Thursday, July 12, 2007

John Mackey, Patrick Byrne, and a Snoozing SEC

Today the news wires are buzzing about an amazing tale: the CEO of a public company, John P. Mackey of Whole Foods, systematically posted messages under a pseudonym on Yahoo message boards. The media is astonished: "How Whole Foods C.E.O. Led 2 Lives," gasped the New York Times Dealbook. I guess you can call Mackey the Lon Chaney of Corporate America.

Mackey, it seems, posted anonymously on message boards to bash a competitor and boost the company's share price -- amazing behavior that came to light not because of an SEC enforcement action, on any number of possible grounds ranging from securities fraud to Regulation FD, but in a lawsuit by the Federal Trade Commission. Seems that in those anonymous posts, Mackey bashed a competitor, Wild Oats, which he was going to acquire.

Two things are noteworthy about this:

1. The SEC's inaction.

and

2. The fact that no federal agency, including and most notably the SEC, has taken action against (speaking of horror shows) a far worse Internet-addicted CEO, Patrick Byrne of Overstock.com, whose prolific message board posts, in my view, are far worse than anything Mackey did.


Like Mackey, Byrne posts under a pseudonym -- "Hannibal" -- on stock message boards. As a rule, Byrne does not give his full name, or identify himself as chief executive of Overstock.com, chairman of its board of directors, and, just as importantly, as the single largest holder of Overstock shares.

Yet, as I have documented time and again in this blog, has repeatedly used Internet message boards to smear his critics -- spreading lies about people in the media (myself included) and making nutty accusations such as that the Motley Fool website and some of its analysts are "bent" and corrupted.

He has done so not as some anonymous "basher" but as a message board Big Kahuna -- if, that is, you are among the select few who are aware of the fact that the nutty-sounding, paranoid crackpot posting on various message boards is actually the nutty-sounding paranoid crackpot who runs Overstock.com.

The media, perhaps inured to Byrne's chronic wackiness, has missed this significant point. Andrew Leonard in Salon, in a column entitled "Whole Foods CEO John Mackey's wacky Web rants," said as follows:
One assumes that the CEO of a publicly traded company would not be dumb enough to leak insider information on a stock discussion board, or make unmerited forward-looking statements in an effort to pump up Whole Foods stock. But who knows? It's sure hard to imagine any Whole Foods corporate public relations person being anything but horrified at the news that the CEO is bashing competitors and predicting stock prices under a pseudonym out in the wild Internet.
Guess again, Andrew. Here's one example of Byrne's naked, manipulative efforts to hype Overstock shares -- and the value of his holdings -- on Internet message boards. I've written about this before, but I think a re-run is in order.

On March 12, 2006, Byrne put a tantalizing little kicker at the bottom of a post on the limited-readership, subscription only Motley Fool message board:

PPS Big story breaking next 24 hours. Stay tuned.
I repeat, this is a limited-readership, subscription-only message board, concerning a stock with a wafer-thin float.

It also needs to be taken into consideration that this was done by a CEO who takes message boards very seriously, and who has contended that "paid bashers" are involved in the famous Sith Lord conspiracy.

He really did this. No foolin'.

Here's a screen shot of the relevant portion of the post:



Here's a link to this historic post, which you can access if you are a paid member of the Motley Fool website.

I repeat: you can access this only if you are a paid member of the Motley Fool website. (I'm repeating myself, and putting the relevant passages in boldface, because I sometimes think that the SEC has either eyesight or reading comprehension problems.)

Note that this CEO and largest shareholder of a public company is not identifying himself as CEO and largest shareholder of a public company. I repeat..... OK, I made my point.

It so happens there was some activity within the "next 24 hours" -- an idiotically bullish article by investor Arnie Alsin.

The Alsin article caused the stock to explode. The shares, which traded at 22.85 on March 10, climbed 12% to 25.55 on March 13, and another 25% to 28.50 on March 14l, on massive (for Overstock) volume of more than 2 million shares each day. Nice! Until you consider that Alsin was dead wrong. The shares have since skittered down to 19 and have traded at a lot lower than that. Note the link in the comment to this article by the proprietor of the O-Smear blog.

Confronted with this blast from the past in April on the Investor Village Overstock message board, (perhaps inspired by this Motley Fool article by Seth Jayson) Byrne tap danced and pirouetted -- and came forth with the following cock-and-bull story:


"Odd that you don't quote from that one"? You might find it even odder that Byrne did not "quote from that one."

Or at least it would be odd -- if that post actually exists. As best as I can tell, it does not. In the three months since I originally posted on this subject, it hasn't emerged. No loyal member of the Byrne Fan Club has brought it to my attention.

So I think it is fair to assume that Byrne was lying in a public forum. Say, doesn't the SEC have a word for that?

Seth Jayson of the Motley Fool (Byrne's bloviation venue in the Spring of 2006, until critics there bruised his fragile ego and he sulked away), observed as follows:
Where, I wonder, is this face- (or neck-) saving "disclosure," as to what Patrick was talking about. I haven't seen a single clarification from Hannibal100 in any of the posts made under that user name on this board subsequent to the original "big news" post -- and I just read every single one of them
Further proof that the "clarification post" dwells only in Byrne's vivid imagination can be found in a June 2006 post on another Motley Fool board from a Byrne supporter. One user had pointed to the "big news" comment, and the Byrne defender responded, "Nonsense. I forwarded your post to Dr. Byrne. He replied that the big news he was referring had not happened yet. "

I've reprinted the past few paragraphs from my April 23 blog post on Byrne's deceptive conduct. What's even more amazing is that the SEC is aware of this, and is of course aware of similar if less troublesome sliminess by John Mackey, and does nothing.

The famously passive board of directors of Overstock.com has also been made aware, including its "independent" board members, who now included a noted class action lawyer, Joseph Tabacco.

I wonder about Mr. Tabacco. Is he in the chicken coop to guard the birds, or to leave the door open for the fox?

© 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, gary-weiss.com.

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