Friday, September 21, 2007

Daily Kos Hid Business Partner's SEC Lawsuit

Daily Kos Hid Business Partner's SEC Lawsuit, the Workbench blog.

This story has been updated:

In April 2003, the Securities and Exchange Commission filed suit against Jerome Armstrong, the business partner of Daily Kos founder Markos Moulitsas Zuniga, for touting a Linux company called BluePoint when it first went public:

On March 6, 2000 and after, Jerome Armstrong ("Armstrong") promoted BluePoint on the Raging Bull internet site, which carried hundreds of posts about BluePoint. ...

Armstrong posted over eighty times on the BluePoint message board located on the Raging Bull website in the first three weeks. He praised BluePoint's investment value and encouraged traders who were having trouble getting their orders filled to keep trying. Armstrong never stated in his posts on the Internet that he was being compensated for making the postings. However, Goelo and Markow compensated Armstrong by transferring stock in three separate companies to Armstrong at below market prices during the relevant time period. ...

Armstrong made at least $20,000 from selling the shares of the three securities he received from Markow and Goelo.

The New York Post reported that Armstrong settled the case in December 2003 without admitting guilt and paid no fine. The paper claims to have found numerous online posts from 1999 to 2003 where he supported stocks that are "virtually or entirely worthless" today.

After the story broke, Moultisas encouraged some prominent liberal bloggers to ignore the story on a private mailing list post that was reprinted by New Republic blogger Jason Zengerle:

... Jerome's case, if it could be aired out, is a non-story (he was a poor grad student at the time so he settled because he had no money). Jerome can't talk about it now since the case is not fully closed. But once it is, he'll go on the offensive. That should be a couple of months off. ...

My request to you guys is that you ignore this for now. It would make my life easier if we can confine the story. Then, once Jerome can speak and defend himself, then I'll go on the offensive (which is when I would file any lawsuits) and anyone can pile on. If any of us blog on this right now, we fuel the story. Let's starve it of oxygen. And without the "he said, she said" element to the story, you know political journalists are paralyzed into inaction.

Zengerle suggests in a followup that the members of the Liberal Blog Advertising Network have a financial motivation not to publicize this scandal, since the network's run by Armstrong and Moulitsas with MyDD founder Chris Bowers. Zengerle links to my own experience being ousted from the network last November, which appears to have resulted in a dramatic decline in ad sales on the Drudge Retort.

I hope this looks worse than it is, but on its face, Armstrong behaved reprehensibly and Moultisas won't own up to it. Investors lost millions on dubious Internet stocks like BluePoint during the dot-com boom, and Armstrong allowed himself to become one of the famous blogging wunderkinds of the Howard Dean campaign while he was under active SEC investigation.

Did either of them consider how it would have looked, while Dean was the early favorite for the Democratic presidential nomination, if this SEC case came to light in the press? I think the people who associate themselves with a candidate have a responsibility not to engage in any conduct that might hurt the campaign, and a victory-minded activist like Moultisas had to know the risk they was taking. Were Dean or campaign manager Joe Trippi told about this investigation in 2003?

Instead of getting in front of this story by acknowledging a mistake, Moulitsas showed total ignorance of how the blogosphere works by pretending it would go away. Forced to respond, he then used the bully pulpit of Daily Kos to attack the New Republic without saying a word about Armstrong's SEC problems or their decision not to disclose the suit to the Kos readership for three years:

It is now beyond clear that the dying New Republic is mortally wounded and cornered, desperate for relevance. It has lost half its circulation since the blogs arrived on the scene and they no longer (thank heavens!) have a monopoly on progressive punditry. We have hit their bottom line, we are hitting their patron saint hard (Joe Lieberman) and this is how they respond. By going after the entire movement.

My personal view is colored by the fact that I wouldn't trust Bowers to tell the time. But I think the 85 bloggers in the Liberal Blog Advertising Network and popular Kos diarists need to take a hard look at these guys and how closely they want to be associated with them.

Politics has a tendency to attract people who put their own interests above party or principle when the money starts rolling in, as Tom DeLay and Jack Abramoff have ably demonstrated. I'd hate to see well-respected liberal bloggers like Joshua Marshall and Atrios burn too much capital in defense of More-Kash Moulitsas.

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