Rolling Stone columnist Matt Taibbi hasn’t responded to the letter made public yesterday by Penson Financial Services, which he accused of a serious securities law violation in a blog post the other day. But while we wait for Taibbi’s response, it’s worth noting how that letter changed the terms of the debate.
For those of you joining this program already in progress, here’s a quick recap.
- Matt Taibbi posted a video that he said showed how naked short selling happens. The video was labelled “Pension Approves Billion Dollar Naked Short.”
- We challenged the authenticy of the video.
- There was some boring squabbling when Taibbi said that despite writing the “trade went through” his video was about a locate and not a trade.
Penson, a major US clearing firm, had denied that the video showed a trade or a locate taking place on their system. We found their denial persuasive because of the collaborating evidence and talks with traders who use Penson. But it was always an outside possibillity that Penson way pulling the wool over our eyes after being caught doing something against the rules.
Now Penson has effectively closed off that possibility by denying the video in the strongest possible words.
- “”The purpose of this letter is to inform you of an apparent hoax and unsupported accusation of a violation of Regulation SHO by Penson.”
- “The purpose of this letter is to inform you that Taibbi’s post is based on false information.”
- “While we are uncertain whether Taibbi’s article is the result of a hoax or something more deliberate…”
- “”There was no locate at the time of the video”
Penson didn’t try to use legal technicalities that might leave them room to later admit that they were just denying a legal violation but not the underlying facts as portrayed in the video. They come right out and say in plain language that Taibbi is wrong.
“I don’t see much wiggle room here,” veteran business reporter Gary Weiss writes on his blog. “Penson is saying that the video is either a hoax or something worse than a hoax, something ‘more deliberate.’ I guess that’s a gentle way of saying that Taibbi made the whole thing up.”
(For the record: we certainly do not think Taibbi made the whole thing up. He’s a good writer, smart and appears to be an honest guy. He was probably just misled about the video by someone else. That happens pretty often to lots of people, even very good journalists.)
“So either Penson Financial Services is a bunch of crooks that just committed a criminal act and compounded it by lying to the SEC, or Matt Taibbi is the victim of a hoax.” Weiss writes. “There is no third alternative.”
For us the clincher is the fact that Penson wrote the letter to the SEC. If they were a guilty party, they would have to be absolutely insane to do this. The letter is sure to alert the SEC to the matter, and may even prompt an investigation. This isn’t the way a company with dirty hands acts. It would unnecessarily dramatically increase their legal exposure.
A crooked company would probably refuse to comment about “stories posted to the internet” at all. If they did comment, they’d simply deny the story to the press. They’d stay quiet about it to officials, hoping the SEC would never get involved. If the SEC got involved anyway and discovered wrong doing, they’d find themselves paying a fine and promising never to do the bad thing again.
The letter to the SEC makes the consequences of wrong-doing far more serious. The agency is now alerted to the problem. If it is discovered the Penson is lying, Penson could well be put out of business. At the very least, it’s executives would likely find themselves thrown out of the securities industry for life and possibly facing criminal charges. Why would Penson bring this risk on themselves if they had dirty hands?
With Penson’s letter, we went from a debate between bloggers to a new level involving securities firms and government agencies. We may well get an SEC investigation of the matter. The letter changed everything.