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Score One For The Good Guys: The Rise of DeepCapture.com
For those of you out of the loop, www.deepcapture.com, winner of the 2008 weblogs award for best business blog, has at long last made headway in its relentless and noble crusade against naked short seller abusers.
The blog sums up its recent accomplishments as follows:
- The SEC recently enacted permanent restrictions on illegal naked short selling, which include greatly enhanced disclosure of delivery failures and shorting activity.
- Today, the SEC brought its first enforcement cases against illegal naked short selling.
- Also today, FINRA expelled a member firm for engaging in illegal short selling.
Unfortunately, as the blog explains, the battle against corruption, manipulation and fraud in the financial markets is far from over:
Yes, the pendulum is now unambiguously swinging in our direction, but the job is not done. Indeed, we can only be assured of progress to the extent that we each recognize our responsibility to continue pushing.
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The story of DeepCapture.com is quite unlike any other business blog (at least that I know of). After publishing remarkable, stunning and factually-supported investigative research covering the inner-workings and dealings of a vast network of political and financial 'miscreants,' the blog and its (non-anonymous) authors have been the target of journalistic attacks, unwarranted legal action, public mockery and even physical violence and threats.
The blog implicates Michael Milken, Eliot Spitzer, Jim Cramer, Steven Cohen, Gary Weiss, James Chanos and literally hundreds of others in wide-ranging efforts to manipulate everything from stocks to public perception (notably through the tampering of Wikipedia pages). Virtually every allegation is backed by well-sourced facts and findings, and when clearcut evidence is lacking, correlationary and circumstantial evidence is provided extensively.
Recently, the blog has unleashed a 15-part case study of heavily shorted firm Dendreon Corp, known for its prostrate cancer treatment drug Provenge, which details the immense financial struggle this David has had to overcome in the midst of the most ruthless hedge fund Goliaths. Indeed, the blog alleges that this very struggle has indirectly caused the hastening of over 60,000 deaths of men with prostrate cancer.
Further, Zero Hedge readers may be interested in gleaning the full extent to which media outlets such as cnbc as well as institutions such as the FDA have been infiltrated by sleazeballs allied with manipulative and fraudulent hedge funds. Hence the phrase 'Deep Capture,' which has come to define those in the media / political / legislative realms who have become 'captured' by dangerous financial forces and have actively worked to blur the lines between reality and fiction.
Perhaps the most frightening of the blog's contentions is that the mafia has come to play quite a significant role in the financial dealings of hedge funds. To prove this case, perpetrators of various well-documented cases of mafia violence are systematically linked to hedge fund operators and/or cronies.
But don't take my word for it --- check out the blog yourself right now: www.deepcapture.com.
Unless, of course, you'd rather just opt for the blue pill.
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Side Note: One of the two founders of DeepCapture, Patrick Byrne, has quite an alluring biography as well as mental faculties, as told by this CNN Fortune article 'The Renaissance Man of E-Commerce.'
"He earned a Ph.D. in philosophy from Stanford and black belts in hapkido and tae kwon do. He has bicycled across the U.S. three times, studied moral philosophy at Cambridge as a Marshall fellow, and briefly pursued a career in boxing. Byrne also speaks Mandarin--not to mention four other foreign languages--and translated Lao Tse's Way of Virtue during his senior year at Dartmouth. He has a nearly photographic memory, which he is fond of demonstrating with what he calls his memory trick: If he studies a deck of cards for a couple of minutes, he can recite them back, one by one, in either direction. He can even recite the same list again six months later."
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PragmaticIdealist,
Nice one! You beat me to this... I was going to write about this story on ZH and give props to Deep Capture. Truly magnificent article on Dendreon. Haven't read the Chanos stories but should be interesting!
ZH readers, check out the DeepCapture.com stories... no superlatives required !
- Ray
Patrick Byrne has done a lot of things. Build a business with profitable operations is not one of them. Even after 12 years and $250 million of losses. Yet despite this, he had the time to start a blog to attack his critics.
Naked short selling is illegal, just like shorting on a down tick was illegal. It is the boogey man of many scam companies. Even if there had been naked shorting of DNDN it obviously didn't harm the company's actual business. DNDN's business produced a great drug. The shorts lost (whether naked or covered). And just like any other company the shorts didn't hurt their business.
Byrne's company, OSTK is another matter. If they don't actually build a profitable business in the next couple of years, they will face terminal impact because of their own incompetence. And it wouldn't matter how many funds were short his stock.
Couldn't happen to a nicer guy.
You are terribly misinformed.
1) Artificially low stock prices can easily hurt business.
2) DNDN's business was hurt by not only the short selling but the media, FDA and political manipulation that followed the short selling.
3) If you actually read the 15-part DNDN saga you would see that, yes over time the shorts lost, but a lot of the shorts ended up taking long positions at the right time and cashed out at good times too... the manipulative fraudulent ones at least.
Let's prove it once and for all. Pick a date, any date, and have ALL public corps do an AGM. Lets then count the votes. More votes than outstanding, then weese gotta problem, dtcc:)
Of course, this won't work because the mob isn't STOOPID!
40muleteam borax
patrick byrne is a con man
Browsing ZH, DeepCapture, etc. is like Encyclopedia Brown on steroids... great stuff, kudos galore
WTF? Is this promotional material for a cult? Don't click on the links!! Oh, I get it now -- it's satire . . . I thought for a minute this was all real . . . .
No hay comedores de pastillos azules como los que viven en Utah.
wow... your kool-aid must be extra spiced with acid and meth ...
We be red pill people here, no cults involved, just straight truth in english.
I see you've successfully entered the first stage: Denial.
Good luck with that.
LMAO...brilliant reply.
DeepCapture is a great blog. However, my understanding is that they didn't implicate Spitzer, they just named him as having been to school with... . So, it might be that he wasn't actually aware of what he was involved in. On the other hand, I may still be too naive.
Agree DeepCapture is another excellent investigative financial blog like Zero, Market Ticker, and Mish. When I was researching Primary Dealers run on LEH beginning 9/11/08, it appeared that it was a systematic attack to bring LEH down instantaneously (similar to a naked short selling attack on a company like Overstock and Dendreon). Which was the catalyst for the unwinding of the derivatives market and consequently global crash.
Then yesterday, we find PD are selling back treasury auction purchases to the FED within a day or two. Wondering if these PD are the same that started the run on LEH on 9/11/08? Does anyone else have that information?
No one yet that I know of has that info but it was obviously a run on the bank that included massive amounts of nake short selling. The most criminal aspect of this is that once a company is gone it is gone. I cannot even imagine the amount of phantom stock involved in their demise but since it happened so quickly and bankruptcy occurred, there was no such thing as a failure to deliver. There is only one entity that has that information and they aren't talking. It's a secret as DeepCapture likes to say. Someone will get to the bottom of it, eventually. Maybe one of Tyler's sources will find a way to infiltrate the DTCC and suck out the data. Until then, the writers about the greed of Lehman will be the story-de-jour and rake in bucks on Amazon.
Great to see Deep Capture mentioned on Zero Hedge.
The other site to study is solari.com -- particularly the Dillon Read story (http://www.dunwalke.com/) and other Archive material.
Solari's content is a bit more "out there" than Deep Capture and Zero Hedge but I find it invaluable to keep on top of emerging non-financial trends.
The more I see every day, the more I think that former FHA Commissioner Catherine Austin Fitts gets a lot of things right at Solari. For anyone who is interested, here's an excerpt from some of her work on Fannie/Freddie (link here http://solari.com/archive/housing_bill):
"When my company served as lead financial adviser to the Federal Housing Administration (FHA), we surveyed industry loss rates to compare them to FHA's high rate of 35%. The highest we found in the industry was 25%, and this was at the end of the last housing bubble bust, when loss rates would be expected to be high. As we due diligenced the FHA nonperforming and foreclosed portfolios, trying to understand a 35% loss rate, we started to find symptoms of fraudulent collateral practices. Indeed, we found portfolios with 50% loss rates, and the losses had nothing to do with income levels or housing prices.
Here is a story that I have told many times before:
"In 1994, after the first FHA/HUD financial audit was published, a mortgage banker came to see me. He was a serious engineering type who clearly worked hard and had mastered the details of his business. He was distressed, he said. For decades he had been keeping a tally of total outstanding FHA/HUD mortgage insurance credit. He had brought printouts of his database for me. It turned out that the government’s published financial statements showed the amount outstanding was substantially less than the actual amount outstanding. He was sure. I assumed that the guy was crazy. If what he said were true, then the U.S. Treasury and the Federal Reserve would have to be complicit in significant fraud, including securities fraud."
After I began researching HUD fraud in the late 1990s, I would be contacted by people with experience with HUD fraud. They insisted that the same home was being used to create ten or more mortgages that were placed into different pools. They alleged that Chase as the lead HUD servicer and the other big banks were implementing such systems. This was why we would see the same house default two, three, or four times in a year, they claimed. FHA mortgages had to be churned through multiple defaults to generate the cash to keep all these fraudulent pools afloat. This, they insisted, was all going to finance various secret government operations and private agendas.
This issue of collateral fraud was repeated in other markets. As I started to learn more about precious metals and the commodities markets, I would hear story after story about precious metals arrangements in which what investors really had was a bank credit—there was no bullion behind the arrangement.
I have come to believe that the allegations of mortgage collateral fraud are true—not just for FHA and Ginnie Mae at HUD but across the board throughout the mortgage markets as well.
What this means is that Freddie Mac's and Fannie Mae's obligations must be converted to what is essentially government debt. Such conversion means that investors simply don't care if the mortgages have a lien on anything real or not (at least for the time being). Otherwise, there would need to be a process by which all the defaulted mortgages can be sorted through to determine which of the mortgages are legitimate and which are not.
Creating and managing such a process would indeed crash the global financial system. It is hard for a multi-trillion-dollar financial system to maintain liquidity when contracts and laws are meaningless.
The challenge for Hank Paulson is that by increasing the national debt by $5 trillion—whether collateralized by real estate or by phony paper—he can delay the day of reckoning, but he cannot cancel it.
Only one thing can cancel the day of reckoning, and that is a return to productivity—a reengineering of resources in households and communities; a revitalization of culture, education, and markets; a rebuilding of infrastructure; an integration of new technology and new process; and a shift away from warfare, centralization, financial fraud, and organized crime and those who lead and promote it.
Hank Paulson's hands may be tied, but ours are not. Ultimately, you and I have the power to change this. So . . . who is your banker? Who is your farmer? Where is your money?"
Excellent post, interesting information on multiple mortgages for the same home. This is the same scam by the same group of people working itself through every market (people are paying real money for duplicated fake assets).
Ok...SINCE you encouraged me, I'll post more from Solari (Just in case you're interested. If not, it will only take you 5 seconds to scroll down). I present to you, "Part VI – The Tapeworm Corporation Comes Out of the Closet":
"The Tapeworm corporation works like this: Working alone or with others in a trade group, the Tapeworm corporation arranges for its well-paid lobbyists to write and legislate new government regulations and laws that guarantee it a market or market share. The lobbyist and various beneficiaries of the corporations' largesse fund the campaign contributions that help make the system go. The corporation gets government contracts, often on a no-bid,"cost-plus" basis, which guarantees profits and encourages overspending. The corporation may also make government purchases or receive industry-wide subsidies that also generate revenues or tax exemptions and benefits that shelter income. It uses government credit to attract and command global capital at low cost. The astute participant in this system can even use government enforcement to wipe out its competitors. In the worst cases, honest and ethical people in their way are forced out, harassed, or killed.
Let's say our corporation loses money. If it is a financial institution, it simply has the government or the central bank arrange more borrowings that can be loaned back to the government at a built-in profit or, in the worst instances, bail it out using the "too big to fail" justification. If it is a defense contractor, more contracts and purchases can be arranged. In all cases, our corporation enjoys government intervention to prop up its stock prices and debt in the open market, ensuring it a significantly lower cost of capital. The resulting profits fund rich compensation to hire the best and brightest people, field lots of lobbyists to keep the gravy train going, and pour money into the coffers of foundations, universities, and not-for-profits that provide affirmation of the corporate credibility. Our corporation and its leaders are great philanthropists!
A simple, clear picture of the real workings of this Tapeworm model has been challenging to communicate. The model has been obscured by an enormous amount of legal and operational complexity and financial engineering. A great deal of time and effort, financed by those who most benefited, was spent spinning the illusion that the Tapeworm corporation was efficient and productive. And, in all fairness to those who have served as corporate apologists, some of what was going on was hidden behind the nontransparency of national security law and covert operations and money laundering. For those who want a detailed case study, see “Dillon, Read & Co. Inc. and the Aristocracy of Stock Profits.”
The average person could not believe that the largest, most prestigious Wall Street banks and investment houses were engaged with Washington in managing the largest capital market in the world—the U.S. mortgage markets—on a criminal basis.
That was too much to swallow.
Until now.
The real model has come out of the closet. Whereas the last year of Wall Street bailouts were making things clearer, the Housing and Economic Recovery Act of 2008 now leaves no room for doubt. The Act could not be more blunt about infinite government subsidy funded with infinite debt benefiting the private few. The Tapeworm corporation is fully engorged.
The American taxpayers are, in essence, guaranteeing $5 trillion of Fannie Mae and Freddie Mac debt. The Federal Reserve stands by to subsidize Fannie's and Freddie's stock in the stock market. Fannie and Freddie continue to pay dividends to their shareholders. All the profit goes to the shareholders and management. The taxpayers get no compensation or payback for saving all of Fannie and Freddie’s equity and essentially guaranteeing their income. The management of Fannie and Freddie get to keep all their compensation and bonuses. They get to spend as much as they want on more lobbyists and law firms. They and their foundations can continue to hand out money to universities and not-for-profits.
This all ensures that Fannie Mae and Freddie Mac can continue to use the federal credit to centralize and control the U.S. mortgage market.
What Fannie Mae and Freddie Mac do get is a new regulator. After reading the scope of work for the new regulator outlined in the Act, it is not clear to me what authority and scope is left for their board of directors. The boards essentially have all liability and no power. The management must do whatever the regulator says, and the regulator has the ability to micromanage no end, checked only by a Congress that can also micromanage no end. We can reasonably expect Fannie Mae's and Freddie Mac's payrolls and partnerships to continue to expand with their market share. A lot of constituencies are likely to get fed from this new back-door spigot.
But perhaps that is only fair. After all, the federal government represents a source of infinite capital that—unlike pesky shareholders—requires no return. The government only requires that you do whatever they say, pay their friends, and send financing and profit wherever they tell you.
The out-of-the-closet Tapeworm corporation is a more powerful, sophisticated version of the old Tapeworm corporations that were common in Washington housing circles—the HUD property management companies that were sometimes referred to as CIA or Department of Justice (DOJ) “proprietaries.” The management would talk as if they were in charge. The investors would talk as if they were in charge. And the folks from the CIA would talk as if they were really in charge. At the mercy of this invisible matrix structure, the old-style HUD property management company lacked clarity on missions or decisions, and the resulting culture was confused and unproductive at best. It all left you scratching your head wondering who “they” really were.
The housing bill has put forward the most explicit description yet of the true corporate model prevailing in America—congressionally legislated businesses with central-bank-determined stock prices.
It is a fascinating combination of friendly fascism and multiple personality disorder. Now that the fundamental nature of the Tapeworm corporation is out of the closet and clear, keeping it afloat will require a mind-numbing combination of global force to maintain financial liquidity, plus global propaganda and payola to preserve its brand.
In 1994, I was deep in conversation with a technologist who managed our server security and firewalls for my investment bank. We started to talk about what would happen as the explosion in information and communications technology increased the learning metabolism within the economy. At one point, he got up to call a physicist he knew at Lawrence Livermore Laboratory to ask him what happened when the learning metabolism rose in a system. After conversing with the physicist, he returned with this warning. "He said, 'When the metabolism rises, the rate of entropy increases.'”
That's only the tip of the iceberg of what you'll find in the archive at solari.com. I highly recommend that you check it out. Catherine Austin Fitts has a really unique way of analyzing the present situation, and I think that she makes a lot of highly plausible arguments that you won't find anywhere else. Her work tends to move into the realm of conjecture on occasion, but I feel I've gained a lot of insight by reading it.
I first heard of Deep Capture after reading an article about the DTCC on Judd's Antisocialmedia.net. I had run across an article detailing how the DTCC is involved in nearly every trade done in the US and how they are a private, for profit business. Their board of directors seems, like the Federal Reserve, to have huge conflicts of interests. http://dtcc.com/about/governance/board.php
Anyway, Judd turned me on to Deep Capture and the amazing amount of information and investigating they have done. Very good stuff. Thanks for bringing this to ZH readers.
Deep Capture is the blog that first sparked my interest in learning of the true workings of our financial system. Much kudos to them and their work against abusive naked short selling. It's definitely worth checking out the Wikipedia page on the subject and looking at the battles that have taken place over the content of the article on its discussion page.
Another of Deep Capture's founders/contributors, Judd Bagley, has authored some very interesting articles about the perils of Wikipedia at http://akahele.org
Me, too. When I first got all pissed off about TARP and the way we were getting ripped off right in front of our noses, DC was the first blog I encountered. They came up when I did a search on "Regulatory Capture", actually. Next was Taibbi's article and then Max Keiser...
You can see some even funnier stuff here:
http://encyclopediadramatica.com/Gary_Weiss
Prostrate: stretched out with face on the ground in adoration or submission; also : lying flat - from Merriam Webster's on-line dictionary.
This is, indeed, a spreading cancer. HT to Zero for catching it.
Watch this great Bloomberg special regarding phantom shares, Patrick Byrne, the SEC, Reg SHO, etc. Chanos states it's all a non-issue. While none of the Mafia connections are in it, it is well done, albeit dated to the glory days when there were more than two I Banks.
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vIrfhgQPAJ1s.asf.
That was brilliant - I was concerned about DTCC ensuring the # of shares are accurate. That video showed an investor was able to buy more than 100% of all the shares of a company on the long side (indefinitely - not just the short period of time for theoretical naked short selling settlement).
This means there is no credibility whatsoever in the markets and that they are merely a ponzi scheme - if you can buy or sell more shares than are issued it is not a market, it is racketeering. As part of this new regulation on short sales they should ensure not just 3 day delivery settlement on shorts, but ensure companies are not printing money by increasing the number of shares (beyond the # issued).
For all of those that were getting notices that you had to sell your shorts because they couldn't find the shares - welcome to the new world. This is a paradigm shift brought on by this regulation change - it's different than the past because the shares have to exist now. BUT I want to make sure that they don't just create more shares than the shares in existence SO IT IS IMPERATIVE THAT THEY RECONCILE # OF SHARES AT DTCC. We should know who has what # of shares at all times and that they tie to the # of shares issued - if not someone is printing money. If there are more shares available to purchase than shares issued, pricing makes no sense.
On a scary thought, what if the market just keeps going higher for the simple reason that there is more demand to purchase securities (pension/401k assets institutions) in the market than available securities now that naked shorting is outlawed as a price vent- it would cause securities in every asset class to rise despite fundamentals.