At the end of April 2006, the Media Mob gathers for the annual conference of the Society of American Business Editors and Writers (SABEW). In response to the accusations leveled by the Easter Bunny and Patrick Byrne, the journalists hold a panel titled “High-Tech McCarthyism?: Dealing with Today’s New Business Journalist Bashers.” The panel is chaired by Herb, Herb’s friend Joe Nocera, and Dan Colarusso, who worked with Herb at TheStreet.com before he became Roddy Boyd’s boss at The New York Post.
A
Deep Capture team member infiltrates this meeting, and gets it all on
tape. The journalists are furious that we have this tape, and it is easy
to understand their concern. It couldn’t do a much better job of
exposing the arrogance and willful obstinacy of the nation’s most
“prominent” financial journalists.
Colarusso sets the tone. Referring to Patrick and the Easter Bunny, he says, “The more they attack us, you know, we have barrels of ink and stacks of money, and all the resources in the world at our disposal, legal, and via our media, to crush them…”
Sounds like an objective journalist to me.
Then Herb says, “When it comes to naked shorting, it’s not my issue…It doesn’t relate to what I do, what Joe does, what Carol Remond does, even what Cramer does.”
And Joe Nocera says “naked short selling…makes my eyes glaze over…So I asked Patrick Byrne exactly this question…I said, ‘Well why do you…why are you in this naked shorting fight since it’s not really what you are litigating?’ And he said, ‘Well, it’s like supporting education; it’s a good thing to do.”
At this, there is uproarious laughter from the journalists in the room. It should be said that most of the journalists in the room are Herb’s friends. Dave Kansas, formerly of TheStreet.com, is there. So is Dave Evans, the Bloomberg reporter who, along with Herb and Kansas, worked closely with the online short-seller group led by Amr Elgindy, who is now in prison. So these journalists - these creeps who think it is hilarious that Patrick has embraced what he believes to be a good cause - are by no means typical journalists.
They just happen to be the journalists who control the financial media.
“So,” continues Nocera, The New York Times’ top business columnist, “it’s hard to take [Patrick] seriously on that issue when you hear him say something like that. Having said that, you know, I think it probably would be worth somebody’s time to say, Is there something to naked shorting or not? What is naked shorting? What does it mean? What is the problem here? But, you know, life’s too short. I don’t want to do it.”
At this, the journalists in the room laugh even harder.
* * * * * * * *
A few weeks later, SABEW elects Dave Kansas as its president and Joe Nocera writes a column describing Patrick as a “conspiracy-mongering trash-taking lawsuit-filing chief executive.”
He writes, “What is naked short selling? So glad you asked…except for a few fellow-traveling websites, where Mr. Byrne is viewed as a heroic figure, most people who understand the issue or have looked into it think it’s pretty bogus.”
Perhaps life really was too short, and Nocera couldn’t be bothered to look into the issue. That would be the kind assessment - certainly better that the possibility that he is a prostrated scrivener for hedge fund managers who would like the world to think that phantom stock is a non-issue.
Fortunately, there is one journalist who is doing some real reporting. His name is Gary Matsumoto, and he’s one of America’s best investigative reporters, famous for breaking the news that thousands of young American soldiers have been used as unknowing guinea pigs in government medical experiments.
Previously, Matsumoto was with NBC and Fox News, and now, in June 2006, he is working for the Bloomberg business news television network. He meets me at a Thai restaurant on New York’s Upper West Side. By this time, Matsumoto is convinced that Patrick is right - phantom stock is an epic scandal. He thinks for a moment about the difficulties he’s faced in reporting this story. He reckons with the prospect of going up against conventional wisdom and the mainstream financial media’s most powerful journalists.
Then he leans back in his chair, resigned, and says: “Shit.”
“Shit,” he says, “I just want to do the right thing.”
* * * * * * * *
During this week — the week in which Nocera calls Patrick a “conspiracy-mongering, trash-talking lawsuit-filing chief executive” — the law firm Milberg Weiss is indicted for bribing witnesses in phony class action lawsuits against public companies. Remember, according to the DOJ’s indictment, Milberg told its bribed witnesses to buy stocks, knowing that their prices would decline. Many of those stocks were Rocker shorts. Most of them were sold, and never delivered, in massive quantities. And nearly all of them were the subjects of negative media stories, released at around the same time as the phony lawsuits. Nocera’s friend, Herb, has written negatively about almost every Rocker short-his stories always coming out around the same time as the Milberg Weiss lawsuits, the massive phantom stock selling, the release of false information by questionable research shops like Gradient, and the execution of an array of other dirty tricks.
None of Herb’s friends mention the indictment of Milberg Weiss. Instead, they continue to serve the interests of Rocker and associated hedge funds. All of Herb’s stories still come from these people. Cramer is still bashing stocks shorted by them. TheStreet.com is still publishing stories for them, as is The Wall Street Journal “Money & Investing” section, and MSN Money.
And also this week, Carol Remond is busy circulating another rumor about Patrick. She has called former SEC lawyers and several others with information - given to her by people working for her hedge fund friends - that Patrick is using off-shore accounts to secretly sell shares in Overstock. This, like every other rumor Carol has pursued with rabid enthusiasm, is entirely, 100% false.
Roddy-Boyd-the-Post, meanwhile, is working with the criminal Spyro Contogouris, along with a group of hedge fund managers, including Rocker, to take down Fairfax Financial. He leaves a voicemail message with Fairfax, telling its CFO, “You’ve got some explaining to do, pal.” Then he writes a false story accusing the company of accounting shenanigans. A source at the Post tells Deep Capture that the paper decided not to put Roddy’s Fairfax stories on the internet because they would not stand up against foreign libel laws (which are stricter than those in the U.S.).
Soon after Roddy’s stories appear, Contogouris sends more threatening emails to Fairfax employees, and arranges a secret meeting with a former Fairfax CFO, saying he can arrange immunity from government prosecution. (Helpfully, Roddy-Boyd-The-Post later publishes a story claiming that “forensic accountant” Contogouris “was actually working for the Federal Bureau of Investigation”- and that an FBI spokesperson has confirmed this. The FBI announces that this is completely false, which makes sense considering that the FBI will later put Contogouris in jail).
And also this week in June 2006, Gary Weiss has just been exposed as the specially protected, anonymous editor of the Wikipedia entries on “Naked short selling,” “Patrick M. Byrne,” “Overstock.com,” “Depository Trust & Clearing Corporation,” and “Gary Weiss.” But Gary denies having ever touched Wikipedia.
So Judd Bagley publishes additional information proving that multiple Wikipedia accounts are attached to Gary’s IP address. Gary’s online alias responds that if somebody edited Wikipedia using his IP address, it might have been his visiting uncle.Then Judd releases information proving that Gary, hoping to cover up his activities, has begun editing Wikipedia using yet another phony identity (or “sockpuppet,” in Wikipedia parlance).
Gary’s sockpuppet responds to this by saying that the other sockpuppet belongs to his nephew. Gary adds that he had no idea that his nephew shared his interest in naked short selling. Yes, he was really surprised to learn that his nephew edited the Wikipedia entries on naked short selling.
But it wasn’t Gary. Gary never edits Wikipedia.
* * * * * * * *
Something else happens in June 2006: a former SEC investigating attorney named Gary Aguirre writes an 18-page letter to Congress. If the contents of this letter are accurate - as they are later proven to be - this is the biggest scandal in the SEC’s seventy-plus years of operation.
Aguirre writes, “I believe our capital markets face growing risk from lightly or unregulated hedge funds just as our markets did in the 1920s from unregulated pools of money - then called syndicates, trusts or pools. Those unregulated pools were instrumental in delivering the 1929 Crash. …There is growing evidence that today’s pools-hedge funds-have advanced and refined the practice of manipulating and cheating other market participants.”
Aguirre then describes an investigation that he led at the SEC. “The investigation was two-pronged,” he writes. The first prong concerned allegations that the head of a major investment bank provided an illegal inside tip to a large hedge fund. “The second prong of the investigation…market manipulation…involved two classes of suspected violations: wash sales and naked shorts.”
That is, this investigator was investigating phantom stock sales by hedge funds.
He writes, “Some of my colleagues believed [the naked short] prong held a greater potential to severely injure the financial markets.”
Unfortunately, Aguirre continues, this investigation was “stopped in its tracks” because the investment banker in the insider trading prong had “political connections.” In later media stories, it is revealed that the investment banker was John Mack, head of Morgan Stanley. The hedge fund that Aguirre was investigating was called Pequot Capital.
In the summer of 2005, Aguirre’s supervisor wrote that “Gary has an unmatched dedication to this case (often working well beyond normal work hours) and his efforts have uncovered evidence of potential insider trading and possible manipulative trading by the fund and its principals.” On August 21, 2005, the SEC approved Aguirre’s merit-pay increase based on his work on this investigation.
But when it came time to issue subpoenas, the supervisor told Aguirre to lay off because Mack’s attorneys had “juice.” When Aguirre pressed the issue, he was shut out of meetings where the case was discussed by high-level SEC officials and lawyers for the accused. Then, just two weeks after receiving his merit pay increase, Aguirre was fired.
Meanwhile, one of Aguirre’s supervisors, Paul Berger, then the SEC’s associate director of enforcement, was expressing interest in getting a new job - at Debevoise & Plimpton, the law firm that was representing John Mack. This is not at all unusual. SEC staff regularly seek jobs with the very people whom they are supposed to be investigating.
After a lengthy inquiry, the U.S. Senate Judiciary Committee has ruled that everything in Aguirre’s letter was true. It says that Pequot was selling phantom stock and that it is “deeply troubled” by the SEC’s failure to properly investigate Aguirre’s allegations.
“At worst” the Senate Committee says, “the picture is colored with overtones of a possible cover-up.”
* * * * * * * *
The Aguirre scandal leads to the resignations, in August 2007, of the SEC’s inspector general, its chief economist, and two of its five commissioners.So it is interesting to review the Media Mob’s initial response to Aguirre.
On June 28, 2006, the Senate held hearings on hedge funds at which Aguirre was the star witness. In a hallway outside the hearings, a group of journalists gathered to plot ways to smear Aguirre and also fight critics of David Rocker and other short-sellers.
Roddy-Boyd-The-Post was there, his baggy pants failing to conceal the entirety of his ass.
Mop-haired Jesse Eisinger, the Journal’s Easter Bunny hunter, also participated in this conversation, as did Bill Alpert, the Barron’s magazine reporter and friend-of-Herb who had written that he wished he could have a government subpoena for “publicity.”
Nearby, Karen Hinton, Gradient Analytics public relations consultant, was working her Blackberry, updating Gradient’s Donn Vickery on the proceedings.
That morning, Dave Kansas’ Wall Street Journal “Money & Investing” section had already published a front page interview that was flattering to John Mack, the Morgan Stanley CEO at the center of the Aguirre scandal. “`Old Macky’s Back’ at Morgan,” it read. “In an interview Monday… Mr. Mack reviewed highlights of the past year, offering thoughts along the way on his nickname “Mack the Knife,” and why he once rented a shark suit to sing a karaoke version of the song.”
The Dave Kansas “Money & Investing” section asked Mack the hardball question, “What do you consider your biggest accomplishment?” But there was not one question about Gary Aguirre, phantom stock, or the SEC’s stymied investigation into Mack and Pequot Capital.
That afternoon, Eisinger went on CNBC to slag Aguirre and defend short-sellers. A few days later, Bill Alpert wrote in Barron’s that “the cloud that’s fallen over [Pequot] seems to contain little substance.”
Meanwhile, Gary Weiss, wrote on his blog that Aguirre’s allegations were “flimsy.”
By contrast, Gretchen Morgenson of The New York Times took Aguirre’s allegations seriously. Long before the Senate concluded that Aguirre had exposed the biggest scandal in SEC history, Morgenson published multiple stories demonstrating Aguirre’s credibility.
As Morgenson prepared these stories, the Media Mob attempted to destroy her. Roddy-Boyd-the-Post called me at the Columbia Journalism Review. He said, “ehhhhh,” he had a hot tip for me. Yeah, there was a guy on Wall Street - he had some good dirt. This guy on Wall Street could tell me that Gretchen Morgenson fabricated the story that won her a Pulitzer Prize a few years ago. And maybe, if I wanted to take a break from this short-seller story, Roddy could, “ehhhhh,” you know, hook me up with this guy. It could make my career - a big story proving that Pulitzer-prize winning Morgenson is a fraud.
Nice try, Roddy.
