Quote:Bethany McLean is one of America’s most respected financial journalists. She is famous for being the first reporter to raise concerns about Enron, the energy company that later proved to have orchestrated a large accounting fraud. She has authored a best-selling book about the scandal called “The Smartest Guys in the Room,” which was made into a documentary movie with funding from Mark Cuban, the owner of the Dallas Mavericks basketball team.
Bethany deserves credit for her work on Enron. But it is worth noting that the primary source for her stories was Jim Chanos, who owns a hedge fund that is aptly named Kynikos (”Cynicism,” in Greek). Chanos was funded by Dirk Ziff, a billionaire heir to the Ziff-Davis publishing empire (and one time guitarist for Carly Simon), at the recommendation of Marty Peretz, Cramer’s partner in TheStreet.com. The cynical hedge fund manager regularly shorts the same companies as Rocker and other members of the Cramer constellation of hedge funds.
It is also worth noting that in Enron’s dying days, a massive amount of its stock was sold into the market and never delivered. Certainly, some of Enron’s executives were crooks, but this was a multi-billion dollar company - a key market participant with thousands of employees and some of corporate America’s most valuable assets. Would the company have gone under if hedge funds hadn’t saturated the market with phantom stock in order to drive the stock to zero? No one will ever know. And the SEC has pointedly refused to release any information on naked shorting in Enron stock.
Either way, the hedge funds’ success with Enron does not excuse their other activities. This crowd has attacked dozens of companies - polluting the media with misleading negative information, employing criminals to harass CEOs, orchestrating SEC investigations, bribing witnesses, and filing phony lawsuits. Almost always, these companies appear on the SEC’s list of phantom stock victims. Often, these companies have done no wrong, but always the hedge funds label them as frauds - “the next Enrons!”
Journalists swallow this information as if it were the elixir of everlasting life. In the seven years since Enron, Bethany McLean has yet to write a story that was not sourced from the Cramer constellation of hedge fund managers and crooks. Even in the face of the most glaring evidence that the hedge funds are wrong - even when she knows full well that her sources are using dubious tactics and employing criminals - she simply will not contradict these people. As a result, a number of her stories are gross distortions.
For example, in March 2007, she writes a story about Fairfax Financial. In this story, she mentions that Spyro Contogouris has been arrested, and notes that Fairfax has accused him of working for a cabal of hedge funds engaged in dirty tricks. But she offers little information about Contogouris’s tactics (one of which, by the way, was to create a website that falsely compared Fairfax to Enron and advertised a copy of Bethany’s book).
Instead, Bethany’s story describes Contogouris as an “independent research analyst” who “proved himself” on an earlier project involving an unnamed stamp company’s “Ponzi scheme.” (The stamp company is called the Escala Group. This was a big target of Kingsford Capital, the hedge fund that offered a large sum of money to the Columbia Journalism Review after it discovered that I was working on this story).
Bethany’s story quotes an analyst who has concluded that Contogouris’s claims are bogus - that Fairfax’s financial statements are “not unusual” and certainly not portending the “next Enron.” She notes that even Contogouris admits that he “couldn’t connect all the dots.” But, amazingly, she proceeds to give credence to this criminal’s analysis, and his completely unfounded claim that Fairfax is the “greatest known insurance fraud of the 21st century.”
In an attempt to bolster this claim, Bethany refers to the work of a firm called Institutional Credit Partners, which apparently also suspects wrongdoing at Fairfax. The reporter presents this firm as completely independent - a disinterested source who objectively confirms the claims of Contogouris. She writes that “ICP executives provided Fortune with access to unedited research because they are deeply disturbed by the possibility that legitimate research may be being [sic] suppressed.”
What she did not mention is that ICP’s director had just bailed Contogouris out of prison. This hardly constitutes objectivity, and Bethany knew it, because as she wrote her story, she had, quite literally sitting on her desk, a copy of Contogouris’s bail documents.
Finally, Bethany also makes a vague reference in her story to a real FBI agent whom she suggests has his eye on Fairfax, when the truth is that he has been looking into other issues, such as the criminal behavior of Spyro Contogouris, whom he subsequently arrests.
There is “the distinct possibility that Watsa and his company are not, in fact, victims,” Bethany writes. “After the last round of corporate scandals [read: Enron], regulators and the public cried out for more hardheaded analysis. Where were the skeptics, they asked? Now, just a few years later, there are skeptics aplenty about Fairfax, and they have taken their suspicions to regulators, rating agencies and others.”
The “others” being a clique of compliant but powerful journalists like Bethany McLean. The “skeptics” being a small group of hedge funds and criminals who have captured America’s most important institutions.

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It is tempting to catalogue each of the many falsehoods that these journalists have entered into the public discourse, but that is perhaps a job for the lawyers. Permit me, though, to provide a couple more examples of the deceit that has been foisted upon us by Fortune magazine’s most prominent reporter and her dubious sources.
In May 2005, Bethany published a story in which she compared MBIA, the bond insurer, to Enron. Today, this company has run into some difficulty owing to the subprime mortgage crisis, but the company is certainly no Enron. It retains its AAA rating from Moody’s and Standard & Poor’s, and none of the issues raised in Bethany’s story have proven to be germane.
Which shouldn’t surprise. The story served primarily to air the opinions of a single short-seller, William Ackman, who is a friend-of-Cramer - a fellow Harvard graduate who was attacking MBIA along with David Einhorn (Mr. Pink’s war ally) and Whitney Tilson (financer, along with the crook Sam Antar, of convicted felon Barry Minkow). Ackman has also worked closely on various deals with Gene Philips, an old Boesky crony who was arrested in 2000, along with 100 stock brokers from the five New York Mafia families.
Bethany knows that Ackman is not an objective observer, so she supports her assumptions about MBIA with information from several analysts whom she describes as “independent”. For example, she quotes Sean Egan, the manager of a small credit rating agency that holds itself out as an alternative to the gold standards, Moody’s and Standard & Poor’s, and apparently believes that MBIA deserves less than a AAA rating. Bethany portrays this guy as credible, while failing to mention that Egan is paid by short-selling hedge funds, and refuses to meet anybody in a real office. Instead, he meets reporters and arranges secret document drop-offs in the Philadelphia train station.
The other “independent” analysis in the story comes from Glass, Lewis, a firm that specializes in producing negative research for hedge funds (and that now employs Jonathan Weil, the Journal reporter who wrote the falsehood-laden story about NovaStar; Weil has also been credited with “breaking” the Enron story along with Bethany).
Meanwhile, another source for the MBIA story-a source who was positive on the company–says that Ackman heavily pressured him to change his views. Then Bethany intentionally twisted the source’s words to suit her purposes.
In an email, the source says: “Bethany McLean cited me inaccurately (in several respects).”

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Shortly before Bethany’s MBIA story came out, New York’s then-Attorney General Eliot Spitzer was obligated (because of the sheer volume of evidence) to investigate Bethany’s source, William Ackman, for stock manipulation and publishing false information. But characteristically, Spitzer quickly dropped that investigation. Then he did a complete 180, and began investigating MBIA. That investigation went nowhere. But then Spitzer became governor of New York. Before the FBI caught Spitzer with a hooker while investigating allegations of money laundering and bribery, the governor continued to push for legislation that would have done damage to MBIA’s stock price.
As Kimberly Strassel bravely wrote on The Wall Street Journal editorial page (which operates independently of the captured “Money & Investing” section), “Mr. Spitzer’s main offense as a prosecutor is that he violated the basic rules of fairness and due process: Innocent until proven guilty; the right to your day in court. The Spitzer method was to target public companies and officials, leak allegations and out-of-context emails to a compliant press, watch the stock price fall…Most of Mr. Spitzer’s high-profile charges have gone up in smoke…The press was foursquare behind Mr. Spitzer in all these cases, and in a better world they’d share some of his humiliation.”
The italics are mine. If it all sounds familiar, it will not surprise to learn that Eliot Spitzer is Cramer’s best friend. They were college roommates. Cramer’s constellation of hedge funds were Spitzer’s biggest campaign donors, and the Cramer clique of journalists were the very journalists who were “four square behind Mr. Spitzer.”
And Spitzer didn’t just attack public companies so that his short-selling friends could make more money. He also manufactured the “independent research” racket. As attorney general, he sued the big Wall Street banks for publishing financial research that supposedly overstated companies’ prospects. This opened the doors for the “independents” - like Sam Antar, Spyro Contogouris, Barry Minkow, the folks at Gradient Analytics, and others who make their living harassing public companies and understating their prospects for short-selling clients.
Spitzer was the most aggressive attorney general Wall Street has ever known. But perhaps in deference to Cramer and his friends, he almost never went after hedge funds. Indeed, one of the only hedge funds he ever prosecuted was Millennium Partners, founded by Israel Englander and John Mulheren, who died of a heart attack in 2003.
Englander and Mulheren were not friends of Cramer. To the contrary, Mulheren was once arrested while driving to the home of Cramer’s friend, Ivan Boesky, with a trunk full of high-powered weaponry. As is recounted in Den of Thieves (the classic account of Mike Milken, Ivan Boesky, and Carl Icahn), when faced with prosecution, Boesky ratted out everyone who had done business with him (and even wore a wire on Milken), in return for a lighter sentence. Mulheren’s involvement was minimal, but he was among those ratted out. So one day Mulheren snapped, and drove to Boesky’s house, planning to assassinate him.
In an ugly world, Boesky or his friends would seek revenge by trying to kill Mulheren and Englander.
Kill them, or call in the Attorney General and the Media Mob.

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It is said that Bethany McLean has a system with gentlemen of a certain age. She has Midwestern looks, but a voice like red velvet –.and she stops at nothing for a peak behind the kimono. Downright cozy with Wall Street, a real life Media Mata Hari, she has beguiled many a CEO into giving her information that ended up in her stories - and also in the hands of her short-selling friends.
In October, 2005, she attended, uninvited, a Saturday lecture Patrick Byrne gave at the Columbia Business School, and asked him to a nearby restaurant. Later that day and several times the next, she left messages on the voicemail of a friend of Patrick’s in the mistaken belief that it was Patrick’s phone. That friend says, “She left Patrick her home and cell numbers and asked him to come over to her place for a drink, ‘even around midnight would be fine.’”
Patrick accepted an offer to meet her in a darkened bar under her apartment, where she mentioned, “I was briefly married, getting divorced.”
Patrick, who had been warned of Bethany’s system, declined her invitation to come by again, or call her at home. It was hard to believe that she would be so bold considering that she had previously published a story about Overstock, noting that “skeptics abound.”
Those “skeptics” again.
The skeptics, of course, were Rocker and the scoundrels at Gradient Analytics, then called Camelback Research Alliance. They suggested that Overstock’s growth paled in comparison to Amazon’s - neglecting again to note that Amazon had burned through $3.5 billion at the same stage of development. There is no evidence that Bethany did anything in this story other than regurgitate the misleading analysis of Rocker and Gradient - while portraying them as two separate entities in order to show that skeptics “abound.”
As if to more forcefully demonstrate her allegiance to these “miscreants,” Bethany had published another hatchet job for them - right after Patrick’s “Miscreants’ Ball” presentation. Patrick told the world that Gradient and Rocker were at the center of a massive financial crime, and a few days later, he opened Fortune magazine and saw the story - an attack on video game maker Take-two Interactive, quoting (as if they were offering analysis independent of each other) David Rocker and Gradient Analytics.
Then, in November 2005, shortly after Patrick did not call her at home (not even before midnight) Bethany published “Phantom Menace.” Rather than describe in detail the allegations that Patrick had leveled in his “Miscreants Ball” conference call, Bethany quoted Mark Cuban, the guy who financed her Enron documentary. She wrote: “As Mark Cuban, the billionaire investor, later wrote on his blog, ‘Never before in the history of Wall Street has a single conference call mentioned the following topics: miscreants, an unnamed Sith Lord he hopes the feds will bury under prison, gay bathhouses, whether he is gay, does cocaine, both or neither, and an obligatory ‘not that there is anything wrong with that,’ phone taps, phone lines misdirected to Mexico, arrested reporters, payoffs, conspiracies, crooks, egomaniacs, fools, paranoia, which newspapers are shills and for who, payoffs, money laundering, his Irish temper, false identities, threats, intimidation, and private investigators. All in 61 minutes.”
In addition to making it seem as if Patrick’s words had been blurted out by a sufferer of Tourette’s syndrome, Bethany went to lengths to ensure readers that Rocker had taken a “routine position” in Overstock. She noted that Gradient had published negative information about Overstock and argued (again without mentioning Gradient’s connection to Rocker, or alluding to any alternative point of view) that this information had merit. Moreover, she described the Easter Bunny as a wacky conspiracy theorist, suggested that phantom stock was not a real problem, and said that Patrick’s behavior was so “over the top” that he should be fired from Overstock.
Before she wrote this story, Bethany had three affidavits from former Gradient employees alleging that Gradient was in the business of producing false information for Rocker. One of those affidavits stated plainly that Gradient had colluded with at least one famous journalist–Herb Greenberg, a friend of Bethany–to illegally front-run media stories.
When Patrick asked if she had bothered to read these affidavits, Bethany said she didn’t see any reason why she should do so. “It would just open up a whole can of worms,” she told him, “and I’d have to get into whether they were telling the truth, or were just disgruntled ex-employees. I don’t want to get into that.”
Patrick then sent an email to Bethany, asking again whether she was going to write her story without reading those affidavits. Bethany now claimed to have read them, but said she wasn’t going to mention them - again, because she didn’t know if the former employees were disgruntled. She made no attempt to interview the employees or do any other reporting that would establish their credibility or lack thereof, so Patrick again inquired as to her unique understanding of what it meant to be a journalist.
Bethany’s emailed reply revealed the depths of her cynicism - the extent to which she views herself not as a detached and unbiased journalist, but rather as a battle-scarred warrior for the pillaging hedge funds that made her career.
She said she’d stick with her sources.
She said she’d do this because, “History is written by the victors.”

* * * * * * * *

There was one accurate paragraph in Bethany’s “Phantom Menace” story. It described some comments that Patrick made to Bethany and Gradient.
“In the fall of 2004, I wrote a FORTUNE story title “Is Overstock the Next Amazon?” After the piece came out, Byrne sent me an e-mail saying “Fair. And balanced.” Two days later he wrote another e-mail: ‘I actually thought it was crap…So why exactly did you become a reporter? Giving Goldman traders blowjobs didn’t work out?’ Around the same time, after Gradient released another report questioning board members’ independence, Byrne wrote to [Gradient's Donn Vickery]: “Donn, you make a living toadying to bully hedge funds…you deserve to be whipped, f-d, and driven from the land.”
Patrick responds, “I agree that the comments were a little salty. But Bethany knew that the email to Gradient had nothing to do with their ‘questioning a board members’ independence.’ I sent it because Gradient was derisive and personally disrespectful, over the telephone and then in print, to Gordon Macklin, a board member and a 78 year-old lifelong friend. This was crystal clear in my email, but Bethany’s strategically placed ellipsis obscured it.”
Here’s Patrick’s email to Vickery, in full: “Donn - You make a living toadying to bully hedge funds. In this role you insulted Mr. Macklin, a friend, a lifelong mentor, and a decent and wonderful man. You deserve to be whipped, fucked, and driven from the land. Little punctilious submissive rejoinders such as your letter cannot change this or recalibrate our relationship on other terms.”

Professor William Black Flunks Bethany McLean for Giving Hall Passes to Goldman Sachs and Wall Street

Posted on 18 August 2012 by Patrick Byrne

Jan Klimkowski Wrote:Fantastic.

Every now and then the Truth is told.

And then ignored, suppressed, forgotten.

Bill Black is excellent.