A Wild Goose Chase Ends

This morning comes word that the Securities and Exchange Commission has ended the Overstock.com-inspired investigation of short-side research firm Gradient Analytics. It was surely one of the most overblown wild goose chases in SEC history.

No surprise here. Overstock and its loathsome CEO Patrick Byrne are the latest in a long line of cruddy companies and inept CEOs that have blamed short-sellers for their own shoddy performance.

This is the first major defeat that this corporate bully has received since he began his "campaign of menace," to use Joe Nocera's words. Trust me: It won't be the last.

Thus ends what had become a huge embarrassment for the SEC, which should have known better. At one low point a year ago, the SEC subpoenaed several journalists who had been critical of Byrne. I remember back then it was reported that this was a "serious" investigation. I am sure it was, which is pretty scary.

The SEC swiftly backtracked. Byrne denied that he had prompted the subpoenas or the investigation, but his greasy pawprints were all over it.

The demise of the Gradient investigation shows what a dumb idea those subpoenas were in the first place.

You really have to wonder how this whole thing started, why it was allowed to drag on for so long, which genius dreamed up those subpoenas, and above all what real problems were neglected while the SEC chased those geese at Byrne's behest.

You have to wonder what this says about the credibility of the two ex-Gradient employees whose allegations were the basis of the SEC investigation, and who were paraded all over the media. Herb Greenberg observes that the SEC was under no obligation to send the "no action" letter that it provided Gradient, and says: "You can't help but wonder whether an embarrassed agency is trying to send someone a message." That "someone" being a certain wack-a-doo CEO.

This lamentable waste of SEC resources should be investigated by Congress and the SEC inspector general.

One of those real problems that hopefully has not been neglected by the SEC in this wild goose chase is Overstock.com itself, which is the subject of an informal SEC investigation.

When the SEC subpoena of Overstock was disclosed in May, Byrne issued a famous press release saying that he "celebrated" receipt of the subpoena. Is he still celebrating? Does he celebrate dropping of the investigation? Did he celebrate his father leaving as chairman or his Niagara Falls of red ink or his latest bout of indigestion?

I am sure the Overstock spin machine is about to go into high gear, turning this smack across the kisser into a "victory."

Now that the SEC has stopped wasting time pursuing Byrne's fantasies, it's high time to see some SEC action on this disgraceful corporate train wreck.

Floyd Norris points out in his blog today, after reciting the immense list of things covered by the "celebrated" subpoena:

"That list includes just about everything Gradient complained about. Could this be a case where a company complains about a short seller and ends up facing S.E.C. charges itself? We’ll see."

Wall Street Versus America delves into the sorry history of short seller scapegoating. Earlier blog items:

The SEC's Keystone Kops in Action.
The SEC: Chasing After Good Guys or Bad Guys?

UPDATE: Herb Greenberg's blog reprints a memorably whacky email from Byrne which he received on Feb. 10 -- Feb. 10 of last year, "three days after the SEC sent out its request to subpoena records of the press in connection with the investigation -- but weeks before I ever made my subpoenas public." The email says that "the last two days in particular will likely prove to have been life-ruining events for certain people."

How did Byrne learn about the subpoena? The answer to that question, I suspect, will be a "life ruining event" for certain people. (But not for Byrne, who is in far deeper trouble, I suspect, than simply being tipped off to an SEC subpoena.)

© 2007 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.