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The Liars Club Will Please Come To Order....

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Posted by:   bobo 7/1/2006 5:30 AM

A new article in the WSJ is a classic. It is so filled with agenda, and misstatement, and misdirection, as to be breathtaking.

You can read it here.

First, we have the canard that Gradient was trying to sell with their press release immediately following the Senate hearing, namely that Demetrios didn't write his own testimony.

There are a few things wrong with that deeply flawed line of reasoning. First, it assumes that because a guy named Mark Griffin last edited it, that Mark wrote it.

That's stupid.

Mark, who is now an attorney working for OSTK, was apparently asked to review the testimony and make sure that there was nothing it it that could get Demetrios sued. Smart, and expected, as Mark was Demetrios' legal connection in the OSTK case.

So much for the mystery of who wrote the testimony.

Why do I know this, but the authors of the article don't? Good question - perhaps the identities of those authors will give up some clue: Herb Greenberg, Jesse Eisinger, and a few outers.

Huh.

How unexpected that they would credulously parrot whatever defense Gradient mounts.

Here's a fun fact, for those that don't know much about computers: I can send you a word document, and in the field they are sighting, put George W. Bush, or Donn Vickrey, or Jenna Jameson. Doesn't matter - it can say whatever you want.

In point of fact, Gradient hasn't explained where they got that word file from - it wasn't from any official or accessible to the public source. That raises the question as to the veracity of their claim in the first place, but hey, it's Wall Street, so why sweat the small stuff?

Notice that they don't address any of the factual content in the testimony? Why do you think that is? Could it be because the agenda is to smear Demetrios, not discuss the implications of a research company colluding with a hedge fund, and with some of the very journalists who are writing hatchet jobs like this one?

So where do you think Herb and Jesse got the word file from? I'm betting Gradient. Which means that anything is possible when it comes to the story they are telling.

I personally would love to see some of the author fields for some of Herb and Jesse's work. You can only wonder at whose names would appear there.

The rest of the article is even more mind-boggling, in that it manages to omit 90% of the testimony from the hearing, and instead focus on a sliver, wherein predicted short selling apologist Owen Lamont gave his expected defense of short selling - which nobody at the hearing had any problem with.

This selective reporting, and material ommission of most of reality, qualifies them for a prestigious Liars Club award: The Remond, or as it is referred to by those in the know, a "Carol."

What is particularly amusing to me is that these great minds all missed that the hearing was about stock manipulation, and collusion between hedge funds and research firms - not legitimate short selling, which nobody has any issue with.

Instead, they have decided to pretend that short selling was being attacked (which it wasn't) and then defend that practice, introducing Lamont's testimony as an example of how good short sellers are for the world.

All well and good, but completely irrelevant to the actual topic.

I guess when the Liar's Club has its regular meeting, one can always count on some knee slapping tall tales to emerge. That the WSJ is kind enough to print them as though they were fact is even better, as it highlights exactly how complicit a particular editor there is in assisting certain factions of Wall Street's rogue's gallery with propagating their disinformation. That it is so poorly masked and executed just makes it that much more satisfying.

So frame this one - you could really call it the death of American Journalism, officially announced on July 1, 2006.

Copyright ©2006 Bob O'Brien
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Comments (27)
Re: The Liars Club Will Please Come To Order.... By Kuma on 7/1/2006 8:12 AM
You are funny. There was some real humor in there. How you do it with such a grave circumstance is real talent.
Re: The Liars Club Will Please Come To Order.... By mhatmccane on 7/1/2006 8:16 AM
Link to letter requires "sign in" - guess I'll have to catch it at library since I refuse to subscribe.
Re: The Liars Club Will Please Come To Order.... By Little Bo peep on 7/3/2006 5:55 AM
shhhhh....it's a secret.
Why are the names kept secret? What happens if the names leak out?

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/02/AR2006070200626.html

Intelsat is the largest supplier of commercial satellite services to the U.S. government, doing business with the Defense Department, the State Department and other agencies that the company won't disclose. Its government business, about 15 percent of its total, is run separately from the rest of the company and has its own board of directors, whose names are kept secret.

Who are these dudes Mitsui and Co.?
Re: The Liars Club Will Please Come To Order.... By qcontra on 7/1/2006 8:17 AM
Barron's today has an article defending Samberg and calling Aguirre's evidence "flimsy," yet Barron's has no support for its views. I'm disgusted with the blatant coverup of Pequot Capital's insider trading.
Re: The Liars Club Will Please Come To Order.... By leonofus on 7/1/2006 9:27 AM
who's Jenna Jameson?
Re: The Liars Club Will Please Come To Order.... By rick on 7/1/2006 9:55 AM
boboman,
Love your first chapter. How did your ever detach yourself enough not to shoot venom in every line? Can I pre-order?

rick
Re: The Liars Club Will Please Come To Order.... By Wicked World on 7/1/2006 10:23 AM

I do not trust a word spoken or printed by Herb, Jesse, Carol, Roddy, or Byron.

They are tools.

Their names are mud.
Re: The Liars Club Will Please Come To Order.... By DTCC - Lack of Integrity on 7/1/2006 10:28 AM
I love this comment from the DTCC's own 2005 annual report:

"DTCC received a strong vote of confidence, for the second consectutive year, with an overall CUSTOMER SATISFACTION rating of 89% - and 90% for INTEGRITY."

So 10% of the DTCC's own members think they don't act with integrity. WOW!!! That says something.
Re: The Liars Club Will Please Come To Order.... By Wicked World on 7/1/2006 10:34 AM

leonofus,

Jenna Jameson is a former Hedge Fund manager who is best known for turning her back on the world of finance. She described Wall St. as an ethical and moral wasteland run by thieves with expensive shoes and where good men die like dogs. She also said there was a bad side but could not bring herself to elaborate.

She now lives on the West Coast where she pursues a much more respectable and personally enriching life than anything Wall St. could offer.
Re: The Liars Club Will Please Come To Order.... By Bodnik on 7/1/2006 11:06 AM
Bobo-I don't get it. Is the issue a lawyer prepared the affidavit? So what, every affidavit ever prepared in every legal case was by written by a lawyer. It is what they do. Or is the issue, the lawyer was somehow tied to OSTK? Well duh, who else but the proponent of a legal or criminal issue would prepare an affidavit for an affiant to sign. Would the DA's office have a defense attorney prepare an affidavit for the arresting officerto swear to? What am I missing?
Re: The Liars Club Will Please Come To Order.... By ginger on 7/1/2006 11:32 AM
How well they lie!

http://online.wsj.com/google_login.html?url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB115172343424796169.html%3Fmod%3Dgooglenews_wsj

Re: The Liars Club Will Please Come To Order.... By n-tres-ted on 7/1/2006 11:39 AM
Bobo, that is not all the WSJ had to say in today's edition about the Judiciary Committee's hearing. Take a look at this editorial reassurance that all is well in the world of hedge funds. Of course, they must have missed Gary Aguirre's insights into the market-timing in trades of mutual funds, the PIPE short selling on insider information, the patterns of insider trading from investment banking tips, and the evidence of naked short selling.

***
Hedge Fund Hoopla
July 1, 2006; Page A10

Politicians are drawn to piles of unregulated money like, well, politicians to TV cameras. So it was only a matter of time before Congress took aim at the $2.4 trillion hedge fund industry.

The Senate Judiciary Committee held a hedge fund hearing this week, with its star witness one Gary Aguirre, a former SEC investigator who said superiors quashed a probe into insider trading at Pequot Capital. Pequot has vigorously denied the claims, and insider trading is already illegal. But the ubiquitous Connecticut Attorney General Richard Blumenthal was nonetheless on hand, in range of TV cameras, to claim that hedge funds are a "regulatory black hole." The Senators were also very concerned, no doubt prepping for the day when a few of these pools of private investment capital go belly up.
[Hot Topic] HOT TOPIC

Volatile Markets Bring Hedge Funds Under Fire

So maybe it's time to step back and recall that we've all been at this cab stand before. In 1999, a year after Long Term Capital Management blew up, the President's Working Group on Financial Markets released the results of its top-to-bottom probe of hedge funds. This was no lightweight body, containing as it did Alan Greenspan, Robert Rubin and former SEC Chairman Arthur Levitt. Its findings argued so strongly against meddling in this source of market liquidity and efficiency that even the Clinton Administration gave regulation a pass.

The working group focused on a concern that is often heard today, which is that too much hedge fund borrowing could lead to systemic market risk. Highly leveraged investors are always more vulnerable to market shocks. And if forced to liquidate their often-huge positions, their losses could cascade throughout the financial system.

But the working group found that Long Term Capital was unique. The best way to guard against hedge fund meltdowns is a system in which the counterparties (bankers, broker-dealers) that lend to or borrow from hedge funds impose due diligence. In Long Term Capital's case, many counterparties were so impressed by that giant fund's reputation that they "did not ask sufficiently tough questions," as Federal Reserve Chairman Ben Bernanke put it in a speech this May.

Such laxity is a problem, but the answer isn't necessarily more direct regulation. The working group recognized that, in the complicated and fast-moving world of financial derivatives, the best way to guard against future blowups is to ensure the market itself imposes more discipline. It recommended that hedge funds provide better disclosure to their counterparties, and that regulators ensure that counterparties have systems and policies that identify warning signs and restrain excessive leverage.

The regulators have since complied, issuing risk-management guidance so bank supervisors now consider it a primary duty to monitor hedge-fund dealings. The SEC also stepped up its inspection of broker-dealers. Many counterparties now require hedge funds to post more collateral to cover potential exposure. And institutions and regulators are all trying to improve weak areas -- say, understanding the risks in such new financial products as credit derivatives. For a "black hole," this sure has a lot of foot traffic.

Hedge funds offer high returns, but they also take big risks, and some failures are inevitable. That's especially true when the Fed is raising rates and credit is getting tighter. But while hedge funds have multiplied since 1999, the funds that have failed have done so with barely a market ripple. This suggests the Clinton working group's strategy is working.

The Clintonians also argued that direct hedge fund regulation would have significant costs, such as reducing the liquidity crucial to robust financial markets. And in his recent speech, Mr. Bernanke noted how difficult it would be for any regulator to monitor hedge fund trading strategies that change rapidly and are enormously complex.

A more recent complaint about hedge funds is that they are becoming ever more available to Mom and Pop investors, not merely to the superrich. But a 2003 SEC report found that funds are still dominated by big institutional investors -- pension funds, endowments, and the like. Rich individuals and families supplied 42% of hedge fund assets, although that share is declining.

Pension funds do contain Mom and Pop retirement assets. But the focus of regulators should be on the pension fund managers for taking a flyer on hedge funds, not on the funds for taking the money. As for those who claim hedge funds are run by rogues, the SEC report noted that it could find "no evidence indicating that hedge funds or their advisers engage disproportionately in fraudulent activity."

Alas, none of this common sense stopped the SEC from plunging ahead in 2004 in an attempt to begin regulating hedge funds. But that attempt was overruled this month as an illegal power grab by the D.C. Circuit Court of Appeals, which throws the matter once more into the tender arms of Congress.

Hedge funds are easy political targets because they aren't sold to the general public and aren't well understood. But the regulators at the Fed and Treasury who are paid to watch the financial system understand that they provide far more benefits than risks. Congress should tread carefully, if it treads at all.

http://snipurl.com/sl7f
Re: The Liars Club Will Please Come To Order.... By Ted on 7/1/2006 11:42 AM
[a href="http://www.madison.com/tct/news/index.php?ntid=89595"]http://www.madison.com/tct/news/index.php?ntid=89595[/a]
Re: The Liars Club Will Please Come To Order.... By n-tres-ted on 7/1/2006 11:45 AM
Can you believe the WSJ gives this much editorial ink to assuring us that all is well and we should move along, while they have not mentioned the federal class actions suits filed in Manhattan alleging conspiracy throughout the prime brokerage industry to naked short every short sale!? Nor a mention of Aguirre's testimony that the prime brokerage investment banks get a major portion of their profits from the hedge fund business.
Re: The Liars Club Will Please Come To Order.... By bobo on 7/1/2006 11:54 AM
It is sort of shocking. Gary Aguirre and Kasowitz describe an obviously illegal manipulation involving huge players, and the WSJ ignores everything.

Anyone have any doubts whatsoever that the WSJ is co-opted by the Street, whose heels they lick in an attempt to curry favor? My opinion of the Journal has gone to where it now sits below People on my list of reliable hard news sources.

Which means that Barron's is below the bottom.
Re: The Liars Club Will Please Come To Order.... By mhatmccane on 7/1/2006 12:23 PM


engage disproportionately - does that mean they are not more fraudulent that the rest of Wall Street ? Or perhaps not more fraudulent than some SEC members.
Re: The Liars Club Will Please Come To Order.... By Wicked World on 7/1/2006 1:20 PM

Step back. Look at the ballooning in the number of Hedgies over the years. I hear figures ranging from 8,000-11,000 being today's number of Hedge Funds while twenty years ago it was in the hundreds (or less).

And we all know Hedge Fund="Smart Money", right?

Why is all this smart money running toward Hedgie? Hmmm.

Well, for whateveer the reason(s), the SEC has some "concerns". So we can RELAX. The SEC is involved. LOL!

From the SEC- "The staff is concerned that the Commission's inability to examine hedge fund advisers makes it difficult to uncover fraud and other misconduct. The Commission typically is able to take action with respect to fraud and other misconduct only after it receives relevant information from third parties, and frequently only after significant losses have occurred."

http://www.sec.gov/news/extra/hedgestudyfacts.htm



So to mhatmccane, yes the PowersThatBe repeat over and over how Hedgie=SmartMoney=AboveSuspicion=GoodForHealthofDumbMoney even though the SEC seems to think that fraud and other misconduct is within the realm of possibility. But after the Aguirre testimony I doubt too many SmartMoney managers are worried, ya know?

Which reminds me. I like how Bobo occassionally points out what the SEC was *really* chartered to do versus what I would like to think. They are charged with restoring investor confidence. And that's about all. And that could mean just about anything. Or nothing.

Well I do not have even that. I have ZERO confidence in the SEC at this point. I believe Aguirre speaks truthfully. I'm not trying to convince anyone to see it that way I'm just stating what I think. I believe the evidence exists to back it all up and hope to see it soon but I'm sure the PowersThatBeand SmartMoney are working diligently to squash it. Atta Boys!!!!
Re: The Liars Club Will Please Come To Order.... By rtway1 on 7/1/2006 4:09 PM
Bob, you must be a clairvoyant You predicted ahead of time that there would be a full court press by the financial media in regards to the events of last week especially the judiciary hearing. Well today validated that prediction in spades. I was listening to Bob Brinkers Money Talk show which has a rather conservative, mutual fund type approach and fairly interesting. He sometimes has fill ins and today that was the case. Today his fill in was Terry Savage former broker and author and a patsy to the establishment, especially banks and insurance companies as in annuities. Well today out of the blue she has a special guest who is a author and in general a overseer of Wall St. fraud. This comes off as well as a Cramer listener call in. This smelled of set up like a rotten fish. The guest was none other than Gary Weiss. The set up went from Wall St. fraud and his expertise because of his book(which he mentioned over and over) to hedge funds and short selling. He immediately went into the good that short selling does to weed out the crooked CEO,s and their crooked companies. (this was mentioned about 6 times in a matter of minutes) The questions were so obviously scripted I almost lost my lunch. Is there enough regulation of hedge funds? Gary never gave a definite answer just a whining diatribe that you could use pro and con , but generally a fan of hedge funds. I know it is possible to get a copy of Brinkers shows, he archives them. This was an event was almost unbearable to listen to with its staged bias and rehearsed topic. I never heard Gary Weiss before this. He sounds like a whining wimp salesman and tries desperately to sound concerned but instead he comes off like a whole life insurance salesman. They are obviously trying to get out all their scum talent to discredit last weeks events. Obviously they are scared if they have to use this POS for to further their agenda or for damage control. I bet the mafia sleeps easy at night knowing Gary is looking for the bad guys.
Re: The Liars Club Will Please Come To Order.... By bobo on 7/1/2006 6:17 PM
'lilGW is a bad actor in a very small pond. A friend of mine says "sometimes a crook just looks like a crook." Probably the same with the way they sound.

They have at least 6 articles out now, all trumpeting how good hedge funds are, and how good short sellers are - always ignoring that the story is illegal stock manipulation, not short selling.

The next few weeks will likely be more of the same.
Re: The Liars Club Will Please Come To Order.... By n-tres-ted on 7/1/2006 8:11 PM
Bobo,

I think you're right that today the looming financial scandal also became the scandal of the financial press, as well. Put aside the suits filed by OSTK, Biovail and others about use of "independent research" to blitz shorted issuers. Just consider the federal suits filed by ETG and Quark against the prime brokers for creating FTDs in all short sales by hedge funds, plus Aguirre's testimony about what he found tying hedge funds to insider trading and NAKED SHORTING. Aguirre also notes that hedge funds tend to swarm any tactic that pulls more money in.

And he makes clear that he took his efforts all the way up to Cox, who, he says, didn't lift a finger. Remember that Aguirre was fired before the dust-up occurred regarding the subpoenas issued to "reporters." Funny to think that Linda Thomsen appeared to be the hero in that one, yet she had already let Aguirre go down in flames (or maybe even lit the match).

Any of that is enough to warrant front page headlines in any paper; certainly a financial paper. But no one has done that; instead, we have assurances there is no problem, without even so much as discussion of the issues. No glory to be found for the press in this performance.
Re: The Liars Club Will Please Come To Order.... By Little Bo peep on 7/1/2006 8:22 PM
Is it just my "tin foil hat" thinking or are you sick of hearing "at the end of the day".
I mean my sheep all say the same thing too.


(Reuters) - Former Morgan Stanley President John Mack was named chairman of hedge fund Pequot Capital Management Inc. Friday, dashing long-simmering speculation the Wall Street veteran would someday return as head of the embattled investment bank.

Mack's presence has loomed over Morgan Stanley as Chief Executive Philip Purcell, for the past two months, scrambled to fend off eight former executives seeking his ouster. Last month the group suggested splitting the firm and creating a stand-alone investment bank led by a number of recently departed executives.

The plan helped to revive hopes among investors that Mack, who was pushed out by Purcell in 2001, would stage a comeback and resume his leadership of Morgan Stanley.

But Mack, in an interview, said he's had no involvement with the group and no interest in going back to the firm.

"No, I have no interest in doing that. It gets back to building versus fixing things," he said. "Look, Morgan Stanley is a good firm. I feel for them, what they're going through, but I have no interest in doing that."

A spokesman for the Morgan Stanley dissidents was not immediately available.

The North Carolina native and son of Lebanese immigrants began his Wall Street career in 1972. As a bond trader, he rose through the ranks until becoming president of Morgan Stanley in 1993.

Mack in 1997 helped engineer the merger of blue chip investment bank Morgan Stanley with brokerage and credit card giant Dean Witter, Discover & Co. Mack was expected later to succeed Dean Witter's Purcell as CEO of the combined firm.

Yet the former McKinsey consultant outmaneuvered Mack to consolidate his power. Blocked from the top, Mack quit in 2001.

Credit Suisse Group soon after recruited Mack as co-chief executive, charged with turning around its laggard Credit Suisse First Boston investment banking unit. Mack quickly stabilized the firm, slashing costs and expanding alternative investments activities.

But last July, Mack faced another early exit after Credit Suisse directors opposed his plans for combining CSFB with another bank.

Now Mack becomes the latest high-profile Wall Street executive to join the hedge fund world. These lightly regulated investment firms have posted explosive growth -- amassing $1 trillion in assets -- though lately the industry's outlook has dimmed as too many funds chase the same strategies.

This latest career move marks the culmination of a long relationship between Mack and Art Samburg, Pequot's founder and chief executive. The Westport, Connecticut-based fund manages about $6.5 billion in investments and boasts a strong track record.

Samburg first managed some money for Mack in 1992. Over the years, Mack introduced Samburg to private equity funds and more recently advised him to expand Pequot's offerings beyond a long-short equity fund. For the past 11 months, he worked out of Pequot's Manhattan offices where he served as a consultant.

Mack also observed that joining Pequot is a natural extension of his career.

"If you look back at Morgan Stanley and CSFB, we managed huge portfolios in venture capital, real estate, private equity mortgage securities, distressed debt, so I have a background in all these areas," Mack said.

"And, at the end of the day, if you look at the investment banks over the past five or six years, the majority of profitability has come from the trading desks," he said. "That is something I grew up in and am very comfortable in."

In the past year, Mack has been approached by a number of companies, including investment banking rival Goldman Sachs and embattled mortgage giant Fannie Mae.

He made headlines when he agreed last month to assist former New York Stock Exchange director Ken Langone, who assembled a group of investors to challenge the NYSE's merger with Archipelago Holdings Inc.

Some exchange members objected to a deal where Goldman Sachs owns shares in both companies and served as advisor to both sides.

Yet Mack said his role was strictly temporary and that he has not been involved for three weeks.
Re: The Liars Club Will Please Come To Order.... By mhelburn on 7/2/2006 5:43 AM
MS attorney contacts SEC to see if Mack is going to be investigated. They don't want the fallout from such an investigation as they are looking at him as CEO. Aguirre gets fired for doing his job because Mack is too connected. Now Mack is at Pequot.. which has had numerous trades questioned by the SRO's. MS fine gets announced the day before the Judiciary hearing... Did MS decide Mack was a liability? Did Mack ask MS to contact SEC to make the investigation go away? Was MS really looking at Mack? Is running a hedge fund more desirable than running MS? Is getting this position a payback for delivering insider information or is it necessary to do some tidying up at Pequot? Was firing Aguirre protection for Mack? Was the fine retribution for MS not hiring Mack or just window dressing, timed for release based on the Judiciary hearing?

What would have happened if Aguirre hadn't been fired? SEC would have had to continue investigation into Mack because Aguirre wouldn't give up. Aguirre's firing led to the Senate Judiciary hearing. Whether Mack is guilty is a separate issue.. but the co-opting of the SEC has come out in the open.

If Mack were still a candidate for the top job at MS and he had a choice of Pequot and MS, does it seem likely he would pick Pequot? How long does it take to fill such a position? Aquirre said that the investigation came to a halt last year when there was an article about Mack being tapped for CEO at MS.

If Mack had a choice, by Friday, he knew that Pequot would be under a microscope after the hearings. Wednesday, the hearings.. Friday, he goes to Pequot. Wonder if all the computers are being cleansed this weekend?

If the CEO job at MS was still open to him, what would keep him from taking that? Does he see MS as a bigger can of worms than Pequot? Perhaps Pequot needs his urgent attention.

What a curiousity this is!
Re: The Liars Club Will Please Come To Order.... By mhelburn on 7/2/2006 6:30 AM
I was completely confused by the Reuter's article. No date. Mack was appointed CEO of MS June 30 of 2005. This article was from before then. Aguirre was fired in September of 2005.

If influence peddling at the SEC was happening, it appears to be coming from MS and Mack. The announcement of the fine a day before the hearings looks like a cover-up. MS said that they had not been contacted by the SEC in the matter. They didn't mention that they called the SEC. How did the information that Mack was being scurtinized by the SEC get to the attorney for MS who called the SEC?

Mack had an office at Pequot when he didn't have a "job". He was acting as a consultant to Pequot. He was appointed Chairman of Pequot on June 3, 2005. Less than a month later, he took over his old job at MS.
Re: The Liars Club Will Please Come To Order.... By Little Bo peep on 7/2/2006 6:43 AM
Enjoy the 4th of July fireworks.

Working weekends.......busy-busy-busy
http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100864.html


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Re: The Liars Club Will Please Come To Order.... By bubba 24 on 7/2/2006 6:25 PM
businessjive.com website is down. does anyone know of another place to get the darkside slideshow? Does anyone know who took down businessjive.com?
Re: The Liars Club Will Please Come To Order.... By Sean on 7/2/2006 9:13 PM
Bubba the site is there and fine...try again!!
Re: The Liars Club Will Please Come To Order.... By JLB on 7/3/2006 4:57 AM
Interesting piece from Chris Byron at the Post.

http://www.nypost.com/business/dismantle_the_sec_business_christopher_byron.htm
July 3, 2006 -- IT looks like the Securities and Exchange Commission has finally come up with a plan for dealing with the devastating Court of Appeals decision two weeks ago that nullified the SEC's efforts to regulate the hedge fund industry.
The strategy: Do nothing - except perhaps pout a bit and blame everything on the media.

Eighteen months ago in this space, I called for dismantling the SEC - a bureaucratic anachronism from the New Deal that lacks the power, the resources or the political support to oversee and enforce the law on Wall Street. Now I repeat the call.

For its thoroughly inept handling of the hedge fund industry alone, the 72-year-old agency should either be reorganized top to bottom, with a new charter and new leaders armed with broader powers of criminal enforcement, or it should be shut down entirely and its existing functions distributed to other government agencies.

Faced with a federal budget cash deficit that the Congressional Budget Office expects to top $477 billion in the year ahead, taxpayers simply cannot afford to be wasting nearly $1 billion a year on a 3,916- employee federal bureaucracy, sprinkled across 11 regional offices, that doesn't do the basic job for which it was created - namely, to enforce the law.

THE SEC's three-year- long struggle to regis ter and regulate hedge funds is the climax to this legacy of failure. The initiative was launched with laudable enough intentions in early 2003 by then-SEC Chairman William Donaldson, who wound up resigning in defeat two years later with the job half-done.

Donaldson's successor, an Orange Country, Calif., conservative Republican named Christopher Cox, vowed to continue with the program. In doing so, Cox placed the prestige and credibility of the SEC on the line again - only to have a federal appeals court declare the effort null and void as an arbitrary and illegal use of the SEC's rulemaking powers.

The Court of Appeals gave the SEC 45 days, until Aug. 7, to appeal or ask for a rehearing, stipulating that if the SEC takes no action and simply sits on its hands, the roughly 1,000 hedge funds that have been registered under the program to date can simply de-register themselves.

So how has the SEC decided to deal with this self-created debacle? According to one well-placed commission official, there will be no appeal of the Court of Appeals ruling. Instead, the SEC will simply wait until the 45 days are up and then see just how many funds actually decide to de-register themselves from what will then become nothing more than a voluntary program.

Said the source, "Hedge funds ought to find it helpful to be able to promote themselves to potential investors as being 'SEC-registered' whether the program is voluntary or not." The source added that "some of our critics in the media" haven't been helping by constantly bringing up topics like the competence of the SEC itself.

But competency is only one of the questions that properly comes up when a regulatory body like the SEC behaves this way.

Wall Street's official cop on the beat set out three years ago to police a rising tide of fraud in an unregulated sector of the market that is rapidly taking over all of Wall Street.

Three years later we now find the very same agency, having made a total hash of its ensuing regulatory effort, suggesting that its best way out of the mess will be, in effect, to turn the great seal of the SEC into a kind of SEC Stamp of Approval for any hedge fund willing to stay registered in the program.

HAS it occurred to any of the brilliant minds at the SEC just who would hold the real power in this arrangement? A voluntary program is just that - voluntary - meaning that any hedge fund can drop out at any time, for any reason - or even no stated reason at all.

Under such circumstances, how willing will the SEC be to bring cases against voluntarily registered funds when keeping the program alive involves maintaining the goodwill of the funds still in it? Human nature being what it is, one can well foresee a time when the program winds up overflowing with crooked funds, while the SEC hems and haws about investigating any of them.

There is no doubt that the unregulated profileration of hedge funds represents a direct threat to the stability and integrity of America's capital markets. An SEC staff study estimated that somewhere between 6,000 and 7,000 hedge funds, having roughly $700 billion of assets under management, were operating in the U.S. in the autumn of 2003. Now, says the SEC, just those funds registered under the program have somewhere between $1.2 trillion and $2.4 trillion of assets on their books.

But the SEC already had all the power it ever needed to uncover hedge fund fraud without demanding that they register with the commission. And the best evidence that more power wasn't needed is what happened once the doomed hedge fund program went into effect at the start of this year - the opening of just 12 hedge fund fraud cases by the SEC since January, which is typical for the agency during any such six-month period in recent years.

HERE are four things the SEC can and should do now to clean up this mess. And to do them it doesn't need a single new law or ruling from anyone. All it needs is the willingness to use the powers it already has.

1. Track domestic and offshore hedge fund auditors. So far as I have been able to determine, the SEC has set up no institutionalized system for tracking the activities of auditing firms involved with any hedge funds, let alone the fishy ones. To compile such a list, the SEC could begin with the names, addresses and phone numbers of auditors for publicly traded penny stocks; the linkages between penny stocks and hedge funds would astonish them, often leading to offshore hideouts in places like the Netherlands Antilles.

Such a list would also be useful for names that are not on it, instantly disclosing, for example, that the accounting firm of "Richmond-Fairfield Associates," listed as auditor of record by the now defunct Bayou Management hedge fund group, was bogus and did not exist.

2. Read SEC Forms 13D and 13F. From these forms, which holders of significant stakes in public companies must file with the SEC, can be teased a vast array of information on fraudulent investment schemes involving hedge funds. The SEC rarely looks at any of it. The forms can disclose when a fund acquires a controlling block of stock in a company that suddenly spurts in price. And often, when a fund fails to file the forms, the evidence of control can be found in the audited financials of the issuing companies.

3. Read private litigation cases for leads. Nearly all major SEC investigations lead eventually to parallel private lawsuits by victimized plaintiffs. But SEC investigators seem largely oblivious to what can be found in the resulting case files.

Following the collapse of the Lancer hedge fund three years ago, private lawsuits produced a mind-boggling array of documents directly implicating Citco Fund Services, one of the biggest hedge fund administrators, in the Lancer fraud. The SEC has acted on none of it.

4. Have a "Show Trial" or two. For years now, the entire mindset of the SEC has been focused on the filing of complaints and little else. After that, the cases are simply left to gather dust, at the end of which process they are settled by plea bargain agreements in which the defendant promises never to break the law again - without even being forced to admit that he broke it the first time.

Last week, I asked the SEC's national office in Washington for a list of current and recent cases that the commission had actually pursued to trial, and they could not cite even one. This simply must be changed if the lawbreakers of Wall Street are ever to take the SEC seriously again.

These are the sorts of things the SEC can do, and should do, to rescue itself from the rubble of its hedge fund fiasco. But my guess is you'll hear 20 excuses for why they can't do any of them - if indeed you hear anything at all. And that's why I say, to hell with them. They've had their shot and they've blown it. So shut 'em down.

cbyron@nypost.com

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