The Story of Deep Capture, Part 2

(return to The Story of Deep Capture, Part 1)
It is also important to recognize the role of The Depository Trust and Clearing Corporation (DTCC), an organization headquartered in New York City. DTCC is where stock trades are processed — more than $1.5 quadrillion worth of them every year. That’s 30 times larger than the entire gross product of the entire planet. According to the Wikipedia entry on the DTCC, authored largely by Gary Weiss, the DTCC “streamlines processes that are critical to the safety and soundness of the world’s capital markets.”

Indeed, the DTCC is one of the world’s most important financial institutions. But what the Wikipedia entry does not mention is that the DTCC is also among the least transparent organizations on earth. No joke: America’s founding fathers would take up arms if they knew that anything like the DTCC could exist in this country. There are funds exceeding 30 times global output flowing through a sealed black box that is not understood even by the SEC officials who are supposed to regulate it.

One former SEC official describes his colleagues visiting the DTCC and asking, “So, what is it you guys do here, again?” A former DTCC employee confirms that the SEC would occasionally send junior people, and summarizes their oversight as follows: “The SEC staffers would say, ‘What do you do?’ and ‘How do you do it?’ After we would explain to the SEC folks what the DTCC did, the SEC people would say, ‘OK, are you doing it?’” These meetings would occur about once per year, and take no more than two or three hours. That was the oversight provided by regulators to the sealed black box corporation through which 30 times the economic output of the entire world flows.

Because the DTCC processes every short sale, it knows which brokers have hedge fund clients that are selling stock and not delivering it. The organization also knows precisely how much phantom stock is circulating in at least one part of the system. Yet, perhaps because it is “user owned” – that is, it is owned and operated by the very Wall Street brokerages that sell the phantom stock – the DTCC refuses to release any information.

Meanwhile, the organization leads an energetic public relations campaign denying that phantom stock is a problem. It sics lawyers and a pit bull flack named Stuart Z. Goldstein on journalists who attempt to report on the subject. The few journalists who have managed to secure an interview with a DTCC official describe having to pass through a security cordon of machine-gun wielding guards, X-ray machines, and written questionnaires.

Yet, oddly, one journalist might have been given open access not only to the DTCC’s premises, but also to its computer system. Judd Bagley says this journalist is none other than…Gary Weiss.That is correct: Judd Bagley’s “methods” show that Gary Weiss-liar, message board maniac, Wikipedia hijacker, forger, fraud, and friend of crooks – has used a computer inside the DTCC’s offices to post on the internet.

If so, this would suggest that Gary is a cog in the DTCC’s public relations machine. Which, along with his close allegiance to Manuel Asensio, Kingsford Capital, and an array of convicted felons, might explain his intransigent and equivocating blog-rants identifying all critics of naked short selling as wackos and worse.

When I asked Gary about this, he had a nervous breakdown. Really, I’ve never heard anybody (except, perhaps, Herb) blow their top in quite this manner. Not only did Gary deny working for the DTCC, but he launched, totally unprompted, into a lengthy tirade, saying nobody has evidence, and he’s never talked to the DTCC’s public relations chief-or he has talked to him, but only about that nut Patrick Byrne-and he’s never set foot in the DTCC, nobody has seen him in there, or maybe somebody has seen him, but if they saw him, it was only because he was going in there to use an ATM machine-yeah, an ATM machine, maybe he went into the DTCC building to use an ATM machine or something.

Yeah, an ATM machine…or something.
But back in the summer of 2004, Patrick Byrne doesn’t know Judd Bagley or Gary Weiss, he hasn’t yet been contacted by the Easter Bunny, and he certainly doesn’t know anything about a coordinated effort to pollute America’s public discourse. All he knows, really, is that he’s become the target of some hedge fund guy named David Rocker.

During a visit he and a colleague make to a Minneapolis-based money manager, the money manager asks Patrick who is shorting his stock.

“I hear some guy named Rocker has it in for me,” Patrick says.

The money manager goes ash white, and tells Patrick about a colleague at Piper Jaffray who once had a “buy” rating on a stock that Rocker had shorted. Rocker called the analyst and said, “You don’t understand. I will have you killed, I will have you killed, if you do not take your ‘buy’ rating off this stock.”

Clearly it was hyperbole, but even in the context of Wall Street Speak, it was over the line. An executive in Piper Jaffray’s research department used a speaker phone to call Rocker and demand an apology.

Another hedge fund manager says to Patrick: “Do you know who Rocker is? Do you know who you are locking horns with?”

When Patrick says he does not, the hedge fund manager says, “You better look into who Rocker is connected to.”

So Patrick starts calling around in the New York hedge fund community. The story he is given is, “Rocker is Mob. Or at least, he spent the last 20 years on Wall Street insinuating to people that he is Mob.”

Now, again, let us be clear that the stories people tell on Wall Street sometimes carry a whiff of hyperbole. We mean here only to convey the sorts of tales that are very regularly told about David Rocker. We are not asserting that Rocker is in the Mafia.Young men like to act like rock stars. Maybe David Rocker is just an older guy who saw too many episodes of the Sopranos, and goes around acting like he is Mob. That’s probably it.

* * * * * * * *

On July 18, 2004, Cramer (probably right after sniffing melons with Rocker in the grocery store) went on CNBC to serve as proxy for Rocker’s opinions. He said, “David Rocker, who says that he would – that you chose not to take his call on the conference call, so I’ll ask the question he wanted to ask, which is [Cramer picks up a piece of paper and quotes Rocker directly]: `Is there a business model that works here? With all the excitement regarding better sales, the net net is that revenues have tripled from last year’s second quarter, yet operating losses have doubled.’ That doesn’t seem to be good.”

Nobody prohibited Rocker from asking his question on the Overstock conference call. And the truth is, in the summer of 2004, Overstock had tripled its revenues, while spending a total of only $70 million. At a similar point in its development, Amazon had burned through $3.5 billion. Rocker had a right to his opinion, but it was the media’s job to present the other side of the story. It’s called “balance.”

Instead, Rocker’s stable of journalists lined up behind him. First, gave Rocker a column in which he presented his biased interpretation of Overstock’s prospects. Then, Cramer wrote his own column, mimicking Rocker’s views, on Other reporters for the website followed suit. And by August, 2004, Patrick was getting calls from a number of journalists affiliated with Cramer who all repeated the same questions, always premised on the same misinformation, supplied to them by Rocker and Gradient Analytics, the firm that is employing Herb’s friend from to run a dodgy hedge fund out of its back office – the firm that had at least one manager with strange habits regarding aliases and ID’s.

One reporter who called with Gradient’s information was Karen Richardson of The Wall Street Journal. She had been working in New York for only a few weeks, after a long stint in Asia, so she was probably unaware that her boss, David Kansas, formerly of and now editor of the Journal’s “Money & Investing” section, had a strangely cozy relationship with David Rocker and Gradient.

Halfway through the interview, Patrick interrupted the reporter.

“Karen,” he said, “you don’t really understand what you are asking, do you?”

“No,” she admitted, “not really.”

“Let me guess, Dave Kansas gave you these questions.”

“Yes,” she giggled, “Just twenty minutes ago.”

When, in August 2004, Richardson’s story appeared in The Wall Street Journal, it noted that “analysts have been comparing Overstock’s lack of earnings against Byrne’s rosy projections…earlier Byrne had forecast revenue of $2 billion by 2006.”

Patrick had made that “rosy projection” on Overstock’s most recent quarterly conference call – the one from which Rocker had supposedly been barred. On that conference call, Rocker’s minion, Carr Bettis of Gradient Analytics, had the following exchange with Patrick:

Bettis:…looking at the $2 billion sales mark…

Patrick:…that is, if we’re at $2 billion, I can tell you what my income is going to be…

Bettis:…$2 billion, I think, is the mark you guys have set…

Patrick…the question is, even if we do get to $2 billion , three years out the decision will then be what – what do you want us to do four years out. It’s going to change what I tell you if you want us to do $4 billion four years out.. ..

Bettis:…Do you think you can do $4 billion?…That’s great… you fire away.

Patrick:…Ok, I think we’re on different wavelengths.

Gradient went ahead and told The Wall Street Journal that Patrick was making “rosy predictions” of $2 billion. As the damage from the story spread, Patrick wrote to Richardson, wondering whether her source “might not be entirely trustworthy on every matter.”

Richardson replied that she had contacted her sources again and they had confirmed the $2 billion number.”This is what the analysts said,” she wrote, “according to their notes, anyway.”

She added: “I hope this doesn’t keep you awake at night!”

* * * * * * * *

Keep him awake at night!? Well, it did of course. Especially when more reporters called with lists of questions supplied to them by Rocker and Gradient. And these reporters-they were different from the others. They were exceedingly smug. They sneered. They snarled. They were altogether exasperating, like Soviet interrogators, weirdly oblivious to all expurgatory evidence, completely unmoving, always waving those gosh-darn-friggin’-half-witted-imperious-little denunciations — Do you deny that you are an American spy? What, he dares to deny it? Ah-ha! Proof that the American spy is hiding something! –over and over until, finally, Patrick came to that brittle point of utter torment when it was, God forgive, time to stand up and pimp-slap these people.

That’s when the Easter Bunny called.

* * * * * * * *

It was in October 2004, and the Easter Bunny sounded like a wack-job, he really did, but he made some predictions. He said that Gradient would continue to publish outrageous information at Rocker’s behest. He said the same information that had ended up in The Wall Street Journal, would soon get into the hands of specific reporters at Fortune, Forbes,, Barron’s magazine, and – all of whom would call in the coming weeks. And he said that Overstock would soon become the target of a nonsensical federal investigation.

The Easter Bunny also laid out the mechanics of something called “naked short selling.” He predicted that Overstock would suddenly be listed, without its authorization, on a bunch of foreign stock exchanges-making it easier for hedge funds to sell phantom stock. And he predicted that Overstock would appear on the SEC’s Reg SHO list of victim companies, scheduled to appear for the first time in January, 2005.

Over the next two weeks, Patrick received calls from precisely the predicted journalists at Forbes magazine, Barron’s, The Wall Street Journal, The New York Post, and Fortune magazine – all of them reading the same list of questions supplied to them by Gradient. (To her great credit, the Forbes reporter spent a week investigating Gradient’s information, and determined it lacked credibility; the other journalists merely transcribed the information into their stories.)

Within a few weeks, the Federal Trade Commission in San Francisco began a bizarre investigation into Overstock that went nowhere. Within a couple of months, Overstock had mysteriously appeared on exchanges in Stuttgart, Munich, Frankfurt, Berlin, and Australia. And come January, the company was indeed on the SEC’s victim list (along with three other companies that Rocker had just hammered in a column for Barron’s magazine).

“The power of any theory is its ability to make predictions,” Patrick later says in his “Miscreants’ Ball” presentation. “It doesn’t matter how wacky a theory sounds, if it makes predictions that are confirmed, you’ve got to pay attention to it.”

* * * * * * * *

The day after the Miscreants’ Ball presentation, there is a photo in The New York Post showing Patrick with a flying saucer over his head. A clique of journalists with ties to short-sellers write multiple stories that are no less flattering. They all say that phantom stock is not a real problem. Only bad CEOs of bad companies complain about short-sellers. Only crazy people believe that hedge funds sell phantom stock.

* * * * * * * *

Four days before wacky-Patty’s “Miscreants’ Ball” presentation, officials arrived at an elegant apartment building in the heart of the embassy quarter in Vienna, Austria. It had taken two years, but they had finally located Thomas Badian, a hedge fund manager who fled the United States after criminal charges were filed against him in New York.

Federal prosecutors place Badian at the center of a scheme to sell massive amounts of phantom stock while trying to destroy a Pennsylvania-based software developer called Sedona. Their case describes Badian at one point standing on his office desk and ordering his traders to sell Sedona’s stock with “unbridled aggression” – even though they had not borrowed or purchased any stock to sell. When the stock price collapsed, he said “good job,” and instructed the traders to be “merciless” about selling fake stock on the following day.

While Badian was living life as a fugitive, a big, swaggering Texan named John O’Quinn was preparing cases on behalf of more than a dozen companies that had been similarly victimized. O’Quinn is one of the lawyers who took on the big tobacco companies – and won. He is a billionaire several times over. He’s not in this for the money. He’s battling the phantom stock problem because he thinks it’s the biggest scandal going. He tells his clients that they don’t have to pay him if they don’t win their cases.

At the time of Patrick’s “Miscreants’ Ball” presentation, O’Quinn has learned that Badian conducted his phantom stock trades through a brokerage called Refco. The lawyer says that he has identified more than fifty companies that have been driven into the ground by Badian and other hedge funds who sold phantom stock through this brokerage. Indeed, on Refco’s last balance sheet, filed with the SEC in May 2005, there is a line item, “securities sold, not yet purchased.” The declared value of those securities is $10.5 billion, and it is safe to assume that a large chunk of that stock was never delivered.

On October 10, 2005, news emerges that Refco has fraudulently hidden $430 million in bad debt. Much of this debt, it turns out, relates to Refco’s relationship with Badian, the phantom stock seller, and an Austrian bank called Bawag. The scandal leads to Refco’s demise–the largest brokerage collapse in history.

So selling phantom stock is implicated in one of Wall Street’s greatest-ever cataclysms.

And where is the media?

* * * * * * * *

While officials are closing in on Badian, the people who control the financial media (i.e., the friends-of-Cramer) are hunting down the Easter Bunny.Yes, one of America’s biggest brokerages is about to collapse after being implicated in massive phantom stock selling scheme, and if you believe a former deputy secretary of commerce, naked short sellers have annihilated perhaps as many as 1,000 companies – but rather than write about this scandal, our leading financial journalists are engaged in an increasingly hysterical – and illegal — effort to unmask and discredit an obscure blogger who calls himself the Easter Bunny.

First, there are stories by Herb Greenberg, Carol Remond and The Wall Street Journal “Money & Investing” section — all of which suggest that the Bunny is somehow suspicious. Perhaps it is no coincidence that Carol’s story appears right after a Congressional hearing at which Senator Bob Bennett described the case of a small company called Global Links. As an experiment, the owner of that company bought up 100% of its shares. This should have made it impossible for anyone to trade the stock, but the next day 37 million shares of Global Links were sold into the market. Of course, none of that phantom stock was ever delivered – because it didn’t exist.

But some influential journalists insist that there’s no such thing as phantom stock, they say the Bunny and Patrick are crazy, and just a few days before Patrick’s “Miscreants Ball” presentation, while the authorities are closing in on a fugitive phantom-stock seller who helped bring about the collapse of a giant brokerage, Jesse Eisinger, formerly of Cramer’s website,, and now star columnist for The Wall Street Journal, is in Las Vegas, notebook in hand, sniffing after the Easter Bunny. He’s going to stop at nothing to prove that the Bunny is untrustworthy. Only a villain would say that phantom stock is a problem.

The Easter Bunny is, of course, loving this. He mocks Eisinger at every step. “Jesse…Stay away from the girls at the Cheetah,” the Bunny writes on his blog, “I know you will be expensing a fact finding trip there, if you have any sense.” The Bunny has registered his blog using the address of the Cheetah, a Las Vegas strip club. (Topless servers, internet servers – get it? Bunny humor.)

The strippers have no information about the Bunny, so the reporter gets help from criminals who work for his hedge fund sources. The criminals illegally steal the phone and banking records of the National Coalition Against Naked Short Selling, a little lobbying outfit founded by the Easter Bunny. When Jesse starts calling everybody listed in the phone records, the Easter Bunny asks The Wall Street Journal if it is concerned that its reporter (or at least that reporter’s source) has committed a felony. The Journal responds indifferently.

Meanwhile, the stolen phone records take Eisinger to the home of a little old lady whom he suspects to be the Easter Bunny’s mother. The little old lady gets scared and calls security. A guard issues Eisinger with a citation and as he hauls Eisinger off the little old lady’s property, the reporter kicks and screams: “You can’t do this! Don’t you know my fucking name? I’m Jesse Eisinger. I work for The Wall Street Journal!”

* * * * * * * *

After the Journal’s editors take Eisinger off the Bunny story, it is handed to Carol Remond of Dow Jones Newswires. Carol spends a few weeks trying to prove that the Easter Bunny is a paid stock promoter or some other force for evil, but unable to do so, she gives the story to Roddy-Boyd-The-Post who begins telling people he knows the Easter Bunny’s identity because the Bunny’s voice matches that of someone he heard on a conference call. When the Easter Bunny points out that, unlike the Bunny, the person on the conference call sounds like a chain-smoker in his late 40s, Roddy-Boyd-The-Post posits that the Bunny has been using real-time voice altering technology.

Then Roddy writes his big story – to be surpassed only by his garbage story five months later – that the Easter Bunny is, in fact, a used equipment salesman named Phil.

Remond’s Bunny work is at least a step above her earlier effort to describe a Mafia-infested brokerage in Canada as a legitimate “market participant.” It also beats her madcap scramble to prove that Patrick Byrne was running a criminal operation out of a gay bathhouse. “I’m going to shred this guy to bits,” she declared to a former SEC lawyer, and then ran around asking people whether they knew anything about a financial swindle Patrick was conducting with a cabal of gays in San Francisco.

Patrick admits some responsibility for Carol’s confusion. Suspecting that Rocker was obtaining privileged information about Patrick and Overstock, but not sure how, Patrick created two controlled leaks: one was that he was gay, one was that he used cocaine. Neither story was true, but if somebody were to believe these tales, that would be OK with Patrick. Meanwhile, he’d be able to map where information was leaking, depending on which story reached David Rocker.

A few days later, somebody had delivered the gay news to Carol Remond, who in the course of trying to “rip Patrick to shreds,” allowed the story to metastasize into something about a cabal and a bathhouse.

Patrick caught the mole, or the person he strongly suspects of being a mole, and was provided evidence that she co-owned two shell corporations under a different name with another Overstock employee. The shell corporations had no discernable business other than owning one cell phone. It appeared to those around the mole that her assignment was to figure out who Patrick knew at the Motley Fool, an internet financial news publication that had yet to be infiltrated by Rocker, and was thus the only publication still giving favorable coverage to Overstock.

Patrick confronted the suspected mole, who denied having ever heard of that other Overstock employee or having any shell corporations. He pointed out that the other employee’s file showed that she, specifically, had arranged for him to be hired, that they lived in the same apartment building, and that in fact, they lived next door to each other. At that point she remembered that she knew him, but denied having any dealings with him. Patrick pointed out that she co-owned two shell companies with him. At that point she remembered that she owned two shell companies with him. At that point Patrick fired her.

The alleged mole now works for the governor of Utah.

Soon after she left, a journalist at the Motley Fool began trashing Overstock – with help from David Rocker.

* * * * * * * *

November 2005….So three months have passed since Patrick sued David Rocker and placed him at the center of a financial scheme dubbed “The Miscreants’ Ball.” And now, Bethany McLean of Fortune magazine has published a story called “Phantom Menace,” which ridicules Patrick for suspecting short-sellers of using dubious tactics.

The day “Phantom Menace” hits the newsstands, a pastor at a Catholic church in Canada receives a package with the return address, “P. Fate.” Inside, there is a letter concerning Prem Watsa, the CEO of Fairfax Financial, a reputable financial services company in Canada. The letter reads:

Dear Father, The attached documents are being sent to you out of my concern for the Church’s finances. I am extremely sensitive to this as a result of losing a dear friend, Father Richard Bourgeois, an enlightened Benedictine Priest formally of the Collegio D’Anselmo, which as you may know is the Cardinal College of the Vatican. On September 4, 1999 the fugitive Marty Frankel, who perpetrated a massive fraud on the Catholic Church, was arrested at the Hotel Prem in Germany. Interestingly, a review of your most recent, “Talk in the Pews” shows Mr. [Prem Watsa] as the Chairman of the investment committee of the church. More interesting are the similarities in the facial features between Mr. Marty Frankel and Mr. Prem Watsa. While these coincidences are surprising, they do not compare to the similarities between the massive money-laundering schemes perpetrated by Marty Frankel and the massively convoluted paper shuffle created by Mr. Watsa through his public vehicle Fairfax Financial Holdings Ltd…the pattern of activities of Mr. Prem are too similar to the course of conduct of Marty Frankel to be overlooked by a person such as yourself, who is responsible ultimately for the funds of the congregation. Be aware Father, be skeptical and ask Mr. Watsa to make confession.

God Bless, P. Fate.

Attached to this note is a 30 page document entitled “Marty Frankel: Sex, Greed and the $200 Million Fraud,” which provides information about Frankel’s exploitation of the Catholic Church, and a vivid description of his adventures in sadomasochistic and group sex.

Mr. Watsa is an honest CEO. He is often referred to as “the Warren Buffett of Canada.” He has absolutely nothing to do with a sadomasochistic church scammer named Marty Frankel.

But Mr. Watsa, his family and friends will receive many more notes in the weeks to come. They will also be harassed, threatened and followed by goons in black vans. At one point, Mr. Watsa’s secretary will receive a letter signed by “Dick Tracy,” accusing her of being involved in a financial crime. The general counsel of a Fairfax subsidiary will receive a similar letter reading, “I am reading about you in the Lawer [sic] News and am stunned by the fact that you are posing next to the largest nose I have ever seen. Being so close to such a nose, one would think the sense of smell would rub off on you. In particular can you smell the very serious negative issues that are facing runoff for Fairfax.”

All of this is the work of a man named Spyro Contogouris. This fellow’s business card identifies him as working for an outfit called “MI4 Reconnaissance.” Sometimes, he holds himself out as an FBI agent. Other times, he claims to have connections to government officials at the highest level. In a note to Fairfax’s former chief financial officer, Contogouris writes: “Take just a minute, sit back and try to view what the world will look like for Fairfax and its former officers three years from now given the current level of regulatory scrutiny. I can help…” In another note, Contogouris promises to “bring a former Special Agent of the Secret Service and FBI…uniquely qualified to communicate to you a depiction of how the government works…”

When the former CFO agrees to meet, Contogouris changes his name to Martin Gardener, explaining, “I do not stay in hotels under any Christian name when meeting insiders at companies. You can use your imagination why. Clearly it leaves my options open in telling my story in the event I am ever subpoenaed. Capisce?”

Contogouris is a con artist who later goes to jail for ripping off a Greek shipping magnate. Prior to his imprisonment, he serves as a favored source to Bethany McLean, author of “Phantom Menace,” Roddy-Boyd-The-Post, Carol Remond, and Herb Greenberg – all of whom write negatively about Fairfax. Cramer,, and The Wall Street Journal’s “Money & Investing” section, edited by Dave Kansas, formerly of, also publish negative stories that mimic Contogouris’s “analysis.”

Contogouris’s business card may read “MI4 Reconnaissance,” but it should be no surprise that he is, in fact, employed by a hedge fund that is linked to David Rocker and Mr. Pink, both of whom are short-selling Fairfax stock. The hedge fund that employs Contogouris is run by a former employee of a man named Steve Cohen, who is also shorting Fairfax stock.

Cohen has achieved fame for keeping a $12 million stuffed shark in his living room. He is also the most powerful individual player on Wall Street. His trades account for more than 3% percent of daily volume on the New York Stock exchange.

In 2003, these high-powered hedge fund managers launched what they called “The Fairfax Project” – a plan to destroy Fairfax Financial. The hedge funds, working with MI4 Reconnaissance, have provided information to the SEC and the Department of Justice, which launched investigations that have so far gone nowhere.

Meanwhile, Fairfax has received a listing, without its authorization, on the Berlin Stock Exchange-making it easier for hedge funds to sell phantom stock.The company has appeared on the Reg SHO list of companies victimized by phantom stock almost every day since the list began publishing in 2005.

And on the same day that Mr. Watsa’s pastor receives that bizarre letter from MI4 Reconnaissance – the day that Bethany McLean publishes “Phantom Menace,” which ridicules Patrick Byrne for saying that some short-sellers use dirty tricks – on that day, hundreds of millions of dollars worth of stock in both Fairfax Financial and Overstock had been sold into the market and never delivered.

A simple Freedom of Information Act request to the SEC confirms this.

* * * * * * * *

Bethany McLean is one of America’s most respected financial journalists. She is famous for being the first reporter to raise concerns about Enron, the energy company that later proved to have orchestrated a large accounting fraud. She has authored a best-selling book about the scandal called “The Smartest Guys in the Room,” which was made into a documentary movie with funding from Mark Cuban, the owner of the Dallas Mavericks basketball team.

Bethany deserves credit for her work on Enron. But it is worth noting that the primary source for her stories was Jim Chanos, who owns a hedge fund that is aptly named Kynikos (”Cynicism,” in Greek). Chanos was funded by Dirk Ziff, a billionaire heir to the Ziff-Davis publishing empire (and one time guitarist for Carly Simon), at the recommendation of Marty Peretz, Cramer’s partner in The cynical hedge fund manager regularly shorts the same companies as Rocker and other members of the Cramer constellation of hedge funds.

It is also worth noting that in Enron’s dying days, a massive amount of its stock was sold into the market and never delivered. Certainly, some of Enron’s executives were crooks, but this was a multi-billion dollar company – a key market participant with thousands of employees and some of corporate America’s most valuable assets. Would the company have gone under if hedge funds hadn’t saturated the market with phantom stock in order to drive the stock to zero? No one will ever know. And the SEC has pointedly refused to release any information on naked shorting in Enron stock.

Either way, the hedge funds’ success with Enron does not excuse their other activities. This crowd has attacked dozens of companies – polluting the media with misleading negative information, employing criminals to harass CEOs, orchestrating SEC investigations, bribing witnesses, and filing phony lawsuits. Almost always, these companies appear on the SEC’s list of phantom stock victims. Often, these companies have done no wrong, but always the hedge funds label them as frauds – “the next Enrons!”

Journalists swallow this information as if it were the elixir of everlasting life. In the seven years since Enron, Bethany McLean has yet to write a story that was not sourced from the Cramer constellation of hedge fund managers and crooks. Even in the face of the most glaring evidence that the hedge funds are wrong – even when she knows full well that her sources are using dubious tactics and employing criminals – she simply will not contradict these people. As a result, a number of her stories are gross distortions.

For example, in March 2007, she writes a story about Fairfax Financial. In this story, she mentions that Spyro Contogouris has been arrested, and notes that Fairfax has accused him of working for a cabal of hedge funds engaged in dirty tricks. But she offers little information about Contogouris’s tactics (one of which, by the way, was to create a website that falsely compared Fairfax to Enron and advertised a copy of Bethany’s book).

Instead, Bethany’s story describes Contogouris as an “independent research analyst” who “proved himself” on an earlier project involving an unnamed stamp company’s “Ponzi scheme.” (The stamp company is called the Escala Group. This was a big target of Kingsford Capital, the hedge fund that offered a large sum of money to the Columbia Journalism Review after it discovered that I was working on this story).

Bethany’s story quotes an analyst who has concluded that Contogouris’s claims are bogus – that Fairfax’s financial statements are “not unusual” and certainly not portending the “next Enron.” She notes that even Contogouris admits that he “couldn’t connect all the dots.” But, amazingly, she proceeds to give credence to this criminal’s analysis, and his completely unfounded claim that Fairfax is the “greatest known insurance fraud of the 21st century.”

In an attempt to bolster this claim, Bethany refers to the work of a firm called Institutional Credit Partners, which apparently also suspects wrongdoing at Fairfax. The reporter presents this firm as completely independent – a disinterested source who objectively confirms the claims of Contogouris. She writes that “ICP executives provided Fortune with access to unedited research because they are deeply disturbed by the possibility that legitimate research may be being [sic] suppressed.”

What she did not mention is that ICP’s director had just bailed Contogouris out of prison. This hardly constitutes objectivity, and Bethany knew it, because as she wrote her story, she had, quite literally sitting on her desk, a copy of Contogouris’s bail documents.

Finally, Bethany also makes a vague reference in her story to a real FBI agent whom she suggests has his eye on Fairfax, when the truth is that he has been looking into other issues, such as the criminal behavior of Spyro Contogouris, whom he subsequently arrests.

There is “the distinct possibility that Watsa and his company are not, in fact, victims,” Bethany writes. “After the last round of corporate scandals [read: Enron], regulators and the public cried out for more hardheaded analysis. Where were the skeptics, they asked? Now, just a few years later, there are skeptics aplenty about Fairfax, and they have taken their suspicions to regulators, rating agencies and others.”

The “others” being a clique of compliant but powerful journalists like Bethany McLean. The “skeptics” being a small group of hedge funds and criminals who have captured America’s most important institutions.

* * * * * * * *

It is tempting to catalogue each of the many falsehoods that these journalists have entered into the public discourse, but that is perhaps a job for the lawyers. Permit me, though, to provide a couple more examples of the deceit that has been foisted upon us by Fortune magazine’s most prominent reporter and her dubious sources.

In May 2005, Bethany published a story in which she compared MBIA, the bond insurer, to Enron. Today, this company has run into some difficulty owing to the subprime mortgage crisis, but the company is certainly no Enron. It retains its AAA rating from Moody’s and Standard & Poor’s, and none of the issues raised in Bethany’s story have proven to be germane.

Which shouldn’t surprise. The story served primarily to air the opinions of a single short-seller, William Ackman, who is a friend-of-Cramer – a fellow Harvard graduate who was attacking MBIA along with David Einhorn (Mr. Pink’s war ally) and Whitney Tilson (financer, along with the crook Sam Antar, of convicted felon Barry Minkow). Ackman has also worked closely on various deals with Gene Philips, an old Boesky crony who was arrested in 2000, along with 100 stock brokers from the five New York Mafia families.

Bethany knows that Ackman is not an objective observer, so she supports her assumptions about MBIA with information from several analysts whom she describes as “independent”. For example, she quotes Sean Egan, the manager of a small credit rating agency that holds itself out as an alternative to the gold standards, Moody’s and Standard & Poor’s, and apparently believes that MBIA deserves less than a AAA rating. Bethany portrays this guy as credible, while failing to mention that Egan is paid by short-selling hedge funds, and refuses to meet anybody in a real office. Instead, he meets reporters and arranges secret document drop-offs in the Philadelphia train station.

The other “independent” analysis in the story comes from Glass, Lewis, a firm that specializes in producing negative research for hedge funds (and that now employs Jonathan Weil, the Journal reporter who wrote the falsehood-laden story about NovaStar; Weil has also been credited with “breaking” the Enron story along with Bethany).

Meanwhile, another source for the MBIA story-a source who was positive on the company–says that Ackman heavily pressured him to change his views. Then Bethany intentionally twisted the source’s words to suit her purposes.

In an email, the source says: “Bethany McLean cited me inaccurately (in several respects).”

* * * * * * * *

Shortly before Bethany’s MBIA story came out, New York’s then-Attorney General Eliot Spitzer was obligated (because of the sheer volume of evidence) to investigate Bethany’s source, William Ackman, for stock manipulation and publishing false information. But characteristically, Spitzer quickly dropped that investigation. Then he did a complete 180, and began investigating MBIA. That investigation went nowhere. But then Spitzer became governor of New York. Before the FBI caught Spitzer with a hooker while investigating allegations of money laundering and bribery, the governor continued to push for legislation that would have done damage to MBIA’s stock price.

As Kimberly Strassel bravely wrote on The Wall Street Journal editorial page (which operates independently of the captured “Money & Investing” section), “Mr. Spitzer’s main offense as a prosecutor is that he violated the basic rules of fairness and due process: Innocent until proven guilty; the right to your day in court. The Spitzer method was to target public companies and officials, leak allegations and out-of-context emails to a compliant press, watch the stock price fall…Most of Mr. Spitzer’s high-profile charges have gone up in smoke…The press was foursquare behind Mr. Spitzer in all these cases, and in a better world they’d share some of his humiliation.”

The italics are mine. If it all sounds familiar, it will not surprise to learn that Eliot Spitzer is Cramer’s best friend. They were college roommates. Cramer’s constellation of hedge funds were Spitzer’s biggest campaign donors, and the Cramer clique of journalists were the very journalists who were “four square behind Mr. Spitzer.”

And Spitzer didn’t just attack public companies so that his short-selling friends could make more money. He also manufactured the “independent research” racket. As attorney general, he sued the big Wall Street banks for publishing financial research that supposedly overstated companies’ prospects. This opened the doors for the “independents” – like Sam Antar, Spyro Contogouris, Barry Minkow, the folks at Gradient Analytics, and others who make their living harassing public companies and understating their prospects for short-selling clients.

Spitzer was the most aggressive attorney general Wall Street has ever known. But perhaps in deference to Cramer and his friends, he almost never went after hedge funds. Indeed, one of the only hedge funds he ever prosecuted was Millennium Partners, founded by Israel Englander and John Mulheren, who died of a heart attack in 2003.

Englander and Mulheren were not friends of Cramer. To the contrary, Mulheren was once arrested while driving to the home of Cramer’s friend, Ivan Boesky, with a trunk full of high-powered weaponry. As is recounted in Den of Thieves (the classic account of Mike Milken, Ivan Boesky, and Carl Icahn), when faced with prosecution, Boesky ratted out everyone who had done business with him (and even wore a wire on Milken), in return for a lighter sentence. Mulheren’s involvement was minimal, but he was among those ratted out. So one day Mulheren snapped, and drove to Boesky’s house, planning to assassinate him.

In an ugly world, Boesky or his friends would seek revenge by trying to kill Mulheren and Englander.

Kill them, or call in the Attorney General and the Media Mob.

* * * * * * * *

It is said that Bethany McLean has a system with gentlemen of a certain age. She has Midwestern looks, but a voice like red velvet –.and she stops at nothing for a peak behind the kimono. Downright cozy with Wall Street, a real life Media Mata Hari, she has beguiled many a CEO into giving her information that ended up in her stories – and also in the hands of her short-selling friends.

In October, 2005, she attended, uninvited, a Saturday lecture Patrick Byrne gave at the Columbia Business School, and asked him to a nearby restaurant. Later that day and several times the next, she left messages on the voicemail of a friend of Patrick’s in the mistaken belief that it was Patrick’s phone. That friend says, “She left Patrick her home and cell numbers and asked him to come over to her place for a drink, ‘even around midnight would be fine.’”

Patrick accepted an offer to meet her in a darkened bar under her apartment, where she mentioned, “I was briefly married, getting divorced.”

Patrick, who had been warned of Bethany’s system, declined her invitation to come by again, or call her at home. It was hard to believe that she would be so bold considering that she had previously published a story about Overstock, noting that “skeptics abound.”

Those “skeptics” again.

The skeptics, of course, were Rocker and the scoundrels at Gradient Analytics, then called Camelback Research Alliance. They suggested that Overstock’s growth paled in comparison to Amazon’s – neglecting again to note that Amazon had burned through $3.5 billion at the same stage of development. There is no evidence that Bethany did anything in this story other than regurgitate the misleading analysis of Rocker and Gradient – while portraying them as two separate entities in order to show that skeptics “abound.”

As if to more forcefully demonstrate her allegiance to these “miscreants,” Bethany had published another hatchet job for them – right after Patrick’s “Miscreants’ Ball” presentation. Patrick told the world that Gradient and Rocker were at the center of a massive financial crime, and a few days later, he opened Fortune magazine and saw the story – an attack on video game maker Take-two Interactive, quoting (as if they were offering analysis independent of each other) David Rocker and Gradient Analytics.

Then, in November 2005, shortly after Patrick did not call her at home (not even before midnight) Bethany published “Phantom Menace.” Rather than describe in detail the allegations that Patrick had leveled in his “Miscreants Ball” conference call, Bethany quoted Mark Cuban, the guy who financed her Enron documentary. She wrote: “As Mark Cuban, the billionaire investor, later wrote on his blog, ‘Never before in the history of Wall Street has a single conference call mentioned the following topics: miscreants, an unnamed Sith Lord he hopes the feds will bury under prison, gay bathhouses, whether he is gay, does cocaine, both or neither, and an obligatory ‘not that there is anything wrong with that,’ phone taps, phone lines misdirected to Mexico, arrested reporters, payoffs, conspiracies, crooks, egomaniacs, fools, paranoia, which newspapers are shills and for who, payoffs, money laundering, his Irish temper, false identities, threats, intimidation, and private investigators. All in 61 minutes.”

In addition to making it seem as if Patrick’s words had been blurted out by a sufferer of Tourette’s syndrome, Bethany went to lengths to ensure readers that Rocker had taken a “routine position” in Overstock. She noted that Gradient had published negative information about Overstock and argued (again without mentioning Gradient’s connection to Rocker, or alluding to any alternative point of view) that this information had merit. Moreover, she described the Easter Bunny as a wacky conspiracy theorist, suggested that phantom stock was not a real problem, and said that Patrick’s behavior was so “over the top” that he should be fired from Overstock.

Before she wrote this story, Bethany had three affidavits from former Gradient employees alleging that Gradient was in the business of producing false information for Rocker. One of those affidavits stated plainly that Gradient had colluded with at least one famous journalist–Herb Greenberg, a friend of Bethany–to illegally front-run media stories.

When Patrick asked if she had bothered to read these affidavits, Bethany said she didn’t see any reason why she should do so. “It would just open up a whole can of worms,” she told him, “and I’d have to get into whether they were telling the truth, or were just disgruntled ex-employees. I don’t want to get into that.”

Patrick then sent an email to Bethany, asking again whether she was going to write her story without reading those affidavits. Bethany now claimed to have read them, but said she wasn’t going to mention them – again, because she didn’t know if the former employees were disgruntled. She made no attempt to interview the employees or do any other reporting that would establish their credibility or lack thereof, so Patrick again inquired as to her unique understanding of what it meant to be a journalist.

Bethany’s emailed reply revealed the depths of her cynicism – the extent to which she views herself not as a detached and unbiased journalist, but rather as a battle-scarred warrior for the pillaging hedge funds that made her career.

She said she’d stick with her sources.

She said she’d do this because, “History is written by the victors.”

* * * * * * * *

There was one accurate paragraph in Bethany’s “Phantom Menace” story. It described some comments that Patrick made to Bethany and Gradient.

“In the fall of 2004, I wrote a FORTUNE story title “Is Overstock the Next Amazon?” After the piece came out, Byrne sent me an e-mail saying “Fair. And balanced.” Two days later he wrote another e-mail: ‘I actually thought it was crap…So why exactly did you become a reporter? Giving Goldman traders blowjobs didn’t work out?’ Around the same time, after Gradient released another report questioning board members’ independence, Byrne wrote to [Gradient’s Donn Vickery]: “Donn, you make a living toadying to bully hedge funds…you deserve to be whipped, f-d, and driven from the land.”

Patrick responds, “I agree that the comments were a little salty. But Bethany knew that the email to Gradient had nothing to do with their ‘questioning a board members’ independence.’ I sent it because Gradient was derisive and personally disrespectful, over the telephone and then in print, to Gordon Macklin, a board member and a 78 year-old lifelong friend. This was crystal clear in my email, but Bethany’s strategically placed ellipsis obscured it.”

Here’s Patrick’s email to Vickery, in full: “Donn – You make a living toadying to bully hedge funds. In this role you insulted Mr. Macklin, a friend, a lifelong mentor, and a decent and wonderful man. You deserve to be whipped, fucked, and driven from the land. Little punctilious submissive rejoinders such as your letter cannot change this or recalibrate our relationship on other terms.”

* * * * * * * *

Two weeks after Fortune magazine suggested that Patrick was nuts, the North American Securities Administrators Association (NASAA) held a conference on naked short selling. During the conference, Susan Trimbath, a former employee of that Big Black Box known as the Depository Trust and Clearing Corporation, provided a detailed description of how the DTCC aids the sale of phantom stock. Other panelists, including Peter Chepucavage, the author of the SEC’s Reg SHO rule on naked short selling, stated that phantom stock is a huge problem that the SEC is failing to control.

The host of the conference was Ralph Lambiase, president of the NASAA and director of securities enforcement for the state of Connecticut, where many hedge funds are based. In a letter to Dave Patch, the engineer and blogger-revolutionary, Lambiase announced that he was setting up a multi-state task force to probe phantom stock sellers and the DTCC. Dave noted the letter and covered the conference on his blog.

The Wall Street Journal, by contrast, did not cover the conference. Instead, while the panelists were describing one of history’s biggest financial crimes, the Journal published a front page story commiserating with the wife of Amr Elgindy, a.k.a. Manny Valasco, the Mob-linked phantom stock seller who’d been indicted for stock manipulation and bribing FBI agents, and who got caught when he gave his Smith Barney broker an order to liquidate his childrens’ trust funds on the day before 9-11.

Elgindy was about to be sentenced, and the Journal was begging for leniency. It glossed over the details of Elgindy’s crimes, and instead described how Mrs. Elgindy cried when agents raided their home, and how Mrs. Elgindy was sad because the paint on her $4 million mansion was pealing. “She has battled with the government over money,” the Journal reported.

Then this: “All the while, she has struggled with her own terrors [which] more than once have woken her up in the night.”

And this: “Mrs. Elgindy says she doesn’t know what she will do if her husband receives a lengthy sentence. ‘He was the first person who gave me the courage and strength to question what I had been taught,’ she says.”

And finally: “The situation has been particularly tough for their youngest son, Samy. On a recent family visit to the New York jail, Samy sat on his father’s lap and told him, ‘Daddy, if I could stay here with you, I would.’”

* * * * * * * *

A few weeks later, Elgindy appears in court for sentencing. It is noticed that he is missing one finger. He is asked about it, and claims it happened in a beach barbequing accident. The prosecutor points out that he has been under house arrest. Elgindy changes his story, maintaining that it was a home accident. However, sources familiar with the investigation inform Deep Capture that they believe Russian mobsters did it as a warning not to talk while he was in prison. One even maintains, “The Russians went to his house and forced Elgindy to saw off his own finger, to help him better remember the experience. They also told him that if he talked they would skin [a member of Elgindy’s family] alive.”

While Elgindy is sawing, a church pastor named Jeff Matthews is writing on his blog that Overstock’s vice president of marketing works in a nudie bar. In addition to his church duties, Matthews is a former writer for and a hedge fund manager who once worked for David Rocker. He claims to be writing “without having a dog in this fight” even though he owns “puts” in Overstock – which is another way to bet that the stock price is going to fall.

As a mob of journalist-thugs try to confirm that Overstock is run by a stripper (the story is false, like most everything else written about Overstock) Patrick gives up on the mainstream media and appears on a radio program broadcast by the Christian Financial Radio Network – motto: “prosperity for God’s people.”

This outfit manages to air a mostly accurate story about phantom stock.

By contrast, shortly after pastor Matthews says Overstock is run by a nudie bar dancer, and now four months after Patrick’s Miscreants Ball presentation, and a few weeks after the sad-story about Elgindy’s wife, The Wall Street Journal publishes a highly positive profile of David Rocker. The author is Karen Richardson, the journalist who hoped Patrick wouldn’t “lose any sleep” over the bold lies of Rocker’s minions at Gradient.

Richardson praises Rocker for his “aggressiveness and nose for troubled companies.” She says we should take pity on Rocker because, notwithstanding his 50% return for the year, it is really tough to be short-seller. “We don’t get any respect. We’re the Roger Dangerfield of the investment community,” Richardson quotes Rocker as saying.

The reporter does not describe Rocker’s tactics. She does not note that Rocker’s minions have previously fed her false information. And amidst all her assurances that short-sellers are good for the market, she does not once mention the words “phantom stock” or “naked short selling.”

Meanwhile, Patrick has bought 50,000 shares of Overstock and made a simple request – that real stock be delivered. After weeks of equivocation, a broker at Wells Fargo writes Patrick an email. “It would seem that [Lehman Brothers, the Wall Street brokerage] did not have the shares when they sold them to us…Since Overstock is a ‘hot’ [i.e. manipulated] stock they are finding it just about impossible to find shares to borrow or buy…Talking with my traders they feel that…no one seems to have enough of the shares to deliver.”

So, it seems, Patrick has bought 50,000 shares of air – phantom stock.

* * * * * * * *

Around this time, Rocker sells his shares in A month later Cramer sells a bunch of his own shares. Then it is announced that the SEC is investigating Gradient, and has issued subpoenas to Herb, Cramer, Carol Remond, and

Our “financial media” goes ballistic. Cramer scribbles “Bull!” on his subpoena. Herb commandeers CNBC to holler about a conspiracy to get Herb. Jesse Eisinger, Herb’s former co-worker at, who has spent the months since his foiled Bunny hunt writing hatchet jobs for David Rocker, now writes in The Wall Street Journal that the SEC is violating the First Amendment right to free speech by investigating a research shop and giving a subpoena to Herb. The New York Times’ top business columnist, Joe Nocera, who is one of Herb’s oldest friends, writes that Patrick is “loony beyond belief.” As evidence for this, Nocera quotes Roddy-Boyd-The-Post as saying that Patrick is, in essence, loony beyond belief.

Following these leading lights, other journalists write similar stories. Not one of these journalists interview Gradient’s former employees, or seriously investigate Patrick’s allegations.

In the midst of all this, the San Francisco-based investigator who had issued the subpoenas (with the approval of the SEC’s D.C.-based head of enforcement, Linda Thompson) is summoned back to Washington to meet with the SEC chairman. The investigator, Mark Fickes, is a slight, bespectacled man – but he has an iron will. He argues that Gradient is worthy of investigation – and the journalists are central to his case. Ultimately, though, the SEC caves under the media pressure. It announces that it is not going to enforce the journalists’ subpoenas (and ultimately drops its investigation of Gradient).

Herb breathes a brief sigh of relief, and then he takes the offensive. He calls my editor and demands that the Columbia Journalism Review stop work on this story. Indeed, he practically has a nervous breakdown on the phone, pleading his innocence and saying no editor could possibly allow a story like this to happen.Then Joe Nocera calls my editor – just to say that he has it on authority that Herb is innocent.

After that, Fortune magazine’s Carol Loomis, the grand dame of financial journalism, starts making calls to the Columbia Journalism School, asking questions about this story. (Recently, I asked Loomis whether she was trying to have the story killed. First, she said she couldn’t remember the circumstances – maybe she was calling on behalf of someone else. The next day, she told me that she remembered that she had heard that Columbia University was going to kill the story and her “journalistic instincts” led her to investigate).

With Herb, Nocera, and Carol Loomis making calls, the lawyers at The Wall Street Journal forbid its employees from speaking to me (so much for freedom of speech).

I send a list of questions to CNBC about Herb, Cramer, their connections to hedge funds, the network’s unbalanced coverage of phantom stock, the SEC investigation, and Patrick Byrne. A public relations man rushes to my office and says, “now let’s talk about this, maybe there is something we can do about this…Can we just hold off on this story for a while?” Just a “short while,” he says — he needs some time, but he’ll get answers to my questions, he promises.

A few days later, he says, “sorry,” he couldn’t get answers to the questions because he was on vacation. After that, he can’t get answers because Cramer is busy. Then it’s Friday, and it’s hard to get answers on Fridays. After that, he’s been ill, then he’s on another vacation, then he’s still trying to find the information. But he promises– he’s going to get me the answers really soon.

That was two years ago. I’m still waiting for the answers.

* * * * * * * *

As the media whines about the SEC’s investigation of Gradient being a violation of the First Amendment right to free speech, Rod Young, CEO of a telecom company called Eagletech, argues that the SEC has violated Fifth Amendment property rights by “grandfathering” the undelivered stock of all the companies on the SEC’s Reg SHO victim list. At this point, phantom stock is “pervasive” or “under control” depending on which SEC official is speaking. Either way, the agency has listed more than 300 companies whose stock has been sold and not delivered in excessive quantities.

And to add insult to injury, it has “grandfathered” much of that stock, saying that anything sold before January 2005 doesn’t have to be delivered – ever. The SEC says it is allowing this phantom stock to remain in the system because forcing delivery of real stock would cause “excessive volatility from large preexisting open positions.” So on the one hand, the official policy of the SEC is that it has naked short selling under control. On the other hand, it seems to believe there is so much phantom stock in the system that there would be market chaos if it were to actually do something about it.

This seems pretty outrageous to the 300-plus CEOs currently affected (not to mention the 1,000-plus CEOs whose companies might already have been obliterated), so in February 2006, Rod Young writes an open letter to the SEC.

In this letter, he describes how Solomon Smith Barney arranged a so-called private placement in public equity (PIPE) to invest in his company. PIPEs, sometimes referred to as “toxic financing,” have been a key weapon of hedge funds and brokers wishing to illegally naked short companies out of existence. Sometimes companies hard up for cash have sold discounted shares (PIPEs) to unscrupulous hedge funds. The hedge funds know that news of the fire sale will cause the stock price to drop. So they naked short the stock in the knowledge that the PIPE will deliver them shares with which to cover, creating virtually guaranteed profit. Under certain conditions, this act (which is illegal) can cause a company to go into a “death spiral” and collapse.

In a February 2007 story, “Sewer Pipes,” Nathan Vardi of Forbes magazine provides details of the Genovese Mafia family’s involvement in PIPES.

Thomas Badian, the fugitive in Austria, gave toxic financing to companies he naked shorted through Refco. Solv-ex, the company Gary Weiss highlights in his first big story, “The Secret World of Short-Sellers,” might have received toxic financing from Mafia-connected investors. And now, Rod Young of Eagletech is describing in an open letter to investors how his own company fell prey to a similar, Mafia-led scheme.

He notes that ten days after Solomon Smith Barney brokered Eagletech’s toxic financing, Amr Elgindy “and his short-selling cartel appeared on chat boards claiming that Eagletech was a scam.” He adds that FBI agents later explained to him that a New Jersey labor racketeering investigation had revealed that Eagletech’s first investment banker was selling phantom stock through a mobster from the Colombo crime family (which, according to multiple federal cases, usually does its illegal stock trading in league with Genovese and Russian mobsters). Then, in August 2004, at an Eagletech luncheon, an agent from a different federal agency showed up unannounced, looking for information on Jonathan Curshen, the same money launderer who was cased in Costa Rica by Deep Capture’s operative.

In his open letter, Young writes that, in a perfect world, the SEC would face “a silent lynch mob of aggrieved shareholders, the 13 State Securities Regulators (who unlike fed regulators are taking an interest in phantom stock)…CEOs of other victim companies, the media, congressional staff assistants, and our rock star advocates Byrne, Burrell, Patch, O’Brien (with or without the rabbit suit) Faulk, DeWayne, and Ferrara.”

The “rock stars,” with the exception of Patrick Byrne, are all bloggers and stock message board aficionados. They are now the only “media” covering the phantom stock problem with any degree of seriousness. Only one journalist shows up at Young’s meeting with the SEC. His name is Hugo Cancio, and he is a documentary film maker for a new company, Fuego Entertainment, which so far has made one film — about Cancio’s father, a Cuban musician.

Fuego Entertainment, meanwhile, has announced that it also has an agreement to distribute “Dr. Joe Vitale’s Revolutionary Sugarless Margarita Mix, Fit-a-Rita.”

* * * * * * * *

The crusading bloggers–or “pajamahadeen,” as they are sometimes called–have worked hard to get the mainstream media interested in the phantom share problem. In April 2005, the Easter Bunny even scored an invitation to have lunch at the Forbes mansion with a group of Forbes journalists and Kip Forbes himself.

The Easter Bunny and the journalists spoke for an hour in a living room. At first things did not go smoothly. The Bunny got lost in the twists and turns of hiding in South America with a backpack to avoid getting whacked, and people began rolling their eyes.

But then everybody moved to a private dining area. The Forbes journalists were open-minded. They were not hostile. At the end, Kip Forbes held up a 1987 Forbes magazine that had a cover story about naked short selling.

A year later, Forbes begins running a series of stories highlighting the travails of companies victimized by phantom stock. Correspondent Nathan Vardi gets the Mafia angle. And other stories are written by Liz Moyer, whom Gary Weiss (friend of crooks, hijacker of Wikipedia, liar) had prevented from getting a job at BusinessWeek.

* * * * * * * *

While the Bunny was soliciting Forbes, Gayle Essary was cheering on NBC’s “Dateline” program, which was rumored to have plans for a big expose on phantom stock. Essary, who has since passed away, was the son of an evangelical preacher who spent his formative years traveling to ministries throughout Texas. He retained in his own language a bit of the doomsday flourish, and in 2004, this short, slightly rotund man, who wore square eyeglasses and frumpy suits, launched a news service, FinancialWire, which for a while offered general business information, but was soon occupied almost entirely in churning out regular dispatches on “Stockgate: The Biggest Financial Scandal in History.”

In June 2004, Mark Faulk, a song-writer and playwright, broke the news of the Dateline story on his blog, “The Faulking Truth.” Gayle followed up with one of his first stories on FinancialWire.

StockGate: Dateline Could Blow Lid Off ‘Stockgate,says Website.

“FinancialWire learned several months ago that ‘Dateline,’ the investigatory TV program aired by General Electric’s (NYSE: GE) NBC unit, has been preparing a blockbuster expose of ‘Stockgate,’ the term coined by FinancialWire to encompass the massive naked shorting scandal, that could cause the entire financial community to implode…”

In April 2005, while the Bunny was addressing Forbes, Gayle was still waiting for that Dateline story, and FinancialWire was still churning out the headlines:

StockGate: 5 Days To Dateline…

StockGate: 4 Days to Dateline…

StockGate: 3 Days to Dateline…

StockGate: 2 Days to Dateline…

Then, on April 12, this story:

StockGate: Dateline NBC Cancelled…

“No one is talking, but Dateline is reportedly blaming the Pope’s death, the Prince Ranier death, and the Prince Charles Wedding and other events as causing the delay. However, a desk person at the network revealed that the story is actually being replaced by an Al Roker interview with Ruben Studdard of American Idol fame…”

* * * * * * * *

FinancialWire speculated that the Depository Trust and Clearing Corporation might have quashed the Dateline story, and Gayle had good reason for his suspicions. The Big Black Box of Wall Street had recently unleashed its imperious public relations machine on Euromoney, a prestigious European publication, which had published a powerful story on naked short selling. (Unlike the captured American financial media, European publications have provided extensive coverage of the phantom stock problem).

“We will not accept silently this type of sloppy, one-sided journalism whether in print or broadcast,” DTCC first deputy general counsel Larry Thompson wrote in a letter to Euromoney. The word “broadcast” could only have been a reference to the impending Dateline story.

Meanwhile, the Big Black Box had turned its sites even on Gayle’s little news service. In April, 2005, DTCC officials demanded that the publishers of Investors Business Daily remove FinacialWire from IBD’s news feed, which had delivered Gayle’s stories to Yahoo! News and other internet outlets.

FinancialWire hired an attorney and celebrated the event in a headline.

StockGate: Dateline NBC Cancelled and Attorney Accuses DTCC of Cheap Thuggery

“Is it possible that now, NBC has also fallen victim to a halt-the-media conspiracy that has outgrown even Financial Wire?”

But one of the best measures of any DTCC public relations campaign is Carol Remond. Whenever the DTCC faces bad news, the Dow Jones reporter can be depended upon to rush to its defense. That is why, in April 2005, as the Easter Bunny was lobbying Forbes, and Euromoney and Dateline were preparing to run exposes on naked short selling, Carol published a story noting that Patrick Byrne had become a “crusader and benefactor of conspiracy buffs” who believe Wall Street firms are illegally selling phantom stock.

Carol suggested that it was somehow suspicious of Patrick to publish an ad in the Washington Post encouraging the government to take action against phantom stock sellers. She said it was strange that Utah Senator Bob Bennett had taken an interest in the issue – that it must be because Patrick had contributed to Republican political causes.

On the day of that story hundreds of millions of dollars worth of Overstock shares that had been sold into the market remained undelivered. Several dozen other Utah companies were on the SEC’s list of companies victimized by phantom stock.

Also on that day, the Washington Legal Foundation, a prestigious legal advocacy group, published its own ad in The New York Times. It ridiculed the SEC for pursuing Martha Stewart for insider trading while failing to investigate “truly serious allegations of stock manipulation by plaintiffs’ class action attorneys and short sellers.” The prestigious lawyers said that the criminals have “behind-the-scenes contacts” with “friendly media…”

And, it added, “it’s all being done right under the noses of SEC regulators.”

* * * * * * * *

Over the next couple of months, Congressmen on both sides of the aisle sent letters to the SEC and the DTCC inquiring about the failure to stop illegal naked short selling. In June, 2005, William Donaldson resigned as chairman of the SEC, and the word from inside the agency was that he was actually fired when he began talking about addressing the problem of phantom stock.

This was shortly after Donaldson confirmed for the first time the existence of a Presidential working group “to address market issues for private pools of capital” (the “pools” being hedge funds). The pajamahadeen quickly discovered that the committees of this group were stacked with Cramer-connected short-sellers, including Jim Chanos, of Cynicism (Kynikos) Capital.

Carol Remond and other journalists, of course, picked up on none of this.

So the pajamahadeen took matters into their own hands. They held protests in Washington and New York. “National Counterfeit Conspiracy Days,” they called them.

There weren’t a whole lot of people at these protests, but they stood tall — on Capitol Hill, then at Times Square, and finally in front of the offices of the DTCC – hollering into loud speakers and waving banners. “I paid for real shares BUTT…,” read one banner. “The government knows but is covering it up,” read another. One protestor had a bare bottom (”naked shorts” – get it?). Another was wearing a purple business suit, and it wasn’t a costume.

The mainstream media didn’t cover the protests but Hugo, of Fit-a-Rita Margarita, was there.

He was making a documentary.

* * * * * * * *

So in the absence of honest media, these are the people left to fight the fight. And Patrick embraces them. He recognizes that they are underdogs. He knows that he’ll be ridiculed. But he embraces them anyway. He does it because he knows they are right.

His conviction only grows in the month before his “Miscreants’ Ball” conference call. That’s when his investigation reveals that Kevin Ingram, a convicted arms dealer, is mixed up in these events. A former trader at Goldman Sachs and Deutsche Bank, Ingram left to form his own dot-com in the late 1990’s, got short of cash, and went to Miami to deal arms. He made a deal to sell Stinger missiles to Pakistani Inter-Services Intelligence agents (even promising to work on obtaining a nuclear trigger), but they proved to be undercover FBI agents.Ingram got nabbed while boarding a chartered Lear jet bound for Europe with a million dollars in a duffel bag. He did a stint in federal penitentiary, then went to work on anonymous internet message boards, where the stocks he bashed mirrored the positions of Rocker – and of Herb, Bethany McLean, Jon Markman, The New York Post, Cramer, Gary Weiss, Floyd the Flimflammer, Carol Remond,, and the Journal’s “Money & Investing” section.

At the same time that he learns of Ingram’s involvement, Patrick discovers the mole in Overstock. With Rocker putting out feelers for other Overstock employees who might be willing to spy for him, Patrick asks Stormy Simon, his vice president of marketing, to meet the hedge fund manager and “show some leg.” Stormy quickly gets a phone call from Rocker (which she plays on her office speaker phone, with Patrick, an attorney, and a recently retired US Army Colonel present as witnesses). Rocker is very excited, and presents ways in which he and Stormy can exchange information. He insists she come immediately to seem him, and tells her that he has ways he can “protect her.” When she hesitates, he becomes adamant.

Meanwhile, Patrick comes to suspect that the Kroll investigative agency has him under surveillance. Kroll employs former agents from the FBI and other federal agencies to dig up dirt for clients – and seems to have a special unit that serves hedge funds linked to Jules Kroll’s Rye, New York neighbor, David Einhorn. To determine whether he is under investigation, Patrick goes to Kroll’s offices and asks if he can hire them. He figures if they are investigating him then they will neither take him as a client, nor tell him that they will not take him as a client (because if they tell him they will not take him as a client, they’ll know that he will know that they must be surveilling him already). Sure enough they hem and haw and make a lot of excuses why it might take some time to file the paperwork.

Meanwhile, an independent security consultant tells Patrick that Kroll is preparing a report that a hedge fund is going to deliver to the Department of Justice. The private eye says that this report will accuse Patrick of funding international terrorism. It remains unclear whether the private eye’s bizarre information is accurate – but by this stage, anything seems possible.

* * * * * * * *

In any case, a small group of hedge funds are illegally destroying public companies with the help of convicted felons, mobsters, and captured regulators – and the only journalist on the case is Hugo of Fita-a-Rita Margarita.

Hugo, and NBC’s Dateline.

That’s right, Dateline is back on the case. FinancialWire announces the news.

StockGate: Travesty of Our Time: Naked Short Selling Finally to be Exposed on Dateline NBC?

Then, on July 29, 2005 the day does come. After nearly two years of investigation, Dateline airs its expose on phantom stock. Gayle, the Easter Bunny, and the rest of the pajamahadeen sit in front of their televisions in states of pure excitement.

Then Gayle’s story on FinancialWire: StockGate: Dateline Finally Aired. Yawn.

“The now infamous and previously postponed General Electric (NYSE: GE) Dateline NBC expose aired Sunday night to cacophony of yawns and disbelief…

“Leading up to the program, the producers refused to respond to questions about whether the program had been interfered with in the postponement and reediting process. There was no mention at all, for example, of the Depository Trust and Clearing Corp.”

Indeed, Dateline’s “expose,” which was supposed to be an hour long, had been reduced to a ten-minute non-story of the form, “Some say this is happening, others deny it, and all we can say is, ‘Be careful out there.’”

* * * * * * * *

A few days later, Patrick gives his “Miscreants’ Ball” presentation. Immediately afterwards, he appears on a CNBC program hosted by Ron Insana, who was the producer of the Dateline program. Patrick says that as many as 150 to 230 million shares remain failed-to-deliver each day on NASDAQ and the New York Stock Exchange. Insana begins aggressively to cast doubts–the standard CNBC formula of attack journalism. Then Patrick becomes the first person ever to flip this formula on its head.He becomes an attack guest.

He says, “Now you worked on this for two years, Ron. And people expected a lot, and I have to say the piece you did, I thought, was rather anodyne.”

Insana appears taken aback. “Well,” he says, “you know, listen, we’re all subject to criticism and we’re all subject to he limitations of the medium in which we work…This story is not an easy one to tell, by the way, on television, if you want to get into the rigors and all the details of how a naked short-selling scheme is undertaken. When you see the allegations …they have included that individuals from Middle East entities, offshore companies, the Mob, and a whole host of other people have been involved in this…despite everybody’s expectations of an expose like that, you’ve got to be able to prove it before you say it on TV.”

Days later, at a Connecticut country club, hedge fund manager William Ackman – who was funded by the aristocrat Peretz and is connected to Gene Philips, who was rounded up with 120 mobsters in history’s biggest securities bust, is overheard talking about the “Miscreants’ Ball” presentation and allegations of short-seller crimes.

“The game is over,” Ackman says. “This is all going to get shut down.”

* * * * * * * *

March 14, 2006….Six months after the “Miscreants’ Ball” presentation, The Wall Street Journal is comparing Patrick to “Where’s Waldo,” and Jeffery Thorp of hedge fund Langley Partners has just agreed to pay an $8 million settlement to the SEC after he was found to have provided fraudulent death-spiral financing to 22 companies. As is typical in such cases, Thorp sold massive levels of phantom stock, making a net profit by intentionally destroying the companies he had financed.

Thorp is the son of Edward Thorp, who teamed up in the 1960s with a Genovese family mobster, Manny Kimmel, to develop a system for cheating Las Vegas gambling dens. Thorp Sr. authored a seminal book, “Beat the Dealer,” which outlines a method for counting cards in blackjack, and went on to run a successful hedge fund called Princeton-Newport. The younger Thorp followed his father into the hedge fund business, collaborating with the Mob-linked Amr Elgindy, who is now serving an 11-year prison sentence.

A few days after Thorp agrees to his fine (a rare enforcement action), the SEC files a lawsuit against several Refco brokers who helped the fugitive Thomas Badian sell phantom stock.The Thorp case is covered sporadically by the newswires – though with rare mention of phantom stock. The Philadelphia Inquirer runs a story describing Badian and Refco’s role in naked short selling. Some months earlier, Time magazine ran a fine story describing Refco’s role in selling phantom stock.

But from the financial media proper, there is quite literally not a word.

Barron’s magazine, for example, has yet to mention phantom stock or naked short selling. Perhaps more amazingly, it has failed to publish a single story about the collapse of Refco. Barron’s is Wall Street’s publication of record. It is read by everybody who matters in the financial world. But a giant brokerage implodes in one of the financial industry’s greatest-ever fiascos – and Barron’s runs not a single story.

It’s as if it never happened.
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