Audit Notes: WSJ Missed, WSJ Hit, SEC Porn

Hedge-fund biggie David Einhorn ripped into The Wall Street Journal for that weird “Hedge Funds Pound Euro” story it ran in February, Dealbreaker’s Bess Levin reports.

The Journal says Einhorn and Levin are misleading readers and defends its story, New York follows. But the paper did get some critical things wrong and they remain uncorrected.

For one, here’s what I wrote the same day about the premise of the piece:

The thing with this story and its headline is that the piece details how the euro started falling in December (and) continued to fall in January—all well before the hedge-fund dinner, which happened less than three weeks ago. Indeed, since the meeting the euro’s rate of decline against the dollar has eased. So “Hedge Funds Pound Euro” just doesn’t make sense when juxtaposed with the February 8 meeting.

And a week later:

Playing up the secret nature of the meeting, the Journal said it was “hosted by a boutique investment bank at a private townhouse.” Well, not really. It turns out, according to Bloomberg News and Reuters, that the meeting was actually held at a restaurant, not a townhouse. It’s called the Park Avenue Townhouse, but it’s a sort of banquet hall for the Park Avenue Winter restaurant. Hardly the biggest deal in the world, but still—oops!

Worse, the paper had called the meeting a “euro-dominated dinner,” when the topic came up for just three minutes—according to The Wall Street Journal itself in a subsequent Heard on the Street column. And the dinner was tape recorded.

I’m all in favor of reporters getting inside secretive hedge-fund meetings, but you’ve got to get the story right. And there’s little doubt the paper way overplayed this.

— We saw far better WSJ reporting yesterday with its story on how Warren Buffett is talking his book to his Democratic pals in Congress and the White House—and they’re snapping to attention. This is hypocrisy, and it’s great that the Journal is calling Buffett, who, let’s face it, rarely gets negative press, on it:

The provision, sought by Berkshire and pushed by Nebraska Sen. Ben Nelson in the Senate Agriculture Committee, would largely exempt existing derivatives contracts from the proposed rules. Previously, the legislation could have allowed regulators to require that companies such as Nebraska-based Berkshire put aside large sums to cover potential losses. The change thus would aid Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital.

Mr. Buffett’s push is especially notable because he has warned of the potential dangers of derivatives, famously branding them “financial weapons of mass destruction.”

Critically, too, this reporting comes before it’s too late. Maybe a little sunlight will prevent the mega-billionaire from getting his way.

ProPublica’s Marian Wang is good to point out how the SEC porn story is a recycled one and that the timing of its resurrection is awfully convenient.

Oddly enough, news of the SEC’s porn problem is not a new revelation. In 2008, we reported [4] that the inspector general had discovered the agency’s pornography problem, and it wasn’t limited to just watching the stuff. One SEC employee went so far as to start his own private pornography business using SEC resources, “including Commission Internet access, e-mail, telephone and printer.”

So yes, it’s true that while the nation’s financial system teetered near collapse, senior staffers at a major financial regulatory agency spent hours surfing pornographic websites on the taxpayers’ dime. And it’s true that the agency’s watchdog found 31 serious offenders in the past two and a half years, 17 of whom were senior officials [5] whose salaries ranged from $100,000 to $222,000.

But the new memo also says that in the past five years, the SEC’s Inspector General conducted 33 investigations into SEC employees’ viewing porn at work.

Hey, look over here! Pr0n! But wouldn’t an audit of any company probably get similar results?

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.