Wednesday, November 16, 2005

New First Amendment Clause - The Right To Libel For Profit?

In a frankly perplexing turn of events today, the ever-industrious Carol Remond wrote an article about Gradient and Rocker Partners' response to the OSTK lawsuit (which accuses them of unfair business practices, doctoring supposedly unbiased research reports to make them as negative as possible, front-running those research reports, and other related and presumably illegal activities).

Rocker Partners got a lot of press a few months ago when they issued forth a press release indicating that their virtue had been assaulted, and that they intended to counter sue everyone and anyone that had ever said anything nasty about them - your's truly included. I have written about this, and changed my online moniker to The Easter Bunny in tribute to this important turn of events.

So it came as a surprise when today, Rocker Partners and Gradient filed their expected motion to dismiss (obligatory, really), and I got a chance to see, filtered through Ms. Remond's expert gaze, how they chose to respond.

There was no demand to overturn the suit on the basis of the charges being baseless. No affirmative defense indicating that they "din't do it." Instead, they don't deny any of it, but rather take the, IMO, arrogant position that their right to spread false and misleading information (if the charges are true) and profit by it is actually what the American Revolution was all about - that their God-given right to collude with disparate parties in order to make money (at the expense of long shareholders) is actually protected under the Constitution's First Amendment - our cherished Freedom Of Speech.

Why is this so surprising? Well, for starters Rocker sued a message board poster for making snide comments about him on Yahoo (the case was laughed out of court) - apparently his appreciation of Constitutional law has experienced an unexpected Renaissance now that he is under the microscope - and further has indicated that he intends to "counter sue" me for essentially the same thing. And yet, tut tut, apparently we are not cloaked in the protective mantle of God, Country and Grandma's Apple Pie that the First Amendment offers up. No, if we had been making untold millions by scheming to engineer price drops in stocks we were short, colluding with disparate entities in a manner eerily akin to what some have called racketeering (I take no position on these allegations, giving all parties the benefit of the doubt, and taking a neutral stance on the charges' merits until a court of law and jury has weighed in), then ostensibly we would have been celebrating our Freedom of Speech. But if we are critical of these folks' shenanigans in the financial markets, then we are fair game for the gunslinging attorneys from NJ and whatever muscle they can muster.

Huh.

Who knew that is what the Constitution meant - Separation of Church and State, Right to Assembly, Freedom to Worship, and, oh, Freedom to Frontrun Research Reports Written and Edited to Destroy Stock Prices..

Let's just say that I expected something a bit meatier. Something that roundly declared that the defendants didn't do the things that the OSTK suit said they did - not that pretty much admits that they did, but then seeks to excuse it with a free speech defense.

Where are the Seths of the world now, who were saying that there was no merit to any of this as it was all a fabrication of Byrne's fevered imagination? Wasn't Barrons banging the "it's all in wacky Patrick's head" drum recently? Along with the WSJ? Guess what? Apparently it isn't - but if Gradient and Rocker are to be believed, it is now merely their artful celebration of the American way.

Apparently the defendants aren't disputing that they did what the suit claims they did. I can't find any evidence of that. No, they are taking the position that it is OK to do it, on account of our forefathers and such.

Best of luck with that in front of a jury of postal workers and auto mechanics and retirees and veterans. I'm sure they will be excited to hear that they fought in wars to protect Wall Street's right to denigrate stocks they are short. Hell, I'm feeling patriotic just thinking about it.

I may have to fly in just to hear the opening arguments. I'll bring a little flag. Maybe sing the national anthem..."By The Hedge Fund's Mad Glare...Ashtrays Whizzing Through Air..."

Perhaps little ribbons or plastic bracelets can help support the Wall Street "Freedom Fighters" protect our rights in their own special way. I have to stop now - I'm choking up...

Am I the only one scratching my head when I read Carol's piece, thinking "that's the best they could come up with?"

Wow.

Really.

Wow.

24 Comments:

Blogger Craig is working on his first million said...

I guess I was wrong, as far as Gradient saying the lawsuit was baseless. They said it was protected speech, instead. I do believe Rocker's camp said the lawsuit was "frivilous" and "reckless".

Either way, a MTD because crooked analyst reports are now supposedly "protected speech" is laughable.

Ol' Jack Grubman didn't even try to go with that one.

7:47 AM  
Blogger Tommy said...

Rocker reminds me of a broker I once worked under that I had to sue for commissions he didn;t want to pay.

Hi personality, voice and mannerisms are very similar, including his rapid fire argumnets, trying to ask leading questions - verbally trying to put you on the defensice on the smalles thing.

It's an ego or phsycological need to be right and triumph on every little thing.

Rocker also reminds me of the stupid legal argumnet my broker brought into court, wasted everyone's time and had his defense thrown out.

Even I new he had no ground. I can only imagine that Rocker, like my broker, both probably dicated defense strategies to their attorneys and with their need for yes men all around and validatin all the time, have not cultivated the best legal team that will be brutally honest.

Rather the legal team is one of pleasing the cleint, so lang as he pays the bill.

Money speaks to people like that and they also buy their way around, like buying journalist hit pieces and analyst reports.

By the time someone has lived a life like this for some time and has surrounded themselves with these types of people, real honest advice gets drowned out.

Rockers legal team and legal strategy are going to send him down the gutter.

I won my case, I'm sure OSTK will win theirs.

11:43 AM  
Blogger Its_strange said...

I gotta agree with one thing. The Gradient / Rocker responce was pathetic. I mean those affadavits weren't even filed with the Ca court and all they came up with was some Ca groovy stuff from the 60's

12:19 PM  
Blogger Jer. 9:24 said...

ok I looked in today's WSJ, and read yesterday's pretty thoroughly. Did a reasonable search of the 'net. Where is this OSTK/Rocker article written by hedge fund shill Carol Remond? Can or will anyone direct me where to find it?

3:07 PM  
Anonymous Anonymous said...

Wow. What a complete lack of understanding of the California anti-SLAPP procedure. The whole point of filing such an opposition is precisely so you do *not* have to waste time with a defense. It shifts the burden to the plaintiff to show the suit has merit as opposed to being used as a hammer to shut someone up (hence the First Amendment reference). If OSTK can show that, good for them; Rocker will then have to file an actual defense. Otherwise, OSTK will have to fork over legal fees to Rocker. So chill out dude.

4:57 PM  
Blogger bob obrien said...

Anonymous:

Anyone can claim that anything is a violation of their consitutional right to _____________. It is a classic stalling ploy. Do you, or anyone else, really believe that the allegations made in the sworn statements/affidavits would fall under the mantle of the First Ammendment?

Please.

6:06 PM  
Anonymous Anonymous said...

Classic stalling ploy? Here in America, people are presumed innocent, not guilty. You appear to be presuming guilt. You may indeed be right, but if you are not, California law says the defendant has a right to short-circuit the process to avoid hefty legal fees in a system where a plaintiff that loses at trial has no obligation to reimburse the defendant. I hope you agree this is a good thing. Patience.

7:04 PM  
Blogger bob obrien said...

Anonymous:

Perhaps you are right.

After watching dozens of stocks being manipulated with impunity by a relatively small subsection of Wall Street, I tend to view the information presented as compelling, and take the position that it is a stalling tactic. Perhaps all of these bad vindictive people got together to disparage the poor innocents who are unfairly being victimized by these foundationless charges. Maybe.

We all have opinions.

Mine is that this stinks.

10:09 PM  
Blogger Its_strange said...

In my view the short case is made by OSTK and its income statement and balance sheet. The libel comes from Patrick and Bob . They handed Gradient and Rocker this suit on a sliver plater with their comments and behavior . Rocker said he was going to sue the whole bunch and that might still happen , i don't know but the street was looking for it and it didn't happen. They look weak

1:01 AM  
Blogger mfairview said...

Just because Rocker hasn't been as verbal doesn't mean he hasn't been involved. If discovery proves the ties that are alleged, then we will know for sure. It sure seems that Gradient/Rocker are fighting hard to keep discovery from happening. One can't help but wonder why.

Anonymous, if you haven't read the affidavits then you should really have a look. Patrick claims of yet another "unimpeachable" one that has yet to be revealed. The importance of his public approach is that others will probably come forward (I'm sure several have) as a result and that he has a mess of damning evidence that are not known to us. I'm sure they'll be ready when/if the courts ask for more proof.

1:23 AM  
Anonymous Anonymous said...

The issue here is not that Rocker/Gradient are fighting discovery, the entire Industry is.

The DTCC doesn't want to open it's books on teh fails or the stock loan system. Broker-Dealers and Clearing Firms don't want to show their settlement status to client accounts. Each has claimed this to be "proprietary" information and yet this data is the actual ownership of the ultimate investor who is suing to obtain it.

The industry is corrupt and the regulators are mere play toys for our amusement or disappointment. They see what we all see yet fail to move forward out of cowardice and negligence.

3:46 AM  
Blogger bob obrien said...

Its_strange:

You are not stupid. So why do you freely confuse legal shorting, as in "the shorts' case" - and illegal naked shorting, which is really stock manipulation using counterfeit shares? Patrick and I have no problem with legal shorting - you think the stock sucks, knock yourself out, short away.

My problem, and Patrick's per his statements and the suit, is with illegal stock manipulation. The suit alleges what can only be termed collusion to manipulate using doctored research reports and frontrunning. Would you agree that that is not legal short selling? NCANS is devoted to exposing the creation of sale transactions and subsequent failure to deliver shares, used as a trading strategy to depress the price of targeted stocks, in violation of Rule 17A, 15(c)3 and Reg SHO. Combined with the charges in the lawsuit, that would add up to violations of 10(b)5, IMO.

Can you appreciate the distinction between legal short selling and believing that the company is a pile of poop, and violating a host of laws in a stock manipulation? If not, we have nothing to discuss.

I am always shocked how the short side freely intersects the two, and makes no distinction. It is in my mind telling as to the ethics of those involved, but that's just me.

8:33 AM  
Blogger Its_strange said...

I read the OSTK suit . It says nothing about naked shorting. You and Patrick have outside of the suit and court room . I think Rocker is right. You and Patrick are running a smear campaign. And, I don't see any evidence of the charges in the suit.

9:13 AM  
Blogger mfairview said...

So the affidavits are all made up now? If you're waiting on video and audio of Rocker doing the deeds we may have to agree to disagree. Since no one has anything to hide, how about we jump right into discovery.

9:38 AM  
Blogger Its_strange said...

i had hoped they would go right to discovery and do it right on CNBC !

9:49 AM  
Blogger gvtucker said...

There was no demand to overturn the suit on the basis of the charges being baseless. No affirmative defense indicating that they "din't do it." Instead, they don't deny any of it, but rather take the, IMO, arrogant position that their right to spread false and misleading information (if the charges are true) and profit by it is actually what the American Revolution was all about - that their God-given right to collude with disparate parties in order to make money (at the expense of long shareholders) is actually protected under the Constitution's First Amendment - our cherished Freedom Of Speech.

Rocker refutes that statement completely in a press release today.

Here's the link:

http://biz.yahoo.com/prnews/051118/nyf075.html?.v=31

Most notably:

""Apparently, Patrick Byrne has trouble reading," Mr. Rooney commented. "In his November 17th press release, Dr. Byrne claimed that Rocker Partners' recently filed motion under the California anti-SLAPP statute 'do[es] not deny the substance of our lawsuit.' Had Dr. Byrne read the extensive, sworn declaration submitted by David Rocker, he would see that Rocker Partners has done precisely that." Mr. Rocker's 21-page declaration attaches 25 exhibits, and documents how Gradient independently began covering Overstock with low ratings in July 2003, a full year before Rocker Partners became a Gradient client. Gradient had already assigned its lowest possible ratings to Overstock well before Rocker Partners began to establish its short position. Mr. Rocker's declaration further makes clear that Rocker Partners never asked Gradient to time its reports, that Rocker Partners paid Gradient nothing more than its standard subscription fee, and that while Rocker Partners and Gradient exchanged opinions and views on Overstock, such exchanges were no different than exchanges Rocker had with other portfolio managers and analysts researching Overstock."

10:35 AM  
Blogger Its_strange said...

I believe its more than clear Patrick is a common liar. Rocker and Gradient should be in the Ca court house right now demanding a restraining order.

Who is this press release for anyways? It didn't show up on Yahoo

11:22 AM  
Blogger gvtucker said...

The press release is from Lowenstein Sandler PC, the law firm that is defending Rocker Partners.

12:00 PM  
Blogger mfairview said...

http://www.sltrib.com/business/ci_3231158

SEC investigates Gradient report in Overstock suit
By Bob Mims
The Salt Lake Tribune

Federal securities officials are investigating Gradient Analytics Inc. over allegations it conspired with a well-known Wall Street hedge fund to drive down the share prices of online retailer Overstock.com.
Documents obtained by The Salt Lake Tribune Thursday show inquiries have been under way since at least Oct. 6, when three former employees of the financial research firm were questioned by San Francisco SEC officers.
In letters dated Oct. 11, Mark Fickes, an attorney with the SEC's Division of Enforcement, acknowledges the cooperation of ex-Gradient employees Daryl Smith, Demetrios Anifantis and Robert Ballash and provides a case number for the probe. Included is a document advising them of their rights as witnesses in possible enforcement proceedings.
Messages left for Fickes were referred to Marc Fagel, head of enforcement for the SEC in San Francisco. Fagel said policy prohibited him from discussing or confirming any pending investigations.
Smith, Anifantis and Ballash earlier discussed in affidavits their former employer's relationship with Rocker Partners, a New Jersey-based hedge fund. Those documents were included in Overstock's August lawsuit charging Gradient and Rocker with unfair business practices and corporate libel.
Both Gradient and Rocker have denied all allegations. On Tuesday, Gradient counterpunched, seeking dismissal of Overstock's suit on grounds the Utah company was seeking to suppress its critical reviews.
In a statement Thursday, Gradient insisted it has "no direct knowledge of any SEC inquiry that may be under way. . . . "Should the SEC choose to contact the company, Gradient looks forward to . . . getting to the bottom of the false accusations that have been circulated by Overstock.com."
Brent Baker, a Salt Lake City attorney representing Smith, Anifantis and Ballash, said it was standard procedure that the target not immediately know it is being investigated. "They always work from the outside in," he said.
"I worked for the SEC for almost 14 years," Baker added. "There is, absolutely, an investigation by the SEC in the matter of Gradient Analytics."
In his affidavit, Anifantis swore he heard telephone conversations in which Rocker executives asked Gradient to emphasize negatives and downplay positives when writing about Overstock.com. Ballash and Smith similarly

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swore to instances where other Gradient clients were purportedly able to sway stock research.
Reached at his home in Scottsdale, Ariz., Ballash said SEC questioners seemed particularly interested in details during his hourlong recorded interview under oath, including identities of alleged participants in key conversations and decisions involving Gradient reports.
"They asked background questions about various relationships [at Gradient], who was there at meetings, how all that kind of worked," Ballash said. "It seemed like they were fact finding; they already had a good feeling for the case in general."
Added Smith, questioned for nearly 90 minutes: "They sure sounded like they would pursue it further."
Ballash, Smith and Anifantis -- the latter could not be reached Thursday -- contend they were fired after questioning Gradient's relationship with Rocker. According to published reports, Gradient claims that the trio was fired for reasons that range from violating policy on taking documents off-site to poor performance.
In its complaint, filed with the Superior Court of California for Marin County, Overstock contends that Rocker specializes in short selling -- an investment strategy where stock is borrowed and sold, with sellers betting they can buy back the stock and bank the difference when share prices fall.
Beginning in June 2003, Gradient purportedly published -- at Rocker's behest, Overstock contends -- nearly 60 negative reviews of the Utah company. During that period, short selling of Overstock shares accelerated. Eventually share prices tumbled from a high of $77.18 in January 2005.
Overstock contends its stock never fully recovered. Even with an 11 percent boost Thursday, the company's shares closed at $37.09.
bmims@sltrib.com

12:04 PM  
Blogger Its_strange said...

Dow Jones reports the affidavits were NOT filed with the court. The Salt Lake papers says they were . What is the truth ?

I understand the press release came from the Rocker lawyer but who was if for ? It is not on yahoo or any other place that i know of

12:11 PM  
Blogger Its_strange said...

So the SEC is looking at Gradient. Anyone else ? Rocker ? Mary ? Phil ? OSTK ? And now that the SEC is looking does that mean it will 2 years before we learn the facts ?

yel

12:15 PM  
Blogger bob obrien said...

Its_Strange:

Let's try this again. Legal short selling has nothing to do with the charges made in the suit.

Got it?

Additionally, there is something called naked short selling, which is the topic of many of my blogs. Legal short selling has nothing to do with that, either. Got it?

I'm not saying that Rocker is illegally naked short selling. Neither is Patrick.

Got it?

Patrick is alleging that Gradient and Rocker engaged in a scheme to run his stock down using hedge fund edited and front-run research pieces. That is not legal shorting, and it is not illegal naked short selling, although it may well turn out that there is plenty of that going on.

Got it?

I note that you are dismissing the affidavits as not being evidence. That is interesting. And yet you take Rocker's unworn statement as being factual. Equally interesting.

Are you contending that the charges in the suit are not true? If so, how do you know that for sure? Seems like you are rather selective in your beliefs.

As to evidence that
OSTK is naked shorted, try the Reg SHO list for starters, and then progress to the ample evidence afforded by a complete inability to get delivery of shares for months. Read the definition of naked short selling - it is failing to deliver, by definition.

Got it?

3:43 PM  
Blogger Its_strange said...

You and Patrick have been suggesting Rocker is behind the naked shorting for many months now. You suggested it on that orchestrated conference call where Patrick acted as if he meet you for the first time when that is not the case. ...

Got it ?

It appears Rocker answered the OSTK charges and offer some 20 documents in support but i haven't read them . Could you get your NCANS partner Patrick to post the Rocker reply ? He has a copy. He also claims to be the most transparent CEO in America .

Got it ?

I have been a Herb Greenberg reader for many years now. I learned of Rocker from his coverage of LHSP . He has a great record of uncovering scams . You see Bob Mr. Rocker goes by Mr. Rocker and has been around for many years. I have never heard anyone claim he is a naked shorting , front running , research fixing scam artists and he has gotten into it with many of the most powerful. Irwin Jacobs comes to mind. When one takes a look at OSTK's income statement and balance sheet anyone but a short squeezer can see there is absolutely no reason for Rocker or Gradient to anything other than look for the facts

Got it ?

And i say go to trail RIGHT NOW. I say air it live on CNBC . Right now. I say lets get to the facts, right now. I'm dying to read the book. Will Simon be playing Simon going into Rockers office ?

Got it ?

2:36 AM  
Blogger bob obrien said...

It's Strange:

So you haven't read the Rocker "evidence", and yet you are convinced that the legal team which Byrne assembled has allowed him to mount a case, on contingency, with no basis.

I seeee.

You put words in our mouths, and then claim that they accurately represent our sentiment, by virtue of the declarative, I presume. Here's a tip: I use language carefully, and am very capable of saying precisely what I mean. I don't require you to create statements and attribute them to me, nor create straw men and argue them.

There are 3 sworn affidavits which claim that Rocker frontran research reports which he co-authored or edited or had material input on, and that he did so knowing full well that it was inappropriate - that is what I got from the case so far. There is a 4th affidavit which purports to confirm the statements in the first 3.

I have no way of knowing whether those charges are valid, but I certainly don't take the alleged perpetrator's saying "I didn't do it" to be evidence of anything. At all. Every perp claims the same thing. They all do. The prisons are filled with innocent men. Nobody ever did anything bad. It is always the man coming down on the poor innocents.

Here's a suggestion: Since you have no way of knowing whether Rocker is guilty as sin or innocent as the day is long, and since I don't either, how about stowing your outrage at the door and discussing just the facts?

Fact: There are 4 affidavits accusing Gradient and Rocker of doing un-ethical and probably illegal things.

Fact: Every swindler from Keating to Ebbers to Milken declares themselves to be free of all guilt, and victims of persecution. Rocker doing so has no weight, one way or the other.

Fact: The media has been amazingly one sided in covering this, and every reporter believed to be in the hedge funds' pockets have predictably written slam pieces on me or Byrne or both.

Fact: You don't know what the real story is, nor do you know what it is that the attorneys who have to win this to see a dime know, or don't. You are guessing, and your predisposition is to believe that Rocker is an angel. That colors your judgment.

Fact: Nothing you nor I say or do will have the slightest impact on Rocker's innocence or guilt. All will come out in court. I can wait, and would hate to see this tried in the press by a bent media. So let's just can the "You've been saying rocker is a rat bastard for months" rhetoric and invective, and stick to the facts, OK?

Oh, and did you see that the SEC is investigating them now? Their innocence of wrongdoing will no doubt cloak them in a protective shield, and they will emerge from this better and stronger for it.

Right?

5:46 PM  

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