Tag Archives: naked short selling

Mark to “Markit” Manipulation

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From Deep Capture:

“Another line of inquiry has not been pursued, however, though it is of equal, and perhaps greater, significance. That line of inquiry concerns the way in which the prices of credit default swaps effect [sic] the perceived value of all forms of debt — corporate bonds, commercial mortgages, home mortgages, and collateralized debt obligations — and as a result, the ability of hedge funds manipulators to use credit default swaps to enhance their bear raids on public companies.

If short sellers can manipulate the price of credit default swaps, they can disrupt those companies whose debt is insured by the credit default swaps whose prices are manipulated.  The game plan runs as follows: find a company that relies on a layer of debt that is both permanent, and which rolls over frequently (most financial firms fit this description). Short sell that company’s stock. Then manipulate the price of the CDS upwards, preferably into a spike, as you spread the news of the skyrocketing CDS price (perhaps with the cooperation of compliant journalists at, say, CNBC).

Because the CDS is, in essence, an insurance policy on the debt of the company, the spiking CDS pricing will cause the company’s lenders to panic and cut off access to credit. As this happens, the company’s stock will nosedive, thereby cutting off access to equity capital. Thus suddenly deprived of credit and equity, the firm collapses, and the hedge fund collects on its short bets.

Moreover, credit default swap prices are the primary inputs for important indices (such as the CMBX and the ABX) measuring the movement of the overall market for commercial and home mortgages.  In the months leading up to the financial crisis of 2008, short sellers pointed to these indices in order to argue  that investment banks – most notably Bear Stearns and Lehman Brothers – had overvalued the mortgage debt and property on their books. Meanwhile, several hedge funds made billions in profits betting that those indexes would drop.

It should therefore be a matter of some concern that credit default swap “prices” and the indexes derived from them are determined almost entirely by a little company with zero transparency and, it appears probable, a high exposure to influence from market manipulators. The company is called Markit Group, and there is every reason to believe that its CDS-driven indices (the CMBX, the ABX, and several others) are inaccurate, while the credit default swap “prices” that they publish  and which rock the market are in fact  nowhere close to the prices at which credit default swaps actually trade.

Last year, the media reported that New York Attorney General Andrew Cuomo had sent subpoenas to Markit Group as part of an investigation into possible manipulation of credit default swap prices by short sellers. This investigation, like Mr. Cuomo’s other investigations into market manipulation, have yielded no prosecutions.

The Department of Justice is reportedly investigating Markit Group for anti-trust violations. This investigation (which is reportedly focused on how Markit Group packages and sells its information) seems to acknowledge that Market Group has near-monopolistic control of information about credit default swap prices. However, if the press reports are correct, the DOJ has not considered the possible appeal of this monopolistic control to market manipulation.

“

My Comment

This isn’t the first time that Markit has been fingered.  Pam Martens wrote a detailed piece last year at Counterpunch called “How Wall Street Blew Itself Up” that blew Markit´s cover.

Now I´ve always suspected the indices (including Libor) are manipulated.  The fundamental problem in our markets is corruption..and that´s directly related to size and monopoly. That´s why you do need certain kinds of  “level playing field” or procedural types of regulation (not substantive regulation) to take care of the problem. I think this should also take care of Olagues’ caveat. The Deep Capture team isn’t confining its investigation to simply naked shortselling in the technical sense, but is expanding its work to the entire range of strategies involved in rigging the markets – insider trading, short-selling of all kinds, and the manipulation of indices. (Correction: I am referring to uncovered short sales, where there is no intent to deliver)

John Olagues on Naked Short Selling

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John Olagues, the options market-maker who first analyzed the collapse of Bear Stearns and Lehman as the result of a concerted attack, has a new piece at Investopedia criticizing the ¨naked short selling¨critics:

Naked short selling is often in the news today, and is criticized by journalists and other pundits who claim that naked short sellers allied with “rumor mongers” caused the collapse of Bear Stearns and Lehman Brothers. They cite the large “failure to deliver” for a stock as evidence of naked short sales days after the stock had dropped. Although the naked short sales happened after the collapse event, they still hold onto the idea that those after-the-event naked short sales caused the collapses. (To learn more, see Case Study: The Collapse Of Lehman Brothers.)

In my opinion, those who believe that naked short sales caused the collapse of Bear Stearns and Lehman Brothers are misdirecting the attention from the illegal inside traders and their allied manipulators.

The large volumes of “fail to deliver” stock and the naked short sales after the  collapses of Bear Stearns and Lehman Brothers leads me to believe there is an explanation for those large volumes. However, that strategy did not cause the collapse of those companies. (For more, check out our Short Selling Tutorial.)

The Bottom Line

Selling short can be done in a myriad of ways. And, although naked short selling is often given a bad reputation in the media because it is frequently abused, it is not as nefarious as its critics suggest.

My Comment:

I´ve gone back and forth about this with Olagues, as well as with the most prominent figure in the naked short-selling campaign, Patrick Byrne…and it occurs to me that a lot of the problem lies in language – as is the case in other areas of political debate too.

Distinguishing between naked shortselling and other forms of shortselling where the shares fail to deliver seems to the source of the problem. NSS should include within it all forms of shortselling that do not cost the seller.

When the seller does not pay the actual price for his transaction, his activity is no longer adding information to the market. There is no price discovery, because the cost of the shortselling has been arbitrarily shifted elsewhere and in fact miscues the market. So what market-makers do in the course of their legitimate activities and also when they´re trying to exploit their position for their own benefit would come under the NSS rubric..

Aside:
I would go on..but I have had computer problems for the past two weeks…the keys type whatever they want to …I cant use the apostrophe, the parentheses have vanished, and when I type a dash, out comes an equals sign….which is why I keep using dots..and there are no contractions.

Taibbi’s Penson Video..(Correction)

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Correction:
(10/12/09, Monday)

I should have said “allegedly faked” video. I stand corrected. No weasel words, Mr. Byrne (see Byrne’s comment below).

I often post stories on which I have no comment or opinion one way or other, because I haven’t followed them, but think readers might like to. In my last several posts, in fact, I defended Deepcapture’s, Taibbi’s, and Zerohedge’s work, in spite of occasional alleged or real errors.

But the reason I linked to Wenzel’s blog is because Wenzel’s post is pretty funnily written, and I don’t follow Taibbi, except occasionally. I didn’t like his attacks on David Griffin, where he exposed himself as somewhat ignorant. Taibbi also doesn’t attribute people (apparently others have that complaint too). But arrogance and ignorance in one area don’t equate to being incorrect in another.

I’ll add a separate post with the rather long back and forth between Taibbi and his various critics and defenders. I went by Penson’s dismissal of the video, but I’ve since noted that Penson has some history that is troubling and tends to makes its dismissal less credible.

So what else might be construed as “weasel-worded” in my recent blogging?

Perhaps my rather neutral approach to the Byrne vs. Weiss feud, still going strong. Well, I’m neutral about it – who stalked whom, etc. etc. – because I don’t know the ins and outs of it. I had my own experience of being harassed, and can barely keep up with the details of that, let alone someone else’s stalking experience.

I also don’t know which of the two abuses of the market – “stock pumping and money laundering” (criticized by the Wall Street “captured” media) or “naked-shorting” (criticized by Byrne, Davidson “ “Bob O’Brien,” and many others, including Taibbi) – is the more momentous.

As a libertarian, I think naked-shorting is, but that’s only my opinion. Which is why I’ve been neutral. My sense is both abuses are real and extensive.

Likewise, I really don’t know enough about what the SEC’s investigation of Overstock is about. Could it be punitive?

Quite likely, given all we know about the SEC. But does that mean everything else the SEC does is incorrect? Unlikely.

Does that mean what Byrne wrote about “naked short selling” is incorrect? No.

Final point. I tend not to like shrill personal attacks.

That’s a deferral to civility and complexity, not weasel-wordedness.

ORIGINAL POST:

On Matt Taibbi getting suckered by a “faked” (quotes added for now) naked shorting video:

“Carney is a sharp guy, and he has Taibbi nailed on this one, but, I repeat, naked short selling, like a lot of Wall Street, is a very complex game. Carney in some of his other posts suggests there is nothing wrong with naked short-selling, he is off on that one. Some of it can be justified as simple market maker operations, but some of it is major league abuse by very clever insiders, which is the point Taibbi is taking, but doesn’t have the knowledge to back up properly.

Anyway, once you sit down an analyze the entire naked short selling thing, you realize that the bad naked short selling would go away if the SEC would stop issuing regulations that protect the bad guys. Basic common sense and commercial law would put an end to the bad naked short selling, real fast.

Bad naked short selling exists because there is a power source to manipulate, in this case the SEC, and the bad guys are running circles around the SEC.

What you want to understand naked short sales for yourself? Well pull up a chair, give yourself five hours and read this. It’s a great first step.

But, I tell you, it will be much more fun watching Taibbi attempt to pull the bayonet out of his brain.”

More by Robert Wenzel, at Economic Policy Journal.

Blogger Credibility…(links added, updated, correction)

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I. A Question About Zerohedge:

Felix Salmon raises some questions about the blog, Zerohedge, which rose to swift prominence recently, following the TARP bail-out.

He notes that one of the principals, Daniel Ivandjiiksy has a record of insider trading.

I hardly think that this undermines the credibility of what Zerohedge posts. A drunk driving violation doesn’t disqualify you from credibly digging up information on auto industry lobbying. What’s more germane to my mind is the fact that none of these bloggers seem to have been so visible before the Goldman-AIG bailout story broke (ahem…taking a bow here..). Is that coincidental? Perhaps.

II. Other Bloggers:

Here are some of the bloggers or names that have suddenly become attached to the story – Max Keiser, Goldman666, Matt Taibbi, Zerohedge.

They’ve all contributed a lot of legitimate material. But one thing strikes me as odd. None of these names were notable for critiquing any of the main culprits of the financial crisis, before September 2008. But now they’re the blogosphere’s leading voices on the kleptocrats.

Yet, Taibbi, as I’ve noted, isn’t all that informed about a number of things. And in some of his writing, at least, seems to be steering opinion away from what I consider the prime suspects. I initially thought he might be spreading a bit of disinformation. Now, I wonder if it’s just that he doesn’t know enough. In any case, they’ve all done good and useful work that I hope won’t be discounted because of occasional slip-ups.

Even if individual posts or documents are unreliable, vetting from the blogosphere should keep everyone honest.

Note: In relation to the attacks on my own credibility by a pseudonymous stalker, Tony R, here is a link to a settlement with the NASD (the securities dealers association).

Correction: Villasenor denies that he is the same as Tony R. I’ll accept his denial, though both he and TR use the same message boards, employ the same invective, use multiple aliases – some of them overlapping or very close – and both attack the same figures.

Villasenor Ry–ls continuously slanders me with accusations that I’m a “stock fraudster.” The only reason he gives is that I co-wrote “Mobs” with a financial newsletter publisher, one of whose innumerable publications has fallen afoul of the SEC, and some of whose associates have had admittedly very questionable histories. (I’ve blogged about them before). But none of them ever had any kind of contact with me. So why the persistent posting (since 2007)?

Villasenor Ry–ls seems to have been a reader of mine who thought I was on the far left side of the political spectrum, and became incensed when he found I was a supporter of Ron Paul instead. Having seen some of his rants before I’d taken up the book project, I briefly questioned him about them. I found his responses incoherent, so I went ahead and wrote the book. That seems to have set him off.

Scroll down the webpage I’ve copied below, and you’ll see his real name, Roberto G. Villasenor. (He has scores of aliases). [Correction: Villasenor denies that he is Ry_ls. Both use multiple aliases, both post on similar issues, in similar venues, both have been attacked for libel, both are traders/speculators, so it was an error, it was a good faith one, easily made, I think, unless one were familiar enough with the stock underworld to tell all these characters apart at once]

Villasenor’s Ry–s role in the “captured media” story (the thesis that Wall Street media coverage is manipulated by powerful financiers) is a minor one and can be found at Patrick Byrne’s Deep Capture blog, one of the main advocates of that thesis. It’s a bit role in the story of the ‘Easter Bunny’ (the character who, Byrne says, first drew his attention to the naked-shorting businesss). Byrne deserves a great deal of credit for going after the story early on, despite brickbats, and for detailing exactly how the  Russian-Jewish mafia came to Wall Street.

[Note: Byrne’s company, Overstock, an internet discount retailer, has again come under investigation by the SEC. Byrne thinks that it’s retaliation for his campaign against naked short-selling].

On the other hand, Gary Weiss, a former Forbes journalist and perpetual sparring partner of Byrnes’, says that the Overstock investigation is legitimate. He says it proves that Byrne was all along using his Wall Street short-selling-conspiracy campaign to divert attention from his own massaging of company earnings. Weiss and Sam Antar (a convict turned white-collar crime fighter, who has criticized Overstock’s accounting) argue that Byrne harasses his critics over personal matters.

[Both sides seem to make some good points, but on the issue of personal attacks, neither side comes off well. There’s stuff that’s fair game for criticism. There’s other stuff – family or medical matters, physical appearance, sexual history – that shouldn’t be, because they’re completely irrelevant to the issue – financial fraud. Some of the back and forth ends up being plain nasty].

To return to the story of my web-stalker, Villasenor is also connected to an allegedly extortionist website that has shady connections. I don’t want to get into all that here, though. (this is Villasenor but it’s not R__ls)

[Update: I just got a critical comment from this website, claiming that “extortionist” is not accurate. I deleted the comment, because in my post I’ve used the word “alleged”; my focus is on Villasenor’s activities, not on the website. Nonetheless,  I’ve now added a link to back up the term, “extortionist”].

Where does Villasenor Ry–ls write about his targets? Apparently from Guatemala, hiding out in a hut. Being penniless, unemployed, and on the run from whoever is suing him for libel this time round (as you can guess, he gets sued a lot), he spends all his time posting long screeds on Indymedia, which has no standard about what it’ll publish.

Other journalists whom he’s latched onto in his screeds include well-known members of the major media, like Carol Remond, Roddy Boyd, Jesse Eisinger, Christopher Byron, Gary Weiss. You can see their names, as well as private correspondence of theirs, posted publicly by Ry__s Villasenor. This strongly suggests a degree of attention-seeking.

As an example of his activities, Villasenor has also attacked a CEO named Michael Zwebner for stock-pumping. Zwebner sued him several times and seems to have lost, as he was likely to under US law, which requires the plaintiff to establish “malice” – something quite hard to do. Still, I know nothing about the merits of the case. I’m merely pointing out that Villasenor has a history of attacking people.

[Correction: Villasenor has indeed attacked Zwebner, but not, apparently, Ry__s]

Before that, Villasenor Ry__s also used to post on Amr Elgindy’s message board – Elgindy being a near-legendary Wall Street fraudster involved in naked shorting and also in the 9-11 story.

I’m guessing that might be the reason that Villasenor Ry__s defends naked shorting and claims its critics are people with vested interests in laundering money – penny-stock pumpers, for instance.

Having read through nearly all his extremely involved statements (some achievement, as they go into hundreds of webpages), I’ve come to the conclusion that some parts of his rants are not beyond credibility, even though is he isn’t the most credible person to be making those points.

For instance, it’s certainly true that there is a lot of money being laundered through the stock market, and that penny-stock pumping is one avenue. It’s also obvious that Cox and the SEC didn’t do their jobs – whether as part of an overarching conspiracy is something that has to be established. I suspect that the venture capital firm the CIA set up in the 1990s – In-Q-Tel, which I’ve mentioned in my book on Abu Ghraib – might have some connections that are also worth pursuing. And off-shore firms and banks play a large role in what’s happened over the last 25 years. All that is true.

But whatever accurate moments Villasenor’s Ry__s’ rants have, they get muddied by his tendency to attack anyone who’s ever crossed his path, even casually, and weave them all into a galactic conspiracy directed at his trading/speculating losses.

Well, even as an amateur, I’ve probably lost more than he has. And for a sometime school-teacher, that’s a lot. But I don’t blame anyone for those losses except myself.

Yes, the market is rigged. Yes, it’s manipulated. Yes, it’s not your fault and yes, you got conned. But those are factual truths. In trading, you have to learn to deal with emotional truths, which are different things. The emotional truth you have to “own” is that it’s always your fault…no matter how much it isn’t. That’s the only road to mastery.

Update:

I’ve pasted a copy of the message-board that alleges that Rip-Off Report is associated with extortion. I’m pasting the whole page, in case the link gets lost. As you can see from it, Villasenor, is/has been charged with racketeering, conspiracy, invasion of privacy, defamation and other crimes (you can verify by googling Roberto G Villasenor and NASD, as well as Villasenor and Zwebner, and also any of Villasenor’s aliases – which are variations on wolfblitzer, pin, worm, and many others. I’m not mentioning his most frequent alias, because any time it’s mentioned he shows up on this blog and starts spamming me and reduplicating his posts all over the web.

1. FALSE: I attended Freedom Fest (TRUE: I did not attend and never have attended, although I fail to see why that’s a crime, even if I did)

2. FALSE: I have sold stock (TRUE: I never have. You need a license to sell stock and I don’t have one, nor am I interested in getting one. I only trade my my own savings – and that, rather infrequently. I did research Goldman Sachs, with the intention of using that material in “Mobs,” but that was vetoed and I turned the research into an investment report, suggesting shorting GS. I didn’t own GS at the time, have never owned it, and didn’t know anyone else who owned it. I advocated shorting it because I thought it was a corrupt company, knee-high in derivative contracts – and I was proved quite correct. I later turned that into a story that was used by my co-author’s company. The research on that is thorough and I stand by it. The report was later sold by the company under someone else’s name without my permission – that was one of many things that led to my leaving. I had no say in any of that. Besides some very brief analyses (a few paragraphs) of the Indian market where I recommended nothing I held (or anyone I knew held), that is the extent of my involvement with recommending anything in a newsletter. You can find that writing on my blog and check for yourself).

3. FALSE: I am closely associated with/covering for Porter Stansberry, James Davidson, Mark Skousen.

(TRUE: They are associates of my co-author’s. I do not know them except by hearsay and was quite critical of two of them to senior people – to my detriment – and on this blog. I’ve been blurbed by left-wing writers like Ward Churchill and I don’t know them personally either).

4. FALSE: I wasn’t born in India (TRUE: I was born there and completed my first two university degrees there. I speak two Indian languages and return there frequently. Most of my family lives there).

5. FALSE: I am concealing my birth-date because I’m a fraud (TRUE: Revealing personal information on the net exposes you to frauds/threats of all kinds. It’s sensible to put the minimum possible out in public).

4. FALSE: I am “covering” for the company. (TRUE: I have never “covered” for any one. I asked about the Stansberry case, as well as about Davidson, at the time I was approached to help write the book. I was told by two senior people that the problems were in other divisions and in the past, and I would have no involvement with them. I did my work almost completely over the net and was most of the time out of the country. I have several times expressed my dislike of the “hard-selling” employed by some newsletters published by the company. I have criticized that, and other things, not only directly to senior people, but also in my blog posts. I have suffered the consequences for that in my career. I do not think more can be asked from a citizen journalist. After having left the company in 2007, I came across published material on the web that confirmed that I was right to leave. In so far as that material has any relation to my own interests as a citizen journalist, I have posted it. Beyond that, it would be both incorrect and injudicious for me to venture, for many reasons that would be immediately apparent to anyone with an ounce of intelligence or integrity).

5. FALSE: I am “pretending to fight Byrne.” (TRUE: My posts support Byrne’s findings, as they confirm my own research into the engineering of media coverage. I have, however, criticized some of the tactics he’s used to go after his critics. That’s in keeping with my general dislike for “personal attacks” on the web that use material that’s irrelevant to the public interest involved. I cannot “fight” anyone over subjects I cannot verify or disprove. I believe (with Byrne) that naked short-selling had a serious role in the financial crisis. I also believe (with Byrne’s critics) that the market is used to launder money. That opposition roughly coincides to Republican-Democrat, and as always, both sides seem to have got different parts of the story right. Which of the two is the more important part, I don’t know).

*****
WEBSITE POST
Google search 9/29/09

From: edmagedson@ripoffreport.com
Subject: Group of Criminals behind ripoffreport (badbusinessbureau) and easybackgroundcheck (modelingscams)
Date: 16 Jun 2005 13:52:03 -0600

This is a Message Board Post that is gatewayed to this mailing list.

Classification: Query

Message Board URL:

http://boards.ancestry.com/mbexec/msg/rw/3U.2ADE/1636

Message Board Post:

Ed Magedson demanded over $50,000 from a company that is also suing him and the Rip-Off Report
Ed Magedson demanded $5,000 from a small business owner in return for a positive testimonial.
Complaint filed by an Arizona law firm that was victimized by the same Rip-Off Report extortion scheme.

Criminal Ed Magedson is working with the group of criminals that formed the easybackgroundcheck aka modelingscams

List of companies paying extortion money –
Consumer Health Network
National Health Network
World Benefits
National Grants
Incredible Discoveries
MVI – Mini Vacations
Harvard Professional Group
Alyon

Group of Criminals behind ripoffreport (badbusinessbureau) and easybackgroundcheck (modelingscams) –
Ed Magedson – Conspiracy and Racketeering (RICO) proceedings as well as claims for defamation
Les Henderson – Under the guise of helping protect her from “scam” companies he tries to lure a 17 year old girl to his hotel room to do coke
Edward Bloedow – has convictions for flashing women (misdemeanor) and receiving stolen goods (felony)
Frank Torelli – is so afraid his lies, conspiratorial and illegal activities will eventually catch up with him he never discloses his whereabouts
William Rosenberger – Conspiracy and Racketeering (RICO) proceedings as well as claims for defamation and invasion of privacy filed
Madelene Rosenberger – Conspiracy and Racketeering (RICO) proceedings as well as claims for defamation and invasion of privacy filed
Roberto Villasenor Jr. – Conspiracy and Racketeering (RICO) proceedings as well as claims for defamation and invasion of privacy filed
Stephen Howe
Michael Potter – attorney in California who acts as a front for Bloedow and Noll
Klaas DeVries Jr. – named in RICO lawsuit filed with FBI and U.S. Attorney General’s office
Ted Peterson
Stick Bogart
Robert Kirchman
Pamela Kirchman
Amr Elgindy- FBI and the U.S. Attorney’s office link Easy background Check Founder Amr El-Gindy (along with Criminal Les Henderson) to 9-11.
Robert Noll – owner of Monster Talent management an unlicensed photo mill in California
Patricia Gewartowski- under investigation by federal authorities for revealing confidential financial information to criminal Frank Torelli and Criminal Les Henderson

********