Patrick Byrne: Inept CEO.... or Patriot?

Overstock.com's dipsy-doodle CEO Patrick Byrne posted a message today on an Internet stock board to dispel a foul impression some people may have about this much-misunderstood man.

Sure he runs a company that is awash in red ink. Sure he raises the spectre of a nonexistent naked shorting "conspiracy" every chance he gets. Some dastardly individuals say that Patrick Bryne simply isn't a very good CEO. Well, you'll be delighted to know that they are wrong.

Byrne set the record staight today. He does it all for America. The man is a patriot! Said Byrne:

"One of the most fustrating things about this has been the way that the bad boys' compliant journalists continually try to spin this as something I am doing because of OSTK. In fact, as I have emphasized from the beginning, this is an issue for America."

So take that, you compliant journalists of the bad boys, you miscreants and nimrods and curs! (Byrne has an "obscure insult dictionary" on his desk near the 'puter.) Appearances to the contrary notwithstanding-- such an entire section of the Overstock website devoted to the "CEO's Crusade," and his raising the issue at every conference call -- his obsession with short-selling is not intended to divert attention from Overstock's red ink. It's just another way for a patriotic guy to serve his country in its hour of need.

Oh, and in case you were wondering why Byrne is posting messages on an Internet stock board (seven over the past nine days --here's a list) and not spending every waking hour sweating over his money-losing company-- again you just miss the point. You must be a miscreant or a nimrod. Why focus on your company when you can bloviate on a message board.... er... strike that.... fight for America!

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Who? Me?

I'm pleased to report that Chris Roush, author the Talking Biz News blog for the Society of Business Editors and Writers, has named this blog one of the ten best critics of business journalism.

That's high praise indeed when you consider that this is just a little author bloggie, created as a kind of appendage to my book.

This blog was one of only two non-compensated blogs in Chris's rankings, and as Chris points out I don't devote much attention to biz journalism and don't even write at all for long stretches of time.

So all I can say to my paid, full-time brethren is, "Shape up, guys!"

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Byrne's Latest Gambit

Overstock.com chief executive/conspiracy theorist/journalist-taunter/short-and-analyst-suer/"miscreant"-blamer Patrick Byrne held a conference call today on his company's ever-increasing red ink.

Being Patrick Byrne, he spent a goodly amount of time talking about stuff other than the aforementioned red ink, among them a gambit aimed at sticking it to those evil short-sellers.

Byrne suggested that shareholders might want to take their shares out of "street name" and register them under their own names, which just happens to make them impossible to short. He and the company's press release noted that Overstock had joined something called the Direct Registration System, or DRS, which (the SEC website notes) "enables an investor to electronically move his or her security position held in direct registration book-entry form back and forth between the issuer and the investor's broker-dealer."

Some skeptics (I guess Byrne would call them "miscreants") sneer that if he just hates naked shorts and not ordinary short-sellers -- as he and Overstock insist -- why is he promoting a tactic to make it harder to legitimately short-sell Overstock shares?

Actually that's not the only problem. As the SEC points out, selling shares under DRS can also be a bit cumbersome, as one has to transfer the shares directly back to one's broker to do so (unless Overstock has a plan in place to allow shareholders to sell, which would be nice). Of course, the shareholders most likely to participate in the DRS are naked shorting cultists who probably wouldn't sell their shares until the "miscreants" are brought to justice. In other words, never.

Byrne's gambit won't work, by the way. History has shown that the only proven method of pushing up the share prices of bad companies is that they stop being bad. And Byrne just hasn't figured out a way to do that.

UPDATE: Why does Byrne do this? Turns out this has nothing to do with Overstock. Hell, this is just his way of serving his country in its hour of need!

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Epilogue to a Nightmare

I begin and end Wall Street Versus America by recounting the story of Rand Groves, an entrepreneur from New Jersey whose portfolio was destroyed in the technology bust, and who was ripped to shreds when he brought a claim against his broker before an NASD arbitration panel.

Groves's plight is typical of the stacked deck investors when they have a beef against a broker. Even though the broker in the Groves case apparently fabricated evidence, which would have serious consequences in a court case, the NASD arbitrators couldn't have cared less. Groves lost his case, and a subsequent appeal went down the tubes despite the loss of a crucial tape of the proceedings.

Well, I've learned that the case was recently tossed out again by a New Jersey appellate court. That was hardly surprising, because it is almost impossible to to overturn a securities industry arbitration on appeal.

I understand that state regulators are looking at the entire securities arbitration system. I hope so, because the Securities and Exchange Commission couldn't care less.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Elephant on the Panel

The Senate Banking Committee's hearing today on hedge funds proved to be a dull pro forma exercise, with the three government witnesses amiably dodging both the good and the dumb questions. Makes you wonder why they even bothered to webcast the thing. A rerun of Flipper might have been more informative.

In contrast to the hysterical tone that dominated a previous hearing, this panel spent mercifully little time making a fool of itself. There was only one "baloney moment," and it slipped by quickly. That was when Chuck Hagel probed the imminent threat of research firms joining with hedgies in targeting fine companies like Overstock.com and Biovail. Overstock shares promptly rejoiced by hitting a 52-week low.

The elephant on the panel was the whistleblower Gary Aguirre, who was fired after trying to question Morgan Stanely's John Mack in a trading probe. Unless I missed it, as I may have dozed during the fascinating repartee, not one question about Aguirre emanated from the lips of the senators.

It's important, by the way, to distinguish between Aguirre's allegations and the effort to suppress him. As veteran financial journalist Don Bauder noted in a good wrapup on the subject, Aguirre's widely publicized allegations have been attacked as "flimsy."

Whether Aguirre is credible or not, this whole Mack business is troubling and should be investigated -- by actual investigators, not the U.S. Senate.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

More Hedge Fund Scrutiny... or something

I see that the Senate Banking Committee holds a hearing on Tuesday to discuss regulation of hedge funds. Lately the debate has been hijacked by naked shorting conspiracy nuts, so hopefully the Senate will put the discussion back on track. Don't count on it.

I'm a little wary of SEC regulation of hedge funds, since the SEC is serially inept, captured by Wall Street, and generally mucks up everything it tries to regulate. The SEC rule mandating registration of hedge funds was a joke -- a meaningless requirement with massive loopholes. But it made the SEC look good, and I guess even better when a court tossed it out.

Certainly more scrutiny of hedge funds' use of leverage would be sensible. So -- at the risk of ending two paragraphs the same way-- I repeat. Don't count on it.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Indictments in the "Supposed" Options Scandal

Two indictments were handed up yesterday in the executive options scandal, and the New York Times reported that prosecutors and the SEC are looking at eighty companies.

This involves what the CJR Daily's "Audit" section had famously called a "supposed" scandal, it one of a series of bizarrely off-kilter articles that have emanated from that website recently.

The Audit pieces -- it ran this one a few weeks earlier -- showed a lamentable misunderstanding of the subject matter (which is a liability when you're struggling to critique media coverage of said subject matter).

For example, the earlier piece discounted the significance of SEC investigations, as I pointed out. More recently, University of California economics professor Brad DeLong wrote a scathing critique of the Audit articles. (Hat tip: Talking Business News.) He noted that Audit had missed entirely the serious issue in the options scandal, which is false disclosure.

"A company that backdates an in-the-money option to make it look like an out-of-the-money option has falsified its income statement–done, on a much smaller scale, what WorldCom did in claiming high profits by classifying operating expenses as investments in capacity," said DeLong.

DeLong concluded by noting that CJR Daily has limited credibility and is "lacking quality control." I agree. This kind of stuff is embarrassing.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

The Baloney Detection Kit

I just stumbled upon this handy-dandy "baloney detection kit" on the web, designed by the late Carl Sagan years ago to use in debunking charlatans.

Note its applicability to the anti-naked-shorting Baloney Brigade, which uses virtually all of these tactics in promoting their nonexistent scandal.

Someone should send a copy of Sagan's baloney-detection guide to Christopher Cox at the SEC, and also to state regulators, starting with Ralph Lambiase in Connecticut.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Biz Media Blues

Interesting item in Talking Business News today about some really, really bad ad lineage numbers at the major business magazines.

Business 2.0 took the worst hit, but the real shocker to me was the awful numbers at my alma mater BusinessWeek, which realized a decline of 18.7 percent to $26 million in ads sold last month. The blog concludes that "BusinessWeek editor in chief Stephen Adler, who has been on the job for just more than a year, must be feeling some pressure to turn these numbers around. It’s been a given for quite some time that Fast Company has been struggling, but it’s a surprise to see BusinessWeek perform poorly against Forbes and Fortune."

I should add that these numbers are gleaned by external ad-page counters and are not reported by the magazines, and are usually denounced as horribly imprecise (particularly when they don't look very good).

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

The SEC's Battle With Common Sense

There's a good Chris Byron column today on how a shareholder-ripping recidivist has been allowed to flourish by the Securities and Exchange Commission. Byron notesthat the SEC has instead been diverted by the nonexistent "naked short-selling scandal."

Think about this this: When (not if, when) all these allegations of naked shorting are eventually found to be without merit, and all the naked-shorting con men have scattered to the far corners of the earth, will the federal and state officials who chased this red herring be held accountable?

The answer, of course, is "no." That explains why the SEC has spent so much time and energy on this issue. It is politically expedient and there is no downside. Only investors get hurt by this foolish diversion of regulatory resources, after all. Nobody of consequence to Chris Cox's SEC.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

More on CJR

Mark Mitchell

The New York Times today picked up on this blog item two weeks ago, in which I chided the CJR Daily's "Audit" section for a bizarre tantrum against the Wall Street Journal. It also mentioned criticism of Audit by BusinessWeeek Online and others.

The Times seemed a bit bemused by the whole thing, and was less than overwhelmed by the justification offered by the Audit's editor, Mark Mitchell. It didn't help, I think, that this guardian of journalistic standards initially posted comments anonymously, and was cranky and rambling. The Times observed that his "His point, though, was hard to discern, despite the fact that he wrote hundreds of words."

The article concludes by noting soothingly that "Audit does often offer cogent analysis in pursuing its basic theme: too much business journalism concentrates too heavily on market movements and relies on moneymaking tips in lieu of hard-hitting coverage."

Actually I disagree with the Times on this. It seems to me, as I've observed earlier, that the Audit has a real problem with hard-hitting coverage and has a naive view of both journalism and the business world.

UPDATE: I missed this.... thing in the Audit yesterday. Not awful by Audit standards, but after 1100 words making fun of journalists covering a conference in Idaho I was just kinda zzzzzzzzzzzzzzzzzzzzzzzz..... or maybe it was the heat. Audit could have taken its jab in half the length and, oh, just a wee bit more wit. But I guess that would be asking too much.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

The SEC Acts on a Vital Issue (in its usual way)

I neglected to mention yesterday that the SEC acted, in its usual half-hearted way, on an issue of massive importance to investors. That issue, of course, is soft dollars -- in which money managers pay sky-high commissions, which they pass on to their customers, in return for goodies of various kinds.

The SEC has meandered around this multifaceted issue, which I dealt with in Wall Street Versus America, and kept meandering at its meeting yesterday. Rather than take meaningful action and discomfit the Street, the regulators disallowed the use of soft dollars for computer equipment and office furniture. Nice of them.

Oh, and I got a call from a reporter asking me about something else -- something about, oh I dunno.... naked shorting I think it was? Yeah, the SEC also tossed a bone at the politically influential blame-shifting CEOs who are trying to make hay from that nonexistent scandal. Yawwwwwwwwwwwwwwwwwn. I was quoted accurately, which is the important thing.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Another Grasso Day

Today is shaping up to be a positively Dick Grasso kind of day. His puss is being plastered all over the place. We have a New York article in which Grasso whines about his sorry fate and I am sure there will be others because.... well, because, that's all.

I haven't changed my view of this general subject since this blog item on March 21 (thanks to Dealbreaker for reminding me about that one). I think the media went overboard villifying Grasso in 2003, though the New York article went a bit overboard in the other direction.

Grasso is quoted today as saying the following: "Had I retired in the normal way, maybe things would be different. But I was drop-kicked out the door, and now I have to prove that my career wasn’t a fluke or an outlier, that I really do have some talent.”

Grasso certainly does have talent in the self-promotion and self-pity department. I think Spitzer was wrong to devote so many resources to nailing the guy, but my wellspring of sympathy for Grasso is not limitless. I'm rapidly moving from "sympathetic" to "actively indifferent."

Oh, and I repeat what I said in March. Investigate the trading floor! Rip the place apart. It's not going to happen, so I repeat my call for a thorough investigation.

Meanwhile, I leave you with a question raised in the New York piece. Taking all that money was a "grave miscalculation......So why did he do it?"

I dunno. Is it possible that maybe he just, oh, wanted the money and thought he could get away with it? Besides, did anyone ever need a special reason to take a lot of money?

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

A Date in Infamy

Two years ago, Paul Klebnikov, editor of the Russian edition of Forbes, was murdered on the streets of Moscow.

Project Klebnikov, of which I am proud to be a founding member, is pressing forward with Paul's investigative reporting. As announced earlier today, this worldwide alliance of journalists has several projects underway. Also, the project is seeking support and allies for a broad away of other initiatives.

I urge everyone to go to the project's web page and learn about this vitally significant project -- vital, I think, because of the need to maintain a strong and independent press in the former Soviet Union.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Sharesleuth is Up and Running and..... we'll see...

Sharesleuth.com, the new stock-probing website, is up and running.

I and others have screamed and yelled about how its sugar daddy, basketball magnate Mark Cuban, plans to take positions in stocks rooted out by his sharesleuths.

I hope Cuban finds another toy more interesting and quietly fades away. Then his sleuths can do their sleuthing in peace and quiet, untarnished by brilliant Cuban ideas like front-running his own reporters.

Look at it this way: If an idea can be correctly criticized by CJR Daily's increasingly off-base Audit section, it really must be a bad idea.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.