Daily Kos Hid Business Partner's SEC Lawsuit

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 Moulitsas.

Comments

Crikey, this is better than going to the movies. Absolutely hilarious.

I love it... Those jerks tried to bypass you with the ad deal...

We don't expect Markos to live on Mentos alone. Two snaps and all that.

i think its more that people have a tendency to put their own interests in front of party or principle, but politics attracts the kind of people who aren't really capable of recognizing that in themselves, because it's all for a good cause after all.

If Markos does actually sue anyone, the discovery phase should be interesting, to say the least.

Yes, lefty bloggers better not have any business lives outside of their blogs. Because, that might, you know, indicate that they are not as pure as the driven snow. Which they don't claim to be, but we on the right need to set up that big fat straw man so we can knock it over. Those liberal blogs are causing too much trouble entirely - they need to learn that they have to stop messing with our message.

Wayne Madsen has plenty say about 'Kos'.

Thanks for helping the Bushlings.

"Yes, lefty bloggers better not have any business lives outside of their blogs."

Business-as-usual lives, you mean.

Yes, lefty bloggers better not have any business lives outside of their blogs. Because, that might, you know, indicate that they are not as pure as the driven snow.

Right on, Man. I'm going to finance my take-back-America blog by running guns and whores.

By the way, Red Hat Linux (RHAT) is a steal this afternoon at $26.

Blah blah blah..

another nobody blogger with an axe to grind about the successful liberal blogs.

Nice of you to avoid quoting any of the substance of Kos's post and only include the (very valid) criticism of those hacks at TNR.

If TNR was a real news organization they would have actually contacted the accused bloggers, gotten a quote or two and maybe tried to get their side...Instead the TNR piece was nothing more than a hit-piece that was very short on facts and very long on innuendo. Typical lazy journalism by TNR. Furthermore, I find it quite telling that TNR has repeatedly quoted sources liberal sources who had off the record conversations. If that is any indicator of TNR's credibility on this matter, one would be best served by believing the opposite of anything TNR writes about the subject.

The fact that morons like you, and the idiots at the increasingly irrelevant TNR, try to paint a picture of Kos as some sort of dictator who pulls strings is quite insulting to all the bloggers that are part of the liberal blog network. They are not mindless drones, nor are kos' yes men.

The fact that Mr. Cadenhead had to resort to pathetic attacks such as Forced to respond, he then used the bully pulpit of Daily Kos to... are quite telling. Bully pulpit?? Uhmm...its his blog ...and he responded to the substance of the TNR accusations (which you conveniently ignored) -- how does that qualify as a bully pulpit?? Oh thats right...it only qualifies if you believe reality mimicks the conspiracies in your head.

Looking back....this article gets stupider and stupider....

I hope this looks worse than it is, but on its face, Armstrong behaved reprehensibly and Moultisas won't own up to it.

What exactly should Moulitsas own up to?? The fact that Armstrong allegedly behaved "reprehensibly" -- How is that Moulitsas' responsibility? What exactly can Moulitsas "own up to"? Are you implying that kos was a co-conspirator in any alleged shady business Armstron engaged in?

What exactly is your point as far as kos is concerned?

But then I read this line and I figured out your point....
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 get it...see you are bitter and your point is to try and get revenge by targeting the founders of the network.

Maybe next time you could arm yourself with facts and substance instead of a bag full of sour grapes and speculation?

LOL I'm trying to imagine the reaction if it turned out that...

1) Glenn Reynolds gave the appearance of working a "pay-for-play" deal where he gave candidates favorable coverage in exchange for ad money, chocolate fountains, and hiring his buddies as consultants

2) The Powerline guys were pushing corporate clients' interests without disclosing they had such clients

3) Charles Johnson had been charged by the SEC for a pump-and-dump scheme that defrauded investors

Oh, and they all belonged to an email list of conservative-ish bloggers intended to keep all the talking points straight -- and Glenn asked everyone on the list to keep quiet on the stories so they would die.

A non-story, right sinestrospherophiles?

The facts I'm talking about here aren't in dispute, Tom. Armstrong was accused of stock touting by the SEC in 2003 and neither he nor Moultisas disclosed it. Armstrong was under active SEC investigation while working on the Dean campaign.

If either of them goes on the record with a comment that address these facts, I'll pass it along.

The reason you can deride my criticism as sour grapes is because I fully disclosed my ad network beef. Armstrong and Moulitsas could have done themselves a world of good by doing the same regarding the SEC suit.

The funniest part is, they probably still believe, in their heart of hearts, that the end justifies the means.

I've encountered the same kind of blindness in my fight with the New York Public Interest Research Group, which, once the appeals are exhausted, will be losing millions of confiscated student dollars thanks to College Standard Magazine, Jeff Barea et al. v. State University of New York at Albany.

Why is it that they defend their money so much more rabidly than their principles?

Side issue: Geeks' propensity to become blinded by the technology use of a person or cause.

Eg. Howard Dean is campaigning via the Internet. Let's vote for Howard Dean!

Eg. Kos is speaking truth-to-power via the Internet. He must be an icon of honesty and trustworthiness!

There seems to be a bit of self-validation and willful blindness involved.

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.

Do you know for a fact that Kos was aware of the case at the time, or is this an assumption on your part?
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.

Replace "a mistake" with "the controversy" and "total ignorance of how the blogosphere works" (sheesh!) with "an astonishing naivety of how securely off-the-record a Google Group comprised of 'many bloggers and other representatives of the netroots as well as a large number of partisan journalists and grassroots groups' might be" and I'd agree with the thrust of this.

It wasn't sinister but it was stupid. So predictable that Reynolds would write "It's not the crime, it's the cover up".

Regarding the Lib ad network -- Chris Bowers posts today claiming that "Markos doesn't control the Liberal Blog Advertising Network: I do." (Markos is on a panel, with Bowers and "Annatopia", that vote on the 0.5% of decisions that Bowers isn't comfortable making on his own. Armstrong left the panel in 11/05 and was replaced by Annatopia at that time.)

He also posts Liberal Blog Advertising Network Membership Criteria that he had to formulate in order to standardize the admissions process, in order to make it manageable.

The Drudge Retort pretty obviously doesn't fit the criteria, but I can sympathize with your anger about being bumped after the fact. It probably seems rather high-handed, and it would have been better if he could have figured out a way to "grandfather" you in, considering that meeting the criteria would have radically altered the nature of the site.

Do you know for a fact that Kos was aware of the case at the time, or is this an assumption on your part?

I assumed that Moulitsas knew this was going on in 2003. I don't know that to be true.

Using the Microsoft Bob logo so prominently in your blog conveys a certain, how shall we say, ... retarded perspective which taints anything of value you might have to say.

So effing great, the reaction to this post is. I love it when people assume you're anything but a (in your words, sorta) gay whale marrying liberal. Can I be part of the Vast Rogers Cadenhead Conspiracy?

I don't pretend to understand the Drudge Retort issue, but I do know that Rogers is a real actual liberal democrat and Kos and friends are nothing of the sort. Frankly Glenn Reynolds is more of a liberal democrat than Kos will ever be, and the one thing Reynolds and Rogers share is a reasonable tone and logical approach. It's unbelievably pathetic that Kos nimrods come here to dump their bile on Rogers for telling the truth.

I guess dissent is only the highest form of patriotism* when Kos isn't involved, hmm?

*Yes, I know Jefferson never actually said that, but John Kerry and the Kos ninnies won't shut up about it and it fits here. Live with it.

These guys claim to want change and honesty in government when all they really are are pawns of the Democratic Party, willing to do whatever it takes to get them elected. That's not improvement, that's propaganda.

And as far as freedom of speech goes, try posting a diary on Daily Kos saying something negative about a Democrat (for example. that Harry Reid was wrong to accept boxing credentials while considering legislation on the boxing commission) and see how fast you are deemed a troll and locked out.

Freedom of speech? More like a lefty echo chamber.

Thinking this was new news, I posted a short synopsis of your story and a link to it on DKos today.

Even though I was forced into deleting it, I am no longer a member.

I support everything they stand for over there, but I've never supported the little attention paid to ego-maniacs who manage it (the "Trusted Users").

I'd like to talk to you about running some guns and whores (I thought that was Uncle Mikey's department--tell him that a nimrod is a hunter).

In Dr. Johnson's famous dictionary patriotism is defined as the last resort of the scoundrel. With all due respect to an enlightened but inferior lexicographer I beg to submit that it is the first.

-- Ambrose Bierce, The Devil's Dictionary

It's the sovereign of insufferables, an ineffable dunce...

Excellent post(s)

From my blog, Netroots: Snake oil, y'all?

Ladies and gentlemen, attention please
Come in close so everyone can see
I got a tale to tell
A listen don't cost a dime
And if you believe that we're gonna get along just fine

Now I've been travelin' all around
I heard trouble's come to your town
Well I've got a little somethin'
Guaranteed to ease your mind
It's call snake oil y'all
It's been around for a long, long time

- Steve Earle "Snake Oil"

Very interesting story. Even more interesting when you learn that Jason Zengerle apparently is making up sources for this story. Gee, never expected something like that to happen at TNR....

I like rcade. he is an honest guy. He is not well suited to choosing appropriate content for the front page of Cruel, unfortunately, but nobody is perfect. His detractors are mostly retarded, best exemplified in the case of Jackass.

It makes sense to ask for a moratorum on speculative discussion about an issue that someone is not able to discuss. I do not believe that he was trying to hide the story as much as ask for people to not start big discussions and hooplas and twist and distort even more the hlaf truth.
Of course there will always be three sides to every story.
A lot of people everywhere from all walks of life, all political affiliations, all religiouns etc., are probably guilty of violating some sec rules in one way or another.

I do look forward to more stories where the truth comes out about everything.

In reply to Imposter:

I think Jackass and Rogers are friends. By the way, are you franch?

Where am I? Rogers Cadenhead is citing the New York Post? How much did they pay you to do that? I must be at Workbench in an alternative universe.

The New York Post has all the credibility of Shirley MacLaine writing on reincarnation.

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