Bethany, Bethany, I've nurtured a viper at my breast...
For those who haven't been following this, there are two types of basic articles which appear in the financial press about OSTK and Dr. Byrne - Type "A", and Type "B".
Type "A" articles are balanced, fair pieces which examine the evidence in the OSTK lawsuit -sworn statements alleging illegal misconduct by a research firm and hedge fund - and consider the charges leveled in the suit with serious consideration. They also acknowledge that there is growing reason for concern about the practice of naked short selling, and attempt to explain to the layman the risks of this illegal predation. Motley Fool is one example of this sort of article.
Type "B" pieces generally emanate from New York, and are biased, omit critical facts, and take the tack that Dr. Byrne is crazy, or a crook, that naked short selling is a belief akin to alien abduction, and that those concerned about it are as crazy as sh*thouse rats. They are the tired product of a small circle of journalists who are always particularly sympathetic to the hedge fund spin, and seem blissfully ignorant of both the longer term, as well as short term history of Wall Street. They ignore the weekly implosion of larcenous hedge funds, the mountain of facts regarding naked short selling, the sworn testimony of 4 former employees of the research firm in question, scholarly tomes and reports by name economists and authorities, and instead repeat their agenda with credulous and vindictive sincerity, and a certain perseverance usually only seen in vocational spin doctoring.
In this little nugget, Bethany uses words like "rant" with facile abandon, coloring her rhetoric with negative innuendo whilst ignoring a mountain of easily obtainable and now well circulated information which demonstrates many of her points to be erroneous or ignorant. She also launches into what seems suspiciously like a personal attack, castigating Byrne for being thin-skinned, and further drags my pseudonym through the cyber-mud with everything from second-hand speculations as to my identity, to backhanded twisting of my statements.
Not exactly journalism's finest hour, but then again, a classic Type "B" job. Soft on facts and figures, long on smarmy innuendo and personal jabs, written from the perspective that Byrne's lawsuit is based on fantasy, and that it is an attack upon honest critics rather than a meritorious accusation based upon a host of sworn testimony, and other as-yet-to-be-released evidence.
Admittedly, Fortune has all of the gravitas of cotton candy, and thus has received the attention one would imagine it would deserve for this piece. Pity, as I could use the press in something anyone serious actually reads - Fortune quoting from the NY Post isn't precisely the New York Times, now is it? Oh well, always a bridesmaid...
I won't bore the readers with the whole saga as portrayed by Bethany, however I will say that for an upright biped, she certainly has managed to miss the biggest pieces of evidence available in the naked short selling controversy.
Now, I know how hard it can be to work on a deadline. Things can slip through the cracks.
Starting with the title of her piece: "Overstock.com CEO Patrick Byrne is waging an extraordinary campaign against short-sellers."
Actually not, darlin'.
He is suing a hedge fund and a research firm for allegedly colluding to tarnish his business reputation. And he is waging a battle against illegal naked short selling. He isn't waging any campaign against short sellers. Just against those he alleges are illegally involved in a scheme to harm his company's rep, and against those who are illegally failing to deliver shares they sold.
Details, details. Who's got the time? There's no article if you print all the facts, or even most of them. Instead, just assert convincingly that something false is true, and maybe through repetition it will become ingrained in the public psyche.
But only the segment of the public that are dullards, which apparently Bethany believes comprise her readership.
There are other gems contained in this important work, carved from the fabric of creative writing and offered up like pearls before swine. Take this Jeff Matthews-ism ( a homage to that august person's CNBC and blog performances in which he denies everything, claims sincere ignorance of mainstays of the public markets, and simply recites repetitively that the naked short selling critics are wackos, Byne is unbalanced and incoherent/a crook, and conveniently omits or so distorts the truth that his appearances have assumed a sort of amusement value, to be savored like fine wine or a rare Cubano cigar):
"Everything about Bob O'Brien's performance was odd. First, you don't often hear outsiders spouting off about conspiracy theories on company conference calls. Second, Byrne and O'Brien seemed not to know each other, but Byrne himself would later say that "O'Brien contacted me in October" and began laying out his thesis. (Byrne explained in a Motley Fool post that when O'Brien said his name might not be familiar, Patrick "assumed" he meant that his name might not be familiar "to your audience.") And third, Bob O'Brien's name is not actually Bob O'Brien."
Yes Bethany, very odd. How shockingly odd. Throw in a smirk, a nervous tick and a stuttered "that's incoherent" or "it's unbelievable" and you can go on CNBC. Bravo for Fortune getting all of this into their busy schedule 9 months after every other pub covered it. Kudos. Hey, I hear Greenspan may start raising interest rates soon, too. A breaking news tidbit, just entre-nous....
How about this:
"A critical part of the conspiracy O'Brien outlined is something called "naked shorting," which involves a truly black-box part of the market. Ordinarily, when someone wants to short a stock, he is required by law to borrow actual securities first. In naked shorting a short-seller registers a trade without actually borrowing the shares. In theory this means that there is no limit on the pressure a short-seller could apply to a stock. The practice is illegal in most cases. Bob O'Brien—and many others in his camp—claim that naked short-selling is rampant, and that it destroys both small companies and small investors. "Welcome, welcome to the greatest transfer of wealth from legitimate shareholders to the system set up for stock trading that's ever occurred," he writes in his blog.
Accusations of rampant naked shorting have been around for some time, although in the past three years they have gotten more exposure thanks to the Internet. O'Brien helped create a site called the National Coalition Against Naked Shorting, or NCANS (www.ncans.net), whose executive director is a woman named Mary Helburn. Senator Bob Bennett of Utah, at a March 9, 2005, hearing of the Senate Banking Committee, told the panel that his constituents "feel victimized" by naked short-selling. Attorney John O'Quinn, who made his name winning billions for the state of Texas from the tobacco companies, claims that naked shorting has bankrupted many companies. His firm has filed more than two dozen lawsuits against Wall Street firms in seven states. "
If you see something published called the Reg SHO list, which confirms and commemorates the existence of massive naked short selling, it's not a claim. Neither is it a claim when the Pipe's Report publishes a FOIA request with an average of 150 million FTD's a day. Those aren't claims. They are documented facts. It isn't like I am claiming that Jim Morrison hangs out on my porch smoking reefer with Elvis. The problem, documented, is that Wall Street trades markers good for delivery of shares - NOT actual shares. Oftentimes they aren't delivered, but the transactions are already cleared and all the commissions have been paid, so the non-delivery doesn't really impact most of the players - what do they care? They already got the money for the trade - the delivery is an afterthought.
The problem with de-coupling clearing and settling is that Wall Street pays itself upon clearing the trade (taking the order and executing it) rather than upon settlement (delivery of the shares). This means that the financial motivation is to do more trades, rather than ensure delivery.
Now, that isn't so hard to wrap one's noggin' around, is it? Ya pay the salesman when he takes the order rather than when he delivers the product, and he's going to be financially motivated to take many more orders, and leave the deliveries to fall where they may - hell, if the SEC isn't going to enforce their own rules, why should Wall Street miss out on billions of easy money? Delivery is for pansies. There's money to be made, all the markers are treated as genuine until they fail, and by then, it's too late - damage done, price depressed, commissions paid, so solly, no shares available with which to deliver. It happens.
I do so enjoy when he financial press both pretends that easily available info isn't available, and that simple-to-understand concepts like the one I just explained in a few sentences are unfathomable.
Almost as though they had an agenda to pretend that something simple is really complex and thus too hard for anyone to really want to bother with, and secondarily to repeat the NY Post's speculations without actually knowing whether they are correct or not.
Bethany, in her best Jeff Matthews "it's all just too wacky and incomprehensible" manner, delivers the expected goods. Here's the reader's digest version:
Pat Byrne is a loon and a lying crook, and always has been - what a nut. Bob O'Brien is another kook, who thinks that the mothership will be by at any moment to beam them all up. Together they have hatched this krazee theory, and you are an A-hole if you believe any of it.
There. Pretty succinct. And wrong, but who's counting?
Sure there's a Reg SHO list that proves naked shorting is taking place, in volume, as we speak. Tut tut, we won't mention any of that. Sure there's articles citing FOIA requests that show the FTD problem is large - why bore the readers with those niggling facts? Yeah, Compudyne and Sedona and Jag and CMKX and REFCO are proof positive that naked short selling in fact is actively going on. Professor Boni's paper indicates that the average failure lasts 56 days - deliberately. But why clutter your pages with all of that when you can do the 27th "Byrne's loco" and "Who's Bob O'Brien" articles?
If it wasn't so transparent and so immensely predictable and sad, it would be funny.
Instead it is the bloated, tired thrashing of a large system trying to pretend that all is well, and that its critics are crazy or stupid or deceitful.
But the SEC won't tell anyone how big the problem is, or how many fails OSTK has, or any of the rest of it.
The stink is stronger by the day. Wonder when the other shoe drops on REFCO? You know, the known conspirators in the naked short selling scandal involving Rhino Advisors? The one the SEC was sanctioning even as they went public, duping investors out of billions?
Nice work Bethany. Really. We need more hard hitting, unbiased journalism of the sort this classic Type "B" represents. Maybe Kim Jong-Il needs a puff piece about his human rights work penned. You never know.
It's a living, right?
Nice work, Bethany. Well played. Bravo.