Two and a half years ago, Overstock.com CEO Patrick Byrne penned an editorial for The Wall Street Journal, warning that widespread stock manipulation schemes - including abusive naked short selling - were threatening the health of America's financial markets. But it wasn't published.
"An editor at The Journal asked me to write it, and I told him he wouldn't be allowed to publish it," Byrne says. "He insisted that only he controlled what was printed on the editorial page, so I wrote it. Then, after a few days, he got back to me and said 'It appears I can't run this or anything else you write.'"
The Journal never changed its stance. But last week, the editorial finally saw the light of day at Forbes - after Byrne added a few paragraphs explaining that naked shorting had hastened what could turn out to be the biggest financial crisis since The Great Depression.
With a traditional short sale, traders borrow shares and sell them in the hope that prices will drop. A naked short works much the same way - except the shares aren't actually borrowed. They're sold but not delivered.
By the middle of the summer, these unresolved "stock IOUs" - as Byrne calls them - were pilling up in four Wall Street giants already struggling to stay afloat: investment banks Lehman Brothers and Merrill Lynch and mortgage finance companies Fannie Mae and Freddie Mac. On July 12, the Securities and Exchange Commission issued an emergency order banning naked shorts in a host of major stocks, and all four of those names were on the list.
The order expired in mid-August, and in the weeks since, Lehman Brothers has filed for bankruptcy, Merrill Lynch vanished into Bank of America, and Fannie and Freddie were seized by the US government.
Then, on September 17, the SEC issued a new order meant to curb naked shorting of all stocks. "These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," read a statement from SEC chairman Christopher Cox. "The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation."
In the wake of the SEC's crackdown, the mainstream financial press has acknowledged that widespread and deliberate naked shorting can artificially deflate stock prices, flooding the market with what amounts to counterfeit shares. But for years, The Journal and so many other news outlets ignored Byrne's warnings, with some journalists - most notably a Forbes.com columnist and former BusinessWeek reporter named Gary Weiss - painting the Overstock CEO as a raving madman.
Byrne has long argued that the press dismissed his views at least in part because Weiss - hiding behind various anonymous accounts - spent years controlling the relevant articles on Wikipedia, the "free online encyclopedia anyone can edit."
"At some level, you can control the public discourse from Wikipedia," Byrne says. "No matter what journalists say about the reliability of Wikipedia, they still use it as a resource. I have no doubt that journalists who I discussed [naked shorting] with decided not to do stories after reading Wikipedia - whose treatment [of naked short selling] was completely divorced from reality."
As recently as last week, Weiss told us he's never even edited Wikipedia. But emails shared with Byrne and The Register show that Weiss has in fact edited the encyclopedia's article on naked shorting. And they indicate he's behind an infamous Wikipedia account known as "Mantanmoreland," an account that - with the backing of the site's brain trust - ruled the articles on naked shorting, Patrick Byrne, and Overstock from January 2006 to March 2008.
A single Wikipedia edit also links the Mantanmoreland account to a PC inside the Depository Trust & Clearing Corporation (DTCC). Owned by Wall Street investment banks that may have benefited from naked shorting schemes, the DTCC oversees the delivery of stocks on Wall Street.