Ms. Hunt,

Judging by your blog post, it looks like you read only one court document. That's problematic for the following reason. The law requires that the court assume that the overstock claims are true *at this point* so that they can assess whether or not the Anti-SLAPP law applies. The court has not yet examined the veracity of those claims. In fact, the overstock claims are based entirely on the declaration of one disgruntled, fired ex-Gradient employee. That same ex-employee has been completely discredited by several journalists. He will be discredited at trial too, if the case ever goes to trial. You should read some of the other court documents to get a more balanced view of the issue.

Professor Hurt,

Congratulations on a cohesive summary of the situation. I respectfully warn you, though, if you keep at it you will see articles appearing about "paranoid rants" being written by a UICL law professor.

One aspect of this affair that has been eye-opening for me has been the realization of how "captured" are various social institutions.

First and foremost of these is, of course, the SEC. For example, the practices described in our lawsuit have long been widely known on Wall Street, and our allegations seem to be widely regarded to be true by the "smart money". Years and years ago, long before Overstock existed, this type of behavior was explained to me in a "this is how the game is played" kind of way. Several of the most prominent figures on Wall Street today have encouraged me in this fight, saying things like, "I've watched these jerks do this for years, it is about time someone stood up to them." It is not a tough problem to solve. It is, however, a tough problem to solve without seeing about two dozen rich guys get their heads handed to them in court. The SEC lacks the will to do that. They can take on Martha Stewart over a few tens of thousands of dollars, but they cannot stand up to the toughest hedge funds on Wall Street.

Regulatory capture is nothing to be suprised about, I know, but the capture of the industry of financial journalism is especially disheartening. I have dealt with dozens of journalists over the years, and have generally found them to be honest, intellgient, and fair. In fact, for years I told people that the common perception of journalists was way off the mark in that way. However, when it comes to reporters on the Wall Street beat, what I have found has amazed me, in that they will not even consider data that is coming out of academia, based on Freedom of Information Act requests of our government, that indicate the problems in our settlement system are deep. The hedge fund friends who feed them their stories tell them to ignore it, so they dutifully ignore it, even though there are now some serious, heavyweight economists who are saying, "Houston, we have a problem."

I should make clear that I do not think my claim about financial journalists is a universal truth. There are several good ones, notably Gretchen Morgenson at NYT, who has written compellingly of an SEC whistleblower named Aguirre who has given compelling testimony about the SEC's capture by Wall Street figures with "juice", as his superior once described someone Aguirre was investigating. Gary Matsumoto and Bob Drummond at Bloomberg have done explosive articles on the naked shorting controversy, as has Liz Moyers at Forbes, while her colleague there, Nathan Vardi, has written of the involvement of Russian OC in these matters. But by and large, the financial press has shown itself the lapdog of the financial industry. The Wall Street Journal is to Wall Street as Sports Illustrated is to sports, Fortune is People Magazine for capitalists, and The New York Post financial columns are for folks who move their lips when they read People.

This explains the anonymous post that precedes mine. What has actually happened is that certain miscreants committed acts A, and we filed a lawsuit alleging that A occured. Their Motion to Demur had to state not-A, but because they did not even want A out there in the public mind, their pet reporters have written about the case as being about something else entirely, X, to the point that they would not even describe the contents of the affadavits at issue. That the 5 or 6 reporters who have so studiously insisted that is is about X are the same small crew of 5 or 6 who have spent their careers writing hatchet jobs on the same companies that those miscreants have shorted, is, I am sure, entirely coincidental. It just one of those coincidences that happens over and over with complete predictablity.

The problem for them all is that the wig is beginning to slip. The trial judge in Marin decided on all counts, 8-0, that this suit is not about X, it is about A. The California AG weighed in with an amicus agreeing that this case is not about X, it is about A. The California Court of Appeals decided 3-0 that it is not about X, it is about A, and denied their motion to reconsider the question. So the problem for them has become, how do they keep the wig in place? A slew of hedge fund choagies from the NYT, NYP, Fortune, and WSJ (Nocera, Roddy Boyd, and the Minions of Kansas) wrote stories about how crazy and paranoid were my rants, but unfortuantely for them, a small subset of the evidence from which I drew my beliefs has been examined by a trial judge, an AG, and three jurists of an appelate court, who have all said, "Yep, they're probably going to win."

The anonymous post on your site is a fine example of what I mean. Returning from it to the real world for a moment, what we have is a series of people who worked for a company who realized it was crooked. Three of them came forward and said to their boss, "We cannot do this anymore. This business model is completely illegal. This has to stop." A few days later they were fired. They brought their information to me, I investigated and found more employees with the same story, and I started a lawsuit. Of course, Roddy Boyd and the other cronies dutifully play their role by saying that they are all just disgruntled ex-employees: that is the stuff about, "That same ex-employee has been completely discredited by several journalists" (the insistence that "the overstock claims are based entirely on the declaration of one disgruntled, fired ex-Gradient employee" is just another of those false claims they numbly repeat with mantra-fervor in the hope that will make it true, but a quick check of the documents you linked to on our site will dispel their claim).

Believe it or not, someday soon the Law & Economics, Public Choice, and CLS folks are all going to find a huge area of agreement: behind the scenes, powerful interests have jacked the controls of our society to a degree that only the most paranoid imagined. This case against Gradient, Rocker et. al, and our other against the prime brokers, are going to provide windows into that world.

So when in your writings you notice simple, obvious things like the CA Court of Appeals rejects their arguments 3-0, please expect to find yourself denounced as a paranoid as well, with great energy, by the same handful of reporters (Herb, Roddy, Bethany, etc.) who write story after story on every other company (e.g., CROX shoes, Taser, Take-Two, etc.) that David Rocker and his friends short.

Always, I am sure, coincidentally.

Regards,
Patrick Byrne

May 12, 2007
TALKING BUSINESS
Making Sure the Negative Can Be Heard
By JOE NOCERA

“If my attorneys knew I was here, they would be here with a hook,” joked David A. Rocker a few weeks ago, looking out at a sea of people some 1,600 strong.
Mr. Rocker, 64, is a short seller — or rather, a retired short seller; he hung up his spurs at the beginning of 2007 after a career that spanned almost four decades. His audience was made up largely of securities analysts from all over the country. This was the opening day of their annual convention, which was being held in the Hilton hotel in Midtown Manhattan.

Mr. Rocker and his firm, you may recall, were sued in the summer of 2005 by Patrick M. Byrne and his company Overstock.com. The suit asserts that he, along with the independent research firm Gradient Analytics and others, illegally conspired to drive down the company’s stock. Gradient, the suit says, took its marching orders from Mr. Rocker, who paid it to publish damning reports that parroted what he wanted, so that he could make money as the stock went down.

The facts are not on Mr. Byrne’s side — Mr. Rocker wasn’t even a client of Gradient when it began writing its tough-minded reports on Overstock, and indeed, the Securities and Exchange Commission recently sent Gradient a “no action” letter, which essentially cleared the firm of Mr. Byrne’s charges.

But you know how lawsuits are: a year and a half later, the thing has barely gotten started. And you know how lawyers are: although Mr. Rocker believes passionately that Mr. Byrne’s suit is nothing more than an attempt to silence criticism of his troubled company, he has held his tongue because that’s what his lawyers have told him to do.

Not anymore. “Free speech in America is very important,” he told me recently. “For securities analysis to be valid it needs to be objective.” As Mr. Rocker pointed out in his speech, although 50 percent of all trades consist of people selling stocks, the vast majority of analyst recommendations remain bullish. Despite the settlement that the former New York Attorney General Eliot Spitzer (now governor, of course) extracted from Wall Street in April 2003 — a settlement aimed specifically at making research more tough-minded and independent — “there are very strong pressures to be only positive about companies,” Mr. Rocker said.

One pressure point is investors themselves; individuals and institutions alike want to see stocks go up, so they prefer bullish analysts over bearish ones. But another, greater source of pressure are the companies the analysts cover. Managements that are showered in stock options have their personal wealth directly tied to a rising stock price, so they are often infuriated when an analyst puts out a critical report or downgrades a rating to a sell. And they retaliate.

They refuse to allow the negative analyst to ask questions on conference calls. They somehow “forget” to include him in e-mail messages that are sent to other analysts. They decline to attend that analyst’s conferences. They complain to his boss, who then inquires as to why the analyst has to be so darn negative all the time. Many companies still use investment banking business as a way to reward the firms that employ analysts they like and punish the ones with analysts they don’t like — even though that is a practice Mr. Spitzer sought to eradicate.

And sometimes companies sue, just as Overstock did. True, it’s not an everyday occurrence — and when it does happen, companies never admit that their suits are intended to silence critics, or put them out of business. Mr. Byrne, for instance, has always denied that his intent was to shut down criticism of Overstock. But it is hard to believe that silencing critics isn’t the intent.

“It is a pernicious practice,” said Owen Lamont, a professor at the Yale School of Management and a defender of short sellers.
“The rising threat of litigation is a huge disincentive for expressing negative views,” Mr. Rocker said in his speech. “It is costly and immensely time consuming. You have to face personal disparagement in the media, because they always have to include the allegation that you supposedly manipulated stocks. And it creates internal discord within the firm.”
Plus, it works.

You don’t believe me? Exhibit A: David Maris, an analyst who used to cover Biovail, a Canadian biotech company, for Banc of America Securities. After writing a series of blistering reports about Biovail, Mr. Maris and his wife discovered they were being followed by private investigators. For a time, Banc of America stood by its analyst, providing security and giving him free rein to cover the company as he saw fit. But in February 2006, Biovail filed a lawsuit against Gradient, a handful of hedge funds and Mr. Maris, making the same kind of stock manipulation accusations that Overstock made six months earlier. Not long after, a suit was filed on behalf of Biovail’s shareholders that included Banc of America Securities itself as a defendant.
Once Banc of America Securities was involved in the litigation, it dropped coverage of Biovail. “Regrettably,” wrote Joan Solotar, the firm’s head of equity research, “our coverage decision removes an informed and independent voice on Biovail.” Well, that’s one way of putting it. Here’s another: Biovail won.

Officials at Banc of America Securities insist that the situation is an aberration. But is it, really? What will it do the next time an angry company sues? If the tactic worked for Biovail, which by the way insists that the evidence will support our allegations, why won’t it work for any other company annoyed at BofA’s analysts? As for Mr. Maris, he is no longer with Banc of America Securities. He left last December for a hedge fund, which means his research no longer helps anybody except his fund. So his independent voice has been silenced permanently.

Exhibit B: Timothy Mulligan, former author of the newsletter “The Eyeshade Report.” Mr. Mulligan, a forensic accountant and lawyer, started a small business writing reports on “quality of earnings” — that is, how shaky (or solid) a company’s reported earnings were. A few years ago, a company called Matrixx Initiatives, which makes Zicam, a nasal spray, sued a group of anonymous message board critics — presumably to shut them up. In 2004, Matrixx subpoenaed Mr. Mulligan, demanding that he turn over his sources and subscriber list, on the theory that that would help Matrixx identify the message board critics.

Mr. Mulligan resisted, but the case dragged on for years. In the meantime, Mr. Mulligan, who was representing himself, was spending more time on his legal case than on his business. “It was overwhelming,” he said. “If I had had a lawyer, I would have had a legal bill in excess of $300,000. Our legal system is such that you can easily keep a frivolous lawsuit alive for years.” Indeed, although Matrixx abandoned the case in January, it was too late for Mr. Mulligan. By November 2005, he had closed the business. (A Matrixx official did not return my phone call.) Another independent voice silenced.

Exhibit C: John Gwynn, an analyst with the small firm of Morgan Keegan, who covered a Canadian insurance company called Fairfax Financial Holdings, which also has a history of lashing back at critics. (What is it about these small Canadian companies?) Last July, Fairfax filed a big lawsuit against 20 defendants, asserting — what else? — stock manipulation. One defendant was Mr. Gwynn, who had been one of the few bearish analysts covering the company.

In the immediate aftermath, Mr. Gwynn, who declined to return my phone calls, continued covering Fairfax. But in January, he dropped coverage. “The discontinuation of Fairfax coverage is not a reflection of any change in our relatively negative perspective of the company’s fundamental business prospects,” he wrote in a note to his clients. “Rather it is the result of a litigation strategy designed by Fairfax to silence negative research coverage.” Another firm that has been openly skeptical of Fairfax, Institutional Credit Partners, has had its staff followed and investigated, just like Mr. Maris.

In an e-mail message, Mike Sitrick, who represents Biovail and Fairfax, said: “The only analysts Fairfax named in its lawsuit are those which it alleges used improper means to attack the company and impact the price of the company’s stock. Mr. Rocker’s assertions that the suit was filed to stifle criticism are not only untrue in the case of Fairfax, but a thinly veiled attempt to divert attention from the wrongdoing alleged in the complaint.” Mr. Sitrick denied that Mr. Maris was ever “tailed” but says that Fairfax has investigated International Credit Partners.
And then there’s Gradient, a skeptical independent voice if ever there was one. As it happens, Gradient’s co-founder and editor in chief, Donn Vickery, has also decided the time has come to speak out. I talked to him a few days after I heard Mr. Rocker’s speech.

“If we hadn’t been around for 10 years, the lawsuits might have put us out of business,” he said. “As it was, our growth was slowed, and our customer retention was more difficult. Certainly our legal costs are way up. We’ve had employees accosted in parking lots by private investigators. Calls to home numbers and cellphones. We’ve had more turnover during this time, and you have to figure this has had an impact.” And of course, he’s still embroiled in two lawsuits, both of which deserve to be thrown out of court, but will probably last for years.

These are bullish times in the stock market, so it is easy to forget how important it is to have skeptical — and even negative —voices to counterbalance all the happy talk surrounding stocks. Even when the skeptics are wrong, they make the market healthier because they offer a point of view that people need to hear. And quite often, of course, they’re right. Mr. Rocker, for instance, sniffed out problems at Boston Chicken and Krispy Kreme long before the market did. Wouldn’t you have wanted to know what he was saying about those companies?

“I hope all of you will recognize this threat and act courageously to protect free expression in the investment business,” Mr. Rocker said to the assembled analysts at the end of his speech. “We need to show those who would silence us that they are wrong.”

Are you listening, Banc of America Securities?

Professor Hunt,

"Freedom of the press" has reposted Mr. Nocera's article (though I am not sure he did it to contend my point, or to make it for me). If you continue to write on this subject, you will be amazed, I predict, at the attention your blog starts to get: the miscreants must fight against losing control of the narrative. In any case, given the reposting of Mr. nocera's article, I hope that you will not mind my taking the liberty of reposting here my blog about it, "Gotterdamerung of the American Mainstream Media".

Respectfully,

Patrick M. Byrne

Overstock.com Auctions Community Forum Index » Take 5 with Patrick

Gotterdammerung of the American mainstream media

Posted: Sat May 12, 2007 1:03 am Post subject: Gotterdammerung of the American mainstream media

--------------------------------------------------------------------------------

Ha ha - this is a great one. An all-time classic from Joe Nocera, New York Times.

Below you will find an email Joe Nocera sent me asking for my "reaction" to some odd claims he wanted to include in his weekly column. Alas, he sent the email Friday afternoon at 12:11 PM his time (note the "10:11 AM" time stamp of our email system, which is in Salt Lake City, that is to say, Rocky Mountain Time) and, as I was in Texas this afternoon in a meeting, I missed the window of a few hours that I theoretically had been offered to respond before Joe's deadline for his weekly column. Congratulations are due Joe, who has crossed a line never previously crossed (not even by Carol!) by those engaged in their desperate efforts to keep the wig in place.

=======================================================
-----Original Message-----
From: Joe Nocera [mailto:XXXXX]
Sent: Friday, May 11, 2007 10:11 AM
To: Patrick Byrne
Subject: david rocker

patrick-- David Rocker made a speech a couple of weeks ago in which he said, among other things, that your lawsuit was nothing mroe (sic) than an effort to silence critics. He also said that Gradient did its first report about Overstock a year before Rocker Partners even became a client. And he said that Mr. Anafantis (sp?) has been discredited with the SEC's "no action" letter. Your reaction?

--
Joe Nocera
XXXX
YYYY
nocera@nytimes.com
==================================================

Had Joe actually abided by the principles of Ethics in Journalism 101, I would pointed out the numerous flaws in his attempt to whitewash the criminal activity of his friend Rocker with a “Free speech in America is very important” spin. Remember, from the start Rocker’s lawyers have tried to spin his illegal activity as being about free speech, and this is how the argument has been met by the adults who have examined it:

1) On 8 counts versus 0, the trial judge in Marin Country sided with us and against Rocker’s claim that this suit was about free speech. In fact, the judge said in the courtroom that after his initial review of the evidence there was a “high likelihood” that we would win the suit. Rocker appealed.

2) The California Attorney General appeared out of nowhere and filed an amicus with the appellate court supporting our side and against Rocker’s attempt to spin this as about free speech.

3) The appellate court recently heard Rocker’s arguments. This Law.com article gives a good sense of how the appellate court responded to the hysterical attempts by Rocker’s lawyers to spin his illegal conduct as being about free speech. www.law.com/jsp/article.jsp?id=1176282246984

The Law.com article captures one judge’s reaction nicely: “Justice Ignazio Ruvolo indicated there was evidence even ‘at this stage of the proceedings’ that could substantiate Overstock.com's claims.” Somehow Joe missed that.

I’d also have pointed out that Rocker does not seem to think “Free speech in America is very important” when someone criticizes Rocker: Rocker famously sued some message board posters a few years back for daring to criticize him and his unethical behavior (incidentally, that case got laughed out of town). Free speech doesn’t seem to be that important to Rocker, Joe.

In the face of these facts, Joe blithely asserts that “The facts are not on Mr. Byrne’s side” without mentioning that the trial court, the California attorney general, and the appellate judge have indicated exactly the opposite, even at this extremely early stage.

Joe notes without question that, “Mr. Rocker wasn’t even a client of Gradient when it began writing its tough-minded reports on Overstock,” neglecting to mention that ex-employees of Gradient assert that the firm had a relationship with Rocker even before he formally became a client.

Joe writes about his friend Rocker “But you know how lawsuits are: a year and a half later, the thing has barely gotten started” without mentioning that we have been most eager to move forward, but that his friend Rocker has stalled and delayed at every opportunity, rejecting the appellate court’s offer to rule without delay for a hearing: there was even one article where an attorney for the miscreants promised to appeal the appellate court ruling. That is, Joe bemoans the fact that “the thing has barely gotten started” while conveniently neglecting to mention that it is his friend Rocker who is doing everything he
can to keep it from getting started.

And so on and so forth.

Is anyone else noticing that something seems to be going on this week? First, after a year of criticizing me for my decision to issue a press release celebrating my receipt of a subpoena from the SEC, the shills are now trying to make a case that I should have sent out a second press release when I received another addressed to me as a person, though it was a small fraction as long as the first, covered sub-issues of the first, as well as issues related to a broader investigation that is not about me or Overstock at all. As though there is a world of difference between a subpoena addressed to our corporate lawyer asking for our CEO’s materials, and one addressed to me at our corporate address: I hate to disappoint, but that distinction is such a fine one it did not occur to me it was worthy of a second press release. The funny part is how it still has not dawned on the miscreants that a fair bit of the material being requested by the SEC concerns them, not me or Overstock.

What would have made them so angry this week? Perhaps they are mad that last Sunday, at an event hosted by The Economist (a publication with infinitely more credibility than Joe, Roddy, Herb, Gary etc. could ever aspire to), the bad guys lost control of the narrative?

http://www.cultureproject.org/index.php?option=com_content&task=view&id=49

http://cultureproject.org/video2/archivepages/hedge2.html

I think these fellows better hope that the scandal whose lid they are trying so desperately to secure never blows off, because if it does, in the aftermath not only will their journalism come under examination, but more importantly, the publications which have blithely published it will be seen to have been part of the cover-up. Which is entirely right and approrpiate. And then that will be the end of it.

Can anyone doubt at this point that we are witnessing the Gotterdammerung of the American mainstream media?

Patrick
[/i]

The bizarre world of Patrick Byrne's Overstock

A CEO Apart

By Ashlee Vance in Mountain View
Published Saturday 3rd December 2005 00:04

I'm gonna Byrne this city

Without question, Overstock is going through some of the most massive growing pains that we've ever witnessed. When, for example, we pointed out that Overstock's customer service line hangs up on consumers, Blevins countered that eBay and Amazon don't even have phone lines, and Byrne said that "a huge spike in sales" caused "an unexpected minor technical issue to drop calls for a small number of our customers." We should have played lotto that week because Overstock dropped our calls 20 out of 22 times in a 7 day span.

Byrne does not appear to take Overstock's customer service problems seriously, downplaying the influx of complaints as minor issues here and small glitches there. "My bad" was his response to a horrible third quarter performance.

It's this attitude and Byrne's bizarre demeanor that have some financial analysts describing the CEO as a freak show.

On August 11, for example, Byrne hosted a teleconference with analysts to attack a group of people that he alleged were short selling Overstock's stock and causing damage "in the high hundreds of millions of dollars." To describe the call as odd would not do it justice. The far-ranging conference had Byrne discuss everything from his techniques for taping calls with reporters to whether or not he had done cocaine. Somehow, this all had to do with the conspiracy to destroy Overstock.

"It was the most bizarre hour and change I have ever witnessed on the Street," said Jeff Mathews, a hedge fund manager and close Overstock watcher, during a TV appearance.

Other pundits criticized Byrne's performance as well, but we'll, of course, let you judge for yourself.

Here are a few tidbits from that August call.

"And I refused to talk to him without a tape recorder on because I’ve dealt with the Journal before and they’re just a bunch of dishonest reporters. Over and over and they’ll play this trick by the way where they say you - I mean - I’ll only talk to a Wall Street Journal reporter with a phone on because they’re such crooks, or with a tape recorder on."

"And literally I’ve had them do that and then afterwards say - write me a little email that says oh, my tape recorder turns out to have been broken, but don’t worry, I took good notes. Well, they’ve done this once to a friend of mine and they did it once to me, so now I only talk to them with a tape recorder on."

And then a few minutes later.

"Well, something else funny happened. My phone went dead, my phone went dead and a message came up in Spanish that said this has been diverted to some telephone company in Mexico and the line was out. The same hour that happened, you see, they got a hold of O’Brien’s cell phone record, they got a hold of O’Brien’s cell phone records and they started calling everywhere O’Brien had called."

"And I know this sounds like a John Grisham novel, but bear with me. They started calling everywhere he had called. So for example, there is a woman, who she is a psychiatrist who has a patients only telephone number. That number started getting calls. Who was doing the calling?"

Cooky cat, right? That's just the beginning.

And here’s the funny part.

"As this went on I started realizing that there was actually some more orchestration here being provided, by what I’m calling here is the Sith Lord or the mastermind. Now, can I tell you who that designated bottom feeder was who was supposed to end up with our company? Can I tell you? I can. But I’m not going to today."

"The Sith Lord is, can I tell you who that is? Well, I could tell you it’s a name that everybody on the phone, every single person on the phone would recognize this person’s name. He’s one of the master criminals from the 1980s, and he’s back in business. But I’m not going to. I’ll just call him the master mind today."

During this call and on TV, Byrne keeps using two words that start with M to describe this "Sith Lord." In the call, for example, he placed emphasis on "master mind." Some have taken this to mean Bryne is referring to Michael Milken - the junk bond "king" who spent some time in prison. Why Bryne insists on making damning charges and backing away from them with childish words games is not clear.

We'll close on this note.

"I want to go back a bit because I forgot to tell you about Kroll, how I tracked down Kroll. I had the feeling -- I’ve been seeing things that suggested in a very mild way somebody was intercepting communications. Now I’m going to tell a story that I’m not sure that this part was Kroll, but so... the way I tested that was I came up with one channel, Channel A I’ll call it, and I put information down there that I was gay."

"And Channel B I put information down that I was a coke head. Now my apologies to my gay friends, both within and without, outside the company, I don’t mean to equate the two. I don’t care. I’m a libertarian and I don’t care at all. In fact I don’t give a hoot if anyone thinks I’m gay, but I thought that by keeping, by putting that information down on one channel and putting the coke head information down the other channel, I would then know if it leaked into the world that those channels were compromised and I know there’s no way that information."

"I know that if that ever appeared it could only have come from channel A or channel B and I didn’t even mix the channels. Sure enough, within a short time I started seeing on the message boards, oh, Byrne’s gay, whatever."

"Again, nothing decisive, but it was enough to peak my interest. On the coke head thing, and by the way, I’ve never, with one exception, I’ve never even seen cocaine in my life so in case you’re wondering, no, I’m not a coke head."

Anyone else have a tough time picturing eBay's Meg Whitman making a similar call?

Having exchanged a number of emails with Byrne - he wouldn't talk to us on the phone even though he has a recording device - and followed his statements, it's clear that the man is not traditional CEO material. Byrne now claims to have given up on pursuing the short-sellers day and night so he can better focus on his business. But even so, he seems easily distracted. Byrne claimed that Overstock had sent us five additional MP3 players on top of the seven we were already supposed to have received. This never happened, and no customer service representative claimed it had.

Only Byrne.

Now all companies have their rough times. Typically, though, the good ones try and counter mistakes by driving harder than ever to please customers. Overstock, by contrast, seems to take its customers for granted. The company's CEO does not appear to have the focus necessary to guide a company through the fast-paced online world.

Given Overstock's mounting losses, falling customer service quality and technology issues, the company has serious work ahead if it's to compete with savvy giants such as eBay and Amazon.

Web 2.0? Overstock isn't Web 0.35. ®

Overstock.com: Weekend Diary of a "Forgotten" SEC Subpoena

More on the continuing adventures of Overstock.com CEO Patrick Byrne, whose paranoid fantasies and lengthy, self-incriminating message board rants are a fascinating spectacle. His increasingly surreal statements brought back fond memories of Baghdad Bob, the famously delusional Iraqi information minister.

In our last installment, I described how Byrne's "forgetting" to report an SEC subpoena for a year might have been more than just an omission, but a misstatement.

Most CEOs would hold their peace in such a situation. But Baghdad Byrne continued to dig into the topsoil with his tongue, as he continued his verbosity to investors asking a simple question: Why did he wait a year before disclosing his subpoena? It was a fascinating example of a slippery CEO refusing to tell the truth.

Byrne began the weekend mouth-fest by bouncing off the walls on the Investor Village message boards Friday night, reacting to questions from Joe Nocera, who wrote an excellent column in the New York Times Saturday morning.

If you comb through the muck you will note that Byrne's central complaint against the Times was bogus. He was given hours of of time to respond to Joe's simple query about the SEC investigation of Overstock, but refused to do so -- because, no doubt, he knew his spin would not work with perceptive Nocera. This Internet addict's "didn't check my emails" excuse will go down in the pantheon of unbelievable Overstock excuses, right alongside "cow in the highway."

Completing the surreal scene was Byrne's loyal factotum, resident stalker Judd Bagley, who threatened a critic -- Internet sleuth "ScipioAfricanus" -- with "exposure." So I guess you can expect the Overstock's antisocialmedia.net smear site to be cranking up some fairy tales fairly soon.

Byrne and the nauseating Bagley continued to thumb their noses at Reg. FD and public company disclosure norms by posting under Internet "handles" and not disclosing their identity and corporate affiliation with each post. (Not that it would necessarily make much difference. I think that their posting on a message board raises securities law issues even if they did identify themselves properly.)

Byrne's hysterical and largely incoherent post, "Gotterdammerung of the American mainstream media," predictably tosses Nocera into the ever-widening media conspiracy. But that's not as noteworthy as his desperate effort at damage control over the delayed disclosure of the subpoena.

Byrne's latest spin (repeated the following day) is that the subpoena "was a small fraction as long as the first, covered sub-issues of the first, as well as issues related to a broader investigation that is not about me or Overstock at all."

But that's not what the company's recent 10-Q said. The 10-Q doesn't say Byrne was subpoenaed on an investigation unrelated to Overstock or Byrne. In fact, subpoenas do not disclose, as a rule, the purpose of the investigation -- they just ask for stuff. Still if Overstock knew that the purpose of the two subpoenas was different, why didn't it say so? What possible reason would it have not to say so?

As you can see, the first quarter 10-Q said that both subpoenas requested the same things:

"These subpoenas [emphasis added] requested a broad range of documents, including, among other documents, all documents relating to the Company’s accounting policies, the Company’s targets, projections or estimates related to financial performance, the Company’s recent restatement of its financial statements, the filing of its complaint against Gradient Analytics, Inc., the development and implementation of certain new technology systems and disclosures of progress and problems with those systems, communications with and regarding investment analysts, communications regarding shareholders who did not receive the Company’s proxy statement in April 2006, communications with certain shareholders, and communications regarding short selling, naked short selling, purchases and sales of Company stock, obtaining paper certificates, and stock loan or borrow of Company shares."

There can be only two reasons for this discrepancy:

1. The person who signed the 10-Q, Overstock CFO David Chichester, works secretly for the Sith Lord, so he sneaked in this materially misleading language, omitted the exculpatory information to make his boss look bad, and Byrne was too busy posting on message boards and looking for dead bodies in his trunk to notice;

or

2. Byrne is telling one whopper of a fib, seeking to mislead and distort by claiming that the Overstock subpoena is materially different from the Byrne subpoena.

Once again we have the "Groucho Marx challenge": What are you going to believe, Patrick Byrne or your own two eyes?

My challenge is this: What's the SEC going to do about it?

Ace forensic accounting sleuth Tracy Coenen observes:

"Did you catch that? He’s claiming that his subpoena wasn’t related to the Overstock.com SEC investigation. That will be his reason/excuse for not disclosing it in Overstock’s Prospectus and SEC filings."

Patrick Byrne may also claim that since the subpoena was to him personally, and the Prospectus and 10-K both apply to the company, then there’s no violation or lie.

The cool thing is that neither of these excuses really pans out for Byrne. The company has now disclosed the subpoena, so to say that “previously it wasn’t related to the Overstock investigation but now we’re disclosing it… ” Well, you get the idea.

The Patrick Byrne mouth-a-thon continued into Sunday, with Byrne continuing to push the "Groucho Marx challenge" in a series of ever-lengthier, ever-loonier rants. Note this pile of pretentious, dishonest mush, and this post repeating and amplifying the "Groucho Marx challenge" I noted earlier.

He also seems intent on pushing the line that the SEC is aiming at a broad, widespread conspiracy and Byrne is just a cooperating witness. If he was, of course, they wouldn't be issuing a subpoena, and his famous "celebration" press release had already indicated that the SEC's interest was largely hostile. Note the admission that "Some of the requests suggest the whispering of the blackguards, but I remain unconcerned about their hokum."

"Blackguards" is Byrnespeak for "critics who have made credible, well-documented assertions concerning me and my company." It ain't "hokum," of course, and Byrne certainly seems concerned. Indeed, terrified.

That's one of a number of contradictions and lies that oozed from Byrne's weekend ravings, which I am sure will be giving SEC and other Overstock-watchers plenty of grist for their investigations.

Hopefully for Coenen, Sam Antar, the media, the SEC and everyone else following this story and toting up his lies and evasions, Byrne will continue to keep his tongue primed and ready for deployment. As hole-digging equipment it is a remarkable instrument.

Felon-turned-crimefighter Sam Antar observes that back on January 30 he asked Byrne on the Investor Village message board if "the Board of Directors considered any additional disclosure relating to the SEC subpoena of Overstock.com?" Byrne's response was an evasive, abusive brushoff, and Byrne's minion later had Antar booted off the board.

Meanwhile, forensic accounting whiz Tracy Coenen is dazed and amazed by Byrne's weekend obfuscations:

"So now, Byrne is claiming that the May 9 press release about the company’s subpoena really included his personal subpoena, even though he didn’t actually disclose that and the subpoena hadn’t even been issued yet. That might wash with some people, but not with me."

"He now disclosed the personal subpoena separately, so he must believe that it has some significance and requires disclosure. Either it needs to be disclosed or it doesn’t, but Patrick seems to be saying that it didn’t need to be disclosed separately a year ago, and this year it does. Nonsense."

But you see, Tracy, you're making the same mistake I've sometimes made. Byrne is not taken seriously, and I think that somewhere deep down he does not expect to be taken seriously. As a child of ancestral wealth, he has never had to work for a living and expects to coast for the remainder of his life on the paternal nest egg, no matter how much wreckage he causes.

Hey, they don't call him the Baghdad Bob of CEOs for nothing!

UPDATE: An alleged Overstock insider posted anonymously on the Investor Village message board Sunday night, claiming that Byrne concealed his subpoena from the board of directors and was eventually forced to act by the SEC. If not a hoax, this could be devastating. Here's Tracy Coenen's post posing two additional questions for Byrne.

The alleged insider says:

"All was good in the world as the SEC careful examined the evidence provided, until the SEC pronounced that one of the CEO's targets was without fault, Gradient/Camelback Research. This infuriated the CEO and he made mention of the 2nd subpoena to one to many persons. The word leaked to the Board of Directors via a variety of sources, including Sam Antar. The CEO was called on the carpet but he basically told the board to go F themselves, he wasn't disclosing a 2nd time. One member of the board of directors then resigned."

"The SEC then pushed the issue and the board was forced to act, under legal advice, to disclose the 2nd subpoena in the latest 10Q. Patrick as royally pissed off and remains pissed off to this day."

"He refuses to admit anything improper was done and it is now a firing offense at Overstock.com to mention the 2nd subpoena."

But if this account is correct, why didn't the board of directors resign en masse? It doesn't seem plausible that even the most pliable corporate board would accept such misconduct from a CEO without quitting -- and the Overstock board is arguably the most pliable in Corporate America.

Another interesting weekend discovery was made by Internet sleuth "ScipioAfricanus." He found that a Utah entity called Provo Labs is monitoring traffic to antisocialmedia. Provo Labs, which describes itself as "an incubator that invests in early stage web companies" (whatever that means) is Bagley's former employer.

Quite a weekend for this train wreck of a company.

LATER: More babble.

Professor Hurt,

"The Lord has delivered mine enemy into my arms." Or something like that.

The previous poster provides as perfect an example as I could hope for of the strategy, "Lie often and loudly and some people will start to buy it." Perhaps he is hoping that no one would look this up. In any case, given that I put out this press release, and the blackguards roundly criticized me for doing so at the time, this is one they'd know they could not win.

Patrick

Press Release

General News Releases Financial Releases

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Overstock.com Celebrates Receipt of SEC Subpoena
SALT LAKE CITY, May 9, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Overstock.com(R) (Nasdaq: OSTK) announced that today it received a subpoena from the Securities and Exchange Commission concerning issues and requesting information outlined below.
Overstock.com Chairman and CEO Patrick Byrne said, "I may be the first CEO in history to celebrate receiving an SEC subpoena. Some of the requests suggest the whispering of the blackguards, but I remain unconcerned about their hokum. In truth, I am gratified to see that the SEC is looking into the issues about which I have been speaking: I believe our capital markets are broken in a deep way, our system of corporate voting and governance is a hoax, the savings of Americans are being drained through our financial system's fissure of unsettled trades, and the system appears to be cracking around Overstock.com (of course, I could be proved wrong if they would force the settlement of, or even reveal the size of, all unsettled trades in OSTK, which I believe number from 7 to 30 million shares). While some of the miscreants file frivolous delaying motions, and others schmooze with hedge funds and write what they are told to write (yet call themselves 'journalists' to shield their perfidy behind the First Amendment), I on the other hand applaud the SEC's actions and eagerly anticipate my chance to get these issues into court."
The subpoena requests a broad range of documents, including, all documents relating to the Company's accounting policies, targets, projections, estimates, recent restatement, new technology systems and their implementation, and communications with and regarding analysts. In addition, the subpoena requests all information relating to the filing of its complaint against Gradient Analytics, Inc., communications regarding shareholders who did not receive the Company's proxy statement in April 2006, communications with shareholders, and communications regarding short selling, naked short selling, purchases and sales of Company stock, obtaining paper certificates, and stock loan or borrow of Company shares. The Company intends to review the subpoena and respond in due course.
About Overstock.com
Overstock.com, Inc. is an online "closeout" retailer offering discount, brand-name merchandise for sale over the Internet. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory liquidation distribution channel. Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ National Market System and can be found online at http://www.overstock.com.
Overstock.com is a registered trademark of Overstock.com, Inc. All other trademarks are the property of their respective companies.
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, statements regarding celebration of an SEC subpoena, the chance to prove the company's beliefs in court, and such other risks as identified in our Form 10-K for the year ended December 31, 2005, and all our subsequent filings with the Securities and Exchange Commission, which contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.
SOURCE Overstock.com, Inc.

http://www.dealbreaker.com/2007/05/chief_audit_director_jumps_shi.php#more

Chief Audit Director Jumps Ship From Overstock

Against all odds, the story of Overstock continues to get worse. The company has been a laughing stock to almost anyone who can be bothered to think about it anymore. It’s the focus of an SEC investigation. It is run by a chief executive whose name—Patrick Byrne—long ago became synonymous with wacky conspiracy theories. It regularly deploys nasty tactics to defame reporters who dare mention its deterioration. An it’s bleeding directors.

The latest news hit on Thursday when Ray Groves resigned from the board. Groves, who once ran Ernst & Young, was the head of Overstock’s audit committee. He was, in the eyes of some observers, the last and best hope the company had to maintaining a sense of credibility. His departure comes as only the latest of a series of resignations by board members. The past year has seen also seen departures by directors John Fisher and John Byrne, the CEO’s father. When your father bails on your company, you know you are in trouble. Or rather, you would know. Patrick Byrne seems to think it’s a sign of his company's strength. Or something. We’ve long ago given up trying to figure out anything about what goes on inside of Byrne-the-younger’s brain.

But other’s have not. After we took off for the long-weekend, Gary Weiss, Sam Antar and Herb Greenberg all looked into the latest resignation. What’s behind the latest departure? Well, the same thing that was behind the departure of Fischer and Byrne-the-elder: the CEO’s ridiculous “jihad” against the “sith lords” on Wall Street he claims are behind a naked shorting conspiracy that is depressing his company’s stock price.

“In a letter contained in an SEC filing this morning, Groves told the company, ‘My resignation relates to the company's prime broker suit.’ That's Overstock's suit alleging that prime brokers are somehow involved in a naked shorting conspiracy,” Greenberg reports.

Sam Antar, who was the CFO of Crazy Eddie before he was convicted of felony charges related to fraud at the company, knows a bit about what happens when the government closes in on a company. “Many former friends, colleagues, and co-workers distanced themselves from us. Eventually, I would learn that Eddie’s father (Sam M. Antar), brothers (Allen Antar and Mitchell Antar), and his brother-in-law Ben Kuszer had set us up to take the fall. Later, even my cousin "Crazy" Eddie Antar left me out to hang,” Antar writes on his White Collar Fraud blog. “Is a similar situation, going on at Overstock.com?”

From the looks of the evidence marshaled by Antar, the answer is an unequivocal yes. The sailors are scurrying for the life-rafts even as a wet-kneed Captain Byrne continues to shout orders to man the guns against the naked short sellers that no-one but him can see.

But is it just the lawsuit against prime-broker’s that sent Groves overboard? Perhaps not. Antar points out that Overstock is beset by problems—he details to accounting and disclosure issues—that that may have prompted the resignation. In a recent discussion on an internet message board, Captain Byrne refused to answer a question about why Groves left, citing board privacy as the reason for his reticence. But this excuse for silence doesn’t seem to be holding up.

Antar and Gary Weiss point out that SEC regulations require exactly the opposite of what Byrne think they do. “Overstock can't just cherry-pick the reason that are least embarrassing and leave the rest, the ones that make the CEO look like a jerk, concealed from shareholders and left in the ‘privacy of the boardroom,’" Weiss writes in his latest post.

FORBES

Naked Shorting Case Gains Traction
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A California state court gave Overstock.com's $3.5 billion lawsuit against 10 Wall Street banks a boost Tuesday, saying the company has made a viable case for its claims of market manipulation.

The suit, filed in February, accuses the big banks of participating in a "massive" scheme to manipulate Overstock.com (nasdaq: OSTK - news - people ) shares by allowing naked short selling, in which a trader doesn't properly borrow stocks before selling them short. That leads to trade settlement failures and puts downward pressure on a stock.

Overstock.com's Chief Executive Patrick Byrne has been campaigning for two years to put a stop to deliberate naked short selling, not just in his own company's stock, and to clean up the trade settlement process. But while the Securities and Exchange Commission has taken steps to close loopholes that allow abuses like naked short selling to happen, others have sharply criticized Byrne's efforts.

The $3.5 billion suit has cost Overstock.com two board members, John Fisher and Ray Groves, who quit in recent months, saying they disagreed with the lawsuit. And Byrne's crusade against naked short selling has drawn a fair amount of ridicule from some corners of the media.

But the judge, California Superior Court's John Munter, decided that the case could move forward in the state court, saying it was not federally preempted as the banks had argued. He also rejected the banks' arguments that trade settlement failures do not create phantom shares, a central claim of the anti-naked short selling camp. It is the phantom shares that allegedly put excess downward pressure on a stock.

Banks named in the suit include Goldman Sachs (nyse: GS - news - people ), Bear Stearns (nyse: BSC - news - people ), Morgan Stanley (nyse: MS - news - people ), Bank of America (nyse: BAC - news - people ) and UBS (nyse: UBS - news - people ).

"We are eager to start discovery and move this case to trial," said Jonathan Johnson, Overstock.com's chief legal officer. "The day we expose in detail the defendants' misconduct to a jury will be a good day for Overstock, its shareholders and the capital markets."

Overstock.com's shares are down more than 70% since January 2005, right around the time Byrne began his so-called crusade against market manipulation. He also has a second, unrelated suit against Gradient Analytics, Rocker Partners, and other hedge funds, claiming they colluded to put out false information about the company to drive down the stock price and benefit from previously arranged trading positions.

Last week, Gradiant appealed to the California state supreme court to have that case thrown out after an appellate court ruled it could go forward, saying Overstock had a reasonable chance of success on the merits of the case.

About the case against the prime brokers, Byrne said in a statement Wednesday: "The battle to clean up Wall Street is only going to be won when it is brought to a jury of 12 Americans. Today was a giant step towards that goal."

NY Times

February 18, 2005
FLOYD NORRIS
A New S.E.C. Rule Fails to Raise Share Prices, and Some Are Angry

IT'S a criminal conspiracy when stocks move the wrong way, and the government should do something about it.

That is the cry these days of some investors in stocks that have been heavily shorted even after a new rule from the Securities and Exchange Commission took effect.

Patrick Byrne, the chief executive of Overstock.com, an Internet retailer, has no doubt why his company's stock took a sudden $13 plunge, to about $53, late last month, just after the release of what he viewed as fantastic earnings.

"Someone is manipulating our stock," he said in a telephone interview. He says that is proved by the fact that Overstock has shown up on a new list mandated by the S.E.C., showing stocks in which a substantial number of shares were not delivered by sellers when the trades were supposed to be settled. To him that proves that "naked short selling" is going on. That term refers to selling shares without owning or borrowing them. That has hurt investors, he said, adding, "I don't think grandmothers should be eating dog food so a couple of hundred guys on Wall Street can be driving Mercedeses."

There may not be too many such poverty-stricken investors at Overstock. This is a stock that trades for three times what it fetched a year ago, and that had run up $9 in the three days before earnings were released. A Piper Jaffray analyst removed his buy recommendation, saying that costs were likely to rise fast enough to hold profit growth below his earlier estimates. When I asked about that report, Mr. Byrne said he had not read it.

The S.E.C. rule makes it harder to sell securities short when they are on what is called the threshold list. Two advertisements in The Washington Post, run by the National Coalition Against Naked Stock Shorting, denounced the S.E.C. for not forcing brokerage firms to buy stock to cover trades that failed to settle before the rule took effect. The ads say naked shorting is illegal, but in fact it is sometimes permitted in the name of orderly markets.

Mr. Byrne said he helped to pay for those ads and he introduced the man who runs the coalition during Overstock's quarterly conference call. That man describes himself as a 44-year-old retired businessman from Las Vegas and uses the name Robert O'Brien.

In a telephone interview, the man said he became involved because he thought short sellers were responsible for the decline of another stock he owned. He cited security concerns as a reason not to disclose his real name.

At the S.E.C., Annette Nazareth, the head of the division of market regulation, said the rule was aimed at assuring that new naked shorts would be cleaned up relatively quickly. Some people, she said, "are very disappointed that the impact of this rule was not to make these stocks go up."

There are 47 common stocks on the Nasdaq national market system or the New York Stock Exchange that have been on the threshold lists regularly. As a group, they have underperformed the market this year although some, like Martha Stewart Living Omnimedia, have rallied nicely.

Those same stocks did very well late last year. I suspect that some speculators piled into them on hopes of profiting as short sellers were forced to buy, and then bailed out when that did not happen.

Too many investors are like students who think that good grades reflect their brilliance while bad grades prove teachers are unfair. It is too early to reach conclusions, but it may be that the new threshold lists will have the opposite effect of what some expected. Rather than displaying stocks that are sure to rise as shorts are squeezed, they may show stocks whose valuations are questionable.

Investors who own such shares might do better to try to understand why some think the shares are overvalued, rather than simply rail about unfair short selling.