Goodbye Marc Fagel, and Good Riddance

Routine news from the Securities and Exchange Commission yesterday: Marc Fagel, director of its San Francisco office, was leaving to become a partner with Gibson, Dunn & Crutcher, a leading securities fraud defense firm.

It just seemed like yet another twirl of the revolving door. But it wasn't. This was actually the long-overdue departure of a quintessential example of the "captured regulator."

Fagel was the driving force behind one of the darkest chapters of the SEC's recent history: Its 2006 probe of research firm Gradient Analytics and its client Rocker Partners, and the subpoena of reporters who told the truth about the company that inspired the probe, Overstock.com, and its crazy CEO, Patrick Byrne.

Gradient's "crime" was that it questioned Byrne's management and Overstock's accounting and  earnings capacity, which was richly borne out by future events.

The probe was based on trumped-up allegations of collusion between Gradient and Rocker, as became clear when it emerged that the former Gradient employees who were the SEC's star witnesses -- as well as Byrne's, in a civil suit he had filed -- had been fired for cause. After all the publicity died down, Gradient and Rocker were quietly exonerated.

It was bad enough that Fagel, who spearheaded this wrong-headed witch hunt, let himself be led around by the nose by a CEO who was so unhinged that he directed lewd and obscene remarks to a reporter for Fortune, Bethany McLean, and fantasized that a fictional character from the Star Wars movies had ruined his business.

All this was known to Fagel, and he should have been canned for poor judgment. But on top of that idiotic Keystone Cops routine, there was the little matter of the subpoenas.

They were issued to three leading financial reporters, Herb Greenberg of Marketwatch, Jim Cramer of TheStreet.com,  and Carol Remond of Dow Jones News Service, who had been  critical of the company's management and accounting..

The subpoenas, which were whipped up by Fagel and other SEC lawyers who swallowed Byrne's conspiracy theories, were such a major embarrassment that they made the front page of the New York Times when they were withdrawn by SEC chairman Chris Cox. 

The shamefaced Cox actually scolded his own enforcement division for doing such a harebrained thing.

But it was even worse than it appeared to be at the time. At the same time that Fagel & Co. were chasing their tails at the behest of a nutty CEO, Bernie Madoff was ripping off his customers and the major Wall Street bankers, including many with large operations in San Francisco, were stealing from everyone in sight.

So what happened to the official who dreamed up this absurd waste of government resources? He was promoted in May 2008, just in time to not cover himself in glory during the financial crisis that was in the process of unfolding.

And now he's where he belongs, defending bad guys. Which was pretty much his role in the Gradient/Rocker investigation. Don't let the door hit you on the way out, Fagel.

Byrne, meanwhile, has crawled back under a rock, emerging briefly in January when he was arrested for trying to carry a gun on a plane. Since he no longer can coax regulators to do his bidding, he has taken to crazy rants in his Deep Capture blog, which is run by the disgraced ex-journalist and fantasist Mark Mitchell.

Byrne and Mitchell are now ensconced in a libel suit in Canada that, I understand, will be keeping them both very busy through 2014. The suit against Byrne is such an open-and-shut case of craziness and fabrication -- a minor stock promoter was accused of Al Qaeda connections -- that none of Byrne's dwindling number of pals in the media, not even the Utah press corps, have taken up the cause.

Byrne has since stepped down for "medical reasons." I understand doctors have been probing a rupture in his conscience.

When Byrne was busted in that gun incident, a police report stated that he sleeps with a Glock by his side every night. That's odd. Why does he need a gun, or even a teddy bear, when he has an entire regulatory agency and the likes of Marc Fagel to do his bidding?

© 2013 Gary Weiss. All rights reserved.
------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss

Tweet

If You Don't Think We're in an Ayn Rand Nation.......

Read this:

Idaho State Senator thinks Ayn Rand should be required reading for high schoolers  - NY Daily News


© 2013 Gary Weiss. All rights reserved.
------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss
Tweet

Ayn Rand Nation is Now in Paperback

I would be remiss if I did not point out that AYN RAND NATION, my account of the nation's long struggle with the hard-right maxims of the author of "Atlas Shrugged," is out in paperback today.

It contains an Afterword that describes how Americans actually adopted a key facet of Rand's philosophy in 2012: they acted in their "rational self-interests" by voting for candidates who would not turn the clock back on Medicare and Social Security.

One of the key prophecies in the book, articulated by Ayn Rand Institute leader Yaron Brook, turned out to be correct: the elections, and their aftermath, turned out to be a struggle between traditional American values and narrow-self interests.

So far, the narrow self-interests are not carrying the day. But give them time. They have funding and ignorance on their side, and that usually wins out. 



© 2013 Gary Weiss. All rights reserved.

------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss
Tweet

The Lessons From Overstock.com CEO Patrick Byrne's Gun Caper

 Byrne under arrest

I was appalled (but not surprised) to learn about Overstock.com CEO Patrick Byrne's latest escapade: a couple of weeks ago, he was arrested at Salt Lake  Airport trying to carry a loaded Glock handgun onto an airplane.

I was even less surprised by the revelation, buried in a police report, that he sleeps with the gun every night, ready to drill any intruding "miscreants" with .40-caliber, bone-shattering hollow-point bullets.

It's hardly news that Byrne is crazy as a bedbug, or that the 50-year-old Byrne would take to cuddling at night with a loaded gun.

But what is noteworthy, and troublesome, is that he is not being prosecuted.

Ask yourself this question: if you tried to bring a loaded gun onto an airplane, even if you had a permit (albeit in a state that, as this proves, will give a carry permit to literally anyone) would you get away with it? Especially if you were carrying almost $3200 in cash?

Byrne did just that, and got away with it. Press reports say that he posted bail, but there is not a trace of any case against him in local court records.

Emails to the Salt Lake County District Attorney's Office yielded a kind of massive shrug. They've never even heard of the guy! And statements to the media indicate that Byrne is not alone. Other gun-toting morons, one who even tried to bring an artillery shell on an airplane, were nabbed by Salt Lake airport authorities and cut loose.

In Byrne's case, the geniuses in Salt Lake City (an email runaround makes the decision point unclear) bought into Byrne's explanation that he "forgot" the gun was in his bag.

His explanations are inconsistent and contradictory, as Sam Antar points out in his blog in his two recent items on this bizarre episode.

The gun was nestled right next to an IPad. All the cops had to do was to check if the IPad was charged up. If it was, his explanation was clearly a lie. There is not a word in the police report to indicate that this simple step was taken to determine the credibility of his story.

Maybe they didn't want to find out.

I'm not naive enough to think that Salt Lake City authorities are going to nail the Utah Republican Party's biggest contributor.  But what that does is send a message to Al Qaeda, some white supremacist nut, or pretty much anyone who wants to hijack an aircraft, that you can get one bite of the apple at bringing a handgun on an aircraft if you're brazen enough, white enough, or well-connected enough. Or maybe just because you are using an airport where the local constabulary is just plain dumb. You will be cut loose, to try again.

Meanwhile, we are treated to a rare note of reality in the Walt Disney world of Patrick Byrne's imagination. He has spoken in the past about "men with guns" dropping a dragnet to sweep up all the "Sith Lords" and villains that are out to get him. In the real world, the only one who has wound up in handcuffs and behind bars, albeit all too briefly, is Patrick Byrne.

© 2013 Gary Weiss. All rights reserved.
------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss
Tweet

Thomas Peterffy's Omission

Over the past few weeks, a gent named Thomas Peterffy has been bombarding the airwaves with a television commercial in which he says as follows:

America's wealth comes from the efforts of people striving for success. Take away their incentive with badmouthing success and you take away the wealth that helps us take care of the needy. Yes, in socialism the rich will be poorer. But the poor will also be poorer. People will lose interest in really working hard and creating jobs. I think this is a very slippery slope. It seems like people don't learn from the past. That's why I'm voting Republican and putting this ad on television.

This ad is more than just a simple-minded, intellectually dishonest exercise in sophistry, equating concern about income inequality with advocacy of "socialism." It's also incomplete, in that Peterffy does not disclose how he is able to afford running a shrill, dishonest TV ad.

He is able to do so because of the very party that he is fighting against.

Peterffy is founder and CEO of Interactive Brokers, a publicly traded firm that is in the options trading business. The company's most recent 10-K annual report observes as follows:

The advent of electronic exchanges in the last 21 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention. Three decades of developing our automated market making platform and our automation of many middle and back office functions has allowed us to become one of the lowest cost providers of broker-dealer services and significantly increase the volume of trades we handle.

In other words, Peterffy made his fortune largely because of Democratic policies favoring electronic trading--especially the policies of the Securities and Exchange Commission under Democratic president Bill Clinton.

Institutional Investor pointed out in a 2005 profile that Peterffy was close to Bill Clinton's deregulation-loving SEC chairman Arthur Levitt, who was an outspoken advocate of electronic trading.

II says that "after Peterffy demonstrated his system to then-­SEC chairman Arthur Levitt Jr. in 1999, the agency became convinced that U.S. options exchanges could link electronically to ensure that investors would always receive the best available prices. The SEC soon mandated such a linkage. Peterffy pressured exchanges that resisted moving from floor trading to automated execution. 

"Timber Hill [Peterffy's firm] quickly became one of the biggest market makers on the all-electronic International Securities Exchange when it debuted five years ago [in 2000]. "

That's a far cry from the image Peterffy paints of himself as a John Galt-like, regulation-hating capitalist. 

He looks like a crony capitalist to me. And a first-class hypocrite to boot.

© 2012 Gary Weiss. All rights reserved.
------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss
Tweet

President Obama Endorses Ayn Rand Nation!

Well, almost.

In an interview in Rolling Stone with historian David Brinkley, Obama makes what are, I believe, the first comments he's ever made about Ayn Rand. And they're very much along the lines of my analysis in Ayn Rand Nation:

Brinkley: Have you ever read Ayn Rand?

Obama: Sure.

Brinkley: What do you think Paul Ryan's obsession with her work would mean if he were vice president?

Obama: Well, you'd have to ask Paul Ryan what that means to him. Ayn Rand is one of those things that a lot of us, when we were 17 or 18 and feeling misunderstood, we'd pick up. Then, as we get older, we realize that a world in which we're only thinking about ourselves and not thinking about anybody else, in which we're considering the entire project of developing ourselves as more important than our relationships to other people and making sure that everybody else has opportunity – that that's a pretty narrow vision. It's not one that, I think, describes what's best in America. Unfortunately, it does seem as if sometimes that vision of a "you're on your own" society has consumed a big chunk of the Republican Party.

 Of course, that's not the Republican tradition. I made this point in the first debate. You look at Abraham Lincoln: He very much believed in self-sufficiency and self-reliance. He embodied it – that you work hard and you make it, that your efforts should take you as far as your dreams can take you. But he also understood that there's some things we do better together. That we make investments in our infrastructure and railroads and canals and land-grant colleges and the National Academy of Sciences, because that provides us all with an opportunity to fulfill our potential, and we'll all be better off as a consequence. He also had a sense of deep, profound empathy, a sense of the intrinsic worth of every individual, which led him to his opposition to slavery and ultimately to signing the Emancipation Proclamation. That view of life – as one in which we're all connected, as opposed to all isolated and looking out only for ourselves – that's a view that has made America great and allowed us to stitch together a sense of national identity out of all these different immigrant groups who have come here in waves throughout our history.

Couldn't have put it better myself.

David Frum weighs in: "Good thing for him his email address is unpublished."

Tell me about it.

© 2012 Gary Weiss. All rights reserved.
------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss

Ayn Rand Acolytes Go Ballistic Over CNN Rand Segment

A four-minute CNN segment on Ayn Rand has struck a nerve with Ayn Rand factotums.

The Ayn Rand Institute's Don Watkins has a blog post out the other day, taking issue with a comment that I made on CNN's Situation Room last week, in which I said: “Ayn Rand made it morally acceptable to be harsh in your treatment of the poor.”

Watkins says:

Let’s get this straight: Rand did not advocate “harsh” treatment of poor people, nor did she think in terms of “rich” vs. “poor.” She thought in terms of individuals, arguing that every person, whatever his income, has an inalienable moral and political right to pursue his own life and happiness–neither robbing others nor being robbed by them. 

Rand was opposed to every so-called "entitlement" program for the poor and middle class. She advocated eliminating all taxation and all public services, turning back the clock to the era of the robber barons, when "individuals" flourished, and the state of one's education and health were a function of one's wealth.

That's not, of course, the way the Randers push their ideology. What's amazing is how so many otherwise well-meaning and intelligent people buy into it. Sure, the Rand philosophy doesn't advocate oppression of the poor, not in so many words. But that is what it would do. To deny that is just silly.

When I read this kind of rationalization, I'm reminded of Anatole France:  "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."

Actually I should amend what I just said. Rand was opposed to entitlements unless they benefited her personally, in which case it was OK for her--as it was when she and her husband went on Medicare, a program she had violently opposed from the beginning.

That's reminiscent of Paul Ryan attacking the economic stimulus while asking for stimulus money for his district.

This wasn't the only grumbling from the Rand establishment over that little CNN segment.

Also last week, the ARI's Harvey Binswanger posted a really amazing comment on his website concerning the Situation Room broadcast. This was posted on his website hblist.com but has since been removed. After first bemoaning the fact that an ARI spokesman didn't get as much air time as myself or Rand biographer Anne Heller, Binswanger said:

"Anti-Semitic"?

In Ayn Rand Nation I said that Randers don't constitute a cult, and I still adhere to that belief. It's far too diverse a movement. But these kinds of irresponsible attacks demonstrate that there are still cultlike aspects to the Rand movement. No wonder Paul Ryan has sought, unconvincingly, to distance himself from Rand.


© 2012 Gary Weiss. All rights reserved.
------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss

Emails Describe Overstock.com Waging War -- On Behalf of its Enemies

Byrne's suit hasn't worked out too well.

In case anyone has missed it, here's a link to my article in the latest issue of Barron's, which explored the latest chapter in the ongoing saga of Overstock.com and its crusade against sanity.

Overstock has been hyperventilating for months about some emails that were inadvertently made public in its 2007 lawsuit against 11 prime brokers. Nine of the defendants were dismissed or settled, and the holdouts are Goldman Sachs and Merrill Lynch. The emails, disclosed in this court filing, received a flurry of publicity when they were first revealed, mainly a Rolling Stone blog, but since then haven't gotten much ink.

That's a shame, because there is a really amazing, ironic twist to this suit. It seems that Overstock is spending millions of dollars in legal fees to benefit its enemies--the short-sellers who rightly believe that this company is cooking its books, mismanaged, grossly unethical, and generally on its last legs.

Overstock claims in its suit that it was a victim of a conspiracy by the prime brokers to drive down its share price. Now, ask yourself: why would the prime brokers give a damn about Overstock's share price? They don't. And the emails don't say a word about Overstock or its nutcase CEO, Patrick Byrne.

But the prime brokers do have a motive to maximize their profits. The emails suggest that they may have done so by loading up on stocks for their stock-loan departments that were created via naked shorting, specifically by options market-makers who used a trading technique called a "reverse conversion." Then they charged their customers for borrowing the shares -- when they weren't borrowed.

As I point out in the article, short-sellers have been complaining for years about prime brokers cheating them by not borrowing stocks on their behalf. Hedgie Marc Cohodes, one of the short-sellers that Byrne targeted in a separate lawsuit, has contended that Goldman put him out of business and has intimated that it did so to cover up naked shorting.

I didn't have space in the piece to explore the depth of the short seller discontent, which included a class action lawsuit filed against the same prime brokers in December 2006, months before Overstock filed its suit.

Here's a copy of the short sellers' 2006 lawsuit. Note that the shorts' suit complains about pretty much the same conduct that appears to be discussed in the emails. Aside from alleged price fixing, Bloomberg reported at the time, "the plaintiffs also claimed that the firms don't require one another to deliver 'hard-to-borrow' securities, enabling them to charge borrowing fees for securities that never actually change hands." The suit was dismissed on a technicality a year later.

So, assuming there was chicanery here (which Goldman and Merrill both deny), the victims would be the short-sellers Byrne hates.

I guess that might explain why there was a spate of director resignations when Overstock's suit was filed back in 2007. I have to admit that I was slow to grasp the magnitude of this idiocy when the suit was first filed.
 
Adding irony upon that irony, Overstock will be on the hook for $2.4 million in court costs if its appeal of the suit, which was dismissed in January, is unsuccessful. Given the company's precarious financial situation, ongoing consumer fraud litigation by California district attorneys, and a libel suit against Byrne that is likely to go against him (both dealt with here), this suit is just another disaster for a company with no shortage thereof.

© 2012 Gary Weiss. All rights reserved.
------------------------------
My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter @gary_weiss.

Paul Ryan Seeks to Rewrite History on Ayn Rand

 One of the more curious political phenomenon we've seen in recent days is the furious attempt by Paul Ryan, chairman of the House Budget Committee, to rewrite history and claim that he isn't actually an Ayn Rand acolyte.

His denials are simply false, and are contradicted by statements he made at a gathering of Randians in 2005, a recording of which was released on Tuesday by the Atlas Society.

Why would be make such a ridiculous claim? I explore the reasons in a piece for Fortune.com, out today. It can be accessed here.

As I point out in my Fortune piece, Ryan is following in the footsteps of another notable Rand admirer, Alan Greenspan, whose dissembling is laid out in full in Ayn Rand Nation.

© 2012 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, was published by St. Martin's Press on Feb. 28, 2012. Click here to order the book from Amazon.com, and here to order from Barnes & Noble. Follow me on Twitter @gary_weiss.

Guardian Columnist George Montbiot on Ayn Rand Nation

George Montbiot, the noted British writer, has a column out today in The Guardian on Ayn Rand Nation, with the title "How Ayn Rand became the new right's version of Marx."

Montbiot make the following reference to one of the book's main characters, Alan Greenspan:

Despite the many years he spent at her side, despite his previous admission that it was Rand who persuaded him that "capitalism is not only efficient and practical but also moral", [Greenspan] mentioned [Rand] in his memoirs only to suggest that it was a youthful indiscretion – and this, it seems, is now the official version. Weiss presents powerful evidence that even today Greenspan remains her loyal disciple, having renounced his partial admission of failure to Congress.

In the book I call Greenspan the "Murray Hill Candidate," programmed at an early age to assassinate regulation. He was a loyal acolyte for 30 years, a subject he has sought to submerge through obfuscation and denial.

I hope that Ayn Rand Nation sets the record straight about Greenspan's role in making the nation as vulnerable as it was to out-of-control bankers and speculators.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, was published by St. Martin's Press on Feb. 28, 2012. Click here to order the book from Amazon.com, and here to buy it from Barnes & Noble. Follow me on Twitter @gary_weiss.