Patrick M. Byrne, the colorful CEO of Overstock.com, is in the midst of a Wall Street "Crusade" targeting practices and policies that he claims have undermined the U.S. financial system. In an essay published yesterday entitled "A Message of Peace to Wall Street," he describes a potential financial crisis involving a complex mix of unsettled trades, Contracts For Difference, and the Continuous Net Settlement system.
Byrne goes on to admit that no one has a birds-eye view of the situation, yet that doesn't stop him from estimating it's a $30–$120 billion problem. Seldom one to mince words, Byrne draws a comparison to mismanagement at a poorly designed and managed nuclear reactor:
So respectfully, Wall Street, I believe you are Oak Ridge, Tennessee, blithely going about your jobs at the factory, taking for granted "the piping" that is our settlement system. I believe you have manufactured, and are sitting squarely on top of, a financial atomic bomb. That's not good for you, of course, and if it goes critical, America is downwind.
Byrnes concludes by saying that he doesn't want anyone to get hurt. "I'm not vindictive," he says.
So, does this mean all of the earlier vitriol directed against the hedge funds that allegedly shorted Overstock.com earlier in the decade is water under the bridge?
Not quite. Byrne's "Message of Peace" is part of Deep Capture, a "work of investigative journalism examining the growing threat to our financial system posed by illegal naked short selling." Reading through the posts, it's clear that hedge funds are in the center of Deep Capture's crosshairs. The blog also takes aim at their supposed allies and fronts, including CNBC, suspicious Wikipedia editors, and people who are allegedly manipulating investor opinion through Yahoo Finance message boards.
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Comments
You forgot to mention his famous imaginary "sith lord" rant of years ago.
http://money.cnn.com/2005/11/01/news/midcaps/overstock_fortune_111405/in...
What a waste of bandwidth on a raving loon.
Ian,
Say hello to Gary Weiss, here commenting as "Stan Dogas". "Raving loon" is one of his favorite ways to slander Pat Byrne. I don't think Gary liked you linking to the Deep Capture blog about his activities.
Say hello to Byrne's paid stooge Judd Bagley, commenting here as "anonny." Bagley loves to plaster the label "Gary Weiss" on anybody who criticizes his employer.
Here is more of Bagley a/k/a "Sleazy McSleaze, smearing a Bloomberg reporter:
http://dealbreaker.com/2007/02/sleazy_mcsleaze_so_consistentl.php
I think this article could have done a better job of describing how Byrne has consistently shafted his shareholders, quarter after quarter, year after year. The stock just fell 40% in a day, when quarterly results showed that Byrne had failed to keep expenses under wraps.
Byrne reacted by blaming the decline on naked short selling.
You can't separate Overstock's faltering performance, and Byrne's failure as a businessman, from his chasing the demons in his head and carrying out vindictive smear campaigns against his critics.
In this blog post, his loyal employee Bagley tries blackmail against a critic:
http://dealbreaker.com/2007/06/sleazy_mcsleaze_now_even_sleaz.php
Your article could have used some perspective on Bagley's antics, even in the small space allotted to you.
Ian,
Thank you for the column. It is better than most. However, some of it mystifies me in ways I feel I should point out.
Your piece juxtaposes my claim that "I am not vindictive" with references to my campaign to clean up Wall Street and expose various Wall Street shenanigans on DeepCapture.com. I confess I did not even follow your logic at first, and then it occurred to me: you are suggesting (I think) that there is something "vindictive" about these acts? (Else, why the juxtaposition?) But the simple truth is, my efforts to bring national attention to a regulatory failure before we experience systemic meltdown, and to expose a ring of crooks and paid shills who stand in the way, is not a vindictive act. Were Woodward & Bernstein "vindictive" when they exposed Nixon? No. Similarly, I was just letting Wall Street know that there is nothing "vindictive" about my campaign to clean up Wall Street. I am just a guy taking out the trash. Nothing "vindictive" about it.
In a similar vein, you reprinted, "Patrick Byrne, CEO of Overstock.com, founded Deep Capture to bypass the 'captured' institutions mediating our nation's discourse." Again, it appears that you are juxtaposing that with my claim that I am not being vindictive: once again, this mystifies me. What is "vindictive" about founding a website to bypass the "captured" institutions mediating our nation's discourse?
It also appears to me, respectfully, that you missed one aspect of the essay's construction. I opened it mentioning that: "two years ago an elder statesman of the hedge fund industry sat me down to tell me that I had become the most hated man in living memory in New York, that you folks despise me utterly, and so on. All true, I’m sure. So it goes." At the end of the essay I mentiuoned that I am not vindictive. I intended it as a bookend: as though to say, "You Wall Street guys despise me, but I do not return any of that anger." I will edit the piece to make the construction more visible.
Other than that, I thought it was a fine piece. Thank you for being one of the few willing to mention substantively the claims made on DeepCapture.
Respectfully,
Patrick
That was not me commenting as "anonny".
But I do happen to think that both Stan Dogas and Hal Hacohen are Gary Weiss. Very few other people still employ that pre-historic mode of thinking. Or talking. Or blog commenting.
More on Gary Weiss is available for your review here: http://www.antisocialmedia.net
Patrick, I think Ian's use of the expression "I'm not vindictive" was intended to be ironic, because you founded an entire infrastructure devoted to smearing your critics.
More on Patrick's employee Judd Bagley aka Sleazy McSleaze can be found a these websites:
http://dealbreaker.com/cgi-bin/mt/mt-search.cgi?IncludeBlogs=10&search=a...
http://garyweiss.blogspot.com/search/label/Judd%20Bagley
Don't miss this one:
http://dealbreaker.com/2007/06/sleazy_mcsleaze_now_even_sleaz.php
That describes Judd Bagley trying to blackmail a critic to prevent him from criticizing Byrne. Bagley is paid to reduce the level of criticism of Byrne on the Internet and in the media, which is both vindictive and ineffective.
Patrick: Thanks for your taking the time to discuss the essay here. Stan is correct -- considering your long history involving the hedge fund industry, and your ongoing "Crusade" (or Jihad, as you say in the Deep Capture essay) I did think your "vindictive" comment was ironic.
A few questions for you regarding your statement that Deep Capture is a work of "investigative journalism": Are the writers paid by you? Are they paid, full-time employees, or freelancers? Who pays their salaries? You describe yourself as a reporter, but are you also an editor? Do you assign and vet their work? Would you ever kill something that they wrote?
Ian Lamont
Managing Editor
The Industry Standard
Hello "Stan" and Ian:
I will take your comments in order. "Stan" comes from Bizarro World where bad is good, black is white, up is down. Ian, your questions are more serious, and deserve fair answer: to give it I need some small matter cleared up.
As has been amply (one might say "endlessly) demonstrated by former Time/WSJ/CJR investigative reporter Mark Mitchell (http://www.deepcapture.com/the-story-of-deep-capture-by-mark-mitchell/) and reporter turned 2.0 journalist Judd Bagely (http://antisocialmedia.net/?page_id=105 ), there has existed a disinformation campaign to prevent the public from grasping "naked short selling" and the harm it does (companies destabilized coupled with the creation of systemic risk, as the SEC's recent comments and Emergency Order make clear). That disinformation campaign includes a smear campaign against any journalists, politicians, Wall Street executives, and others (including myself) who would do something about exposing and curtailing the practice. Judd, who besides being an Internet sleuth, is a fine and gentle man, worked tirelessly to sort out and, in some cases, expose the people involved in that campaign. In that capacity, he discovered the real identiy of a rather low-level player, and let him know that he was going to be exposed if he did not stop:
"From: Judd Bagley To: scipioafricanus_iv@yahoo.com Sent: Thursday, June 14, 2007 ... I thought I should tell you that I've have known your real identity for a while now.Up until last week, it appeared that you'd grown tired of o-smear and all the games (which would make 'outting' you unnecessary) but lately it appears that's not the case. I don't want to cause anybody unnecessary harm, but I'm beyond tired of the lies. If you choose to continue as you have been, I will write about you on AntiSocialMedia.net. In doing so, my goal is not to intimidate, but to let you own your words; under those circumstances, I think the lies will take care of themselves. Having said that, I'm also very much aware of the impact this could have on your reputation, especially where you live, and I feel obligated to offer you a way out. So, if you're ready to set things right, I'll keep your name to myself and figure we'll both be karmically better off for it...."
That is the "blackmail" of which Gary speaks: telling an anonymous shill that if he continues his anonymous smear campaign, his identify will be revealed.
Ian, you write, "Thanks for your taking the time to discuss the essay here. Stan is correct -- considering your long history involving the hedge fund industry, and your ongoing 'Crusade' (or Jihad, as you say in the Deep Capture essay) I did think your 'vindictive' comment was ironic." Ian, I am just missing something. I see that your most recent story was about a company called e-Bullion and its possible (even likely) invovlement in fraud and money laundering: Was that "vindictive" of you to write about them? Was it "vindictive" of you to try to inform the public? I don't think so. So why is it "vindictive" of me to try to expose a Wall Street practice which has in recent months been implicated in the take-down of Bear and the destabilization of our financial system?
Mr. Dooley said something like, It ain't what we don't know that hurts us. it's what we think we know that just ain't so. You apparently think you know something that ain't so. The problem is, you seem to think I "know" it too. So please help me "know" it by explaining why you assume without argument vindictiveness on my part, whereas I just see myself as a concerned citizen. If you can do that, all the pieces will fall into place, and this discussion may get interesting.
Respectfully,
Patrick Byrne
PS In direct answer to your questions: the employees of DeepCapture are paid by DeepCapture, LLC. I founded DeepCapture and gave it its initial capitalization, but then withdreww as a member of the LLC, and am not an employee. Yes, I am a reporter for DeepCapture, but I do not get paid. I am neither an editor nor do I "assign" stories. Occasionally I see stories before they go live and give my comments (which they are free to accept or ignore as they wish), but more often, I do not see the stories before they go live. And you did not ask, but I'll tell you anyway: yes, I enjoy being a reporter.
"the employees of DeepCapture are paid by DeepCapture, LLC. I founded DeepCapture and gave it its initial capitalization, but then withdreww as a member of the LLC, and am not an employee"
So in other words you use Deep Capture LLC as a funding conduit, are its sole source of funding, and are a control person of Deep Capture LLC.. Why not just come out and say so?
What I don't understand is why you even bother to try to wash your money through a corporate shell, when it is obviously you are paying these people?
To Patrick Byrne:
Does Deep Capture generate enough revenues from its 5% Overstock.com commissions to pay the salaries of Judd Bagley, Evren Karpak, and Mark Mitchell or have such funds come from other sources such as the initial capital that you provided Deep Capture? Please provide details.
If you claim that you withdrew as a member of Deep Capture, which person or entity did you transfer your ownership interests to?
What is your explanation of Overstock.com's continued violations of Securities and Exchange Commission Regulation G as outlined in my blog? Link here: http://whitecollarfraud.blogspot.com/2008/07/sec-stands-by-while-oversto...
Kindest regards,
Sam E. Antar (former Crazy Eddie CFO and a convicted felon)
Everyone: Please note that respectful debate is welcome, but comments that are defamatory will be removed. I have already removed one comment for this reason.
Patrick: You drew a comparison with me writing about e-Bullion and you writing about hedge funds and their practices. However, I have no personal investments in e-Bullion or any of its competitors, and have not personally been hurt by any of their alleged wrongdoing. Saying "I'm not vindictive" in this case wouldn't make sense.
You and Overstock.com, however, have been hurt by the entities that you are writing about -- and the pain has been significant. You have also made it very clear that you are targeting hedge funds in your current campaign. These aren't minor quibbles over policy or processes -- you are actually going after the entities that have caused you pain, and in a major way. In such circumstances, your "vindictive" comment seems ironic.
Regarding Deep Capture's editorial operations, investigative journalists rarely have personal stakes in the outcome of their investigations for television news programs or newspaper reports. The term "reporter" also suggests someone who reports the facts objectively and keeps their personal biases out of their coverage. Would "columnist", "researcher" or "blogger" be a better term for what you are doing?
Ian Lamont
Managing Editor
The Industry Standard
Ian, although your point is well taken, Byrne in the main is directing his venom not at hedge funds but at people in the media, analysts and others who have criticized his management of the company. This is not a case of Byrne vs. hedge funds but Byrne vs. Critics.
As for the point that I made earlier re Bagley that you removed, for Byrne to call Bagley as a "journalist" is as accurate as calling him Archbishop of Canterbury. He is a professional p.r. operative who was formerly employed by the Florida government and then moved to his own p.r. ventures and then Overstock, where he worked ostensibly as p.r. director while spending most of his time running the antisocialmedia website attacking Byrne's enemies.
Byrne calling himself a "reporter" is just one of the milder and more humorous fibs he tells..
Since Byrne decided to bring me into this via a load of revisionist bull, I'll set the record straight.
Byrne says:
"That is the "blackmail" of which Gary speaks: telling an anonymous shill that if he continues his anonymous smear campaign, his identify will be revealed."
What I was was doing was exposing the various anonymous and shady methods used by Overstock employee(s) to spy on their critics, including multiple ids on the Overstock message boards and illegal spyware embedded in them.
Very few of my claims were ever even challenged as they were un-challengable (to coin a word). I'd be more than happy to rub anyone's nose directly in that spyware as it is in a place where anyone can see it to this day. Patrick, does your "don't ask-don't tell" policy allow you to deny the existence of spyware planted by Overstock employees on the Overstock message board at InverstorVillage?
As far as Byrne being vindictive? No. When you have that kind of jing, you outsource that function and institute "don't ask - don't tell" policies.
Hi, Ian, Let me give you a little history of why Patrick is labeling himself as a "reporter/journalist" now (it's relatively a new label he has *given* himself). It's a tool he now uses that let's him slip-out-the-back-door, so to speak, when he is asked direct, hard questions on subjects such as his 'Miscreant Ball' conference call he had a while back.
For Example; The infamous "Sith Lord" is trying to take over Overstock episode of that conference call.
Patrick, who is the Sith Lord? Patrick's answer now , as a "reporter", would be something like - Sorry, but I'm a reporter, and being so i can't divulge my sources on the Sith Lords identity at this time, but rest assured he is a real person.
It's a pretty simple, effective formula to evade any REAL answer. Suffice to say it serves Patrick well to label himself a "reporter".
He recently used his new "reporter escape hatch trick" when asked on message boards about a TV appearance on the Fox Network where Patrick proclaimed that, "I happen to know for a fact that there’s a fax machine in the CNBC offices where every morning hedge machines, I mean hedge funds send instructions and journalists sit around and take instructions.”
Here Herb Greenberg focuses in on Patrick's wild-eyed accusations of hedge fund/TV news studio stock manipulation ->
http://blogs.marketwatch.com/greenberg/2008/04/time-to-have-pity-for-pat...
and in this episode Patrick accuses Herb of being "fired from Marketwatch", and in the end Patrick offers. Surprise! No proof whatsoever ->
http://blogs.marketwatch.com/greenberg/2008/04/memo-to-patrick-byrne/
In other words Patrick is making stuff up as he goes along.
Hope this helps clear up the "Why are you calling yourself a reporter" issue raised.
- Ace
It's easy to see the history rewrite for yourself. Here is AntiSocialMedia as it existed on Dec 21, 2006. See if you can find anything BUT vindictiveness or any focus on Naked Short Selling or disclosure that it was run by Overstock's newly created (and short-lived) position of "Director of Social Media".
http://web.archive.org/web/20061221084639/http://antisocialmedia.net/
At about that time, message board participants were (correctly) tying that site to Overstock.com. The focus then moved to discourage them by intimidation (as of Dec 30, 2007):
http://web.archive.org/web/20061230183908/http://antisocialmedia.net/
This kabuki dance Byrne is performing on Deep Capture reminds me of how he and Bagley feebly tried to keep ASM anonymous in 2006. Eventually it became so ridiculous that Bagley admitted that he was behind the site.
http://garyweiss.blogspot.com/2007/01/judd-bagley-fesses-up.html
Byrne's latest "I'm-just-a-reporter-not-an-incompetent-CEO riff is even sillier than his "I don't know who runs ASM" line. . Even Bagley isn't putting on the "reporter" act anymore. Just the other day he blurted out that his purpose is to discredit critics of Byrne.
"As much time as I've spent discrediting him [Weiss], he's decided to take on the job himself and show how a pro works."
http://www.investorvillage.com/smbd.asp?mb=3532&mn=22565&pt=msg&mid=5339...
Bagley is so anxious to prove that he's smarter than everyone else that he demolished Byrne's entire "journalism" facade. So if he tries to push the issue in court sometime, should it come to that, lots of luck.
Correction: Where I said "as of Dec 30, 2007" it should read "as of Dec 30, 2006". Nine days later.
Dear Ian,
You write, "You drew a comparison with me writing about e-Bullion and you writing about hedge funds and their practices. However, I have no personal investments in e-Bullion or any of its competitors, and have not personally been hurt by any of their alleged wrongdoing. Saying "I'm not vindictive" in this case wouldn't make sense. " Actually, Ian, what you mean to say is that it WOULD make sense. You have it backwards. I respectfully suggest you read that sentence again.
"You and Overstock.com, however, have been hurt by the entities that you are writing about -- and the pain has been significant. You have also made it very clear that you are targeting hedge funds in your current campaign. These aren't minor quibbles over policy or processes -- you are actually going after the entities that have caused you pain, and in a major way. In such circumstances, your 'vindictive' comment seems ironic."
Actually, I am seeking to expose all hedge funds engaged in this practice, the great majority of which have had (I believe) nothing to do with Overstock itself. In addition, note that by your reasoning, Martin Luther King was "vindictive" but the White Establishment who opposed him was not.
"Regarding Deep Capture's editorial operations, investigative journalists rarely have personal stakes in the outcome of their investigations for television news programs or newspaper reports. The term 'reporter' also suggests someone who reports the facts objectively and keeps their personal biases out of their coverage. Would 'columnist', 'researcher' or 'blogger' be a better term for what you are doing?"
That could be one way to handle it. I chose a different way, and that is, I report the facts objectively and keep personal biases out of my coverage. In fact, I believe my work displays a higher level of intellectual integrity than, say, the average journalist. If you say otherwise, perhaps you will provide links to Industry Standard stories that are:
1) Better expository pieces of arcane economic concepts than this - http://www.deepcapture.com/a-general-theory-of-capture/
2) Deeper analysis of current events than this - http://www.deepcapture.com/wall-street-captures-the-sec/
3) Better-researched biographical pieces than these:
http://www.deepcapture.com/michael-steinhardt-when-the-bad-guys-came-to-...
http://www.deepcapture.com/jim-cramer-is-a-complicated-man/
4) Dramatically better-structured than this:
http://www.deepcapture.com/slow-learner/
I may have to work harder at it than you folks who do it for a living, but the results speak for themselves.
Of course, you may still prefer this kind of "journalism".
http://www.deepcapture.com/why-is-sam-antar-the-crook-being-pimped-by-fo...
http://www.deepcapture.com/gary-weiss-scaramouch-psychopath/
Respectfully,
Patrick M. Byrne
Deep Capture Reporter
PS Ian, our debate has drawn the usual choagies. I confess I only glanced at their posts, but I saw enough to know that they are flogging some line about how I try to hide connection between Deep Capture and myself. Which, given that I have given speeches called "DeepCapture" to thousands of people, talked on the radio about the site I founded, sign my writing there "Patrick Byrne", and put a bubble up on the home page announcing that I am the founder of DeepCapture, is............ par for the course.
Patrick: I don't think we have the same understanding of the meaning of "vindictive." We also seem to have a different understanding of "objective" and "bias." I really don't think there's much of a point in debating either issue here.
Further, I can't take you up on your challenge to list Industry Standard content that can match your own essays. We don't write expository pieces on arcane economic concepts, or 8,000-word biographies of well-known television personalities, so there are no points of comparison there. And the best essay we've had in the past year -- IT vs. initiative: The Internet age comes to the battlefield -- was about a topic that Deep Capture does even not discuss.
Everyone: Byrne's mention of arcane economic concepts brings up a question that I hope more knowledgeable readers on this thread can answer: Putting aside complaints about message board shenanigans, his status as Overstock's CEO, and his attacks against Wall Street and the media, what are the merits of Byrne's assessment of the crisis allegedly involving unsettled trades, Contracts For Difference, and the Continuous Net Settlement system? Is he really onto something, or is he wrong?
If he's right, is the problem as big as he says it is?
If he's wrong, or he has incorrectly estimated the size of the supposed crisis, where is his reasoning in doubt, and/or what other factors have to be considered?
Please try to tone down the anger seriously address the strengths and weaknesses of his argument.
Ian Lamont
Managing Editor
The Industry Standard
for me this whole affair is about right vs. wrong.
good vs. evil.
regular folks are getting ripped off by a market that is way lopsided towards those who have the money and power to do as they please.
thats the way i see it anyways.
it is hard for me to understand how others cant understand it.
i have come to two conclusions.
either they are a part of it in some way or
just not able to grasp right from wrong.
Ian,
Your write: "I don't think we have the same understanding of the meaning of 'vindictive.'"
I reply: That could well be. Please feel free to share your understanding of "vindictive", and explain why you think DeepCapture has been vindictive. I feel the work that appears there, from me and my colleagues, is damn good journalism, and in general adheres to a higher standard of journalism, than the great majority of current American journalism. But I would love to learn where I am in error, so please explain to me how, in general, you understand the word "vindictive" and why DeepCapture is so. I think that Mark Mitchell's work, and Judd Bagley's, is damn good journalism.
You write: "what are the merits of Byrne's assessment of the crisis allegedly involving unsettled trades, Contracts For Difference, and the Continuous Net Settlement system? Is he really onto something, or is he wrong?"
I reply: My compliments. That is precisely the right question. I assure you that if you permit this conversation to continue, and moderate it so that the choagies cannot get away with simple denunciations and "But everyone knows this" appeals, you will find that the Industry Standard will be denounced as a vindictive attack site, etc. etc.
My respect.
Patrick
Some nice clips here to watch.
http://www.youtube.com/user/securitiesreform
PS Pardon the poor editing in my penultimate post. It's late and I was sloppy.
By the way, to any who still believe the bromides of the yuck-yucks posted above, I say,name an investigative reporter in America who is doing work as fine as this work of Judd Bagley:
http://antisocialmedia.net/?page_id=105
http://antisocialmedia.net/?p=134
Ian,
Take the data directly from SIFMA, It can be found here: http://www.sifma.org/research/statistics/databank.html
In the Excel Spreadsheet, they list a liability of over $140 billion in Q1 2008:
"- Payables: Failed to Receive 140,559.6 (In Millions)"
This is only for NYSE broker-dealers.
What this says, is that broker-dealers owe their customers securities with a value of over $140 billion, because they did not receive the securities as contracted by settlement date - because someone sold them without delivery.
What more do you need?
You can see some statistics here: http://investorprotectioncoalition.org/FTDsHappen.html
Tom Vallarino
Real simple. Settle the trades. Obey the law. What possible reason would the SEC have not to obey its own edict? (Think about what rabbit hole that takes you down). How can stocks stay in fails for years: Who has the money to employ these shills year after year after year?
The capital markets are just that. They are to raise capital. Not to cater to hedge fund lackies who see who can accumulate the most wealth and buy the most politicians. This isn't even arguable. And it won't end well. But it has to end. We need to get on with the Country's business and stop the monkey business.
Ian,
Being a participant in this battle for better than 8-years, I can understand why it would be hard to differentiate between those who are right and those who claim to be right.
While you may think that DeepCapture may be a vindictive tact by Dr. Byrne you must realize that venues such as DeepCapture only exist because all other attempts at a more civil public disclosure were ignored or summarily destroyed under the weight of powerful people.
If you step back and consider for a moment what Commissioner Cox just admitted by the emergency order you will understand that Cox validated all that has been stated these past years. Abuses in the trade process, and abuses in the stock settlement system, can take down even the largest and most liquid of public companies. If this is the case, what protection do you think lesser companies enjoy?
Those that profited from the abuse used many different venues to derail the exposure of this issue. In 2003/2004 NBC’s Dateline was prepared to put out a 2-hour expose on this very subject entitled “Financial Terrorism in the US”. After receiving threats from lobbyists and other interested parties Dateline NBC reduced the segment down to a 15 minute fluff piece in order to meet a contractual obligation. There is no need to threaten the publication of a story that is thought to be inaccurate.
These similar stories exist everywhere as people are threatened away from disclosing this issue. For me personally, I was threatened by the publication of my SSN on message boards and by having my brokerage account hacked into and positions sold. People don’t engage in criminal acts without fear.
I understand that you may or may not agree with all Dr. Byrne may have to say but put aside any preconceptions and analyze for yourself what evidence is being presented and ask the same serious questions Dr. Byrne has asked. Why are all these fails taking place in our capital markets? To whose advantage/disadvantage are these fails? Why are the laws (15c3-3 and 15c6-1) not being actively enforced relative to 3-day trade settlement? Is there a correlation between short sellers and Reg. SHO companies and…a correlation between those that have come forward publicly and the market response to such actions?
Today, companies take their concerns to the agencies privately for fear of retaliation by the industry that profits from this mess. That in itself speaks of the unhealthy nature of this.
I welcome your personal research and attention into this serious issue. Research that should not limit you from looking at the most visible players who are opposed to this exposure as well as those most visible in exposing it. Dr. Byrne has certainly presented some unflattering evidence against several players that should not be ignored because you may think the methods were “vindictive.”
Dave Patch
www.investigatethesec.com
I continue to be baffled by the likes of Stan Dogas, Hal Hacohen, Ace, Scipio, and Tamoshanter commenting on this blog who, not merely disagreeing with Patrick Byrne on naked short selling, go to such ferocious extremes to discredit him. It's as if there is some agenda in play they have that is not obvious to the rest of us. Why are they so interested in bringing down somone who is exposing the obvious abuses in the market process?
--------GILBERT M. ERSKINE
Looks like South Dakota is also fed up with folks selling something that never gets delivered. See the measure brought forth there: http://www.voteyes9.com/
And the American Entrepreneurs for Securites Reform are joining the fray:
http://www.marketwatch.com/news/story/american-entrepreneurs-securities-...
On vindictiveness, I respectfully disagree with Ian's take. Consider this example: A liquor store that has been robbed, say, 100 times in a year.. Is it then vindictive for the liquor store proprietor to lobby for stronger protection against liquor store robbery, or to expose robbers as such when he can identify them? It doesn't pass the sniff test for vindictiveness, in my opinion.
As to the size of the problem, consider that $8 billion or so fails per day, per the DTCC's latest numbers. And consider that $31 billion per day trades, POST NETTING. That's 25% of the trades, post CNS netting, that fail. CNS netting "handles" 98% of all trades, thus it is not unreasonable to wonder aloud as to what percentage of those netted trades also fail. We don't know the answer to that, because the DTCC keeps that information secret. Why the level of failure in the stock settlement system is top secret is unknown. Instead of discussing hard, pre-netted numbers, they speak in dishonest percentages - for instance, they claim 1% of trades fail daily. But that number is actually a percentage of equity trades, and corporate debt, which is a much larger number than pure equity (stock) trades. Why take a percentage of a much larger number? Because otherwise it would be 2% or more that fail of equities. And the goal, the agenda, is to make the problem appear to be small. Which raises a good question - why does the clearing and settlement system have an agenda in what it reports? The answer is because it is wholly owned by the brokers, the very entities failing.
But consider that 1% number. That niggling $8 billion. That, as we have discussed, is post-netting. A better way of expressing that number is that 25% of post-netted trades fail. So then the question is, why wouldn't that rough heuristic also fit the pre-netted trades? I can't think of many reasons it wouldn't. But again, this information, while knowable, is actually secret. And also remember that all that ex-clearing failing, and anything netted outside the country, as well as any trades desked internally to the brokers, also don't appear in that number.
You want an interesting line of reporting? Ask the DTCC what the dollar per day fails are pre-CNS netting, and what the average ex-clearing failures are per day, or per week. Not expressed as percentages, or with weasel words, but just dollars. You will suddenly find yourself shut down. The information is too secret for anyone to know.
If you want more information on how complicit the DTCC is in this issue, read my latest blog at http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/705/D... - TheSanityCheck.com - which chronicles just one instance of DTCC malfeasance in the NSS issue. It is easy to understand, contains hard data, and in the comments, you will fine many articulate folk who aren't fooled by the constant yammering of paid attack dogs and smear artists.
I close in noting that a group of the usual suspects has descended upon your blog, like a swarm of dung beetles, intent upon fouling the water to the point that reasonable discourse is lost. That is their agenda, in my opinion. With astounding ferocity, they attack Patrick, and anyone else who advocates greater transparency in the trading processing, and the return of reason to the market system. I believe it is reasonable for a buyer to get what he paid for. I believe it is fraud to represent to him that he received it, but in reality all that was delivered was an IOU. That is the simple crux of this. The rest is theater and noise. Whether Patrick be demon or angel is immaterial to whether the data supports his position. It does. The SEC's recent statements, acknowledging that NSS can destroy even the largest entities, and requiring protection for them, is not up for holocaust-denial type rebuttal. Neither is Cox's statement that it seems prudent to extend that protection to the broad market. The SEC isn't doing this on a whim, nor because this isn't a problem. Do some research, look at the hard data, and consider that the only ones clamoring to keep this going are those profiting from it.
BTW, Euromoney just had a great article at http://www.euromoney.com/Article/1990841/BackIssue/65741/Naked-shorting-...
which discusses the obvious moral hazard being advanced by the hedge funds who profit from illegality.
Thanks for the opportunity to comment.
Regards,
Bob O'Brien
Ian,
Is it not obvious that all the flack about "vindictiveness" and Patrick Byrne's motives is simply to distract from concentration on the central problems of the U. S. financial system. One of those central problems is the breach of fiduciary duty in clearing and settlement of trades to deliver real, registered shares in exchange for money paid. Some years ago, DTCC began clearing the buyers' funds to sellers without delivery of shares - instead, accepting only communication of electronic account entries. That breach of trust and responsibility has been exploited fully by involving the SEC in allowing this outright deception of stockbuyers.
Institutional investors are told if the shares they buy are undelivered, so their status is better than retail buyers. Yet, even institutional investors have the value of their investments stolen by the dilution of share floats that takes place when phantom, fake, counterfeit shares are transmitted electronically to unsuspecting retail buyers.
Here are facts you should consider:
(1) three federal class action suits filed in Manhattan in 2006 by hedge funds alleged the largest prime brokers have intentionally failed to deliver any shares sold short by hedge funds since April 2000.
(2) a SIFMA consolidated balance sheet of NYSE member firms as of June 30, 2007, showed total failures to receive and failures to deliver to total $192 billion.
(3) Bear Stearns was destroyed in four days, its share price taken from $70 to $2, by creation of new, phantom shares using the options market maker exception to Reg SHO, which permits OMMs to hedge by selling short without delivering shares.
(4) The SEC was forced to act by emergency order to protect FRE and FNM against naked shorting, and simultaneously protected 17 other firms selected by the SEC for favored treatment preventing their shares from being counterfeited.
(4) Meanwhile, all other publicly traded shares in U. S. financial markets remain victims of the highly capitalized firms that continue to exploit the DTCC loophole and SEC failure to enforce anti-fraud laws.
Thanks for your attention to the subject.
The sad truth is the opposition has no facts to dispute Byrne’s assertions.
Once you begin to dig into this you realize that the other side only has one defense- one tactic- their sole rebuttal is to personally bash Byrne.
At first I did not believe that was a serious issue- but I came to realize that Byrne’s side provided facts, figures, stats- the other side had NOTHING but personal attacks!
A few years ago I remember begging and pleading for the establishment to rebut Bynre, to provide a reasonable explanation for what seems to be a crime of massive proportions- none came.
There are some important keys to remember and here are some things you need to ask yourself.
Can the industry police itself?
We just learned about Out of control CDO’s and the orgy that the mortgage securitizations market enjoyed,
Level 3 assets,
Massive over leveraging,
Market timing,
Tech bubble, on and on the list goes.
You know the answer to the question above.
Naked short selling- fails to deliver, CNS all exist- the opportunity to game the system through these tools exists. Why would a young hedge fund manager not game the system to their advantage through these loopholes?
When the industry claims that fails “only” represent 1 or 2% of all trades- you must remember that the vast majority of those fails exist in a few selected- targeted- stocks. If this was accidental the fails wouldn’t be focused- they would be random- they are focused- certain stocks are targeted for destruction.
The average retail shareholder has no way of knowing that their stock has been the attack of a vicious naked shorting campaign. Only after their stock has been pummeled by 40-80% in a few days and the stock magically shows up on the SHO list do they begin to realize what just occurred.
Fact- NSS exists
Fact- Wall Street cannot police itself
Fact- NSS can be used to harm and manipulate
Knowing all of this- why should we trust that WS is doing the right thing when it comes to NSS?
They won’t open the books- they ignored the problem for years- and then (all of a sudden) they decided to do something about NSS at one of the most critical junctures in market history.
Does this comfort you?
Start to learn about this- begin to ask questions- you will NOT be happy with what you find.
I have read over a lot of the material and at every turn, I see Dr. Bryan's claims backed up by fact and I see his past speculations coming to pass just as he predicted they would.
I don't view his or deep capture as vindictive at all. In fact, I am amazed that he, as a 'self proclaimed' reporter and the CEO of an online sells company, has managed to dig up all of these facts that the professional reporters apparently haven't been able to find. This is a very sad commentary on the state of affairs for our 5th column, who used to take pride in their profession but now are competing with and on the level of the gossip reporters.
GILBERT, it's called Public Forum Debate. Is that a new concept for you? This is not Zimbabwe, you can voice your concerns, and should. Everything is not written in stone by default because "Patrick says so". Far from it. Remember Patrick has a HUGE vested interest in promoting all this conspiracy/drama with 2 current Civil Suits.
There are LOTS of folks who just think Patrick plain does not tell the truth on MANY topics, here and in the business he runs poorly. And we point people in these discussions to such hokum.
Live free, GILBERT.
Ps- Nice to see the infamous Novastar stock tout Bob O'Brien appear, with the usual drama and fluff only "Bob" can spew forth. He always puts a kick in my step for the day!
-Ace
To Patrick Byrne (CEO of Overstock.com):
You claim that you want reform. How about addressing the issue of Overstock.com's continued violations of SEC Regulation G governing non-GAAP financial disclosures in reports filed with the SEC?
Kindest regards,
Sam E. Antar (former Crazy Eddie CFO and a convicted felon)
Once again the naysayers weigh in with obfuscation and deceit. Nothing of substance on the issue. No fact-based denials of the truth. Only playground level sticking out of tongue taunts. If that's the best these guys have, then it's over for them.
How predictable. It certainly appears that naked short selling isn't the issue for them, but Patrick Byrne himself is. Too bad he doesn't matter. Really. It's not about Dr. Byrne at all, but the corruption and fraud in our market system. Let's focus on reforming that, please.
Thanks, Ian, for your interest.
I just read a number of posts supporting claims, and Patricks arguments, supported by links and data. Immediately followed by a post calling Patrick a liar, and O'Brien drama and fluff, with not one link of data point to support. Dont know why I am surprised. Einstien called insanity doing the same thing and expecting a different result. Kill the messanger, ignore the message.
Anyway, Ian hopefully you are sincere, and will do the investigative journalism you have become known for. If so, I have every confidence that you will find what I have, and its not pretty. I look forward to your findings.
Ian,
It was late here in California when I made my last post, so I was only marginally helpful. The link to the data is here: http://www.sifma.org/research/statistics/other/NYSEtotal.xls SIFMA is the Securities Industry and Financial Markets Association. They represent 650 mainly broker dealers out of thousands. So the data on "fails to receive" of $140 Billion is only a fraction (how big or small of a fraction I do not know), that shows up on their aggregate balance sheet for Q1 2008, is far larger when non NYSE and non SIFMA members are taken into account.
Mark to Market
Further the $140 billion figure is a "mark to market" value owed to customers, not what customers paid the broker-dealers for those undelivered securities. If the broker-dealers were forced to go out and obtain those securities, which are owed customers, then the price to buy or obtain them would be far higher than the current mark to market value carried on the books. This is simple logic and supply/demand equilibrium at work. add the non SIFMA members, the non NYSE broker-dealers and who knows the number of securities and the value of all "fails" that are owed to customers.
Real Liability
If the real mark to market value today is say, 300 Billion, counting all broker-dealer in the market - then the real liability and costs deliver the securities owed customers could easily top $1 trillion. There is not enough money or equity with the broker dealers to do this. They are already playing a game of brinkmanship with the entire economy. Witness the bail out of Bear Stearns. Cox said himself that investment banks - prime broker-dealers- maintain only a fractional of investor assets, allowing a "run on the bank" scenario.
But broker-dealers are not banks in the sense that they are allowed to hold securities in a way banks hold money in a fractional reserve system. They are prohibited from doling out customer assets and not holding and maintaining them in a safe manner. After the 1929 crash there were laws and rules passed. These are SEC rules 15c3-1, 15c3-2 and 15c3-3.
Further, to see the level of inept enforcement, the SEC admitted to me, via a Freedom of Information Act request and answer, that they do not keep track nor have any data on "fail to receive" - not who, not how many, not the value, the trends, nothing. This is possibly a trillion dollar liability and the SEC doesn't want to know anything about it.
The Nutek Case
There was a case, filed in Nevada state court in October 2003, CASE NO.: CV-S-03-0321-JCM-RJJ. that shows what is going on. The share holders tried to get physical certificates and not all could, because there were not enough real shares to go around. Broker-dealers had credited more shares to customers via electronic entry than they actually had obtained for their customers. Remember the "Failure to Receive" obligations I just talked about? The reasons on why the broker are net short the securities relative to their own customers can also be manyfold. They may have attempted to by the shares and not received them from the clearing firm but instead get a "fails to receive" security. Or, they may have never even attempted to do that and just went short against their own customer, carrying the short position in their proprietary account and holding the fails to receive for the client, because there never was delivery.
Anyway, the story goes that the brokers could not deliver Nutek physical certificates in enough numbers. This is a statement of fact and the reason for the lawsuit. So after a while. the broker agree to set themselves a deadline to deliver the remaining certificates and the court signs off on that. Deadline comes and goes and no certificates. So this drags on and the broker-dealers make all the legal moves they can.
The story ends in that the broker-dealers won, simply because the investors who sued could not keep paying the legal fees to keep the case alive, so it was dropped. An already harmed group of investors were demoralized and not willing to keep spending money, or perhaps they were broke by then.
Silver
The broker dealers in NY do not just do this with equity securities, no. They do this with anything of value. Bonds, Treasuries, and even commodities. Read this if you dare:
http://investorprotectioncoalition.org/files/Silver_Fraud.pdf
The real status of the NY firms is that they are already insolvent. If they had to deliver all the assets belonging to their customers, equities, bonds and commodities, they would be broke long before it could be accomplished. These are not a banks in the monetary system that are permitted to fraction customer assets this way and play Russian Roulette. They have decided on their own to do this anyway, slowly over the years, to siphon off customer assets. for their own use and placing a spot holder or IOU note in place of the assets, if they do even that in some cases.
The official balance sheets do not show this, because of marking and reporting accounting treatments masking the real liabilities.
The victims of these broker-dealers have every right to defend themselves. We are not the crazies. Patrick has a double and triple load of responsibilities in that he also has to protect his investors and his employees. Sadly, I have talked to several CEOs and BODs, trying to get them involved and they seem stunned into inaction. It goes against everything they have learned and been told their entire lives and just can't act against that sentiment, despite the facts and explanation laid out before them. Human nature is like that. Patrick sets himself apart from the rest in my eyes, because he has been one the only respectable CEO willing to put all his reputation out on line like he has. Everyone else has ducked at some point.
Tom Vallarino
http://investorprotectioncoalition.org/
Mr. Antar,
Thank you for proving my point.
SALT LAKE CITY, June 6 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) announced today it has been informed by the Regional Director of the Salt Lake District Office of the Securities & Exchange Commission that the office has completed the investigation of the company and its officers and does not intend to recommend any enforcement action by the Commission against the company or its officers. Overstock.com voluntarily disclosed the SEC's inquiry in May 2006 and cooperated fully with the SEC.
Mr.Lamont I would like to thank you for taking the time to report on this issue thereby giving all people the right to make their own decision after reviewing the info and replies provided. For a minute I would like to put NSS and Overstock out of the picture and just examine the character of the man involved, Patrick Byrne. I am not going to go to great lenghths to discuss his motivations and his love and genuine concern for all others who share this world. He is a simple man who believes in principles and honest morality. I think the more you communicate with Patrick Byrne you will see my point. A lot of good things come out of people with that makeup and courage and I believe in the long run people like this always win. After years of denying that these fraudulent practises even exist, our regulators are scurrying to find out how to fix the problem before we see a systemic collapse. I never thought Iwould here the media or our regulators admit and use the word "SYSTEMIC". The same word Patrick was chided for using for over three years. The public has also seen what "SYSTEMIC" can mean a la Enron and Bear Stearns. We should all be working together to fix the system rather than try to game it or we all will see "SYSTEMIC"
Thank You Max
I refer to the long post above by the infamous bob o brien. The $8B number he quotes is a rolling aggregate, the sum of past unsettled fails minus fails that have settled plus that day's fails. It is NOT a daily sum, and there is no excuse for him to manipulate the data point so eggregiously. He always forgets to point out that fails occur for all sorts of reasons, and are not just the product of intentional naked shorting. O Brien represents the ugly side of the anti-NSS movement and he is joined there by penny stock touts and frauds like Altomare, Brent Pierce, Grant Atkins and many other shadowy promoters who use the spectre of massive naked shorting to conceal corporate ineptitude and/or outright fraud. I challange Byrne and his allies to prove that more shareholder damage has been done by intentional naked shorting than by corporate promoters and pillagers who use naked shorting as a diversonary smokescreen and/or a boogeyman scapegoat.
No doubt intentional naked shorting existed and exists. I am all for strict enforcement of settlements. Reg Sho has brought much needed order and transparency to short selling dynamics. But more disclosure is warranted --- one suggestion would be to make short positions discloseable on 13FHRs and to require disclosure filings if a short position exceeds 5% --- and the SEC should be truly penalizing those entities that habitually fail to deliver. I am also in favor of doing away with the option market maker exemption --- heck if Susquehanna, one of the largest option houses, says they dont need it, i believe it is not necessary for maintaining an orderly and liquid options market.
But I will not follow Byrne and his crusaders into the land of the delusionary, where numbers and collusive machinations are invented out of thin air because their claims as to the magnitude and impact of naked shorting are so unfounded, logically threadbare and exaggerated they would collapse without them. I refer to the fabulist hokum of ex-clearing which is imagined to be a nebulous black hole constructed by BDs and clearing houses to magically dissappear from the records difficult to settle trade failures. I refer to Byrne's recent announcement that over 30% of market activity is short-selling. Beyond being obviously improbable to any market participant, a recent report by S3 stated that prior to the restriction on the Cox 19, short selling constituted only 1% of the activity in those stocks.
No doubt there are some truly delusional loonies behind these constant exaggerations. But there are some reasonable folk as well, and I have been wondering what drives them to the extremes. Many of them, Byrne included, used to offer outrageous estimations of how many FTDs were outstanding in ostensibly manipulated stocks. Some stocks were assumed to have 100 million failed shares, multiples of their outstanding. Regarding OSTK, Byrne made references to claims of untold tens of millions of fails. A cottage industry founded on the idea of the mother of all short squeezes in these stocks started. Pure promotional garbage proven false by Reg Sho data, FOIA request data, the non-impact of the repeal of the grandfather clause etc. Now they cling to this made-up notion of a ex-clearing blackhole to provide the backbone for what I fear is still mainly a stock promotion scheme.
Actually, CALM's up and has been a great short squeeze ever since the firm decided to penalize short sellers with a hefty dividend.
Cal-Maine was as of last week, the most heavily shorted issuer on the NasDaq relative to float. The firm is profitable and pays a very nice variable dividend. The CEO, Fred Adams, is too busy making money to appear on CNBC, Fox Business News, or reply to blogs which discuss him or his firm.
He did write one comment letter to the SEC this year on Reg SHO.
Cal-Maine posted an all time new new high again today.
Ian,
Thank you very much for writing the story about Patrick and Deep Capture. In times like these the media is scared to write about things like this for many reasons. In fact, I have found that letters to the editor wont even get published. Yes financial crimes are scary for readers to learn about but the working people of this country deserve to hear what is going on. Patrick deals in facts but the media still doesn't want the story out there.
FAILED TRADES--- Selling someone something and taking their money but no delivering the goods is against the law. It is very simple for everyone to understand so you would think that media outlets would just tell the story. Not the case here. They just sit on their hands as more and more money is sucked out of the system.
THE SEC---- isn't it ironic that the SEC has recently put in the emergency order for 19 companies to make it illegal ( again) to naked short the shares? I am happy that it is a start but why not all of the companies and why does anyone oppose it?
THE WORKING CLASS (SHEEP)----- I fall into this class. I come from a family of factory workers. We are people that just put money into 401k plans and are led to believe that Wall Street will take care of us. We are taught that if we just keep putting money away that things will be fine when we retire. The problem with this is that when the system gets drained what will the workers have?
RULES OF THE STOCK MARKET------ The rules that are being used to allow the rich and powerful hedge funds to take our money and deliver "IOU's" is wrong and the only people that I have found that support it are the ones who recieve some kind of benifit from it. Really, who could justify the super rich taking the money from the sheep using special rules?
Dr. Patrick Byrne------- This man is nothing short of an American Hero. he is very wealthy and could be living the easy life and not worrying about the sheep. Instead he has put his neck out to help people and is trying to help the American financial system from breaking. He has had his reputation smeared and has been insulted for years but he keeps on helping. If you own any stock you should should thank this man for all that he has done and continues to do.
Brian Villwok
Sam Antar,
Thank you for once again showing how your biased and stalking efforts align. You prove teh point on why DeepCapture must not only live but prosper in order to get the real message out. There are too many people like you out there.
The fact that you go to every message board you can making these false accusations of Securities Violations against Overstock.com, without fully disclosing that you lobbied the SEC hard to get these violations to stick and failed, is in itself an integrity issue. Such an integrity lapse from a convicted felon who never made any restitution to those he screwed adds more suspicion to your activities.
Maybe instead of attacking the innocent for personal and private motivations you would be better served dedicating your time identifying ways to aid those you personally cheated. After all, if you can afford to pay another convicted felon in Barry Minkow $300,000 to harass Usana (another company the SEC investigated and found no wrong do