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Overstock’s head counsel as its new president?  I’ve heard worse.  Like the public company that elected the top contributor to its message boards to its board of directors.  But that’s another story…


Strap in, this one’s a biggie.

For this section, Mitchell starts by complying with the journalistic code that requires any discussion of short-selling to include a fifth-grade-level explanation of what short-selling is, including that short-selling is, in and of itself, not illegal.  You know, just so long as you keep it completely to yourself and let those taking the opposite position monopolize any discourse about the company.

And sure enough, Mitchell then proceeds into a comically long list of dirty tactics he attributes to short sellers, such as extortion, collusion, theft, off-shore money laundering and nice red uniforms.  Wait, sorry, I meant “libelous blogs”.  (Hmm, wonder if he’d consider this one libelous?)  Mitchell does not, as it happens, include any examples of any of these.  But then again, this bit is already long enough, so I won’t complain too hard.

But the worst dirty trick of all, says Mitchell, is the selling of what they like to call “phantom shares”, i.e. short-selling without a borrow, also known as “naked shorting”.  Mitchell claims it is enabled by a “glitch” in the electronic trading system (exactly what that is or why nobody is trying to fix it, he doesn’t say), and of course that it is “blatantly illegal”.  One wonders then, what Mitchell must make of Cox’s emergency order banning naked shorting on selected financial stocks.  Why the need to ban something that was already “blatantly illegal”?

Mitchell does go on to cite some sources, including first and foremost his boss, Patrick Byrne.  I won’t go into those here, except to note that it’s a pretty serious stylistic faux-pas to say “here, here, here, here and here” to give the reader a list of hypertext links.

Perhaps sensing that the reader will likely not be inspired to follow those anonymous links, Mitchell sums up with an “all you need to know” is that there are 300 companies on a list (here referring to the SEC’s SHO list, which companies enter into and drop off of on a daily basis) that he claims have “excessive” stock sold but “never” delivered (again, except that they do drop off the list).  In effect, he says that the SEC is saying with the list “here are a list of crimes in progress that we are doing nothing about”.  This despite SEC statements that there are numerous ways that a stock can appear on said list without any malfeasance on anyone’s part.

Mitchell now goes for the scare tactic, saying that if you own a stock on that list, you may not actually own the stock you paid for, irrespective of what the computer tells you!  The computer lies!  Of course, should you ask to sell these “phantom” shares, assuming that the market is open and the stock isn’t suspended or revoked, the computer, every time, will happily say okey-dokey and credit your cash balance by the appropriate amount.  Hmm, maybe the cash is “phantom” too!  Better pull it out just to be sure!

At this point I should remind you that this is all by way of accusing others of undermining faith in the financial system.

Mitchell goes on to cite “some experts” (unnamed as ever) who claim that as many as 1,000 companies have been “wiped off the map” by naked shorting.

Perhaps conscious that such a wild claim might need an example to have credibility, Mitchell provides one that he says is “probably” a victim, not necessarily of naked shorting, but “collusive behavior and dubious tactics”.  But — and speaking of dubious — his choice of martyrs to the cause?  Bear Stearns.

You may have heard a little bit about subprime mortgages and defaults and a general trashing of much of the US banking system in recent months.  But no, apparently Mitchell wants you to forget about and join him in championing the likes of Bear Stearns as an example of a company who might well have pulled through its issues just fine had it not been for those God-forsaken short sellers.  Who, again, are doing nothing wrong by shorting just so long as they are doing absolutely nothing else, like breathing.

Never mind such minor details as the fact that, until the infamous $2-a-share buyout offer from JP Morgan, the shorts had only managed to drive (even assuming for argument’s sake that it was the shorts driving) Bear’s stock down to $30 a share themselves.  Even using the revised buyout price of $10, the shorts were “victimizing” Bear by panicking people into selling its shares for as little as 300% of what Bear was about be valued at.

Oh, but I’m sure we’ll find out that the buyout was all part of the collusion, too.  After all, there’s no conspiracy theory that can’t be propped up by just making the conspiracy a little larger.

At any rate, Mitchell finally sums up by saying the behavior of short-sellers is “clearly” “a scandal of epic proportions”, and rhetorically asks “Where the hell is our media?”  By which he means, “Why the hell can’t I get anyone in the media to agree with me?”

Next week: Booyah!

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  1. […] Heart of Deepness One person’s journey into the nigh-impenetrable wilderness of Deep Capture « Section Five: Naked Came the Shorts […]

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