” because, at the time he represented he had produced all responsive documents, Minkow was working “18 hours a day” filming a movie about his life and he was “swamped and overwhelmed.”  The Court does not find this testimony credible and rejects this excuse.

Fact No. 26: On several subsequent occasions, when he was not filming a movie including as recently as August 11, 2010, Minkow continued to withhold documents and falsely represent that he had produced all documents in his possession, custody, or control responsive to Lennar’s document demands and this Court’s June 15 and July 9, 2009 Orders.

Fact No. 27: On each occasion, Minkow knew he had possession, custody, or control of such documents responsive to the Court’s Orders, but he–alone-made
the decision to withhold them.

Fact No. 28: Minkow’s year-long withholding of documents was not inadvertent, accidental, or negligent.

Fact No. 29: Minkow withheld documents he perceived to be harmful to his case. Among other things, the concealed documents demonstrate:

• that Minkow’s investigators questioned the accuracy of statements of fact he included in his report on Lennar;

• the perfunctory nature of Minkow research and investigation before he accused Lennar and its executives of operating like a ponzi scheme, giving its COO a disguised kickback, being a financial crime in progress, and other statements; and

• Minkow’s use of possibly illegal means to obtain personal, confidential information about Lennar, its executives, and others.

Fact No. 30: By withholding these documents, Minkow wilfully violated the Court’s June 15,2009 Order and the Court’s July 9, 2009 Order.

Fact No. 31: Minkow introduce~ no credible evidence to substantiate his assertion that he was unable to produce documents because his Hewlett Packard computer was stolen, crashed, and/or was hacked.

Fact No. 32: The evidence showed that in February 2010, Minkow was named as a defendant in another matter by a company called Medifast, Inc. … Lennar is not a party to that case.

Fact No. 33: In April and May 20 I 0, Medifast had· served Minkow with requests for documents in their case. On July 1, August 10,16, and 23,2010, Minkow produced more than 4,000 pages of documents to Medifast, including scores of emails. Among the documents produced to Medifast were documents that should have been, but were not, produced in this case despite this Court’s June 15 and July 9,2009 Orders.

Fact No. 34: When confronted at the evidentiary hearing with a document from the Medifast production, but not produced here, one that was responsive to Lennar’s document requests-Minkow testified, “I never even thought this had anything to do with it… What in the world would make me think I had to tum it over to Lennar?”

Fact No. 35: This testimony is not credible and, even if it were, demonstrates Minkow’s contemptuous disregard for the rules of litigation and his belief that he–not the Court-determines what is relevant.

Fact No. 36: The documents Minkow produced to Medifast-but not in this case-refute Minkow’s testimony that he was unable to produce emails in this case because his computer had been stolen, crashed, and/or hacked.

Fact No. 37: Lennar has incurred great expense to procure some evidence from third parties, and it is highly probable considerably more evidence that Minkow should have produced has been withheld, deemed irrelevant by Minkow himself, concealed and/or destroyed. Due to Minkow’s misconduct, neither Lennar nor the Court has any way of knowing the nature, extent, or volume of evidence that should have been produced but has been concealed and destroyed.

Fact No. 40: Minkow had represented that the Hewlett Packard computer on which he performed the vast majority of work related to his investigation of Lennar (and on which he had exchanged untold numbers of emails with Tracy Coenen, Terry Gilbeau, Paul Palladino, Jeff Sachs, Sam Antar, Shannon Boelter and others) had earlier been hacked, and likely was destroyed and/or discarded; after Minkow was added as a defendant in this case, after being served with a preservation letter, after being served with a Notice of Deposition Duces Tecum requiring the production of documents, and after Plaintiff had filed its first sanctions motion.

Fact No. 41: Minkow has not introduced any credible evidence that all information from the Hewlett Packard was copied, duplicated, stored, and preserved without the loss of discoverable evidence.

Fact No. 42: Minkow admitted that the transfer of his email archives from the Hewlett Packard to a new computer was “incomplete.”

Fact No. 43: On July 21,2010, the Court ordered Minkow to appear and provide testimony at an evidentiary hearing scheduled for August 4, 2010. The
Court allowed Minkow to appear in San Diego and provide testimony via videoconference.

Fact No. 44: Lennar made significant preparations to arrange the videoconference for the hearing on August 4.

Fact No. 45: On July 30,2010, Minkow agreed to voluntarily appear live in Miami at the evidentiary hearing scheduled for August 4, 2010.

Fact No. 46: Lennar relied on Minkow’s representation and Lennar’s counsel made significant preparations to attend and examine Minkow in person at the
hearing on August 4 in Miami.

Fact No. 47: On the morning of August 3, 2010, Minkow informed the Court that he would not attend the hearing scheduled for August 4, 2010 in person or via video conference from California. Minkow asserted that on August 2, 2010, while in Los Angeles awaiting a flight to Miami, he became ill and went to the emergency room at a Los Angeles hospital. Minkow represented that he was restricted from traveling to Florida for the hearing.

Fact No. 48: On August 4 and 10, 2010, the Court ordered Minkow to produce, among other things, evidence that he had been to the emergency room / hospital.

Fact No. 49: Ten days later, on August 20, 2010, Minkow submitted an affidavit wherein he admitted that he had not gone to the emergency room.  Minkow had lied to Plaintiffs, the Court, and his own lawyers.

Fact No. 50: Minkow swore that he could not “recall” what he had said to his lawyers and his assistant the morning of August 3, 2010 because he was on pain medications. The Court does not find this testimony credible.

Fact No. 51: The Court finds that Minkow intentionally deceived Plaintiffs and the Court regarding the emergency room visit because he knew that such a claim would require this Court to postpone the August 4, 2010 hearing.

Fact No. 52: At the August 26,2010 hearing, Minkow testified that he “didn’t think it [whether he went to the emergency room] mattered. I had a doctor verifying I was ill, and I thought that is all that mattered.”

Fact No. 53: This testimony is not credible and demonstrates Minkow’s contemptuous disregard for the rules of litigation and his belief, again, that he-not the ermines what is relevant.

Fact No. 54: At the August 26, 2010 hearing, when Minkow was impeached by the fax header on his own doctor’s letter, Minkow testified for the first time that the assistant who picked him up in Los Angeles was not in San Diego, California, as he earlier had testified, but rather was in Orange County, California.

Fact No. 55: This testimony contradicts his affidavit ofless than a week earlier in which he swore that his assistant “drove to Los Angeles from San Diego, California.”

Fact No. 56: When confronted with his contradictory. affidavit, Mr. Minkow testified that the location of his assistant was “irrelevant.”

Fact No. 57: This testimony is not credible and demonstrates Minkow’s contemptuous disregard for the rules of litigation and his consistent belief that he, not the Court, determines what is relevant.

PERVASIVENESS OF MINKOW’S MISCONDUCT

Fact No. 95: Minkow’s withholding and destruction of evidence, concealment of witnesses, and false testimony constituted a fraud on the Court.

Fact No. 96: Minkow has displayed no regard for the Court’s Orders, his testimonial oaths, the administration of justice, or his obligations as a litigant.

Fact No. 97: Minkow had ample opportunity to correct his misconduct and avoid sanctions. Minkow chose not to do so.

Fact No. 98: Minkow has wrongfully acted as though it is his right, not that of the Court, to determine what documents are relevant, what issues are material, and what information the Plaintiffs, the Court, and even his own lawyers should and should not know.

Fact No. 99: Minkow has displayed no appreciation of, or remorse for, the burden and expense that his withholding and destruction of evidence, concealment of
witnesses, false testimony, and other misconduct have caused Plaintiffs and the Court.

Fact No. 100: The Court finds that the likelihood Minkow would comply with his discovery obligations or the Court’s Orders in the future is unlikely.

Remember what I said above about the American Nazi? How if someone lies and spins and lies and lies some more, they can actually keep going for a long time?  When you catch them out in a lie, they often apologize, say they are sorry. Lots of them even cry (really, I see it every time I deal with sociopaths). They then continue with a new lie, a new spin, until you catch them again. They just keep going and going.

That is a pretty fair description of Judge Freeman’s description of Barry Minkow. Withhold evidence and lie about it by saying the evidence was destroyed; Destroy the evidence then lie about that; when confronted, say that your computer was hacked and that evidence is gone (even though it is not); when told to appear in court, claim that you have been in an emergency room; when asked for evidence you were in an emergency room, say that a doctor gave you advice; when confronted with the fact that the doctor’s letterhead reveals a forgery that shows you were lying, change the city. And so on and so forth.

Incidentally, this pattern continues almost to this day. In February, 2011, LA Weekly reported: “Pastor Barry Minkow’s Community Bible Church Hit by $50,000 Burglary; Ex-conman Minkow Has a History of Faked Burglaries”.

I assume that Barry will go find God again, or claim he was off his medications, or or or. A guy like this can never own what he does. However, simply as a tactical matter, he can apologize. That will come someday, and he will sound sincere, and Fortune Magazine or Bloomberg or Portfolio Magazine will trumpet the redemption of a fraudster, who will then go on and attack a list of companies that bears striking resemblance to the list of companies being bet against by the favorite hedge fund sources of those same publications.

However, I would like to draw attention to the names “Tracy Coenen” and “Sam Antar“, which appeared repeatedly in the judge’s order.  “The evidence also showed that Tracy Coenen, Terry Gilbeau and Sam Antar deleted emails about Lennar they had exchanged with Minkow,” wrote Judge Freeman. They destroyed emails, says the judge, but “Minkow testified he could not recall whether he sent the letter”  Tracy Coenen and Sam Antar instructing them to preserve documents.

So Tracy and Sam just happen to have deleted  all their email traffic on the precise subject of the lawsuit, and did so in some magically irrecoverable way. Sure, it happens all the time. “What judge, those emails? Oh, I was watching NBA and hit my laptop’s magic delete key and all those emails vanished from my laptop, and from my server, and coincidentally as I passed in front of my microwave my hard drive got wiped the recommended 3-7 times to US Department of Defense clearing standard DOD 5220.22, and gosh, I’m sorry, but none of those emails can be recovered.”

The strangest thing about such folks, like the strangest thing about the American Nazi, is the fatuity with which they tell lies, knowing they are lies, knowing that you know they are lies, and knowing that you know that they know that you know they are lying. I have had to deal with it a few times in business settings, and it really is remarkable. Again, only when they are completely cornered (and I have had reason to do so on occasion), they burst into tears, own everything they did as long as you have already proven it, promise they will never do it again, and watch out of the corners of their eyes to see if you are buying it. Like Barry Minkow is probably doing in a federal interview room right now.

That is the dynamic you need to be understand in order to comprehend people like this. Those familiar with Sam Antar’s work will recognize how his modus operandi is indistinguishable from his friend Barry’s: the rules do not apply, just lie and attack and lie and attack and lie and pretend to do “fraud research” as a cover for your own criminal activity, and chum friendly journalists into buying into it all, and hope no one digs deeper into your smears.

That said, now that you understand the nature of Barry Minkow, might it be worthwhile for some actual journalist to pursue the following line of research:

  • Judge Freeman found as Fact 29:  “Among other things, the concealed documents demonstrate the perfunctory nature of Minkow research and investigation before he accused Lennar and its executives of operating like a ponzi scheme, giving its COO a disguised kickback, being a financial crime in progress, and other statements”. In other words, Minkow took payments, did bogus research, then made wild criminal accusations.  The Feds have now hit him with criminal charges, and he is (according to his lawyer) in the middle of plea bargaining, hoping to get only 5 years. But Minkow is small potatoes. He was paid to do these things by someone.  Who was paying Minkow?
  • Barry Minkow testify under oath that Sam Antar, paid him over $250,000 in two wires in 2006. But Sam Antar is a bankrupt, and claims to be broke. Do broke people normally send quarter-million dollar wires?
  • Barry Minkow testified (see around 9:59) that Whitney Tilson, the well-known New York hedge fund manager, paid Minkow $40,000 to write a “report”? Does that strike anyone as odd?  Given how “perfunctory” Minkow’s investigations are, why would a money manager like Whitney Tilson pay Barry Minkow? When Whitney Tilson took his clients’ funds to manage, did he tell them that he would be making decisions based on the insights of the inestimable Barry Minkow? Or, did Whitney Tilson pay Barry Minkow for other reasons?

If we actually had journalists in this country, they would not need this laid out in such a paint-by-the-numbers fashion.

Still, hope springs eternal….

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Notes on David Einhorn: The Predator in a Cute T-Shirt

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Notes on David Einhorn: The Predator in a Cute T-Shirt


I received an email a while back from Jim Brickman, a crony of short selling hedge fund manager David Einhorn, demanding that I post the Securities and Exchange Commission inspector general’s report on the commission’s investigation of Allied Capital. According to Brickman, the report proves that Einhorn was right about Allied being a massive fraud. Moreover, says Brickman, the report definitively establishes that Einhorn did not seek to drive down Allied’s stock price. The report, which I gladly post below, does nothing of the sort. I will discuss the report in further detail, but first a little history.

Eight years ago, Michael Milken, the famous financial criminal, appeared in the offices of a top Allied Capital executive. “You know,” Milken told the executive, “I already am quite a large shareholder of your stock – but my name will never show up on any list you’ll see.”

This might have been a reference to a practice called “parking stock” (owning stock but “parking” it in the accounts of friends with whom one has made under-the-table arrangements), a practice that figured in the high-count indictment that sent Milken to prison in the 1980s. It appeared to the Allied executive that Milken was fishing for inside information about Allied and threatening an attack. For a variety of reasons, short-side stock manipulators in the Milken network often accumulate large numbers of shares in the companies that they seek to destroy.

Not long after Milken’s strange appearance, David Einhorn was at a hedge fund luncheon, sitting next to Carl Icahn, one of Milken’s closest cronies. Einhorn launched his career working for Gary Siegler, who was formerly a top partner in Icahn’s investment fund, and is certainly part of the Milken network. So, it was not surprising to Allied’s executives when, halfway through the luncheon, Einhorn declared that “Allied Capital is going to zero!”

For the next eight years, Einhorn led a vicious campaign against Allied, loudly and publicly pronouncing that the company was a massive Ponzi scheme and an all-around fraud that could be as big as Enron. Of course, Einhorn’s vituperative remarks had nothing to do with the massive profits that Einhorn stood to earn from short selling Allied’s stock. Rather, Einhorn was just doing his duty as a concerned citizen – or so his slick public relations operation would have us believe.

I will give Einhorn credit. He is a master of spin. In 2008, he published an aptly titled book, “Fooling Some of the People All of the Time”, wherein he provided an ingeniously self-serving portrait of himself as a tenacious hero doing battle against not only the evil Allied Capital, but also powerful Washington insiders, financial journalists, and government regulators – i.e. all the people who reviewed his “evidence” and concluded that Allied was by no means a massive fraud.

Really, Einhorn’s book should be placed in a glass case at the Museum of Contemporary Propaganda, as it is such a work of art. Anyone familiar with the world of abusive short selling will read this book and see that Einhorn engaged in all manner of shenanigans to obtain inside information and drive down Allied’s stock price. But the dark genius of Einhorn’s book is that it manages to portray his malefaction as par for the course – just another day in the life of a noble fraud-buster.

For example, Einhorn admits in his book that he invested in a fund run by a man who had recently served as the chairman of Allied Capital’s board of directors. Could this investment have been a bribe? Was Einhorn seeking inside information about Allied? Certainly not. The investment was purely incidental, Einhorn assures us. And you, dear reader, should be ashamed of yourself for even asking such questions. Indeed, your suspicions make you part of the problem. You are an ignorant thug who wants to “intimidate” Einhorn and other short selling “critics” who selflessly do battle with public corporations.

In his book, Einhorn notes the SEC initiated an investigation into his short selling of Allied Capital. In the course of this rather cursory investigation, an SEC official sought to determine whether Einhorn was colluding with other hedge funds, including William Ackman’s Gotham Partners (now called Pershing Square Capital) and Whitney Tilson’s T2 Partners, to drive down Allied’s stock. The official asked this question:  “Mr. Einhorn, have you ever compensated [short selling hedge fund] Gotham Partners…for providing you with an investment idea?”

Einhorn answered, “Except in-kind, no.” Then Einhorn consulted with his lawyer and changed his mind. He went back to the SEC official and said, “I think the more correct answer to your question is that there’s been no compensation for the ideas.” The moral of this story, according to Einhorn’s book, is that the investigator was a bumbling idiot for asking such a question. And, you, dear reader – don’t even think of asking the same question. If you do, you’re part of the problem. You’re trying to “intimidate” Einhorn.

You see, it is perfectly natural for hedge funds to share ideas. Of course, hedge funds must not be required to report their short positions to the SEC or otherwise disclose their “proprietary trading strategies.” Hedge fund trading is top-secret so far as the public is concerned. But, says Einhorn, when we hedge funds “share ideas,” it’s just us pros talking shop. Really, says Einhorn, you can trust me…and, oh, did I say “payment in-kind”? Oops — slip of the mind.

Is it possible that hedge funds exchange “ideas” because it is profitable for them to do so? Surely not. Is it possible that these “idea” exchanges are nothing more than collusion – hedge funds agreeing to pile on to the same companies to put downward pressure on stock prices? How dare you ask such a question. Allied Capital asked that question. And Allied is very bad, says Einhorn — Allied tried to “intimidate” me!

Really, Einhorn says this all the time – people tried to “intimidate” him. He was hurt. But he’s a hero. He stood up to the critics. And, he assures us in his book, it was perfectly natural for him to collude (sorry, “share ideas”) with not just Tilson and Ackman, but also Eastbourne Capital’s Jim Carruthers. You see, Carruthers is really smart guy who does good research.

What Einhorn does not mention in his book is that Carruthers has sometimes spelled his name with a ‘K’ to disguise his identity while passing himself off as a friendly private investigator in order to deceptively acquire inside information from companies like Allied Capital. But let’s not criticize Carruthers. We don’t want to “intimidate” him. We don’t want to be part of the problem.

And shame on the SEC for having the temerity to investigate Einhorn. In fact, the SEC did nothing but ask Einhorn a few questions. Meanwhile, Einhorn convinced the SEC to launch an investigation of Allied. Then Einhorn all but directed this massive but ultimately misguided investigation for a period of three long years.

As Einhorn admits in his book, his hedge fund partner had a “social” relationship with William Donaldson, then the Chairman of the SEC. That’s how Einhorn got the investigation of Allied started. As the investigation progressed, Einhorn says, SEC officials even asked him to be their “cartographer” – outlining all the ways in which Allied was supposedly a massive Ponzi scheme, and also failing to mark its assets to “fair value” (i.e. the arbitrary value at which Einhorn believed the assets could be sold in a fire sale).

Clearly, Wall Street miscreants like Einhorn had captured the SEC to the point where the Wall Street miscreants were virtually running the place. But in the upside down reality presented by Einhorn’s book, the fact that a few SEC officials doubted the hedge fund manager’s sincerity is proof that the commission had been corrupted, not by Wall Street miscreants, but by corporate executives who wanted to “intimidate” Einhorn.

That’s right, the SEC, following Einhorn’s orders in microscopic detail, conducted an investigation of Allied that was so huge that Allied had to create a “Department of Investigations” to handle all of the commission’s requests for new information. But it was Allied’s executives, not Einhorn, who were peddling influence at the SEC. You don’t believe it? Read Einhorn’s book – agitprop at its best.

As for the media – well, Einhorn is deeply disappointed. Of course, Einhorn heaps praise on journalists such as Jesse Eisenger, then of The Wall Street Journal; Carol Remond of Dow Jones Newswires; and Herb Greenberg, formerly of MarketWatch.com and TheStreet.com. These journalists wrote multiple negative and false stories about Allied Capital, precisely mimicking Einhorn’s allegations that the company was a massive fraud.

As it happens, these are the same journalists that Deep Capture has shown to have had too-cozy, and in some instances, outright corrupt relationships with a select crew of short selling hedge fund managers, including David Einhorn. Indeed, it is fair to say that Einhorn and others in his network had captured some of the biggest names in financial journalism to the point where the hedge fund managers were able to virtually dictate the journalists’ stories.

But Einhorn was disappointed – the media failed him. That is to say, a number of honest journalists looked at Einhorn’s “evidence” and concluded that it was balderdash of the highest order. But, no, these journalists were not honest. They were ignoramuses. They are part of the problem. They should be publicly shamed. One of them even investigated Einhorn. This was an outrage. It was hurtful. It was “intimidation.”

Look, lying and cheating short-sellers are essential watchdogs, they add liquidity to the markets, and they are really very fragile people. Nice people, too. They don’t even care about money. You don’t believe me? Read Einhorn’s book. “I remember Grandpa Ben…,” Einhorn writes on page one, and after that he regales with countless folksy anecdotes and assorted other bullshit that – well, believe me, it brings tears to the eyes.

Einhorn even lets us know that he is going to donate some of the proceeds from his short selling of Allied to needy children. “I have been waiting,” he writes, “but the children should not have to wait.”

As far as I know, the children are still waiting. Although Einhorn has made enormous profits from his short selling of Allied, he has provided no evidence that his contributions to charity have significantly increased. But it is clear that the purpose of his book was not to tell the truth. It was to inoculate himself from public criticism and regulatory scrutiny in preparation for his next big project – the destruction of Lehman Brothers.

In May 2008, soon after releasing his book on Allied Capital, Einhorn’s launched his attack on Lehman in a speech that he gave at an event that was ostensibly held for the purposes of – what else? – raising money for needy children. Einhorn began this speech by discussing his supposedly philanthropic fight with Allied. He then  proceeded to give a grossly exaggerated account of Lehman’s problems, suggesting that Lehman was a massive fraud for precisely the same reasons that Allied was a massive fraud – namely, that it had failed to mark down its real estate assets to “fair value,” with “fair value” defined not by any reasonable metric, but by Einhorn himself.

Lest there still be any doubt that Einhorn really was a crusading crime-fighter, rather than a profit-seeking hedge fund manager, he hired an expensive lobbying outfit called the Gordon Group to orchestrate an astounding public relations campaign. The Gordon Group, whose key clients seem to be Einhorn and Einhorn’s network of hedge fund managers (including the above mentioned William Ackman and Whitney Tilson) is staffed by real professionals. Their Einhorn campaign was marked by the sort of hype that normally accompanies the launch of a new teen-idol band.

But it wasn’t just hype. It was also a particularly greasy sort of deception – imagine a pimp marketing a cheap 42nd Street hooker. Really, she’s not in it for the money. She’ a virginal college undergrad who loves her teddy bear.

Well, the media swooned for the cuddly Einhorn. This was the same media that Einhorn had accused of bungling idiocy, but never mind that – now he had glowing profiles in many of the top news publications, and a three-hour appearance on CNBC.  Half-way through his CNBC debut, Einhorn put on a cute t-shirt painted by his young kids — just to show that he was a regular guy and a lover of children, as opposed to a marauding hedge fund manager seeking to obliterate one of America’s largest investment banks.

In all his media interviews, Einhorn reminded journalists that Allied Capital had “intimidated” him. He said he had stood up to the bullies and proven that Allied was a massive fraud. Then he smoothly transitioned into a discussion of Lehman Brothers, suggesting to the journalists that Lehman was just like Allied, a massive fraud. He said Lehman was trying to “intimidate” him, but he would fight on in the name of truth and justice. The journalists swallowed this nonsense without an ounce of skepticism.

I do not mean to suggest that Lehman Brothers was a clean bank. Clearly, it engaged in some shady accounting, including its now notorious Repo 105 transactions. Its brokerage probably catered to criminal market manipulators. But while Lehman was a deeply troubled bank, it is also true that it was subjected to a wave of false rumors, each one accompanied by illegal naked short selling. With all the manipulation that accompanied the attack on Lehman, it was difficult to know what the truth about the company really was.

In the midst of the attack on Lehman, Adam Starr, the manager of hedge fund Gulfside Partners, was moved to write a letter to Lehman’s CFO, stating, “I have never witnessed more disruptive behavior than that displayed over the past year by David Einhorn.” In a recent interview with Reuters, Starr said that Lehman had clearly had serious problems, but that was besides the point. The point, Starr said, was that Einhorn was up to no good – “manipulating the market and running a high publicity business is just not appropriate behavior and disruptive to free and open markets.”

As for Einhorn being “right” about Lehman, it is important to note that the court-appointed examiner’s report on the Lehman bankruptcy does not support Einhorn’s principal claim – that Lehman’s executives fraudulently and massively overvalued the bank’s commercial real estate assets. “With respect to commercial real estate,” says the report, “the Examiner finds insufficient evidence to conclude that Lehman’s valuations of its Commercial portfolio were unreasonable as of the second and third quarters of 2008.”

Lehman’s valuations might have been high, but Einhorn’s shrill exaggerations and insinuations of fraud were clearly designed to induce panic. And sure enough, panic ensued. With potential business partners wondering whether Lehman was, in fact, massively overstating the value of its commercial real estate, the bank was unable to raise new capital.

To protect itself, Lehman sought to spin off the real estate assets, but by that time it had come under a brutal and criminal naked short selling attack, with more than 30 million of its shares failing to deliver. The plummeting stock price and continuing false rumors in the marketplace derailed Lehman’s other efforts to protect itself and triggered a run on the bank that ended with Lehman’s demise.

In short, Lehman was a bad bank. Regulators should have forced it to reform. Instead, they and the media allowed short selling “vigilantes” like Einhorn to manufacture a much bleaker reality and bring a major investment bank to its knees. It is quite possible that if it weren’t for Einhorn and other dissembling investor “activists”, Lehman would have survived, and the financial system would have had a much softer landing.

Lehman has subpoenaed records from Einhorn and his close colleague, Steve Cohen of SAC Capital,  in hopes of determining the extent to which the hedge fund managers had a hand in its demise. Perhaps those subpoenas will give us a clearer picture of what really went down, but meanwhile we can expect Einhorn’s PR machine stay “on message” – constantly repeating that Einhorn was “right” about Lehman, just as Einhorn was “right” about Allied Capital.

Which brings us to the inspector general’s report on the SEC’s investigation of Allied. Given that Einhorn, his minion Jim Brickman, and the rest of his PR machine are waving this report with glee, and no doubt preparing to use it as cover for Einhorn’s next attack on a public company, it is important that we subject the contents of the report to close scrutiny.

The report concludes that “serious and credible allegations against Allied were not initially [my emphasis] investigated” by the SEC, but contrary to Einhorn’s ridiculous claims that nobody listened to him, the inspector general notes that the SEC did ultimately conduct “a lengthy examination of Allied as a result of Einhorn’s allegations…”

SEC officials met with Einhorn on multiple occasions to review his allegations. They also scoured through millions of Allied emails and the cart-loads of other documents that Allied supplied every time Einhorn came to the SEC with a new set of accusations.

Having conducted this gargantuan investigation, the SEC concluded that most of Einhorn’s allegations were bogus. Allied was fined for having mildly inadequate accounting methods that might have overvalued some of the company’s assets, but the SEC determined that Allied certainly was not the “massive fraud” that Einhorn claimed it to be.

In addition, Allied was not, as Einhorn claimed, a massive Ponzi scheme. Einhorn had made the smarmy suggestion that Allied was a Ponzi because it supposedly raised money from the markets to pay its dividends. An SEC official told the inspector general that this claim was patently false – it was perfectly obvious that Allied legitimately paid dividends out of earnings.

The inspector general’s report notes that one SEC official claimed to have gotten “push back” when she tried to dig deeper into the Ponzi scheme allegation. But nowhere in the report does the inspector general conclude that any such Ponzi scheme existed. Clearly, Einhorn is no Harry Markopolos. Markopolos uncovered a $50 billion fraud (that of Bernie Madoff). Einhorn blew the whistle on a crime that didn’t exist. Yet, Einhorn’s slithering PR effort never ceases to amaze – somehow he has managed to attach himself to Markopolos, and even wangled a deal to write the introduction to Markopolos’s blockbuster book.

The inspector general seems to believe that the investigation of Allied could have been more thorough in some respects. For example, SEC officials didn’t visit Allied’s offices, and one SEC official was a bit too quick to believe that Allied was innocent just because former SEC officials worked for the company. But, again, the inspector general does not state that the SEC was wrong to conclude that Allied was innocent of any major crime.

The inspector general’s most damaging conclusions about Allied concern the company’s efforts to lobby the SEC. Apparently, some Allied lobbyists secured an unusual meeting with SEC officials and managed to convince these officials that Allied deserved a lighter fine. It also appears that a former SEC official went to work as an Allied lobbyist and might have gotten his hands on Einhorn’s phone records.

The inspector general is right to suggest that Allied’s lobbyists crossed the line. It is not kosher for a public company to pry into a private citizen’s phone records. But given that Einhorn had all-but moved his offices into SEC headquarters, and given that Einhorn had his own private investigators going to unknown lengths to dig up “dirt” on Allied (he admits in his book that he hired Kroll, a private investigative agency that owes its existence to Michael Milken, who was its first big client), Allied can hardly be blamed for taking steps to defend itself.

In any case, the inspector general’s report is more an indictment of the SEC than of Allied’s lobbyists. The overall picture that emerges is one of a government agency split into two factions, one populated by friends of Allied’s lobbyists, the other populated by officials who were basically taking orders from hedge fund managers like David Einhorn. It seems that nobody at the SEC was capable of conducting an investigation without having his or her hand held by some self-interested party. But it is clear from this case and many others like it that the hedge fund faction won the day.

The inspector general states in his report that it was Allied’s lobbyists who convinced the SEC to investigate Einhorn. The report concludes that the SEC initiated this investigation “without any specific evidence of wrongdoing.” That might be so, but officials do not generally obtain “specific evidence” unless they seriously look for it. And it is clear from the contents of the inspector general’s report that the SEC’s investigation of Einhorn was an unmitigated joke, even though officials had good reason to suspect that Allied’s stock was being manipulated.

The report notes, for example, that the SEC subpoenaed Einhorn’s client list in response to Allied’s complaints and discovered that Einhorn had a certain “celebrity client”, whom the inspector general does not name. Could this “celebrity client” have been Michael Milken? We cannot know for certain, but it seems like a good guess, given that the discovery of this “celebrity client” followed Allied’s complaint to the SEC, and given that Allied had complained that Einhorn might be colluding (sorry, “sharing ideas”) with one specific celebrity – Michael Milken.

In any case, it appears from the inspector general’s report that the SEC did nothing to determine how Milken, who is banned from the securities industry, became “quite a large” shareholder of Allied’s stock. Nor did the SEC seek to determine what Milken was doing that day in Allied’s offices.

Meanwhile, some SEC officials seemed to believe that Einhorn was colluding with other hedge fund managers to drive down Allied’s stock. To see whether the hedge fund managers called each other and then placed their trades at precisely the same time, the SEC subpoenaed Einhorn’s phone records. But according to the inspector general’s report, Einhorn did not bother to comply with this subpoena. He never handed over the phone records, and nobody at the SEC seemed to notice or care. Which is funny, because Einhorn states in his book that he did hand over his phone records. Indeed, he goes to great lengths to describe how hurt he felt about this. The SEC was “intimidating” him.

Perhaps because it was weary of “intimidating” hedge fund managers, the SEC also apparently did nothing to investigate illegal naked short selling of Allied’s stock. From the moment that Einhorn declared that Allied was “going to zero”, and for many months afterwards, Allied’s stock “failed to deliver” in massive quantities – a sure sign of criminal naked short selling. We do not know that Einhorn, others in the Milken network, or their brokers were committing this crime. Maybe it was someone else. Either way, it was not beyond the pale for Allied to ask the SEC to investigate. Or maybe it was. After all, the SEC wouldn’t want to “intimidate” criminals.

It is also notable that literally minutes after Einhorn declared that Allied was “going to zero”, the corrupt law firm Milberg Weiss filed a class action lawsuit against Allied that almost precisely mimicked Einhorn’s allegations. Indeed, Milberg filed a class action lawsuit against nearly every company attacked by short sellers in the Milken network.

A couple of years ago, Milberg’s top partners went to jail after prosecutors determined that the partners routinely bribed the plaintiffs in such lawsuits and knew in advance that some event would collapse the stock prices of the companies named in the lawsuits. Einhorn claims that the timing and contents of Milberg’s lawsuit were coincidences. We’ll never know the truth because the SEC doesn’t want to “intimidate” short sellers and corrupt law firms.

There were other “coincidences”. For example, supposedly “independent” financial research shops, such as Off Wall Street Research and Farmhouse Equity Research, published reports that closely paralleled Einhorn’s negative analysis of Allied Capital. The Motley Fool reported in 2007 that Einhorn’s confederate Jim Brickman helped Farmhouse write its research on Allied, and received a copy of at least one of these research reports one week prior to its publication.

Brickman, who is a bit of a mystery character (he refused to provide me with any information about his background), told the Motley Fool that he and Einhorn didn’t see the advance copies of the reports because of “travel constraints.” Allied complained to the SEC that the research shops were helping Einhorn manipulate its stock price and illegally trade ahead of their research. Einhorn said Allied was trying to “intimidate” the research shops. Who was right? It was all so confusing. The deep thinkers at the SEC picked their noses and tried to figure it all out. Then they went to lunch.

The inspector general has been on a mission to expose ineptitude at the SEC, and for this he deserves praise and gratitude. However, given the facts, I think his report on the investigation of Allied Capital was a bit too kind to David Einhorn. The inspector general notes that his office “conducted a comprehensive investigation of the allegations in Einhorn’s book.” But the report offers no solid verdict as to the accuracy of those allegations, and fails to acknowledge the extent to which the SEC had been manipulated by Einhorn and affiliated Wall Street hedge funds.

It should be noted that not only the SEC, but also the Department of Justice, the Small Business Administration, federal courts, attorneys general, and other government bodies investigated Einhorn’s allegations against Allied. All of these investigations yielded the same conclusion: Einhorn’s allegations were, for the most part, eminently ridiculous.

The only criminal fraud discovered by any of these investigators was committed by executives of Business Loan Express, a subsidiary that represented a tiny fraction of Allied’s overall portfolio. The BLX executives were apparently handing out Allied’s money to unqualified borrowers who were their cronies. In other words, Allied was the victim of this fraud. That anyone at the SEC still gives credence to David Einhorn is, therefore, rather odd.

But this story has a happy ending. Last October, Allied Capital was purchased by Ares Capital Corporation, a company that was founded by Anthony Ressler and John Kissick – both partners in the private equity firm Apollo Management. The head of Apollo is none other than Leon Black, who is Michael Milken’s closest business crony. That could be a coincidence. Or it could be that Einhorn’s attack on Allied was meant from the beginning to drive down Allied’s stock price to the point where it would be ripe for a takeover by Milken’s pals.

In any case, Einhorn mysteriously ended his “crusade” agains Allied as soon as Allied was purchased by his friends. So, for the time being at least, we don’t have to listen to his blather. And we promise – never again will we “intimidate” Einhorn. Really, no more “intimidation” — not from us. Mr. Einhorn, you are noble man. You did it for the children. You did not deserve to be “intimidated.” And, Mr. Einhorn, one more thing — boo!

Oops, did it again.

* * * * * * * *

Click here to read the inspector general’s report

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The ties that bind Sam Antar and Barry Minkow


What seems to bother critics of AntiSocialMedia.net more than anything else is their inability to disprove the things written here.

That’s because AntiSocialMedia.net deals in facts. Period.

Often, having made my case, I’ll take the additional step of drawing conclusions based on the facts. It’s never easy leaving the comfort of what I know to be true for what I suspect is true — particularly when reputations are involved. Yet, with a single (quickly rectified) exception, every conclusion extrapolated here has proven accurate.

And, in at least one case, my conclusions have proven much more accurate than even I could have anticipated.
To learn more about that case, let us return to June of 2007.

At that time, I concluded that convicted stock manipulator Sam Antar and securities class action litigator Howard Sirota were working in concert with convicted stock manipulator Barry Minkow’s Fraud Discovery Institute (FDI) to manipulate the share price of USANA, a public company.

You can review my reasoning (which, I urge you to keep in mind, Sam Antar characterized as being “filled with deception, innuendo, deflection, insensitivity, and arrogance”) here.

Many things have happened since the post was published, most notably the deposition of Minkow, whom USANA is suing for reasons that I expect will soon appear obvious. You may access the deposition transcript, in two parts, here and here.

In his deposition, Minkow confirms that to say he and Sam Antar were “doing business together” was the understatement of the fiscal year.

Minkow states, under oath, the following:
At some point in the past two or three years, Sam Antar came to be a “spiritual advisor” to Minkow. But unlike a traditional spiritual advisor, Antar didn’t ask for money…he was handing it out.

According to Minkow, in mid-2006, Antar sent him, unsolicited and with no strings attached: $100,000. This was Antar’s way of saying: “Thank you…you’ve been an example for me that you can come back from failure.”

Shortly thereafter, and by pure coincidence, Minkow decided to use Antar’s money to finance FDI’s attack on USANA, which was published and delivered to the SEC on February 20, 2007 (precisely the same day as Minkow’s second book was published), but not before Minkow established a short position in USANA stock, as well as investing in put options (both of which gain value as a stock loses value).

Minkow says that in total, Antar’s support for FDI has exceeded $250,000.

Additionally, Minkow disclosed two payments totaling $40,000 by hedge fund manager (and frequent Herb Greenberg advisor) Whitney Tilson, and $10,000 by Anthony Bruan, owner of Cactus Capital.

Remember Howard Sirota? Bruan is a long-time Sirota law client, dating back to some high-profile scrapes with the securities laws in 2001.

Sam Antar is also a long-time client of Howard Sirota’s law practice.

For those of you keeping score at home, that means at least $260,000 – nearly 90% – of the disclosed $300,000 used to finance FDI’s attack on USANA, came from associates of Howard Sirota, who makes a living leading shareholder lawsuits against public companies, à la Milberg Weiss.

Here’s where things get strange…
Consulting public records, I discovered that on February 27, 2007 (seven days after FDI’s USANA report was released), the New York State Department of Taxation and Finance issued a warrant for unpaid taxes against Sam E. Antar, in the amount of $473.15.

A bankruptcy attorney I consulted with on this issue cautioned that from time to time these warrants are filed erroneously. Hoping to rule out that possibility, I conducted a deeper search and discovered that unpaid taxes are nothing new to Sam Antar. Indeed, between 1987 and 2007, Antar amassed over $333,000 in tax liens, warrants and judgments on the city, state and federal levels, in addition to just under $60,000 in judgments and liens by private creditors in 1992 and 1993.

None of these debts was discharged by Antar’s Chapter 7 bankruptcy filing in 1998.

My point being, Sam’s history suggests this most recent – and nearly one year later, unsatisfied – tax warrant was not the result of an error.

And yet, from Minkow’s deposition, we’re supposed to believe that someone who can’t pay a $500 tax bill is in a position to give Minkow gifts totaling at least $250,000 – motivated by nothing more than the spirit of fraud fighting?

As noted in my earlier post on this topic, Howard Sirota was caught bashing (though in an unusually civil manner, to his credit) USANA stock on Yahoo Finance under the screen name StanleySargoy. In his first such post, dated April 14, 2007, Sirota declares (and Minkow’s deposition later confirms) that Sirota was shorting USANA stock, in addition to being long USANA put options.

Interestingly, five trading days later, USANA appeared on the Reg SHO Threshold Securities list for the first time.

Whether or not Sirota’s short position was a legitimate one, this post to Yahoo Finance by StanleySargoy in 2003 shows Sirota’s clear understanding of the relationship between public perception of a company and its share price, and of the value of using the media and other venues to spread negative information specifically for the purpose of lowering share price.

Based on these facts, I am led to conclude:

  1. Sam Antar’s $250,000 “gift” wasn’t a gift, but the cost of a commissioned, negative report on USANA, intended to adversely impact USANA’s share price.
  2. The money Antar gave Minkow wasn’t Antar’s at all. I suspect it belonged to someone else using Antar as an intermediary.
  3. In addition to shorting USANA, Sirota likely intended to lead one of the (several) class action suits brought against the company in the months following release of Minkow’s report. That he did not do so just might be a consequence of his having been identified as StanleySargoy in this blog.
  4. Finally, but likely most importantly, is my belief that this is a clear case of illegal stock manipulation.

If this sounds implausible, please remember that it is precisely the sort of activity Sirota’s counterparts at the law firm of Milberg Weiss are accused of engaging in. To learn more, you may either read this 105 page indictment of Milberg Weiss, or (as I would recommend) invest a few minutes watching an excellent presentation explaining how this sort of thing is happening on a broader scale than you could possibly imagine.

Posted in AntiSocialMedia with Judd BagleyComments (8)

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