Tuesday, February 03, 2009

Overstock.com Lifts the Corporate Veil on Issuer Retaliation

Judd Bagley: poster boy for issuer retaliation

In a previous post I described how Overstock.com's wacky CEO Patrick Byrne has gone to great lengths to distance himself from "Deep Capture," the equally wacky smear site that he established to attack his critics and advance stock market conspiracy theories.

Overstock's board -- comatose as it usually is -- no doubt felt that there's something more than a little slimy, even by Cox SEC standards, about a public company devoting shareholder resources to advance the personal vendettas of the CEO. So Byrne threw his brainchild behind a flimsy corporate shell, as I described in the item.

Well, it seems that Byrne's putrid hatchet man Judd Bagley, and Byrne himself, have thrown that facade of separation right out the window in recent days.

Bagley, who works full time smearing Byrne's critics, made two posts in a stock message boards in which he let slip that he was intimately familiar with Overstock's marketing strategies. Given that "black ops" is one of Overstock's principal marketing strategies, that makes perfect sense.

One posting, 12:01:53 AM on Feb. 2, said:

Re: SuperBowl ad

Overstock buys all its ad time on remnant. I guarantee you it was less than half what everybody else paid.
The other, posted about twelve hours later, said:

Re: SuperBowl ad

It was probably a spot that opened up late due to a cancellation, forcing NBC to sell it cheap or lose the inventory. I've heard stories of some shocking ad deals Stormy has negotiated in the 11th hour.

I'm not posting URLs because these posts were deleted by Bagley, after I presume someone in the ace Overstock legal team, presided over by an ex-SEC lawyer named Brent Baker, pointed out how incriminating they are. Fortunately, a copy was retained by an eagle-eyed reader. (Baker, who apparently specializes in "scum," also represents a member of the Universal Express ripoff crew.)

A few days before, Byrne sent a moronic email to one of his critics, reformed felon Sam Antar, in which he blurted out "Would that be your award-winning, Best Business Blog on the Internet blog? Oh no, wait: that would be my blog, which details what a lowlife you are . . ." [emphasis added]

In contrast to that rare moment of candor, Byrne has typically twisted himself into a pretzel to avoid being linked to the smear site, as in this convoluted crap, published as a comment to the TheStandard.com website last August.

There now can be little doubt (not that there ever was any) that Deep Capture, along with its predecessor antisocialmedia.net, are owned and operated by Overstock.com and were set up at the direction of its its loopy CEO, to divert attention from his disastrous management of the comapany. Byrne's actions fly in the face of Sarbanes-Oxley, which require that CEOs get an explicit waiver from their codes of ethics before engaging in Byrne-like tactics.

The only question now is what will the SEC, under its new chairman Mary Schapiro, do about it.

In a post yesterday I talked about how the SEC needs to start taking seriously the issue of "issuer retaliation," which was only paid lip service by former chairman Christopher Cox. Here's an article in Compliance Week that described the lip service that Cox paid to the subject three years ago. Note the date of the article and the narrow definition of the practice utilized by Cox, who refers only to retaliation against analysts, ignoring retaliation against investors, the media and critics in general.

“The Commission staff has been reviewing this matter and is currently considering several possible solutions for recommendation,” Cox said in a Sept. 1, 2005 letter to Sen. Ron Wyden (D-Ore.), before doing absolutely nothing (a Cox specialty).

The Obama administration takes a dim view of ethical lapses, and talks a good game about the need to stiffen regulation, but the question is whether the agency has the cojones to seriously address this issue. If Schapiro truly wants to be a reformer in the Obama mold, this is a good place to start.

The SEC needs to begin making an example of companies like Overstock and Allied Capital that retaliate against critics. It also needs to reopen and re-examine all of the investigations that were ended inconclusively under Cox's disastrous term, and it should put cases of issuer retaliation at the top of the list.

It's become clearer than ever that that the SEC made a major error in ending its investigation of Overstock without action, despite clear evidence of wrongdoing. That decision was probably politically motivated, because Byrne is the Utah Republican party's piggy bank, responsible for one out of twenty dollars in individual political contributions in the state, and his inherited wealth is a major sugar daddy for right wing causes, such as his "65% solution" anti-education jihad. Putting the defiant, kooky Byrne on the hot seat is a change that I certainly could believe in.

UPDATE: Perhaps Harry Markopolos' testimony will point the way, on this and other issues.

© 2009 Gary Weiss. All rights reserved.

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