Novastar and Overstock in the News
Patrick Byrne touting subprime lender Novastar, July 24, 2006
Two of my favorite corporate con jobs are in the news today.
The New York Times has a fascinating book excerpt from Reckless Endangerment, a new book by Gretchen Morgensen and Joshua Rosner. It describes the unsuccessful efforts by short-seller Marc Cohodes to get the SEC interested in the fast-falling subprime lender Novastar Financial.
Cohodes failed, and the company collapsed. Had the SEC listened to the man, investors could have saved millions of dollars.
I've written about Novastar at some length, in the context of the campaign by anti-naked-shorting conspiracy theorists. A loon by the name of Philip Ross Saunders, working under the pseudonym "Bob O'Brien," viciously attacked critics of the company and had an entire website, nfi-info.net, devoted to attacking critics. The site has been defunct for years, and Saunders is believed to be tracking UFOs from a trailer park in Costa Rica.
Among the company's most fervent supporters was Overstock.com's nutty CEO Patrick Byrne, who called the company "awesome" and was a major supporter of Saunders, at one time holding up a sign with the URL of Saunders' Novastar-boosting website in a CNBC appearance. After that happened, Byrne was banned from CNBC.
At one point Byrne flew in to New York with Saunders for a meeting with Forbes staffers. The meeting was a disaster, with apologies from the organizer - member of the Forbes family who knew Byrne from college - for wasting everybody's time, I'm told by one of the participants.
Overstock is similarly under SEC investigation, and the probe has dragged on inconclusively for years.
Also out this weekend is a blog post from white collar crime watchdog Sam Antar, describing how Overstock has lost a court fight in California to keep prosecutors from interviewing former Overstock employees without Overstock officials breathing down their necks. The company is being sued by prosecutors in seven California counties for rampant consumer fraud.
Apparently Byrne's strenuous effort to buy influence in Oakland -- by buying naming rights for a local stadium -- has not paid off. Where are corrupt local officials when you need them?
As Sam points out, the rather curt court ruling rejected a strenuous effort by Overstock to obstruct the investigation:
Overstock.com did not want the Alameda County District Attorney to directly contact any ex-employees with possible knowledge of alleged wrongdoing. The company wanted the District Attorney to use it as a go-between to contact its former employees. This way, the company could know in advance, exactly who the District Attorney was going to question. It potentially gives the company an opportunity to get to specific witnesses before the District Attorney questions them and obstruct the investigation.It was such a transparent ploy that the judge didn't spend much effort rejecting it. So the always enjoyable Overstock saga goes on.
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