Overstock.com: More Roadmaps for Regulators to Ignore

It's now becoming clear why, out of the blue, Overstock.com's ditsy CEO Patrick Byrne is on a cyberstalking frenzy, unleashing his hireling Judd Bagley on the usual suspects (mainly me): Byrne is, as usual, cooking the books to manufacture phantom profits.

It's all in an "Open Letter to Mary Schapiro" posted today by white collar crime fighter Sam Antar.

As usual it's all spelled out, a road map for regulators, if they have the guts to take on Byrne. Which they don't.

I can understand if Sam feels frustrated that his campaign to expose the accounting gimmickry at Overstock has resulted in absolutely nothing so far. But frankly I am not surprised, as the SEC's uselessness has been proven time and again. Under Schapiro, the agency has been engaged in a protracted struggle for survival, at a time when Treasury Secretary Tim Geithner plans to eat the SEC's lunch with a new consumer protection agency.

More and more, Schapiro's tenure at the SEC is reminding me of her term as president of NASD Regulation, which began in 1996 at the height of the microcap fraud era. At the time, her main job was generating press releases, while the "chop houses" continued their ripoffs unaffected. It took the FBI to shut down the crooked brokerages.

Similarly, you can't expect Mary Schapiro's SEC to actually enforce the law against Overstock. There's too much political pressure being brought to bear, too many ex-SEC lawyers working hard to keep Overstock and Byrne from being sanctioned. The media doesn't care, because "Byrne is cooking the books" is, like "Byrne is a nut," an old story, and outside of Salt Lake City nobody cares. Only Fox puts him on the air, and I don't know how long that is going to continue after a debacle like this interview.

Frauds don't continue forever, and Overstock's cash reserves are being depleted. While Sam is right that Byrne produced an accounting "piggy bank" to inflate his earnings, the actual piggy bank is getting lighter and lighter. That can't continue forever.

© 2009 Gary Weiss. All rights reserved.