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So Byrne et al got what they wanted, and yet look what’s happened to the markets.  Not saying there’s any kind of causal relationship there or anything, but it’s really hard to see how it helped.


Our first new guest in Deep Capture this week is one David Rocker, who is a highly successful hedge fund manager, or at least who was highly successful until the Lehman Brothers bankruptcy tied up what seems like half the capital on Wall Street.  Few portrayals of the man as a person are terribly positive, though that’s not a surprise when you make as many enemies as the man has.  Of which Byrne, Mitchell and the rest of the Deep Capture gang are just a small segment.

Rocker is unlike most hedge fund managers in that he allows himself to be quoted by journalists, notably Jim Cramer and Herb Greenberg, thus making his opinions public.  His voice is usually that of the bearish case in a given stock, which, as we have seen, the Deep Capture very gang strongly object to being heard.

Mitchell labels Rocker’s reports and comments “often bogus”, but rather than cite any examples, Mitchell decides it enough to smear them as being largely based on the research of Gradient Analytics.  That’s the firm that was subpeonaed by the SEC in 2006, then sued by Overstock… then cleared by the SEC and finally allowed to exit Overstock’s lawsuit with a brief and narrow retraction — if it actually amounted to a retraction at all.

Oops.  Now that Gradient is no longer one of the “bad guys” Mitchell’s whole basis for impugning Rocker’s commentaries just blows away in the wind.  Should’ve gone with some examples instead, Mark!

Mitchell goes on to portray Rocker as “tight with the SEC”, to the point, Mitchell claims, that they would open an investigation into a company simply on his say-so.  “As was Elgindy,” Mitchell hastily adds, lest the reader wonder what exactly is a bad thing about having the implicit trust of the cops.  So noted, in Mark Mitchell’s view of the markets, that there’s no surer sign of being crooked, than having the trust of the cops.

Mitchell does concede that some companies thus targeted were in fact found to be fraudulent.  But others, Mitchell says, were instead proven to be “beyond reproach”.  (Someone needs to introduce Mr. Mitchell to the concept of “middle ground”.)  But, as Mitchell laments, by the time exoneration and deification came through, it was too late and the businesses had been destroyed by the specter of having been under SEC investigation.

I hate to keep harping on this, but once again, an example of a company thus exonerated but nevertheless driven to bankruptcy by nothing more than being under the weight of an investigation, would not have been out of place here.

But no time for that, because it’s time to switch subjects, and once again do so in mid-paragraph!  (Seriously, the folks at CJR have to be truly embarrassed by this point.)  Our next guest is a name — two names actually — heard all too often during the meltdown of the dot-com bubble, ladies and gentlemen, let’s welcome Milberg Weiss!

Milberg Weiss — today known simply as Milberg — is a law firm specializing in class-action lawsuits.  And frankly I’m not even sure any elaboration on that is necessary as anyone who was in for the downside of the market in the early 2000’s probably has a pretty good idea how that works.  You lose thousands in the market, then years later, you get a check for twenty bucks, and that gets called justice.

As you might have gathered from my tone just now, I’m not a fan.

So for once Mitchell and I might at first blush appear to be on the same page.  But Mitchell, never one to do anything unless he can overdo it, isn’t satisfied with the giant fees Milberg pulled down on these class-action suits, as a motivation for their actions.  No. he has to go one further and say Milberg selected its lawsuit targets at the behest of the shadowy short sellers.  Because after all, why be satisfied with straightforward greed when you can pull a full-blown conspiracy into the picture?

Let’s face it, Milberg was the ultimate vulture of the early 2000’s.  You couldn’t just ignore them.  If they still wielded the power today they did seven years ago, they’d be all over Overstock over this restatement business, if they hadn’t been already.  So the notion that Gradient would have a file on them and their actions?  Not a surprise and not in and of itself particularly suspicious.  Of course if Mitchell could give us some insight into the actual contents of… no?  Well, there you have it once again, another Mitchell special, heavy on innuendo, feathery light when it comes to facts.  I believe in some sectors of journalism they call that a “hit piece”.

To be fair to Mitchell, the quiet settlement between Gradient and Overstock was not one that many saw coming, so his focus on Gradient, while a little embarrassing in retrospect, is nonetheless at least somewhat understandable.

That is not so much the case for the topic of next week’s section.  You know all that fuss I’ve been making over how Mitchell rarely if ever provides examples of victims, to back up his claims?  Next week, he finally gets around to one.  But there’s a small problem.

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It seems inevitable in this little exercise in the macabre that anyone operating under a veil of anonymity will soon have his or her identity sought after.  And so, as you can see from the comments, it has begun here.  I’m really not sure what, if anything I plan to do about it, but I do believe it will be an entirely useless clue to my identity when I admit to having crossed swords, so to speak, with the subject of this week’s section.

Meet David Patch, self-styled evangelist of the gospel of the anti-naked shorting movement.  His primary accomplishment, as far as I can tell, is getting himself banned from more blogs and message board websites than any other individual I am aware of.  He almost seems to make it a goal to get banned, in order to be able to tie the blogger/admin in to the grand conspiracy against him.

He does this by effectively “taking over” a discussion, and driving it in the direction he wants it to go, irrespective of what anyone else was or wanted to talk about.  And if the person in charge tries to tolerate him, he’ll just ramp things up until he finds the breaking point and wins himself a one-way ticket out of that forum.

Mind you, it’s been a while since he has (to my knowledge) pulled that off, so either he’s gone away or found a place where his “style” is actually appreciated.  Either way, I don’t necessarily anticipate him showing up here.

Anyway, the gist of this week’s relatively short tale is of how Dave Patch found the “smoking gun” via a Freedom of Information Act request, that “proved” that shares of Overstock.com were being sold and never delivered.

I put “proved” in quotes because his actual reasoning has always been scattershot at best and at some times just plain absurd.  At one point, for example, he thought the figures provided were cumulative, meaning each day’s total represented brand new “phantom shares” being created.  After being disabused of that, he charted the data and picked out a segment that “proved” that delivery failures were on an uptrend, even though the data he excluded showed that the levels had been substantially higher in earlier months.  And all the while, the data does nothing to indicate whether these are the “same” shares being undelivered for weeks on end, or a transient condition where delivery get backlogged but fulfilled in due course.  No points for guessing which of these options Patch has arbitrarily decided must be the case.

Meanwhile, OSTK has been off and on the Reg SHO list of companies with significant failures to deliver, and as of this writing is currently off it.  Yet the lack of “phantom shares”, as Mitchell keeps calling them, has failed to return the stock to anywhere near its highs of a little less than four years ago.

It’s probably coincidence that at the same time the current leadership of the SEC has decided to “take seriously” the complaints of David Patch and others, that the markets have plunged into what some pundits call their gravest crisis since the Great Depression.*

Still, it was probably an inopportune time for him to be taking over the discussion there.

It’s something of a darkly humourous irony that as Patch, Byrne and others of their mindset are trying today to take credit for something or other, nobody else has any time for them.  I guess they’ll just have to settle for being prophets in their own minds.

Next week, Patrick Byrne and his impression of a moth.

(* Mind you, other pundits are a little less on the panicky side, so all I can advise is to go with whomever you decide to trust.)

Sorry about last week; just forgot to hit the button! Doh!


Cramer, who is a sociopath, owns TheStreet.com with Marty Peretz, who is an aristocrat.

Hey, Mark, Ann Coulter’s on the phone.  She thinks you need to reel it in a bit.

Seriously, I don’t claim to be a professional copy editor or anything, but if I were, and that’s the opening line of a piece I’m evaluating, that’s where I stop reading.  Is Mitchell really expecting to have this taken seriously as some kind of landmark exposé?  Or is he deliberately setting himself up to fail here so as to “prove” that the mainstream hates him and therefore he must be onto something?

Anyway, thus begins a section which spends about 80% of its length in smear-a-palooza mode.  But rather than do any kind of in-depth trashing of anyone’s character, Mitchell indulges in more of a buffet-style smear, a little of this, a little of that, now on to him, now on to her.

For instance, with Peretz’s introduction here you’d expect him to be the subject for a fair amount of time.  But in point of fact, he’s all but forgotten after the first paragraph.  The spotlight momentarily moves back to Cramer’s early days working for soon-to-be-infamous Wall Street figure Ivan Boesky, before going off on a tangent about Michael Milken, how many suspect he was the person Byrne intended to identify as the “Sith Lord”, and how Byrne has apparently subsequently decided there was no single Sith Lord after all but rather the enemy was some kind of collective evil “like Al Qaeda”.  Of course never mind that even Al Qaeda had a well-established hierarchy before they got driven into the caves… oh, but why am I expecting any sense out these metaphors anyway?

Anyway, back on track, after Boesky, Cramer’s next boss was Michael Steinhardt, and it’s his turn in the smearlight.  He’s of course a “thug” (one of Mitchell’s favorite epithets it seems) and “it is said” (note the brave lack of attribution) that Steinhardt “showed no remorse” after an employee had a heart attack.

The story moves on to Steinhardt’s father, “the biggest Mafia fence in America” per Mitchell, back momentarily to Peretz (who Mitchell feels compelled to remind us funded Cramer’s hedge fund, even though he just said that four paragraphs earlier), and then on to Mark Rich, recipient of a rather controversial pardon from Bill Clinton.

Lest he be perceived as showing any sex discrimination, Mitchell adds to his hit list Cramer’s wife (not specifically named apart from Cramer’s nickname of “Trading Goddess”) and CNBC anchor Maria Bartiromo.

All in all, quite a display from the man who was just a couple of sections ago complaining about how anyone that nettled these guys would be subject to a vicious smear campaign.  Self-justification in advance or just a total lack of self-awareness?  You be the judge.

Finally Mitchell settles down for a while on one of his boss’s most archest of enemies, David Rocker, by way of leading in an extremely roundabout way back to where he left off last section with the SEC’s investigation of Gradient Analytics, and its decision to issue subpoenas to numerous journalists — basically anyone who had written critically of Overstock.com to date — to see who’s been talking to whom, when, and about what.

But we’ve already covered why journalists (of which Mitchell again seems to exclude himself) generally consider that a bad thing, so let’s cut to the big finish.  Cramer and Greenberg have “commandeered CNBC” (never mind the little detail that this was on Cramer’s show where he can and does talk about anything he wants to as along as it has some relation to Wall Street).  And Cramer pulls out his subpoena — maybe a copy, maybe the original, who knows — and writes “BULL” on it in large black marker, before ripping it up.

Gasp.

I suppose it would be nasty of me to note that, even as Mitchell attempts to construct a cliffhanger moment out of this (even as he’s stretched the narrative of this moment across three sections — does he think he’s writing for Dragonball Z or something?) he’s already spoiled the resolution: the whole “cowardice and strange events” thing that led to the SEC backing down.

It’s pretty clear that this moment is why these guys fire so much ammo Cramer’s way.  He effectively called them all out on national cable TV and publicly humiliated them (via those in the SEC that had done their bidding) and got clean away with it.  And that’s just something that sticks in their collective craw to this very day, even as Cramer has rather paradoxically seemed to have come around to embrace the idea that short sellers are out of control.  (Then again, he also thinks that companies are out of control too.  And that — all together now — it’s all George Bush’s fault.)

Next week: the public reaction to Cramer’s stunt.  Or lack thereof, and why that’s apparently a horrible thing.

So much for that new “proudest moment”.  Easy come, easy go.  Ironically, Jim Cramer is bemoaning this reversal, having bought into the notion that the financials in question are helpless in the face of shorting.  Did he not get a memo or something?


I did promise last week to get to what the whole hubbub involving Jim Cramer and Herb Greenberg was all about, but as this section decides rather capriciously to wander into a side issue let’s start there.  Once Mitchell gets through reiterating his embellished descriptions of Cramer and Greenberg that fateful day, he moves on to the story of a high-level Overstock executive (to this day) named Stormy Simon, who despite her name is not and never was in the adult entertainment industry and shame on you for even thinking it.  Or so Mitchell effectively says anyway.

Mitchell attributes the story behind Simon to Jeff Matthews, another blogger who has done a lot of dissecting of Overstock’s performance as a company, particularly in 2005 and 2006 (even as his interest in that story has appeared to wane in more recent months), but strangely, no entry related to Overstock appears in his blog for the specified month, November 2005.  It’s possible the entry may have been deleted, or perhaps the discussion was restricted to the comments page (Simon is mentioned in the comments to a December entry that was Overstock-related, but I’ve neither the time nor the inclination to scan every comment section on that blog.)

Then again, it’s not as if Patrick Byrne himself hasn’t encouraged such a suggestion himself.  According to a story in Forbes from that month, Byrne claimed to have sent Simon to Rocker Partners, under the pretense of having damaging information about Overstock, a practice which Byrne described by saying, “she showed them some thigh”.  No, really.  Mitchell claims that Byrne has thoroughly debunked the notion of any lascivious past on Simon’s part, but once again, a source might have been nice.

There’s a lot more to the story (such as the panned Super Bowl ad referred to in one of the links above, which was put together by Simon herself), but by now Mitchell has moved on so I guess I need to do so as well and get back to what was eating Herb.

That, specifically, was a subpoena.  The SEC, in a rather unprecedented move, issued subpoenas to numerous journalists that wrote critically about Overstock.com, including Greenberg, and Cramer as well, it turns out.  Mitchell acts as if the whole thing is routine from the SEC’s perspective but it is far from that.  The subpoena asks for information about sources that Herb, Jim and others granted confidentiality to as part of their occupation as journalists.

It’s really rather appalling, and a little insulting too, that Mitchell, a man with so much experience in the field of journalism, shows so little regard for the sanctity of confidential sources to journalism here.  Especially given how, earlier in the piece, he made a big show of being protective of the “secret” identity of the “Easter Bunny”, even long after everybody else was satisfied that the secret was out.

But what it really goes back to is the central theme of this overall movement and that is the silencing of negative information about publicly traded companies.  Had Greenberg and Cramer complied with the SEC subpoena, their respective careers as journalists would have been seriously damaged.  It’s a complex and even rather controversial subject, so let me just refer you to a seminal 1994 article from the American Journalist Review on the topic.  Essentially, sources with negative information would no longer want to speak with them, for fear of reprisal should their identities be divulged.  A state of affairs that, again, would fall right in line with the true goals being sought here.

But the bottom line is, whether you agree or disagree with the principle involved here, it is something journalists — as Mitchell himself surely knows — take extremely seriously.  Thus, Mitchell’s pretense of incomprehension that this would become the story of the day on CNBC, Cramer’s on-again, off-again (but as of late very much on-again) employer is really quite grossly disingenuous.

Mitchell goes on to rather mockingly describe Cramer and Greenberg’s assertions that the subpeonas were effectively Byrne’s doing, although you’d think the way Byrne celebrated this action at the time would have been rather strong supporting evidence.

Regardless, not long after, the SEC responded to the outrage expressed by Cramer, Greenberg and others with, basically, a “never mind”.  Mitchell, for his part, attributes the SEC’s reversal to “cowardice and strange events”.  Although What “strange events” he means, as usual, he doesn’t say.  Indeed, Mitchell’s piece has by this point established rather a theme of making odd allusions to nothing specific.

Next week: Section Eight, and it has nothing to do with any military service on Patrick Byrne’s part.  What a rip!

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!