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As Predicted. The Usual Suspects Chime In On OSTK Subpoena

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 5/9/2006 11:00 PM

Isn't it an outrage when the SEC issues subpoenas? What is going on? I can't believe that they would dare do so - what, is this Nazi Germany? Soviet Russia? The Taliban's tribunals?

Oh wait.

That is only if you are a journalist and get a subpoena.

It's cause for castigation and assumption of guilt if it isn't you. Got it. See, I get all dizzy on this. I thought that, well, subpoenas were, sort of all created equal.

Apparently not.

If you are a wealthy, powerful TV celebrity you can wipe your bottom with one, and the New York financial press will herald you as a brave voice of freedom.

If you are the lone voice battling market corruption, then you can expect to be dragged through the mud, with that same NY press assuming that you are in a world of hurt, and are crooked as a drunk's sobriety-test walk.

Herb issued forth the obligatory article today, and, gasp, Roddy Boyd was also heard from on the OSTK tempest in a teacup. News releases announced the subpoena and noted that the price was down several dollars in after hours - but neglected to point out that was one 100 share trade, and that the price was back up on the next trade. And the WSJ slipped in a stealth slam as well. WSJ pieces are invariably for pay subscription only - except when it is bad news about a company the Street is massively short, and then it is free to everyone. Note that the WSJ piece doesn't say, in the last paragraph, that OSTK revised their earnings upwards due to overly conservative accounting - tut tut, why bore anyone with those details?

Is there anyone reading this that doesn't see what is going on here? Oh, and I just got an email indicating that the brokerages are tightening up the margin on OSTK - forcing margin calls from anyone over-leveraged. This is SOP if you are trying to cause a drop, or selling. Unfortunately for the street, they have a huge problem - there are no real shares to sell, and the price isn't dropping like a rock, thus they are pulling all the usual stunts to effectively zero avail.

That is really too funny.

I mean, it's like watching 5 guys pass the bill around after dinner, round and round, hoping the next guy will pay it, and yet nobody has the cash to do so. And yet round and round it goes.

Just funny as hell. And so obvious. I mean, who could predict that an SEC action would be followed by massive media attention, and broker pile-on?

Wonder what the class action guys are going to do with their no-doubt-already-written suit, predicated on the massive price drop that never happened? Sue because, well, Herb doesn't like Patrick?

That's gotta suck, when you throw a stock manipulation and nobody comes....
Copyright ©2006 Bob O'Brien
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Comments (19)
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By Ginko on 5/10/2006 7:37 AM
Bob

Patrick Byrne said he was happy to get a subpoena. In fact Byrne was celebrating.

If you get a subpoena will you be doing cart wheels?

Cheers!!
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By bobo on 5/10/2006 7:57 AM
I would be doing backflips if I got a subpoena. Especially if they got my name right. Although I would be amused to see a subpoena issued to the Easter Bunny...

Wonder what that would bring on EBAY?
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By InTheKnow on 5/10/2006 7:57 AM
I watched Herbie on CNBC. What can one say? Hmmmmm .... LMFAO!
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By bobo on 5/10/2006 8:12 AM
Those bad corporations making all their corporate profits and behaving corporately are a menace to our way of life, wherein parasitical non-producers suck off the milk tit of the market...
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By Patchie on 5/10/2006 8:12 AM
Bob,

Couple of interesting observations about these subpoenas.

It almost appears that the SEC is looking into some accounting issues (standard short seller complaint) but they are also looking for information on paper certs, Gradient, and stock borrow/stock loan. The accounting is key because it generally gives the biggest bang for the buck if you are a short seller since Enron and Worldcom put the fear of god into the markets when it comes to the books..

I wonder if this is a backdoor way of gaining insight on bad Wall Street firms without actuually going to the firms first. What can Patrick say about paper certificates - "I didn't get them when requested and my broker said it was because XYZ never delievered the shares"

Bad Patrick - Bad Patrick - It is against the law to actually ask for the merchandise you purchased.

As for the Stock Borrow Stock Lending, the SEC has a short memory. It was June 2004 that the SEC identified that issuers have no rights or controls over their stock once issued to the markets. The baton is passed over to the Institutions. [Ref: Release No. 34-49804; File No. S7-24-04]

They also want to know about the Gradient Lawsuit. Now unless the SEC has expanded their authoritity and changed the constitution, they have no right to seek information about a private litigation between two companies. Certainly it is not against the law to sue somebody - Haven't 16 tried against TASER and failed? the SEC doesn't appear to be stepping in there.

This event, while it appears unpleasant may be a blessing. The SEC doesn't realize that they just opened themselves up for scrutiny by many including the investing public and other state and federal agencies. We should all be carefully tracking the short positions in this stock as a function of price movements. If the shorts get covered on this news for additional profit, and the SEC witch-hunt is just that an investigation into the agency is the only acceptable next step to take.

Somebody has to be held accountable when the investing public is harmed by a process intended to protect the institutions and the short sellers.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By robelita on 5/10/2006 8:29 AM
Hello bunny legion,

This is a tad off-topic yet germaine to our cause:

LEXINGTON, KY., May 10, 2006 – Plasticon International, Inc. (Pink Sheets: PLNI) wishes to inform its shareholders and the public that BUYINS.NET has initiated coverage of Plasticon International, identifying naked short sellers of PLNI stock.

According to President and CEO Jim Turek, “This is invaluable information for our shareholders and public to be aware of. As we all know, the naked short selling of stock is a serious problem in the public markets in the United States and throughout the world .Naked short selling distorts what would otherwise be a free market, in other words, a market where a share price value is dictated by supply and demand only, and not by the undue influence of naked shorters, which through short selling, manipulate the price and put excessive downward pressure on the value of the stock.”

This was posted on the Green Baron Report today.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By bobo on 5/10/2006 8:51 AM
Again, Dave, this smacks of panicky maneuvering by miscreants playing their one note song. There is no originality to this. Fishing expedition for headline value, newspaper trumpeting, but a wet firecracker from the bad guys' side.

What kills me is that they are dim enough to believe that this will continue working. Like I said, can't wait for the class action brought by Milberg saying essentially that Herb says Patrick is a bad man, thus they are suing....

Guys? Little hint? Game over. We all get it. There is no there there. You are stuck now, and nobody is available to sell you any shares. Nobody is selling. That is why the volume is anemic, and you can't get out. Your unbridled hubris got you buried up to your neck in OSTK now, and all the huffing and puffing and usual tricks aren't working.

And you are the only ones that aren't getting the message. Odd, that.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By dave on 5/10/2006 9:11 AM
What to do if your brokerage won't give you your cert., according to the SEC website:

"The actual transfer of securities is governed by state law, rather than the federal securities laws. The SEC seldom has any jurisdiction over these issues."

I talked to a lawyer and they confirmed that the issuance of stock certificates would be governed either by the state where the trade happened or where the company is incorporated.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By dave on 5/10/2006 9:14 AM
The shorts can get out by buying call options, which are effectively unlimited in supply.

It will cost them, though. As the price of the call goes up, people write covered calls which requires them to buy shares which drives the price up.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By bobo on 5/10/2006 9:19 AM
Which is why the NASAA folks are in the mix. States tend to be more pro-active in protecting investors than the SEC.

The SEC's history has been one of puffery, absent action. The milken/boesky/levine thing could arguably be looked at as the established status quo of the Street taking out upstarts that had cut into their investment banking business - recall that Drexel vaporized soon after milken pled on a few counts (versus the close to 100 they had him on), and that a major source of competition for the bigger houses was closed.

One could cynically view the current Milberg travails as payback for daring to sue the NYSE about two years ago.

My sense is that Wall Street doesn't lose - exactly as it has been for a century.

The current naked short selling thing is likely an annoyance for the Street, and they probably dislike the visibility that a few indiscreet hedge funds have brought into the mix - that is why I would expect to see a few bodies drug behind the bus, but not much really changing.

Then again, I am pessimistic at present.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By troydian on 5/10/2006 9:27 AM
Interesting graph on ostk http://iw.thomsonfn.com/stocks_iwatch/cgi-bin/iw_ticker?ticker=ostk&symbol=ostk
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By mfairview on 5/10/2006 2:42 PM
Anyone else laugh at this disclaimer from "TSC Staff"?

http://www.thestreet.com/_yahoo/tech/internet/10284641.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

"Last year, Overstock filed a lawsuit alleging a wide-ranging conspiracy to manipulate the share price of the Internet retailer. Overstock alleges that research firm Gradient Analytics was in cahoots with short-sellers including Rocker Partners, which owns a small stake in TheStreet.com (TSCM:NYSE - commentary - research - Cramer's Take), publisher of this Web site. Both Rocker and Gradient have denied wrongdoing."

"Small stake?". Aren't they the 2nd largest shareholder under Jimbo? Though, they [Rocker] may have become the first after all that selling he [Jim] did when he got his subpoena.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By Concerned Citizen on 5/10/2006 2:44 PM
Is any of the following info going to be part of what Patrick gives the SEC when he responds to the subpoena?

The words of Patrick Byrne:

"Herb is denying that he got access to the Gradient reports for two to four weeks after they had published. But on February 14, 2005 he wrote a report on NFI that quoted extensively from a Gradient report released hours earlier. The truth is, at least until recently Herb had a log-on and password at Gradient just like any client. This will come out in discovery. (Want his password?)

"Gradient's shill Karen Hilton cannot make up her mind whether SAC ordered the report in question or not. This situation is so non-unique, the only question will be which of dozens if not hundreds of examples we or Biovail wish to present to our respective juries. I can line up hedge funds who will say that, Yes, we paid our money and for that we could order two hatchet jobs per year. the notion that Gradient did anything on their own is absurd: many of their "analysts" were hired straight out of Burger King. They were recent college grads who had never held a professional job before, and the content of the reports was largely dictated to them. After hearing stories from the eight witnesses I think Gradient's assertion that these were self-generated will be as laughable to the public as it is now to the witnesses.

"Gradient had an employee answering one phone on his desk, "Gradient Research," and another on his desk, "Pinnacle Investments." They were trading on Pinnacle's behalf out of Gradient's office (eventually it got moved across the hall). A screenshot of Pinnacle reveals their positions were simply front-running Gradient's research.

"Cramer is saying that he never heard of Gradient until he got subpoenaed. Becky Quick goes on the set every morning and says nothing. He is lying, as is she (by omission). The truth is, communications exist between Becky Quick and Gradient saying things like, "Jim Cramer loves the Gradient hatchet jobs." "Cramer is having CEO XYZ on and says to get him the latest Gradient stuff on them." Etc. These date from over a year ago. I believe emails still exist on CNBC computers confirming this. If CNBC investigates they will discover that Cramer was lying repeatedly to his audience and that Becky kept her mouth shut: presumably they would have to fire at least Cramer if this happens. If they do not investigate, then when these emails are made public and the world knows that CNBC was informed of this (through this post) and chose not to investigate, it will be the end of CNBC as a news organization."
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By OSTK on 5/10/2006 2:45 PM
I wonder about all the money Patrick spent building his brand name, all the time he has wasted on the issue of STOCK settlement. Can you believe that they cannot settle a trade and that is the downfall of your company. The SEC, DTC and the heads of the brokerage firms should be thrown out of the US and in Jail for Crimes against the US. What a disgrace.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By bobo on 5/10/2006 2:47 PM
From the SEC - you know when you decide to obstruct justice, and figure paying a few nickels is better than having to produce evidence that could cost you billions...you know when that happens? I hate it when that happens...


"Morgan Stanley Sued for Repeated E-Mail Production Failures, Agrees to Pay $15 Million Penalty and Undertake Reforms in Settlement

The Securities and Exchange Commission today filed a civil injunctive action against Morgan Stanley & Co. Incorporated for failing to produce tens of thousands of e-mails during the Commission's IPO and Research Analyst investigations from Dec. 11, 2000, through at least July 2005. The Commission alleges in its complaint that Morgan Stanley did not diligently search for back-up tapes containing responsive e-mails until 2005. Morgan Stanley also failed to produce responsive e-mails because it over-wrote back-up tapes.

The complaint further alleges that Morgan Stanley made numerous misstatements regarding the status and completeness of its productions; the unavailability of certain documents; and its efforts to preserve requested e-mail. The Commission charged Morgan Stanley with violating the provisions of the federal securities laws requiring Morgan Stanley, a regulated broker-dealer, to timely produce its records and documents to the Commission.

Morgan Stanley has agreed to settle this matter. Without admitting or denying the allegations of the complaint, Morgan Stanley has consented to a permanent injunction and payment of a $15 million civil penalty, $5 million of which will be paid to NASD and the New York Stock Exchange, Inc. in separate related proceedings. Morgan Stanley also has agreed to adopt and implement policies, procedures and training focused on the preservation and production of e-mail communications. It also will hire an independent consultant to review these reforms. The settlement terms are subject to court approval."
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By jcline on 5/10/2006 8:04 PM
Yes.. a backdoor into the journalist info, brokerage info, and maybe some info not yet uncovered. I look at OSTK being Pandora's Box.... the SEC just now putting the key in the lock and turning it. Bet they get more than what they bargained for. They didn't get it going after the journalists .....but ohhhhhhhhh discovery can be a beautiful thing. I think the trap is set myself. Double whammy so to speak.

IMO....Grab a bag of popcorn folks...the movie is about to start.
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By blackbart on 5/10/2006 8:09 PM
India at least tells the truth about naked shorting. -- The Sebi chairman also made it clear that short selling was good for growing markets such as India but mentioned that naked short selling should be avoided. Naked short selling was one of the causes for the disaster in stock market in March 2001. http://www.business-standard.com/common/storypage.php?leftnm=lmnu6&subLeft=1&autono=90491&tab=r
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By Short comment on 5/10/2006 8:10 PM
Just checking that shorter comments work
Re: As Predicted. The Usual Suspects Chime In On OSTK Subpoena By Niel Storts on 5/10/2006 8:10 PM
"Bob". You will take them down. Don't worry about it. Like I said, the rat has to thrash arround in the corner before it dies. This all just gets better and better.

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