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Welcome to Ruth Madoff Rehabilitation Week

2009-07-07T14:46:00.005-04:00

Bernie and Ruth taking a break between ripping off people/not know hubby was ripping off people

ABC News is reporting that the feds have given back Ruth Madoff's passport. This means, and it is a close question, that either the government is being more incompetent than usual or that Ruth Madoff is not going to be charged criminally for being the rather obvious accomplice to her hubby Bernie.

So this seems to be Ruth Madoff Rehabilitation Week. In its latest issue, New York magazine falls just a few inches short of taking her side, in an article with a title that asks the clueless question, "Why does Bernie's better half inspire such vitriol?" Because she's probably guilty, that's why.

The article goes on to quote Gloria Steinem unconvincingly trotting out the gender card:

Ruth’s problem seems to be a particularly female one. “It’s the gender politics of the culture,” says Gloria Steinem. “It’s easier to blame the person with less power.” And, she adds, why aren’t people blaming her sons? “They would be much more likely to be in cahoots, because they were in the same professional field. And the answer is, they’re men, that’s why.”

Why aren't people blaming her sons? Hello? In its current issue, Vanity Fair has an article by David Margolick describing just how much people are blaming her sons. I wouldn't have minded the Steinem quote so much if it weren't preceded by the ridiculous, approving topic sentence that Ruth's problem is a "particularly female one."

Not to worry. Looks like Ruth will be walking off with her $2.5 million, unprosecuted. One can only hope that the lawsuits snatch away from her that outrageous bonanza, and quickly. Then we can get another naively sympathetic article about "poor Ruth."

© 2009 Gary Weiss. All rights reserved.

Why Not Confine Bernie Madoff to a Supermax?

2009-06-29T17:46:00.011-04:00

Bernie Madoff will need to adapt to prison cuisine

There was no real doubt today about the 150-year sentence Judge Denny Chin imposed today on Bernie Madoff.

After all, he did nothing to warrant leniency. The only concession that Madoff was in a position to make, which was a full and truthful account of his scam, was not provided. We know that didn't happen, for otherwise a flock other defendants would already be charged.

So far, Madoff has done an excellent job of keeping his accomplices out of prison. Hopefully his string of luck in that regard will win out.

Right now the only leverage that can be imposed on him is in the hands of the Bureau of Prisons. The conventional wisdom is that he'll get sentenced to a medium security prison, possibly the one in Otisville northwest of New York.

That strikes me as absurd. Why throw away the only remaining leverage the government has on Madoff?

Medium security prisons are no picnic, believe me. They're surrounded by forbidding barriers of razor wire, and the atmosphere is suitably cramped and depressing. Still, they're nothing compared to maximum or supermax prisons, which is where the really worst offenders are held--terorists, top-ranking Mafiosi and convicted spies.

I'd toss him in one of the supermaxes. There is one supermax facility in Florence, Colorado. (There used to be one in Marion, Illinois, but it ain't supermax no more.)

After a few weeks in ADX Florence, I'll bet his stonewalling on his accomplices will come to an end, and that he'll be squealing like a rat in heat--even if it means turning in his sons, his wife, or even his mother if she were still alive.

Besides, it's just the most suitable place to hold someone who committed the kind of crime that he perpetrated, hurting so many innocent people and destroying the little faith that the public had in the financial system.

Can someone please explain to me in what way Bernie Madoff is less deserving of confinement in the supermax than John Gotti, Ramzi Yousef (the 1993 World Trade Center bomber) or Jonathan Pollard?

I thought not.

If he talks, Bernie can be confined to one of the maximum security institutions, such as Leavenworth, and if he's a really good boy, if his ratting results in convictions, if every loose cent is accounted for, then maybe then he can go to Otisville.

And in the unlikely event that he's been telling the truth--that he alone was responsible for such a massive scam--then he'd be in just the right place.

Strikes me as a win-win proposition all around.

UPDATE: A commenter points out that Andrew Fastow of Enron fame is at Florence.

I rest my case.

© 2009 Gary Weiss. All rights reserved.

A Seattle Reporter's Scoop on IPOs

2009-06-28T10:07:00.005-04:00

The Seattle Times had a terrific report yesterday from its deputy business editor, Rami Grunbaum, on how a Seattle lawyer has been serving as a conduit for IPOs from a string of OTC stock offerings for little Russian and Ukrainian companies.

It's the kind of thing that we don't see often enough in business journalism, which too often is obsessed with "CEO porn" and puff pieces.

The deals are almost laughable. Green Bikes Rental Corp. of Ternopil, Ukraine, raised $50,830 in its initial stock offering, only to abandon its business plan months later because "our marketing research showed that in [Kiev, Ukraine's capital,] roads are not designed to have bicycle traffic."

But the implausible IPOs from Dean, whose Dean Law Corp. has offices in Seattle and Vancouver, B.C., serve the purpose of an Eastern European assembly line producing shell companies ready-made for penny-stock promoters. Local bank accounts and a Seattle CPA also form part of the network.

These are tiny deals, raising as little as $50,000, but are often exploited by stock promoters into scams of far greater magnitude. Hopefully Grunbaum will keep his eye on these schemes.

© 2009 Gary Weiss. All rights reserved.

Where Was the Press While an Analyst Was Being Crushed?

2009-06-28T08:49:00.026-04:00

Gretchen Morgenson today has a great column in the New York Times today on the successful effort to crush an independent analyst by Matrixx Initiatives, the criticism-phobic pharmaceutical company whose OTC cold products were recently ordered recalled by the FDA.

Reading her column got me to thinking: all this occurred some years ago. Where were the media while it was happening?

Gretchen focuses on the company's legal war against Tim Mulligan, editor of the Eyeshade Report newsletter, which drove him out of business. Her account of Mulligan's encounters with the SEC is startling, even to those of us accustomed to SEC passivity on corporate transgressions and--in this case--blatant issuer retaliation:

In addition to his dismay over the legal battle, Mr. Mulligan said he was perplexed by encounters with S.E.C. officials regarding Matrixx. Amid his legal wrangle, he contacted two S.E.C. enforcement officials offering his research about the company. They dismissed him as “suspicious,” Mr. Mulligan said, and refused to provide e-mail addresses to which he could send his work.

In April 2004, he wrote a letter to William H. Donaldson, then the chairman of the commission, about the hostility that he had met. “In my humble opinion, your agency’s purpose would be better served by being more open to outside information,” he wrote.

Writing a letter to the do-nothing Donaldson was, of course, about as useful to his cause as taking the letter and flushing it down the toilet.

Morgenson concludes:

To be sure, Mr. Mulligan’s encounters with the S.E.C. occurred five years ago. But the officials’ dismissal of him doesn’t appear to have been an anomaly — just think of the warnings that were ignored on Madoff.
Perhaps under its new leadership, S.E.C. officials will be more welcoming to independent financial sleuths. Given how outgunned it is by Wall Street and corporate America, surely the commission can use all the help it can get.

No, it certainly wasn't an anomaly. Readers of this blog have learned, in realtime, how white collar crime fighter Sam Antar has repeatedly blown the whistle on misleading accounting at the corporate crime petri dish Overstock.com, only to be ignored by the SEC.

Articles like Gretchen's are welcome, but they are the exception to the rule. Whistleblower warnings tend to be disregarded by the media--as they were in the case of Madoff whistleblower Harry Markopolos--and Antar's detailed dissection of Overstock accounting has been similarly ignored by the press, which instead prefers to print puff pieces generated by Byrne's new p.r. firm, such as this rubbish today in the Boston Globe.

The media, unfortunately, can sometimes exceed the regulatory agencies in laziness and irresponsibility. Except for a Joe Nocera column a couple of years ago, Matrixx's battle with Mulligan received only sporadic coverage in the press, mainly small articles on hiccups in the legal battle.

There's been some coverage by Nocera and others of Overstock's vicious campaign to intimidate its critics, which recently included dispatching a hireling named Judd Bagley to contact Antar's estranged wife. Byrne has sicced his hoods on reporters who dare to describe his activities in less than flattering terms, and Sam's accounting analysis--such as his finding that a fourth quarter profit was a result of smoke and mirrors--has received virtually no coverage.

Maybe it's the intimidation campaign, or maybe simple laziness. Hell, the Boston Globe reporter who cranked out the puffy Q&A with Byrne today would have had to actually read Sam's blog, or give him a call if she didn't understand the accounting terminology involved.

Accounting watchdogs like Mulligan and Antar have an annoying tendency to be right. So when Overstock finally meets its maker, either by much-delayed SEC action or sheer weight of mounting losses, the usual postmortems can be expected. Where were the media? The answer will be "Just where they when Matrixx was hounding Tim Mulligan and Internet message board posters. Doing nothing."

Chris Byron once called the media the SEC's "seeing eye dog." But all too often the press is as apathetic as our famously lethargic regulators.

Ruth Madoff Becomes Millionaire, Thanks to Uncle Sam

2009-06-27T13:39:00.005-04:00

I'm sure that victims of Bernard Madoff are going to react harshly to the latest outrage in a long string of Madoff-related outrages: under a deal with the government, his wife Ruth Madoff walks away with $2.5 million.

The Wall Street Journal for some reason says that Mrs. Madoff gets "just" $2.5 million. "Just"? What about all the Madoff investors who have been completely and totally wiped out? And, unlike Ruth Madoff, there isn't the stench of involvement in the scam wafting over them.

Ruth Madoff should be reduced to the same state as her husband's (some might refer to them as her) victims, and not be allowed to keep a penny of the assets forfeited by the government. Her hubby's victims have been wiped out, and so should she.

Her lawyer says that she "unequivocally did not know of the misconduct and did not participate in it." And I have a bridge over the East River I can sell you.

The amount of fury being directed not just at Madoff, but at the government for its handling of this case, has just ratcheted up a notch.

© 2009 Gary Weiss. All rights reserved.

Bernie Madoff's 'Hedge Fund'?

2009-06-27T12:23:00.021-04:00

If you ever wondered how Mark Mitchell made the transition from editor of CJR's Audit column to former editor of CJR's Audit column, read the latest mass of drivel on the "Deep Capture" website of his employer Patrick Byrne, CEO of Overstock.com.

I'm referring to the fairy tale on Dendreon Corp., which begins by talking about Bernie Madoff's "hedge fund." Only problem is that he didn't run a hedge fund. He ran an "investment advisory business" that had clients from whom he stole.

This is not a semantic difference. Alex Berenson and Diana Henriques explained why in the New York Times, shortly after the scandal broke:

Mr. Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm. The difference, though seemingly minor, is crucial. Hedge funds typically hold their portfolios at banks and brokerage firms like JPMorgan Chase and Goldman Sachs. Outside auditors can check with those banks and brokerage firms to make sure the funds exist.

This fundamental boo-boo is then used to tie half the world, and particularly Michael Milken, to long-discredited reports of "naked shorting" of Dendreon shares. Since Dendreon itself has never complained of naked shorting of its stock, this particular conspiracy theory is even goofier baloney than is typical for Mitchell. I mean, if a company sincerely (or insincerely) believed it is being ripped to shreds by "naked shorts," wouldn't it say something about it? The only reference to naked shorting I could find in a Dendreon filing is this prospectus and several similar ones over the years, which talk about possible naked shorting by the underwriter of the issue, and in a benign fashion.

Heck, Dendreon should be chastised for failing to mention such a material fact, wouldn't you say?

I found Mitchell's latest claptrap interesting because, in addition to his Madoff blunder, he wandered back into my old stomping ground, microcap stock fraud, attempting to rewrite history to fit his conspiracy theories. He mainly does that by making up stuff. For example, slain stock promoter Alan Chalem suddenly becomes, without even attempting to prove that assertion, a "naked short seller."

As Byrne himself has pointed out, Deep Capture is a work of public relations in addition to being a work of fiction. For some reason--this man will do anything for publicity, even discrediting himself--Byrne recently quoted an email from the Society of American Business Editors and Writers in which the membership secretary made that point fairly clear:

In SABEW’s view, not all business blogs qualify as news publications just as all writing and editing doesn’t qualify as journalism. From its standpoint your activities and those of DeepCapture seem closer to corporate public relations, and SABEW isn’t open to PR professionals _ or of course to retail business executives.

But that's not free rein for Byrne to spread whatever fictions he finds appealing on the Internet. Public relations has a strict code of ethics. Astroturfing--pretending to be a "news" organization when you are p.r., is against the ethics of the p.r. profession. So is making stuff up.

Mind you, I'm not convinced that such ethical principles are actually enforced or that breaches are punished, but they do exist, at least on paper.

An even bigger problem is that Overstock.com itself has a code of ethics, astonishing as that may seem. As I've pointed out before, such as here, his sponsorship of Deep Capture and frequent use of lies and issuer retaliation against critics is a violation of Sarbanes-Oxley, since Byrne never received a waiver from the Board of Directors to allow him to violate the Overstock ethics code.

The SEC has been taking action against other corporate fraudsters who use naked shorting to excuse their own incompetence or dishonesty, such as CMKM Diamonds and Universal Expresss. It will be interesting to see if the newly reconstituted SEC has the guts to take action against Patrick Byrne and Overstock.com

© 2009 Gary Weiss. All rights reserved.

Naked Shorting Poster Child Hit With Default Judgment

2009-06-27T11:58:00.008-04:00

CMKM shareholders picketing the wrong offices in 2005

In Wall Street Versus America I describe how the naked shorting conspiracy theorists were clustering around a crappy little stock called CMKM Diamonds. I was struck how some CMKM shareholders stuck loyally with management, despite constant SEC actions that showed fairly clearly that the company was a fraud.

Some CMKM partisans made fools of themselves in a mid-2005 demonstration in lower Manhattan, in front of the offices of the hated Depository Trust Clearing Corp. I wondered at the time why they weren't demonstrating at CMKM's offices--if they could find them.

Well, today the Las Vegas Review-Journal reports that a last nail has been driven into the CMKM coffin, with a $55 million default judgment against four defendants in an SEC action. The article is here.

The newspaper's summary of CMKM's sordid history is fairly cogent:

The scheme started when [John] Edwards did a reverse merger between his public company, CMKM, and several private Canadian companies controlled by Urban Casavant, according to the order.

Casavant was chief executive and chairman of CMKM while Edwards, using the alias Ian McIntyre, was director of post-term matters.

CMKM, whose "only activities were illegally issuing and promoting its own stock," increased its outstanding shares to 800 billion from 500 million, the court papers said. CMKM shares were traded over-the-counter for prices ranging from one-tenth to one-hundredth of a cent.

CMKM gave investors "phony maps and fabricated videos" of alleged gold and diamond mines, according to the order.

If indeed CMKM's "only activities were illegally issuing and promoting its own stock," it is odd indeed that no one involved in the company has been criminally prosecuted.

Meanwhile, I wonder whatever happened to all those deluded CMKM shareholders. Picket line, anyone?

© 2009 Gary Weiss. All rights reserved.

The Anti-Shorting Nuts Are Loose

2009-06-23T14:14:00.018-04:00

I'm fascinated by the split personality of the anti-short selling campaign. At the top you have a phalanx of lobbyists and pressure groups, some totally respectable (if predictable), like the U.S. Chamber of Commerce and Washington Legal Foundation, and including consultants and other top-level spokespeople for the cause, such as former SEC commissioner Roel Campos.

And then, on a sliding scale of respectability, you have astroturf organizations and websites spouting "stock counterfeiting" conspiracy theories. These tend to have "market reform" in their titles -- even though genuine market reform, such as abolishing mandatory arbitration and reforming executive compensation, is not part of their mission.

Below them are what I call the "pond scum," the crazies and the hired thugs.

What all levels of the campaign have in common are the inspiration and deep-pockets financing of the guru of the movement, Overstock.com CEO Patrick Byrne.

As part of his mission to gain respectability, for himself as well as his movement, Byrne recently has hired a Los Angeles public relations firm, Levine Communications, to get Byrne face time with members of the media as the "Wyatt Earp of Wall Street." That's odd because the real Earp was married to a Jewish lady named Josephine Marcus and was buried in a Jewish cemetery. Byrne, by contrast, is an old pal of the far-right wingnut Bo Gritz, and has been beset by charges of anti-Semitism for years.

That brings me to the latest examples of the pond scum element that have come to my attention.

One was a post on a Yahoo stock message board shortly before 7 p.m. yesterday. It said as follows:

WOULD UNDERSTAND IF SOMEONE SHOT AND KILLED CRAMER AT HIS HOME

at [address redacted].

He's an alan berg wannabee.

The message, which was quickly deleted by Yahoo, was signed "kikevermin3." Alan Berg was a radio talk show host who was killed by a right-wing extremist in 1984.

What apparently caused this spasm of hate was a posting on Byrne's "Deep Capture" blog, which weaved a conspiracy between Cramer and others, while reviving the old and easily refuted claim that Dendreon Corp. was a victim of "naked short selling."

Now, I can understand how Byrne might disclaim responsibility for this death threat--even though it was directly inspired by his latest Internet craziness. In my view, he would be directly culpable for any harm that might come to people as a result of the trash published in his blog. What he publishes in Deep Capture is believed by the conspiracy-minded, many of are "nucking futs," and some whom are crazy enough to actually carry out their fantasies.

Byrne realizes that, or should realize that, and is morally--and perhaps legally--responsible for the actions of his followers.

There is certainly no question that he is directly responsible for the second recent example of the pond scum element: I'm told that his hireling Judd Bagley has sought to get in touch with the estranged wife of Sam Antar, a frequent critic of his boss.

Mrs. Antar, I'm told, has refused to respond to Bagley's request for phone call. Bagley was, no doubt, intending to dig up dirt on Antar and, at the very least, to harass him, in a disgraceful attempt at issuer retaliation.

Byrne's p.r. campaign has already resulted in some dumb journalism, and that's ok. Heck, that's why the good Lord created p.r. people. But the pond scum element, whether they are Bagley or the creep who threatened Cramer, are a different order of magnitude. Such punks are dangerous, and they need to be criminally prosecuted.

© 2009 Gary Weiss. All rights reserved.

One Reason to Cheer Obama's Regulation Overhaul

2009-06-22T14:53:00.005-04:00

I missed it in my first read (er...skim) of Obama's financial regulatory overhaul scheme, but there's a pro-investor gem buried therein. Evidently I'm not the only one to have missed it, as I can't find a reference to it in the media. A trial lawyers group brought it to my attention.

Seems that the plan takes baby steps toward abolishing the hideous system of forced investor arbitration. On page 72 it says as follows:

The SEC should study the use of mandatory arbitration clauses in investor contracts.

Broker-dealers generally require their customers to contract at account opening to arbitrate all disputes. Although arbitration may be a reasonable option for many consumers to accept after a dispute arises, mandating a particular venue and up-front method of adjudicating disputes – and eliminating access to courts – may unjustifiably undermine investor interests. We recommend legislation that would give the SEC clear authority to prohibit mandatory arbitration clauses in broker-dealer and investment advisory accounts with retail customers. The legislation should also provide that, before using such authority, the SEC would need to conduct a study on the use of mandatory arbitration clauses in these contracts. The study shall consider whether investors are harmed by being unable to obtain effective redress of legitimate grievances, as well as whether changes to arbitration are appropriate.

It's namby-pamby and overcautious. Hell, why not just abolish the damn system? Well, it seems that the proposed Consumer Financial Protection Agency would have the power to do just that if the SEC won't. On page 62 it says:

To improve incentives for compliance, the CFPA should have authority to restrict or ban mandatory arbitration clauses. Many consumers do not know that they often waive their rights to trial when signing form contracts in taking out a loan, and that a private party dependent on large firms for their business will decide the case without offering the right to appeal or a public review of decisions. The CFPA should be directed to gather information and study mandatory arbitration clauses in consumer financial services and products contracts to determine to what extent, and in what contexts, they promote fair adjudication and effective redress. If the CFPA determines that mandatory arbitration fails to achieve these goals, it should be required to establish conditions for fair arbitration, or, if necessary, to ban mandatory arbitration clauses in particular contexts, such as mortgage loans.

I'd be happier if the report just said "abolish mandatory arbitration," rather than dicking around with it like this. But what the hey, this is no-drama Obama and all that.

© 2009 Gary Weiss. All rights reserved.

The Missing Link in Obama's Regulatory Scheme

2009-06-19T10:43:00.005-04:00

I've monitored the media coverage carefully over the past couple of days, to see if anyone in the media spotted the obvious, glaring missing link in the Obama administration's financial regulation overhaul scheme (pdf).

Here are some hints as to what Obama left out:

1. It's a major reason for the financial crisis.

2. It's corrupt, hypocritical, and just downright stupid.

3. It continues to have a central role in the regulation of the markets, and few people (including myself) have figured out a way to deal with it---except to point out that it is a missing link, and that it needs to be addressed.

Give up? The missing link in the regulatory overhaul plan is Congress.

It was Congress that cut funding to the SEC and has failed to adequately supervise the agency. It is Congress that sliced to shreds the consumer protections that gave rise to the subprime and mortgage boiler-room fiasco. It was Congress that is financed, in large measure, by campaign contributions from the securities industry.

Sorry for stating the obvious, but you can't do a thing about financial securities regulation without fixing Congress--changing the campaign finance system, kicking out members who are beholden to Wall Street and Corporate America.

A good example of Congress's cluelessness is the grandstanding at the Senate Banking Committee yesterday, when Tim Geithner appeared to defend the Obama plan. The stunning hypocrisy on display yesterday was galling:

Banking Chairman Christopher Dodd (D., Conn.) used the hearing to warn financial firms not to oppose the creation of a financial-product safety agency aimed at protecting consumers. "The very people who created the damn mess are the ones now arguing that consumers ought not be protected," Mr. Dodd said.

Congress is behaving as if it was not a major participant in the regulatory mess that caused the financial crisis, and the media is letting 'em getting away with it.

© 2009 Gary Weiss. All rights reserved.

The Phony-Baloney Naked Short Selling 'Problem'

2009-06-17T14:31:00.002-04:00

I'm a little late with this, but I guess it's better late than never: John Hempton's terrific post on the harmfulness of the naked shorting crackdown is making the rounds of the Internet. The original can be found at John's blog, here.

One of John's more interesting points is that the crackdown on this phantom "problem" is costing taxpayers a billion dollars.

An excerpt:

. . . in pursuing the bogus issue of naked short selling not only has the SEC diverted resources from its real job (which is chasing the real crims in the financial market such as Madoff) but it has imposed significant and real costs on the taxpayer and made it harder and more expensive for banks to raise capital in a financial crisis.

Well worth reading, and a fresh viewpoint in an increasingly wearisome debate, which has pitted a wacky Utah billionaire (you-know-who) against his arch-enemy, "common sense."

© 2009 Gary Weiss. All rights reserved.

Criticism-phobic Drug Company Slapped Down by FDA

2009-06-16T16:22:00.015-04:00

One of the creepier stories to emerge from the investing world involves a company called Matrixx Initiatives. Matrixx makes Zicam cold remedies, and nasty people on stock message boards were saying some years ago that these are bad products, that they hurt consumers, causing them to lose their sense of smell.

Matrixx hated what was being said about it so much that it sued a bunch of people--including Floyd Schneider, a well-known Internet whistleblower. Here's an example of the press coverage this suit occasionally generated.

In 2004, Dow Jones reporter Carol S. Remond reported that the FDA was investigating the safety of Zicam, specifically reports that people who use it lose their sense of smell. Preposterous, said Matrixx.

Here is a press release Matrixx issued, denying Carol's report. The title is "Matrixx Initiatives Reaffirms Safety of Intranasal Zicam Cold Remedy," and the release says that the company "is not aware of an FDA inquiry into the safety of our intranasal zinc-gluconate products."

Matrixx's position received a hearty endorsement from Judd Bagley, a former Florida Republican aide employed by Overstock.com CEO Patrick Byrne to stalk his critics--including Schneider and other investor advocates.

Bagley and other defenders of Matrixx said that companies are plagued by the likes of Schneider, that the companies and not their customers and investors are the real victims, and that the best thing all around is just believe the Matrixx Initiatives of this world and disbelieve Schneider, short sellers, and other corporate critics.

They are naughty people! And besides, who needs a sense of smell? I must say, not having a sense of smell is an asset when one is dealing with an odoriferous character like Bagley.

So, that's where matters have stood until today. Why lookee here: The FDA has issued a formal warning to the public to stop using Zicam, and flush what they have down the toilet, because it may cause them to lose their sense of smell. The FDA told Matrixx that "FDA has concluded that these products may pose a serious risk to consumers who use them."

How about that!

Here's what the FDA says:

The agency has received more than 130 reports of anosmia—the loss of sense of smell—associated with use of these three Zicam products.

Many people who experienced a loss of sense of smell say that the condition occurred with the first dose, although some people have reported loss of sense of smell after later doses. FDA is concerned that the loss of sense of smell may be permanent.

What steps did FDA take?
• FDA issued a public health advisory warning consumers to stop using and discard or return the Zicam zinc-containing intranasal products.

• The agency sent a warning letter to Matrixx Initiatives advising the firm that these products cannot be marketed without FDA approval. The warning letter also states that the products do not include adequate warnings about the risk of loss of sense of smell.

What should consumers do if they experience harm related to these products?
FDA recommends they contact their health care professional if they experience loss of sense of smell or other problems after using any zinc-containing products that are administered into the nose.

So let's give Matrixx Initiatives and its helper Judd Bagley a great big hand. By attacking and seeking to discredit activists like Floyd Schneider, they promoted a drug that lets the public escape the stench that comes regularly from that great cesspool called Corporate America.

P.S. Food for thought: Why did it take the FDA five years to conclude that Zicam was a dangerous drug?

© 2009 Gary Weiss. All rights reserved.

Naked Short Selling Crusader Targeted in Criminal Probe

2009-06-12T18:00:00.005-04:00

A few months ago I described the legal entanglements of a Canadian stock promoter named Brent Pierce, who was Patrick Byrne's predecessor as leader of the "naked short selling" stock market conspiracy fraudsters. Pierce at the time was targeted in an SEC action.

Word emerged today in an article by David Baines, a Vancouver Sun reporter, that Pierce is even more hot water than we had thought. Apart from being ordered to disgorge $2 million in trading profits, he also faces a criminal investigation.

Baines reported:

[An SEC administrative law] judge noted that Pierce didn't attend [an SEC] hearing in February because, according to his lawyer, he "is the target of a federal criminal investigation involving CellCyte Genetics and was concerned that he might be arrested if his whereabouts became known in the U.S. courthouse in Seattle, where the hearing was held and where the U.S. Attorney's office is located."

The irony is that Pierce is practically Little Lord Faunteroy compared to the slimy Byrne and the sticky-fingered Richard Altomare, another naked shorting crusader who has magically avoided criminal prosecution for his larcenous stewardship of Universal Express. Evidently he lacks the ancestral wealth that has kept Byrne from being nailed by the SEC, and the good fortune that has (except for a short stretch in the pen for contempt) kept Altomare out of prison.

Pierce's firm was the underwriter of an astroturf group called the National Assn. Against Naked Short-Selling. Byrne funded its successor, the National Coaltiion Against Naked Shorting. That has since fizzled out, and there are a few other groups with access to Byrne's wallet that are pushing this phony cause.

© 2009 Gary Weiss. All rights reserved.

Talk About 'Mad Men'

2009-06-10T20:55:00.007-04:00

That 88-year-old bigot accused of killing a guard at the Holocaust Museum, James W. von Brunn, has claimed to be a Navy lieutenant during World War II and a former ad man. Can't be right, huh? Just a lot of bloviating by a guy who had a life full of failures, perhaps?

Well, the New York Times reported on June 1, 1950, in its society column, the marriage of Patricia Beverly-Giddings to James Wenneker Von Brunn, "an alumnus of Washington University [who] served with the Navy as a lieutenant in the war and is with the advertising firm of Benton & Bowles Inc. in New York."

I haven't seen this in any of the news reports, including the Times's, though I imagine that somebody will be checking the clips on this tonight.

I can only imagine what's happened to this guy's cranium over the past 59 years. Or maybe he was twisted back then. Who knows?

It's just like a former ad man to figure out a way of getting maximum publicity for an evil deed. I have to hand it to him.

UPDATE: Evidently nobody at the Times bothered to check the electronic archive, as no reference to his 1950 wedding announcement appears in its surprisingly sparse story today. Newsday picked it up, I see. Edward Tenner says at the Atlantic website that I seem to have scooped the Times on this minor but interesting biographical detail.

© 2009 Gary Weiss. All rights reserved.

A Lecture on Earnings Manipulation From an Expert: Patrick Byrne

2009-06-08T13:45:00.010-04:00

Byrne preparing his pompadour for the TV cameras

Jeff Matthews today describes a bizarre, though unsurprising, phenomenon: how the nation's premiere corporate spinmeister and earnings-manipulator, Overstock.com CEO Patrick Byrne, has been all over the media lately, lecturing on the evils of corporate spin and earnings manipulation.

He also has been preening in the pages of Success magazine, when his unbroken record of losses would seem more suited for the pages of Failure magazine.

He appeared on Fox Business News to pontificate on the economy and smear short-seller Jim Chanos.

What's next? Byrne as an expert on corporate ethics? Or journalism? In one of his more recent publicity stunts, he sought membership in the Society of American Business Editors and Writers, and then feigned outrage when he was rejected on the grounds that his Deep Capture blog was a p.r. apparatus.

Beyond the sheer, noxious irony at work here, what gets me about this is how atrocious the media has been in its handling of Patrick Byrne. It's as if some people in the media haven't learned a thing from the recent financial collapse. You know, obvious stuff like "the public is tired of corporate cheerleading."

One really has to wonder what motivated the Salt Lake City Tribune, in this story, to buttonhole Byrne of all people to pontificate on corporate management of earnings releases. It's just embarassing. Good heavens, a little elementary research would have found ample material on the web on how Byrne has engineered earnings at Overstock, much of it by white collar crime-fighter Sam Antar.

For instance, Antar pointed out in some detail in his blog last year how Byrne manipulated the earnings announcement in the first quarter of 2008.

While the Trib's sloppiness is not comparable with the atrocious media coverage of Pegasus Wireless or Biovail, it's the kind of thing that erodes public confidence in the news media, particularly the business news media. The point being that we are not stenographers, and if a CEO blatantly is blatantly untruthful or dishonest, we have no obligation to serve as his megaphone.

© 2009 Gary Weiss. All rights reserved.

Haverhill Home Staging's Public Relations Genius

2009-06-03T17:08:00.005-04:00

There's a little company I'd never previously heard of called Haverhill Home Staging. It advertises on HGTV and is in the business of "staging" houses for sale.

Now, here's why I did hear about these folks, and am writing about them at this point in time: they're awfully upset about what has been said about them anonymously on Internet message boards, to the point of suing.

Here's a press release that talks all about how this company is getting beat up anonymously on the web:

The Haverhill Institute of Staging & Design announced today that it has filed a libel suit against an online blogger in an effort to vindicate itself and disprove the libelous statements made about it on several online blogs.

"The postings on those blogs are categorically false and unconditionally denied", said Danielle Rodriguez, Haverhill's General Operations Manager.

The company expects to file several more claims after it receives information from ISP's identifying other anonymous posters.

"We'll use all legal means at our disposal to repair any damage to our reputation. We are not a litigious group of people. This was our last resort and we regret having to pursue this avenue, but it's truly impossible to defend ourselves on un-moderated blogs."

So let's see if I understand this. People say bad things about you anonymously on the web, so you sue to ensure that..... what? That people like myself who have never heard of you are certain to find out about all those nasty things anonymously said about you on the web?

And even not anonymously. At Walletpop, Zac Bissonnette goes into detail on what a terrific company this is.

Here's a message board where you can read even more about Haverhill Home Staging.

One thing's for sure: I'm keeping an eye on this company that I'd never heard of before.

I haven't encountered such sheer genius since Solengo Capital's lawsuit against Dealbreaker a couple of years ago. You know: the one in which it sued because of publication of a "confidential" offering document, thereby bringing it even more publicity.

© 2009 Gary Weiss. All rights reserved.

What 'Advice' Will Artie Levitt Give Goldman Sachs?

2009-06-02T14:18:00.003-04:00

I've been scratching my head today --- and I don't advise it, as it causes a sore -- trying to figure out the kind of "advice" that Goldman Sachs is going to get from its new "advisor," the overrated former chairman of the SEC, Arthur Levitt.

Why would anyone want "advice" from an Arthur Levitt? I was stumped, I must say. But then a couple of thoughts that come to mind about Levitt's new gig:

Gratitude. Goldman and the rest of the Street owe Levitt, bigtime. When he was chairman of the SEC, the agency did absolutely nothing to regulate derivatives or hedge funds, did nothing to rein in executive compensation, took only tepid steps to curb brokerage sales practices. In general, you name it, Artie didn't do it.
Fig leaf. The Reuters story says that Levitt will "provide Goldman with strategic advice in a number of areas, namely public policy." OK, there's a clue. He has an undeserved reputation as an "investor advocate," as I detailed in Wall Street Versus America. So I suppose Goldman can use Levitt as a fig leaf for whatever policies it favors that are contrary to the public interest.

But perhaps most of all:

Doubletalk. As Francine McKenna explained in Huffington Post a couple of months ago, Artie is an expert at talking out of two, sometimes more sides of his mouth. Her focus was on the great job Artie in a similar role at AIG.

McKenna had pertinent questions:

Why did Levitt go to work for AIG again in 2007 after his stint there in 2005? Why did he help paper over their decision at the end of 2007 to re-appoint PricewaterhouseCoopers as their auditor, even after all of the messes PwC has presided over, been sued over and settled over, looked the other way on, and acted on only when forced by threat of more litigation?

Arthur Levitt and his AIG auditor selection committee didn't fire incorrigible but complicit PwC at the end of 2007. They reappointed them so PwC could stay close and no other firm get closer once the investigations for 2007 activities started. It wasn't long before the Department of Justice asked the SEC to turn over evidence as part of a criminal investigation of whether the material weaknesses in internal control cited by PwC in February 2008 were part of a fraud, one that their auditors didn't "detect" until the subprime crisis heat was on.

PricewaterhouseCoopers earned over $120 million dollars as AIG's auditor and tax advisor in 2007. Why is there no outrage by Mr. Levitt and the press over that outrageous waste of shareholders money?

Why? Because Artie was being Artie. That's why. I'd say Goldman Sachs made a brilliant move.

© 2009 Gary Weiss. All rights reserved.

How the SEC Coddled Corporate Wrongdoing

2009-06-02T10:29:00.006-04:00

The Washington Post today has a fascinating article describing how the SEC, under its loathsome former chairman Chris Cox, coddled corporate wrongdoing in the guise of "efficiency." As CJR's Audit column points out, the article today builds on a report from the SEC's inspector general, which cataloged the castration of the enforcement staff.

Leading off the article was a description of how the SEC watered down penalties that the enforcement staff has sought to impose on Biovail Corp., a longtime anti-short selling crybaby.

The five enforcement officials caught a morning Acela train bound for Washington. Based at the New York office of the Securities and Exchange Commission, the team was seeking agency approval to impose tens of millions of dollars in fines on a drug company, Biovail, which had allegedly used the crash of a truck hauling depression medicine to cover up financial losses.

But when the group arrived at SEC headquarters on that winter day early last year, it was barred from the room where the commission was meeting, according to a person familiar with the case. Chairman Christopher Cox and his colleagues reviewed the case inside. When the doors opened, the enforcement officials learned the commission had knocked down the penalty to a small fraction of what they had sought.

Biovail was, of course, the subject of a famous 60 Minutes segment that swallowed whole the company's line that it was a victim of short-sellers. There's never been a repudiation or even a follow-up from 60 Minutes on Biovail, just as Forbes.com has shown no accountability for its shilling of the stock scam Pegaus Wireless.

There's been a lot of chatter lately about the extent to which the financial press as a whole failed to anticipate or properly report the financial crisis. But that's really a small part of a much bigger problem, which is a business media that turns a blind eye to corporate fraud. It happens a great deal more than some of us are willing to admit.

Yes, the SEC was to blame for failing to adequately penalize Biovail. But to what extent, I wonder, were SEC honchos influenced by the kind of positive media coverage that the company was able to generate from 60 Minutes?

© 2009 Gary Weiss. All rights reserved.

SEC Complaint Confirms Gulling of Media on Pegasus Wireless

2009-05-28T13:48:00.016-04:00

Yesterday I wrote about the sad but familiar tale of Pegasus Wireless, which was busted by the SEC in a fraud scheme. One of the more interesting aspects of the Pegasus tale is how the financial media gave p.r. support to the scam artists, by uncritically repeating the claims of CEO Jay Knabb--despite a Barron's article which totally discredited that same person.

This is an interesting example of how competitive pressures resulted in some truly awful journalism.

The SEC complaint is out today, and it shows the media's negligence in this area even more clearly than yesterday's press reports. Let's contrast the SEC complaint with the adoring press coverage by Liz Moyer in Forbes.com and the critical coverage in Barron's.

The SEC complaint:

Pegasus shares reached a high of$18.69 per share in May 2006, briefly giving Pegasus a market capitalization of approximately $1.42 billion. Knabb promoted Pegasus through word of mouth, as well as unique promotional events such as an appearance at a major sporting event and a concert by a world-renowned musician.

The stock, however, began a steady decline after that, in apparent response to press articles questioning Pegasus' valuation and reports that Knabb and [ex-CFO Stephen] Durland had headed other microcap companies whose stock rose and crashed in short periods of time.

The "press articles" is mainly a reference to this piece in Barron's, The Medusa Effect, by Leslie Norton. Norton's piece turned out to be prophetic:

In the past, shares of two Knabb companies — BIFS Technologies, formerly Biofiltration Systems, and Wireless Frontier — ballooned, then collapsed. Asked about last week's decline in Pegasus, Knabb shakes his head. "It's really a shame the true story of the stock is not being told," he says. "This is a real company with real technology, and real people. We will show the world the new video-streaming. I'm not looking to the Street for money. This is only hurting shareholders. We're growing at 40% organic growth a year. Why is it the business is doing $100 million with net profits and no [cash] burn?"
After his brush with Knabb, Babak Dowlatshahi borrowed money to start a new firm, Creative Computers, in Fayetteville. Last month, he made his final payment to the bank. "I bounced back," he says.
Others may have to face the music.

Shortly thereafter came this in Forbes.com, which described how Pegasus shares were under "constant attack" from, among other things, negative press coverage. That was followed by this even more disgraceful article that famously began that there's a "hit out on Pegasus Wireless." Knabb's outlandish claims were uncritically reported.

Seth Jayson was moved to observe at the time:

. . . in this day and age, even a CEO and CFO with an amazing record of microcap tomfoolery can find a sympathetic ear out there -- at least if they've got a market story with sufficient nudity.
Enter Forbes' Liz Moyer, who seems to have swallowed the Pegasus peanut gallery's short story hook, line, and sinker. Worse yet, she believes the Pegasus corporate party line -- that an unproven outfit like Pegasus is going to outmaneuver Apple (Nasdaq: AAPL), Hewlett-Packard (NYSE: HPQ), Cisco (Nasdaq: CSCO), and everyone else playing in the hotly contested PC-to-TV video-streaming market. I'm not kidding. She opens her Monday night article with this line, "Jasper Knabb and his streaming video technology is [sic] about to beat Steve Jobs to the punch."

As for that "hit out on Pegasus Wireless"--sure was. The hit men were the top execs of the company, who were touted in the Forbes.com piece. The SEC complaint said that just while this jousting in the media was underway, Pegasus was flooding the market with unregistered shares:

29. In August 2006, Pegasus began issuing massive amounts of supposedly unrestricted shares to Jones, Speer, Wilson, Aero-Marine, and others connected to Knabb and/or Durland. To convince Pegasus' transfer agent to issue the shares without restrictions on their immediate resale, Pegasus claimed it was issuing the shares to satisfy promissory not~s purportedly issued by a Blue Industries, Inc. subsidiary in 2003 and 2004.

30. To support Pegasus' claim to the transfer agent, Durland presented at least 33
supposed promissory notes to the transfer agent between August 2006 and February 2008. By February 2008, Pegasus had issued nearly 479,150,000 shares -75% of its outstanding shares - in this manner.

In one of her stories, Moyer said as follows: "Records held by Pegasus' transfer agent indicated there may be as many as 30 million more shares out there than it has on record. That suggests that short-sellers have been selling shares without actually borrowing them--a controversial practice known as naked short-selling."

In fact, it wasn't naked shorting at all. It was the people whose cause she was advocating selling unregistered shares.

As for why the shares declined so badly, the SEC complaint doesn't blame "short sellers"--including the "naked shorts" rapped by Moyer-- or "the media." It blames the management of Pegassus Wireless:

. . . Having received millions of Pegasus shares directly from Pegasus or indirectly through conduits, Speer, Wilson, Jones, and Aero-Marine proceeded to dump the shares and remit the bulk ofthe proceeds to Knabb. During the Commission's investigation, Speer, Wilson, Jones, and Aero-Marine's supposed manager declined to testify about the transactions or activities relating to Pegasus, asserting their Fifth Amendment privilege against self-incrimination.

Between June 2005 and September 2006, Jones sold at least 978,235 shares to
individual investors, including unaccredited investors, in the Myrtle Beach, South Carolina area, often through face-to-face meetings. Knabb often participated in the selling efforts, accompanying Jones in the face-to.:.face meetings and touting Pegasus' prospects. From the proceeds of these directly to investors, Jones wired to Knabb at least $2.2 million between January 2005 and September 2006. Investors who acquired Jones' shares sometimes wrote checks directly to Knabb.

I don't blame them, if they had read the two Forbes.com articles that talked up Pegasus Wireless and its CEO, thereby attempting to discredit the Barron's piece. It was a superb job of media manipulation, I must admit.

The SEC goes on to say that "Between approximately November 2006 and December 2007, relief defendant Aero-Marine sold approximately 125 million shares of Pegasus stock to the public, receiving proceeds of about $12.8 million." Note that the share sales commenced right after the two Forbes.com articles, which have never been retracted or followed-up.

Hey, we all get suckered sometimes. In Wall Street Versus America I described how Business Week was similarly gulled by a sob story by penny stock hustlers (and got called on it by Barron's).

I'm sure it will happen again. Con men are like that. But what makes this tale different is that a con man gulled a reporter after a story in Barron's indicated that Knabb, had a questionable track record. Instead of telling Knabb to take a hike, what happened here was an example of the age-old pastime of knocking down the competition's story. Sometimes that works. But sometimes it fails spectacularly, as it did with Pegasus Wireless.

The public is fed up with the financial press being manipulated by corporations. They're tired of stock market cheerleading. Hopefully the next reporter who is at the receiving end of a CEO's "the shorts are attacking me" sob story will remember Pegasus Wireless.

UPDATE: This evening Moyer produced this anemic, belated follow-up, mentioning one of her previous puff pieces without retracting or expressing regret for it. She then says as follows:

Pegasus investors, meanwhile, grew repeatedly frustrated by the late summer and fall of 2006 because of Knabb's growing elusiveness. He would eventually move the company's operations from Northern California to the Bahamas, but even there he, and Pegasus, appeared to drop off the map.

Funny, her stories never said anything about shareholder frustration. She totally swallowed the management line back then. She should acknowledge that and apologize.

But worst of all was her failure to acknowledge that the SEC found that all those unregistered shares she had talked about were not from naked shorting.

Putting that issue aside for a moment, one question that I have, after reading the serious allegations in the SEC complaint, is this: why haven't criminal charges been filed?

© 2009 Gary Weiss. All rights reserved.

Another (Alleged) Naked Shorting Con Game is Busted

2009-05-27T18:33:00.005-04:00

Could this be a trend? I hope so. The SEC has been stepping up its anti-fraud actions just a bit in recent weeks, and today nailed a particularly odiferous little company, Pegasus Wireless, one of the charter members of the baloney brigade anti-"naked shorting" con games.

Pegasus and two ex-officers of the company was nailed by the feds, who said that they

...illegally sold hundreds of millions of Pegasus shares they secretly controlled and lied about the sales in company filings, the SEC said today in an e-mailed statement. The sales were used to support [ex-CEO Jay] Knabb and ][ex-CFO Stephen] Durland’s lavish lifestyles and purchases of boats, sports cars and homes, the SEC said.
“The public had no idea that insiders were controlling the shares and dumping them,” Bob Leach, chief of the SEC’s San Francisco branch, said in a phone interview. “It was all smoke and mirrors.”

Indeed, while there was some good coverage of the company in the media, there was also some pretty bad stuff, with Pegasus planting crap (like this and this) in the media describing how this poor, downtrodden company was being targeted by shorts, particularly of the naked variety. Here some of the hooey that came down the pike from the two articles I just linked:

Sept. 25, 2006:

The technology that Knabb is scheduled to unveil days from now, he says, will beat Apple Computer (nasdaq: AAPL - news - people ) to market by several months.. . .

. . .Meanwhile, Pegasus shares are under constant attack. What’s striking about the activity affecting the company’s stock are the concurrent volume spikes in trading, the build-up of short interest from almost nothing to about half the available float, and the sharp decline in the price. All of this has occurred in the last three months.

and

Oct. 3, 2006:

There's a hit out on Pegasus Wireless.
As if a 95% plummet in its stock price since May weren't enough, signs of trouble were already popping up before the Fremont, Calif., wireless equipment maker moved its stock from the over-the-counter bulletin boards to the Nasdaq national market in April.
. . .
Negative news reports started appearing, even as the company reported positive earnings and made plans to unveil its promising new technology that allows video streaming from a home computer to television sets throughout a house. In late August, Pegasus customers and suppliers began getting strange e-mails attempting to warn them away from Pegasus, claiming mismanagement in one of its majority-owned subsidiaries.
Records held by Pegasus' transfer agent indicated there may be as many as 30 million more shares out there than it has on record. That suggests that short-sellers have been selling shares without actually borrowing them--a controversial practice known as naked short-selling.

Oh no! Horrors! But the SEC has another perspective on this said story:\

"Knabb and Durland were basically printing Pegasus shares to enrich themselves at the expense of investors," said Marc J. Fagel, Director of the SEC's San Francisco Regional Office, in a statement.
According to the SEC's complaint, Knabb and Durland created Pegasus from a dormant shell company around June 2005 and through "touting several acquisitions" briefly got the company's stock price to soar, giving Pegasus a market value of more than $1.4 billion.
But the SEC said Knabb and Durland secretly controlled hundreds of millions of Pegasus shares, which they sold to individual investors and dumped on the open market through 2008. Knabb and Durland, the SEC said, did not report any of these transactions and instead "falsely told investors they owned only minimal amounts of stock and received no compensation from Pegasus."

Unfortunately, thanks in large measure to some pretty abysmal journalism, Lord knows how many investors were lulled into thinking that this dog's breakfast of a company was actually a "victim of short-sellers." Hey we all make mistakes, but the pumping of Pegasus demonstrates that sometimes the media can become, unintentionally, an ally of bad companies ripping off investors.

© 2009 Gary Weiss. All rights reserved.

High Court Nominee Not From 'Shadow of Yankee Stadium'

2009-05-26T12:35:00.008-04:00

The route from Yankee Stadium (A) to Bronxdale Houses (B)

I'm sure that all sons and daughters of the Bronx, such as myself, are delighted to hear that Bronx native Sonia Sotomayor has been nominated for the Supreme Court. What's not so delightful is how news reports continue to screw up exactly where she lived in the Bronx--in an example of the media's ignorance of the borough.

Evidently, all the outside world knows about the Bronx is that it has got Yankee Stadium in it, so therefore if she grew up in a housing project in the Bronx it would have to have been "in the shadow of Yankee stadium."

This "Yankee shadow" business has spread through the media like wildfire. A New York Times blog reported that she grew up "near Yankee Stadium in the South Bronx." Even a Bronx news blog placed her in the path of what must be an extremely long shadow cast by the stadium.

Geez, don't any of these people have a map? She grew up in Bronxdale Houses, which is way over in Soundview, across the borough from Yankee Stadium. If Judge Sotomayor wanted to travel there when she was a kid, it would have taken her ten minutes to traverse the 6.1 miles (via the fastest route, the Bruckner Expressway) in zero traffic, and there is of course never zero traffic on the Bruckner Expressway.

Only a Daily News columnist has raised the issue, so far to no effect.

© 2009 Gary Weiss. All rights reserved.

Message Board Stock Scammers Busted

2009-05-21T14:18:00.007-04:00

There's a special twist to an federal court indictment and SEC complaint announced today: among the defendants is a character named Matthew Brown, who runs the InvestorsHub.com message board.

I've written a bit about another sleazy stock message board named Investors Village, which claims to be a high-toned forum "where serious investors connect," but is in reality a happy hunting ground for promoters of dreck like Novastar Financial and corporate goons for the Overstock.com corporate crime petri dish.

But it seems that IHub was even worse, according to the SEC complaint. The feds say that IHub was not only a locale of rampant stock touting, was also was a place where stock promoters hooked up. Now, that's what I call "serious investors connecting"!

One of the stocks touted by these scam artists was Xtreme Motorsports of California, a naked shorting victim, naturally.

It's as I've said repeatedly: these stock message boards are a one-way street to the poorhouse, if you're dumb enough to use them for stock research. They're not places where "serious investors connect," unless you're a stock promoter seeking to network with other stock promoters. They're places where the naive are skinned alive.

© 2009 Gary Weiss. All rights reserved.

Want the Hairs on the Back of Your Neck to Crawl?

2009-05-20T19:15:00.010-04:00

Brent Baker, proud lawyer for slime

If so, read about how ex-Overstock.com legal brain Brent Baker crowed to the Salt Lake Tribune about his poor, downtrodden, misunderstood client, Stanford Financial's CFO Laura Pendergest-Holt.

Hold on to your barf bags, folks. The woman is innocent. Yessir. A victim of overzealous regulators. And that's not all. Innocent people like Pendergest-Holt and Overstock's fabulously inept CEO Patrick Byrne know that they can get great representation at popular prices!

"We took on the representation knowing the assets were frozen but it goes to the reason why I get a lot of national cases," said Baker. "It's because we can take the risk because I don't have outrageously high overhead. I don't have to have to get millions and millions of dollars up front. If I believe in a client, I'll take a chance."

Baker goes on to wax rhapsodic about his former client Byrne, who waxes rhapsodic right back.

I had been wondering why the stock market conspiracy websites, which ordinarily tie in every Wall Street crime into a grand naked shorting conspiracy, failed to lasso in the Stanford defendants. Now I know why. Pendergest-Holt is good people, as are other ex-clients Baker believes in like Byrne and the Universal Express ripoff crew.

Baker learned to "believe in" these nightcrawlers while working for the SEC. Your tax dollars at work, folks, providing training for lawyers of white collar defendants in years to come.

Baker is a real piece of work. He once had a blog called sectales.com in which he said the following in response to a post of mine talking about his role at Overstock and issuer retaliation:

Guess what? Patrick and the DeepCapture folks are all correct. I saw it from within the belly of the beast and I can honestly tell you that "bent journalists" are more of a problem for our capital markets than "retailating issuers." Give me a break.

He signed this post "Fraudstopper." Seriously. This guy views himself as a "fraudstopper" by mouthing crap like this and by charging popular prices to represent the likes of Stanford's CFO, Patrick Byrne and the Universal Express bunch.

Baker (or his law partners) decided to be the ones to give him a break, by nuking these brilliant comments and what would have been a very interesting blog.

P.S. Baker's ex-colleagues feel that Pendergest-Holt is a "flight risk" who should continue to wear an electronic monitoring device, Reuters reports. I'm sure that in a few years they'll be finding a lot to "believe in" when it comes to the creeps and hoods of Wall Street and Corporate America.

© 2009 Gary Weiss. All rights reserved.

Blue Chip Publicity For an (Alleged) Racketeering Enterprise

2009-05-20T14:26:00.005-04:00

Manhattan District Attorney Robert Morgenthau today announced the indictment of sixteen people--including the owners--at a defunct brokerage firm called Joseph Stevens & Co., which was also indicted. Morgenthau said that these people ran a racketeering enterprise from 2001 through 2005 that raked in $6.2 million in illegal commissions.

That's small potatoes by Madoff era standards, though the scope was serious enough:

During that period, the defendants defrauded 800 victims in more than 5,000 trades valued at $151,286,804.44. By manipulating the market value of carefully selected stocks, the defendants generated more than $6.2 million in unlawful, undisclosed commissions, in violation of New York law and the trust of their customers.

Now, by any chance does the name "Joseph Stevens" sound familiar? It may. For quite a few years, at precisely the time the crimes were allegedly being committed, these alleged racketeers have presented a legitimate front with the aid of the financial media.

Thus we had Donald Selkin, head of equity research at the firm (and not accused of any wrongdoing), chatting it up with CNNfn back in 2004. A quick Google shows a host of financial publications similarly chewing the fat with Selkin as recently as last year (see this and this).

Selkin is now with National Securities, which boasted recently: "Frequently quoted in financial media including Bloomberg, CNN/FN, and CBSMarketwatch websites, Newsday, Quick Nikkei News, and Asia Market News, Mr. Selkin has provided CNBC’s 'Fair Market Report' for the past twenty-six years." What a guy. Earns his keep, to be sure.

Richard Suttmeier, who was chief market strategist at Stevens (and also not accused of nuthin'), was also all over the media.

Hey, these two gents didn't do anything wrong--and neither did the financial media that, unknowingly, buffed up the image of a firm at the same time that it was allegedly ripping off people. Happens all the time, I suspect. No big deal, unless you were one of those 800 victims.

© 2009 Gary Weiss. All rights reserved.

The Times Flip-Flops on Credit Cards

2009-05-20T09:11:00.003-04:00

The New York Times yesterday ran a simply atrocious front-page article on the credit card legislation that is sailing through Congress. CJR's Audit column has a good rundown of the article's deficiencies, which included omission of a basic fact--that credit card companies make money from every transaction, through fees paid by merchants.

The article basically swallowed the credit card industry's line that the pending card legislation would hurt good customers who pay off their balances every month, since such "deadbeats" are subsidized by the absurd fees and charges paid by millions of consumers.

By not mentioning the transaction fees, which let the card companies profit from "deadbeats" and interest-payers alike, the article was downright misleading.

Today, the Times ran what was tantamount to a front-page correction, in the form of a column by Ron Lieber. He points out allt he stuff that yesterday's article didn't have, and downplays the possibility that card issuers will withdraw all the perks cardholders currently get. After all, there are transaction fees!

Nowhere is yesterday's article mentioned, which is understandable I suppose. But still, the Times has run two contradictory front-page articles on consecutive days, and the overall impression is a bit rancid--and odd, considering that the Times has pushed hard for card reforms in its editorial page.

© 2009 Gary Weiss. All rights reserved.