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The Mitchell Report
We ? Jim Cramer
July 23rd, 2008 by Mark Mitchell
“…the most falsely over-weighted topic on Wall Street these days is naked shorting…the concept of not finding shares before you short them, not locating them, is something that happens very rarely…”
- Jim Cramer, TheStreet.com, February 5, 2006
Do you believe in redemption?
In “The Story of Deep Capture,” we noted that CNBC’s Jim Cramer is at the center of a clique of dishonest journalists (most of them former employees of Cramer’s website, TheStreet.com) who have spent many years taking dictation for short selling hedge funds (most of them connected to Cramer). These same journalists, we pointed out, have steadfastly denied that hedge funds commit crimes or that illegal naked short selling is a big problem.
On the day after we published “The Story of Deep Capture,” Cramer went on CNBC to say that illegal naked short selling is a big problem.
This was the first time he had ever said such a thing, and he didn’t mince words. Comparing today’s hedge fund crimes to the short selling that contributed to the great stock market crash of 1929, he said, “We know that there was a lot of time spent in the 30s analyzing this issue and deciding that it was very easy to create a bear raid…What I’m trying to eliminate is the kind of bear raid…where people didn’t borrow stock [i.e., where they conducted illegal naked short-selling].”
Cramer was quiet on the issue after that. But last week, the SEC issued an “emergency order” suggesting that naked short-selling had the potential to topple the American financial system.
That evening, Cramer said, for the second time in his career, that naked short selling is a big problem. He said that, in fact, all along, “We’ve been on a crusade on this show…it’s a crusade to bring back honest short-sellers…Right now hedge funds, if they don’t like a stock, can just attack it by calling brokers and punishing the stocks, blitzing them down [by selling stock that they have not borrowed – naked short-selling].”
Meanwhile, the rest of the CNBC staff went to lengths to suggest that short-sellers are good people who do no wrong – that the SEC’s emergency order was some kind of witch hunt. The folks at CNBC also seemed keen to erase their own culpability in the short-seller attack that is widely believed to have destroyed Bear Stearns.
Strangely, Charlie Gasparino, who has been one of the few CNBC reporters to acknowledge short-seller shenanigans (he once called Deep Capture reporter Patrick Byrne a “hero” for raising awareness of the problem), suddenly pronounced that people who believe that short-sellers destroyed Bear Stearns are all “morons” because hedge funds were pulling their money out of the bank “before all the CNBC chatter” [i.e., before CNBC’s David Faber sparked a panic by airing, as if it were fact, the scurrilous hedge fund lie that Goldman Sachs had cut off Bear’s credit].
This was somewhat in contradiction to Gasparino’s earlier suggestion that hedge funds had precipitated the demise of Bear Stearns. “If you look at the way Bear Stearns imploded,” he said in April, “it didn’t go down in a couple of months, it went down in a week. And if you look at what happened, it’s clients, which were hedge funds - these are the people that…trade with the firm. They precipitously started pulling cash while - while they were going short…”
Indeed, we challenge CNBC to name more than one hedge fund that had pulled out its cash before its reporter, David Faber, aired that well-timed fabrication on Wednesday, March 12 . We’ll say it again: The SEC should subpoena Faber to find out which hedge fund (perhaps illegally) fed him the false news.
In any case, Gasparino now says critics of short-sellers are “morons.” The rest of CNBC has not seen fit to interview the many experts who believe illegal naked short selling is threatening the stability of the American financial system, and has instead lined up people like Cramer pal Joe Nocera, of the New York Times, and Michael Steinhardt, the hedge fund manager who incubated Cramer’s first hedge fund. These people have reinforced the party line that short-sellers are the market’s “vital” untouchables while failing to address the data – the billions of phantom shares that crooked hedge funds have manufactured through naked short selling.
Thus, surreally, the only person on CNBC now acknowledging the scope of the problem is the one journalist who has done the most to cover it up – Jim Cramer. And Cramer is not just acknowledging the problem, he’s telling us how angry it makes him. I mean, we at Deep Capture have done our fair share of ranting about naked short selling, but our efforts pale in comparison to the 15-minute tirade that Jim Cramer launched against the SEC for failing to stop the law-breaking short sellers who are “viciously and quickly” driving down stock prices [tirade accompanied, literally, by a soundtrack of emergency sirens].
What to make of this?
We’ve given up trying to psychoanalyze the singular Jim Cramer. Maybe he sees where the wind is blowing and is trying to distance himself from his hedge fund cronies. Maybe CNBC has heard the critics who have been hollering for years that Cramer’s clique was running rampant, while Gasparino was the only reporter on CNBC who could be objective about short-sellers’ crimes. Maybe to neutralize that criticism, CNBC is flipping everything on its head. We’ve seen stranger goings-on at Cirque du CNBC.
But it doesn’t matter. We’d like to give Jim Cramer a hug. Yes, Jim, come on over — you bear, you — and give us a great big hug.
There is always the possibility that you are legitimately horrified by the destruction that illegal short-selling has wrought. Maybe you even feel a bit guilty about the role you have played.
Well, we feel your pain. All is forgiven. Come and give us that hug.
Sure, it’s beyond the pale for you to suggest that you’ve been on our “crusade” all along, but we’ll give you points for chutzpah. We’ll also give you points for taking a stance that will no doubt alienate you from some of your closest friends.
Most importantly, we give you points for speaking the truth – and doing it well. Although your speechifying against the problem of illegal naked short selling seems strangely timed, it has been unequivocal, incisive, and no doubt convincing to a great many people.
“Would you call me crazy?” you asked on CNBC, as a prelude to your 15 minute rant against the naked short selling problem. Yes, Jim, we would — but crazy ain’t such a bad thing to be, so long as you’re saying it like it is, and doing the world good.
Welcome to the Deep Capture team.
(Or….maybe not. Here’s a question for the long-time crusaders – the hundreds of good people who have been hollering about the problem of naked short-selling for years (you’re all members of the Deep Capture team, as far as we’re concerned): Do you believe that Cramer is truly reformed? Is he going to continue highlighting short-seller crimes. Can he really be one of us? Let us know what you think).
Posted in The Mitchell Report | 19 Comments »
How Naked Short Sellers and CNBC Bamboozled the SEC
July 21st, 2008 by Mark Mitchell
You can bet that the hedge fund talking points were rolling off the CNBC fax machine last week, and really, the network did a stellar job – right on par with the high-powered lobbyists in Washington. Yes, the folks at CNBC should join hands with those lobbyists, and take a deep bow. It was a heck of a show – a real extravaganza.
I doubt the American people even know what hit them.
It is hard to believe, given that the news has so quickly disappeared from the front pages, but the SEC last Tuesday issued an historic “emergency order” to head off financial apocalypse by preventing criminals from “naked short selling” the stock of 19 big finance companies.
The SEC’s move was kind of weird (Why only 19 companies?) but it was gratifying to Deep Capture and a band of crusaders who have long been hollering that crooked hedge funds use naked short selling (selling stock that has not been purchased or borrowed, and usually does not exist – i.e., phantom stock) to drive down prices and destroy public companies for profit.
For years, arrogant journalists brushed off the crusaders, while a pack of dishonest, but influential reporters with close ties to hedge funds harassed and ridiculed them (see, “The Story of Deep Capture”). Meanwhile, government agencies denied that phantom stock was a problem. SEC Director of Trading and Markets James Brigagliano once referred to the crusaders as “bozos.”
But on Tuesday…well, here was something altogether different. The SEC said that phantom stock was not just a problem; it was an “emergency” that had the potential to crash the nation’s financial system.
In other words, the bozos were right!
Well, we cheered, and then we closed our eyes to take in that warm glow of vindication. My eyes were closed a bit too long, I’m afraid, because I missed the curtain opening on Cirque du CNBC and its amazing spectacles – great feats of flimflammery, upside down speechifying, all manner of contortionism and illusion.
Within three days, this grim circus, with a lot of help from the mighty hedge fund lobby, would reduce the SEC’s “emergency order” to a twisted joke – a grand gesture to do nothing whatsoever.
The day after the SEC’s declaration, the circus was already well under way, with the hedge funds spinning furiously and their media marionettes singing the party line: short sellers are “vital” to free markets; everybody loves free markets; only bad companies and bad CEOs complain about short sellers – go investigate the CEOs, hands off the “vital” hedge fund managers.
As for billions of dollars of phantom stock threatening to topple the American financial system – don’t even mention it. If somebody does, repeat, over and over, “Only bad companies complain about shorts…shorts are vital”
I sketch out the hedge fund party line only for those who are new to the so-called “debate” over naked short-selling. If you’re a long-time crusader, you’ve heard it all before. You’ve heard it on CNBC so often that you’re probably now banging your head against a wall and saying something like, “oogly oogly oogly,” half-mad with incomprehension – still unable to come to terms with the utterly surreal spectacle of an important television news network, in the United States of America, completely whitewashing a massive crime.
By the time CNBC interviewed SEC Chairman Christopher Cox on Wednesday, the top market cop seemed to have become rather befuddled by it all. Amidst the incessant chants — “bad CEO’s…vital short-sellers” — Cox backed away from his earlier suggestion that he might extend the emergency order to protect the entire market, rather than just 19 big financial firms with ties to Wall Street.
Meanwhile, Chairman Cox suggested, preposterously, that it’s somehow more acceptable to naked short smaller companies because their shares are harder to locate and borrow. This is something only a hedge fund contortionist would say. There are always shares to borrow at some price, and a tough borrowing environment hardly justifies selling millions of non-existent shares to drive down prices.
But we sympathize with Mr. Cox. While the CNBC lady suggested that the SEC should investigate bad companies instead of shorts, and questioned whether the SEC had initiated some kind of “witch hunt” against short-sellers generally, the chairman labored valiantly to point out the obvious (though apparently not to CNBC) distinction between legal short-selling and the blatantly illegal practice of spreading maliciously false information while selling non-existent stock to create panic and drive down prices.
Mr. Cox seemed like he wanted to do the right thing. It’s just that Cirque du CNBC can be a rather discombobulating place.
Moments before the SEC Chairman was interviewed, circus clown Joe Nocera, who doubles as the New York Times’ top business columnist, was on CNBC, working up the crowd by suggesting that Mr. Cox had lost his mind and was doing the bidding of bad companies and stupid people “saying woe is us, woe is us, blame it on the shorts.”
Remember, Joe Nocera is the anti-investigative journalist whom Deep Capture has tape recorded telling some of his media colleagues that the naked short-selling scandal “makes his eyes glaze over,” and he isn’t going to look into it because “life is too short.”
Far easier to read from the script: “Bad companies! Vital shorts!”
The next day, CNBC had yet to televise any of the CEOs, economists, and many other experts who agree that the phantom stock problem is, indeed, an “emergency.” Instead, the network brought on hedge fund cronies to say that their hedge fund cronies are “vital.”
Predictably, CNBC did a long interview with the dreaded Michael Steinhardt, a mentor and incubator of some of the most notorious short-and-distort hedge funds in the land. Steinhardt, for example, once employed David Rocker, who has regularly used the media (most notably, CNBC’s Herb Greenberg) and a dubious financial research shop called Gradient Analytics to disseminate misleading information about target companies, most of which are also victimized by massive levels of phantom stock. Jim Cramer, CNBC’s top-rated “journalist,” once ran a hedge fund out of Steinhardt’s offices, and CNBC’s “Money Honey,” Maria Bartiromo is married to the top partner in Steinhardt’s newest fund.
These are the sorts of relationships that prevail at CNBC. Our critics say it is too “conspiratorial” to point out these relationships, but we believe otherwise. Watch CNBC. Observe the lubrications that are lathered on favored hedge funds. Then judge for yourself.
Steinhardt didn’t have much to say about hedge funds that destroy public companies by selling billions of dollars of phantom stock while publishing false financial information, colluding with crooked law firms to file class action lawsuits, orchestrating dead-end government investigations, hiring convicted criminals and thugs to harass CEOs, and feeding false information to compliant journalists. Indeed, he didn’t have much to say at all, except the predictable mantra that all the “moaning and groaning” about short-sellers comes from bad companies and silly people who are angry about falling stock prices.
Participating in this interview was Paul Roth, another hedge fund manager who was mentored by Steinhardt. When asked whether it would be a problem if, say, a hedge fund were to sell ten times as many shares as actually exist in a company, Roth said, “That’s not illegal…the problem is sometimes you located the shares [and sold them] but somebody scooped them up [before you could deliver them to their rightful owners].”
CNBC’s Joe Kernen, who conducted the interview, characteristically let this statement go unchallenged. So let us state, for the record, that it would be a crime of monumental proportions to sell, say, 1,000 shares in a company that had only 100 shares outstanding. It is a crime because you cannot possibly “locate” or “scoop up” 900 shares that do not exist. It is a crime because there is only one possible reason why a hedge fund would sell ten-times a company’s public float, and that’s to manipulate the stock price.
But understand how these people think: If you can get away with it, it’s not illegal.
Around the same time that CNBC was massaging Steinhardt and Roth, members of the Securities Industry and Financial Markets Association, the leading Wall Street lobbying outfit, were on a conference call with some high-level SEC officials.
As it were, none of the hundreds of companies victimized by phantom stock got to be on any conference calls. But they’re used to that.
They’re also not too surprised that after CNBC aired the hedge funds’ talking points for three days, and the lobbyists wailed on the conference call, and uncounted other hedge fund billionaires bellowed in the name of “efficient markets” and the right to destroy “bad” public companies, the SEC announced that it would preserve its “market maker exemption,” which allows some brokers to sell stock they don’t have in order to “make a market.”
The “market maker exception” is one of several loopholes that hedge funds have been using for years to create billions of dollars worth of phantom stock. Market makers are, in fact, required to eventually deliver the stock they sell. But the name “market maker” imbues magic powers. If the SEC asks why you haven’t delivered the shares you sold, stick the words “market maker” on your forehead, mutter something about keeping things “liquid”, and the SEC goes away — even when you’ve sold ten times the float and even when the phantom stock goes undelivered for months or years at a time.
Since it was already against SEC rules to use naked short selling to drive down prices, the most exceptional feature of the commission’s “emergency order” was that it was going to close the “market maker exception” loophole – at least as it applied to trading in 19 big financial companies. By retaining that exception, the SEC has, in essence, decided that it isn’t going to do anything after all. Hedge funds and their “market makers” can go right on selling phantom stock and threatening the stability of the American financial system.
From “emergency” to “exception” in a few short days…Behold the powers of Cirque du CNBC and its hedge fund choreographers.
Posted in The Mitchell Report | 12 Comments »
The SEC Declares Emergency, and Joe Nocera Yammers On
July 15th, 2008 by Mark Mitchell
Wow!
Folks, today was history in the making. The Deep Capture thesis, which is that miscreant short-sellers have put the American financial system at risk, can no longer be in doubt.
First came the stunning announcement that the SEC has sent subpoenas to 50 hedge fund managers as part of a major investigation into rumor-mongering and illegal short-selling of Bear Stearns and Lehman Brothers. Then came the even more remarkable announcement from SEC Chairman Christopher Cox that he is instituting an “emergency action” requiring traders to pre-borrow stock before shorting all “substantial” financial companies.
Of course, there is a some bitter irony here. Over the years, hundreds of public companies have been grievously wounded by hedge funds who sell phantom stock (ie. stock they have not borrowed), and the SEC has done nothing. Now Wall Street finance companies, including the very investment banks whose prime brokerages facilitated the creation of phantom stock, find themselves victimized by phantom stock, and the government decides it’s time to do – or at least, say – something about it.
We’d be glad to see the big banks suffer their Shakespearean fates if the SEC were to rescue the hundreds of innocent victim companies who have been hollering about the phantom stock problem for years. We’ll see if the SEC extends the emergency action to the rest of the market, as Mr. Cox suggested it might.
Either way, all the talk of an “emergency” suggests that the SEC recognizes just how big the phantom stock problem has become. Obviously, it sees the catastrophe of Bear Stearns as a clear-cut case of short-seller abuse. A well-timed false rumor, presented as fact by CNBC, combined with phantom stock sales, took the bank down. Now, the same people are using the same tactics against Lehman Brothers. Fannie and Freddie are on the brink. And experts say there are 300-plus other publicly traded companies – including 50 finance companies — getting similarly clobbered.
An “emergency,” indeed.
All of which makes certain journalists look like bona fide clowns. For years, a clique of influential reporters—I call them “the Media Mob”–have insisted that short-sellers do no wrong and that phantom stock is not a problem. On Friday, Deep Capture noted that the media’s hedge fund apologists, including Joe Nocera of the New York Times, had shied away from commenting on the collapse of Bear Stearns.
The next day, Joe Nocera of the New York Times commented on the collapse of Bear Stearns. Predictably, he argued that short-sellers had nothing to do with it. He wrote, “it takes some gall for Bear Stearns to blame short sellers for its failure…what Bear Stearns management fails to mention is how much of its capital was tied up in subprime sludge.”
The sludge, Joe, is not the point. As your close friend Jim Cramer has described (behind closed doors, if not on CNBC), “the game” of market manipulation is to find a weakness and amplify it out of all proportion to reality. It is one thing to say that Bear’s balance sheet was weak (I agree, Bear was a piece of crap). It is quite another thing to get a compliant television reporter (in this case, Cramer crony David Faber, on CNBC) to spark a run on the bank by reporting, as if it were fact, the completely false and utterly catastrophic news that Goldman Sachs had cut off Bear Stearns’ credit – and to do that while somebody’s selling millions of shares that do not exist.
As we said last week, the SEC shouldn’t just subpoena the hedge funds: It should subpoena CNBC’s David Faber. He says a hedge fund “friend” gave him that information about Goldman cutting off Bear’s credit. That hedge fund “friend” very likely broke the law. The SEC needs to find out who he is. Journalists have no constitutional right to cover up crimes under the guise of protecting sources.
But short-sellers don’t commit crimes. So says the Media Mob. Why do they say this? The kindest explanation is that Nocera and crowd honestly believe that it is simply too dangerous to criticize shorts because shorts are so absolutely “vital” – the only people able to provide negative information to the markets and the media. This worn notion fails, of course, to make the distinction between law-abiding short-sellers who provide real analysis and crooks who circulate scurrilous lies while churning out phantom stock.
It also contains a stunning admission: that the financial media is incapable of conducting financial research on its own. Journalists consider short-sellers “vital” sources of negative information because journalists do not have the wherewithal to look at a balance sheet and determine for themselves whether something might be wrong. Baffled by all those numbers, the journalists turn to short-sellers (and sometimes even convicted criminals) for help. Which is another way of saying that our financial media is written in large part by financially motivated Wall Street sharks–a real abomination, when you think about it.
But in the case of Nocera, there is something even more sinister at play. To understand Joe Nocera’s positions on short-selling, it is necessary to understand the crowd he runs with. It is a clique of journalists and short-selling hedge funds, most of whom are connected in some way to CNBC’s Jim Cramer.
Some journalists challenge power; this clique of journalists covet it. They desire nothing more than to be players in “the game.” (Some are quite blatant about this; witness Nocera pal Herb Greenberg, who sells “forensic” research to short-sellers while using them as sources in his CNBC reporting).
These journalists defend their short-selling friends at all costs. They routinely pat each other on the back and pimp each others’ books. They quote each other in their stories, and snicker almost out loud as they attack the same public companies, always parroting the same financial analysis, delivered to them by the same small group of dubious hedge fund managers.
This is an old boys and girls network tighter than anything on Capitol Hill – and infinitely more saddening, because the media’s not supposed to be this way. .
You could see this network at work in the case of Gradient Analytics, a research shop that publishes blatantly false information for short-selling hedge fund managers, many of whom are connected to Cramer. For awhile, Jon Markman, a former editor for Cramer’s website, TheStreet.com, was running a dodgy hedge fund out of Gradient’s back offices, while one of Gradient’s managers was accumulating multiple identities and social security numbers to conceal his activities.
At the same time, the Media Mob, including CNBC’s Herb Greenberg, who was Markman’s former co-editor at TheStreet.com, churned out stories containing Gradient’s false information about companies that also happened to be victimized by phantom stock – and still more stories labeling anyone who mentioned the words “phantom stock” or “naked shorting” as “loony” or “seeing UFOs.” A former Gradient employee testified under oath that Herb conspired with Gradient and a hedge fund manager named David Rocker so that Rocker could illegally profit from his stories on CNBC and Marketwatch.com.
When the SEC launched an investigation into Gradient, and issued subpoenas to Jim Cramer and Herb Greenberg, the Media Mob rose up in their defense. Pathetically, the SEC allowed itself to be terrorized by this mob, and closed down its investigation before enforcing the subpoenas. When I began a story about this for the Columbia Journalism Review, the Media Mob turned on me. Joe Nocera called my editor to defend Herb and pressure CJR to kill my investigation. (This was unheard of; working journalists do not make quiet calls to try to have stories killed).
Then Nocera, Herb, and their friend Dan Colarusso, of the New York Post, sat on a famous panel at the Society of Business Editors and Writers. The panel’s stated mission was to defeat “business journalism bashers” – namely, Deep Capture reporter Patrick Byrne and Bob O’Brien, a.k.a. the “Easter Bunny,” a devastatingly effective blogger who had been writing about the media’s failure to cover the problem of phantom stock.
A Deep Capture ally snuck into Nocera’s panel and got it all on tape (see “The Story of Deep Capture” for the recording). Colarusso vowed to “crush” Patrick and the Easter Bunny with “barrels of ink.” Herb said that he wouldn’t write about phantom stock because it’s “not what I do” – even though a majority of the companies he had written about were phantom stock victims. Nocera, meanwhile, said that naked short-selling (phantom stock selling) “makes his eyes glaze over” and he “can’t be bothered” to cover it because “life is too short.”
Maybe so, but before and after that panel, Nocera wrote columns insisting that short-sellers do no wrong and phantom stock is not a problem – even though he had been presented with heaps of data proving otherwise. Nocera’s columns, widely circulated and praised by the Media Mob, contained no data and not a single reference to a credible source. One of his columns quoted, as an expert — Herb. Another column quoted the expert Roddy Boyd, then a reporter for the New York Post.
I know why Nocera quoted Roddy – Roddy’s a card-carrying member of the Media Mob who has worked closely with criminals doing dirty work for Cramer-affiliated short-sellers. (See “The Story of Deep Capture” for more on this.) Still, this was something amazing: the New York Times quoting a New York Post reporter as an expert! You’d think some editor somewhere would have wondered about this. (Roddy Boyd, now with Fortune, is, not incidentally, one of the few reporters still insisting that short-sellers of Bear Stearns and Lehman have done no wrong).
Last month, after we named Nocera in “The Story of Deep Capture,” Nocera wrote a column in which he was critical of Milberg Weiss, the law firm that was caught paying kickbacks to plaintiffs who filed bogus class-action lawsuits against public companies. He wrote, “I’ve long thought that [Milberg] ran a kind of extortion racket, filing class-action lawsuits against companies whose stock had dropped – without a shred of evidence that any wrongdoing had taken place – and then torturing them with legal motions until they settled.”
What Nocera did not mention (though we made it clear in “The Story of Deep Capture,” which Nocera had read) is that Milberg Weiss coordinated its attacks on public companies with short-selling hedge funds, skeezy “independent research” shops (most notably, Gradient Analytics) and Nocera’s media friends.
Indeed, a Gradient timesheet, obtained by Deep Capture, shows that while Gradient was allegedly colluding with Herb Greenberg, its employees were getting paid by the hour to work for Milberg Weiss. .
But Herb is a friend of Nocera, Gradient’s short-selling clients are friends of Herb – and well, you know how it works. These journalists don’t get their friends in trouble. Indeed, check their work – not one of them, in all their years, has ever identified, or even hinted at, a single instance of short-seller wrongdoing.
In his most recent article apologizing for the short-sellers who destroyed Bear Stearns, Nocera refers extensively to one of our favorite hedge fund managers, Jim Chanos, of the aptly named Kynikos (“Cynical,” in Greek) Partners. This is the fellow who provided a rent-free beach mansion to a hooker employed by Elliot Spitzer, who was Jim Cramer’s college roommate. Chanos is also the fellow who helped Bethany McLean of Fortune magazine break the Enron story, which partially explains why his media fans seem to believe he can do no wrong. Everything he says–including his reassurances that phantom stock doesn’t exist–is reported as fact.
So now, Nocera reports that Chanos believes that, in the case of Bear Stearns, there were no crimes committed by short-sellers. And, according to Nocera, Chanos “knows what he’s talking about. In the last days of Bear Stearns’ death spiral, a top executive called Mr. Chanos, who was not short the stock but had been a client for years. The executive pleaded with him to go on CNBC and tell the world that all was well at Bear Stearns…Mr. Chanos declined the request.”
This is at least partly false. Good sources tell us that Chanos was short Bear Stearns, though he may have already cashed out “in the last days” of the “death spiral.” As for that “top executive” at Bear Stearns, he seemed to be doing his job by asking people to vouch for his company. Surely, he has nothing to hide. Why does Nocera keep him anonymous? Did Nocera check to see if this person even existed? Well, anything’s possible.
In any case, it is entirely misleading to suggest, as Nocera does, that Chanos really believed that Bear Stearns was not a victim of rumor-mongers. In fact, Chanos believed that it was quite possible that hedge funds were circulating false information about Bear Stearns.
We know Chanos suspected as much because he said so at a recent conference of the Securities Industry and Financial Markets Association. Clearly trying to distance himself from this scandal, Chanos said, “I would urge our regulators at home to examine the sources of these [rumors], whether there’s evidence that people are trading on information they know to be false and inducing others to trade on information they know to be false, which is against the law and always has been…”
On CNBC, Jim Cramer is similarly insisting that illegal short-selling should be stopped. This is a far cry from a year ago, when he said the issue is the most “falsely overweighted topic on Wall Street,” and phantom stock selling is something that happens “very rarely.” Today, he said “hundreds” of companies have been affected, adding, preposterously, that he has long been on a “crusade to bring back honest short-selling.” Cramer, like Chanos, seems intent on distancing himself from the scandal that they helped cover up for the past three years.
Message to Media Mob: The rest of you should also start to distance yourself from this scandal. Do it quickly – before somebody exposes the enormous fraud that you have perpetrated on the American public.
For the complete, very long tale of how a clique of journalists helped cover-up a massive crime on Wall Street, see “The Story of Deep Capture.”
Posted in The Mitchell Report | 46 Comments »
A Scandal Unfolds, and the Media Mob Scampers
July 11th, 2008 by Mark Mitchell
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.
Posted in The Mitchell Report | 29 Comments »
JP Morgan CEO is Crazy, Too. Time to Subpoena CNBC
July 9th, 2008 by Mark Mitchell
Certain journalists and convicted criminals with ties to hedge funds have suggested that we at Deep Capture are crazy because we believe some short-sellers deliberately destroy public companies for profit.
Last night, JP Morgan CEO Jamie Dimon was interviewed by Charlie Rose.
Rose said, “[Bear Stearns CEO] Alan Schwartz is quoted as saying.. that he thought [the demise of Bear Stearns] was premeditated [by short-sellers].
Dimon responded: “I would say where there is smoke, there’s fire. If someone knowingly starts a rumor or passes on a rumor, they should go to jail…This is even worse than insider trading. This is deliberate and malicious destruction of value and people’s lives. They shouldn’t go to jail for a short period of time. So if I was the SEC I’d find out who made the money and I’d investigate–emails, phone records, you name it–and I’d find out….There’s enough smoke around that I think there should be a full investigation…”
So now the CEO of JP Morgan is crazy, too. So is former Bear Stearns CEO Alan Schwartz. Lehman Brothers CEO Richard Fuld said something similar, so he must be a crackpot. The SEC itself claims to have begun an investigation. They’re all nuts.
Anyway, permit us to suggest an easy way to get this investigation moving: Send a subpoena to CNBC reporter David Faber.
On March 13 and March 14, Faber told CNBC viewers that a hedge fund manager – “a friend” whom he “trusts” – told him that Goldman Sachs had refused to accept Bear Stearn’s credit. This information was false. It was a deliberate, malicious rumor delivered to a friendly journalist in order to destroy Bear Stearns.
Find out who Faber’s hedge fund friend is. Case solved.
This would not be the first time that Faber reported misinformation in service to a hedge fund friend. He used to do it for Jim Cramer, back before Cramer became CNBC’s leading “journalist” – back when Cramer was running his own hedge fund. A former employee of Cramer’s hedge fund has written a book, “Trading with the Enemy,” in which he describes Cramer feeding Faber tips and illegally trading ahead of Faber’s reports on CNBC.
It is no small coincidence that a clique of journalists connected to Cramer regularly write false or misleading hatchet jobs on companies targeted by short-sellers connected to Cramer. And it is no coincidence that these same hedge funds have deliberately and maliciously sought to destroy dozens of public companies and people’s lives by circulating rumors, issuing bogus “independent financial research,” clogging Internet message boards with false information, filing bogus class-action lawsuits, getting the SEC and other government agencies to conduct dead-end investigations, and hiring convicted felons to harass CEOs. (And that’s not all; see “The Story of Deep Capture” for the gory details.)
It is also worth noting that in almost all of the companies targeted by these people, somebody has sold massive amounts of phantom stock to further drive down prices. Two companies targeted by these people are Lehman Brothers and Bear Stearns. Both have been victimized by phantom stock sellers.
We’d say somebody should investigate this. But that would be crazy.
Posted in The Mitchell Report | 5 Comments »
Did a CNBC Reporter Help Destroy Bear Stearns?
June 26th, 2008 by Mark Mitchell
Let’s pick up “The Story of Deep Capture” where it left off – with the demise of Bear Stearns and the near collapse of the American financial system.
It’s April 2, 2008, and CNBC reporter Charlie Gasparino has just reported that Lehman Brothers CEO Richard Fuld claims to have evidence that short-sellers, who profit from falling stock prices, actively colluded to bring down Bear Stearns.
Indeed, the SEC is already investigating precisely this possibility. The regulator has said that it would like to know whether short-sellers circulated false rumors about Bear Stearns’ liquidity and credit risk in order to spark a run on the bank. And it has announced that it is investigating allegations that hedge funds engaged in “naked short selling” to drive down Bear Stearns’ stock. This isn’t surprising considering that SEC numbers show, for example, that in the week of Bear Stearns’ destruction, up to 13 million of its shares were shorted naked – ie. sold and not yet delivered. That’s 13 million shares of phantom stock — and most experts assume there was much more of it, perhaps 100 millions fake shares, in parts of the system that the SEC doesn’t monitor.
Live on CNBC with Gasparino is reporter Herb Greenberg. Herb is a dishonest journalist. He has quite literally made a career out of taking dictation from a small group of closely affiliated short-selling hedge funds. Virtually every story he has ever written or broadcast has come from these people. He protects his hedge fund friends by repeatedly denying that phantom stock is a problem. And a former employee of a financial research shop called Gradient Analytics claims to have witnessed Herb conspiring with at least one short-seller, David Rocker, to hold his negative stories until Rocker could establish short positions. This is called front-running – a jailable offense.
CNBC is not concerned about this. Nor is it concerned that, in addition to his duties as a “journalist,” Herb is now also running his own financial research shop that caters to short-sellers. Yes, after years of denying that he has too-cozy relationships with short-sellers, Herb is now seeking to profit from those very relationships. His new company’s slogan is “bridging financial journalism and forensic analysis.” Anybody who believes that media and money don’t mix should be appalled.
Anyway, it is unsurprising that Herb is live on CNBC reporting that short-sellers had nothing to do with the demise of Bear Stearns. Instead, Herb says, Bear Stearns was taken down by a “crisis of confidence.” Could short-sellers have caused the “crisis of confidence?” Herb thinks not.
Herb says, “….if you take a look at [fellow CNBC reporter] David Faber’s reporting which was very interesting…”
* * * * * * * *
Good idea, Herb. Let us take a look at David Faber’s reporting. It was not just interesting. It was jaw-dropping – an utterly grotesque display of journalistic malfeasance.
Indeed, Faber’s reporting probably contributed a great deal to the precipitous collapse of Bear Stearns – an event so potentially calamitous that the Federal Reserve had to meddle in the investment banking sector for the first time since the great stock market crash of 1929.
On Tuesday, March 11, rumors were circulating around Wall Street that Bear Stearns was out of cash and that other banks were no longer accepting its credit risk. If anybody were to think these rumors were true, there would be panic – a run on the bank. If the rumors were false, as they quite demonstrably were, it was the job of the media to quash them.
CNBC’s Charlie Gasparino did his job. On that afternoon, he noted that there were “serious doubts” about Bear Stearns business model. He said that Bear Stearns was a “mediocre bank.” But he also noted that the rumors on Wall Street were suggesting something far worse –imminent bankruptcy–and that there was not a scrap of evidence suggesting that these rumors were true.
Gasparino quoted Bear Stearns CFO Sam Malinaro as saying “Why is this happening? I don’t know how to characterize it. If I knew why this was happening I would do something to address it. I spent all day trying to track down the sources of the rumors, but they are false. There is no liquidity crisis, no margin calls. It’s all nonsense.”
Gasparino stressed that there was no reason to doubt Bear Stearns’ claims. “I know Sam Malinaro pretty well,” he said. “He’s one of the best straight shooters in the markets.”
If Gasparino had stayed on the case, the uncertainty surrounding Bear Stearns’ liquidity and credit risk might have subsided, and the bank might have survived. But the next day, for some reason, Gasparino was taken off the Bear Stearns story, and David Faber took over.
A few rumors – even doctored memos falsely claiming that big banks had refused to accept Bear’s credit — were still circulating around Wall Street. Early that morning — Wednesday, March 12 — Faber interviewed Bear Stearns’ CEO, Alan Schwartz.
Actually, it was more like a prison interrogation than an interview. Faber demanded that Schwartz explain the rumors. Schwartz said the rumors were not true. Quite in contrast to Gasparino, Faber made it clear from his tone that viewers shouldn’t trust Bear’s executives.
Then Faber delivered this whopper: “…I’m told by a hedge fund that I know well…I’m told that [last night] Goldman would not accept the counterparty risk of Bear Stearns.”
Bang! The beginning of the end.
Understand how important this is. Previously, most people assumed that the rumors about Bear’s access to leverage were nothing more than…rumors. No reporter had suggested otherwise.
Now, for the first time – live on CNBC, in the middle of a mission-critical interview with Bear’s CEO — a prominent journalist was reporting that the rumors were true. He stated — as if it were fact – that Goldman Sachs, one of the biggest investment banks in the world, had refused to take Bear Stearns’ credit.
Faber was generous enough to note that this information came from a hedge fund “friend,” and it wouldn’t take a genius to see that this hedge fund “friend” was probably some skeezy short-seller of Bear Stearns’ stock – but still, Faber’s comment was nuclear explosive.
Soon after Faber’s comment, Schwartz is about to provide details proving that Bear Stearns is not at all illiquid – that it has ample cash (and is therefore hardly a credit risk). He says: “…none of the speculations are true, but….”
Just then, a woman’s voice interrupts: “I’m sorry! I’m sorry!”
What? Can this possibly be happening? The CEO of a giant investment bank is about to provide evidence that the bank is not insolvent – that the American financial system is therefore not on the brink of collapse. This is perhaps the most important financial news moment of the past ten years, and now CNBC has cut off the CEO in mid-sentence!
“I’m sorry,” the CNBC woman says. “David, I’m sorry breaking news, I just want you to know that we have New York state officials confirming that New York governor Elliot Spitzer will resign today. Formal resignation, we don’t have it, but it is now confirmed that the governor of New York will resign today.”
“Thanks for that not unexpected news,” says David Faber.
This was probably straight-forward idiocy – nothing more sinister than that. But you’d think CNBC could have waited a few minutes for this “not unexpected” news. And anybody with a healthy sense of irony might chuckle and point out that Jim Cramer, the former hedge fund manager who is now CNBC’s top-rated personality and basically runs the place, was Elliot Spitzer’s best friend and college roommate. The irony is all the richer when you consider that Elliot Spitzer’s career was built almost entirely on the funding and machinations of a small group of short selling hedge fund managers – including Dan Loeb, David Einhorn, and Jim Chanos (owner of the beach house where Spitzer’s favorite hooker lived rent free), and that these very same hedge fund managers are the ones who are quite aggressively attacking Bear Stearns.
Schwartz looked mighty pissed off. After the interruption, he tried to continue: “We put out a statement that our liquidity and balance sheet are strong. Maybe I should expand on that a little bit…”
“Well, yeah,” Faber interrupts. “Why don’t you.”
The reporter’s tone again suggests that the CEO is not to be trusted. Tone aside, Faber doesn’t let Schwartz answer. Instead, he launches into a long and completely irrelevant monologue about the markets generally being in bad shape.
“Well, the markets have certainly gotten worse,” says Schwartz, clearly baffled by all of this.
Then, finally, the CEO manages to provide the salient information – the information that Bear Stearns customers and traders around the world have been waiting to hear. He says, “Our balance sheet has not changed at all. So let me just talk about that for a second….When we finished the year we reported that we had $17 billion of cash sitting at the parent company as a liquidity cushion…Since year end, that liquidity cushion has virtually been unchanged. So we still have many many billions of excess cash…we don’t see any pressure on our liquidity let alone a liquidity crisis.”
That certainly should have calmed the waters. There was no evidence that Schwartz was being disingenuous about having that $17 billion. Bear Stearns might have been the crappiest bank on Wall Street, but as long as customers knew that Bear Stearns had that $17 billion in cash, there was unlikely to be a run on the bank.
Unless, that is, a “reputable” media source was to suggest that, say, Goldman Sachs, had cut off credit.
Astonishingly, in the ensuing 24 hours, CNBC never once repeats the news that Bear Stearns has $17 billion in cash. And though it repeatedly references the interview with Schwartz, the network does not once replay the CEO’s strongest comment: “We don’t see any pressure on our liquidity, let alone a liquidity crisis.”
But Faber does repeat the startling “news” about Goldman.
At 8:48 AM on Wednesday, he says, “There are a lot of concerns out there…about counterparty risk. Frankly, I’ve been hearing from people whom I trust that there are some firms out there unwilling to put on new – new — counterparty risk with Bear Stearns…You had it at Goldman…Goldman said no we’re not taking Bear’s counterparty risk – this was yesterday.”
The hedge fund manager whom Faber “trusts” was lying. Goldman was not turning down Bear’s credit. We know this because some minutes later in the broadcast, Faber says so. He says it very quickly, just as an aside, as if it doesn’t matter at all. He says, by the way, “I have heard that that trade did actually go through—Goldman did say alright, now we will accept Bear as a counterparty.”
So Faber has just admitted, in an off-handed kind of way, that he was lied to by the hedge fund he “trusts.” In other words, up until this point, there is no evidence at all that rumors being circulated by hedge funds have any merit whatsoever.
Despite this, Faber proceeds to unleash this gobbledygook: “At the end of the day, while they say over and over they have plenty of liquidity, and in fact they may, it all comes down to confidence. They need to have access to capital, access to leverage. Otherwise, they’re dead! And it can happen very quickly.”
With this, Faber looks at his computer, and says, “Let’s see where the stock is.” Then he declares with glee: “Oops! It’s down!”
So now Faber has just pronounced that Bear Stearns might be “dead!” Why might Bear Stearns be “dead?” Because, Faber says, Bear needs “access to capital” – this in the same sentence where he says “in fact they may” have plenty of liquidity (ie. access to capital). Perhaps by “may” he meant to suggest that Bear “may not” have access to capital. Either way, he carefully omits the fact that the bank has told him it has $17 billion in cash.
The other reason Bear is “dead” is because it needs “access to leverage.” Is there any evidence that it does not have access to leverage? So far, there is none other than the Goldman news, which Faber has just admitted to be a complete fabrication delivered to him by a hedge fund “friend” whom he “trusts.”
Meanwhile, in an effort to send Bear Stearns’ share price spiraling downward, hedge funds are selling tens of millions of dollars worth of phantom stock. SEC data shows that more than 1.2 million shares sold that Wednesday were not delivered on time.
It only gets worse. The next morning — Thursday, March 13 — there is still no evidence that anybody is turning away Bear’s credit or pulling out money. CNBC still has yet to repeat the all important $17 billion figure. And now, Faber is back on television, fanning the flames, and repeating the bogus Goldman news.
He says, “I talked [yesterday] about a particular trade I was aware of where Goldman Sachs did not want to stand up as a counterparty and face Bear on new counterparty risk.”
Yes, David, you did talk about Goldman – and you admitted that your information was false. Why are you repeating this?
In a stuttering attempt to explain himself, Faber says to his television audience, “Now ultimately that trade did take place [ie. Goldman did accept Bear’s credit] after my interview with Mr. Schwartz concluded, but the day prior, Goldman did not want to. I have incontrovertible proof of that.”
Right. Whatever. The SEC should subpoena Faber to find out which market-manipulating hedge fund fed him the false information about Goldman.
Of course, if the SEC were to do this, the Media Mob would go berserk and start waving the First Amendment right to protect hedge funds who take down public companies by feeding journalists false information. Remember that the SEC once tried to subpoena Herb Greenberg and Jim Cramer, only to back down after Cramer vandalized his government subpoena live on CNBC and a bunch of Herb and Cramer’s media pals rose up in their defense.
But enough of this, already. These journalists are not protecting whistleblowers or freedom of speech. These journalists cannot even properly be called “journalists.” They are, or at least aspire to be, market players. They are helping slippery hedge fund managers who are destroying public companies for profit, and putting the American financial system at risk. I’m all for real reporters standing up to federal agencies, but these “journalists” are special cases. The SEC should not allow itself to be intimidated by them.
Alas, it’s too late for Bear Stearns. On the morning of March 13, there was still no evidence that anybody had pulled money out of Bear Stearns or denied its credit, but after repeating the Goldman falsehood, Faber reported: “I remember when Drexel Burnham went down [the smarmy inference being that Bear Stearns is a crooked company similar to Drexel]…It happens fast, very fast. It happens because those who do business with a firm such as that [read: `a crooked firm’] lose confidence.”
“And when they lose confidence,” Faber continued, “they pull their lines, and that’s it. It’s done. Pack your bags. Go home. It can end in an hour.”
About an hour later, a hedge fund called Renaissance Technologies Corp., shifted $5 billion out of Bear Stearns. That was the first client to “pull its lines.” Many others followed suit.
With Faber blowing taps, panic ensued.
And by that evening, Bear was, indeed, “dead.”
Posted in The Mitchell Report | 20 Comments » |
