Chris mentions Paul Brown - by coincidence there was this about him on
CBSmarketwatch.com today
SPECIAL REPORT
Short sellers: The good, the bad and the ugly
Some have exposed fraud; others become the scandal themselves
SAN FRANCISCO (MarketWatch) -- In the escalating debate over whether short
sellers do more harm than good, the case of Anthony Elgindy neatly gives
detractors a bogeyman they can use to drum up support for their cause.
On Dec. 19, 2001, an FBI agent ran a search on the agency's confidential
National Crime Information Center database and came across criminal history
information about Paul Brown, chief executive of a company called Nuclear
Solutions.
Less than three hours later, Elgindy emailed a message to subscribers of his
investment Web sites: "NSOL -- CEO, Dr. Paul Maurice Brown, is a convicted
felon ..."
In the following days, Elgindy and others put out still more information on
the Internet about Brown's alleged criminal record. Over the next month, he
shorted shares of the nuclear-waste technology company several times and
recommended that his subscribers do the same. From early December 2001 to
the end of January 2002, shares of the Nuclear Solutions lost almost half
their value.
Elgindy's lawyer, borrowing from a common short-sellers refrain, sought to
portray his client as a hero for trying to expose "phony companies." To U.S.
Attorney Alan Vinegrad, the scheme was "a shocking partnership between an
experienced stock manipulator and law-enforcement agents, undertaken for
their illicit personal gain."
Last year, a jury in Brooklyn agreed and convicted Elgindy of conspiracy,
securities fraud and extortion surrounding Nuclear Solutions (NSOL :
nuclear solutions inc com NSOL1.21, -0.06, -4.7%) , wasn't a convicted felon
after all. An illegal drug possession charge against him was dismissed in
1991, the Wall Street Journal reported. He died in a car crash in April
2002.
The Elgindy case does little to help defenders of short sellers, who
frequently claim they help keep markets ticking and contribute to accurate
share prices by making sure the prices of stocks reflect negative as well as
positive information about companies.
Elgindy's scheme, and several similar ones described in the grand jury
indictments that followed, is at one extreme end of the debate about whether
short sellers are good or bad for the markets.
On the other end of the spectrum, short-seller advocates like David Rocker
want investors and regulators to focus on the supposed benefits that shorts
have.
"Although there have been occasional instances in which short sellers have
been accused of circulating misleading stories, these instances are dwarfed
both in number and magnitude by the misleading stories circulated by long
holders and the issuers themselves," David Rocker, a leading short seller,
told a Congressional hearing in 2003.
Rocker cites a long list of frauds and accounting abuses at companies
including Enron, Tyco International Ltd. (TYC :
Tyco International Ltd
CNO23.61, -0.19, -0.8%) , Boston Chicken and Lernout & Hauspie Speech
Products that he says were uncovered by short sellers.
'Out of thin air'
