While the aptly-named baloney brigade (name courtesy of Gary Weiss) makes much of the imaginary naked short selling crisis, there's another story involving short-selling regulations that isn't getting as much attention.

According to The New York Times, thirty-eight current and former employees of major Wall Street firms have been charged with running an elaborate scheme to take advantage of short-sellers looking to borrow shares. The schemes including fraudulent finder's fees and kickbacks -- all designed to increase the costs of borrowing shares,

According to a litigation release from the SEC, the defendants "defrauded the brokerage firms that employed them and others by engaging in collusive loan transactions and causing the firms to pay sham finder fees to companies controlled by the traders themselves or by their friends and relatives. Acting as fronts for the traders, these companies received hefty finder fees on several thousand stock loan transactions even though they did not provide any legitimate finding services and, in many cases, were simply shell companies that were not even involved in the stock loan business. These phony finders included a mailman, a perfume salesman, and a dental receptionist. The defendants shared in the sham finder fees through secret kickback arrangements. In some cases, defendants met monthly at New York City bars and restaurants to exchange thousands of dollars in cash, often wrapped in newspapers or stuffed into envelopes."

This one of those stories too juicy not to do a post on. An exclusive piece from Bloomberg discusses Fairfax Financial Holdings' (NYSE: FFH) allegations of a vast conspiracy of short-selling hedge funds determined to bring the company down. The company sued eight hedge funds for racketeering in 2006, and has alleged that a group of well-known short sellers -- James Chanos, Steven Cohen, Daniel Loeb, David Rocker, and Adam Sender -- have gone so far as to send an anonymous letter to a minister at a church attended by a member of Fairfax's management, asking him to make sure that executive Prem Watsa makes a "full confession".

Fairfax has done its best Overstock.com (NASDAQ: OSTK) impersonation in more ways than one. In addition to conspiracy theories, we also have accounting scandals and fundamentals concerns. In June 2005, Fairfax disclosed that the SEC had requested information on the company's use of reinsurance products. As of early August, the investigation was still ongoing.

Allegations flying back and forth also include Harry Potter and sadomasochistic orgies. You couldn't make this stuff up. This should be a pretty exciting story to follow.

In a film clip taped for Marketwach, Herb Greenberg, known for his scathing pieces on companies in trouble, added his voice to the world of reactions to Jim Cramer's interview on TheStreet.com in which he talked about manipulating stocks.

In his interview, Cramer described feeding negative information to the media about companies in which he had taken short positions. As a journalist who frequently speaks with short sellers, Herb Greenberg dismissed the scandal surrounding this, saying that it was no less legitimate than a bull talking about a stock to the media.

I have a tremendous amount of respect for Herb Greenberg. His intelligent analysis penetrates far deeper than just about any other market commentator, and he seems to be right more often than he's wrong. Investors who listened to his warnings on Novastar could have saved a lot of money, or gotten rich on the short-side.

Watch Greenberg's piece on Marketwatch (by clicking the read link below), and, if you don't already, start reading the blog one of Wall Street's best journalists.