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Problems at Allied Capital (NYSE: ALD) -- the target of short seller David Einhorn's book Fooling Some of the People All of the Time -- continued yesterday with the announcement that one of its portfolio companies, Ciena Capital LLC had filed for chapter 11 bankruptcy protection.
Ciena's predecessor company -- Business Loan Express -- is under fire from federal prosecutors who allege that the company participated in deals designed to defraud the United States government.
What's so interesting about this mess is that a) If you read Einhorn's book, he pointed out serious problems at Business Loan Express far before Ciena was admitting to them, and b) The SEC appears to have completely dropped the ball on this case, resulting in substantial losses to investors.
It's also interesting to note that Overstock (NASDAQ: OSTK) CEO Patrick Byrne's self-proclaimed investigative journalism site DeepCapture, which serves mainly to attack anyone who criticizes Byrne's company or his ideas, has been rallying to Allied's defense in recent months. One of the site's reporters, Mark Mitchell described (PDF) Allied, Overstock, and Novastar Financial as "victims" of a supposed conspiracy of hedge funds and corrupt reporters hell bent on destroying them.
With the Allied mess unfolding much as Einhorn predicted and Novastar on the brink of bankruptcy in the wake of numerous investigations and revelations of shoddy lending practices, it's bad news for Dr. Byrne if Overstock is to be judged by the company it keeps.
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Reader Comments (Page 1 of 1)
10-01-2008 @ 3:52PM
Dave said...
Zac, funny you should mention Einhorn, Overstock, and accounting in this blog.
Are you likewise aware that Greenlight Capital (GLRE) reported preliminary Q3 loss/share of $3.30-$3.45/share. What is amazing about this is that just a few months or so ago when Einhorn was selling his book Einhorn was touting huge profits in GLRE (30%). Now he is struggling and at a 11% loss. Was he lying then or was he this bad at managing his fund to the tune of a 40% differential? Einhorn is claiming his fund is stable and all but the data doesn't support that.
I should also inform you of the Floyd Norris Blog this week addressing "painting of the tape". Floyd picks out selective companies that had their markets rise inexplicably in the last minutes of yesterdays Quarter ending trade session. Floyd that was fraud. But Floyd failed to mention that it was Einhorn's own company that ran up $8.00/share at the closing minutes only to lose it all today. Did Einhorn manipulate his quarterly earnings?