Russian Mafia Conspiracy on Wall Street in Media and Government - 5

The information in these stories is often bogus. Much of it has come from Gradient Analytics, the financial research shop that the SEC has subpoenaed, along with Herb, Cramer and Carol Remond, in 2006. In addition to the three affidavits that the SEC received, several other former Gradient employees are willing to testify that the place is staffed by kids who take dictation from Rocker or other hedge fund managers, and then produce phony negative research designed to cause stock prices to collapse.

Rocker routinely takes this “independent research” to the SEC, suggesting that his target companies are committing accounting fraud - that they’re the next Enrons. The Rocker constellation of hedge funds is pretty tight with the SEC - much as Elgindy was. The government agency will investigate just about any company named by these people. In return, Rocker has employed at least one high-level SEC employee who investigated his target companies. No doubt, others wonder whether they, too, might get lucrative jobs.

Some of the companies that the SEC investigates at the behest of these hedge funds have actually done something wrong. But often, the SEC eventually has to announce that the companies are beyond reproach. That, however, can take several years, by which time, news of the investigations - dutifully circulated by the Media Mob - will have inflicted mortal damage on these companies’ stock prices and business operations.

Around the same time that these SEC investigations begin, and usually right after a friend-of-Cramer publishes a negative article, a slippery law firm will file a class action lawsuit alleging that the target company has defrauded its investors. The law firm that has been most often responsible for these suits - the firm that has sued almost every company shorted by the Rocker constellation of hedge funds - is Milberg Weiss. This same law firm was on close terms with Amr Elgindy and his government cronies. “FBI and SEC will be here soon,” Elgindy said to a hedge fund manager on his website, “as will class [action] Milberg Weiss guy.”

Patrick Byrne warned people about this firm in his “Miscreants’ Ball” presentation. The Media Mob ridiculed him. Less than a year later, Milberg Weiss was indicted and its founding partner was sentenced to prison for racketeering, mail fraud and bribery. The firm paid off its plaintiffs to induce them to sue companies targeted by affiliated hedge funds. According to court documents, Milberg Weiss instructed people to buy stock in target companies, “anticipating that the securities would decline in value, in order to position themselves to be named plaintiffs in securities fraud class actions and to obtain kickback payments.”

Anticipating that the securities would decline. How in the world could they have known that the securities would lose value? Well, soon after the phony plaintiffs bought shares in a company, somebody would flood the market with massive amounts of phantom stock. And while Milberg was preparing its law suits, Gradient and similar outfits would release bogus financial research. Indeed, a Gradient employee time sheet obtained by Deep Capture has a line-item tagged “Milberg Weiss” - suggesting that Gradient’s employees were concomitantly working for the crooked law firm.

With phantom stock flooding the system, and the SEC preparing to investigate, and dubious financial research shops releasing bogus information, the Media Mob would attack with biased, negative stories. As the stock plummeted, Milberg filed its pre-fabricated lawsuits (inserting the media stories as evidence) alleging that the target company had ripped off its investors by causing its own stock prices to plummet. The lawsuits, of course, caused the stock prices to plummet even more, at which point the Media Mob would write more stories blaming the companies for their falling stock price.

The Media Mob avoids questions about Milberg’s dubious practices - and certainly never reports on them.

And, in February 2006, when Gradient comes under investigation, the journalists go berserk. The investigation is a violation of free speech, they say - and the “whoooole” thing was orchestrated by Patrick Byrne and the Easter Bunny.

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Back in April 2004, while Elgindy was posing as Manny Velasco, and Cramer’s television partner was grilling Patrick on gross profits, and phantom stock was flooding the market, and a pack of journalists affiliated with Cramer and Gradient Analytics were attacking every company that Rocker shorted - when all of this was happening, the Easter Bunny thought, gee, there might be a pattern. He first gained notoriety among the Media Mob by starting a blog that chronicled the travails of a little mortgage lender in Kansas City, MO called NovaStar Financial.

There is no particular reason why anyone would be interested in this obscure company, but it had been given national exposure by a certain segment of the financial press. On April 12, 2004, The Wall Street Journal “Money & Investing” section (edited by David Kansas, formerly of TheStreet.com) published a negative article by Jonathan Weil (who later went to work for a financial research shop that caters to short-sellers and law firms that file class action lawsuits). The Journal, depending on information from hedge funds linked to Cramer, suggested that NovaStar had licensing problems in multiple states, when it did not.

During that month, Herb also attacked NovaStar in more than a dozen separate stories - many of them containing false information. His analysis appeared on MarketWatch.com, CNBC and MSN Money. TheStreet.com followed suit. NovaStar’s stock plunged by more than 30%, and on April 15, crooked law firm Milberg Weiss, with amazing alacrity and foresight, filed a class action lawsuit (using the Journal article as its principal evidence) alleging that NovaStar’s “investors” had been grievously harmed by the falling share price. The next day, the SEC, no doubt at the behest of short-sellers, opened an investigation of NovaStar, inflicting yet more damage.

In the midst of all this, the Easter Bunny sent Herb a detailed analysis that showed that Herb had completely misread an important line on NFI’s financial statement. Herb blithely responded with, “You’re free to interpret the data any way you want” - which is his standard answer.

Now, it is fair to say that in 2008 subprime mortgages have become a risky business. But that is different from saying, in 2004, that a specific mortgage company has done something wrong. Even as NovaStar continued to post strong profits well into 2006, short-seller games - including the sale of phantom shares — kept the stock price in the mud. SEC data obtained under the Freedom of Information Act shows that millions of shares of NovaStar had been sold but not delivered on April 11, 2004 - the day before the Journal article. The number of phantom NovaStar shares in the system increased steadily over the next three years.

Today, the stock price is too low even to trade on NASDAQ. It has been reduced to the pink sheets - reserved for penny stocks.

The SEC’s investigation of NovaStar remains open, but as of early 2008, it had yet to announce an investigation into hedge funds that trade phantom stock.

As of April 2008, Herb was still covering NovaStar. Lately, he’d been dancing on its grave.

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Not long before NovaStar came under attack, Michael Milken, the “junk bond king,” appeared in the offices of Allied Capital, a DC-based financial company that shares certain financial characteristics with NovaStar. There, he told an Allied executive, “You know, I already am quite a large shareholder of your stock - but my name will never show up on any list you’ll see.”

This may 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, along with Boesky, to prison in the 1980s.

Milken returned on several occasions and seemed intent on ferreting out every detail of Allied’s business. Then, the interrogations came to an abrupt end.

A couple of months later, Cramer’s friend David Einhorn was at a hedge fund luncheon. Sitting next to him was corporate raider Carl Icahn. Halfway through the meal, Einhorn stood up and told the hedge funds assembled in the room, “Allied Capital is going to zero!”

On April 26, 2004, Dan Loeb (a.k.a. Mr. Pink, the guy who once promised to go to “war” for Einhorn) posted a comment on a Yahoo message board, saying: “ALD [Allied] turd getting flushed, swirling down the toilet.”

At the same time, reports on Allied’s supposed misdeeds, created by the Kroll Investigative Agency and a politically connected Texas businessman named Jim Brickman, were delivered to the SEC and the Department of Justice, which began investigations. These inquisitions became so onerous that Allied had to create what one employee calls the “Department of Investigations” just to satisfy the government requests that poured in, year-after-year.

The Kroll Investigative Agency seems to have developed a unit tasked specifically with manufacturing dirt on companies shorted by the Cramer constellation of hedge funds. Einhorn and his cronies commissioned the report that was submitted to the DOJ, and it should be unsurprising that most of its allegations were groundless.

After four years of ongoing investigations, and countless media stories alleging wrongdoing, charges have been brought against one person - an ex-employee of a company that represents less than 5% of Allied’s portfolio of investments.

Meanwhile, the SEC and DOJ have yet to investigate claims that Allied is the victim of illegal phantom stock selling. So Deep Capture has done it’s own investigation. This took all of five minutes - the time we needed to write and send a Freedom of Information Act request to the SEC. The SEC wrote us back, providing data showing that there have at times been 3.5 million phantom Allied shares. That is, somebody had sold at least 3.5 million shares that were never delivered because the shares did not exist.

And again, that number represents phantom shares in just one corner of the system. The number of phantom shares in the rest of the system is thought by most observers to be many times greater. However, the SEC refuses to release data about the number of phantom shares in other layers of the system. In fact, Patrick, Dave Patch and others have suggested that the SEC might not even know.

In any case, the SEC has the power to prosecute the sellers of phantom stock, but it has so far refused to do so.

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And what if Overstock, Allied Capital, and NovaStar were not the only victims. Suppose there were a clique of hedge funds and reporters who descended upon hundreds of public companies, mocking and harassing them, driving their CEOs to conniptions or barricaded silence. Suppose further that billions of dollars worth of phantom stock in these companies had been sold into the market.

Suppose we know this because people like the Easter Bunny and Dave Patch have devoted large chunks of their lives to exposing the crime. But we also know it because Leslie Boni, a resident economist at the SEC has published a seminal report, “Strategic Failures to Deliver,” which identifies phantom stock as a major problem. We know it because former Undersecretary of Commerce Robert Shapiro has done his own study, concluding that naked short sellers have vaporized as many as 1,000 companies.

And we know it because in January 2005, the SEC begins publishing a list of more than 300 companies whose stock has been sold, but never delivered, in excessive quantities. There is some initial muttering about the phantom stock being the result of “clerical errors,” - maybe the real stock is sitting under a mattress somewhere, or the dog ate it - but this is so much gobbledygook, as evidenced by the huge amount of undelivered stock and the SEC’s later admissions that phantom stock is a “serious problem.”

We also know from Leslie Boni’s statistical analysis that high volumes of phantom stock are concentrated in very specific companies. We know from our own analysis that there is a wildly high probability that those same stocks have been targeted by Milberg Weiss lawsuits and in hatchet jobs by the Media Mob. The stock-eating dog must have friendly relations with Herb, Carol Remond, Jim Cramer and their friends.

Peter Chepucavage, the SEC attorney who drafted the so-called Reg SHO rule requiring the SEC to begin listing victimized companies, has told us that its enactment was preceded by an unprecedented lobbying effort spearheaded by Wall Street. The result, he says, is watered down enforcement. While the SEC listed the victim companies, for example, it stipulated no way of helping them - which is like publishing the names of rape victims while refusing to prosecute rapists. (Indeed, the stock prices of many of the companies on the list dropped significantly in the days after the list first appeared.)

But, anyway, there it is: a list, supplied by the SEC — unequivocal evidence that hundreds of companies are victimized by a stark financial crime.

Now, suppose that one CEO fights back. He fights back because of what short-sellers’ illegal tactics are doing to the shareholders of his and other companies, and also, because he is worried that the creation of phantom stock will have systemic implications.

Maybe this CEO gives a presentation titled “The Miscreants’ Ball,” identifying a group of journalists who are the eager stooges of rule-bending hedge funds. Maybe, for a while, government investigators begin to take an interest in some of the CEO’s allegations - and maybe important politicians, economists and even a few objective journalists began shaking their heads and saying things like, Holy bejeezers, Byrne and that Easter Bunny character are right. Not in every respect, maybe, but clear as day: this is one of history’s great financial heists.

Well, in this case, the journalist-stooges might become somewhat agitated. Suppose they set out to defend themselves and their Wall Street friends-to disparage the CEO and others who question the tactics of some short-sellers and their value as media sources. This, one can imagine, is a battle that the journalists are keen to win. Maybe some, like Herb, go more or less bonkers. And for others, perhaps, there are few limits inviolable–no filth unbearable.

Imagine that.