Wednesday, January 02, 2008

Overstock.com President Gets Out While the Going is Bad

Apparently regulators are closing in on corporate train wreck Overstock.com. The chronically money-losing, SEC-investigated company announced after the market close today that its president and co-founder, Jason Lindsey, had resigned as president and chief operating officer and director as of Dec. 31.

Now, there are a couple of things that are interesting about this announcement.

The first is that it is obviously an abrupt decision that took Byrne by surprise, because no successor was in the wings. It's always better to say "so-and-so appointed as president, succeeding Jason Lindsey," rather than detonating a humiliating stink bomb like this after the market close.

The release says that Lindsey "wishes to return to our previous arrangement," which kinda implies -- without specifically saying so -- that he is taking over as president. The Associated Press, like most readers I suspect, missed this little sleight of hand and reported, "The company did not name a successor in a statement." You'd think that a point like this would have to be explicitly stated, and you'd be right.

The second interesting thing is that it contained something not usually found in an Overstock.com press release: a nugget of truth.

In the midst of the "Brownie, you've done a heckuva job" spin papering over this disastrous news, Overstock.com's telegenic, SEC-investigated CEO Patrick Byrne observed: "Jason co-founded the company and helped build it before retiring the first time. When I screwed it up a couple years ago, he came out of retirement and has played a decisive role getting it back on track." (A "classically weird comment," said Eric Savitz in a Barron's blog.)

Unusually, half of that statement is correct. The company is hardly "back on track" -- it has yet to register a profit in all but one quarter since inception -- and its share price is in the toilet. But not even Byrne's staunchest defenders would deny that Byrne has constantly screwed up this company. Too bad for Byrne that he has said quite the opposite in his junk lawsuit against Gradient Analytics and Rocker Partners.

Lindsey says he is leaving because he is "ready to take a less active role in order to spend time on some outside ventures." Baloney. Note that he is leaving as director -- a position that surely requires no major heavy lifting in a board as supine as this one.

Like all corporate boards, Overstock's has busy people on it, and all somehow manage to find a few spare minutes to devote every now and then to not overseeing Byrne's plaything. Being a negligent director on a rubber-stamp corporate board may be a dirty job, not to mention amoral, but no one ever called it hard work.

Of course, it is true that on a regular basis, Overstock directors (including former chairman John Byrne, the CEO's papa) find themselves suddenly "busy" with "outside ventures," when they are not frankly admitting the truth, which is that they are turned off by Byrne's antics. Lindsey is now the fourth board member to quit over the past couple of years, the third in 2007. (Dad left in 2006 and Ray Groves and John A. Fisher quit last year.)

I'm frankly surprised that any reputable person with even a third of a brain would serve on the board of a company with a CEO/Chairman like Byrne.

Some more questions that are worth pondering: if Lindsey quit "effective" Dec. 31, why was it disclosed Jan. 2? The wording of the 8-K says he resigned on that day "effective immediately."

From what I see, in both the public record and the emails from within the Starship Byrne that occasionally make their way to me, Overstock is more than just a laugh-a-minute corporate joke, with a loony CEO spouting conspiracy theories and generally making an ass of himself. It is in serious trouble. Lindsey's departure would seem to confirm that.

Obviously Lindsey knows when to bail out. I hope for his sake that the parachute opens.

UPDATE: The odds of that parachute opening seemed a bit lower after I read Sam Antar's blog. Sam observes that

at 8:41 PM (local Utah time) on New Years Eve of the same day that Jason C. Lindsey resigned, but before news of his resignation was released, Patrick Byrne under his alias Hannibal on the InvestorVillage message board, claimed that his "calender (sic) is clearing up a bit." Did Patrick Byrne know about Jason C. Lindsey's resignation at the time of his message board posting? Why would Byrne have more spare time if he knew that that Jason C. Lindsey was resigning? Perhaps it was as big a surprise to Byrne as it was to the rest of the market?
Looks like Byrne's big mouth has dug a hole, again, this time for his loyal copilot.

Sam also wonders aloud if the "SEC investigation of Overstock.com an undisclosed factor in Jason C. Lindsey's resignation?"

Bloomberg, meanwhile, quoted Byrne as saying that Lindsey will not be replaced and that he will assume his responsibilities. Interesting (and typical) that this was not explicitly stated in the SEC filing.

Sam notes too that Lindsey's resignation letter contradicts Byrne's message board blabbing. How could his "calendar" be clearing up if, a few hours before, he took on the job of president?

© 2007 Gary Weiss. All rights reserved.

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