Tuesday, April 29, 2008

Patrick Byrne's Growing Defamation Payroll

Seems that Overstock.com CEO Patrick Byrne, the unsuccessful Utah Internet tycoon, has been subsidizing defamation of his critics longer than anyone thought.

That interesting tidbit emerged in a post by Byrne on the Motley Fool message board a couple of days ago, and in an exchange today on Herb Greenberg's blog. Scroll down to the April 29 entries here.

In his post, Byrne admits that he hired a lawyer for a dude named Dave Patch. As anyone knows whose spent more than a few minutes on stock message boards, Patch -- a fraudulent-stock aficionado -- spends much of his (spare?) time disseminating stock market conspiracy vitriol, and slinging mud at critics of Byrne and other CEOs who blame naked short selling for their incompetence.

Now it emerges that Patch (right) was subsidized by Byrne in his vicious attack on Jim Cramer a couple of years ago. In his post, Byrne strolls down memory lane as follows:

The last time I saw a threatening letter from these knuckleheads was from the General Counsel of TheStreet.com, directed at Dave Patch. There were a series of them, threatening lawsuits. I hired a lawyer for Patch, and the lawyer responded simply, Go ahead and sue: the first thing we are going to do in discovery is demand the personal financial statements of certain journalist(s) associated with TheStreet.com (you guess which one[s]).

You know what? They never wrote back.
Just so you can get an idea of what he's talking about, hold your nose and wander over to this link to a January 2006 item in Phil Saunders' "Sanitycheck" website, in which Patch describes his solitary faceoff against big, bad TheStreet.com -- not saying he had Patrick Byrne's lawyer on his side.

In his post today, we get this cock-and-bull story from Patch:

Reality is, I sought out legal counsel from a mutual third party. An individual I had dealt with for years and before I ever spoke to Mr. Byrne. This counsel agreed to draft a document for me for which I sent a check shortly thereafter. After receiving the document my check was likewise returned stating that “we are covering the bill.” Who the “we” was I did not ask, I simply extended my gratitude.

Yeah, right. Byrne just descended out of the blue, just happening to know the lawyer representing this creep. But then we get this:

I can tell you that Patrick Byrne offered to match Jim Cramer dollar for dollar if Cramer wanted to persue [sic] this any further but it never came to that.

...which is credible, particularly since it contradicts his claim that he didn't know who paid the lawyer.

Patch goes on to say that
As I have also stated before, I have been compensated in the past for efforts involving the requisition of and the analysis of FOIA requests into fails data on selected companies by the lawyers that represent these companies. The payments were nominal considering a FOIA request costs $28.00 ea. and I spend a few hours breaking each one down.

It's already established that Byrne puts on the payroll whatever carpet sweepings he finds on the Net that he thinks can be programmed to sic on his critics: Judd Bagley, Evren Karpak and now Mark Mitchell are three names that have become public, and undoubtedly there are others.

It would be useful to know how much of the anti-naked shorting campaign -- be it phonies like Patch or astroturf groups like the so-called "National Investor Protection Coalition"-- are subsidized with "nominal" under-the-table cash and legal fees from Byrne and other wealthy corporate benefactors.

UPDATE: Forensic accountant Tracy Coenen lays out the gruesome details of Overstock's history of dissembling in its financial statements -- the root cause of its campaign of menace against critics -- in a blog post.

Bethany McLean has a review in Fortune of David Einhorn's new book, in which he recounts his encounters with creepy companies like Overstock. The beginning of her review is food for thought:

"This is indeed a concern and we will tackle it." That was SEC chairman Christopher Cox's handwritten note to a senator worried that companies were retaliating against analysts who produced research critical of them.

Almost three years later, it's hard to see any sign that the SEC takes this issue seriously. Stories about companies not permitting questions on conference calls from critical analysts, or excluding them from meetings, are routine. These days we have lawsuits, job loss, and the slander of those whose livelihoods depend on their reputations.

The SEC, which is already investigating Overstock for the reasons detailed in Tracy's blog, needs to take seriously the history of issuer retaliation practiced by the company.

© 2008 Gary Weiss. All rights reserved.

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