Posted on 07/14/2008 2:34:38 PM PDT by StatenIsland
Three years ago, Deep Capture reporter and Overstock CEO Patrick Byrne gave a famous conference call that he titled, “The Miscreant’s Ball.” His thesis was simple: Some short-selling hedge funds collude to destroy public companies by spreading misinformation, orchestrating government witch hunts, filing bogus class-action lawsuits, and, most egregiously, selling billions of dollars worth of phantom stock.
In the months that followed “The Miscreants Ball” presentation, a clique of journalists with close ties to short-selling hedge funds and CNBC’s Jim Cramer (himself a former hedge fund manager), set out to sully the reputations of Patrick and everyone else who sought to expose short-seller crimes.
Cramer pal Joe Nocera, who is the New York Times’ top business columnist, wrote that Patrick’s crusade against hedge funds that sell phantom stock was “loony beyond belief.” CNBC contributor and Marketwatch columnist Herb Greenberg, formerly an editor with Cramer’s web publication, TheStreet.com, labeled Patrick the “worst CEO in America” for taking on the shorts (ie., the same shorts who are now paying Herb for “independent” financial research). Fortune magazine’s Bethany McLean, who has yet to write a story that was not sourced from a small group of short-sellers connected to Jim Cramer, suggested in an article titled “Phantom Menace” that Patrick should be fired from Overstock for speaking out against the problem of phantom stock.
At the time, I was the editor of the Columbia Journalism Review’s online critique of business journalism. The attack on Patrick was like nothing I’d seen before, so I decided to write a story about the media’s coverage of short-sellers and phantom stock. When Herb Greenberg and Joe Nocera got word of this, they both called my editor demanding that he kill the story. Cramer sent a public relations goon to delay the story. Then a short-selling hedge fund, Kingsford Capital, appeared in my offices and offered to pay my salary.
My successor at the Columbia Journalism Review is now called “The Kingsford Capital Fellow.” One of Kingsford Capital’s managers was a founding editor of Cramer’s website, TheStreet.com. I do not believe that Kingsford’s interest in the Columbia Journalism Review is philanthropic. And I do not believe that the Columbia Journalism Review, “the nation’s premier media monitor” is capable of objectively monitoring the financial media so long as it’s chief writer on the subject is paid directly by this very controversial, Cramer-connected, short-selling hedge fund.
Perhaps facing similar pressures, or perhaps because they are unwilling to contradict Cramer’s influential Media Mob, or maybe because they’re just plain lazy, other journalists have shied away from covering the problem of illegal short-selling. Instead, reporters have incessantly repeated the party line that “short selling is good for the market. Only bad CEOs complain about short-sellers.”
In March, short-sellers destroyed Bear Stearns by spreading false information and selling millions of phantom shares. And now the shorts are going after another major investment bank. In a week of high drama, hedge funds have been circulating blatantly false and hugely damaging rumors that big institutions are pulling their money out of Lehman Brothers. If March SEC data is any indication, the shorts are also selling millions of dollars worth of phantom Lehman stock.
One of the nation’s most important investment banks is down, and another is on the brink. The American financial system wobbles.
And, suddenly, Cramer’s Media Mob is silent. Gone is all of the talk about Patrick Byrne being crazy. Nocera says nothing about the attacks on Lehman and Bear. Bethany McLean recently wrote a favorable review of a book written by David Einhorn, the most prominent short-seller of Bear Stearns and Lehman, but she dares not mention the current market predations.
Herb Greenberg, who used to sing the praises of short-sellers almost weekly, was last heard defending his hedge fund friends in April. CNBC seems to have taken him off that beat. (The network recently dispatched Herb to the San Diego County Fair, where he interviewed a vendor of deep-fried Twinkies).
But Jim Cramer is talking. No doubt to distance himself from the growing scandal, he went on CNBC today and said precisely what Patrick Byrne said three years ago. Noting that short-sellers are colluding to take down Lehman, he said the problem is “the need to be able to get a borrow and see if you can find stock….. no one is even calling to see if they can get a borrow. [In other words, hedge funds are selling stock they don’t have -- phantom stock]. It’s kind of like, well listen, let’s just knock it down. It’s very similar to what Joe Kennedy would have done in 1929 [leading to Black Monday and the Great Depression] which is get a couple of cronies together and let’s take it down…”
Too late, Jim. For three years, you, CNBC, and a clique of journalists very close to you have ignored this crime because your short-selling hedge fund cronies claimed that phantom stock is not a problem. Meanwhile, hundreds of companies have been affected. Billions of dollars of value have been wiped out. And lives have been destroyed.
It is one of the most ignominious episodes in the history of American journalism.
INTREP
The gist of the show was that everyone knows enough to invest wisely in the stock market, i.e. do you think Coke tastes good? Then buy Coke stock! Yeah!
I imagine that Cramer is going to pretty much short the market after all of the idiots have poured their money down the rat hole.
I am pretty stupid regarding big picture financial stuff, but I have had this creeping feeling that something very bad is behind what is happening with the markets. I read today about Jim Rogers, who used to be a partner with George Soros screaming about the fannie/freddie plan being a disaster. He openly states that his shorting these institutions in an article on bloomberg. I also think it is interesting that Goldman Sachs who has given my state it’s most liberal governor, Jim Corzine, continues to talk down finacials and talk up commodities. I smell something very rotten afoot.
here is Patrick Byrnes voice/power-point video on nekkid short selling.....
http://www.deepcapturethemovie.com/
I think part of the problem is that they changed a rule for shorting about a year ago that had been in effect since the Great Depression, and that 1% rule needs to be reinstated.
If commodities go down, then the municipalities go into debt.
This is the best PR the hedge funds can have: if governments depend on hedge funds doing well, then even the government regulators will be unwilling to do anything about it until it is way too late.
“At the time I was the editor of the Columbia Journalism Reviews.......The attack on Patrick was like nothing I had seen before”
Lol! He had never vistited a Patrick Buchanan thread on FR obviously.
Thank you for posting the link. Here it is again, it is a must watch:
http://www.deepcapturethemovie.com/
If they’re doing something illegal, then prosecute them. But if they haven’t broken any laws, then leave the shorts alone.
Sheep get sheared.
Their fees and bonuses from these true "killings" are so big they can't turn away from doing it. No fear of reprisal or jail, no morals or remorse, just get yours, retire big in the islands and let someone pick up the pieces.
The SEC banned Naked Short Selling last year: http://findarticles.com/p/articles/mi_qn4188/is_20070614/ai_n19291043
The two are markedly different, both as to purpose and execution.
What I am saying is that some of the money in pension fund investments is going into hedge funds because of the current (emphasis on current) high yields.
When the short selling starts, then everyone in government will all of a sudden realize what a stupid idea it was.
Jim Rogers was live on the John Batchelor Show last night talking from Singapore, just lambasting the Fannie Mae / Freddie Mac deal. Such hatred in his voice. If he was shorting the stock I am sure that he was losing some $$$ this morning.
He has a long history of being against gubmint bail outs.
His article is nevertheless worthless, because he fails to address what has to be the key point.
Specifically, if all of these folks were big supporters and protectors of the short-sellers of yore; and yet they're shocked and upset by short-sellers of today... what explains the difference?
Seems to me that that would be the real story.
Instead, we are presented with a rather bitter, angry screed in which the complicit villians from before, somehow become nothing more than a group of witless mouthpieces who finally get what this guy claims to have been saying all along and, oh, if they'd only listened to him three years ago....
An interesting psychogical case study, perhaps, but not much more than that.
If I had to make a guess, it would be that Mr. Mitchell is testing the waters to be a newsletter guru for some niche market or other.
for those of you who are uninformed and still choose to pontificate, claiming that naked short sells are and have been illegal, you REALLY ought to take a few minutes to educate yourselves with at least the rudiments and real-world nuances......
http://www.sec.gov/answers/nakedshortsale.htm
Naked shorting after three days is illegal.
Trouble is, the tools at the SEC never do anything about it.
When you see that the short interest in a stock is at 110%+ of the outstanding shares for *weeks* — then you know the SEC is (as usual) asleep at the switch.
Is that some twist to the normal means of short selling, which is, after all, selling stock you don't own w/ the intention of buying it back later and cheaper. Or is "phantom stock" just another term for short selling?
Rogers has probably been short Fannie since well over $60. So yeah, he may be losing money but he is very patient short, he is not at all new to this play, he’s been short well over a year.
“At the risk of being laughed at but how do these institutions short “phantom stock”?”
You should watch “deep capture”, as linked a couple of times in this thread. It’s pretty informative.
If you, a retail investor, wish to short shares of some stock, your broker will seek out among its’ clients, shares of that co. for you to short. You’ll borrow those shares, sell them into the market, receive the proceeds into a segregated segment of your account, be responsible for paying any declared dividends during the time you’re short, perhaps pay margin interest, AND, be vulnerable to being forced to buy those shares back.....at a time likely (but not necessarily) to be inconvenient.
If your broker cannot find those shares among its’ clients, it can either inform you that there are no shares available to short, or, go out and find some such shares, somewhere. IF the brokerage executes the short sale, then there is an implied promise to deliver said shares to the buyer; and for now, let’s just say that the buyer is the market maker (because it’s true!)
Those shares are supposed to be delivered within 3 days. But, uhhhh, sometimes those deadlines slip a little. Somtimes a lot. As “Deep Capture” will show you, there is/are a cluster of hedge funds who deliberately create “FTD’s” (Alas, not the flower company) but “failure(s) to Deliver. In effect, an IOU for stock is created.
After these FTD’s are on the books of the DTC for some length of time, IIRC per regulation SHO, the short sale is supposed to be extinguished by an administrative “forced buy” where the short seller must relinquish the funds he received, buy the shares back, and return them to the party who lent them. The issue here is that this isn’t being enforced very well.
Again, I strongly reco viewing Deep Capture. It’s pretty interesting and easy to follow.
David Trone, a brokerage analyst, suggested a temporary prohibition of short-selling in the brokerage sector specifically because companies in that sector have a “unique vulnerability.” Seems resonable.
>>...Until the current crisis passes, short-sellers wouldn’t be allowed to borrow and sell stock in the brokerage sector, including Lehman Brothers, Merrill Lynch and Morgan Stanley. These companies, unlike regular banks, have “the unique vulnerability of a type of company that doesn’t have hard assets–it’s built on confidence,” he said to Deal Journal in an interview. Rumors “create an artificial impairment of the business” because the same people and firms that react to the rumors are the ones that are doing business with Lehman. Trone envisions the restriction lasting as long as, say, the Federal Reserve discount window is open to the investment banks. When the crisis passes, the window closes and short-sellers can roam free once more.
“Desperate times call for desperate measures,” Trone said. “When London was bombed, they had to turn the lights off.”<<
http://blogs.wsj.com/deals/2008/07/14/is-it-time-to-pull-the-rug-out-from-short-sellers/
“banned naked short selling last year” ? That has always been a crime per se and codified for decades I think. It’s the ignored Armani suited/naked shorting that could be the problem
just for grins, click this link......it is the official RegSHO list as of midnite friday......every one of the equities you will see when scrolling down is “naked shorted” in excess of one half of one percent of its float......the actual numbers of Fails-to-deliver is concealed from the public......many, many of these have been on the list for months and months. (I happen to own 3 of those listed right now)
http://www.nasdaqtrader.com/Trader.aspx?id=RegSHOThreshold
the entire ftd thing the overstock guy talked about was quite compelling. I have no idea if it is true, but can see how it COULD be true, the way overseas funds work.
not that simple. The FTD’s are being done offshore, apparently.
You do understand what the issue with the FTD’s is?
I trade stocks actively, but thanks anyway.....
Is this a pop quiz?
“the crime of the century” audio........Byrne is one of the guests on it, but not his own production
http://www.netcastdaily.com/broadcast/fsn2008-0712-2.asx
trying to see if you understand why your post was not necessarily a viable approach, in terms of implementation, to the FTD issue.
The fact that it hasn't been enforced properly is hardly my problem. I said that the short sale rules as promulgated have prohibited naked short sales, and so they do, quite inarguably.
Sheesh.
Awesome, thank you!
Damn, those naked shorters.
“I said that the short sale rules as promulgated have prohibited naked short sales”
wrong.
But I DO accept that it is “hardly” your problem.
(obviously you are unaware of the history and relevance of the uptick rule as well)
Others and I have put plenty of factual info into this thread........you may now squeal all you like in your indignant ignorance.
There is a website
and is a site where you can join and see a daily report on the naked shorts (illegal shorts) on stocks. Apparently, that number has to be reported now.
They also have some calculation on how many days those shorts have been in place and when the people who have made them will have to fill before losing money.
The Regress had its first go at correcting Joe Kennedy and Sands' and Morgan's abuses in short selling in 1933, in the infamous ''100 days'', but the uptick rule and restrictions on borrowing shares, AND delivery requirements were ultimately codified -- and still in force today -- in the Securities Act of 1940.
Don't bother responding until A) you've read that particular law in its entirety (and I'll nail you to the wall, rhetorically, if you misquote any portion of it) and B) you've looked up the Supreme Court cases that have emanated from it. I won't trouble you about assorted SEC rulings on the subject of shorting, because these have been both schizophrenic and in many cases politically motivated for the past 50 years.
We're quite agreed that ''naked'' shorting is improper and damaging to mkts; where we disagree is that this practice is simply and sadly a failure of enforcement of existing law...and has been for years, even decades.
No new news on this, mate, excepting that enforcement has become even more lax in the past score of years.
Do have a nice day, won't you?
what a big blow.
Did you or did you not write this?
“I said that the short sale rules as promulgated have prohibited naked short sales, and so they do, quite inarguably.”
“We’re quite agreed that ‘’naked’’ shorting is improper and damaging to mkts; where we disagree is that this practice is simply and sadly a failure of enforcement of existing law...and has been for years, even decades.”
Please again explain where you disagree, it is not clear. Do you believe it is NOT a failure of enforcement? If you are saying that it IS simply a failure of enforcement, then I am not sure there is a disagreement.
laws, rules, bla bla bla.....this issue just might get the sunlite it deserves......someday....here’s todays pig-in-a-poke:
SEC moves on short sellers
Tuesday July 15, 2:41 pm ET
WASHINGTON (Reuters) - The Securities and Exchange Commission will issue an emergency rule later on Tuesday to stop “naked” short selling in major financial firms, including Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News), the SEC said.
ADVERTISEMENT
Short sellers borrow shares they consider overvalued and sell them. If the price drops, they repurchase the shares, return them and pocket the difference.
In a naked short sale, the investor sells stock that has not yet been borrowed. Sellers sometimes deliberately fail to deliver securities as part of a scheme to manipulate the stock price.
The emergency rule would require any person making a short sale in the listed securities to borrow the securities before the short sale is effected and deliver the securities on the settlement date.
The SEC has already proposed rules to curb naked short selling abuses and prevent market price manipulation.
http://biz.yahoo.com/rb/080715/sec_shortselling.html?.v=1
as you can see here, Cox went to the hill today prepared to sidestep the naked short matter....
http://www.sec.gov/news/testimony/2008/ts071508cc.htm
snip:
IT IS ORDERED that, pursuant to our Section 12(k)(2) powers, in connection with transactions in the publicly traded securities of substantial financial firms, which entities are identified in Appendix A, no person may effect a short sale2 in these securities using the means or instrumentalities of interstate commerce unless such person or its agent has borrowed or arranged to borrow the security or otherwise has the security available to borrow in its inventory prior to effecting such short sale and delivers the security on settlement date.
In order to allow market participants time to adjust their operations to implement the enhanced requirements, this Order shall take effect at 12:01 a.m. EDT on Monday, July 21, 2008. This Order shall terminate at 11:59 p.m. EDT on Tuesday, July 29, 2008 unless further extended by the Commission.
http://www.sec.gov/rules/other/2008/34-58166.pdf
Appendix A
Company Ticker Symbol(s)
BNP Paribas Securities Corp. BNPQF or BNPQY Bank of America Corporation BAC
Barclays PLC BCS
Citigroup Inc. C Credit Suisse Group CS Daiwa Securities Group Inc. DSECY Deutsche Bank Group AG DB Allianz SE AZ Goldman, Sachs Group Inc GS Royal Bank ADS RBS HSBC Holdings PLC ADS HBC and HSI J. P. Morgan Chase & Co. JPM
Lehman Brothers Holdings Inc. LEH Merrill Lynch & Co., Inc. MER Mizuho Financial Group, Inc. MFG Morgan Stanley MS UBS AG UBS
Freddie Mac FRE
Fannie Mae FNM
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