I always figured my good friend and former colleague Carol Remond would wind up on the front page of The New York Times. But I never thought it would be like this.
In case you didn't see the story in Saturday's Times, the Securities and Exchange Commission issued a subpoena to Carol and another respected financial journalist, Herb Greenberg, seeking their notes on stories that were critical of certain companies, particularly those involving a sketchy outfit called Overstock.com.
Unless you follow the stock market fairly closely you probably don't know much about Overstock. But if you do, you've got to be wondering how the SEC ever allowed itself to get involved with these guys.
Ultimately the commission took the highly unusual step of essentially rescinding the subpoena, stating that for the time being it wouldn't be enforced. But the fact that it was even issued in the first place should be deeply troubling to investors...as well as anyone keeping an eye on the Bush administration. Not surprisingly, what you end up with is yet another grievous example of a Bush lackey - in this case SEC Chairman Christopher Cox - turning regulation on its ear, using it as a cudgel to protect corporate interests and muzzle the press.
Overstock sells all sorts of stuff at liquidation prices on a website it operates out of Salt Lake City. The company, which has never turned a profit, is headed by a notorious financial media mouth named Patrick Byrne, who spends most of his time as CEO fighting a supposed conspiracy to deflate Overstock's stock price rather than actually trying to improve his money-losing business.
Byrne's chief complaint is that "short sellers" (traders betting that a stock is going to fall) are feeding false and misleading information about the company to reporters, who then print stories critical of Overstock. Last summer he accomplished the rare feat of making business news truly hilarious when, during a conference call, he went off on a rant about an intricate web of conspiracy in the financial community ruled by an evil "Sith Lord" determined to take over his company. He closed by taunting the Sith Lord and threatening reprisals if he ever was unmasked. I'm dead serious - you can't make up shit like that. It was peeing-in-your-pants funny. The guy killed.
Anyway, lately Byrne's attracted most of his attention on CNBC and in the business pages, which for some reason still take him seriously, by focusing on an illegal technical maneuver called "naked shorting" - a little piece of financial porn you really don't want to wrap your mind around unless you're deeply into this kind of thing. (Of course, if anyone actually wants to understand how it works, let me know and I'll explain - without the graphic photos.)
Byrne has sued traders he believes are manipulating his stock using naked shorting and attacked them in the press. He's also financing an organization - the National Coalition Against Naked Shorting - solely devoted to stopping these illegal trades. And now it appears he found a sympathetic ear at the SEC, which decided to take the extraordinary step of subpoenaing the notes of the two reporters Byrne has singled out for writing stories critical of Overstock.
Look, naked shorting is a lousy practice that's illegal for good reason. And for all I know Byrne very well might be the victim of a Sith Lord-led conspiracy of short sellers forcing his stock into the crapper. So far they've made lots of money betting against him; Overstock lost about two-thirds of its value in 2005. It's also absolutely true that any Wall Street player with an agenda can find a clueless financial reporter to manipulate into writing stories for him. But I can tell you from first-hand experience that Carol isn't one of those reporters.
Still, none of that matters in the grand scheme of things. The key question here is: Do you really believe the major problem with corporate America is that stock prices are being manipulated through naked shorting?
I think the answer to that one's pretty obvious. But rather than investigating the real corporate malfeasance that causes investors to lose billions of dollars, the SEC is menacing two reporters actually trying to do good work.
The lesson from the 1990s bubble is we need to be much more skeptical when corporate executives open their mouths. Companies spend a tremendous amount of time, pay enormous sums of money, and in many cases will do almost anything in their power, to hide their true financial condition. When it comes to getting "real" information the average investor is at an extreme disadvantage, and often aggressive investigative financial reporters like Carol and Herb Greenberg are the first ones to issue public warnings on the market's schemes and scams.
I can't speak for Herb because I don't know him personally (though I can say that he has a sterling professional reputation.) But I sat next to Carol for about two years when we were columnists at Dow Jones, and we collaborated on several stories. So I know with full confidence that the SEC would find absolutely nothing in her notes other than an extremely thorough and deeply sourced reporter.
In many ways Carol is corporate America's worst nightmare - and exactly what investors need to help keep the markets honest. Feisty and loudly profane, she's probably the most tenacious journalist I've seen in my entire life. Although she was born and raised in France, she's far more pit bull than poodle.
Carol doesn't cover a story as much as explode into it. She's constantly on the phone, screaming at top volume in a thick Burgundian accent that results some interesting syntax and word choices. She has a Pesci-like flare for working the word "fuck" into a sentence, and the exclamation "Fuck off!" is a fairly typical way for her to end a conversation. I've seen her hurl that one at sources, colleagues, our boss, me - you get the picture.
But she also has an incredible knack for spotting corporate rip-offs and is gleefully relentless when on the trail of a company she thinks is a fraud. She truly loves what she does, and the key to the quality of her work is exceedingly deep sourcing. It's no secret that she has friends in the short-selling community - every good financial reporter needs a few of them because that's only way to get the "other" side of the story. But Carol's sources are way beyond the ordinary. FBI agents have asked where she gets her information. That's what I call deep.
I also remember how Carol used to laugh at the things the scummy companies she investigated would say about her. They were constantly complaining that she was on the take from short sellers, which is absurd because she's often one step away from investigating them, too. One idiot even started a rumor that she was having an affair with a male trader, which is ridiculous because she doesn't, uh, swing that way...and isn't shy about telling you.
When she isn't driving corporate executives nuts, Carol lives fairly simply and her salary comfortably supports her lifestyle. There's nothing remotely suspicious about anything she does. And yet someone at the SEC saw fit to threaten her with a subpoena for simply doing her job and trying to help investors, all on the word of an angry executive with delusional conspiracy theories about his failing company.
Considering the SEC's recent track record of not spotting financial fraud happening right under its nose, you'd think the commission's investigators would be focused on far larger issues. But as it turns out, the SEC is just another tool for the Bush administration to batter the media and intimidate the messenger.
After the likes of Enron, Worldcom, Tyco and Adelphia duped investors out of billions of dollars, can anyone actually believe that a fundamental problem in the financial markets is aggressive investigative journalism? Our chief market regulator seems to think so.
Once again, it makes you wonder: What the hell are these people doing?