Wednesday, April 30, 2008

The Wall Street Journal Demonstrates its Editorial Independence?


Note the question mark. I had my doubts in light of Marcus Brauchli's resignation, but they were somewhat assuaged by this prominently displayed article in the Journal today.

While I tend to agree with CJR Daily's description of the editorial independence committee as the "little commitee that failed," I thought the Journal's own coverage was reassuring. In effect, the Journal is asserting its editorial independence by writing about its lack of editorial independence.

This is not to say that any newspaper can ever be "independent" of its owner -- the whole exercise is a bit ludicrous -- but the Journal's feisty staff is clearly trying. It's a losing battle, of course, but a brave one.

Incidentally, I'd be interested to see more analysis of the Journal in the Murdoch vs. pre-Murdoch era. One study found that there is more emphasis on political news, but that doesn't mean much because this is an election year. I'd rather see some examination of the extent to which the takeover has changed the Journal's traditional emphasis on investigative and long-form journalism.

Sometimes anecdotal evidence is better than line-count surveys, however.

© 2008 Gary Weiss. All rights reserved.

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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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Monday, April 28, 2008

Jonathan Johnson's $957,000 Payday

Is there any form of sleaze that Overstock.com doesn't engage in?

That was my reaction to reading the latest Sam Antar blog item, discussing, among other things, the $957,000 windfall enjoyed by Overstock general counsel Jonathan E. Johnson, who lied as if it was going out of style in a Wired interview and at the Overstock conference call.

After lying his head off about everything from GAAP to the SEC's posture on its accounting, Johnson then cashed in:
On April 23 and 24, 2008, in the two days following the latest lies by Overstock.com’s management team, Jonathan Johnson unloaded 55,922 Overstock.com common shares and pocketed gross proceeds totaling about $957,000 (Source: SEC Form 4 – here and here). In the months prior to Jonathan Johnson’s stock sales, Overstock.com repurchased 1.1 million shares at an average price of $10.90. Afterwards, Jonathan Johnson sold his shares at an average price of $17.13 per share or $6.23 higher than Overstock.com’s cost of buying back shares. The company still intends to spend another $8 million to buyback shares. Therefore, you have a lethal combination of false and misleading disclosures combined with the company simultaneously buying back shares to boost the market price of its common stock, while a key insider is selling.
The sleaze machine keeps rolling on. . .

© 2008 Gary Weiss. All rights reserved.

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I Am a Stock-Picking Genius


Some years ago, before I became a believer in index funds, I bought some stocks for a rollover IRA account. Well now, guess what one of those stocks was: Wrigley!

Mars and Warren Buffett did not consult me before making their acquisition of this fine company.

Alas, I was not such a genius that I bought more than 100 shares, but no need to dwell on that, or the fact I was just blindly following a Standard & Poor's recommendation. This was, in fact, pure luck, which is what distinguishes genius stock pickers from the rest of us.

© 2008 Gary Weiss. All rights reserved.

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Friday, April 25, 2008

Things Are Tough All Over, and Getting Worse

The New York Times braces for its first-ever layoff, according to today's New York Post. Another nail in the coffin of serious journalism.

You know, I've observed that publications in financial trouble seem to inevitably fool around with their layouts, usually for no good reason. The new editor of Business Week notoriously revamped the magazine's layout to disastrous effect, and the Times recently took away one of its scarce news pages for a completely unnecessary expansion of its index.

© 2008 Gary Weiss. All rights reserved.

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The Overstock.com Publicity Juggernaut Continues

Jossip picks up on Overstock.com CEO Patrick Byrne's famous "CNBC fax" revelation, as the "Big M's" (as in "mouth") public relations juggernaut enters its third day:



Isn't that just what you need to burnish your company's reputation: lavish publicity that your CEO is nuts?

Hey, you can't buy that kind of coverage (though Byrne sure is trying).

© 2008 Gary Weiss. All rights reserved.

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Thursday, April 24, 2008

And a Little Blog Shall Lead the SEC

The SEC today is trumpeting -- replete with quotes from Chris Cox and head of enforcement Linda Thomsen -- a routine enforcement action against a guy who spread false rumors about The Blackstone Group's acquisition of Alliance Data Systems (ADS) while selling ADS short.

The SEC complaint says that "the media and certain subscriber-based news services quickly picked up the 'story' and further disseminated it throughout the marketplace."

But what neither the release nor the complaint points out is that the media also swiftly -- and I mean immediately -- debunked the rumor. The falsity of this rumor was revealed not by our magnificent securities watchdogs but the media, such as the Wall Street Journal's Deal Journal Blog, which snared the false rumor in its tracks on the same day, in an item entitled "Anatomy of a Bum Rumor."

The blog didn't name exactly who spread the rumor (a pretty near impossibility under the circumstances), and the SEC certainly deserves kudos for finding the guilty party. But I think it was a bit ungentlemanly for the SEC not to give a nod to the media for immediately exposing a market-manipulating rumor for what it was.

By the way, contrast the SEC's swift action in this case with its dropping an investigation of Bear Stearns over valuing debt securities -- and refusing to cooperate with congressional investigators. The Hill probers should use their full powers to get at the truth.

© 2008 Gary Weiss. All rights reserved.

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Wednesday, April 23, 2008

Tracking the Lies of Overstock.com and the Fantasies of Patrick Byrne


A kind of parlor game follows every quarterly conference call of the slo-mo train wreck Overstock.com: What will be the latest distortions, fantasies and outright lies? Yesterday's produced such a rich assortment that it's hard to know where to begin.

The fantasy emerged after the conference call, in an appearance on Fox Business News. Herb Greenberg reports that Overstock's dipsy doodle CEO Patrick Byrne said that he "happen[ed] to know for a fact that there’s a fax machine in the CNBC offices where hedge funds send instructions and journalists sit around and take instructions.”

Host Liz Claman shot back, “Well I worked in CNBC and I never saw that fax machine.” This was a refreshing change from the usual reaction of interviewers in Byrne's live TV appearances, who usually sit gape-mouthed after Byrne sets off a stink bomb like this.

Byrne's rejoinder was "I have a good source on that." Translation: "I'm making this up out of thin air."

Herb wonders whether it's "time to feel sorry for Patrick Byrne. . . whose comments at times, such as today, appear to be detached from any sense of reality."

I assume Byrne won't be posting a video clip of this embarrassing spectacle on his website the website operated by his 100%-owned hedge fund. But who knows? Maybe he is as detached from reality as he appears to be. I have my doubts. (One of his more dimwitted followers proudly posted a clip here.)

Turning from pathology to garden-variety lies -- they came fast and furious at the conference call, and I am sure that forensic lie-pathologists will be dissecting this one for weeks. A number of boners stood out. Here are two of them:

The first involved the non-comparability of the first quarter sales numbers to the ones a year ago. That's an undeniable fact, as laid out by reformed felon Sam Antar in a blog item on Monday.

General counsel Jonathan E. Johnson was quoted by Wired.com as saying the following:
"Sam is just wrong,". . . "They're both GAAP numbers . . . I can't read his blog because it's so full of lies."
The only problem with this statement is that it is a flat-out lie. Overstock was comparing a non-GAAP number (the first quarter 2007 number) with a GAAP number (the first quarter 2008 number). Sam has more details. "Leave it to Overstock to make matters worse," says forensic accountant Tracy Coenen.

Tracy further expounds on the farcical nature of this whole charade in a follow-up.

I'm saving the best for last. The pièce de résistance was the fish story provided at the conference call and in the Wired article as to why the earnings were released unexpectedy on Friday. As I pointed out the other day, this was a blatant effort to squeeze the shorts on an options expiration Friday, and to bury devastating news of a five-county criminal investigation of its advertising practices by California prosecutors. Even one of the normally supine analysts who cover this company acknowledged at the time that a short squeeze was at work.

Explaining this one away would take a real whopper, and Overstock's "designated liar" (the way you might appoint a "designated driver" after a party) obliged in the Wired article:

"What happened was this: Patrick Byrne was speaking at Wharton [School of Business] on Friday, and we wanted to get to the numbers out before he gave that speech," Johnson says.

But if that's the case, then why did the company schedule the release of fourth-quarter results beforehand, but it didn't schedule the release of first-quarter results?

"This time we did not know when we would have a full sign off from auditors," Johnson says.
Yup. Overstock is physically incapable of putting out an earnings release when its invaluable CEO, a man dedicated 24/7 to editing Wikipedia and posting on message boards selling memory foam and toasters, strays from the premises and is engaged in giving one of his excellent speeches.

So "what happened was" that the auditors "signed off" on the earnings, a runner was sent to check if the CEO was giving a speech or in the bathroom or sumthin and zoom! the release went out. (Which kinda begs the question of why the auditors would have to sign off on first quarter earnings, since quarterly results are unaudited, but what the hey....)

Or maybe the speech was to contain details of the quarterly results, so rather than simply not talk about the numbers, they rushed out the release and accidentally on purpose surprised the market.

Both are fantastically believable scenarios. I believe 'em. Don't you?

UPDATE: The widely followed Silicon Valley Insider spread word to all and sundry about Byrne's sicko fantasy, and was picked up by Huffington Post and TV Newser. The man's capacity for self-humiliation is awe-inspiring.

© 2008 Gary Weiss. All rights reserved.

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Monday, April 21, 2008

Don't Worry, They Serve Baloney in Prison

This blog is fascinated with delusional, fraud-committing CEOs, so it is always satisfying to see one of them put where he can't rip off more gullible investors. This morning I learned that Richard A. Altomare, ex-CEO of the fraud factory Universal Express, was ordered to jail on Friday by a federal judge in New York for civil contempt. He reports to the pokey on May 2.

Altomare had turned Universal Express into his own personal piggybank, and Judge Gerald E. Lynch had ordered him to cough up $1.7 million in ill-gotten gains in February 2007.

He didn't, and should have been tossed in jail a long time ago. But now he must avail himself of federal facilities. Here is the relevant portion of the judge's order:




As I described in Wall Street Versus America, Altomare was the shrill mouthpiece of the stock market conspiracy kooks. His constant blathering on the subject of naked shorting was rejected by the SEC, which found in its painstakingly slow investigation that Altomare had been systematically looting the company. The SEC obtained an order ousting him as CEO and appointing a receiver for the company.

After Altomare became too hot and openly crooked, the Baloney Brigade anti-shorting nuts came under the leadership of Overstock.com CEO Patrick Byrne, who is now working hard to out-do Altomare in the stock-manipulation department. (Ever notice how CEOs who scream against short sellers tend to have something to hide?) In a broader sense, Byrne, with his campaign of menace against analysts and the media, is a far more dangerous figure than his brother-in-baloney, Altomare.

I assume Altomare will be using some of the investor cash he has stashed away to appeal this order. But eventually I reckon he will have to avail himself of the cuisine at Metropolitan Correctional Center, which I understand provides copious amounts of a certain smoked meat.

UPDATE: Floyd Norris in the New York Times provides a detailed description of what is sending this clown to the hoosegow (don't you love those jailhouse euphemisms?), essentially making "millions from illegally selling billions of shares in Universal Express — and then blam[ing] naked short-sellers for all the volume."

Floyd says he welcomes comments but insists on civility, saying "I have tired of the personal abuse that has filled the comments on earlier posts." Fat chance. Naked shorting crackpots have been discredited on the facts so frequently, and over such a long period of time, that they have nothing else in their arsenal except paranoid conspiracy theories. Patrick Byrne can attest to that.

© 2008 Gary Weiss. All rights reserved.

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Overstock.com's 'Stock Manipulation Friday'


Byrne's Friday gambit caused his shares to jump

The fascinating corporate train wreck Overstock.com has added a new term to the financial lexicon: "Stock Manipulation Friday."

A devastating item this morning in reformed felon Sam Antar's blog describes how Overstock combined a misleading press release and an options expiration to create a short squeeze that sent the shares climbing by nearly one-third on Friday.

The gambit on Friday was a blatant attempt to artificially inflate the company's share price and to conceal bad news.

This is, as Sam points out, easily the most significant of the many accounting and disclosure irregularities that Overstock has committed over the past two years. Sam's past posts on Overstock can be found here. Sam was the mastermind of the Crazy Eddie stock swindle, and he has since become an unpaid consultant for law enforcement agencies around the country and the SEC, which is investigating Overstock. This is a guy who knows fraud from the inside, and he has honed in on Overstock, fascinated with its systematic effort to conceal is poor finances.

As in all serious frauds, what happened was so simple that a first year high school student can figure it out. Overstock.com reported that revenues in the first quarter were $200.7 million, vs. $157.9 million a year earlier, a 27% increase. However, Sam notes, "in its earnings release, Overstock.com failed to disclose that it compared Q1 2008 revenues reported on a GAAP basis to Q1 2007 revenues that were reported on a non-GAAP basis."

Comparing non-comparable numbers is a big, fat no-no. It's like saying "this day is 27% warmer than last year," when your thermometer was broken a year ago. Fraud expert Tracy Coenen points out that
. . . accounting rules are pretty simple in this regard: If you’re going to compare numbers, you have to make them COMPARABLE. You just can’t take numbers that were calculated with different methodology and pretend they mean the same thing. Unless you’re Patrick Byrne, I suppose.
In engineering this clumsy scheme, Overstock.com's dipsy doodle CEO, Patrick Byrne, was obviously trying to overshadow the criminal investigation of its advertising by five California counties. Byrne improperly delayed for three days release of news on this probe, by the Marin County District Attorney and other prosecutors, in the hope that he would overshadow it with this latest gambit. Instead of issuing a separate 8-K disclosing the investigation, he buried in in the bottom of the earnings release.

I'd say he did a fine job of overshadowing his latest legal troubles, but not quite in the way he anticipated.

Tracy observes in her blog today:
Wow…. this is some pretty damaging stuff, and Sam makes a very strong case. I wonder how surprised Patrick Byrne is that Sam unraveled all of this?
That's a good question. My theory is that Byrne is so wrapped up in his delusions that he he has pretty much lost hold of reality. Remember the "Sith Lord"? It is anybody's guess whether he really believed that fantasy or was just flat-out lying in his famous 2005 conference call. I have long leaned toward the latter, but I am not so sure anymore.

Overstock's analyst conference call is tomorrow. Since Byrne has a habit of hounding, attacking and suing analysts who question his sleazy accounting, you can count on a calm and pleasant session.

© 2008 Gary Weiss. All rights reserved.

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Sunday, April 20, 2008

John Thain and Merrill's Capital

There's been some intriguingly contradictory stuff coming out of Merrill Lynch recently concerning whether it is going to need to raise more capital. CEO John Thain has told just about everybody, including me for my recent Condé Nast Portfolio profile, that he has no plans to raise more capital.

At the earnings conference call he said, according to the Wall Street Journal blog Deal Journal:
“For those of you who like to blog,” said Thain rather archly, “We do not have any plans to raise any additional common equity and [chief financial officer Nelson Chai] actually agrees with that.”
This "Chai" reference was an apparent rebuttal to a CNBC report the previous day, which said Merrill may have to raise more capital and that Chai said, "I wish he didn’t say that," in reaction to Thain comments such as these to the Japanese media.

But was it really a rebuttal? Thain parsed his words carefully, and CNBC followed-up by saying it was right after all. The firm may sell preferred stock (which certainly is "raising capital" in my book).

All I can say is that if Merrill raises capital over the next few months -- by selling preferred stock, its stamp collection, or whatever -- it is going to hurt Thain's credibility.

© 2008 Gary Weiss. All rights reserved.

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Friday, April 18, 2008

Overstock.com Under Criminal Investigation on Ads

The fascinating corporate basket case Overstock.com, and its dipsy doodle CEO Patrick Byrne, have engaged in a flurry of activity in recent days. Byrne has been doing stuff that didn't seem quite rational -- like moving the antisocialmedia.net corporate smear site to the Overstock website.

Now we know why: Overstock is the target of yet another investigation, this one a grave criminal probe by not one but five counties in northern California. That's on top of the active probe of its accounting that has been slowly chugging away by the SEC for the past two years.

This calamitous news is buried in the Overstock first quarter earnings loss press release. It is buried so far down you'd that Byrne could have used camouflage netting if he could:

On April 15, 2008, we received a letter from the Office of the District Attorney of Marin County, California, stating that the District Attorneys of Marin and four other counties in California have begun an investigation into the way we advertise products for sale, together with an administrative subpoena seeking related information and documents. We follow industry advertising practices and we intend to respond fully to the subpoena and cooperate with the investigation.
That's a material event, to say the least. Funny that Overstock didn't disclose it at the time, even while it was churning out a press release putting a spin on a libel suit filed recently against the company. How come that is a "material event" and not an investigation by five counties in California? Under Sarbanes Oxley, material events must be disclosed within 48 hours, and something this grave, I would think, would have to be disclosed even sooner. Nasdaq also mandates swift disclosure of piddling stuff like criminal investigations.

As for the numbers in the press release.... stay tuned. The numbers were so hyped by Byrne in the earnings release that the stock took an enormous pop -- 35% at last look -- even though the company is still losing money at such a rate that it will be out of business before long. In the past, particularly when it comes to non-GAAP accounting measures, Overstock's numbers have proven dubious, to say the least.

UPDATE: Tracy Coenen weighs in on AOL Bloggingstocks.



© 2008 Gary Weiss. All rights reserved.

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Thursday, April 17, 2008

The 'Mark Mitchell Mystery' Solved

Conspiracy theorist Mark Mitchell, ex-CJR Audit columnist

Updated 4/20

It was never much of a mystery, but the bizarre tale of Mark Mitchell, the eccentric ex-journalist who used to write CJR Daily's Audit column, has been resolved.

White collar crime-fighter Sam Antar has a post today that clears up a question I raised a few weeks ago.

It appeared then that Mitchell -- who fruitlessly pursued for Columbia Journalism Review a hatchet job on Herb Greenberg and other journalists critical of Overstock.com CEO Patrick Byrne -- was now working for Byrne while masquerading as a journalist.

A Utah college newspaper had referred to Mitchell, who made a joint appearance with Byrne on campus, as a "business associate" of Byrne's, but the reference was pulled at Byrne's insistence. (See also Mitchell's bizarre comments in this Deseret News article.)

Turns out the college paper was right, as indicated by his email to Sam and his reply to this item here. Mitchell now very proudly states that he works for something called "Deepcapture.com."

According to Utah corporate records, Deepcapture LLC is operated by High Plains Investments LLC. According to the SEC, Byrne "holds 100% of the voting interest in and controls High Plains Investments LLC."



Byrne is registrant of the site (see bottom of post), which is lavishly promoted on the Overstock "community" web page, as a tab labeled "deep capture ceo blog." Click on that tab and it takes you not to a "CEO blog" but to "deepcapture" and its bizarre rants, mostly cut-and-pasted from Overstock's antisocialmedia.net smear site.

Why Byrne would create a corporate veil so thin you could puncture it with a butter knife -- I don't know, it is just beyond me. But keep in mind that he is not exactly known for being rational.

In a comment to an earlier version of this item, Mitchell admits he was working for this Byrne-owned-and operated smear site when we spoke in early March. He was pretending to be a "journalist" while taking great pains to conceal that he was actually working for Byrne, and was pursuing a smear piece targeting me and other journalists.

The word for this is "pretexting."

And just to clear up any doubt that Mitchell was pretexting: After this item initially ran, Byrne admitted that he was listening in when Mitchell called me and misled me into thinking that he was functioning as a "journalist":

And best of all, Gary omitted from his description his complete and total meltdown on the phone with Mark. I and two other witnesses to that, besides Mark and Gary themselves. [boldface added]
Nice of him to clear that up.

Byrne says that the website that employs Mitchell is a "separate company." But there's nothing "separate" about Deepcapture. It is openly owned and run by Patrick Byrne and Overstock.

Apart from the corporate data quoted above, the website was registered by Byrne and is operated over Overstock servers (see below).



Note the date the site was created: September 2007. The "separate company" was established on March 3, 2008, according to records anyone can fetch from this site.

Does he really think that whoever raised this issue (his board or the SEC, I imagine) will be fooled by this lame attempt to put a sheet of tissue paper between Overstock.com and its latest misconduct?

© 2008 Gary Weiss. All rights reserved.

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Herb Greenberg Leaves Marketwatch

I haven't posted on this yet because I've been almost in denial, but it's true: Herb Greenberg is leaving Marketwatch. The website's loss is a gain for financial analysis, as Herb will be starting up his own buy-side analysis firm.

Here's a tribute from Floyd Norris of the New York Times, entitled "A Loss For Journalism," which it surely is. Herb was one of the few journalists who delved into the financials of companies, and he will be sorely missed. So it's, well.... not quite the loss for journalism that it could have been.

UPDATE: I just clarified this item (and changed the title), as I am told that Herb will be staying on at CNBC.

© 2008 Gary Weiss. All rights reserved.

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Wednesday, April 16, 2008

Newspapers and Public Ownerships (Redux)

This item in the New York Observer, about impending mass firings at the New York Times, needs to be read in conjunction with this article in Editor & Publisher and this piece I wrote for Salon some months ago.

The problem, which was driven home at a Columbia University-sponsored conference by Frank A. Blethen, president of The Seattle Times Company, is that newspapers and shareholders do not mix.

In the discussion. . . Blethen argued that the public ownership has proven a failure because shareholders want profits at the cost of quality, in many cases. "Wall Street can’t have it two ways," Blethen told the breakfast crowd of about 60 at Manhattan's Century Club. "Wall Street has spent 30 years milking the newspaper industry. The trade-off of that was lack of investment and lack of innovation."

He later added, "The notion of investor-owned, that is mutually exclusive with public purpose….If you live in a community, you are far more inclined to work to run your newspaper with some element of public good. I'd rather have a crummy paper owned locally than a supposedly good paper owned in absentia."
That point has been proven time and again, and is being proved yet again at the Times, even though it is owned locally and not by an absentee owner.

© 2008 Gary Weiss. All rights reserved.

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Patrick Byrne Has a Sense of Humor


Byrne finds that humor is the best therapy

Overstock.com CEO Patrick Byrne, the full-time Wikipedia editor who mismanages his train wreck of a company in his off hours, proved in a press release last night that he has a sense of humor.

Commenting on the countersuit filed against him and his SEC-investigated company by Gradient Analytics, Byrne said, "This lawsuit is an attempt by Gradient to distract attention from their failing business model."

Zac Bissonneette comments on AOL's Bloggingstocks:

The CEO of a company that has a track record of missing its own projections -- and has lost over $240 million to date selling chatchkas over the internet -- has filed a lawsuit against a research firm that correctly forecast the company's problems and is accusing that firm of trying to "distract attention from their failing business model."

That's like Donald Trump telling someone they need a new haircut.
It is certainly hypocrisy, as Zac points out, but personally I think that Byrne is just trying to be funny.

Byrne also is showing his sense of humor by (according to chitchat on some message boards) taking his nauseating house stalker Judd Bagley off the corporate payroll, presumably under legal or SEC pressure (or board insistence--see comments). I'd say it's a bit late to shift to a more discreet method of financing his campaign of menace against critics. The rat, as they say, is out of the bag.

UPDATE: Byrne's sense of humor in overdrive. The meltdown continues. Better lock your front gate. You have to figure, when this guy runs out of despicable, attention-getting stunts, drowning puppies is next.

© 2008 Gary Weiss. All rights reserved.

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Tuesday, April 15, 2008

The Lowdown on John Thain

My profile of the new Merrill Lynch CEO, which appears in the May issue of Condé Nast Portfolio, is live on the Portfolio website.

It was discussed in the New York Times Dealbook blog yesterday.

© 2008 Gary Weiss. All rights reserved.

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Monday, April 14, 2008

Patrick Byrne Fails to 'Celebrate' Lawsuit


Displeasure in the executive suite at Overstock.com

Patrick Byrne, the CEO of Overstock.com and the clown prince of small-company charlatans, had a minor meltdown in reaction to an announcement by Gradient Analytics that it is filing a libel suit against Byrne.

Compare that to a taunting Overstock press release in March 2006 that urged Gradient to take action against his company.

So why has he not "celebrated" the libel suit, the way he once "celebrated" an SEC subpoena?

Gradient is the independent research firm that was targeted by Byrne after it published accurate, but damning, research exposing the company's financial weakness. Any kind of criticism sends Byrne off the deep end, and the accuracy of Gradient's research is indicated by Byrne's reaction, which was filing a baseless lawsuit against the company and a hedge fund.

As noted in the Salt Lake City Tribune article, an SEC investigation of Gradient, paralleling Byrne's accusations, was dropped by the SEC, but a probe of Byrne by the SEC is still pending.

Byrne then went on a campaign portraying himself as a "victim of hedge funds," even though he used to be in the hedge fund business himself, has a brother who runs a hedge fund, and a hedge fund ("High Plains Investments") is the entity through which he owns Overstock shares. Hypocrisy, of course, is one of Byrne's more flattering characteristics.

The Business Law Spot blog weighs in:

As I've said before, the "Litigation Road to Success" business model is at best highly questionable and should be avoided (Ask Darl McBride.). If your company is bleeding cash, your time is better spent fixing your company, not riding off on crusades.

UPDATE: A fine follow-up in Portfolio.com, replete with a link to the suit.

© 2008 Gary Weiss. All rights reserved.

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You Can't Keep a Bad Man Down

Brian Hunter, the website-suer, Richard Kimble wanna-be and Amaranth Fund torpedo-er, arguably one of the worst hedge fund managers in history, has come storming back, according to FINalternatives newsletter.
Peak Ridge Commodity Volatility Fund, which has been advised by Hunter since last year, is up 103% since its November launch, and returned 49% in the first quarter. Boston-based private equity shop Peak Ridge Capital Group bought the assets of Solengo Capital Advisors, the hedge fund Hunter tried—and failed—to set up in the wake of Amaranth’s collapse. In addition to Hunter, Peak Ridge hired nine other Solengo vets, including Shondell Sabad, who served as chief operating officer at Solengo and is now CFO of Peak Ridge.
Hopefully the fund is open to new investors, so that stupid people can buy into this fund before it collapses.

FINalternatives points out that Hunter is facing enforcement action by the Federal Energy Regulatory Commission and Commodity Futures Trading Commission. Who cares? Give this man your money.

© 2008 Gary Weiss. All rights reserved.

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Sunday, April 13, 2008

The Not-So-Crushing Corporate Tax Burden

A brief but, if I say so myself, cogent analysis in Parade magazine today.

© 2008 Gary Weiss. All rights reserved.

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Thursday, April 10, 2008

Warning: Judd Bagley is on the Loose



A reader advises me that Overstock.com's chief propagandist/cyberstalker/astroturf-site proprietor, its nauseating director of communications Judd Bagley, is on the loose in stock message boards, seeking to identify the real identities of anonymous critics of his boss Patrick Byrne.

His latest handiwork is here. Apparently two critics of the company on Yahoo message boards have raised his ire.

Hey, you can't really blame him. What else is Bagley supposed to do? Even though he is technically Overstock's chief spokesman, he no longer appears on press releases. His Wikipedia wanna-be project "Omuse," which he was ostensibly hired to create, has been an utter disaster: all of seven new pages this year, and Byrne himself, taking away time from his job as a full-time Wikipedia editor, acts as a contributor (of an attack on me, of course).

Hey, Byrne's not a perennial on "ten worst CEO" lists for nothing. But he is the blogger's best friend, when he is not being his own worst enemy.

© 2008 Gary Weiss. All rights reserved.

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Monday, April 07, 2008

The SEC Cracks a Naked Short Nut-Case


In the "Baloney Blitzkrieg" chapter of Wall Street Versus America, I describe the looniness surrounding a grimy little diamond mining shell company called CMKM Diamonds -- a company that barely existed except for a share-generating mechanism, a loudmouth CEO named Urban Casavant, and a handful of exceedingly stupid shareholders who made fools of themselves on picket lines when they weren't sending threatening emails to journalists and regulators.

It was a good example of how a small group of determined crackpots can cause damage to our regulatory system, in this case by pushing a fraudulent "stock counterfeiting" conspiracy theory.

Above all, CMKM was a textbook case of corporate blame-shifting, and today the SEC put the blame where it really belonged, charging the company with a massive fraud in which Casavant personally raked in $31 million.

The SEC complaint observes:

Casavant generated investor interest in CMK by using false press releases, Internet chat boards, and "funny car" race events across the country. To divert attention from their own dumping of CMK shares, Casavant persuaded CMK's investors that the reported high trading volume in CMK stock reflected extensive "naked short sellng" rather than ordinary stock dilution. This promotion was extremely successful, and about 40,000 investors purchased CMK stock during the period of the fraud. In reality, Casavant ran the company from his house in Las Vegas, and CMK had no meaningful operations other than issuing and promoting its own stock. [emphasis added]

Patrick Byrne, the full-time Wikipedia editor who mismanages Overstock.com in his spare time, has taken over the naked shorting banner from Casavant. Naturally, his company has never made a dime in profits and is also under SEC investigation.

Unfortunately, it took CMKM years to grind its way through the SEC system, and the Overstock case is "only" two years old. So stay tuned--but be patient.

Floyd Norris, commenting on a typically paranoid email from a naked shorting nut, says "Do you think that reader will admit he was fooled? I don’t."

I agree, and the snail-like SEC, which did not "set any speed records for filing," as Floyd points out, must share the blame for that.

Apart from its extreme slowness in processing this and other cases -- Overstock's is a good example -- the SEC has made matters worse by pandering to naked shorting loons. The agency has diverted valuable resources in pursuit of its "Regulation SHO" idiocy, which has no real effect on the markets while fueling conspiracy theories that gull the naive.

© 2008 Gary Weiss. All rights reserved.

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Wednesday, April 02, 2008

Still More Troubles at Business Week

Good news and bad news at my long-suffering alma mater, according to Keith Kelly of the New York Post. Unfortunately the bad news outweighs the good news.

The good news is that investigations editor Paul Barrett is back. The bad news is that Mike France, a longtime staffer and now a senior editor for corporate news, is leaving to join a p.r. firm.

If that was the extent of the bad news, that would be terrible enough, because Mike -- like a lot of the recent departees -- was one of the top people at the magazine, a lawyer as well as a journalist.

And to be frank, I'm not sure how good the good news really is. While I like the idea of an investigations editor in principle, I have to wonder if BW really needs another top-level editor to further bloat its swollen upper ranks. BW used to produce a steady number of investigative stories without an investigations editor. I wonder if the money might have been better invested in giving reporters the time required to do investigative pieces. I have the same qualms about the top-level editor who was added to oversee features.

Kelly has further word on the generally crappy state of affairs at the magazine, and paints a generally discouraging picture. He reports (as I did a while back) that the magazine lost $20 million last year -- though not what I've heard from several staffers, which is that the magazine will be sold in four years if things don't turn around. Kelly reports that losses this year may be double that.

He also reports:
  • The new editor in chief, Steve Adler, has done an abysmal job of keeping his staff from being decimated by layoffs. "During his three years at the helm, Adler let go 25 editorial people in 2005, 18 in 2006 and seven last year." 25+18+7 equals..... ugh.
  • "'There's a lot of unrest inside,' said a source close to the situation." Surprise surprise.
  • The Washington bureau is down to five people, though Adler points out "The bureau was too big, in my opinion, and covering raw politics, in my opinion, is not in our best interest." (I have to agree with there. But five people????)
  • The magazine has been inundated with complaints about the new redesign.
  • "Overall circulation was up only 1.3 percent to 933,566, and some insiders think the number is dropping as core subscribers rebel against the new look and direction."
What I don't get is this: why not jettison the redesign? Business Week had already been redesigned up the wazoo during the earlier regime, and the general verdict seems to be the latest redesign was one redesign too many. It may be a good idea to admit that it was a mistake, and roll it back, before it's too late.

© 2008 Gary Weiss. All rights reserved.

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What's an 'Overstock.com-Style Depth'?

CJR Daily, discussing today allegations that short-sellers drove down the shares of Bear Stearns before the bailout, observed: "Let’s hope the madness induced by their net-worth deflation doesn’t lead to Overstock.com-style depths."

The link is to Bethany McLean's 2005 article in Fortune, "The Phantom Menace," which described a company and CEO, Patrick Byrne, on the brink of a meltdown. Well, the meltdown has taken place, as we all know, and has sunk to far lower depths since then.

So just what is an "Overstock.com-style depth"? How about this: he is now openly diverting corporate resources for his campaign of menace against critics.

At the top of a web page on the Overstock web page that Byrne has devoted to attacks on real and imaginary adversaries, he has inserted the following:

The link directs one back to the Overstock web page, with a code that diverts 5% of the proceeds to Lord knows where.

So here we have a company, which is already bleeding red ink, openly diverting revenues to feed its CEO's obsessions. That's on top of Byrne setting aside a portion of his company's website to attack critics, an obvious violation of its code of ethics.

As I've pointed out previously, CEOs who violate their code of ethics have a securities law issue if they have not gotten a waiver from their board of directors. Overstock is under SEC investigation, focusing on its accounting, so this falls under the category of "icing on cake."

Not that any of this matters, for this is Overstock.com, and not a normal company with a functioning board, and not a panel of snoozing sycophants like this one. Any dissenting voices, including Byrne's own father, have long since absconded.

The telegenic lifelong bachelor, having long since given up on turning his company into a profitable enterprise, whiles away his ample spare time nowadays by editing Wikipedia and getting a windfall from executive stock options. In 2007 he enjoyed $1.2 million from options that his captive board generously gave him, in recognition of the great job he has done running his company into the ground.

So, to answer the question, what is an Overstock-style depth? The answer is "about as low as you can go."

© 2008 Gary Weiss. All rights reserved.

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Is Anyone Not Investigating Novastar?

Naked shorting poster child Novastar Financial is heading south, and fast. The company reported yesterday that it was under multiple investigations from the SEC, the FBI, the Federal Trade Commission, the U.S. Department of Housing and Urban Development, the U.S. Department of Justice, the New York attorney general and the U.S. Department of Labor.

It might have been shorter to list the agencies not investigating Novastar.

Lest we forget, this subprime lender was aggressively pushed by stock tout Phil Saunders, who runs the "Sanitycheck" website under the pseudonym "Bob O'Brien," and tries to palm himself off as a "market reform" advocate. Saunders set up a website, nfi-info.net, to pimp this stock and attack its critics.

Novastar was also touted by Overstock.com CEO Patrick Byrne, whose own SEC-probed company is sinking fast under a tide of red ink.

© 2008 Gary Weiss. All rights reserved.

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