Friday, March 13, 2009

Patrick Byrne Spits in the Eye of Sarbanes Oxley--Again

Overstock.com's ethically challenged CEO Patrick Byrne, in what may be the most dramatic example of a sepia-toned cookware calling a similarly colored kettle black, has a new "come and get me" challenge to the SEC.

According to a blog post today, he's used an Overstock.com marketing email to millions of customers to call CNBC's Jim Cramer a "criminal."

Byrne, whose primary claim to fame is running his company into the ground and spouting conspiracy theories, is probably the last person on earth who should be calling any nonconvicted person a criminal. But his gleeful hopping on the get-Cramer bandwagon has the added quality of being a blatant violation of Sarbanes-Oxley.

Byrne violated Overstock's code of ethics by that email (see "derogatory remarks" under Section 8). Since a search of recent 8-Ks shows the Overstock board did not pass a resolution waiving the code--the SarbOx requirement--that puts Byrne in violation of what is probably the nation's most violated securities law. I sometimes think that Byrne thinks that Section 8 of his code of ethics actions mandates derogatory comments, rather than prohibiting them.

An SEC rule promulgated under Section 406 of Sarb-Ox says:

Companies must comply with the code of ethics disclosure requirements promulgated under Section 406 of the Sarbanes-Oxley Act in their annual reports for fiscal years ending on or after July 15, 2003. They also must comply with the requirements regarding disclosure of amendments to, and waivers from, their ethics codes on or after the date on which they file their first annual report in which the code of ethics disclosure is required.
Clever, isn't it? The SEC basically made violating one's code of ethics a disclosure violation, unless one's board waives the code and discloses it. Byrne, as it its wont, does neither when he craps over his corporate code of ethics. He's chairman of the board, his father having quit in disgust a while back, and the other board members spend their days, like good sheep, grazing on a verdant hill north of Salt Lake City.

More on the subject can be found in this Sam Antar blog post (about an instance when the board actually did waive the code of ethics for Byrne),

President Obama's bad choice for SEC chairman, Mary Schapiro, might want to take time out from giving speeches in Congress and look into this. That would be a pleasant and, I daresay, unexpected surprise.

© 2009 Gary Weiss. All rights reserved.

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