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Even Short-Sellers Get Screwed These Days

Cohodes says in his deposition testimony that partners of the firm discussed that possibility at the time Goldman imposed its "house call" on the firm in 2008. Why had Goldman been so heavy-handed with them? "So we assumed -- assumed, didn't know -- that this could have been an issue with them." (By "this," he testified, he meant naked short positions.) In other words, Copper River was crushed in order to cover up for the naked short positions. Goldman vigorously denies that it engaged in naked shorting.

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In his Reuters blog on Monday, Salmon was unimpressed. That scenario is not new, he points out, as it had first been made in the book "Selling America Short"by a former Copper River partner, Richard Sauer, a couple of years ago. The evidence of naked shorting by Goldman is "highly circumstantial," he argues. Pointing to a documentary on naked shorting that Byrne is promoting, Salmon says "that's the main reason why I'm uncomfortable with Morgenson's story: It seems to play far too neatly into the hands of Byrne, who's really completely bonkers."

Personally, I think that both Salmon and Morgenson are missing the point. I agree that the actual evidence of naked shorting by Goldman is a stretch. But the Cohodes deposition, and Sauer's book, raise an intriguing hypothesis: that naked shorting, to the extent that it exists at all, is not what the conspiracy theorists like Byrne say it is, but a simple case of brokerage firms taking fees from their customers -- in this case for loaning hard-to-borrow securities -- and not delivering.

That would mean that Overstock, which is in dire financial straits -- and whose shares are trading at close to a nine-year low -- has been throwing money down the toilet by pursuing a lawsuit in which the true victims, if there were any, were not Overstock or "thousands" of nonexistent companies but rather the short-sellers that it despises. How's that for ironic?

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Goldman and Merrill have fought against public disclosure of the massive amounts of documents that have emerged from the Overstock lawsuit, and are expected to appeal a court ruling that the documents must be released. If they are released -- and I hope they are -- I have every expectation that Overstock will put its PR machinery into high gear and spin the results to support its tired conspiracy theories.

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