Thursday, July 23, 2009

Patrick Byrne Teaches a Lesson in Issuer Retaliation

I missed the Overstock.com conference call yesterday (I was washing my hair or feeding pigeons or sumthin'.) Well, what a major shame. The conference call transcript, published on Seeking Alpha today, shows that Overstock.com's forever shameless CEO Patrick Byrne taught a graduate-level seminar in issuer retaliation.

He personally attacked the only person coming to the conference call with any probing questions--white collar crime fighter Sam Antar--thereby intimidating the brokerage analysts into a kind of gasping, quavering series of obsequious questions.

That's a shame, because Overstock's second quarter numbers were even sham-ier than usual. The company reported "earnings" of 2 cents a share based entirely on accounting card tricks and smoke and mirrors--as evidenced by the fact that the company is continuing to burn through cash at an alarming rate and has a $4 million shareholder deficit.

Sam had submitted his questions in advance, and posted them here.

Byrne's sneering non-answers to Antar's questions begin on page four of the transcript. This exchange stands out from the ususal evasions:

[Sam] asked how the recognition of legal fees related to that litigation affected comparable quarters last year. Those litigation expenses were included in our G&A for Q1 and Q2, and we've never disclosed detail amounts of legal expenses in any of our litigation matters.

Patrick Byrne

And is Sam afraid his checks may stop clearing?

Jonathan Johnson

That could be.

Patrick Byrne

I'm going to get whacked for that one later. So, that was Sam. Anything else we want to say about Sam Antar?

Steve Chesnut

No.

Patrick Byrne

But if Sam's worrying that we've shut down the litigation against his friends, he shouldn't worry. It's still going on, right?

Jonathan Johnson

That continues and we're pleased with how it continues. They're going well.

Patrick Byrne

So maybe you should go to pay in advance, Sam. Okay, question from Steve Rubis of Stifel Nicolaus.

In other words, Sam Antar is not to be believed, because he is being paid to pursue Overstock.com.

He isn't, but when has the truth ever stood in the way of Patrick Byrne? Byrne has long contended that he is a victim of a conspiracy of people who don't actually find him wretched, but must be persuaded by cash to ask difficult questions of this fine man.

It's sick. But it works. To no great surprise after that exhibition of bullying, Mr. Rubis of Stifel Nicolaus was suitably stifled, slobbering over himself with a softball question. Nat Schindler of Banc of America could be heard cringing over the line as he applied tongue to the boots with "Thanks for taking my question and it seems like a very strong quarter this quarter."

You bet it was strong. It was so strong that revenues declined. That trifling detail--and Byrne's refusal to elaborate on insurance reimbursement of litigation expenses--went unpursued, in a conference call that had the tenor of a government press conference in Iran.

The Securities and Exchange Commission has the tools, in Sarbanes-Oxley, to do something about this kind of behavior. Perhaps even the will. The SEC's "wish list" of 42 suggested changes to the securities laws even has a "Deep Capture clause" that would amend Sarbanes-Oxley "to make clear that subsidiaries and affiliates of issuers may not retaliate against whistleblowers."

But the SEC doesn't have to expand the rules to curb this kind of behavior. This isn't Byrne hiring yet another Judd Bagley to intimidate critics. It is him, acting as CEO, doing it openly on a conference call, for the express and undisguised purpose of boosting the price of his stock by curbing serious analysis and questioning.

And boost it did. Share prices jumped 12% yesterday, climbing from 12.27 to 13.78, based on Byrne's uncontradicted hype and intimidation of a critic.

He accomplished that by giving a graduate level course in issuer retaliation. The only question is, will the SEC learn anything from it, and act?

© 2009 Gary Weiss. All rights reserved.

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